Annual Financial Report

THAMES VENTURES VCT 2 PLC
LEI: 21380035MV1VRYEXPR95

31 JULY 2024
FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2024

Thames Ventures VCT 2 plc, managed by Foresight Group LLP, today announces the final results for the year ended 31 March 2024. These results were approved by the Board of Directors on 31 July 2024.

The Annual Report will shortly be available in full at www.foresight.group/products/thames-ventures-vct-2-plc. All other statutory information can also be found there.

Financial Highlights

Investment Objectives

The Company’s principal objectives are to:

• invest in a portfolio of venture capital investments and liquidity investments;
• provide a full exit for Planned Exit Shareholders within approximately six years at no discount to NAV;
• maintain VCT status; and
• target an annual dividend of at least 4% of the respective Ventures and Healthcare NAVs, from the summer of 2021 onwards.

Chair’s Statement

Introduction

I present the Company’s audited Annual Report for the year ended 31 March 2024, which has been a difficult period for the Company.

Before commenting on events from the last financial year, I would first like to take the opportunity to highlight two key developments that have taken place since year end.

Firstly, as announced on 26 July 2024, I am pleased to report that the Company has entered discussions to merge with Thames Ventures VCT 1 plc (“TV1”). If approved by Shareholders of both companies, this merger would achieve costs savings, administration efficiency and increased scale - including access to more capital to deploy, which is a critical capability to protect and enhance value for Shareholders.

If the transaction proceeds, it is anticipated that each of the Company’s current Share Classes would roll into the Ordinary Share Class of TV1. The Board is cognisant of ensuring we act in the best interest of all Shareholders across our four remaining Share Classes, and, assuming the Boards of both companies agree terms, we anticipate formally announcing details of the structure of the proposed transaction and the benefits it would bring to all Shareholders within the next two months, with the transaction completing in the early Autumn.

Secondly, as Shareholders may be aware, the Company’s custodian of its quoted assets, IBP Capital Markets Limited (“IBP”), was put into special administration by the FCA in October 2023. Since then, the Investment Manager has been actively collaborating with the Joint Special Administrators (“JSA”) to achieve a resolution. I am pleased to inform Shareholders that last week we were granted access to c. 80% of the Company’s quoted assets again following an interim distribution by the JSA to our new custodian, with the remainder to follow in due course. A small provision of c. £80,000 has been made in the accounts to cover losses and costs of the JSA. Further details are provided later in my report below and in note 17 of the Annual Report and Accounts.

Turning to the year ended 31 March 2024, we have continued to see a challenging investment environment for small growth businesses. However, there have been some early signs of recovery in the UK market with decreasing inflation. Our focus has been to preserve value in our existing portfolio and to that end we have temporarily reduced dividends and suspended share buybacks to preserve cash.

Evergreen Share Class review
Ventures Share Class

With the challenging macroeconomic environment, a key focus for the Ventures Share Class portfolio over the year has been to support existing investments, where possible. During the year, £0.5 million was invested in four companies, three of which were existing portfolio investments.

The Ventures Share Class NAV at the year-end was 46.8p, representing a decrease of 11.35p per share or 19.1% over the year. This is after adding back the dividend of 1.25p per share, which was paid on 29 September 2023.

There has been a general decline in the portfolio valuations across the year, in line with sector trends of lower revenue and earnings multiples, due to economic concerns. Total valuation losses for the year were £5.3 million, however this was materially driven by two exceptional situations. The first of these was Cornelis Networks Inc, which decreased in value by £2.8 million, as a result of a round closing in the year which had very aggressive terms for those unable to participate. This was the case for the Company as the business was no longer VCT-qualifying, meaning under VCT rules, we were unable to invest further cash. The second write down was Limitless Technology Limited, which decreased in value by £0.7 million, as a result of one of the co-investors being on the UK sanctions list following the Russian invasion of Ukraine. This meant the business was unable to raise capital and, despite exploring all other options, it was eventually forced into administration. Further details on these investments are included in the Investment Manager’s Report on page 12 of the Annual Report and Accounts.

There were four full exits during the year, including the liquidity investment Downing Strategic Micro-Cap Investment Trust plc, generating total proceeds of £5.2m and a realised loss versus cost of £1.5 million. There were also three companies that were dissolved in the year taking total realised losses to £3.6 million.

A more detailed review of the Ventures Share Class is included in the Investment Manager’s Report on pages 10 to 13 of the Annual Report and Accounts.

Healthcare Share Class

The Healthcare Share Class, which continues to be managed by Downing LLP, had a limited level of investment over the year with one investment of £0.25 million made into TidalSense Limited (formerly Cambridge Respiratory Innovations Limited), an existing investment. There were, however, a total of four full and partial exits, generating total proceeds of £1.1 million.

The Healthcare Share Class NAV at the year-end was 41.5p, representing a decrease of 18.85p per share or 30.6% over the year after adjusting for the Healthcare dividend of 1.25p per share, which was paid on 29 September 2023.

The Healthcare Share Class remains heavily exposed to the relatively volatile AIM market, with nearly 30% of the Class’s value accounted for by the three AIM-quoted investments. All of these investments: Arecor Therapeutics plc, GENinCode plc and Destiny Pharma plc, decreased further in valuation during the year, making up £2.0 million of the £4.1 million total valuation loss. The remaining £2.1 million valuation loss was driven by further write-downs including in Congenica Ltd (£0.9 million), Invizius Limited (£0.5 million), The Electrospinning Company Limited (£0.4 million) and TidalSense Limited (£0.3 million).

