Downing Distribution VCT 1 plc : Annual Financi...

Downing Distribution VCT 1 plc : Annual Financial Report

Downing Distribution VCT 1 plc
Annual Financial Report for the year ended 31 March 2013

FINANCIAL SUMMARY

	2013	2012
	Pence	Pence

Net asset value per share ("NAV")	71.5	77.9
Cumulative dividends paid since 1 April 2010	15.0	10.0

Total return (net asset value plus cumulative dividends paid per share)	86.5	87.9

CHAIRMAN'S STATEMENT
I present the Annual Report and Accounts for the year ended 31 March 2013. The portfolio companies experienced a mixed performance over the year with uplifts in a number of quoted investments being cancelled out by reductions in valuations of some of the Company's larger holdings.

Net asset value
The NAV fell by 1.4p per share or 1.8% over the year (after adjusting for the dividends of 5p paid during the year) and stood at 71.5p per share at 31 March 2013.

Investment activity and performance
At 31 March 2013, the portfolio comprised 31 investments, which were valued at £13.9 million, and was split 35:65 by value between quoted and unquoted investments.

Most of the strongest performers in the quoted portfolio have been investments under the strategy adopted at the time of the last merger, which focusses on holding fewer investments with larger, more influential stakes. Universe Group, Tracsis and IDOX between them produced unrealised gains of £575,000, while IDOX also generated a realised gain of £152,000 and Boomerang Plus a realised gain of £212,000 when it was the subject of an acquisition.

The other major quoted valuation movement was Ludorum, the AIM-quoted owner of "Chuggington" which fell by £519,000. Trading in the company's shares is limited, which the Manager believes has resulted in a share price which does not reflect the true value of the business. The Manager continues to feel that Ludorum remains a company which has potential to deliver rewards in due course.

Amongst the unquoted investments, there were reductions in value of the investments in Hoole Hall Country Club Holdings, Hoole Hall Spa and Leisure Club and Cadbury House Holdings. These reductions primarily reflect the weak market that currently exists for large hotels and similar businesses and the fact that the companies have debt that ranks ahead of our investment. There are however no major issues with the underlying trading of the businesses. These investments accounted for a total reduction in value of £751,000.

Overall, the investment portfolio produced net unrealised losses for the year totalling £598,000 and realised gains of £470,000.

Results and dividends
The loss on ordinary activities after tax for the year was £288,000, comprising a revenue return of £27,000 and a capital loss of £315,000.

The Board is proposing to pay a final dividend of 2.5p per share on 30 September 2013, subject to Shareholder approval at the forthcoming AGM, to Shareholders on the register at 6 September 2013.

Share realisation and reinvestment programme
As reported last year, the share realisation and reinvestment programme ("SRRP") took place in April 2012 with 38% of the shares in issue being tendered and proceeds reinvested. A further £393,000 was received in respect of the top-up share offer, with shares being issued at 77.9p per share.

Share buybacks
The Company's current policy is to buy any shares that become available in the market at approximately a 15% discount to the latest published NAV. Buybacks are subject to regulatory restrictions and other factors such as the availability of liquid funds.

During the year, the Company repurchased 647,489 shares at an average price of 63.4p per share and representing 3.3% of the issued share capital. These shares were subsequently cancelled.

Annual General Meeting ("AGM")

The next AGM of the Company will be held at 10 Lower Grosvenor Place, London SW1W 0EN at 11:30 a.m. on 12 September 2013.

One item of special business is proposed: a special resolution to renew the authority to allow the Company to make market purchases of the Company's shares.

Outlook
Despite the fall in NAV over the year, there are some signs of encouragement, particularly in respect of the quoted investments. Conditions do however remain challenging for most businesses and close monitoring of all portfolio companies will remain essential over the coming year to ensure that they are well positioned to take advantage of an improvement in the economy, of which there are perhaps now early signs.

Following changes to the VCT regulations last year which allow VCTs to make larger qualifying investments, there is now a trend towards larger VCTs; these have several attractions, including lower running costs. The Board is considering what options may be available to the Company in this direction.

