Downing Strategic Micro-Cap

Investment Trust PLC

Annual Report and Financial Statements

29 February 2024

The investment objective of the Company until 28 February 2024 was to

generate capital growth for shareholders over the long term from active

involvement in a focused portfolio of UK micro-cap companies (those whose

market capitalisations are under £150 million at the time of investment)

targeting a compound return of 15% per annum over the long term. At a

General Meeting of the company held on 28 February 2024 shareholders

voted to adopt a new investment policy as described on page 32.

Strategy

We are value investors who seek to achieve the investment objective by making investments in listed micro-

cap companies. We believe that this universe offers attractive investment opportunities and is highly

inefficient, which will aid the realisation of the return target. Additionally, the Investment Manager seeks

‘strategic’ involvement in their investee companies – a process through which the Investment Manager has

proven to be effective at delivering returns in the past.

Universe

The Investment Manager considers the micro-cap universe to be companies with a market capitalisation

of less than £150 million, at the time of investment.

By definition, this comprises over 50% of UK listed companies.

On average, there are fewer than two analysts covering any one of these companies, leading to

pricing inefficiencies.

The Investment Manager expects these inefficiencies to become greater due to regulatory change in

the financial sector.

Portfolio

The Company’s portfolio of investments typically comprises between 12 and 18 holdings when fully

invested.

The Company typically seeks to hold between 3% and 25% of the equity of these investee companies,

notwithstanding the ability to use debt instruments alongside equity.

Typically, investments are appraised over a three to seven-year investment horizon.

Process

The Investment Manager’s investment process is bottom up and value driven. This means that they focus

on company fundamentals rather than macro-economic drivers, and that they aim to invest in line with

value principles.

The Investment Manager focuses on cash generation and return on capital metrics.

Strategic involvement

The Investment Manager seeks to invest in companies which are materially undervalued and where there

is scope for strategic involvement going forward.

Strategic mechanisms typically include but are not limited to: providing funding for organic and inorganic

growth; providing capital for restructuring operations; implementing incentive plans to align management

over the long term; and rectifying sub-optimal corporate governance practices.

Discount control

The Company has a buyback procedure which, in normal markets, seeks to manage the discount of the

Company’s share price against the underlying net asset value (‘NAV’) per share.

3

Contents

Page

Overview and performance

Financial highlights

5

Operational highlights

6

Chairman’s Statement

7

Investment Manager’s Report

11

Portfolio

Investments (including unquoted investments)

13

Background to the investments – top ten positions

15

Our expectations of the investee companies

26

Investment team

27

Governance

Directors’ biographies

28

Strategic Report

29

Directors’ Report

39

Corporate Governance Statement

46

Report of the Audit Committee

52

Directors’ Remuneration Report

55

Statement of Director’s responsibilities

59

Financial Statements

Independent auditor’s report

60

Statement of Profit or Loss and Other Comprehensive Income

67

Statement of Changes in Equity

68

Statement of Financial Position

69

Statement of Cash Flows

70

Notes to the Financial Statements

71

Additional information

Shareholder information

86

Glossary

88

Advisers

Contact details of the Advisers

89

Annual General Meeting

Notes in respect of the Annual General Meeting

90

Notice of the Annual General Meeting

91

4

4

5

Financial highlights

29 February

28 February

Change

Assets

2024

2023

%

Net

assets (£’000)

30,627

38,355

(20.15)

Net

asset value (‘NAV’) per Ordinary Share

1

65.71p

77.99p

(15.75)

Mid

-market price per Ordinary Share

62.00p

65.70p

(5.63)

Discount

1

5.65%

15.76%

1

Alternative Performance Measure (see page 34)

Year ended

Year ended

29 February

28 February

Revenue

2024

2023

Revenue return per

Ordinary Share

(1.52p)

(1.32p)

Capital return per

Ordinary Share

(11.45p)

(6.22p)

Total

return per Ordinary Share

(12.97p)

(7.54p)

Source: Downing LLP

Ordinary shares admitted to trading on 9 May 2017 at 100p per ordinary share. Starting NAV of 98.04p per

ordinary share.

Dividends paid have been ignored in the above chart.

6

Operational highlights

The Company held positions in the following businesses at the end of the reporting period:

Centaur Media PLC

(Centaur)

Journeo PLC

(Journeo)

Digitalbox PLC

(Digitalbox)

National World PLC

(National World)

Equals Group PLC

(Equals Group)

Norman Broadbent PLC

(Norman Broadbent)

FireAngel Safety

Technology PLC (Fireangel)

Ramsdens Holdings PLC

(Ramsdens)

Flowtech Fluidpower PLC

(Flowtech)

Real Good Food PLC

(RGF)

Hargreaves Services PLC

(Hargreaves)

Synectics PLC

(Synectics)

Inspecs Group PLC

(Inspecs)

TheWorks.co.uk PLC

(TheWorks)

Volex PLC

(Volex)

Highlights

Results of shareholder approved managed wind-down exceeded the board's expectations with distribution

of 74% of the reported year end NAV, either announced or in train.

Post period-end a payment of 30p per share was made to shareholders by way of a Special Interim Dividend

on 26 April 2024. A second Special Interim Dividend of 12p per share will be paid on 21 June 2024. In

addition, the board announced on 30 May 2024 the intention to pay a Third Special Interim Dividend of at

least 7p per share by mid/late July 2024.

30% of remaining assets are held in companies where there is a bid situation.

Portfolio is held in profitable companies with strategic catalysts for value creation.

Investments have progressed through classic hockey stick formation and are now in either late-stage

turnaround or value realisation phase.

Wind up approved by majority of shareholders following 15.75% decrease in NAV and 5.6% decrease in

the share price, compared to a 12.6% decrease in the FTSE AIM All-Share TR index over the 12 months to

29 February 2024, driven by continued negative sentiment towards UK smaller companies and a realised

loss on unquoted assets.

7

Chairman’s Statement

To date, the results of the shareholder approved managed wind-down of your company’s portfolio have

exceeded the board's expectations.

We have already paid a dividend of 30p per share, declared a further 12p

per share and indicated another 7p per share following Government approval of a bid for one of our

investments.

Together those distributions would result in your company distributing some 74% of the reported

year end NAV, with further distributions indicated.

Having distributed 30p per share, the remaining NAV was

40.02p per share as at 31 May 2024 giving a view for continuing shareholders of over 70p per share of worth,

comfortably ahead of the year end.

Of that remaining 40p, 19p is already slated for distribution in June and

July with an indication of more dividends in August and thereafter.

In November 2023 we said,

the board had been considering what would be the best and fairest way to meet its

commitment of returning capital to shareholders, realising best value for them equitably, and concluded that it would

advantage all shareholders equally and fairly to commence a managed wind down of the company's investment

portfolio in an orderly manner’

.

At a general meeting of the company held on 28 February 2024, shareholders

approved the managed wind-down of the company and, since that date, our manager has sought to realise all

of the company's remaining assets in a prudent manner, consistent with the principles of good investment

management, and with a view to an orderly return of cash to shareholders.

Having already distributed £13.98 million, 46.0% of the company’s NAV at 29 February 2024 (the date the

company commenced its managed wind down) the company is ready to distribute a further 12p per share which

it declared as a dividend on 28 May 2024 for payment on 21 June 2024 and which amounts to another 18% of

that NAV. Given the takeover of FireAngel we have already announced our intention to distribute a further 7p

per share in July and together those distributions would amount to approximately 74% of the company's net

assets as at 29 February 2024, which is more than we estimated in our announcements made in December

2023 and February 2024.

At current market valuations there would still remain something over 20p per share

after those three distributions.

Realisations have been achieved within the spread of market prices; there have

been no sales at any undervalue to the market.

Value uplifts, anticipated in my report in November 2023, have

been captured as have the uplifts from subsequent events in the portfolio.

In current markets we hope for

further uplift.

In its financial year, despite one investment going into administration, on which I comment briefly later, DSM’s

mid-market price per share held up well.

It was 62.0p at the year-end compared with 60.25p at the half year

and 65.7p at the last year end.

As I have said, currently, with the 30p per share distribution already made plus

today’s NAV for the remaining portfolio at 40.02p per share

,

the potential for continuing shareholders looks to

be over 70p per share, less relatively modest costs; and there is further value still to be realised (see manager’s

report).

In its managed wind down your company is realising value, limiting costs and distributing realisations

as cash.

As to the remaining portfolio, the manager’s report reviews the stocks, about which their view remains positive,

and sets out where further potential value may be realised.

To date, the board is satisfied that the manager has

struck the appropriate balance in maximising returns to shareholders whilst also ensuring that such returns are

made in a timely manner.

That means that regardless of the events, which I set out below, we are currently on course to return cash well

in excess of the company's NAV as at 29 February 2024, meeting the timelines set out in the circular to

shareholders dated 2 February 2024, and still able to benefit from indications of further bid interest in our

portfolio.

From time to time, if the discount has gone much wider than 15%, we have authorised modest

buybacks.

Events following the announcement of a proposed wind down

Following the announcement of the proposed managed wind-down in November 2023, the company received

alternative proposals from four counterparties, one of which was

Milkwood Capital Limited ("

Milkwood

")

.

Each

of the four proposals had a different purpose. Only one, from an investment company with similar objectives,

offered any significant return of capital.

Milkwood made it clear that its particular purpose was to secure for

itself the contract for the future management of the company's portfolio.

Your

company therefore undertook

market soundings in January 2024 with its then four largest shareholders to gauge those shareholders' appetite

for each of the alternative proposals that had been put to us. The feedback indicated a clear preference that

the company should proceed with its managed wind-down as originally proposed and return cash to

shareholders.

8

Chairman’s Statement

That view was then supported by the broader shareholder response to the wind down proposal put to the

February general meeting at which voting shareholders overwhelmingly voted in favour of a change to the

company’s articles so as to realise all remaining assets and return cash to shareholders.

The votes were

approximately 86.6% in favour, with the only significant vote against being lodged by Milkwood.

A further

general meeting was needed to approve the implementation of a B share scheme, which would ensure a tax

efficient capital return, and such a meeting was called for 3 April 2024.

In the meantime, Milkwood built up a

shareholding of approximately 28 per cent in the company by, among other things, acquiring stakes held by

two of the company's institutional shareholders (Directors Report, page 42) both of which had indicated strong

support for the company's managed wind-down and concomitant return of cash to shareholders. At the general

meeting held on 3 April 2024, Milkwood used those acquired stakes to vote against the resolution to implement

the B share scheme designed to ensure that distributions would be treated as capital receipts for all

shareholders. Notwithstanding that the resolution still received the support of more than 50% of the

shareholders who cast votes (which amounted to approximately 56.7% of the company's issued share capital)

the resolution had to be a special resolution, requiring 75% of the votes cast in order to pass, and hence it was

not carried.

However over 99.7% of the other voting shareholders (i.e. non-Milkwood) still voted for that

resolution to achieve full realisation and tax efficient distribution. That indicated a continuing and overwhelming

vote of support for the managed wind-down of the company and for the distribution of cash proceeds.

Your board, committed to doing the right thing for all shareholders, was, therefore, blocked, by a new

shareholder with its own agenda, from distributing cash in a particularly tax efficient way.

Mindful of the other shareholders' vote for a return of cash proceeds, the board therefore proceeded to declare

special dividends to shareholders which, while not our preferred route, has the merit of fulfilling the mandate

we were given to wind down the company and return cash.

With the remainder of the portfolio looking, as

the manager puts it, readily realisable at carrying value, full realisation is anticipated with, in current markets,

some further uplift.

We have met Milkwood several times.

They are a small team with whom we have had reasoned discussions.

We and our advisers know little of their investment credentials, and we have asked, more than once, for

verification material on which to do some diligence.

At the time of writing, this information has not been

received.

It is not for self-interest that we cannot see for what reason we would recommend them; we are,

after all, on track to wind up DSM.

If shareholders wish to invest in Milkwood, or otherwise, then through the

timely return of realisation proceeds they are free to do so.

The board will continue to attend to its mandate of returning cash to shareholders until such time as the

managed wind-down is complete or shareholders, as a collective, direct otherwise.

Portfolio performance

Most of the portfolio has held its value and companies have generally had a positive reporting season during

Q1 2024.

The knock-back last year was Real Good Food, for which we already had a provision, but which

issued in October 2023 a comparatively upbeat RNS on future performance.

It was then (one might note after

the pre-Christmas sales) put into administration by its bankers and sold via a pre-pack administration to Backels

Bakery.

The write-off for us has been £3.8 million.

The stocks that remain valued in the portfolio are all listed and traded.

By and large those amounts not yet

realised are there because the manager notes some interesting catalysts (private equity interest in Equals,

approaches to Centaur, new and historically effective chairman in Synectics, Flowtech re-rated as examples).

The manager is therefore balancing realisation against value enhancement.

A matrix of price against prospects

is set out in the manager’s report.

9

Chairman’s Statement

Expenses

There is one large legal charge.

A while ago we reported wrongdoing at Real Good Food to the AIM team, who

at least fined them.

Recently we reported another investment where the balance sheet was repeatedly

misstated.

Sadly, no action.

As I said last November, ‘We are resolutely intolerant of misstatements or

misleading statements by investee boards and their companies.

Had we not decided to wind up DSM, we would

have pursued that latter case in which our King’s Counsel was confident that he was reading up on fraud.

Dividends

The dividend of 30p per share paid on 26 April seems to have been well received.

A further 12p declared on

28 May 2024 with a Third Special Interim Dividend of 7p proposed for July (see above) and indications of

another in August will hopefully be welcome, with more to be anticipated as the manager’s work continues.

Governance

We review ourselves rigorously.

That comes from a free and open speaking board.

As the company is well on

its way to being wound up, which is proceeding well with all the board actively involved, we have not repeated

the immensely thorough board appraisal on which we reported last year, but we observe its findings. Progress

to wind-down is such that the AIC tenure recommendation is not relevant. I am the only director standing for

re-election under our established policy.

Will Dawkins

The board has reduced its directorships to three.

Will Dawkins volunteered to step down and as a result we

have lost a first-class director with a distinguished, international record as Foreign Editor of the FT and a

subsequent career at Odgers and then Spencer Stuart where he was head of UK board appointments.

He has

been a valuable contributor to this board, helping focus and clarity.

We are very sorry to lose him.

Forward View

As for the UK economy, the country continues to lack direction.

I noted the following in the company's last

half-yearly report, and believe it needs repeating:

The UK desperately needs growth and the creation of economic and social values to fund ever

increasing liabilities.

That will have to come from the foundation of entrepreneurial business,

managerial determination (just go visit the US, never mind its politics, to see real determination at work)

re-thinking of productivity, depth of technology, process, skill levels, training and education.

All that

will take far longer than an electoral span to achieve and hence barely features in UK politics and

establishment drive. Meantime short-term muddle and often ineffectual initiatives continue.

Corporate UK needs more drive, determined entrepreneurs, investment in the future and, wherever

possible, constructively challenging governance.

As an optimistic perspective, I said…. small companies

are the seedbed of growth for the UK.

Our institutions and our future well-being needs that growth.

Desperately.

The UK can punch way above its weight in a range of knowledge intensive, highly skilled

industry and research.

That is underrated in the application of national and institutional resources. It

appears only in political humbug. Centrally the country has become so bound by departmental

statements that cold feet respond to opportunity and a confused ‘establishment’ fails to foster the

personal and local determination that drives growth.

Success demands determination (vide, again, the

USA) not a country that is stuck in something akin to administration (for those familiar with the

Insolvency Acts) with decisions taken, effectively, by the bank manager – HM Treasury.

I would suggest

that over the last 75 years that Treasury fixation has run its course.

The ‘private’ governance of public

money has not been very clever.

The country’s needs and liabilities will not wait for introverted economics and a blinkered Treasury.

I make no

comment on politics of any colour.

10

Chairman’s Statement

Thanks

This has been a very time-consuming and not at all an easy year.

My thanks go to all the fellow board members

who have given far more time than is usual for investment companies, to our advisers, to our manager team

who have risen to the challenge of wind-down and whose matrices of progress, which we monitor, have proved

reliable.

Thank you for continued focus and working with the board.

AGM

The AGM will be held at

12:00 pm

on 21 August 2024 at Downing’s office at St Magnus House, 3 Lower

Thames Street, London EC3M 6HD. We ask shareholders intending to attend to register by email to

dsmagm@downing.co.uk

so that the Registrars have your details. The notice of the AGM is set out on page 91

of this report. We encourage shareholders to submit their proxy votes in advance of the deadline of 19 August

2024.

Hugh Aldous

Chairman

5 June 2024

11

Investment Manager’s Report

Hunting Value, Enabling Transformation

In the year to 29 February 2024 the NAV of the company fell 15.75% against the wider FTSE AIM Index which

fell by 12.6%.

This reflected the underperformance of a larger position in the company (Real Good Food Plc)

and the wider volatility in smaller company markets.

In November 2023 the board and manager announced the managed wind-down of the company and the

intention to return at least 20% of NAV to shareholders in early 2024.

Since then, authority to change the

mandate of the company and proceed with wind down has been approved by shareholders, and the payment

of a 30p dividend (42% of the NAV as at the time of the November announcement of intention to return capital),

has been repaid to shareholders by way of special dividend.

The remaining portfolio is valued at a NAV of

40.02p per share (as at 31 May 24).

In the period, there were realisations of £11.6 million across the portfolio realising net gains on cost of £2.0

million.

Write downs of unlisted assets resulted in a realised loss of £3.8 million in the period.

The main contributors and detractors in the year included;

Journeo Plc

which had realised and unrealised gains of £1.5 million in the period of which £1.3 million were

realised.

Synectics Plc

also made a positive contribution to performance with unrealised gains of £0.96 million in the

period.

As did

Equals Plc

which booked realised and unrealised gains of £0.54 million in the period of which

£0.17 million were realised.

A full realisation was made in

OntheMarket Plc

which was subject to a trade sale from an international buyer,

which returned a gain in the period of £1.1 million.

The main detractors included:

Real Good Food Plc,

which fell into administration which led to a near 100% write off and realised loss in the

period of £3.8 million.

The current holding value is £0.275 million although there is a prospect of a further

modest return of capital from the administration process given the prior ranking status of the loan note

instrument held.

However, the outcome of this and quantum is too uncertain to recognise within the valuation.

FlowTech Fluid Power Plc

also saw a significant unrealised loss in the period of £1 million as it underwent

management changes and restructuring.

We have confidence in the longer-term prospects of this business

which is now proving resilient against challenging industrial market headwinds.

Centaur Media Plc

also subjected the portfolio to a £1 million unrealised loss in the period, mainly due to market

sentiment.

We believe that this company is undervalued in relation to the quality of earnings and its ability to

generate free cash flow.

This was evidenced by a speculative private equity bid that was announced during

April, which has subsequently fallen away.

Outlook and Post Balance Sheet events

As at 31 May 2024, the net assets were £18.3 million or 40.02 per share post the payment of the special interim

dividend of 30p per share on 26 April 2024. The remaining portfolio amounts to £12.7 million, and cash was

£5.6 million.

Since the year end, as at 31 May 2024, FireAngel (12.8% of NAV) is now under a mandatory offer subject to

shareholder support, which should it be approved, alongside other realisations would return a minimum of 8p

per share to shareholders in DSM later in the summer of 2024.

As highlighted below the remaining portfolio, is held in companies that are profitable, cash generative, reporting

positive operational trading momentum and where we believe that they sit at a material discount to intrinsic

value with clear catalysts in place.

9

12

Investment Manager’s Report

A summary of the remaining positions at 31 May 2024 and our belief of their intrinsic value is highlighted in

the table below.

The share price target is the market analyst expectations of fair value over the course of the

next 12 months.

Company

Current

share price

Analyst

Target

Catalyst

Upside

% of NAV

Centaur Media

39.0p

78p

Earnings

100%

9.5%

DigitalBox

3.6p

7.6p

Earnings

111%

4.5%

Equals

118.0p

160p

Corporate

activity/earnings

36%

5.6%

FireAngel

6.5p

7.4p

Corporate activity

14%

12.8%

National World

14.5p

40p

Earnings

175%

8.5%

Norman Broadbent

8.5p

12-18p**

Earnings

41%-111%

0.4%

Synectics

180.0p

277p

Earnings

54%

18.7%

Volex

350.0p

441p

Earnings

26%

7.5%

** based on Downing internal estimates predicated on the achievement of the incentive scheme.

Given the inherent value of the portfolio, the manager feels very confident that further meaningful distributions

can be achieved post the Summer, whilst maintaining the optimum outcome for value return to shareholders in

a timely manner.

Judith MacKenzie

Head of Downing Fund Managers and partner of Downing LLP

5 June 2024

12

13

Investments

As at 29 February 2024

As at

29 February

2024

As at

28 February

2023

Market

Value

(£’000)

% of

Total

Assets

Market

Value

(£’000)

% of

Total

Assets

Synectics plc

Volex plc

Centaur Media plc

Flowtech Fluidpower plc

Fireangel Safety Technology plc

Equals Group plc

National World plc

Ramsdens Holdings plc

1

3.30

2,520

6.57

Journeo plc

Digitalbox plc

Theworks.co.uk plc

Norman Broadbent plc

Hargreaves Services plc

Inspecs Group plc

Real Good Food 12% Loan Notes

1 *

Real Good Food 10% Loan Notes

1 *

Adept Technology Group plc

Onthemarket plc

Tactus Holdings Limited

1 *

Norman Broadbent 10% Loan Notes

1

Real Good Food plc

Total investments

20,354

66.46

36,927

96.26

Cash

10,463

34.16

1,505

3.93

Other net current liabilities

(190)

(0.62)

(77)

(0.19)

Total assets

30,627

100.00

38,355

100.00

1

Unquoted.

* in administration

All investments are in Ordinary Shares and traded on AIM unless indicated. The total number of holdings as at

29 February 2024 was 15 (28 February 2023: 18). Details of the equity interests comprising more than 3% of

any company's share capital are set out in note 17. As at 29 February 2024, loan note principal represented

0.90% (28 February 2023: 9.64%) of total assets and the total of loan note principal and interest represented

0.90% (28 February 2023: 10.85%).

