Downing TWO VCT plc
(formerly Downing Planned Exit VCT 2 plc)
FINAL RESULTS FOR THE PERIOD ENDED 31 DECEMBER 2013
FINANCIAL SUMMARY
| 31 Dec 2013 | 31 Jan 2013 | ||
| Pence | Pence | ||
| 'C' Share pool | |||
| Net asset value per 'C' Share | 90.9 | 94.8 | |
| Net asset value per 'A' Share | 0.1 | 0.1 | |
| Cumulative distributions per 'C' Share | 22.5 | 17.5 | |
| Total return per 'C' Share and 'A' Share | 113.5 | 112.4 | |
| 'D' Share pool | |||
| Net asset value per 'D' Share | 77.0 | 79.7 | |
| Net asset value per 'E' Share | 0.1 | 0.1 | |
| Cumulative distributions per 'D' Share | 17.5 | 12.5 | |
| Total return per 'D' Share and 'E' Share | 94.6 | 92.3 | |
| 'F' Share pool | |||
| Net asset value per 'F' Share | 80.0 | 88.5 | |
| Cumulative distributions per 'F' Share | 10.0 | 5.0 | |
| Total return per 'F' Share | 90.0 | 93.5 | |
| 'G' Share pool | |||
| Net asset value per 'G' Share | 95.1 | n/a | |
| Cumulative distributions per 'G' Share | 5.0 | n/a | |
| Total return per 'G' Share | 100.1 | n/a |
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Annual Report for the 11 month period ended 31 December 2013. The 'G' Share fundraising was undertaken during the period which has substantially increased the size of the Company. With two share pools still in their initial investment phase, the Company has also been an active investor during the period.
Change of name and change of year end
On 17 December 2013, the Company changed its name from Downing Planned Exit VCT 2 plc to Downing TWO VCT plc. The Company also changed its year end from 31 January to 31 December. This report therefore covers the 11 month period to 31 December 2013. These changes align the Company with other VCTs in the Downing stable.
Directorate
On 17 December 2013, Michael Robinson resigned from the Board in order that he could accept the appointment of independent non-executive chairman of Downing THREE VCT. The Board would like to thank Michael for his significant contribution since he joined the Board in 2010 and look forward to continuing to work with him in his new role. The Company currently has a Board comprising two non-executive directors and intends to appoint a replacement for Michael in due course.
Share pools
The Company now has four active share pools with total net assets of £47 million. Each of the share pools raised funds in different years and are, therefore, at various stages in their planned exit life.
A brief summary of each share pool is provided below.
'C' Share pool
The Company's 'C' Shares were originally issued in 2008 and 2009. The 'C' Share pool is effectively fully invested and holds a portfolio of 18 investments, of which 13 are VCT qualifying or partially qualifying.
There were a number of small investment valuation adjustments during the period which resulted in a minor net decrease in value, however, overall the portfolio performed satisfactorily, generating a reasonable level of investment income.
At 31 December 2013, the net asset value ("NAV") of a combined holding of one 'C' Share and one 'A' Share stood at 91.0p, an increase of 1.2% over the period after adding back dividends of 5.0p paid in the period. 'C' Share dividends paid to date total 22.5p such that Total Return (NAV plus cumulative dividends to date) is now 113.5p, compared to the initial NAV of 94.5p.
In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'C' Share on 27 June 2014 to Shareholders on the register at the close of business on 16 May 2014.
'D' Share pool
The 'D' Shares were originally issued in 2010. The 'D' Share pool is now also effectively fully invested and holds a portfolio of 21 investments, of which 17 are qualifying or partially qualifying.
As with the 'C' Share pool, there were a number of small investment valuation movements in the period, with increases effectively cancelling out decreases. The portfolio produced a steady flow of investment income over the period and is generally making satisfactory progress.
At 31 December 2013, the NAV of a combined holding of one 'D' Share and one 'E' Share stood at 77.1p, an increase of 2.9% over the period after adding back dividends of 5.0p per share paid in the period. 'D' Share dividends paid to date total 17.5p such that Total Return (NAV plus cumulative dividends to date) is now 94.6p. Initial NAV was 94.5p.
In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'D' Share on 27 June 2014 to Shareholders on the register at the close of business on 16 May 2014.
'F' Share pool
The 'F' Share pool was launched in 2012 and it still in its initial investment phase. At 31 December 2013, the pool held 13 VCT qualifying or partly qualifying investments and a further 8 non-qualifying investments, most of which are in the form of secured loans.
The 'F' Share portfolio suffered setbacks in respect of two investments during the period which has depressed overall performance. Despite this, the remainder of the portfolio has performed reasonably in line with plan and has the potential to make up lost ground as the investments mature.
'F' Share pool (continued)
At 31 December 2013, the 'F' Share NAV stood at 80.0p, which represents a decrease of 3.9% over the period after adjusting for the dividends of 5.0p per share paid in the period. Dividends paid to date total 10.0pp such that Total Return (NAV plus cumulative dividends to date) is now 90.0p, compared to the initial NAV of 94.5p.
In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'F' Share on 27 June 2014 to Shareholders on the register at the close of business on 16 May 2014.
'G' Share pool
The 'G' Share offer for subscription was launched in January 2013 and closed in November 2013 having raised gross proceeds of £26.6 million. By 31 December 2013, the pool had completed the acquisition of 3 VCT qualifying or partly qualifying investments and a further 8 non-qualifying investments, most of which are secured loans.
It remains early days for all investments in the portfolio, but so far there have been no significant negative departures from plan.
At 31 December 2013, the 'G' Share NAV stood at 95.1p, which represents a small decrease over the initial period after adjusting for the dividends of 5.0p per share paid in the period. Total Return (NAV plus cumulative dividends to date) is now 100.1p, compared to the initial NAV of 100.0p.
In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'G' Share on 27 June 2014 to Shareholders on the register at the close of business on 16 May 2014.
Share buybacks
The Company operates a general policy of buying in its own shares for cancellation when any become available in the market. The current policy is to buy in 'C' Shares, 'A' Shares, 'D' Shares or 'E' Shares at approximately a 10% discount to the latest published NAV of those share classes. In respect of the 'F' Shares and 'G' Shares, in the initial years after issue, any such purchases will be undertaken at a price equal to the latest published NAV (i.e. at nil discount). All buybacks are subject to regulatory restrictions and other factors such as the availability of liquid funds.
