Downing TWO VCT plc : Annual Financial Report

Downing TWO VCT plc
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017
LEI: 213800HJGTPW7F8YEY55

FINANCIAL HIGHLIGHTS

	31 Dec 2017		31 Dec  2016
	Pence		Pence
'D' Share pool
Net asset value per 'D' Share	-		36.6
Net asset value per 'E' Share	-		0.1
Cumulative distributions per 'D' Share	103.98		66.5
Total return per 'D' Share and 'E' Share	103.98		103.2
'F' Share pool
Net asset value per 'F' Share	69.6		69.7
Cumulative distributions per 'F' Share	30.0		25.0
Total return per 'F' Share	99.6		94.7
'G' Share pool
Net asset value per 'G' Share	82.1		83.5
Cumulative distributions per 'G' Share	25.0		20.0
Total return per 'G' Share	107.1		103.5
'K' Share pool
Net asset value per 'K' Share	97.7		99.0
Cumulative distributions per 'K' Share	-		-
Total return per 'K' Share	97.7		99.0

 

CHAIRMAN'S STATEMENT

Introduction
I am pleased to present the Annual Report for the year ended 31 December 2017. During the year, the task of returning proceeds to the 'D' Share pool investors was completed. The Company now has one share pool that is starting to return funds to investors, one that will seek to start the return of capital process in approximately a year's time and one where the initial investment portfolio is still being finalised. Progress across the various share pools over the year has been satisfactory.

A brief summary of each share pool is provided below. More detailed reviews are provided in the Investment Manager's Report and Review of Investments.

'D' Share pool
The final distribution to 'D' Shareholders was made in December 2017. Total Return (NAV plus cumulative dividends to date) to those investors was 103.98p per Share compared to the original cost net of income tax relief of 70.0p. The Board considers this to be a fair return for investors.

'F' Share pool
The 'F' Share pool was launched in 2012 and now holds a portfolio of 13 investments with a total value of £5.4 million.

At 31 December 2017, the 'F' Share NAV stood at 69.6p, which represents an increase of 7.0% over the year after adjusting for the dividends of 5.0p per share paid in the year. Dividends paid to date total 30.0p per share such that Total Return (NAV plus cumulative dividends to date) is now 99.6p, compared to the initial cost to original subscribers net of income tax relief of 70.0p.  The increase in NAV across the period benefitted from the realised gains on disposal of the group of Scottish nightclubs and Vulcan Renewables Limited as well as receiving large loan stock receipts which were previously provided for.

Now that the fifth anniversary of the close of the original 'F' Share offer for subscription has passed, the process of realising investments to return funds to shareholders has commenced. A first major distribution of 19.0p per F Share will be paid on 24 April 2018. Further distributions will be paid as further investments are realised.

'G' Share pool
The 'G' Share pool was launched in 2013 and completed its initial investment phase during the year under review. At 31 December 2017, the pool held 16 investments with a total value of £19.9 million.

At 31 December 2017, the 'G' Share NAV stood at 81.5p, which represents an increase over the year of 4.3% after adjusting for the dividends of 5.0p per share paid in the year. Total Return (NAV plus cumulative dividends to date) is now 107.1p, compared to the initial NAV of 100.0p. The NAV was buoyed following the receipt of significant loan interest balances which were previously provided for from Goonhilly Earth Station Limited.

In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'G' Share on 15 June 2018 to Shareholders on the register at the close of business on 11 May 2018.

'K' Share pool
The 'K' Share Offer for Subscription was launched on 15 December 2015 and closed on 30 September 2016, having raised gross proceeds £16.2 million. The process of building the 'K' Share portfolio is now well underway.

At 31 December 2017, the pool held 18 investments with a total value of £12.4 million. The NAV and Total Return at 31 December 2017 stood at 97.7p per share which represents a decrease over the year of 1.3%.

Share buybacks
For share classes where all investors are still within the initial five year period (currently the 'G' Share and 'K' Share classes), the Company operates a general policy of buying in its own shares for cancellation when any become available in the market. During this period, any such purchases will be undertaken at a price equal to the latest published NAV (i.e. at nil discount). Any buybacks are subject to regulatory restrictions and other factors such as the availability of liquid funds.

The Company is now unlikely to make any further purchases of 'F' Shares.  The process of returning funds to 'F' Shareholders is now underway, and the 'G' Shares are due to start returning funds early next year.

During the year to 31 December 2017, the Company repurchased and subsequently cancelled 24,000 'G' Shares and 4,912 'K' Shares for an aggregate consideration of £20,000 and £4,863 respectively, being an average price of 83.5p per 'G' Share and 99.0p per 'K' Share.

A resolution to renew the buyback authority for the Company to purchase its own shares will be proposed at the forthcoming Annual General Meeting.

 

VCT Rule changes
The Government's Budget announcement in November 2017 introduced some further changes to the VCT regulations. Although the changes refocus the VCT more heavily on younger business in the future, the Board and Manager do not expect these to have a major impact on the Company. The most significant changes will be in respect of new investments and, with most of the share pools already fully invested, new investment activity is likely to be at a relatively low level in future.

Annual General Meeting ("AGM")
The Company's eleventh AGM will be held at St. Magnus House, 3 Lower Thames Street, London, EC3R 6HD at 10.45 a.m. on 7 June 2018.

