Final Results

DRAPER ESPRIT VCT PLC
Legal Entity Identifier: 2138003I9Q1QPDSQ9Z97
7 July 2021
Final Results

FINANCIAL SUMMARY

�	31 Mar 2021 pence		31 Mar 2020 Pence
Net asset value per share (“NAV”)	50.0		46.0
Cumulative dividends paid since launch	107.5		105.0
Total Return (NAV plus cumulative dividends paid per share)	157.5		151.0
Dividends in respect of financial year ended 31 March 2021
Interim dividend paid per share	1.0		1.5
Final dividend per share (payable on 17 September 2021)	1.5		1.5
	2.5		3.0

CHAIRMAN’S STATEMENT

I present the Company’s Annual Report for the year ended 31 March 2021. This has been an unprecedented year with the coronavirus pandemic having impacted everybody and in a much greater way than was envisaged at the start of the outbreak.

I am pleased to report that generally the portfolio companies have performed well and stood up to many of the challenges that they have faced. Many of the businesses within the Company’s portfolio have been able to adapt well to the conditions and some have completed further funding rounds which has provided reassurance for their future prospects.

Net asset value and results
As at 31 March 2021, the Company’s Net Asset Value per share (“NAV”) stood at 50.0p, representing an increase of 6.5p (14.1%) over the year after adding back dividends paid.

The Total Return to Shareholders who invested at the launch of the Company in 1998 (NAV plus cumulative dividends) now stands at 157.5p, compared to the original cost (net of income tax relief) of 80.0p per share. A summary of the position for Shareholders who invested in the Company’s various other fundraisings is included in the annual report.

The profit on ordinary activities after taxation for the year was £8.5 million (2020: £6.3 million loss), comprising a revenue loss of £546,000 (2020: £7,000 profit) and a capital profit of £9.1 million (2020: £6.3 million loss).

Management arrangements
As shareholders will be aware, the Manager, Elderstreet Investments has been working with the Draper Esprit Group for several years, with all new investments made in recent years arising from that arrangement. In line with the plans put in place at the outset of that relationship, Draper Esprit plc acquired the remaining shares of Elderstreet Investments Limited that it did not already own in February 2021.

The Board is delighted to see this transaction complete and that the Manager is now a full member of the Draper Esprit Group. We look forward to continuing to develop the Company’s portfolio of growth technology investments that is already well-established, coinvesting alongside Draper Esprit plc and the EIS funds that Draper Esprit plc also manages.

As part of these changes, the Company put in place a new investment management agreement, which was approved by Shareholders on 17 March 2021, a summary can be found in the annual report. The agreement is on broadly the same terms as the previous agreement but introduces a new performance incentive scheme whereby the Manager will receive a fee equal to 20% of realised gains if the overall return on the investments made in a five year period achieves an IRR exceeding 7% per annum. We believe this aligns the interests of the Manager and Shareholders well.

Venture capital investments
Portfolio activity
During the year, Draper Esprit continued to provide the Company with a strong flow of investment opportunities. The Company made four new investments and six follow-on investments totalling £8.9 million.

The Company also made two non-qualifying investments that were held short term and realised in the year. With uncertainly about dividends expected from existing portfolio companies, the Company made two investments in FTSE 100 companies in order to ensure that it would comfortably meet the VCT income test for the year, whereby the Company’s income must be derived wholly or mainly from shares and securities. These investments produced a realised gain of £16,000 and dividend income of £52,000 during the period they were held.

The Company also received retention proceeds from the earlier exit of Podpoint Holdings Limited, of £22,000.

Further details on the investment activity can be found in the Investment Manager’s report.

Investment valuations
At the year end, the Company held a portfolio of 30 active investments valued at £44.8 million.

The split of the investment portfolio between growth technology investments introduced by Draper Esprit and the older legacy investments is shown below:

	Portfolio split as at 31 March 2021
	Growth Technology	Legacy	Cash	Total
	£’000	£’000	£’000	£’000
Cost	23,760	18,064	10,659	52,483
Gains/(losses)	(64)	2,996	–	2,932
Valuation	23,696	21,060	10,659	55,415
Percentage of portfolio	42.8%	38.0%	19.2%	100.0%

The newer growth technology investments are now the largest part of the portfolio and this proportion will continue to grow as further funds are raised and invested, and as there are further realisations from the legacy portfolio.

