Half-Yearly Report

Downing FOUR VCT plc

LEI: 21380035MV1VRYEXPR95

Half-Yearly Report for the six months ended 30 September 2020

Financial Highlights

	Unaudited	Audited	Unaudited
	30 September 2020	31 March 2020	30 September 2019
	pence	pence	pence
Generalist Share pool
Net Asset Value per Generalist Share	61.2	61.7	77.6
Cumulative distributions	2.5	-	-
Total Return per Generalist Share	63.7	61.7	77.6
Healthcare Share pool
Net Asset Value per Healthcare Share	65.2	68.1	77.7
Cumulative distributions	2.5	-	-
Total Return per Healthcare Share	67.7	68.1	77.7
DSO D Share pool
Net Asset Value per DSO D Share	10.7	12.0	28.9
Cumulative distributions	94.5	94.5	76.5
Adjusted for Performance Incentive estimate*	(1.2)	(4.3)	(4.1)
Total Return per DSO D Share	104.0	102.2	101.3
DP67 Share pool
Net Asset Value per DP67 Share	18.4	18.8	47.4
Cumulative distributions (since original launch)	67.8	67.8	49.8
Total Return per DP67 Share	86.2	86.6	97.2

*Based on Total Return to Shareholders at 30 September 2020, a Performance Incentive is expected to become due to management. The Performance Incentive has been estimated at 1.2p per DSO D Share. No provision has been included in the accounts as the conditions of the Performance Incentive fee have not yet been met.

Chairman’s Statement
Introduction
I present the Company’s Half-Yearly Report for the six months ended 30 September 2020.

When the Company last reported to Shareholders in July, the economy was continuing to suffer from the severe disruption caused by the coronavirus pandemic, although it appeared that the world was starting to take the first steps back to normality. We now know that the path back to something approaching normal is longer than we had envisaged at that time.

Despite the disruption, I am pleased to report that the Company has recommenced new investment activity in recent months and both the Generalist and Healthcare Share pools have continued to build their portfolios. This has been supported by some significant enhancements to the Manager’s team during the period, which has helped to generate new deal flow.

The news is less positive for the planned exit share pools, where the disruption has been a hindrance to the exit processes, compounded by the two portfolios holding assets in sectors which have fared particularly poorly as a result of the pandemic restrictions.

Share pool review
At 30 September 2020, the Company had four active share pools; the largest two being evergreen share pools and the others being planned exit share pools in the process of returning funds to Shareholders.

Evergreen Share pools
Generalist Share pool

At the period end, the Generalist Share net asset value per share (“NAV”) stood at 61.2p. During the period, the share pool paid its first dividend of 2.5p per Share. Total Return (NAV plus dividends paid) at 30 September 2020 stood at 63.7p per Share, an increase of 2.0p from 31 March 2020.

During the period, the Manager invested £4.0 million across six new VCT Qualifying businesses. A further £2.2 million was also invested in five existing companies in the Generalist Venture Capital portfolio, including a reorganisation in which loan notes were converted into equity.

There has been mixed performance across the Venture Capital portfolio over the period. Businesses such as E-Fundamentals (Group) Limited and Virtual Class Limited operate in sectors that have benefitted from the pandemic (Ecommerce and Online Education), which has helped support valuation increases of £1.1m and £703,000 respectively. Conversely, modified timber manufactured, Lignia Wood Company Limited, has been badly impacted by the pandemic and is struggling to raise new funds to support its requirements. It is expected that no value will be recovered from the business and the Generalist Share pool’s investment has therefore been valued at £nil.

The portfolio of non-qualifying liquidity funds, comprise two OEICs and one investment trust managed by Downing LLP, made some recovery over the period, increasing in value by £751,000.

A more detailed review of the Generalist Share pool is included in the Investment Manager’s Report.

Healthcare Share pool

At the period end, the Healthcare Share net asset value per Share (“NAV”) stood at 65.2p. During the period, the share pool paid its first dividend of 2.5p per Share. Total Return (NAV plus dividends paid) at 30 September 2020 stood at 67.7p per Share, compared to 68.1p at 31 March 2020.

During the period, £1.1m was invested in two new VCT Qualifying businesses, whilst a further £539,000 was invested in two of the existing businesses in the Healthcare Venture Capital portfolio.

The Healthcare Venture Capital portfolio produced unrealised losses of £194,000 for the period, the largest movement being a reduction in the value of ADC Biotechnology Limited, as a result of disappointing progress made by the company to date.

As with the Generalist Share pool, the portfolio of non-qualifying liquidity funds recovered some ground over the period, resulting in a valuation uplift of £204,000.

A more detailed review of the Healthcare Share pool is included in the Investment Manager’s Report.

Planned Exit Share pools
DSO D Share pool

The DSO D Share portfolio holds five remaining investments. At the period end, the net asset value per share (“NAV”), net of the estimated performance incentive fee, stood at 9.5p. Total Return at 30 September 2020 stood at 104.0p per share, an increase of 1.8p since 31 March 2020.

The process of exiting from the remaining investments has been significantly disrupted by the coronavirus pandemic. Plans to sell the two solar businesses (Fresh Green Power Limited and Green Energy Production Limited) were delayed as onsite inspections of the assets by the buyer could not take place as planned.

These plans are now being progressed again and we are hopeful this will lead to an exit in the coming months. The share pool’s pub investment, Pearce and Saunders Limited, is more challenging with the original sale plans now having fallen through. The Manager is now developing new plans to exit, although it is clear that this may take some time.

A more detailed review of the DSO D Share pool is included in the Investment Manager’s Report.

DP67 Share pool

The DSO D Share portfolio holds four remaining investments. At the period end, the net asset value (“NAV”) per Share stood at 18.4p. Total Return at 30 September 2020 stood at 86.2p per share, a fall of 0.4p per share since 31 March 2020.

The share pool’s remaining investments all operate in the hospitality sector and, unsurprisingly, the exit plans for each have been heavily impacted by the pandemic. The Manager is continuing to work closely with these businesses to support their operations, to allow new exit plans to be formulated as restrictions are lifted. It is expected that these plans will take some time to come to fruition.

A more detailed review of the DP67 Share pool is included in the Investment Manager’s Report.

Fundraising
During the period, the Company had open offers for subscription in respect of its Generalist and Healthcare Share pools, primarily to allow Shares to be allotted to existing Shareholders continuing their regular monthly applications. During the period, 1,121,210 Generalist shares and 421,679 Healthcare shares were issued at average prices of 62.9p and 69.9p respectively.

The current offers will close on 31 January 2021 and are open for new applications for the current tax year (2020/21). Members of the management team and Directors of the Company have indicated their intention to invest under the current offers. Full details can be found on the following webpage:

www.downing.co.uk/d4

Dividends
The Company will not pay any interim dividends for the period ended 30 September 2020 in respect of its Generalist and Healthcare Share classes. It is expected that the next Generalist and Healthcare dividends will be declared alongside announcement of the annual results for the year ended 31March 2021 and paid, after being approved by Shareholders at the AGM, in September 2021.

With respect to the DSO D and DP67 Share classes, the next dividends will be declared once further realisations have taken place.

Share buybacks
The Company operates a general policy of buying in its own Shares from the Generalist and Healthcare Share pools that become available in the market, subject to regulatory and liquidity factors. Any such purchases are undertaken at a price approximately equal to NAV (i.e. at a nil discount).

As the planned exit share classes are in the process of returning funds to Shareholders, the Company no longer operates a share buyback policy in respect of the DSO D and DP67 Share classes.

No Shares were repurchased in the six-month period ended 30 September 2020.

Panmure Gordon now acts as the Company’s corporate broker and provides assistance in operating the share buyback process, ensuring that the quoted spread on the Company’s evergreen Shares remains at a reasonable level. If you wish to sell or buy Shares in the Company, Panmure Gordon can supply details of closed periods etc. Contact details can be found on the Shareholder Information page of the Half-Yearly Report.

