6 Sep 2019 17:02
Downing TWO VCT plc - Half-year report
Downing TWO VCT plc
LEI: 213800HJGTPW7F8YEY55
Half-Yearly Report
for the six months ended 30 June 2019
Performance summary
| ‘F’ Share pool | 30 Jun2019 | 31 Dec2018 | 30 Jun2018 | ||
| Pence | Pence | Pence | |||
| Net asset value per ‘F’ Share | 30.6 | 28.7 | 53.8 | ||
| Cumulative distributions per ‘F’ Share | 67.0 | 67.0 | 49.0 | ||
| Total return per ‘F’ Share | 97.6 | 95.7 | 102.8 |
| ‘G’ Share pool | 30 Jun2019 | 31 Dec2018 | 30 Jun2018 | ||
| Pence | Pence | Pence | |||
| Net asset value per ‘G’ Share | 63.2 | 60.9 | 81.4 | ||
| Cumulative distributions per ‘G’ Share | 37.5 | 37.5 | 27.5 | ||
| Total return per ‘G’ Share | 100.7 | 98.4 | 108.9 |
| ‘K’ Share pool | 30 Jun2019 | 31 Dec2018 | 30 Jun2018 | ||
| Pence | Pence | Pence | |||
| Net asset value and Total Return per ‘K’ Share | 72.9 | 91.3 | 94.1 |
Forthcoming dividends
| ‘F’ Shares | ‘G’ Shares | ||
| Interim 2019 – Payable 8 November 2019 | 5.0p | 14.0p |
CHAIRMAN’S STATEMENT
Introduction
I present the Half-Yearly Report for the six months ended 30 June 2019. The Company has a number of share pools, each of which is in a different stage in its planned exit life. Performance across the pools varies and it is disappointing to have to report that there have been some negative developments in a number of investee companies within the ‘K’ Share pool.
A brief summary of each share pool is provided below.
Net asset values and overview
‘F’ Share poolThe ‘F’ Share pool launched in 2012 and is currently in its realisation phase.
At 30 June 2019 the remaining net asset value (“NAV”) was 30.6p per F Share, an increase of 1.9p (6.6%) over the period. Total Return (NAV plus dividends paid to date) is now 97.6p, compared to the original cost, net of income tax relief, of 70p per share.
The pool still holds 10 investments, but plans are being progressed for exits from each of them.
Following the period end, one further exit has been achieved. As a result, the Share pool will pay a further dividend of 5.0p per ‘F’ Share on 8 November 2019. This will bring total distributions to 72.0p and leave a remaining NAV of 25.6p.
The task of exiting the remaining investments is dependent on third parties and it is therefore difficult to accurately estimate when this process will complete. However, the Investment Manager believes there are reasonable prospects for completion during the course to this year, with a final distribution to ‘F’ Shareholders to follow soon after.
‘G’ Share pool
The ‘G’ Share pool passed its five year anniversary in November 2018 and therefore focus is on the process of realising investments to return funds to Shareholders.
At 30 June 2019, the pool held 12 investments and the net asset value (“NAV”) was 63.2p per ‘G’ Share which represents a net increase of 2.3p (3.8%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 100.7p, compared to the initial NAV, before income tax relief, of 100.0p (or original cost, net of income tax relief, which was typically between 70.0p ad 75.0p, depending on costs).
There were two significant realisations over the period, which generated funds for a further dividend. A dividend of 14.0p will be paid on 8 November 2019 to Shareholders on the register at 17 October 2019. This will bring total distributions to 51.5p and leave a remaining NAV of 49.2p.
The ‘G’ Share pool will make further distributions as realisations are achieved. The Investment Manager expects to make good progress to this end over the remainder of the year.
‘K’ Share poolThe ‘K’ Share pool raised funds in 2016 and the majority of these funds have now been invested. The target date to start realising investments is late 2021.
The ‘K Share portfolio has suffered from some significant issues during the period. Large provisions have been required against the investments in several of the pool’s largest investments: Yamuna Renewables Limited, Ormsborough Limited and Jito Trading Limited. Further details are included in the ‘K’ Share Investment Manager’s Report below. The Board is working with the Manager to ensure that appropriate action is taken to recover as much value as possible for ‘K’ Shareholders.
