Downing TWO VCT plc
Half-Yearly Report
for the six months ended 30 June 2018
Performance summary
| ‘D’ Share pool | 30 Jun 2018 | 31 Dec 2017 | 30 Jun 2017 | ||
| Pence | Pence | Pence | |||
| Net asset value per ‘D’ Share | - | - | 23.9 | ||
| Net asset value per ‘E’ Share | - | - | 0.1 | ||
| Cumulative distributions per ‘D’ Share | 103.98 | 103.98 | 80.0 | ||
| Total return per ‘D’ Share and ‘E’ Share | 103.98 | 103.98 | 104.0 |
| ‘F’ Share pool | 30 Jun 2018 | 31 Dec 2017 | 30 Jun 2017 | ||
| Pence | Pence | Pence | |||
| Net asset value per ‘F’ Share | 53.8 | 69.6 | 70.0 | ||
| Cumulative distributions per ‘F’ Share | 49.0 | 30.0 | 27.5 | ||
| Total return per ‘F’ Share | 102.8 | 99.6 | 97.5 |
| ‘G’ Share pool | 30 Jun 2018 | 31 Dec 2017 | 30 Jun 2017 | ||
| Pence | Pence | Pence | |||
| Net asset value per ‘G’ Share | 81.4 | 82.1 | 82.5 | ||
| Cumulative distributions per ‘G’ Share | 27.5 | 25.0 | 22.5 | ||
| Total return per ‘G’ Share | 108.9 | 107.1 | 105.0 |
| ‘K’ Share pool | 30 Jun 2018 | 31 Dec 2017 | 30 Jun 2017 | ||
| Pence | Pence | Pence | |||
| Net asset value per ‘K’ Share | 94.1 | 97.7 | 98.4 |
CHAIRMAN’S STATEMENT
Introduction
I am pleased to present the Half-Yearly Report for the six months ended 30 June 2018. The Company has a number of share pools, each of which is in a different stage in its planned exit life. Generally progress has been satisfactory over the period for the share pools that have recently passed or are approaching their planned exit date.
Net asset values and overview
‘F’ Share pool
The ‘F’ Share pool launched in 2012 and began exiting from its investments earlier this year. In April the share class paid its first dividends in its realisation phase of 19.0p per share.
At 30 June 2018 the remaining net asset value (“NAV”) was 53.8p per F Share, an increase of 3.2p (4.6%) over the period. Total Return (NAV plus dividends paid to date) is now 102.8p for a combined holding, compared to the original cost, net of income tax relief, of 70p per share.
The pool still holds 12 investments, but plans are being progressed for exits from each of them.
Since the period end one further exit has been achieved. As a result, the Share pool will pay a further dividend of 18.0p per ‘F’ Share on 9 November 2018. This will bring total distributions to 67.0p and leave a remaining NAV of 35.8p.
The task of exiting the remaining investments is likely to take some time to complete, although we expect significant progress to be made over the remainder of the year. The Manager does not, however expect to be in a position to make the final distribution until 2019.
‘G’ Share pool
The ‘G’ Share pool raised funds in 2013 and is now starting the main process of seeking to realise the investments to return funds to Shareholders.
At 30 June 2018, the pool held 15 investments and the net asset value (“NAV”) was 81.4p per G Share which represents a net increase of 1.8p (2.2%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 108.9p, compared to the original cost, before income tax relief, of 100.0p per share.
One significant investment was realised in the period which generated funds for its first dividend in its realisation phase. A dividend of 10.0p will be paid on 9 November 2018 to shareholders on the register at 19 October 2018. This will bring total distributions to 37.5p and leave a remaining NAV of 71.4p.
The process of realising all of the investments in the portfolio will take some time. Plans are being pursued for exits from each of the investments, but the Manager estimates that it may take up to 12 months for the process to complete. The ‘G’ Share pool will however make further distributions as realisations are achieved.
‘K’ Share pool
The ‘K’ Share pool raised funds in 2016 and is continuing to build its initial investment portfolio. The target date to start realising investments is late 2021.
At 30 June 2018, the share pool held 18 investments and had a net asset value (“NAV”) and total return 94.1p per K Share. This represents a net decrease of 3.6p (3.7%) over the period. This deficit has arisen partly due to “cash drag” of holding uninvested funds during the investing period and also from a provision that has been required against one investment.
The Investment Manager’s Report will provide more detail on each of the share pools.
Dividends
As discussed above, dividends have been declared in respect of two of the share pools
‘F’ Shares 18.0p per share
‘G’ Shares 10.0p per share
Each of the above dividends will be paid on 9 November 2018 to Shareholders on the register at 19 October 2018.
