20 Dec 2019 12:50
Half-year report
Draper Esprit VCT plcLegal Entity Identifier: 2138003I9Q1QPDSQ9Z97Half-Yearly Report for the six months ended 30 September 2019
Recent performance summary
| 30 Sept 2019 | 30 Sept 2018 | 31 Mar2019 | |||
| Pence | Pence | Pence | |||
| Net Asset Value (“NAV”) per Share | 57.1 | 60.1 | 56.7 | ||
| Cumulative distributions paid per Share | 102.0 | 99.0 | 102.0 | ||
| Total Return per Share | 159.1 | 159.1 | 158.7 | ||
CHAIRMAN’S STATEMENTI am pleased to present the Half-Yearly Report for the Company for the six months ended 30 September 2019.
Throughout the period, the Company has continued to employ its available funds in growth technology opportunities introduced by Draper Esprit plc, the leading venture capital investor, under the arrangements which commenced in November 2016. The investments made alongside Draper Esprit plc are generally progressing well.
Net Asset Value, results and dividends
At 30 September 2019, the Company’s Net Asset Value (“NAV”) per Share stood at 57.1p, an increase of 0.4p or 0.7% since 31 March 2019.
The gain on activities after taxation for the period was £228,000 (2018: £1.6 million), comprising a revenue return of £134,000 (2018: £262,000) and a capital gain of £94,000 (2018: £1.4 million).
An interim dividend of 1.5p per Share will be paid on 27 March 2020, to Shareholders on the register as at 6 March 2020.
Venture capital investmentsInvestment activityDuring the period the Company made one new investment and three follow-on investments totalling £2.8 million.
The Company invested £400,000 in Hadean Supercomputing Limited, which has developed a cloud computing platform that supports developers in running their applications at any scale.
A follow-on investment of £1.2 million was made into StreetTeam Software Limited, a peer-to-peer event marketing platform trading as “Pollen” which enables users to earn free tickets, rewards and festival experiences by selling tickets and recommending the festival to friends. This investment round was led by new investors Northzone and Sienna ventures.A further £832,000 was invested in Push Dr Limited, a digital health consumer brand, connecting patients to a smart network of qualified GPs, giving them quick access to a doctor.
£400,000 was invested in IESO Digital Health Limited, a provider of online mental healthcare.
Investment valuationsAt the period end, the Company held a portfolio of 34 venture capital investments, valued at £31.9 million.
The Board reviewed the valuations of the unquoted investments as at 30 September 2019 and has made a number of adjustments to the carrying values.
Endomagnetics Limited (trading as Endomag) was increased in value by £1.1 million on the back of good progress by the business and aligning its valuation with market comparables.
The investment in StreetTeam Software Limited was uplifted in value by £145,000 as at 30 September 2019, to bring it to a level consistent with its recent funding round.
The valuations of the quoted venture capital investments are set by their prevailing market prices as at 30 September 2019. The most notable movements from 31 March 2019 were decreases in share price of both Access Intelligence plc and Fulcrum Utility Services Limited. This resulted in a reduction in value of Access Intelligence plc by £332,000 and of Fulcrum Utility Services Limited by £289,000 over the period.
The above and other smaller movements resulted in a net valuation uplift of £386,000 for the period across the portfolio.
Fundraising
The Company launched a new offer for subscription in October 2019 seeking to raise up to £20M. Subject to capacity, the offer will stay open until 5 April 2020 in respect of the 2019/20 tax year and 31 May 2020 in respect of the 2020/21 tax year. Approximately £4M has been raised under the offer to date.
Share buybacks
The Company continues to operate a policy of buying in Shares that become available in the market at approximately a 5% discount to the latest published NAV, subject to regulatory and liquidity constraints.
In line with this policy, during the period the Company purchased 327,185 Shares for cancellation for an aggregate consideration of £177,000, equating to an average price of 54.02p per Share.