Two items of special business will be proposed at the AGM. As mentioned above, the Company will seek to renew the authority for the Company to buy back shares. Additionally, the Company will seek to cancel the Company's share premium account.

Outlook
In the coming year, we expect to see a significant level of activity in the 'F' Share portfolio with plans being progressed for the sale of all the remaining investments. The task of exiting from all investments is likely to take some time especially as it generally involves third party purchasers. However, the Manager is optimistic that good progress can be made over the remainder of the year.

The realisation process for the 'G' Share pool is expected to get underway towards the end of 2018 and, similarly, is expected to take some time to complete. In respect of new investment activity, we expect to see a small number of additions in the 'K' Share pool as the initial portfolio is finalised.

I look forward to updating Shareholders on progress in my statement with the Half Yearly Report to 30 June 2018. I will also communicate with 'F' Shareholders as and when there is news about further dividends.

Hugh Gillespie
Chairman

INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL

Introduction
The focus for this year has been on realisations with the 'D' Share pool completing the task of realising its investments in November 2017, and, on 22 December 2017, final dividends were paid.

Realisations
During the year, total proceeds of £2.4 million were received for the remaining eight investments within the 'D' Share portfolio, generating a total gain over opening value of £58,000.

Net asset value and results
Over the life of their investment, investors in the 'D' Share pool received total dividends of 103.88p per 'D' Share and 0.1p per 'E' Shares, making a total return of 103.98p for an original investment of 100p (70p net of income tax relief). We believe that this represents a fair return to Shareholders and brings the investment by 'D' Shareholders to a close.

Outlook
We are satisfied with the final performance of the 'D' Share pool. Following the payment of the final dividends on 22 December 2017, the 'D' Shares and 'E' Shares now have negligible value. In due course, the Company will take steps to cancel the share classes using provisions in the Articles of Association.

Downing LLP
4 April 2018

REVIEW OF INVESTMENTS - 'D' SHARE POOL

Summary of investment movements

Disposals

	Cost	MV at  01/01/17			Disposal proceeds		Total gain/ (loss) against cost		Total realised gain during  the year
	£'000		£'000		£'000		£'000		£'000
VCT qualifying and partially qualifying investments
Avon Solar Energy Limited	210		240		264		54		24
Mosaic Spa and Health Clubs Limited*	521		300		287		(234)		(13)
Westcountry Solar Solutions Limited	250		250		223		(27)		(27)
Non-qualifying investments
Snow Hill Developments LLP	-		-		43		43		43
Fenkle Street LLP	122		270		287		165		17
London City Shopping Centre Limited	-		-		14		14		14
Gara Rock Resort Limited	1,322		1,322		1,322		-		-
Future Biogas (Reepham Road) Limited	320		-		-		(320)		-
Total 'D' Share pool	2,745		2,382		2,440		(305)		58

*Part-qualifying investment

INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL

Introduction
The 'F' Share pool holds 13 investments and is fully invested in a portfolio focussed on asset backed businesses and those with predictable revenue streams.

Net asset value and results
At 31 December 2017, the 'F' Share NAV stood at 69.6p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 99.6p. This represents a net increase of 4.9p per share over the year (after adjusting for dividends paid during the year of 5.0p per Share), equivalent to an increase of 7.0%.

The return on ordinary activities for the 'F' Share pool for the year was a gain of £528,000 (2016: £302,000) being a revenue profit of £182,000 (2016: loss £113,000) and a capital gain of £346,000 (2016: gain £415,000).

'F' Share pool - investment activity
With the pool being fully invested, no new investments were made in the period although one further investment was made in Goonhilly Earth Station Limited for £194,000. This was part of a larger funding round which included other Downing VCTs and totalled over £969,000. This funding was to enhance the operational capacity of the site and provide working capital for the business.

Downing Pub EIS One Limited acquired the holdings of Pabulum Pubs Limited and Augusta Pub Company Limited for £200,000 and £290,000 respectively during the year.

Vulcan Renewables Limited, the anaerobic digestion plant in Doncaster, was sold during the summer and generated proceeds of £903,000 for the Share pool. This represented an uplift over cost of £249,000.

Funds had previously been invested in four companies: Brownfields Trading Limited; Morava Limited; Rhodes Solutions Limited; and Vectis Alpha Limited to explore business opportunities in specific sectors. The companies were unable to find suitable opportunities, therefore the £700,000 of funds invested were returned to the Share pool.

In addition to the above, proceeds of £435,000 were generated from the sale of a group of Scottish licensed leisure companies, Cheers Dumbarton Limited, City Falkirk Limited, Lochrise Limited and Fubar Stirling Limited compared to a cost of £648,000. A full exit also completed in the period of a non-qualifying loan to Gara Rock Resort Limited, formerly Aminghurst Limited, which generated proceeds of £258,000.

'F' Share pool - portfolio valuation
The majority of investments remain valued at or above cost and there were several valuation movements in the period. This generated an uplift over opening value of £132,000.

Merlin Renewables Limited, the anaerobic digestion plant in Norfolk continues to perform well and the valuation was increased by £67,000.

An uplift of £39,000 was recognised in the period on Fresh Green Power Limited. The domestic rooftop solar company is generating profits in line with our expectations and we are now exploring options to sell the investment.

