Downing Structured Opportunities VCT 1 plc

Half-Yearly Report for the six months ended 30 September 2014

Performance summary

	30 Sept 2014		31 Mar 2014		30 Sept 2013
	pence		pence		pence
Ordinary Share pool
Net asset value per Ordinary Share	93.5		92.2		91.3
Net asset value per 'A' Share	0.1		0.1		0.1
Cumulative dividends per Ordinary Share	40.0		37.5		35.0
Total return per Ordinary Share and 'A' Share	133.6		129.8		126.4
'B' Share pool
Net asset value per 'B' Share	74.6		82.3		84.0
Net asset value per 'C' Share	0.1		0.1		0.1
Cumulative dividends per 'B' Share	30.0		20.0		17.5
Total return per 'B' Share and 'C' Share	104.7		102.4		101.6
'D' Share pool
Net asset value per 'D' Share	81.2		83.0		85.3
Cumulative dividends per 'D' Share	12.5		10.0		7.5
Total return per 'D' Share	93.7		93.0		92.8

CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Company's half-yearly report for the six months ended 30 September 2014. The Company continues to operate three share pools each at differing stages in their life. Generally the Board has remained satisfied with progress, particularly in the Ordinary Share pool, which is now in the exit phase.

Ordinary Share pool
At 30 September 2014, the combined net asset value ("NAV") of one Ordinary Share and one 'A' Share stood at 93.6p; an increase of 3.8p (4.1%) since 31 March 2014 (after the  dividend paid during the period of 2.5p per Ordinary Share). The NAV plus cumulative dividends paid to date for a combined holding of one Ordinary Share and one 'A' Share now totals 133.6p.  

Exit processes are already underway for many of the Ordinary Share pool's 18 investments. Realisations will be achieved by a variety of means including trade sales and refinancing. As a result, the exact timing of when disposal proceeds will be received is difficult to forecast precisely, however we anticipate that the Company will be in a position to declare a substantial dividend, which we expect to be in excess of 25p per Ordinary Share, early in the New Year. We believe that a further significant distribution may then be made in the second quarter of 2015, after which we are hopeful that the majority of the remaining value will have been returned.

Ordinary Shareholders should note that, assuming exits are achieved in a timely manner and at current book value, it is likely that the hurdles for the payment of dividends on the 'A' Shares will be met. It is estimated that the value of such dividends payable to the Management 'A' Shares will be equivalent to 7p per Ordinary Share i.e. Total Return to shareholders who subscribed for one Ordinary Share and one 'A' Share at the Company's outset would be 126.6p.

'B' Share pool
At 30 September 2014, the combined NAV of one 'B' Share and one 'C' Share stood at 74.7p; an increase of 2.3p per share (2.8%) since 31 March 2014 (after the 10.0p dividend paid during the period). The NAV plus cumulative dividends paid to date for a combined holding of one 'B' Share and one 'C' Share now totals 104.7p.

Plans are also progressing to exit from the 'B' Share pool investments. The Manager anticipates that the first of these will occur in the first quarter in 2015. 'B' Shareholders can expect their first return of capital distribution in the second quarter of 2015.

'D' Share pool
At 30 September 2014, the NAV per 'D' Share stood at 81.2p per share; an increase of 0.7p per share (0.8%) since 31 March 2014 (after the 2.5p dividend paid during the period). The NAV plus cumulative dividends paid to date for one 'D' Share now totals 93.7p.

The process of building the initial 'D' Share Venture Capital portfolio is now approaching completion. This allows some time for the investments to grow and develop ahead of the scheduled commencement of the exit process in 2017.
  
Dividends
In line with the Company's policies, interim dividends will be paid as follows:

'B' Shares               2.5p per share
'D' Shares              2.5p per share

Each of the dividends will be paid on 30 January 2015 to Shareholders on the register at 5 January 2015.

No interim dividend is being declared in respect of the Ordinary Shares at this time as the Board expects to make an announcement about a significant distribution returning funds to Ordinary Shareholders early in the New Year.

Share buybacks
As both the Ordinary Share pool and B Share pool are now in or approaching their exit phase, the Board does not intend to undertake any further share buybacks in respect of the Ordinary Shares, 'A' Shares, 'B' Shares and 'C' Shares. The Board intends to preserve cash so that it can be distributed to all relevant Shareholders in due course.