Any Shareholder considering selling their Shares will need to use a stockbroker. Such Shareholders should ask their stockbroker to register their interest in selling their shares with Shore Capital, who act as the Company’s corporate broker. Shareholders should note that the Company may not be able to sell shares during closed periods just before results are released and there may therefore occasionally be delays in share sales being processed.
OutlookThe Board is satisfied with progress being made in deploying the Company’s funds. We expect to see further new investments made over the remainder of the year as the portfolio continues to gain more exposure to younger growth and knowledge intensive businesses which are now the main focus. As I mentioned before, this will result in a further increase to the risk profile of the portfolio compared to historic levels, however the potential for good rewards also increases and generally progress of the newer investments to date appears positive.
I look forward to updating Shareholders in the next Annual Report, which will be issued in July 2020.
David BrockChairman
SUMMARY OF INVESTMENT PORTFOLIO
| Investment Portfolio as at 30 September 2019 | Cost | Valuation | Valuationmovementin period | % of portfolioby value |
| £’000 | £’000 | £’000 | ||
| Top ten venture capital investments | ||||
| Fords Packaging Topco Limited | 2,433 | 6,979 | - | 15.2% |
| Access Intelligence plc* | 2,886 | 4,373 | (332) | 9.5% |
| StreetTeam Software Limited | 2,504 | 3,326 | 145 | 7.3% |
| Lyalvale Express Limited | 1,915 | 2,571 | - | 5.6% |
| Endomagnetics Limited | 912 | 1,976 | 1,064 | 4.3% |
| IESO Digital Health Limited | 1,900 | 1,900 | - | 4.1% |
| Pod Point Holding Limited | 860 | 1,861 | 116 | 4.1% |
| Push Dr Limited | 1,556 | 1,556 | - | 3.4% |
| Fulcrum Utility Services Limited* | 386 | 820 | (289) | 1.8% |
| Resolving Limited | 799 | 799 | - | 1.7% |
| 16,151 | 26,161 | 704 | 57.0% | |
| Other venture capital investments | 16,170 | 5,752 | (318) | 12.5% |
| 32,321 | 31,913 | 386 | 69.5% | |
| Cash at bank and in hand | 14,036 | 30.5% | ||
| Total investments | 45,949 | 100.0% |
SUMMARY OF INVESTMENT MOVEMENTS
| Investment additions | |
| Venture capital investments | £’000 |
| StreetTeam Software Limited | 1,218 |
| Push Dr Limited | 832 |
| IESO Digital Health Limited | 400 |
| Hadean Supercomputing Limited | 400 |
| 2,850 |
*Quoted on AIM All venture capital investments are unquoted unless otherwise stated.
UNAUDITED BALANCE SHEET as at 30 September 2019
| 30 Sept 2019 | 30 Sept 2018 | 31 March2019 | ||||
| Note | £’000 | £’000 | £’000 | |||
| Fixed assets | ||||||
| Investments | 9 | 31,913 | 25,389 | 28,678 | ||
| Current assets | ||||||
| Debtors | 75 | 97 | 48 | |||
| Cash at bank and in hand | 14,036 | 16,352 | 10,455 | |||
| 14,111 | 16,449 | 10,503 | ||||
| Creditors: amounts falling due within one year | (205) | (191) | (212) | |||
| Net current assets | 13,906 | 16,258 | 10,291 | |||
| Net assets | 45,819 | 41,647 | 38,969 | |||
| Capital and reserves | ||||||
| Called up Share capital | 7 | 4,015 | 3,463 | 3,436 | ||
| Capital redemption reserve | 615 | 572 | 599 | |||
| Share premium account | 6,387 | 25,625 | - | |||
| Merger reserve | 1,828 | 1,828 | 1,828 | |||
| Special reserve | 8 | 21,729 | (928) | 22,545 | ||
| Capital reserve - unrealised | 8,952 | 6,993 | 8,403 | |||
| Capital reserve - realised | 8 | 2,175 | 4,019 | 2,174 | ||