The Board has reviewed the investment valuations at the year end and some adjustments have been made accordingly. The most significant valuation movements are summarised below.

Fords Packaging Topco Limited (trading as Fords Packaging Systems) makes capping and sealing systems primarily for the food and beverage industry. Despite reduced activity in the early part of the pandemic, the business has performed well and has resumed to its previous levels of trading, justifying an increase in value of £1.3 million.

Freetrade Limited, the online investing app, has increased in value by £1.1 million, as the business continues to grow and the company has successfully raised further funds.

Endomagnetics Limited (trading as Endomag), a business which has developed a magnetic tracking system for cancer tumours was increased in value by £944,000 also as a result of a successful further funding round in which the Company participated.

On the downside, IESO Digital Health Limited, the UK’s largest provider of online mental healthcare, has decreased in value £950,000. The business has however stabilised and is now focussed on NHS business.

Several of the Company’s investments are quoted on AIM and are valued at their share prices at 31 March 2021. The two largest such holdings performed well. The valuation of the investment in Access Intelligence plc increased by £7.0 million over the year and Fulcrum Utility Services Limited by £547,000.

Overall, the unrealised valuation movements on the portfolio resulted in a net increase of £9.7 million for the year.

Further commentary on the portfolio, together with a schedule of additions and disposals can be found within the Investment Manager’s Report and Review of Investments below.

Dividends

The Board is proposing a final dividend of 1.5p per share, to be paid on 17 September 2021 to Shareholders on the register at 20 August 2021. This will bring the total dividends paid in respect of the year to 2.5p.

Fundraising
The Company completed an offer for subscription which had launched in October 2019, and closed in August 2020 having raised £13.5m.

The Company also launched a new offer for subscription in February 2021. The offer was extremely successful, reaching full capacity in a very short space of time raising £19.9 million, with shares being allotted after the year end in April 2021, raising the Company’s net assets to £75 million. This provides the Company with a significant level of funds to take advantage of new opportunities and also support existing portfolio companies.

Share Buybacks
The Company has a policy of purchasing its own shares that become available in the market at a discount of approximately 5% to the latest published NAV, subject to regulatory and liquidity constraints.

Any Shareholders who are 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 Panmure Gordon & Co.

During the year the Company purchased a total of 524,183 shares at an average price of 43.96p per share. Resolution 11 will be proposed at the AGM, to renew the authority for the Company to purchase its own shares.

Directorate
With the completion of the transaction which has seen the Manager become part of the Draper Esprit Group, the Company has now entered the next stage of its life. This completes a journey that ensures that we have a high-quality manager which is fit for the future requirements of the Company, and we believe, over time, can deliver desirable results for Shareholders.

Michael Jackson, the founder of Elderstreet Investments and a non-executive director of the Company since its launch in 1998, will step down at the forthcoming AGM. Michael has made a substantial contribution to the Company over those years in his role as the investment manager and as a non-executive director. On behalf of the Board, I would like to thank him for all he has done for the Company over the last 23 years and wish him well for the future. The whole board will miss working with him.

The Company intends to appoint Richard Marsh to represent our new investment manager, Draper Esprit, as a non-executive director of the Company with effect from 11 August 2021, following the AGM. Richard is Senior Partner at Draper Esprit Plc, a member of the Investment Committee and co-founded and built the EIS activities within the Draper Esprit Group from 2011. He has been a venture capital investor since 2007 and prior to that had a decade of operating experience in the software sector. As an entrepreneur he was Founder/CEO of Datanomic, a software business that was sold to Oracle. Richard holds an MA and PhD from Cambridge University and an MBA from IMD, Lausanne where he was a Sainsbury’s Management Fellow. The Board has been working with Richard for some time in his role at Draper Esprit and believes he will be an excellent addition to the Board.

Annual General Meeting (“AGM”)
The Directors are now reviewing the composition of the Board to ensure that it comprises an appropriate balance of skills, particularly in view of the increasing proportion of growth technology investments.

With social distancing restrictions expected to be relaxed we are planning to hold a physical AGM this year with Shareholders able to attend.

The AGM will take place at 20 Garrick Street, WC2E 9BT on 11 August 2021 at 11 a.m.

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.

Full details of the business to be conducted at the AGM is included in the annual report. Shareholders are encouraged to submit their votes using the Form of Proxy which can be scanned and emailed to devctagm@downing.co.uk. Furthermore, the Board continues to welcome questions from Shareholders which can be sent to the same email address.

