Downing FOUR VCT plc – Annual Financial Report

Downing FOUR VCT plc
LEI: 21380035MV1VRYEXPR95
Final Results for the year ended ended 31 March 2020
31 July 2020
Financial Highlights1     Based on Total Return to Shareholders at 31 March 2020, a Performance Incentive is expected to become due to management. The Performance Incentive has been estimated at 4.3p per DSO D Share.  No provision has been included in the accounts as the conditions of the Performance Incentive fee have not yet been met.
2     The Total Return to Shareholders at 31 March 2020 is shown net of the Performance Incentive paid to management. By virtue of the A Share dividends paid, members of the management team have received Performance Incentive payments equivalent to 5.1p per DP2011 General Ordinary Share.             
3        The Total Return to Shareholders at 31 March 2020 is shown net of the Performance Incentive paid to management. By virtue of the A Share dividends paid, members of the management team have received Performance Incentive payments equivalent to 5.0p per DP2011 Structured Ordinary Share.
Chairman’s StatementIntroductionI present the Company’s Annual Report for the year ended 31 March 2020. The outbreak and spread of Covid-19 has affected the world in ways which we could not have anticipated.  The extent of the impact on both the UK and wider global economy has not yet been fully determined, although it is already significant and adverse.Prior to the outbreak, we saw some progress in realising the remaining investments in the DSO D and DP67 planned exit share pools. Plans for the final realisations have however been severely disrupted by the pandemic and timing of when these will complete is now uncertain. The task of exiting from the final investments in the DP2011 General Share pool and DP2011 Structured Share Pool was completed, with final dividends paid in September 2019 to bring those pools to a close.Good progress was made during the year in investing the proceeds of the funds raised in 2016/17 and 2018/19 for the Generalist and Healthcare share pools. As I am sure you are aware the VCT tax rules require us to invest in much earlier stage companies than in the past. It is usual that we see the failures before the winners (the lemons ripen before the plums). We would normally expect to see a drop in NAV but the pandemic has exacerbated this effect. However, we believe that there are some very exciting companies in the portfolio as described below.Share pool reviewAs at 31 March 2020 the Company had four active share pools, being two planned exit pools and two evergreen pools. Brief reviews of the share pools which were active during the year are given below.Evergreen Share poolsGeneralist Share pool
The task of investing funds continued in the year under review with £10.5 million being deployed into a variety of young growth businesses.
The Generalist Share NAV and Total Return stood at 61.7p at the year end, representing a decrease of 21.8p per Share or 26.0% over the year.There have been two main factors which have combined to produce the fall in NAV over the year. It is not unusual in a portfolio of young growth businesses that some of the weaker businesses become apparent before the stronger ones have ultimately proved themselves.We have fully written down Xupes Limited and Live Better With Limited as both businesses do not appear to be able to achieve their business plans and their futures are now not clear. It is important when investing in early stage companies to cut ones’ losses as early as possible and resist the temptation to throw good money after bad. We have also made a number of partial write downs against several portfolio companies where the coronavirus pandemic has had an impact.In line with the original plans, the share pool invested a proportion of its funds awaiting qualifying investments in an investment trust and OEICs managed by Downing which mainly focus on quoted small cap companies, referred to as the “Liquidity Funds”. The value of these holdings fell sharply at the start of the coronavirus pandemic, although they have recovered somewhat since the year end as displayed by the 30 June NAVs of 64.1p for the Generalist Shares (and 69.8p for the Healthcare Shares).Although it is disappointing to have lost so much ground relatively early in the life of this share class, the Board believes there is a good prospect of recovery in the Liquidity Funds as conditions improve.  The Liquidity Funds have specific exposure to small company “special situations”, where the Manager has been working with the underlying businesses, making changes to boards and enhancing the prospects for all shareholders.  The Board has been monitoring the progress of these initiatives, which had been positively reflected in the NAVs of the Funds in the last quarter of 2019 and start of 2020. Just like private equity, these investments tend to have a ‘J’ curve performance which we had begun to witness before the pandemic. We are reassured that all the strategic investments in the Funds either have net cash on the balance sheets, or are asset backed. All are niche with a ‘look through’ to a world after the pandemic where their services and products will continue to be needed.  There is little if no exposure in the Funds to high street retail/leisure/travel within these portfolios.  The Manager has a high level of engagement with these management teams, and believes that the underlying portfolio, after some hard work, now has the correct management teams at the operational level to continue the progress that had already begun to be demonstrated before the outbreak.A more detailed review of the Generalist Share pool is included in the Investment Manager’s Report.Healthcare Share pool
The Manager deployed £2.1 million in five VCT-qualifying investments during the year.
The Healthcare Share NAV and Total Return stood at 68.1p at the year end, representing a decrease of 15.2p per Share or 18.2% over the year.