14

Unquoted Investments

As at 29 February 2024

As at

29 February

2024

As at

28 February

2023

Cost

(£’000)

Market

Value

(£’000)

% of

Total

Assets

Cost

(£’000)

Market

Value

(£’000

% of

Total

Assets

Real Good Food 12% Loan Notes

Real Good Food 10% Loan Notes

Tactus Holdings Limited *

1,227

-

-

1,002

760

1.98

Norman Broadbent 10% Loan Notes

*

Total investments

15

Background to the investments – top 10 positions

(unless otherwise stated all information provided as at 29 February 2024)

Key:

GREEN: Good

RED: Negative

ORANGE: Neutral

Centaur Media PLC (Centaur) (

8.09% of net assets)

Cost: £3.58

million Value as at 29 February 2024: £2.48 million

Background

Centaur Media is an international provider of business information,

training and consultancy, creating value through premium content,

analytics and market insight within the Marketing and Legal

segments.

Centaur operates under several flagship brands, namely

The

Lawyer,

MW

Mini

MBA,

Influencer

Intelligence

and

Econsultancy, with the latter three brands forming part of their

marketing arm, XEIM.

Update to the

investment case

Progress against investment case

Centaur issued its preliminary results for the year ended 31 December 2023 and reported that the group’s

performance was the culmination of its Margin Acceleration Plan (MAP) 23 strategy which achieved its

three clear

objectives: to implement a simple, efficient and scalable operating model, develop high

-

quality, trusted products

which are the leaders in their markets, and build the credibility of Centaur's management team for delivering on its

strategic and

financial commitments. Centaur has significantly grown its profitability and built a business wi

th an

impressive proportion of higher

-quality revenue, providing it with a scalable platform for long-

term sustainable

future growth.

Centaur generated an adjusted

EBITDA margin of 26% (up from 21% in 2022 and 12% in 2020), comfortably

exceeding the MAP23 target and resulting in net cash

of £9.5 million at 31 December 2023

after paying ordinary

and special dividends of £8.9

million in the year. Revenue of £37.3 million was slightly down from £38.4 million

in

2022 after a softening in the macroeconomic environment trading conditions and inflationary pressures. The group

recorded good performance across its

higher quality

revenue streams in Premium Content and Training and

Advisory, which now collectively represent 80% of the business, up from 76% in 2022

.

The group issued a response to recent media speculation on 10 April 2024 and confirmed that it has received an

expression of interest from

Waterland Private Equity Investments

regarding the proposed acquisition of its entire

issued share capital.

Waterland subsequently declined to formalise their intention to make an offer for Centaur.

16

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

Digitalbox PLC (Digitalbox) (2.63% of net assets)

Cost: £1.13 million Value as at 29 February 2024: £0.81 million

Background

Digitalbox is a 'pure-play' digital media business with the aim of

profitable publishing at scale on mobile platforms.

The business

generates revenue from the sale of advertising in and around the

content it publishes. Its optimisation for mobile enables it to

achieve revenues per session significantly ahead of market norms

for publishers on mobile.

Update to the investment case

Ø

Challenging markets impacted revenues

Ø

Significantly reduced profitability

Ø

Algorithm changes

Progress against investment case

Digitalbox published its final results for the year ended 31

December 2023. While headline financial performance

metrics were down on the previous year, the group traded profitably and generated £193k in operating cash in

2023, while experiencing some very challenging market conditions. Despite the difficult backdro

p, the group

further scaled the Digitalbox portfolio from four to five operational brands in the period. In addition, it completed

the acquisition of tvguide.co.uk and onboarded to the Graphene platform, acquired Media Chain assets, growing

the group's social follower base to over 20 million. The Daily Mash premium ad-

free subscription experience

continues to grow with an uplift of over 180% taking its current base to over 4,000. There was a significant focus

on the diversification of the audience

sourcing model, helping to lessen the impact of algorithmic changes made

by the major platforms.

Performance of the acquired properties -

The Daily Mash, The Tab, The Poke and TV Guide has proved the

potential of the Digitalbox operating model and its Graphene platform as it builds a larger portfolio of successful

profitable digital brands. Trading fo

r the current financial year remains in line with expectations and the company

expects advertising markets to bounce back in 2025.

17

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

Equals

PLC (Equals) (5.57% of net assets)

Cost: £1.

03 million Value as at 29 February 2024: £1.70 million

Background

Equals

Group is a technology-

led international payments group

augmented by highly personalised service for the payment needs of

SMEs, whether these be FX, card payments or via Faster Payments.

Founded in 2007, the group listed on AIM in 2014 and currently

employs aroun

d 265 staff across sites in London and Chester.

Update to the investment case

Ø

Strong trading performance

Ø

Strong growth in the Solutions business

Ø

Strategic review underway.

Ø

Private equity showing interest in acquiring Equals.

Progress

against investment case

Equals issued an update on current trading and an update on the Strategic Review on 20 March 2024. Trading has

continued the strong growth trajectory of FY 2023, with

revenues in the period reaching £22.2 million, an

increase

of 28% over the same period the year prior. In keeping with recent trends, trading has been robust across the

business with particularly strong growth from Solutions.

The board announced that

it is conducting a review of strategic options that would deliver greater value to Equals'

shareholders than pursuing a standalone independent strategy. This process is ongoing and is considered to be in

the best interests of shareholders

and could lead to the group being acquired.

18

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

FireAngel Safety Technology Group PLC (FireAngel) (6.48% of net assets)

Cost: £6.54 million Value as at 29 February 2024: £1.99 million

Background

FireAngel designs, sells and markets smoke detectors, carbon

monoxide detectors and home safety products under the

FireAngel, FireAngel Pro, FireAngel Connect, AngelEye and SONA

brands.

We were attracted to FireAngel because of its dominant share of

the UK fire safety market, with products that are endorsed

throughout Europe. We also saw an opportunity from changing

legislation that we believe FireAngel will benefit from. Legislative

guidance is for the purchase of smoke alarms with a 7– 10-year

lifespan, and we are already beginning to see a replacement cycle

on the installed base in more mature markets.

Update to the investment case

Ø

Sales volumes down as group tackles trading challenges

Ø

Ø

Ø

Intelligent Safety Electronics PTE. LTD

19

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

Flowtech Fluidpower PLC (Flowtech) (

6.68% of net assets)

Cost: £2

.42 million Value as at 29 February 2024: £2.05 million

Background

Flowtech is a value-added distributor of hydraulic and pneumatic

components into a wide array of sectors predominantly in the UK

and Ireland. The group sits between much larger global

manufacturers and a highly fragmented and localised cohort of

smaller di

stributors. The company’s high service levels, broad stock

offering and exposure to maintenance, repair and overhaul markets

were key attractions, and these attributes facilitate Flowtech’s

relatively high gross margins of over 35%.

Update to the investment case

Ø

Revenue down 2.4% on the year prior

Ø

Simplified operating model to unlock full margin potential

Ø

New leadership team in place

Ø

Continued focus on working capital management delivering

£1.8 million improvement

Ø

Improvement in product distribution stock availability

Progress against investment case

Flowtech issued its results for the full year ended 31 December 2023 and reported a challenging period for the

business. Management believes that it has addressed the root causes of underperformance in Product Distribution

and is confident that 2024 will see the beginnings of a return to stronger historic EBITDA margins. Flowtech has

achieved significant growth in Ireland and despite the continued challenging external market, there are reasons for

optimism. The group has a new and energised leadership team, with a performance improvement plan that is

beginning to deliver measurable results and clarity of strategy which serves to unlock its full potential across six

defined EBITDA growth engines.

20

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

Journeo PLC (Journeo) (2.71% of net assets)

Cost: £0.34 million Value as at 29 February 2024: £0.83 million

Background

Journeo provides solutions in the transport sector, including

displays and passenger management. This is a sector that we are

particularly enthusiastic about. The underinvestment in UK

infrastructure, particularly transport, is well-known and we as

managers have capitalised on this in other investments over the last

decade. The sector tends to be serviced by a number of

niche/small companies, and therefore a smart buy-and-build

strategy can yield attractive returns if executed by a management

team focused on return on investment.

Update to the investment case

Ø

Set to benefit from long-term government spending trends in

the transport sector

Ø

Strong trading

Ø

New contract wins

Ø

Acquisitions performing well

Ø

Strong order book and growing sales pipeline

Progress against investment case

Journeo announced strong final results for the year ended 31 December 2023 and

reported revenue up 118%,

gross profit up 84%, and adjusted profit before tax up 325%. It has a strong balance sheet with cash and cash

equivalents of £8.1 million

. Operationally, the acquisitions of Infotec and MultiQ are expanding the reach of

Journeo's solutions into new markets, both domestic and international. There has been continued investment into

R&D and increasing capacity at the group’s Ashby-based Infote

c manufacturing and production facility. The group

has secured several significant new contract wins throughout the year, including a £1 million

award from Transport

for Wales (TfW) for a country-

wide content management solution. The Arriva framework to supply CCTV and

associated services for new and retrofit vehicles was also extended.

21

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

National World PLC (National World) (

4.57% of net assets)

Cost: £2.

92 million Value as at 29 February 2024: £1.40 million

Background

National World

was a reverse into the regional publishing assets

of the old Johnston Press, the third largest newspaper publisher in

the UK. The business is highly cash

-generative and unencumbered

by legacy assets typical of other large publishers. This leads to

improved

cash generation and cash flow can be re-invested into

content and a digital transition which will offer more opportunities

for growth and higher margins.

Update to the investment case

Ø

Adjusted EBITDA up 6%

Ø

Digital revenues up 13%

Ø

Strong balance sheet with financial flexibility

Ø

Seven acquisitions completed in the period

Ø

Restructuring generating significant cost savings.

Progress against investment case

National World announced its results for the year ended 30 December 2023 and highlighted adjusted EBITDA 6%

above expectations at £9.5

million

, and digital revenues up 13%. The group reported strong revenue growth and

annualised cost savings

of £6.0 million, with restructuring costs of £3.6 million

expensed in the period. NWOL has

a strong balance sheet with financial flexibility and a closing cash balance of £10.7

million. This follows a £12.9

m

illion cash consideration for seven acquisitions, a £2.5 million final deferred consideration payment for JPI

Media,

and the repayment of £1.0

million loan note.

In Q1 2024, the group’s EBITDA was slightly higher than management expectations, with total revenue slightly

lower. There is still some continuing market

volatility as audience and programmatic yields are impacted by

algorithm changes by global social media platforms. The board believes that with the introduction of further

consolidation plus cost efficiency and productivity enhancements, the pace of the operating model change has

accelerated, with initiatives embedded in both the heritage portfolio and newly acquired assets. The future model

is based on original and expert content in specific sectors and genres to better serve both consumers and

advertisers. Examples are business information, including events and the transformation of premium brands to

popu

late all platforms reaching a wider, increasingly global audience.

22

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

Ramsdens Holdings PLC (Ramsdens) (3.30% of net assets)

Cost: £0.93 million Value as at 29 February 2024: £1.01 million

Background

Ramsdens is a growing, diversified, financial services

provider and retailer, operating in the four core

business

segments of foreign currency exchange, pawnbroking loans,

precious metals buying and selling and retailing of second-

hand and new jewellery.

Ramsdens does not offer

unsecured high-cost short-

term credit. Headquartered in

Middlesbrough, the group operates from 157 owned stores

within the UK and has a growing online presence.

Update to the investment case

Ø

Trading strong and in line with expectations

Ø

Strong balance sheet conservatively managed

Ø

Store estate expanded to 167 stores

Progress against investment case

Ramsdens issued a trading update for the financial year to date for the five months from 1 October 2023 to 29

February 2024. Trading has remained strong and in line with the board's expectations. Foreign currency gross

profit increased c.3% YoY with encouraging momentum building ahead of the key summer trading period.

The

pawnbroking loan book has continued to grow, increasing by £0.4 million

, however, jewellery retail revenue was

broadly flat compared with the prior

year. The group’s strategic expansion has continued, with two further stores

opened and the total estate now comprises 167 stores (including two franchised stores).

23

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

Synectics PLC (Synectics) (

10.98% of net assets)

Cost: £3.98

million Value as at 29 February 2024: £3.36 million

Background

Synectics is a leader in the design, integration and support of

advanced security and surveillance systems. The group has

deep industry experience across gaming, energy, urban

transport, public space and critical infrastructure projects. Its

expert engineering teams work in partnership with customers

to create integrated product and technology platforms, proven

in the most complex and demanding operating environments.

Update to the investment case

Ø

Significant turnaround in performance

Ø

Strong order book

Ø

New contract wins

Ø

Solid net cash position

Ø

New Chairman announced

Progress against investment case

Synectics announced strong results for the year ended 30 November 2023 and reported revenue increased 26%

to £49.1

million. There was a substantial increase in underlying operating profit to £3.1 million

and underlying

EBITDA

increased by 50% to £4.8 million. The group highlighted its strong order of £29.2

million, up 20% on the

same period the year prior. Net cash was £4.6

million

with no bank debt. The business performed well over the

period, exceeding market expectations, and this was underpinned by growing demand from the oil and gas sector.

Synectics has a strong order book, reinforced by sound order intake and significant contract wins across all sectors,

with continued momentum into 2024. Management

retains its focus on specialist, core markets -

gaming, oil and

gas, public space, transport and critical infrastructure

–

all of which offer significant growth opportunities. Post

reporting period end, the group completed its agreement with National Grid

, with contracts of £4.0 million

signed

to upgrade more sites across its estate.

24

Background to the investments

(continued)

(unless otherwise stated all information provided as at 29 February 2024)

Volex PLC (Volex) (8.30% of net assets)

Cost: £1.46 million Value as at 29 February 2024: £2.54 million

Background

Volex manufactures complex cable assemblies and power

cords through a global manufacturing base for a wide

variety of industries. The business has been growing sales

in high structural growth sectors such as electric vehicles

and data centres.

Update to the investment case

Ø

Electric Vehicles and Consumer Electricals

performance improving but revenues below

FY2023 levels

Ø

Ø

Ø

Ø

Progress against investment case

Volex issued a trading update for the financial year ended 31 March 2024. The group highlighted that full-

year

performance is ahead of market expectations, with revenue now expected to be at least $900 million

, representing

an increase of at least 25% over the prior year. This includes seven months' contribution from the acquisition of

Murat Ticaret. Underlying operating profit

is also anticipated to be slightly ahead of analyst expectations

. This

performance underscores Volex's ability to secure additional customer commitments and deliver new projects,

whilst maintaining robust financial and operational discipline.

The group’s strong organic growth has been driven by attractive positions in diversified end markets that have

structural growth characteristics. The board is confident that exposure to a number of growth sectors will allow

the business to make strategic p

rogress even in volatile market conditions. The acquisition of Murat Ticaret also

delivered significant incremental revenue, in a largely new end-

market. In response to increasing customer

demand, the group invested in the further expansion of its global m

anufacturing base, creating additional capacity

to facilitate growth as part of its five-year growth plans which target revenues of $1.2 billion by the end of FY2027.

Underlying operating profit is before adjusting items which are one-

off in nature and significant (such as

restructuring costs, impairment charges or acquisition-

related costs), the amortisation and impairment of acquired

intangible assets and share-based

payment charges. This trading update is based upon unaudited management

accounts information. Forward-looking statements have been made by the d

irectors in good faith using

information available up until the date that they approved this statement. Forward-

looking statements should be

regarded with caution because of the inherent uncertainties in economic trends and business risks.

25

25

26

Our expectations of the investee companies

When we invest in companies we expect, in return, rigorous and effective corporate governance; directors who

understand their duties and who are familiar with the General Duties section of the Companies Act 2006 and

the UK Corporate Governance Code from the Financial Reporting Council.

Directors’ responsibilities:

in our view directors’ responsibilities are demanding. They stand accountable for

the culture, foresight and success of the company, to which they should apply the best of their knowledge

and ability to enquire and act in the interests of the company as a whole for its current and future

shareholders. A company’s success depends on investment in its long-term, sustainable advantage as well

as its financial strength and profitability. A company’s return on investment underpins its shareholders’

returns.

Constructive challenge:

we look for alert, questioning, competent boards that constructively challenge

management, help develop strategy and long-term objectives, monitor performance, ensure the build-up of

necessary assets, skills and capable management and lead in setting a culture of integrity. We will take action

if we do not find that level of competence.

In particular, we would expect to find:

Leadership:

every investee company should be headed by an independent chairman leading an effective,

questioning, challenging board that sees itself as collectively responsible for the long-term success of the

company. We will encourage that if it is missing. We will seek to take appropriate action if we do not think

the chairman is up to the job.

Effectiveness:

the board and its committees should be engaged with the business and have the skills,

experience, independence and knowledge to enable them to challenge constructively and fully undertake

their duties. It should be clear to investors why each director is on the board, what skills and contribution

that director is there to provide, and all directors and senior management should regularly update and

refresh their skills and knowledge. There should be a rigorous process for the appointment of new directors.

The chairman:

should lead the board, create the conditions for overall board and individual director

effectiveness, ensure that the board gets information in a form and of a quality sufficient to discharge its

duties and should undertake a formal annual evaluation of the board and each director’s performance.

Accountability:

We expect all directors to appreciate that accountability for culture, integrity, the ‘tone from

the top’, the creation of value, of corporate and shareholder value, and the company’s success lies with them.

ESG:

We expect our investee companies to be familiar with the QCA’s work on Corporate Governance and

with their ESG Guide.

It is with those expectations of the boards of directors that we invest.

26

27

Investment team

Judith joined Downing in October 2009. Previously she was a partner

at Acuity Capital, a buy-out from Electra Private Equity, where she

managed AIM-quoted IHT and VCT investments and a small-cap

activist fund. Prior to Acuity, Judith spent seven years with Aberdeen

Asset Management Growth Capital as Co-Fund Manager of the five

Aberdeen VCTs, focusing on technology and media investments in

quoted and unquoted sectors. She is a non-executive director of the

Quoted Companies Alliance and is an active member on boards both

in the public and private arenas.

Judith MacKenzie

Partner and Head of

Downing Fund Managers

Nick joined Downing in September 2015 from BP Investment

Management. Prior to this, he worked for Aberdeen Asset

Management and has over nine years of experience in the investment

management industry. Alongside day-to-day fund management duties,

Nick fulfils observer right duties on portfolio companies. He holds a

MSc in Finance and Investment from Durham University and a MA in

Accounting and Economics from the University of Aberdeen.

Nicholas Hawthorn

Fund Manager

Josh joined Downing as an analyst in 2018. Previously he had worked

at BRI Wealth Management where he worked in the UK Equities team,

focusing on FTSE 350 companies. He is a CFA Charterholder, CISI

Level 7 Chartered Wealth Manager and holds the Investment

Management Certificate. Josh was named in the Citywire 2018 Top

30 under 30.

Josh McCathie

Fund Manager

Cheryl joined Downing in 2010 from Rathbones, where she gained

over 12 years’ experience working on VCT, EIS and IHT portfolio

services. She provides portfolio support and oversight to all of the

Downing Fund Managers portfolios. Cheryl graduated from Keele

University and is a Chartered FCSI.

Cheryl Vickers

Portfolio Manager

27

28

Biographies of Directors’ serving during the year

Hugh is currently a director of two UK listed public companies and

investment director of an engineering technology company. He has a

wealth of experience, having held numerous chairman and executive

chairman positions over more than 20 years and his career includes 40

years as a director of a wide selection of companies from nationalised

industries to private equity and across a range of sectors. He recently

retired from the board of a US NASDAQ listed chemicals company and

from the board of Polar Capital Holdings, the UK fund management

group. He spent 10 years as managing partner, and latterly head of

Financial Services, of Robson Rhodes (now Grant Thornton), 16 years of

various appointments as a DTI Companies Act Inspector and was a

member

of

the

UK

Monopolies

&

Mergers

and

Competition

Commissions.

Hugh Aldous

Chairman, Chairman of the

Management Engagement

Committee

Linda Bell has extensive management experience leading technically

based companies serving global industrial markets. She was the CEO of

PhosphonicS Ltd (acquired by Carbosynth Holdings Ltd in January 2017),

the CEO of MIRICO Ltd, a venture capital backed company

commercialising novel laser dispersion spectroscopy into industrial

applications, and a former non-executive director of TOMRA Systems

ASA, with an earlier career at ICI, Servomex, part of Spectris Plc, Inca

Digital Printers, part of Dainippon Screen, and DS Smith. She is an Oxford

graduate in Natural Sciences (Chemistry) and a DPhil in Inorganic

Chemistry with an MBA from the Open University and is a Fellow of the

Royal Society of Chemistry.

Linda Bell

Director

Will is an adviser and former head of the board and CEO practice of

Spencer Stuart, a global executive search and leadership consulting firm,

prior to which he spent 23 years in a variety of posts for the Financial

Times, including foreign correspondent with postings in Brussels, Paris

and Tokyo, deputy managing editor, foreign editor and later publishing

editor. He is a Cambridge graduate with a master's degree in English

literature from Trinity College and attended the Advanced Management

Programme at INSEAD. Will is a Trustee, Director and former chair of

the Evelyn Trust, a medical research grant giving charity based in

Cambridge, and is a governor and director of The Perse School,

Cambridge.

William Dawkins

Director (retired 14 May 2024)

Robert

has

extensive

industry

experience,

having

co-founded

Progressive Value Management Limited (PVML) in 2000. PVML

specialised in creating value and liquidity for institutional investors out

of holdings in underperforming companies. He stepped down as

Chairman of PVML in 2023 and is senior independent director of R & Q

Insurance Holdings Limited. Robert was formerly a director of Quayle

Munro Holding plc, the Edinburgh-based merchant bank, Sureserve

Group plc, Trian Investors 1 Limited and CT Private Equity Trust plc

(formerly BMO Private Equity Trust plc). He is a member of the Institute

of Chartered Accountants of Scotland and is well respected for his

extensive experience of creating value for shareholders

Robert Legget

Senior Independent Director,

Chairman of the Audit Committee

28

29

Strategic Report

The directors present the Strategic Report of the company for the year ended 29 February 2024. The aim of

theStrategic Report is to provide shareholders with the information required to assess how the directors have

performed their duty to promote the success of the company during the year.

Business model

The c

ompany invests in accordance with its investment objective which was reset by shareholders on 28

February 2024 (see below). The board is collectively responsible to shareholders for the long-term success

of the company. There is a clear division of responsibility between the board and the investment manager.

