Half-yearly report
Downing Distribution VCT 1 plc
Half-Yearly Report for the six months ended 30 September 2010
FINANCIAL SUMMARY:
 30 Sept
2010
Pence
Net asset value per share 93.4
CHAIRMAN'S STATEMENT
Introduction
The six-month period ended 30 September 2010 has been the first operating period
for the Company since its merger with Pennine AIM VCT 5 plc and Pennine AIM VCT
6 plc, the implementation of a modified Investment Policy and a change of
Investment Manager.
Net Asset Value ("NAV")
As at 30 September 2010, the Company's NAV stood at 93.4p after payment of the
dividend of 2.5p dividend paid on 30 September 2010. This equates to a loss of
in NAV of approximately 8% over the six-month period.
Venture capital investment portfolio
As a result of the mergers with Pennine AIM VCT 5 plc and Pennine AIM VCT 6 plc
on 1Â April 2010, the Company acquired the investment portfolios of both
entities, which were valued at £17.2 million. This gave the Company an
investment portfolio with a total value of approximately £21.5 million.
Since that date, the Company has made three new investments and one follow-on
investment at a total cost £1.0 million.  In addition, the Company received
consideration in cash of £208,000 plus shares in Netcall plc, valued at
£140,000, as part of a takeover of another of its holdings, Telephonetics plc.
A major disappointment was the well-publicised failure of Connaught plc. Â A
small disposal of some of the holding was made before the company collapsed,
however the total realised loss for the period in respect of this investment was
£247,000.  Despite this final outcome, it is worth noting that over the years
that this investment was held by the Company, there was a total net gain of £1.5
million against an original cost of £387,000.
Following the adoption of the revised investment policy, the Manager has
undertaken a full review of the portfolio and made a number of disposals. These,
along with takeovers of Glisten plc and Telephonetics plc (but excluding
Connaught plc), resulted in realised gains of £550,000.
Of the investments held over the period, AIM and other quoted investments showed
an unrealised loss of £650,000.
In reviewing the valuations of the unquoted investments, the Board made two
significant adjustments.
The largest adjustment was a reduction of the valuation of Doubletake Studios
Limited. Â The company has produced disappointing trading results and has faced a
number of issues. Â Although it has taken action to address these issues and has
reasonable prospects of getting back on track, the Board has concluded that a
reduction in value of £1,051,000 is appropriate at the current time.
In addition, a full provision of £175,000 has been made against The Thames Club
Limited. Following major refurbishment of its health club, the business is
making progress but at a rate slower than had been anticipated. Â After taking
account of the company's third party borrowings, the Board has concluded that a
full provision against the investment is appropriate at this time.
Overall the venture capital portfolio showed a net unrealised loss of £1.8
million and net realised gain of £303,000 over the period.  Summary details of
the portfolio together with the additions and disposals in the period are shown
below.
Other investments
The Company continues to hold a small number of non-VCT qualifying investments,
comprising one hedge fund and a holding of permanent interest bearing shares.
 At the period end this portfolio was valued at £537,000, with unrealised gains
of £33,000 and realised gains arising over the period of £2,000.
Results
The return on ordinary activities after taxation for the period was £3,701,000,
comprising a revenue loss of £25,000 and a capital return of £3,726,000.
The income statement includes an item entitled "Net gain on acquisition of net
assets" (equivalent to negative goodwill), which is a substantial sum that
relates to the mergers and arises as a quirk of the accounting treatment and the
relatively low share price of the Company's shares at the time the mergers
completed. The effective capital loss for the period, before the net gain on
acquisition of net assets, was therefore £1,687,000.
Share capital
In completing the mergers, 17,270,986 ordinary shares of 1p each were issued to
Shareholders in Pennine AIM VCT 5 plc and Pennine AIM VCT 6 plc.
In addition, a small number of shares have been issued under the share offer
launched at the same time as the mergers and 406,271 shares have been bought
back for cancellation at an average price of 82.2p.
The Company has a policy of purchasing 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.
Dividend
On 30 September 2010, the Company paid an interim dividend of 2.5p per share in
respect of the year to 31 March 2011. Â In line with its intention of paying
annual dividends of 5.0p per share, a further 2.5p will be paid on 31 March
2011 to Shareholders on the register at 25 February 2011.
Board change
Sir Aubrey Brocklebank has been invited to chair the Board of another VCT which
is to be launched shortly. Â In order to comply with rules on directors'
independence, Sir Aubrey has agreed to step down as a director of the Company.