The valuation of Lambridge Solar Limited, the owner of commercial solar arrays in Lincolnshire, has been increased by £26,000 as it continues to perform well.

Other smaller movements in the portfolio included an uplift on Atlantic Dogstar Limited of £7,000 and a decrease on Fubar Stirling Limited of £10,000.

Outlook
Following the passing of the five year anniversary of the close of the 'F' Share offer, our focus has now shifted to the process of realising the investments. Plans are being progressed for the disposal of all investments. We anticipate that the exercise to take some time to complete in full, but expect to see good progress over the coming months.

Downing LLP
4 April 2018

REVIEW OF INVESTMENTS - 'F' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2017:

'F' Share pool	Cost	Valuation	Valuation  movement in year	% of portfolio
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Apex Energy Limited	1,000	1,000	-	13.3%
Goonhilly Earth Station Limited	954	954	-	12.7%
Merlin Renewables Limited	500	642	67	8.5%
Lambridge Solar Limited	500	595	26	7.9%
Downing Pub EIS One Limited	490	588	3	7.8%
Pearce and Saunders Limited	497	497	-	6.6%
Fresh Green Power Limited	200	239	39	3.2%
Atlantic Dogstar Limited	200	235	7	3.1%
Green Energy Production UK Limited	100	100	-	1.3%
Fubar Stirling Limited	101	8	(10)	0.1%
	4,542	4,858	132	64.5%
Non-qualifying investments
Baron House Developments LLP	481	481	-	6.4%
London City Shopping Centre Limited	66	66	-	0.9%
Pearce and Saunders DevCo Limited	46	46	-	0.6%
	593	593	-	7.9%
	5,135	5,451	132	72.4%
Cash at bank and in hand		2,079		27.6%
Total investments		7,530		100.0%

Summary of investment movements

Additions

	Cost
	£'000
VCT qualifying and partially qualifying investments
Downing Pub EIS One Limited	490
Goonhilly Earth Station Limited	194
Total 'F' Share pool	684

Disposals

	Cost	MV at  01/01/17			Disposal proceeds		Gain/ (loss) against cost		Total realised gain during  the year
	£'000	£'000			£'000		£'000		£'000
VCT qualifying and partially qualifying investments
Cheers Dumbarton Limited	48		17		28		(20)		11
City Falkirk Limited	421		177		243		(178)		66
Lochrise Limited	12		-		7		(5)		7
Fubar Stirling Limited	167		151		157		(10)		6
Vulcan Renewables Limited	654		779		903		249		124
Augusta Pub Company Limited**	290		290		290		-		-
Pabulum Pubs Limited**	200		200		200		-		-
Non-qualifying investments
Gara Rock Resort Limited	258		258		258		-		-
Investments wound up without commencing a trade
Morava Limited	125		125		125		-		-
Brownfields Limited	150		150		150		-		-
Rhodes Solutions Limited	125		125		125		-		-
Vectis Alpha Limited	300		300		300		-		-
Total 'F' Share pool	2,750		2,572		2,786		36		214

* Part-qualifying investment
** Augusta Pub Company Limited and Pabulum Pubs Limited engaged in a share for share exchange for shares in Downing PUB EIS One Limited during the year ended 31 December 2017.

INVESTMENT MANAGER'S REPORT- 'G' SHARE POOL

Introduction
The 'G' Share pool raised funds in 2013 and the task of building the initial VCT qualifying portfolio is now complete.

Net asset value and results
At 31 December 2017, the 'G' Share NAV stood at 82.1p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 107.1p. This represents a net increase of 3.6p per Share over the year (after adjusting for dividends paid during the year of 5.0p per Share), equivalent to an increase of 4.3%.

The return on ordinary activities for the 'G' Share pool for the year was a gain of £906,000 (2016: £550,000) being a revenue profit of £691,000 (2016: £74,000) and a capital gain of £215,000 (2016: £476,000).

'G' Share pool - investment activity
With the pool being fully invested, no new investments were made in the period although one further investment was made in Goonhilly Earth Station Limited for £436,000. This was part of a larger funding round which included other Downing VCTs and totalled over £969,000. This funding was to enhance the operational capacity of the site and provide working capital for the business.

Downing Pub EIS One Limited acquired the holdings of Pabulum Pubs Limited and Augusta Pub Company Limited for £400,000 and £580,000 respectively during the year.

Two full exits completed in the period generating total proceeds of £893,000.

A non-qualifying loan to Gara Rock Resort Limited, formerly Aminghurst Limited, generated proceeds of £801,000. A non-qualifying loan to Craft Beer Pub Company Limited of £92,000 was repaid in full.

'G' Share pool - portfolio valuation
The majority of investments remain valued at or above cost and there were three valuation uplifts in the period totalling a gain of £215,000.

Atlantic Dogstar Limited continues to perform to plan and a valuation uplift of £133,000 has been recognised in the period.

Ormsborough Limited owns several pubs and restaurants in Yorkshire with some trading well and others under construction. Overall performance of the group has been good resulting in an uplift in valuation of £23,000.

Two freehold pubs are owned by Hedderwick Limited, one is open and trading and the other is being redeveloped. The open site is trading in line with expectations and an uplift has been recognised of £53,000.

