Final Results
DOWNING DISTRIBUTION VCT 1 plc
(formerly the aim distribution trust plc)
FINAL RESULTS for the year ended 31 March 2010
FINANCIAL HIGHLIGHTS
 30 June 31 March 31 March
 2010  2010  2009
Pence Pence pence
Net asset value per Original Ordinary Share n/a 37.00 33.60
Cumulative distributions paid since launch n/a 57.55 55.80
Total return (net asset value plus cumulative n/a 94.55 89.40
distributions paid)
Interim distribution paid (per Original Ordinary n/a 1.75 -
Share)
Unaudited net asset value per New Ordinary Share 96.5p n/a n/a
CHAIRMAN'S STATEMENT
Introduction
The Company recently completed its merger with Pennine AIM VCT 5 plc and Pennine
AIM VCT 6 plc, changed its name from The AIM Distribution Trust plc to Downing
Distribution VCT 1 plc, underwent a share consolidation and also changed its
investment manager.
As the merger and share consolidation did not take place until 1 April 2010, the
audited accounts presented in this annual report show the Company's position
before the merger. The Board has included an unaudited balance sheet and
investment portfolio as at 30 June 2010, which provides existing Shareholders
and investors that became Shareholders as a result of the mergers and an up to
date picture of the Company following the developments which have taken place.
Change of name
On 25 March 2010, the Company changed its name from The AIM Distribution Trust
plc to Downing Distribution VCT 1 plc ("DDV1").
Directorate
Following completion of the merger, Michael Cunningham joined the Board as a
non-executive director. Â Michael has worked closely with the Board since 2003 as
a result of his role at Rathbones, where he headed the VCT management team.
 Following the changes which have accompanied the merger, Michael will continue
to take an active role within some of the investee companies as well as
enhancing the Board with his experience within the VCT sector.
There has been one further Board change accompanying the merger where I have
taken over from Sir Aubrey Brocklebank as the chairman of the Company. Â I, along
with the rest of the Board, would like to thank Aubrey for the valuable
contribution he has made in chairing the company for the past ten years and look
forward to continuing to work with him in his ongoing role as non-executive
director.
Net Asset Value
The net asset value ("NAV") per Original Ordinary Share at 31 March 2010 stood
at 37.0p, an increase of 5.1p (or 15.3%) over the year, after accounting for the
1.75p dividend paid in the year. Â (Shareholder's should note that the Company's
share underwent a consolidation on 1 April 2010.)
Merger
The merger with Pennine AIM VCT 5 plc ("P5") and Pennine AIM VCT 6 plc ("P6")
was completed on 1 April 2010 by means of two Schemes of Arrangement ("the
Schemes"). Â On that date all the assets and liabilities from P5 and P6 were
transferred to the Company and consideration shares were issued to shareholders
of P5 and P6.
A balance sheet and portfolio of the merged entity as at 30 June 2010 is shown
following this Statement.
Share consolidation
Immediately prior to the Schemes the Company had 13,140,436 Ordinary Shares of
25p each in issue.
Upon completion of the Schemes, the Company's Original Ordinary Shares of 25p
each shares were consolidated into 21,862,198 New Ordinary Shares of 1p each.
The following is a summary of the number of shares received by each original
group of shareholders as a result of the merger and share consolidation:
 No. new ordinary shares of 1p each issued per share originally held
DDV1 0.34955038
P5 0.30448703
P6 0.40564181
Share buybacks
As part of the merger documentation, the Company has indicated that it will
recommence share buybacks and intends to buy in shares at between a 10% and 15%
discount to NAV.
The Board will monitor the market in the Company's shares and may make
adjustments to the policy as appropriate. Â Such purchases will be subject to VCT
regulations, company law, liquidity considerations and the Listing Rules.
Venture capital investments (AIM and unquoted)
During the year, the Company made £875,000 of new and follow-on venture capital
investments.
At 31 March 2010, this portfolio comprised 28 investments which were valued at
£3.6 million. The portfolio generated net unrealised gains of £503,000 and net
realised gains of £83,000 over the year.
Details of the Company's venture capital investments, including additions,
disposals and performance, are set out within the Investment Manager's report
and Review of Investments.
Since the merger, the Company's venture capital portfolio has expanded
substantially. Â Full details of the portfolio as at 30 June 2010 are shown
following this Statement.