As many Shareholders will know, Sir Aubrey was chairman of the Company for many
years until the recent mergers. Â My fellow directors and I would like to thank
him for his valuable contribution to the Company over the years and wish him
well in his new venture.
In light of this, the Directors have reviewed the composition of the Board and
have concluded that a board comprising four non-executive directors of which
three are independent of the Manager, is appropriate for a VCT of this size and
do not, therefore, intend to seek a replacement for Sir Aubrey at this time.
Risk and Uncertainties
Under the Disclosure and Transparency Directive, the Board is required, in the
Company's half year results, to report on principal risks and uncertainties
facing the Company over the remainder of the financial year.
The Board has concluded that the key risks are:
 (i) investment risk associated with investing in small businesses;
 (ii) investment risk arising from market volatility; and
 (iii) failure to maintain approval as a VCT.
In the case of (i) and (ii) the Board is satisfied with the Company's approach
to these risks. Â As an AIM-focused VCT, the Company, by definition, has
significant exposure to the relatively small businesses quoted on AIM. Â However,
by seeking to hold a well-diversified portfolio of businesses with strong
management teams, the impact of falling markets and challenging economic
conditions should be mitigated as much as possible given the Company's status as
a VCT and its investment policy.
The Company's compliance with the VCT regulations is continually monitored by
the Administrator, who regularly reports to the Board on the current position.
 The Company also retains PricewaterhouseCoopers to provide regular reviews and
advice in this area. Â The Board considers that this approach reduces the risk of
a breach of the VCT regulations to a minimal level.
Outlook
The Company's performance over the six-month period is naturally disappointing,
however I can report some improvement since the period end. As at 31 October
2010, the Company's NAV stood at 95.3p per share, an increase of 1.9p per share
over the month.
The Board is pleased with the steps taken by the manager since its appointment
in starting to implement the Company's revised investment policy. Â Exposure to
AIM and other quoted investments has been reduced a little and new investments
have been secured which are focused towards the Company's strategy of seeking to
increase yield from the portfolio.
As the Company is close to fully invested, the task of rebalancing the portfolio
will depend on suitable exit opportunities being available for existing
investments. With the outlook for the economy remaining uncertain, such
opportunities may not be easy to come by.
Christopher Powell
Chairman
29 November 2010
INCOME STATEMENT
for the six months ended 30 September 2010
  Six months ended
Note 30 September 2010
  Revenue  Capital  Total
  £'000  £'000  £'000
Income - continuing operations  96  -  96
- acquisitions  81  -  81
(Losses)/gains on investments - continuing  -  (272)  (272)
operations
 - acquisitions  -  (1,266)  (1,266)
Net gain on acquisition of net assets 11 - Â 5,413 Â 5,413
--------- --------- ---------
  177  3,875  4,052
Investment management fees  (49)  (148)  (197)
Other expenses  (153)  (1)  (154)
--------- --------- ---------
Return/(loss) on ordinary activities before  (25)  3,726  3,701
taxation
Taxation  -  -  -
--------- --------- ---------
Return/(loss) attributable to equity 4 (25) Â 3,726 Â 3,701
shareholders
Basic and diluted return per Ordinary share 4 (0.1p)  17.1p  17.0p
Basic and diluted return per Original 4 n/a  n/a  n/a
ordinary share
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 as noted above.