During the period, the Company repurchased shares as follows:
| Share class | Number | Average price | Total consideration |
| 'C' Shares | 5,162 | 85.5p | £4,414 |
| 'E' Shares | 50,000 | 0.1p | £50 |
| 'G' Shares | 92,000 | 100.0p | £92,461 |
A resolution to renew the authority for the Company to purchase its own shares will be proposed at the forthcoming AGM.
Annual General Meeting
The Company's eighth AGM will be held at 10 Lower Grosvenor Place, London SW1W 0EN at 10:30 a.m. on 17 June 2014.
One item of special business will be proposed at the AGM in connection with the authority for the Company to buy back shares as described above.
Outlook
During the latter part of the current financial year, the task of seeking realisations from the 'C' Share pool investments will commence in order to return funds to Shareholders. Although this process is generally challenging, the Manager is optimistic that a good proportion of exits can be achieved within the first 12 months of the process.
The realisation phase of the 'D' Share pool is scheduled to commence in April 2015. Over the next year, the Manager will be developing plans that can provide exits when the time comes.
The 'F' Share and 'G' Share pools are still both in their initial investment phase and The Manager expects to make a number of further VCT qualifying investments over the next year as they continue to build their investment portfolios.
Despite a small number of problem investments, overall the Board is satisfied with the investment portfolios across the various share pools and believes that general improvement in the outlook for the economy should assist in delivering satisfactory outcomes for each group of Shareholders.
Hugh Gillespie
Chairman
28 April 2014
INVESTMENT MANAGER'S REPORT- 'C' SHARE POOL
Introduction
The 'C' Share pool holds investments in 18 companies and is now fully invested. The majority of the 'C' Share pool investments have performed in line with expectations. There have, however, been a number of adjustments which resulted in small overall fall in value.
Net asset value and results
At 31 December 2013, the 'C' Share NAV stood at 90.9p and the 'A' Share NAV at 0.1p, giving a combined NAV of 91.0p. Total Return (NAV plus cumulative dividends to date) was 113.5p for a combined holding of one 'C' and one 'A' Share. This represents a net increase of 1.1 over the period (after adjusting for dividends paid during the period of 5.0p per 'C' Share), equivalent to an increase of 1.2%.
The return on ordinary activities of the 'C' Share pool for the period was £78,000 (2013: £586,000), comprising a revenue profit of £165,000 (2013: £287,000) and a capital loss of £87,000 (2013: gain £299,000).
'C' Share pool - investment activity
During the year, the Company made two small follow on investments for a total of £83,000. There was also a transfer of £61,000 on Redmed Limited from the 'C' share pool to the 'F' share pool, being part of the £79,000 disposed of in total.
The Company sold its holding in Bijou Wedding Venues, the exclusive wedding venue located in Chertsey, generating proceeds of £925,000.
'C' Share pool - portfolio valuation
The majority of the investments within the 'C' Share pool performed satisfactorily throughout the year and the values of several of these have been modestly uplifted at the year end. There have, however, also been a number of significant negative adjustments to value resulting in overall unrealised losses of £76,000.
The 3D Pub Co Limited owns two pubs in Surrey: The Jolly Farmers in Reigate; and The Fox Revived in Horley. Recent performance has been encouraging and the valuation has been increased by £40,000.
A £30,000 increase in value was recognised for Quadrate Catering Limited which owns the Marco Pierre White Steakhouse located in the iconic Cube building in Birmingham. Performance of the restaurant is ahead of projections.
Further increases in value were recognised in Westow House Limited, £9,000 and East Dulwich Tavern, £21,000. These were partially offset by small reductions in value on Mosaic, £20,000, and Redmed £4,000.
Future Biogas (SF) Limited, the owner and operator of a biogas plant in Norfolk, has experienced significant operational issues which have resulted in unplanned downtime. The issues have now all been resolved however cumulative performance to date is notably below plan. This has resulted in a small decrease in the valuation of £42,000, although the investment remains valued above original cost.
Chapel Street Services Limited, Chapel Street Food and Beverage Limited and Chapel Street Hotel Limited were written down by £37,000, £37,000 and £1,000 respectively. The businesses all trade from the Hotel Indigo in Liverpool. Occupancy at the hotel has been lower than forecast as a result of stiff competition, and as a result each of the business is trading behind their original business plan.
A £35,000 write down in value was made to Honeycombe Pubs VCT Limited which owns a bar in Burnley, Lancashire. The pub is in the process of being sold and the reduced valuation reflects the anticipated net proceeds due on disposal.
Outlook
Although the British economy remains in a fragile state, we believe that the 'C' Share portfolio is reasonably resilient and will produce good results over the remaining planned life of the share pool.
We will be seeking to start returning funds to 'C' Shareholders later this year, being 5 years after the close of the 'C' Share offer, and have started planning investment realisations.