Outlook
The Board has been pleased with the overall performance of the portfolio throughout the pandemic and the fact that the flow of new investments quickly resumed after a short pause. As the economy gradually starts to return to more normal conditions and with the Investment Manager now formally part of the Draper Esprit Group, we expect new investment activity to increase further over the coming year, particularly as the Company now has a significant level of new funds available for investment.

We believe that the portfolio includes a number of growth technology prospects that have the potential to drive performance going forward, and some of our legacy portfolio investments are also well positioned.

The Board was very encouraged to see the positive response by investors to the recent fundraising and is now considering plans for the next VCT fundraising season. We will of course let Shareholders know details in due course.

The next update for Shareholders will be the Half-Yearly Report to 30 September 2021, which we expect to be published in December.

David Brock
Chairman

INVESTMENT MANAGER’S REPORT

The co-investment arrangements with Draper Esprit plc to share deal flow, management experience and investment opportunities, continue to be positive from both an investment and a fundraising perspective. We refer internally to the Company having two elements of its portfolio; a new technology portfolio invested alongside other Draper Esprit funds and a legacy portfolio assembled before the Draper Esprit arrangement.

In a year which has been difficult for many people and businesses, our portfolio companies have demonstrated resilience and, in many cases, growth, even in these uncertain times. There has been a broad spectrum of coronavirus experiences within the portfolio, from companies in sectors with challenging trading to others which have had a dramatic acceleration and growth because of the dynamics of the past year. No businesses have failed. Against the difficult backdrop of the pandemic, the results for the Company show a year on year increase in NAV of 6.5 pence per share after adding back dividends paid from a low in March 2020 reflecting ‘peak Covid’.

Despite the pandemic, deal flow has continued to be strong and the team completed four new investments totalling £5.4 million alongside six follow-on investments totalling £3.5 million. There were no new exits.

Post the year end, two new investments have completed totalling £0.8 million and one further follow-on totalling £0.1 million, with a further two new investments totalling £3.2 million having been signed off which are awaiting HMRC Advanced Assurance prior to completing.

Within the technology portfolio, six companies took advantage of the Government-backed Future Fund Loan Scheme. Due to the VCT scheme rules, participation by the VCT in these rounds is prohibited. This has resulted in some downward pressure on the VCT valuation of these companies, as these loans have a first priority return above the VCT equity holding. These loans have options to be repaid or converted in future funding rounds.

Over the year, the Company recorded a 6.5p increase in the Total Return (net asset value including cumulative dividends), from 151.0p to 157.5p. The NAV per share rose by 4.0p to 50.0p after paying dividends of 2.5p in the year.

Within the Draper Esprit portfolio, four new investments were made into the following companies:

	£’000
ThoughtMachine Cloud native core banking software	2,400
Ravelin AI fraud management software	1,133
Primary Bid Consumer facing IPO platform	950
RiverLane Research Quantum Computing operating software	901
	5,384

These investments were all made alongside Draper Esprit funds and often included other corporate and venture capital investors. This corroborates the strategy of investing alongside a strong syndicate of investors. In all of these new investments, a member of the Draper Esprit group is a representative on the portfolio company board. At the year end the total Draper technology portfolio consisted of 22 companies and post the period end a further two new deals have completed with two more committed. As we flagged in last year’s report, we expect there to be continuing follow-on investments into the Draper Esprit businesses currently in the portfolio.

During the year, two of the technology portfolio companies have attracted sizeable follow on investments at attractive valuations gains. Freetrade, the commission free trading app, raised a further $69m led by Left Lane Capital, a new investor, to accelerate its European growth.

Endomag, the cancer detection company, raised a further £15 million from existing investors, including the VCT, to accelerate growth. Endomag has been officially named as one of the ‘FT 1000: Europe’s Fastest Growing Companies of 2021’. The list is compiled of the top 1,000 companies in Europe as measured by revenue growth, with Endomag the 7th highest rated Healthcare company featured.

On the downside, provisions have been made for a number of companies for example where there is an envisaged financing requirement that has not yet concluded. These may take the form of convertible loans which the VCT are prohibited from investing in, and while positive for the portfolio company cash flow, are potentially dilutive, or where there are evolving strategic changes underway. These provisions are a point in time impairment that may be removed in due course.