| Revenue reserve | 8 | 118 | 75 | (16) | ||
| Equity Shareholders’ funds | 6 | 45,819 | 41,647 | 38,969 | ||
| Basic and diluted Net Asset Value per Share | 6 | 57.1p | 60.1p | 56.7p |
UNAUDITED INCOME STATEMENT for the six months ended 30 September 2019
| Six months ended30 Sept 2019 | Six months ended30 Sept 2018 | Yearended31 March2019 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | ||||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | 411 | - | 411 | 491 | - | 491 | 634 | |||
| Gains/(losses) on investments | ||||||||||
| Realised | - | - | - | - | 84 | 84 | 246 | |||
| Unrealised | - | 386 | 386 | - | 1,639 | 1,639 | 1,571 | |||
| 411 | 386 | 797 | 491 | 1,723 | 2,214 | 2451 | ||||
| Investment management fees | (98) | (292) | (390) | (92) | (275) | (367) | (784) | |||
| Other expenses | (179) | - | (179) | (137) | (75) | (212) | (342) | |||
| Return/(loss) on ordinary activities before taxation | 134 | 94 | 228 | 262 | 1,373 | 1,635 | 1,352 | |||
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - | - | |||
| Return/(loss) attributable to equity Shareholders | 4 | 134 | 94 | 228 | 262 | 1,373 | 1,635 | 1,352 | ||
| Basic and diluted return/(loss) per Share | 4 | 0.2p | 0.1p | 0.3p | 0.4p | 2.0p | 2.4p | 1.9p | ||
All Revenue and Capital items in the above statement are derived from continuing operations. The total column within the Income Statement represents the profit and loss account of the Company.
UNAUDITED STATEMENT OF CHANGES IN EQUITYfor the six months ended 30 September 2019
| Called Up Share capital | Capital redemption reserve | Share premium | Merger reserve | Special reserve | Capital reserveunrealised | Capital reserverealised | Revenue reserve | Total | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| At 1 April 2018 | 3,194 | 533 | 22,054 | 1,828 | 452 | 5,515 | 3,331 | (187) | 36,720 | |
| Total comprehensive income | - | - | - | - | - | 1,571 | (417) | 171 | 1,325 | |
| Transfer between reserves | - | - | - | - | (2,649) | 1,317 | 1,194 | 138 | - | |
| Cancellation of Share Premium | - | - | (25,625) | - | 25,625 | - | - | - | - | |
| Transactions with owners | ||||||||||
| Issue of new Shares | 308 | - | 3,571 | - | - | - | - | - | 3,879 | |
| Share Issue costs | - | - | - | - | (153) | - | - | - | (153) | |
| Purchase of own Shares | (66) | 66 | - | - | (730) | - | - | - | (730) | |
| Dividends paid | - | - | - | - | - | - | (1,934) | (138) | (2,072) | |
| At 31 March 2019 | 3,436 | 599 | - | 1,828 | 22,545 | 8,403 | 2,174 | (16) | 38,969 | |
| Total comprehensive income | - | - | - | - | - | 386 | (292) | 134 | 228 | |
| Transfer between reserves | - | - | - | - | (455) | 163 | 292 | - | - | |
| Transactions with owners | ||||||||||
| Issue of new Shares | 595 | - | 6,387 | - | - | - | - | - | 6,982 | |
| Share Issue costs | - | - | - | - | (185) | - | - | - | (185) | |
| Purchase of own Shares | (16) | 16 | - | - | (176) | - | - | - | (176) | |
| Dividends paid | - | - | - | - | - | - | 1 | - | 1 | |
| At 30 September 2019 | 4,015 | 615 | 6,387 | 1,828 | 21,729 | 8,952 | 2,175 | 118 | 45,819 | |
UNAUDITED STATEMENT OF CASH FLOWS
for the six months ended 30 September 2019
| Six monthsended 30 Sept 2019 | Six months ended 30 Sept 2018 | Periodended 31 March2019 | ||||
| £’000 | £’000 | £’000 | ||||
| Cash flow from operating activities | ||||||
| Return on ordinary activities before taxation | 228 | 1,635 | 1,325 | |||
| (Gains)/Losses on investments | (386) | (1,722) | (1,817) | |||