At 30 June 2019, the share pool held 17 investments and had a net asset value (“NAV”) and Total Return of 72.9p per K Share. This represents a net decrease of 18.4p (20.1%) over the period, compared to the initial NAV, before income tax relief, of 100.0p (or original cost, net of income tax relief, which was typically between 70.0p and 75.0p, depending on costs).
Dividends
As discussed above, dividends have been declared in respect of two of the share pools
‘F’ Shares 5.0p per share‘G’ Shares 14.0p per share
Each of the above dividends will be paid on 8 November 2019 to Shareholders on the register at 17 October 2019.
No dividend is being declared in respect of the ‘K’ Share pool as the VCT regulations effectively prohibit dividends at this stage in the pool’s life.
Share buybacks
As announced in June 2019, the Company is now unlikely to make any further purchases of any share class as the process of returning funds to the ‘F’ and ‘G’ Shareholders is now underway and the ‘K’ Shareholders are due to commence shortly.
No share buybacks in respect of any share class was undertaken during the period.
OutlookOver the remainder of the year we expect to see further realisations made by the ‘F’ and ‘G’ Share pools as the Manager looks at maximising Shareholder returns. Shareholders should note that timing of the exit process can be difficult to predict and could take some time to complete as the Board are keen to see that full value is achieved for all investments.
In respect of the ‘K’ Share pool, focus is on working to recover as much value as possible of the portfolio companies in question and nurturing the investments such that they will eventually be well positioned to deliver successful exits.
I will update Shareholders on progress in my statement with the annual report to 31 December 2019.
Hugh GillespieChairman
INVESTMENT MANAGER’S REPORT‘F’ SHARE POOLAs at 30 June 2019, the ‘F’ Share pool holds 10 investments as focus for the ‘F’ Share pool remains on the realisation of its investments and maximising Shareholder returns.
‘F’ Share pool – Portfolio valuationThe majority of the portfolio investments remain valued at or above cost, with there being a small number of valuation movements in the period which generated an uplift over opening value of £201,000.
The most significant increase in valuation was Baron House Developments LLP, a company created to fund the purchase of a property opposite Newcastle station, which qualifies under the BPRA scheme. At the period end, an uplift of £192,000 was recognised following improved trading and an uplift in value of the hotel site.
Realisation plansFollowing the period end, one of the pool’s larger investments, Lambridge Solar Limited, the 9.0 MW ground mounted solar farm in Pedwardine Lincolnshire, was exited and delivered a good return to the pool.
Plans are in place for the successful exit of the Antic portfolio of investments including Pearce and Saunders Limited, Downing Pub EIS One Limited and Atlantic Dogstar Limited, which is expected to conclude following the publication of this report. Realisation plans for the remaining portfolio companies are in place although the exact timing of the final exits is dependent on transactions involving third parties.
Net asset value, results and dividendAt 30 June 2019, the net asset value (“NAV”) for a holding of one ‘F’ Share was 30.6p, an increase of 1.9p (6.6%) over the period. Total Return (NAV plus dividends paid to date) is now 97.6p.
The gain on ordinary activities for the ‘F’ Shares, after taxation was £207,000 for the period, comprising a revenue gain of £6,000 and a capital gain of £201,000.
The Company will pay an interim dividend of 5.0p per ‘F’ Share on 8 November 2019 to ‘F’ Shareholders on the register at 17 October 2019.
OutlookFocus for the ‘F’ Share pool remains on the realisation of its investments, with realisation plans in place for the final 10 investments held. However, Shareholders should note that any transactions are dependent on many external factors and hurdles in order to achieve a good return for ‘F’ Shareholders.