Matters reserved for the board include setting the company’s strategy, implementing the investment

objective and policy, capital structure, governance and appointing and monitoring the performance of service

providers, including the investment manager.

As the company’s business model follows that of an externally managed investment company, it does not

have any employees and outsources its activities to third-party service providers, including the investment

manager, who is the principal service provider.

Status of the company

The company is registered as a public limited company in England and Wales (Registered Number 10626295)

and is an investment company within the terms of Sections 832 and 833 of the Companies Act 2006. Its

shares are listed on the premium segment of The Official List of the UK Listing Authority and traded on the

main market of the London Stock Exchange, being a regulated market as defined in Section 1173 of the

Companies Act 2006.

The company has been approved by HM Revenue & Customs as an investment trust company (for the

purposes of Sections 1158 and 1159 of the Corporation Tax Act 2010) for the period ended 28 February

2018 and future years. The directors have no reason to believe that this approval will be withdrawn. The

company is not a close company for taxation purposes.

As an investment company managed and marketed in the United Kingdom, the company is an Alternative

Investment Fund (‘AIF’) under the provisions of the Alternative Investment Fund Manager’s Directive (‘AIFMD’).

The company was also registered by the FCA as a Small Registered UK Alternative Investment Fund Manager

(‘AIFM’) with effect from 16 March 2017.

The company currently conducts its affairs so that the shares issued by the company can be recommended by

independent financial advisers to ordinary retail investors in accordance with the FCA’s rules in relation to non-

mainstream investment products and intends to continue to do so for the foreseeable future.

Section 172 Statement – Directors’ duty to promote the success of the company

Companies are required to state how their directors have followed their duty to promote the success of the

company, as set out in s.172 of the Companies Act 2006, and when making decisions for the long term have

regard to a range of matters including:

the likely consequences of any decisions in the long term;

the interests of the company’s employees;

the need to foster the company’s business relationships with suppliers, customers and others;

the impact of the company’s operations on the environment and community;

the desirability of the company maintaining a reputation for high standards of business conduct; and

the need to act fairly between shareholders of the company.

As part of its decision making, the board seeks to understand the views and requirements of the company’s

stakeholders. As the company has no employees, no customers in the traditional sense and delegates its day-

to-day management and administration to third parties, the directors consider the key stakeholders of the

company to be its current and potential shareholders, as well as third-party service providers and other

advisers.

30

Strategic Report

(continued)

Section 172 Statement – Directors’ duty to promote the success of the company

(continued)

In promoting the success of the company, the board’s principal concern has been, and continues to be, portfolio

management, which the board monitors in line with the company’s objectives and the interests of current and

potential shareholders. This is supported by the manager in regularly engaging with major shareholders, by

producing half-yearly newsletters and monthly factsheets and reporting back to the board on developments in

the portfolio.

The chairman visits, or speaks with, the larger shareholders at least twice a year and the board encourage all

shareholders to attend the AGM and welcomes any other communication from shareholders.

The board has a responsible governance culture that it seeks to impart to other stakeholders, such as its service

suppliers and investee companies, and it gives due regard to the expectations of its regulators. The investment

manager also promotes good corporate governance at the portfolio level and supports the investee companies

in improving their own reporting on such matters.

The impact of key decisions on stakeholders in the year

The key decisions and actions during the year and to date which have required the directors to consider

applicable Section 172 factors include:

Strategic review and publication of

proposals

The board performed a strategic review of the company,

conferred with shareholders, and considered the best

means by which the company could meet its commitment

to return capital to shareholders and concluded that it

would advantage all shareholders equally if the company

were to commence a managed wind down of its investment

portfolio.

After consultation with its advisers as to the most tax

efficient way in which this could be achieved the board

published a circular recommending a wind down of the

company and the adoption of a new investment policy. The

recommendations were voted on by shareholders in a

general meeting on 28 February 2024 at and received the

backing of 86.58% of shareholders.

On 3 April 2024 the proposals to return capital to

shareholders through a tax efficient B share scheme did not

secure the required level of approval.

In the light of this

result, and in order to give immediate effect to the plan

overwhelmingly supported by shareholders at the February

General Meeting to adopt the managed wind-down

investment policy and return cash to shareholders, the

board decided to make a distributions to shareholders by

way of Special Dividends.

Share buyback management

The board closely monitors the level of the company’s

share price discount to NAV and looks to manage the value

through a programme of share buybacks.

In order to seek to manage the share price discount, the board

will from time to time, subject to liquidity and other

considerations, buy in the company’s own shares as they

become available in the market. The board will keep share

buybacks under review to ensure that they continue to offer

the best returns for the company’s long-term shareholders.

31

Strategic Report

(continued)

Section 172 Statement – Directors’ duty to promote the success of the company

(continued)

The impact of key decisions on stakeholders in the year

Communication with shareholders

The board communicates with its shareholders in a

number of ways including but not limited to:

- through the company’s annual and half yearly reports;

- regulatory announcements;

- meetings with the company’s major shareholders;

- information on the company’s website;

- regular webinars;

- General Meetings and

- the Annual General Meeting.

The board encourages all shareholders to attend the AGM

and welcomes communication from shareholders. The

board is pleased to continue to hold the 2024 AGM in

person at the offices of Downing as shown on page 89 to

facilitate this interaction. In person AGMs will continue,

where possible, to allow shareholders to ask questions and

hear updates from the board and investment manager.

ESG considerations

The board acknowledge the investment manager’s close

relationship with each of the portfolio companies and

recognise that the investment manager can assist an

investee company’s approach to Environmental, Social and

Governance (ESG) matters. The investment manager also

recognises the importance of ESG considerations in its

investment assessments and employs an ESG analyst to

develop these considerations further.

32

Strategic Report

(continued)

Investment policy from 28 February 2024

On 28 February 2024 shareholders voted to amend the Investment Policy as detailed below.

The company will be managed with the intention of realising all remaining assets in the company’s portfolio in

a prudent manner consistent with the principles of good investment management and with a view to returning

cash to shareholders in an orderly manner.

The company will pursue its investment objective by effecting an orderly realisation of its assets in a manner

that seeks to maximise the value received from those assets within a reasonable timescale, having regard to

both catalytic corporate events and markets generally. This process might include sales of individual assets or

running-off the portfolio in accordance with the existing terms of the assets, or a combination of both.

The company will cease to make any new investments or to undertake capital expenditure except where, in

the opinion of both the board and the investment manager (or, where relevant, the investment manager’s

successors):

the investment is a follow-on investment made in connection with an existing asset in order to comply

with the company’s pre-existing obligations; or

failure to make the follow-on investment may result in a breach of contract or applicable law or

regulation by the company; or

the investment is considered necessary to protect or enhance the value of any existing investments or

to facilitate orderly disposals.

Any cash received by the company as part of the realisation process prior to its distribution to shareholders

will be held by the company as cash on deposit and/or as cash equivalents.

Investment policy until 28 February 2024

The company invests in UK publicly quoted companies that are defined by the investment manager as micro-

cap, reflecting a market capitalisation of under £150 million of the investee company at the time of investment.

The investment manager intends to hold a concentrated portfolio of between 12 and 18 investments (when

fully invested).

The investment manager:

deploys a private-equity style diligence approach to investing, focusing on the future value of free cash

flows, sustainability of margins and strength of the management team;

takes advantage of the inefficiencies within the micro-cap market which include lack of analyst

coverage;

has the ability to invest up to 10% of the gross assets at the time of investment in one or more unquoted

companies;

procures that the company invests where analysis indicates an ability to create shareholder value of

15% compound growth per annum over a 3–7 year investment horizon;

favours a proactive style of engagement with management, aiming to maximise shareholder value over

the long term, particularly where diligence highlights a strength of management, an entry value that is

a discount to the investment manager’s calculation of intrinsic value, and where active engagement is

likely to mitigate some of the inefficiencies presented by the micro-cap market.

The investment manager believes that this is best achieved by the company taking strategic shareholdings of

between 3% and 25% of the equity of the investee company, although the company may hold larger or smaller

stakes where it deems appropriate (including up to a maximum of 29% of the equity of any one company at the

time of investment, but only where the company holds an additional right of conversion (e.g. option rights or

convertible loan notes) that would, on exercise, result in the company holding above 25% of the equity).

It is likely that the majority of the investments held in the company’s portfolio will be quoted on AIM and will

typically be drawn from the constituents of the FTSE AIM All Share Index.

33

Strategic Report

(continued)

Investment policy until 28 February 2024

(continued)

No single investment will represent materially more than 15% of the Gross Assets at the time of investment,

save that the company may make a follow-on investment into an existing investee company where such

investment may result, due to fluctuation in market conditions, in a single investment representing up to 15.5%

of Gross Assets at the time of investment, where this is likely to maximise the value of the company's existing

investment for shareholders.

The company’s portfolio is expected to be diversified by industry and market, but stock selection will be

determined by the results of extensive due diligence rather than a weighting in any particular index. However,

the investment manager will not invest on behalf of the company in early-stage technology, mining and

extraction companies and early-stage biotech (unless the company can see a defined route to profitability) and

does not intend to invest in initial public offerings, unless in exceptional circumstances where it has a historic

relationship with and an in-depth knowledge of the investee company. The company does not invest in other

closed-ended investment funds.

The company may use derivative instruments including index-linked notes, contracts for difference, covered

options and other equity-related derivative instruments for efficient portfolio management, gearing and

investment purposes. Any use of derivative instruments for investment purposes will be made on the basis of

the same principles of risk spreading and diversification that apply to the company’s direct investments, as

described above, although the company would not hold more than 5% of net assets in a derivative of any

single investee company. The company will not enter into uncovered short positions.

If companies in the portfolio achieve organic growth or grow through corporate activity such as acquisitions,

and consequently have a market capitalisation that would place them outside the investable universe

(described above), the investment manager will not be obliged to sell those holdings, but the proportion of the

portfolio in such companies will be carefully monitored by the investment manager and the board so that the

overall investment policy to invest in the smallest quoted or traded companies is not materially altered.

The company may deploy borrowing to enhance long-term capital growth. Gearing will be deployed flexibly

up to 15% of the net asset value, at the time of borrowing. In the event this limit is breached as a result of

market movements, and the board considers that borrowing should be reduced, the investment manager shall

be permitted to realise investments in an orderly manner so as not to prejudice shareholders. As at 29 February

2024 the company had no borrowings (2023: £nil).

Performance

Details of the company’s performance are set out in the Financial Highlights section on page 5 and the

Chairman’s Statement on pages 7 to 10.

A review of developments during the year, as well as information on investment activity within the company’s

portfolio, are included in the Investment Manager’s Report on pages 11 and 12.

Results and dividend

The results of the company are set out in the Statement of Profit or Loss and Other Comprehensive Income

on page 67 and analysed in the Chairman’s Statement in detail on page 7, along with an analysis of the

company’s investment portfolio and net asset position.

The return for the year after taxation was a loss of £6.1 million (2023: loss of £3.7 million), equivalent to a loss

of 12.97p per share (2023: loss of 7.54p per share). This comprised a revenue loss of £718,000 (2023: loss of

£653,000), equivalent to a loss of 1.52p (2023: loss of 1.32p) per share, and a capital loss of £5.4 million (2023:

loss of £3.1 million) equivalent to a loss of 11.45p (2023: loss of 6.22p) per share.

The directors are not recommending the payment of a final dividend.

34

Strategic Report

(continued)

Dividend policy

As a result of the shareholder vote on 28 February 2024 approving the new investment policy, on 3 April

2024 the board declared a distribution to Shareholders by way of the First Special Interim Dividend of 30

pence per share, equivalent to £13.98 mill

ion.

The First Special Dividend was paid on 26 April 2024 to Shareholders on the Company's register of members

at close of business on 12 April 2024. The Company's shares ex-dividend date was 11 April 2024.

On 28 May 2024 the board declared a Second Special Interim dividend of 12 pence per share, equivalent to,

in aggregate, £5.5 million (the "Second Special Interim Dividend").

On 30 May 2024 the Company announced the intention to return the value of its investment in FireAngel to

shareholders as soon as possible and expects to be able to do so by way of a third special interim dividend of

at least 7 pence per share, equivalent to, in aggregate, £3.2 million (the "Third Special Interim Dividend"). It is

expected that the Third Special Interim Dividend would be paid to shareholders by mid-late July 2024.

Key Performance Indicators (‘KPIs’)

A number of performance indicators are used to monitor and assess the company’s success in achieving its

objectives and to measure its progress and performance. The principal KPIs are described below:

Share price discount to NAV per share

– the board closely monitors the level of the company’s share

price discount to NAV and considers this to be an Alternative Performance Measure. The level of the

discount at the year ended 29 February 2024 was 5.65% (28 February 2023: 15.76%).

Share price movements

– the company’s Ordinary Share price decreased by 5.63% (2023: 9.69%) over

the period under review. This is largely attributable to the performance of the portfolio during the

period as detailed further within the Chairman’s Statement and Investment Manager’s Report.

Ongoing charges

– the ongoing charges represent the company’s management fee and all other

operating expenses excluding any finance costs, expressed as a percentage of the average daily net

assets during the year. The board consider the ongoing charges figure to be an Alternative

Performance Measure. The ongoing charges for the year ended 29 February 2024 were 2.00% (2023:

1.94%). The board considers this level to be satisfactory.

The net asset value per share is defined as an Alternative Performance Measure and the Board considers it to

be the primary measure of shareholder value.

Principal and emerging risks

The company is exposed to a variety of risks and uncertainties. The Directors have carried out a robust

assessment of the principal risks facing the company, as well as a review of emerging risks which may have

arisen during the year, including those which could threaten its business model, future performance, solvency

or liquidity.

The board identifies risks and mitigating actions to reduce the potential impacts should any of the risks

materialise. The Audit Committee and the board regularly monitor the effective operation of the controls. Risks

are updated on an ongoing basis, with new risks added as they are identified. Listed below is a summary of the

principal and emerging risks identified by the board and the action taken to mitigate those risks.

35

Strategic Report

(continued)

Principal and emerging risks

(continued)

Risk

Mitigation

Investment performance

The investment objective of the company may

not be achieved as returns are reliant on the

performance of the portfolio.

The company is reliant on the investment manager’s

investment process. The board has set investment

restrictions and guidelines which the investment

manager monitors and regularly reports on.

The board monitors the implementation and results of

the investment process with the investment manager.

The investment manager attends all board meetings

and provides the board with information including

performance data, an explanation of stock selection

decisions, portfolio exposure and the rationale for the

portfolio composition.

The company will invest primarily in the

smallest UK quoted or traded companies, by

market capitalisation. Smaller companies can be

expected, in comparison to larger companies, to

have less mature businesses, a more restricted

depth of management and a higher risk profile.

The investment manager has significant experience in

small-cap investing and deploys an approach that is

designed to maximise the potential for the investment

objective to be achieved over the longer-term.

The lasting economic consequences of the

coronavirus pandemic remain unclear, however

lagging performance of the UK economy has

the potential to impact market conditions and

depress market prices.

The company has a small, focused portfolio which

allows the investment manager to work closely with

each portfolio company and provide active support

where it can.

The price of the company’s shares trade at

either a discount or premium relative to the

underlying NAV of its shares.

Shareholders could become dissatisfied with a

continuing discount to NAV.

The board actively monitors the company’s share

price discount to the published NAV and continually

engages with the company’s corporate broker

regarding share trading volumes, comparative data

from the company’s peer group and significant buyers

and sellers.

The board look to manage the value through a

programme of share buybacks, subject to liquidity and

other considerations, whilst seeking to broaden the

interest in the company’s shares through a series of

marketing activities.

Operational

The

company

relies

on

external

service

providers. In the event that these parties are

unable or unwilling to perform in accordance

with the terms of their appointment, this could

have a detrimental impact on the company’s

performance.

Disruption to the accounting, payment systems

or custody records could lead to inaccurate

reporting and monitoring of the company’s

financial position.

Due diligence is undertaken before contracts are

executed with potential service providers. The board

monitors the performance of service providers

together with the associated costs. The board also

reviews reports on the effective operation of the

internal controls of service providers.

The company’s assets are subject to a strict liability

regime and in the event of a loss of financial assets

held in custody, assets of an identical type or the

corresponding amount must be returned unless the

loss was beyond the reasonable control of the

custodian.

36

Strategic Report

(continued)

Principal and emerging risks

(continued)

Risk

Mitigation

Operational

The security of the company’s assets, dealing

procedures, accounting records and adherence to

regulatory and legal requirements are reliant on

the effective operation of the control systems of

the service providers

The board also considers the business continuity

arrangements of the company’s key service providers.

The board may terminate all key contracts on normal

market terms

Financial

The company’s investment activities expose it to a

variety of financial risks that include market risk,

liquidity risk, and credit and counterparty risk.

Further details of these risks are disclosed in Note 14

to the Financial Statements, together with a summary

of the policies for managing these risks.

Legal and compliance

Non-compliance with investment trust eligibility

conditions. The company has been accepted by

HM Revenue & Customs as an investment trust,

subject to continuing to meet the relevant

conditions.

The

investment

manager

monitors

investment

movements and the amount of proposed dividends, if

any, to ensure that the relevant provisions of the

Corporation Tax Act 2010 are not breached. A report

is provided to the Board at each meeting.

Non-compliance with Companies Act 2006, the

Alternative Investment Fund Manager’s Directive

(‘AIFMD’), the UK Listing Rules and Disclosure &

Transparency Rules and the Market Abuse

Regulations,

the

UK

adopted

international

accounting standards and the AIC SORP.

The company secretary and administrator, along and

the company’s professional advisers, provide reports

to the board in respect of compliance with all

applicable rules and regulations and ensure that the

board is made aware of any changes to such rules and

regulations.

Compliance with applicable accounting standards and

best practice reporting for investment trusts are also

reviewed on an ongoing basis, with recommendations

made to the board by the administrator.

Emerging risks

Geopolitical risks

The continuing conflict in Ukraine and the impact

of sanctions placed on Russian businesses and

individuals may have some impact on the returns

of the Company.

The investment manager’s approach of having a

strategic involvement with the investee companies

ensures that the manager is well placed to assess the

exposure of the business to the Ukraine conflict and

associated developments. Exposure is considered to

be low and any direct impact on the company’s

performance not expected to be significant. The

manager will continue to review the evolving situation

as part of its ongoing activities.

Interest rate rises and Inflation

The company’s investments could be impacted

negatively as a result of increasing interest rates

and continued high inflation, particularly on wages

and other costs.

The investment manager’s close relationship with the

investee companies allows it to ensure that the

businesses properly assess the potential impact of

increasing costs, particularly wages, and the extent to

which these may or may not be able to be passed on

to the end customer. The manager currently considers

the net impact to be at a manageable level and

continues to monitor developments closely with all

investee companies.

37

Strategic Report

(continued)

Principal and emerging risks

(continued)

Risk

Mitigation

Emerging risks (continued)

Climate change

The effects of climate change or those of

changing legislation as the world looks to

transition towards net zero emissions may

impact the returns generated by the portfolio

companies.

Whilst the company itself, as an investment entity, has

negligible exposure to climate change risk, the

investment manager works closely with investee

companies to ensure that climate change risk and

transition risk is appropriately addressed. The manager

believes that the risks within the current portfolio to

be manageable and gives consideration to this in

reviewing new investment decisions and will continue

to assess developments in legislation and their

potential impact on portfolio companies.

Developments

in

accounting

and

disclosure

regulations impacting the company are monitored by

the investment manager and administrator to ensure

full compliance.

Viability statement

The board proposed, and shareholders overwhelmingly supported, a change in the company’s objective on 28

February 2024 to wind down the portfolio and distribute cash back to shareholders after meeting all costs. The

manager prepares forecasts of their intended process to achieve that objective and the board monitors progress

to ensure that stocks of adequate liquidity and cash are retained to meet costs.

The company is an investment trust with the new objective as set out above.

The directors have assessed the

viability of the company as follows:

the long-term nature of the company’s revised investment objective

Forward projections by the manager including anticipated costs;

and concluded that the appropriate period to assess viability is between 12 -18 months. The directors confirm

that they have a reasonable expectation that the company will be able to continue in operation and meet its

liabilities as they fall due over its foreseeable life.

38

Strategic Report

(continued)

Future prospects

The board’s main focus is to implement the new investment policy voted for by shareholders on 28 February

2024. The outlook for the company is discussed in both the Chairman’s Statement on page 9 and the

Investment Manager’s Report on pages 11 and 12.

Employees, social, community, human rights and environmental matters

The principal activity of the company is to invest in accordance with the Investment Policy set out on page 32.

The company has no employees, and all of its directors are non-executive, the day-to-day activities being carried

out by third parties. Therefore, there are no disclosures to be made in respect of employees, and accordingly

it has no direct social, human rights or environmental impact from its operations. In carrying out its investment

activities and relationships with suppliers, the company aims to conduct itself responsibly, ethically,and fairly.

Board diversity

When recruiting a new director, the board's policy is to appoint individuals on merit. The board believes

diversity is important in bringing an appropriate range of skills, knowledge and experience to the board and

gives that consideration when recruiting new directors. As at 29 February 2024, there were three male

directors and one female director on the board.

The Chairman’s Statement on pages 7 to 10, together with the Investment Manager’s Report and portfolio

information on pages 11 and 12 form part of the Strategic Report.

The Strategic Report was approved by the board on 5 June 2024.

For and on behalf of the board

Hugh Aldous

Chairman

5 June 2024

39

Directors’ Report

The directors present their report and the audited Financial Statements of the company for the year ended 29

February 2024.

Directors

Since the company’s objective is to wind-up and that is anticipated to be achieved within the next 12 to 18

months, the re-election of directors under the requirements of the articles is recognised and is set out as follows,

but the expectation is now that realising the portfolio and winding-up the company is a first priority.

Hugh Aldous was last re-elected at the 2021 AGM and will therefore stand for re-election by shareholders at

the forthcoming AGM, in accordance with the provisions of the company’s Articles of Association.

Linda Bell was last re-elected at the 2022 AGM and therefore will stand at the 2025 AGM, also in accordance

with the provisions of the company’s Articles of Association.

Robert Legget was last re-elected at the 2023 AGM and therefore will stand at the 2026 AGM, also in

accordance with the provisions of the company’s Articles of Association.

