Downing ONE VCT plc : Half-year Report

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Downing ONE VCT plc
Half-yearly Report for the six months ended 30 September 2017
I am pleased to present the Company's half-yearly report for the six-month period ended 30 September 2017. The news from the portfolio has generally been positive over the period resulting in a further advance in the Company's net asset value (after adjusting for dividends paid).
Net asset value and results
As at 30 September 2017, the Company's NAV stood at 88.8p an increase of 2.9p (or 3.2%) compared to the 31 March 2017 year-end position, after adding back the 4.5p dividend paid during the period.
The return attributable to equity shareholders for the period was £2.8 million, comprising a revenue gain of £1.2 million and a capital return of £1.6 million.Investment activity and performance
The Company made 6 qualifying investments during the period totalling £2.9 million. Three of these were new investments and three were further funding of existing portfolio companies.
As mentioned in my statement in the last Annual Report, the Company also made a £5 million non-qualifying investment into the Downing Strategic Micro-Cap Investment Trust plc, a new Investment Trust managed by the same team at Downing that advises the Company on its AIM-quoted portfolio. As an Investment Trust, this is one of the few types of non-qualifying investments now permitted under the current VCT regulations and provides the Company with liquidity and some potential for growth on funds that would otherwise be held as cash while awaiting investment in new VCT qualifying opportunities. The Board has agreed with Downing that there will be no “double charging” of fees in respect of this investment.There were a number of disposals and part disposals in the period. The most significant was the sale of Vulcan Renewables Limited. The company developed an Anaerobic digestion plant and our investment was sold for £6.1 million compared to an original cost of £5.0 million, with £510,000 of the gain being recognised in the period and an additional £1.0 million of previously unrecognised loan stock interest being paid on exit. Total realisations in the period produced proceeds of £15.2 million and net realised gains in the period of £590,000.In respect of the existing portfolio, net unrealised gains over the period were £1.3 million. The most significant uplift was the investment in Giving Limited, which operates the fundraising website. The investment was sold shortly after the period end so the valuation was increased by £447,000 to recognise the exit value. There were a number of other unrealised gains and losses across the portfolio, the most significant of which are detailed in the Investment Adviser's report.Further details of the investment activities of the Company are in the Investment Adviser's Report.Dividends
The Company's stated policy is to seek to pay dividends of at least 4% of net asset value each year, which in recent years the Company has exceeded as a result of a significant level of realisations.
This year an interim dividend of 3p per share will be paid on 23 February 2018 to Shareholders on the register at 2 February 2018. This is in line with the usual February and August payment dates.This will take the total dividends to 25.5p since the merger in November 2013.Fundraising
The Company launched a new offer for subscription on 7 September 2017 seeking to raise up to £20 million, with the option of a further £10 million. The offer has been well received by the market, with £9.9 million being raised to date.
Share buybacks
The Company operates a policy of buying in its own shares that become available in the market at a 5% discount to NAV (subject to liquidity and any regulatory restrictions).
During the period, the Company purchased 1,123,930 shares at an average price of 84.3p per Ordinary Share, being a 5% discount to the latest announced NAV at the time of purchase.Outlook
Since the merger in 2013, we have experienced steady positive performance. With some 85 investments in the portfolio and the largest investment counting for little more than 5% of the total value, the impact of positive or negative developments in any one investment tends to have only a small influence on the overall performance of the Company. The Board believes that the portfolio has the potential to continue to deliver similar results into the future.
Shareholders may be aware that the Government recently undertook a “Patient Capital Review” which examined the supply of capital to growing innovative firms in the UK.  The results of the review were published as part of the Budget in November and accordingly a number of changes to the VCT regulations were announced.In general, the new regulations seek to focus future VCT investment into growing businesses where the investment carries a significant risk. At this stage, it is not exactly clear how the proposed tests will be applied by HMRC. There is a possibility that these changes may restrict the Company's ability to make further new “income focussed” investments in future.  The Board may decide to modify the Company's Investment Policy in due course to make it consistent with the new regulations. The Board and Adviser will monitor developments. However, with a large proportion of the Company's funds already invested, the Board does not anticipate that there will be a significant shift in the risk profile of the portfolio in the short term.I look forward to updating Shareholders on developments and progress of the portfolio in my statement with the Annual Report covering the year to 31 March 2018.Chris Kay
At 30 September 2017, the Company held a portfolio of 85 investments, valued in total at £81.0 million.