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
The Company has a general policy in the first five years after the launch of a share class, of buying in its own shares that become available in the market for cancellation. Accordingly, the Company will currently buy ‘K’ Shares that become available in the market and will, subject to liquidity and regulatory constraints, buy at prices approximately equal to net asset value i.e. with no discount. No further share buybacks in respect of the ‘F’ Shares and ‘G’ Shares are expected to take place now.
During the period to 30 June 2018, the Company repurchased and subsequently cancelled 16,275 'K' Shares for an aggregate consideration of £15,868, being an average price of 97.5p per ‘K’ Share.
No share buybacks in respect of any other share classes were undertaken during the period.
Outlook
Over the remainder of the year we expect to see significant headway made in realising most of the remaining investments in the ‘F’ Share pool and some initial disposals from the ‘G’ Share pool. As the process of realising investments usually includes transactions with third parties, timings can be unpredictable, and Shareholders should note that the exit process will take time to complete. While the Manager is focussing on delivering exits in a timely manner, the Board is keen to see that full value is achieved for all investments even if this may sometimes take longer to deliver.
In respect of the ‘K’ Share pool, we expect this to be a stable period with the Manager focussing on nurturing the investments such that they will be well positioned to deliver successful exits when the time comes.
I look forward to updating Shareholders on progress in my statement with the year end report to 31 December 2018 but will also communicate additionally with ‘F’ and ‘G’ Shareholders as and when there is any news of further distributions.
Hugh Gillespie
Chairman
INVESTMENT MANAGER’S REPORT
‘F’ SHARE POOL
As at 30 June 2018, the ‘F’ Share pool holds 12 investments and focus has now shifted to the process of realising its investments in order to return funds to ‘F’ Shareholders.
Investment activity
During the period, the full exit of Goonhilly Earth Station Limited completed and resulted in a good outcome for ‘F’ Shareholders generating proceeds of £1.2 million and an uplift over cost of £216,000.
Partial disposals also completed in two of the smaller portfolio companies. There was a partial loan note redemption in the Scottish licensed leisure company, Fubar Stirling Limited which generated a total gain over carrying value of £4,000.
There was also a partial loan note redemption in Fresh Green Power Limited, the domestic rooftop solar company, which was redeemed at par.
The majority of the portfolio investments remain valued at or above cost with there being several valuation movements in the period which generated an uplift over opening value of £104,000.
The most significant increase in valuation was in Merlin Renewables Limited, the anaerobic digestion plant in Norfolk. In August 2018, the plant was exited with the carrying value uplifted to reflect the sale price at the period end.
An uplift of £20,000 was recognised in Atlantic Dogstar Limited, which owns a group of London pubs, following a revaluation of the sites.
Downing Pub EIS One Limited, which acquired the holdings of Pabulum Pubs Limited and Augusta Pub Company Limited in the prior year, was uplifted by £18,000 supported by independent valuations from industry specialists.
Other smaller movements in the portfolio included an uplift of £10,000 in Lambridge Solar Limited and £3,000 in Fresh Green Power Limited.
One valuation write down took place in the period. Green Energy Production UK Limited, the operator of rooftop solar assets in Lincolnshire, had a reduction in value of £24,000 following a period of recurring operational issues.
Realisation plans
The pool’s second most significant investment holding is Merlin Renewables Limited, the anaerobic digestion plant in Norfolk. Following the period end, an exit was achieved which delivered a significant return to the pool.
Plans are in place for the successful exit of the remaining portfolio companies however we anticipate that the exercise will take some time to complete in full.
Net asset value, results and dividend
At 30 June 2018, the net asset value (“NAV”) for a holding of one ‘F’ Share was 53.8p, an increase of 3.2p (4.6%) over the period. Total Return (NAV plus dividends paid to date) is now 102.8p for a combined holding.
The gain on ordinary activities for the ‘F’ Shares, after taxation was £344,000 for the period, comprising a revenue profit of £20,000 and a capital gain of £324,000.
The Company will pay an interim dividend of 18.0p per ‘F’ Share on 9 November 2018 to ‘F’ Shareholders on the register at 19 October 2018.
Outlook
The focus for the ‘F’ Share portfolio remains on exiting from its remaining investments. Progress continues to be made however exact timing on the final exit is dependent on transactions involving third parties.
