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Downing Two VCT  -  DP2F   

Downing TWO VCT plc : Half-year Report

Released 16:21 28-Sep-2017

Downing TWO VCT plc : Half-year Report

Downing TWO VCT plc

Half-Yearly Report
for the six months ended 30 June 2017

Performance summary

'D' Share pool 30 Jun
2017
  31 Dec
2016
  30 Jun
2016
  Pence   Pence   Pence
Net asset value per 'D' Share 23.9   36.6   34.8
Net asset value per 'E' Share 0.1   0.1   0.1
Cumulative distributions per 'D' Share 80.0   66.5   66.5
Total return per 'D' Share and 'E' Share 104.0   103.2   101.4

'F' Share pool 30 Jun
2017
  31 Dec
2016
  30 Jun
2016
  Pence   Pence   Pence
Net asset value per 'F' Share 70.0   69.7   70.0
Cumulative distributions per 'F' Share 27.5   25.0   22.5
Total return per 'F' Share 97.5   94.7   92.5

'G' Share pool 30 Jun
2017
  31 Dec
2016
  30 Jun
2016
  Pence   Pence   Pence
Net asset value per 'G' Share 82.5   83.5   85.4
Cumulative distributions per 'G' Share 22.5   20.0   17.5
Total return per 'G' Share 105.0   103.5   102.9

'K' Share pool 30 Jun
2017
  31 Dec
2016
  30 Jun
2016
  Pence   Pence   Pence
Net asset value per 'K' Share     98.4       99.0       99.7

CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Half-Yearly Report for the six months ended 30 June 2017. The Company has a number of share pools, each of which is in a different stage in its planned exit life. Generally, progress has been satisfactory over the period, with all the mature share pools seeing an increase in their total return.

Net asset values and overview
'D' Share pool
The 'D' Share pool is now in the process of exiting from its investments.

At 30 June 2017, the net asset value ("NAV") for a combined holding of one 'D' Share and one 'E' Share was 24.0p. Total Return (NAV plus dividends paid to date) is now 104.0p for a combined holding, compared to the original cost, net of income tax relief, of 70p per share.

Total dividends of 80p per combined share have been paid to date. The Manager is optimistic that one final dividend can be paid before the end of the year to bring the share pool to a close.

'F' Share pool
The 'F' Share pool launched in 2012 and is scheduled to start exiting from investments in early 2018.

At 30 June 2017, the net asset value ("NAV") for a holding of one 'F' Share was 70.0p, an increase of 2.8p (4.0%) over the period. Total Return (NAV plus dividends paid to date) is now 97.5p for a combined holding, compared to the original cost, net of income tax relief, of 70p per share.

The Manager anticipates that the first major distribution will be paid in the first quarter of 2018.

'G' Share pool
The 'G' Share pool raised funds in 2013 and has completed its initial investment phase. The target date to start realising investments is late 2018.

At 30 June 2017, the net asset value ("NAV") for a holding of one 'G' Share was 82.5p which represents a net increase of 1.5p (1.8%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 105.0p, compared to the initial NAV, before income tax relief, of 100.0p.

'K' Share pool
The 'K' Share pool raised funds in 2016 and is continuing to build its initial investment portfolio. The target date to start realising investments is late 2021.

At 30 June 2017, the net asset value ("NAV") and total return for a holding of one 'K' Share was 98.4p which represents a net decrease of 0.6p (0.6%) over the period, compared to the initial NAV of 100.0p. This deficit arises from that fact that initially the share pool holds funds awaiting investment in cash which generates very little yield. As the portfolio is developed this effect will diminish.

The Investment Manager's Report below will provide more detail on each of the share pools.

Dividends
In line with the Company's stated policies, interim dividends will be paid as follows:

'F' Shares              2.5p per share
'G' Shares             2.5p per share

Each of the above dividends will be paid on 15 December 2017 to Shareholders on the register at 24 November 2017.

No interim dividend is being declared in respect of the 'D' Shares as additional dividends will be declared once further investment realisations have been completed. No dividend is being declared in respect of the 'K' Share pool as the VCT regulations effectively prohibit dividends at this early stage in the pool's life.

Share buybacks
The Company has a general policy in the first five years after the launch of a share class, of buying in its own shares that become available in the market for cancellation. As a result, the Company will currently buy 'G' Shares and 'K' Shares that become available in the market and will, subject to liquidity and regulatory constraints, buy at prices approximately equal to net asset value i.e. with no discount.

During the period to 30 June 2017, the Company repurchased and subsequently cancelled 24,000 'G' Shares for an aggregate consideration of £20,040, being an average price of 83.5p per 'G' Share.

No share buybacks in respect of any other share classes were undertaken during the period.