Outlook
With the first vaccinations having been administered in the UK, we can now perhaps start to look ahead to a world where coronavirus will eventually be brought under control and businesses may be able to return to normal functioning. This will, of course, not happen overnight and some businesses will be able to recover more successfully than others.

The Generalist and Healthcare Share pools mostly hold investments in young businesses. The respective Venture Capital portfolios may have already suffered most of the damage that will arise from the coronavirus pandemic.  Some of the weaker businesses may not be able to recover from the crisis and ultimately go on to produce the returns that we had hoped for, however we believe that the portfolios contain a number of investments which have good prospects, particularly those recent new investments where the potential impact of the pandemic was already considered at the time of investment.

The planned exit share pools still face some significant challenges due to their exposure to sectors heavily impacted by the pandemic. The task of working towards exits from their remaining investments will continue, although it may be some time before these can be achieved at acceptable prices.

I look forward to updating all Shareholders in my statement with the Annual Report, which we expect to be published in July 2021.

Sir Aubrey Brocklebank Bt.
Chairman

Investment Manager’s Report - Generalist Share Pool

i) Overview
Introduction
We present a review of the investment portfolio and activity for the Generalist Share pool over the six-month period to 30 September 2020.

This Investment Manager’s Report is split into three sections comprising this overview, a review of Venture Capital Portfolio and a report on the portfolio of Liquidity Investments.

Net Asset Value and results
As at 30 September 2020, the NAV of a Generalist share stood at 61.2p, an increase of 2.0p from 31 March 2020, after adding back the dividend of 2.5p which was paid during the period.

The profit on ordinary activities for the Generalist Share pool for the period was £939,000, comprising a revenue profit of £172,000 and a capital profit of £767,000.

Whilst there has been some recovery in the NAV since 31 March 2020, the Total Return to Shareholders as at 30 September 2020, of 64.2p, continues to be considered an underperformance against our expectations for the Generalist Share pool.

Portfolio Overview
As at 30 September 2020, the Generalist Share Pool held a portfolio of 39 Venture Capital investments and three Liquidity investments, with a combined value of £31.0 million.

The period to 30 September 2020 has been one of significant challenge to the livelihoods of businesses in the UK and the rest of the World. During this period, we have been working closely with portfolio companies to provide guidance and, where appropriate, additional funding to support these businesses in navigating the challenges brought about by the coronavirus pandemic.

As is to be expected, as the Generalist Share pool holds investments in a range of different businesses, the pandemic has impacted certain portfolio companies more severely than others. The valuation movements during the period are discussed in more detail in the following sections of this Investment Manager’s Report.

Portfolio Performance
Overall, the valuation reductions in the Venture Capital Portfolio were largely offset by several valuation uplifts during the period, resulting in a net valuation reduction on this portfolio of £198,000.

The carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 30 September 2020. This resulted in a valuation uplift of £751,000 for the period.

ii) Venture Capital Portfolio
Investment activity
During the period, a total of £6.2 million was invested in eleven businesses, six of which are new VCT Qualifying investments, with five being existing portfolio companies.

New Venture Capital investments
A description of each of the new VCT Qualifying investments made during the period is shown below.

Cornelis Networks, Inc. (£1.4 million) has developed purpose-built high-performance fabrics used within commercial, scientific, academic and government organisations. 

Parsable, Inc. (£766,000) has developed mobile-centric applications and web admin system software to improve operational efficiency within the corporate and manufacturing industry.

Ayar Labs, Inc. (£764,000) has developed components for high performance computing and data centre applications.

Carbice Corporation (£656,000) has developed a suite of products based on carbon nanotube with their products primarily used as thermal management solutions.

Trinny London Limited (£219,000) is an e-commerce-based beauty and cosmetics brand launched by Trinny Woodall.

MIP Diagnostics Limited (£200,000) is a manufacturer of polymer based synthetic antibodies which are used across a variety of sectors including diagnostics, sensors, food testing and reagent purification.

Follow-on Venture Capital investments
A description of each of the follow-on investments made into existing businesses in the Venture Capital Portfolio is shown below.

During the period, the existing loan note investments in Empiribox Holdings Limited, a provider of equipment and training to primary schools across the UK, converted into equity as part of a restructuring. At this point, all outstanding loan note interest was also converted into equity. The Generalist Share pool also made a further equity investment of £250,000 during the period.

A further £525,000 was invested in FundingXchange Limited, bringing the Generalist Share pool’s total investment to date to £1.1 million. The business is an SME funding platform and B2B technology provider which enables online lending.

£434,000 was invested in Congenica Limited, a company which has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients.

A further £125,000 was invested in Virtual Class Limited, trading as Third Space Learning. The
company has developed an online educational platform that provides mathematics tuition to pupils studying for their Key Stage 2 exams.

£62,000 was invested in ADC Biotechnology Limited, a company creating innovative new technology which aims to speed up, simplify and lower the costs of the processes involved in the production of new Antibody Drug Conjugates (ADCs).

Portfolio valuation
During the period, Venture Capital portfolio of the Generalist Share pool was reduced in value by a total of £198,000. Whilst there have been several positive developments within the Venture Capital portfolio, a number of companies were reduced in value due to them not progressing as we had hoped.

Lignia Wood Company Limited has experienced material reductions in demand over the previous six months as the restrictions on the movement of goods have impacted the supply chain significantly. Given the impact of coronavirus on the business’ performance to date, coupled with the ongoing uncertainty caused by the pandemic, the business has not been able to raise further funds. As a result, we believe there is a significant risk that the business may now ultimately fail and the value of the Generalist Share pool’s investment has therefore been reduced to £nil.

As noted previously, Empiribox Holdings Limited was restructured during the period. The valuation of the Generalist Share pool’s investment in the business was reduced by £403,000 during the period. This unrealised valuation reduction was partially offset by a realised gain of £325,000 on the conversion of the Generalist Share pool’s loan notes, giving a net loss of £83,000 for the period, in respect of this investment.

ADC Biotechnology Limited is significantly behind on its plans and has been written down by a further £309,000 as a result. The recent follow-on investment was made with the aim of supporting the business in the short-term.

The transformation of Upp Technologies Group is yet to result in the achievement of the revenue targets set out at the time of the most recent investment. The coronavirus pandemic has created further challenges in this regard and the investment has been reduced in value by £298,000 as a result.

Exonar Limited has been reduced in value by £204,000, to reflect the valuation set at the company’s most recent funding round.

Whilst it is disappointing to report these valuation reductions for the period, there were several positive developments in the portfolio.

E-Fundamentals (Group) Limited has progressed well both in the UK and in the US, with recurring revenues continuing to grow. This good performance has resulted in a valuation uplift of £1.1 million as at 30 September 2020.

Virtual Class Limited, which received further funding from the Generalist Share pool during the period, was uplifted in value by £703,000 as at 30 September 2020. The business has seen an increase in demand for its online educational platform.

Rated People Limited has also progressed well, and the valuation of the Generalist Share pool’s investment in the business was uplifted by £302,000 as at 30 September 2020

Other smaller valuation movements in the Venture Capital Portfolio amounted to a net uplift of £195,000 for the period.

Outlook
It is frustrating to report further valuation reductions in the Generalist Venture Capital Portfolio. The far reaching and continuing impacts of coronavirus have intensified the challenges faced by young growth companies. However, we are encouraged that many of these companies have been able to adapt their operations and continue with their plans during these difficult and uncertain times. This is demonstrated by some of the recent investments made by the Generalist Share pool and the valuation uplifts at the half-year date.

Our focus for the Venture Capital Portfolio is on working with management teams to help these businesses achieve their milestones, whilst adding new investments to the portfolio where we feel the opportunity is appropriate.

ii) Liquidity Investments
The carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 30 September 2020. This resulted in a total uplift of £751,000 for the period.