A more detailed review of the Healthcare Share Class is included in the Investment Manager’s Report on pages 21 to 22 of the Annual Report and Accounts.

AIM Share Class

The AIM Share Class launched in 2022 and is a small Class with net assets of £2.7 million. The AIM market remains tough meaning no AIM investments were made in the year, although funds have been placed in a money market fund and an equity income fund. This Share Class has demonstrated good performance relative to other AIM funds during the year.

The AIM Share Class NAV stood at 101.8p at the year end, representing an increase of 0.7p per share or 0.7% in NAV over the year.

Planned Exit Share Class review

I am pleased to report that the wind up of the DSO D Share Class is now complete with a total return of 104.7p per share, before tax relief, now distributed to Shareholders. As at 31 March 2024, there remains just one Planned Exit Share Class, DP67.

DP67 Share Class

The remaining value in the DP67 Share Class portfolio is in two investments which are both in the hospitality sector.

As at 31 March 2024, the DP67 Share Class NAV stood at 26.3p and Total Return stood at 94.1p per share, an increase of 1.5p per share, equivalent to 1.6% in Total Return terms since 31 March 2023.

Gatewales has ceased trading and we are expecting final proceeds in the near future.

Cadbury House Holdings Limited owns a four-star boutique hotel, conference centre and leisure facility in Congresbury, Bristol. The property has been actively marketed for sale for some time now, however the current market is weak, and the Investment Manager is keen to avoid a sale at undervalue. Whilst there have been offers received during the year, the Company took the decision not to accept these in order to secure the best possible return for Shareholders. The investment remains held at the same value as reported at the end of last year and loan interest continues to be recognised in full, providing the Share Class with £194,000 of income during the year, with this balance included within debtors at year end.

A more detailed review of the DP67 Share Class is included in the Investment Manager’s Report on page 33 of the Annual Report and Accounts.

DSO D Share Class

The exit from the two final assets in this Share Class completed during the year with £39,000 of liquidation proceeds received.

The Share Class has since been fully wound up with final distributions made to shareholders. A more detailed review of the DSO D Share Class is included in the Investment Manager’s Report on page 31 of the Annual Report and Accounts.

Responsible investment

The Board notes the commitment of the Investment Manager, Foresight Group, to being a “Responsible Investor”. Foresight places Environmental, Social and Governance (“ESG”) criteria at the forefront of its business and investment activities in line with best practice and in order to enhance returns for their investors.

Further detail on the Investment Manager’s approach to responsible investment, including the key principles and their screening approach, can be found on pages 38 to 40 of the Annual Report and Accounts.

Special Administration of the Company’s Custodian of Quoted Assets

As previously reported, since March 2022, the Company has used IBP Capital Markets Limited ("IBP") as custodian for its quoted investments. Appointing a custodian is a requirement of the FCA, and IBP is an FCA authorised and regulated wholesale broker, providing custody services and access to equity and fixed income securities for non-retail clients (which includes the Company). On 13 October 2023, the FCA published a supervisory notice under section 55L(3)(a) of the Financial Services and Markets Act 2000, imposing certain restrictions on IBP. On the same date, IBP applied to the High Court and special administrators were appointed.

As noted earlier in my report, the Investment Manager has been working to resolve this issue, which has involved reconciling quoted stocks (“Custody Assets”) and cash (“Client Money”) held with IBP. As at 13 October 2023, the Company held Client Money of £26,379, all within the Healthcare Share Class (0.2% of indicative Healthcare NAV on the same date), and Custody Assets of £8,448,179 split between the Ventures Share Class: £3,127,539; Healthcare Share Class: £3,406,697; and AIM Share Class: £1,913,943.

As at 31 March 2024, regarding Custody Assets, all quoted holdings were reconciled and regarding Client Money the Company has been notified of a potential 44% cash shortfall, equating to £11,607 impacting the Healthcare Share Class only. This has been provided for. Further to this, fees to the special administrators in the region of £68,000 have been accrued, split between the relevant Share Classes. The total exposure to the Company is therefore anticipated to be around £80,000. Full details are provided in note 17 on page 99 of the Annual Report and Accounts.

The ultimate outcome remains subject to change, with the final distribution plan being shared following the court proceedings, timing of which is currently uncertain. The Company will communicate with Shareholders if there is any new information which materially impacts the numbers presented in this Annual Report.

VCT Qualification

At 31 March 2024, qualifying investments represented 89.6% of total investments (including cash). The Board expects that the minimum VCT qualification level of 80% will continue to be maintained for the foreseeable future.

Fundraising

With the uncertainty brought about by the special administration of the custodian of the Company’s quoted stocks, we have not been in a position to raise new funds since then.

With visibility over the outcome of the IBP situation now improved, and discussion underway for a merger with TV1, the strategic direction of the Company with regards to fundraising will be communicated with Shareholders in the near future.

Dividends

The Company has a target of seeking to pay annual dividends for the Ventures and Healthcare Share Classes of 4% of the respective NAVs per annum, however this is contingent on a number of criteria, including cash availability.

On this basis, given the current focus on preserving cash, the Board is proposing to pay reduced final dividends of 0.25p per Ventures Share and 0.25p per Healthcare Share on 18 October 2024, to Shareholders on the register as at 4 October 2024. The proposed dividends are subject to Shareholder approval at the forthcoming AGM.

