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Downing Two VCT   -  DP2F   

Half-year report

Released 13:15 09-Sep-2019

Half-year report

Downing TWO VCT plc
LEI: 213800HJGTPW7F8YEY55
9 September 2019
Half-Yearly Report
for the six months ended 30 June 2019 (Correction)

The announcement released on 6 September 2019 at 5:02 p.m. by the Company entitled “Half year report” incorrectly stated that dividends are payable to Shareholders on the register at 17 October 2019. It should have stated that dividends are payable to Shareholders on the register at 18 October 2019.  The full corrected text of the announcement is as follows:

Performance summary

‘F’ Share pool30 Jun

2019
 31 Dec

2018
 30 Jun

2018
 Pence Pence Pence
Net asset value per ‘F’ Share30.6 28.7 53.8
Cumulative distributions per ‘F’ Share67.0 67.0 49.0
Total return per ‘F’ Share97.6 95.7 102.8


‘G’ Share pool30 Jun

2019
 31 Dec

2018
 30 Jun

2018
 Pence Pence Pence
Net asset value per ‘G’ Share63.2 60.9 81.4
Cumulative distributions per ‘G’ Share37.5 37.5 27.5
Total return per ‘G’ Share100.7 98.4 108.9


‘K’ Share pool30 Jun

2019
 31 Dec

2018
 30 Jun

2018
 Pence Pence Pence
Net asset value and Total Return per ‘K’ Share72.9 91.3 94.1

Forthcoming dividends

  ‘F’ Shares‘G’ Shares
Interim 2019 – Payable 8 November 2019 5.0p14.0p

CHAIRMAN’S STATEMENT

Introduction

I present the Half-Yearly Report for the six months ended 30 June 2019. The Company has a number of share pools, each of which is in a different stage in its planned exit life. Performance across the pools varies and it is disappointing to have to report that there have been some negative developments in a number of investee companies within the ‘K’ Share pool.

A brief summary of each share pool is provided below.

Net asset values and overview

‘F’ Share pool
The ‘F’ Share pool launched in 2012 and is currently in its realisation phase.

At 30 June 2019 the remaining net asset value (“NAV”) was 30.6p per F Share, an increase of 1.9p (6.6%) over the period. Total Return (NAV plus dividends paid to date) is now 97.6p, compared to the original cost, net of income tax relief, of 70p per share.

The pool still holds 10 investments, but plans are being progressed for exits from each of them.

Following the period end, one further exit has been achieved. As a result, the Share pool will pay a further dividend of 5.0p per ‘F’ Share on 8 November 2019. This will bring total distributions to 72.0p and leave a remaining NAV of 25.6p.

The task of exiting the remaining investments is dependent on third parties and it is therefore difficult to accurately estimate when this process will complete. However, the Investment Manager believes there are reasonable prospects for completion during the course to this year, with a final distribution to ‘F’ Shareholders to follow soon after.

‘G’ Share pool

The ‘G’ Share pool passed its five year anniversary in November 2018 and therefore focus is on the process of realising investments to return funds to Shareholders.

At 30 June 2019, the pool held 12 investments and the net asset value (“NAV”) was 63.2p per ‘G’ Share which represents a net increase of 2.3p (3.8%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 100.7p, compared to the initial NAV, before income tax relief, of 100.0p (or original cost, net of income tax relief, which was typically between 70.0p ad 75.0p, depending on costs).

There were two significant realisations over the period, which generated funds for a further dividend. A dividend of 14.0p will be paid on 8 November 2019 to Shareholders on the register at 18 October 2019. This will bring total distributions to 51.5p and leave a remaining NAV of 49.2p.

The ‘G’ Share pool will make further distributions as realisations are achieved. The Investment Manager expects to make good progress to this end over the remainder of the year.

‘K’ Share pool
The ‘K’ Share pool raised funds in 2016 and the majority of these funds have now been invested. The target date to start realising investments is late 2021.

