Downing FOUR VCT plc: Half-year report

Downing FOUR VCT plc
LEI: 21380035MV1VRYEXPR95
Half-Yearly Report for the six months ended 30 September 2019

FINANCIAL HIGHLIGHTS

		30 Sept 2019		31 March 2019		30 Sept 2018
		Pence		Pence		Pence
Live Share Pools
Generalist Share Pool
Net Asset Value and Total Return per Generalist Share		77.6		83.5		92.7
Healthcare Share Pool
Net Asset Value and Total Return per Healthcare Share		77.7		83.3		88.7
DSO D Share Pool
Net Asset Value per DSO D Share		28.9		27.8		30.3
Cumulative dividends per DSO D Share		76.5		76.5		76.5
Estimated Performance Incentive *		(4.1)		(3.9)		(4.4)
Total Return per DSO D Share		101.3		100.4		102.4
DP67 Share Pool
Net Asset Value per DP67 Share		47.4		48.5		50.5
Cumulative dividends per DP67 Share		49.8		49.8		49.8
Total Return per DP67 Share		97.2		98.3		100.3
Share Pools now cancelled
DP2011 General Share Pool
Net Asset Value per DP2011 Gen Ord Share		-		-		-
Net Asset Value per DP2011 Gen A Share		-		13.3		13.0
Cumulative dividends per DP2011 Gen Ord Share and Gen A Share		105.595		92.0		92.0
Total Return per DP2011 Gen Ord Share and Gen A Share		105.595		105.3		105.0
DP2011 Structured Share Pool
Net Asset Value per DP2011 Struc Ord Share		-		-		-
Net Asset Value per DP2011 Struc A Share		-		9.9		9.8
Cumulative dividends per DP2011 Struc Ord Share and Struc A Share		105.059		95.0		95.0
Total Return per DP2011 Struc Ord Share and Struc A Share		105.059		104.9		104.8

* Based on the Total Return to Shareholders at 30 September 2019, a Performance Incentive is expected to become due to management. The Performance Incentive has been estimated at 4.1p per DSO D Share.

A full explanation of the Performance Incentive arrangements for each Share Pool is shown in the Half-Yearly Report.

CHAIRMAN’S STATEMENT

Introduction

I am pleased to present the Company’s Half-Yearly Report for the six months ended 30 September 2019.

Share Pools

The Company now has four active Share Pools, two of which evergreen share pools and two are planned exit pools that are winding down. Two further planned exit share pools completed the task of returning funds to Shareholders during the period. This report includes sections covering each of the Share Pools which were active during the period.

Planned exit Share Pools

Of the planned exit share pools, two completed returning funds to investors during the period and two further pools remain.

DP2011 General Share Pool
The DP2011 General Share Pool paid a final dividend of 13.595p per DP2011 General A Share on 27 September 2019 to bring the pool to a close.

Shareholders who invested under the original offer received total dividends of 105.595p for a combined holding of one Ordinary Share and one A Share, compared to an initial cost, net of tax relief, of 70.0p. In line with the structure of the performance incentive arrangements members of the management team received dividends equivalent to 5.1p per DP2011 General Ordinary Shares. Both the DP2011 General Ordinary Shares and A Shares were cancelled on 15 November 2019.

DP2011 Structured Share Pool

The DP2011 General Share Pool paid a final dividend of 10.059p per DP2011 Structured A Share on 27 September 2019 to bring the pool to a close.

Shareholders who invested under the original offer received total dividends of 105.059p for a combined holding of one Ordinary Share and one A Share, compared to an initial cost, net of tax relief, of 70.0p. In line with the structure of the performance incentive arrangements members of the management team received dividends equivalent to 5.1p per DP2011 Structured Ordinary Shares. Both the DP2011 Structured Ordinary Shares and A Shares were cancelled on 15 November 2019.

DSO D Share Pool

The DSO D Share Net Asset Value (“NAV”) stood at 28.9p at 30 September 2019, an increase of 1.1p per share or 4.0% over the period. Total Return now stands at 101.3p per share, compared to the cost for Shareholders who invested in the DSO D Share offer, net of income tax relief, of 70.0p. A performance fee equivalent to 4.1p per DSO D Share is estimated to become payable to the Manager on the final exit, which has been provided for in the above figures.

Realisation plans are progressing in respect of the remaining investments and we expect that this process will be completed during the first quarter of 2020, after which the Company will declare distribution of the remaining value.

DP67 Share Pool

As at 30 September 2019, the NAV of the DP67 Shares stood at 47.4p per share, a decrease of 1.1p or 2.3% over the period. Total Return for DP67 shareholders now stands at 97.2p per share, compared to the cost for Shareholders who invested in the original offers, net of income tax relief, of 70.0p.

There are plans in place to exit from each of the remaining investments in the DP67 portfolio and we anticipate that this process will be completed during the middle of 2020, after which the Company will announce a final dividend.

DP2011 Structured Share Pool

As no value is now attributable to the DP2011 General Ordinary Shares and DP2011 General A Shares in issue, these Shares were cancelled on 15 November 2019.

Evergreen Share Pools
The changes to the VCT regulations that took place in 2017 heavily refocussed VCTs on young growth companies. The new share pools that the Company launched that year are consequently investing in a very different sector from that in which the older planned exit share pools invested. As a result, the Generalist and Healthcare Share pools have a much higher risk and reward profile and are expected to exhibit different features from the relatively stable planned exit share pools.

The Generalist and Healthcare Share pools are focused on investments in young growth companies, which typically reinvest any surplus cash back into their business. Therefore, as is to be expected, the costs of running the share pools exceeds the revenue income generated from the portfolio. Returns from the Generalist and Healthcare share pools are instead expected to be predominantly generated by capital gains on the eventual disposal of successful investments.

Generalist Share Pool

As at 30 September 2019, the Generalist Share NAV and Total Return stood at 77.6p, a decrease of 5.9p per share or 7.1% over the period. The reduction in the NAV during the period is attributable to unrealised reductions in the carrying values of the quoted and unquoted investments held by the Generalist Share pool, as well as the impact of VCT running costs and the “cash-drag” of holding uninvested funds. Whilst a reduction in NAV is disappointing in is not untypical of a portfolio like this where failures often come to light earlier than successes.

Further detail on the movements in the valuations of the investments held by the Generalist Share pool can be found in the Investment Manager’s Report below.

Healthcare Share Pool
As at 30 September 2019, the Healthcare Share NAV and Total Return stood at 77.7p, a decrease of 5.6p per share or 6.7% over the period. The reduction in the NAV during the period is attributable to unrealised reductions in the carrying values of the quoted and unquoted investments held by the Healthcare Share pool, as well as the impact of VCT running costs and the “cash-drag” of holding uninvested funds.