Downing Strategic Micro-Cap Investment Trust plc
The value of the Generalist Share pool’s holding in Downing Strategic Micro-Cap Investment Trust plc (“DSM”) was increased in value by £44,000 during the period. The Managers of DSM believe that the discount, and the underlying share prices, materially undervalue the prospects of the company and its investments. The Managers are also confident that the company has a strong portfolio of fundamentally good companies with strong balance sheets and the crucial ‘survivability’ factor. DSM intends to add to those positions that it is currently building, and perhaps introduce one or two other investments over time. The Managers’ focus is also on driving the catalysts for value in DSM’s more mature portfolio.

Downing Monthly Income Fund
The value of the Generalist Share pool’s investment in Downing Monthly Income Fund (“DMI”) increased by £331,000, or 12.2% during the period. This compares to 7.44% returned by the IA UK Equity Income Sector. The period was very challenging as markets sold off indiscriminately as coronavirus caused chaos globally. Over the summer there were some signs of normality as lockdown restrictions were eased and markets began to recover. However, volatility has been a constant theme throughout the period as fears over a second wave of the pandemic, and latterly Brexit and the US elections, impacted on both investor and market sentiment.

The Managers of DMI have positioned the portfolio defensively and have focused on improving the quality of the portfolio, concentrating on companies with resilient earnings and strong capital positions. The Managers believe that the fund is well positioned for the more protracted economic headwinds that the UK economy undoubtably faces over the coming months.

Downing Micro-Cap Growth Fund
The value of the Generalist Share pool’s investment in Downing Micro-Cap Growth Fund (“DMCG”) increased by £376,000 or 16.6% over the six-month period to 30 September 2020. Over the period under review, DMCG outperformed the NSCI Small Value segment by 9.14% which the Managers believe reflects successful stock picking under the new mandate, which allows the managers to invest in up to 40 companies with a market cap of under £350 million at initial investment.

Since the period end the ACD (Associated Corporate Director), and Downing LLP have taken the decision to suspend DMCG (meaning that shares cannot be purchased or sold), on the grounds of the funds ongoing viability due to its small size. Options are being explored for the fund which include an orderly winding up and a return of capital to shareholders.

Outlook
The coronavirus crisis has hit all parts of the UK market but large cap companies have held up slightly better than their smaller company peers as they are considered more exposed to the UK domestic economy. The Managers are encouraged by the actions management teams have taken and believe that the portfolio companies are now structurally in a better position than they were pre-coronavirus, and that they are now more resilient to a second wave of the pandemic. The Managers report that these companies have strong balance sheets, more resilient earnings, better returns on capital and less debt, but on considerably more attractive valuations than the broader market.

The Managers believe that markets will continue to be volatile given the ongoing challenges caused both by coronavirus and the political uncertainties due to the Brexit transition and the US elections. While it is difficult to be positive in the short term, the Managers believe the portfolios are well positioned to continue to grow over the medium to longer term.

Downing LLP

Review of Investments – Generalist Share Pool
The following investments were held at 30 September 2020:

		Cost		Valuation	Valuation Movement in period	% of portfolio
Portfolio of investments		£’000		£’000	£’000
Venture Capital investments
E-Fundamentals (Group) Limited		1,342		2,408	1,066	7.8%
Rated People Limited		1,282		1,584	302	5.1%
Cornelis Networks, Inc.		1,402		1,402	-	4.5%
Virtual Class Limited (Third Space Learning)		928		1,374	703	4.4%
Trouva Limited		1,050		1,101	-	3.5%
FundingXchange Limited		1,050		1,050	-	3.4%
Firefly Learning Limited		1,047		1,047	-	3.4%
Imagen Limited		1,000		1,000	-	3.2%
Ecstase Limited		1,000		1,000	-	3.2%
Limitless Technology Limited		757		803	-	2.6%
Hackajob Limited		784		784	-	2.5%
Parsable, Inc.		766		766	-	2.5%
Ayar Labs, Inc.		764		764	-	2.5%
Congenica Limited		734		746	12	2.4%
Masters of Pie Limited		667		667	-	2.1%
Carbice Corporation		656		656	-	2.1%
Empiribox Holdings Limited		1,888		607	(403)	2.0%
JRNI Limited		525		525	-	1.7%
Upp Technologies Group Limited (previously Volo Commerce)			1,077	510	(298)	1.6%
Hummingbird Technologies Limited		500		503	85	1.6%
Maverick Pubs (Holdings) Limited		1,000		500	-	1.6%
BridgeU Corporation		810		462	48	1.5%
Lineten Limited		400		400	-	1.3%
Fenkle Street LLP*		301		385	(15)	1.2%
Cambridge Touch Technologies Limited		459		361	-	1.2%
Channel Mum Limited		500		300	-	1.0%
Arecor Limited		300		300	-	1.0%
Exonar Limited		500		296	(204)	1.0%
FVRVS Limited		250		250	-	0.8%
ADC Biotechnology Limited		877		231	(309)	0.7%
Trinny London Limited		219		219	-	0.7%
MIP Diagnostics Limited		200		200	-	0.6%
Destiny Pharma plc^		500		169	65	0.5%
Lignia Wood Company Limited		1,778		-	(1,250)	0.0%
Live Better With Limited		1,211		-	-	0.0%
Xupes Limited		933		-	-	0.0%
Ormsborough Limited		900		-	-	0.0%
Glownet Limited		741		-	-	0.0%
		31,128		23,370	(198)	75.2%
Liquidity investments
MI Downing Monthly Income Fund*		3,950		3,043	331	9.8%
MI Downing UK Micro-Cap Growth Fund*		4,025		2,646	376	8.5%
Downing Strategic Micro-Cap Investment Trust plc*^		4,269		1,917	44	6.2%
		12,244		7,606	751	24.5%
		43,372		30,976	553	99.7%
Cash at bank and in hand				79		0.3%
Total investments				31,055		100.0%

All Venture Capital investments are incorporated in England and Wales.
*non-qualifying investment
**partially qualifying investment                     
^listed and traded on the London Stock Exchange

Investment movements for the period ended 30 September 2020

	Cost
Additions	£’000
Venture Capital investments
Cornelis Networks, Inc.	1,402
Empiribox Holdings Limited	1,010
Parsable, Inc.	766
Ayar Labs, Inc.	764
Carbice Corporation	656
FundingXchange Limited	525
Congenica Limited	434
Trinny London Limited	219
MIP Diagnostics Limited	200
Virtual Class Limited (Third Space Learning)	125
ADC Biotechnology Limited	62
	6,163

	Cost	Valuation at 01/04/20	Proceeds	Profit/(loss) vs. cost	Realised gain
Disposals	£’000	£’000	£’000	£’000	£’000
Venture Capital investments
Empiribox Holdings Limited	650	325	650	-	325
	650	325	650	-	325

Investment Manager’s Report- Healthcare Share Pool

i) Overview
Introduction
We present a review of the investment portfolio and activity for the Healthcare Share pool over the six-month period to 30 September 2020.

This Investment Manager’s Report is split into three sections comprising this overview, a review of Venture Capital Portfolio and a report on the portfolio of Liquidity Investments.

Net Asset Value and results
As at 30 September 2020, the NAV of a Healthcare share stood at 65.2p, a decrease of 0.4p from 31 March 2020, after adding back the dividend of 2.5p which was paid during the period.

The loss on ordinary activities for the Healthcare Share pool for the period was £85,000, comprising a revenue loss of £21,000 and a capital loss of £64,000.

The Total Return to Healthcare Shareholders, as at 30 September 2020, was 67.7p. This underperformance against our expectations for the Healthcare Share pool is disappointing to report.