The ‘K Share portfolio has suffered from some significant issues during the period. Large provisions have been required against the investments in several of the pool’s largest investments: Yamuna Renewables Limited, Ormsborough Limited and Jito Trading Limited. Further details are included in the ‘K’ Share Investment Manager’s Report below. The Board is working with the Manager to ensure that appropriate action is taken to recover as much value as possible for ‘K’ Shareholders.

At 30 June 2019, the share pool held 17 investments and had a net asset value (“NAV”) and Total Return of 72.9p per K Share. This represents a net decrease of 18.4p (20.1%) over the period, compared to the initial NAV, before income tax relief, of 100.0p (or original cost, net of income tax relief, which was typically between 70.0p and 75.0p, depending on costs).

Dividends

As discussed above, dividends have been declared in respect of two of the share pools

‘F’ Shares 5.0p per share
‘G’ Shares 14.0p per share

Each of the above dividends will be paid on 8 November 2019 to Shareholders on the register at 18 October 2019.

No dividend is being declared in respect of the ‘K’ Share pool as the VCT regulations effectively prohibit dividends at this stage in the pool’s life.

Share buybacks

As announced in June 2019, the Company is now unlikely to make any further purchases of any share class as the process of returning funds to the ‘F’ and ‘G’ Shareholders is now underway and the ‘K’ Shareholders are due to commence shortly.

No share buybacks in respect of any share class was undertaken during the period.

Outlook

Over the remainder of the year we expect to see further realisations made by the ‘F’ and ‘G’ Share pools as the Manager looks at maximising Shareholder returns. Shareholders should note that timing of the exit process can be difficult to predict and could take some time to complete as the Board are keen to see that full value is achieved for all investments.

In respect of the ‘K’ Share pool, focus is on working to recover as much value as possible of the portfolio companies in question and nurturing the investments such that they will eventually be well positioned to deliver successful exits.

I will update Shareholders on progress in my statement with the annual report to 31 December 2019.

Hugh Gillespie
Chairman

INVESTMENT MANAGER’S REPORT

‘F’ SHARE POOL

As at 30 June 2019, the ‘F’ Share pool holds 10 investments as focus for the ‘F’ Share pool remains on the realisation of its investments and maximising Shareholder returns.

‘F’ Share pool – Portfolio valuation

The majority of the portfolio investments remain valued at or above cost, with there being a small number of valuation movements in the period which generated an uplift over opening value of £201,000.

The most significant increase in valuation was Baron House Developments LLP, a company created to fund the purchase of a property opposite Newcastle station, which qualifies under the BPRA scheme. At the period end, an uplift of £192,000 was recognised following improved trading and an uplift in value of the hotel site.

Realisation plans

Following the period end, one of the pool’s larger investments, Lambridge Solar Limited, the 9.0 MW ground mounted solar farm in Pedwardine Lincolnshire, was exited and delivered a good return to the pool.

Plans are in place for the successful exit of the Antic portfolio of investments including Pearce and Saunders Limited, Downing Pub EIS One Limited and Atlantic Dogstar Limited, which is expected to conclude following the publication of this report. Realisation plans for the remaining portfolio companies are in place although the exact timing of the final exits is dependent on transactions involving third parties.

Net asset value, results and dividend

At 30 June 2019, the net asset value (“NAV”) for a holding of one ‘F’ Share was 30.6p, an increase of 1.9p (6.6%) over the period. Total Return (NAV plus dividends paid to date) is now 97.6p.

The gain on ordinary activities for the ‘F’ Shares, after taxation was £207,000 for the period, comprising a revenue gain of £6,000 and a capital gain of £201,000.

The Company will pay an interim dividend of 5.0p per ‘F’ Share on 8 November 2019 to ‘F’ Shareholders on the register at 18 October 2019.