As with the Generalist Share Pool, the decrease in the NAV is attributable mainly to write downs being required against some of the VCT-qualifying investments and the performance of the Liquidity Funds. Like the Generalist pool, the Healthcare pool has a holding in Live Better With Limited against which a full write down has been included as the business has not made sufficient headway. Also like the Generalist pool, the Liquidity Funds focused on the quoted small cap sector suffered significant falls in value just prior to the year end, although there has been some recovery since.
A more detailed review of the Healthcare Share pool is included in the Investment Manager’s Report.Planned Exit Share poolsDSO D Share pool
During the year the Manager made further progress in exiting from the remaining investments held by the DSO D Share pool. The remaining value is now mostly represented by a pub company and two renewable energy investments.  We are optimistic that a transaction to exit from the renewable energy businesses can be completed once we start to see a return to more normal conditions. The prospects of an exit from the pub company are less clear with the pub recommencing trading mid July.
The DSO D Share NAV stood at 12.0p at the year end, an increase of 2.2p per Share or 6.4% over the year after adjusting for the dividend of 18.0p per Share paid in the year. The NAV after deducting the estimated performance incentive of 4.3p per share that may become payable is 7.7p per share. Total Return (net of the estimated performance incentive) now stands at 102.2p per share compared to the cost for Shareholders who invested in the original DSO D Share offer of 100.0p, or 70.0p per share net of income tax relief.A more detailed review of the DSO D Share pool is included in the Investment Manager’s Report.DP67 Share pool
One exit was achieved in the year being that of Snow Hill Developments LLP. The remaining value in the share pool is now held in three companies which hold stakes in the conferencing and hotel sector. With these venues only reopening this month, it is difficult to estimate when transactions that will provide an exit might take place.
The DP67 Share NAV stood at 18.8p at the year end, a decrease of 11.7p per Share or 24.1% over the year after adjusting for the dividend in the year of 18.0p. Total Return now stands at 86.6p per Share, compared to the original cost for Shareholders who invested in 2007 of 100.0p, or 70.0p net of income tax relief.A more detailed review of the DP67 Share pool is included in the Investment Manager’s report.DP2011 General and DP2011 Structured Share pools
The final distributions to DP2011 General Shareholders and DP2011 Structured Shareholders were made in September 2019. DP2011 General Shareholders received a total of 105.595p for a combined holding of one DP2011 General Ordinary Share and one DP2011 General A Share. DP2011 Structured General Shareholders received a total of 105.059p for a combined holding of one DP2011 Structured General Ordinary Share and one DP2011 Structured A Share. When compared against the original investment of 70.0p, the Board believes both pools produced a satisfactory outcome.
FundraisingThe Company undertook a share offer for both the Generalist and Healthcare Share pools which closed in October 2019 having raised gross proceeds of £12.0 million for the Generalist Share Pool and £5.4 million for the Healthcare Share Pool.The Company also launched a small top-up offer for subscription in April 2020 to facilitate allotments for monthly subscription investors that arose from earlier offers.There are no immediate plans for fundraising until the pandemic abates and the economic future becomes clearer. Share buybacksThe Company operates a general policy of buying in its own shares that become available in the market, subject to regulatory and liquidity factors. Any such purchases are undertaken at a price approximately equal to NAV (i.e. at a nil discount). However, as the remaining planned exit share pools have initiated the process of returning funds to Shareholders, the Company will not undertake any further buybacks in respect of those share classes.During the year ended 31 March 2020, 73,944 Generalist Shares and 19,704 Healthcare Shares were purchased and cancelled.Since the year end, on 20 May 2020, the Company appointed Panmure Gordon as its corporate broker to assist in operating the share buyback process and ensuring that the quoted spread on the Company’s shares remains at a reasonable level. If you wish to sell or buy shares in the Company, Panmure Gordon can supply details of closed periods etc. Annual General Meeting (“AGM”)With the social distancing restrictions still in place as a result of the pandemic, it is difficult to make plans to hold an AGM as we would normally do. The government has recognised this problem and has made legislative changes to allow companies more flexibility in the way AGMs are held.In line with what many companies are currently doing, we are therefore planning to hold a “closed AGM” which Shareholders will not be allowed to attend.  The meeting will still comply with the minimum legal requirements for an AGM.The closed AGM will take place on 9 September 2020 at 12:30pm. Shareholders are encouraged to vote by proxy and are invited to submit any questions for the Board or the Manager with their proxy form.  The Board will seek to address topics raised in any submitted questions by publishing a statement with the AGM results. Full details included in the notice of AGM at the back of this Report.Three items of special business are proposed at the AGM:– one in respect of the authority to buy back shares as noted above; and
– two in respect of the authority to allot shares.