Within the legacy portfolio, Fords Packaging Topco Limited, a manufacturer of capping and sealing technology products, continues to perform well and is recovering from the initial setback of the Covid crisis which resulted in a temporary stalling of orders as engineers were not able to travel globally. The order book remains healthy and we believe that Fords still has the potential to provide further upside.

There are two meaningful AIM companies in the legacy portfolio; Access Intelligence and Fulcrum. Access Intelligence has performed extremely well over the year increasing in value by 188%. Fulcrum has risen 106% over the period.

Lyalvale Express Limited, the shotgun cartridge manufacturer, has had a tough year with a year on year sales drop, albeit management has ensured the business remains profitable with good cash resources. Management is hopeful of a recovery in the coming year’s shooting market.

After the year end the VCT allotted £20 million of Ordinary Shares under the 2021 prospectus offer. The Manager remains confident that the new funds raised over the past fundraising seasons will be invested within the qualifying timeframe.

It has been a busy period for the Company which has seen a significant level of new investment and follow-on activity. Whilst the new Draper Esprit investments offer some exciting prospects for the future, a number of these businesses are still at an early stage and it is too soon to judge their ultimate trajectory, although several are showing good promise.

In summary, despite the continuing challenges of Covid we are encouraged by the resilience of the portfolio and many of the companies in which we have invested continue to show strong growth. It continues to be our priority to support our existing portfolio and to make new investments in businesses that can innovate and grow despite the healthcare crisis.

As a final point we would like to inform the shareholders that Draper Esprit plc, the parent company of the investment manager, has, in the last year, adopted a Policy around Responsible Investment & Sustainability. This Policy was adopted for and on behalf of the Draper Esprit group following approval by the board of directors of Draper Esprit plc on 28 September 2020, and summarises our values, our environmental, social and governance (ESG) goals, and our approach to responsible investment. This policy is available to view on the Draper Esprit plc website via the link below:
draperesprit.com/investors/sustainability

Elderstreet Investments Limited
Part of the Draper Esprit Group

REVIEW OF INVESTMENTS

Portfolio of investments
The following investments were held at 31 March 2021. All companies are registered in England and Wales, with the exception of Fulcrum Utility Services Limited, which is registered in the Cayman Islands.

	Cost	Valuation	Valuation movement in year	% of portfolio by value	Total value of other funds managed by Draper Esprit plc1
	£’000	£’000	£’000		£’000
Ten largest venture capital investments (by value)
Access Intelligence plc*	2,586	10,788	7,046	19.5%	–
Fords Packaging Topco Limited	2,433	6,878	1,252	12.4%	–
Endomagnetics Limited	2,147	4,644	944	8.4%	33,434
Back Office Technology Limited	1,420	2,409	–	4.3%	19,240
Thought Machine Group Limited	2,400	2,400	–	4.3%	25,827
Freetrade Limited	600	2,367	1,107	4.3%	29,448
Evonetix Limited	1,485	1,882	7	3.4%	7,302
Lyalvale Express Limited	1,915	1,428	–	2.6%	–
Roomex Limited	1,081	1,174	246	2.1%	8,785
Ravelin Technology Limited	1,133	1,133	–	2.1%	8,123
	17,200	35,103	10,602	63.4%	132,159
Other venture capital investments
Fulcrum Utility Services Limited*	386	1,061	547	1.9%	–
IESO Digital Health Limited	1,900	950	(950)	1.7%	4,076
PrimaryBid Limited	950	950	–	1.7%	5,376
River Lane Research Limited	901	901	–	1.6%	8,108
Resolving Limited	799	799	–	1.4%	4,492
Crowdcube Limited	400	750	274	1.4%	9,623
United Authors Publishing Limited	442	719	277	1.3%	1,596
IXL PremFina Limited	756	660	282	1.2%	1,688
Sweepr Technologies Limited	515	526	–	0.9%	4,722
Cashfac plc	260	525	–	0.9%	–
Hadean Supercomputing Limited	400	400	–	0.7%	4,822
StreetTeam Software Limited	2,819	320	(137)	0.6%	7,558
RealEyes Holding Limited	430	262	(168)	0.5%	6,010
Macranet Limited	1,037	259	–	0.5%	–
Apperio Limited	500	250	(250)	0.5%	1,475
Push Dr Limited	1,873	159	(459)	0.3%	3,982
Servoca plc	333	120	–	0.2%	–
Lifesize Inc (formerly Light Blue Optics Limited)	483	42	(286)	0.1%	25
AngloINFO Limited	3,527	–	–	–	–
Ocelot Realisations Limited (formerly Baldwin & Francis Ltd)	1,534	–	–	–	–
Uvenco UK plc*	1,326	–	–	–	–
Location Sciences Group plc*	860	–	–	–	–
Kellan Group plc*	657	–	–	–	–
The National Solicitors Network Limited	501	–	–	–	–
AppUx Limited	326	–	–	–	–
The QSS Group Limited	268	–	–	–	–
RB Sport & Leisure Holdings plc	188	–	–	–	–
Infoserve Group plc	128	–	–	–	–
Sift Limited	125	–	–	–	–
	24,624	9,653	(870)	17.4%	63,553
	41,824	44,756	9,732	80.8%	195,712
Cash at bank and in hand		10,659		19.2%
Total investments		55,415		100.0%