Downing Managers 2 Limited
28 April 2014
REVIEW OF INVESTMENTS - 'C' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2013:
'C' Share pool
| Cost | Valuation | Valuation movement in period | % of portfolio | ||
| £'000 | £'000 | £'000 | |||
| VCT qualifying investments and partially qualifying investments | |||||
| Future Biogas (SF) Limited* | 697 | 731 | (42) | 11.2% | |
| Atlantic Dogstar Limited | 438 | 728 | - | 11.1% | |
| Domestic Solar Limited | 500 | 560 | - | 8.6% | |
| Redmed Limited | 350 | 451 | (4) | 6.9% | |
| Westow House Limited | 304 | 427 | 9 | 6.5% | |
| East Dulwich Tavern Limited | 344 | 406 | 21 | 6.2% | |
| Quadrate Spa Limited* | 363 | 363 | - | 5.5% | |
| Quadrate Catering Limited | 330 | 359 | 30 | 5.5% | |
| The 3D Pub Co Limited | 267 | 227 | 40 | 3.5% | |
| Ecossol Limited | 250 | 212 | - | 3.2% | |
| Mosaic Spa and Health Clubs Limited* | 125 | 105 | (20) | 1.7% | |
| Chapel Street Food and Beverage Limited | 50 | 13 | (37) | 0.2% | |
| Chapel Street Services Limited | 50 | 13 | (37) | 0.2% | |
| 4,068 | 4,595 | (40) | 70.3% | ||
| Non-qualifying investments | |||||
| Hoole Hall Country Club Holdings Limited | 581 | 581 | - | 8.8% | |
| The Thames Club Limited | 500 | 500 | - | 7.6% | |
| Honeycombe Pubs VCT plc | 188 | 66 | (35) | 1.0% | |
| Vermont Developments Limited | 25 | 25 | - | 0.3% | |
| Chapel Street Hotel Limited | 2 | 1 | (1) | 0.0% | |
| 1,296 | 1,173 | (36) | 17.7% | ||
| 5,364 | 5,768 | (76) | 88.0% | ||
| Cash at bank and in hand | 790 | 12.0% | |||
| Total investments | 6,558 | 100% | |||
* Part-qualifying investment
Summary of investment movements
Additions
| Cost | |
| VCT qualifying investments and partially qualifying investments | £'000 |
| Future Biogas (SF) Limited* | 70 |
| Non-qualifying investments | |
| Honeycombe Pubs VCT Limited | 13 |
| Total 'C' Share pool | 83 |
Disposals
| Cost | MV at 01/02/13 | ** | Disposal proceeds | Gain against cost | Total realised gain during the period | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| VCT qualifying investments | |||||||||
| Bijou Wedding Venues Limited | 815 | 901 | 925 | 110 | 24 | ||||
| Non-qualifying investments | |||||||||
| Redmed Limited | 79 | 79 | 79 | - | - | ||||
| 894 | 980 | 1,004 | 110 | 24 | |||||
* Part-qualifying investment
** Adjusted for additions in the period
INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL
Introduction
The 'D' Share pool holds investments in 21 companies and is now fully invested. The portfolio has experienced continued stable performance with one new investment being made and relatively small movements in value.
Net asset value and results
At 31 December 2013, the 'D' Share NAV stood at 77.0p and the 'E' Share NAV at 0.1p, giving a combined NAV of 77.1p. Total Return (NAV plus cumulative dividends to date) was 94.6p for a combined holding of one 'D' and one 'E' Share. This represents a net increase of 2.3p over the period (after adjusting for dividends paid during the period of 5.0p per 'D' Share), equivalent to an increase of 2.9%.
The return on ordinary activities for the 'D' Shares for the period was a return of £229,000 (2013: £150,000) being a revenue profit of £235,000 (2013: £174,000) and a capital loss of £6,000 (2013 loss: £24,000).
'D' Share pool - investment activity
During the year, the Company made a small number of investments totalling £136,000. One new investment of £42,000 in Kilmarnock Monkey Bar Limited, after one of the two pubs owned by Camandale was transferred in to the Company. The Monkey Bar is now let to a third party manager, who pays a regular rent to the company. Additionally, a further investment of £94,000 was made in to Future Biogas (RR) Limited.
In addition to the above, £500,000 of loan stock was transferred from the 'D' share pool to the 'G' share pool in Aminghurst, the property development company in South Devon.
'D' Share pool - portfolio valuation
The majority of the 'D' Share portfolio performed in line with expectations during the year, there were a small number of valuation movements which resulted in a net unrealised loss of £6,000.
Green Electricity Generation Limited owns a portfolio of solar panels on the rooftops of domestic properties across the UK. The panels continue to generate income and have established a good track record, resulting in an uplift of £46,000.
A £40,000 increase in value was recognised for Quadrate Catering Limited which owns the Marco Pierre White Steakhouse located in the iconic Cube building in Birmingham. Performance of the restaurant is ahead of projections.
Kidspace Adventures Holdings Limited owns three well established children's play areas in Croydon, Romford and Epsom. The company continues to perform well and as such the valuation has been increased by £34,000.
Additionally, a small increase in value of £22,000 was recognised on Alpha Schools to reflect that the business is performing to plan.
On the negative side, Mosaic Spa and Health Clubs Limited owns and manages two health clubs: The Shrewsbury Club, in Shrewsbury; and Holmer Park in Hereford. It also provides gym and spa management services to hotels, universities and corporate clients. Both Holmer Park and the Shrewsbury club have underperformed against expectations throughout the period and the value has been reduced by £88,000.
A £35,000 reduction in value was recognised for Liverpool Nurseries (Holdings) Limited. This cautionary reduction in value reflects that the business is performing behind budget.
A further reduction in value was recognised on Camandale Limited of £25,000 after one of the two pubs owned by the Company was transferred into a new investment, Kilmarnock Monkey Bar Limited. The new valuation of Camandale reflects the standalone valuation of the remaining pub, The Riverbank.
Outlook
After some setbacks in the portfolio, the 'D' share pool is now starting to show signs of improved performance with a number of valuation uplifts recognised for investments that are performing to plan. We are satisfied with progress and believe there is good potential for growth ahead of 2015, when the pool will start realising its investments.
