Downing FOUR VCT plc
LEI: 21380035MV1VRYEXPR95
Half-Yearly Report for the six months ended 30 September 2018
19 December 2018

FINANCIAL HIGHLIGHTS

 

 
18 Dec
2018
 30 Sept
2018
 31 Mar
2018
 30 Sept
2017
 Pence Pence Pence Pence
DSO D Share pool        
Net Asset Value per DSO D Share  30.3 54.4 78.5
Cumulative dividends per DSO D Share  76.5 52.5 27.5
Estimated Performance Incentive *  (4.4) (4.4) (4.2)
Total Return per DSO D Share  102.4 102.5 101.8
        
DP67 Share pool        
Net Asset Value per DP67 Share  50.5 50.0 68.7
Cumulative dividends per DP67 Share  49.8 49.8 29.8
Total Return per DP67 Share  100.3 99.8 98.5
        
DP2011 General Share pool        
Net Asset Value per DP2011 Gen Ord Share  - - 15.0
Net Asset Value per DP2011 Gen A Share  13.0 20.3 34.4
Cumulative dividends per DP2011 Gen Ord Share and Gen A Share  92.0 85.0 55.0
Total Return per DP2011 Gen Ord Share and Gen A Share  105.0* 105.3* 104.4*
Estimated remaining Performance Incentive (already included above) *
 2.3 3.6 5.2
        
DP2011 Structured Share pool        
Net Asset Value per DP2011 Struc Ord Share  - - 5.0
Net Asset Value per DP2011 Struc A Share  9.8 15.0 34.5
Cumulative dividends per DP2011 Struc Share and Struc A Share  95.0 90.0 65.0
Total Return per DP2011 Struc Ord Share and Struc A Share  104.8* 105.0* 104.5*
Estimated remaining Performance Incentive (already included above) *
 1.7 2.7 5.2
        
Generalist Share pool        
Net Asset Value and Total Return per Generalist Share87.0 92.7 95.5 98.7
        
Healthcare Share pool        
Net Asset Value and Total Return per Healthcare Share84.0 88.7 94.6 98.6
        
         

*A full explanation of the Performance Incentive arrangements for each Share pool will be shown in the Half-Yearly Report.

CHAIRMAN'S STATEMENT

Introduction
I am pleased to present the Company's Half-Yearly Report for the six months ended 30 September 2018.

Share pools
The Company now has six active share pools, four of which are winding down. This report includes sections covering the individual share pools and I will give a brief overview of each.

Planned exit Share pools
DSO D Share Pool
The DSO D Share NAV stood at 30.3p at 30 September 2018, a decrease of 0.1p per share or 0.2% over the period, after adjusting for the dividends paid in the period. Total Return now stands at 102.4p per share, compared to the cost for Shareholders who invested in the D Share offer, net of income tax relief, of 70.0p. Based on the current performance it is estimated that a performance fee equivalent to 4.4p per D Share may become payable to the Manager. This has been reflected in the Total Return figure shown above.
Following a number of disposals from the D Share Pool, the second major distribution of 24.0p per DSO D Share was paid on 13 August 2018. Realisation plans are progressing in respect of the remaining investments and we expect to be in a position to make a final distribution to Shareholders during 2019.

DP67 Share Pool
As at 30 September 2018, the NAV of the DP67 Shares stood at 50.5p per share. This represents an increase of 0.5p (1.0%) over the period. Total Return for DP67 shareholders now stands at 100.3p per share, compared to the cost for Shareholders who invested in the original offers, net of income tax relief, of 70.0p.

There are plans in place to exit from all of the remaining investments in the DP67 portfolio and, following the dividend of 20.0p per DP67 Share paid on 16 March 2018, we anticipate that the remaining value will be distributed to Shareholders through the payment of one final dividend, which we anticipate should be paid in the coming months.

DP2011 General Share Pool
The DP2011 General Share Pool is in the process of returning funds to Shareholders. After providing for an estimated Performance Incentive of 2.3p per DP2011 General Ordinary Share, as at 30 September 2018, the NAV of a combined holding of one DP2011 General Ordinary Share and one DP2011 General A Share stood at 13.0p per share. This represents a decrease of 0.3p or 1.5% after adjusting for dividends paid during the period, as well as the Performance Incentive estimate. Further details of the Performance Incentive arrangements are set out in the notes to the accounts.

Total Return for DP2011 General Shareholders now stands at 105.0p, compared to the cost for Shareholders who invested in the original offer, net of income tax relief, of 70.0p.

On 13 August 2018 a dividend of 7.0p per DP2011 General A Share was paid, bringing total dividends paid to Shareholders to 92.0p for a combined holding. As the portfolio now consists of a small number of investments, all with plans to exit, it is expected that the remaining proceeds will be distributed to Shareholders by way of one closing dividend in the first half of 2019.

DP2011 Structured Share Pool
The DP2011 Structured Share Pool is at a similar stage to the DP2011 General Share Pool. After providing for an estimated Performance Incentive of 1.7p per DP2011 Structured Ordinary Share, as at 30 September 2018, the NAV of a combined holding of one DP2011 Structured Ordinary Share and one DP2011 Structured A Share stood at 9.8p per share. This represents a decrease of 0.2p or 1.3% after adjusting for dividends paid during the period, as well as the Performance Incentive estimate. Further details of the Performance Incentive arrangements are set out in the notes to the accounts.

Total Return for DP2011 Structured Shareholders now stands at 104.8p, compared to the cost for Shareholders who invested in the original offer, net of income tax relief, of 70.0p.

On 13 August 2018 a dividend of 5.0p per DP2011 Structured A Share was paid, bringing total dividends paid to Shareholders to 95.0p for a combined holding. As the portfolio now consists of a small number of investments, all with plans to exit, it is expected that the remaining proceeds will be distributed to Shareholders by way of one closing dividend in the first half of 2019.

Evergreen Share pools
Generalist Share pool
As at 30 September 2018, the Generalist Share NAV and Total Return stood at 92.7p, a decrease of 2.8p per share or 2.9% over the period. This fall is attributable to a combination of the unrealised holding losses on the Venture Capital portfolio and the 'cash-drag' of holding uninvested funds. Since the period end, there has been a significant decline in global stock markets.  This has impacted the valuation of Public Equity investments. At 18 December 2018, the Generalist NAV stood at 87.0p per share.

As detailed in the Investment Manager's Report, the process of building the Generalist portfolio is progressing well, with £5.2m having been invested in VCT Qualifying Investments during the six months to 30 September 2018. More than 40% of the funds are now invested in VCT Qualifying investments. The Manager has a good pipeline of investment opportunities from which the portfolio will continue to be built over the coming years.

Healthcare Share pool
As at 30 September 2018, the Healthcare Share NAV and Total Return stood at 88.7p, a decrease of 5.9p per share or 6.2% over the period. This fall is the result of unrealised holding losses in respect of the Venture Capital portfolio, coupled with the 'cash-drag' of holding uninvested funds. As with the Generalist Share pool, the falls in global stock markets have impacted the Public Equity investments and other quoted investments. At 18 December 2018, the Healthcare NAV stood at 84.0p per share.

As outlined in the Investment Manager's Report, the process of building the Healthcare portfolio is ongoing, with £2.7m invested in VCT Qualifying Investments during the six months to 30 September 2018. As this is a specialist sector, the process of investing Healthcare funds presents more challenges than that of the Generalist Share pool. However, the Manager has a good pipeline of investment opportunities from which the portfolio will continue to be built over the coming years.