Following the payment of the proposed dividends, the Company will have paid cumulative dividends of 9.5p per Ventures Share and 10.25p per Healthcare Share.

Further dividends in respect of the DP67 Share Class will be paid once Cadbury House has been exited. No dividends are expected to be paid by the AIM Share Class in its initial years.

Share buybacks

The Company usually operates a policy of buying back its own shares that become available in the market, subject to regulatory and liquidity factors. The Board reviews this policy on a regular basis and will make appropriate adjustments as it sees fit. Any such purchases are undertaken at a price approximately equal to NAV (i.e. at a nil discount).

Following a period of uncertainty relating to IBP, the Board decided to pause the buyback scheme. Whilst there is now improved visibility regarding the outcome of the IBP situation, and the impact to the Company is expected to be minimal, restrictions on cash resources remain. On this basis, the Board has decided not to reinstate share buybacks for the Ventures, Healthcare and AIM Share Classes at this time. The Board, however, continues to review plans for the future of the Company, notably with regards to the proposed merger with TV1, which will allow a clear strategy for the allocation of the Company’s cash resources to be drawn up.

As the focus for the one remaining Planned Exit Share Class is on returning funds to Shareholders via distributions, the Company will not undertake any further buybacks in respect of this Share Class.

Panmure Liberum continues to act as the Company’s corporate broker, operating the share buyback process and ensuring that the quoted spread on the Company’s shares remains at a reasonable level.

There were no shares repurchased for the Ventures or Healthcare Share Classes during the year ended 31 March 2024.

Change of Company Secretary and Registered Office

As previously reported, Foresight Group LLP was appointed as Company Secretary effective from 12 September 2023, succeeding Grant Whitehouse. I would like to take this opportunity to thank Grant for his many years of loyal service.

Annual General Meeting (“AGM”)

The Company invites Shareholders to attend this year’s AGM in person. The AGM is planned to take place at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG at 4.00 p.m. on 24 September 2024.

Shareholders wishing to attend the AGM are requested to please notify Foresight Group LLP via email, to [email protected], in case there are changes to arrangements which need to be communicated at short notice.

This year, Shareholders will be able submit proxy votes electronically. The details required for voting will be sent to each Shareholder. The deadline for proxy votes to be received is 4.00 p.m. on 20 September 2024.

Outlook

Although the main Share Classes have seen their portfolios fall in value over the year, these movements are in line with general market conditions for young growth businesses. The Board is cognisant that it takes time to nurture and realise value from companies, whereas economic turmoil pushes weaker companies into difficulty.

Whilst the Board acknowledges it has been another difficult year, resulting in a continuing decline in NAV, there have been some early signs of recovery with a number of interesting developments in the portfolio. The Board remains generally satisfied that the Ventures and Healthcare portfolios have a sufficient number of stronger investments to generate growth in the future.

The Board and the Investment Managers have continued to focus on securing exits in the portfolio, in particular of the legacy investments, to drive liquidity events. An example of this was the sale of Downing Strategic Micro-Cap Investment Trust plc, following disappointing performance. This generated more than £3.3 million of cash.

In respect of the Planned Exit Share Classes, the Board is very pleased to confirm the full winding up of the DSO D Share Class in the year and is hopeful the DP67 Share Class will follow in the coming year.

As previously noted, the Board has been actively considering options for the future of the Company, looking to pursue any that it concluded may benefit Shareholders and allow the Company to be better placed to serve them.

Following the announcement made on 26 July 2024 that the Company is actively considering merging with TV1, the Board is very much looking forward to this next chapter and the benefits it will undoubtedly bring to Shareholders. I will, of course, report any significant developments to this end to Shareholders as things progress.

Sir Aubrey Brocklebank Bt.
Chair
31 July 2024

Investment Manager’s Report - Ventures Share Class

i. Overview
Introduction

We present a review of the investment portfolio and activity for the Ventures Share Class for the year ended 31 March 2024.

This Investment Manager’s Report is split into three sections comprising this overview, a review of the Ventures Capital portfolio and a report on the portfolio of Liquidity Investments.

Net Asset Value and results

As at 31 March 2024, the Ventures Share NAV at the year-end was 46.8p, representing a decrease of 11.35p per share or 19.1% over the year. This is after adding back the dividend of 1.25p per share, which was paid on 29 September 2023.

The return on ordinary activities for the Ventures Share Class for the year was a loss of £6.0 million (2023: loss of £3.2 million), comprising a revenue loss of £566,000 (2023: loss of £494,000) and a capital loss of £5.5 million (2023: loss of £2.7 million).

It is disappointing to report the Total Return to Shareholders as at 31 March 2024 of 56.05p which continues to be considered an underperformance against our expectations for the Ventures Share Class.

A final dividend of 0.25p per share is proposed to be paid on 18 October 2024, to Shareholders on the register at 4 October 2024.

Portfolio Overview

As at 31 March 2024, the Ventures Share Class held a portfolio of 32 Venture Capital investments with a total value of £17.8 million. The one Liquidity investment brought forward, Downing Strategic Micro-Cap Investment Trust plc (“DSM”), was sold on 26 March 2024.

The year has continued to be challenging for businesses in the UK and internationally, caused by the impact of the economic downturn with rising rates of inflation and interest. However, whilst it remains early days, there have been some recent signs of potential recovery with some interesting updates across the portfolio, in particular with regards to access to capital and fund raising.

The investment team continue to work closely with portfolio companies to provide guidance and, where appropriate, additional funding in support of potential value growth which has made up the majority of investment activity in the year ended 31 March 2024.