Downing Managers 2 Limited
28 April 2014
REVIEW OF INVESTMENTS - 'D' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2013:
'D' Share pool
| Cost | Valuation | Valuation movement in period | % of portfolio | |
| £'000 | £'000 | £'000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Future Biogas (Reepham Road) Limited | 842 | 842 | - | 10.9% |
| Quadrate Spa Limited* | 496 | 496 | - | 6.4% |
| Quadrate Catering Limited | 441 | 481 | 40 | 6.2% |
| Domestic Solar limited | 400 | 448 | - | 5.8% |
| Kidspace Adventures Holdings Limited | 375 | 409 | 34 | 5.3% |
| Alpha Schools Holdings Limited | 367 | 402 | 22 | 5.2% |
| Liverpool Nurseries (Holdings) Limited | 435 | 400 | (35) | 5.2% |
| Mosaic Spa and Health Clubs Limited* | 475 | 387 | (88) | 5.0% |
| Green Electricity Generation Limited | 250 | 303 | 46 | 3.9% |
| Westcountry Solar Solutions Limited | 250 | 250 | - | 3.2% |
| West Tower Property Limited | 250 | 250 | - | 3.2% |
| Ecossol Limited | 250 | 213 | - | 2.8% |
| Avon Solar Energy Limited | 210 | 210 | - | 2.7% |
| Slopingtactic Limited | 195 | 195 | - | 2.5% |
| Progressive Energies Limited | 170 | 170 | - | 2.2% |
| Ridgeway Pub Company Limited | 136 | 126 | - | 1.6% |
| Camandale Limited* | 516 | 58 | (25) | 0.7% |
| 6,058 | 5,640 | (6) | 72.8% | |
| Non-qualifying investments | ||||
| Aminghurst Limited | 1,650 | 1,650 | - | 21.3% |
| Fenkle Street LLP | 122 | 122 | - | 1.6% |
| Commercial Street Hotel Limited | 100 | 100 | - | 1.3% |
| Kilmarnock Monkey Bar Limited | 42 | 42 | - | 0.5% |
| 1,914 | 1,914 | - | 24.7% | |
| 7,972 | 7,554 | (6) | 97.5% | |
| Cash at bank and in hand | 192 | 2.5% | ||
| Total investments | 7,746 | 100% |
* Part-qualifying investment
Summary of investment movements
Additions
| Cost | |
| £'000 | |
| VCT qualifying and partially qualifying investments | |
| Future Biogas (Reepham Road) Limited | 94 |
| Non-qualifying investments | |
| Kilmarnock Monkey Bar Limited | 42 |
| Total 'D' Share pool | 136 |
Disposals
| Cost | MV at 01/02/13 | ** | Disposal proceeds | Loss against cost | Total realised gain during the period | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| VCT qualifying and partially qualifying investments | ||||||||||
| Avon Solar Energy Limited | 40 | 40 | 40 | - | - | |||||
| Non-qualifying investments | ||||||||||
| Aminghurst Limited | 500 | 500 | 500 | - | - | |||||
| Camandale Limited | 45 | 32 | 32 | (13) | - | |||||
| Liverpool Nurseries (Holdings) Limited | 32 | 32 | 32 | - | - | |||||
| Total 'D' Share pool | 617 | 604 | 604 | (13) | - | |||||
** Adjusted for additions in the period
INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL
Introduction
The 'F' share pool has started to build a qualifying investment portfolio with a focus on asset backed businesses and those with predictable revenue streams. In the period, four new qualifying investments were made, as well as two non-qualifying investments, at a total cost of £2,052,000. Two follow on investments totalling £105,000 were also made in the period.
Net asset value and results
At 31 December 2013, the 'F' Share NAV stood at 80.0p. Total Return (NAV plus cumulative dividends to date) for shareholders who invested in the original share offer is now 90.0p. This represents a net decrease of 3.4p per share over the period (after adjusting for dividends paid during the period of 5.0p per Share), equivalent to a decrease of 3.9%.
The return on ordinary activities for the 'F' Share pool for the period was a loss of £371,000 (2013: £105,000) being a revenue profit of £33,000 (2013: loss £10,000) and a capital loss of £404,000 (2013: Loss £95,000).
'F' Share pool - investment activity
In September 2013, a new investment totalling £644,000 was made in Pearce and Saunders Limited, a new freehold pub company that will be managed by the Antic London team
In May 2013, the 'F' Share pool invested £311,000 in Redmed Limited to allow the company to complete the purchase and refurbishment of a high street bar in Lincoln city centre. The bar was refurbished and re-launched in September 2013 as Craft Bar & Kitchen. Since September, loan stock redemptions of £35,000 have been received, total investment cost is now £276,000.
£200,000 was invested in Pabulum Pubs Limited in April 2013 and a total of £290,000 invested in Augusta Pub Company Limited, both companies have purchased freehold pubs in London.
In July 2013, a £500,000 loan was made to Pub People Limited which owns and operates 50 pubs in the East Midlands. This non-qualifying investment is secured against five freehold pubs in the company's estate.
A £107,000 non-qualifying investment was made in Dominions House Limited in March 2013 in a building in Cardiff.
'F' Share pool - portfolio valuation
The majority of the 'F' Share pool investments have performed in line with expectations over the period and continued to be valued at original cost, however, there have been four adjustments.
A full provision was made against Southampton Hotel Developments Limited following the contractor going in to administration. With significant doubts as to whether any value can be recovered, the investment has been written down by £300,000 to nil.
Performance of the nightclub owned by City Falkirk Limited has unfortunately continued to operate below expectation and a further reduction in value of £96,000 has been made. We are working closely with the club's management in order to try to bring the trading back on track, however, it is clear that the depressed economic conditions are a major contributing factor to the weak performance.
A reduction of £31,000 has been made to Cheers Dumbarton Limited following a period of below budget trading. The company was set up to purchase the freehold trade and assets of Cheers nightclub in Dumbarton, Scotland.
On the positive side, Kidspace Adventures Holdings Limited, which owns three well established children's play areas in Croydon, Romford and Epsom, continues to perform well. As such the valuation has been increased by £23,000.
In total the portfolio produced unrealised losses of £404,000 in the year.
Outlook
The 'F' Share portfolio is still at a relatively early stage and the initial setbacks in the portfolio are disappointing. The focus for the coming year will be to identify further good quality qualifying investments to utilise remaining funds and to continue building a portfolio with good potential for growth over the next four years when the commencement of the realisations are planned.