The authority to allot shares ensures the Company will be able to allot shares to monthly investors and also give the Board the opportunity to consider further fundraising options without having to necessarily incur the expense of seeking separate approval via a shareholder circular.Any decision on future fundraising will, of course, give consideration to the level of uninvested funds already held by the Company and the rate of investment.Shareholders are encouraged to submit their votes by proxy, as they will not be able to do so in person.  We always welcome questions from our Shareholders at the AGM but this year, given the restrictions in place, please send any questions via email to [email protected] by 5:00 pm on 2 September 2020.  Answers to any questions received will be addressed on the website at www.downing.co.uk.OutlookAs the disruption that the coronavirus pandemic has brought to everyday life starts to reduce, this should re-open the path for the Manager to secure exits from the remaining investments in the planned exit pools and conclude the task of returning funds to investors. At this point it is impossible to predict the timescale over which this can be achieved.In respect of the Generalist and Healthcare pools, the next year, will no doubt, be a challenging one for many of our portfolio companies. However, I believe that there are some companies with very exciting potential which will be able to produce high returns for the Company. The Investment Manager will continue to provide as much support as it can to guide the portfolio companies through these difficult times. Inevitably, some may not be able to fully recover. However, some companies are benefiting from the current conditions by being forced to adapt their business models earlier than they might otherwise have done. Since the year end the quoted Liquidity Funds have seen their share prices increase somewhat. At 30 June 2020, the unaudited Generalist share NAV stood at 64.1p and the Healthcare Share NAV 69.8p. Looking forward, with the last of the planned exit share pools expected to wind up in the foreseeable future, the Board is starting to consider the optimal structure for the Company in the long term. With a portfolio of young businesses which typically need several rounds of funding before they are successful, it is important that the Company is able to regularly raise new funds for investment. The Board is looking at how this might be best achieved.I will report on developments in the Half-Yearly Report to 30 September 2020.Sir Aubrey Brocklebank Bt.
Chairman
Generalist Share PoolShare Pool SummaryInvestment Manager’s Report – Generalist Share PoolIntroductionAs at 31 March 2020, the Generalist Share Pool held a portfolio of 33 Venture Capital investments and three Liquidity investments, with a combined value of £24.6 million.Net Asset Value and resultsAs at 31 March 2020, the NAV of a Generalist share stood at 61.7p, a decrease of 21.8p over the year. A number of factors have contributed to this disappointing performance, including the impact of the Covid-19 pandemic, which has resulted in a number of negative valuation adjustments being made at the year end.13.3p of the fall arises from net losses in the Venture Capital portfolio, where two investments in particular have had significant write downs included against them, and several others across the portfolio have been negatively impacted. 6.4p of the decrease is attributable to the Liquidity investments, which encountered difficult market conditions. Reduced investor confidence arising from the high-profile mismanagement issues with the Woodford funds and the falls in global markets as a result of the pandemic both contributed to reduced fund valuations. The remaining 2.1p of the decrease has arisen from the surplus of running costs over income.  Further details of these write downs are provided below.The loss on ordinary activities for the Generalist Share pool for the year was £9.8 million (2019: £3.9 million), comprising a revenue loss of £582,000 (2019: £283,000) and a capital loss of £9.2 million (2019: £3.6 million).This is the first year that the VCT regulations allow this relatively young share pool to make a dividend payment.  Accordingly, an interim dividend of 2.5p will be paid on 25 September 2020, to investors on the register at 4 September 2020.  This is in line with stated policy of the pool of paying between 4% and 5% dividends per annum.The above results are the consequences of a number of factors.  There has been a further reduction in the value of the liquidity funds, which although frustrating, is broadly in line with the sector.  There are some significant write downs across the unquoted portfolio, largely as result of the common phenomenon of the weaker investments showing at this earlier stage in the investment cycle.  Given time, the superior investments should become apparent.  Finally, the cash drag of the initial investment phase and the effect of expenses not covered by income has also negatively impacted the performance of the fund, as seen by the fall in NAV and Total Return.Compared to the starting NAV of 100p, the current total return of 61.7p is considered to be an underperformance against our expectations.Investment activityDuring the year we continued to make good progress in building the VCT Qualifying portfolio of the Generalist Share pool, having invested a total of £10.5 million in 19 companies.New Venture Capital investmentsA description of each of the new VCT Qualifying investments made during the year is shown below.StreetHub Limited (£1.3 million) trading as Trouva, is an online marketplace for a curated range of homeware and lifestyle products.Ecstase Limited (£1.0 million) trading as ADAY, is a direct to consumer women’s clothing brand founded in 2014 that creates versatile and season-less garments with a low environmental footprint.FundingXchange Limited (£525,000) is an SME funding platform and B2B technology provider which enables online lending.JRNI Limited (£525,000) is a business to business (B2B) software platform that enables companies to offer online appointments and event bookings for their customers and staff.Hummingbird Technologies Limited (£500,000) is an advanced crop analytics platform that is powered by machine learning and aerial imagery to assess and predict crop health.Cambridge Touch Technologies Limited (£459,000) is developing pressure sensitive multi touch technology that is cheaper and simpler to integrate in touch screen panels of mobile devices.Lineten Limited (£400,000) is a software platform that connects retailers to a range of on-demand and same-day delivery fleets to coordinate customer deliveries.Congenica Limited (£300,000) has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients.FVRVS Limited (£250,000) trading as Fundamental VR, provides surgery simulation software for enterprise clients and hospitals.Snow Hill Developments (£1.2 million) is the developer of a hotel in Birmingham. The Generalist Share Pool acquired the DP2011 General Share Pool’s interest in the business for £1.2 million. This transaction allowed the Generalist Share Pool to add a yielding asset to its growing portfolio, whilst also enabling theDP2011 General Share Pool to make its final distribution to its investors. Snow Hill Developments LLP was subsequently refinanced during the period, and the Generalist Share Pool received proceeds of £1.4 million from its total investment of £1.3 million.Follow-on Venture Capital investments
A description of each of the existing VCT Qualifying businesses to which the Generalist Share pool provided further funding, totalling £1.4 million during the year is shown below.