In the course of seeking to expand, it is expected that some of the businesses in the Healthcare portfolio will underperform against their plans in the short term, or ultimately fail. Whilst this is a typical feature of investing in young growth companies, for the businesses in the Healthcare portfolio there is the added challenge of operating in the complex and highly-regulated healthcare industry. The weaker businesses will tend to present themselves first, before the stronger businesses have had time to establish themselves as such. The Manager continues to support the management teams of all the Healthcare Share pool’s unquoted investments and is confident that several of businesses have the potential to deliver good rewards for Shareholders.

Further detail on the movements in the valuations of the investments held by the Healthcare Share pool can be found in the Investment Manager’s Report below.

Dividends
Planned exit Share pools dividends
On 22 November 2019, the Company paid the following dividends to its planned exit Shareholders:

DSO D Share pool – 18.0p per DSO D Share
DP67 Share pool – 18.0p per DP67 Share

Further dividends in respect of the planned exit Share Pools will be announced as and when sufficient realisations have taken place.

Evergreen Share pools dividends
No dividends have been declared with respect to Generalist and Healthcare Share Pools, due to the effective restriction on paying dividends in the first three years following a share issue. The first Generalist and Healthcare dividends are expected to be paid during the summer of 2020.

Share buybacks

The Company has a policy of buying in any Generalist and Healthcare Shares that become available in the market and will usually expect to do so at a price approximately equal to the latest NAV of the shares, subject to regulatory restrictions and other factors such as availability of liquid funds.

The Board does not intend to buy in any DSO D or DP67 Shares, as the Company will continue to distribute funds to investors by way of dividends.

During the period the Company purchased 73,944 Generalist Shares and 19,704 Healthcare Shares, at an average price of 81.8p per Generalist Share and 80.8p per Healthcare Share. The Shares were subsequently cancelled.

Fundraising
The 2018 Generalist and Healthcare Offers closed on 31 October 2019, having raised gross proceeds of £12.0 million for the Generalist Share pool and £5.4 million for the Healthcare Share pool.

The Company has now launched a further Offer for subscription, to allow the Company to continue to issue Shares in the tax year to 5 April 2020.

Outlook
Over the remainder of this financial year, the Board and Manager will continue to work towards exiting from all the remaining investments held by the DSO D and DP67 Share pools, ahead of distributing the remaining proceeds to investors.

The Board and Manager will also continue the process of building the Generalist and Healthcare portfolios, and Shareholders should expect to see a similar level of investment activity in the period to 31 March 2020.

The difficulties with Brexit combined with the imminent general election have created significant political and economic uncertainty which have made it difficult period for public companies, particularly smaller ones. Once the outcome of the election is known we may see a period of greater stability for the economy which would be helpful.

Sir Aubrey Brocklebank Bt
Chairman

INVESTMENT MANAGER’S REPORT
DSO D SHARE POOL

Portfolio valuation
As at 30 September 2019, the DSO D Share Pool had a portfolio of five investments with a value of £0.7 million.

The DSO D Share pool portfolio was reduced in value by £7,000 during the period, this being the result of a £11,000 reduction in the carrying value of Pearce and Saunders Limited and a £4,000 increase in the carrying value of Green Energy Production UK Limited

Portfolio activity
One realisation took place during the period. Lambridge Solar Limited, the owner of a 9MW ground-mounted photovoltaic system in Lincolnshire, was sold for £716,000, representing a gain over cost of £216,000.

Results and Net Asset Value
The Net Asset Value (“NAV”) per DSO D Share at 30 September 2019 stood at 28.9p, a decrease of 1.1p or 4.0% over the period. Total Return stands at 103.0p per Share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per share.

The profit on ordinary activities after taxation for the period was £93,000 comprising a revenue loss of £3,000 and a capital gain of £96,000.

Dividends
On 22 November 2019 the Company paid a dividend of 18.0p per DSO D Share, bringing the cumulative dividends total to 94.5p per DSO D Share as at the date of this report.

We expect that the realisations of the remaining investments will be completed during the first quarter of 2020, after which it is expected that the Company will declare a further dividend.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
DSO D SHARE POOL
as at 30 September 2019

	Cost	Valuation	Unrealised (loss)/gain  in period	% of portfolio by value
	£000	£000	£000
Venture Capital investments
Pearce and Saunders Limited	300	365	(11)	16.0%
Fresh Green Power Limited	189	210	-	9.2%
Green Energy Production UK Limited	100	55	4	2.4%
Apex Energy Limited	400	40	-	1.8%
Pearce and Saunders DevCo Limited*	20	20	-	0.9%
	1,635	690	(7)	30.3%
Cash at bank and in hand		1,591		69.7%
Total investments		2,281		100.0%

*  non-qualifying investment            

SUMMARY OF INVESTMENT MOVEMENTS
DSO D SHARE POOL
for the period ended 30 September 2019

Disposals	Cost	Valuation at 31/03/2019	Disposal proceeds	Total gain against cost	Realised gain in period
	£000	£000	£000	£000	£000
Venture Capital investments
Lambridge Solar Limited	500	605	716	216	111
	500	605	716	216	111

DIVIDEND HISTORY
DSO D SHARE POOL

Period end	Date paid	Pence per share
2012 Final	28 September 2012	2.5
2013 Interim	25 January 2013	2.5
2013 Final	13 September 2013	2.5
2014 Interim	24 January 2014	2.5
2014 Final	30 September 2014	2.5
2015 Interim	30 January 2015	2.5
2015 Second interim	30 September 2015	2.5
2016 Interim	23 December 2015	2.5
2016 Final	30 September 2016	2.5
2017 Interim	6 January 2017	2.5
2017 Final	29 September 2017	2.5
2018 Special	2 November 2017	25.0
2018 Interim	13 August 2018	24.0
Cumulative dividends paid to 30 September 2019		76.5
2019 Interim	22 November 2019	18.0
Cumulative dividends paid to 12 December 2019		94.5

INVESTMENT MANAGER’S REPORT
DP67 SHARE POOL

Portfolio valuation
As at 30 September 2019, the DP67 Share Pool had a portfolio of three investments with a value of £2.9 million.

The only valuation adjustment during the period was in respect of Fenkle Street LLP, which was uplifted by £96,000. The investment is valued on a discounted cash flow basis, based on the expected profit distributions from the underlying hotel. The valuation continues to increase as the effect of the discount is unwound.

Portfolio activity
One realisation took place during the period. Snow Hill Developments LLP was exited, generating proceeds of £788,000 and a gain of £314,000 over the opening cost. The business developed a hotel in Birmingham and the DP67 Share pool has been receiving profit share over time based on the performance of the underlying hotel. Over the holding period of the investment in Snow Hill Developments LLP, total proceeds of £2.0 million were received, from an initial investment of £1.1 million.

Results and Net Asset Value
The Net Asset Value (“NAV”) per DP67 Share at 30 September 2019 stood at 47.4p, a decrease of 1.1p (2.3%) over the period. Total Return stands at 97.2p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per share.