Downing LLP
SUMMARY OF INVESTMENT PORTFOLIO‘F’ SHARE POOL
as at 30 June 2019
| Cost | Valuation | Unrealised gain/(loss) in period | % of portfolio by value | |
| £’000 | £’000 | £’000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Pearce and Saunders Limited | 497 | 671 | - | 20.3% |
| Downing Pub EIS One Limited | 490 | 626 | 7 | 19.0% |
| Lambridge Solar Limited | 500 | 605 | - | 18.3% |
| Atlantic Dogstar Limited | 200 | 272 | 2 | 8.2% |
| Fresh Green Power Limited | 189 | 210 | - | 6.4% |
| Apex Energy Limited | 1,000 | 100 | - | 3.0% |
| Green Energy Production UK Limited | 100 | 54 | - | 1.6% |
| Non-qualifying investments | ||||
| Baron House Developments LLP | 481 | 673 | 192 | 20.4% |
| Pearce and Saunders DevCo Limited | 46 | 46 | - | 1.4% |
| London City Shopping Centre Limited | 66 | - | - | 0.0% |
| 3,569 | 3,257 | 201 | 98.6% | |
| Cash at bank and in hand | 46 | 1.4% | ||
| Total | 3,303 | 100.0% |
INVESTMENT MANAGER’S REPORT
‘G’ SHARE POOL
The ‘G’ Share pool raised funds in 2013 and passed its five year anniversary in November 2018. The focus for the Share pool remains on the process of realising investments as it looks to maximise Shareholder return before the ultimate exit date.
Investment activityWith the pool being in the realisation phase, no new investments are expected to take place. However, two full exits were made in the six months to 30 June 2019.Hedderwick Limited, the owner of two freehold pubs located in Royston, Hertfordshire and Olney, Milton Keynes, was successfully exited during the period and generated proceeds of £1.4 million for the Share pool. This represented an uplift over cost of £144,000.
In addition, proceeds of £1.8 million were generated from the sale of the Antelope Pub Limited, which owns a pub of the same name in Tooting, London. This represented a gain over cost of £51,000.
The period to 30 June 2019 has seen a number of valuation movements, resulting in an unrealised gain of £236,000.
The majority of the uplift in the period related to Baron House Developments LLP, a company created to fund the purchase of a property opposite Newcastle station, which qualifies under the BPRA scheme. The valuation was uplifted by £437,000 following improved trading and an uplift in value of the hotel site.
Atlantic Dogstar Limited, which owns a group of London pubs, was uplifted by £31,000 based on expected returns.
The valuation gains in the period were partially offset by provisions of £234,000 in Ormsborough Limited, the owner of several pubs and restaurants in Yorkshire. The investment has been reduced in value as a result of cost overruns on two of the company’s pub developments.
Net asset valueAt 30 June 2019, the net asset value (“NAV”) for a holding of one ‘G’ Share was 63.2p, which represents a net increase of 2.3p (3.8%) over the period. Total Return (NAV plus dividends paid to date) is now 100.7p.
Results and dividendThe profit on ordinary activities for the ‘G’ Share pool, after taxation, for the period was £563,000, comprising a revenue profit of £202,000 and a capital gain of £361,000.
The Company will pay an interim dividend of 14.0p per ‘G’ Share on 8 November 2019 to ‘G’ Shareholders on the register at 17 October 2019.
Outlook
Plans are now being progressed for the exit of all investments from the Share pool following the passing of the pools five year anniversary at the end of 2018. Good progress is being made on the disposal of these investments, however Shareholders should note that any exit is dependent on many third parties and external factors in order to provide a good return for ‘G’ Shareholders.
Downing LLP
SUMMARY OF INVESTMENT PORTFOLIO‘G’ SHARE POOL
as at 30 June 2019
| Cost | Valuation | Unrealised gain/(loss) in period | % of portfolio by value | |
| £’000 | £’000 | £’000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Atlantic Dogstar Limited | 3,500 | 4,756 | 31 | 31.5% |
| Walworth House Pub Limited | 1,330 | 1,330 | - | 8.8% |
| Downing Pub EIS One Limited | 980 | 1,253 | 13 | 8.3% |
| Quadrate Catering Limited | 1,450 | 1,196 | - | 7.9% |
| Pearce and Saunders Limited | 193 | 193 | - | 1.3% |
| Hermes Wood Pellets Limited | 1,000 | 152 | - | 1.0% |
| Apex Energy Limited | 1,300 | 130 | - | 0.9% |
| Ormsborough Limited | 500 | 117 | (234) | 0.8% |
| Zora Energy Renewables Limited | 750 | 67 | (11) | 0.4% |
| Non-qualifying investments | ||||
| Baron House Developments LLP | 1,093 | 1,530 | 437 | 10.1% |
| Quadrate Spa Limited | 1,450 | 669 | - | 4.4% |
| London City Shopping Centre Limited | 110 | - | - | 0.0% |
| 13,656 | 11,393 | 236 | 75.4% | |
| Cash at bank and in hand | 3,714 | 24.6% | ||
| Total | 15,107 | 100% |
SUMMARY OF INVESTMENT MOVEMENTS‘G’ SHARE POOL
as at 30 June 2019
| Disposals | Cost | Market value at 01/01/19 | Disposal proceeds | Gain against cost | Total realised gain |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Hedderwick Limited | 1,250 | 1,320 | 1,394 | 144 | 74 |
| Antelope Pub Limited | 1,760 | 1,760 | 1,811 | 51 | 51 |
| 3,010 | 3,080 | 3,205 | 195 | 125 |
INVESTMENT MANAGER’S REPORT‘K’ SHARE POOL
The ‘K’ Share pool closed its fundraising in September 2016, having raised £16.2 million.The majority of these funds have been invested and the focus for the pool is on the deployment of the remaining cash in the pool and the close monitoring of the investee companies.