Outlook

Focus for the ‘F’ Share pool remains on the realisation of its investments, with realisation plans in place for the final 10 investments held. However, Shareholders should note that any transactions are dependent on many external factors and hurdles in order to achieve a good return for ‘F’ Shareholders.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO

‘F’ SHARE POOL

as at 30 June 2019

 CostValuationUnrealised gain/

(loss) in period
% of portfolio

by value
 £’000£’000£’000 
     
VCT qualifying and partially qualifying investments    
Pearce and Saunders Limited497671-20.3%
Downing Pub EIS One Limited490626719.0%
Lambridge Solar Limited500605-18.3%
Atlantic Dogstar Limited20027228.2%
Fresh Green Power Limited189210-6.4%
Apex Energy Limited1,000100-3.0%
Green Energy Production UK Limited10054-1.6%
     
Non-qualifying investments    
Baron House Developments LLP48167319220.4%
Pearce and Saunders DevCo Limited4646-1.4%
London City Shopping Centre Limited66--0.0%
     
 3,5693,25720198.6%
     
Cash at bank and in hand 46 1.4%
     
Total 3,303 100.0%

INVESTMENT MANAGER’S REPORT

‘G’ SHARE POOL

The ‘G’ Share pool raised funds in 2013 and passed its five year anniversary in November 2018. The focus for the Share pool remains on the process of realising investments as it looks to maximise Shareholder return before the ultimate exit date.

Investment activity

With the pool being in the realisation phase, no new investments are expected to take place. However, two full exits were made in the six months to 30 June 2019.Hedderwick Limited, the owner of two freehold pubs located in Royston, Hertfordshire and Olney, Milton Keynes, was successfully exited during the period and generated proceeds of £1.4 million for the Share pool. This represented an uplift over cost of £144,000.

In addition, proceeds of £1.8 million were generated from the sale of the Antelope Pub Limited, which owns a pub of the same name in Tooting, London. This represented a gain over cost of £51,000.

The period to 30 June 2019 has seen a number of valuation movements, resulting in an unrealised gain of £236,000.

The majority of the uplift in the period related to Baron House Developments LLP, a company created to fund the purchase of a property opposite Newcastle station, which qualifies under the BPRA scheme. The valuation was uplifted by £437,000 following improved trading and an uplift in value of the hotel site.

Atlantic Dogstar Limited, which owns a group of London pubs, was uplifted by £31,000 based on expected returns.

The valuation gains in the period were partially offset by provisions of £234,000 in Ormsborough Limited, the owner of several pubs and restaurants in Yorkshire. The investment has been reduced in value as a result of cost overruns on two of the company’s pub developments.

Net asset value

At 30 June 2019, the net asset value (“NAV”) for a holding of one ‘G’ Share was 63.2p, which represents a net increase of 2.3p (3.8%) over the period. Total Return (NAV plus dividends paid to date) is now 100.7p.

Results and dividend

The profit on ordinary activities for the ‘G’ Share pool, after taxation, for the period was £563,000, comprising a revenue profit of £202,000 and a capital gain of £361,000.

The Company will pay an interim dividend of 14.0p per ‘G’ Share on 8 November 2019 to ‘G’ Shareholders on the register at 18 October 2019.

Outlook

Plans are now being progressed for the exit of all investments from the Share pool following the passing of the pools five year anniversary at the end of 2018. Good progress is being made on the disposal of these investments, however Shareholders should note that any exit is dependent on many third parties and external factors in order to provide a good return for ‘G’ Shareholders.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO

‘G’ SHARE POOL

as at 30 June 2019

 CostValuationUnrealised gain/

(loss) in period
% of portfolio

by value
 £’000£’000£’000 
     
VCT qualifying and partially qualifying investments    
Atlantic Dogstar Limited3,5004,7563131.5%
Walworth House Pub Limited1,3301,330-8.8%
Downing Pub EIS One Limited9801,253138.3%
Quadrate Catering Limited1,4501,196-7.9%
Pearce and Saunders Limited193193-1.3%
Hermes Wood Pellets Limited1,000152-1.0%
Apex Energy Limited1,300130-0.9%
Ormsborough Limited500117(234)0.8%
Zora Energy Renewables Limited75067(11)0.4%
     
Non-qualifying investments    
Baron House Developments LLP1,0931,53043710.1%
Quadrate Spa Limited1,450669-4.4%
London City Shopping Centre Limited110--0.0%
     