Downing Managers 2 Limited
28 April 2014
REVIEW OF INVESTMENTS - 'F' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2013:
| 'F' Share pool | Cost | Valuation | Valuation movement in period | % of portfolio |
| £'000 | £'000 | £'000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Tor Solar PV Limited | 680 | 680 | - | 7.9% |
| Pearce and Saunders Limited* | 644 | 644 | - | 7.4% |
| Vulcan Renewables Limited | 588 | 588 | - | 6.8% |
| Augusta Pub Company Limited | 290 | 290 | - | 3.3% |
| Redmed Limited* | 276 | 276 | - | 3.2% |
| Kidspace Adventures Holdings Limited | 250 | 273 | 23 | 3.1% |
| Fubar Stirling Limited | 268 | 268 | - | 3.1% |
| City Falkirk Limited | 421 | 244 | (96) | 2.8% |
| Pabulum Pubs Limited | 200 | 200 | - | 2.3% |
| Fresh Green Power Limited | 200 | 200 | - | 2.3% |
| Green Energy Production UK Limited | 100 | 100 | - | 1.2% |
| Cheers Dumbarton Limited | 48 | 17 | (31) | 0.3% |
| Lochrise Limited | 13 | - | - | 0.0% |
| 3,978 | 3,780 | (104) | 43.7% | |
| Non-qualifying investments | ||||
| Aminghurst Limited | 1,110 | 1,110 | - | 12.8% |
| Pub People Limited | 500 | 500 | - | 5.8% |
| Baron House Developments LLP | 481 | 481 | - | 5.5% |
| Hoole Hall Hotel Limited | 265 | 265 | - | 3.1% |
| Dominions House Limited | 107 | 107 | - | 1.2% |
| Retallack Surfpods Limited | 98 | 98 | - | 1.1% |
| 3D Pub Company Limited | 55 | 55 | - | 0.6% |
| Southampton Hotel Developments Limited | 300 | - | (300) | 0.0% |
| 2,916 | 2,616 | (300) | 30.1% | |
| 6,894 | 6,396 | (404) | 73.8% | |
| Cash at bank and in hand | 2,269 | 26.2% | ||
| Total investments | 8,665 | 100% |
* Part-qualifying investment
Summary of investment movements
Additions
| Cost | |
| £'000 | |
| VCT qualifying and partially qualifying investments | |
| Pearce and Saunders Limited* | 644 |
| Redmed Limited* | 311 |
| Augusta Pub Company | 290 |
| Pabulum Pubs Limited | 200 |
| Vulcan Renewables Limited | 28 |
| Non-qualifying investments | |
| Pub People Limited | 500 |
| Dominions House Limited | 107 |
| Retallack Surfpods Limited | 77 |
| Total 'F' Share pool | 2,157 |
Disposals
| Cost | MV at 01/02/13 | ** | Disposal proceeds | Gain against cost | Total realised gain during the period | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Non-qualifying investments | |||||||||
| Clareville St LLP | 500 | 500 | 500 | - | - | ||||
| West Tower Holdings Limited | 290 | 290 | 290 | - | - | ||||
| Retallack Surfpods Limited | 228 | 228 | 228 | - | - | ||||
| Baron House Developments LLP | 144 | 144 | 144 | - | - | ||||
| Redmed Limited | 35 | 35 | 35 | - | - | ||||
| 1,197 | 1,197 | 1,197 | - | - | |||||
** Adjusted for additions in the period
INVESTMENT MANAGER'S REPORT- 'G' SHARE POOL
Introduction
During the period, 21.9 million 'G' Shares were issued under the offer for subscription, generating gross proceeds of £26.6 million and net proceeds of £25.5 million after share issue costs. The task of investing these new funds is now underway.
Investment activity
During the 'G' Share pool's initial period, 11 new investments were made at a total cost of £8.5 million. Of these investments, two were VCT qualifying and one was part qualifying.
Brief details of the largest of these qualifying investments (or investments that will become qualifying in due course) are as follows:
In May 2013, the 'G' Share pool invested initially invested £200,000 In Augusta Pub Company. This was followed in September 2013 with a further £1.88m investment. This investment was used to purchase the freehold of a pub in London.
£500,000 was invested in May 2013 in Redmed Limited to allow it to complete the purchase and refurbishment of a high street bar in Lincoln city centre. The bar was refurbished and re-launched in September 2013 as Craft Bar & Kitchen.
£400,000 was invested in Pabulum Pubs Limited in April 2013 to purchase a freehold pub in London.
In addition to the above, a number of non-qualifying investments were made in the form of secured loans. These helped to generate investment income on funds ahead of them being employed in VCT qualifying investments.
Harrogate Street LLP is refurbishing a building in Wigan to be a Premier Inn. The 'G' share pool has invested £1,400,000 in this non-qualifying investment.
£1,093,000 of non-qualifying investment in to the development of a Hampton by Hilton hotel at Baron House in Newcastle has been transferred from other Downing VCTs in the period.
£1,000,000 of loan stock was transferred from other Downing funds in to Aminghurst, the property development company in South Devon.
£911,000 was invested in to Pub People as a non-qualifying investment. The company own and operate over 50 pubs in the East Midlands.
In September 2013 £493,000 was invested in Pearce and Saunders Limited to acquire three freehold pubs in South East London.
In July 2013 £400,000 of non qualifying loan was invested in to Snow Hill Developments, a Birmingham based hotel development.
£300,000 of non-qualifying investment was transferred from another Downing fund invested in the Antelope Pub Limited, a freehold pub in Tooting, South London.
£178,000 of non-qualifying investment was made in to Dominions House Limited, a building development site in Cardiff.
One non-qualifying loan, West Tower Holdings Limited, which owned and operated a wedding venue, was realised in the period generating disposal proceeds of £1,020,000 against a holding cost and value of the same.
Net asset value and results
At 31 December 2013, the 'G' Share NAV stood at 95.1p. The 'G' Shares paid a first dividend of 5.0p per share in November 2013. Total Return (NAV plus cumulative dividends to date) for shareholders who invested in the original share offer is now 100.1p. This represents a net increase of 0.1p per share against the price at launch of 100.0p per share (after adjusting for dividends paid during the period of 5.0p per Share), equivalent to an increase of 1%.
The return on ordinary activities for the 'G' Share pool for the period was a revenue profit of £39,000.
Outlook
The task of building the 'G' Share investment portfolio is at an early stage but we are satisfied with the progress made to date in investing the funds. We continue to see good quality deal flow which we believe will allow us to build a portfolio which can deliver the targeted returns to Shareholders over the life of the pool
Downing Managers 2 Limited
28 April 2014
REVIEW OF INVESTMENTS - 'G' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2013:
| 'G' Share pool | Cost | Valuation | Valuation movement in period | % of portfolio |
| £'000 | £'000 | £'000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Augusta Pub Company Limited* | 1,780 | 1,780 | - | 7.4% |
| Redmed Limited | 500 | 500 | - | 2.1% |
| Pabulum Pubs Limited | 400 | 400 | - | 1.7% |
| 2,680 | 2,680 | 11.2% | ||
| Non-qualifying investments | ||||
| Harrogate Street LLP | 1,400 | 1,400 | - | 5.8% |
| Baron House Developments LLP | 1,093 | 1,093 | - | 4.5% |
| Aminghurst Limited | 1,000 | 1,000 | - | 4.1% |
| Pub People Limited | 911 | 911 | - | 3.8% |
| Pearce and Saunders Limited | 493 | 493 | - | 2.0% |
| Snow Hill Developments LLP | 400 | 400 | - | 1.7% |
| Antelope Pub Limited | 300 | 300 | - | 1.2% |
| Dominions House Limited | 178 | 178 | - | 0.7% |
| 5,775 | 5,775 | - | 23.8% | |
| 8,455 | 8,455 | - | 35.0% | |
| Cash at bank and in hand | 15,718 | 65.0% | ||
| Total investments | 24,173 | 100.0% |
* Part-qualifying investment
All of the above investments and disposals shown below were additions during the period.