It is disappointing to report that the ‘K’ Share pool has suffered from difficulties in a number of its investments over the period. The required provisions have had a notable negative impact on the Total Return over the period which has been detailed below.
Investment activityWith the pool entering the qualification test at the start of the year, no new investments were made in the period. One partial exit completed generating proceeds of £12,000 from the partial redemption of loan notes in Snow Hill Developments LLP.
The period to 30 June 2019 has seen a number of valuation provisions, resulting in an unrealised loss of £2.8 million.
As reported in the year end accounts, the most notable provision related to Yamuna Renewables Limited, a wood pelleting plant in Gars am Kamp, Austria. Consumer demand has substantially reduced following warmer than expected weather. Additionally, production was halted following two serious fires at the facility. Downing is working with the management team to address these issues. The company is pursuing a business interruption and consequential loss insurance claim. However, as the business had not been operating for very long this is unlikely to cover the real estimated losses. As the company has some borrowings, this may ultimately make it difficult to recover any value. The investment has been fully provided against as a result.
Jito Trading Limited, the operator of another wood pelleting plant in Weitra, Austria, has suffered partly as a result of the demand problem encountered by Yamuna discussed above. The investment valuation has been reduced by £375,000 as a result of weaker trading and other concerns.
Ormsborough Limited, the owner of pubs and restaurants in Yorkshire, ran into difficulties in respect of several pub developments which it was undertaking. The investment partner and management company then went into administration and subsequently we have identified some potentially fraudulent transactions which we are continuing to investigate. We have put a new management team in place but trading at the existing pubs has weakened. The investment has been reduced in value by £632,000 as a result. We continue to work with the new management team seeking to recover value.
Indigo Generation Limited and Ironhide Generation Limited are developing solar farms in India. Both plants were expected to complete this year, however due to monsoon season and issues acquiring grid connection, construction of the sites has been delayed, leading to a provision of £221,000 in each company.
The unrealised losses were partially offset by gains in the period totalling £57,000.
The majority of the gains in the period related to Fenkle Street LLP, which was uplifted by £41,000, as the impact of discounting the expected future cash flows unwinds over time.
Net asset value, results and dividendAt 30 June 2019, the net asset value (“NAV”) and Total Return for a holding of one ‘K’ Share was 72.9p, which represents a net decrease of 18.4p (20.1%) over the period. The loss on ordinary activities for the ‘K’ Share pool, after taxation was £2.9 million for the period, comprising a revenue loss of £96,000 and a capital loss of £2.8 million.
OutlookThe provisions over the period experienced by the ‘K’ Share pool are disappointing to report. Shareholders should note that management have dedicated substantial resources to the portfolio companies in question and are seeking to develop plans to recover as much value as possible for investors.