The loss on ordinary activities after taxation for the period was £125,000 comprising a revenue loss of £250,000 and a capital profit of £125,000. Included in the revenue loss of £250,000 is a non-cash tax adjustment of £316,000, which is an accounting adjustment to eliminate the impact of the timing differences in respect of profit distributions from Snow Hill Developments LLP, in view of the disposal of the investment as discussed above.

Dividends
On 22 November 2019 the Company paid a dividend of 18.0p per DSO D Share, bringing the cumulative dividends total to 67.8p per DSO D Share as at the date of this report.

We expect that the realisations of the remaining investments will be completed during the middle of 2020, after which it is expected that the Company will declare a further dividend.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
DP67 SHARE POOL
as at 30 September 2019

	Cost	Valuation	Unrealised gain  in period	% of portfolio by value
	£000	£000	£000
Venture Capital investments
Cadbury House Holdings Limited	1,409	1,613	-	31.9%
Fenkle Street LLP*	405	793	96	15.7%
Gatewales Limited*	343	527	-	10.4%
Yamuna Energy Limited	400	-	-	0.0%
London City Shopping Centre Limited*	99	-	-	0.0%
	2,656	2,933	96	58.0%
Cash at bank and in hand		2,120		42.0%
Total investments		5,053		100.0%

*  non-qualifying investment

SUMMARY OF INVESTMENT MOVEMENTS
DP67 SHARE POOL
for the period ended 30 September 2019

Disposals	Cost	Valuation at 31/03/2019	Disposal proceeds	Total gain against cost	Realised gain in period
	£000	£000	£000	£000	£000
Venture Capital investments
Snow Hill Developments LLP	474	741	788	314	47
	474	741	788	314	47

DIVIDEND HISTORY
DP67 SHARE POOL

Period end	Date paid	Pence per share
Pre-merger dividends		21.8
2016 Interim	23 December 2015	2.0
2016 final	30 September 2016	2.0
2017 Interim	6 January 2017	2.0
2017 Final	29 September 2017	2.0
2018 Special	16 March 2018	20.0
Cumulative dividends paid to 30 September 2019		49.8
2019 Interim	22 November 2019	18.0
Cumulative dividends paid to date		67.8

INVESTMENT MANAGER’S REPORT
DP2011 GENERAL SHARE POOL

Introduction
The process of realising the remaining investments held by the DP2011 General Share pool was completed during September 2019, with the final distributions of 13.595p per DP2011 General A Share having been paid on 27 September 2019.

Realisations
During the period, the three remaining investments were realised, achieving proceeds of £2.0 million and a gain over cost of £654,000.

Final results
Over the life of the DP2011 General Share pool, Shareholders who invested under the original offer received dividends totalling 70.0p per DP2011 General Ordinary Share and 35.595p per DP2011 General A Share, equating to a Total Return of 105.595p for an original investment of 70.0p, net of income tax relief.

Following the final distributions and in accordance with the Articles of the Company, the DP2011 General Ordinary Shares and DP2011 General A Shares were converted into worthless deferred Shares on 14 November 2019 and were duly cancelled on 15 November 2019.

Downing LLP

SUMMARY OF INVESTMENT MOVEMENTS
DP2011 GENERAL SHARE POOL
for the period ended 30 September 2019

Disposals	Cost	Valuation at 31/03/2019	Disposal proceeds	Total gain against cost	Realised gain in period
	£000	£000	£000	£000	£000
Venture Capital investments
Snow Hill Developments LLP	680	1,206	1,225	545	19
Wickham Solar Limited	550	660	716	166	56
Mosaic Spa and Health Clubs Limited	86	29	29	(57)	-
	1,316	1,895	1,970	654	75

DIVIDEND HISTORY
DP2011 GENERAL SHARE POOL

Period end	Date paid	Pence per share
Pre-merger dividends		20.000
2016 Interim	23 December 2015	2.500
2016 Special	2 September 2016	22.500
2017 Special	14 February 2017	10.000
2018 Special	2 November 2017	30.000
2018 Interim	13 August 2018	7.000
2020 Interim	27 September 2019	13.595
		105.595

INVESTMENT MANAGER’S REPORT
DP2011 STRUCTURED SHARE POOL

Portfolio valuation
The process of realising the remaining investments held by the DP2011 Structured Share pool was completed during September 2019, with the final distributions of 10.059p per DP2011 General A Share having been paid on 27 September 2019.

Realisations
During the period, the two remaining investments were realised, achieving proceeds of £735,000 and a gain over cost of £127,000.

Final results
Over the life of the DP2011 Structured Share pool, Shareholders who invested under the original offer received dividends totalling 70.0p per DP2011 Structured Ordinary Share and 35.059p per DP2011 Structured A Share, equating to a Total Return of 105.059p for an original investment of 70.0p, net of income tax relief.

Following the final distributions and in accordance with the Articles of the Company, the DP2011 Structured Shares and DP2011 Structured A Shares were converted into worthless deferred Shares on 14 November 2019 and were duly cancelled on 15 November 2019.

Downing LLP

SUMMARY OF INVESTMENT MOVEMENTS
DP2011 STRUCTURED SHARE POOL
for the period ended 30 September 2019

Disposals	Cost	Valuation at 31/03/2019	Disposal proceeds	Total gain against cost	Realised gain in period
	£000	£000	£000	£000	£000
Venture Capital investments
Wickham Solar Limited	550	660	716	166	56
Mosaic Spa and Health Clubs Limited	58	19	19	(39)	-
	608	679	735	127	56

DIVIDEND HISTORY
DP2011 STRUCTURED SHARE POOL

Period end	Date paid	Pence per share
Pre-merger dividends		20.0
2016 Interim	23 December 2015	2.5
2016 Special	2 September 2016	32.5
2017 Special	14 February 2017	10.0
2018 Special	2 November 2017	25.0
2018 Interim	13 August 2018	5.0
2020 Interim	27 September 2019	10.059
		105.059

INVESTMENT MANAGER’S REPORT
GENERALIST SHARE POOL

Introduction

As at 30 September 2019, the Generalist Share Pool held a portfolio of 28 VCT Qualifying investments and three non-qualifying investments, with a combined value of £26.5 million.

Portfolio activity
During the period to 30 September 2019, the Generalist Share pool made 12 VCT Qualifying investments totalling £4.3 million. Of this total, £1.8 million was invested in four new VCT Qualifying businesses, with the remaining £2.5 million having been invested in eight of the existing portfolio businesses.

Also during the period, the Generalist Share pool invested a further £1.4 million in two non-qualifying investments.

New VCT Qualifying investments
The new VCT qualifying investments made in the period are summarised as follows:

- £525,000 was invested in JRNI Limited (formerly BookingBug Limited), the developer of a customer engagement platform that can help businesses increase revenue and build customer loyalty.

- £500,000 was invested in Hummingbird Technologies Limited, an advanced crop analytics business.

- £459,000 was invested in Cambridge Touch Technologies Limited, a company which develops pressure-sensitive multi-touch technology.