*         Quoted on AIM

All venture capital investments are unquoted unless otherwise stated
¹Other funds also managed by Draper Esprit Plc as Investment Manager as at 31 March 2021 include Draper Esprit Plc and
Draper Esprit EIS

Investment movements for the year ended 31 March 2021
ADDITIONS

Venture capital investments	£’000
Thought Machine Group Limited	2,400
Endomagnetics Limited	1,235
Ravelin Technology Limited	1,133
PrimaryBid Limited	950
River Lane Research Limited	901
Back Office Technology Limited	720
Evonetix Limited	692
Roomex Ltd	465
StreetTeam Software Limited	316
Push Dr Limited	117
	8,929
GlaxoSmithKline plc**	1,968
J Sainsbury plc**	514
	2,482
	11,411

DISPOSALS

	Cost	Value at 1 April 2020*	Proceeds	Profit/(loss) vs cost	Realised gain/(loss)
	£’000	£’000	£’000	£’000	£’000
Quoted investments
GlaxoSmithKline plc**	1,968	1,968	1,987	19	19
J Sainsbury plc**	514	514	511	(3)	(3)
Venture Capital Investments
Ridee Limited	500	–	–	(500)	–
EDO Consulting Limited	125	–	–	(125)	–
Retention Proceeds
Pod Point Holdings Limited	–	–	22	22	22
	3,107	2,482	2,520	(587)	38

* Adjusted for purchases in the year where applicable
**        Quoted on the Main Market of the London Stock Exchange

Directors’ responsibilities statement

The Directors are responsible for preparing the Report of the Directors, the Strategic Report, 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 judgements 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
• prepare a director’s report, a strategic report and director’s remuneration report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and 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.

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, 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 annual reports may differ from legislation in other jurisdictions.

INCOME STATEMENT
for the year ended 31 March 2021

	Year ended 31 March 2021				Year ended 31 March 2020
	Revenue	Capital	Total		Revenue	Capital	Total
	£’000	£’000	£’000		£’000	£’000	£’000
Income	104	–	104		585	–	585
Gains/(losses) on investments	–	9,770	9,770		–	(5,626)	(5,626)
	104	9,770	9,874		585	(5,626)	(5,041)
Investment management fees	(230)	(691)	(921)		(212)	(636)	(848)
Other expenses	(420)	–	(420)		(366)	–	(366)
Return/(loss) on ordinary activities before tax	(546)	9,079	8,533		7	(6,262)	(6,255)
Tax on return/(loss)	–	–	–		–	–	–
Return/(loss) attributable to equity shareholders, being total comprehensive income for the period	(546)	9,079	8,533		7	(6,262)	(6,255)
Basic and diluted return/(loss) per share	(0.5)	8.4	7.9		–	(7.8p)	(7.8p)

All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards (“FRS 102”). The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in October 2019 by the Association of Investment Companies (“AIC SORP”).