Outlook
The Manager will be engaged in a number of different activities for each of the share pools over the remainder of the year. We hope to see the 'D' Share come to the end of its life with a final dividend and expect preparations for investment realisations in the 'F' Share pool to advance significantly. The 'G' Share pool is expected to have limited investment activity over the remainder of the year while the Manager focuses on the existing portfolio, but we expect to see a number of new additions to the 'K' Share portfolio as the funds raised continue to be employed.

Shareholders may be aware of the "Patient Capital Review" currently being undertaken by the Government which is seeking to strengthen the UK as a place for growing innovative businesses. It is possible that this review could result in some changes to the VCT regulations and the associated tax reliefs. We expect that any planned changes will be announced in the Budget in November. The Board and Manager are closely monitoring developments and we will communicate with Shareholders if we believe there are any changes which could have a significant impact on Shareholders' investments.

In addition to any communications in connection with the above, I will update all Shareholders in my statement in the next Annual Report, and I also expect to write separately to 'D' Shareholders as and when there is news of a final distribution.

Hugh Gillespie
Chairman

INVESTMENT MANAGER'S REPORT
'D' SHARE POOL

The 'D' Share pool is in the process of realising its investments in order to return funds to 'D' Shareholders. Progress has continued through the period and we are optimistic it will be completed in the near future.

Investment activity
During the period under review, there was one partial disposal of £245,000 in Mosaic Spa and Health Clubs Limited. This represented a gain of £68,000 against the previous carrying value. Further proceeds for this investment are expected in due course at which point the company will be fully exited from the pool.

At 30 June 2017, the pool held seven investments with a valuation of £2.2 million. Three small valuation changes were made at the period end resulting in a total valuation reduction of £4,000. The carrying values adopted at the end of the period are consistent with the values at which we believe the investments can be exited.

Realisation plans
The pools most significant holding is in Gara Rock Resort Limited, formerly Aminghurst Limited. We are pleased to report that we have recently exchanged contracts for the sale of the investment and expect this transaction to complete shortly.

Of the remaining six investments Avon Solar Energy Limited and Westcountry Solar Solutions Limited are expected to exit in the next two months. Mosaic Spa and Health Clubs Limited has partially exited in the period and we are exploring options to facilitate a complete exit for the share pool. No further proceeds are expected from Quadrate Spa Limited or Future Biogas (Reepham Road) Limited.

Net asset value and results
At 30 June 2017, the net asset value ("NAV") for a combined holding of one 'D' Share and one 'E' Share was 24.0p. Total Return (NAV plus dividends paid to date) is now 104.0p for a combined holding.

The profit on ordinary activities for the 'D' Shares, after taxation, for the period was £78,000, comprising a revenue loss of £20,000 and a capital profit of £98,000.

Outlook
The end of the task of realising all the share pool's investments is now in sight. The exact timing is dependent on transactions involving third parties so is somewhat uncertain, however we anticipate that the pool should be able to make one final payment before the end of the year.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
'D' SHARE POOL
as at 30 June 2017

 
Cost
Valuation
Unrealised
gain/
(loss) in period
% of
 portfolio
 by
value
 
£'000
£'000
£'000
 
       
 
VCT qualifying and partially qualifying investments      
 
Avon Solar Energy Limited 210 252 12
10.2%
Westcountry Solar Solutions Limited 250 216 (34)
8.8%
Mosaic Spa and Health Clubs Limited* 325 123 -
5.0%
Quadrate Spa Limited 144 - -
0.0%
       
 
Non-qualifying investments      
 
Gara Rock Resort Limited 1,322 1,322 -
53.6%
Fenkle Street LLP 122 287 18
11.6%
Future Biogas (Reepham Road) Limited 320 - -
0.0%
       
 
  2,693 2,200 (4)
89.2%
       
 
Cash at bank and in hand   266  
10.8%
       
 
Total   2,466  
100%

*    Partially qualifying investment

SUMMARY OF INVESTMENT MOVEMENTS
'D' SHARE POOL
for the six months ended 30 June 2017

Disposals
Cost
Market
value at
01/01/17
Disposal
proceeds
Gain
against
cost
 Total
 realised
 gain
 
£'000
£'000
£'000
£'000
£'000
           
Mosaic Spa and Health Clubs Limited 196  

177
245  

49
68
           
  196 177 245 49 68

* Adjusted for additions made in the period

INVESTMENT MANAGER'S REPORT
'F' SHARE POOL

The 'F' Share pool is fully invested in a portfolio focussed on asset backed businesses and those with predictable revenue streams. Planning has begun in respect of the process to realise investments and start returning funds to Shareholders which can commence early in 2018.

Investment activity
With the pool being fully invested, no new investments were made in the period although one follow-on investment of £194,000 was made in Goonhilly Earth Station Limited, where further funding was required.

Funds had previously been invested in two companies, Morava Limited and Brownfields Trading Limited to explore business opportunities in specific sectors. In the event both companies were unable to find suitable opportunities, the £275,000 of funds invested were returned to the Share pool.