The valuation movements during the period are discussed in more detail in the following sections of this Investment Manager’s Report.

Portfolio Performance

Overall, several valuation uplifts in the Venture Capital Portfolio were outweighed by a number of valuation decreases during the period, resulting in a net valuation decrease of £5.3 million across the portfolio. The one Liquidity Investment brought forward was exited during the year, details of which are provided in the disposal table on page 37 of the Annual Report and Accounts.

ii. Ventures Portfolio
Investment activity

During the year, a total of £0.5 million was invested in four businesses, three of which were follow-on investments into existing portfolio companies.

New Ventures investments

A total of £0.1 million was invested into new VCT Qualifying investment, EM Scientific Limited (trading as Inoviv), during the year. Inoviv has a long-term data play in drug discovery and trials, having developed novel precision biomarker technology which helps pharmaceutical customers run drug trials more efficiently. This investment will enable Inoviv to further accelerate their commercial plans, including facilitating the development of tests across more diseases.

Follow-on Ventures investments

A total of £0.4 million was invested as follow-on capital into existing businesses in the Venture Capital Portfolio.

These were £200,000 into Cambridge Touch Technologies Ltd, a company developing pressure sensitive multi touch technology, £150,000 into Maestro Media Limited, a talent-led, e-learning media platform of multichannel e-commerce technology and £50,000 into Virtual Class Ltd (trading as Third Space Learning), a platform offering personalised online lessons from specialist tutors.

Realisations

There were three full exits during the year from the Venture Capital portfolio and one full exit from the Liquidity investments. Total proceeds of £5.2 million were generated, producing a realised loss over cost of £1.5 million. There were also three dissolutions in the year taking total realised losses to £3.6 million.

Imagen Limited is a Software as a Service (“SaaS”) video management platform which holds both current and archive footage for major sporting organisations and news outlets. The company was sold for initial cash consideration of £1.7 million at a gain over cost of £0.7 million. There was also £0.2 million of deferred consideration received taking total proceeds to £1.9 million and a total gain over cost of £0.9 million.

There was also £450,000 received in relation to the exit of Maverick Pubs (Holdings) Limited. This was a distribution of capital reserves following the sale of this real estate development company. Maverick Pubs (Holdings) was seeking to build quality freehold pubs in and around London, however it was adversely impacted by the COVID pandemic, being forced to shut sites, and the subsequent impact of the UK economic downturn. The Company had invested £1.0 million, resulting in realised losses of £550,000.

LineTen Limited was also sold in the period generating nil return on the £400,000 investment.

The one brought forward liquidity investment in Downing Strategic Micro-Cap Investment Trust plc (“DSM”) was liquidated in full during the year, returning cash proceeds of £2.9 million. Previous to this, DSM announced that the fund was going to commence a managed wind-down of its portfolio, therefore this outcome is preferential to the Company in terms of unlocking liquidity. This exit resulted in a realised loss over cost of £1.4 million.

Portfolio valuation

During the year, the Venture Capital portfolio of the Ventures Share Class recognised a decrease in the valuation of investments of £5.3 million, including unrealised foreign exchange losses of £124,000.

Whilst there have been a number of positive developments within the Venture Capital portfolio, this was offset by the reduction in value of several companies, predominantly due to underperformance in a challenging macroeconomic environment and restricted access to capital. Of the £5.3 million total valuation loss, the most significant movements are noted below.

The largest gain in value was in Funding Xchange Limited, a fintech platform delivering SME lenders insights into their portfolio trends, was uplifted £591,000 during the year as a result of closing a £5m investment from Barclays in February 2024 as part of the company’s Series B funding round. This revaluation is the result of a calibration to the price set by this funding round.

Masters of Pie Limited, developer of “Radical”, a software solution that enables remote sharing and collaboration on large data sets, was uplifted by £369,000 as a result of improved performance following some significant contract wins.

Carbice Corporation, which has developed a suite of products based on its carbon material called Carbice Carbon, is primarily used as thermal management solutions to enable greater thermal conductivity. The valuation was increased by £352,000, as a result of the company accessing more capital in the year and launching its Series B funding round.

Cambridge Touch Technologies Ltd, a company developing pressure sensitive multi touch technology, was uplifted £116,000 during the year as a result of a funding round which closed in June 2024, which the VCT participated in. This revaluation is the result of a calibration to the price set by this funding round.

Maestro Media Limited (trading as BBC Maestro), a talent-led, e-learning media platform of multichannel e-commerce technology, increased in value by £110,000 as a result of a calibration to the price set by a funding round during the year, supported by a strong trading year.

Trinny London Limited, a cosmetics and skincare brand, was uplifted by £102,000 due to increased confidence in consumer spending and improved trading performance during the year.

Six other investments in the Venture Capital portfolio make up additional investment valuation gains of £410,000.

There were also a number of valuation losses recognised during the year. Some of these came from the more vulnerable businesses within the portfolio, however there were two material movements in the year that were exceptional circumstances and out of the investment team’s control.

These were Cornelis Networks Inc. (£2.8 million, including foreign exchange losses) and Limitless Technology Limited (£703,000).

Cornelis Networks Inc., which delivers purpose-built high-performance fabrics for High Performance Computing (“HPC”), High Performance Data Analytics (“HPDA”) and Artificial Intelligence (“AI”), went through an internal funding round in the year, which resulted in existing investors who were unable to participate being heavily diluted. The VCT was unable to participate as the company exceeded the VCT-qualification threshold for gross assets, meaning the VCT’s position was severely impacted, which is reflected in the year-on-year movement in valuation.