Christopher Powell
Chairman

INVESTMENT MANAGER'S REPORT

At the year end, the Company held 15 unquoted investments and 16 quoted investments. Investment activity during the year has continued to focus on the rebalancing of the inherited portfolio following the change of manager in 2010. This is now largely complete. The Company is effectively fully invested and therefore further investment activity will be limited to reinvesting proceeds from divestments when suitable opportunities arise.

Investment activity
Quoted investment activity
Over the year, £1.8 million was raised from the quoted portfolio, divesting from five companies in their entirety and partially realising another six investments.

Material quoted sales included the partial sale of IDOX plc, realising a profit of £323,000 from proceeds of £430,000; and Netcall plc, which realised a profit of £162,000 from proceeds of £248,000. Meanwhile the sale of DODs Group plc produced proceeds of £40,000 but gave rise to a loss of £220,000 on the original investment. An opportunity to realise the investment in Business Control Solutions Limited, which had delisted from AIM, via a tender offer resulted in a profit of £52,000 on cost from proceeds of £104,000.

Boomerang Plus plc, the producer of TV programmes and interactive content, was subject to a takeover during the year at 70p per share. Total proceeds from the Boomerang Plus plc exit were £604,000, resulting in a small profit against cost but a realised gain for the year of £212,000.

The Company made one further material investment in the quoted portfolio, investing an additional £141,000 into Universe Group plc in the form of equity shares and a £40,000 yielding loan note.

Unquoted investment activity
During the year the Company made four new unquoted investments and two follow-on investments at a total cost of £2.0 million.

The largest new investment was £700,000 in Vulcan Renewables Limited, which is building an anaerobic digestion plant in Doncaster to produce electricity and gas, which will be injected into the gas main grid. As a result, Vulcan will receive Feed-in-Tariff and Renewable Heat Incentive scheme payments.

£500,000 was invested in Baron House Developments LLP, a non-qualifying opportunity. The partnership is developing a new Hampton by Hilton Hotel in Newcastle. The investment attracts a fixed yield along with a share of the development profit.

A non-qualifying investment of £400,000 was also made in Southampton Hotel Developments Limited which is developing a Hilton branded hotel and spa next to the Ageas Bowl cricket ground (formerly known as the Rosebowl) near Southampton.

A £200,000 investment was made in Mosaic Spa and Health Clubs Limited. Mosaic own two freehold Spa and Health Clubs, one in Shrewsbury and a second in Hereford. Mosaic also runs a spa and health club management company.

Portfolio valuation
Overall, the portfolio fell in value by £598,000 over the year, but produced realised gains of £470,000.

Quoted investment performance
The holdings within the quoted portfolio experienced a small fall in value of 1.8% in the year reflecting the more focused investment strategy deployed within the portfolio, with the net loss amounting to £74,000. All those quoted investments introduced since Downing assumed management of the Company have contributed positively towards performance (Accumuli plc, Tracsis plc, and Universe Group plc). We envisage that there is still plenty scope for the quoted portfolio to perform in absolute terms and we will continue to make new investments selectively on AIM.

Universe Group plc, a company that provides forecourt payment solutions for UK retailers, has improved its performance during the year following a successful share placing, which alleviated the issue of onerous debt. The investment has increased in value by £237,000.

Tracsis plc, the provider of optimisation software for the transport sector, experienced positive trading in the year. Its fully owned subsidiary, MPEC, which provides monitoring solutions for rail infrastructure, has performed particularly well, reflecting the continued Government spend on the upgrading of the UK rail network. The holding within the Company increased in value by £201,000 in the year, with profits of £27,000 taken on the sale of a portion of the holding. We continue to believe in the long term prospects of Tracsis plc and monitor the valuation against the opportunities that we believe they can deliver for their shareholders.

IDOX plc, a provider of software for engineering and government project management, also saw its share price improve in the year after a successful acquisition strategy and significant new contract wins being reflected in trading. This has resulted in an uplift in valuation of £137,000 during the year.