A further £667,000 was invested in Lignia Wood Company Limited, which makes a sustainably sourced softwood LIGNIA® impregnated with resin in order to produce similar appearance and properties as high value hardwoods such as oak and teak.Limitless Technology Limited is the developer of an innovative crowd service platform allowing loyal customers to be rewarded for providing customer service and support as brand ambassadors.  An additional £583,000 was invested during the year.£510,000 was invested in Upp Technologies Group (previously Volo Commerce), a leading provider of multichannel e-commerce technology.A further £500,000 was invested in Empiribox Holdings Limited, bringing the total invested to £1.5 million. The company provides equipment, lesson plans and CPD‐accredited support for teachers to deliver engaging and practical science lessons to UK primary school children.Masters of Pie Limited is an early stage technology firm specialising in virtual and augmented reality software for manufacturing and wider enterprise solutions.  An additional £500,000 was invested during the year.£425,000 was invested in E Fundamentals (Group) Limited, bringing the total invested to £1,342,000. The company provides a data analytics service which provides online merchandising insights for brand owners, to enable them to improve their online revenues.£403,000 was invested in ADC Biotechnology Limited, a company creating innovative new technology which aims to speed up, simplify and lower the costs of the processes involved in the production of new Antibody Drug Conjugates (ADCs). A further £300,000 was invested in Channel Mum Limited, the developer of a community based platform for parents.Xupes Limited is an online retailer of pre-owned luxury goods including designer watches, handbags, jewellery and antiques.  A further £115,000 was invested in the year.Liquidity Investments
As Shareholders will be aware, where the Generalist Share pool invests in other Downing-managed funds, Downing provides fee rebates to the Generalist Share pool such that its investors are not “double-charged”.
A small follow on investment of £169,000 was made into Downing Strategic Micro-Cap Investment Trust plc.Portfolio valuationVenture Capital portfolio
During the year the Venture Capital portfolio of the Generalist Share pool was reduced in value by a total of £6.0 million, following a number of disappointing developments.
Live Better With Limited, which operates a healthcare website aiming to help people with long-term medical conditions, has been reduced in value to nil as a result of significant underperformance and the current economic environment.Empiribox Holdings Limited, the provider of equipment and training to primary schools across the UK was reduced in value by £1.1 million as a result of a number of factors, including operational issues experienced in the company and cash restrictions within primary schools which intensified as a result of the effective closure of UK schools from March to mid-June.Xupes Limited, the online retailer of pre-owned luxury goods, has been written down to nil following uncertainty over its future as a result of operational issues and likelihood of existing investors refusing to further support the business. As the company has some borrowings, it is difficult to recover any value and consequently the investment has been fully provided againstLignia Wood Company Limited, was written down by £617,000 as a result of expected reductions in demand (due to the UK lockdown) and restrictions on the movement of goods in its supply chain.Maverick Pubs Limited has been written down by £400,000, reflecting the temporary closure of both pub sites in as a result of the coronavirus pandemic and the likely impact this may have upon the value of public houses.BridgeU Corporation provides a system to help students and teachers manage the process of preparing for and completing global university applications.  The value has been written down by £397,000 following the sale of the underlying business.  The remaining value reflects the deferred consideration which is expected to be paid to the VCT.The Share pool’s investment in Glownet Limited was also written off in full during the year, a charge of £185,000.  The company ceased trading in March 2020 with no distributions anticipated.The investment in ADC Biotechnology Limited was reduced in value by £191,000 during the year, in line with a new funding round, which was undertaken at a lower price to the earlier rounds under which the Share pool invested.Destiny Pharma plc (“Destiny Pharma”), which is listed on London’s Alternative Investment Market (AIM), was also revalued downwards as at 31 March 2020, by £157,000 in line with the prevailing quoted price at that date. AIM prices typically fluctuate considerably in a given year and the reduction in the share price of the Destiny Pharma is symptomatic of this, as the business is progressing well.Upp Technologies (formerly Volo) the e-commerce software provider, has been going through a significant transformation including widespread changes to the management team. Unfortunately, the company is yet to generate significant revenues from its latest customer proposition and our expectation is that target client numbers for this financial year will be below our investment case, the valuation has therefore been reduced in value by £269,000.Other valuation movements in the Venture Capital portfolio amounted to a net valuation write down of £678,000.Liquidity investments
The carrying values of the liquidity investments have been adjusted to reflect their quoted prices as at 31 March 2020. This resulted in a valuation reduction of £3.0 million for the year.