- £300,000 was invested in Trouva Limited, the owner of an online marketplace for independent boutiques.

Follow-on VCT Qualifying investments
Follow-on investment completed during the period are summarised as follows:

- £583,000 was invested in Limitless Technology Limited, the developer of a crowdsourced customer service platform.
      
- £510,000 was invested in Volo Commerce Limited, a provider of multichannel e-commerce technology.
      
- £333,000 was invested in Lignia Wood Company Limited (formerly Fibre 7 UK Limited), a producer of sustainable high-performance modified timber for that has applications in building and yacht construction

- £300,000 was invested in Channel Mum Limited, the developer of a community-based website for parents.
      
- £250,000 was invested in Empiribox Limited, the provider of equipment, lesson plans and CPD-accredited support for teachers delivering practical science lessons to UK primary school children.
      
- £250,000 was invested in E Fundamentals (Group) Limited, the provider of a data analytics service that helps brand owners improve their online revenues.
      
- £138,000 was invested in ADC Biotechnology Limited, a company creating a 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).
      
- £115,000 was invested in Xupes Limited, an online retailer of pre-owned luxury goods including designer watches, handbags, jewellery and antiques.

Non-qualifying investments
The Generalist Share pool holds a non-qualifying portfolio of funds managed by Downing which mainly invest in UK equities, focussing on the small cap sector. The share pool added to its holding in Downing Strategic Micro-Cap Investment Trust plc, investing a further £169,000.

The Generalist Share pool also added to its non-qualifying investment in Snow Hill Developments LLP, the developer of a hotel in Birmingham. The Generalist Share pool acquired the DP2011 General Share pool’s interest in the business for £1.2 million. This transaction allowed the Generalist Share pool to add a yielding asset to its growing portfolio, whilst also enabling DP2011 General Share pool to make its final distribution to its investors. Snow Hill Developments LLP was subsequently refinanced during the period, and the Generalist Share pool received proceeds of £1.4 million from its total investment of £1.3 million.

Portfolio valuation
A number of adjustments were made to the valuation of the investments in the VCT qualifying portfolio, resulting in a reduction in value by £1.9 million during the period. The individual valuation movements are discussed below.

Empiribox Limited was reduced in value by £747,000, in view of the business being behind on its revenue targets, largely due to the restrictive budgets available to UK primary schools. Downing is closely monitoring the business and is providing support to its management team.

Live Better With Limited has been reduced in value by £642,000, equating to a 50% provision against cost, as the business is now behind on the performance metrics set at the time of the last investment. However, the business has now been through a cost reduction phase, which was carried out alongside the merging of its operations with Unforgettable. Downing is working closely with the management team.

Ormsborough Limited was reduced in value by £194,000 during the period and is now held at £nil. The individual pub sites have been subject to an independent valuation exercise, which has seen their expected sales values decrease. This means that it is unlikely there will be any recovery of value for equity holders.

Destiny Pharma plc has been reduced in value by £140,000 during the period, to reflect the prevailing quoted share price as at 30 September 2019. The company posted some encouraging interim results to 30 June 2019 and is making good progress on its trials, with results expected during mid-2020. However, the share price has fallen on limited trading volumes.

Glownet Limited was reduced in value by £112,000 during the period, in view of the company’s underperformance against its budget.

The remaining valuation movements in the Venture Capital portfolio amounted to a net valuation reduction of £66,000.

In addition, the carrying values of the non-qualifying fund investments have been adjusted to reflect their quoted prices as at 30 September 2019, resulting in a net reduction of £483,000 over the period.

Net Asset Value and results
At 30 September 2019, the Net Asset Value (“NAV”) of a Generalist share stood at 77.6     p, a decrease of 5.9p (7.1%) over the period. This fall is attributable to a combination of the unrealised losses on the VCT and non-qualifying portfolios as well the “cash-drag” of holding uninvested funds.

The loss on ordinary activities after taxation for the period was £2.7 million, comprising a revenue loss of £306,000 and a capital loss of £2.4 million.

Outlook
The process of building the Generalist portfolio is progressing well and the VCT is on target to meet the 80% Qualifying threshold by the required date of 1 April 2020.

Although we have seen a fall in the value of the VCT qualifying portfolio since the commencement of the Generalist Share Pool, this is not untypical behaviour for this type of portfolio where weaker investments will often become visible well before the more successful investments prove their worth.  An important part of our role over the remainder of the year and going forward will be to continue to support and nurture the investments, particularly those which can we believe may be able to ultimately deliver good outcomes. A more stable UK political and economic outlook will be helpful to this end.

We will update Shareholders on the further progress made in building the Generalist portfolio in the Annual Report to 31 March 2020, to be published in July 2020.

Downing LLP

SUMMARY OF INVESTMENT ADDITIONS

GENERALIST SHARE POOL
for the period ended 30 September 2019

		Cost
		£’000
Venture Capital investments
Snow Hill Developments LLP*		1,225
Limitless Technology Limited		583
JRNI Limited		525
Volo Commerce Limited		510
Hummingbird Technologies Limited		500
Cambridge Touch Technologies Limited		459
Lignia Wood Company Limited		333
Channel Mum Limited		300
Trouva Limited		300
Empiribox Limited		250
E-Fundamentals (Group) Limited		250
ADC Biotechnology Limited		138
Xupes Limited		115
		5,488
Liquidity investments
Downing Strategic Micro-Cap Investment Trust plc*^		169
		169
Total		5,657

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

All VCT Qualifying Investments are incorporated in England and Wales.

SUMMARY OF INVESTMENT DISPOSALS
GENERALIST SHARE POOL
for the period ended 30 September 2019

Disposals	Cost*	Valuation at 31/03/2019*	Disposal proceeds	Total gain against cost	Realised gain in period
	£000	£000	£000	£000	£000
Venture Capital investments
Snow Hill Developments LLP**	1,289	1,317	1,417	128	100
Mosaic Spa and Health Clubs Limited	32	17	18	(14)	1
	1,321	1,334	1,435	114	101