Downing LLP
SUMMARY OF INVESTMENT MOVEMENTS‘K’ SHARE POOL
as at 30 June 2019
| Cost | Valuation | Unrealised (loss)/gain in period | % of portfolio by value | |
| £’000 | £’000 | £’000 | ||
| VCT qualifying investments | ||||
| Apprise Pubs Limited | 1,300 | 1,300 | - | 11.4% |
| Garthcliff Shipping Limited | 1,300 | 1,300 | - | 11.4% |
| Jito Trading Limited | 1,500 | 1,125 | (375) | 9.9% |
| Ironhide Generation Limited | 736 | 515 | (221) | 4.6% |
| Indigo Generation Limited | 736 | 515 | (221) | 4.6% |
| Rockhopper Renewables Limited | 591 | 514 | (77) | 4.5% |
| Walworth House Pub Limited | 500 | 500 | - | 4.4% |
| Exclusive Events Venues Limited | 500 | 500 | - | 4.4% |
| Pilgrim Trading Limited | 432 | 432 | - | 3.8% |
| SF Renewables (Solar) Limited | 337 | 358 | (30) | 3.1% |
| Ormsborough Limited | 1,400 | 316 | (632) | 2.8% |
| Zora Energy Renewables Limited | 350 | 32 | (5) | 0.3% |
| Mosaic Spa and Health Clubs Limited | 24 | 13 | (13) | 0.1% |
| Yamuna Renewables Limited | 1,300 | - | (1,300) | 0.0% |
| Non-qualifying investments | ||||
| Fenkle Street LLP | 287 | 335 | 41 | 2.9% |
| Snow Hill Developments LLP | 31 | 47 | 16 | 0.4% |
| London City Shopping Centre Limited | 15 | - | - | 0.0% |
| 11,339 | 7,802 | (2,817) | 68.6% | |
| Cash at bank and in hand | 3,577 | 31.4% | ||
| Total | 11,379 | 100% |
| Disposals | Cost | Market value at 01/01/19 | Disposal proceeds | Gain against cost | Total realised gain |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Snow Hill Developments LLP | 12 | 12 | 12 | - | - |
| 12 | 12 | 12 | - | - |
UNAUDITED SUMMARISED BALANCE SHEET
as at 30 June 2019
| 30 Jun 2019 | 30 Jun2018 | 31 Dec 2018 | |||||||
| ‘F’ Shares | ‘G’ Shares | ‘K’ Shares | Total | Total | Total | ||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||
| Fixed assets | |||||||||
| Unquoted investments | 3,257 | 11,393 | 7,802 | 22,452 | 33,840 | 27,925 | |||
| Current assets | |||||||||
| Debtors | 80 | 1,255 | 103 | 1,438 | 895 | 1,328 | |||
| Cash at bank and in hand | 46 | 3,714 | 3,577 | 7,337 | 6,932 | 4,055 | |||
| 126 | 4,969 | 3,680 | 8,775 | 7,827 | 5,383 | ||||
| Creditors: amounts falling due within one year | (75) | (392) | (27) | (494) | (437) | (448) | |||
| Net current assets | 51 | 4,577 | 3,653 | 8,281 | 7,390 | 4,935 | |||
| Net assets | 3,308 | 15,970 | 11,455 | 30,733 | 41,230 | 32,860 | |||
| Capital and reserves | |||||||||
| Called up share capital | 11 | 25 | 16 | 52 | 77 | 52 | |||
| Capital redemption reserve | 149 | - | - | 149 | 124 | 149 | |||
| Special reserve | 4,274 | 18,194 | 16,213 | 38,681 | 26,729 | 38,471 | |||
| Share premium account | - | - | - | - | 16,170 | - | |||
| Revaluation reserve | (561) | (2,263) | (3,537) | (6,361) | (12) | (3,911) | |||
| Capital reserve – realised | (1,033) | (1,220) | 4 | (2,249) | (2,252) | (2,250) | |||
| Revenue reserve | 468 | 1,234 | (1,241) | 461 | 394 | 349 | |||
| Total equity shareholders’ funds | 3,308 | 15,970 | 11,455 | 30,733 | 41,230 | 32,860 | |||
| Basic and diluted net asset value per: | |||||||||
| ‘F’ Share | 30.6p | 53.8p | 28.7p | ||||||
| ‘G’ Share | 63.2p | 81.4p | 60.9p | ||||||
| ‘K’ Share | 72.9p | 94.1p | 91.3p | ||||||
STATEMENT OF CHANGES IN EQUITYfor the six months ended 30 June 2019
| Called up share capital | Capital redemption Reserve | Special Reserve | Share Premium Reserve | Revaluationreserve | Capital reserverealised | Revenue reserve | Total | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| At 1 January 2018 | 77 | 124 | 28,313 | 16,170 | 815 | (2,252) | 438 | 43,685 | |
| Total comprehensive income | - | - | - | - | (4,866) | 896 | 366 | (3,604) | |
| Share premium cancellation | - | - | 16,170 | (16,170) | - | - | - | - | |