Dividends
Dividends in respect of the planned exit Share pools will be announced as and when sufficient realisations have taken place.

No dividends have been declared with respect to Generalist and Healthcare Share pools, due to the effective restriction on paying dividends in the first three years following a share issue.

Share buybacks
The Company has a policy of buying in any Generalist and Healthcare Shares that become available in the market and will usually expect to do so at a price approximately equal to the latest NAV of the shares, subject to regulatory restrictions and other factors such as availability of liquid funds.

In respect of the planned exit pools, the Board does not intend to buy in any of those shares as exits for these Shareholders will be facilitated by way of distributions.

During the period the Company repurchased 14,400 Generalist Shares at an average price of 95.7p per Share. The Shares were subsequently cancelled.

Fundraising
The Company has launched further fundraisings in respect of the Generalist and Healthcare Share pools. The Company plans to raise approximately £20m of Generalist funds and £10m of Healthcare funds, with an over-allotment facility which could increase these totals to approximately £40m and £30m respectively.

Downing LLP, the Manager and Promoter, considers there to be a strong pipeline of investment opportunities available to the Company, and the decision to raise additional funds was recommended to Shareholders and the Board as a result.

I look forward to reporting on developments in my statement with the Annual Report to 31 March 2019, to be published in July 2019, by which time we expect that the planned exit processes will be substantially complete.

Board composition
The Directors review the composition and effectiveness of the Board at regular intervals to ensure that it continues to comply with the applicable regulations, is consistent with best practice and remains effective for Shareholders.

The new Corporate Governance Code will become effective for the Company at the start of the next financial year and introduces some changes. In order to ensure continued compliance, I will step down as chairman of the Company on 31 December 2018 but will continue on the Board as a non-executive director. I am pleased to announce that Sir Aubrey Brocklebank has agreed to chair the Company from 1 January 2019 onwards. Sir Aubrey joined the Board at the time of the merger with two other VCTs in 2015 and has extensive experience in the VCT sector. I am confident that that he will be an excellent chairman for the Company.

We believe that the three-person Board has operated effectively and efficiently since it was established in 2015 and continues to do so. With the changing landscape of the VCT regulation and the new focus of the investment activity, the Board will continue to regularly review the structure and, of course, consider adjustments if it concludes that they would be beneficial.

Outlook
For the remainder of this financial year, there will be a dual focus for the Board and Manager, of working to return funds to investors in the four remaining planned exit share pools, whilst also continuing to develop the Generalist and Healthcare portfolios.

Generally, the Board remains satisfied with the performance of the portfolio companies, which the Manager will continue to closely monitor.

Lord Flight
Chairman

INVESTMENT MANAGER'S REPORT
DSO D SHARE POOL

Portfolio valuation
As at 30 September 2018, the DSO D Share Pool had a portfolio of seven investments with a value of £1.5m.

The most significant valuation adjustment during the period was in respect of Apex Energy Limited, which has been written down by £200,000. Technical issues have impacted on operations of the business and the valuation has been adjusted to reflect the additional work required.

Other valuation movements amount to a net uplift of £24,000.

Portfolio activity
Three full realisations took place during the period, generating proceeds of £2.2m.

Goonhilly Earth Station Limited, the owner and operator of the afore-named Satellite Earth Station in Cornwall, was sold during the period, generating proceeds of £878,000 and a gain over cost of £163,000. Loan note interest of £49,000 was also recovered on exit.

Merlin Renewables Limited, the owner and operator of an Anaerobic Digestion plant in Norfolk, was also sold during the period, generating proceeds of £770,000 and realising a gain over cost of £270,000.

The final of the three realisations was in respect of Nightjar Sustainable Power Limited, the owner and operator of a run-of-river hydroelectric scheme in Scotland. The DSO D interest in the company was refinanced by existing investors for £600,000, resulting in a gain over cost of £115,000.

Results and Net Asset Value
The Net Asset Value ('NAV') per DSO D Share at 30 September 2018 stood at 30.3p, a decrease of 0.1p or 0.2% over the period after adjusting for dividends paid. Total Return stands at 102.4p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per share.

The loss on ordinary activities after taxation for the period was £7,000, comprising a revenue loss of £29,000 and a capital gain of £22,000.

Dividends
In light of the realisations from the DSO D Share Pool during the period, the second significant distribution, being 24.0p per DSO D Share, was paid on 13 August 2018.

We expect that the remaining NAV will be distributed to Shareholders by way of one closing dividend, and we anticipate that this will be paid during the summer of 2019.

Outlook
Although the portfolio is now reasonably small in value, as it is made up of investments in seven different companies we expect that it will take some months to execute the realisation plans in place.

A further update on the progress of the realisation plans will be provided in the Annual Report to 31 March 2019.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
DSO D SHARE POOL
as at 30 September 2018

 

 
CostValuationUnrealised
gain
 in period
% of
portfolio
by value
 £000£000£000 
     
Venture Capital investments    
Lambridge Solar Limited500605(21)25.1%
Pearce and Saunders Limited*3003545414.7%
Fresh Green Power Limited189231-9.6%
Apex Energy Limited400200(200)8.3%
Green Energy Production UK Limited10074(6)3.1%
Pearce and Saunders DevCo Limited**12620-0.8%
Fubar Stirling Limited205(3)0.2%
 1,6351,489(176)61.8%
     
Cash at bank and in hand 921 38.2%
     
Total investments 2,410 100.0%

*partially qualifying
**non-qualifying investment            

SUMMARY OF INVESTMENT MOVEMENTS
DSO D SHARE POOL
for the period ended 30 September 2018

 

 

Disposals
CostValuation at
31/03/2018
Disposal
proceeds
Total gain/
(loss) against
cost
Realised
gain in period
 £000£000£000£000£000
Venture Capital investments     
Goonhilly Earth Station Limited715715878163163
Merlin Renewables Limited50071977027051
Nightjar Sustainable Power Limited485600600115-
 1,7002,0342,248548214

DIVIDEND HISTORY
DSO D SHARE POOL

Period end  

Date paid
Pence
per share
2012 Final28 September 20122.5
2013 Interim25 January 20132.5
2013 Final13 September 20132.5
2014 Interim24 January 20142.5
2014 Final30 September 20142.5
2015 Interim30 January 20152.5
2015 Second interim30 September 20152.5
2016 Interim23 December 20152.5
2016 Final30 September 20162.5
2017 Interim6 January 20172.5
2017 Final29 September 20172.5
2018 Special2 November 201725.0
2018 Interim13 August 201824.0
  76.5

INVESTMENT MANAGER'S REPORT
DP67 SHARE POOL

Portfolio valuation
As at 30 September 2018, the DP67 Share Pool had a portfolio of seven investments with a value of £4.6m.

The only valuation adjustment during the period was in respect of Fenkle Street LLP. The DP67 Share pool received profit distributions of £75,000, which have been recorded as income for the Share pool. In light of the receipt of this income, the valuation of the investment has been reduced by the same amount.

Results and Net Asset Value
The Net Asset Value ('NAV') per DP67 Share at 30 September 2018 stood at 100.3p, an increase of 0.5p (1.0%) over the period. Total Return stands at 100.3p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per share.

The profit on ordinary activities after taxation for the period was £58,000, comprising a revenue gain of £77,000 and a capital loss of £19,000.