Hasgrove plc rose in value during the year by £108,000 following news of a disposal of one of its holdings. After the year end, Hasgrove has announced a tender offer at 82p per share.

Ludorum plc saw its valuation decline by £519,000 despite starting to become profitable in the year, as merchandising income from "Chuggington", the children's animated TV show, continued to develop. We believe Ludorum still has good prospects, reflected in its positive ratings on Disney Channels and the BBC. Sales in the USA of its new product, Stacktrack (www.stackyourtrack.com) have been encouraging and we eagerly await the launch of this product in Europe, which will coincide with the launch of series 3 of the Chuggington TV show in the autumn. The Company holds both loan stock and equity in Ludorum plc, which provides more investor rights (and a paid yield) than would normally be inferred with a straight equity investment. We believe that the current share price does not yet reflect the intrinsic value of the "Chuggington" asset.

Tristel plc, a manufacturer and distributor of disinfectants to hospitals and vet practices, saw its valuation fall by £129,000, reflecting a slow take up of some of its new products and declining profitability as it invested in its new production facilities. Our lack of confidence in the ability of management to implement a cost cutting exercise has led us to exit this legacy holding, in full, after the year end.

Unquoted investments
In the unquoted portfolio, the majority of investments performed in line with expectations, however, there were three significant departures which, between them, resulted in a total reduction in value of £751,000.

Cadbury House Holdings Limited owns and operates a restaurant, health club and spa alongside a large DoubleTree by Hilton Hotel at Cadbury House in Bristol. Although performance of the business remains consistent year on year, growth has now plateaued. Additionally, the market for large hotels in out of town locations, such as Cadbury, has weakened recently. This, combined with the high degree of leverage in the investment, has resulted in the investment valuation being reduced by £283,000.

Hoole Hall Country Club Holdings Limited and Hoole Hall Spa and Leisure Limited own and operate the restaurant, conferencing centre, and spa and health club facilities at Hoole Hall alongside a large DoubleTree by Hilton hotel in Chester. Whilst performance of the business remains ahead of last year, the improvement has not been as good as hoped. As with Cadbury House, the market for such assets is now weak, with the only buyers tending to be seeking distressed businesses. As a result, the valuation of Hoole Hall Country Club Holdings has been reduced by £336,000 and Hoole Hall Spa and Leisure by £132,000. There is the possibility of additional value being gained through the sale of land at the site, however it is currently too early to attribute a value to the plot.

On a more positive note, two investments, Leytonstone Pub Limited and Tramps Nightclub Limited, have made modest progress and, as a result, have been revalued upwards by £31,000 and £15,000 respectively at the year end. Additionally, Real Time Logistic Solutions Limited was sold, in full, after the year end for a book profit of £125,000.

Fixed income investment
The Company held one, non-qualifying, fixed income investment at the year end, with a value of £357,000. The investment recorded an unrealised gain of £56,000 during the year.

Outlook
Although the macro economic climate is still challenging, particularly at Government and domestic levels, there is evidence that corporate balance sheets are in good shape, which could lead to further merger and acquisition activity in the quoted portfolio in the coming months. Given that the portfolio is now largely fully invested, the focus will continue to be on rigorous portfolio management of the individual investments to optimise the capital growth and yield. This will enable continued dividend payments to Shareholders by the Company.

Downing LLP

REVIEW OF INVESTMENTS

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 March 2013:

