Thames V.2 Dp67 Regulatory News (D467)

19 Dec 2018 17:07

Downing FOUR VCT plcLEI: 21380035MV1VRYEXPR95Half-Yearly Report for the six months ended 30 September 201819 December 2018

FINANCIAL HIGHLIGHTS

*A full explanation of the Performance Incentive arrangements for each Share pool will be shown in the Half-Yearly Report.

CHAIRMAN'S STATEMENT

IntroductionI am pleased to present the Company's Half-Yearly Report for the six months ended 30 September 2018.

Share poolsThe Company now has six active share pools, four of which are winding down. This report includes sections covering the individual share pools and I will give a brief overview of each.

Planned exit Share pools DSO D Share PoolThe DSO D Share NAV stood at 30.3p at 30 September 2018, a decrease of 0.1p per share or 0.2% over the period, after adjusting for the dividends paid in the period. Total Return now stands at 102.4p per share, compared to the cost for Shareholders who invested in the D Share offer, net of income tax relief, of 70.0p. Based on the current performance it is estimated that a performance fee equivalent to 4.4p per D Share may become payable to the Manager. This has been reflected in the Total Return figure shown above. Following a number of disposals from the D Share Pool, the second major distribution of 24.0p per DSO D Share was paid on 13 August 2018. Realisation plans are progressing in respect of the remaining investments and we expect to be in a position to make a final distribution to Shareholders during 2019.

DP67 Share PoolAs at 30 September 2018, the NAV of the DP67 Shares stood at 50.5p per share. This represents an increase of 0.5p (1.0%) over the period. Total Return for DP67 shareholders now stands at 100.3p 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 all of the remaining investments in the DP67 portfolio and, following the dividend of 20.0p per DP67 Share paid on 16 March 2018, we anticipate that the remaining value will be distributed to Shareholders through the payment of one final dividend, which we anticipate should be paid in the coming months.

DP2011 General Share PoolThe DP2011 General Share Pool is in the process of returning funds to Shareholders. After providing for an estimated Performance Incentive of 2.3p per DP2011 General Ordinary Share, as at 30 September 2018, the NAV of a combined holding of one DP2011 General Ordinary Share and one DP2011 General A Share stood at 13.0p per share. This represents a decrease of 0.3p or 1.5% after adjusting for dividends paid during the period, as well as the Performance Incentive estimate. Further details of the Performance Incentive arrangements are set out in the notes to the accounts.

Total Return for DP2011 General Shareholders now stands at 105.0p, compared to the cost for Shareholders who invested in the original offer, net of income tax relief, of 70.0p.

On 13 August 2018 a dividend of 7.0p per DP2011 General A Share was paid, bringing total dividends paid to Shareholders to 92.0p for a combined holding. As the portfolio now consists of a small number of investments, all with plans to exit, it is expected that the remaining proceeds will be distributed to Shareholders by way of one closing dividend in the first half of 2019.

DP2011 Structured Share PoolThe DP2011 Structured Share Pool is at a similar stage to the DP2011 General Share Pool. After providing for an estimated Performance Incentive of 1.7p per DP2011 Structured Ordinary Share, as at 30 September 2018, the NAV of a combined holding of one DP2011 Structured Ordinary Share and one DP2011 Structured A Share stood at 9.8p per share. This represents a decrease of 0.2p or 1.3% after adjusting for dividends paid during the period, as well as the Performance Incentive estimate. Further details of the Performance Incentive arrangements are set out in the notes to the accounts.

Total Return for DP2011 Structured Shareholders now stands at 104.8p, compared to the cost for Shareholders who invested in the original offer, net of income tax relief, of 70.0p.

On 13 August 2018 a dividend of 5.0p per DP2011 Structured A Share was paid, bringing total dividends paid to Shareholders to 95.0p for a combined holding. As the portfolio now consists of a small number of investments, all with plans to exit, it is expected that the remaining proceeds will be distributed to Shareholders by way of one closing dividend in the first half of 2019.

Evergreen Share poolsGeneralist Share poolAs at 30 September 2018, the Generalist Share NAV and Total Return stood at 92.7p, a decrease of 2.8p per share or 2.9% over the period. This fall is attributable to a combination of the unrealised holding losses on the Venture Capital portfolio and the 'cash-drag' of holding uninvested funds. Since the period end, there has been a significant decline in global stock markets. This has impacted the valuation of Public Equity investments. At 18 December 2018, the Generalist NAV stood at 87.0p per share.