Limitless Technology Limited, the developer of a crowdsourced customer service platform, was unable to access additional capital as a result of one of the co-investors being on the UK Sanctions List following the Russian invasion of Ukraine. This ultimately resulted in the company going into administration and the carrying value has therefore been written down to nil.

Other investment valuation decreases include Hackajob Ltd, a recruitment platform for technical hires, which was revalued downwards by £651,000 to account for trading headwinds in the UK as a result of the challenging economic environment.

Congenica Ltd, which has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients, has been written down to nil in the year. This led to a valuation decrease of £605,000, as a result of its struggle to raise funding. As a result, Congenica has entered a sales process but it is highly unlikely there will be any return to the Company.

Upp Technologies Group Ltd, a provider of multichannel e-commerce technology, was decreased in value by £442,000 as a result of a calibration to the price set by a funding round during the year.

Virtual Class Ltd, (trading as Third Space Learning), a platform offering personalised online lessons from specialist tutors, decreased in carrying value by £425,000 during the year. This was driven by a challenging market in the UK, with the government recently announcing the National Tutoring Programme will not be extended.

CommerceIQ Inc, the pioneer in helping brands win on retail e-commerce channels, decreased in value by £417,000 during the year, including foreign exchange losses. The company continues to perform well, growing revenues during the period and supported by a very strong balance sheet. This valuation movement is therefore simply a reflection of wider market conditions.

Arecor Therapeutics plc has fallen in value by £378,000. This investment is listed on AIM and is a leader in developing superior biopharmaceuticals through the application of its innovative formulation technology platform. The valuation is marked to market and this movement is reflective of a flat trading year. We eagerly await further clinical readouts and partnering opportunities.

Parsable Inc., a provider of software to improve operational efficiencies in the industrial and manufacturing sectors, has also been impacted by the macroeconomic environment. Losing a significant customer has led to a valuation decrease of £347,000, including foreign exchange losses.

Rated People Limited, an online marketplace connecting homeowners and local tradespeople, reduced in carrying value by £236,000, as a result of trading headwinds and access to capital.
    
There were four other investments which decreased in valuation during the year totalling losses of £356,000.

Aside from Limitless Technology Limited and Congenica Ltd, there were no further investments written down to nil in the year.

iii. Liquidity Investments

As noted, the one remaining investment in the Healthcare Liquidity portfolio was DSM which was sold on 26 March 2024, returning cash proceeds of £2.9 million. There are no further Liquidity Investments.

Outlook

It has been another challenging year for the Venture Capital market, and especially for certain sectors the Company invests in. Having said that, more recently there have been a few very early signs of some recovery in the market so we are hopeful this will continue through the next financial year.

The Investment Manager continues to review plans for the future of the Company notably with regards to the proposed merger with Thames Ventures VCT 1 plc, which will allow a clear strategy for the allocation of the Company’s cash resources to be drawn up.

Foresight Group LLP
31 July 2024

An investment summary is shown on page 14 of the Annual Report and Accounts.

Top ten investments by value are shown on pages 15 to 18 of the Annual Report and Accounts.

Additions and disposals for the year ended 31 March 2024 are shown on pages 36 and 37 of the Annual Report and Accounts.

Healthcare Share Class
Investment Manager’s Report - Healthcare Share Class

i. Overview
Introduction

We present a review of the investment portfolio and activity for the Healthcare Share Class over the year ended 31 March 2024.

This Investment Manager’s Report is split into three sections comprising this overview, a review of the Healthcare Portfolio and a report on the portfolio of Liquidity Investments.

Net Asset Value and results

As at 31 March 2024, the NAV of a Healthcare share stood at 41.5p, a decrease of 18.85p (30.6%) over the year after adding back the Healthcare dividend, of 1.25p per share, which was paid on 29 September 2023.

The loss on ordinary activities for the Healthcare Share Class for the year was £4.5 million (2023: loss of £4.3 million), being a revenue loss of £328,000 (2023: loss of £272,000) and a capital loss of £4.2 million (2023: loss of £4.0 million).

The Total Return to Shareholders as at 31 March 2024, of 51.5p, continues to be considered an underperformance against our expectations for the Healthcare Share Class.

A proposed final dividend of 0.25p per share will be paid on 18 October 2024, to Shareholders on the register at 4 October 2024.

Portfolio Overview

As at 31 March 2024, the Healthcare Share Class held a portfolio of twelve Healthcare investments valued at £7.3 million. The one Liquidity investment brought forward, Downing Strategic Micro-Cap Investment Trust plc (“DSM”), was sold on 26 March 2024.

Portfolio Performance

There were several valuation movements in the Healthcare Portfolio during the year, resulting in a total valuation loss of £4.1 million.

ii. Healthcare Portfolio
Investment activity

During the year, £250,000 was invested in one business, a follow-on investment into existing investee company, TidalSense Limited (formerly Cambridge Respiratory Innovations Limited). TidalSense is a leading MedTech company that creates ground-breaking respiratory technologies.

There were full and partial disposals of four investments during the year, excluding dissolutions, with total proceeds received of £1.1 million.

Full disposals in the year were:

DiA Imaging Analysis Limited, a developer and seller of AI ultrasound imaging analysis solutions with the aim of assisting current operators and reducing the experience and technical know-how required for future operators, was sold in May 2023 with cash proceeds of £393,000. The Company continues to recognise £91,000 of deferred consideration related to the exit.