Listed fixed income and other investments
The Company holds a non-qualifying portfolio which includes one fixed income
security and two hedge fund investments.  This portfolio had a value of £730,000
at the year end and showed an unrealised gain of £187,000 and realised gains of
£19,000.
Results and dividends
The total return on ordinary activities for the year to 31 March 2010 was as
follows:
 Revenue Capital Total
 £'000 £'000 £'000
Ordinary Shares (64) 741 677
The Company paid an interim dividend of 1.75p per share on 23Â December 2009 to
Shareholders on the register at 11 December 2009.
As stated in the merger documentation, the Scheme, the Company intends to pay an
annual tax-free dividend of 5p per New Ordinary share of 1p each in issue twice
yearly. Â In line with this intention, the Board is proposing to pay an interim
dividend of 2.5p per share for the year to 31 March 2011, on 30 September 2010
to shareholders on the register at 27 August 2010.
Annual General Meeting
The next AGM of the Company will be held at 10 Lower Grosvenor Place, London,
SW1W 0EN at 11 am on 23 September 2010.
Three items of special business are proposed: one ordinary and one special
resolution in relation to the allotment of shares; and a special resolution to
renew the authority to allow the Company to make market purchases of the
Company's shares.
Outlook
With the merger successfully completed, the Company is now implementing the
strategy and other changes which were set out in the merger documentation. Â The
Company expects to make some a gradual reduction of its exposure to AIM-quoted
investments, although this will only be done as suitable opportunities arise.
 New unquoted investments will be sought which produce a steady income for the
Company, however the Company will still consider attractive new AIM-quoted
opportunities that may arise.
The performance of the Company, Pennine AIM VCT 5 and Pennine AIM VCT 6 over the
last 2-3 years, being heavily influenced by the general performance of the AIM
market, has been disappointing for shareholders and the directors alike. Â The
Company's revised investment policy seeks to address some of the difficulties
that the companies have faced in the past. The Board believes that a realistic
target is to improve the yield on the investment portfolio which, along with
steady capital growth, will fund the Company's targeted annual dividends.
Christopher Powell
Chairman
UNAUDITED BALANCE SHEET (POST MERGER)
as at 30 June 2010
The following portfolio is the unaudited balance sheet of the Company at 30 June
2010, following the merger of The AIM Distribution Trust plc, Pennine AIM VCT 5
plc and Pennine AIM VCT 6 plc and the subsequent share consolidation.
 30 June 2010
 £'000
Fixed assets
Investments 20,361
--------------
Current assets
Debtors 230
Cash at bank and in hand 863
--------------
 1,093
Creditors: amounts falling due within one year (341)
--------------
Net current assets 752
--------------
Net assets 21,924
Capital and reserves
Called up share capital 219
Reserves 20,894
--------------
Total equity Shareholders' funds 21,113
Basic and diluted net asset value per Share 96.5p
New Ordinary Shares of 1p each in issue at 30 June 2010 21,869,287
UNAUDITED PORTFOLIO OF INVESTMENTS (POST MERGER)
as at 30 June 2010
   % of
Cost Valuation  portfolio
£'000 £'000  by value
Venture capital investments (by value)
Cadbury House Holdings Limited * 2,518 2,546 12.0%
Doubletake Studios Limited * 2,204 2,454 11.6%
 Hoole Hall Country Club Holdings Limited * 2,100 2,100 9.9%
Ludorum plc 1,967 1,747 8.2%
Hoole Hall Spa and Leisure Limited * 1,020 1,020 4.8%
 First Care Limited * 879 879 4.1%
 Animalcare Group plc 914 762 3.6%
 Craneware plc 690 713 3.4%
 ANS Group plc ** 201 483 2.3%
IDOX plc 487 466 2.2%
Tristel plc 467 445 2.1%
 IS Pharma plc 392 434 2.0%
Keycom plc ** 815 418 2.0%
Boomerang plus plc 490 381 1.8%
Tramps Nightclub Limited * ¹ 333 333 1.6%
Telephonetics plc 311 332 1.6%
Aminghurst Limited * ¹ 300 300 1.4%
Servoca plc 477 293 1.4%
Brulines Holdings plc 333 291 1.4%
Plastics Capital Group plc 238 256 1.2%
Printing.com plc 179 247 1.2%