Outlook
Our focus for the 'G' Share pool is currently on close monitoring and support of the portfolio companies as we seek to nurture growth before the realisation process begins in 2019.

Downing LLP
4 April 2018

REVIEW OF INVESTMENTS - 'G' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2017:

'G' Share pool	Cost	Valuation	Valuation  movement in year	% of portfolio
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Atlantic Dogstar Limited	3,500	4,112	133	20.1%
Goonhilly Earth Station Limited	2,146	2,146	-	10.5%
Antelope Pub Limited	1,760	1,760	-	8.6%
Quadrate Catering Limited	1,450	1,450	-	7.1%
Walworth House Pub Limited	1,330	1,330	-	6.5%
Apex Energy Limited	1,300	1,300	-	6.4%
Downing Pub EIS One Limited	980	1,178	6	5.8%
Hermes Renewables Limited	1,000	1,000	-	4.9%
Zora Energy Renewables Limited	750	750	-	3.7%
Ormsborough Limited	500	533	23	2.6%
Pearce and Saunders Limited	193	193	-	0.9%
Oak Grove Renewables Limited	420	231	-	1.1%
	15,329	15,983	162	78.2%
Non-qualifying investments
Quadrate Spa Limited	1,450	1,450	-	7.1%
Hedderwick Limited	1,250	1,303	53	6.4%
Baron House Developments LLP	1,093	1,093	-	5.3%
London City Shopping Centre Limited	110	110	-	0.5%
	3,903	3,956	53	19.3%
	19,232	19,939	215	97.5%
Cash at bank and in hand		516		2.5%
Total investments		20,455		100.0%

Summary of investment movements

Additions

	Cost
	£'000
VCT qualifying and partially qualifying investments
Downing Pub EIS One Limited	980
Goonhilly Earth Station Limited	436
Total 'G' Share pool	1,416

Disposals

	Cost	MV at  01/01/17			Disposal proceeds		Loss against cost		Total realised gain during   the year
	£'000		£'000		£'000		£'000		£'000
VCT qualifying and partially qualifying investments
Augusta Pub Company Limited**	580		580		580		-		-
Pabulum Pubs Limited	400		400		400		-		-
Non-qualifying investments
Gara Rock Resort Limited	801		801		801		-		-
Craft Beer Pub Co Limited	92		92		92		-		-
	1,873		1,873		1,873		-		-

* Part-qualifying investment
** Augusta Pub Company Limited and Pabulum Pubs Limited engaged in a share for share exchange for shares in Downing PUB EIS One Limited during the year ended 31 December 2017.

INVESTMENT MANAGER'S REPORT- 'K' SHARE POOL

Introduction
The 'K' Share pool closed its fundraising period on 30 September 2016 having raised £16.2 million. The process of investing the funds is well underway with £12.3 million invested in qualifying or part qualifying investments.

'K' Share pool - Net asset value and results
At 31 December 2017, the 'K' Share NAV was 97.7p, a decrease of 1.3p on the initial price, resulting from the initial "cash drag" from holding uninvested funds.

The return on ordinary activities for the 'K' Share pool for the year was a loss of £212,000 (2016: £154,000) being a revenue loss of £253,000 (2016: £154,000) and a capital gain of £41,000 (2016: £nil).

'K' Share pool - Investment activity
15 qualifying investments with a total cost of £6.8 million have been made in the 'K' Share pool. During the period, £6.4 million was invested across eight new qualifying investments. Alongside these qualifying investments, three non-qualifying investments totalling £345,000 have been made.

The qualifying investments include a £1.4 million investment into Ormsborough Limited. The company owns several pubs and restaurants across Yorkshire and this investment supported their continued expansion.

An investment of £1.3 million was made in to Apprise Pubs Limited. Apprise Pubs has been established to build an estate of high quality freehold pubs across the south of England alongside the management team of Oakman Inns.

£1.3 million was invested in Garthcliff Shipping Limited who recently completed the acquisition of the Sentosa container ship. The vessel will be chartered to third parties to transport containers to and from European ports.

A £1.0 million investment was made in Managed Storage Services (1) Limited. The investment was made to support the acquisition, redevelopment and operations of a managed storage business in central London.

£500,000 was invested in Walworth House Pub Limited to develop the upper floors of a pub in South London.

A £500,000 investment was also made in Exclusive Events Venues Limited, in order to acquire and develop a wedding venue site in Chester.

£432,000 was invested in Pilgrim Trading Limited. The company acquired two sites to be converted into children's nurseries, one of which has recently been opened in Twickenham and the other is in the construction stage.

Funds had previously been invested in four companies, Brownfields Trading Limited, Morava Limited, Rhodes Solutions Limited and Vectis Alpha Limited to explore business opportunities in specific sectors. The companies were unable to find suitable opportunities, therefore the £4.3 million of funds invested were returned to the Share pool in order to make new qualifying investments. There were no other disposals in the period.

One valuation adjustment was made in the period on Ormsborough Limited following good overall performance of the group which resulted in an uplift in valuation of £41,000.

Outlook
The task of building the 'K' Share portfolio is now close to complete. We expect to see a small number of further additions over the coming year. Our focus will then be on close monitoring of the investments as we seek to optimise growth over the planned exit life of the share pool.