| Transactions with owners | |||||||||
| Purchase of own shares | - | - | - | - | - | - | (55) | (55) | |
| Transfer between reserves | - | - | (6,012) | - | 140 | 5,872 | - | - | |
| Dividends paid | - | - | - | - | - | (6,766) | (400) | (7,166) | |
| Cancellation of shares | (25) | 25 | - | - | - | - | - | - | |
| At 31 December 2018 | 52 | 149 | 38,471 | - | (3,911) | (2,250) | 349 | 32,860 | |
| Total comprehensive income | - | - | - | - | (2,380) | 141 | 112 | (2,127) | |
| Transaction with owners | |||||||||
| Purchase of own shares | - | - | - | - | - | - | - | - | |
| Transfer between reserves | - | - | 210 | - | (70) | (140) | - | - | |
| Dividends paid | - | - | - | - | - | - | - | - | |
| At 30 June 2019 | 52 | 149 | 38,681 | - | (6,361) | (2,249) | 461 | 30,733 | |
INCOME STATEMENT
for the six months ended 30 June 2019
Company Total
| Six months ended30 Jun 2019 | Six months ended30 Jun 2018 | Year ended 31 Dec 2018 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | 619 | 16 | 635 | 948 | - | 948 | 1,621 | ||
| Gains/(losses) on investments | |||||||||
| - realised | - | 125 | 125 | - | 708 | 708 | 865 | ||
| - unrealised | - | (2,380) | (2,380) | - | (832) | (832) | (4,866) | ||
| 619 | (2,239) | (1,620) | 948 | (124) | 824 | (2,380) | |||
| Investment management fees | (289) | - | (289) | (383) | - | (383) | (711) | ||
| Other expenses | (123) | - | (123) | (138) | - | (138) | (254) | ||
| Return/(loss) on ordinary activities before taxation | 207 | (2,239) | (2,032) | 427 | (124) | 303 | (3,345) | ||
| Tax on total comprehensive income and ordinary activities | (95) | - | (95) | (55) | - | (55) | (259) | ||
| Return/(loss) attributable to equity shareholders | 112 | (2,239) | (2,127) | 372 | (124) | 248 | (3,604) | ||
| Return per ‘F’ Share | 0.0p | 1.9p | 1.9p | 0.2p | 3.0p | 3.2p | (3.9p) | ||
| Return per ‘G’ Share | 0.8p | 1.4p | 2.2p | 1.9p | (0.1p) | 1.8p | (8.6p) | ||
| Return per ‘K’ Share | (0.6p) | (17.8p) | (18.4p) | (0.9p) | (2.7p) | (3.6p) | (6.3p) | ||
| ‘F’ Shares | Six months ended30 Jun 2019 | Six months ended30 Jun 2018 | Year ended 31 Dec 2018 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | ||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||
| Income | 76 | - | 76 | 118 | - | 118 | 177 | |||
| Gains/(losses) on investments | ||||||||||
| - realised | - | - | - | - | 220 | 220 | 350 | |||
| - unrealised | - | 201 | 201 | - | 104 | 104 | (780) | |||
| 76 | 201 | 277 | 118 | 324 | 442 | (253) | ||||
| Investment management fees | (24) | - | (24) | (58) | - | (58) | (97) | |||
| Other expenses | (19) | - | (19) | (39) | - | (39) | (43) | |||
| Return/(loss) on ordinary activities before taxation | 33 | 201 | 234 | 21 | 324 | 345 | (393) | |||
| Tax on total comprehensive income and ordinary activities | (27) | - | (27) | (1) | - | (1) | (31) | |||
| Return/(loss) attributable to equity shareholders | 6 | 201 | 207 | 20 | 324 | 344 | (424) | |||
| ‘G’ Shares | Six months ended30 Jun 2019 | Six months ended30 Jun 2018 | Year ended 31 Dec 2018 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | 491 | - | 491 | 778 | - | 778 | 1,307 | ||
| Gains/(losses) on investments | |||||||||
| - realised | - | 125 | 125 | - | 488 | 488 | 514 | ||
| - unrealised | - | 236 | 236 | - | (508) | (508) | (3,325) | ||
| 491 | 361 | 852 | 778 | (20) | 758 | (1,504) | |||
| Investment management fees | (148) | - | (148) | (200) | - | (200) | (369) | ||
| Other expenses | (55) | - | (55) | (56) | - | (56) | (129) | ||
| Return/(loss) on ordinary activities before taxation | 288 | 361 | 649 | 522 | (20) | 502 | (2,002) | ||
| Tax on total comprehensive income and ordinary activities | (86) | - | (86) | (33) | - | (33) | (178) | ||