There have been some positive and negatives within the portfolio over the period, however overall there has been a rise in value across both the quoted and unquoted portfolios.Unquoted portfolio
Investment activity
At 30 September 2017, the unquoted portfolio was valued at £52.7 million comprising 54 investments, spread across a number of sectors.
Three new qualifying investments were made during the six month period as follows:Volo Commerce Limited has developed software as a service platform to support online merchants selling through market places such as Amazon and eBay. Downing ONE has invested £566,000 in the business.£394,000 was invested in BridgeU Corporation, an education technology business which assists students with university applications.£250,000 was invested in Empiribox Limited, a business that provides equipment and training to teachers in UK primary schools to facilitate the delivery of engaging and practical science lessons.Three qualifying investments were also made into existing portfolio companies:£850,000 was invested in Leytonstone Pub Limited to enable the installation of a cocktail bar and enhancements to the premises.A further qualifying investment of £750,000 was made in Xupes, the pre-owned luxury e-commerce business based in Bishops Stortford, specialising in watches, handbags, jewellery and antiques.£100,000 was also invested in Curo Compensation Limited, the provider of a human resource software service.Realisations of investments in the six months generated proceeds of £13.7 million and total profits over holding value of £685,000.A summary of the most significant realisations is shown below:The investment in Vulcan Renewables Limited, an anaerobic digestion plant in south Yorkshire, was sold, generating proceeds of £6.1 million, a gain over previous holding value of £510,000 and also £1.0 million of loan stock interest paid that had not previously been recognised.£1.3 million proceeds were received for Mosaic Spa and Health Clubs Limited which part redeemed loan notes at our previous carrying value, but which was £465,000 lower than original cost.The Gara Rock leisure development was sold generating £672,000 of proceeds. These proceeds repaid loan notes at par.A portfolio of Scottish bars and night clubs was sold during the period generating total proceeds of £580,000 from Cheers Dumbarton Limited, City Falkirk Limited, Fubar Stirling Limited and Lochrise Limited. This resulted in a realised gain in the period of £121,000, although this was a loss of £33,000 against original cost. A further distribution is expected this year for the remaining loan notes held in Fubar Stirling Limited.In addition, a £2.5 million investment in each of Brownfields Trading Limited and Rhodes Solutions Limited was returned to the Company when the businesses were wound up having been unable to secure the business opportunities that they were pursuing.Portfolio valuation
A number of adjustments to carrying values have been made at the period end and the overall movement on the unquoted portfolio was a gain of £949,000. The most significant of which are summarised below:
Giving Limited, the online charity fundraising platform, was sold in October. The September value reflects the actual proceeds received which represented an uplift of £447,000 in the period.Data Centre Response, the provider of uninterruptable power supply systems has performed well in the last year and the value has been increased by £207,000.  Leytonstone Pub Limited, is performing well and an uplift of £186,000 has been recognised.Kimbolton Lodge Limited which operates a care home for the elderly in Bedford was uplifted by £121,000 following continued good performance.An uplift of £78,000 was recognised on Fresh Green Power Limited, a company that owns and operates photovoltaic solar panels.Fenkle Street LLP owns a building in Newcastle and converted it into a hotel.  The hotel continues to trade well and a further uplift of £49,000 has been recognised.The above gains were partially offset in the period by two value write downs in the period totalling £140,000.Quoted investments
Investment activity
At 30 September 2017 the quoted portfolio was valued at £28.4 million comprising 31 active investments.
An opportunity arose to dispose of the holding in Plastics Capital plc which produced proceeds of £1.4 million and realised a gain against cost of £584,000 although a loss of £95,000 against the previous carrying value.Portfolio valuation
Overall the quoted portfolio produced unrealised gains of £410,000. The most notable movements in the portfolio over the period as discussed below.