Adaptix Limited, a MedTech 3D X-ray business, was sold during the year to Avingtrans plc in exchange for shares in this quoted company. The Company then made a decision to liquidate this holding, returning cash proceeds of £212,000 to the Company.

The one brought forward liquidity investment in DSM was liquidated in full during the year, returning cash proceeds of £487,000. Previous to this, DSM announced that the fund was going to commence a managed wind-down of its portfolio, therefore this outcome is preferential to the Company in terms of unlocking liquidity.

There was one partial disposal of quoted investments, GENinCode plc, returning cash proceeds of £30,000. GENinCode products combine genetic and clinical data to risk assess patients and
provide healthcare practitioners with advanced clinical information to evaluate and predict the onset of cardiovascular disease.

Portfolio valuation

During the period, the Healthcare portfolio of the Share Class decreased in value by a total of £4.1 million.

Excluding disposals and three investments recording no movement in valuation, all but one of the investments decreased in value during the period, totalling valuation losses of £4.2 million across eight investments. The one investment which increased in value was MIP Discovery Limited. This company designs and produces synthetic affinity reagents for detection, capture and purification of viral vectors in cell and gene therapy. The valuation increase of £16,000 was as a result of a funding round which closed and to which the valuation is calibrated to. Valuation movements on disposals totalled gains of £67,000 across three investments.

The valuation losses relate to:

Arecor Therapeutics plc (£1.4 million), is listed on AIM and is a leader in developing superior biopharmaceuticals through the application of its innovative formulation technology platform. The valuation is marked to market and this movement is a result of the wider macroeconomic challenges.

Congenica Ltd (£865,000), has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients. This investment has been written down to nil in the year as a result of its struggle to raise funding. As a result, Congenica has entered a sales process, but it is highly unlikely there will be any return to the Company.

GENinCode plc (£622,000) is listed on AIM and therefore marked to market. This decrease in valuation is considered to be a result of the wider macroeconomic challenges.

Invizius Limited (£499,000) is developing novel primers with the aim of reducing adverse inflammatory responses. The decrease in valuation of this investment is driven by Invizius’ need to fundraise with access to capital being very challenging in the current market. Invizius has, however, completed its clinical trial with data showing that it meaningfully improves the biomarker profile of patients using its product.

The Electrospinning Company Limited (£408,000) is a supplier and manufacturer of clinical-grade biomaterials. This investment has also decreased in valuation as a result of the challenges to access capital.

TidalSense Limited (formerly Cambridge Respiratory Innovations Limited) (£262,000) was written down in the period as a result of the company requiring additional funding, which is likely to be an internal round, however TidalSense continues to make strong progress and build partner traction with Big Pharma.

There were two other investments which decreased in valuation during the year totalling losses of £177,000.

iii. Liquidity Investments

As noted, the one remaining investment in the Healthcare Liquidity portfolio was DSM which was sold on 26 March 2024, returning cash proceeds of £487,000. There are no further Liquidity Investments.

Outlook

Macroeconomic factors continue to impact the financial markets with a knock-on impact on the venture capital funding environment as many venture funds choose to focus on supporting their existing portfolios rather than looking to add new positions. This has been the case for the Healthcare Share Class, and access to capital has also been a material challenge for much of the portfolio.

There are, however, some investments in the portfolio starting to make commercial progress and could therefore become attractive targets, as evidenced by some of the exits in the year. The investment team will continue to focus on extracting value from the existing portfolio wherever possible.

Downing LLP – Healthcare Ventures Team
31 July 2024

An investment summary is shown on page 23 of the Annual Report and Accounts.

Top five investments by value are shown on pages 24 and 25 of the Annual Report and Accounts.

Additions and disposals for the year ended 31 March 2024 are shown on pages 36 and 37 of the Annual Report and Accounts.

AIM Share Class
Investment Manager’s Report - AIM Share Class

Introduction

The fundraising for the AIM Share Class was launched in August 2021 at a time when markets were performing well, as the economy started to rebound from the release of the constraints of the pandemic. At that time, we were seeing a steady flow of potentially attractive IPOs on AIM which were eligible for investment by VCTs.

The world has changed dramatically since then with the conflict in Ukraine, the Middle East, Gaza and Israel, increased tensions between China and Taiwan, political uncertainty, recessionary fears, continued high inflation and increasing interest rates combining to shake investor confidence, resulting in an extended period when there were no suitable investment opportunities for the Share Class.

In view of the lack of AIM-IPOs we invested a proportion of the funds raised in a cash fund and equity income fund looking to produce some returns from the uninvested funds.

Net Asset Value and results

As at 31 March 2024, the NAV of an AIM share stood at 101.8p, an increase of 0.7p (0.7%) over the year.

IBP Capital Markets Limited

Since it was announced on 13 October 2023 that IBP Capital Markets Limited (“IBP”), the custodian of the Company’s quoted investments, was entering Special Administration, the Investment Manager has been unable to trade any of the quoted stocks.

The Investment Manager has been actively collaborating with the special administrators to reconcile the quoted positions, and is pleased to report no differences of value in quoted holdings have been identified as at 31 March 2024.

As noted in the Chair’s Statement and note 17 of the Annual Report and Accounts, the Company has recently recovered c.80% of the eligible quoted portfolio, with the remaining c.20% expected to be recovered following court proceedings. Whilst the outcome remains subject to change, the Company will be able to return to normal management of the portfolio following this initial distribution.