*adjusted for addition

SUMMARY OF INVESTMENT PORTFOLIO

GENERALIST SHARE POOL
as at 30 September 2019

		Cost	Valuation	Unrealised gain/(loss) in period	% of portfolio
		£’000	£’000	£’000
Venture Capital investments
Lignia Wood Company Limited		1,444	1,533	-	4.5%
Rated People Limited		1,282	1,282	-	3.8%
E-Fundamentals (Group) Limited		1,167	1,167	-	3.4%
Volo Commerce Limited		1,077	1,077	-	3.2%
Firefly Learning Limited		1,047	1,047	-	3.1%
Imagen Limited		1,000	1,000	-	2.9%
Xupes Limited		933	933	-	2.7%
Maverick Pubs Limited		1,000	850	(50)	2.5%
Limitless Technology Limited		756	802	-	2.4%
Hackajob Limited		784	784	-	2.3%
BridgeU Limited		811	727	(84)	2.1%
Live Better With Limited		1,211	642	(642)	1.9%
Virtual Class Limited		803	544	-	1.6%
JRNI Limited		525	525	-	1.5%
Exonar Limited		500	500	-	1.5%
Channel Mum Limited		500	500	-	1.5%
Hummingbird Technologies Limited		500	500	-	1.5%
Cambridge Touch Technologies Limited		459	459	-	1.3%
Fenkle Street LLP*		301	423	51	1.2%
ADC Biotechnology Limited		550	421	17	1.2%
Empiribox Limited		1,278	400	(747)	1.2%
Arecor Limited		300	300	-	0.9%
Trouva Limited		300	300	-	0.9%
Masters of Pie Limited		167	167	-	0.5%
Destiny Pharma plc^		500	121	(140)	0.4%
Glownet Limited		741	73	(112)	0.2%
Ormsborough Limited		900	-	(194)	0.0%
London City Shopping Centre Limited*		30	-	-	0.0%
		20,866	17,077	(1,901)	50.2%
Liquidity investments
MI Downing Monthly Income Fund*		3,950	3,597	94	10.5%
MI Downing UK Micro-Cap Growth Fund*		4,025	3,021	(306)	8.8%
Downing Strategic Micro-Cap Investment Trust plc*^		4,269	2,809	(271)	8.2%
		12,244	9,427	(483)	27.5%
Total		33,110	26,504	(2,384)	77.7%
Cash at bank and in hand			7,594		22.3%
Total investments			34,098		100.0%

*  non-qualifying investment
^ listed and traded on the Main Market of the London Stock Exchange
^^ listed and traded on AIM

INVESTMENT MANAGER’S REPORT
HEALTHCARE SHARE POOL

Introduction
As at 30 September 2019, the Generalist Share Pool held a portfolio of eight Venture Capital investments and three Liquidity investments, with a combined value of £7.0 million.

Portfolio activity
During the period to 30 September 2019, the Healthcare Share pool made two investments in VCT Qualifying businesses totalling £416,000.

Also, during the period the Healthcare Share pool added to its liquidity portfolio, with a further investment of £29,000.

VCT Qualifying investments
£278,000 was invested in The Electrospinning Company Limited, a business which designs, develops and manufactures nanofibrous biomaterials for use in tissue-regenerative devices.

A further £138,000 was invested in ADC Biotechnology Limited, a company creating a 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
The carrying values of the Public Equity investments have been adjusted to reflect their quoted prices as at 30 September 2019, resulting in a net reduction of £105,000.

Live Better With Limited has been reduced in value by £590,000, equating to a 50% provision against cost, as the business is now behind on the performance metrics set at the time of the last investment. However, the business has now been through a cost reduction phase, which was carried out alongside the merging of its operations with Unforgettable. Downing are working closely with the management team.

The remaining valuation movements in the Venture Capital portfolio amounted to a net valuation uplift of £94,000.

Net Asset Value and results
At 30 September 2019, the Net Asset Value (“NAV”) of a Healthcare share stood at 77.7    p, a decrease of 5.6p (6.7%) over the period.  As with the Generalist Share pool, the fall is attributable to a combination of the unrealised losses on the VCT and non-qualifying portfolios as well the “cash-drag” of holding uninvested funds.

The loss on ordinary activities after taxation for the period was £1.0 million, comprising a revenue loss of £119,000 and a capital loss of £889,000.

Outlook
The process of building the Healthcare portfolio is progressing well and the VCT is on target to meet the 80% Qualifying threshold by the required date of 1 April 2020.

As noted for the Generalist Share pool, the overall fall in the value of the VCT qualifying investments since the commencement of the Healthcare share pool is not an uncommon feature of this type of portfolio. In the Healthcare growth sector, the effect of weaker investments becoming evident at a much earlier stage than stronger investments proving themselves is perhaps even more pronounced than in the Generalist sector. Additionally, this and the non-qualifying portfolio have exposure to the AIM market and so the uncertainty about Brexit and the UK political situation in general has had a negative impact on valuations. We welcome the prospect of a clearer path ahead in the coming weeks and months which we believe could support growth in the valuations of the underlying AIM stocks.

Over the remainder of the year and onwards we will continue to secure new investments to further develop the VCT qualifying portfolio and also work with the existing investments to provide ongoing support to help them towards achieving their goals.

We will next update Shareholders on the progress made in investing the Healthcare funds in the Annual Report to 31 March 2020, to be published in July 2020.

Downing LLP

SUMMARY OF INVESTMENT ADDITIONS

HEALTHCARE SHARE POOL
for the period ended 30 September 2019

		Cost
		£’000
Venture Capital investments
The Electrospinning Company Limited		278
ADC Biotechnology Limited		138
		416
Liquidity investments
Downing Strategic Micro-Cap Investment Trust plc*^		29
		29
Total		445

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

All VCT Qualifying Investments are incorporated in England and Wales.

SUMMARY OF INVESTMENT PORTFOLIO

HEALTHCARE SHARE POOL
as at 30 September 2019

		Cost	Valuation	Unrealised gain/ (loss) in period	% of portfolio
		£’000	£’000	£’000
Venture Capital investments
Arecor Limited		1,100	1,100	-	7.8%
Open Bionics Limited		1,000	1,000	-	7.1%
ADC Biotechnology		1,192	701	29	5.0%
Live Better With Limited		1,106	589	(590)	4.2%
Adaptix Limited		556	556	65	3.9%
Future Health Works Limited		278	278	-	2.0%
The Electrospinning Company Limited		278	278	-	2.0%
Destiny Pharma plc^		750	181	(211)	1.3%
		6,260	4,683	(707)	33.3%
Liquidity investments
MI Downing UK Micro-Cap Growth Fund*		1,125	841	(85)	6.0%
Downing Strategic Micro-Cap Investment Trust plc*^		729	480	(46)	3.3%
MI Downing Monthly Income Fund*		1,100	1,004	26	7.1%
		2,954	2,325	(105)	16.4%
Total		9,214	7,008	(812)	49.7%
Cash at bank and in hand			7,099		50.3%
Total investments			14,107		100.0%

*  non-qualifying investment
^ listed and traded on the Main Market of the London Stock Exchange
^^ listed and traded on AIM

All VCT Qualifying Investments are incorporated in England and Wales.