 13,65611,39323675.4%
     
Cash at bank and in hand 3,714 24.6%
     
Total 15,107 100%

SUMMARY OF INVESTMENT MOVEMENTS

‘G’ SHARE POOL

as at 30 June 2019

DisposalsCostMarket value at

01/01/19
Disposal

proceeds
Gain against

cost
 Total realised

gain
 £’000 £’000£’000 £’000£’000
      
Hedderwick Limited1,2501,3201,39414474
Antelope Pub Limited1,7601,7601,8115151
      
 3,0103,0803,205195125

INVESTMENT MANAGER’S REPORT

‘K’ SHARE POOL

The ‘K’ Share pool closed its fundraising in September 2016, having raised £16.2 million.

The majority of these funds have been invested and the focus for the pool is on the deployment of the remaining cash in the pool and the close monitoring of the investee companies.

It is disappointing to report that the ‘K’ Share pool has suffered from difficulties in a number of its investments over the period. The required provisions have had a notable negative impact on the Total Return over the period which has been detailed below.

Investment activity

With the pool entering the qualification test at the start of the year, no new investments were made in the period. One partial exit completed generating proceeds of £12,000 from the partial redemption of loan notes in Snow Hill Developments LLP.

The period to 30 June 2019 has seen a number of valuation provisions, resulting in an unrealised loss of £2.8 million.

As reported in the year end accounts, the most notable provision related to Yamuna Renewables Limited, a wood pelleting plant in Gars am Kamp, Austria. Consumer demand has substantially reduced following warmer than expected weather. Additionally, production was halted following two serious fires at the facility. Downing is working with the management team to address these issues. The company is pursuing a business interruption and consequential loss insurance claim. However, as the business had not been operating for very long this is unlikely to cover the real estimated losses.  As the company has some borrowings, this may ultimately make it difficult to recover any value. The investment has been fully provided against as a result.

Jito Trading Limited, the operator of another wood pelleting plant in Weitra, Austria, has suffered partly as a result of the demand problem encountered by Yamuna discussed above. The investment valuation has been reduced by £375,000 as a result of weaker trading and other concerns.

Ormsborough Limited, the owner of pubs and restaurants in Yorkshire, ran into difficulties in respect of several pub developments which it was undertaking. The investment partner and management company then went into administration and subsequently we have identified some potentially fraudulent transactions which we are continuing to investigate. We have put a new management team in place but trading at the existing pubs has weakened. The investment has been reduced in value by £632,000 as a result. We continue to work with the new management team seeking to recover value.

Indigo Generation Limited and Ironhide Generation Limited are developing solar farms in India. Both plants were expected to complete this year, however due to monsoon season and issues acquiring grid connection, construction of the sites has been delayed, leading to a provision of £221,000 in each company.

The unrealised losses were partially offset by gains in the period totalling £57,000.

The majority of the gains in the period related to Fenkle Street LLP, which was uplifted by £41,000, as the impact of discounting the expected future cash flows unwinds over time.

Net asset value, results and dividend

At 30 June 2019, the net asset value (“NAV”) and Total Return for a holding of one ‘K’ Share was 72.9p, which represents a net decrease of 18.4p (20.1%) over the period. The loss on ordinary activities for the ‘K’ Share pool, after taxation was £2.9 million for the period, comprising a revenue loss of £96,000 and a capital loss of £2.8 million.

Outlook
The provisions over the period experienced by the ‘K’ Share pool are disappointing to report. Shareholders should note that management have dedicated substantial resources to the portfolio companies in question and are seeking to develop plans to recover as much value as possible for investors.