Spice plc *** 273 229 1.1%
Mears Group plc *** 204 182 0.9%
Real Time Logistic Solutions Limited * 180 180 0.9%
Future Biogas (Spring Farm) Limited * ¹ 175 175 0.8%
West Tower Holdings Limited * 167 167 0.8%
Universe Group plc 152 152 0.7%
Atlantic Global plc 310 136 0.6%
Travelzest plc 96 132 0.6%
Hasgrove plc 146 132 0.6%
Zamano plc 374 130 0.6%
Blanc Brasseries plc 125 125 0.6%
Connaught plc *** 25 115 0.5%
Neutrahealth plc 240 115 0.5%
Autoclenz Holdings plc 136 110 0.5%
The Kellan Group plc 109 101 0.5%
Deltex Medical Group plc 233 93 0.4%
DODS Group plc (formerly Huveaux plc) 284 93 0.4%
Richoux Holdings plc 307 92 0.4%
The Thames Club Limited * 175 88 0.4%
Netservices plc 87 71 0.3%
Sheildtech plc 120 60 0.3%
Straight plc 72 55 0.3%
Business Control Solutions plc * 52 52 0.3%
Financial News Publishing Limited * 50 50 0.2%
Aortech International plc 569 35 0.2%
Belgravium Technologies plc 48 32 0.2%
Quadnetics Group plc 34 18 0.1%
Sports Media Group plc 14 8 -
Media Square plc 119 6 -
@ UK plc 7 5 -
Camaxys plc * 223 - -
Chariot (UK) Limited * 125 - -
Top Ten Holdings plc 399 - -
----------------------------------
 22,945 19,839 93.5%
----------------------------------
Other investments
Ulster Bank (IRE) 11.75% Subord 558 350 1.6%
Goldman Sachs Dynamic Opp. LD 207 172 0.8%
----------------------------------
765 522 2.4%
----------------------------------
Total investments 23,710 20,361 95.9%
Cash at bank and in hand  863 4.1 %
-------------------------
 21,224 100.0%
All venture capital investments are listed on AIM unless otherwise stated
* Unlisted
** Quoted on the PLUS market
*** Quoted on London Stock Exchange full list
¹ Investment purchased since 1 April 2010
INVESTMENT MANAGER'S REPORT
We present an overview of the investment management activities for the year
ended 31 March 2010, our first since appointment as Investment Manager. Â During
the year, the portfolio was managed by Rathbones Investment Management Limited
("Rathbones"), with  Downing Corporate Finance Limited ("Downing") taking over
the management of the portfolio on 1 April 2010. Â Key members of the team from
Rathbones have moved to Downing which provides a high degree of continuity in
managing the existing portfolio companies. Â The move to Downing also provides
the Company with additional resources which allow the Company to pursue its
revised investment policy.
The recovery in equity markets began shortly before the start of your Company's
financial year. Â Investors began to believe that the quantitative easing and
other Government led economic stimulus packages would enable the avoidance of an
economic depression. Â Instead this would be a cyclical recession, albeit severe,
from which economic recovery would come. Â Even though economic recovery remains
fragile, the improvement in corporate credit markets has helped to stabilise
company balance sheets, but bank lending to the smaller company market remains
constrained. Â Indebtedness generally remains a cause for concern, with European
Government debt and the weakening Euro being the latest worry which has
undermined investor confidence and seen weakening equity markets throughout May.
Over this reporting period, the FTSE 100 Share Index showed a rise of 44.7%
whilst the AIM Index rose 70.4% having fallen 57% in the previous year. Â The
recovery in AIM was led by the resource sector which accounts for around 30% of
the index (this is an area not generally open for qualifying VCT investment).
 Whilst your Company benefited from not holding resource stocks when AIM fell
heavily in 2008, this year has seen the inverse.
New Investment
The amount of new money raised on AIM in 2009 was the lowest for seven years
with a dearth of qualifying quality issues. Â As a result your Company made only
one new and one follow on AIM investments. Â With your Company comfortably above
the HM Revenue and Customs requirements for the amount held in qualifying
investments, this enabled us to remain selective with new investment. Â The
schedule of additions shows additional investments of £875,000, although
£523,000 of this was successful restructuring of two existing investments.