Summary of investment movements
Disposals
| Cost | MV at 01/02/13 | ** | Disposal proceeds | Gain against cost | Total realised gain during the period | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Non-qualifying investments | |||||||||
| West Tower Holdings Limited | 1,020 | 1,020 | 1,020 | - | - | ||||
| Augusta Pub Company Limited | 300 | 300 | 300 | - | - | ||||
| 1,320 | 1,320 | 1,320 | - | - | |||||
** Adjusted for additions in the period
Directors' responsibilities statement
The Directors are responsible for preparing the Report of the Directors, the Directors' remuneration report, the Strategic Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.
In preparing these financial statements the Directors are required to:
*select suitable accounting policies and then apply them consistently;
*make judgements and accounting estimates that are reasonable and prudent;
*state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
*prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions, to disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.
Statement as to disclosure of information to Auditor
The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor.
INCOME STATEMENT
for the period ended 31 December 2013
| Period ended 31 December 2013 | | Year ended 31 January 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 1,451 | - | 1,451 | 1,149 | - | 1,149 | ||
| | ||||||||
| (Loss)/Gain on investments | - | (462) | (462) | - | 175 | 175 | ||
| 1,451 | (462) | 989 | 1,149 | 175 | 1,324 | |||
| Investment management fees | (593) | - | (593) | (309) | - | (309) | ||
| Other expenses | (231) | (35) | (266) | (238) | - | (238) | ||
| Return/(Loss) on ordinary activities before tax | 627 | (497) | 130 | 602 | 175 | 777 | ||
| Tax on ordinary activities | (155) | - | (155) | (151) | - | (151) | ||
| (Loss)/Return attributable to equity shareholders | 472 | (497) | (25) | 451 | 175 | 626 | ||
| Basic and diluted return/(loss) per: | ||||||||
| 'C' Share | 2.3p | (1.2p) | 1.1p | 4.0p | 4.2p | 8.2p | ||
| 'A' Share | - | - | - | - | - | - | ||
| 'D' Share | 2.4p | (0.1p) | 2.3p | 1.7p | (0.2p) | 1.5p | ||
| 'E' Share | - | - | - | - | - | - | ||
| 'F' Share | 0.3p | (3.7p) | (3.4p) | (0.1p) | (1.2p) | (1.3p) | ||
| 'G' Share | 0.2p | - | 0.2p | n/a | n/a | n/a | ||
All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. The total column within the Income Statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement noted above.
Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return/loss as stated above and at historical cost.
INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the period ended 31 December 2013
'C' Share pool
| Period ended 31 December 2013 | | Year ended 31 January 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Income | 347 | - | 347 | 537 | - | 537 | ||
| (Loss)/gain on investments | - | (52) | (52) | - | 299 | 299 | ||
| 347 | (52) | 295 | 537 | 299 | 836 | |||
| Investment management fees | (84) | - | (84) | (89) | - | (89) | ||
| Other expenses | (47) | (35) | (82) | (74) | - | (74) | ||
| Return/(loss) on ordinary activities before tax | 216 | (87) | 129 | 374 | 299 | 673 | ||
| Tax on ordinary activities | (51) | - | (51) | (87) | - | (87) | ||
| Return/(loss) attributable to equity shareholders | 165 | (87) | 78 | 287 | 299 | 586 | ||
'D' Share pool
| Period ended 31 December 2013 | | Year ended 31 January 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 463 | - | 463 | 433 | - | 433 | ||
| Loss on investments | - | (6) | (6) | - | (24) | (24) | ||
| 463 | (6) | 457 | 433 | (24) | 409 | |||
| Investment management fees | (98) | - | (98) | (110) | - | (110) | ||
| Other expenses | (53) | - | (53) | (89) | - | (89) | ||
| Return/(loss) on ordinary activities before tax | 312 | (6) | 306 | 234 | (24) | 210 | ||
| Tax on ordinary activities | (77) | - | (77) | (60) | - | (60) | ||
| Return/(loss) attributable to equity shareholders | 235 | (6) | 229 | 174 | (24) | 150 | ||
'F' Share pool
| Period ended 31 December 2013 | | Year ended 31 January 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 261 | - | 261 | 179 | - | 179 | ||
| Loss on investments | - | (404) | (404) | - | (95) | (95) | ||
| 261 | (404) | (143) | 179 | (95) | 84 | |||
| Investment management fees | (153) | - | (153) | (110) | - | (110) | ||
| Other expenses | (59) | - | (59) | (75) | - | (75) | ||
| (Loss)/return on ordinary activities before tax | 49 | (404) | (355) | (6) | (95) | (101) | ||
| Tax on ordinary activities | (16) | - | (16) | (4) | - | (4) | ||
| (Loss)/return attributable to equity shareholders | 33 | (404) | (371) | (10) | (95) | (105) | ||
'G' Share pool
| Period ended 31 December 2013 | | Year ended 31 January 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 379 | - | 379 | - | - | - | ||
| Gain on investments | - | - | - | - | - | - | ||
| 379 | - | 379 | - | - | - | |||
| Investment management fees | (258) | - | (258) | - | - | - | ||
| Other expenses | (71) | - | (71) | - | - | - | ||
| Return on ordinary activities before tax | 50 | - | 50 | - | - | - | ||
| Tax on ordinary activities | (11) | - | (11) | - | - | - | ||
| Return attributable to equity shareholders | 39 | - | 39 | - | - | - | ||
BALANCE SHEET
as at 31 December 2013
| As at 31 December 2013 | | As at 31 January 2013 | ||||||||||
| | ||||||||||||