In respect of the 'D' Shares, The Company operates a share buyback policy whereby, subject to any liquidity and regulatory restrictions, it will buy in 'D' Shares that become available in the market for cancellation at a price equivalent to net asset value i.e. at nil discount.

Outlook
During the remainder of the financial year, the Board expects the Company to make a good start in returning funds to Ordinary Shareholders and for realisation plans for the 'B' Share pool to be significantly progressed.

The exit for the 'D' Share pool is not scheduled to commence until 2017.  As a result, the Manager's main focus over the remainder of the year will be on close monitoring of the investments and ensuring that they are well positioned to take advantage of the improving economic conditions.

The Board is continuing to explore the possibility of a merger with one or more other VCTs, which may provide some attractive benefits to Shareholders. Naturally the Board will be in communication as and when there is any news to report.

Lord Flight
Chairman

INVESTMENT MANAGER'S REPORT
ORDINARY SHARE POOL

The Ordinary Share pool holds a portfolio of 18 Venture Capital investments with a value of £8.5 million. The majority of the Ordinary Share pool's investments have continued to perform at least in line with expectations and plans for the realisations are progressing well.

Portfolio activity
Unquoted portfolio
The significant valuation movements in the period are summarised as follows:

Atlantic Dogstar Limited, East Dulwich Tavern Limited and Westow House Limited are three companies that have been valued on the basis of the sales proceeds expected to be generated from the pubs they operate, adjusted for an appropriate discount.

Westow House Limited owns the Westow House, a pub in Crystal Palace, South London. Atlantic Dogstar Limited owns two pubs in London: The Dogstar in Brixton and The Clapton Hart in Clapton. East Dulwich Tavern Limited owns a London pub of the same name. Based on estimated market value, an uplift of £225,000 for the three companies over the period has been recognised.

Structured product portfolio
The Ordinary Share pool no longer holds any structured products.

Net asset value
At 30 September 2014, the Ordinary Share NAV stood at 93.5p and the 'A' Share NAV at 0.1p, giving a combined NAV of 93.6p. Total return (NAV plus cumulative dividends to date) was 133.6p for a combined holding of one Ordinary and one 'A' Share. This represents a net increase of 3.8p over the period (after adjusting for dividends paid during the period of 2.5p per Ordinary Share), equivalent to an increase of 4.1%.

Results and dividend
The profit on ordinary activities after taxation for the period was £391,000, comprising a revenue profit of £188,000 and a capital profit of £203,000.

No interim dividend will be paid this year as any available cash will be added to the planned return of capital payment early in the New Year.

Outlook
Our focus with the Ordinary Share portfolio has now turned to exits and a significant number of realisations plans are being progressed. We are optimistic that investment exits can be achieved in a timely manner and at values equal to or in excess of current carrying value.

Current plans should result in a number of exits by the end of the year such that the Company will be in a position to pay a significant distribution early in 2015.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
ORDINARY SHARE POOL
as at 30 September 2014

	Cost		Valuation	Unrealised gain/(loss) in period	% of portfolio by value
	£'000		£'000	£'000
Qualifying investments
Atlantic Dogstar Limited	585		1,244	229	12.8%
Redmed Limited*	914		1,159	-	11.9%
Future Biogas (SF) Limited*	1,009		1,137	-	11.7%
Domestic Solar Limited	1,000		1,120	-	11.5%
Quadrate Spa Limited*	636		636	-	6.5%
Quadrate Catering Limited	577		629	-	6.5%
East Dulwich Tavern Limited	459		597	51	6.1%
Westow House Limited	405		581	(55)	6.0%
The 3D Pub Co Limited*	627		549	-	5.6%
Ecossol Limited	500		425	-	4.4%
Mosaic Spa and Health Clubs Limited*	250		211	-	2.2%
Slopingtactic Limited	102		117	15	1.2%
Camandale Limited*	269		24	-	0.2%
Chapel Street Food and Beverage Limited	75		19	-	0.2%
Chapel Street Services Limited	75		19	-	0.2%
	7,483		8,467	240	87.0%
Non-qualifying investments
Fenkle Street LLP	58		58	-	0.6%
Kilmarnock Monkey Bar Limited	22		22	-	0.2%
Chapel Street Hotel Limited	3		1	-	0.0%
	83		81	-	0.8%
Total	7,566		8,548	240	87.8%
Cash at bank and in hand			1,185		12.2%
Total investments			9,733		100.0%

*partially non-qualifying

There were no additions or disposals during the period.