Outlook

Despite the frustrations of not being able to invest the Share Class’s funds as planned, it is pleasing to be able to report a positive return when, over the same period, the AIM market in general has suffered substantial losses.

With the challenge of investing the Share Class’s funds and the fact that the class is very small in size, we are discussing plans for the future of the class with the Board and seeking to find a strategy which is in Shareholders’ best interests.

Downing LLP
31 July 2024

An investment summary is shown on page 29 of the Annual Report and Accounts.

DSO D Share Class
Investment Manager’s Report - DSO D Share Class

Introduction

Proceeds from the two remaining investments in this Share Class were received in the year ended 31 March 2024 and all funds have been returned to DSO D Shareholders, with the Share Class now formally wound up.

Investments

As at 31 March 2023, the DSO D Share Class held two investments, Pearce and Saunders Limited and Pearce and Saunders DevCo Limited, with a total value of £16,000. The final pub was sold some time ago and an Insolvency Practitioner was appointed to distribute funds via a liquidation.

During the year ended 31 March 2024, final distributions were made returning £39,000 in liquidation proceeds from Pearce & Saunders Limited. There were no further distributions from Pearce and Saunders DevCo Limited.

Return to Shareholders

On 28 March 2024, the Company announced that it had completed a programme of returning funds to holders of the DSO D Shares, culminating with dividend payments of 2.7p per DSO D Share paid on 28 March 2024.

Following the payment of this dividend, the Company has now returned all the capital associated with the DSO D Shares to Shareholders and divested of all investments held in the portfolio, with the payment of the dividend marking the end of the life cycle of the DSO D Shares.

Foresight Group LLP
31 July 2024

Additions and disposals for the year ended 31 March 2024 are shown on pages 36 and 37 of the Annual Report and Accounts.

Investment Manager’s Report - DP67 Share Class

Introduction

The process of seeking to realise the remaining investments for optimal proceeds and returning funds to DP67 Shareholders continues.

Net Asset Value and results

The Net Asset Value (“NAV”) per DP67 Share at 31 March 2024 stood at 26.3p, an increase of 1.5p or 1.6% in Total Return terms during the year. Total Return stands at 94.1p per DP67 Share, compared to initial cost to Shareholders, net of income tax relief, of 70.0p per share. Compared to the initial NAV of 100.0p, we consider the Total Return to be an underperformance against the original expectations for the DP67 Share Class.

The gain on ordinary activities after taxation for the year was £168,000 (2023: loss of £221,000), comprising a revenue gain of £7,000 (2023: loss of £92,000) and a capital gain of £161,000 (2023: loss of £129,000).

Investments

As at 31 March 2024, the DP67 Share Class held a portfolio of two investments of value, with that value totalling £1.3 million.

Portfolio activity

Excluding the formal dissolutions of Yamuna Renewables Limited and London City Shopping Centre Limited in the year, there were no additions or disposals.

Portfolio valuation

During the year, the valuation of the remaining DP67 Share Class increased in value by a total of £137,000 (2023: £nil).

Following a distribution from the underlying business which sold its hotel asset, in which Gatewales Limited holds an interest, it is estimated that the DP67 Share Class will shortly receive £481,000, an increase of £137,000 from previously recognised.

Attempts by Cadbury House Holdings Limited to sell its conference centre and hotel property have been ongoing for some months now. During the year, no offers have been received that match the target valuation and therefore, the decision was made to continue to market the property until a buyer is found with an offer at an appropriate price. The DP67 Share Class’s holding remains held at the same value as reported at the end of last year and loan interest continues to be recognised in full, providing the Share Class with £194,000 of income during the year.

Outlook

The challenge now is to achieve an exit from Cadbury House Holdings Limited at an acceptable valuation. The market for this type of assets is currently weak but we believe it is in the best interests of Shareholders not to sell at undervalue even if this means the final exit takes longer. Further dividends will be paid once the final realisations have taken place.

Foresight Group LLP
31 July 2024

An investment summary is shown on page 34 of the Annual Report and Accounts.

Additions and disposals for the year ended 31 March 2024 are shown on pages 36 and 37 of the Annual Report and Accounts.

Audited Income Statement
for the year ended 31 March 2024

The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standard 102 (“FRS 102”). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in July 2022 by the Association of Investment Companies (“AIC SORP”).

Audited Balance Sheet
as at 31 March 2024

The financial statements on pages 76 to 100 of the Annual Report and Accounts were approved and authorised for issue by the Board of Directors on 31 July 2024 and were signed on its behalf by:

Sir Aubrey Brocklebank Bt.
Chair
Company number: 06789187

Statement of Changes in Equity
for the year ended 31 March 2024

*A transfer of £nil (2023: £454,000) representing previously recognised realised gains and losses on disposal of investments during the period has been made between the Revaluation Reserve and the Capital reserve - realised. A transfer of £nil (2023: £2,540,000) representing the total of: realised losses on the disposal of investments, cumulative realised losses on permanent fair value change, capital expenses and capital dividends in the period, has been made between the Capital Reserve - realised and the Special reserve.

Cash Flow Statement
for the year ended 31 March 2024

Notes

1. These are not statutory accounts in accordance with S436 of the Companies Act 2006. The full audited accounts for the year ended 31 March 2024, which were unqualified and did not contain statements under S498(2) of the Companies Act 2006 or S498(3) of the Companies Act 2006, will be lodged with the Registrar of Companies. Statutory accounts for the year ended 31 March 2024 including an unqualified audit report and containing no statements under the Companies Act 2006 will be delivered to the Registrar of Companies in due course.