One partial divestment took place in the period being the part repayment of a non-qualifying loan to Gara Rock Resort Limited, formerly Aminghurst Limited, which generated proceeds of £95,000.

The majority of investments remain valued at or above cost and there were several valuation movements in the period.

Merlin Renewables Limited, the anaerobic digestion plant in Norfolk continues to perform well and the valuation was increased by £67,000.

Vulcan Renewables Limited has been sold after the period and the increase in value of £66,000 reflected expected sales proceeds minus a discount for execution risk. The sale subsequently completed at a higher value than shown overleaf.

An uplift of £39,000 was recognised in the period on Fresh Green Power Limited. The domestic rooftop solar company is generating profits in line with our expectations and we are now exploring options to sell the investment.

The valuation of Lambridge Solar Limited, the owner of commercial solar arrays in Lincolnshire, has been increased by £26,000 as it continues to perform well.

Atlantic Dogstar Limited continues to perform to plan and a small valuation uplift of £7,000 has been recognised in the period.

Net asset value, results and dividend
At 30 June 2017, the net asset value ("NAV") for a holding of one 'F' Share was 70.0p, an increase of 2.8p (4.0%) over the period. Total Return (NAV plus dividends paid to date) is now 97.5p for a combined holding.

The gain on ordinary activities for the 'F' Shares, after taxation, for the period was £294,000, comprising a revenue profit of £89,000 and a capital gain of £205,000.

The Company will pay an interim dividend of 2.5p per 'F' Share, on 15 December 2017 to 'F' Shareholders on the register at 24 November 2017.

Outlook
The focus now for the 'F' Share portfolio is shifting towards planning for exits. Good progress is being made and we anticipate that the first major distribution will be paid in the first quarter of 2018.

Downing LLP
SUMMARY OF INVESTMENT PORTFOLIO
'F' SHARE POOL
as at 30 June 2017

 
Cost
Valuation
Unrealised
gain in period
% of
 portfolio
 by value
 
£'000
£'000
£'000
 
       
 
VCT qualifying and partially qualifying investments      
 
Apex Energy Limited 1,000 1,000 -
13.4%
Goonhilly Earth Station Limited 954 954 -
12.8%
Vulcan Renewables Limited 653 844 66
11.3%
Merlin Renewables Limited 500 642 67
8.6%
Lambridge Solar Limited 500 595 26
8.0%
Pearce and Saunders Limited 497 497 -
6.6%
Augusta Pub Company Limited 290 349 -
4.7%
Vectis Alpha Limited 300 300 -
4.0%
Fresh Green Power Limited 200 239 39
3.2%
Pabulum Pubs Limited 200 237 -
3.2%
Atlantic Dogstar Limited 200 234 7
3.2%
City Falkirk Limited 422 177 -
2.4%
Fubar Stirling Limited 268 169 -
2.3%
Rhodes Solutions Limited 125 125 -
1.7%
Green Energy Production UK Limited 100 100 -
1.3%
Cheers Dumbarton Limited 48 17 -
0.2%
Lochrise Limited 13 - -
0.0%
       
 
Non-qualifying investments      
 
Baron House Developments Limited 481 481 -
6.5%
Gara Rock Resort Limited 163 163 -
2.2%
London City Shopping Centre Limited 66 66 -
0.9%
Pearce and Saunders DevCo Limited 46 46 -
0.6%
       
 
  7,026 7,235 205
97.1%
       
 
Cash at bank and in hand   218  
2.9%
       
 
Total   7,453  
100.0%

*    Partially qualifying investment

SUMMARY OF INVESTMENT MOVEMENTS
'F' SHARE POOL
as at 30 June 2017

Additions
£'000
   
Goonhilly Earth Station Limited 194
   
Total 194

Disposals
Cost
Market
value at
01/01/17
Disposal
proceeds
Gain
against
cost
 Total
 realised
 gain
 
£'000
£'000
£'000
£'000
£'000
 
 
 
 
 
 
Brownfields Trading Limited
150
150
150
-
-
Morava Limited
125
125
125
-
-
Gara Rock Resort Limited 95
95
95 - -
           
  370
370
370 - -

* adjusted for purchases made in the period

INVESTMENT MANAGER'S REPORT
'G' SHARE POOL

The 'G' Share pool raised funds in 2013 the task of building the initial VCT qualifying portfolio is now complete.

Investment activity
No new investments were made in the period and one follow-on investment of £436,000 was made in Goonhilly Earth Station Limited, where further funding was required.

In the period, proceeds of £92,000 were received from the repayment in full of a loan to Craft Beer Pub Co Limited.

The majority of investments remain valued at or above cost and there were three valuation uplifts in the period totalling a gain of £229,000.

Atlantic Dogstar Limited continues to perform to plan and a valuation uplift of £133,000 has been recognised in the period.