Downing LLP
SUMMARY OF INVESTMENT PORTFOLIO
‘F’ SHARE POOL
as at 30 June 2018
| Cost | Valuation | Unrealised gain/(loss) in period | % of portfolio by value | |
| £’000 | £’000 | £’000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Apex Energy Limited | 1,000 | 1,000 | - | 17.0% |
| Merlin Renewables Limited | 500 | 718 | 77 | 12.2% |
| Downing Pub EIS One Limited | 490 | 607 | 18 | 10.3% |
| Lambridge Solar Limited | 500 | 605 | 10 | 10.3% |
| Pearce and Saunders Limited | 497 | 497 | - | 8.5% |
| Atlantic Dogstar Limited | 200 | 255 | 20 | 4.3% |
| Fresh Green Power Limited | 189 | 231 | 3 | 3.9% |
| Green Energy Production UK Limited | 100 | 76 | (24) | 1.3% |
| Fubar Stirling Limited | 95 | 5 | - | 0.1% |
| Non-qualifying investments | ||||
| Baron House Developments LLP | 481 | 481 | - | 8.2% |
| London City Shopping Centre Limited | 66 | 66 | - | 1.1% |
| Pearce and Saunders DevCo Limited | 46 | 46 | - | 0.8% |
| 4,164 | 4,587 | 104 | 78.0% | |
| Cash at bank and in hand | 1,289 | 22.0% | ||
| Total | 5,876 | 100.0% |
SUMMARY OF INVESTMENT MOVEMENTS
‘F’ SHARE POOL
as at 30 June 2018
| Disposals | Cost | Marketvalue at 01/01/18 | Disposalproceeds | Gainagainst cost | Total realised gain |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Goonhilly Earth Station Limited | 955 | 955 | 1,171 | 216 | 216 |
| Fubar Stirling Limited | 6 | 2 | 6 | - | 4 |
| Fresh Green Power Limited | 11 | 11 | 11 | - | - |
| 972 | 968 | 1,188 | 216 | 220 |
INVESTMENT MANAGER’S REPORT
‘G’ SHARE POOL
The ‘G’ Share pool raised funds in 2013 and the focus for the share pool now switches to the process of realising investments. The pool will make its first significant dividend in its realisation phase to investors on 9 November 2018.
Investment activity
During the period, there were no new investments, however one full exit was made in the six months to 30 June 2018.
Goonhilly Earth Station Limited, which operates a satellite earth station in Cornwall, generated proceeds of £2.6 million and an uplift over cost of £488,000.
The majority of investments remain valued at or above cost, however there were two significant reductions in value to Quadrate Spa Limited and Ormsborough Limited.
Quadrate Spa Limited owns and operates a health club business in The Cube complex in Birmingham. The company has been written down by £781,000 following poor performance.
Ormsborough Limited owns several pubs and restaurants across Yorkshire. The company has had a reduction in value of £159,000 due to overspend on recent developments.
The valuation uplifts in the period totalled £432,000 with the majority as a result of an uplift in value of Atlantic Dogstar Limited. The company owns a group of London pubs and following a revaluation of the sites, valuation has been increased by £357,000.
The other notable uplift in the period relates to Downing Pub EIS One Limited, which acquired the holdings of Pabulum Pubs Limited and Augusta Pub Company Limited in the prior year. The Company was uplifted by £36,000 supported by independent valuations from industry specialists.
Net asset value
At 30 June 2018, the net asset value (“NAV”) for a holding of one ‘G’ Share was 81.4p which represents a net increase of 1.8p (2.2%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 108.9p.
Results and dividend
The profit on ordinary activities for the ‘G’ Shares, after taxation, for the period was £469,000, comprising a revenue profit of £489,000 and a capital loss of £20,000.
The Company will pay an interim dividend of 10.0p per ‘G’ Share, on 9 November 2018 to ‘G’ Shareholders on the register at 19 October 2018.
Outlook
The focus for the ‘G’ Share portfolio is shifting towards exiting its investments as it reaches its five year anniversary in November 2018. Good progress is being made and the first major distribution to ‘G’ Shareholders of 10.0p per share will be paid to investors on 9 November 2018.
