TIDMDP3F
Downing THREE VCT PLC
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2017
LEI: 2138008V2JDU2K6ZHF80
FINANCIAL HIGHLIGHTS
31 Dec 31 Dec
2017 2016
Pence Pence
'D' Share pool
Net asset value per 'D' Share - 36.4
Net asset value per 'E' Share - 0.1
Cumulative distributions per 'D' Share 103.79 66.5
Total return per 'D' Share and 'E' Share 103.79 103.0
'F' Share pool
Net asset value per 'F' Share 69.6 69.4
Cumulative distributions per 'F' Share 30.0 25.0
Total return per 'F' Share 99.6 94.4
'H' Share pool
Net asset value per 'H' Share 82.3 86.2
Cumulative distribution per 'H' Share 20.0 15.0
Total return per 'H' Share 102.3 101.2
'J' Share pool
Net asset value per 'J' Share 94.7 95.8
Cumulative distribution per 'J' Share - -
Total return per 'J' Share 94.7 95.8
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 two years' time and one where
the task of building the initial investment portfolio has recently been
completed. 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 103.79p 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 GBP5.4 million.
At 31 December 2017, the 'F' Share NAV stood at 69.6p, which represents
an increase of 7.5% 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.
H' Share pool
The 'H' Share pool was launched in 2014 and completed its initial
investment phase this year. At 31 December 2017, the pool held 14
investments with a total value of GBP10.9 million.
At 31 December 2017, the 'H' Share NAV stood at 82.3p, which represents
an increase over the year of 1.3% after adjusting for the dividends of
5.0p per share paid in the year. Total Return (NAV plus cumulative
dividends to date) is now 102.3p, compared to the initial NAV of 100.0p.
In line with the dividend policy, the Board is proposing to pay a final
dividend of 2.5p per 'H' Share on 15 June 2018 to Shareholders on the
register at the close of business on 11 May 2018.
'J' Share pool
The 'J' Share Pool was launched in December 2014 and is now fully
qualifying as at the year end. At 31 December 2017, the pool held 17 VCT
qualifying investments with a total value of GBP8.3 million.
At 31 December 2017, the 'J' Share NAV stood at 94.7p, compared to the
initial NAV of 100.0p.
Due to VCT regulations the 'J' Share pool is effectively prohibited from
paying dividends in its first three years and will commence returning
funds to shareholders in 2019.
Share buybacks
For share classes where all investors are still within the initial five
year period (currently the 'H' Share and 'J' 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.
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 tenth AGM will be held at St. Magnus House, 3 Lower Thames
Street, London, EC3R 6HD at 10.50 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.
In respect of the other share pools, the Manager's focus will be on
monitoring and support of the investee companies over the year in order
to ensure that they deliver their full potential before the planned exit
date arrives.
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.
Michael Robinson
Chairman
4 April 2018
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, paid its final dividends.
Realisations
During the year, total proceeds of GBP2.4 million were received for the
remaining eight investments within the 'D' Share portfolio, generating a
total gain over opening value of GBP59,000.
Net asset value and results
Over the life of their investment, investors in the 'D' Share pool
received total dividends of 103.69p per 'D' Share and 0.1p per 'E'
Shares, making a total return of 103.79p 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' Share pool had negligible value at the period end and, in line with
the Articles of the Company, the Company is taking steps to cancel the
share class.
Downing LLP
4 April 2018
REVIEW OF INVESTMENTS - 'D' SHARE POOL
Further details of the main investments:
Summary of investment movements
Disposals
Total gain/ Total
(loss) realised
MV at Disposal against gain during
Cost 01/01/17 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 122 269 287 165 18
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 2,381 2,440 (305) 59
* 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
5.2p per share over the year (after adjusting for dividends paid during
the year of 5.0p per Share), equivalent to an increase of 7.5%.