	Cost	Valuation	Valuation movement in year	% of portfolio by value
	£'000	£'000	£'000
Top ten venture capital investments
Cadbury House Holdings Limited	2,518	2,063	(283)	14.6%
Hoole Hall Country Club Holdings Limited	1,920	1,584	(336)	11.2%
Ludorum plc *	2,068	1,161	(519)	8.3%
Hoole Hall Spa and Leisure Club Limited	1,200	1,068	(132)	7.6%
Vulcan Renewables Limited	700	700	-	5.0%
First Care Limited	942	668	-	4.7%
Accumuli plc *	338	577	37	4.1%
Baron House Developments LLP	500	500	-	3.6%
Aminghurst Limited	493	493	-	3.5%
Universe Group plc *	293	484	237	3.4%
	10,972	9,298	(996)	66.0%
Other venture capital investments
Plastics Capital plc *	166	450	65	3.2%
Leytonstone Pub Limited	415	446	31	3.2%
Southampton Hotel Developments Limited	400	400	-	2.9%
IDOX plc *	79	342	137	2.4%
Tracsis plc *	82	327	201	2.3%
Craneware plc *	293	326	18	2.3%
Tramps Nightclub Limited	295	326	15	2.3%
Animalcare Group plc *	218	222	(82)	1.6%
Future Biogas (SF) Limited	189	212	-	1.5%
Hasgrove plc *	146	205	108	1.5%
Mosaic Spa and Health Club Limited	200	200	-	1.4%
Tristel plc *	511	193	(129)	1.4%
Netcall plc *	55	187	69	1.3%
Vianet Group plc *	271	184	(45)	1.3%
Real Time Logistic Solutions Limited	-	125	125	0.9%
Aimshell Acquisitions plc * (formerly Autoclenz plc)	136	81	3	0.6%
Belgravium Technologies plc *	44	34	(77)	0.2%
Keycom plc **	815	28	(84)	0.2%
Travelzest plc *	96	17	(13)	0.1%
The Thames Club Limited	175	-	-	-
Top Ten Holdings plc	399	-	-	-
	4,985	4,305	342	30.6%
Fixed interest securities
Ulster Bank (IRE) 11.75% Subord	558	357	56	2.5%

	16,515	13,960	(598)	99.1%
Cash at bank and in hand		123		0.9%
Total investments		14,083		100.0%

All venture capital investments are unquoted unless otherwise stated

* Quoted on AIM
** Quoted on the ISDX Growth Market

Investment movements for the year ended 31 March 2013

Additions	£'000

New investments
Baron House Developments LLP	500
Mosaic Spa and Health Clubs Limited	200
Southampton Hotel Developments Limited	400
Vulcan Renewables Limited	700
	1,800
Follow-on investments
Aminghurst Limited	181
First Care Limited	63
Universe Group plc	141
Other sundry investments	3
	388
	2,188

Disposals	Cost	Value at 01/04/12*	Proceeds	Profit/ (loss) vs cost	Realised (loss)/ gain
	£'000	£'000	£'000	£'000	£'000
Market sales
Animalcare Group plc	27	37	30	3	(7)
Deltex Medical Group plc	96	102	96	-	(6)
DODs Group plc	260	31	40	(220)	9
IDOX plc	107	278	430	323	152
Netcall plc	86	185	248	162	63
Richoux Holdings plc	47	65	74	27	9
Sinclair IS Pharma plc	178	137	144	(34)	7
Tracsis plc	20	31	47	27	16
Tristel plc	120	85	54	(66)	(31)
Vianet Group plc	62	53	58	(4)	5
	1,003	1,004	1,221	218	217
Unquoted (including loan note redemptions)
Tramps Nightclub Limited	15	15	15	-	-
	15	15	15	-	-
Takeovers
Boomerang Plus plc	596	392	604	8	212
Business Control Solutions Limited	52	63	104	52	41
West Tower Holdings Limited	167	-	-	(167)	-
	815	455	708	(107)	253
Liquidations/administrations
Camaxys Group plc	223	-	-	(223)	-
Doubletake Studios Limited	2,204	-	-	(2,204)	-
	2,427	-	-	(2,427)	-

	4,260	1,474	1,944	(2,316)	470

* Adjusted for purchases in the year where applicable

Statement of Directors' responsibilities
The Directors are responsible for preparing the Report of the Directors, the Directors' Remuneration Report, the separate corporate governance statement 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 and 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 judgments 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 and to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements and the Directors Remuneration Report 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.

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.