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2021

	Share capital	Capital Redemption reserve	Share Premium account	Merger reserve	Special reserve	Capital reserve -unrealised	Capital reserve – realised	Revenue reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
For the year ended 31 March 2020
At 1 April 2019	3,436	599	–	1,828	22,545	8,403	2,174	(16)	38,969
Total comprehensive income	–	–	–	–	–	(5,746)	(516)	7	(6,255)
Transfer between reserves*	–	–	–	–	(3,281)	1,760	1,521	–	–
Transactions with owners
Issue of new shares	595	–	6,388	–	–	–	–	–	6,983
Share issue costs	–	–	–	–	(185)	–	–	–	(185)
Purchase of own shares	(34)	34	–	–	(366)	–	–	–	(366)
Dividends paid	–	–	–	–	–	–	(2,403)	–	(2,403)
At 31 March 2020	3,997	633	6,388	1,828	18,713	4,417	776	(9)	36,743
For the year ended 31 March 2021
At 1 April 2020
Total comprehensive income	–	–	–	–	–	9,732	(653)	(546)	8,533
Transfer between reserves*	–	–	–	–	(2,565)	10	2,555	–	–
Transactions with owners
Issue of new shares	1,566	–	11,933	–	–	–	–	–	13,499
Share issue costs	–	–	–	–	(455)	–	–	–	(455)
Purchase of own shares	(26)	26	–	–	(230)	–	–	–	(230)
Dividends paid	–	–	–	–	–	–	(2,678)	–	(2,678)
At 31 March 2021	5,537	659	18,321	1,828	15,463	14,159	–	(555)	55,412

* A transfer of £10,000 (2020: £1,760,000), representing impairment losses during the year, as well as cumulative unrealised gains on investments which were disposed of during the year has been made from the Capital reserve – unrealised to the Capital Reserve – realised. A transfer of £704,000 (2020: £1,521,000), representing realised losses on investment disposals plus capital expenses in the year, has been made from Capital Reserve – realised to the Special reserve. A transfer of £1,861,000 (2020: £nil) from Special Reserve to Capital reserve-realised has been made to replenish the reserve.

BALANCE SHEET
at 31 March 2021

		31 Mar 2021			31 Mar 2020
	£’000	£’000		£’000	£’000
Fixed assets
Investments		44,756			26,095
Current assets
Debtors	78			2,416
Cash at bank and in hand	10,659			8,422
	10,737			10,838
Creditors: amounts falling due within one year	(81)			(190)
Net current assets		10,656			10,648
Net assets		55,412			36,743
Capital and reserves
Called up share capital		5,537			3,997
Capital redemption reserve		659			633
Share premium account		18,321			6,388
Merger reserve		1,828			1,828
Special reserve		15,463			18,713
Capital reserve – unrealised		14,159			4,417
Capital reserve – realised		–			776
Revenue reserve		(555)			(9)
Total equity shareholders’ funds		55,412			36,743
Basic and diluted net asset value per share		50.0p			46.0p

STATEMENT OF CASH FLOWS
for the year ended 31 March 2021

	31 Mar 2021		31 Mar 2020
	£’000		£’000
Cash flow from operating activities
Profit/(loss) on ordinary activities before taxation	8,533		(6,255)
(Gains)/losses on investments	(9,770)		5,626
Increase in debtors	(16)		(3)*
(Decrease)/increase in creditors	(15)		16
Net cash outflow from operating activities	(1,268)		(616)
Cash flow from investing activities
Purchase of investments	(9,011)		(7,608)*
Proceeds from disposal of investments	2,520		2,165
Net cash outflow from investing activities	(6,491)		(5,443)
Cash flow from financing activities
Equity dividends paid	(2,772)		(2,403)
Proceeds from share issue	13,499		6,983
Share issue costs	(501)		(165)
Purchase of own shares	(230)		(389)
Net cash inflow from financing activities	9,996		4,026
Net increase/(decrease) in cash	2,237		(2,033)
Cash and cash equivalents at start of year	8,422		10,455
Cash and cash equivalents at end of year	10,659		8,422
Cash and cash equivalents comprise
Cash at bank and in hand	10,659		8,422
Total cash and cash equivalents	10,659		8,422

*The prior year cash flow has been re-presented to reclassify £2.4 million of funds held for an investment from operating activities to investing activities.

NOTES TO THE ACCOUNTS
for the year ended 31 March 2021

1.    Accounting policies

General information

Draper Esprit VCT plc (“the Company”) is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales. The Company is a premium listed entity on the London Stock Exchange.

Basis of accounting
The Company has prepared its financial statements in accordance with the Financial Reporting Standard 102 (“FRS 102”) and in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in October 2019 (“SORP”) and with the Companies Act 2006.