The year under review was another challenging period for equity investors, largely characterised by negative sentiment, a volatile economic backdrop, and slowing global growth. There was some recovery at the end of 2019 and into 2020 as the general election offered some certainty around Brexit. However, this recovery was short lived as fears over the potential social and economic impact of the coronavirus spread around the world, and markets sold off sharply in February.The Covid-19 pandemic had a significant negative effect on share prices towards the end the reporting period. The ‘Covid discount’ on the Downing Strategic Micro-Cap Investment Trust has had a considerable impact, resulting in the average discount on the Trust widening from circa 3% since inception, to over 25% in March. The discount narrowed to nearer 19% post reporting period end, which is in line with other investment trusts and we would expect it to narrow as a more normalised trading environment returns. The Downing Micro-Cap Growth Fund underperformed the index in the period and the Managers have addressed this by modifying the mandate to provide the fund with more liquidity options. These changes include increasing the number of holdings from 25-30 to up to 40 and increasing the market capitalisation band up to £350 million. This has resulted in improved performance in recent months.Given the difficult trading environment, the Managers of the Downing Monthly Income Fund are focusing on improving the quality of the portfolio as much as possible, looking at the more resilient earners and strength in their capital positions. This should result in a robust portfolio that is positioned for the more protracted economic headwinds that the Managers expect to take a grip over the coming weeks and months.The Managers are concentrating on those businesses that have strong balance sheets to ensure that any storm can be weathered, avoiding the most vulnerable sectors such as leisure and travel where there was little exposure pre-crisis anyway, and targeting businesses that have high quality revenue streams that are unlikely to be affected by the pandemic. The portfolios retain cash which allows the Managers the flexibility to top up positions on bad days or invest in new situations where they believe prices are wrong.OutlookThe falls experienced across the portfolio are frustrating to report. Although early unrealised losses within young growth companies are to be expected, these unprecedented times and the current economic situation have impaired valuations further than could have been predicted.Across the portfolio investee companies have generally reacted promptly to the coronavirus pandemic, taking steps to secure their immediate survival and working to align themselves to the new normal. It is worth noting that a number of businesses are well positioned to potentially gain from the current economic climate, being pre aligned with emerging demands.We are dedicating substantial resources to the portfolio companies, in order to provide additional support in these difficult times.  We are ensuring that all investee companies benefit from the Government aid that is available and helping to make strong decisions as they deal with these unprecedented conditions, hoping to recover as much value as possible for investors.Downing LLPReview of Investments – Generalist Share Pool
The following investments were held at 31 March 2020:
All Venture Capital investments are incorporated in England and Wales.