Portfolio Overview
As at 30 September 2020, the Healthcare Share Pool held a portfolio of 12 Venture Capital investments and three Liquidity investments, with a combined value of £9.7 million.

The period to 30 September 2020 saw the impact of the coronavirus pandemic extend through all sectors of the UK economy. Whilst some Healthcare businesses have been positively impacted by the efforts to contain the virus, reduce the burden on the NHS and develop a vaccine, others have been negatively impacted by the delays in both elective surgeries and the trials of certain pharmaceuticals.

The valuation movements during the period are discussed in more detail in the following sections of this Investment Manager’s Report.

Portfolio Performance
There were several valuation movements in the Venture Capital Portfolio during the period, resulting in a net valuation reduction of £196,000.

The carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 30 September 2020. This resulted in a valuation uplift of £204,000 for the period.

ii) Venture Capital Portfolio
Investment activity
During the period, a total of £1.6 million was invested in four businesses, two of which are new VCT Qualifying investments and the remaining two being existing portfolio companies.

New Venture Capital investments
A description of each of the two new VCT Qualifying investments made during the period is shown below.

Genincode UK Limited, trading as GEN inCode (£900,000), develops products and technology that helps patients and healthcare practitioners to assess and predict the onset of cardiovascular disease, thrombosis, and the diagnosis of Familial Hypercholesterolemia.

MIP Diagnostics Limited (£200,000) is a manufacturer of polymer based synthetic antibodies which are used across a variety of sectors including diagnostics, sensors, food testing and reagent purification.

Follow-on Venture Capital investments
A further £434,000 was invested in Congenica Limited, a business which has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients.

£105,000 was also invested in ADC Biotechnology Limited, a company creating innovative new technology which aims to speed up, simplify and lower the costs of the processes involved in the production of new Antibody Drug Conjugates (ADCs).

Portfolio valuation
During the period, Venture Capital portfolio of the Healthcare Share pool was reduced in value by a total of £196,000.

Whilst the majority of the businesses in the Healthcare Share pool’s Venture Capital portfolio were able to progress with their plans over the period, we are disappointed to report that ADC Biotechnology Limited is significantly behind on its plans and has been written down by a further £267,000 as a result. The recent follow-on investment noted above was made with the aim of supporting the business in the short-term.

The Electrospinning Company Limited is a supplier and manufacturer of clinical-grade biomaterials, which can be used to act as a synthetic scaffold for implantation within body tissue to promote repair post trauma or surgery. The carrying value of the Healthcare Share pool’s investment was reduced by £58,000 as at 30 September 2020, to reflect the valuation set at the latest funding round.

Destiny Pharma plc (“Destiny Pharma”), which is listed on London’s Alternative Investment Market (AIM), was uplifted by £98,000 as at 30 September 2020, in line with the prevailing quoted price at that date. There has been some recovery in the share price since the market correction in March 2020, however the company’s latest clinical trial in respect of its XF-73 drug, which seeks to reduce the incidence of post-surgical infections, has been delayed because of the coronavirus pandemic. The company recently reported that trial recruitment has resumed, and it expects the results of this trial to be reported in Q1 2021. In November, the company also announced an £11.5 million funding round to facilitate the acquisition of the global rights to NTCD-M3, a drug combating C. difficile.

Congenica Limited was uplifted in value by £31,000 as at 30 September 2020. This slight uplift reflects the share price set under the most recent funding round, in which the Healthcare Share pool partook.

It is disappointing to report that we continue to anticipate no recovery of value from Live Better With Limited, a developer of a healthcare website aiming to help people with long term medical conditions.

Outlook
The building of the Venture Capital portfolio of the Healthcare Share pool has progressed well during the period. The focus for the Manager is on working with the existing portfolio companies to help these businesses achieve their plans, whilst also continuing to add appropriate VCT Qualifying investments to the Healthcare Share pool’s portfolio.

Whilst is it disappointing to report an early loss in the portfolio, it is typically the case with young growth companies that the weaker investments will come to the forefront first, before the performance of stronger investments has the opportunity to materialise. We are, however, pleased with how the majority of the Venture Capital portfolio has coped with the challenges brought about by the coronavirus pandemic and remain optimistic about the future prospects of these businesses.

iii) Liquidity Investments
The carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 30 September 2020. This resulted in a total uplift of £204,000 for the period.
Downing Strategic Micro-Cap Investment Trust plc
The value of the Healthcare Share pool’s holding in Downing Strategic Micro-Cap Investment Trust plc (“DSM”) was increased in value by £7,000 during the period. The Managers of DSM believe that the discount, and the underlying share prices, materially undervalue the prospects of the company and its investments. The Managers are also confident that the company has a strong portfolio of fundamentally good companies with strong balance sheets and the crucial ‘survivability’ factor. DSM intends to add to those positions that it is currently building, and perhaps introduce one or two other investments over time. The Managers’ focus is also on driving the catalysts for value in DSM’s more mature portfolio.

Downing Monthly Income Fund
The value of the Healthcare Share pool’s investment in Downing Monthly Income Fund (“DMI”) increased by £92,000, or 12.2% during the period. This compares to 7.44% returned by the IA UK Equity Income Sector. The period was very challenging as markets sold off indiscriminately as coronavirus caused chaos globally. Over the summer there were some signs of normality as lockdown restrictions were eased and markets began to recover. However, volatility has been a constant theme throughout the period as fears over a second wave of the pandemic, and latterly Brexit and the US elections, impacted on both investor and market sentiment.

The Managers of DMI have positioned the portfolio defensively and have focused on improving the quality of the portfolio, concentrating on companies with resilient earnings and strong capital positions. The Managers believe that the fund is well positioned for the more protracted economic headwinds that the UK economy undoubtably faces over the coming months.

Downing Micro-Cap Growth Fund
The value of the Healthcare Share pool’s investment in Downing Micro-Cap Growth Fund (“DMCG”) increased by £105,000 or 16.6% over the six-month period to 30 September 2020. Over the period under review, DMCG outperformed the NSCI Small Value segment by 9.14% which the Managers believe reflects successful stock picking under the new mandate which allows the managers to invest in up to 40 companies with a market cap of under £350 million at initial investment.

Since the period end the ACD (Associated Corporate Director), and Downing LLP have taken the decision to suspend DMCG (meaning that shares cannot be purchased or sold), on the grounds of the funds ongoing viability due to its small size. Options are being explored for the fund which include an orderly winding up and a return of capital to shareholders.

Outlook
The coronavirus crisis has hit all parts of the UK market but large cap companies have held up slightly better than their smaller company peers as they are considered more exposed to the UK domestic economy. The Managers are encouraged by the actions management teams have taken and believe that the portfolio companies are now structurally in a better position than they were pre-coronavirus, and that they are now more resilient to a second wave of the pandemic. The Managers report that these companies have strong balance sheets, more resilient earnings, better returns on capital and less debt, but on considerably more attractive valuations than the broader market.

The Managers believe that markets will continue to be volatile given the ongoing challenges caused both by coronavirus and the political uncertainties due to the Brexit transition and the US elections. While it is difficult to be positive in the short term, the Managers believe the portfolios are well positioned to continue to grow over the medium to longer term.