As detailed in the Investment Manager's Report, the process of building the Generalist portfolio is progressing well, with £5.2m having been invested in VCT Qualifying Investments during the six months to 30 September 2018. More than 40% of the funds are now invested in VCT Qualifying investments. The Manager has a good pipeline of investment opportunities from which the portfolio will continue to be built over the coming years.

Healthcare Share poolAs at 30 September 2018, the Healthcare Share NAV and Total Return stood at 88.7p, a decrease of 5.9p per share or 6.2% over the period. This fall is the result of unrealised holding losses in respect of the Venture Capital portfolio, coupled with the 'cash-drag' of holding uninvested funds. As with the Generalist Share pool, the falls in global stock markets have impacted the Public Equity investments and other quoted investments. At 18 December 2018, the Healthcare NAV stood at 84.0p per share.

As outlined in the Investment Manager's Report, the process of building the Healthcare portfolio is ongoing, with £2.7m invested in VCT Qualifying Investments during the six months to 30 September 2018. As this is a specialist sector, the process of investing Healthcare funds presents more challenges than that of the Generalist Share pool. However, the Manager has a good pipeline of investment opportunities from which the portfolio will continue to be built over the coming years.

DividendsDividends in respect of the planned exit Share pools will be announced as and when sufficient realisations have taken place.

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.

Share buybacksThe 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.

In respect of the planned exit pools, the Board does not intend to buy in any of those shares as exits for these Shareholders will be facilitated by way of distributions.

During the period the Company repurchased 14,400 Generalist Shares at an average price of 95.7p per Share. The Shares were subsequently cancelled.

Fundraising The Company has launched further fundraisings in respect of the Generalist and Healthcare Share pools. The Company plans to raise approximately £20m of Generalist funds and £10m of Healthcare funds, with an over-allotment facility which could increase these totals to approximately £40m and £30m respectively.

Downing LLP, the Manager and Promoter, considers there to be a strong pipeline of investment opportunities available to the Company, and the decision to raise additional funds was recommended to Shareholders and the Board as a result.

I look forward to reporting on developments in my statement with the Annual Report to 31 March 2019, to be published in July 2019, by which time we expect that the planned exit processes will be substantially complete.

Board compositionThe Directors review the composition and effectiveness of the Board at regular intervals to ensure that it continues to comply with the applicable regulations, is consistent with best practice and remains effective for Shareholders.

The new Corporate Governance Code will become effective for the Company at the start of the next financial year and introduces some changes. In order to ensure continued compliance, I will step down as chairman of the Company on 31 December 2018 but will continue on the Board as a non-executive director. I am pleased to announce that Sir Aubrey Brocklebank has agreed to chair the Company from 1 January 2019 onwards. Sir Aubrey joined the Board at the time of the merger with two other VCTs in 2015 and has extensive experience in the VCT sector. I am confident that that he will be an excellent chairman for the Company.

We believe that the three-person Board has operated effectively and efficiently since it was established in 2015 and continues to do so. With the changing landscape of the VCT regulation and the new focus of the investment activity, the Board will continue to regularly review the structure and, of course, consider adjustments if it concludes that they would be beneficial.

OutlookFor the remainder of this financial year, there will be a dual focus for the Board and Manager, of working to return funds to investors in the four remaining planned exit share pools, whilst also continuing to develop the Generalist and Healthcare portfolios.

Generally, the Board remains satisfied with the performance of the portfolio companies, which the Manager will continue to closely monitor.

Lord FlightChairman

INVESTMENT MANAGER'S REPORTDSO D SHARE POOL

Portfolio valuationAs at 30 September 2018, the DSO D Share Pool had a portfolio of seven investments with a value of £1.5m.

The most significant valuation adjustment during the period was in respect of Apex Energy Limited, which has been written down by £200,000. Technical issues have impacted on operations of the business and the valuation has been adjusted to reflect the additional work required.

Other valuation movements amount to a net uplift of £24,000.

Portfolio activity Three full realisations took place during the period, generating proceeds of £2.2m.