The Antelope Pub Limited owns a pub of the same name in Tooting which continues to trade well and ahead of budget resulting in an increase in value of £82,000 being recognised in the period.

Ormsborough Limited owns several pubs and restaurants in Yorkshire with some trading well and others are under construction. Overall performance of the group has been good resulting in an uplift in valuation of £14,000.

Net asset value
At 30 June 2017, the net asset value ("NAV") for a holding of one 'G' Share was 82.5p which represents a net increase of 1.5p (1.8%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 105.0p.

Results and dividend
The profit on ordinary activities for the 'G' Shares, after taxation, for the period was £383,000, comprising a revenue profit of £154,000 and a capital profit of £229,000.

The Company will pay an interim dividend of 2.5p per 'G' Share, on 15 December 2017 to 'G' Shareholders on the register at 24 November 2017.

Outlook
The focus for the 'G' Share pool is on close monitoring and support of the portfolio companies in order to nurture growth before the commencement of the exit process expected in early 2019.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
'G' SHARE POOL
as at 30 June 2016

 
Cost
Valuation
Unrealised gain/ (loss) in period
% of
 portfolio
 by value
 
£'000
£'000
£'000
 
       
 
VCT qualifying and partially qualifying investments      
 
Atlantic Dogstar Limited 3,500 4,113 133
19.7%
Goonhilly Earth Station Limited 2,146 2,146 -
10.3%
Antelope Pub Limited 1,760 1,842 82
8.8%
Quadrate Catering Limited 1,450 1,450 -
6.9%
Walworth House Pub Limited 1,330 1,330 -
6.4%
Apex Energy Limited 1,300 1,300 -
6.2%
Hermes Renewables Limited 1,000 1,000 -
4.8%
Zora Energy Limited 750 750 -
3.6%
Augusta Pub Company Limited 580 697 -
3.3%
Ormsborough Limited 500 523 14
2.5%
Pabulum Pubs Limited 400 475 -
2.3%
Oak Grove Renewables Limited 420 231 -
1.1%
       
 
Non-qualifying investments      
 
Quadrate Spa Limited 1,450 1,450 -
6.9%
Hedderwick Limited 1,250 1,250 -
6.0%
Baron House Developments LLP 1,093 1,093 -
5.2%
Gara Rock Resort Limited 801 801 -
3.8%
Pearce and Saunders Limited 193 193 -
0.9%
London City Shopping Centre Limited 110 110 -
0.5%
       
 
  20,033 20,754 229
99.3%
       
 
Cash at bank and in hand   158  
0.7%
       
 
Total   20,912  
100%

SUMMARY OF INVESTMENT MOVEMENTS
'G' SHARE POOL
as at 30 June 2017

Additions
£'000
   
Goonhilly Earth Station Limited 436
   
Total 436

Disposals
Cost
Market
value at
01/01/17
Disposal
proceeds
Gain
against
cost
 Total
 realised
 gain
 
£'000
£'000
£'000
£'000
£'000
           
Craft Beer Pub Co Limited 92 92 92 - -
           
  92 92 92 - -

INVESTMENT MANAGER'S REPORT
'K' SHARE POOL

The 'K' Share pool closed its fundraising in September 2016 having raised £16.2 million. The process of investing the funds is well under way with £9.2 million invested in qualifying investments.

Investment activity
During the last six months, three new qualifying investments have been made totalling £1.3 million as we continue to build the qualifying portfolio of the 'K' Share pool.

The qualifying investments include a £900,000 investment into Ormsborough Limited. The company owns several pubs and restaurants across Yorkshire and this investment supported their continued expansion.

£432,000 was invested in Pilgrim Trading Limited. The company acquired two sites to be converted in to children's nurseries, one of which has recently been opened in Twickenham and the other is in the planning stage.

A £10,000 investment was made in Exclusive Events Venues Limited to pay a deposit to secure a site in Chester that will be used exclusively as a wedding venue. Since the period end, following a successful planning application, a further investment has been made to acquire and develop the site.

Funds had previously been invested in two companies, Morava Limited and Brownfields Trading Limited to explore business opportunities in specific sectors. In the event both companies were unable to find suitable opportunities, the £2.1 million of funds invested were returned to the Share pool. There were no other disposals in the period.

One valuation adjustment was made in the period on Ormsborough Limited following good overall performance of the group which resulted in an uplift in valuation of £25,000.

Net asset value, results and dividend
At 30 June 2017, the net asset value ("NAV") and total return for a holding of one 'K' Share was 98.4p which represents a net decrease of 0.6p (0.6%) over the period.

The loss on ordinary activities for the 'K' Shares, after taxation, for the period was £99,000, comprising a revenue loss of £123,000 and a capital profit of £24,000.

Outlook
Over the remainder of the year, we will continue to pursue investment opportunities in order to add to the investment portfolio. We are satisfied with progress to date but there is a significant level of funds still to invest before the task of building the portfolio is complete.