Downing LLP

Review of Investments – Healthcare Share Pool
The following investments were held at 30 September 2020:

		Cost	Valuation	Valuation Movement in period	% of portfolio
Portfolio of investments		£’000	£’000	£’000
Venture Capital investments
Congenica Limited		1,184	1,215	31	12.5%
Arecor Limited		1,100	1,100	-	11.3%
Open Bionics Limited		1,000	1,000	-	10.3%
Genincode UK Limited		900	900	-	9.3%
MyRecovery Limited		528	556	-	5.7%
Adaptix Limited		556	556	-	5.7%
FVRVS Limited		500	500	-	5.2%
ADC Biotechnology Limited		1,497	393	(267)	4.0%
Destiny Pharma plc^		750	253	98	2.6%
The Electrospinning Company Limited		278	220	(58)	2.3%
MIP Diagnostics Limited		200	200	-	2.1%
Live Better With		1,106	-	-	0.0%
		9,599	6,893	(196)	71.0%
Liquidity Investments
MI Downing Monthly Income Fund*		1,100	849	92	8.8%
MI Downing UK Micro-Cap Growth Fund*		1,125	737	105	7.6%
Downing Strategic Micro-Cap Investment Trust plc*^		729	327	7	3.4%
		2,954	1,913	204	19.8%
		10,914	8,806	8	90.8%
Cash at bank and in hand			890		9.2%
Total investments			9,696		100.0%

*non-qualifying investment
^listed and traded on the London Stock Exchange

Investment movements for the period ended 30 September 2020

	Cost
Additions	£’000
Venture Capital investments
Genincode UK Limited	900
Congenica Limited	434
MIP Diagnostics Limited	200
ADC Biotechnology Limited	105
	1,639

Investment Manager’s Report DSO D Share Pool

Introduction
The process of realising the investments and returning funds to Shareholders remains the focus of the DSO D Share pool, although this has been subject to significant delays as a result of the coronavirus pandemic.

Net Asset Value and results
The Net Asset Value (“NAV”) per DSO D Share at 30 September 2020, net of the estimated performance incentive fee, stood at 10.7p, an increase of 1.8p over the period. Whilst the reported NAV (prior to the deduction of the performance fee estimate) reduced by 1.3p during the period, the estimated performance incentive fee, which is expected to become due to partners and staff of Downing LLP, also reduced during the period.

Total Return, net of the estimated performance fee, stands at 104.0p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per Share. We consider this to be satisfactory performance when compared to the initial NAV of 100p.

The loss on ordinary activities after taxation for the period was £104,000, comprising a revenue loss of £3,000 and a capital loss of £101,000.

Whilst it is unfortunate to report further delays in the realisation process, the NAV of the DSO Share pool has, to date, been materially unaffected by the widespread implications of the coronavirus pandemic. We believe that there continue to be opportunities to exit from the remaining investments, however we expect this process will take some time to complete.

Venture Capital investments
As at 31 March 2020, the DSO D Share Pool held five Venture Capital investments with a total value of £458,000.

Portfolio activity
Pearce and Saunders Limited, the owner of freehold pubs in south east London, repaid loan note principal of £25,000 during the period, along with a redemption premium of £75,000.

Pearce and Saunders Devco Limited also repaid loan note principal of £1,000.

Portfolio valuation
During the year, the carrying value of the portfolio of Venture Capital investments held by the DSO D Share pool was reduced by £97,000.

Pearce and Saunders Limited has been heavily impacted by the restrictions and forced closures brought about by the coronavirus pandemic. Accordingly, the valuation has been reduced by £149,000 as at 30 September 2020.

There were two small increases in value the period, the larger being an uplift of £42,000 on Fresh Green Power Limited, the owner of solar panels on the rooftops of domestic properties in the UK, which has been revalued as part of a potential sale.

Green Energy Production UK Limited owns a portfolio of commercial solar panels on the rooftops of Chicken sheds in Lincolnshire. The company is valued on a discounted cash flow basis and has been increased in value by £10,000, in accordance with the unwinding of the discount inherent in the valuation.

Outlook
The focus for the DSO D Share pool continues to be on realising the remaining investments. The coronavirus pandemic has further delayed these exit processes, which we had originally hoped to complete by the end of this year. We now anticipate that these processes will be completed by the end of 2021. During this period, we will continue to support the companies in the portfolio and seek to maximise value for DSO D Shareholders. Further distributions will be once the final realisations have taken place.

Downing LLP

Review of investments - DSO D Share Pool
The following investments were held at 30 September 2020:

	Cost	Valuation	Valuation Movement in period	% of portfolio
Portfolio of investments	£’000	£’000	£’000
Venture Capital investments
Fresh Green Power Limited	189	273	42	35.5%
Pearce and Saunders Limited	275	95	(149)	12.3%
Green Energy Production UK Limited	100	64	10	8.3%
Pearce and Saunders DevCo Limited*	19	19	-	2.5%
Apex Energy Limited	400	7	-	0.9%
	983	458	(97)	59.5%
Cash at bank and in hand		312		40.5%
Total investments		770		100.0%

* non-qualifying investment

All Venture Capital investments are incorporated in England and Wales.

Investment movements for the period ended 30 September 2020

	Cost	Valuation at 01/04/20	Proceeds	Profit vs. cost	Realised gain
Disposals	£’000	£’000	£’000	£’000	£’000
Venture Capital investments
Pearce and Saunders Limited	25	100	100	75	-
Pearce and Saunders DevCo Limited*	1	1	1	-	-
	26	101	101	75	-

* non-qualifying investment

Investment Manager’s Report - DP67 Share Pool

Introduction
The process of realising the investments and returning funds to DP67 Shareholders remains the focus for this Share pool, although, as Shareholders will be aware, this has been subject to substantial delays as a result of the coronavirus pandemic.

Net Asset Value and results
The Net Asset Value (“NAV”) per DP67 Share at 31 March 2020 stood at 18.4p, a decrease of 0.4p over the period. Total Return stands at 86.2p per DP67 Share, compared to initial cost to Shareholders, net of income tax relief, of 70.0p per Share. Compared to the initial NAV of 100p, we consider the Total Return of 86.2p to be underperformance against the original expectations for the DP67 Share pool.

The loss on ordinary activities after taxation for the period was £39,000, comprising a revenue loss of £5,000 and a capital loss of £34,000.

As we set out in the last Annual Report, the DP67 portfolio has a high level of exposure to the leisure and hospitality sector, which has been severely impacted by the restrictions and forced closures accompanying the coronavirus pandemic. It is difficult to progress with exits from these types of investments at a time when the underlying businesses are unable to operate at full capacity. We continue to seek the best realisation outcomes for DP67 Shareholders but anticipate that it will take some time for these to be achieved.

Venture Capital investments
As at 31 March 2020, the DP67 Share pool held a portfolio of five Venture Capital investments, with a total value of £2.1 million.

Portfolio activity
It is disappointing to report that there were no realisations during the period.

Portfolio valuation
The DP67 portfolio was reduced in value by a total of £27,000 during the period. This reduction was wholly attributable to Fenkle Street LLP. The business is valued on a discounted cash flow basis and the timeline of the expected cash recovery has been set back in view of the coronavirus pandemic.

The valuations of the remaining Venture Capital investments are unchanged from those stated in the Annual Report to 31 March 2020.

Outlook
The focus for the DP67 Share pool continues to be on realising the remaining investments. The delays in the exit processes are frustrating, however we are hopeful that these might now complete by Q4 2021. In the interim, we will continue to work with management teams in order to maximise the proceeds for the DP67 Share pool. Further dividends will be paid once the final realisations have taken place.

Downing LLP

Review of Investments – DP67 Share Pool
The following investments were held at 30 September 2020:

		Cost	Valuation	Valuation Movement in period	% of portfolio
Portfolio of investments		£’000	£ ’000	£’000
Venture Capital investments
Cadbury House Holdings Limited		1,409	791	-	38.2%
Fenkle Street LLP*		405	723	(27)	34.9%
Gatewales Limited**		343	527	-	25.5%
Yamuna Renewables Limited		400	-	-	0.0%
London City Shopping Centre Limited*		99	-	-	0.0%
		2,656	2,041	(27)	98.6%
Cash at bank and in hand			28		1.4%
Total investments			2,069		100.0%

*non-qualifying investment
**partially qualifying investment
All Venture Capital investments are incorporated in England and Wales.

There were no investment disposals during the period.