Dividends
The first significant distribution of 20.0p per DP67 Share was paid on 16 March 2018.

We expect that the remaining value will be distributed to Shareholders by way of one final dividend which we are optimistic can be paid in the coming months.

Outlook
Our focus for this Share pool is on delivering the exit plans currently in place for each of its investments and making a final distribution to Shareholders.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
DP67 SHARE POOL
as at 30 September 2018

 

 
CostValuationUnrealised
gain
 in period
% of
portfolio
by value
 £000£000£000 
     
Venture Capital investments    
Cadbury House Holdings Limited1,4091,613-31.8%
Snow Hill Developments LLP*584830-16.4%
Fenkle Street LLP*405603(75)11.9%
Gatewales Limited*343527-10.4%
Oak Grove Renewables Limited820492-9.7%
Yamuna Energy Limited400400-7.9%
London City Shopping Centre Limited*9999-2.0%
 4,0604,564(75)90.1%
     
Cash at bank and in hand 501 9.9%
     
Total investments 5,065 100.0%

*  non-qualifying investment

DIVIDEND HISTORY
DP67 SHARE POOL

Period end  

Date paid
Pence per share
Pre-merger dividends 21.8
2016 Interim23 December 20152.0
2016 final30 September 20162.0
2017 Interim6 January 20172.0
2017 Final29 September 20172.0
2018 Special16 March 201820.0
  49.8

INVESTMENT MANAGER'S REPORT
DP2011 GENERAL SHARE POOL

Portfolio valuation
As at 30 September 2018, the DP2011 General Share Pool had a portfolio of seven investments with a value of £2.2m.

The value of the portfolio is materially unchanged from 31 March 2018, with a small overall reduction in value of £19,000 during the period.

Net Asset Value and results
The combined Net Asset Value ('NAV') of one DP2011 General Ordinary Share and one DP2011 General A Share at 30 September 2018 stood at 13.0p, a decrease of 0.3p or 1.5% over the period after adjusting for dividends paid. Total Return stands at 105.0p per share compared to an initial cost to Shareholders, net of income tax relief, of 70.0p per share.

The loss on ordinary activities after taxation for the period was £58,000, comprising a revenue loss of £22,000 and a capital loss of £36,000.

Dividends
The DP2011 General Share pool commenced the process of returning funds to Shareholders in late 2016. Following the dividend of 7.0p per DP2011 General A Share, paid on 13 August 2018, the Share pool is awaiting its final exits before announcing a closing dividend. We believe this can be achieved in the first half of 2019.

Outlook
Our focus for this Share pool is on completing the final investment realisations to allow the payment of a final distribution.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
DP2011 GENERAL SHARE POOL
as at 30 September 2018

 

 
 CostValuationUnrealised
gain/(loss)
 in period
% of
portfolio
by value
  £000£000£000 
      
Venture Capital investments     
Snow Hill Developments LLP* 7501,178-48.4%
Wickham Solar Limited 550635(15)26.1%
Oak Grove Renewables Limited 400254-10.1%
London City Shopping Centre Limited** 8888-3.6%
Mosaic Spa and Health Clubs Limited* 9664-2.6%
Fubar Stirling Limited 1335(4)0.2%
Odysian (Holdings) Limited 233--0.0%
  2,2502,224(19)91.0%
      
Cash at bank and in hand  208 9.0%
      
Total investments  2,432 100.0%

*  non-qualifying investment
               
DIVIDEND HISTORY
DP2011 GENERAL SHARE POOL

Period end  

Date paid
Pence
per share
Pre-merger dividends 20.0
2016 Interim23 December 20152.5
2016 Special2 September 201622.5
2017 Special14 February 201710.0
2018 Special2 November 201730.0
2018 Interim13 August 20187.0
  92.0

INVESTMENT MANAGER'S REPORT
DP2011 STRUCTURED SHARE POOL

Portfolio valuation
As at 30 September 2018, the DP2011 Structured Share Pool had a portfolio of seven investments with a value of £1.0m.

The value of the portfolio is materially unchanged from 31 March 2018, with a small overall reduction in value of £17,000 during the period.

Net Asset Value and results
The combined Net Asset Value ('NAV') of one DP2011 Structured Ordinary Share and one DP2011 Structured A Share at 30 September 2018 stood at 9.8p, a decrease of 0.2p or 1.3% over the period after adjusting for dividends paid. Total Return stands at 104.8p per share compared to an initial cost to Shareholders, net of income tax relief, of 70.0p per share. 
The loss on ordinary activities after taxation for the period was £33,000 comprising a revenue loss of £7,000 and a capital loss of £26,000.

Dividends
The DP2011 Structured Share pool commenced the process of returning funds to Shareholders in late 2016. Following the dividend of 5.0p per DP2011 Structured A Share, paid on 13 August 2018, the Share pool is awaiting its final exits before announcing a closing dividend. We believe this can be achieved in the first half of 2019.

Outlook
Our focus now is on completing the final investment realisations to allow the payment of a final distribution to Shareholders.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
DP2011 STRUCTURED SHARE POOL
as at 30 September 2018

 

 
 CostValuationUnrealised
loss
 in period
% of
portfolio
by value
  £000£000£000 
      
Venture Capital investments     
Wickham Solar Limited 550635(15)51.1%
Oak Grove Renewables Limited 545347-27.9%
Mosaic Spa and Health Clubs Limited 6442-3.4%
Fubar Stirling Limited 904(2)0.3%
Odysian (Holdings) Limited 155--0.0%
  1,4041,028(17)82.7%
      
Cash at bank and in hand  215 17.3%
      
Total investments  1,243 100.0%

DIVIDEND HISTORY
DP2011 STRUCTURED SHARE POOL

Period end  

Date paid
Pence
per share
Pre-merger dividends 20.0
2016 Interim23 December 20152.5
2016 Special2 September 201632.5
2017 Special14 February 201710.0
2018 Special2 November 201725.0
2018 Interim13 August 20185.0
  95.0

INVESTMENT MANAGER'S REPORT
GENERALIST SHARE POOL

Portfolio activity
The ongoing process of building the Generalist portfolio has progressed well during the period, with six new and four follow-on investments totalling £5.2m made during since 31 March 2018.

VCT Qualifying Investments
£1.1m was invested in Lignia Wood Company Limited (formerly Fibre 7 UK Limited), a producer of modified sustainable wood based in Barry, Wales.

A further £991,000 was invested in Live Better With Limited, the developer of a healthcare platform aiming to help people with long-term medical conditions, focusing on non-medical products that make day-to-day life better for patients.

£741,000 was invested in Glownet Limited, the developer of a technology solution for organisers of mass-attendance live events, which allows attendees to make cashless payments at the event.

A further £639,000 was invested in E Fundamentals (Group) Limited, via two fundraising tranches. The company provides a data analytics service that helps brand owners improve their online revenues.

£525,000 was invested in Virtual Class Limited, trading as Third Space Learning. The Company has developed an online educational platform that provides mathematics tuition to pupils studying for their Key Stage 2 exams.

A further £417,000 was invested in BridgeU Corporation, the developer of a platform providing intelligent university and course matching which is tailored to the individual student.

£250,000 was invested in ADC Biotechnology Limited, a company creating innovative new technology which aims to speed up, simplify and lower the costs of the processes involved in the production of new Antibody Drug Conjugates (ADCs). This investment was made alongside £892,000 from the Healthcare Share pool.