Going concern
After reviewing the Company’s forecasts and projections, the Directors have a reasonable expectation that the major cash outflows of the Company (most notably investments, share buybacks and dividends) are within the Company’s control and therefore the Company has sufficient cash to meet its expenses and liabilities when they fall due. The impact of COVID-19 has been considered, more detail on these considerations can be found within the Corporate Governance report. As such, the Board confirms that the Company has adequate resources to continues in operational existence for at least 12 months from the date of approval of the financial statements. The Company therefore continues to adopt the going concern basis in preparing its financial statements as noted further within the Corporate Governance report within the annual report.

Presentation of Income Statement
In order to better reflect the activities of a venture capital trust, and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.

Investments
Investments are designated as “fair value through profit or loss” assets, upon acquisition, due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed, with a view to selling after a period of time, in accordance with the Company’s documented Investment Policy.

Listed fixed income investments and investments quoted on AIM and the Main Market are measured using bid prices in accordance with the International Private Equity and Venture Capital Valuation Guidelines (“IPEV”).

For unquoted instruments, fair value is established using the IPEV. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:

• Multiples;
• Industry valuation benchmarks;
• Discounted cash flows or earnings (of underlying business);
• Discounted cash flows (from the investment);
• Net assets; and
• Calibrating to the price of a recent investment.

The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value as explained in the investment accounting policy above.

Where an investee company has gone into receivership, liquidation, or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised. Permanent impairments in the value of investments are deemed to be realised losses and held within the Capital Reserve – Realised.

Gains and losses arising from changes in fair value are included in the Income Statement for the period as a capital item and transaction costs on acquisition or disposal of the investment expensed.

It is not the Company’s policy to exercise significant influence over investee companies. Therefore, the results of these companies are not incorporated in the Income Statement, except to the extent of any income accrued. This is in accordance with the SORP and FRS 102 sections 14 and 15 that do not require portfolio investments to be accounted for using the equity method of accounting.

Calibration to price of recent investment requires a level of judgment to be applied in assessing and reviewing any additional information available since the last investment date. The Board and Adviser consider a range of factors in order to determine if there is any indication of decline in value or evidence of increase in value since the recent investment date. If no such indications are noted the price of the recent investment will be used as the fair value for the investment.

Examples of signals which could indicate a movement in value are: –
Changes in results against budget or in expectations of achievement of technical milestones patents/testing/ regulatory approvals)
Significant changes in the market of the products or in the economic environment in which it operates
Significant changes in the performance of comparable companies
Internal matters such as fraud, litigation or management structure.

In respect of disclosures required by the SORP for the 10 largest investments held by the Company, the most recent publicly available accounts information, either as filed at Companies House, or announced to the London Stock Exchange, is disclosed. In the case of unlisted investments, this may be abbreviated information only.

Judgement in applying accounting policies and key sources of estimation uncertainty
The key estimates in the financial statements is the determination of the fair value of the unquoted investments by the Directors as it impacts the valuation of the unquoted investments at the balance sheet date.

Of the Company’s assets measured at fair value, it is possible to determine their fair values within a reasonable range of estimates. The fair value of an investment upon acquisition is deemed to be cost. Thereafter, investments are measured at fair value in accordance with FRS 102 sections 11 and 12, together with the IPEV.

Income
Dividend income from investments is recognised when the Shareholders’ rights to receive payment have been established, normally the ex-dividend date.

Interest income is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection. Where previously accrued income is considered unrecoverable a corresponding bad debt expense is recognised.

Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:

• Expenses which are incidental to the acquisition of an investment are deducted as a capital item.
• Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
• Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. The Company has adopted the policy of allocating investment manager’s fees, 75% to capital and 25% to revenue as permitted by the SORP. The allocation is in line with the Board’s expectation of long term returns from the Company’s investments in the form of capital gains and income respectively.
• Performance incentive fees arising are treated as a capital item.

Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company’s effective rate of tax for the accounting period.

Due to the Company’s status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company’s investments which arise.

Deferred taxation is not discounted and is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts.

A deferred tax asset is only recognised to the extent that it is probable there will be taxable profits in the future against which the asset can be offset.

Other debtors and other creditors

Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.

Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks with an original maturity of three months or less.

Dividends
Dividends payable are recognised as distributions in the financial statements when the company’s liability to make payment has been established, typically once declared by the Board or approved by Shareholders at the AGM.

Issue costs
Issue costs in relation to the shares issued are deducted from the special reserve.