There is no doubt that the credit shortage has had a material impact on small
companies with banks demanding substantially higher rates of interest and
arrangement fees. Â This has provided selective opportunities, one such being
your Company's further investment into Ludorum.  As part of a £1.5 million
secured loan stock with a 9% coupon, your Company invested £200,000.  This loan
replaced previous bank finance and provided working capital to assist with the
costs of the production of the second 52 episodes of Chuggington, the children's
animated pre-school television series. Â An equity investment into the infection
control company Tristel of £80,000 was part of a £2 million fundraise to repay
bank debt and accelerate the registration programmes in China and Russia.
An additional £20,000 was invested into Hoole Hall Spa and Leisure, an unquoted
company, to enable the completion of the spa which opened last Autumn and has
attracted strong initial membership. Â Cadbury House, also unquoted has traded to
budget with an increase in profits, this enabled a re-financing of the bank
debt. Â Your Company's investment has remained unchanged.
Financial News Publishing, an unquoted company, was bought out of
administration.  Your Company assisted with the purchase by investing £50,000 by
way of a mixture of equity and loan notes as part of an overall funding package
of £525,000. The company publishes subscription based newsletters and organises
conferences on specialist areas in the financial sector.
Portfolio Performance
At 31 March 2010, the top ten holdings by value account for 60.4% of the
portfolio. Â The makeup is; two Full List companies, four AIM, one PLUS Markets
and three unquoted companies. Â Most of the portfolio's investments show share
price appreciation with some material recoveries from the depressed prices of a
year ago.
Doubletake Studios, an unquoted company, contributed the largest gain, with a
doubling of its valuation based on strong profit growth assisted by an increase
in photographic studio capacity. Â Strong viewing figures for Chuggington and
positive initial branded goods sales saw Ludorum record a 42% rise in its share
price.
As mentioned, some share prices recovered from depressed levels. Â Printing.com
doubled its value as discounting and promotional activity helped offset a tough
environment, resulting in an increasingly resilient trading performance given
the economic backdrop.
The sale of their education business contributed to a re-valuation in Huveaux,
whilst shares in Straight partially recovered from previous profit warnings.
 The management remain positive about the prospects for their recycling product
sales to amongst others, local authorities, despite the fears of a slowdown in
spending.
Connaught, historically one of the portfolio's star performers and an investment
from which considerable profits have been realized over the years, issued a
profits warning in late June, citing lower contract volumes in its Social
Housing Division. The resignation of both the Chief Executive and Finance
Director alongside uncertainty as to profits forecasts has led to a sharp
decline in the share price since your Company's financial year end. Â Spice has
had a difficult year, losing over 45% of its value. Â After several profit
warnings due to poor trading in their gas and facilities businesses there was a
change in chief executive together with a change in strategy. Â Having been
highly acquisitive, the company is divesting of some businesses, including
telecoms and reducing debt. Â Spice should be well placed to benefit from the
heavy capital investment being undertaken by the water and electric utility
companies.
Disposals
Supporta, the domiciliary care business was acquired for shares by Mears, a
leading social housing repairs and maintenance provider listed on the Main
London Stock Exchange. Â The Medical House was also taken over for cash but
disappointedly at half our original book cost. Â Waterline, having previously
removed its quote from AIM (de-listed) was sold to private equity for cash,
whilst both Cellcast Group and The Real Good Food Company were disposed of
having been poor investments. Â Rare liquidity allowed us to realise some profits
out of the largest holding, ANS Group. Â Since the year end Glisten has been
acquired by the Finnish company Raiso for cash proceeds of £50,260.  A schedule
of disposals during the year follows this report.
Bonds and other investments
A recovery in the corporate bond market saw a considerable improvement in the
value of the Ulster Bank Bond (part of Royal Bank of Scotland). Â Although the
bond has risen in capital value by a further 15% since your company's year end,
they still offer an attractive yield of 11.3%. Â The two hedge funds, Bluecrest
Allblue and Goldman Sachs Dynamic Opportunities both show exceptionally strong
performances - not something we would expect to be repeated to the same degree
this year.
Investment Strategy
Since your Company's year end the Scheme of Arrangements with Pennine AIM VCT 5
plc and Pennine AIM VCT 6 plc has completed and a wider investment policy
adopted. Â Over time it is expected there will be a greater level of unquoted
investments in the portfolio, particularly investments into yielding loan notes
and where possible with a charge over assets, this should increase the overall
income produced by the Company and help support future dividend distributions.