The return on ordinary activities for the 'F' Share pool for the year
was a gain of GBP561,000 (2016: GBP308,000) being a revenue gain of
GBP215,000 (2016: loss GBP107,000) and a capital gain of GBP346,000
(2016: GBP415,000).
'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 GBP194,000. This was part of a larger funding round
which included other Downing VCTs and totalled over GBP969,000. 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 GBP200,000 and GBP290,000
respectively during the year.
Vulcan Renewables Limited, the anaerobic digestion plant in Doncaster,
was sold during the summer and generated proceeds of GBP903,000 for the
Share pool. This represented an uplift over cost of GBP249,000.
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
GBP700,000 of funds invested were returned to the Share pool.
In addition to the above, proceeds of GBP435,000 were generated from the
sale of a group of licensed leisure companies, Cheers Dumbarton Limited,
City Falkirk Limited, Lochrise Limited and Fubar Stirling Limited
compared to a cost of GBP648,000. 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 GBP258,000.
'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 GBP132,000.
Merlin Renewables Limited, the anaerobic digestion plant in Norfolk
continues to perform well and the valuation was increased by GBP67,000.
An uplift of GBP39,000 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 GBP26,000 as it continues
to perform well.
Other smaller movements in the portfolio included an uplift on Atlantic
Dogstar Limited of GBP7,000 and a decrease on Fubar Stirling Limited of
GBP10,000.
Outlook
The focus now for the 'F' Share portfolio is on close monitoring and
support of the portfolio companies as the process for planning
investment realisations begins following the five year anniversary of
the close of the 'F' Share offer.
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:
Valuation
movement % of
'F' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'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 8.7%
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 3.2%
Green Energy Production UK
Limited 100 100 - 1.3%
Fubar Stirling Limited 101 8 (10) 0.1%
4,542 4,858 132 64.8%
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 72.7%
Cash at bank and in hand 2,042 27.3%
Total investments 7,493 100.0%
Summary of investment movements
Additions
Cost
GBP'000
VCT qualifying and partially qualifying investments
Downing Pub EIS One Limited 490
Goonhilly Earth Station Limited 194
Total 'F' Share pool 684
Disposals
Gain/ Total
(loss) realised
MV at Disposal against gain during
Cost 01/01/17 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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- 'H' SHARE POOL
The 'H' Share pool raised funds in 2014 and has made good progress in
building its VCT qualifying portfolio and is fully qualifying as at 31
December 2017.
Net asset value and results
At 31 December 2017, the net asset value per 'H' Share was 82.3p. Total
Return (NAV plus cumulative dividends to date) for Shareholders who
invested in the original share offer is now 102.3p. This represents a
net increase of 1.1p per share over the year (after adjusting for
dividends paid during the year of 5.0p per share), equivalent to an
increase of 1.3%.
The return on ordinary activities for the 'H' Share pool for the year
was a gain of GBP148,000 (2016: GBP97,000) being a revenue profit of
GBP58,000 (2016: GBP44,000) and a capital gain of GBP90,000 (2016:
GBP53,000).
Investment activity
The pool is fully qualifying and no new qualifying investments were made
in the period.
One full exit took place in the year, the repayment of a loan to Augusta
Pub Company Limited for GBP155,000.
'H' Share pool - portfolio valuation
The majority of investments remain valued at or above cost and there
were two valuation uplifts in the period totalling a gain of GBP90,000.
Atlantic Dogstar Limited continues to perform to plan and a valuation
uplift of GBP38,000 has been recognised in the period.
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 GBP52,000.
Outlook
The 'H' Share pool is now fully invested and our focus is now on close
monitoring and support of the portfolio companies in order to nurture
growth before the ultimate exit date.