William Dawkins retired from the board on 14 May 2024.

There were no contracts subsisting during the year under review or up to the date of this report in which a director

of the company is or was materially interested and which is or was significant in relation to the company's

business.

None of the directors is entitled to compensation for loss of office on the takeover of the company. None of the

directors has a service contract with the company.

The board accordingly recommends the re-election of the Chairman Hugh Aldous.

Conflicts of interest

The company’s Articles of Association permit the board to consider and, if appropriate, to authorise situations

where a director has an interest that conflicts, or might possibly conflict, with the company. The board has a

formal system in place for the directors to declare situations for authorisation by those directors not interested

in the situation. Any situations considered and any authorisations subsequently given are appropriately

recorded.

The board believes that the system it has in place for reporting, considering, and recording situations where a

director has an interest that conflicts, or might possibly conflict, with the company operates effectively and

operated effectively during the period under review.

Directors’ remuneration report and policy

The directors’ remuneration report is set out on pages 55 to 58. An advisory ordinary resolution to approve this

report will be put to shareholders at the company’s forthcoming AGM. The company is also required to put the

director’s Remuneration Policy to a binding shareholder vote every three years. The company's Remuneration

Policy was last put to shareholders at the AGM in 2021. Directors ‘Remuneration was however reduced as part

of the reduction of costs for the wind-up and that was set out in the circular to shareholders of 2 February 2024,

an ordinary resolution to approve the policy will next be put to shareholders at the forthcoming AGM.

Directors’ responsibilities

The directors’ responsibilities in preparing these Financial Statements are noted on page 59.

Investment management and administration

Management

The company’s investment manager is Downing LLP (‘the investment manager’). The investment manager is

responsible for providing management services to the company in accordance with the company’s investment

policy and the terms of the management agreement dated 23 March 2017. The management fee during the

year was payable monthly in arrears and is equal to one twelfth of 1% of the market capitalisation of the

company, calculated on the last business day of each month. Further details are provided in note 4 on pages 75

and 76.

40

Directors’ Report

(continued)

Investment management and administration

(continued)

Downing LLP has agreed to rebate any management fee payable in order for the company to maintain an

ongoing charges ratio of 2% or lower.

On 28 February 2024 the shareholders voted in favour of the board’s proposal for a managed wind down of

the company which included an amendment to the investment manager’s fee arrangement. Full details of the

amendment are shown in note 4.

The board believes that the revised fee structure is appropriate for an investment company in this sector.

The Investment Management Agreement is terminable by the company, or the investment manager, providing

not less than six months’ written notice or the completion of realisation of the portfolio, whichever is the

sooner. Part of the fee is only payable on completion of realisation of the portfolio.

Company secretarial and administration

Downing LLP was appointed as administrator under an administration agreement (‘the Downing LLP

Administration Agreement’) with effect from 1 April 2020. Grant Whitehouse, a Downing LLP partner, was

appointed as company secretary on the same date.

On 1 February 2024, following Grant’s retirement, ISCA Administration Services Limited were appointed as

Administrator and company secretary to the company.

The administrator provides general fund valuation, accounting and investment operation services to the

company, AIFM support services and company secretarial services for a total minimum annual fee of £80,000

(exclusive of VAT where applicable).

The Administration Agreement is terminable by the company, or the administrator, providing not less than six

months’ written notice.

Custodian

The Northern Trust Company has been appointed as custodian pursuant to the Custody Agreement. The

Custody Agreement may be terminated by either party giving 30 days’ written notice.

The custodian receives a safe-keeping fee and transaction fees which vary by market, subject to a minimum fee

of £7,500 per annum.

Computershare Investor Services PLC has been appointed as registrar to the company under the Registry

Services Agreement. The Registrar is entitled to a fee calculated on the basis of the number of shareholders

and the number of transfers processed. The Registry Services Agreement may be terminated on not less than

six months’ notice.

The Registrar is also entitled to reimbursement of all disbursements and out of pocket expenses.

Appointment of the investment manager

The board, through the Management Engagement Committee, considers arrangements for the provision of

investment management and other services to the company on an ongoing basis, and a formal review is

conducted annually. As part of this review, the board considers the quality and continuity of individuals

responsible for the company’s affairs, the investment process and the performance achieved. The specialist

nature of the company’s investment remit is, in the board’s view, best served by Downing LLP, who have a

proven track record in small cap investing.

It is the opinion of the directors that the continued appointment of the investment manager is in the interests

of shareholders as a whole.

41

Directors’ Report

(continued)

Change of control

There are no agreements to which the company is a party that might be affected by a change in control of the

company.

Exercise of voting rights in investee companies

The exercise of voting rights attached to the company’s portfolio has been delegated to the investment

manager, whose voting policy states:

We intend to vote at all shareholder meetings of companies in which our clients are invested. In cases

where there are significant obstacles to voting such as share-blocking or requirements for a power of

attorney, we will review the resolutions to assess the extent of the restrictions on voting against the

potential benefits.

We will vote in favour of proposals which we expect to enhance shareholder value, and on routine issues

where we are supportive of a company’s management.

We will vote against proposals which we believe may damage shareholders’ rights or economic

interests.

In all situations the economic interests of our clients will be paramount.

Further details of the investment manager’s Proxy Voting and Engagement Principles may be found at

www.downingstrategic.co.uk

.

Results and dividends

£’000

Pence per

share

Loss for the year ended 29 February 2024

(6,126)

(12.97)

Dividends paid during the year ended 29 February 2024:

-

-

The directors are not recommending the payment of a final dividend.

Basis other than going concern

As stated on page 32 at a General Meeting of the company held on 28 February 2024 shareholders voted to

adopt a new investment policy and the Company will be managed with the intention of realising all remaining

assets in the Company’s portfolio in a prudent manner consistent with the principles of good investment

management and with a view to returning cash to shareholders in an orderly manner. Once this process has

been completed the directors’ intention would be to place the company into liquidation. Given this, the

Financial Statements have been drawn up on a basis other than that of a going concern.

In preparing the Financial Statements on a basis other than that of a going concern the following amendments

have been made:

As the investments are expected to be realised within 12 months from the reporting date, they have

been reclassified from non-current to current assets. The board has concluded that no adjustments

to the value of investments is required and that the bid price remains appropriate.

A provision for the costs of liquidation of £25,000 has been made and is shown in note 11 on page

78.

The board’s review of the company’s longer-term viability is also set out in the viability statement, on page 37.

42

Directors’ Report

(continued)

Share capital

Details of the company’s issued share capital are given in note 12 on page 79. The Ordinary Shares carry the

right to receive dividends and have one voting right per Ordinary Share. There are no restrictions on the voting

rights of the Ordinary Shares. The company also has one non-redeemable preference share in issue with no

voting rights. There are no shares which carry specific rights with regard to the control of the company.

Substantial share interests

As at 29 February 2024 the company had received notification, in accordance with the FCA’s Disclosure and

Transparency Rule 5.1.2R, of the following interests (by virtue of being the beneficial owner or managing the

shares on behalf of a third party) in 3% or more of the voting rights attaching to the company’s issued share

capital.

Number of

Ordinary Shares

% of total voting rights

Foresight Group LLP

10,388,816

22.3%

EQ Investors Limited

4,100,624

8.8%

Asset Value Investors

3,300,000

7.1%

Milkwood Holdings Limited

3,150,627

6.8%

William Black

1,500,000

3.2%

Since the year end the company has been informed of the following changes to the notified interests between

29 February 2024 and the date of this report.

Milkwood Holdings Limited 11,906,900 shares (26.1%), Thames

Ventures VCT 2 plc, as part of Foresight Group LLP disclosure Nil and EQ Investors, Nil. Percentages at the date

of this Report.

Share repurchases and discount management

The directors will consider repurchasing Ordinary Shares in the market if they believe it to be in shareholders’

interests and as a means of correcting any imbalance between the supply and demand for Ordinary Shares.

Purchases of Ordinary Shares will be made at the discretion of the board within guidelines established from time

to time and regularly reviewed by the board. Any such purchases will be funded from available cash resources

of the company at prices below the relevant prevailing NAV (cum-income) per Ordinary Share.

Ordinary Shares purchased by the company may be held in treasury or cancelled. During the year, the company

purchased 2,568,113 of its own shares at an average price of 62.36p per share. All shares repurchased during

the year were held in treasury at the year end and cancelled on 2 April 2024.

The directors recognise that taking steps to keep the discount of the company’s share price to its underlying

NAV (per Ordinary Share) competitive with its peer group is in the best interest of the company’s shareholders.

The directors closely monitor the level of the discount and take steps to manage it through share buybacks,

subject to liquidity and other considerations.

43

Directors’ Report

(continued)

Treasury shares

The company may hold Ordinary Shares acquired by way of market purchases in treasury. The company normally

intends to hold less than 10% of the issued Ordinary Shares at any time in this way. As at 29 February 2024, the

company held 5,125,819 Ordinary Shares in treasury, or 9.91 % of the company’s Ordinary Shares in issue.

These shares were cancelled on 2 April 2024.

Ordinary Shares held in treasury may subsequently be cancelled or sold for cash. No Ordinary Shares will be

sold at a price less than the NAV (cum income) per existing Ordinary Share at the time of their sale.

Companies Act 2006 and Disclosure & Transparency Rules

(“

DTRs”) Disclosures

In accordance with Schedule 7 of the Large and Medium Size Companies and Groups (Accounts and Reports)

Regulations 2008 and the DTRs, the Directors disclose the following information:

• The structure of the company’s capital is summarised above and in Note 12 and the voting rights are contained

on page 42. There are no restrictions on voting rights or any agreement between holders of securities that result

in restrictions on the transfer of securities or on voting rights.

• There are no securities carrying special rights with regard to the control of the company.

• The company does not operate an employee share scheme.

• The company’s Articles of Association and the Companies Act 2006 contain provisions relating to the

appointment and replacement of directors, amendment of the Articles of Association and powers to issue or buy

back the company’s shares.

•

No agreements exist to which the company is a party that may affect its control following a takeover bid.

• There are no agreements in place between the company and its directors providing for compensation for loss

of office in any event.

The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations

2008

Details of the financial risk management objectives and policies of the company together with information on

exposure to credit, price, liquidity and cash flow risks are contained in Note 14 on pages 79 to 82.

Post Balance Sheet Events

Following the shareholder vote at the General Meeting on 28 February 2024 the directors proposed a return of

capital to shareholders through a tax efficient B share scheme. At a General Meeting held on 3 April 2024 these

proposals for the issue of the B shares did not secure the required approval of shareholders. In the light of this

result, and in order to give immediate effect to the plan overwhelmingly supported by shareholders at the

February General Meeting to adopt the managed wind-down investment policy and return cash to shareholders,

the board decided to make a distribution to shareholders by way of the First Special Dividend of 30 pence per

share, equivalent to £13.98 million.

The First Special Dividend was paid on 26 April 2024 to shareholders on the company's register of members at

close of business on 12 April 2024. The Company's shares ex-dividend date was 11 April 2024.

On 28 May 2024 the board declared a Second Special Interim dividend of 12 pence per share, equivalent to, in

aggregate, £5.5 million (the "Second Special Interim Dividend").

The Second Special Interim Dividend will be paid on 21 June 2024 to shareholders on the company's register of

members at close of business on 7 June 2024. The company's shares will go ex-dividend on 6 June 2024.

On 30 May 2024 the company announced the intention to return the value of its investment in FireAngel to

shareholders as soon as possible and expects to be able to do so by way of a third special interim dividend of at

least 7 pence per share, equivalent to, in aggregate, £3.2 million (the "Third Special Interim Dividend"). It is

expected that the Third Special Interim Dividend would be paid to shareholders by mid-late July 2024.

44

Directors’ Report

(continued)

Streamlined Energy and Carbon Reporting (the ‘SECR’)

As the company has no employees and primarily conducts its business at the London office of the investment

manager and administrator, the company is not directly responsible for the consumption of electricity and gas

in the UK, nor is the company directly responsible for greenhouse gas emissions related to transport in the UK.

As the company did not consume more than 40,000 kWh of energy during the year ended 29 February 2024, it

has nothing to report under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and

Carbon Report) Regulations 2018.

Global greenhouse gas emissions

As the company has no employees, does not own or lease property and delegates its day-to-day management

and administration to third parties, the company has no greenhouse gas emissions to report from its operations,

nor does it have direct responsibility for other emission producing sources. As a result, the company has nothing

to report under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

Modern Slavery Act 2015 (‘the MSA’)

The MSA requires companies to prepare a slavery and human trafficking statement for each financial year of the

organisation.

As an investment vehicle, the company does not have any employees or provide goods and services in the normal

course of business. Accordingly, the directors consider that the company is not required to make a slavery and

human trafficking statement under the MSA.

Articles of Association

Any amendments to the company’s Articles must be approved by special resolution.

Annual General Meeting

This year’s AGM will take place on Wednesday 21 August 2024 at 12:00pm at Downing’s office at 6

th

Floor, St

Magnus House, 3 Lower Thames Street, London EC3R 6HD. Shareholders intending to attend the meeting are

requested to register by sending an email to

dsmagm@downing.co.uk

stating that you wish to register for the

AGM.

The notice of the AGM is set out on page 91 of this report and notes in respect of special business to be proposed

at the meeting on page 90.

Corporate governance

Full details are given in the Corporate Governance Statement on pages 46 to 51. The Corporate Governance

Statement forms part of this Directors’ Report.

Auditor

The auditor, BDO LLP, has indicated its willingness to continue in office. Resolutions to reappoint BDO LLP

and to authorise the Audit Committee to determine their remuneration for the year ended 28 February 2025

will be proposed at the forthcoming AGM.

45

Directors’ Report

(continued)

Statement as to disclosure of information to auditor

As required by Section 418 of the Companies Act 2006 the directors in office at the date of the report have

confirmed, as far as they are aware, that there is no relevant audit information of which the auditor is unaware.

Each of the directors has confirmed that they have taken all the steps that they ought to have taken as directors

in order to make themselves aware of any relevant audit information and to establish that it has been

communicated to the auditor.

Listing Rule 9.8.4

Listing Rule 9.8.4 requires the company to include certain information in a single identifiable section of the

Annual Report or a cross reference table indicating where the information is set out. The directors confirm that

there are no disclosures to be made in this regard.

By order of the board

ISCA Administration Services Limited

Company Secretary

5 June 2024

46

Corporate Governance Statement

This report, which is part of the Directors' Report, explains how the board has addressed its responsibility,

authority and accountability during the year under review.

The board has considered the principles and recommendations of the 2019 Association of Investment

Companies Code of Corporate Governance (“AIC Code”). The AIC Code, as explained by the AIC Guide,

addresses all the principles set out in the 2018 UK Corporate Governance Code (“UK Code”), as well as setting

out additional principles and recommendations on issues that are of specific relevance to investment companies.

The AIC Code has been endorsed by the Financial Reporting Council (FRC), meaning that by reporting against

the AIC Code, the company is able to meet its obligations in respect of the UK Code

(and associated disclosure

requirements under paragraph 9.8.6 of the Listing Rules).

As investment trust companies differ in many ways from other listed companies, the board considers that

reporting against the principles and recommendations of the AIC Code will provide better information to

shareholders.

Statement of compliance

The board has made the appropriate disclosures in this report to ensure that the company meets its continuing

obligations. It should be noted that, as an investment trust, most of the company’s day-to-day responsibilities

are delegated to third parties, the company has no employees, and all of the directors are non-executive.

Therefore, not all of the provisions of the UK Code are directly applicable to the company.

Rather than all directors seeking re-election at every AGM the re-election of directors has continued on a three-

year rotation as prior years and is considered appropriate as the company reduces in size and progresses through

its winding down phase.

Other than this, the board considers that the company has complied with the provisions and recommendations

of the AIC Code for the year ended 29 February 2024.

As an investment company managed by third parties, the Company does not employ a chief executive, nor any

executive directors. The systems and procedures of the Investment Manager and the Administrator and the

annual statutory audit as well as the size of the Company’s operations, gives the Board confidence that an

internal audit function is not appropriate. The Company is therefore not reporting further in respect of these

areas.

The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC

Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment

companies.

Information on how the company has applied the principles of the AIC Code is set out below.

The board

The board is collectively responsible for the success of the company. It is accountable to shareholders for the

direction and control of all aspects of the company’s affairs and is ultimately responsible for framing and

executing the company’s strategy and closely monitoring risks.

The board aims to run the company in a manner that is responsible and ensures engagement with investors. The

directors are committed to maintaining high standards of financial reporting, transparency and business integrity.

At the year end the board consisted of four non-executive directors and all directors are considered to be

independent of the investment manager. The directors’ biographies, including details of their other significant

commitments, are provided on page 28. The biographical details demonstrate that the directors possess a

breadth of investment, commercial and professional experience, and a wide range of business and financial

expertise relevant to the stewardship of the company. William Dawkins retired from the board with effect from

14 May 2024.

.

47

Corporate Governance Statement

(continued)

As stated in the AIC Code, the chair of an investment company presides over a board which does not have a

chief executive or other executive directors. The directors consider that the chairman was independent on

appointment and continues to be independent

Delegation of responsibilities

The Investment Management Agreement between the company and Downing LLP sets out the matters

delegated to the investment manager, which include the management of the company’s assets and the exercise

of voting rights attached to the securities held in the portfolio. Further details of the terms of the agreement are

set out on pages 75 and 76. The review of the investment manager’s performance is an ongoing duty and

responsibility of the board, which is carried out at every board meeting. In addition, a formal review is undertaken

annually, details of which are set out in the section concerning the company’s Management Engagement

Committee, on page 50.

The provision of accounting, company secretarial and administration services has been delegated to Downing

LLP under the terms of the Administration Agreement, with effect from 1 April 2020. With effect from 1

February 2024 ISCA Administration Services Limited were appointed as company secretary and administrator

to the Company.

The assets of the company have been entrusted to the custodian for safekeeping. The custodian is The Northern

Trust Company. The address at which the business of the custodian is conducted is given on page 89.

A formal schedule of matters reserved to the board for decision has been approved. This includes monitoring of

the company’s investment objectives and policy, its future strategic direction, gearing policy, management of

the capital structure, appointment and removal of third-party service providers, review of key investment and

financial data and the company’s corporate governance and risk control arrangements.

Internal control

The board has established an ongoing process for identifying, evaluating, and managing the significant risks faced

by the company. The process conforms to the recommendations of the FRC’s Guidance on Risk Management,

Internal Control and Related Financial and Business Reporting and is subject to regular review by the board. The

board is responsible for the company’s system of internal controls and for reviewing its effectiveness. However,

such a system can only be designed to manage rather than eliminate the risk of failure to achieve business

objectives and therefore can only provide reasonable, but not absolute, assurance against fraud, material

misstatement or loss.

The board maintains a detailed risk and internal control assessment which is the basis for the Audit Committee

and the board to regularly monitor the effective operation of the controls, and is updated on an ongoing basis,

with new risks added as they are identified. The review covers all material financial, operational and legal and

compliance controls and risk management systems.

Investment management, custody of assets and all administrative services are provided to the company by the

investment manager, custodian, and administrator, respectively. The company monitors the services provided

by these service providers and the operating controls established by them.

The board, through the Audit Committee, has reviewed the effectiveness of the company’s system of internal

controls for the period under review and to the date of this report. During the course of this review, no significant

failings or weaknesses were identified.

As the company’s investment management, administration and custodial activities are carried out by third party

services providers, the board does not consider it necessary to have an internal audit function or whistleblowing

procedures. The Audit Committee reviews annually the whistleblowing procedures of the investment manager

and the administrator.

Financial reporting

The statement of directors’ responsibilities in respect of the Annual Report and Financial Statements is set out on

page 59, the report of the Independent Auditor on page 60 to 65 and the statement that the company is not a

going concern on page 41.

48

Corporate Governance Statement

(continued)

Board structure and management

The board meets regularly, usually on a quarterly basis to review investment performance, financial reports and

other reports of a strategic nature. Board or board committee meetings are also held on an ad hoc basis to

consider matters as they arise. Key representatives of the investment manager, and the company secretary,

attend each board meeting. The investment manager, company secretary and the board have a constructive

and co-operative relationship. Communication between meetings is maintained between the board,

investment manager, company secretary and other service providers.

The attendance record for each scheduled meeting held during the period under review is set out below

Year ended 29 February 2024

Meetings of

the Board

Management Engagement

Committee Meetings

Director

Number

held

Number

attended

Number

held

Number

attended

Number

held

Number

attended

Hugh Aldous

3

3

2

2

-

-

Robert Legget

3

3

2

2

-

-

Linda Bell

3

3

2

2

-

-

William Dawkins

3

3

2

2

-

-

In addition, other ad hoc meetings were held during the year where necessary and a General Meeting on 28

February 2024.

Role of the chairman

With the support of the company secretary, the chairman sets the agenda for meetings, manages the meeting

timetable and facilitates open and constructive dialogue both during and between meetings.

Directors’ appointment, retirement and succession

Details on the appointment, retirement and rotation of directors are set out in the Directors’ Report on page 39.

The board’s individual independence, including that of the chairman, has been considered and all directors are

considered independent in both character and judgement. This independence allows all of the directors to sit on

the company’s various committees.

The board’s view on tenure is that length of service is not necessarily an impediment to independence or good

judgement and does not therefore have a formal policy requiring directors to stand down after a fixed period. It

considers that a long association with the company and experience of a number of investment cycles is valuable

and does not compromise a director’s independence.

Appointments will be reviewed as part of the regular board performance evaluations. Directors must be able to

demonstrate their commitment, including in terms of time, to the company. The board will seek to ensure that

it is well balanced and refreshed regularly by the appointment of new directors with relevant skills and

experience.

The board has appointed Robert Legget as Senior Independent Director in accordance with the provisions of

the AIC Code. He leads the evaluation of the performance of the chairman and is available to shareholders if

they have concerns that cannot be resolved through discussion with the chairman.

Diversity

The directors are aware of the need to have a board which, as a whole, comprises an appropriate balance of

skills and experience combined with diversity of thinking, perspective and background. Any board appointment

will be based on merit against the required criteria, the current and future needs of the company and having

regard to the diversity criteria under the Listing Rules. The board place great importance on diversity and

independent thinking when assessing its composition although being externally managed and comprising of only

four non-executive directors there is reduced scope to fully comply with the requirement.