INVESTMENT MANAGER'S REPORT
'B' SHARE POOL

The 'B' Share pool holds 21 venture capital investments and two Structured Product investments and is fully invested. Plans for exits from investments are developing well such that we are targeting a first significant return of capital to 'B' Shareholders in the second quarter of 2015.

Portfolio activity
Unquoted portfolio
The significant valuation movements in the period are summarised as follows:

Alpha Schools Holdings Limited, the independent primary school operator, has performed to plan and an increase of £71,000 has been made to the valuation.

The valuation of Slopingtactic Limited was increased by £43,000. The company is the owner and operator of the Lamb and Lion freehold public house in York.

Generally, the solar arrays owned by a number of investments within the portfolio are producing good yields.  Progressive Energies Limited, which owns a portfolio of PV panels on residential roofs, has supported an increase in valuation of £41,000.

Structured product portfolio
The Structured Product portfolio was valued at £2.4 million as at 30 September 2014. During the period, sales and redemptions realised £268,000.

Net asset value
At 30 September 2014, the NAV per 'B' Share stood at 74.6p and the NAV per 'C' Share stood at 0.1p, producing a combined total of 74.7p. This is an increase of 2.3p per share (2.8%) since 31 March 2014 (after taking into account the 10.0p dividend paid during the period). The NAV plus cumulative dividends paid to date for one 'B' Share and one 'C' Share amounts to 104.7p.

Results and dividend
The profit on ordinary activities after taxation for the period was £456,000, comprising a revenue profit of £311,000 and a capital profit of £145,000.

A 2.5p dividend per 'B' Share will be paid on 23 January 2015 to Shareholders on the register at 2 January 2015.

Outlook
We remain reasonably satisfied with the 'B' Share portfolio and believe that there are some prospects for further growth before we start to seek realisations commencing in 2015 in order to return funds to Shareholders. A number of investment exit plans are developing well and we are confident that the Company will be in a position to make the first capital distribution to 'B' Shareholders soon after the fifth anniversary of the close of the 'B' Share offer.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
'B' SHARE POOL
as at 30 September 2014

	Cost	Valuation	Unrealised gain/(loss) in period	% of portfolio by value
	£'000	£'000	£'000
Qualifying investments
Future Biogas (Reepham Road) Limited	1,662	1,662	-	11.1%
Quadrate Spa Limited*	954	985	31	6.5%
Quadrate Catering Limited	850	926	-	6.1%
Kidspace Adventures Holdings Limited	750	896	-	5.9%
Domestic Solar Limited	800	896	-	5.9%
Antelope Pub Limited	750	885	16	5.8%
Alpha Schools Holdings Limited	733	876	71	5.8%
Liverpool Nurseries (Holdings) Limited	870	772	-	5.1%
Green Electricity Generation Limited	500	605	-	4.0%
Westcountry Solar Solutions Limited	500	500	-	3.3%
West Tower Property Limited	500	500	-	3.3%
Mosaic Spa and Health Clubs Limited*	600	493	-	3.3%
Ecossol Limited	500	425	-	2.8%
Avon Solar Energy Limited	420	420	-	2.8%
Progressive Energies Limited	340	381	41	2.5%
Slopingtactic Limited	277	320	43	2.1%
Ridgeway Pub Company Limited	137	126	-	0.8%
Camandale Limited*	732	33	(32)	0.2%
	11,875	11,701	170	77.3%
Non-qualifying investments
Commercial Street Hotel Limited	185	185	-	1.2%
Fenkle Street LLP	154	154	-	1.0%
Kilmarnock Monkey Bar Limited	60	60	-	0.4%
	399	399	-	2.6%
Structured product investments
Barclays 5Y Synthetic Zero	1,003	1,382	17	9.1%
HSBC 5.67% Defensive Worst of Auto Call	953	978	16	6.5%
	1,956	2,360	33	15.6%
Total	14,230	14,460	203	95.5%
Cash at bank and in hand		674		4.5%
Total investments		15,134		100.0%