Downing LLP
4 April 2018

REVIEW OF INVESTMENTS - 'K' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2017:

'K' Share pool	Cost	Valuation	Valuation  movement in year	% of portfolio
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Jito Trading Limited	1,500	1,500	-	9.8%
Ormsborough Limited	1,400	1,441	41	9.4%
Apprise Pubs Limited	1,300	1,300	-	8.5%
Garthcliff Shipping Limited	1,300	1,300	-	8.5%
Yamuna Renewables Limited	1,300	1,300	-	8.5%
Managed Storage Services (1) Limited	1,000	1,000	-	6.5%
Ironhide Generation Limited	736	736	-	4.8%
Indigo Generation Limited	736	736	-	4.8%
Rockhopper Renewables Limited	591	591	-	3.8%
Walworth House Pub Limited	500	500	-	3.3%
Exclusive Events Venues Limited	500	500	-	3.3%
Pilgrim Trading Limited	432	432	-	2.8%
Zora Energy Renewables Limited	350	350	-	2.3%
SF Renewables (Solar) Limited	337	337	-	2.2%
Mosaic Spa and Health Clubs Limited	28	28	-	0.2%
	12,010	12,051	41	78.7%
Non-qualifying investments
Fenkle Street LLP	287	287	-	1.9%
Snow Hill Developments Limited	43	43	-	0.3%
London City Shopping Centre Limited	15	15	-	0.1%
	345	345	-	2.3%
	12,355	12,396	41	81.0%
Cash at bank and in hand		2,972		19.0%
Total investments		15,368		100.0%

Summary of investment movements

Additions

	Cost
	£'000
VCT qualifying investments
Ormsborough Limited	1,400
Apprise Pubs Limited	1,300
Garthcliff Shipping Limited	1,300
Managed Storage Services (1) Limited	1,000
Walworth House Pub Limited	500
Exclusive Events Venues Limited	500
Pilgrim Trading Limited	432
Mosaic Spa and Health Clubs Limited	28
Non-qualifying investments
Fenkle Street LLP	287
Snow Hill Developments Limited	43
London City Shopping Centre Limited	15
Total 'K' Share pool	6,805

Disposals

	Cost	MV at   01/01/17			Disposal proceeds		Gain/ (loss) against cost		Total realised gain during   the year
	£'000	£'000			£'000		£'000		£'000
Investments wound up without  commencing a trade
Morava Limited	1,100		1,100		1,098		(2)		(2)
Brownfields Limited	1,000		1,000		1,001		1		1
Rhodes Solutions Limited	1,250		1,250		1,250		-		-
Vectis Alpha Limited	1,000		1,000		1,000		-		-
Total 'F' Share pool	4,350		4,350		4,349		(1)		(1)

Directors' responsibilities statement
The Directors are responsible for preparing the Report of the Directors, the Directors' Remuneration Report, the Strategic Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements 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). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that year.

In preparing these financial statements the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions, to disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

Statement as to disclosure of information to Auditor
The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor.

INCOME STATEMENT
for the year ended 31 December 2017

			Year ended 31 December 2017				Year ended 31 December 2016*
			Revenue	Capital	Total		Revenue	Capital	Total
			£'000	£'000	£'000		£'000	£'000	£'000
Income			1,774	34	1,808		1,006	40	1,046
Gain on investments			-	660	660		-	1,085	1,085
			1,774	694	2,468		1,006	1,125	2,131
Investment management fees			(886)	-	(886)		(861)	-	(861)
Other expenses			(282)	-	(282)		(308)	-	(308)
(Loss)/return on ordinary activities before tax			606	694	1,300		(163)	1,125	962
Tax on total comprehensive  income and ordinary activities			12	-	12		(117)	-	(117)
(Loss)/return for the year  attributable to equity  shareholders			618	694	1,312		(280)	1,125	845
Basic and diluted return/(loss) per:
'C' Share			-	-	-		(0.4p)	-	(0.4p)
'A' Share			-	-	-		-	-	-
'D' Share			-	0.9p	0.9p		(0.6p)	2.3p	1.7p
'E' Share			-	-	-		-	-	-
'F' Share			1.7p	3.2p	4.9p		(1.0p)	3.8p	2.8p
'G' Share			2.7p	0.9p	3.6p		0.3p	1.9p	2.2p
'K' Share			(1.6p)	0.3p	(1.3p)		(1.4p)	-	(1.4p)

All Revenue and Capital items in the above statement are derived from continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS 102"). The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated January 2017 by the Association of Investment Companies ("AIC SORP").

Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return/loss as stated above and historical cost.

* The comparative Income Statement as at 31 December 2016 includes the 'C' Share pool which has subsequently been cancelled.

INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 December 2017

'D' Share pool

		Year ended 31 December 2017				Year ended 31 December 2016
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		12	34	46		50	40	90
Gain on investments		-	58	58		-	194	194
		12	92	104		50	234	284
Investment management fees		(32)	-	(32)		(50)	-	(50)
Other expenses		(25)	-	(25)		(34)	-	(34)
(Loss)/return on ordinary  activities before tax		(45)	92	47		(34)	234	200
Tax on total comprehensive income  and ordinary activities		43	-	43		(24)	-	(24)
(Loss)/return attributable to equity shareholders		(2)	92	90		(58)	234	176

'F' Share pool

		Year ended 31 December 2017				Year ended 31 December 2016
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		451	-	451		98	-	98
Gain/(loss) on investments		-	346	346		-	415	415
		451	346	797		98	415	513
Investment management fees		(137)	-	(137)		(138)	-	(138)
Other expenses		(77)	-	(77)		(78)	-	(78)
(Loss)/return on ordinary  activities before tax		237	346	583		(118)	415	297
Tax on total comprehensive income and ordinary activities		(55)	-	(55)		5	-	5
(Loss)/return attributable to equity shareholders		182	346	528		(113)	415	302

'G' Share pool

		Year ended 31 December 2017				Year ended 31 December 2016
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		1,217	-	1,217		780	-	780
Gain on investments		-	215	215		-	476	476
		1,217	215	1,432		780	476	1,256
Investment management fees		(415)	-	(415)		(436)	-	(436)
Other expenses		(108)	-	(108)		(127)	-	(127)
Return on ordinary activities  before tax		694	215	909		217	476	693
Tax on total comprehensive income and ordinary activities		(3)	-	(3)		(143)	-	(143)
Return attributable to equity shareholders		691	215	906		74	476	550

'K' Share pool

		Year ended 31 December 2017				Year ended 31 December 2016
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Income		94	-	94		71	-	71
Gain on investments		-	41	41		-	-	-
		94	41	135		71	-	71
Investment management fees		(302)	-	(302)		(228)	-	(228)
Other expenses		(72)	-	(72)		(36)	-	(36)
Loss on ordinary activities before tax		(280)	41	(239)		(193)	-	(193)
Tax on total comprehensive income and ordinary activities		27	-	27		39	-	39
Loss attributable to equity shareholders		(253)	41	(212)		(154)	-	(154)

BALANCE SHEET
as at 31 December 2017

		2017		2016*
		£'000		£'000
Fixed assets
Investments		37,786		39,670
Current assets
Debtors		767		312
Cash at bank and in hand		5,589		8,461
		6,356		8,773
Creditors: amounts falling due within  one year		(457)		(486)
Net current assets		5,899		8,287
Net assets		43,685		47,957
Capital and reserves
Called up share capital		77		95
Capital redemption reserve		124		106
Special reserve		28,313		33,666
Share premium reserve		16,170		16,170
Revaluation reserve		815		(115)
Capital reserve - realised		(2,252)		(2,254)
Revenue reserve		438		289
Total equity shareholders' funds	1	43,685		47,957
Basic and diluted net asset value per Share:
'D' Share		-		36.6p
'E' Share		-		0.1p
'F' Share		69.6p		69.7p
'G' Share		82.1p		83.5p
'K' Share		97.7p		99.0p

BALANCE SHEET (ANALYSED BY SHARE POOL)
as at 31 December 2017

'D' Shares

		2017		2016
		£000		£000
Fixed assets
Investments		-		2,382
Current assets
Debtors		1		3
Cash at bank and in hand		22		1,345
		23		1,348
Creditors: amounts falling due within one year		(22)		(68)
Net current assets		1		1,280
Net assets		1		3,662
Capital and reserves
Called up share capital		25		25
Capital redemption reserve		124		-
Special reserve		-		3,579
Share premium reserve		-		-
Revaluation reserve		(249)		(508)
Capital reserve - realised		-		-
Revenue reserve		101		566
Total equity shareholders' funds		1		3,662

'F' Shares

		2017		2016
		£000		£000
Fixed assets
Investments		5,451		7,207
Current assets
Debtors		123		25
Cash at bank and in hand		2,079		377
		2,202		402
Creditors: amounts falling due within one year		(127)		(71)
Net current assets		2,075		331
Net assets		7,526		7,538
Capital and reserves
Called up share capital		11		11
Capital redemption reserve		-		-
Special reserve		7,876		8,380
Share premium reserve		-		-
Revaluation reserve		316		6
Capital reserve - realised		(1,033)		(1,032)
Revenue reserve		356		173
Total equity shareholders' funds		7,526		7,538

'G' Shares

		2017		2016
		£000		£000
Fixed assets
Investments		19,939		20,181
Current assets
Debtors		598		282
Cash at bank and in hand		516		964
		1,114		1,246
Creditors: amounts falling due within one year		(263)		(257)
Net current assets		851		989
Net assets		20,790		21,170
Capital and reserves
Called up share capital		25		25
Capital redemption reserve		-		-
Special reserve		20,440		21,707
Share premium reserve		-		-
Revaluation reserve		707		492
Capital reserve - realised		(1,221)		(1,222)
Revenue reserve		839		168
Total equity shareholders' funds		20,790		21,170

 'K' Shares

		2017		2016
		£000		£000
Fixed assets
Investments		12,396		9,900
Current assets
Debtors		45		2
Cash at bank and in hand		2,972		5,751
		3,017		5,753
Creditors: amounts falling due within one year		(45)		(67)
Net current assets		2,972		5,686
Net assets		15,368		15,586
Capital and reserves
Called up share capital		16		16
Share premium reserve		16,170		16,170
Special reserve		(3)		-
Revaluation reserve		41		-
Revenue reserve		(858)		(600)
Capital reserve realised		2		-
Total equity shareholders' funds		15,368		15,586