49

Corporate Governance Statement

(continued)

The board is required to disclose their compliance in relation to the targets on board diversity set out under

paragraph 9.8.6R (9) of the Listing Rules which are as follows:

1. at least 40% of the individuals on the Board of Directors are women;

2. at least one of the senior positions on the Board of Directors is held by a woman; and

3. at least one individual on the Board of Directors is from a minority ethnic background.

The table below sets out the composition of the board at the year end based on the prescribed criteria.

Gender identity

Number of

Board

Members

Percentage of

Board

Number of

senior positions

on Board

Men

3

75%

2

Women

1

25%

-

White British or other White (including minority

White groups)

4

100%

100%

Mixed Multiple Ethnic Groups

-

-

-

Asian/Asian British

-

-

-

Other ethnic group including Arab

-

-

-

-

-

-

Not specified/prefer not to say

-

-

-

The board therefore does not currently meet the criteria above. More details on the directors can be found in

the Board of Directors section on page 28.

Directors’ induction training and development

When a director is appointed, he or she will be offered an induction programme, organised by the investment

manager, and will be provided with key information on the company’s policies, regulatory and statutory

requirements, internal controls and the responsibilities of a director.

Directors are encouraged to keep up to date with industry developments and attend training courses on matters

directly relevant to their involvement with the company. The directors receive regular briefings from the company

secretary regarding any proposed developments or changes in applicable laws and regulations which could

impact the company.

Provision of information and support

There is an agreed procedure for directors, in the furtherance of their duties, to take independent professional

advice, if necessary, at the company’s expense. All directors have access to the company secretary, who is

responsible for ensuring compliance with applicable laws and regulations.

The chairman, with the assistance of the company secretary, ensures that the directors receive accurate, timely

and clear information. All directors receive appropriate documentation in advance of each board and

committee meeting, including detailed briefings on all appropriate matters, to support the directors in

discharging their duties effectively. The appointment and removal of the company secretary is a matter for the

whole board.

Performance evaluation

The board undertakes an annual self-evaluation of its performance, that of its committees and individual

directors, including the chairman. The reviews were led by William Dawkins, in the case of the board, and the

relevant chair for each committee. Each committee chair, assisted by the company secretary, determined the

scope and format for the review, which was predominantly through questionnaires and focused discussions. As

reported in the Chairman’s Statement the outcome of the previous thorough formal review process was

continued during the current year rather than undertaking it again. There were no matters of concern requiring

corrective action arising from the previous evaluation process or any discussion held during this financial year

and it was agreed that the composition of the board, at that time, reflected a suitable mix of skills and experience,

and that the board as a whole, the individual directors and its committees were functioning effectively.

50

Corporate Governance Statement

(continued)

Board structure and management

(continued)

Directors’ liability insurance

The company provides director’s and officer’s liability insurance, giving appropriate cover for legal action

brought against its directors, and has also agreed to indemnify directors in circumstances where they are not

considered to be culpable. The indemnity, which is a qualifying third-party indemnity provision for the purpose

of the Companies Act, is for the benefit of all of the company’s current directors.

Board committees

The board has delegated authority to the committees detailed below and has put in place terms of reference for

each committee, which are available on the company’s website and from the registered office.

Remuneration committee

The company’s policy on directors’ remuneration, as well as the details of the remuneration of each director, is set

out in the Directors’ Remuneration Report on pages 55 to 59. As stated in the Directors’ Remuneration Report,

the full board determines the level of directors’ fees and, accordingly, there is no separate remuneration

committee.

Nomination Committee

As the board is small and all of the directors are non-executive, a separate nomination committee has not been

established. The full board will review its structure and composition. Appointments of new directors will be

made on a formalised basis, with the board agreeing the selection criteria and the method of selection,

recruitment and appointment. Board diversity, including gender, will be taken into account in establishing the

criteria.

Audit Committee

The Audit Committee, which is chaired by Robert Legget, consists of all the directors of the company. Further

details are provided in the Report of the Audit Committee on pages 52 to 54.

Management Engagement Committee

The company’s Management Engagement Committee comprises all directors and is chaired by Hugh Aldous.

The Committee considers the performance, terms, fees and other remuneration payable to the investment

manager, the administrator and other service providers. Annually, it reviews the appropriateness of the

investment manager’s continued appointment, together with the terms and conditions of the Investment

Management Agreement. During the year the review and amendment to the Investment Management

Agreement was considered as part of the changes to the Investment Objective as voted on by shareholders

on 28 February 2024.

Shareholder relations

The board is committed to ensuring that there is open and effective communication with the company’s

shareholders. The investment manager and the company’s broker maintain regular dialogue with major

shareholders and provide the board with reports and feedback.

All shareholders are encouraged to attend and vote at the company’s Annual General Meeting. The board,

including the chairman, and the investment manager will be available at the Annual General Meeting to discuss

issues affecting the company and to answer any questions. The Notice of Annual General Meeting and any

related papers are sent to shareholders at least 20 business days before the meeting.

Shareholders may contact the board through the investment manager or the office of the company secretary.

The contact details are given on page 89.

Basis other than going concern

business activities, together with the factors likely to affect its future development,

performance and position are set out in the Chairman’s Statement on pages 7 to 10, the Investment Manager’s

Report on pages 11 and 12, the Strategic Report on pages 29 to 38 and the Directors’ Report on pages 39 to

45.

51

Corporate Governance Statement

(continued)

Basis other than going concern

(continued)

The financial position of the company, its cash flows, liquidity position and borrowing facilities are shown in

the Statement of Financial Position on page 69 and the Statement of Cash Flows on page 70. In addition, note

14 to the financial statements includes the company’s objectives, policies and processes for managing its

capital, its financial risk management objectives, details of its financial instruments, and its exposures to credit

risk and liquidity risk.

As stated on page 32 at a General Meeting of the company held on 28 February 2024 shareholders voted to

adopt a new investment policy and the company will be managed with the intention of realising all remaining

assets in the company’s portfolio in a prudent manner consistent with the principles of good investment

management and with a view to returning cash to shareholders in an orderly manner.

Once this process has

been completed the directors’ intention would be to place the company into liquidation. Given this, the

Financial Statements have been drawn up on a basis other than that of a going concern.

In preparing the Financial Statements on a basis other than that of a going concern the following amendments

have been made:

As the investments are expected to be realised within 12 months from the reporting date, they have

been reclassified from non-current to current assets. The board has concluded that no adjustments

to the value of investments is required and that the bid price remains appropriate.

A provision for the costs of liquidation of £25,000 has been made and is shown in note 11 on page

78.

Bribery Prevention Policy

The company has zero tolerance towards bribery and is committed to carrying out business fairly, honestly and

openly. The board takes its responsibility to prevent bribery seriously and its service providers are contacted in

respect of their anti-bribery policies.

Criminal Finances Act 2017

The board has a zero-tolerance approach to the facilitation of tax evasion.

For and on behalf of the board

Hugh Aldous

Chairman

5 June 2024

52

Report of the Audit Committee

The company has established a separately chaired Audit Committee that meets at least twice a year and

operates within written terms of reference detailing its scope and duties.

Composition

Given that the board is small, it is considered appropriate for all of the directors to sit on the Audit Committee,

including the chairman of the company. The members of the Audit Committee consider that they have the

requisite skills and experience to fulfil the responsibilities of the committee. The chairman of the Audit

Committee, Robert Legget, and chairman of the Board, Hugh Aldous, both have recent and relevant financial

experience and the Audit Committee as a whole has experience relevant to the sector.

Role of the Audit Committee

The role of the Audit Committee is to assist the board in applying financial reporting and internal control

principles and to maintain an appropriate relationship with the auditors. The Audit Committee formally reports

to the board.

Responsibilities

During the period, the principal activities of the Audit Committee included:

considering and recommending to the board for approval the contents of the half-yearly and Annual Report

and Financial Statements and considering the quality of the Independent Auditor’s Report thereon;

reviewing the appropriateness of the company’s accounting policies;

following the completion of the audit, the committee will review the effectiveness of the external audit

process, the quality of the audit engagement partner, the audit team and based on the review will make a

recommendation to the board on the re-appointment of the auditor;

reviewing and approving the external auditor’s plan for the financial period, with a focus on areas of audit

risk and the consideration of the appropriateness of the level of audit materiality;

considering the audit and non-audit services fees payable to the external Auditor and the terms of their

engagement; and

reviewing the adequacy of the internal control systems and evaluating the need for an internal audit

function as set out in the Corporate Governance Statement on page 47.

Reviewing the appropriateness of using the going concern basis for the preparation of the Financial

Statements and ultimately agreeing that the accounts should be prepared on a basis other than a going

concern.

The fees paid to the external Auditor are set out in note 5 on page 76.

Non-audit services

All requests for services to be provided by the external auditor will be submitted to the Committee in order to

ensure that the scope and nature of the proposed work does not affect the auditor’s independence or objectivity

and will be determined on a case-by-case basis.

The Auditor did not provide any non-audit services during the year.

Change of auditor, auditor appointment and tenure

The committee reviews the scope and results of the external audit, its effectiveness and cost effectiveness and

the independence and objectivity of the external auditor. In the opinion of the committee, the auditor is

independent of the company. The committee also has primary responsibility for making recommendations to

the board on the re-appointment and removal of the external auditor.

Following a formal audit tender process, the appointment of BDO LLP as auditor was formalised in November

2019, with notification being sent to all shareholders in accordance with the Companies Act. Including the audit

of the company’s Financial Statements for the year ended 29 February 2024, BDO LLP have acted as external

auditor for five accounting periods.

53

Report of the Audit Committee

(continued)

Change of auditor, auditor appointment and tenure

(continued)

BDO LLP will be required to re-tender, at the latest, by 2030. Due to the short period since the appointment

of the auditor, it is not considered appropriate to review the auditor’s succession at this juncture. The audit

partner for the year under review is Neil Fung-On, who is in the role for the fifth year of a maximum five-year

term.

Representatives of the company’s auditor attend the Audit Committee meeting at which the draft Annual

Report and Financial Statements are considered, in addition to engaging with the directors as and when

required.

Having reviewed the performance of BDO LLP, including assessing the quality of work, timing of

communications and work with the investment manager, the committee has considered it appropriate to

recommend the auditor’s reappointment. The board is in support of this recommendation and a resolution will

be put to shareholders at the forthcoming AGM.

Significant matters considered in preparing the Annual Report and Financial Statements

During the year, the Audit Committee considered a number of significant matters and key audit areas in respect

of the Annual Report and Financial Statements. The Audit Committee reviewed the external audit plan at an

early stage and concluded that the key audit areas had been identified and that suitable procedures had been

put in place to obtain reasonable assurance that the Financial Statements as a whole would be free of material

misstatements. The table below sets out the areas identified, and the steps taken to minimise the audit risk in

each area.

Significant matter/key audit area

Mitigation

Valuation, existence and

ownership of investments

The valuation of investments is undertaken in accordance with the

accounting policies disclosed in Note 2, on pages 71 to 74. Controls

are in place to ensure that quoted prices are accurately reflected in

the company’s records on a daily basis. In the case of unquoted

investments, valuations are prepared in accordance with the

International Private Equity and Venture Capital Valuation (‘IPEV’)

Guidelines and detailed valuation assessments are provided to the

auditor on a timely basis. Existence of the portfolio is verified

through regular reconciliations to the custodian’s records. The

custodian remains responsible for the oversight of the custody of

the company’s assets.

Recognition of investment income

The board relies on the administrator and the investment manager

to calculate and record income accurately and takes comfort from

both the control environment in respect of income recognition and

the fact that the information required in order for income to be

calculated correctly is made public by the investee companies.

The board reviews income forecasts and receives explanations

from the investment manager for any variations or significant

movements from previous forecasts. The board also considers the

recoverability of accrued income.

Subjective elements of income such as special dividends have been

reviewed by the board to agree the accounting treatment.

54

Report of the Audit Committee

(continued)

Significant matters considered in preparing the Annual Report and Financial Statements

(continued)

Significant matter/key audit area

Mitigation

Maintenance of investment trust

status

The investment manager and administrator have reported to the

Audit Committee to confirm continuing compliance with the

requirements for maintaining investment trust status. Compliance

is also discussed with the auditor as part of the audit process.

Impact of the continued conflict in

Ukraine and additional sanctions

The Audit Committee notes the investment manager’s approach

of having a strategic involvement with the investee companies

which ensures that the manager is well placed to assess the

exposure of the business to the Ukraine conflict and associated

developments. The Audit Committee will continue to review the

evolving situation and risks faced by the company as they develop.

Impact of rising interest rates and

inflation

As a result of the investment manager’s close relationship with the

investee companies, the manager ensures that businesses properly

assess any potential impact and the extent to which these may be

minimised.

Working alongside the investment manager, the Audit Committee

considers the net impact to be at a manageable level and shall

continue to monitor developments on the portfolio.

The preparation of the Financial

Statements and whether the going

concern basis is still appropriate.

The Audit Committee agreed that the company could meet all

liabilities as and when due for a period of at least 12 months from

the date of signing the report and considered the implications of

the vote by Shareholders on 28 February 2024 to change the

Investment Policy to a realisation of all remaining assets in an

orderly manner.

After discussion the Committee concluded that the Financial

Statements should be prepared on a basis other than a going

concern. Details of how this affects the Financial Statements are

shown on page 51.

Conclusions in respect of the Annual Report and Financial Statements

Having taken all available information into consideration and having discussed the content of the Annual

Report and Financial Statements with the investment manager, company secretary and other third-party

service providers, the Audit Committee has concluded that the Annual Report and Financial Statements for the

year ended 29 February 2024 as a whole are fair, balanced and understandable and provide the information

necessary for shareholders to assess the company’s position, performance, business model and strategy, and

has reported these findings to the board. The board’s conclusions in this respect are set out in the statement of

directors’ responsibilities on page 59.

Robert Legget

Chairman of the Audit Committee

5 June 2024

55

Directors’ remuneration report

The board presents the directors’ remuneration report for the year to 29 February 2024, which has been

prepared in accordance with the requirements of Sections 420-422 of the Companies Act 2006 (‘the Act’) and

Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008,

as amended (‘the Regulations’).

By law, the company’s auditors are required to audit certain disclosures made in its Annual Report. Where

disclosures have been audited, it is indicated as such. The Auditor’s opinion is included in the Independent

Auditor’s report on pages 60 to 65.

As the company has no employees and all of the directors are non-executive, the board has not established a

separate remuneration committee. The board, as a whole, fulfils the function of the remuneration committee

and may amend the level of remuneration paid to individual directors within the parameters of the

remuneration policy.

The Directors' Remuneration Report is subject to an annual advisory vote and an ordinary resolution to approve

this report will be put to shareholders at the forthcoming AGM.

Directors’ Remuneration policy

There have been no changes to the remuneration policy during the financial year under review and no changes

are proposed for the year ending 29 February 2024. The Remuneration Policy was approved by shareholders

at the AGM in 2021 in accordance with Section 439A of the Companies Act 2006. The law requires that the

Remuneration Policy is subject to a triennial binding vote, therefore an ordinary resolution to approve the

policy will next be put to shareholders at the 2024 AGM.

Directors’ Remuneration Policy terms

1)

Remuneration consists of a fixed fee each year and the directors of the company are entitled to such

rates of annual fees as the board at its discretion determines.

2)

In accordance with the company’s Articles of Association, if a director is requested to perform extra or

special services, they will be entitled to receive such additional remuneration as the board considers

appropriate.

3)

In accordance with the company’s Articles of Association, the directors are also entitled to be

reimbursed for out-of-pocket expenses and any other reasonable expenses incurred in the proper

performance of their duties.

4)

Directors’ fees are set to:

be sufficient to attract and retain individuals of a high calibre with suitable knowledge and

experience to promote the long-term success of the company;

reflect the time spent by the directors on the company’s affairs;

reflect the responsibilities borne by the directors;

recognise the more onerous roles of the Chairman of the board and the Chairman of the Audit

Committee through the payment of higher fees.

5)

Fees payable to the directors will be reviewed annually. A number of factors will be considered to

ensure that the fees are set at an appropriate level. These will include the average rate of inflation

during the period since the last fee increase, the level of directors’ remuneration for other investment

trusts of a similar size and complexity of the directors’ responsibilities.

6)

Total remuneration paid to the non-executive directors is subject to an annual aggregate limit of

£150,000, in accordance with the company’s Articles of Association. Any changes to this limit will

require shareholder approval by ordinary resolution.

56

Directors’ remuneration report

(continued)

Directors’ Remuneration policy

(continued)

There are no performance-related elements to the directors’ fees. Directors do not receive bonus payments

or pension contributions from the company or any option to acquire shares. There is no entitlement to exit

payments or compensation on loss of office. None of the directors has a service contract with the company

and their terms of appointment are set out in a letter provided on joining the board. These letters are available

for inspection at the company’s registered office.

Consideration of shareholders’ views

In accordance with the requirements of the Companies Act 2006, shareholder approval for the remuneration

report will be sought at the forthcoming AGM. Shareholders will have the opportunity to express their views and

raise any queries on the policy at this meeting.

At the AGM held on 6 July 2023, of votes cast, 99.27% were in favour of (or granted discretion to the chairman

who voted in favour of) the resolutions to approve the Directors’ Remuneration Report. Of the votes cast 0.45%

were against the resolutions.

Details of voting on the Remuneration Report at the 2024 AGM will be provided in the Annual Report for the

year ending 28 February 2025.

Remuneration Policy Implementation Report (Audited)

The single total remuneration figure for each director who served during the year ended 29 February 2024 is

set out below.

Year

ended 29

February

2024

%

change

in

gross

fee

Year

ended 28

February

2023

%

change

in

gross

fee

Year

ended 28

February

2022

%

change

in

gross

fee

Year

ended 28

February

2021

% change

in gross

fee

Year

ended 29

February

2020

£

£

£

£

£

Hugh Aldous

(appointed

17/02/17)

35,000

-

35,000

-

35,000

33.3%

26,250

(25.0)%

35,000

Robert Legget

(appointed

22/07/19)

30,000

-

30,000

-

30,000

33.3%

22,500

26.0%

17,853

Linda Bell

(appointed

19/09/19)

25,000

-

25,000

-

25,000

33.3%

18,750

(25.0)%

25,000

William Dawkins

(appointed

07/11/19 - retired

14/05/24)

25,000

-

25,000

-

25,000

33.3%

18,750

143.8%

7,692

Stephen Yapp

(resigned

31/08/19)

-

-

-

-

-

-

-

(100.0)%

15,000

Andrew Griffiths

(resigned

11/10/19)

-

-

-

-

-

-

-

(100.0)%

15,449

115,000

115,000

115,000

86,250

115,994

No taxable benefits or discretionary payments were made during the year ended 29 February 2024.

Overall fees will be reduced as set out in the circular to shareholders on 2 February 2024.

On 3 April 2024, the

Board announced the following measures to reduce administration costs in line with the reduction in the size of

the Company as cash proceeds are paid out to Shareholders: (i) a reduction of the size of the Board, with one

Director stepping down; and (ii) a reduction of fees paid to each remaining Director by £5,000 per annum, both

with effect from 1 May 2024.

All pay is fixed.

Any feedback from shareholders is taken into account by the board when setting remuneration levels.

57

Directors’ remuneration report

(continued)

Remuneration Policy Implementation Report (Audited)

(continued)

In the year under review, directors' fees were maintained at the following rates:

Chairman - £35,000;

Chair of the Audit Committee - £30,000; and

all other directors - £25,000.

As the company has no employees, the total remuneration costs and benefits paid by the company are those set

out in the table on the previous page.

Relative importance of spend on remuneration

The following table shows the proportion of the company’s income spent on remuneration during the year

ended 29 February 2024.

Year ended

29

February

2024

Change

Year ended

28 February

2023

Change

Year

ended 28

February

2022

Change

%

Year

ended 28

February

2021

Change

Year ended

29

February

2020

£

%

£

%

£

%

£

%

£

Management fees

payable in the year

236,000

(23.62)%

309,000

(19.74)%

385,000

31.40%

293,000

(22.65)%

378,800

Total remuneration

payable to

Directors

115,000

0.00%

115,000

0.00%

115,000

33.33%

86,250

(25.64)%

115,994

(Loss)/return on

ordinary activities

after tax

(6,126,000)

(64.02)%

(3,735,000)

(254.34)%

2,420,000

(57.57)%

5,703,000

593.34%

(1,156,000)

Performance

The company does not have a specific benchmark against which performance is measured. The graph below

compares the company’s NAV and share price on a total return basis (with dividends reinvested) with the total

return on an equivalent investment in the FTSE AIM All Share TR Index, where the majority of the investments

held in the company’s portfolio are drawn from and which is therefore considered the closest broad index against

which to measure the company’s performance.

Performance from 9 May 2017* to 29 February 2024

*The company commenced trading on the main market of the London Stock Exchange on 9 May 2017.

Source: Downing LLP. Index: FTSE AIM All Share TR. All figures rebased to 100 pence as at 9 May 2017.

58

Directors’ remuneration report

(continued)

Directors’ interests in shares (Audited)

(continued)

There are no requirements for the directors to own shares in the company.

The director’s interests and those of their connected persons in the Ordinary Shares of the company are set

out in the table below. All of the holdings are beneficial and all of the directors held office during the full period

under review.

Directors’ holdings in the company’s Ordinary

Shares of 0.1 pence per share

Director

29 February 2024

28 February 2023

249,700

250,000

Linda

Bell

20,386

20,386

William Dawkins

2

37,000

37,000

Robert

Legget

12,500

12,500

1

includes 69,791 shares held by Mrs Aldous

2

includes 7,300 shares held by Mrs Dawkins

There were no other changes in the above holdings between the company’s year end and the date of this report.

The Directors’ Remuneration Report was approved by the board on 5 June 2024.

For and on behalf of the board

Hugh Aldous

Chairman

5 June 2024

58

59

Statement of Directors’ responsibilities in respect of the Annual

Report and Financial Statements

The directors are responsible for preparing the Annual Report and the Financial Statements in accordance with

UK adopted international accounting standards and applicable law and regulations.