*              partially non-qualifying

SUMMARY OF INVESTMENT MOVEMENTS
'B' SHARE POOL
as at 30 September 2014

Disposals	Cost	Valuation at 31/03/2014	Disposal  proceeds	Total gain against cost	Realised gain in period
	£'000	£'000	£'000	£'000	£'000
Structured Product investments
UBS 7.3% Defensive Worst of Auto Call	251	265	268	17	3
Total	251	265	268	17	3

INVESTMENT MANAGER'S REPORT
'D' SHARE POOL

At 30 September 2014, the 'D' Share pool held 12 venture capital investments with a value of £3.8 million and five Structured Product investments with a value of £1.7 million.

Portfolio activity
Unquoted portfolio
During the period two new venture capital investments were made totalling £794,000.  There were no disposals.

£294,000 has been invested in Grasshopper 2007 Limited. The company owns and operates a pub in Kent which also operates as a restaurant and wedding venue.

In July 2014, £500,000 was invested in Lambridge Solar Limited. The company is building ground mounted solar panels in Lincolnshire. The systems will qualify for Renewable Obligations Certificates (ROCs).

Portfolio valuation
There were no changes to valuations of venture capital investments in the period.

Structured product portfolio
The Structured Product portfolio was valued at £1.7 million as at 30 September 2014. During the period sales and redemptions realised £699,000.

Net asset value
At 30 September 2014, the NAV per 'D' Share stood at 81.2p per share; an increase of 0.7p per share (0.8%) since 31 March 2014 (after taking into account the 2.5p dividend paid during the period). The NAV plus cumulative dividends paid to date for one 'D' Share now totals 93.7p.

Results and dividend
The profit on ordinary activities after taxation for the period was £53,000, comprising a revenue profit of £28,000 and a capital profit of £25,000.

A 2.5p dividend per 'D' Share will be paid on 23 January 2015 to Shareholders on the register at 2 January 2015.

Outlook
Over the remainder of the year, we expect to see further uninvested cash employed in Venture Capital investments and, if suitable opportunities arise, consideration will be also given to further Structured Product investments. In the medium term, the Structured Product portfolio will reduce in size as funds are switched to develop the venture capital portfolio in order that the pool is at least 70% invested in VCT qualifying investments and is well placed for its target exit date commencing in 2017.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
'D' SHARE POOL
as at 30 September 2014

	Cost	Valuation	Unrealised gain  in period	% of portfolio by value
	£'000	£'000	£'000
Qualifying investments
Tor Solar PV Limited	640	640	-	9.9%
Vulcan Renewables Limited	588	588	-	9.1%
Goonhilly Earth Station Limited	570	570	-	8.8%
Lambridge Solar Limited	500	500	-	7.8%
Fubar Stirling Limited	358	358	-	5.6%
Grasshopper 2007 Limited	294	294	-	4.6%
Pearce and Saunders Limited*	280	280	-	4.3%
City Falkirk Limited	562	275	-	4.3%
Fresh Green Power Limited	200	200	-	3.1%
Green Energy Production UK Limited	100	100	-	1.6%
Cheers Dumbarton Limited	64	22	-	0.3%
Lochrise Limited	17	-	-	-
	4,173	3,827	-	59.4%
Structured product investments
HSBC 5.4% Dual Index Synthetic Zero	501	537	12	8.3%
Goldman Sachs 8.5% Defensive Worst Of Auto Call	351	384	13	6.0%
Credit Suisse 7% Defensive Worst Of Auto Call	251	268	7	4.2%
HSBC 7.1% Defensive Worst Of Auto Call	251	262	3	4.1%
HSBC 5.67% Defensive Worst Of Auto Call	251	257	4	4.0%
	1,605	1,708	39	26.6%
Total	5,778	5,535	39	86.0%
Cash at bank and in hand		908		14.0%
Total investments		6,443		100.0%