Downing LLP
SUMMARY OF INVESTMENT PORTFOLIO
‘G’ SHARE POOL
as at 30 June 2018
| Cost | Valuation | Unrealised gain/(loss) in period | % of portfolio by value | |
| £’000 | £’000 | £’000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Atlantic Dogstar Limited | 3,500 | 4,470 | 357 | 22.2% |
| Antelope Pub Limited | 1,760 | 1,760 | - | 8.7% |
| Quadrate Catering Limited | 1,450 | 1,450 | - | 7.2% |
| Walworth House Pub Limited | 1,330 | 1,330 | - | 6.6% |
| Apex Energy Limited | 1,300 | 1,300 | - | 6.5% |
| Downing Pub EIS One Limited | 980 | 1,214 | 36 | 6.0% |
| Hermes Wood Pellets Limited | 1,000 | 1,000 | - | 5.0% |
| Zora Energy Renewables Limited | 750 | 750 | - | 3.7% |
| Ormsborough Limited | 500 | 374 | (159) | 1.8% |
| Oak Grove Renewables Limited | 420 | 252 | 21 | 1.3% |
| Pearce and Saunders Limited | 193 | 193 | - | 1.0% |
| Non-qualifying investments | ||||
| Hedderwick Limited | 1,250 | 1,320 | 18 | 6.6% |
| Baron House Developments LLP | 1,093 | 1,093 | - | 5.4% |
| Quadrate Spa Limited | 1,450 | 669 | (781) | 3.3% |
| London City Shopping Centre Limited | 110 | 110 | - | 0.5% |
| 17,086 | 17,285 | (508) | 85.8% | |
| Cash at bank and in hand | 2,852 | 14.2% | ||
| Total | 20,137 | 100% |
SUMMARY OF INVESTMENT MOVEMENTS
‘G’ SHARE POOL
as at 30 June 2018
| Disposals | Cost | Market value at 01/01/18 | Disposalproceeds | Gainagainst cost | Total realised gain |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Goonhilly Earth Station Limited | 2,146 | 2,146 | 2,634 | 488 | 488 |
| 2,146 | 2,146 | 2,634 | 488 | 488 |
INVESTMENT MANAGER’S REPORT
‘K’ SHARE POOL
The ‘K’ Share pool closed its fundraising in September 2016 having raised £16.2 million. The process of investing the funds is well under way with £12.0 million invested in qualifying and non-qualifying investments as focus now shifts to the close monitoring of investee companies and utilising the remaining cash in the pool.
Investment activity
Valuations movements during the period totalled an unrealised loss of £428,000 with one valuation uplift and one write down.
Ormsborough Limited owns several pubs and restaurants across Yorkshire. The ‘K’ Share pool provided further investment to the company towards the back end of 2017 to help the company continue their expansion. Following overspend on recent developments the company has had a reduction in value of £430,000.
Net asset value, results and dividend
At 30 June 2018, the net asset value (“NAV”) and total return for a holding of one ‘K’ Share was 94.1p, which represents a net decrease of 3.6p (3.7%) over the period.
The loss on ordinary activities for the ‘K’ Share pool, after taxation was £565,000 for the period, comprising a revenue loss of £137,000 and a capital loss of £428,000.
Outlook
The emphasis for the ‘K’ share pool now gradually shifts to the close monitoring of the Share pool’s investments as we seek to optimise growth over the planned exit life, however we also expect there to be a small number of further additions to utilise the remaining cash of the pool.
Downing LLP
SUMMARY OF INVESTMENT MOVEMENTS
‘K’ SHARE POOL
as at 30 June 2018
| Cost | Valuation | Unrealised gain/(loss) in period | % of portfolio by value | |
| £’000 | £’000 | £’000 | ||
| VCT qualifying investments | ||||
| Jito Trading Limited | 1,500 | 1,500 | - | 10.2% |
| Apprise Pubs Limited | 1,300 | 1,300 | - | 8.8% |
| Garthcliff Shipping Limited | 1,300 | 1,300 | - | 8.8% |
| Yamuna Renewables Limited | 1,300 | 1,300 | - | 8.8% |
| Ormsborough Limited | 1,400 | 1,012 | (430) | 6.9% |
| Managed Storage Services (1) Limited | 1,000 | 1,000 | - | 6.8% |
| Ironhide Generation Limited | 736 | 736 | - | 5.0% |
| Indigo Generation Limited | 736 | 736 | - | 5.0% |
| Rockhopper Renewables Limited | 591 | 591 | - | 4.0% |
| Walworth House Pub Limited | 500 | 500 | - | 3.4% |
| Exclusive Events Venues Limited | 500 | 500 | - | 3.4% |
| Pilgrim Trading Limited | 432 | 432 | - | 2.9% |
| Zora Energy Renewables Limited | 350 | 350 | - | 2.4% |