| 'C' Share pool | 'D' Share pool | 'F' Share pool | 'G' Share pool | Total | 'C' Share pool | 'D' Share pool | 'F' Share pool | 'G' Share pool | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| | ||||||||||||
| Fixed assets | ||||||||||||
| Investments | 9 | 5,768 | 7,554 | 6,396 | 8,455 | 28,173 | 6,741 | 8,027 | 5,841 | - | 20,609 | |
| Current assets | ||||||||||||
| Debtors | 22 | 98 | 53 | 117 | 290 | 157 | 89 | 73 | - | 319 | ||
| Cash at bank and in hand | 790 | 192 | 2,269 | 15,718 | 18,969 | 43 | 5 | 3,740 | 638 | 4,426 | ||
| 812 | 290 | 2,322 | 15,835 | 19,259 | 200 | 94 | 3,813 | 638 | 4,745 | |||
| Creditors: amounts falling due within one year | (92) | (133) | (57) | (88) | (370) | (171) | (139) | (80) | - | (390) | ||
| Net current assets/(liabilities) | 720 | 157 | 2,265 | 15,747 | 18,889 | 29 | (45) | 3,733 | 638 | 4,355 | ||
| Net assets | 6,488 | 7,711 | 8,661 | 24,202 | 47,062 | 6,770 | 7,982 | 9,574 | 638 | 24,964 | ||
8BCapital and reserves | ||||||||||||
| Called up share capital | 18 | 25 | 11 | 25 | 79 | 18 | 25 | 11 | - | 54 | ||
| Share capital to be issued | - | - | - | - | - | - | - | - | 638 | 638 | ||
| Capital redemption reserve | 106 | - | - | - | 106 | 106 | - | - | - | 106 | ||
| Special reserve | 5,923 | 8,065 | - | - | 13,988 | 5,963 | 8,379 | - | - | 14,342 | ||
| Share premium reserve | - | - | 10,160 | 25,504 | 35,664 | - | - | 10,160 | - | 10,160 | ||
| Revaluation reserve | 403 | (420) | (499) | - | (516) | 566 | (427) | (95) | - | 44 | ||
| Capital reserve - realised | - | - | (1,034) | (1,221) | (2,255) | 53 | - | (492) | - | (439) | ||
| Revenue reserve | 38 | 41 | 23 | (106) | (4) | 64 | 5 | (10) | - | 59 | ||
| Total equity shareholders' funds | 6,488 | 7,711 | 8,661 | 24,202 | 47,062 | 6,770 | 7,982 | 9,574 | 638 | 24,964 | ||
| Basic and diluted net asset value per | ||||||||||||
| 'C'/'D'/'F'/'G' Share | 90.9p | 77.0p | 80.0p | 95.1p | 94.8p | 79.7p | 88.5p | n/a | ||||
| 'A'/'E' Share | 0.1p | 0.1p | n/a | n/a | 0.1p | 0.1p | n/a | - | ||||
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the period ended 31 December 2013
| Period ended 31 December 2013 | | Year ended 31 January 2013 | ||||||||||
| | | |||||||||||
| 'C' Share pool | 'D' Share pool | 'F' Share pool | 'G' Share pool | Total | 'C' Share pool | 'D' Share pool | 'F' Share pool | 'G' Share pool | Total (incl. Ord Shares) | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Opening Shareholders' funds | 6,770 | 7,982 | 9,574 | 638 | 24,964 | 6,570 | 8,332 | 1,178 | - | 16,085 | ||
| Issue of shares | - | - | - | 26,631 | 26,631 | - | - | 10,763 | - | 10,763 | ||
| Share issue costs | - | - | - | (1,102) | (1,102) | - | (592) | - | (592) | |||
| Purchase of own shares | (4) | - | - | (94) | (98) | (28) | - | - | - | (28) | ||
| Movement in share capital to be issued | - | - | - | (638) | (638) | - | - | (1,178) | 638 | (540) | ||
| Total recognised return/(loss) for the period | 78 | 229 | (371) | 39 | (25) | 586 | 150 | (105) | - | 626 | ||
| Dividends paid | 7 | (356) | (500) | (542) | (1,272) | (2,670) | (358) | (500) | (492) | - | (1,350) | |
| Closing Shareholders' funds | 6,488 | 7,711 | 8,661 | 24,202 | 47,062 | 6,770 | 7,982 | 9,574 | 638 | 24,964 | ||
The Ordinary Share pool had opening Shareholders funds of £5,000 at 1 February 2012. These were eliminated when the class was cancelled during the prior year.
CASH FLOW STATEMENT
for the period ended 31 December 2013
| Period ended 31 December 2013 | | Year ended 31 January 2013 | ||||||||||
| | ||||||||||||
| 'C' Share pool | 'D' Share pool | 'F' Share pool | 'G' Share pool | Total | 'C' Share pool | 'D' Share pool | 'F' Share pool | 'G' Share pool | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
Net cash inflow from operating activities | 1 | 276 | 281 | 36 | 10 | 603 | 358 | 240 | (3) | - | 595 | |
| | ||||||||||||
Taxation | ||||||||||||
Corporation tax paid | (90) | (62) | (5) | - | (157) | (49) | (32) | - | - | (81) | ||
| | ||||||||||||
Capital expenditure | ||||||||||||
Purchase of investments | (83) | (136) | (2,157) | (9,775) | (12,151) | (80) | (1,477) | (6,497) | - | (8,054) | ||
Sale of investments | 1,004 | 604 | 1,197 | 1,320 | 4,125 | 27 | 1,272 | 561 | - | 1,860 | ||
| Net cash (outflow)/inflow from capital expenditure | 921 | 468 | (960) | (8,455) | (8,026) | (53) | (205) | (5,936) | - | (6,194) | ||
| | ||||||||||||
Equity dividends paid | (356) | (500) | (542) | (1,272) | (2,670) | (358) | (500) | (492) | - | (1,350) | ||
| | ||||||||||||
| Net cash (outflow)/inflow before financing | 751 | 187 | (1,471) | (9,717) | (10,250) | (102) | (497) | (6,431) | - | (7,030) | ||
| | ||||||||||||
Financing | ||||||||||||
Purchase of own shares | (4) | - | - | (94) | (98) | (28) | - | - | - | (28) | ||
Proceeds from share issue | - | - | - | 25,993 | 25,993 | - | - | 9,585 | - | 9,585 | ||
Share issue costs | - | - | - | (1,102) | (1,102) | - | - | (592) | - | (592) | ||
Share capital to be issued | - | - | - | - | - | - | - | - | 638 | 638 | ||
Raised on behalf of related fund | - | - | - | - | - | - | - | (1,178) | - | (1,178) | ||
| Net cash inflow/(outflow) from financing | (4) | - | - | 24,797 | 24,793 | (28) | - | 7,815 | 638 | 8,425 | ||
| | ||||||||||||
Increase/(decrease) in cash | 747 | 187 | (1,471) | 15,080 | 14,543 | (130) | (497) | 1,384 | 638 | 1,395 | ||
NOTES
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009 ("SORP").