UNAUDITED INCOME STATEMENT

for the six months ended 30 September 2019

	Six months ended 30 Sep 2019				Six months ended 30 Sep 2018			Year ended 31 Mar 2019
	Revenue	Capital	Total		Revenue	Capital	Total	Total
Company Total	£000	£000	£000		£000	£000	£000	£000
Income	156	59	215		215	115	330	608
Net losses on investments	-	(2,717)	(2,717)		-	(1,363)	(1,363)	(5,091)
	156	(2,658)	(2,502)		215	(1,248)	(1,033)	(4,483)
Investment management fees	(286)	(286)	(572)		(203)	(203)	(406)	(772)
Other expenses	(279)	-	(279)		(197)	-	(197)	(468)
(Loss)/return on ordinary activities before tax	(409)	(2,944)	(3,353)		(185)	(1,451)	(1,636)	(5,723)
Tax on total comprehensive income and ordinary activities	(306)	-	(306)		(19)	-	(19)	7
(Loss)/return attributable to equity Shareholders, being total comprehensive income for the period	(715)	(2,944)	(3,659)		(204)	(1,451)	(1,655)	(5,716)
Return per DSO D Share	-	1.2p	1.2p		(0.4p)	0.3p	(0.1p)	2.6p
Return per DP67 Share	(2.2p)	1.1p	(1.1p)		0.7p	(0.2p)	0.5p	(1.5p)
Return per DP2011 Gen Ordinary Share	-	-	-		-	-	-	-
Return per DP2011 Gen A Share	(0.1p)	0.3p	0.2p		(0.1p)	(0.2p)	(0.3p)	-
Return per DP2011 Struc Ordinary Share	-	-	-		-	-	-	-
Return per DP2011 Struc A Share	(0.1p)	0.4p	0.3p		-	(0.2p)	(0.2p)	(0.3p)
Return per Generalist Share	(0.7p)	(5.8p)	(6.5p)		(0.5p)	(2.9p)	(3.4p)	(12.0p)
Return per Healthcare Share	(0.7p)	(5.1p)	(5.8p)		(1.2p)	(8.5p)	(9.7p)	(11.3p)

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 2019

	Six months ended 30 Sep 2019				Six months ended 30 Sep 2018			Year ended 31 Mar 2019
	Revenue	Capital	Total		Revenue	Capital	Total	Total
D Share Pool	£000	£000	£000		£000	£000	£000	£000
Income	6	-	6		2	-	2	14
Gains on investments	-	104	104		-	38	38	(141)
	6	104	110		2	38	40	(127)
Investment management fees	(8)	(8)	(16)		(16)	(16)	(32)	(34)
Other expenses	(11)	-	(11)		(15)	-	(15)	(46)
(Loss)/return on ordinary activities before taxation	(13)	96	(83)		(29)	22	(7)	(207)
Taxation	10	-	-		-	-	-	-
(Loss)/return attributable to equity Shareholders	(3)	96	(93)		(29)	22	(7)	(207)

	Six months ended 30 Sep 2019				Six months ended 30 Sep 2018			Year ended 31 Mar 2019
	Revenue	Capital	Total		Revenue	Capital	Total	Total
DP67 Share Pool	£000	£000	£000		£000	£000	£000	£000
Income	107	-	107		117	75	192	326
(Losses)/gains on investments	-	143	143		-	(75)	(75)	(372)
	107	143	250		117	-	117	(46)
Investment management fees	(18)	(18)	(36)		(19)	(19)	(38)	(66)
Other expenses	(23)	-	(23)		(2)	-	(2)	(26)
Return/(loss) on ordinary activities before taxation	66	125	191		96	(19)	77	(138)
Taxation	(316)	-	(316)		(19)	-	(19)	(28)
Return/(loss) attributable to equity Shareholders	(250)	125	(125)		77	(19)	58	(166)

	Six months ended 30 Sep 2019				Six months ended 30 Sep 2018				Year ended 31 Mar 2019
	Revenue	Capital	Total		Revenue	Capital		Total	Total
DP2011 General Share Pool	£000	£000	£000		£000	£000		£000	£000
Income	-	-	-		9	-		9	4
(Losses)/gains on investments	-	75	75		-	(19)		(19)	71
	-	75	75		9	(19)		(10)	75
Investment management fees	(11)	(11)	(22)		(17)	(17)		(34)	(40)
Other expenses	(8)	-	(8)		(14)	-		(14)	(31)
(Loss)/return on ordinary activities before taxation	(19)	64	45		(22)	(36)		(58)	4
Taxation	-	-	-		-	-		-	-
(Loss)/return attributable to equity Shareholders	(19)	64	45		(22)	(36)		(58)	4

	Six months ended 30 Sep 2019				Six months ended 30 Sep 2018			Year ended 31 Mar 2019
	Revenue	Capital	Total		Revenue	Capital	Total	Total
DP2011 Structured Share Pool	£000	£000	£000		£000	£000	£000	£000
Income	-	-	-		9	-	9	3
(Losses)/gains on investments	-	56	56		-	(17)	(17)	-
	-	56	56		9	(17)	(8)	3
Investment management fees	(6)	(6)	(12)		(9)	(9)	(18)	(14)
Other expenses	(12)	-	(12)		(7)	-	(7)	(15)
(Loss)/return on ordinary activities before taxation	(18)	50	32		(7)	(26)	(33)	(26)
Taxation	-	-	-		-	-	-	-
(Loss)/return attributable to equity Shareholders	(18)	50	32		(7)	(26)	(33)	(26)

	Six months ended 30 Sep 2019				Six months ended 30 Sep 2018			Year ended 31 Mar 2019
	Revenue	Capital	Total		Revenue	Capital	Total	Total
Generalist Share Pool	£000	£000	£000		£000	£000	£000	£000
Income	21	59	80		61	40	101	232
Losses on investments	-	(2,283)	(2,283)		-	(729)	(729)	(3,572)
	21	(2,224)	(2,203)		61	(689)	(628)	(3,340)
Investment management fees	(166)	(166)	(332)		(77)	(77)	(154)	(360)
Other expenses	(161)	-	(161)		(114)	-	(114)	(252)
Losses on ordinary activities before taxation	(306)	(2,390)	(2,696)		(130)	(766)	(896)	(3,952)
Taxation	-	-	-		-	-	-	35
Losses attributable to equity Shareholders	(306)	(2,390)	(2,696)		(130)	(766)	(896)	(3,917)

	Six months ended 30 Sep 2019				Six months ended 30 Sep 2018			Year ended 31 Mar 2019
	Revenue	Capital	Total		Revenue	Capital	Total	Total
Healthcare Share Pool	£000	£000	£000		£000	£000	£000	£000
Income	22	-	22		17	-	17	29
Losses on investments	-	(812)	(812)		-	(561)	(561)	(1,077)
	22	(812)	(790)		17	(561)	(544)	(1,048)
Investment management fees	(77)	(77)	(154)		(65)	(65)	(130)	(258)
Other expenses	(64)	-	(64)		(45)	-	(45)	(98)
Losses on ordinary activities before taxation	(119)	(889)	(1,008)		(93)	(626)	(719)	(1,404)
Taxation	-	-	-		-	-	-	-
Losses attributable to equity Shareholders	(119)	(889)	(1,008)		(93)	(626)	(719)	(1,404)