| SF Renewables (Solar) Limited | 337 | 337 | - | 2.3% |
| Mosaic Spa and Health Clubs Limited | 27 | 29 | 2 | 0.2% |
| Non-qualifying investments | ||||
| Fenkle Street LLP | 287 | 287 | - | 1.9% |
| Snow Hill Developments LLP | 43 | 43 | - | 0.3% |
| London City Shopping Centre Limited | 15 | 15 | - | 0.1% |
| 12,354 | 11,968 | (428) | 81.2% | |
| Cash at bank and in hand | 2,779 | 18.8% | ||
| Total | 14,747 | 100% |
UNAUDITED SUMMARISED BALANCE SHEET
as at 30 June 2018
| 30 Jun 2018 | 30 Jun 2017 | 31 Dec 2017 | ||||||||||||||
| ‘D’ Shares | ‘F’ Shares | ‘G’ Shares | ‘K’ Shares | Total | Total | Total | ||||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||||||||
| Fixed assets | ||||||||||||||||
| Unquoted investments | - | 4,587 | 17,285 | 11,968 | 33,840 | 39,356 | 37,786 | |||||||||
| Current assets | ||||||||||||||||
| Debtors | - | 39 | 780 | 76 | 895 | 474 | 767 | |||||||||
| Cash at bank and in hand | 12 | 1,289 | 2,852 | 2,779 | 6,932 | 6,981 | 5,589 | |||||||||
| 12 | 1,328 | 3,632 | 2,855 | 7,827 | 7,455 | 6,356 | ||||||||||
| Creditors: amounts falling due within one year | (12 | ) | (99 | ) | (291 | ) | (35 | ) | (437 | ) | (476 | ) | (457 | ) | ||
| Net current assets | - | 1,229 | 3,341 | 2,820 | 7,390 | 6,979 | 5,899 | |||||||||
| Net assets | - | 5,816 | 20,626 | 14,788 | 41,230 | 46,335 | 43,685 | |||||||||
| Capital and reserves | ||||||||||||||||
| Called up share capital | 25 | 11 | 25 | 16 | 77 | 77 | 77 | |||||||||
| Capital redemption reserve | 124 | - | - | - | 124 | 124 | 124 | |||||||||
| Special reserve | - | 6,038 | 20,694 | (3 | ) | 26,729 | 31,493 | 28,313 | ||||||||
| Share premium account | - | - | - | 16,170 | 16,170 | 16,170 | 16,170 | |||||||||
| Revaluation reserve | (249 | ) | 424 | 199 | (386 | ) | (12 | ) | 360 | 815 | ||||||
| Capital reserve – realised | - | (1,033 | ) | (1,221 | ) | 2 | (2,252 | ) | (2,253 | ) | (2,252 | ) | ||||
| Revenue reserve | 100 | 376 | 929 | (1,011 | ) | 394 | 364 | 438 | ||||||||
| Total equity shareholders’ funds | - | 5,816 | 20,626 | 14,788 | 41,230 | 46,335 | 43,685 | |||||||||
| Basic and diluted net asset value per: | ||||||||||||||||
| ‘D’ Share | - | 23.9p | - | |||||||||||||
| ‘E’ Share | - | 0.1p | - | |||||||||||||
| ‘F’ Share | 53.8p | 70.0p | 69.6p | |||||||||||||
| ‘G’ Share | 81.4p | 82.5p | 82.1p | |||||||||||||
| ‘K’ Share | 94.1p | 98.4p | 97.7p | |||||||||||||
STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2018
| 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 2017 | 95 | 106 | 33,666 | 16,170 | (115) | (2,254) | 289 | 47,957 | |
| Total comprehensive income | - | - | - | - | 388 | 306 | 618 | 1,312 | |
| Transactions with owners | |||||||||
| Purchase of own shares | - | - | - | - | - | - | (24) | (24) | |
| Issue of new shares | - | - | - | - | - | - | - | - | |
| Share issue costs | - | - | - | - | - | - | - | - | |
| Transfer between reserves | - | - | (5,353) | - | 542 | 5,256 | (445) | - | |
| Dividends paid | - | - | - | - | - | (5,560) | - | (5,560) | |
| Cancellation of shares | (18) | 18 | - | - | - | - | - | - | |
| At 31 December 2017 | 77 | 124 | 28,313 | 16,170 | 815 | (2,252) | 438 | 43,685 | |
| Total comprehensive income | - | - | - | - | (832) | 708 | 372 | 248 | |
| Transaction with owners | |||||||||
| Purchase of own shares | - | - | - | - | - | - | (16) | (16) | |
| Transfer between reserves | - | - | (1,584) | - | 5 | 1,579 | - | - | |
| Dividends paid | - | - | - | - | - | (2,287) | (400) | (2,687) | |
| Cancellation of shares | - | - | - | - | - | - | - | ||
| At 30 June 2018 | 77 | 124 | 26,729 | 16,170 | (12) | (2,252) | 394 | 41,230 | |
INCOME STATEMENT
for the six months ended 30 June 2018
Company Total
| Six months ended 30 Jun 2018 | Six months ended 30 Jun 2017 | Year ended 31 Dec 2017 | |||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||
| Income | 948 | - | 948 | 719 | 34 | 753 | 1,808 | ||||||||
| Gains/(losses) on investments | |||||||||||||||