£240,000 was invested in Arecor Limited, the developer of biopharmaceuticals and proprietary diabetes-related products, including ultra-fast acting insulin to treat type 1 and 2 diabetes. This investment was made alongside £880,000 from the Healthcare Share pool.

£167,000 was invested in Masters of Pie Limited, an early-stage technology firm specialising in virtual and augmented reality software for manufacturing and wider enterprise solutions.

A further £150,000 was invested in Xupes Limited, an online retailer of pre-owned luxury goods including designer watches, handbags, jewellery and antiques.

Portfolio valuation
The carrying values of the Public Equity investments have been adjusted to reflect their quoted prices as at 30 September 2018, resulting in a net reduction of £5,000.

Ormsborough Limited has been reduced in value by £279,000 as a result of the delays and cost overruns on the company's pub developments. We have now put in place a plan for the completion of these developments.

Both ADC Biotechnology Limited and Virtual Class Limited are currently behind on their respective plans and the carrying values of these investments have been reduced by £243,000 and £146,000 respectively. However, both investments are still in an early stage and we continue to work closely with the management teams.

Destiny Pharma plc has been revalued to reflect the quoted share price as at 30 September 2018, resulting in a downward revaluation of £89,000 during the period. The business is progressing well, with the reduction in the share price being attributable to limited trading volumes during the period.

Live Better With Limited has been increased in value by £73,000 to reflect the share price at which the Generalist Share pool most recently invested, alongside third parties.

Net Asset Value and results
At 30 September 2018, the NAV of a Generalist share stood at 92.7p, a decrease of 2.8p (2.9%) for the period. This fall is attributable to a combination of the unrealised holding losses on the Venture Capital portfolio and the 'cash-drag' of holding uninvested funds.

The loss on ordinary activities after taxation for the period was £896,000 comprising a revenue loss of
£130,000 and a capital loss of £766,000.

Outlook

The process of building the Generalist portfolio is progressing well and the Share pool is on target to meet the 80% VCT Qualifying threshold by the required date of 1 April 2020.

There is a strong pipeline of investment opportunities available to the Share pool, so Shareholders should expect further investment activity over the remainder of the financial year.

In addition, as the new Generalist Offer is now open, Shareholders should expect the average deal size to increase proportionately with the size of the Generalist Share pool.

Shareholders will be provided with a further update on the progress made in investing the Generalist funds in the Annual Report to 31 March 2019, to be published in July 2019.

Downing LLP

SUMMARY OF INVESTMENT ADDITIONS
GENERALIST SHARE POOL
for the period ended 30 September 2018

  Cost
Venture Capital investments  £000
Fibre 7 UK Limited 1,111
Live Better With Limited 991
Glownet Limited 741
E Fundamentals (Group) Limited 639
Virtual Class Limited 525
BridgeU Corporation 417
ADC Biotechnology Limited 250
Arecor Limited 240
Masters of Pie Limited 167
Xupes Limited 150
   
Total 5,231
   

All VCT Qualifying Investments are incorporated in England and Wales.

SUMMARY OF INVESTMENT PORTFOLIO
GENERALIST SHARE POOL
as at 30 September 2018

   

Cost
 

Valuation
Unrealised gain/(loss)
in period
% of
portfolio
   £000  £000 £000 
Venture Capital investments     
Live Better With Limited 1,2111,284734.4%
Lignia Wood Company Limited 1,1111,111-3.8%
Maverick Pubs (Holdings) Limited 1,0001,000-3.5%
E-Fundamentals (Group) Limited 917917-3.2%
BridgeU Corporation 811811-2.8%
Empiribox Limited 750750-2.6%
Xupes Limited 750750-2.6%
Glownet Limited 741741-2.6%
Ormsborough Limited 900621(279)2.1%
Volo Commerce Limited 567567-2.0%
Fenkle Street LLP* 321321-1.1%
Virtual Class Limited 525282(243)1.0%
Destiny Pharma plc^^ 500274(89)0.9%
Arecor Limited 240240-0.8%
Limitless Technology Limited 173173-0.6%
Masters of Pie Limited 167167-0.6%
ADC Biotechnology Limited 250104(146)0.4%
Snow Hill Developments LLP* 8692-0.3%
Mosaic Spa and Health Clubs Limited* 3737-0.1%
London City Shopping Centre Limited* 3030-0.1%
  11,08710,272(684)35.5%
Public Equity investments     
MI Downing Monthly Income Fund* 3,9503,99517213.8%
MI Downing UK Micro-Cap Growth Fund* 4,0253,832(28)13.2%
Downing Strategic Micro-Cap Investment Trust plc*^ 4,1003,608(164)12.5%
MI Downing Diversified Global Managers Fund* 1,8001,848156.4%
  13,87513,283(5)45.9%
      
Total 24,39223,555(689)81.4%
      
Cash at bank and in hand  5,396 18.6%
      
Total investments  28,951 100.0%

*  non-qualifying investment
^ listed and traded on the Main Market of the London Stock Exchange
^^ listed and trade on AIM

INVESTMENT MANAGER'S REPORT
HEALTHCARE SHARE POOL

Portfolio activity

The building of the Healthcare portfolio has progressed further during the six months to 30 September 2018, with one follow-on investment and two new investments totalling £2.7m made during the period.

We has also added further resource to our Healthcare team during the period, with the recruitment of Dr Will Brooks. Will has 12 years of experience in medical research and development, academia and business in the UK and Germany. He led Healthcare investments for 15 years at Quest Management, a large European fund, where he was responsible for direct investments in Europe and the US, as well as investments in quoted companies. Will strengthens our Healthcare team significantly and, we believe, will be an invaluable asset as we continue to invest the Share pool's funds.

VCT Qualifying Investments
£892,000 was invested in ADC Biotechnology Limited, a company creating innovative new technology which aims to speed up, simplify and lower the costs of the processes involved in the production of new Antibody Drug Conjugates (ADCs). The company has also been provided with an investment of £250,000 from the Generalist Share pool.

A further £886,000 was invested in Live Better With Limited, the developer of a healthcare platform aiming to help people with long-term medical conditions, focusing on non-medical products that make day-to-day life better for patients. To date, the Generalist Share pool has also invested £1.2m in the company, alongside the Healthcare Share pool.

£880,000 was invested in Arecor Limited, the developer of biopharmaceuticals and proprietary diabetes-related products, including ultra-fast acting insulin to treat type 1 and 2 diabetes. This investment was made alongside £240,000 from the Generalist Share pool.

Portfolio valuation
The carrying values of the Public Equity investments have been adjusted to reflect their quoted prices as at 30 September 2018, resulting in a net uplift of £20,000.

ADC Biotechnology Limited is currently behind on its plans and the carrying value of this investment has been reduced by £520,000 as a result. However, this investment is still in an early stage and we continue to work closely with the management team.

Destiny Pharma plc has been revalued to reflect the quoted share price as at 30 September 2018, resulting in a downward revaluation of £89,000 during the period. The business is progressing well, with the reduction in the share price being attributable to limited trading volumes during the period. We remain confident that the business can deliver its potential.

Live Better With Limited has been increased in value by £73,000 to reflect the share price at which the Healthcare Share pool most recently invested.