Goonhilly Earth Station Limited, the owner and operator of the afore-named Satellite Earth Station in Cornwall, was sold during the period, generating proceeds of £878,000 and a gain over cost of £163,000. Loan note interest of £49,000 was also recovered on exit.

Merlin Renewables Limited, the owner and operator of an Anaerobic Digestion plant in Norfolk, was also sold during the period, generating proceeds of £770,000 and realising a gain over cost of £270,000.

The final of the three realisations was in respect of Nightjar Sustainable Power Limited, the owner and operator of a run-of-river hydroelectric scheme in Scotland. The DSO D interest in the company was refinanced by existing investors for £600,000, resulting in a gain over cost of £115,000.

Results and Net Asset Value The Net Asset Value ('NAV') per DSO D Share at 30 September 2018 stood at 30.3p, a decrease of 0.1p or 0.2% over the period after adjusting for dividends paid. Total Return stands at 102.4p 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 £7,000, comprising a revenue loss of £29,000 and a capital gain of £22,000.

DividendsIn light of the realisations from the DSO D Share Pool during the period, the second significant distribution, being 24.0p per DSO D Share, was paid on 13 August 2018.

We expect that the remaining NAV will be distributed to Shareholders by way of one closing dividend, and we anticipate that this will be paid during the summer of 2019.

OutlookAlthough the portfolio is now reasonably small in value, as it is made up of investments in seven different companies we expect that it will take some months to execute the realisation plans in place.

A further update on the progress of the realisation plans will be provided in the Annual Report to 31 March 2019.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIODSO D SHARE POOLas at 30 September 2018

*partially qualifying**non-qualifying investment

SUMMARY OF INVESTMENT MOVEMENTSDSO D SHARE POOLfor the period ended 30 September 2018

DIVIDEND HISTORYDSO D SHARE POOL

INVESTMENT MANAGER'S REPORTDP67 SHARE POOL

Portfolio valuationAs at 30 September 2018, the DP67 Share Pool had a portfolio of seven investments with a value of £4.6m.

The only valuation adjustment during the period was in respect of Fenkle Street LLP. The DP67 Share pool received profit distributions of £75,000, which have been recorded as income for the Share pool. In light of the receipt of this income, the valuation of the investment has been reduced by the same amount.

Results and Net Asset Value The Net Asset Value ('NAV') per DP67 Share at 30 September 2018 stood at 100.3p, an increase of 0.5p (1.0%) over the period. Total Return stands at 100.3p 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 £58,000, comprising a revenue gain of £77,000 and a capital loss of £19,000.

DividendsThe first significant distribution of 20.0p per DP67 Share was paid on 16 March 2018.

We expect that the remaining value will be distributed to Shareholders by way of one final dividend which we are optimistic can be paid in the coming months.

OutlookOur focus for this Share pool is on delivering the exit plans currently in place for each of its investments and making a final distribution to Shareholders.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIODP67 SHARE POOLas at 30 September 2018

* non-qualifying investment

DIVIDEND HISTORYDP67 SHARE POOL

INVESTMENT MANAGER'S REPORTDP2011 GENERAL SHARE POOL

Portfolio valuationAs at 30 September 2018, the DP2011 General Share Pool had a portfolio of seven investments with a value of £2.2m.

The value of the portfolio is materially unchanged from 31 March 2018, with a small overall reduction in value of £19,000 during the period.

Net Asset Value and resultsThe combined Net Asset Value ('NAV') of one DP2011 General Ordinary Share and one DP2011 General A Share at 30 September 2018 stood at 13.0p, a decrease of 0.3p or 1.5% over the period after adjusting for dividends paid. Total Return stands at 105.0p per share compared to an 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 £58,000, comprising a revenue loss of £22,000 and a capital loss of £36,000.

DividendsThe DP2011 General Share pool commenced the process of returning funds to Shareholders in late 2016. Following the dividend of 7.0p per DP2011 General A Share, paid on 13 August 2018, the Share pool is awaiting its final exits before announcing a closing dividend. We believe this can be achieved in the first half of 2019.

OutlookOur focus for this Share pool is on completing the final investment realisations to allow the payment of a final distribution.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIODP2011 GENERAL SHARE POOLas at 30 September 2018

* non-qualifying investment DIVIDEND HISTORYDP2011 GENERAL SHARE POOL

INVESTMENT MANAGER'S REPORTDP2011 STRUCTURED SHARE POOL

Portfolio valuationAs at 30 September 2018, the DP2011 Structured Share Pool had a portfolio of seven investments with a value of £1.0m.