Company law requires the directors to prepare Financial Statements for each financial year.

Under that law the

directors are required to prepare the company Financial Statements in accordance with UK adopted

international accounting standards.

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 for 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 they have been prepared in accordance with UK adopted international accounting standards,

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. As stated in note 2 on page 71 the directors do not consider the

company to be a going concern and have prepared the Financial Statements on a basis other than that of a

going concern;

•

prepare a directors’ report, a strategic report and directors’ 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. The directors are responsible for ensuring that

the annual report and accounts, taken as a whole, are fair, balanced, and understandable and provides the

information necessary for shareholders to assess the company’s performance, business model and strategy.

Website publication

The directors are responsible for ensuring the Annual Report and the Financial Statements are made available

on a website.

Financial Statements are published on the company’s website in accordance with legislation in the

United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from

legislation in other jurisdictions.

The maintenance and integrity of the company's website is the responsibility

of the directors.

The directors' responsibility also extends to the ongoing integrity of the Financial Statements

contained therein.

Directors’ responsibilities pursuant to DTR4

The directors confirm to the best of their knowledge:

•

The Financial Statements have been prepared in accordance with the applicable set of accounting

standards, give a true and fair view of the assets, liabilities, financial position and loss of the company.

The Annual Report includes a fair review of the development and performance of the business and the financial

position of the company, together with a description of the principal risks and uncertainties that they face.

For and on behalf of the board

Chairman

5 June 2024

60

Independent auditor’s report to the members of Downing

Strategic Micro-Cap Investment Trust PLC

Opinion on the Financial Statements

In our opinion the Financial Statements:

•

give a true and fair view of the state of the company’s affairs as at 29 February 2024 and of its loss for

the year then ended;

•

have been properly prepared in accordance with UK adopted international accounting standards; and

•

have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the Financial Statements of Downing Strategic Micro-Cap Investment Trust PLC (the

‘company’) for the year ended 29 February 2024 which comprise the Statement of Profit or Loss and Other

Comprehensive Income, the Statement of Changes in Equity, the Statement of Financial Position, the Statement

of Cash Flows and notes to the Financial Statements, including a summary of significant accounting policies. The

financial reporting framework that has been applied in their preparation is applicable law and UK adopted

international accounting standards.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable

law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the

audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional

report to the audit committee.

Independence

Following the recommendation of the audit committee, we were appointed by board of directors on 6 January

2020 to audit the Financial Statements for the year ended 28 February 2020 and subsequent financial periods.

The period of total uninterrupted engagement including retenders and reappointments is 5 years, covering the

years ended 28 February 2020 to 29 February 2024. We remain independent of the company in accordance

with the ethical requirements that are relevant to our audit of the Financial Statements in the UK, including the

FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical

responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were

not provided to the company.

Emphasis of matter – Financial Statements prepared on a basis other than going concern

We draw attention to Note 2 to the Financial Statements which explains that the Directors intend to liquidate

the investment portfolio and return cash to shareholders and therefore do not consider the Company to be a

going concern. Accordingly, the Financial Statements have been prepared on a basis other than that of a going

concern as described in Note 2. Our opinion is not modified in this respect of this matter.

In relation to the company’s reporting on how it has applied the UK Corporate Governance Code, we have

nothing material to add or draw attention to in relation to the directors’ statement in the Financial Statements

about whether the directors considered it appropriate to adopt the going concern basis of accounting. As stated

in the Note 2 the directors do not consider the company to be a going concern and have prepared the Financial

Statements on a basis other than that of a going concern.

Overview

Key audit matters

2024

2023

Valuation and

ownership of

investments

ü

ü

Materiality

Company Financial Statements as a whole

£306,000 (2023: £383,000) based on 1% (2023: 1%) of

Net assets

61

Independent auditor’s report to the members of Downing Strategic

Micro-Cap Investment Trust PLC

An overview of the scope of our audit

Our audit was scoped by obtaining an understanding of the company and its environment, including the

Company’s system of internal control, and assessing the risks of material misstatement in the Financial

Statements.

We also addressed the risk of management override of internal controls, including assessing

whether there was evidence of bias by the directors that may have represented a risk of material misstatement.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit

of the Financial Statements of the current period and include the most significant assessed risks of material

misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on:

the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement

team. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in

forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter

How the scope of our audit addressed the key

audit matter

Valuation and

ownership of

investments

(Accounting

policy note

page72-73, and

note 9 and note

15)

The investment portfolio at the year-end

comprised of quoted equity investments and

unquoted investments held at fair value

through profit or loss.

We considered the valuation and ownership

of investments to be a significant audit area

as

investments

represent

the

most

significant

balance

in

the

Financial

Statements and underpins the principal

activity of the entity.

There is a risk that the bid price used as a

proxy for fair value of investments held at

the reporting date is inappropriate. Given the

nature of the portfolio is such that it

comprises

solely

of

listed

level

1

investments, we do not consider the use of

bid price to be subject to significant

estimation uncertainty. There is an inherent

risk of management override arising from the

unquoted

investment

valuations

being

prepared by the investment manager, who is

remunerated based on the performance of

the company.

There is also a risk of error in the recording

of investment holdings such that those

recording do not appropriate reflect the

property of the company.

For these reasons and the materiality to the

Financial Statements as a whole, they are

considered to be a key area of our overall

audit

strategy

and

allocation

of

our

resources and hence a Key Audit Matter.

We responded to this matter by testing the valuation

and ownership of the whole portfolio of quoted

investments.

We

performed

the

following

procedures:

-

Confirmed the year-end bid price was used

by agreeing to externally quoted prices;

-

Assessed if there were contra indicators,

such as liquidity considerations, to suggest

bid price is not the most appropriate

indication of fair value by considering the

realisation period for individual holdings;

-

Recalculated the valuation by multiplying

the

number

of

shares

held

per

the

statement obtained from the custodian by

the valuation per share; and

-

Obtained direct confirmation of the number

of shares held per equity investment from

the custodian regarding all investments

held at the balance sheet date.

In respect of unquoted investment valuations and

ownership, we have:

-

Corroborated title and existence of the

unquoted investments by referencing to a

range

of

information

including

share

certificates;

-

Considered

whether

the

valuation

methodology is the most appropriate in the

circumstances

under

the

International

Private

Equity

and

Venture

Capital

Valuation

(“IPEV”)

Guidelines

and

in

accordance

with

applicable

accounting

standards; and

-

Considered whether the valuation is in line

with the liquidator statement.

Key observations:

Based on our procedures performed we did not

identify any matters to suggest the valuation or

ownership of the quoted and unquoted equity

investments was not appropriate.

62

Independent auditor’s report to the members of Downing Strategic

Micro-Cap Investment Trust PLC

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of

misstatements.

We consider materiality to be the magnitude by which misstatements, including omissions, could

influence the economic decisions of reasonable users that are taken on the basis of the Financial Statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we

use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,

misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the

nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their

effect on the Financial Statements as a whole.

Based on our professional judgement, we determined materiality for the Financial Statements as a whole and

performance materiality as follows:

Company Financial Statements

2024

£

2023

£

Materiality

306,000

383,000

Basis

for

determining

materiality

1% of Net assets

Rationale

for

the

benchmark applied

As an investment trust, the net asset value is the key measure of performance for

users of the Financial Statements.

Performance

materiality

£

229,000

£

287,000

Basis

for

determining

performance

materiality

75% of materiality

Rationale

for

the

percentage applied

for

performance

materiality

The level of performance materiality applied was set after having considered a

number of factors including the expected total value of known and likely

misstatements and the level of transactions in the year.

Reporting threshold

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of

£6,000 (2023: £8,000).

We also agreed to report differences below this threshold that, in our view, warranted

reporting on qualitative grounds.

Other information

The directors are responsible for the other information. The other information comprises the information

included in the Annual Report other than the Financial Statements and our auditor’s report thereon. Our opinion

on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly

stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read

the other information and, in doing so, consider whether the other information is materially inconsistent with

the Financial Statements or our knowledge obtained in the course of the audit, or otherwise appears to be

materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are

required to determine whether this gives rise to a material misstatement in the Financial Statements themselves.

If, based on the work we have performed, we conclude that there is a material misstatement of this other

information, we are required to report that fact.

We have nothing to report in this regard.

63

Independent auditor’s report to the members of Downing Strategic

Micro-Cap Investment Trust PLC

Corporate governance statement

The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability

and that part of the Corporate Governance Statement relating to the company’s compliance with the provisions

of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of

the Corporate Governance Statement is materially consistent with the Financial Statements or our knowledge

obtained during the audit.

Going concern

and longer-

term viability

•

The Directors' statement with regards to the appropriateness of adopting the basis

other than a going concern basis of accounting and any material uncertainties

identified set out on page 50 and 51; and

•

The Directors’ explanation as to their assessment of the Company’s prospects, the

period this assessment covers and why the period is appropriate set out on page

37.

Other Code

provisions

•

Directors' statement on fair, balanced and understandable set out on page 54;

•

Board’s confirmation that it has carried out a robust assessment of the emerging

and principal risks set out on page 34;

•

The section of the Annual Report that describes the review of effectiveness of risk

management and internal control systems set out on page 47; and

•

The section describing the work of the Audit Committee set out on pages 52 to

54.

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed during the course of the audit, we are

required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.

Strategic

report and

Directors’

report

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the Strategic report and the Directors’ report for the financial

year for which the Financial Statements are prepared is consistent with the Financial

Statements; and

•

the Strategic report and the Directors’ report have been prepared in accordance with

applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment

obtained in the course of the audit, we have not identified material misstatements in the

strategic report or the Directors’ report.

Directors’

remuneration

In our opinion, the part of the Directors’ remuneration report to be audited has been

properly prepared in accordance with the Companies Act 2006.

Matters on

which we are

required to

report by

exception

We have nothing to report in respect of the following matters in relation to which the

Companies Act 2006 requires us to report to you if, in our opinion:

•

adequate accounting records have not been kept, or returns adequate for our

audit have not been received from branches not visited by us; or

•

the Financial Statements and the part of the Directors’ remuneration report to be

audited are not in agreement with the accounting records and returns; or

•

certain disclosures of Directors’ remuneration specified by law are not made; or

•

we have not received all the information and explanations we require for our audit.

64

Independent auditor’s report to the members of Downing Strategic

Micro-Cap Investment Trust PLC

Responsibilities of directors

As explained more fully in the Directors’ responsibilities statement, the directors are responsible for the

preparation of the Financial Statements and for being satisfied that they give a true and fair view, and for such

internal control as the directors determine is necessary to enable the preparation of Financial Statements that

are free from material misstatement, whether due to fraud or error.

In preparing the Financial Statements, the directors are responsible for assessing the company’s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the going

concern basis of accounting unless the directors either intend to liquidate the company or to cease operations,

or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free

from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our

opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in

accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise

from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on the basis of these Financial Statements.

Extent to which the audit was capable of detecting irregularities, including

fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures

in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities,

including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is

detailed below:

Non-compliance with laws and regulations

Based on:

•

Our understanding of the company and the industry in which it operates;

•

Discussion with the investment manager and administrator and those charged with governance; and

•

Obtaining and understanding of the company’s policies and procedures regarding compliance with laws

and regulations.

we considered the significant laws and regulations to be Companies Act 2006, the FCA listing and DTR rules,

the principles of the AIC Code of Corporate Governance, industry practice represented by the AIC SORP, the

applicable accounting framework, and qualification as an Investment Trust under UK tax legislation as any non-

compliance of this would lead to the Company losing various deductions and exemptions from corporation tax.

Our procedures in respect of the above included:

•

Agreement of the financial statement disclosures to underlying supporting documentation;

•

Enquiries of management and those charged with governance relating to the existence of any non-

compliance with laws and regulations;

•

Reviewing minutes of meeting of those charged with governance throughout the period for instances of

non-compliance with laws and regulations; and

•

Reviewing the calculation in relation to Investment Trust compliance to check that the company was

meeting its requirements to retain their Investment Trust Status. This included a review of other qualitative

factors and ensuring compliance with these.

65

Independent auditor’s report to the members of Downing Strategic

Micro-Cap Investment Trust PLC

Fraud

We assessed the susceptibility of the Financial Statements to material misstatement due to fraud.

Our risk assessment procedures included:

•

Enquiry with the investment manager, the administrator and those charged with governance also

considered Audit Committee regarding any known or suspected instances of fraud;

•

Review of minutes of meeting of those charged with governance for any known or suspected instances

of fraud; and

•

Discussion amongst the engagement team as to how and where fraud might occur in the Financial

Statements.

Our procedures in respect of the above included:

•

In addressing the risk of management override of control, we:

o

Performed a review of estimates and judgements applied by management in the Financial

Statements to assess their appropriateness and the existence of any systematic bias;

o

Considered a risk of bias in estimates and judgements by the investment manager in relation to

the unquoted valuation as discussed in the Key audit matter section;

o

Considered the opportunity and incentive to manipulate accounting entries and target tested

relevant adjustments made in the period end financial reporting process;

o

Reviewed for significant transactions outside the normal course of business; and

o

Performed a review of unadjusted audit differences, if any, for indications of bias or deliberate

misstatement.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team

members, who were deemed to have the appropriate competence and capabilities, and remained alert to any

indications of fraud or non-compliance with laws and regulations throughout the audit.

Our audit procedures were designed to respond to risks of material misstatement in the Financial Statements,

recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not

detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,

misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and

the further removed non-compliance with laws and regulations is from the events and transactions reflected in

the Financial Statements, the less likely we are to become aware of it.

A further description of our responsibilities is available on the Financial Reporting Council’s website at:

www.frc.org.uk/auditorsresponsibilities

.

This description forms part of our auditor’s report.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006.

Our audit work has been undertaken so that we might state to the company’s members

those matters we are required to state to them in an auditor’s report and for no other purpose.

To the fullest

extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the

company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

66

Making investment

more rewarding

66

67

Financial Statements

Statement of Profit or Loss and Other Comprehensive Income

for the year ended 29 February 2024

Year ended

29 February 2024

Year ended

28 February 2023

Revenue

Capital

Total

Revenue

Capital

Total

£’000

£’000

£’000

£’000

£’000

£’000

Losses on investments at fair value through

profit or loss (

note 9

)

-

(5,219)

(5,219)

-

(2,774)

(2,774)

Investment income (

note 3

)

664

-

664

1,088

-

1,088

664

(5,219)

(4,555)

1,088

(2,774)

(1,686)

Investment management fee (

note 4

)

(47)

(189)

(236)

(62)

(247)

(309)

Loan interest written off

(451)

-

(451)

(1,196)

-

(1,196)

Other expenses (

note 5)

(884)

-

(884)

(483)

(61)

(544)

(1,382)

(189)

(1,571)

(1,741)

(308)

(2,049)

Return before taxation

(718)

(5,408)

(6,126)

(653)

(3,082)

(3,735)

Taxation (

note 7

)

-

-

-

-

-

-

Return for the year after taxation

(718)

(5,408)

(6,126)

(653)

(3,082)

(3,735)

Revenue

Capital

Total

Revenue

Capital

Total

(p)

(p)

(p)

(p)

(p)

(p)

Basic and diluted return per Ordinary Share

(

note 6

)

(1.52)

(11.45)

(12.97)

(1.32)

(6.22)

(7.54)

The total column of this statement represents the Statement of Profit or Loss and Comprehensive Income of

the company prepared in accordance with the UK adopted international accounting standards and in conformity

with the requirements of the Companies Act 2006.

The supplementary revenue and capital return columns are prepared under guidance published by the

Association of Investment Companies (‘AIC’).

The return for the year disclosed above represents the company’s total comprehensive income. The company

does not have any other comprehensive income.

All items in the above statement are those of a single entity and derive from continuing operations. No

operations were acquired or discontinued during the period.

The notes on pages 71 to 85 form an integral part of these Financial Statements.

68

Statement of Changes in Equity

for the year ended 29 February 2024

Share

capital

Capital

redemption

reserve

Special

reserve

Capital

reserve

Revenue

reserve

Total

Note

£’000

£’000

£’000

£’000

£’000

£’000

At 28 February 2022

56

–

54,474

(12,126)

655

43,059

Return for the year

–

–

–

(3,082)

(653)

(3,735)

Buyback of Ordinary Shares into treasury

–

–

–

(812)

–

(812)

Cancellation of treasury shares

(4)

4

–

–

–

–

Expenses for share buybacks

–

–

–

(8)

–

(8 )

Dividends paid

8

–

–

–

-

(149

)

(149)

As at 28 February 2023

52

4

54,474

(16,028)

(147)

38,355

At 28 February 2023

52

4

54,474

(16,028)

(147)

38,355

Return for the year

–

–

–

(5,408)

(718)

(6,126)

Buyback of Ordinary Shares

–

–

–

(1,582)

–

(1,582)

Expenses for share buybacks

–

–

–

(20)

–

(20)

As at 29 February 2024

52

4

54,474

(23,038)

(865)

30,627

The notes on pages 71 to 85 form an integral part of these Financial Statements.

69

Statement of Financial Position

as at 29 February 2024

29 February

2024

28 February

2023

Note

£’000

£’000

Non-current assets

Investments held at fair value through profit or loss

9, 15

-

36,927

-

36,927

Current assets

Investments held at fair value through profit or loss

9, 15

20,354

-

Trade and other receivables

63

88

Cash and cash equivalents

10,463

1,505

30,880

1,593

Total assets

30,880

38,520

Trade and other payables

11

(253)

(165)

(253)

(165)

Total assets less current liabilities

30,627

38,355

Net Assets

30,627

38,355

Represented by:

Share capital

12

52

52

Capital redemption reserve

4

4

Special reserve

54,474

54,474

Capital reserve

Note

(23,038)

(16,028)

Revenue reserve

(865)

(147)

Equity shareholders’ funds

30,627

38,355

Net asset value per Ordinary Share

65.71

77.99p

The Financial Statements were approved by the board on 5 June 2024 and were signed on its behalf by:

Hugh Aldous

Chairman

Downing Strategic Micro-Cap Investment Trust

PLC Registered in England and Wales, no.

10626295

70

Statement of Cash Flows

for the year ended 29 February 2024

Year ended

29 February

2024

Year ended

28 February

2023

Notes

£’000

Operating activities

Return before taxation

(6,126)

(3,735)

Losses on investments at fair value through profit or loss

5,219

2,774

UK fixed interest income

(12)

(380)

Receipt of UK fixed interest income

27

-

Impairment expense

451

1,196

Decrease/(increase) in other receivables

25

(28)

Increase/(decrease) in other payables

88

(75)

Purchases of investments

9

(2,831)

(6,321)

Sales of investments

13,719

5,244

Net cash inflow/(outflow) from operating activities

10,560

(1,325)

Financing activities

Buyback of Ordinary shares into treasury

(1,582)

(812)

Expenses for share buybacks

(20)

(7)

Dividends paid

-

(149)

Net cash outflow from financing activities

(1,602)

(968)

Change in cash and cash equivalents

8,958

(2,293)

Cash and cash equivalents at start of period

1,505

3,798

Cash and cash equivalents at end of period

10,463

1,505

Comprised of:

Cash and cash equivalents

10,463

1,505

The notes on pages 71 to 85 form an integral part of these Financial Statements.

71

Notes to the Financial Statements

for the year ended 29 February 2024

1.

General information

Downing Strategic Micro-Cap Investment Trust PLC (‘the company’) was incorporated in England and Wales on

17 February 2017 with registered number 10626295, as a closed-end investment company limited by shares.

The company commenced its operations on 9 May 2017. The company intends to carry on business as an

investment trust company within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.

2.

Material Accounting policies

Basis of accounting

The annual Financial Statements of the company have been prepared in accordance with the UK adopted

international accounting standards and in conformity with the requirements of the Companies Act 2006.

These Financial Statements are presented in Sterling (£) rounded to the nearest thousand. Where

presentational guidance set out in the statement of recommended practice ‘Financial Statements of

Investment Trust Companies and Venture Capital Trusts’ (‘SORP’), issued by the Association of Investment

Companies (‘AIC’) in July 2022, is consistent with the requirements of the UK adopted international accounting

standards, the directors have sought to prepare the Financial Statements on a consistent basis compliant with

the recommendations of the SORP.

Basis other than going concern

As stated on page 32 at a General Meeting of the company held on 28 February 2024 shareholders voted to

adopt a new investment policy and the company will be managed with the intention of realising all remaining

assets in the company’s portfolio in a prudent manner consistent with the principles of good investment

management and with a view to returning cash to shareholders in an orderly manner.

Once this process has

been completed the directors’ intention would be to place the company into liquidation. Given this, the

Financial Statements have been drawn up on a basis other than that of a going concern basis.

In preparing the Financial Statements on a basis other than that of a going concern the following amendments

have been made:

As the investments are expected to be realised within 12 months from the reporting date, they have

been reclassified from non-current to current assets. The board has concluded that no adjustments

to the value of investments is required and that the bid price remains appropriate.

A provision for the costs of liquidation of £25,000 has been made and is shown in note 11 on page

78.

Presentation of Statement of Profit or Loss and Other Comprehensive Income

In order to better reflect the activities of an investment trust and in accordance with guidance issued by the

AIC, supplementary information which analyses the income statement between items of revenue and capital

nature has been presented alongside the income statement. The revenue loss for the year is the measure the

directors believe is appropriate in assessing the company’s compliance with certain requirements set out in

the Investment Trust (Approved Company) (Tax) Regulations 2011.

Segmental reporting

The directors are of the opinion that the company is engaged in a single segment of business, being investment

business. The company only invests in companies quoted in the UK.

Accounting developments: new standards, interpretations and amendments adopted from 1 January 2023

Management have assessed all new standards and amendments to standards and interpretations that are

effective for annual periods after 1 January 2023 and considered none to have a significant effect on these

Financial Statements.

Accounting developments: new standards, interpretations, and amendments not yet effective

The Directors do not expect the adoption of the following amended standards or interpretations to have a

significant impact on the Financial Statements of the company in future periods.

IAS 7 Disclosures to add disclosure requirements, and ‘signposts’ within existing disclosure

requirements about supplier finance arrangements – effective 1 January 2024

IAS 21 The Effects of Changes in Foreign Exchange Rates – effective 1 January 2025

72

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

2.