Downing LLP

SUMMARY OF INVESTMENT MOVEMENTS
'K' SHARE POOL
as at 30 June 2017

 
Cost
Valuation
Unrealised gain/
(loss) in period
 
% of
 portfolio
 by value
 
£'000
£'000
£'000
 
       
 
VCT qualifying investments      
 
Jito Trading Limited 1,500 1,500 -
9.7%
Yamuna Renewables Limited 1,300 1,300 -
8.4%
Rhodes Solutions Limited 1,250 1,250 -
8.1%
Vectis Alpha Limited 1,000 1,000 -
6.4%
Ormsborough Limited 900 925 25
6.0%
Ironhide Generation Limited 736 736 -
4.7%
Indigo Generation Limited 736 736 -
4.7%
Rockhopper Renewables Limited 591 591 -
3.8%
Pilgrim Trading Limited 432 432 -
2.8%
Zora Energy Renewables Limited 350 350 -
2.2%
SF Renewables (Solar) Limited 337 337 -
2.2%
Exclusive Events Venues Limited 10 10 -
0.1%
       
 
  9,142 9,167 25
59.1%
       
 
Cash at bank and in hand   6,339  
40.9%
       
 
Total   15,506  
100%

SUMMARY OF INVESTMENT MOVEMENTS
'K' SHARE POOL
as at 30 June 2017

Additions
£'000
   
Ormsborough Limited 900
Pilgrim Trading Limited 432
Exclusive Events Venues Limited 10
   
Total 1,342

Disposals
Cost
Market
value at
01/01/17
Disposal
proceeds
Gain
against
cost
 Total
realised
 gain
 
£'000
£'000
£'000
£'000
£'000
           
Morava Limited 1,100 1,100 1,099 (1) (1)
Brownfields Trading Limited 1,000 1,000 1,000 - -
           
  2,100 2,100 2,099 (1) (1)

UNAUDITED SUMMARISED BALANCE SHEET
as at 30 June 2017

*

 
   

30 Jun 2017
  30 Jun
2016
  31 Dec
2016

 

 

'D'
Shares
 

'F' Shares
 

'G' Shares
 

'K'
Shares
 

 

Total
   

 

Total
   

 

Total

 

£'000 £'000 £'000 £'000 £'000   £'000   £'000

 

                 
Fixed assets                  
Unquoted investments 2,200 7,235 20,754 9,167 39,356   40,497   39,670
                   
Current assets                  
Debtors 3 185 269 17 474   484   312
Cash at bank and in hand 266 218 158 6,339 6,981   5,307   8,461
  269 403 427 6,356 7,455   5,791   8,773
                   
Creditors: amounts falling due within one year  

(78)
 

(76)
 

(281)
 

(41)
 

(476)
 
(1,593)
   

(486)
                   
Net current assets 191 327 146 6,315 6,979   4,198   8,287
                   
Net assets 2,391 7,562 20,900 15,482 46,335   44,695   47,957
                   
Capital and reserves                  
Called up share capital 25 11 25 16 77   91   95
Capital redemption reserve 124 - - - 124   106   106
Special reserve 2,312 8,110 21,073 (2) 31,493   35,072   33,666
Share premium account - - - 16,170 16,170   12,237   16,170
Revaluation reserve (597) 211 721 25 360   (1,366)   (115)
Capital reserve - realised - (1,033) (1,221) 1 (2,253)   (2,254)   (2,254)
Revenue reserve 527 263 302 (728) 364   809   289
Total equity shareholders' funds  

2,391
 

7,562
 

20,900
 

15,482
 

46,335
   

44,695
   

47,957
                   
Basic and diluted net asset value per:              
'C' Share -         - -
'A' Share -         - -
'D' Share 23.9p           34.8p 36.6p
'E' Share 0.1p           0.1p 0.1p
'F' Share   70.0p         70.0p 69.7p
'G' Share     82.5p       85.4p 83.5p
'K' Share       98.4p     99.7p 99.0p

* The comparative Balance Sheet at 30 June 2016 and 31 December 2016 includes the 'C' Share pool which has subsequently been cancelled.


STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2017

Called
 up
share capital
Capital redemption Reserve Special Reserve Share Premium Reserve Revaluation
reserve
Capital reserve
realised
Revenue reserve         Total
  £'000 £'000 £'000 £'000 £'000 £'000 £'000    £'000
                 
At 1 January 2016 79 106 40,086 - (1,248) (2,252) 1,962 38,733
Total comprehensive income  

-
-  

-
 

-
 

908
 

217
 

(280)
845
Transactions with owners                
Purchase of own shares - - - - - - (36) (36)
Issue of new shares 16 - - 16,170 - - - 16,186
Share issue costs - - - - - - (448) (448)
Transfer between reserves  

-
-  

(6,420)
 

-
 

225
 

7,104
 

(909)
-
Dividends paid - - - - - (7,323) - (7,323)
At 31 December 2016 95 106 33,666 16,170 (115) (2,254) 289 47,957
Total comprehensive income - - - - 455 101 100 656
Transaction with owners                
Purchase of own shares - - - - - - (25) (25)
Transfer between reserves - -  

(2,173)
-  

20
2,153 - -
Dividends paid - - - - - (2,253) - (2,253)
Cancellation of shares (18) 18 -   - - - -
At 30 June 2017 77 124 31,493 16,170 360 (2,253) 364 46,335

INCOME STATEMENT
for the six months ended 30 June 2017

Company Total

   

Six months ended
30 Jun 2017

 
   

Six months ended
30 Jun 2016*
 
Year ended
31 Dec
2016
 
Revenue
Capital
Total
 
Revenue
Capital
Total
 
Total
 
£'000
£'000
£'000
 
£'000
£'000
£'000
 
£'000
                   
Income 719 34 753   634 - 634   1,046
                   
Gains on investments                  
- realised - 67 67   - 266 266   177
- unrealised - 455 455   - 109 109   908
  719 556 1,275   634 375 1,009   1,085
                   
Investment management fees (445) - (445)   (409) - (409)   (861)
Other expenses (150) - (150)   (174) - (174)   (308)
                   
Return on ordinary activities before taxation 124 556 680   51 375 426   962
                   
Tax on total comprehensive income and ordinary activities (24) - (24)   - - -   (117)
                   
Return attributable to equity shareholders 100 556 656   51 375 426   845
                   
Return per 'C' Share - - -   (0.4p) - (0.4p)   (0.4p)
Return per 'A' Share - - -   - - -   -
Return per 'D' Share (0.2p) 1.0p (0.8p)   (0.4p) 0.5p 0.1p   1.7p
Return per 'E' Share - - -   - - -   -
Return per 'F' Share 0.8p 1.9p 2.7p   0.5p 0.2p 0.7p   2.8p
Return per 'G' Share 0.6p 0.9p 1.5p   0.4p 1.2p 1.6p   2.2p
Return per 'K' Share (1.2p) 0.2p (1.0p)   (0.4p) - (0.4p)   (1.4p)

* The comparative Income Statement as at 30 June 2016 and 31 December 2016 includes the 'C' Share Pool which has subsequently been cancelled.

INCOME STATEMENT
for the six months ended 30 June 2017

'D' Shares  

Six months ended
30 Jun 2017

 
   

Six months ended
30 Jun 2016
 
Year ended
31 Dec
2016
 
Revenue
Capital
Total
 
Revenue
Capital
Total
 
Total
 
£'000
£'000
£'000
 
£'000
£'000
£'000
 
£'000
                   
Income 9 34 43   (14) - (14)   90
                   
Gains/(losses) on investments                  
- realised - 68 68   - 109 109   167
- unrealised - (4) (4)   - (58) (58)   27
  9 98 107   (14) 51 37   284
                   
Investment management fees (19) - (19)   (27) - (27)   (50)
Other expenses (15) - (15)   (19) - (19)   (34)
                   
(Loss)/return on ordinary activities before taxation (25) 98 73   (60) 51 (9)   200
                   
Tax on total comprehensive income and ordinary activities 5 - 5   18 - 18   (24)
                   
Return/(loss) attributable to equity shareholders (20) 98 78   (42) 51 9   176

INCOME STATEMENT
for the six months ended 30 June 2017

'F' Shares

 
 

Six months ended
30 Jun 2017

 
   

Six months ended
30 Jun 2016
 
Year ended
31 Dec
2016
 
Revenue
Capital
Total
 
Revenue
Capital
Total   Total
 
£'000
£'000
£'000
 
£'000
£'000
£'000   £'000
                   
Income 222 - 222   170 - 170   98
                   
Gains/(losses) on investments                  
- realised - - -   - - -   5
- unrealised - 205 205   - 18 18   410
  222 205 427   170 18 188   513
                   
Investment management fees (68) - (68)   (70) - (70)   (138)
Other expenses (43) - (43)   (40) - (40)   (78)
                   
Return on ordinary activities before taxation 111 205 316   60 18 78   297
                   
Tax on total comprehensive income and ordinary activities (22) - (22)   (9) - (9)   5
                   
Return attributable to equity shareholders 89 205 294   51 18 69   302

INCOME STATEMENT
for the six months ended 30 June 2017

'G' Shares

 
 

Six months ended
30 Jun 2017

 
   

Six months ended
30 Jun 2016
 
Year ended
31 Dec
2016
 
Revenue
Capital
Total
 
Revenue
Capital
Total
 
Total
 
£'000
£'000
£'000
 
£'000
£'000
£'000
 
£'000
                   
Income 451 - 451   413 - 413   780
                   
Gains on investments                  
- realised - - -   - - -   4
- unrealised - 229 229   - 306 306   472
  451 229 680   413 306 719   1,256
                   