The value of the portfolio is materially unchanged from 31 March 2018, with a small overall reduction in value of £17,000 during the period.

Net Asset Value and resultsThe combined Net Asset Value ('NAV') of one DP2011 Structured Ordinary Share and one DP2011 Structured A Share at 30 September 2018 stood at 9.8p, a decrease of 0.2p or 1.3% over the period after adjusting for dividends paid. Total Return stands at 104.8p per share compared to an 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 £33,000 comprising a revenue loss of £7,000 and a capital loss of £26,000.

DividendsThe DP2011 Structured Share pool commenced the process of returning funds to Shareholders in late 2016. Following the dividend of 5.0p per DP2011 Structured A Share, paid on 13 August 2018, the Share pool is awaiting its final exits before announcing a closing dividend. We believe this can be achieved in the first half of 2019.

OutlookOur focus now is on completing the final investment realisations to allow the payment of a final distribution to Shareholders.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIODP2011 STRUCTURED SHARE POOLas at 30 September 2018

DIVIDEND HISTORYDP2011 STRUCTURED SHARE POOL

INVESTMENT MANAGER'S REPORTGENERALIST SHARE POOL

Portfolio activityThe ongoing process of building the Generalist portfolio has progressed well during the period, with six new and four follow-on investments totalling £5.2m made during since 31 March 2018.

VCT Qualifying Investments£1.1m was invested in Lignia Wood Company Limited (formerly Fibre 7 UK Limited), a producer of modified sustainable wood based in Barry, Wales.

A further £991,000 was invested in Live Better With Limited, the developer of a healthcare platform aiming to help people with long-term medical conditions, focusing on non-medical products that make day-to-day life better for patients.

£741,000 was invested in Glownet Limited, the developer of a technology solution for organisers of mass-attendance live events, which allows attendees to make cashless payments at the event.

A further £639,000 was invested in E Fundamentals (Group) Limited, via two fundraising tranches. The company provides a data analytics service that helps brand owners improve their online revenues.

£525,000 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.

A further £417,000 was invested in BridgeU Corporation, the developer of a platform providing intelligent university and course matching which is tailored to the individual student.

£250,000 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). This investment was made alongside £892,000 from the Healthcare Share pool.

£240,000 was invested in Arecor Limited, the developer of biopharmaceuticals and proprietary diabetes-related products, including ultra-fast acting insulin to treat type 1 and 2 diabetes. This investment was made alongside £880,000 from the Healthcare Share pool.

£167,000 was invested in Masters of Pie Limited, an early-stage technology firm specialising in virtual and augmented reality software for manufacturing and wider enterprise solutions.

A further £150,000 was invested in Xupes Limited, an online retailer of pre-owned luxury goods including designer watches, handbags, jewellery and antiques.

Portfolio valuation The carrying values of the Public Equity investments have been adjusted to reflect their quoted prices as at 30 September 2018, resulting in a net reduction of £5,000.

Ormsborough Limited has been reduced in value by £279,000 as a result of the delays and cost overruns on the company's pub developments. We have now put in place a plan for the completion of these developments.

Both ADC Biotechnology Limited and Virtual Class Limited are currently behind on their respective plans and the carrying values of these investments have been reduced by £243,000 and £146,000 respectively. However, both investments are still in an early stage and we continue to work closely with the management teams.

Destiny Pharma plc has been revalued to reflect the quoted share price as at 30 September 2018, resulting in a downward revaluation of £89,000 during the period. The business is progressing well, with the reduction in the share price being attributable to limited trading volumes during the period.

Live Better With Limited has been increased in value by £73,000 to reflect the share price at which the Generalist Share pool most recently invested, alongside third parties.

Net Asset Value and resultsAt 30 September 2018, the NAV of a Generalist share stood at 92.7p, a decrease of 2.8p (2.9%) for the period. This fall is attributable to a combination of the unrealised holding losses on the Venture Capital portfolio and the 'cash-drag' of holding uninvested funds.

The loss on ordinary activities after taxation for the period was £896,000 comprising a revenue loss of £130,000 and a capital loss of £766,000.