*non-qualifying investment                                               ^listed and traded on the London Stock Exchange
Investment movements for the year ended 31 March 2020
*non-qualifying investment                                              
^listed and traded on the London Stock Exchange
Healthcare Share PoolShare Pool SummaryInvestment Manager’s Report- Healthcare Share PoolIntroductionAs at 31 March 2020, the Healthcare Share pool held a portfolio of 10 Venture Capital investments and three Liquidity investments, with a combined value of £7.2 million.Net Asset Value and resultsAs at 31 March 2020, the NAV of a Healthcare share stood at 68.1p, a decrease of 15.1p over the year.  A number of factors have combined to produce this disappointing performance for the year.8.9p of the decrease relates to investment revaluations in the Venture Capital portfolio, principally in relation to write down against the value of Live Better With Limited, although others across the portfolio have been negatively impacted.  3.9p relates to a reduction in value of the Liquidity Investments which continue to be negatively impacted by the falls in global markets at the beginning of 2020, a consequence of the pandemic. The remaining 2.3p of the NAV decrease is attributable to the surplus of running costs over income.The return on ordinary activities for the Healthcare Share pool for the year was a loss of £2.7 million (2019: loss of £1.4 million), being a revenue loss of £240,000 (2019: loss of £198,000) and a capital loss of £2.5 million (2019: loss of £1.2 million).This is the first year that the VCT regulations allow this relatively young share pool to make a dividend payment.  Accordingly, an interim dividend of 2.5p will be paid on 25 September 2020, to investors on the register at 4 September 2020.  This is in line with stated policy of the pool of paying between 4% and 5% dividends per annum.The above results are the consequences of a number of factors.  There has been a further reduction in the value of the liquidity funds, which although frustrating, is broadly in line with the sector.  There are some significant write downs across the unquoted portfolio, largely as result of the common phenomenon of the weaker investments showing at this earlier stage in the investment cycle.  Given time, the superior investments should become apparent.  Finally, the cash drag of the initial investment phase and the effect of expenses not covered by income has also negatively impacted the performance of the fund, as seen by the fall in NAV and Total Return.Compared to the starting NAV of 100p, the current total return of 68.1pp is considered to be an underperformance against our expectations.Investment activityDuring the year a total of £2.1 million was invested in five venture capital investments, three new and two follow on.New Venture Capital investments
A description of each of the new VCT Qualifying investments made during the year is shown below.
Congenica Limited (£750,000) has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients.FVRVS Limited (£500,000) trading as Fundamental VR, provides surgery simulation software for enterprise clients and hospitals.The Electrospinning Company Limited (£278,000) is a supplier and manufacturer of clinical-grade biomaterials, which can be used to act as a synthetic scaffold for implantation within body tissue to promote repair post trauma or surgery.Follow-on Venture Capital investments
Future Health Works Limited, is a developer of MyRecovery, a mobile app that informs and empowers patients throughout their orthopaedic treatment, customised to their procedure and hospital.  A further £250,000 was invested in the year.
£338,000 was invested in ADC Biotechnology limited, a company creating innovative new technology which aims to speed up, simplify and lower the costs of the processes involved in the production of new Antibody Drug Conjugates (ADCs). Liquidity Investments
As Shareholders will be aware, where the Healthcare Share pool invests in other Downing-managed funds, Downing provides fee rebates to the Healthcare Share pool such that its investors are not “double-charged”.
A small follow on investment of £29,000 was made into Downing Strategic Micro-Cap Investment Trust plc.Portfolio valuationVenture Capital portfolio
During the year the Venture Capital portfolio of the Healthcare Share pool was reduced in value by £1.6 million.
Live Better With Limited, a developer of a healthcare website aiming to help people with long-term medical conditions, has been reduced in value to nil as a result of significant underperformance and the current economic environment.ADC Biotechnology Limited, was further reduced in value by £317,000 during the year. This was to bring the valuation in line with a new funding round, which was undertaken at a lower price to the first round under which the Share pool invested. The company is running behind plan as a result of delayed approvals on its production site. However, production is expected to commence shortly, and we continue to work closely with the management team.Destiny Pharma plc (“Destiny Pharma”), which is listed on London’s Alternative Investment Market (AIM), was also revalued downwards as at 31 March 2020, by £237,000 in line with the prevailing quoted price at that date. AIM prices typically fluctuate considerably in a given year and the reduction in the share price of the Destiny Pharma is symptomatic of this, even though the business is progressing well.Other movements in the Venture Capital portfolio amounted to a net uplift of £91,000.Liquidity investmentsThe carrying values of the liquidity investments have been adjusted to reflect their quoted prices as at 31 March 2020. This resulted in a valuation reduction of £721,000 for the year. This decrease is largely due to adverse conditions in global markets, which have reduced quoted prices.Given the difficult trading environment, the Managers of the Downing Monthly Income Fund are focusing on improving the quality of the portfolio as much as possible, looking at the more resilient earners and strength in their capital positions. This should result in a robust portfolio that is positioned for the more protracted economic headwinds that the Managers expect to take a grip over the coming weeks and months.The Managers are concentrating on those businesses that have strong balance sheets and targeting businesses that have high quality revenue streams that are unlikely to be affected by the pandemic. The Liquidity Funds retain cash which allows the Managers the flexibility to top up positions on bad days or invest in new situations where they believe prices are wrong.OutlookThe building of the Venture Capital portfolio of the Healthcare Share pool progressed well during the year and we expect to see a similar level of investment activity over the coming year, as we work to continue to deploy the remaining proceeds from the 2018 Offer.Whilst the performance of Live Better With is disappointing, early unrealised losses within young companies such as this are to be expected, as weaker investments tend to be highlighted before the stronger businesses prove themselves.The remainder of the unquoted portfolio has been largely unaffected by the coronavirus pandemic, and we will continue to support and advise these companies in order to ensure the maximum return to investors on the remainder of their investment.Downing LLPReview of Investments – Healthcare Share PoolThe following investments were held at 31 March 2020:*non-qualifying investment