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2017

	Called up share  capital		Capital redemption  reserve	Special  reserve	Share premium  reserve	Revaluation reserve	Capital reserve   - realised	Revenue  reserve	Total
	£'000		£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2016	79		106	40,086	-	(1,248)	(2,252)	1,962	38,733
Total comprehensive  income	-		-	-	-	908	217	(280)	845
Transactions with owners
Issue of new shares	16		-	-	16,170	-	-	-	16,186
Share issue costs	-		-	-	-	-	-	(448)	(448)
Purchase of own shares	-		-	-	-	-	-	(36)	(36)
Transfers between reserves*		-	-	(6,420)	-	225	7,104	(909)	-
Dividend paid	-		-	-	-	-	(7,323)	-	(7,323)
At 31 December 2016	95		106	33,666	16,170	(115)	(2,254)	289	47,957
Total comprehensive  income	-		-	-	-	388	306	618	1,312
Transaction with owners
Transfers between reserves*		-	-	(5,353)	-	542	5,256	(445)	-
Purchase of own shares	-		-	-	-	-	-	(24)	(24)
Dividend paid	-		-	-	-	-	(5,560)	-	(5,560)
Cancellation of shares	(18)		18	-	-	-	-	-	-
At 31 December 2017	77		124	28,313	16,170	815	(2,252)	438	43,685

CASH FLOW STATEMENT
for the year ended 31 December 2017

			Year ended 31 December 2017
			'D' Share pool	'F' Share pool	'G' Share pool	'K' Share pool	Total
			£'000	£'000	£'000	£'000	£'000
Net cash (outflow)/inflow from operating activities		1	(34)	141	381	(319)	169
Cash flows from investing  activities
1Purchase of investments			-	(684)	(1,416)	(6,804)	(8,904)
14BSale of investments			2,440	2,786	1,873	4,349	11,448
Net cash inflow/(outflow) from investing activities			2,440	2,102	457	(2,455)	2,544
Net cash inflow/(outflow) before financing activities			2,406	2,243	838	(2,774)	2,713
Cash flows from financing activities
Equity dividends paid			(3,753)	(541)	(1,266)	-	(5,560)
Purchase of own shares			-	-	(20)	(5)	(25)
Net cash (outflow)/inflow from financing activities			(3,753)	(541)	(1,286)	(5)	(5,585)
(Decrease)/increase in cash			(1,347)	1,702	(448)	(2,779)	(2,872)
Cash and cash equivalents at start of year			1,369	377	964	5,751	8,461
Cash and cash equivalents at end of year			22	2,079	516	2,972	5,589
Cash and cash equivalents comprise
Cash at bank and in hand			22	2,079	516	2,972	5,589
Total cash and cash equivalents			22	2,079	516	2,972	5,589

			Year ended 31 December 2016
			'C' Share pool		'D' Share pool	'F' Share pool	'G' Share pool	'K' Share pool	Total
			£'000		£'000	£'000	£'000	£'000	£'000
Net cash inflow/(outflow) from operating activities			95		196	(54)	131	(87)	281
Cash flows from investing activities
Purchase of investments			-		-	(700)	(6,480)	(9,900)	(17,080)
Sale of investments			748		2,182	1,287	5,643	-	9,860
Net cash inflow/(outflow) from investing activities			748		2,182	587	(837)	(9,900)	(7,220)
Net cash inflow/(outflow) before financing activities			843		2,378	533	(706)	(9,987)	(6,939)
Cash flows from financing activities
Equity dividends paid		8	(3,814)		(1,700)	(540)	(1,269)	-	(7,323)
Purchase of own shares			-		-	(8)	(28)	-	(36)
Proceeds from share issue			-		-	-	-	16,186	16,186
Share issue costs			-		-	-	-	(448)	(448)
Net cash (outflow)/inflow from  financing activities				(3,814)	(1,700)	(548)	(1,297)	15,738	8,379
(Decrease)/increase in cash			(2,971)		678	(15)	(2,003)	5,751	1,440
Cash and cash equivalents at start of year			2,995		667	392	2,967	-	7,021
Cash and cash equivalents at end of year			24		1,345	377	964	5,751	8,461
Cash and cash equivalents comprise
Cash at bank and in hand			24		1,345	377	964	5,751	8,641
Total cash and cash equivalents			24		1,345	377	964	5,751	8,461

NOTES TO THE ACCOUNTS
for the year ended 31 December 2017

1. General information
Downing 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, and its registered office is St. Magnus House, 3 Lower Thames Street, London EC3R 6HD.

2. Accounting policies
Basis of accounting
The Company has prepared its financial statements under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") issued November 2014 and updated January 2017 as well as the Companies Act 2006.

The financial statements are presented in Sterling (£) and rounded to thousands.

Presentation of Income Statement
In order to better reflect the activities of a venture capital trust and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The return on ordinary activities is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.

Investments
Venture capital investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") together with FRS 102 sections 11 and 12.

For unquoted investments, fair value is established using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:

- Price of recent investment;
- Multiples;
- Net assets;
- Discounted cash flows or earnings (of underlying business);
- Discounted cash flows (from the investment); and
- Industry valuation benchmarks.

The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.

Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment are expensed. Where an investee company has gone into receivership, liquidation or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.

It is not the Company's policy to exercise significant influence over investee companies. Therefore, the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with the SORP and FRS 102 sections 14 and 15 that does not require portfolio investments, where the interest held is greater than 20%, to be accounted for using the equity method of accounting.

Income
Dividend income from investments is recognised when the Shareholders' rights to receive payment has been established, normally the ex-dividend date.

Interest income is accrued on a time apportionment basis, by reference to the principal sum outstanding and at the effective rate applicable and only where there is reasonable certainty of collection in the foreseeable future.

Distributions from investments in limited liability partnerships ("LLPs") are recognised as they are paid to the Company. Where such items are considered capital in nature they are recognised as capital profits.

Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:

- Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
- Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. The Company has adopted the policy of allocating Investment Manager's fees 100% as revenue.
- Expenses and liabilities not specific to a share class are generally allocated pro rata to the net assets.
- Performance incentive fees arising from the disposal of investments are deducted as a capital item.

Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting year.

Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise.

Deferred taxation which is not discounted is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in years different from those in which they are included in the financial statements. Deferred taxation is not discounted.

Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.

Issue costs
Issue costs in relation to the shares issued for each share class have been deducted from the revenue reserve account for the relevant share class.

Significant estimates and judgements
Disclosure is required of judgements and estimates made by management in applying the accounting policies that have a significant effect on the financial statements. The area involving a higher degree of judgement and estimates is the valuation of unquoted investments as explained in the investment accounting policy above.

3. Basic and diluted return per share

	'D' Shares	'E' Shares	'F' Shares	'G' Shares	'K' Shares
Revenue return (£'000)	(2)	-	182	691	(253)
Net capital return for the year (£'000)	92	-	346	215	41
Total (loss)/return after taxation (£'000)	90	-	528	906	(212)
Weighted average number  of shares in issue	10,000,000	14,950,000	10,810,859	25,284,664	15,729,381

As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share for any of the share classes. The return per share disclosed therefore represents both the basic and diluted return per share for all share classes.

4. Basic and diluted net asset value per share             

			2017				2016
	Shares in issue		Net asset value				Net asset value
	31 Dec 2017	31 Dec 2016	per share			£'000	per share			£'000
'C' Shares	-	7,126,194		-		-		-		1
'A' Shares	-	10,724,029		-		-		-		-
'D' Shares	10,000,000	10,000,000		-		1		36.6p		3,647
'E' Shares	14,950,000	14,950,000		-		-		0.1p		15
'F' Shares	10,810,859	10,810,859		69.6p		7,526		69.7p		7,538
'G' Shares	25,328,571	25,352,571		82.1p		20,790		83.5p		21,170
'K' Shares	15,734,429	15,739,341		97.7p		15,368		99.0p		15,586
						43,685				47,957

The 'C' Share pool, 'D' Share pool, 'F' Share pool, 'G' Share pool and 'K' Share pool are treated as separate investment pools. Within the 'C' Share pool the Directors allocate the assets and liabilities of the Company between the 'C' Shares and 'A' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights. Within the 'D' Share pool the Directors allocate the assets and liabilities of the Company between the 'D' Shares and 'E' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights.

5. Principal risks
The Company's financial instruments comprise investments held at fair value through profit and loss, being equity and loan stock investments in unquoted companies, loans and receivables consisting of short term debtors, cash deposits and financial liabilities, being creditors arising from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short-term creditors and does not use any derivatives.

The fair value of investments is determined using the detailed accounting policy.

The fair value of cash deposits and short term debtors and creditors equates to their carrying value in the Balance Sheet.

Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.

The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:

- Market risks
- Credit risk
- Liquidity risk

The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.

The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below:

 

Market risks

As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information, and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.

The key investment risks to which the Company is exposed are:

* Investment price risk
* Interest rate risk

Investment price risk

Investment price risk arises from uncertainty about the valuation of financial instruments held in accordance with the Company's investment objectives in addition to the appropriateness of the valuation method used. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.

Interest rate risk

The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.

There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows:

- "Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments.
- "Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments.
- "No interest rate" assets do not attract interest and comprise equity investments and debtors.

The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors.

The Manager manages credit risk in respect of loan stock with a similar approach as described under "Market risks" above. In addition, the credit risk is mitigated for all investments in loan stocks by taking security, covering the full par value of the loan stock in the form of fixed and floating charges over the assets of the investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions. Consequently, the Directors consider that the credit risk associated with cash deposits is low.

There have been no changes in fair value during the year that are directly attributable to changes in credit risk.

Of the investments in loan stock above, as at 31 December 2017 £2,697,000 relates to the principal of loan notes where, although the principal remains within term, the investee company is not fully servicing the interest obligations under the loan note and is thus in arrears.

Liquidity risk

Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company has a relatively low level of creditors, (£457,000, 2016: £486,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.

The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.

ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 December 2017, but has been extracted from the statutory financial statements for the year ended 31 December 2017 which were approved by the Board of Directors on 4 April 2018 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

The statutory accounts for the period ended 31 December 2016 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

A copy of the full annual report and financial statements for the year ended 31 December 2017 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at St. Magnus House, London, EC3R 6HD and will be available for download from www.downing.co.uk.