Accounting policies

(continued)

Critical accounting estimates and judgements

The preparation of Financial Statements in conformity with the UK adopted international accounting standards

requires management to make judgements, estimates and assumptions that affect the application of policies and

the amounts reported in the Statement of Profit or Loss and Other Comprehensive Income and the Statement

of Financial Position. The estimates and associated assumptions are based on historical experience and various

other factors that are believed to be reasonable under the circumstances, the results of which form the basis of

making judgements about carrying values of assets and liabilities that are not readily apparent from other

sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed

on an ongoing basis.

The directors have made the following judgements and estimates that have had the most significant impact on

the carrying values of assets and liabilities stated in these Financial Statements:

Valuation and classification of unquoted loan notes:

unquoted loan note investments, comprising loan note

principal, interest, and any amounts of redemption premium, are held at fair value through profit or loss

and are valued using a discounted cash flow methodology. Key contractual inputs, as well as assumptions

regarding the nature, timing and amount of future cash flows are assessed as part of the discounted cash

flow approach. The directors use judgement in selecting and applying the assumptions used, although

such assumptions are based upon all available information which the directors deem to be reliable and

are stress tested under a range of scenarios. The assessment of the valuation of unquoted loan notes by

the directors take into account the dependability of the estimated EBITDA for the upcoming financial

year. The valuation of the unquoted investment is based successful implementation of management's

plan for the business in the next financial year. If the EBITDA estimate is not met, it would have a

significant impact on the valuation of the unquoted loan notes. At the year-end the directors have valued

all loan notes at nil other than the loan notes on Really Good Food which is currently in administration

and has been valued at £275,000 reflecting the amount expected to be received from the Administrators.

The directors consider all loan note investments to be current assets.

There were no other significant accounting estimates or significant judgements applied in the current

period.

Investments held at fair value

All investments held by the company (quoted and unquoted equity investments, redemption premium,

unquoted loan notes and unpaid loan note interest) are classified at ‘fair value through profit or loss’ as the

investments are managed and their performance evaluated on a fair value basis in accordance with the

investment strategy and this is also the basis on which information about the investments is reported to the

board. Investments are initially recognised at book cost, being the fair value of the consideration given,

including any transaction fees. After initial recognition, investments are measured at fair value, with unrealised

gains and losses on investments recognised in the statement of comprehensive income and allocated to capital.

Realised gains and losses on investments sold are calculated as the difference between sales proceeds and the

book cost.

For investments actively traded in organised financial markets, fair value is generally determined on a daily

basis, with reference to quoted market bid prices at the close of business on the balance sheet date, without

adjustment for transaction costs necessary to realise the asset. When a purchase or sale is made under a

contract, the terms of which are required to be delivered within the time frame of the relevant market, the

investments concerned are recognised or derecognised on the trade date.

Unquoted investments are valued by the directors at the balance sheet date based on recognised valuation

methodologies, in accordance with International Private Equity and Venture Capital Valuation (‘IPEV’)

Guidelines, such as dealing prices or third-party valuations where available, net asset values and other

information as appropriate.

73

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

2.

Accounting policies

(continued)

Investments held at fair value

(continued)

All investments for which fair value is measured or disclosed in the Financial Statements will be categorised

within the fair value hierarchy in the notes of the Financial Statements, described as follows, based on the

lowest significant applicable input:

Level 1 reflects financial instruments quoted in an active market;

Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable

current market transactions in the same instrument or based on a valuation technique whose variables

include only data from observable markets; and

Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation

technique based on assumptions that are not supported by prices from observable market transactions in

the same instrument and not based on available observable market data. For investments that are

recognised in the Financial Statements on a recurring basis, the company determines whether transfers

have occurred between levels in the hierarchy by re-assessing the categorisation (based on the lowest

significant applicable input) at the date of the event that caused the transfer.

Income

Dividends receivable on quoted equity shares are taken into account on the ex-dividend date. Where no ex-

dividend date is quoted, they are brought into account when the company’s right to receive payment is

established. Special dividends will be taken to revenue or capital account depending on their nature. In

deciding whether a dividend should be regarded as a capital or revenue receipt, the company will review all

relevant information as to the reasons for and sources of the dividend on a case-by-case basis.

Dividend’s receivable are initially recognised at the fair value of the consideration receivable by the company.

This is subsequently measured at amortised cost using the effective interest method less any provision for

impairment. The company recognises an annual loss allowance for expected credit losses (‘ECL allowances’),

in accordance with IFRS 9. ECL allowances are calculated on a specific basis and are deducted from the gross

carrying values of the dividend receivables carried at amortised cost. ECL allowances are recognised in the

Statement of Profit or Loss and Other Comprehensive Income, designated as revenue or capital in accordance

with the categorisation of the income to which the allowance relates.

Fixed returns on debt securities are recognised on a time-apportioned basis so as to reflect the effective yield.

and recorded in the revenue column of the Statement of Profit or Loss and Other Comprehensive Income.

Where, immediately before recognition is due, it is not considered probable that a return will actually be

received the recognition of the return is deferred until the doubt is removed.

Where, subsequent to the recognition of an amount of income, it becomes clear that payment will not be

received or the collectability becomes doubtful, an impairment provision to reduce the value of the asset to

the recoverable amount is made. The provision in the year of £451,000 on the Real Good Food loan notes is

recognised as an expense, rather than as an adjustment of the amount of income originally recognised and is

shown separately in the Statement of Profit or Loss and Other Comprehensive Income on page 67.

Expenses

All expenses are accounted for on an accruals basis and gross of Value Added Tax (‘VAT’) where charged to

the company. All expenses are charged to revenue within the statement of profit or loss and other

comprehensive income, with the exception of the following:

expenses which are incidental to the acquisition or disposal of an investment as an element of the

purchase of sales consideration respectively, and therefore charged to capital. Details of transaction costs

are given in note 9 of the annual report.

All other expenses are allocated to revenue, with the exception

of 80% of the investment manager’s fee which is allocated to capital. This is in line with the board’s

expected long-term split of returns from the investment portfolio in the form of income and capital gains

respectively.

74

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

2.

Accounting policies

(continued)

Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid

investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

Repurchase of Ordinary Shares for cancellation or to be held in Treasury

The cost of repurchasing shares including the related stamp duty and transaction costs is made from total

distributive reserves and is charged to capital reserves and dealt with in the Statement of Changes in Equity.

Share repurchase transactions are accounted for on a trade date basis. Where shares are cancelled or held in

Treasury and subsequently cancelled, the nominal value of those shares is transferred out of called up share

capital and into Capital Redemption Reserve. Should shares held in Treasury be re-issued, the sales proceeds

up to the purchase price of the shares will be transferred to capital reserves. The excess of the sales proceeds

over the purchase price will be transferred to share premium.

Capital reserve

Capital reserve is a distributable reserve which includes:

gains and losses on the disposal of investments;

exchange difference of a capital nature;

expenses, together with the related taxation effect, allocated to this reserve in accordance with the

above policies; and

increase and decrease in the valuation of investments held at period end.

Revenue reserve

This reserve includes profit or loss for the year recognised in the revenue column of the Statement of Profit

or Loss and Other Comprehensive Income. This reserve is distributable.

Special reserve

The company cancelled its share premium account following a court order issued on 12 July 2017. As a result,

a distributable special reserve was created. This reserve is distributable.

Capital redemption reserve

This reserve represents the repurchase and subsequent cancellation of the Ordinary Shares of the company.

This reserve is not distributable.

Dividends payable to shareholders

Dividends to shareholders are recognised as a liability in the period in which they are paid. Dividends declared

and approved by the company after the balance sheet date have not been recognised as a liability of the

company at the balance sheet date.

75

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

3.

Income

Year ended

28 February 2024

Year ended

28 February 2023

Revenue

Capital

Total

Total

£’000

£’000

£’000

£’000

Income from investments

UK dividend income

593

-

593

688

UK fixed interest income (

note 9

)

12

-

12

380

Bank interest income

59

-

59

20

Total

664

-

664

1,088

UK fixed interest income represents loan note interest receivable from Real Good Food plc and Norman

Broadbent plc. Such amounts form part of the overall fair value of the loan note instruments and are therefore

included within investments held at fair value through profit or loss on the Statement of Financial Position.

4.

Investment management fee

In respect of its services provided under the previous Investment Management Agreement, the investment

manager is entitled to receive a management fee, payable monthly in arrears, calculated at the rate of one

twelfth of 1% of the market capitalisation as at the relevant calculation date.

From 1 January 2024, the board amended the terms of the investment manager’s fee arrangement so as to

ensure the investment manager is appropriately incentivised to maximise the value received from the company’s

assets in a timely manner.

The new fee structure will combine a reduction in the base fee with the introduction of further fees that

incentivise the investment manager and will also align its interests with those of shareholders, to complete the

wind down whilst seeking the best achievable values, at the point of realisation, in a timely fashion in order for

the company to return cash to shareholders.

Before 30 June 2024

0.95%

1 July 2024 to 31 December 2024

0.65%

1 January 2025 to 30 June 2025

0.2%

1 July 2025 and after

nil

This arrangement was modified on 3 April 2024 as discussed below.

76

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

On 3 April 2024 the board announced that it had agreed with the investment manager that the investment

manager's capital return fee would be set at 0.5 per cent. of the total value of distributions made during the

company's managed wind-down, instead of its former proposed sliding scale. This change will incentivise the

investment manager to realise value for shareholders over the whole of the managed wind-down period.

The notice period that will be required to be given by the company in the event the company wishes to

terminate the Investment Management Agreement will remain 6 months. Shorter notice may be provided so

long as the investment manager receives payment in lieu of such notice on the basis of the basic management

fee. All the other key commercial terms of the Investment Management Agreement will remain unchanged.

The investment manager is a related party to the company and this change to the fee arrangements constitutes

a smaller related party transaction under Listing Rule 11.1.10R. No other changes are being made to the

management arrangements at this time

The investment manager has agreed that, for so long as it remains the company’s investment manager, it will

rebate such part of any management fee payable to it so as to help the company maintain an ongoing charges

ratio of 2% or lower.

Year ended

29 February 2024

Year ended

28 February 2023

£’000

£’000

Investment management fee

Revenue

47

62

Capital

189

247

Total

236

309

5.

Other expenses

Year ended

Year ended

29 February 2024

£’000

28 February 2023

£’000

Administration and secretarial fees

Auditor’s remuneration:

- audit services (excluding £9,000 of irrecoverable VAT)

Directors’ fees

115

115

Legal fees (non-capital items)

Marketing fees

Advisory and consulting

including £9,000 of irrecoverable VAT on audit services)

Taxation services

Revenue expenses

Capital expenses – legal fees

Total expenses

77

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

6.

Basic and diluted return per Ordinary Share

Returns per Ordinary Share are based on the weighted average number of shares in issue during the year. As

there are no dilutive elements on share capital, basic and diluted returns per share are the same.

Year ended

29 February 2024

Year ended

28 February 2023

Net return

Per share

Net return

Per share

£’000

Pence

Pence

Revenue return

(718)

(1.52)

(653)

(1.32)

Capital return

(5,408)

(3,082)

Total return

(6,126)

(3,735)

Weighted average number of Ordinary Shares

Excluding treasury shares

7.

Taxation

Year ended

Year ended

29 February 2024

28 February 2023

Revenue

Total

Revenue

Total

£’000

£’000

£’000

£’000

£’000

£’000

UK corporation tax at 24.5% (2022: 19%)

The current taxation charge for the period differs from the standard rate of corporation tax in the UK of 25% (2022:

19%). The differences are explained below:

Year ended

Year ended

29 February 2024

28 February 2023

Revenue

Total

Revenue

Total

£’000

£’000

£’000

£’000

£’000

£’000

Return before taxation

Theoretical tax at UK corporation tax rate of 24.5%

(1,501)

(710)

Effects of:

UK dividends not taxable

(145)

(131)

Capital items not taxable

Deferred tax not recognised

Actual current tax charge

-

The company has deferred tax not recognised carried forward of £4,139,800 (2023: £2,640,300), resulting in an

unrecognised deferred tax asset of £1,035, 000. It is unlikely that the company will generate sufficient taxable profits

in the future to utilise these expenses, therefore no provision for any deferred tax asset has been made in the current

year. The company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of

investments as it is exempt from tax on these items because of its status as an investment trust.

8.

Dividends

Year ended

29 February 2024

Year ended

28 February 2023

£’000

£’000

Dividends paid during the year

The Directors are not recommending the payment of a final dividend for the year ended 29 February 2024.

78

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

9.

Investments

Year ended

Year ended

29 February 2024

£’000

28 February 2023

£’000

Opening book cost

42,440

40,512

Opening UK fixed interest income at fair value through profit or loss

466

1,282

Opening investment holding (losses)

(5,979)

(2,353)

Opening valuation

36,927

39,441

Movements in the year

UK Fixed interest income at fair value through profit or loss

(note 3)

12

380

Receipt of UK fixed interest income

(27)

-

Write off of accrued loan note interest receivable

(451)

(1,196)

Investment purchases at cost

2,831

6,321

Disposals:

Proceeds

(13,719)

(5,245)

Net realised gains on disposals

2,051

852

Movement in investment holding losses

(7,270)

(3,626)

Closing valuation

20,354

36,927

Closing book cost

33,603

42,440

Closing UK fixed interest income at fair value through profit or loss

-

466

Closing investment holding (losses)

(13,249)

(5,979)

20,354

36,927

Realised losses on disposals

2,051

852

Movement in investment holding gains

(7,270)

(3,626)

(Losses) on investments held at fair value through profit or loss

(5,219)

(2,774)

Transaction costs

10.

Trade and other receivables

29 February 2024

£’000

28 February 2023

£’000

Dividends receivable

Prepayments and accrued income

11.

Trade and other payables

29 February 2024

£’000

28 February 2023

£’000

Other creditors

79

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

12.

Called-up share capital

Number of

Ordinary

Treasury

Preference

Management

Total

Nominal

value

shares

shares

shares

shares

£’000

Allotted, called up and fully paid share capital comprises:

At 28 February 2023

49,176,599

2,557,706

1

51,734,306

52

Shares purchased into treasury

(2,568,113)

2,568,113

–

–

At 29 February 2024

46,608,486

5,125,819

1

51,734,306

52

The company was incorporated on the 17 February 2017 with issued share capital of £50,002 represented by

50,000 Management shares (‘Management shares’) of £1.00 each and 2 Ordinary Shares of £0.001. On 9 May 2017,

the company issued 55.6 million Ordinary £0.001 Shares at a £1 per share in a placing, offer for subscription and

intermediaries offer, raising £54.5 million after expenses. The Management shares were redeemed immediately

following admission of the Ordinary Shares on 9 May 2017, out of the proceeds of the issue.

During the year 2,568,113 (2023: 1,225,546) Ordinary Shares were bought back and placed in treasury for an

aggregate consideration of £1,602,000, at an average price of 62.36p per share (2023: £812,000, at an average price

of 66.29p per share). No Ordinary Shares held in treasury were re-issued into the market. During the period no

Ordinary Shares held in treasury were cancelled (2023: 3,815,697).

The Ordinary Shares in issue at the year-end includes 5,125,819 (2023: 2,557,706) Ordinary Shares held in treasury.

These Treasury Shares were cancelled on 2 April 2024.

Following the passing of a resolution at the General Meeting on 20 February 2023, the Board of Directors allotted

one new non-redeemable Preference Management Share with no voting rights.

The Ordinary Shares can be redeemed by the company under the redemption process as set out in the Articles of

Association.

13.

Net Asset Value per Ordinary Share

NAV per Ordinary Share is based on net assets at the period end and 46,608,486 (28 February 2023: 49,176,599)

Ordinary Shares, being the number of Ordinary Shares in issue excluding treasury shares at the period end.

29 February 2024

NAV

per share

NAV

attributable

Pence

£’000

Ordinary Shares:

Basic and diluted

65.71

30,627

14.

Analysis of financial assets and liabilities

The company’s investment objective and investment policy are detailed on the inside front cover and in the Strategic

Report on pages 32 and 33. The company’s investing activities in pursuit of its investment objective involve certain

inherent risks. The company’s financial instruments can comprise:

shares and debt securities held in accordance with the company’s Investment Objective and investment

policies;

derivative instruments for efficient portfolio management, gearing and investment purposes; and cash,

liquid resources and short-term receivables and payables that arise from its operations.

80

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

14.

Analysis of financial assets and liabilities

(continued)

Investment objective and policy (continued)

The risks identified arising from the company’s financial instruments are market risk (which comprises market price risk,

interest rate risk and foreign currency exposure risk), liquidity risk and credit and counterparty risk. The company may

enter into derivative contracts to manage risk. The board reviews and agrees policies for managing each of these risks,

which are summarised below.

Market risk

Market risk arises from uncertainty about future prices of financial instruments used in the company’s business. It

represents the potential loss the company might suffer through holding market positions by way of price movements,

interest rate movements and exchange rate movements. The investment manager assesses the exposure to market

risk when making each investment decision and these risks are monitored by the investment manager on a regular

basis and the board at quarterly meetings with the investment manager.

Market price risk

Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may

affect the value of investments.

The board manages the risks inherent to the investment portfolio by ensuring full and timely reporting of relevant

information from the investment manager, including investment performance and exposure, which are reviewed at

each board meeting.

The company’s exposure to changes in market prices as at 29 February 2024 on its equity investments held at fair

value through profit or loss was £20,079,000 (2023: £32,764,000).

The board has considered the market volatility, arising as a result of the current economic conditions and the Ukrainian

conflict and the reasonable market movements that might be possible, in order for such movements to be reflected in

a sensitivity analysis. It is considered that a 10% increase and a 50% decrease in market prices are appropriate levels.

A 10% increase in market prices of its investments at 29 February 2024 would have increased net assets attributable

to shareholders by £2.0 million (2023: £3.3 million). A 50% decrease in the market prices of its investments would have

decreased the net assets and distributable reserves attributable to shareholders by £10.0 million (2023: £16.4 million).

The analysis is based on closing balances only and is not representative of the period as a whole.

Interest rate risk

The company currently receives marginal interest on its cash deposits; therefore, interest rate movements are not

expected to have a material impact on the level of cash deposits held by the company.

The company’s financial assets may include investment in fixed interest securities, such as UK Corporate debt, whose

fair value may be affected by movements in interest rates. The majority of the company’s financial assets and liabilities,

however, are either subject to a fixed rate of interest or are non-interest bearing. As a result, the company’s financial

assets and liabilities are not subject to significant amounts of risk due to fluctuations in market interest rates. There

was no exposure to interest bearing liabilities during the year ended 29 February 2024 (2023: none).

The possible effects on the fair value and cash flows that could arise as a result of changes in interest rates are taken

into account when making investment decisions. The board imposes borrowing limits to ensure gearing levels are

appropriate to market conditions.

As at 29 February 2024, the company held the following interest-bearing securities:

Year ended

29 February 2024

Year ended

28 February 2023

£’000

£’000

Real Good Food Loan Notes

Norman Broadbent Loan Notes

81

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

14.

Analysis of financial assets and liabilities

(continued)

Interest rate risk (continued)

The exposure, at 29 February 2024, of financial assets and liabilities to interest rate risk is shown by reference to:

floating interest rates – when the rate is due to reset; and

fixed interest rates – when the financial instrument is due for repayment.

An analysis of the company’s exposure to fixed interest rates, as at 29 February 2024, is shown below:

29 February 2024

28 February 2023

1 year

Total

1 year

Total

£’000

£’000

£’000

£’000

£’000

£’000

£’000

£’000

The fair values of the loan notes issued to Real Good Food have been based on the expected proceeds receivable from

the administrator. Interest due on the loan notes of Real Good Food has been written off as a bad debt in the year. As

the company has no exposure to floating interest rates, the Interest Rate Benchmark Reform has had no impact on its

assets and liabilities.

Foreign currency risk

The company’s assets, liabilities, income, and expenses are denominated in Sterling, being the functional currency of

the company. Accordingly, the only currency exposure the company has is through the trading activities of its investee

companies.

Liquidity risk

The company’s assets, liabilities, income, and expenses are denominated in Sterling, being the functional currency of

the company. Accordingly, the only currency exposure the company has is through the trading activities of its investee

companies.

Credit and counterparty risk

Credit risk is the risk of financial loss to the company if the contractual party to a financial instrument fails to meet its

contractual obligations.

Credit risk arises from two main sources. Firstly, the possibility that the issuer of a security will be unable to pay interest

and principal in a timely manner. Secondly, there is the possibility of default of the issuer. Adhering to investment

guidelines and avoiding excessive exposure to one particular issuer or scheme can limit credit risk.

The maximum exposure to credit risk as at 29 February 2024 was £10,779,000 (2023: £5,743,000). The calculation is

based on the company’s credit risk exposure as at 29 February 2024 and this may not be representative for the whole

period.

29 February 2024

£’000

28 February 2023

£’000

82

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

14.

Analysis of financial assets and liabilities

(continued)

Credit and counterparty risk (continued)

Credit risk relating to unquoted loan notes is considered to be part of market risk.

The company’s quoted investments are held on its behalf by The Northern Trust company, acting as the company’s

custodian. Bankruptcy or insolvency of the custodian may cause the company’s rights with respect to securities held

by the custodian to be delayed. The board monitors the company’s risk by reviewing the custodian’s internal controls

report.

Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the

investment manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the

company’s custodian bank ensures that the counterparty to any transaction entered into by the company has delivered

on its obligations before any transfer of cash or securities away from the company is completed.

Cash is only held at banks that have been identified by the board as reputable and of high credit quality.

None of the company’s assets are past due or impaired.

15.

Fair value hierarchy

Financial assets and financial liabilities of the company are carried in the statement of financial position at their fair

value. The fair value is the amount at which the asset could be sold, or the liability transferred in a current transaction

between market participants, other than a forced or liquidation sale. For investments actively traded in organised

financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices and Stock

Exchange Electronic Trading Services (‘SETS’) at last trade price at the Statement of Financial Position date, without

adjustment for transaction costs necessary to realise the asset.

The company measures fair values using the following hierarchy that reflects the significance of the inputs used in

making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level

input that is significant to the fair value measurement of the relevant assets as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume

on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between

market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors

are included in Level 1 if they reflect actual and regularly occurring market transactions on an arm’s length basis.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either

directly (that is, as prices) or indirectly (that is, derived from prices).