*              partially non-qualifying      

SUMMARY OF INVESTMENT MOVEMENTS
'D' SHARE POOL
as at 30 September 2014

Additions

	£'000
Qualifying investments
Lambridge Solar Limited	500
Grasshopper 2007 Limited	294
	794

Disposals	Cost		Valuation at 31/03/2014	Disposal proceeds	Total gain against cost	Realised gain in period
	£'000		£'000	£'000	£'000	£'000
Structured products
UBS 7.3% Defensive Worst Of Auto Call	251		265	268	17	3
Barclays 7.75% Defensive Worst Of Auto Call		401	424	431	30	7
	652		689	699	47	10

UNAUDITED INCOME STATEMENT
for the six months ended 30 September 2014

	Six months ended 30 Sept 2014					Six months ended 30 Sept 2013			Year ended 31 Mar 2014
	Revenue		Capital	Total		Revenue	Capital	Total		Total
Company Total	£'000		£'000	£'000		£'000	£'000	£'000		£'000
Income	1,167		-	1,167		843	-	843		1,705
Gains on investments
- realised	-		13	13		-	69	69		65
- unrealised	-		482	482		-	128	128		318
	1,167		495	1,662		843	197	1,040		2,088
Investment management fees		(123)	(121)	(244)		(129)	(129)	(258)		(500)
Other expenses	(349)		(1)	(350)		(201)	-	(201)		(368)
Return on ordinary activities before taxation	695		373	1,068		513	68	581		1,220
Taxation	(168)		-	(168)		(101)	-	(101)		(223)
Return attributable to equity shareholders	527		373	900		412	68	480		997
Return per Ordinary Share	1.8p		2.0p	3.8p		2.0p	(0.5p)	1.5p		4.8p
Return per 'A' Share	-		-	-		-	-	-		-
Return per 'B' Share	1.6p		0.7p	2.3p		1.0p	0.6p	1.6p		2.4p
Return per 'C' Share	-		-	-		-	-	-		-
Return per 'D' Share	0.4p		0.3p	0.7p		0.0p	0.0p	0.0p		0.3p

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement as noted above.

	Six months ended 30 Sept 2014					Six months ended 30 Sept 2013			Year ended 31 Mar 2014
	Revenue		Capital	Total		Revenue	Capital	Total		Total
Ordinary Share pool	£'000		£'000	£'000		£'000	£'000	£'000		£'000
Income	389		-	389		365	-	365		644
Gains/(losses) on investments
- realised	-		-	-		-	9	9		42
- unrealised	-		240	240		-	(19)	(19)		183
	389		240	629		365	(10)	355		869
Investment management fees		(36)	(36)	(72)		(41)	(41)	(82)		(152)
Other expenses	(106)		(1)	(107)		(70)	-	(70)		(128)
Return on ordinary activities before taxation	247		203	450		254	(51)	203		589
Taxation	(59)		-	(59)		(49)	-	(49)		(90)
Return attributable to equity shareholders	188		203	391		205	(51)	154		499

	Six months ended 30 Sept 2014					Six months ended 30 Sept 2013			Year ended 31 Mar 2014
	Revenue		Capital	Total		Revenue	Capital	Total		Total
'B' Share pool	£'000		£'000	£'000		£'000	£'000	£'000		£'000
Income	640		-	640		412	-	412		904
Gains/(losses) on investments
- realised	-		3	3		-	45	45		(9)
- unrealised	-		203	203		-	137	137		126
	640		206	846		412	182	594		1,021
Investment management fees		(62)	(61)	(123)		(63)	(63)	(126)		(250)
Other expenses	(171)		-	(171)		(93)	-	(93)		(171)
Return on ordinary activities before taxation	407		145	552		256	119	375		600
Taxation	(96)		-	(96)		(52)	-	(52)		(128)
Return attributable to equity shareholders	311		145	456		204	119	323		472