| - realised | - | 708 | 708 | - | 67 | 67 | 272 | ||||||||
| - unrealised | - | (832 | ) | (832 | ) | - | 455 | 455 | 388 | ||||||
| 948 | (124 | ) | 824 | 719 | 556 | 1,275 | 2,468 | ||||||||
| Investment management fees | (383 | ) | - | (383 | ) | (445 | ) | - | (445 | ) | (886) | ||||
| Other expenses | (138 | ) | - | (138 | ) | (150 | ) | - | (150 | ) | (282) | ||||
| Return/(loss) on ordinary activities before taxation | 427 | (124 | ) | 303 | 124 | 556 | 680 | 1,300 | |||||||
| Tax on total comprehensive income and ordinary activities | (55 | ) | - | (55 | ) | (24 | ) | - | (24 | ) | 12 | ||||
| Return/(loss) attributable to equity shareholders | 372 | (124 | ) | 248 | 100 | 556 | 656 | 1,312 | |||||||
| Return per ‘D’ Share | - | - | - | (0.2p) | 1.0p | 0.8p | 0.9p | ||||||||
| Return per ‘E’ Share | - | - | - | - | - | - | - | ||||||||
| Return per ‘F’ Share | 0.2p | 3.0p | 3.2p | 0.8p | 1.9p | 2.7p | 4.9p | ||||||||
| Return per ‘G’ Share | 1.9p | (0.1p) | 1.8p | 0.6p | 0.9p | 1.5p | 3.6p | ||||||||
| Return per ‘K’ Share | (0.9p) | (2.7p) | (3.6p) | (1.2p) | 0.2p | (1.0p) | (1.3p) | ||||||||
INCOME STATEMENT
for the six months ended 30 June 2018
| ‘D’ Shares | Six months ended 30 Jun 2018 | Six months ended 30 Jun 2017 | Year ended 31 Dec 2017 | |||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | ||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||||||
| Income | - | - | - | 9 | 34 | 43 | 46 | |||||||
| Gains/(losses) on investments | ||||||||||||||
| - realised | - | - | - | - | 68 | 68 | 58 | |||||||
| - unrealised | - | - | - | - | (4 | ) | (4 | ) | - | |||||
| - | - | - | 9 | 98 | 107 | 104 | ||||||||
| Investment management fees | - | - | - | (19 | ) | - | (19 | ) | (32) | |||||
| Other expenses | - | - | - | (15 | ) | - | (15 | ) | (25) | |||||
| (Loss)/return on ordinary activities before taxation | - | - | - | (25 | ) | 98 | 73 | 47 | ||||||
| Tax on total comprehensive income and ordinary activities | - | - | - | 5 | - | 5 | 43 | |||||||
| (Loss)/return attributable to equity shareholders | - | - | - | (20 | ) | 98 | 78 | 90 | ||||||
INCOME STATEMENT
for the six months ended 30 June 2018
| ‘F’ Shares | Six months ended 30 Jun 2018 | Six months ended 30 Jun 2017 | Year ended 31 Dec 2017 | ||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||
| Income | 118 | - | 118 | 222 | - | 222 | 451 | ||||||||
| Gains on investments | |||||||||||||||
| - realised | - | 220 | 220 | - | - | - | 214 | ||||||||
| - unrealised | - | 104 | 104 | - | 205 | 205 | 132 | ||||||||
| 118 | 324 | 442 | 222 | 205 | 427 | 797 | |||||||||
| Investment management fees | (58 | ) | - | (58 | ) | (68 | ) | - | (68 | ) | (137) | ||||
| Other expenses | (39 | ) | - | (39 | ) | (43 | ) | - | (43 | ) | (77) | ||||
| Return on ordinary activities before taxation | 21 | 324 | 345 | 111 | 205 | 316 | 583 | ||||||||
| Tax on total comprehensive income and ordinary activities | (1 | ) | - | (1 | ) | (22 | ) | - | (22 | ) | (55) | ||||
| Return attributable to equity shareholders | 20 | 324 | 344 | 89 | 205 | 294 | 528 | ||||||||
INCOME STATEMENT
for the six months ended 30 June 2018
| ‘G’ Shares | Six months ended 30 Jun 2018 | Six months ended 30 Jun 2017 | Year ended 31 Dec 2017 | ||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||
| Income | 778 | - | 778 | 451 | - | 451 | 1,217 | ||||||||
| Gains/(losses) on investments | |||||||||||||||
| - realised | - | 488 | 488 | - | - | - | - | ||||||||
| - unrealised | - | (508 | ) | (508 | ) | - | 229 | 229 | 215 | ||||||
| 778 | (20 | ) | 758 | 451 | 229 | 680 | 1,432 | ||||||||
| Investment management fees | (200 | ) | - | (200 | ) | (207 | ) | - | (207 | ) | (415) | ||||
| Other expenses | (56 | ) | - | (56 | ) | (53 | ) | - | (53 | ) | (108) | ||||
| Return/(loss) on ordinary activities before taxation | 522 | (20 | ) | 502 | 191 | 229 | 420 | 909 | |||||||
| Tax on total comprehensive income and ordinary activities | (33 | ) | - | (33 | ) | (37 | ) | - | (37 | ) | (3) | ||||