Outlook

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

There is a strong pipeline of investment opportunities available to the Share pool, so Shareholders should expect further investment activity over the remainder of the financial year.

In addition, as the new Generalist Offer is now open, Shareholders should expect the average deal size to increase proportionately with the size of the Generalist Share pool.

Shareholders will be provided with a further update on the progress made in investing the Generalist funds in the Annual Report to 31 March 2019, to be published in July 2019.

Downing LLP

SUMMARY OF INVESTMENT ADDITIONSGENERALIST SHARE POOLfor the period ended 30 September 2018

All VCT Qualifying Investments are incorporated in England and Wales.

SUMMARY OF INVESTMENT PORTFOLIOGENERALIST SHARE POOLas at 30 September 2018

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

INVESTMENT MANAGER'S REPORT HEALTHCARE SHARE POOL

Portfolio activity

The building of the Healthcare portfolio has progressed further during the six months to 30 September 2018, with one follow-on investment and two new investments totalling £2.7m made during the period.

We has also added further resource to our Healthcare team during the period, with the recruitment of Dr Will Brooks. Will has 12 years of experience in medical research and development, academia and business in the UK and Germany. He led Healthcare investments for 15 years at Quest Management, a large European fund, where he was responsible for direct investments in Europe and the US, as well as investments in quoted companies. Will strengthens our Healthcare team significantly and, we believe, will be an invaluable asset as we continue to invest the Share pool's funds.

VCT Qualifying Investments£892,000 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). The company has also been provided with an investment of £250,000 from the Generalist Share pool.

A further £886,000 was invested in Live Better With Limited, the developer of a healthcare platform aiming to help people with long-term medical conditions, focusing on non-medical products that make day-to-day life better for patients. To date, the Generalist Share pool has also invested £1.2m in the company, alongside the Healthcare Share pool.

£880,000 was invested in Arecor Limited, the developer of biopharmaceuticals and proprietary diabetes-related products, including ultra-fast acting insulin to treat type 1 and 2 diabetes. This investment was made alongside £240,000 from the Generalist Share pool.

Portfolio valuation The carrying values of the Public Equity investments have been adjusted to reflect their quoted prices as at 30 September 2018, resulting in a net uplift of £20,000.

ADC Biotechnology Limited is currently behind on its plans and the carrying value of this investment has been reduced by £520,000 as a result. However, this investment is still in an early stage and we continue to work closely with the management team.

Destiny Pharma plc has been revalued to reflect the quoted share price as at 30 September 2018, resulting in a downward revaluation of £89,000 during the period. The business is progressing well, with the reduction in the share price being attributable to limited trading volumes during the period. We remain confident that the business can deliver its potential.

Live Better With Limited has been increased in value by £73,000 to reflect the share price at which the Healthcare Share pool most recently invested.

Net Asset Value and resultsAt 30 September 2018, the NAV of a Healthcare share stood at 88.7p, a decrease of 5.9p (6.2%) for the period. This fall is attributable to a combination of the unrealised holding losses on the Venture Capital portfolio and the 'cash-drag' of holding uninvested funds.

The loss on ordinary activities after taxation for the period was £719,000 comprising a revenue loss of £93,000 and a capital loss of £626,000.

OutlookThe task of building the Healthcare Share portfolio is underway, with a total of £3.6m invested into VCT Qualifying investments to date. Shareholders should expect to see further investment activity over the remainder of the financial year, as the growing pipeline of investment opportunities continues to result in completed deals.

In addition, as the new Healthcare Offer is now open, Shareholders should expect the average deal size to increase proportionately with the size of the Healthcare Share pool.

Shareholders will be provided with a further update on the progress made in investing the Healthcare funds in the Annual Report to 31 March 2019, to be published in July 2019.

Downing LLP

SUMMARY OF INVESTMENT ADDITIONSHEALTHCARE SHARE POOLfor the period ended 30 September 2018

All VCT Qualifying Investments are incorporated in England and Wales.

SUMMARY OF INVESTMENT PORTFOLIOHEALTHCARE SHARE POOLas at 30 September 2018 

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

All VCT Qualifying Investments are incorporated in England and Wales.

UNAUDITED INCOME STATEMENTfor the six months ended 30 September 2018

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 2018

UNAUDITED BALANCE SHEET as at 30 September 2018

The comparative balance sheet as at 30 September 2017 includes only the Share Pools in existence at that date.