UNAUDITED BALANCE SHEET

as at 30 September 2019

			As at 30 September 2019		As at 30 September 2018		As at 31 March 2019
			£’000		£’000		£’000
Fixed assets
Investments			37,135		39,470		39,394
Current assets
Debtors			558		572		800
Cash at bank and in hand			18,437		11,554		18,443
			18,995		12,126		19,243
Creditors: amounts falling due within one year			(481)		(211)		(485)
Net current assets			18,514		11,915		18,758
Net assets			55,649		51,385		58,152
8BCapital and reserves
Called up Share capital			149		130		138
Capital redemption reserve			-		31		-
Special reserve			45,762		4,463		47,040
Share premium account			17,102		44,621		7,172
Funds held in respect of shares not yet allotted			167		234		4,772
Revaluation reserve			(8,395)		(1,637)		(4,158)
Capital reserve – realised			3,733		4,855		4,940
Revenue reserve			(2,869)		(1,312)		(1,752)
Total equity Shareholders’ funds			55,649		51,385		58,152
Basic and diluted Net Asset Value per Share:
DSO D Share			28.9p		30.3p		27.8p
DP67 Share			47.4p		50.5p		48.5p
DP2011 General Ordinary Share			-		-		-
DP2011 General A Share			-		13.0p		13.3p
DP2011 Structured Ordinary Share			-		-		N/A
DP2011 Structured A Share			-		9.8p		9.9p
Generalist Share			77.6p		92.7p		83.5p
Healthcare Share			77.7p		88.7p		83.3p

The comparative balance sheet as at 30 September 2018 includes the Share Pools in existence at that date.

UNAUDITED BALANCE SHEET (ANALYSED BY SHARE POOL)

as at 30 September 2019

DSO D Share Pool

			As at 30 September 2019		As at 30 September 2018		As at 31 March  2019
			£’000		£’000		£’000
Fixed assets
Investments			690		1,489		1,302
Current assets
Debtors			18		4		1
Cash at bank and in hand			1,591		921		910
			1,609		925		911
Creditors: amounts falling due within one year			(21)		(31)		(28)
Net current assets			1,588		894		883
Net assets			2,278		2,383		2,185
Capital and reserves
Called up share capital			8		8		8
Special reserve			2,356		2,629		2,259
Revaluation reserve			41		(39)		153
Capital reserve – realised			(37)		(148)		(148)
Revenue reserve			(90)		(67)		(87)
Total equity Shareholders’ funds			2,278		2,383		2,185

DP67 Share Pool

		As at 30 September 2019		As at 30 September 2018		As at 31 March  2019
		£’000		£’000		£’000
Fixed assets
Investments		2,933		4,564		3,578
Current assets
Debtors		333		627		669
Cash at bank and in hand		2,120		501		1,251
		2,453		1,128		1,920
Creditors: amounts falling due within one year		(83)		(40)		(70)
Net current assets		2,370		1,088		1,850
Net assets		5,303		5,652		5,428
Capital and reserves
Called up share capital		11		11		11
Capital redemption reserve		-		31		-
Special reserve		783		861		534
Revaluation reserve		376		504		547
Capital reserve – realised		3,669		3,581		3,622
Revenue reserve		464		664		714
Total equity Shareholders’ funds		5,303		5,652		5,428

DP2011 General Share Pool

		As at 30 September 2019		As at 30 September 2018		As at 31 March  2019
		£’000		£’000		£’000
Fixed assets
Investments		-		2,224		1,895
Current assets
Debtors		-		1		1
Cash at bank and in hand		19		208		594
		19		209		595
Creditors: amounts falling due within one year		(19)		(36)		(31)
Net current assets		-		173		564
Net assets		-		2,397		2,459
Capital and reserves
Called up share capital – Ordinary Shares		16		16		16
Called up share capital – A Shares		18		18		18
Special reserve		(34)		903		652
Revaluation reserve		-		334		636
Capital reserve – realised		-		831		867
Revenue reserve		-		295		270
Total equity Shareholders’ funds		-		2,397		2,459

DP2011 Structured Share Pool

		As at 30 September 2019		As at 30 September 2018		As at 31 March  2019
		£’000		£’000		£’000
Fixed assets
Investments		-		1,028		679
Current assets
Debtors		-		3		3
Cash at bank and in hand		14		215		566
		14		218		569
Creditors: amounts falling due within one year		(14)		(20)		(15)
Net current assets		-		198		554
Net assets		-		1,226		1,233
Capital and reserves
Called up share capital – Ordinary Shares		11		11		11
Called up share capital – A Shares		13		13		13
Special reserve		(24)		566		332
Revaluation reserve		-		(136)		109
Capital reserve – realised		-		591		599
Revenue reserve		-		181		169
Total equity Shareholders’ funds		-		1,226		1,233

Generalist Share Pool

		As at 30 September 2019		As at 30 September 2018		As at 31 March  2019
		£’000		£’000		£’000
Fixed assets
Investments		26,504		23,555		24,565
Current assets
Debtors		201		94		124
Cash at bank and in hand		7,594		5,396		8,661
		7,795		5,490		8,785
Creditors: amounts falling due within one year		(218)		(129)		(220)
Net current assets		7,577		5,361		8,565
Net assets		34,081		28,916		33,130
Capital and reserves
Called up share capital		51		38		43
Special reserve		30,711		(331)		31,111
Share premium account		11,889		32,058		4,692
Revaluation reserve		(6,606)		(1,407)		(4,209)
Capital reserve – realised		101		-		-
Funds held in respect of shares not yet allotted		144		199		3,396
Revenue reserve		(2,209)		(1,641)		(1,903)
Total equity Shareholders’ funds		34,081		28,916		33,130

Healthcare Share Pool

		As at 30  September  2019		As at 30 September 2018		As at 31 March  2019
		£’000		£’000		£’000
Fixed assets
Investments		7,008		6,610		7,375
Current assets
Debtors		6		3		2
Cash at bank and in hand		7,099		4,313		6,461
		7,105		4,316		6,463
Creditors: amounts falling due within one year		(126)		(115)		(121)
Net current assets		6,979		4,201		6,342
Net assets		13,987		10,811		13,717
Capital and reserves
Called up share capital		21		15		18
Special reserve		11,970		(165)		12,152
Share premium account		5,213		12,563		2,480
Revaluation reserve		(2,206)		(893)		(1,394)
Funds held in respect of shares not yet allotted		23		35		1,376
Revenue reserve		(1,034)		(744)		(915)
Total equity Shareholders’ funds		13,987		10,811		13,717

STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 September 2019

	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 2018	188				31	8,021	43,904	420	234	4,641	(1,104)	56,335
Total comprehensive income	-				-	-	-	-	(5,250)	3	(469)	(5,716)
Transfer between reserves*	-				-	(4,960)	-	-	858	4,102	-	-
Unallotted Shares	-				-	-	-	4,352	-	-	-	4,352
Transactions with owners
Dividends paid	-				-	-	-	-	-	(3,806)	-	(3,806)
Cancellation of Share Premium/ Capital Redemption Reserve		-			(89)	43,993	(43,904)	-	-	-	-	-
Cancellation of Shares	(58)				58	-	-	-	-	-	-	-
Purchase of own Shares	-				-	(14)	-	-	-	-	-	(14)
Issue of Shares	8				-	-	7,172	-	-	-	-	7,180
Share issue costs	-				-	-	-	-	-	-	(179)	179
At 31 March 2019	138				-	47,040	7,172	4,772	(4,158)	4,940	(1,752)	58,152
Total comprehensive income	-				-	-	-	-	(3,107)	163	(715)	(3,659)
Transfer between reserves*	-				-	(867)	-	-	(1,130)	2,399	(402)	-
Unallotted Shares	-				-	-	-	(4,605)	-	-	-	(4,605)
Transactions with owners
Dividends paid			-		-	-	-	-	-	(3,769)	-	(3,769)
Purchase of own Shares						(76)						(76)
Issue of Shares	11				-	-	9,930	-	-	-	-	9,941
Share issue costs	-				-	(335)	-	-	-	-	-	(335)
At 30 September 2019	149				-	45,762	17,102	167	(8,395)	3,733	(2,869)	55,649

*A transfer of £1,130,000 (31 March 2019: £858,000) representing previously recognised realised gains and losses on disposal of investments during the period has been made between the Revaluation Reserve to the Capital reserve-realised.  A transfer of £867,000 (31 March 2019: £4,960,000) 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 £402,000 (31 March 2019: £nil), representing the balance on the Revenue reserve relating to the two cancelled share classes, has been made from the revenue reserve to the Special reserve.

UNAUDITED STATEMENT OF CASH FLOWS

			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
(Decrease)/increase in creditors				3				(347)	(12)	(1)	(1)	5	(353)
Decrease/(increase) in debtors				(17)				220	1	3	(79)	(3)	125
Net cash outflow from operating activities				(35)				(79)	(41)	(22)	(493)	(194)	(704)
Corporation tax paid				-				160	-	-	-	-	-
New cash generated from operating activities				(35)				81	(41)	(22)	(493)	(194)	(704)
Cash flow from investing activities
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)
Unallotted shares				-				-	-	-	(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 movement in cash				681				869	(575)	(552)	(1,067)	638	(6)
Cash and cash equivalents at start of period				910				1,251	594	566	8,661	6,461	18,443
Cash and cash equivalents at end of 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

UNAUDITED STATEMENT OF CASH FLOWS

			Six months ended 30 September 2018
				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				(7)				77	(58)	(33)	(896)	(719)	(1,636)
(Gains)/losses on investments				(38)				75	19	17	689	561	1,323
(Decrease)/increase in creditors				(38)				(76)	(32)	(17)	(87)	4	(246)
Decrease/(increase) in debtors				62				(94)	(1)	-	(21)	(2)	(56)
Net cash outflow from operating activities				(21)				(18)	(72)	(33)	(315)	(156)	(615)
Corporation tax paid				-				-	-	-	-	-	-
New cash generated from operating activities				(21)				(18)	(72)	(33)	(315)	(156)	(615)
Cash flow from investing activities
Purchase of investments				-				-	-	-	(5,191)	(2,658)	(7,849)
Proceeds from disposal of investments				2,248				-	-	-	-	-	2,248
Net cash inflow/(outflow) from investing activities				2,248				-	-	-	(5,191)	(2,658)	(5,601)
Net cash inflow/(outflow) before financing				2,227				(18)	(72)	(33)	(5,506)	(2,814)	(6,216)
Cash flows from financing activities
Repurchase of shares				-				-	-	-	(14)	-	(14)
Issue of share capital				-				-	-	-	551	162	713
Unallotted shares				-				-	-	-	(198)	12	(186)
Equity dividends paid				(1,888)				-	(1,289)	(629)	-	-	(3,806)
Net cash (outflow)/inflow from financing activities					(1,888)			-	(1,289)	(629)	339	174	(3,293)
Net movement in cash				339				(18)	(1,361)	(662)	(5,167)	(2,640)	(9,509)
Cash and cash equivalents at start of period				582				519	1,569	877	10,563	6,953	21,063
Cash and cash equivalents at end of period				921				501	208	215	5,396	4,313	11,554
Cash and cash equivalents comprise
Cash at bank and in hand				921				501	208	215	5,396	4,313	11,554
Total cash and cash equivalents				921				501	208	215	5,396	4,313	11,554

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 2019 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 March 2019, 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 November 2014 (revised in February 2018) (“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 2018 and the year ended 31 March 2019 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:

DSO D Shares	7,867,247		DP2011 Structured Shares	10,678,725
DP67 Shares	11,192,136		DP2011 Structured A Shares	12,572,817
DP2011 General Shares	15,644,066		Generalist Shares*	43,752,827
DP2011 General A Shares	18,418,614		Healthcare Shares*	17,982,727

*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:

DSO D Shares	7,867,247		DP2011 Structured Shares	10,678,725
DP67 Shares	11,192,136		DP2011 Structured A Shares	12,572,817
DP2011 General Shares	15,644,066		Generalist Shares*	41,328,481
DP2011 General A Shares	18,418,614		Healthcare Shares*	17,296,874

*Excludes Management Shares

7. Dividends

	Six months ended 30 September 2019
	Revenue		Capital		Total
	£000		£000		£000
Paid in period
DP2011 General A Shares	-		2,504		2,504
DP2011 Structured A Shares	-		1,265		1,265

8. Reserves

	30 Sep 2019		30 Sep  2018		31 Mar 2019
	£’000		£’000		£’000
Capital redemption reserve	-		31		-
Special reserve	45,762		4,463		47,040
Share premium account	17,102		44,621		7,172
Funds held in respect of shares not yet allotted	167		234		4,772
Capital reserve – realised	3,733		4,855		4,940
Revaluation reserve	(8,395)		(1,637)		(4,158)
Revenue reserve	(2,869)		(1,312)		(1,752)
Total reserves	55,500		51,255		58,014

The Revenue reserve, Special reserve and Capital reserve - realised are distributable reserves and are reduced by revaluation losses of £9.5 million. Distributable reserves at 30 September 2019 were £37.1 million.

9. Investments
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 2019.  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 Sep 2019		Level 1	Level 2	Level 3	31 Mar 2019
	£000	£000	£000	£000		£000	£000	£000	£000
Liquidity investments	11,752	-	-	11,752		12,142	-	-	12,142
Quoted equity	302	-	-	302		653	-	-	653
Unquoted loan notes	-	-	4,124	4,124		-	-	2,971	2,971
Unquoted equity	-	-	20,957	20,957		-	-	23,628	23,759
	12,054	-	25,081	37,135		12,795	-	26,599	39,394

10. 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.

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.

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 2019, the estimated performance fee is 4.1p 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 under the new Offers.