 This strategy of partially moving away from a dependence on AIM should also
provide a reduced volatility in the performance of the fund.
Outlook
The easy part of the equity market recovery looks to be behind us at last. Â Last
year was a period when share prices rose relatively indiscriminately from an
oversold position. Â An element of investor fear has returned with uncertainty
about the strength, sustainability and speed of economic recovery. Â This has
made investors more prudent and, as a consequence, show a greater degree of
discrimination in stock selection. Â This should favour companies with sound
fundamentals, particularly those not over geared, but with strong management and
able to grow profits in a low growth economic environment.
The new wider investment policy will be implemented against this cautious
investment outlook. Â This is expected over time to allow for a more predictable
level of dividends to be paid to Shareholders with capital growth achieved as
and when expectations of more soundly based economic growth is anticipated.
Downing Corporate Finance Limited
REVIEW OF INVESTMENTS AT 31 MARCH 2010
Portfolio of investments
The following investments, all of which are incorporated in England and Wales,
were held at 31 March 2010:
   Valuation
  Movement % of
Cost Valuation  in year  portfolio
£'000 £'000 £'000  by value
Top ten venture capital investments (by
value)
 ANS Group plc ** 201 515 56 10.9%
Doubletake Studios Limited * 250 500 250 10.5%
Ludorum plc 240 354 105 7.5%
Cadbury House Holdings Limited * 319 346 27 7.3%
Connaught plc *** 27 271 (60) 5.7%
Printing.com plc 179 233 78 4.9%
Atlantic Global plc 310 211 (37) 4.4%
Mears Group plc *** 204 208 4 4.4%
Hoole Hall Spa and Leisure Limited * 120 120 - 2.5%
Deltex Medical Group plc 233 107 23 2.3%
-------------------------------------
 2,083 2,865 446 60.4%
-------------------------------------
Other venture capital investments
Spice plc *** 256 107 (94) 2.2%
Huveaux plc 284 102 61 2.1%
Tristel plc 80 94 14 2.0%
Keycom plc ** 408 81 12 1.7%
Neutrahealth plc 173 78 29 1.7%
Straight plc 72 54 29 1.1%
Financial News Publishing Limited * 50 50 - 1.1%
Glisten plc 84 49 24 1.0%
Richoux Group plc 250 35 - 0.7%
Aortech International plc 569 28 3 0.6%
Quadnetics Group plc 34 20 7 0.4%
1st Dental Laboratories plc 200 16 (10) 0.4%
Media Square plc 118 8 5 0.2%
Camaxys plc * 223 - - -
Chariot (UK) Limited * 125 - - -
Clerkenwell Ventures plc 18 - (9) -
Coffee Republic plc 713 - (13) -
Top Ten Holdings plc 399 - (1) -
-------------------------------------
 4,056 722 57 15.2%
-------------------------------------
Bonds
Ulster Bank (IRE) 11.75% Subord 558 317 72 6.7%
-------------------------------------
Other investments
Bluecrest Allblue Fund LD 144 227 59 4.8%
Goldman Sachs Dynamic Opp. LD 207 186 56 3.9%
-------------------------------------
351 413 115 8.7%
-------------------------------------
Total investments 7,048 4,317 690 91.0%
Cash at bank and in hand  425  9.0%
----------- -----------
  4,742  100.0%
All venture capital investments are listed on AIM unless otherwise stated
* Unlisted
** Quoted on the PLUS market
*** Quoted on London Stock Exchange full list
1 Investments made by other funds also managed by Rathbone Investment Management
Limited as at 31 March 2010.