^listed and traded on the London Stock Exchange
Investment movements for the year ended 31 March 2020DSO D Share PoolShare Pool SummaryInvestment Manager’s Report DSO D Share PoolIntroductionThe process of realising the investments and returning funds to Shareholders remains the focus of the DSO D Share pool, although this has been subject to delays as a result of the global pandemic.Net Asset Value and resultsThe Net Asset Value (“NAV”) per DSO D Share at 31 March 2020 stood at 12.0p, an increase of 2.2p or 6.4% over the year after adjusting for dividends paid. Total Return stands at 102.2p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per Share.The gain on ordinary activities after taxation for the year was £175,000 (2019: loss of £207,000), comprising a revenue gain of £121,000 (2019:  loss of £49,000) and a capital gain of £54,000 (2018: loss of £158,000).Dividends paid during the year totalled 18.0p as the pool continues to return funds to investors.Despite the delays in the realisation process, the NAV of the pool has not been significantly impacted by the ongoing pandemic, with income and realised gains compensating for the minor write downs. The Board is satisfied with the overall performance, as indicated by the NAV and Total Return, which remains in excess of £1. Whist delays in the exit process are unfortunate, we believe there will be opportunities to exit from the remaining investments at acceptable values once the disruption of the pandemic starts to subside.Total Return of 102.2p is considered to be satisfactory performance when compared to the initial NAV of 100p.Venture Capital investmentsAs at 31 March 2020, the DSO D Share Pool held five Venture Capital investments with a total value of £655,000.Portfolio activity
Lambridge Solar, the owner of commercial solar arrays in Lincolnshire, was fully exited during the year, generating total proceeds of £716,000 and a gain over opening value of £111,000.
Plans were in place for the exit of the remaining portfolio companies.  However, Shareholders should be aware that due to the impact of the global pandemic on the current market conditions, this may now take longer than originally anticipated.Portfolio valuation
During the year, the carrying value of the DSO D portfolio was reduced by £42,000.
There were two small increases in value the period, the larger being an uplift of £21,000 on Fresh Green Power, the owner of solar panels on the rooftops of domestic properties in the UK, which has been revalued as part of a potential sale.Apex Energy, the developer of a standby electricity generation plant in the East Midlands, was further reduced in value by £33,000 to reflect preliminary exit proceeds.Pearce and Saunders Limited, the owner of freehold pubs in south east London was decreased by £33,000 in line with expected exit proceeds.Other portfolio valuation movements amounted to a net uplift of £3,000.OutlookThe focus for the DSO D Share pool continues to be on realising the remaining investments.  Although the exit processes have been delayed due to the coronavirus pandemic, we anticipate that the majority of the remaining realisations will take place before the end of the year, and we will continue to provide the investee companies with as much support as possible during this time.  Further dividends will be declared once this process has been completed.Downing LLPReview of investments – DSO D Share PoolThe following investments were held at 31 March 2020:* non-qualifying investmentAll Venture Capital investments are incorporated in England and Wales.Investment movements for the year ended 31 March 2020DP67 Share PoolShare Pool SummaryInvestment Manager’s Report – DP67 Share PoolIntroductionThe DP67 Share pool continues to focus on the process of realising the investment portfolio and returning funds to investors.  As may be expected, this process has been delayed as a result of the global pandemic.Net Asset Value and resultsThe Net Asset Value (“NAV”) per DP67 Share at 31 March 2020 stood at 18.8p, a decrease of 11.7p or 24.8% over the year. Total Return stands at 86.6p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per Share.The loss on ordinary activities after taxation for the year was £1.3 million (2019: loss of £166,000), comprising a revenue loss of £559,000 (2019:  profit of £127,000) and a capital loss of £758,000 (2019: loss of £293,000).Dividends totalling 18.0p were paid out during the year as the pool continues to return funds to investors.The adverse performance of the pool is mainly attributable to the large exposure of the portfolio to the leisure and hospitality industry, which has been particularly badly affected by the ongoing pandemic. The delays to the exit process are also frustrating, but we believe that it will not be possible to realise the full value of these investments until more normal conditions have started to return.When compared to the initial NAV of 100p the Total Return of 86.6p is considered to be an underperformance of the share pool against expectations.Venture Capital investmentsAs at 31 March 2020, the DP67 Share pool held a portfolio of five Venture Capital investments, with a total value of £2.1 million.Portfolio activityOne divestment from Snow Hill Developments took place during the year, generating proceeds of £788,000 and a total gain over opening value of £47,000.The DP67 Share pool had a membership interest in the business under which a fixed return accrued. The disposal marks the return of the remainder of this fixed value to the Share pool.Plans were progressing for the exit of the remaining portfolio companies.  However, Shareholders should be aware that due to the impact of the global pandemic on the current market conditions, this may now take longer than originally anticipated.Portfolio valuation
The DP67 portfolio decreased in value by a total of £769,000 during the year.  This was principally due to a write down of £822,000 on Cadbury Holdings Limited. Although Cadbury House (Hotel and Spa) has now reopened (following the closure due to COVID-19), the value of the hotel has been written down to reflect the uncertainty surrounding the recovery of the hospitality sector.  A weighted average of the closed valuation (80%) and mature trade valuation (20%) has been adopted, which has had a consequential impact upon the value of the DP67 share pool’s investment. 