UNAUDITED INCOME STATEMENT
for the six months ended 30 September 2020

			Six months ended 30 Sep 2020				Six months ended 30 Sep 2019				Year ended 31 Mar 2020
			Revenue	Capital	Total		Revenue	Capital	Total		Total
			£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income			234	2	236		156	59	215		341
Gains/(losses) on investments			-	762	762		-	(2,717)	(2,717)		(11,837)
			234	764	998		156	(2,658)	(2,502)		(11,496)
Investment management fees			(196)	(196)	(392)		(286)	(286)	(572)		(1,123)
Other expenses			105	-	105		(279)	-	(279)		(711)
Profit/(loss) on ordinary activities before tax			143	568	711		(409)	(2,944)	(3,353)		(13,330)
Tax on total comprehensive income and ordinary activities			-	-	-		(306)	-	(306)		(300)
Profit/(loss) attributable to equity Shareholders, being total comprehensive income for the period			143	568	711		(715)	(2,944)	(3,659)		(13,630)
Basic and diluted return per share:
Generalist Share			0.4p	1.6p	2.0p		(0.7p)	(5.8p)	(6.5p)		(24.0p)
Healthcare Share			(0.1p)	(0.3p)	(0.4p)		(0.7p)	(5.1p)	(5.8p)		(15.0p)
DSO D Share			-	(1.3p)	(1.3p)		-	-	1.2p		2.2p
DP67 Share			(0.1p)	(0.3p)	(0.4p)		(2.2p)	1.1p	(1.1p)		(11.8p)

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

Unaudited Income Statement
Analysed by Share pool
for the six months ended 30 September 2020

	Six months ended 30 Sep 2020				Six months ended 30 Sep 2019				Year ended 31 Mar 2020
	Revenue	Capital	Total		Revenue	Capital	Total		Total
Generalist Share pool	£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income	195	2	197		21	59	80		133
Net loss on investments	-	878	878		-	(2,283)	(2,283)		(8,952)
	195	880	1,075		21	(2,224)	(2,203)		(8,819)
Investment management fees	(113)	(113)	(226)		(166)	(166)	(332)		(668)
Other expenses	90	-	90		(161)	-	(161)		(316)
Profit/(loss) on ordinary activities before tax	172	767	939		(306)	(2,390)	(2,696)		(9,803)
Tax on total comprehensive income and ordinary activities	-	-	-		-	-	-		4
Profit/(loss) attributable to equity Shareholders, being total comprehensive income for the period	172	767	939		(306)	(2,390)	(2,696)		(9,799)

	Six months ended 30 Sep 2020				Six months ended 30 Sep 2019				Year ended 31 Mar 2020
	Revenue	Capital	Total		Revenue	Capital	Total		Total
Healthcare Share pool	£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income	22	-	22		22	-	22		43
Net loss on investments	-	8	8		-	(812)	(812)		(2,363)
	22	8	30		22	(812)	(790)		(2,320)
Investment management fees	(72)	(72)	(144)		(77)	(77)	(154)		(326)
Other expenses	29	-	29		(64)	-	(64)		(120)
Loss on ordinary activities before tax	(21)	(64)	(85)		(119)	(889)	(1,008)		(2,766)
Tax on total comprehensive income and ordinary activities	-	-	-		-	-	-		-
Loss attributable to equity Shareholders, being total comprehensive income for the period	(21)	(64)	(85)		(119)	(889)	(1,008)		(2,766)

	Six months ended 30 Sep 2020				Six months ended 30 Sep 2019				Year ended 31 Mar 2020
	Revenue	Capital	Total		Revenue	Capital	Total		Total
DSO D Share pool	£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income	7	-	7		6	-	6		142
Net loss on investments	-	(97)	(97)		-	104	104		69
	7	(97)	(90)		6	104	110		211
Investment management fees	(4)	(4)	(8)		(8)	(8)	(16)		(30)
Other expenses	(6)	-	(6)		(11)	-	(11)		(16)
Loss on ordinary activities before tax	(3)	(101)	(104)		(13)	96	(83)		165
Tax on total comprehensive income and ordinary activities	-	-	-		-	-	-		10
Loss attributable to equity Shareholders, being total comprehensive income for the period	(3)	(101)	(104)		(3)	96	(93)		175

	Six months ended 30 Sep 2020				Six months ended 30 Sep 2019				Year ended 31 Mar 2020
	Revenue	Capital	Total		Revenue	Capital	Total		Total
DP67 Share pool	£’000	£’000	£’000		£’000	£’000	£’000		£’000
Income	10	-	10		107	-	107		20
Net loss on investments	-	(27)	(27)		-	143	143		(722)
	10	(27)	(17)		107	143	250		(702)
Investment management fees	(7)	(7)	(14)		(18)	(18)	(36)		(72)
Other expenses	(8)	-	(8)		(23)	-	(23)		(229)
Loss on ordinary activities before tax	(5)	(34)	(39)		66	125	191		(1,003)
Tax on total comprehensive income and ordinary activities	-	-	-		(316)	-	(316)		(314)
Loss attributable to equity Shareholders, being total comprehensive income for the period	(5)	(34)	(39)		(250)	125	(125)		(1,317)

Unaudited Balance Sheet
as at 30 September 2020

			As at 30 September 2020		As at 30 September 2019		As at 31 March 2020
			£’000		£’000		£’000
Fixed assets
Investments			42,281		37,135		34,464
Current assets
Debtors			375		558		548
Cash at bank and in hand			1,309		18,437		9,614
			1,684		18,995		10,162
Creditors: amounts falling due within one year			(556)		(481)		(801)
Net current assets			1,128		18,514		9,361
Net assets			43,409		55,649		43,825
8BCapital and reserves
Called up Share capital			100		149		98
Capital redemption reserve			58		-		58
Special reserve			37,377		45,762		39,433
Share premium account			18,930		17,102		17,971
Funds held in respect of Shares not yet allotted			68		167		535
Revaluation reserve			(12,610)		(8,395)		(13,302)
Capital reserve – realised			2,803		3,733		2,483
Revenue reserve			(3,317)		(2,869)		(3,451)
Total equity Shareholders’ funds			43,409		55,649		43,825
Basic and diluted Net Asset Value per Share:
Generalist Share			61.2p		77.6p		61.7p
Healthcare Share			65.2p		77.7p		68.1p
DSO D Share			10.7p		28.9p		12.0p
DP67 Share			18.4p		47.4p		18.7p

Unaudited Balance Sheet
Analysed by Share pool

as at 30 September 2020

	As at 30 September 2020		As at 30 September 2019		As at 31 March 2020
Generalist Share pool	£’000		£’000		£’000
Fixed assets
Investments	30,976		26,504		24,584
Current assets
Debtors	240		201		442
Cash at bank and in hand	79		7,594		3,350
	319		7,795		3,792
Creditors: amounts falling due within one year	(3,070)		(218)		(266)
Net current assets	(2,751)		7,577		3,526
Net assets	28,225		34,081		28,110
Capital and reserves
Called up share capital	57		51		56
Capital redemption reserve	58		-		58
Special reserve	26,082		30,711		27,666
Share premium account	13,180		11,889		12,505
Funds held in respect of shares not yet allotted	61		144		410
Revaluation reserve	(9,322)		(6,606)		(10,201)
Capital reserve – realised	426		101		101
Revenue reserve	(2,317)		(2,209)		(2,485)
Total equity Shareholders’ funds	28,225		34,081		28,110

	As at 30 September 2020		As at 30 September 2019		As at 31 March 2020
Healthcare Share pool	£’000		£’000		£’000
Fixed assets
Investments	8,806		7,008		7,157
Current assets
Debtors	2,882		6		7
Cash at bank and in hand	890		7,099		5,930
	3,772		7,105		5,937
Creditors: amounts falling due within one year	(291)		(126)		(419)
Net current assets	3,481		6,979		5,518
Net assets	12,287		13,987		12,675
Capital and reserves
Called up share capital	24		21		23
Special reserve	10,323		11,970		10,867
Share premium account	5,750		5,213		5,466
Funds held in respect of shares not yet allotted	7		23		125
Revaluation reserve	(2,640)		(2,206)		(2,651)
Capital reserve – realised	-		-		-
Revenue reserve	(1,177)		(1,034)		(1,155)
Total equity Shareholders’ funds	12,287		13,987		12,675