Investment Movements for the year ended 31 March 2010
ADDITIONS
 Total
 £'000
New investment
Tristel plc 80
--------
Follow on Investments
Ludorum plc 201
Sundry investments 1
--------
 202
--------
Unlisted  investments
Financial News Publishing Limited 50
Hoole Hall Spa and Leisure Limited 20
--------
 70
--------
Restructuring
Cadbury House Holdings Limited 319
Mears Group plc 204
--------
 523
--------
Total additions 875
DISPOSALS Â Â Â Profit/
  MV at  (loss) Realised
Cost 01/04/09* Proceeds vs cost gain/(loss)
 £'000 £'000 £'000 £'000 £'000
Ordinary Share Pool
Restructuring
Cadbury House Limited 319 319 319 - -
Supporta plc 250 99 204 (46) 105
Disposals
ANS Group plc 51 114 127 76 13
Cellcast Group plc 194 2 6 (188) 4
Connaught plc 3 31 38 35 7
Ludorum plc 1 1 2 1 1
The Medical House plc 223 58 112 (111) 54
The Real Good Food Company plc 90 2 4 (86) 2
Waterline plc 243 5 65 (178) 60
Liquidation/dissolutions and
administrations
Aero Inventory plc - in 115 70 - (115) (70)
administration
AT Communications plc - in 178 57 - (178) (57)
administration
Dipford Group plc - dissolved 136 - - (136) -
Hill Station plc - in 664 - - (664) -
administration
Micap plc - in administration 299 - - (299) -
Real Affinity plc - dissolved 175 - - (175) -
Sanastro Limited - in 200 36 - (200) (36)
liquidation
Other investments
Barclays Bank plc GAM 435 372 372 (63) -
Diversity Tracker
Bluecrest Allblue Fund LD 52 60 79 27 19
--------------------------------------------------
 3,628 1,226 1,328 (2,300) 102
* Adjusted for purchases in the year
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report, the Directors'
Remuneration Report, the Corporate Governance Statement, and the financial
statements in accordance with applicable law and regulations.
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 those financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and 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 accounting records that are sufficient
to show and explain the Company's transactions and 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 requirements of 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.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITOR
The Directors in office at the date of the report have confirmed that, as far as
they are aware, 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.
Grant Whitehouse
Secretary
Company Number: 3150868
Registered Office:
Kings Scholars House
230 Vauxhall Bridge Road
London  SW1V 1AU
INCOME STATEMENT
for the year ended 31 March 2010
   2010    2009
 Revenue Capital Total  Revenue Capital Total
 £'000 £'000 £'000  £'000 £'000 £'000
Income 139 - 139 Â 146 - 146
Gains/(losses) on investments - 792 792 Â - (2,121) (2,121)
----------------------- ------------------------
 139 792 931  146 (2,121) (1,975)
Investment management fees (17) (51) (68) Â (22) (68) (90)
Other expenses (186) - (186) Â (155) - (155)
----------------------- ------------------------
Return on ordinary activities
  before tax (64) 741 677 (31) (2,189) (2,220)
Tax on ordinary activities - - - Â - - -
----------------------- ------------------------
 Return attributable to equity
Shareholders (64) 741 677 (31) (2,189) (2,220)
 Basic and diluted return per
 Ordinary Share (0.5p) 5.6p 5.1p (0.2p) (16.5p) (16.7p)
The revenue and capital movements in the year relate to continuing operations.
 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.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2010
 2010  2009
 Total  Total
 £'000  £'000
Opening Shareholders' funds 4,413 Â 6,832
Purchase of own shares - Â (199)
Total recognised gains/(losses) Â for the year 677 Â (2,220)
Distributions paid (230) Â -
--------- ----------
Closing Shareholders' funds 4,860 Â 4,413
BALANCE SHEET
as at 31 March 2010
 2010  2009
 £'000  £'000
Fixed assets
Investments 4,317 Â 3,978
----------- ----------
Current assets
Debtors 219 Â 53
Cash at bank and in hand 425 Â 435
----------- ----------
 644  488
Creditors: amounts falling due within one year (101) Â (53)
----------- ----------
Net current assets 543 Â 435
----------- ----------
Net assets 4,860 Â 4,413
Capital and reserves
Called up share capital 3,285 Â 3,285
Capital redemption reserve 1,126 Â 1,126
Share premium account 348 Â 348
Capital reserve - realised 2,871 Â 5,454
Investment holding losses (2,731) Â (5,825)
Revenue reserve (39) Â 25
----------- ----------
Total equity Shareholders' funds 4,860 Â 4,413
Basic and diluted net asset value per Share 37.0p  33.6p
CASH FLOW STATEMENT
for the year ended 31 March 2010
 2010  2009
 £'000  £'000
Net cash outflow from operating activities (73) Â (129)
--------- --------
Capital expenditure
Purchase of investments (352) Â (201)
Disposal of investments 805 Â 1,005
--------- --------
Net cash inflow from capital expenditure 453 Â 804
--------- --------
Acquisitions
Costs in relation to scheme of arrangement (170) Â -
--------- --------
Equity distributions paid (230) Â -
--------- --------
Net cash (outflow)/inflow before financing (20) Â 675
Financing
Unallotted share issue 10 Â -
Purchase of own shares - Â (199)
--------- --------
Net cash inflow/(outflow) from financing 10 Â (199)
--------- --------
(Decrease)/increase in cash (10) Â 476
NOTES
for the year ended 31 March 2010
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" 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 ("FRS") 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. Â 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.