  Six months ended Year ended
31 March
 30 September 2009 2010
  Revenue  Capital  Total  Total
  £'000  £'000  £'000  £'000
Income - continuing operations  87  -  87  139
- acquisitions  -  -  -  -
(Losses)/gains on investments - Â - Â 801 Â 801 Â 792
continuing operations
 - acquisitions  -  -  -  -
Net gain on acquisition of net assets  -  -  -  -
--------- --------- ------- ----------
  87  801  888  931
Investment management fees  (8)  (26)  (34)  (68)
Other expenses  (80)  -  (80)  (186)
--------- --------- ------- ----------
Return/(loss) on ordinary activities  (1)  775  774  677
before taxation
Taxation  -  -  -  -
--------- --------- ------- ----------
Return/(loss) attributable to equity  (1)  775  774  677
shareholders
Basic and diluted return per Ordinary  n/a  n/a  n/a  n/a
share
Basic and diluted return per Original  -  5.9p  5.9p  5.1p
ordinary share
UNAUDITED SUMMARISED BALANCE SHEET
as at 30 September 2010
  30 Sept 2010  30 Sept 2009  31 Mar 2010
Note
  £'000  £'000  £'000
Fixed assets
Investments  19,141  4,369  4,317
-------------- -------------- ------------
Current assets
Debtors  177  53  219
Cash at bank and in  1,043  812  425
hand
-------------- -------------- ------------
  1,220  865  644
Creditors: amounts
falling due within one (310) (47) (101)
year
-------------- -------------- ------------
Net current assets  910  818  543
-------------- -------------- ------------
-------------- -------------- ------------
Net assets  20,051  5,187  4,860
Capital and reserves
Called up share capital 7 215 Â 3,285 Â 3,285
Capital redemption 8 1,130 Â 1,126 Â 1,126
reserve
Special reserve 8 15,442 Â - Â -
Share premium 8 2 Â 348 Â 348
Capital reserve - 8 7,127 Â 5,075 Â 2,871
realised
Revaluation reserve 8 (3,801) Â (4,671) Â (2,731)
Revenue reserve 8 (64) Â 24 Â (39)
-------------- -------------- ------------
Equity shareholders' 6 20,051 Â 5,187 Â 4,860
funds
Basic and diluted net asset value
per Ordinary share 6 93.4p n/a n/a
Basic and diluted net asset value
per Original ordinary share 6 n/a 39.5p 37.0p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 September 2010
  30 Sept 2010  30 Sept 2009  31 Mar 2010
Note
  £'000  £'000  £'000
Opening Shareholders' funds  4,860  4,413  4,413
Issue of share capital on  12,353  -  -
acquisition
Proceeds of new share issue  10  -  -
Purchase of own shares  (333)  -  -
Total recognised gains for the  3,701  774  677
period
Dividends paid 5 (540) Â - Â (230)
-------------- -------------- ------------
Closing Shareholders' funds  20,051  5,187  4,860
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 September 2010
      Six     Six
months months Year
ended  ended  ended
30 Sept 30 Sept 31 Mar
2010 2009 2010
  Note £'000     £'000     £'000
Cash outflow from operating activities and
returns on investments 9 (107) (33) (73)
--------- --------- -------
Capital expenditure
Purchase of investments     (1,142)     (113)     (352)
Sale of investments     1,877     523     805
--------- --------- -------
Net cash inflow from capital expenditure  735     410  453
--------- --------- -------
Equity dividends paid     (547)     -     (230)
--------- --------- -------
Acquisitions
Cash acquired     970     -     -
Costs in relation to schemes of     (100)     -     (170)
arrangement
--------- --------- -------
    870     -     (170)
--------- --------- -------
Net cash inflow/ (outflow) before     951     377     (20)
financing
--------- --------- -------
Financing
Unallotted share issue     -     -     10
Purchase of own shares     (333)     -     -
--------- --------- -------
Net cash outflow from financing     (333)     -     10
--------- --------- -------
Increase/ (decrease) in cash 10 618 377 (10)
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 September 2010
Unrealised
gain/(loss)
% of
 Cost Valuation  in period portfolio
 £'000  £'000  £'000  by value
Top ten largest VC investments (by
value)
 Cadbury House Holdings 2,518 2,546  -  12.6%
Limited *
 Ludorum plc 2,161  2,233  (42)  11.1%
 Hoole Hall Country Club 2,100 2,100  -  10.4%
Holdings Limited *
 Doubletake Studios Limited * 2,204  1,402  (1,051)  6.9%
 Hoole Hall Spa and Leisure 1,020 1,020  -  5.1%
Limited *
 First Care Limited * 879  879  -  4.4%
 Craneware plc 492  687  195  3.4%
 Animalcare Group plc 914  685  (228)  3.4%
 IS Pharma plc 392  476  84  2.4%
 ANS Group plc ** 201  471  (44)  2.3%
-------- --------- -------------------- -----------
 12,881  12,499  (1,086)  62.0%
Other VC investments 9,296 Â 6,105 Â (790) Â 30.2%
Listed fixed income
securities 558 Â 357 Â 40 Â 1.7%
Other investments 207 Â 180 Â (7) Â 0.9%
-------- --------- -------------------- -----------
 22,942  19,141   (1,843)  94.8%
Cash at bank and in hand   1,043    5.2%
--------- -----------
Total investments   20,184    100.0%
All VCT investments are quoted on AIM unless otherwise stated.