	As at 30 September 2020		As at 30 September 2019		As at 31 March 2020
DSO D Share pool	£’000		£’000		£’000
Fixed assets
Investments	458		690		655
Current assets
Debtors	82		18		50
Cash at bank and in hand	312		1,591		272
	394		1,609		322
Creditors: amounts falling due within one year	(12)		(21)		(33)
Net current assets	382		1,588		289
Net assets	840		2,278		944
Capital and reserves
Called up share capital	8		8		8
Special reserve	972		2,356		900
Revaluation reserve	(132)		41		39
Capital reserve – realised	(37)		(37)		(37)
Revenue reserve	29		(90)		34
Total equity Shareholders’ funds	840		2,278		944

	As at 30 September 2020		As at 30 September 2019		As at 31 March 2020
DP67 Share pool	£’000		£’000		£’000
Fixed assets
Investments	2,041		2,933		2,068
Current assets
Debtors	53		333		49
Cash at bank and in hand	28		2,120		62
	81		2,453		111
Creditors: amounts falling due within one year	(65)		(83)		(83)
Net current assets	16		2,370		28
Net assets	2,057		5,303		2,096
Capital and reserves
Called up share capital	11		11		11
Special reserve	-		783		-
Revaluation reserve	(516)		376		(489)
Capital reserve – realised	2,414		3,669		2,419
Revenue reserve	148		464		155
Total equity Shareholders’ funds	2,057		5,303		2,096

Statement of Changes in Equity
for the six months ended 30 September 2020

	Called up Share capital					Capital Redemption reserve	Special reserve	Share premium account	Funds held in respect of  Shares not yet allotted	Revaluation Reserve	Capital reserve-  realised	Revenue reserve	Total
	£’000					£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 31 March 2019	138					-	47,040	7,172	4,772	(4,158)	4,940	(1,752)	58,152
Total comprehensive income		-				-	-	-	-	(12,227)	(103)	(1,300)	(13,630)
Transfer between reserves*	-					-	(7,530)	-	-	3,083	4,843	(399)	-
Unallotted Shares	-					-	-	-	535	-	-	-	535
Transactions with owners
Dividend paid	-					-	-	-	-	-	(7,200)	-	(7,200)
Cancellation of shares	(58)					58
Purchase of own shares	-					-	(77)	-	-	-	-	-	(77)
Issue of shares	18					-	-	11,178	(4,772)	-	-	-	6,424
Share issue costs	-					-	-	(379)	-	-	-	-	(379)
At 31 March 2020	98					58	39,433	17,971	535	(13,302)	2,483	(3,451)	43,825
Total comprehensive income			-			-	-	-	-	437	131	143	711
Transfer between reserves*	-					-	(2,056)	-	-	255	1,810	(9)	-
Unallotted Shares	-					-	-	-	533	-	-	-	533
Transactions with owners
Dividend paid	-					-	-	-	-	-	(1,621)	-	(1,621)
Cancellation of Shares	-					-	-	-	-	-	-	-	-
Purchase of own shares	-					-	-	-	-	-	-	-	-
Issue of shares	2					-	-	998	(1,000)	-	-	-	-
Share issue costs	-					-	-	(39)	-	-	-	-	(39)
At 30 Sept 2020	100					58	37,377	18,930	68	(12,610)	2,803	(3,317)	43,409

*A transfer of £255,000 (2019: £3,083,000) representing previously recognised realised gains and losses on disposal of investments during the period has been made between the Revaluation Reserve and the Capital reserve - realised.  A transfer of £2,065,000 (2019: £7,929,000) representing realised gains on disposal of investments, less capital expenses and capital dividends in the period has been made between the Capital Reserve - realised and the Special reserve.  A transfer of £9,000 (2019: £399,000), representing the balance on the Revenue reserve relating to previously cancelled share classes, has been made from the revenue reserve to the Special reserve.

Unaudited Statement of Cash Flows
for the six months ended 30 September 2020

	DSO D Share pool	DP67 Share pool	Generalist Share pool	Healthcare Share pool	Total
	£’000	£’000	£’000	£’000	£’000
Cash flows from operating activities
Return on ordinary activities before taxation	(104)	(39)	939	(85)	711
Losses/(gains) on investments	97	27	(878)	(8)	(762)
(Decrease)/increase in creditors	(22)	(18)	2,804	(128)	2,636
(Increase)/decrease in debtors	(32)	(4)	202	(2,875)	(2,709)
Net cash (outflow)/inflow from operating activities	(61)	(34)	3,067	(3,096)	(124)
Corporation tax paid	-	-	-	-	-
Net cash generated from operating activities	(61)	(34)	3,067	(3,096)	(124)
Cash flow from investing activities
Purchase of investments	-	-	(6,163)	(1,639)	(7,802)
Proceeds from disposal of investments	101	-	650	-	751
Net cash inflow/(outflow) from investing activities	101	-	(5,513)	(1,639)	(7,051)
Net cash inflow/(outflow) before financing	40	(34)	(2,446)	(4,735)	(7,175)
Cash flows from financing activities
Issue of share capital	-	-	705	295	1,000
Cost of issue of share capital	-	-	(29)	(10)	(39)
Funds held in respect of shares not yet allotted	-	-	(351)	(119)	(470)
Equity dividends paid	-	-	(1,150)	(471)	(1,621)
Net cash (outflow)/inflow from financing activities	-	-	(825)	(305)	(1,130)
Net change in cash	40	(34)	(3,271)	(5,040)	(8,305)
Cash and cash equivalents at start of the year	272	62	3,350	5,930	9,614
Cash and cash equivalents at end of the year	312	28	79	890	1,309
Cash and cash equivalents comprise
Cash at bank and in hand	312	28	79	890	1,309
Total cash and cash equivalents	312	28	79	890	1,309

Unaudited Statement of Cash Flows
for the six months ended 30 September 2019

	DSO D Share pool		DP67 Share pool	DP2011 General Share pool	DP2011 Structured Share pool	Generalist Share pool	Healthcare  Share pool	Total
	£’000		£’000	£’000	£’000	£’000	£’000	£’000
Cash flows from operating activities
Return on ordinary activities before taxation	83		191	45	32	(2,697)	(1,008)	(3,354)
(Gains)/losses on investments	(104)		(143)	(75)	(56)	2,284	812	2,718
Increase/(decrease) in creditors	3		(347)	(12)	(1)	(1)	5	(353)
Decrease/(increase) in debtors	(17)		220	1	3	(79)	(3)	125
Net cash (outflow)/inflow from operating activities	(35)		(79)	(41)	(22)	(493)	(194)	(704)
Corporation tax paid	-		160	-	-	-	-	-
Net cash generated from operating activities	(35)		81	(41)	(22)	(493)	(194)	(704)
Cash flow from investing activities	83		191	45	32	(2,697)	(1,008)	(3,354)
Purchase of investments	-		-	-	-	(5,657)	(445)	(6,102)
Proceeds from disposal of investments	716		788	1,970	735	1,435	-	5,644
Net cash inflow/(outflow) from investing activities	716		788	1,970	735	(4,222)	(445)	(458)
Net cash inflow/(outflow) before financing	681		869	1,929	713	(4,715)	(639)	(1,162)
Cash flows from financing activities
Repurchase of shares	-		-	-	-	(60)	(16)	(76)
Issue of share capital	-		-	-	-	7,205	2,736	9,941
Share issue costs	-		-	-	-	(246)	(89)	(335)
Funds held in respect of shares not yet allotted	-		-	-	-	(3,251)	(1,354)	(4,605)
Equity dividends paid				(2,504)	(1,265)	-	-	(3,769)
Net cash (outflow)/inflow from financing activities	-		-	(2,504)	(1,265)	3,648	1,277	1,156
Net change in cash	681		869	(575)	(552)	(1,067)	638	(6)
Cash and cash equivalents at start of the year	910		1,251	594	566	8,661	6,461	18,443
Cash and cash equivalents at end of the period	1,591		2,120	19	14	7,594	7,099	18,437
Cash and cash equivalents comprise
Cash at bank and in hand	1,591		2,120	19	14	7,594	7,099	18,437
Total cash and cash equivalents	1,591		2,120	19	14	7,594	7,099	18,437

Notes to the Unaudited Financial Statements
1. General Information

Downing FOUR VCT plc (“the Company”) is a Venture Capital Trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.