Listed fixed income investments, hedge funds and investments quoted on
recognised stock markets are measured using bid prices in accordance with the
IPEV.
In respect of unlisted instruments, fair value is established by using the IPEV.
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 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. Â 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.
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 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 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
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. Â Deferred tax assets are only recognised if it is
expected that future taxable profits will be available to utilise such assets
and is 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, equivalent to the fair value of the expected
balance receivable/payable by the Company.
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. Return per Share
 2010  2009
  Return per Share based on:
  Net revenue loss for the financial year (£'000) 64  31
  Capital return per Share based on:
  Net capital gain/(loss) for the financial year (£'000) 741  (2,189)
  Weighted average number of Shares in issue 13,140,436  13,300,205
As the Company has not issued any convertible securities or share options, there
is no dilutive effect on return per share. Â The return per share disclosed
therefore represents both basic and diluted return per share.
On 1 April 2010 the 13,140,436 Ordinary Shares of 25p each, as shown above were
converted into 4,593,244 New Ordinary Shares of 1p each under the Schemes. The
conversion had no impact on the weighted average shares for the year (2009:
equivalent weighted average shares 4,649,092). Â The impact on the total return
per share for the year is an increase from 5.1p to 14.7p (2009 loss: Â 16.7p to
47.7p), split as revenue loss per share increase from 0.5p to 1.4p (2009 loss:
0.2p to 0.7p) and capital return per share increase from 5.6p to 16.1p (2009
loss: 16.5p to 47.1p). Â The impact of the shares issued to P5 and P6
Shareholders under the Schemes on the return per share to 31 March 2010, has not
been calculated due to the significant increase in resources that arose on
completion of the Scheme.
3. Net asset value per Share
  2010 2009
Shares in issue Net asset value Net asset value
 2010  2009  Pence per  £'000  Pence per  £'000
Share Share
 Ordinary 4,860 4,413
Shares 13,140,436  13,140,436  37.0p   33.6p
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. Â The net
asset value per share disclosed therefore represents both basic and diluted net
asset value per class of share in issue.
4. Principal financial risks
As a Venture Capital Trust ("VCT"), the majority of the Company's assets are
represented by financial instruments which are held as part of the investment
portfolio. In order to ensure continued compliance with relevant VCT regulation
and to be in a position to deliver the long term capital growth which is part of
the Company's investment objective, the Board is very much aware of the need to
manage and mitigate the risks associated with the financial instruments held
within the investment portfolio.
The management of these risks starts with the application of a clear investment
strategy which has been developed by the Board, which comprises of experienced
investment professionals. Furthermore, the Board has appointed an experienced
Investment Manager to whom they have communicated the Company's investment
strategy and whose remuneration is linked to the achievement of that strategy.
The Investment Manager reports regularly to the Board on performance, and to
facilitate the direct Board involvement with key decisions, on whether or not to
invest, disinvest and the nature, terms and the security of investments being
made.
Further information about the VCT's investment strategy is set out in the
Directors' Report.
In assessing the risk profile of its investment portfolio, the Board has
identified four principal classes of financial investment . All such financial
investments are "fair value through the profit and loss account" and are
recognised as such on initial recognition.
In addition to its investment portfolio, the VCT holds cash balances with one of
the main UK banks and the Investment Manager. The Directors consider that by
splitting the cash balances between the bank and the Investment Manager, the
risk profile associated with cash deposits is reduced to a low level, thus the
carrying value in the financial statements is a close approximation of its fair
value.
The Board has reviewed the Company's financial risk profile and concluded that
the current sensitivity level remains appropriate.
A review of the specific financial risks faced by the Company follows.
Market risks
The key market risks to which the Company is exposed are interest rate risk and
market price risk. Â 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.