| Return/(loss) attributable to equity shareholders | 202 | 361 | 563 | 489 | (20) | 469 | (2,180) | ||
| ‘K’ Shares | Six months ended30 Jun 2019 | Six months ended30 Jun 2018 | Year ended 31 Dec 2018 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | ||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||
| Income | 52 | 16 | 68 | 52 | - | 52 | 137 | |||
| (Losses)/gains on investments | ||||||||||
| - realised | - | - | - | - | - | - | 1 | |||
| - unrealised | - | (2,817) | (2,817) | - | (428) | (428) | (761) | |||
| 52 | (2,801) | (2,749) | 52 | (428) | (376) | (623) | ||||
| Investment management fees | (117) | - | (117) | (125) | - | (125) | (245) | |||
| Other expenses | (49) | - | (49) | (43) | - | (43) | (82) | |||
| Loss on ordinary activities before taxation | (114) | (2,801) | (2,915) | (116) | (428) | (544) | (950) | |||
| Tax on total comprehensive income and ordinary activities | 18 | - | 18 | (21) | - | (21) | (50) | |||
| Loss attributable to equity shareholders | (96) | (2,801) | (2,897) | (137) | (428) | (565) | (1,000) | |||
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2019
| 30 Jun 2019 | 30 Jun 2018 | 31 Dec 2018 | |||||||||
| ‘F’Shares | ‘G’Shares | ‘K’Shares | Total | Total | Total | ||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||||
| Net cash (outflow)/inflow from operating activities | (14) | 185 | (106) | 65 | 224 | (173) | |||||
| Cash flows from investing activities | |||||||||||
| Sale of investments | - | 3,205 | 12 | 3,217 | 3,822 | 5,860 | |||||
| Net cash inflow from investing activities | - | 3,205 | 12 | 3,217 | 3,822 | 5,860 | |||||
| Net cash (outflow)/inflow before financing activities | (14) | 3,390 | (94) | 3,282 | 4,046 | 5,687 | |||||
| Cash flows from financing activities | |||||||||||
| Equity dividend paid | - | - | - | - | (2,687) | (7,166) | |||||
| Purchase of own shares | - | - | - | - | (16) | (55) | |||||
| Net cash outflow from financing activities | - | - | - | - | (2,703) | (7,221) | |||||
| (Decrease)/increase in cash | (14) | 3,390 | (94) | 3,282 | 1,343 | (1,534) | |||||
NOTES TO THE UNAUDITED CASH FLOW STATEMENT for the six months ended 30 June 2019
| 30 Jun 2019 | 30 Jun 2018 | 31 Dec 2018 | ||||||||
| ‘F’Shares | ‘G’Shares | ‘K’Shares | Total | Total | Total | |||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||
| Cash inflow/(outflow) from operating activities | ||||||||||
| Return/(loss) on ordinary activities before taxation | 234 | 649 | (2,915) | (2,032) | 303 | (3,345) | ||||
| Corporation tax | (8) | - | - | (8) | (29) | (174) | ||||
| (Gains)/losses on investments | (201) | (361) | 2,817 | 2,255 | 124 | 4,001 | ||||
| Decrease/(increase) in other debtors | (26) | (92) | 10 | (108) | (128) | (562) | ||||
| (Decrease)/increase in other creditors | (13) | (11) | (18) | (42) | (46) | (93) | ||||
| Net cash (outflow)/inflow from operating activities | (14) | 185 | (106) | 65 | 224 | (173) | ||||
| Analysis of net funds | ||||||||||
| Beginning of period | 60 | 324 | 3,671 | 4,055 | 5,589 | 5,589 | ||||
| Net cash (outflow)/inflow | (14) | 3,390 | (94) | 3,282 | 1,343 | (1,534) | ||||
| End of period | 46 | 3,714 | 3,577 | 7,337 | 6,932 | 4,055 | ||||
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. General informationDowning TWO 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. Accounting policies - Basis of accountingThe unaudited half-yearly results cover the six months to 30 June 2019 and have been prepared in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in February 2018 (“AIC SORP”) and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2018, which were prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (“FRS 102”).