	Six months ended 30 Sept 2014					Six months ended 30 Sept 2013			Year ended 31 Mar 2014
	Revenue		Capital	Total		Revenue	Capital	Total		Total
'D' Share pool	£'000		£'000	£'000		£'000	£'000	£'000		£'000
Income	138		-	138		66	-	66		157
Gains on investments
- realised	-		10	10		-	15	15		31
- unrealised	-		39	39		-	10	10		10
	138		49	187		66	25	91		198
Investment management fees		(25)	(24)	(49)		(25)	(25)	(50)		(98)
Other expenses	(72)		-	(72)		(38)	-	(38)		(69)
Return on ordinary activities before taxation	41		25	66		3	-	3		31
Taxation	(13)		-	(13)		-	-	-		(5)
Return attributable to equity shareholders	28		25	53		3	-	3		26

UNAUDITED SUMMARISED BALANCE SHEET
as at 30 September 2014

	30 Sept 2014					30 Sept 2013		31 Mar 2014
	Ordinary Share pool	'B' Share pool	'D' Share pool	Total		Total		Total
	£'000	£'000	£'000	£'000		£'000		£'000
Fixed assets
Investments	8,548	14,459	5,535	28,542		28,644		28,220
Current assets
Debtors	177	180	58	415		327		598
Cash at bank and in hand	1,185	674	908	2,767		4,472		4,220
	1,362	854	966	3,182		4,799		4,818
Creditors: amounts falling due within one year	(277)	(434)	(106)	(817)		(487)		(584)
Net current assets	1,085	420	860	2,365		4,312		4,234
Net assets	9,633	14,879	6,395	30,907		32,956		32,454
Capital and reserves
Called up share capital	26	50	8	84		83		84
Capital redemption reserve	5	-	-	5		5		5
Share premium	2,794	-	-	2,794		10,240		2,794
Special reserve	3,819	13,488	7,437	24,744		20,044		27,090
Revaluation reserve	983	230	(241)	972		718		543
Capital reserve - realised	1,149	561	(796)	914		1,232		851
Revenue reserve	857	550	(13)	1,394		634		1,087
Equity shareholders' funds	9,633	14,879	6,395	30,907		32,956		32,454
Net asset value per:
Ordinary Share	93.5p	-	-			91.3p		92.2p
'A' Share	0.1p	-	-			0.1p		0.1p
'B' Share	-	74.6p	-			84.0p		82.3p
'C' Share	-	0.1p	-			0.1p		0.1p
'D' Share	-	-	81.2p			85.3p		83.0p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 September 2014

	30 Sept 2014						30 Sept 2013		31 Mar 2014
	Ordinary Share pool		'B' Share pool	'D' Share pool	Total		Total		Total
	£'000		£'000	£'000	£'000		£'000		£'000
Opening Shareholders' funds	9,499		16,415	6,540	32,454		34,756		34,756
Purchase of own shares	-		-	-	-		(30)		(97)
Dividends	(257)		(1,992)	(198)	(2,447)		(2,250)		(3,202)
Total recognised gains for the period		391	456	53	900		480		997
Closing Shareholders' funds	9,633		14,879	6,395	30,907		32,956		32,454

UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 September 2014

		30 Sept 2014					30 Sept 2013		31 Mar 2014
	Ordinary Share pool		'B' Share pool	'D' Share pool	Total		Total		Total
		£'000	£'000	£'000	£'000		£'000		£'000
Cash inflow from operating activities and returns on investments	1	197	314	14	525		206		771
Taxation
Corporation tax paid		-	-	-	-		-		(112)
Capital expenditure
Purchase of investments		-	-	(794)	(794)		(2,722)		(4,624)
Sale of investments		-	268	699	967		4,296		6,807
Movements in deposit held for purchase of investments		-	-	294	294		-		(294)
Net cash inflow from capital expenditure		-	268	199	467		1,574		1,889
Equity dividends paid		(257)	(1,991)	(197)	(2,445)		(2,250)		(3,202)
Net cash (outflow) before financing		(60)	(1,409)	16	(1,453)		(470)		(654)
Financing
Purchase of own shares		-	-	-	-		(30)		(98)
Net cash (outflow)/inflow from financing		-	-	-	-		(30)		(98)
(Decrease)/increase in cash	2	(60)	(1,409)	16	(1,453)		(500)		(752)
Notes to the cash flow statement:
1 Cash inflow/(outflow) from operating activities and returns on investments
Return on ordinary activities before taxation		450	552	66	1,068		581		1,220
(Gains) on investments		(241)	(206)	(49)	(496)		(197)		(383)
(Increase) in other debtors		(41)	(57)	(14)	(112)		(91)		(69)
(Decrease)/increase in other creditors		29	25	11	65		(87)		3
Net cash inflow from operating activities		197	314	14	525		206		771
2 Analysis of net funds
Beginning of period		1,245	2,083	892	4,220		4,972		4,972
Net cash (outflow)/inflow		(60)	(1,409)	16	(1,453)		(500)		(752)
End of period		1,185	674	908	2,767		4,472		4,220