Interest rate risk
Board decisions in relation to amounts to be retained as cash deposits and held
in fixed interest investments (including yields) are influenced by actual and
potential changes in the Bank of England base rate. Â Sensitivity has been
tested by the impact on the NAV over a one year period of a fall in the base
rate to nil, being the largest possible fall.
Market price risk
Market price risk arises from uncertainty about the future prices of financial
instruments held in accordance with the Company's investment objectives. Â It
represents the potential loss that the Company might suffer through holding
market positions in the face of market movements. At 31 March 2010, the net
unrealised loss on the quoted portfolios (Full list, AIM-quoted, PLUS-quoted and
non-qualifying investments) was £2.7 million (31 March 2009: £4.5 million).
The investments the Company holds are (with the exception of hedge funds), in
comparison to the Main Market, thinly traded (due to being traded on the AIM and
Plus Markets) and, as such, the prices are more volatile than those of more
widely traded, full list, securities. Â In addition, the ability of the Company
to realise the investments at their carrying value may at times not be possible
if there are no willing purchasers. Â The ability of the Company to purchase or
sell investments is also constrained by the requirements set down for VCTs.
The Board considers each investment purchase to ensure that an acquisition will
enable the Company to continue to have an appropriate spread of market risk and
that an appropriate risk reward profile is maintained.
It is not the Company's policy to use derivative instruments to mitigate market
risk, as the Board believes that the effectiveness of such instruments does not
justify the cost involved.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument is
unable to discharge a commitment to the Company made under that instrument.
Investments in loan stocks comprise a fundamental part of the Company's venture
capital investments, therefore credit risk in respect of these assets is managed
within the main investment management procedures.
Credit risk in respect of investments in listed fixed interest investments is
minimised by investing in UK Government Stocks.
Cash is mainly held by Bank of Scotland plc, which is an Aa3 rated financial
institution (Moody's) and, consequently the Directors consider that the risk
profile associated with cash deposits is low. Â There have been no changes in
fair value that are directly attributable to changes in credit risk.
Interest, dividends and other receivables are predominantly covered within the
investment management procedures. There have been no changes in fair value 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. Â 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 only ever has a very low level of creditors, (2010: £101,000,
2009: £53,000), has no borrowings and holds £425,000 of funds in the Bank at the
year end (2009: £435,000), the Board believes that the Company's exposure to
liquidity risk is minimal.
5. Post balance sheet event
On 1 April 2010 the Scheme with P5 and P6 completed. Â On that date all the
assets and liabilities from P5 and P6 were transferred to the Company. Â The NAV
of the Company following completion of the Scheme was approximately 100.0p per
New Ordinary Share.
Immediately prior to the Scheme the Company had 13,140,436 Ordinary Shares of
25p each in issue. Â Upon completion of the Scheme the Ordinary Shares of 25p
each shares were converted into 4,593,244 New Ordinary Shares of 1p each and the
Company issued 17,268,954 New Ordinary Shares of 1p each to Shareholders in P5
and P6 as consideration from the Scheme. Â The Company also issued 7,089 New
Ordinary shares of 1p each on 1 April 2010 for a total consideration of £7,500
under an offer for subscription dated 26 February 2010. Â Other creditors include
an amount of £10,000 in respect of funds received in respect of the offer for
shares.
Following these transactions and at the date of this report the Company has
21,869,287 New Ordinary Shares of 1p each in issue.
Other debtors of £170,000 relate to upfront costs in respect of the Scheme, and
represent a proportion of the total costs expected, which as stated in the
prospectus are £350,000.  These were recognised on 1 April 2010.  Accruals,
includes £7,000 in respect of merger costs due at the year end.
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 2010, but has been extracted from
the statutory financial statements for the year ended 31 March 2010, which were
approved by the Board of Directors on 19 July 2010 and will be delivered to the
Registrar of Companies following the Company's Annual General Meeting. Â 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 2009 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
S237(2) or (3) of the Companies Act 1985.
A copy of the full annual report and financial statements for the year ended 31
March 2010 will be printed and posted to shareholders shortly. Copies will also
be available to the public at the registered office of the Company at Kings
Scholars House, 230 Vauxhall Bridge Road, London, SW1V 1AU and will be available
for download from www.downing.co.uk.
[HUG#1432620]
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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