UNAUDITED BALANCE SHEET (ANALYSED BY SHARE POOL)as at 30 September 2018

DSO D Shares

DP67 Shares

DP2011 General Shares

DP2011 Structured Shares

Generalist Shares

Healthcare Shares

STATEMENT OF CHANGES IN EQUITYfor the six months ended 30 September 2018

*A transfer of £334,000 (31 March 2018: £2.4 million) representing previously recognised realised gains and losses on disposal of investments during the period has been made from the Revaluation Reserve to the Capital reserve-realised. A transfer of £3.9 million (31 March 2018: £19.5 million) representing realised gains on disposal of investments, less capital expenses and capital dividends in the period was made from Capital Reserve - realised to Special reserve.

UNAUDITED STATEMENT OF CASH FLOWS

 UNAUDITED STATEMENT OF CASH FLOWS

Comparative cash flows include the Share Pools in existence at those dates.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

General InformationDowning 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.

Basis of accountingThe unaudited half-yearly financial results cover the six months to 30 September 2018 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 March 2018, 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').

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

The comparative figures are in respect of the six months ended 30 September 2017 and the year ended 31 March 2018 respectively.

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:

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

Dividends

Reserves

The Revenue reserve, Special reserve and Capital reserve - realised are distributable reserves and are reduced by revaluation losses of £3.5 million. Distributable reserves at 30 September 2018 were £4.5 million.

In October 2018, the balances on the Share Premium account and the capital redemption reserve were cancelled and added to the special reserve, contributing an additional £44.7 million to distributable reserves. Whilst the distributable reserves of the Company have increased significantly, the VCT regulations prevent the Company from paying dividends in respect of the Generalist and Healthcare Share classes during the first three years of their lives.

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 2018. 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; andLevel 3 Reflects financial instruments that use valuation techniques that are not based on observable market data (investments in unquoted shares and loan note investments).

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.

Risk and uncertaintiesUnder 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:

-compliance risk of failure to maintain approval as a VCT;-market, liquidity and counterparty risk associated with Public Equity investments; and-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 Phillip Hare & Associates LLP ('Phillip Hare') to provide regular reviews and advice in this area. Philip Hare have 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 Adviser follows a rigorous process in vetting and careful structuring of new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business.

Going concernThe 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.

Statutory accountsThe 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:

- 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

- 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 ARRANGEMENTSPerformance 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:Shareholders receive total proceeds of at least 100.0p per DSO D Share (excluding income tax relief); and 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 3p per DSO D Share plus 20% of shareholder proceeds above 100.0p per D Share. The Performance Incentive is restricted to a maximum of 7.0p per DSO D Share.

As at 30 September 2018, the estimated performance fee is 4.4p per DSO D Share.

DP2011 General Shares/ DP2011 Structured SharesThe Performance Incentive arrangements in respect of the DP2011 General and DP2011 Structured pools enable payments, by way of distributions of income, to members of the management team who subscribed for 15% of the DP2011 General A Shares and DP2011 Structured A Shares at 6.5p per share.

As the proceeds paid to Shareholders have now exceeded 70.0p per DP2011 General Ordinary/A Share and DP2011 Structured Ordinary/A Share, a Performance Incentive equal to 15% of the dividends paid in respect of the A Shares becomes due to members of the management team. No further incentive is paid to management once Shareholder proceeds exceed 120.0p per DP2011 General Ordinary/A Share and DP2011 Structured Ordinary/A Share.

By virtue of the dividends paid in respect of the DP2011 General A Shares and DP2011 Structured A Shares to date, of 22.0p and 25.0p respectively, members of the management team have received Performance Incentive payments, to date, of 3.1p per DP2011 General Ordinary Share and 3.6p per DP2011 Structured Ordinary Share.

As at 30 September 2018, the estimated remaining Performance Incentive due to management in respect of the DP2011 General and DP2011 Structured Share pools is equivalent to approximately 2.3p per DP2011 General Ordinary Share and 1.7p per DP2011 Structured Ordinary Share. This brings the total Performance Incentive to approximately 5.4p per DP2011 General Ordinary Share and 5.3p per DP2011 Structured Ordinary Share.

Generalist and Healthcare Share poolsA 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 3p 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.