This is partially offset by an increase of £53,000 attributable to Fenkle Street LLP which was adjusted to reflect the anticipated proceeds which may be recoverable in 2021.The other remaining investments are held at the same value as last year.OutlookThe focus for the DP67 Share pool continues to be on realising the remaining investments. Although the exit processes have been delayed due to the coronavirus pandemic, we are hopeful that the remaining realisations will take place over the next 12 months and further dividends will be declared once this process has been completed.Downing LLPReview of Investments – DP67 Share PoolDP67The following investments were held at 31 March 2020:*              partially qualifying investment                                          **           non-qualifying investmentAll Venture Capital investments are incorporated in England and Wales.Investment movements for the year ended 31 March 2020**     non-qualifying investmentDP2011 General Share PoolShare Pool SummaryInvestment Manager’s Report – DP2011 General Share PoolIntroductionThe process of realising the remaining investments held by the DP2011 General Share pool was completed during August 2019, and the final distribution of 13.595p per DP2011 General Ordinary Share was paid on 27 September.RealisationsDuring the year, the remaining three investments were sold from the DP2011 General Share pool, generating total proceeds of £2.0 million at a gain over opening value of £75,000.Final ResultsOver the life of the DP2011 General Share pool, Shareholders  who  invested  under  the  original  offer achieved a Total Return of 105.6p.The Board is satisfied with performance of this fund as evidenced by a Total Return of over £1 compared to a net investment after tax relief of 70p.Following the final distributions, in accordance with the Articles of the Company, the DP2011 General Shares were converted into worthless deferred Shares and were duly cancelled on 15 November 2019.Downing LLPReview of Investments – DP2011 General Share PoolInvestment movements for the year ended 31 March 2020*              partially qualifying investment                                                          **           non qualifying investmentDP2011 Structured Share PoolShare Pool SummaryInvestment Manager’s Report- DP2011 Structured Share PoolIntroductionThe process of realising the remaining investments held by the DP2011 Structured Share pool was completed during August 2019 and the final distribution of 10.095p per DP2011 Structured Ordinary Share was paid on 27 September.RealisationsDuring the year, the remaining two investments were sold from the DP2011 Structured Share pool, generating total proceeds of £735,000 at a profit over opening value of £56,000.Final ResultsOver the life of the DP2011 Structured Share pool, Shareholders who invested under the original offer achieved a Total Return of 105.1p.The Board is satisfied with performance of this fund as evidenced by a Total Return of over £1 compared to a net investment after tax relief of 70p.Following the final distributions, in accordance with the Articles of the Company, the DP2011 Structured Shares were converted into worthless deferred Shares and were duly cancelled on 15 November 2019.Downing LLP
31 July 2020
Review of Investments – DP2011 Structured Share PoolInvestment movements for the year ended 31 March 2020*              partially qualifying investmentDirectors’ responsibilitiesThe Directors are responsible for preparing the Report of the Directors, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority.Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law) including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS 102). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.In preparing these financial statements the Directors are required to:– select suitable accounting policies and then apply them consistently;
– make judgments and accounting estimates that are reasonable and prudent;
– state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
– prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
– carry out a robust assessment of the principal risks facing the Company, as set out in the Strategic Report.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company’s position, performance, business model and strategy.The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in the Annual Reports may differ from legislation in other jurisdictions.Directors’ statement pursuant to the Disclosure Guidance and Transparency RulesEach of the Directors, confirms that, to the best of each person’s knowledge:– the financial statements, which have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and– the management report included within the Report of the Directors, Strategic report, Chairman’s Statement, Investment Manager’s Report, and Review of Investments includes a fair review of the development and performance of the business and the position of the company, together with a robust assessment of the principal risks and uncertainties that it faces.Statement as to disclosure of information to AuditorsThe Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor.By order of the BoardGrant Whitehouse
Secretary of Downing FOUR VCT plc
Audited Income Statement
for the year ended 31 March 2020

(GlobeNewsWire)

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