| Return/(loss) attributable to equity shareholders | 489 | (20 | ) | 469 | 154 | 229 | 383 | 906 | |||||||
INCOME STATEMENT
for the six months ended 30 June 2018
| ‘K’ Shares | Six months ended 30 Jun 2018 | Six months ended 30 Jun 2017 | Year ended 31 Dec 2017 | ||||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||||
| Income | 52 | - | 52 | 37 | - | 37 | 94 | ||||||||||
| (Losses)/gains on investments | |||||||||||||||||
| - realised | - | - | - | - | (1 | ) | (1 | ) | - | ||||||||
| - unrealised | - | (428 | ) | (428 | ) | - | 25 | 25 | 41 | ||||||||
| 52 | (428 | ) | (376 | ) | 37 | 24 | 61 | 135 | |||||||||
| Investment management fees | (125 | ) | - | (125 | ) | (151 | ) | - | (151 | ) | (302) | ||||||
| Other expenses | (43 | ) | - | (43 | ) | (39 | ) | - | (39 | ) | (72) | ||||||
| (Loss)/gain on ordinary activities before taxation | (116 | ) | (428 | ) | (544 | ) | (153 | ) | 24 | (129 | ) | (239) | |||||
| Tax on total comprehensive income and ordinary activities | (21 | ) | - | (21 | ) | 30 | - | 30 | 27 | ||||||||
| (Loss)/gain attributable to equity shareholders | (137 | ) | (428 | ) | (565 | ) | (123 | ) | 24 | (99 | ) | (212) | |||||
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2018
| 30 Jun 2018 | 30 Jun 2017 | 31 Dec 2017 | |||||||||
| ‘D’ Shares | ‘F’ Shares | ‘G’ Shares | ‘K’ Shares | Total | Total | Total | |||||
| Note | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||
| Net cash inflow/(outflow) from operating activities | 1 | | (10) | 76 | 335 | (177) | 224 | (36) | 168 | ||
| Cash flows from investing activities | |||||||||||
| Purchase of investments | - | - | - | - | - | (1,972) | (8,904) | ||||
| Sale of investments | - | 1,188 | 2,634 | - | 3,822 | 2,806 | 11,448 | ||||
| Net cash inflow from investing activities | - | 1,188 | 2,634 | - | 3,822 | 834 | 2,544 | ||||
| Net cash inflow/(outflow) before financing activities before investing activities | (10) | 1,264 | 2,969 | (177) | 4,046 | 798 | 2,712 | ||||
| Cash flows from financing activities | | | | | | | | | |||
| Equity dividend paid | - | (2,054) | (633) | - | (2,687) | (2,253) | (5,560) | ||||
| Purchase of own shares | - | - | - | (16) | (16) | (25) | (24) | ||||
| Net cash outflow from financing activities | - | (2,054) | (633) | (16) | (2,703) | (2,278) | (5,584) | ||||
| (Decrease)/increase in cash 2 | (10) | (790) | 2,336 | (193) | 1,343 | (1,480) | (2,872) | ||||
NOTES TO THE UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2018
| 30 Jun 2018 | 30 Jun 2017 | 31 Dec 2017 | ||||||||||||||||
| ‘D’ Shares | ‘F’ Shares | ‘G’ Shares | ‘K’ Shares | Total | Total | Total | ||||||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||||||||||
| 1 Cash inflow/(outflow) from operating activities | ||||||||||||||||||
| Return/loss) on ordinary activities before taxation | - | 345 | 502 | (544 | ) | 303 | 680 | 1,300 | ||||||||||
| Corporation tax | - | - | - | (29 | ) | (29 | ) | - | 4 | |||||||||
| (Gains)/losses on investments | - | (324 | ) | 20 | 428 | 124 | (522 | ) | (660 | ) | ||||||||
| Decrease/(increase) in other debtors | - | 84 | (182 | ) | (30 | ) | (128 | ) | (157 | ) | (453 | ) | ||||||
| (Decrease)/increase in other creditors | (10 | ) | (29 | ) | (5 | ) | (2 | ) | (46 | ) | (37 | ) | (23 | ) | ||||
| Net cash inflow/(outflow) from operating activities | (10 | ) | 76 | 335 | (177 | ) | 224 | (36 | ) | 168 | ||||||||
| 2 Analysis of net funds | ||||||||||||||||||
| Beginning of period | 22 | 2,079 | 516 | 2,972 | 5,589 | 8,461 | 8,461 | |||||||||||
| Net cash (outflow)/inflow | (10 | ) | (790 | ) | 2,336 | (193 | ) | 1,343 | (1,480 | ) | (2,872 | ) | ||||||
| End of period | 12 | 1,289 | 2,852 | 2,779 | 6,932 | 6,981 | 5,589 | |||||||||||
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 2018 and have been prepared in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” revised January 2009 and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2017, which were prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (“FRS102”).