Net Asset Value and results
At 30 September 2018, the NAV of a Healthcare share stood at 88.7p, a decrease of 5.9p (6.2%) for the period. This fall is attributable to a combination of the unrealised holding losses on the Venture Capital portfolio and the 'cash-drag' of holding uninvested funds.

The loss on ordinary activities after taxation for the period was £719,000 comprising a revenue loss of £93,000 and a capital loss of £626,000.

Outlook
The task of building the Healthcare Share portfolio is underway, with a total of £3.6m invested into VCT Qualifying investments to date. Shareholders should expect to see further investment activity over the remainder of the financial year, as the growing pipeline of investment opportunities continues to result in completed deals.

In addition, as the new Healthcare Offer is now open, Shareholders should expect the average deal size to increase proportionately with the size of the Healthcare Share pool.

Shareholders will be provided with a further update on the progress made in investing the Healthcare funds in the Annual Report to 31 March 2019, to be published in July 2019.

Downing LLP

SUMMARY OF INVESTMENT ADDITIONS
HEALTHCARE SHARE POOL
for the period ended 30 September 2018

  Cost
Venture Capital investments  £000
ADC Biotechnology Limited 892
Live Better With Limited 886
Arecor Limited 880
   
Total 2,658
   

All VCT Qualifying Investments are incorporated in England and Wales.

SUMMARY OF INVESTMENT PORTFOLIO
HEALTHCARE SHARE POOL
as at 30 September 2018 

   

Cost
 

Valuation
Unrealised (loss)/
gain in period
% of
portfolio
   £000  £000 £000 
Venture Capital investments     
Live Better With Limited 1,1061,1797310.8%
Arecor Limited 880880-8.1%
Destiny Pharma plc^^ 750411(134)3.7%
ADC Biotechnology Limited 892372(520)3.4%
  3,6282,842(581)26.0%
Public Equity investments     
MI Downing UK Micro-Cap Growth Fund* 1,1251,067(8)10.2%
Downing Strategic Micro-Cap Investment Trust plc*^ 700616(28)9.8%
MI Downing Diversified Global Managers Fund* 95097088.9%
MI Downing Monthly Income Fund* 1,1001,115485.6%
  3,8753,7682034.5%
Total 7,5036,610(561)60.5%
      
Cash at bank and in hand  4,313 39.5%
      
Total investments  10,923 100.0%
      

*  non-qualifying investment
^ listed and traded on the Main Market of the London Stock Exchange
^^ listed and trade on AIM

All VCT Qualifying Investments are incorporated in England and Wales.

UNAUDITED INCOME STATEMENT
for the six months ended 30 September 2018

 

 

 
Six months ended 30 Sep 2018 Six months ended 30 Sep 2017Year
ended
31 Mar
2018
 RevenueCapitalTotal RevenueCapitalTotal Total
Company Total£000£000£000 £000£000£000 £000
          
Income215115330 545-545 765
          
Net gains on investments-(1,363)(1,363) -1,4401,440 1,425
 215(1,248)(1,033) 5451,4401,985 2,190
          
Investment management fees(203)(203)(406) (317)(317)(634) (1,192)
Other expenses(197)-(197) (248)-(248) (1,214)
          
Return/(loss) on ordinary activities before tax(185)(1,451)(1,636) (20)1,1231,103  

(216)
          
Tax on total comprehensive income and ordinary activities(19)-(19) (14)-(14)  

(160)
          
Return/(loss) attributable to equity shareholders, being total comprehensive income for the year(204)(1,451)(1,655) (34)1,1231,089  

(376)
          
Return per DSO B Share--- (0.4p)0.5p0.1p -
Return per DSO C Share--- --- -
Return per DSO D Share(0.4p)0.3p(0.1p) 0.6p4.3p4.9p 5.8p
Return per DP67 Share 0.7p(0.2p)0.5p 0.5p4.1p4.6p 5.9p
Return per DP2011 Gen Ordinary Share --- 0.4p3.4p3.8p -
Return per DP2011 Gen A Share(0.1p)(0.2p)(0.3p) --- 4.1p
Return per DP2011 Struc Ordinary Share--- 0.4p2.7p3.1p -
Return per DP2011 Struc A Share-(0.2p)(0.2p) --- 3.4p
Return per DP2011 Low Carbon Share--- 1.1p(5.0p)(3.9p) (9.7p)
Return per Generalist Share(0.5p)(2.9p)(3.4p) (0.9p)(0.7p)(1.6p) (6.2p)
Return per Healthcare Share(1.2p)(8.5p)(9.7p) (1.3p)(1.4p)(2.7p) (9.4p)
           

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement as noted above.

UNAUDITED INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the six months ended 30 September 2018

 

 

 
Six months ended
30 Sep 2018
 Six months ended
30 Sep 2017
Year
ended
31 Mar
2018
 RevenueCapitalTotal RevenueCapitalTotal Total
B Share pool£000£000£000 £000£000£000 £000
          
Income--- 15-15 30
          
Gains on investments--- -121121 120
 --- 15121136 150
          
Investment management fees--- (26)(26)(52) (52)
Other expenses--- (61)-(61) (55)
          
(Loss)/return on ordinary activities before taxation--- (72)95 

23
 43
          
Taxation--- (14)-(14) (34)
          
(Loss)/return attributable to equity shareholders--- (86)95 

9
 9
          
 RevenueCapitalTotal RevenueCapitalTotal Total 
D Share pool£000£000£000 £000£000£000 £000 
           
Income2-2 96-96 166 
           
Gains on investments-3838 -361361 442 
 23840 96361457 608 
           
Investment management fees(16)(16)(32) (22)(22)(44) (92) 
Other expenses(15)-(15) (29)-(29) (53) 
           
Return on ordinary activities before taxation(29)22(7) 45339384 463 
           
Taxation--- --- (10) 
           
Return attributable to equity shareholders(29)22(7) 45339384 453 


 

 

 
Six months ended
30 Sep 2018
 Six months ended
30 Sep 2017
Year
ended
31 Mar
2018
 RevenueCapitalTotal RevenueCapitalTotal Total
DP67 Share pool£000£000£000 £000£000£000 £000
          
Income11775192 119-119 247
          
Gains on investments-(75)(75) -482482 683
 117-117 119482601 930
          
Investment management fees(19)(19)(38) (25)(25)(50) (102)
Other expenses(2)-(2) (37)-(37) (62)
          
Return on ordinary activities before taxation96(19)77 57457514 766
          
Taxation(19)-(19) --- (114)
          
Return attributable to equity shareholders77(19)58 57457514 652
          
 RevenueCapitalTotal RevenueCapitalTotal Total
DP2011 General Share pool£000£000£000 £000£000£000 £000
          
Income9-9 132-132 160
          
Gains on investments-(19)(19) -573573 947
 9(19)(10) 132573705 1,107
          
Investment management fees(17)(17)(34) (36)(36)(72) (150)
Other expenses(14)-(14) (40)-(40) (196)
          
Return on ordinary activities before taxation(22)(36)(58) 56537593 761
          
Taxation--- --- (1)
          
Return on ordinary activities before taxation(22)(36)(58) 56537593 760
           


 

 

 
Six months ended
30 Sep 2018
 Six months ended
30 Sep 2017
Year
ended
31 Mar
2018
 RevenueCapitalTotal RevenueCapitalTotal Total
DP2011 Structured Share pool£000£000£000 £000£000£000 £000
          