2. Basis of accounting

The unaudited half-yearly financial results cover the six months to 30 September 2020 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 March 2020, which were prepared in accordance with the Financial Reporting Standard 102 (“FRS 102”) and the Statement of Recommended Practice “Financial Statements of Investment Trust Companies” issued in October 2019 (“SORP”).

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

4. The comparative figures are in respect of the six months ended 30 September 2019 and the year ended 31 March 2020 respectively.

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

Generalist Shares*	45,986,777
Healthcare Shares*	18,843,568
DSO D Shares	7,867,247
DP67 Shares	11,192,136

*Excludes Management Shares

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

Generalist Shares*	45,582,230
Healthcare Shares*	18,641,672
DSO D Shares	7,867,247
DP67 Shares	11,192,136

*Excludes Management Shares

7. The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies.

8. Dividends

Six months ended 30 September 2020
	Pence per Share		Revenue	Capital £’000	Total £’000
Generalist Shares
Paid
Interim (year ended 31 March 2020)	2.5		-	1,122	1,122
Healthcare Shares
Paid
Interim (year ended 31 March 2020)	2.5		-	461	461

9. Reserves

	30 Sep 2020		30 Sep 2019		31 Mar 2020
	£’000		£’000		£’000
Capital redemption reserve	58		-		58
Special reserve	37,377		45,762		39,433
Share premium account	18,930		17,102		17,971
Revaluation reserve	(12,610)		(8,395)		(13,302)
Capital reserve – realised	2,803		3,733		2,483
Revenue reserve	(3,317)		(2,869)		(3,451)
Funds held in respect of shares not yet allotted	68		167		535
	43,309		55,500		43,727

The Revenue reserve, Special reserve and Capital reserve - realised are distributable reserves and are reduced by revaluation losses of £16.0 million. Distributable reserves at 30 September 2020 were £20.8 million.

10. Fixed assets – investments

Liquidity investments				Quoted VC  investments		Unquoted VC  investments		Total
	£’000			£’000		£’000		£’000
Opening cost at 1 April 2020	15,198			1,250		36,466		52,914
Unrealised losses at 1 April 2020	(6,634)			(991)		(5,677)		(13,302)
Impairment losses at 1 April 2020	-			-		(5,148)		(5,148)
Opening fair value at 1 April 2020	8,564			259		25,641		34,464
Movements in the year:
Purchased at cost	-			-		7,802		7,802
Disposals - proceeds	-			-		(751)		(751)
- realised gains on disposals	-			-		325		325
Unrealised foreign exchange losses	-			-		(35)		(35)
Unrealised losses in the Income Statement	955			163		(642)		476
Closing value at 30 Sept 2020	9,519			422		32,340		42,281
Closing cost at 30 Sept 2020	15,198			1,250		43,592		60,040
Unrealised losses at 30 Sept 2020	(5,679)			(828)		(6,068)		(12,575)
Unrealised foreign exchange losses at 30 Sept 2020		-		-		(35)		(35)
Impairment losses at 30 Sept 2020		-		-		(5,149)		(5,149)
Closing value at 30 Sept 2020	9,519			422		32,340		42,281

The fair value of investments is determined using the detailed accounting policy as shown in the audited financial statements for the year ended 31 March 2020.  The Company has categorised its financial instruments using the fair value hierarchy as follows:

Level 1: Reflects financial instruments quoted in an active market (quoted companies, investment funds and fixed interest bonds);
Level 2: Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level 3: Reflects financial instruments that use valuation techniques that are not based on observable market data (investments in unquoted shares and loan note investments).

	Level 1	Level 2	Level 3	30 Sept 2020		Level 1	Level 2	Level 3	31 Mar 2020
	£’000	£’000	£’000	£’000		£’000	£’000	£’000	£’000
Liquidity investments	9,519	-	-	9,519		8,564	-	-	8,564
Quoted equity	422	-	-	422		259	-	-	259
Unquoted loan notes	-	-	2,864	2,864		-	-	3,319	3,319
Unquoted equity	-	-	29,476	29,476		-	-	22,322	22,322
	9,941	-	32,340	42,281		8,823	-	25,641	34,464

11. Risk and uncertainties

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

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

(i) compliance risk of failure to maintain approval as a VCT;
(ii) market, liquidity and counterparty risk associated with Public Equity investments; and
(iii) investment risk associated with investing in small and immature businesses.

The Company’s compliance with the VCT regulations is continually monitored by the Manager, who reports regularly to the Board on the current position. The Company also retains Philip Hare & Associates LLP (“Philip Hare”) to provide regular reviews and advice in this area. Philip Hare has confirmed that all relevant tests have been complied with for the period under review. The Board considers that this approach reduces the risk of a breach of the VCT regulations.

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

In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. It also has a limited period in which it must invest the majority of its funds into VCT qualifying investments. The Manager follows a rigorous process in vetting and carefully structuring new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business.

12. Going concern

The Directors have reviewed the Company’s financial resources at the period end and conclude that the Company is well placed to manage its business risks.

The Board confirms that it is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, the Board believes that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.

13. The Directors confirm that, to the best of their knowledge, the Half-Yearly Report has been prepared in accordance with the “Statement: Half-Yearly Financial Reports” issued by the UK Accounting Standards Board as well as in accordance with FRS 104 Interim Financial Reporting and the half-yearly financial report includes a fair review of the information required by:

a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

14. Copies of the Half-Yearly Report will be sent to Shareholders shortly. Further copies can be obtained from the Company’s Registered Office and will be available for download from www.downing.co.uk/d4.

Performance Incentive Arrangements
Performance Incentive arrangements are in place for each Share Pool except the DP67 pool.  The various schemes are summarised as follows:

DSO D Shares

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

If the hurdle is met, the fee will be 3.0p per DSO D Share plus 20% of shareholder proceeds above 100.0p per DSO D Share. The Performance Incentive is restricted to a maximum of 7.0p per DSO D Share.

As at 30 September 2020, the estimated performance fee is 1.2p per DSO D Share.

Generalist and Healthcare Share Pools

A Performance Incentive scheme is in place in respect of the Generalist and Healthcare Management Shares, which will represent 20% of the total number of Generalist and Healthcare Shares in issue. As part of the arrangement,  in order to prevent dilution to the Shareholders of the Generalist and Healthcare Shares,  the  management  team  will  waive  their  voting  rights  granted  by  these  Management  Shares  at  any  general  meeting  of  the  Company  and  income  or  capital  distributions  otherwise payable on these Management Shares will be waived unless the share class has achieved a Total Return (based on audited year end results) in excess of £1 per share for the years ended 31 March 2018, 31 March 2019 and 31 March 2020. For subsequent years, the Total Return hurdle increases by 3.0p per annum such that for the year ended 31 March 2021 the hurdle is £1.03, and for the year ended 31 March 2022 the hurdle is £1.06.

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