Downing LLP

SUMMARY OF INVESTMENT MOVEMENTS

‘K’ SHARE POOL

as at 30 June 2019

 CostValuationUnrealised (loss)/

gain in period
% of portfolio

by value
 £’000£’000£’000 
     
VCT qualifying investments    
Apprise Pubs Limited1,3001,300-11.4%
Garthcliff Shipping Limited1,3001,300-11.4%
Jito Trading Limited1,5001,125(375)9.9%
Ironhide Generation Limited736515(221)4.6%
Indigo Generation Limited736515(221)4.6%
Rockhopper Renewables Limited591514(77)4.5%
Walworth House Pub Limited500500-4.4%
Exclusive Events Venues Limited500500-4.4%
Pilgrim Trading Limited432432-3.8%
SF Renewables (Solar) Limited337358(30)3.1%
Ormsborough Limited1,400316(632)2.8%
Zora Energy Renewables Limited35032(5)0.3%
Mosaic Spa and Health Clubs Limited2413(13)0.1%
Yamuna Renewables Limited1,300-(1,300)0.0%
     
Non-qualifying investments    
Fenkle Street LLP287335412.9%
Snow Hill Developments LLP3147160.4%
London City Shopping Centre Limited15--0.0%
     
 11,3397,802(2,817)68.6%
     
Cash at bank and in hand 3,577 31.4%
     
Total 11,379 100%


DisposalsCostMarket value

at 01/01/19
Disposal

proceeds
Gain against

cost
 Total realised

gain
 £’000 £’000£’000 £’000£’000
      
Snow Hill Developments LLP121212--
      
 121212--

UNAUDITED SUMMARISED BALANCE SHEET

as at 30 June 2019

  

30 Jun 2019

 

 

 
 30 Jun

2018
 31 Dec

2018
  ‘F’ Shares‘G’ Shares‘K’ SharesTotal Total Total
  £’000£’000£’000£’000 £’000 £’000
          
Fixed assets         
Unquoted investments 3,25711,3937,80222,452 33,840 27,925
          
Current assets         
Debtors 801,2551031,438 895 1,328
Cash at bank and in hand 463,7143,5777,337 6,932 4,055
  1264,9693,6808,775 7,827 5,383
          
Creditors: amounts falling due within one year(75)(392)(27)(494) (437) (448)
          
Net current assets 514,5773,6538,281 7,390 4,935
          
Net assets 3,30815,97011,45530,733 41,230 32,860
          
Capital and reserves         
Called up share capital 11251652 77 52
Capital redemption reserve 149--149 124 149
Special reserve 4,27418,19416,21338,681 26,729 38,471
Share premium account ---- 16,170 -
Revaluation reserve (561)(2,263)(3,537)(6,361) (12) (3,911)
Capital reserve – realised (1,033)(1,220)4(2,249) (2,252) (2,250)
Revenue reserve 4681,234(1,241)461 394 349
Total equity shareholders’ funds 3,30815,97011,45530,733 41,230 32,860
          
Basic and diluted net asset value per:       
‘F’ Share 30.6p    53.8p 28.7p
‘G’ Share  63.2p   81.4p 60.9p
‘K’ Share   72.9p  94.1p 91.3p

STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2019

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 20187712428,31316,170815(2,252)43843,685
Total comprehensive income----(4,866)896366(3,604)
Share premium cancellation--16,170(16,170)----
Transactions with owners        
Purchase of own shares------(55)(55)
Transfer between reserves--(6,012)-1405,872--
Dividends paid-----(6,766)(400)(7,166)
Cancellation of shares(25)25------
At 31 December 20185214938,471-(3,911)(2,250)34932,860
Total comprehensive income----(2,380)141112(2,127)
Transaction with owners        
Purchase of own shares--------
Transfer between reserves--210-(70)(140)--
Dividends paid--------
At 30 June 20195214938,681-(6,361)(2,249)46130,733

INCOME STATEMENT

for the six months ended 30 June 2019

Company Total

  

Six months ended

30 Jun 2019

 
  

Six months ended

30 Jun 2018
 Year ended

31 Dec 2018
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income61916635 948-948 1,621
          
Gains/(losses) on investments         
- realised-125125 -708708 865
- unrealised-(2,380)(2,380) -(832)(832) (4,866)
 619(2,239)(1,620) 948(124)824 (2,380)
          