Grant Whitehouse
Company Secretary

INCOME STATEMENT
for the year ended 31 March 2013

			2013			2012

	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000

Income	329	-	329	360	-	360

Losses on investments	-	(128)	(128)	-	(1,845)	(1,845)
	329	(128)	201	360	(1,845)	(1,485)

Investment management fees	(63)	(187)	(250)	(72)	(216)	(288)

Other expenses	(239)	-	(239)	(239)	(1)	(240)

Return/(loss) on ordinary activities before tax	27	(315)	(288)	49	(2,062)	(2,013)

Tax on ordinary activities	-	-	-	-	-	-

Return/(loss) attributable to equity shareholders	27	(315)	(288)	49	(2,062)	(2,013)

Basic and diluted return per share	0.1p	(1.6p)	(1.5p)	0.2p	(10.1p)	(9.9p)

All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. 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 shown above.

Other than revaluation movements arising on investments held at fair value through the Income Statement, there were no differences between the return as stated above and at historical cost.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2013

	2013	2012

	£'000	£'000

Opening Shareholders' funds	15,812	19,161
Issue of shares	393	-
Unallotted shares	(382)	382
Issue of shares under Share Realisation and Reinvestment Programme	5,850	-
Share issue costs	(97)	-
Purchase of own shares	(413)	(707)
Purchase of own shares under Share Realisation and Reinvestment Programme	(5,879)	-
Total recognised losses for the year	(288)	(2,013)
Dividends paid	(991)	(1,011)

Closing Shareholders' funds	14,005	15,812

BALANCE SHEET
as at 31 March 2013

	2013	2012

	£'000	£'000
Fixed assets
Investments	13,960	13,844

Current assets
Debtors	111	947
Cash at bank and in hand	123	1,284
	234	2,231
Creditors: amounts falling due within one year	(189)	(263)

Net current assets	45	1,968

Net assets	14,005	15,812

Capital and reserves
Called up share capital	196	198
Capital redemption reserve	1,153	1,147
Share premium account	315	2
Share capital to be issued	-	382
Special reserve	13,743	14,206
Capital reserve - realised	1,136	4,629
Capital reserve - unrealised	(2,555)	(4,742)
Revenue reserve	17	(10)

Total equity shareholders' funds	14,005	15,812

Basic and diluted net asset value per share	71.5p	77.9p

CASH FLOW STATEMENT
for the year ended 31 March 2013

	2013	2012

	£'000	£'000

Net cash outflow from operating activities	(119)	(235)

Capital expenditure
Purchase of investments	(2,188)	(1,115)
Disposal of investments	2,719	3,859
Net cash inflow from capital expenditure	531	2,744

Acquisitions
Acquisition costs	-	(12)
Net cash outflow from acquisitions	-	(12)

Equity dividends paid	(989)	(1,015)

Net cash (outflow)/inflow before financing	(577)	1,482

Financing
Proceeds from share issue	393	-
Proceeds from new share issue under Share Realisation and Reinvestment Programme	5,850	-
Unallotted share issue proceeds	(382)	382
Share issue costs	(99)	(67)
Purchase of own shares	(467)	(712)
Purchase of own shares Share Realisation and Reinvestment Programme	(5,879)	-
Net cash outflow from financing	(584)	(397)


(Decrease)/increase in cash	(1,161)	1,085

NOTES TO THE ACCOUNTS
for the year ended 31 March 2013

1. Accounting policies

Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted Accounting Practice and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" January 2009 ("SORP").

The financial statements are prepared under the historical cost convention except for the revaluation of certain financial instruments.

The Company implements new Financial Reporting Standards issued by the Accounting Standards Board when required.

Presentation of income statement
In order to better reflect the activities of a Venture Capital Trust and in accordance with guidance issued by the Association of Investment Companies ("AIC"), 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 FRS 26.

Listed fixed income investments and investments quoted on recognised stock markets are measured using bid prices.

The valuation methodologies for unlisted instruments 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 the 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.