2. The audited Annual Financial Report has been prepared on the basis of accounting policies set out in the statutory accounts of the Company for the year ended 31 March 2024. All investments held by the Company are classified as ‘fair value through the profit and loss’. Unquoted investments have been valued in accordance with IPEV guidelines. Quoted investments are stated at bid prices in accordance with the IPEV guidelines and Generally Accepted Accounting Practice.

3. Copies of the Annual Report will be sent to shareholders and can be accessed on the following website: www.foresight.group/products/thames-ventures-vct-2-plc.

4. Basic and diluted Net Asset Value per share

*Includes 13,976,149 (2023: 13,976,149) Ventures Management Shares and 5,712,064 (2023: 5,712,064) Healthcare Management Shares, which have not been included in the calculation of Net Asset Value per share as the right to distributions on the Management Shares is waived until certain performance hurdles have been met, as described on pages 9 and 20 of the Annual Report and Accounts.

The Directors allocate the assets and liabilities of the Company between the DSO D Shares, DP67 Shares, Ventures Shares, Healthcare Shares and AIM Shares such that each Share Class has sufficient net assets to represent its dividend and return of capital rights, as described in note 12 of the Annual Report and Accounts.

As the Company has not issued any convertible shares or share options, there is no dilutive effect on the Net Asset Value per DSO D Share, per DP67 Share, per Ventures Share, per Healthcare Share or per AIM Share. The Net Asset Value per share disclosed therefore represents both the basic and diluted Net Asset Value per DSO D Share, per DP67 Share, per Ventures Share, per Healthcare Share and per AIM Share.

5. Basic and diluted return per share

*Excluding 13,976,149 (2023: 13,976,149) Ventures Management Shares and 5,712,064 (2023: 5,712,064) Healthcare Management Shares as there is an agreement in place with the Company that the right to distributions on the Management Shares is waived until certain the performance hurdles are met, as described on pages 9 and 20 of the Annual Report and Accounts. At no point will voting rights attaching to the Management Shares be exercised.

As the Company has not issued any convertible securities or share options, there is no dilutive effect on the return per DSO D Share, DP67 Share, Ventures Share, Healthcare Share or AIM Share. The return per share disclosed therefore represents both the basic and diluted return per share for all classes of share.

6. Annual General Meeting

The Annual General Meeting of the Company will be held at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, SE1 9SG at 4.00 p.m. on 24 September 2024. Details will be published on both the Company’s and the Adviser’s website at: www.foresight.group/products/thames-ventures-vct-2-plc.

7. Income

8. Investments

*Following the payment of the 2.7p per DSO D Share dividend on 28 March 2024, the Company has now returned all the capital associated with the DSO D Shares to Shareholders and divested of all investments held in the portfolio, with the payment of the dividend marking the end of the life cycle of the DSO D Shares. Realised losses in the Income Statement include the reversal of historic realised losses (£212,000) as part of the wind-up procedures.

**Realised losses in the Income Statement for the Ventures Share Class include the deferred consideration receipt from ADC Biotechnology Limited (£115,000). Realised losses in the Income Statement for the Healthcare Share Class include the deferred consideration receipts from ADC Biotechnology Limited (£195,000). Realised losses in the Income Statement for the DP67 Share Class include the deferred consideration receipt from Fenkle Street LLP (£43,000).

***Investment holding losses in the Income Statement for the Ventures Share Class include the deferred consideration debtor decrease of £38,000. The debtor movement reflects the recognition of an amount receivable in respect of Imagen Limited (£18,000), offset by a receipt in respect of ADC Biotechnology Limited (£115,000) and combined FX uplifts of £59,000 made against balances in respect of Efundamentals Group Limited and JRNI Limited. Investment holding losses in the Income Statement for the Healthcare Share Class include the deferred consideration debtor decrease of £104,000. The debtor movement reflects the recognition of an amount receivable in respect of DIA Imaging Analysis Limited (£91,000), offset by a receipt in respect of ADC Biotechnology Limited (£195,000).

9. Related party transactions

No Director has an interest in any contract to which the Company is a party other than their appointment and remuneration as Directors.

10. Transactions with the Investment Manager

In the opinion of the Directors, there is no immediate or ultimate controlling party.

Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors’ Remuneration Report on pages 56 and 57 of the Annual Report and Accounts. There were no amounts outstanding and due to the Directors as at 31 March 2024 (2023: nil).

Further related party transactions include Investment Management and Administration fees payable to Foresight Group LLP and Downing LLP, as disclosed in notes 3 and 4 of the Annual Report and Accounts.

In addition, Downing LLP was also paid promoter fees in connection with the offers for subscription which were open during the year. The total paid to Downing LLP during the year ended 31 March 2024 was £nil (2023: £39,000).

The Company also has an agreement to pay an ongoing trail fee annually to the Investment Manager, in connection with applicable proceeds raised under previous offers for subscription, out of which there is an obligation to pay trail commission to intermediaries. The total trail fee payable in respect of the year ended 31 March 2024 was £24,000, all of which was unpaid as at 31 March 2024 (2023: £21,000).

END

For further information, please contact:

Company Secretary
Foresight Group LLP
Contact: Stephen Thayer Tel: 0203 667 8100

Investor Relations
Foresight Group LLP
Contact: Andrew James Tel: 0203 667 8181