Anpario plc, the international producer of natural feed additives for animal health, experienced appreciation in its share price following an upgrade in analysts' expectations following strong interim results.  This resulted in an increase in value of £588,00.Craneware plc, the provider of billing software solutions in the US healthcare market, saw earnings progress along with forward order book. Given the confidence in future earnings the company experienced a further re-rating in the period resulting in an increase in value of £174,000.Meanwhile, on the negative side, Science in Sport plc, the manufacturer and distributor of nutritional sports products, saw its share price decline in the period, providing an unrealised loss of £394,000.  The share price reduction was a result of profit taking by largely small shareholders, despite continued growth in turnover.Outlook
We remain broadly satisfied with the portfolio and believe it continues to contain investments which can deliver good outcomes for Shareholders in the future. With existing funds available and new funds being raised, the Company will be an active investor over the remainder of the year. In line with the current VCT regulations, the main focus for new investments is on younger growth companies and we have worked to produce a steady pipeline of such businesses. Although it is likely to be a competitive environment for new investments, we expect to see several prospects joining the portfolio in due course.
as at 30 September 2017
for the six months ended 30 September 2017
The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards (“FRS102”). There are no other items of comprehensive income. The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 by the Association of Investment Companies (“AIC SORP”).STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2017
*    A transfer of £571,000 representing previously recognised unrealised gains on disposal of investments during the period ended 30 September 2017 (year ended 31 March 2017: losses £1,593,000) has been made from the Capital Reserve realised to the Special reserve. 
**  A transfer of £2.5 million representing realised gains on disposal of investments, less capital expenses and capital dividends in the year (year ended 31 March 2017: £5.1 million) has been made from Capital Reserves – realised to Special reserve.
for the year ended 31 March 2017
for the six months ended 30 September 2017
as at 30 September 2017
All venture capital investments are unquoted unless otherwise stated.*              Quoted on AIM       
**            Listed and traded on the Main Market of the London Stock Exchange
for the six months ended 30 September 2017
for the six months ended 30 September 2017
Disposals*              adjusted for purchases in the periodNOTES TO THE UNAUDITED FINANCIAL STATEMENTS
for the six months ended 30 September 2017
1. General Information
Downing ONE 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 2017 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 March 2017, which were prepared in accordance with the Financial Reporting Standard 102 (“FRS102”) and in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies” revised November 2014 (“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 were in respect of the six months ended 30 September 2016 and the year ended 31 March 2017 respectively.5. Return per share6. Dividends paid in the period7. Basic and diluted net asset value per share8. Called up share capital9. Reserves
The Special reserve is available to the Company to enable the purchase of its own shares in the market without affecting its ability to pay dividends/capital distributions.
Distributable reserves are calculated as follows:10. 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 2017. The Company has categorised its financial instruments using the fair value hierarchy as follows:
Level a Reflects financial instruments quoted in an active market (quoted companies and fixed interest bonds);
Level b Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level c i) Reflects financial instruments that use valuation techniques that are based on observable market data.
ii) Reflects financial instruments that use valuation techniques that are not based on observable market data (investments in unquoted shares and loan note investments).
11. 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. The figures for the year ended 31 March 2017 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. Going concern
The Directors have reviewed the Company's financial resources at the period end and concluded that the Company is well placed to manage its business risks.
The Directors confirm that they are satisfied that the Company has adequate resources to continue to operate for the foreseeable future. For this reason, the Directors believe 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. Risks and uncertainties
Under the Disclosure and Transparency Rules, the Board is required, in the Company's half-year results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year.
The Board has concluded that the key risks are:
(i) 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 Adviser, who regularly reports to the Board on the current position. The Company also retains Philip Hare & 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 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.The Board is satisfied that these approaches provide satisfactory management of the key risks.14. The Directors confirm that, to the best of their knowledge, the half yearly financial report has been prepared in accordance with the “Statement: Half-Yearly Financial Reports” issued by the UK Accounting Standards Board 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; andb) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.15. Copies of the unaudited half-yearly financial results will be sent to Shareholders shortly. Further copies can be obtained from the Company's Registered Office and will be available for download from
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Brad Bennett

Brad Bennett

Brad grew up in a small town in northern Iowa. He studied chemistry in college, graduated, and married his wife one month later. They were then blessed with two baby boys within the first four years of marriage. Having babies gave their family a desire to return to the old paths – to nourish their family with traditional, homegrown foods; rid their home of toxic chemicals and petroleum products; and give their boys a chance to know a simple, sustainable way of life. They are currently building a homestead from scratch on two little acres in central Texas. There’s a lot to be done to become somewhat self-sufficient, but they are debt-free and get to spend their days living this simple, good life together with their five young children.
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