Investment management fees (207) - (207)   (219) - (219)   (436)
Other expenses (53) - (53)   (70) - (70)   (127)
                   
Return on ordinary activities before taxation 191 229 420   124 306 430   693
                   
Tax on total comprehensive income and ordinary activities (37) - (37)   (24) - (24)   (143)
                   
Return attributable to equity shareholders 154 229 383   100 306 406   550

INCOME STATEMENT
for the six months ended 30 June 2017

'K' Shares

 
 

Six months ended
30 Jun 2017

 
   

Six months ended
30 Jun 2016
 
Year ended
31 Dec
2016
 
Revenue
Capital
Total
 
Revenue
Capital
Total
 
Total
 
£'000
£'000
£'000
 
£'000
£'000
£'000
 
£'000
                   
Income 37 - 37   59 - 59   71
                   
Gains on investments                  
- realised - (1) (1)   - - -   -
- unrealised - 25 25   - - -   -
  37 24 61   59 - 59   71
                   
Investment management fees (151) - (151)   (84) - (84)   (228)
Other expenses (39) - (39)   (14) - (14)   (36)
                   
Loss on ordinary activities before taxation (153) 24 (129)   (39) - (39)   (193)
                   
Tax on total comprehensive income and ordinary activities 30 - 30   8 - 8   39
                   
Loss attributable to equity shareholders (123) 24 (99)   (31) - (31)   (154)

UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2017

 

 
   

30 Jun 2017
  30 Jun 2016   31 Dec 2016
     

'D'
Shares
 

'F'
Shares
 

'G'
Shares
 

'K'
Shares
 

 

Total
   

 

Total
   

 

Total
Note   £'000 £'000 £'000 £'000 £'000   £'000   £'000
                     
Net cash inflow from operating activities  

1
 

 
 

2
 

(65)
 

191
 

(164)
 

(36)
   

1,506
   

281
                     
Cash flows from investing activities                
Purchase of investments   - (194) (436) (1,342) (1,972)   (14,150)   (17,080)
Sale of investments   245 370 92 2,099 2,806   5,394   9,860
Net cash inflow/(outflow)  from investing activities   245 176 (344) 757 834  
(8,756)
  (7,220)
                     
Net cash inflow/(outflow) before financing activities

 

 

 

 

before financing activities
   

247
 

111
 

(153)
 

593
 

798
   

(7,250)
   

(6,939)
                     
Cash flows from financing
 activities
 

 
 

 
 

 
 

 
 

 
   

 
 

 
 

 
Proceeds from share issue   - - - - -   12,249   16,186
Share issue costs   - - - - - - (294)   (448)
Equity dividend paid   (1,350) (270) (633) - (2,253)   (6,419)   (7,323)
Purchase of own shares   - - (20) (5) (25)   -   (36)
Net cash (outflow)/inflow from financing activities    

(1,350)
 

(270)
 

(653)
 

(5)
 

(2,278)

 
   

5,536
   

8,379
(Decrease)/increase in cash  2   (1,103) (159) (806)    588 (1,480)   (1,714)   1,440

NOTES TO THE UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2017

 

 

  30 Jun 2017   30 Jun
 2016
  31 Dec 2016

 

  'D'
Shares
'F'
Shares
'G'
Shares
'K'
Shares
 

Total
   

Total
   

Total

 

  £'000 £'000 £'000 £'000 £'000   £'000   £'000
                     
1 Cash inflow from operating activities        
(Loss)/return on ordinary activities before taxation   73 316 420  

(129)
680   426   962
Corporation tax   - - - - -   12   (224)
(Gains)/losses on investments   (64) (205) (229) (24) (522)    (375)   (1,085)
Decrease/(increase) in other
debtors
  3 (160) 14  

(14)
(157)   395   564
(Decrease)/increase in other
creditors
  (10) (16) (14)  

3
(37)   1,048   64
Net cash inflow from operating
activities
  2 (65) 191  

(164)
(36)    1,506   281
                     
2 Analysis of net funds                    
Beginning of period   1,369 377 964 5,751 8,461   7,021   7,021
Net cash (outflow)/inflow   (1,103) (159) (806) 588 (1,480)   (1,714)   1,440
End of period   266 218 158 6,339 6,981   5,307   8,461

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

1. General information
Downing Two VCT plc ("the Company") is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.

2. Accounting policies - Basis of accounting
The unaudited half-yearly results cover the six months to 30 June 2017 and have been prepared in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009 and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2016, which were prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland ("FRS102").

3. All revenue and capital items in the Income Statement derive from continuing operations.

4. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

5. The comparative figures are in respect of the six month period ended 30 June 2016 and the year ended 31 December 2016 respectively.