* Â Unquoted
** Â Quoted on the PLUS Market
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 September 2010
Acquired under Schemes of Arrangement
 £'000
From Pennine AIM VCT 5 plc 6,037
From Pennine AIM VCT 6 plc 11,135
---------
17,172
Additions
  £'000
Aminghurst Limited New investment  300
Future Biogas (SF) Limited New investment  175
Tramps Nightclub Limited New investment  333
Ludorum plc Follow-on investment  194
Netcall plc Consideration from Telephonetics plc takeover  140
------
   1,142
Disposals
  Market value at  Gain/
 1 April 2010 *  (loss) Realised
 Disposal in gain/
Cost proceeds period (loss)
vs cost
 £'000 £'000 £'000 £'000 £'000
Disposals
1st Dental Laboratories plc 200 17 18 (182) 1
Connaught plc 3 24 32 29 8
Craneware plc 224 224 258 34 34
IDOX plc 115 115 112 (3) (3)
Real Time Logistic Solutions
Ltd 180 180 450 270 270
Spice plc 273 124 266 (7) 142
The Mission Marketing Group
plc 129 129 87 (42) (42)
Takeovers
Telephonetics plc 311 311 348 37 37
Glisten plc 84 49 50 (34) 1
Liquidations/administrations
Clerkenwell Ventures plc 18 - 102 84 102
Coffee Republic plc 713 - - (713) -
Connaught plc 25 247 - (25) (247)
--------------------------------------------------
 2,275 1,420 1,723 (384) 303
Other investments
Bluecrest Allblue Fund LD 145 227 229 84 2
--------------------------------------------------
 2,420 1,647 1,952 (468) 305
* Adjusted for purchases in the period
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
for the six months ended 30 September 2010
1. The unaudited half yearly financial results cover the six months to 30
September 2010 and have been prepared in accordance with the accounting policies
set out in the statutory accounts for the year ended 31 March 2010 which were
prepared under UK Generally Accepted Accounting Practice and in accordance with
the Statement of Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" January 2009.
2. The Company has only one class of business and derives its income from
investments made in shares, securities and bank deposits.
3. The comparative figures were in respect of the year ended 31 March 2010 and
the six months ended 30 September 2009 respectively.
4. Basic and diluted return per share
 30 Sept  30 Sept 2009  31 March 2010
2010
Return per share based on:
Net revenue loss for the period (25) Â (1) Â (64)
(£'000)
Return per ordinary share/ Original
ordinary share (0.1p) - (0.5p)
Capital return per share based on:
Net capital loss for the period 3,726 Â 775 Â 741
(£'000)
Return per Ordinary share/ Original
ordinary share 17.1p 5.9p 5.6p
Total return per share 17.0p  5.9p  5.1p
Weighted average number of Ordinary
shares/ Original ordinary shares 21,819,546 13,140,436 13,140,436
5. Dividends
Paid in the period 30 September 2010 Â 31 March
2010
 Revenue  Capital  Total  Total
 £'000  £'000  £'000  £'000
2010 interim - Â - Â - Â 230
2011 interim - Â 540 Â 540 Â -
----------- ----------- --------- -----------
 -  540  540  230
6. Basic and diluted net asset value per share
 30 Sept  30 Sept 2009  31 March 2010
2010
Net Asset Value per share based on:
Net Assets (£'000) 20,051  5,187  4,860
Number of Ordinary shares/Original
ordinary shares in issue at period end 21,467,497 13,140,436 13,140,436
Basic and diluted net asset value per 93.4p  39.5p  37p
share
7. Called up share capital
 Ordinary Shares
 Shares £'000
As at 1 April 2010: Ordinary shares of 25p each 13,140,436 3,285
Conversion into Ordinary shares of 1p each (8,547,192) (3,239)
--------------------
Restated holding at 1 April 2010: Ordinary shares of 1p each 4,593,244 46
Shares issued to holders of Pennine AIM VCT 5 plc under the 6,478,440 65
Scheme
Shares issued to holders of Pennine AIM VCT 6 plc under the 10,792,546 108
Scheme
Shares issued in period 9,538 -
Shares bought back and cancelled (406,271) (4)
--------------------
As at 30 September 2010: Ordinary shares of 1p each 21,467,497 215
On 1 April 2010 Ordinary Shares of 25p each were issued to Shareholders in
Pennine AIM VCT 5 plc and Pennine AIM VCT 6 plc in consideration for the
purchase of the assets and liabilities of the companies.