Income9-9 86-86  75
          
Gains on investments-(17)(17) -309309  535
 9-(8) 86309395 610
          
Investment management fees(9)(9)(18) (20)(20)(40) (78)
Other expenses(7)-(7) (23)-(23) (126)
          
Return/(losses) on ordinary activities before taxation(7)(26)(33) 43289332 406
          
Taxation--- --- (1)
          
Return/(losses) attributable to equity shareholders(7)(26)(33) 43289332 405
          
 RevenueCapitalTotal RevenueCapitalTotal Total
DP2011 Low Carbon Share pool£000£000£000 £000£000£000 £000
          
Income--- 112-112 16
          
Losses on investments--- -(370)(370) (252)
 --- 112(370)(258) (236)
          
Investment management fees--- (15)(15)(30) (54)
Other expenses--- (15)-(15) (442)
          
Return/(losses) on ordinary activities before taxation--- 82(385)(303) (732)
          
Taxation--- --- -
          
Return/(losses) attributable to equity shareholders--- 82(385)(303) (732)
           


 

 

 
Six months ended
30 Sep 2018
 Six months ended
30 Sep 2017
Year
ended
31 Mar
2018
 RevenueCapitalTotal RevenueCapitalTotal Total
Generalist Share pool£000£000£000 £000£000£000 £000
          
Income6140101 10-10 62
          
Losses on investments-(729)(729) -(24)(24) (718)
 61(689)(628) 10(24)(14) (656)
          
Investment management fees(77)(77)(154) (135)(135)(270) (470)
Other expenses(114)-(114) (56)-(56) (208)
          
Losses on ordinary activities before taxation(130)(766)(896) (181)(159)(340) (1,334)
          
Taxation--- --- -
          
Losses attributable to equity shareholders(130)(766)(896) (181)(159)(340) (1,334)
          
 RevenueCapitalTotal RevenueCapitalTotal Total
Healthcare Share pool£000£000£000 £000£000£000 £000
          
Income17-17 1-1 9
          
Losses on investments-(561)(561) -(13)(13) (332)
 17(561)(544) 1(13)(12) (323)
          
Investment management fees(65)(65)(130) (38)(38)(76) (194)
Other expenses(45)-(45) (12)-(12) (72)
          
Losses on ordinary activities before taxation(93)(626)(719) (49)(51)(100) (589)
          
Taxation--- --- -
          
Losses attributable to equity shareholders(93)(626)(719) (49)(51)(100) (589)

UNAUDITED BALANCE SHEET
as at 30 September 2018




 
  As at 30 September
2018
 As at 30 September
2017
 As at 31
March
2018
  £000 £000 £000
Fixed assets       
Investments  39,470 31,939 35,192
        
Current assets       
Debtors  572 1,180 695
Cash at bank and in hand  11,554 40,931 21,063
   12,126 42,111 21,758
        
Creditors: amounts falling due within one year  (211) (340) (615)
        
Net current assets 11,915 41,771 21,143
        
Net assets  51,385 73,710 56,335
Capital and reserves       
Called up Share capital   130 180 188
Capital redemption reserve  31 31 31
Special reserve  4,463 29,203 8,021
Share premium account  44,621 39,846 43,904
Funds held in respect of shares not yet allotted  234 1,127 420
Revaluation reserve  (1,637) (1,198) 234
Capital reserve - realised  4,855 4,668 4,641
Revenue reserve  (1,312) (147) (1,104)
Total equity shareholders' funds  51,385 73,710 56,335
       
Basic and diluted Net Asset Value per Share:      
DSO B Share  - 4.444p -
DSO C Share  - 10.939p -
DSO D Share  30.3p 78.5p 54.4p
DP67 Share   50.5p 68.7p 50.0p
DP2011 General Ordinary Share  - 15.0p -
DP2011 General A Share  13.0p 34.4p 20.3p
DP2011 Structured Ordinary Share  - 5.0p -
DP2011 Structured A Share   9.8p 34.5p 15.0p
DP2011 Low Carbon Share  - 39.1p -
Generalist Share  92.7p 98.7p 95.5p
Healthcare Share  88.7p 98.6p 94.6p

The comparative balance sheet as at 30 September 2017 includes only the Share Pools in existence at that date.

UNAUDITED BALANCE SHEET (ANALYSED BY SHARE POOL)
as at 30 September 2018

DSO D Shares




 
  As at 30 September 2018 As at 30 September 2017 As at
31 March
 2018
   £000 £000 £000
Fixed assets       
Investments  1,489 3,636 3,699
Current assets       
Debtors  4 113 66
Cash at bank and in hand  921 2,479 582
   925 2,592 648
Creditors: amounts falling due within one year  (31) (51) (67)
Net current assets  894 2,541 581
Net assets  2,383 6,177 4,280
        
Capital and reserves       
Called up share capital  8 8 8
Special reserve  2,629 6,205 4,201
Revaluation reserve  (39) 281 471
Capital reserve - realised  (148) (266) (362)
Revenue reserve  (67) (51) (38)
Total equity shareholders' funds  2,383 6,177 4,280

DP67 Shares




 
 As at 30 September 2018 As at 30 September 2017 As at 31 March
 2018
  £000 £000 £000
Fixed assets      
Investments 4,564 4,890 4,639
Current assets      
Debtors 627 621 552
Cash at bank and in hand 501 2,264 519
  1,128 2,885 1,071
Creditors: amounts falling due within one year (40) (55) (116)
Net current assets 1,088 2,830 955
Net assets 5,652 7,720 5,594
       
Capital and reserves      
Called up share capital 11 11 11
Capital redemption reserve 31 - 31
Special reserve 861 5,623 805
Revaluation reserve 504 603 579
Capital reserve - realised 3,581 1,308 3,581
Revenue reserve 664 175 587
Total equity shareholders' funds 5,652 7,720 5,594

DP2011 General Shares




 
 As at 30 September 2018 As at 30 September 2017 As at
31 March
 2018
  £000 £000 £000
Fixed assets      
Investments 2,224 2,884 2,243
Current assets      
Debtors 1 205 -
Cash at bank and in hand 208 5,675 1,569
  209 5,880 1,569
Creditors: amounts falling due within one year (36) (76) (68)
Net current assets 173 5,804 1,501
Net assets 2,397 8,688 3,744
       
Capital and reserves      
Called up share capital 16 16 16
Called up share capital - A Shares 18 18 18
Special reserve 903 7,489 2,209
Revaluation reserve 334 (278) 353
Capital reserve - realised 831 956 831
Revenue reserve 295 487 317
Total equity shareholders' funds 2,397 8,688 3,744

DP2011 Structured Shares




 
 As at 30 September 2018 As at 30 September 2017 As at
31 March
 2018
  £000 £000 £000
Fixed assets      
Investments 1,028 1,398 1,045
Current assets      
Debtors 3 120 3
Cash at bank and in hand 215 3,390 877
  218 3,510 880
Creditors: amounts falling due within one year (20) (44) (37)
Net current assets 198 3,466 843
Net assets 1,226 4,864 1,888
       
Capital and reserves      
Called up share capital - Ordinary Shares 11 11 11
Called up share capital - A Shares 13 13 13
Special reserve 566 4,348 1,204
Revaluation reserve (136) (514) (119)
Capital reserve - realised 591 685 591
Revenue reserve 181 321 188
Total equity shareholders' funds 1,226 4,864 1,888