Where an investee company has gone into receivership, liquidation, or administration where there is little likelihood of a recovery, the loss on the investment, although not physically disposed of, is treated as being realised.

Gains and losses arising from changes in fair value are included in the income statement as a capital item.

It is not the Company's policy to exercise either significant or controlling influence over investee companies. Therefore, the results of these companies are not incorporated into the revenue account 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.

In respect of disclosures required by the SORP for the 10 largest investments held by the Company, the most recent publicly available accounts information, either as filed at Companies House, or announced to the London Stock Exchange, is disclosed. In the case of unlisted investments, this may be abbreviated information only.

Income
Dividend income from investments is recognised when the Shareholders' right to receive payment has been established, normally the ex-dividend date.

Interest income is accrued on a time apportioned basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection.

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 acquisition of an investment are deducted from the Capital Account.
* 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 and accordingly the investment management fee and finance costs have been allocated 25% to revenue and 75% to capital, in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company.

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.

Deferred taxation is not discounted and 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 the obligations or rights crystallise based on tax rates and law enacted or substantively enacted at the balance sheet date. 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 tax assets are only recognised if it is expected that future taxable profits will be available to utilise such assets and are recognised on a non-discounted basis.

Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.

Share issue costs
Share issue costs have been deducted from the share premium account.

Segmental reporting
The Company only has one class of business and one market.

2. Basic and diluted return per share

	2013	2012
Return per share based on:
Net revenue return for the financial year (£'000)	27	49

Capital return per share based on:
Net capital loss for the financial year (£'000)	(315)	(2,062)

Weighted average number of shares in issue	19,958,558	20,429,797

As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed therefore represents both basic and diluted return per share.

3. Basic and diluted net asset value per share

		Shares in issue	Net assets	NAV per share
			£'000	Pence

Year ended 31 March 2013	Ordinary Shares	19,592,490	14,005	71.5

Year ended 31 March 2012	Ordinary Shares	19,811,677	15,430	77.9
	Share capital to be issued		382
			15,812

As the Company has not issued any convertible securities or share options, there is no dilutive effect on net asset value per class of share in issue. The net asset value per share disclosed therefore represents both basic and diluted net asset value per class of share in issue.

4. Financial instruments

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; and
* 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 year and there have also been no significant changes to the policies for managing those risks during the year.

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 the investment activities undertaken by the 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; and
* Interest rate risk.

The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation.

Investment price risk
Investment price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through investment price movements in respect of quoted investments and also 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 and fixed interest securities attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.

Interest rate profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the financial instruments as follows:
* "Fixed rate" assets represent investments with predetermined yield targets and comprise fixed interest and loan note investments.
* "Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate and comprise cash at bank.
* "No interest rate" assets do not attract interest and comprise equity investments, non-interest bearing convertible loan notes, loans and receivables (excluding cash at bank) and other financial liabilities.

The Company monitors the level of income received from fixed, floating and non interest 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.

The Bank of England base rate stood at 0.5% per annum throughout the year. Any potential change in the base rate, at the current level, would have an immaterial impact on the net assets and total return of the Company.

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, investments in fixed interest securities, cash deposits and debtors.

The Manager manages credit risk in respect of loan notes 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. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held at Royal Bank of Scotland plc, with a balance also maintained at Bank of Scotland plc, both of which are A-rated financial institutions and ultimately part-owned by the UK Government. Consequently, the Directors consider that the risk profile associated with cash deposits is low.

There have been no changes in fair value during the year that can be 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. The Company only normally ever has a relatively low level of creditors (2013: £189,000, 2012: £263,000) and has no borrowings. Also most quoted investments held by the Company are considered to be readily realisable. The Company always holds sufficient levels of funds as cash and readily realisable investments 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 Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.

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 year ended 31 March 2013, but has been extracted from the statutory financial statements for the year ended 31 March 2013 which were approved by the Board of Directors on 25 July 2013 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 March 2012 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 year ended 31 March 2013 will 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 and www.downing.co.uk

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Downing Distribution VCT 1 plc via Thomson Reuters ONE

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