3. All revenue and capital items in the Income Statement derive from continuing operations.
4. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
5. The comparative figures are in respect of the six month period ended 30 June 2017 and the year ended 31 December 2017 respectively.
6. Dividends
| Six months ended 30 June 2018 | Year to 31 Dec 2017 | ||||||
| Per share | Revenue | Capital | Total | Total | |||
| Paid in period | pence | £’000 | £’000 | £’000 | £’000 | ||
| ‘D’ Shares | |||||||
| Special ‘D’ 2017 | 23.88p | - | - | - | 2,388 | ||
| Special ‘E’ 2017 | 0.1p | - | - | - | 15 | ||
| Y/e Dec 2016 Final | 13.5p | - | - | - | 1,350 | ||
| - | - | - | 3,753 | ||||
| ‘F’ Shares | |||||||
| Y/E Dec 2017 Final | 19.0p | - | 2,054 | 2,054 | - | ||
| Y/E Dec 2016 Final | 2.5p | - | - | - | 271 | ||
| Y/E Dec 2016 Interim | 2.5p | - | - | - | 270 | ||
| - | 2,054 | 2,054 | 541 | ||||
| ‘G’ Shares | |||||||
| Y/E Dec 2017 Final | 2.5p | 400 | 233 | 633 | - | ||
| Y/E Dec 2016 Final | 2.5p | - | - | - | 634 | ||
| Y/E Dec 2016 Interim | 2.5p | - | - | - | 632 | ||
| 400 | 233 | 633 | 1,266 | ||||
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) | |||||||
| £’000 | Per share | £’000 | Per share | ||||||
| ‘D’ Shares | 10,000,000 | - | - | - | - | ||||
| ‘E’ Shares | 14,950,000 | - | - | - | - | ||||
| ‘F’ Shares | 10,810,859 | 20 | 0.2p | 324 | 3.0p | ||||
| ‘G’ Shares | 25,528,664 | 489 | 1.9p | (20 | ) | (0.1p) | |||
| ‘K’ Shares | 15,717,302 | (137 | ) | (0.9p) | (428 | ) | (2.7p) | ||
| 372 | (124 | ) | |||||||
8. Net asset value per share
| Shares in issue | Net asset value | ||||
| £’000 | Per share | ||||
| ‘D’ Shares | 10,000,000 | - | - | ||
| ‘E’ Shares | 14,950,000 | - | - | ||
| ‘F’ Shares | 10,810,859 | 5,816 | 53.8p | ||
| ‘G’ Shares | 25,328,571 | 20,626 | 81.4p | ||
| ‘K’ Shares | 15,718,154 | 14,788 | 94.1p | ||
| 41,230 | |||||
9. Reserves
| | Period ended 30 Jun 2018 | Year ended 31 Dec 2017 | |||
| £’000 | £’000 | ||||
| Capital redemption reserve | 124 | 124 | |||
| Special reserve | 26,729 | 28,313 | |||
| Share premium reserve | 16,170 | 16,170 | |||
| Revaluation reserve | (12) | 815 | |||
| Capital reserve - realised | (2,252) | (2,252) | |||
| Revenue reserve | 394 | 438 | |||
| 41,153 | 43,608 | ||||
The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £1,827,000 which are included in the calculation of distributable reserves. Total distributable reserves are £23,044,000 (31 Dec 2017: £25,698,000).
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 2017.
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 2018 | Level 1 | Level 2 | Level 3 | Year ended 31 Dec 2017 | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Loan notes | - | - | 5,965 | 5,965 | - | - | 6,907 | 6,907 | ||
| Unquoted equity | - | - | 27,875 | 27,875 | - | - | 30,879 | 30,879 | ||
| - | - | 33,840 | 33,840 | - | - | 37,786 | 37,786 | |||
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 2017 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.