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

1. Basis of accounting
The unaudited half-yearly results cover the six months to 30 September 2014 and have been prepared in accordance with the accounting policies set out in the annual accounts for the year ended 31 March 2014 which were prepared under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised January 2009 ("SORP").

2. All revenue and capital items in the Income Statement derive from continuing operations.

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

4. Net asset value per share at the period end has been calculated on 10,288,157 Ordinary Shares, 15,506,488 'A' Shares, 19,911,070 'B' Shares, 29,926,070 'C' Shares, and 7,877,527 'D' Shares being the number of shares in issue at the period end.

5. Return per share for the period has been calculated on 10,288,157 Ordinary Shares, 15,506,488 'A' Shares, 19,911,070 'B' Shares, 29,926,070 'C' Shares, and 7,877,527 'D' Shares being the number of shares in issue at the period end.

6. Dividends

	Six months ended 30 September 2014
Ordinary Shares	Revenue		Capital		Total
	£'000		£'000		£'000
Paid in period
Interim	-		257		257

'B' Shares	Revenue		Capital		Total
	£'000		£'000		£'000
Paid in period
	199		1,793		1,992

'D' Shares	Revenue		Capital		Total
	£'000		£'000		£'000
Paid in period
	20		178		198

7. Reserves

Share premium account		Special reserve	Revaluation reserve	Capital reserve - realised	Revenue reserve	Capital redemption reserve
	£'000	£'000	£'000	£'000	£'000	£'000
As at 31 March 2014	2,794	27,090	543	851	1,087	5
Purchase of own shares	-	-	-	-	-	-
Gains on investments	-	-	482	13	-	-
Expenses capitalised	-	-	-	(123)	-	-
Dividends	-	-	-	(2,226)	(221)	-
Transfer between reserves	-	(2,346)	(53)	2,399	-	-
Retained revenue	-	-	-	-	528	-
At 30 September 2014	2,794	24,744	972	914	1,394	5

The Revenue reserve, Special reserve and Capital reserve - realised are distributable reserves and are reduced by revaluation losses of £1,854,000. Distributable reserves at 30 September 2014 were £25,198,000.

8. 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.

9. Risk and uncertainties
Under the Disclosure and Transparency Directive, the Board is required in the Company's half-year results to report on the principal risks and uncertainties facing the Company over the remainder of the financial year.

The Board has concluded that the key risks facing the Company over the remainder of the financial period are as follows:

- compliance risk of failure to maintain approval as a VCT;
 - market, liquidity and counterparty risk associated with structured products; and
 -investment risk associated with investing in small and immature businesses.

The Company's compliance with the VCT regulations is continually monitored by the Manager, who reports regularly to the Board on the current position. The Company also retains PricewaterhouseCoopers ("PwC") to provide regular reviews and advice in this area. PwC have confirmed that all relevant tests have been complied with for the period under review. The Board considers that this approach reduces the risk of a breach of the VCT regulations.

In investing in structured products, the Company is exposed to market risk, liquidity risk and counterparty risk. The Company manages these risks as follows:

- holding a portfolio of structured products;
- limiting exposure to any one counterparty; and
- monitoring credit ratings and other indicators relevant to counterparties.

With this approach, the Board believes that these risks are reduced.

In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. It also has a limited period in which it must invest the majority of its funds. The Manager 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 this approach reduces the investment risk described in (iii) above as far as is reasonably possible.

10. 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.

11. Copies of the Half-Yearly Report will be sent to Shareholders shortly. Further copies can be obtained from the Company's registered office or can be downloaded from www.downing.co.uk.