Investment management fees(289)-(289) (383)-(383) (711)
Other expenses(123)-(123) (138)-(138) (254)
          
Return/(loss) on ordinary activities before taxation207(2,239)(2,032) 427(124)303 (3,345)
          
Tax on total comprehensive income and ordinary activities(95)-(95) (55)-(55) (259)
          
Return/(loss) attributable to equity shareholders112(2,239)(2,127) 372(124)248 (3,604)
          
Return per ‘F’ Share0.0p1.9p1.9p 0.2p3.0p3.2p (3.9p)
Return per ‘G’ Share0.8p1.4p2.2p 1.9p(0.1p)1.8p (8.6p)
Return per ‘K’ Share(0.6p)(17.8p)(18.4p) (0.9p)(2.7p)(3.6p) (6.3p)


‘F’ Shares

 
 

Six months ended

30 Jun 2019

 
  

Six months ended

30 Jun 2018
 Year  ended

31 Dec 2018
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income76-76 118-118 177
          
Gains/(losses) on investments         
- realised--- -220220 350
- unrealised-201201 -104104 (780)
 76201277 118324442 (253)
          
Investment management fees(24)-(24) (58)-(58) (97)
Other expenses(19)-(19) (39)-(39) (43)
          
Return/(loss) on ordinary activities before taxation33201234 21324345 (393)
          
Tax on total comprehensive income and ordinary activities(27)-(27) (1)-(1) (31)
          
Return/(loss) attributable to equity shareholders6201207 20324344 (424)


‘G’ Shares

 
 

Six months ended

30 Jun 2019

 
  

Six months ended

30 Jun 2018
 Year  ended

31 Dec 2018
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income491-491 778-778 1,307
          
Gains/(losses) on investments         
- realised-125125 -488488 514
- unrealised-236236 -(508)(508) (3,325)
 491361852 778(20)758 (1,504)
          
Investment management fees(148)-(148) (200)-(200) (369)
Other expenses(55)-(55) (56)-(56) (129)
          
Return/(loss) on ordinary activities before taxation288361649 522(20)502 (2,002)
          
Tax on total comprehensive income and ordinary activities(86)-(86) (33)-(33) (178)
          
Return/(loss) attributable to equity shareholders202361563 489(20)469 (2,180)


‘K’ Shares

 
 

Six months ended

30 Jun 2019

 
  

Six months ended

30 Jun 2018
 Year  ended

31 Dec 2018
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income521668 52-52 137
          
(Losses)/gains on investments         
- realised--- --- 1
- unrealised-(2,817)(2,817) -(428)(428) (761)
 52(2,801)(2,749) 52(428)(376) (623)
          
Investment management fees(117)-(117) (125)-(125) (245)
Other expenses(49)-(49) (43)-(43) (82)
          
Loss on ordinary activities before taxation(114)(2,801)(2,915) (116)(428)(544) (950)
          
Tax on total comprehensive income and ordinary activities18-18 (21)-(21) (50)
          
Loss attributable to equity shareholders(96)(2,801)(2,897) (137)(428)(565) (1,000)

UNAUDITED CASH FLOW STATEMENT

for the six months ended 30 June 2019

     

30 Jun 2019
 30 Jun

2018
 31 Dec

2018
    

‘F’

Shares
 

‘G’

Shares
 

‘K’

Shares
 

 

Total
  

 

Total
  

 

Total
 £’000£’000£’000£’000 £’000 £’000
           
Net cash (outflow)/inflow

from operating activities
 

 
 

(14)
 

185
 

(106)
 

65
  

224
  

(173)
           
Cash flows from investing activities        
Sale of investments  -3,205123,217 3,822 5,860
Net cash inflow from investing activities-3,205123,217 3,822 5,860
           
Net cash (outflow)/inflow

 before financing activities
 

(14)
 

3,390
 

(94)
 

3,282
  

4,046
  

5,687
           
Cash flows from financing activities  

 
 

 
 

 
 

 
  

 
 

 
 