6. Dividends

       

Six months ended
30 June 2017
  Year to
31 Dec 2016
  Per share   Revenue Capital Total   Total
Paid in period pence   £'000 £'000 £'000   £'000
               
'C' Shares              
Special 'C' 2016 30.6p   - - -   2,182
Special 'A' 2016 15.2p   - - -   1,632
    - - -   3,814
             
'D' Shares              
Y/E Dec 2016 Final 13.5p   - 1,350 1,350   -
Y/E Dec 2015 Final 17.0p   - - -   1,700
      - 1,350 1,350   1,700
               
'F' Shares              
Y/E Dec 2016 Final 2.5p   - 270 270   -
Y/E Dec 2015 Final 2.5p   - - -   270
Y/E Dec 2015 Interim 2.5p   - - -   270
      - 270 270   540
             
'G' Shares              
Y/E Dec 2016 Final 2.5p   - 633 633   -
Y/E Dec 2015 Final 2.5p   - - -   634
Y/E Dec 2015 Interim 2.5p   - - -   635
      - 633 633   1,269

No dividends have been paid or declared in respect of the 'E' Shares or 'K' Shares.

7. Basic and diluted return per share

 

Weighted average
number of
shares in issue
   

Revenue
return/(loss)
   

Capital
return
    £'000 Per share   £'000 Per share
             

'D' Shares

10,000,000   (20) (0.2p)   98 1.0p

'E' Shares

14,950,000   - -   - -

'F' Shares

10,810,859   89 0.8p   205 1.9p

'G' Shares

25,318,897   154 0.6p   229 0.9p

'K' Shares

15,734,402   (123) (1.2p)   24 0.2p

 

    100     556  

8. Net asset value per share

 

Shares in issue   Net asset value
   

£'000
  Per
share

 

 

       

'D' Shares

10,000,000

  2,376   23.9p

'E' Shares

14,950,000

  15       0.1p

'F' Shares

10,810,859

  7,562   70.0p

'G' Shares

25,328,571

  20,900   82.5p

'K' Shares

15,734,429

  15,482   98.4p

 

 

  46,335    

9. Reserves

 

 
Period ended
30 Jun 2017
  Year ended
31 Dec 2016
  £'000   £'000
       
Capital redemption reserve 124   106
Special reserve 31,493   33,666
Share premium reserve 16,170   16,170
Revaluation reserve 360   (115)
Capital reserve- realised (2,253)   (2,254)
Revenue reserve 364   289
  46,258   47,862

The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £1,381,000 which are included in the calculation of distributable reserves. Total distributable reserves are £28,223,000 (31 Dec 2016: £30,323,000).

10. The fair value of investments is determined using the detailed accounting policy set out in the statutory accounts for the year ended 31 December 2016.

The Company has categorised its financial instruments using the fair value hierarchy as follows:

Level a Reflects financial instruments quoted in an active market;
Level b Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level c i) Reflects financial instruments that use valuation techniques that are based on observable market data.
ii) Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).

   

 

Level a
 

 

Level b
 

 

Level c (ii)
Period
ended
 30 June
 2017
   

 

Level
a
 

 

Level
 b
 

 

Level c (ii)
Year ended 31 Dec 2016
  £'000 £'000 £'000 £'000   £'000 £'000 £'000 £'000
                   
Loan notes - - 9,914 9,914   - - 9,943 9,943
Unquoted equity - - 29,442 29,442   - - 29,727 29,727
  - - 39,356 39,356   - - 39,670 39,670

11. The unaudited condensed financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 December 2016 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor's report on those financial statements was unqualified.

12. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the "Statement: Half-Yearly Financial Reports" issued by the UK Accounting Standards Board as well as in accordance with FRS 104 Interim Financial Reporting and the half-yearly financial report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

13. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required, in the Company's half-yearly results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year.

The Board concluded that the key risks facing the Company over the remainder of the financial period are as follows:

i) Compliance risk of failure to maintain approval as a VCT; and
ii) Investment risk associated with investing in small and immature businesses.

The Company's compliance with the VCT regulations is continually monitored by the Manager, who reports regularly to the Board on the current position. The Company has also reappointed Philip Hare and Associates LLP to provide regular reviews and advice in this area.

In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. It also has a limited period in which it must invest the majority of its funds. The Manager follows a rigorous process in vetting and careful structuring of new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business.

The Board is satisfied that these approaches provide satisfactory management of the key risks.

14. Going concern
The Directors have reviewed the Company's financial resources at the period end and conclude that the Company is well placed to manage its business risks.

The Board confirms that it is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, the Board believes that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.

15. Copies of the unaudited half-yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company's registered office or will be available for download from www.downing.co.uk.




This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Downing TWO VCT plc via Globenewswire


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Downing TWO VCT plc : Half-year Report - RNS