The financial statements are prepared under the historical cost convention except for certain financial instruments measured at fair value and on the basis that it is not necessary to prepare consolidated accounts as explained in note 9.
The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when required.
Presentation of Income Statement
In order to better reflect the activities of a venture capital trust and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.
Investments
Venture capital investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") together with FRS26.
For unquoted investments, fair value is established using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:
*Price of recent investment;
*Multiples;
*Net assets;
*Discounted cash flows or earnings (of underlying business);
*Discounted cash flows (from the investment); and
*Industry valuation benchmarks.
The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.
Gains and losses arising from changes in fair value are included in the Income Statement for the period as a capital item and transaction costs on acquisition or disposal of the investment are expensed. Where an investee company has gone into receivership, liquidation or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.
It is not the Company's policy to exercise significant influence over investee companies. Therefore the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with the SORP that does not require portfolio investments to be accounted for using the equity method of accounting.
Income
Dividend income from investments is recognised when the Shareholders' rights to receive payment has been established, normally the ex-dividend date.
Interest income is accrued on a time apportionment basis, by reference to the principal sum outstanding and at the effective rate applicable and only where there is reasonable certainty of collection in the foreseeable future.
Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:
*Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
*Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. The Company has adopted the policy of allocating Investment Manager's fees 100% as revenue.
*Expenses and liabilities not specific to a Share class are generally allocated pro rata to the net assets.
*Performance incentive fees arising from the disposal of investments are deducted as a capital item.
Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting period.
Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise.
Deferred taxation which is not discounted is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Deferred taxation is not discounted.
Other debtors, other creditors and loan notes
Other debtors (including accrued income), other creditors and loan notes are included within the accounts at amortised cost.
Issue costs
Issue costs in relation to the shares issued for each share class have been deducted from the share premium account for the relevant share class.
2. Basic and diluted return per share
| 'C' Shares | 'A' Shares | 'D' Shares | 'E' Shares | 'F' Shares | 'G' Shares | |
| Revenue return (£'000) | 165 | - | 235 | - | 33 | 39 |
| Weighted average number of shares in issue | 7,158,889 | 10,724,029 | 10,000,000 | 14,950,000 | 8,157,698 | 18,612,060 |
| Net capital loss for the period (£000) | (87) | - | (6) | - | (404) | - |
| Weighted average number of shares in issue | 7,158,889 | 10,724,029 | 10,000,000 | 14,950,000 | 8,157,698 | 18,612,060 |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share for any of the share classes. The return per share disclosed therefore represents both the basic and diluted return per share for all share classes.
3.Basic and diluted net asset value per share
| 31 Dec 2013 | 31 Jan 2013 | |||||||||
| | Shares in issue | Net asset value | Net asset value | |||||||
| 31 Dec 2013 | 31 Jan 2013 | per share | £'000 | per share | £'000 | |||||
| | ||||||||||
25B'C' Shares | 7,126,194 | 7,131,356 | 90.9p | 6,477 | 94.8p | 6,759 | ||||
26B'A' Shares | 10,724,029 | 10,724,029 | 0.1p | 11 | 0.1p | 11 | ||||
27B'D' Shares | 10,000,000 | 10,000,000 | 77.0p | 7,696 | 79.7p | 7,967 | ||||
28B'E' Shares | 14,950,000 | 15,000,000 | 0.1p | 15 | 0.1p | 15 | ||||
29B'F' Shares | 10,822,154 | 10,822,154 | 80.0p | 8,661 | 88.5p | 9,574 | ||||
30B'G' Shares | 25,436,996 | - | 95.1p | 24,202 | - | - | ||||
31BShare capital to be issued | - | 638 | ||||||||
| | 47,062 | 24,964 | ||||||||
The 'C' Share pool, 'D' Share pool, 'F' Share pool and 'G' Share pool are treated as separate investment pools. Within the 'C' Share pool the Directors allocate the assets and liabilities of the Company between the 'C' Shares and 'A' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights. Within the 'D' Share pool the Directors allocate the assets and liabilities of the Company between the 'D' Shares and 'E' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights.
4.Principal risks
The Company's financial instruments comprise investments held at fair value through profit and loss, being equity and loan stock investments in unquoted companies; loans and receivables, being cash deposits and short term debtors; and financial liabilities, being creditors arising from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short-term creditors and does not use any derivatives.
The fair value of cash deposits and short term debtors and creditors equates to their carrying value in the Balance Sheet.
Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.
The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:
*Investment risks
*Credit risk
*Liquidity risk
The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the period and there have also been no significant changes to the policies for managing those risks during the period.
The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the period end are provided below:
Investment risks
As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key investment risks to which the Company is exposed are:
*Investment price risk
*Interest rate risk
Investment price risk
Investment price risk arises from uncertainty about the valuation of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.
Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.
There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows:
*Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments.
*Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments.
*No interest rate" assets do not attract interest and comprise equity investments and debtors.
The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors.
The Manager manages credit risk in respect of loan stock with a similar approach as described under "Investment risks" above. In addition the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. Similarly the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both also ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There have been no changes in fair value during the period that are directly attributable to changes in credit risk.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company has a relatively low level of creditors, (£370,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
5.Related party transactions
Downing Managers 2 Limited ("DM2"), a wholly owned subsidiary, is the Company's Investment Manager. Details of the agreement with DM2 are included in Note 3.
During the period ended 31 December 2013, £593,000 (31 Jan 2013: £309,000) was payable to DM2 in respect of investment management fees. Additionally, DM2 provides accounting, secretarial and administrative services for an annual fee of £48,125 (31 Jan 2013: £51,882). At the period end a balance of £93,000 (31 Jan 2013: £121,000) was due to DM2.
ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the period ended 31 December 2013, but has been extracted from the statutory financial statements for the period ended 31 December 2013which were approved by the Board of Directors on 28 April 2014 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 January 2013 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the period ended 31 December 2013will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at 10 Lower Grosvenor Place, London, SW1W 0EN and will be available for download from www.downing.co.uk.