Following the issue of the shares to the shareholders of Pennine AIM VCT 5 plc
and Pennine AIM VCT 6 plc, the entire shareholding of Ordinary Shares of 25p
each were converted to Ordinary shares of 1p each and deferred shares. Â Upon the
conversion of the 25p Ordinary shares into 1p Ordinary shares, 1,541,875,401
deferred shares were issued and cancelled immediately. Â The Capital Redemption
Reserve arising on the transaction, of £15,419,000, was cancelled on 15 July
2010 following court approval with the balance thereon being transferred to the
Special Reserve.
8. Reserves
 Capital redemption reserve   Capital
Share Special reserve Revaluation Revenue
premium reserve - realised reserve reserve
 £'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2010 1,126 348 - 2,871 (2,731) (39)
Conversion of
original ordinary 3,239 - - - - -
shares
Cancellation of
deferred shares 12,180 - - - - -
Proceeds of new - 10 - - - -
share issue
Shares repurchased 4 - (333) - - -
Net gain on
acquisition of - - - 5,413 - -
net assets
Cancellation of
share premium - (356) 356 - - -
account
Cancellation of
capital redemption (15,419) - 15,419 - - -
reserve
Expenses - - - (149) - -
capitalised
Gains/(losses) on
investments - - - 305 (1,843) -
Realisation of
revaluations from - - - (773) 773 -
previous years
Dividends paid - - - (540) - -
Retained net - - - - - (25)
revenue loss
-------------------------------------------------------------
At 30 September 1,130 2 15,442 7,127 (3,801) (64)
2010
The share premium account in existence at 15 July 2010 was cancelled following
court approval, with the balance thereon being transferred to the special
reserve. Â The special reserve is available to the Company to enable the purchase
of its own shares in the market without affecting its ability to pay
dividends/capital distributions.
Distributable reserves comprise the special reserve, capital reserve - realised,
revenue reserve and are reduced by investment holding losses of £3,485,000.  At
the period end there were £18,677,000 of reserves available for distribution.
9. Cash outflow from operating activities and returns on investments
  30 Sept  30 Sept  31 Mar
2010 2009 2010
  £'000  £'000  £'000
Return on ordinary activities before 3,701 Â 774 Â 677
taxation
Losses/ (gains) on investments 1,538 Â (801) Â (792)
Net gain on acquisition of net assets (5,413) Â - Â -
(Increase)/decrease in other debtors (26) Â 1 Â 4
Increase/(decrease) in other creditors 93 Â (7) Â 38
--------- --------- -------
Net cash outflow from operating activities (107) Â (33) Â (73)
10. Analysis of net funds
  30 Sept  30 Sept  31 Mar
2010 2009 2010
  £'000  £'000  £'000
Beginning of period  425  435  435
Net cash inflow  618  377  (10)
----------- ----------- ---------
End of period  1,043  812  425
Major Non-Cash Transaction
As stated in note 7, shares were issued during the period in consideration for
the purchase of the assets and liabilities of Pennine AIM VCT 5 plc and Pennine
AIM VCT 6 plc.
11. Acquisitions
  Pennine 5  Pennine 6  Total
  £'000  £'000  £'000
Fair value of net assets acquired 6,725 Â 11,361 Â 18,086
Net gain on acquisition of net assets     (5,413)
Costs in relation to schemes of     (320)
arrangement
--------
Consideration     12,353
Consideration satisfied by:
Market value of Ordinary shares issued on date of acquisition  12,353
The book and fair value of assets and liabilities shown above, have been taken
from the respective management accounts at 1 April 2010. Â Â The market value of
the shares issued is based on the mid-market price of the Ordinary Shares at the
date of acquisition. Â As the number of consideration shares issued under the
Schemes of Reconstruction was determined by the relative net asset value of the
companies, a gain on acquisition of net assets has because of the fact that the
Company's shares trade at a discount to the net asset value.
12. 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. Â The figures for the
year ended 31 March 2010 have been extracted from the financial statements for
that year, which have been delivered to the Registrar of Companies; the
auditors' report on those financial statements was unqualified.
13. The Directors confirm that, to the best of their knowledge, the half yearly
financial report has been prepared in accordance with the "Statement: Half
Yearly Financial Reports" issued by the UK Accounting Standards Board 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 during 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 unaudited half yearly financial results 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.
[HUG#1466637]
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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