| Decrease/(increase) in debtors | (10) | 42 | 71 | |||
| (Decrease)/increase in creditors | 13 | (3) | (5) | |||
| Net cash (outflow)/inflow generated from operating activities | (155) | (48) | (426) | |||
| Cash flow from investing activities | ||||||
| Purchase of investments | (2,850) | (3,532) | (6,889) | |||
| Sale of investments | - | 694 | 856 | |||
| Net cash (outflow)/inflow from investing activities | (2,850) | (2,838) | (6,033) | |||
| Cash flows from financing activities | ||||||
| Proceeds from Share issue | 6,982 | 3,879 | 3,879 | |||
| Share issue costs | (203) | (193) | (173) | |||
| Purchase of own Shares | (194) | (435) | (707) | |||
| Equity dividends paid | 1 | - | (2,072) | |||
| Net cash inflow from financing activities | 6,586 | 3,251 | 927 | |||
| Increase/(decrease) in cash | 3,581 | 365 | (5,532) | |||
| Net movement in cash | ||||||
| Beginning of period | 10,455 | 15,987 | 15,987 | |||
| Net cash inflow | 3,581 | 365 | (5,532) | |||
| End of period | 14,036 | 16,352 | 10,455 |
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited Half-Yearly Report covers the six months to 30 September 2019 and has been prepared in accordance with the accounting policies set out in the statutory accounts for the period ended 31 March 2019, which were prepared in accordance with the Financial Reporting Standard 102 (“FRS 102”) and the Statement of Recommended Practice “Financial Statements of Investment Trust Companies” issued in November 2014 (revised in February 2018) (“SORP”).
2. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
3. The comparative figures are in respect of the six months ended 30 September 2018 and the year ended 31 March 2019 respectively.
4. Basic and diluted return per Share
| 30 Sept2019 | 30 Sept2018 | 31 March2019 | |||
| Return per Share based on: | |||||
| Net revenue gain for the period (£’000) | 134 | 262 | 171 | ||
| Capital return per Share based on: | |||||
| Net capital (loss)/gain for the period (£’000) | 94 | 1,373 | 1,154 | ||
| Weighted average number of Shares | 80,116,839 | 69,412,617 | 69,241,683 |
5. Dividends
| 30 September 2019 | 31 March2019 | ||||||
| Per Share | Revenue | Capital | Total | Total | |||
| pence | £’000 | £’000 | £’000 | £’000 | |||
| Payable | |||||||
| 2020 Interim | 1.5p | - | 1,204 | 1.204 | - | ||
| 2019 Final | 1.5p | - | 1,205 | 1,205 | - | ||
| - | 2,409 | 2,409 | - | ||||
| Paid in the period | |||||||
| 2019 Interim | 1.5p | - | - | - | 1,033 | ||
| 2018 Final | 1.5p | - | - | - | 1,039 | ||
| - | - | - | 2,072 | ||||
6. Basic and diluted Net Asset Value per Share
| 30 Sept 2019 | 30 Sept 2018 | 31 Mar2019 | |||
| Net asset value per Share based on: | |||||
| Net assets (£’000) | 45,819 | 41,647 | 38,969 | ||
| Number of Shares in issue at the period end | 80,293,973 | 69,249,111 | 68,719,111 | ||
| Net Asset Value per Share | 57.1p | 60.1p | 56.7p |
7. Called up Share capital
| 30 Sept 2019 | 30 Sept 2018 | 31 Mar 2019 | |||
| Ordinary Shares of 5p each | |||||
| Number of Shares in issue at the period end | 80,293,973 | 69,249,111 | 68,719,111 | ||
| Nominal value (£’000) | 4,015 | 3,463 | 3,436 |
During the period the Company allotted 11,902,047 Ordinary Shares of 5p each (“Ordinary Shares”) under an Offer for Subscription that launched in January 2019, at an average price of 58.67p per Share. Gross proceeds received thereon were £7.0 million, with issue costs in respect of the Offer amounting to £185,000.