Generalist Shares




 
 As at 30 September 2018 As at 30 September 2017 As at
31 March
 2018
  £000 £000 £000
Fixed assets      
Investments 23,555 12,562 19,053
Current assets      
Debtors 94 77 73
Cash at bank and in hand 5,396 17,732 10,563
  5,490 17,809 10,636
Creditors: amounts falling due within one year (129) (164) (215)
Net current assets 5,361 17,645 10,421
Net assets 28,916 30,207 29,474
       
Capital and reserves      
Called up share capital 38 38 38
Special reserve (331) (140) (240)
Share premium reserve 32,058 31,063 31,058
Revaluation reserve (1,407) (24) (718)
Funds held in respect of shares not yet allotted 199 566 398
Revenue reserve (1,641) (1,296) (1,512)
Total equity shareholders' funds 28,916 30,207 29,474

Healthcare Shares




 
 As at 30 September 2018 As at 30 September 2017 As at
31 March
 2018
  £000 £000 £000
Fixed assets      
Investments 6,610 3,361 4,513
Current assets      
Debtors 3 - 1
Cash at bank and in hand 4,313 5,629 6,953
  4,316 5,629 6,954
Creditors: amounts falling due within one year (115) (46) (112)
Net current assets 4,201 5,583 6,842
Net assets 10,811 8,944 11,355
       
Capital and reserves      
Called up share capital 15 9 15
Special reserve (165) (41) (100)
Share premium reserve 12,563 8,782 12,396
Revaluation reserve (893) (13) (332)
Funds held in respect of shares not yet allotted 35 561 22
Revenue reserve (744) (354) (646)
Total equity shareholders' funds 10,811 8,944 11,355
       

STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2018

 Called
up
Share
capital
Capital
Redempt
-ion
reserve
Special
reserve
Share
premium
account
Funds held
in respect
of shares not
yet allotted
Revaluati
-on
Reserve
Capital
reserve
-realised
Revenue
reserve
Total
 £000£000£000£000£000£000£000£000£000
At 31 March 20171443130,62010,07416,137(1,980)3,3311,05559,412
Total comprehensive income-----(225)645(796)(376)
Transfer between reserves*--(22,576)--2,43919,548589-
Unallotted shares----420---420
Transactions with owners         
Dividend paid------(18,883)(589)(19,472)
Cancellation of shares---------
Purchase of own shares--(23)-----(23)
Issue of shares44--33,830(16,137)---17,737
Share issue costs-------(1,363)(1,363)
At 31 March 2018188318,02143,9044202344,641(1,104)56,335
Total comprehensive income-----(1,537)86(204)(1,655)
Transfer between reserves*--(3,602)--(334)3,934-(2)
Unallotted shares----(186)---(186)
Transactions with owners         
Dividend paid------(3,806)-(3,806)
Cancellation of shares(58)-58------
Purchase of own shares--(14)-----(14)
Issue of shares---717----717
Share issue costs-------(4)(4)
At 30 September 2018130314,46344,621234(1,637)4,855(1,312)51,385

*A transfer of £334,000 (31 March 2018: £2.4 million) representing previously recognised realised gains and losses on disposal of investments during the period has been made from the Revaluation Reserve to the Capital reserve-realised.  A transfer of £3.9 million (31 March 2018: £19.5 million) representing realised gains on disposal of investments, less capital expenses and capital dividends in the period was made from Capital Reserve - realised to Special reserve.

UNAUDITED STATEMENT OF CASH FLOWS

 Six months ended 30 September 2018
  DSO D
Share
pool
DP67
Share
pool
DP2011 General Share poolDP2011 Structured
Share pool
Generalist
Share Pool
 

Healthcare Share Pool
Total
   £000£000£000£000£000£000£000
Cash flows from operating activities      
Return on ordinary activities before taxation(7)77(58)(33)(896)(719)(1,636)
(Gains)/losses on investments(38)7519176895611,323
Decrease/(increase) in debtors62(94)(1)-(21)(2)(56)
Increase/(decrease) in creditors(38)(76)(32)(17)(87)4(246)
Net cash (outflow)/inflow from operating activities(21)(18)(72)(33)(315)(156)(615)
Corporation tax paid-------
New cash generated from operating activities(21)(18)(72)(33)(315)(156)(615)
Cash flow from investing activities      
Purchase of investments----(5,191)(2,658)(7,849)
Proceeds from disposal of investments2,248-----2,248
Net cash inflow/(outflow) from investing activities2,248---(5,191)(2,658)(5,601)
Net cash inflow/(outflow) before financing2,227(18)(72)(33)(5,506)(2,814)(6,216)
         
Cash flows from financing activities      
Repurchase of shares----(14)-(14)
Issue of share capital----551162713
Unallotted shares----(198)12(186)
Equity dividends paid(1,888)-(1,289)(629)--(3,806)
Net cash (outflow)/inflow from financing activities(1,888)-(1,289)(629)339174(3,293)
          
Net movement in cash 339(18)(1,361)(662)(5,167)(2,640)9,509
Cash and cash equivalents at start of period5825191,56987710,5636,95321,063
Cash and cash equivalents at end of period9215012082155,3964,31311,554
          
Cash and cash equivalents comprise      
Cash at bank and in hand9215012082155,3964,31311,554
Total cash and cash equivalents9215012082155,3964,31311,554

 UNAUDITED STATEMENT OF CASH FLOWS

 Six months ended 30 September 2017 
 DSO B
Share
pool
DSO D
Share
pool
DP67
Share
pool
DP2011
Gen Share pool
DP2011
Struc Share pool
DP2011
LC Share pool
Generalist
Share Pool
 

Healthcare Share Pool
TotalYear
 ended
31 March 2018
  £000£000£000£000£000£000£000£000£000£000
Cash flows from operating activities         
Return on ordinary activities before taxation23384514593332(303)(340)(100)1,103(216)
(Gains)/losses on investments(121)(361)(482)(573)(309)3702413(1,440)(1,425)
Decrease/(increase) in debtors35141(24)380244(108)(77)-5911,244
Increase/(decrease) in creditors5(24)(50)(48)(41)(24)155411428
Net cash (outflow)/ inflow from operating activities(58)140(42)352226(65)(238)(46)268(369)
Corporation tax paid(58)10(505)(16)(7)(6)--(582)(637)
New cash generated from operating activities(116)150(547)336219(71)(238)(46)(314)(1,006)
            
Cash flow from investing activities         
Purchase of investments------(12,361)(3,350)(15,711)(24,366)
Proceeds from disposal of investments1,3582,0916405,0733,143---12,30517,696
Net cash inflow/(outflow) from investing activities1,3582,0916405,0733,143-(12,361)(3,350)(3,406)(6,670)
            
Net cash inflow/(outflow) before financing1,2422,241935,4093,362(71)(12,599)(3,396)(3,720)(7,676)
           
Cash flows from financing activities         
Repurchase of shares---------(23)
Issue of share capital------22,5526,08928,64116,793
Unallotted shares------(13,446)(1,564)(15,010)-
Equity dividends paid-(197)(225)-----(422)(19,472)
Net cash (outflow)/inflow from financing activities-(197)(225)---9,1064,52513,209(2,702)
            
Net movement in cash1,2422,044(132)5,4093,362(71)(3,493)1,1299,490(10,378)
Cash and cash equivalents at start of year2,4754352,3962662811621,2254,50031,44131,441
Cash and cash equivalents at end of year3,7172,4792,2645,6753,3904517,7325,62940,93121,063
            
Cash and cash equivalents comprise         
Cash at bank and in hand3,7172,4792,2645,6753,3904517,7325,62940,93121,063
Total cash and cash equivalents3,7172,4792,2645,6753,3904517,7325,62940,93121,063
               

  
Comparative cash flows include the Share Pools in existence at those dates.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

General Information
Downing FOUR 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.