Reportable segments
The Company has one reportable segment as the sole activity of the Company is to operate as a VCT and all of the Company’s resources are allocated to this activity.

2.        Basic and diluted return per share

	Year to 31 Mar 2021		Period to 31 Mar 2020
Basic and diluted return/(loss) per share	7.9p		(7.8p)
Return per share based on:
Net revenue (loss)/return for the financial year (£’000)	(546)		7
Net capital gains/(losses) for the financial year (£’000)	9,079		(6,262)
Total Return/(loss) for the financial year (£’000)	8,533		(6,255)
Weighted average number of shares in issue	108,677,601		80,113,600

As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed, therefore, represents both basic and diluted return per share.

3.        Principle Risks

The Company’s investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company’s operations are:

• Market risks;
• Credit risk; and
• Liquidity risk.

The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.

The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year-end are provided below.

Market risks
As a VCT, the Company is exposed to investment risks in the form of potential losses that may arise on the investments it holds in accordance with its Investment Policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.

The key investment risks to which the Company is exposed are:

• Investment price risk; and
• Interest rate risk.

The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation.

Investment price risk
Investment price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company’s investment objectives. It represents the potential loss that the Company might suffer through investment price movements in respect of quoted investments, and changes in the fair value of unquoted investments that it holds.

Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers and on liquidity funds at rates based on the underlying investments. Investments in loan notes and fixed interest investments attract interest predominately at fixed rates. A summary of the interest rate profile of the Company’s investments is shown below.

Interest rate risk profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the financial instruments as follows:

• “Fixed rate” assets represent investments with predetermined yield targets and comprise fixed interest and loan note investments.
• “Floating rate” assets predominantly bear interest at rates linked to Bank of England base rate and comprise cash at bank and Cash Trust investments.
• “No interest rate” assets do not attract interest and comprise equity investments, loans and receivables (excluding cash at bank) and other financial liabilities.

The Company monitors the level of income received from fixed, floating and non-interest rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.

The Bank of England base rate has been 0.1% per annum since March 2020. Any potential change in the base rate, at the current level, would have an immaterial impact on the net assets and Total Return of the Company.

Credit risk
Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan notes in investee companies, investments in fixed income securities, cash deposits and debtors.

The Manager manages credit risk in respect of loan notes with a similar approach as described under interest rate risk above. In addition, the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company’s business and its identifiable assets. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held at Bank of Scotland plc, with a balance also maintained at Royal Bank of Scotland plc, both of which are A-rated financial institutions. Consequently, the Directors consider that the risk profile associated with cash deposits is low.

There have been no changes in fair value during the year that can be directly attributable to changes in credit risk.

As at 31 March 2021, there were no loan notes where, although the principal remains within term, the investee company is not fully servicing the interest obligations under the loan note and is in arrears. (31 March 2020: £nil)

As at 31 March 2021 there were no loan stock balances whereby the principal amount had passed its maturity date (31 March 2020: £nil).

Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. The Company normally has a relatively low level of creditors (31 March 2021: £81,000, 31 March 2020: £190,000) and has no borrowings. The Company always holds sufficient levels of funds as cash and readily realisable investments in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company’s exposure to liquidity risk is minimal.

The Company’s liquidity risk is managed by the Investment Manager, in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.

4.        Related party transactions

Michael Jackson is a Director of Elderstreet Investments Limited which provided investment management services to the Company. During the year, £921,000 (2020: £848,000) was due in respect of these services. No performance incentive fees were due to Elderstreet Investments Limited in respect of the year under review (2020: £nil). As at 31 March 2021, £nil (2020: £nil) was outstanding and payable.

Nicholas Lewis is a partner of Downing LLP, which provides administration services to the Company. During the year, £65,000 (2020: £57,500) was due to Downing LLP in respect of these services. As at 31 March 2021, £nil (2020: £7,500) was outstanding and payable.

ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company’s statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 March 2021, but has been extracted from the statutory financial statements for the year ended 31 March 2021 which were approved by the Board of Directors on 2 July 2021 and will be delivered to the Registrar of Companies. The Independent Auditor’s Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 March 2020 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

A copy of the full annual report and financial statements for the year ended 31 March 2021 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at St. Magnus House, 3 Lower Thames Street, London EC3R 6HD and will be available for download from www.draperespritvct.com and www.downing.co.uk/existing-investor/draper-esprit-vct .