Level 2 inputs include the following:

Quoted prices for similar (i.e., not identical) assets in active markets.

Quoted prices for identical or similar assets or liabilities in markets that are not active. Characteristics of an

inactive market include a significant decline in the volume and level of trading activity, the available prices

vary significantly over time or among market participants or the prices are not current.

Inputs other than quoted prices that are observable for the asset (for example, interest rates and yield

curves observable at commonly quoted intervals).

Inputs that are derived principally from, or corroborated by, observable market data by correlation or other

means (market-corroborated inputs).

Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

83

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

15.

Fair value hierarchy

(continued)

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined

on the basis of the lowest level input that is significant to the fair value measurement in its entirety. If a fair value

measurement uses observable inputs that require significant adjustment based on unobservable inputs, that

measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement

in its entirety requires judgement, considering factors specific to the asset or liability.

Level 1

Level 2

Level 3

Total

£’000

£’000

£’000

£’000

29 February 2024

Quoted on the Main Market

4,574

-

-

4,574

Traded on AIM

15,505

-

-

15,505

Unquoted Loan Notes (including interest held at FVTPL)

-

-

275

275

Unquoted Equity

-

-

-

-

20,079

-

275

20,354

28 February 2023

Quoted on the Main Market

Traded on AIM

Unquoted Loan Notes (including interest held at FVTPL)

Unquoted Equity

There were no transfers between Levels during the period. A reconciliation of fair value measurements in Level 3 is set

out in the table below.

Year ended

29 February 2024

Year ended

28 February 2023

£’000

£’000

Opening balance

Purchases

Sales

UK Fixed interest income at FVTPL (

notes 3, 9

)

Receipt of UK fixed interest income

Impairment of accrued loan note interest receivable (

note 9

)

Total gains or losses included in losses on investments in the Statement

of Profit or Loss and Other Comprehensive Income:

- on assets sold

- on assets held at the period end

Closing balance

The fair values of the unquoted loan notes and associated interest are established with reference to IPEV Guidelines

using a discounted cash flow methodology which involves the use of unobservable inputs. Unobservable inputs include

all relevant financial and non-financial information regarding the borrower, the expected dates of any partial or full

redemptions and any risk-adjusted inputs which might be obtained from comparable companies. The fair values of the

unquoted loan notes are highly sensitive to changes in the timing and amounts of future cash flows, and as a result the

directors carefully consider a range of possible scenarios in assessing fair values. The loan notes have been valued at

£275,000 as discussed above.

16.

Capital management

The company’s capital is as disclosed in the statement of financial position and is managed on a basis consistent with

its investment objective and policies, as set out on the inside front cover and in the Strategic Report on pages 29 to

38. The principal risks and their management are disclosed in the Strategic Report.

84

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

17.

Significant interests to update

As at 29 February 2024, the company held interests amounting to 3% or more of the equity in issue by the

following investee companies.

% of investee

company

Digitalbox plc

Norman Broadbent plc

FireAngel Safety Technology plc

Synectics plc

Centaur Media plc

Theworks.co.uk plc

Flowtech Fluidpower plc

4.20%

National World plc

18.

Related parties and Investment Manager

Investment Manager

Downing LLP is the investment manager to the company. The relationship is governed by an agreement dated

23 March 2017.

The total investment management fee charged by Downing LLP for the period ended 29 February 2024 was

£236,000 (2023: £309,000). The amount outstanding as at 29 February 2024 was £12,000 (2023: £26,000).

During the year under review, Judith MacKenzie was a non-executive director of Real Good Food plc, in which

the company has an investment. An annual fee of £25,000 is paid to Downing LLP for Judith’s services as a

director of Real Good Food plc.

Administrator and Company Secretary

On 1 April 2020, Downing LLP was appointed as administrator to the company and Grant Whitehouse, a

Downing LLP partner, was appointed as Company Secretary. During the period from 1 April 2023 to 29 February

2024, total fees of £72,500 (2023; £79,000) (inclusive of VAT where applicable) were charged by Downing LLP

in connection with the provision of the Administration, AIFM Support and company secretarial services set out

in the Downing LLP Administration Agreement. As at 29 February 2024, the amount outstanding was £3,400.

Directors

Disclosure of the directors’ interests in the Ordinary Shares of the company and fees and expenses payable to

the directors are set out in the Directors’ Remuneration Report on pages 55 to 58. At 29 February 2024, there

were no outstanding directors’ fees (2023: none).

19.

Contingent liabilities

There were no contingent liabilities at 29 February 2024 (2023: none).

20.

Non-adjusting events after reporting date

In the period between 29 February 2024 and midday on the date of this report, the following non-adjusting

events took place:

The company has purchased 963,245 of its own Ordinary Shares, at an average price of 31.57 pence per

share, all of which have been cancelled.

85

Notes to the Financial Statements

(continued)

for the year ended 29 February 2024

20.

Non-adjusting events after reporting date (continued)

Following the shareholder vote at the General Meeting on 28 February 2024 the Directors proposed

a return of capital to shareholders through a tax efficient B share scheme. At a General Meeting held

on 3 April 2024 the special resolution to issue the B Shares s did not secure the required approval of

shareholders. In the light of this result, and in order to give immediate effect to the plan overwhelmingly

supported by Shareholders at the 28 February General Meeting to adopt the managed wind-down

investment policy and return cash to Shareholders, the Board decided to make a distribution to

Shareholders by way of the First Special Dividend of 30 pence per share, equivalent to £13.98 million.

The First Special Dividend was paid on 26 April 2024 to shareholders on the company's register of

members at close of business on 12 April 2024. The company's shares ex-dividend date was 11 April

2024.

On 3 April 2024 the board announced the following measures to reduce administration costs in line

with the reduction in the size of the company as cash proceeds are paid out to shareholders: (i) a

reduction of the size of the Board, with one Director stepping down; and (ii) a reduction of fees paid to

each remaining director by £5,000 per annum, both with effect from 1 May 2024. The board is

committed, in principle, to further reductions in costs as and when appropriate given the progress of

its cash return plan.

The board has also agreed with the investment Manager that the investment manager's capital return

fee will now be set at 0.5 per cent. of the total value of distributions made during the company's

managed wind-down, instead of its former proposed sliding scale. This change will incentivise the

investment manager to realise value for Shareholders over the whole of the managed wind-down

period.

On 28 May 2024, the board declared a second special interim dividend of 12 pence per

share, equivalent to, in aggregate, £5.5 million (the "Second Special Interim Dividend").

The Second Special Interim Dividend will be paid on 21 June 2024 to shareholders on the company's

register of members at close of business on 7 June 2024. The company's shares will go ex-dividend on

6 June 2024.

On 30 May 2024 the board announced that the timetable in respect of the recommended offer for

FireAngel, one of DSM's investee companies, by Intelligent Safety Electronics Pte. Ltd (the "Offer") had

resumed, following the approval of the conditions required by the Secretary of State. The date by

which all conditions in respect of the Offer must either be satisfied or waived is now 27 June 2024.

The company intends to return the value of its investment in FireAngel to shareholders as soon as

possible and expects to be able to do so by way of a third special interim dividend of at least 7 pence

per share, equivalent to, in aggregate, £3.2 million (the "Third Special Interim Dividend"). It is expected

that the Third Special Interim Dividend would be paid to shareholders by mid-late July 2024.

86

Shareholder information

Financial Calendar

Company’s year end

28 February

Annual Results announced

5 June 2024

Annual General Meeting

21 August 2024

Company’s half-year end

31 August 2024

Half-yearly results announced

October/November 2024

Share Price and NAV

The Company’s Ordinary Shares are listed on the main market of the London Stock Exchange. The market price of

these shares can be found in the London Stock Exchange Daily Official List and in the Financial Times. The

Company’s NAV is published daily and released through a Regulatory Information Service and is also available

through the AIC website.

Registrar enquiries

The register for the Ordinary Shares is maintained by Computershare Investor Services PLC. In the event of

queries regarding your holding, please contact the registrar on 0370 707 1358.

Changes of name and/or address must be notified in writing to the registrar, whose address is:

Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ.

Common Reporting Standard

Under the Common Reporting Standard, financial institutions, including investment trust companies, are required

to provide personal information to HMRC on investors who meet certain criteria set out in the legislation.

On an annual basis the company will provide information to the local tax authority on the tax residencies of non-

UK based certificated shareholders and corporate entities. The local tax authority may exchange this information

with the tax authorities of another country or countries in which the shareholder may be a tax resident, where

those countries, or the tax authorities in those countries, have entered into agreements to exchange financial

account information.

New shareholders, excluding those whose shares are held in CREST, entered onto the company’s share register,

will be sent a certification form for the purposes of collecting this information.

Share dealing

Investors wishing to purchase more shares in the company or sell all or part of their existing holding may do so

through their financial adviser, stockbroker or one of the platforms listed on the company’s website:

www.downingstrategic.co.uk

Nominee code

Where shares are held in a nominee company name, the company undertakes:

to provide the nominee company with multiple copies of shareholder communications, so long as an

indication of quantities has been provided in advance;

to allow investors holding shares through a nominee company to attend general meetings, provided

the correct authority from the nominee company is available; and

nominee companies are encouraged to provide the necessary authority to underlying shareholders to

attend the company’s general meetings.

87

Shareholder information

(continued)

Website

Your board is committed to shareholder engagement. To receive regular news and updates about your company

please visit:

www.downingstrategic.co.uk

.

Useful information on the company, such as investor updates and half year and Annual Reports can be found on

the company’s website.

Company information

Downing Strategic Micro-Cap Investment Trust PLC is an investment company as defined under Section 833

of the Companies Act 2006.

The company is an investment company within the meaning of Section 833 of the companies Act 2006 and it

has been approved by HM Revenue & Customs as an investment trust (for the purposes of Sections 1158 and

1159 of the Corporation Tax Act 2010) for the period ended 28 February 2018 and future years. The directors

have no reason to believe that approval will not continue to be obtained. The company is not a close company

for taxation purposes.

Country of incorporation: England.

Company Number: 10626295.

Registered office: The Office Suite, Den House, Den Promenade, Teignmouth, TQ14 8SY

The company is a member of the Association of Investment Companies.

88

Glossary

If the share price of an investment trust is lower than the net asset value (‘NAV’) per share, the shares are trading

at a discount to NAV. In this circumstance the price that an investor pays or receives for a share would be less

than the value attributable to it by reference to the underlying assets. The discount is the difference between

the share price (based on mid-market share prices) and the NAV, expressed as a percentage of the NAV.

A premium occurs when the share price is above the NAV. Investors would therefore be paying more than the

value attributable to the shares by reference to the underlying assets.

Discounts and premia are generally the consequence of supply and demand for the shares on the stock market.

Gearing is the process whereby a company can borrow to purchase additional investments with the expectation

that the return on the investments purchased will exceed the interest cost of the borrowings.

Gearing is calculated by dividing total assets less cash or cash equivalents by shareholders’ funds expressed as a

percentage.

The actual value of a company or an asset based on an underlying perception of its true value including all

aspects of the business in terms of both tangible and intangible factors. This value may or may not be the same

as the current market value.

Intrinsic value is a core concept to value investors that seek to uncover hidden investment opportunities.

The difference between the intrinsic value of a stock and its market price.

The NAV is shareholders’ funds expressed as an amount per individual share. Equity shareholders’ funds are the

total value of all of the company’s assets, at current market value, having deducted all current and long-term

liabilities and any provision for liabilities and charges.

The NAV is published daily.

Ongoing charges are expenses of a type that are likely to recur in the foreseeable future, whether charged to

capital or revenue, and which relate to the operation of the investment company as a collective fund, excluding

the costs of acquisition or disposal of investments, financing costs and gains or losses arising on investments.

Ongoing charges are based on costs incurred in the year as being the best estimate of future costs and include

the annual management charge. The calculation methodology is set out by the Association of Investment

Companies.

The revenue return per share is the revenue return profit for the year divided by the weighted average number

of ordinary shares in issue during the year.

This is the return on the share price or NAV taking into account both the rise and fall of share prices and the

dividends and interest paid to shareholders. Any dividends received by a shareholder are assumed to have been

reinvested in either additional shares (for share price total return) or the company’s assets (for NAV total return).

89

Contact details of the Advisers

Directors

Investment Manager

Hugh Aldous (Chairman)

Downing LLP

Linda Bell

6

th

Floor, St. Magnus House

William Dawkins retired 14 May 2024

3 Lower Thames Street

Robert Legget

London EC3R 6HD

Company Secretary

Registrar

ISCA Administration Services Limited

Computershare Investor Services PLC

The Office Suite

The Pavilions

Den House

Bridgwater Road

Den Promenade

Bristol BS99 6ZZ

Teignmouth TQ14 8SY

Telephone: 0370 702 0003

Administrator

Custodian

ISCA Administration Services Limited

The Northern Trust Company

The Office Suite

50 Bank Street

Den House

Canary Wharf

Den Promenade

London E14 5NT

Teignmouth TQ14 8SY

Broker

Solicitor

Cavendish Capital Markets Limited

Dickson Minto

(formerly FinnCap Limited)

Broadgate Tower

1 Bartholomew Close

20 Primrose Street

London EC1A 7BL

London EC2A 2EW

Auditor

BDO LLP

55 Baker Street

London W1U 8EW

Company number: 10626295

90

Annual General Meeting

Notes in respect of special business at the Annual General Meeting

Resolutions relating to the following item of special business will be proposed at the forthcoming AGM to be

held on 21 August 2024:

Resolution 7

Authority to make market purchase of the company’s shares

The resolution to be proposed will seek to renew the authority granted to directors enabling the Company to

purchase its own shares. The directors will only consider repurchasing shares in the market if they believe it to

be in shareholders’ interests and as a means of correcting any imbalance between supply and demand for the

Company’s shares. The directors are seeking authority to purchase up to 6,842,221 (being the equivalent of

14.99% of the issued ordinary share capital (excluding treasury shares) or such other amount as shall be

equivalent to 14.99% of the Company’s issued ordinary share capital (excluding treasury shares) as at the date

of passing the resolution). This authority will expire at the conclusion of the AGM to be held in 2025 unless

renewed prior to that date. Any ordinary shares purchased pursuant to Resolution 7 shall be cancelled

immediately upon completion of the purchase or held, sold, transferred or otherwise dealt with as treasury shares

in accordance with the provisions of the Companies Act 2006.

91

Notice of Annual General Meeting

Notice is hereby given that the seventh Annual General Meeting of Downing Strategic Micro-Cap Investment

Trust plc will be held at 12:00 pm on 21 August 2024, at 6

th

Floor, St. Magnus House, 3 Lower Thames Street,

London, EC3R 6HD.

If you wish to attend the meeting, please register by sending an email to

dsmagm@downing.co.uk

stating that

you wish to register for the AGM.

The following business will be dealt with at the meeting:

Ordinary business

To receive the Directors’ Report and the Financial Statements for the year ended 29 February 2024 with

the report of the Auditor thereon.

To approve the Directors’ Remuneration Report for the year ended 29 February 2024.

To approve the Directors Remuneration policy as set out in the Annual Report.

To re-elect Hugh Aldous as a director.

To re-appoint BDO LLP as auditor to the company to hold office from the conclusion of the annual general

meeting of the company until the conclusion of the next general meeting at which Financial Statements are

laid before the company.

To authorise the Audit Committee to determine the auditor’s remuneration.

Special business

Special resolutions

THAT in substitution of any authorities previously granted to make market purchases of ordinary shares of

0.1 pence in the company (Ordinary Shares), the company be, and it is hereby authorised in accordance with

section 701 of the Companies Act 2006 (the Act) to make market purchases of ordinary shares (within the

meaning of section 693 of the Act) provided that:

a.

the maximum number of Ordinary Shares hereby authorised to be purchased is 6,842,221 (being the

equivalent of 14.99% of the issued ordinary share capital (excluding treasury shares) or such other

amount as shall be equivalent to 14.99% of the company’s issued ordinary share capital (excluding

treasury shares) as at the date of passing the resolution;

b.

the minimum price (exclusive of expenses) which may be paid for an Ordinary Share shall be the nominal

value per share;

c.

the maximum price (exclusive of expenses) which may be paid for any such ordinary share shall be the

higher of (i) 105% of the average of the middle market quotations (as derived from the Official List) of

the ordinary shares for the five dealing days prior to the date on which the market purchase is made and

(ii) the higher of the price quoted for (a) the last independent trade of and (b) the highest current

independent bid for, any number of ordinary shares on the trading venue where the purchase is carried

out; and

d.

unless revoked, varied or renewed prior to such time, the authority hereby conferred shall expire at the

conclusion of the next Annual General Meeting of the company to be held in 2025 save that the

Company may, prior to such expiry enter into a contract to purchase ordinary shares which will or may

be completed or executed wholly or partly after such expiry.

92

Notice of Annual General Meeting

(continued)

All Ordinary Shares purchased pursuant to the above authority shall either be:

(i)

held, sold, transferred, or otherwise dealt with as treasury shares in accordance with the provisions of

the Act; or

(ii)

cancelled immediately upon completion of the purchase.

Dated 5 June 2024

By Order of the Board

ISCA Administration Services Limited

Secretary

Registered Office:

The Office Suite

Den House

Den Promenade

Teignmouth

TQ14 8SY

93

Notice of Annual General Meeting

(continued)

Notes

i.

This Notice of Annual General Meeting (AGM) is sent to holders of Ordinary Shares, all of whom are

entitled to attend, speak, and vote at the above AGM.

ii.

Members entitled to attend and vote at the AGM are also entitled to appoint one or more proxies to

exercise all or any of their rights to attend and speak and vote on their behalf. Where multiple proxies

are appointed, they must be appointed to exercise the rights in relation to different ordinary shares.

Proxies need not be members of the company.

iii.

A form of proxy is sent to members with this notice. To be valid the form of proxy and any power of

attorney or other authority (if any) under which it is signed (or a notarially certified copy of that power

of attorney or authority) must be completed and returned to the office of the company’s registrar as

soon as possible but so as to arrive no later than 12:00 pm on 19 August 2024. Where multiple proxies

are being appointed additional forms should be obtained from the company’s registrar and a separate

form completed for each proxy identifying that the proxy is a multiple form and the different ordinary

shares that each proxy represents. Completion and return of form(s) of proxy will not preclude a member

from attending, speaking, and voting in person at the AGM.

iv.

CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy

appointment service may do so for the meeting and any adjournment(s) thereof by utilising the

procedures described in the CREST Manual. CREST personal members or other CREST sponsored

members, and those CREST members who have appointed a voting service provider(s), should refer to

their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on

their behalf.

v.

In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message

(a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland

Limited’s (“EUI”) specifications and must contain the information required for such instructions, as

described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s

agent Computershare (ID: 3RA50) by 12:00 pm on 19 August 2024. In this respect the time of receipt

will be taken to be the time (as determined by the timestamp applied to the message by the CREST

Applications Host) from which the issuer’s agent is able to retrieve the message in the manner prescribed

by CREST.

vi.

CREST members and, where applicable, their CREST sponsors or voting service providers should note

that EUI does not make available special procedures in CREST for any particular messages. Normal

system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions.

It is the responsibility of the CREST member concerned to take such action as shall be necessary to

ensure that a message is transmitted by means of the CREST system by the particular time the CREST

member requires.

vii.

The company may treat as invalid a CREST proxy instruction in the circumstances set out in regulation

35(5)(a) of the Uncertificated Securities Regulations 2001.

viii.

A person who is not a member of the company and receives this notice of meeting as a person nominated

by a member to enjoy information rights under Section 146 of the Companies Act 2006 (“Act”) does not

have a right to appoint proxies. However, if a nominated person has an agreement with the member

who nominated them, the nominated person may have a right to be appointed as a proxy or a right to

instruct the member as to the exercise of voting rights at the AGM.

ix.

Shareholders entered on the register of members of the company at the close of business on 19 August

2024, or the close of business on the day two days prior to the time of an adjourned meeting, shall be

entitled to attend and vote at the AGM. Any changes to the register of members after such dates shall

be disregarded in determining the rights of any shareholders to attend and vote at the AGM.

94

Notice of Annual General Meeting

(continued)

x.

Under section 319(A) of the Act, the company must cause to be answered any question relating to the

business being dealt with at the AGM put by a member attending the AGM unless answering the

question would interfere unduly with the preparation for the meeting, would involve the disclosure of

confidential information, an answer has already been given on a website, or is undesirable in the interests

of the company or the good order of the AGM.

xi.

Members may not use any electronic address provided in this notice or any related document(s) to

communicate with the company for any purpose other than as specifically stated.

xii.

As at 4 June 2024, the latest practicable date prior to the publication of this notice, the company’s issued

share capital comprised 45,645,241

ordinary shares of 0.1 pence each, and 1 non-redeemable

preference management share of 1 penny which carries no voting rights. Each ordinary share carries a

right to one vote at general meetings of the company and accordingly the total number of voting rights

in the company as at 4 June 2024 is 45,645,241.

xiii.

Information regarding the AGM, including the information required by Section 311A of the Act, can be

found on the company’s website at

www.downingstrategic.co.uk

.

xiv.

No director has a service agreement with the company. Directors’ letters of appointment can be viewed

by contacting the company secretary.

xv.

Member(s) have a right in accordance with Section 338 of the Act to require the company to give to

members of the company entitled to receive the above notice of meeting, notice of any resolution which

they may properly move at the meeting. Under Section 338A of the Act member(s) may request the

company to include in the business to be dealt with at the meeting any matter, other than a proposed

resolution, which may be properly included in that business.

xvi.

Members may require the company, under section 527 of the Act, to publish on a website a statement

setting out any matter relating to the audit of the company’s Financial Statements being laid before the

meeting, including the auditor’s report and the conduct of the audit at the company’s expense. Where

the company is required to place such a statement on a website it must forward the statement to the

auditor not later than the time it makes the statement available on that website and include the

statement in the business to be dealt with at the meeting.

June 2024

The Office Suite

020 7416 7780

Den House, Den Promenade

customer@downing.co.uk

Teignmouth TQ14 8SY

www.downingstrategic.co.uk

Downing LLP is authorised and regulated by the Financial Conduct Authority

DSM3098