Basis of accounting
The unaudited half-yearly financial results cover the six months to 30 September 2018 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 March 2018, which were prepared in accordance with the Financial Reporting Standard 102 ('FRS 102') and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' issued in November 2014 (revised in February 2018) ('SORP').

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

The comparative figures are in respect of the six months ended 30 September 2017 and the year ended 31 March 2018 respectively.

Net Asset Value per share at the period end has been calculated on the number of shares in issue at the period end as follows:

DSO D Shares7,867,247 DP2011 Structured Shares10,678,725
DP67 Shares11,192,136 DP2011 Structured A Shares12,572,817
DP2011 General Shares15,644,066 Generalist Shares38,477,754
DP2011 General A Shares18,418,614 Healthcare Shares15,138,059

Return per share for the period has been calculated on the average number of shares in issue in the period as follows:

DSO D Shares7,867,247 DP2011 Structured Shares10,678,725
DP67 Shares11,229,211 DP2011 Structured A Shares12,572,817
DP2011 General Shares15,644,066 Generalist Shares26,206,561
DP2011 General A Shares18,418,614 Healthcare Shares7,372,573

Dividends

 Six months ended 30 September 2018
 Revenue Capital Total
 £000 £000 £000
Paid in period     
      
DSO D Shares- 1,888 1,888
      
DP2011 General A Shares- 1,289 1,289
      
DP2011 Structured A Shares- 629 629

Reserves

 30 Sep
2018
 30 Sep
 2017
 31 Mar
2018
 £000 £000 £000
      
Capital redemption reserve31 31 31
Special reserve4,463 29,203 8,021
Share premium account44,621 39,846 43,904
Funds held in respect of shares not yet allotted234 1,127 420
Capital reserve - realised4,855 (1,198) 4,641
Revaluation reserve(1,637) 4,668 234
Revenue reserve(1,312) (147) (1,104)
      
Total reserves51,255 73,530 56,147

The Revenue reserve, Special reserve and Capital reserve - realised are distributable reserves and are reduced by revaluation losses of £3.5 million. Distributable reserves at 30 September 2018 were £4.5 million.

In October 2018, the balances on the Share Premium account and the capital redemption reserve were cancelled and added to the special reserve, contributing an additional £44.7 million to distributable reserves. Whilst the distributable reserves of the Company have increased significantly, the VCT regulations prevent the Company from paying dividends in respect of the Generalist and Healthcare Share classes during the first three years of their lives.

Investments

The fair value of investments is determined using the detailed accounting policy as shown in the audited financial statements for the year ended 31 March 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 (quoted companies, investment funds and fixed interest bonds);
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 (investments in unquoted shares and loan note investments).

 Level 1Level 2Level 330 Sep 2018 Level 1Level 2Level 331 Mar 2018
 £000£000£000£000 £000£000£000£000
Quoted equity685--685 908--908
Public Equity investments17,051--17,051 17,036--17,036
Unquoted loan notes--3,1353,135 --3,3233,323
Unquoted equity--18,59918,599 --13,92513,925
 17,736-21,73439,470 17,944-17,24835,192
           

The unaudited 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.

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

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

-compliance risk of failure to maintain approval as a VCT;
-market, liquidity and counterparty risk associated with Public Equity investments; and
-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 also retains Phillip Hare & Associates LLP ('Phillip Hare') to provide regular reviews and advice in this area. Philip Hare have confirmed that all relevant tests have been complied with for the period under review. The Board considers that this approach reduces the risk of a breach of the VCT regulations.

With this approach, the Board believes that these risks are reduced.

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 into VCT qualifying investments. The Adviser 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.

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.

Statutory accounts
The Directors confirm that, to the best of their knowledge, the Half-Yearly Report has 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:

- 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

- 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.

PERFORMANCE INCENTIVE ARRANGEMENTS
Performance Incentive arrangements are in place for each share pool except the DP67 pool.  The various schemes are summarised as follows:

DSO D Shares
The Performance Incentive in respect of the DSO D Shares is structured as a simple fee when the hurdle is met. A fee is payable when:
Shareholders receive total proceeds of at least 100.0p per DSO D Share (excluding income tax relief); and
Shareholders achieve a tax-free compound return of at least 7% per annum (after allowing for income tax relief on investment).

If the hurdle is met, the fee will be 3p per DSO D Share plus 20% of shareholder proceeds above 100.0p per D Share. The Performance Incentive is restricted to a maximum of 7.0p per DSO D Share.

As at 30 September 2018, the estimated performance fee is 4.4p per DSO D Share.

DP2011 General Shares/ DP2011 Structured Shares
The Performance Incentive arrangements in respect of the DP2011 General and DP2011 Structured pools enable payments, by way of distributions of income, to members of the management team who subscribed for 15% of the DP2011 General A Shares and DP2011 Structured A Shares at 6.5p per share.

As the proceeds paid to Shareholders have now exceeded 70.0p per DP2011 General Ordinary/A Share and DP2011 Structured Ordinary/A Share, a Performance Incentive equal to 15% of the dividends paid in respect of the A Shares becomes due to members of the management team.  No further incentive is paid to management once Shareholder proceeds exceed 120.0p per DP2011 General Ordinary/A Share and DP2011 Structured Ordinary/A Share.

By virtue of the dividends paid in respect of the DP2011 General A Shares and DP2011 Structured A Shares to date, of 22.0p and 25.0p respectively, members of the management team have received Performance Incentive payments, to date, of 3.1p per DP2011 General Ordinary Share and 3.6p per DP2011 Structured Ordinary Share.

As at 30 September 2018, the estimated remaining Performance Incentive due to management in respect of the DP2011 General and DP2011 Structured Share pools is equivalent to approximately 2.3p per DP2011 General Ordinary Share and 1.7p per DP2011 Structured Ordinary Share. This brings the total Performance Incentive to approximately 5.4p per DP2011 General Ordinary Share and 5.3p per DP2011 Structured Ordinary Share.

Generalist and Healthcare Share pools
A Performance Incentive scheme is in place in respect of the Generalist and Healthcare Management Shares, which will represent 20% of the total number of Generalist and Healthcare Shares in issue. As part of the arrangement,  in order to prevent dilution to the shareholders of the Generalist and Healthcare Shares,  the  management  team  will  waive  their  voting  rights  granted  by  these  Management  Shares  at  any  general  meeting  of  the  Company  and  income  or  capital  distributions  otherwise payable on these Management Shares will be waived unless the share class  has achieved a Total Return (based on audited year end results) in excess of £1 per share for the years ended 31 March 2018, 31 March 2019 and 31 March 2020. For subsequent years, the Total Return hurdle increases by 3p per annum such that for the year ended 31 March 2021 the hurdle is £1.03, and for the year ended 31 March 2022 the hurdle is £1.06.

The existing Performance Incentive scheme in respect of the Generalist and Healthcare Share pools, will also apply to the Shares issued under the new Offers.