 
Equity dividend paid  ---- (2,687) (7,166)
Purchase of own shares  ---- (16) (55)
Net cash outflow from financing activities---- (2,703) (7,221)
(Decrease)/increase in cash     (14)3,390(94)3,282 1,343 (1,534)

NOTES TO THE UNAUDITED CASH FLOW STATEMENT

for the six months ended 30 June 2019

     

30 Jun 2019
 30 Jun
 2018
 31 Dec 2018
   ‘F’

Shares
‘G’

Shares
‘K’

Shares
 

Total
  

Total
  

Total
   £’000£’000£’000£’000 £’000 £’000
           
Cash inflow/(outflow) from operating activities    
Return/(loss) on ordinary activities before

taxation
234649 

(2,915)
(2,032) 303 (3,345)
Corporation tax  (8)--(8) (29) (174)
(Gains)/losses on investments  (201)(361)2,8172,255 124 4,001
Decrease/(increase) in other debtors(26)(92)10(108) (128) (562)
(Decrease)/increase in other creditors(13)(11)(18)(42) (46) (93)
Net cash (outflow)/inflow from operating

activities
(14)185 

(106)
65 224 (173)
           
Analysis of net funds          
Beginning of period  603243,6714,055 5,589 5,589
Net cash (outflow)/inflow  (14)3,390(94)3,282 1,343 (1,534)
End of period  463,7143,5777,337 6,932 4,055

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 2019 and have been prepared in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in February 2018 (“AIC SORP”) and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2018, 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 (“FRS 102”).

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 2018 and the year ended 31 December 2018 respectively.

6. Dividends

    

Six months ended

30 June 2019
 Year to

31 Dec 2018
 Per share RevenueCapitalTotal Total
Paid in periodpence £’000£’000£’000 £’000
        
‘F’ Shares        
Y/E Dec 2018 Interim18.0p --- 1,946
Y/E Dec 2017 Final19.0p --- 2,054
   --- 4,000
        
‘G’ Shares        
Y/E Dec 2018 Interim10.0p --- 2,533
Y/E Dec 2017 Final2.5p --- 633
   --- 3,166

No dividends have been paid or declared in respect of the ‘K’ Shares.

7. Basic and diluted return per share

 Weighted average

number of

shares in issue
  

Revenue

return/(loss)
  

Capital

return/(loss)
   £’000Per share £’000Per share
        
‘F’ Shares10,810,859 60.0p 2011.9p
‘G’ Shares25,228,418 2020.8p 3611.4p
‘K’ Shares15,734,429 (96)(0.6p) (2,801)(17.8p)
   112  (2,239) 

8. Net asset value per share

 Shares in issue Net asset value
    

£’000
 Per

share
      
‘F’ Shares10,810,859 3,308 30.6p
‘G’ Shares25,281,571 15,970 63.2p
‘K’ Shares15,718,154 11,455 72.9p
   30,733  

9. Reserves

 

 
Period ended

30 Jun 2019
 Year ended

31 Dec 2018
 £’000 £’000
    
Capital redemption reserve149 149
Special reserve38,681 38,471
Revaluation reserve(6,361) (3,911)
Capital reserve - realised(2,249) (2,250)
Revenue reserve461 349
 30,681 32,808

The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £9,111,000 which are included in the calculation of distributable reserves. Total distributable reserves are £27,782,000 (31 Dec 2018: £30,544,000).

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 2018.

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

Level 1     Reflects financial instruments quoted in an active market;

Level 2     Reflects financial instruments that have prices that are observable either directly or indirectly; and

Level 3     Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).

  

 

Level 1
 

 

Level 2
 

 

Level 3
Period

ended

 30 June

 2019
  

 

Level

1
 

 

Level

 2
 

 

Level 3
Year

ended

31 Dec 2018
 £’000£’000£’000£’000 £’000£’000£’000£’000
          
Loan notes--5,5025,502 --5,7445,744
Unquoted equity--16,95016,950 --22,18122,181
 --22,45222,452 --27,92527,925

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 2018 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 carefully structuring 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.


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Half-year report - RNS