3. All revenue and capital items in the Income Statement derive from continuing operations.
4. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
5. The comparative figures are in respect of the six-month period ended 30 June 2018 and the year ended 31 December 2018 respectively.
6. Dividends
| Six months ended30 June 2019 | Year to31 Dec 2018 | ||||||
| Per share | Revenue | Capital | Total | Total | |||
| Paid in period | pence | £’000 | £’000 | £’000 | £’000 | ||
| ‘F’ Shares | |||||||
| Y/E Dec 2018 Interim | 18.0p | - | - | - | 1,946 | ||
| Y/E Dec 2017 Final | 19.0p | - | - | - | 2,054 | ||
| - | - | - | 4,000 | ||||
| ‘G’ Shares | |||||||
| Y/E Dec 2018 Interim | 10.0p | - | - | - | 2,533 | ||
| Y/E Dec 2017 Final | 2.5p | - | - | - | 633 | ||
| - | - | - | 3,166 | ||||
No dividends have been paid or declared in respect of the ‘K’ Shares.
7. Basic and diluted return per share
| Weighted average number of shares in issue | Revenuereturn/(loss) | Capital return/(loss) | |||||
| £’000 | Per share | £’000 | Per share | ||||
| ‘F’ Shares | 10,810,859 | 6 | 0.0p | 201 | 1.9p | ||
| ‘G’ Shares | 25,228,418 | 202 | 0.8p | 361 | 1.4p | ||
| ‘K’ Shares | 15,734,429 | (96) | (0.6p) | (2,801) | (17.8p) | ||
| 112 | (2,239) | ||||||
8. Net asset value per share
| Shares in issue | Net asset value | ||||
| £’000 | Per share | ||||
| ‘F’ Shares | 10,810,859 | 3,308 | 30.6p | ||
| ‘G’ Shares | 25,281,571 | 15,970 | 63.2p | ||
| ‘K’ Shares | 15,718,154 | 11,455 | 72.9p | ||
| 30,733 | |||||
9. Reserves
| Period ended30 Jun 2019 | Year ended31 Dec 2018 | ||
| £’000 | £’000 | ||
| Capital redemption reserve | 149 | 149 | |
| Special reserve | 38,681 | 38,471 | |
| Revaluation reserve | (6,361) | (3,911) | |
| Capital reserve - realised | (2,249) | (2,250) | |
| Revenue reserve | 461 | 349 | |
| 30,681 | 32,808 |
The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £9,111,000 which are included in the calculation of distributable reserves. Total distributable reserves are £27,782,000 (31 Dec 2018: £30,544,000).
10. The fair value of investments is determined using the detailed accounting policy set out in the statutory accounts for the year ended 31 December 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;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 (unquoted equity investments and loan note investments).
| Level 1 | Level 2 | Level 3 | Period ended 30 June 2019 | Level1 | Level 2 | Level 3 | Year ended 31 Dec 2018 | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Loan notes | - | - | 5,502 | 5,502 | - | - | 5,744 | 5,744 | ||
| Unquoted equity | - | - | 16,950 | 16,950 | - | - | 22,181 | 22,181 | ||
| - | - | 22,452 | 22,452 | - | - | 27,925 | 27,925 | |||
11. The unaudited condensed 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. The figures for the year ended 31 December 2018 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor’s report on those financial statements was unqualified.
12. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have 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.
13. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required, in the Company’s half-yearly results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year.
The Board 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; and(ii) 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 has also reappointed Philip Hare and Associates LLP to provide regular reviews and advice in this area.
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. 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.
The Board is satisfied that these approaches provide satisfactory management of the key risks.
14. 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.
15. Copies of the unaudited half-yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company’s registered office or will be available for download from www.downing.co.uk.