During the period, the Company purchased 327,185 Shares for cancellation for an aggregate consideration of £177,000, at an average price of 54.02p per Share (approximately equal to a 5.2% discount to the most recently published NAV at the time of purchase) and representing 0.5% of the Share capital in issue as at 1 April 2019.
8. ReservesThe special reserve is available to the Company to enable the purchase of its own Shares in the market without affecting its ability to pay dividends and allows the Company to write back realised capital losses arising on disposals and impairments.
Distributable reserves are calculated as follows:
| 30 Sept 2019 | 30 Sept 2018 | 31 Mar 2019 | ||||
| £’000 | £’000 | £’000 | ||||
| Special reserve | 21,729 | (928) | 22,545 | |||
| Capital reserve - realised | 2,175 | 4,019 | 2,174 | |||
| Revenue reserve | 118 | 75 | (16) | |||
| Merger reserve - distributable element | 423 | 423 | 423 | |||
| Unrealised losses - net of unquoted gains | (524) | 288 | 253 | |||
| 23,921 | 3,877 | 3,231 | ||||
In October 2018, the balances on the Share Premium account and the capital redemption reserve were cancelled and added to the special reserve, contributing an additional £26.2 million to distributable reserves. The VCT regulations place some restrictions on the use of these reserves during the first three to four years after the funds on which they arose were raised.
9. InvestmentsThe fair value of investments is determined using the detailed accounting policy as set out in Note 1 of the Annual Report.
The Company has categorised its financial instruments using the fair value hierarchy as follows:
Level 1 Reflects financial instruments quoted in an active market (fixed interest investments, and investments in shares quoted on either the Main or AIM Markets);Level 2 Reflects financial instruments that have prices that are observable either directly or indirectly; andLevel 3 Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).
| Six months ended 30 Sept 2019 | Period ended 31 Mar 2019 | ||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| AIM quoted shares | 4,726 | 297 | - | 5,023 | 5,300 | 344 | - | 5,644 | |
| Loan notes | - | - | 808 | 808 | - | - | 808 | 808 | |
| Unquoted shares | - | - | 26,082 | 26,082 | - | - | 22,226 | 22,226 | |
| 4,726 | 297 | 26,890 | 31,913 | 5,300 | 344 | 23,034 | 28,678 | ||
10. Risks and uncertaintiesUnder the Disclosure and Transparency Directive, the Board is required in the Company’s half-yearly results to report on principal risks and uncertainties facing the Company over the remainder of the financial year.
The Board has concluded that the key risks facing the Company over the remainder of the financial period are as follows:
investment risk associated with investing in small and immature businesses;liquidity risk arising from investing mainly in unquoted businesses; andfailure to maintain approval as a VCT.In all cases the Board is satisfied with the Company’s approach to these risks. As a VCT, the Company is forced to have significant exposure to relatively immature businesses. This risk is mitigated to some extent by holding a well-diversified portfolio.
With a reasonably illiquid venture capital investment portfolio, the Board ensures that it maintains an appropriate proportion of its assets in cash and liquid instruments.
The Company’s compliance with the VCT regulations is continually monitored by the Administration Manager, who regularly reports to the Board on the current position. The Company also retains Philip Hare and Associates LLP to provide regular reviews and advice in this area. The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level.
The Company has considerable financial resources at the period end and holds a diversified portfolio of investments. As a result, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.
11. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the “Statement: Half-Yearly Financial Reports” issued by the UK Accounting Standards Board as well as in accordance with FRS 104 Interim Financial Reporting and the half-yearly financial report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the current financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last Annual Report that could do so.
12. The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the period ended 31 March 2019 have been extracted from the financial statements for that period, which have been delivered to the Registrar of Companies; the Auditor’s report on those financial statements was unqualified.
13. Copies of the unaudited Half-Yearly Report will be sent to Shareholders shortly. Further copies can be obtained from the Company’s registered office or downloaded from www.draperespritvct.com and www.downing.co.uk.