Downing LLP
4 April 2018
REVIEW OF INVESTMENTS - 'H' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and
Wales, were held at 31 December 2017:
Valuation
movement % of
'H' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying investments and partially
qualifying investments
Hermes Wood Pellets Limited 1,500 1,500 - 13.6%
Apex Energy Limited 1,300 1,300 - 11.8%
Atlantic Dogstar Limited 1,000 1,176 38 10.7%
Zora Energy Renewables Limited 1,000 1,000 - 9.1%
Quadrate Catering Limited 850 850 - 7.7%
Ironhide Generation Limited 613 613 - 5.6%
Indigo Generation Limited 613 613 - 5.6%
Antelope Pub Limited 500 500 - 4.5%
Rockhopper Renewables Limited 492 492 - 4.5%
SF Renewables (Solar) Limited 281 281 - 2.5%
Oak Grove Renewables Limited 420 231 - 2.1%
8,569 8,556 38 77.7%
Non-qualifying investments
Hedderwick Limited 1,250 1,303 52 11.8%
Quadrate Spa Limited 850 850 - 7.7%
Pearce and Saunders Limited 193 193 - 1.7%
2,293 2,346 52 21.2%
10,862 10,902 90 98.9%
Cash at bank and in hand 128 1.1%
Total investments 11,030 100.0%
Summary of investment movements
Disposals
Total
Gain realised
MV at Disposal against gain during
Cost 01/01/17 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Non-qualifying
investments
Augusta Pub
Company
Limited 155 155 155 - -
155 155 155 - -
INVESTMENT MANAGER'S REPORT- 'J' SHARE POOL
Introduction
The fundraising for the 'J' Share pool was launched in December 2014 and
raised GBP11 million prior to closing in 2015. The majority of these
funds have now been invested as at the year end and the Share pool is
now fully qualifying.
Net asset value and results
At 31 December 2017, the net asset value and total return per 'J' Share
was 94.7p. This represents a net decrease of 1.1p per share over the
year, equivalent to a decrease of 1.1%.
The loss on ordinary activities for the 'J' Share, after taxation, for
the period was GBP119,000 (2016: loss GBP294,000), being a revenue loss
of GBP159,000 (2016: loss GBP210,000) and a capital gain of GBP40,000
(2016: loss GBP84,000).
Investment activity
During the period, five new qualifying investments were made totalling
GBP2.3 million and three non-qualifying investments were made totalling
GBP345,000.
The qualifying investments include a GBP1.0 million investment in
Ormsborough Limited. The company owns several pubs and restaurants
across Yorkshire and this investment supported their continued
expansion.
A GBP500,000 investment was made in Exclusive Events Venues Limited, in
order to acquire and develop a wedding venue site in Chester.
GBP400,000 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 GBP400,000 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.
A small qualifying investment of GBP27,000 was made in Mosaic Spa and
Health Clubs Limited, a provider of gym and spa management services.
In addition to the above, one further investment of GBP297,000 was made
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 five companies, Brownfields
Trading Limited, Cedarville 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 GBP4.9 million of funds invested were
returned to the Share pool in order to invest in 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 GBP46,000.
Outlook
The task of building the 'J' Share portfolio is complete. A number of
new businesses have been backed which we believe have good potential for
growth over the planned life of the share pool and focus has now shifted
to close monitoring and support of the portfolio companies in order to
nurture growth before the ultimate exit date.
Downing LLP
4 April 2018
REVIEW OF INVESTMENTS - 'J' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and
Wales, were held at 31 December 2017:
Valuation
movement % of
'J' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying investments and
partially qualifying investments
Pilgrim Trading Limited 1,297 1,297 - 12.9%
Ormsborough Limited 1,000 1,046 46 10.4%
Jito Trading Limited 1,000 1,000 - 9.9%
Yamuna Renewables Limited 800 800 - 7.9%
Indigo Generation Limited 613 613 - 6.1%
Ironhide Generation Limited 613 613 - 6.1%
Exclusive Events Venues Limited 500 500 - 5.0%
Rockhopper Renewables Limited 492 492 - 4.9%
Garthcliff Shipping Limited 400 400 - 4.0%
Managed Storage Services (1)
Limited 400 400 - 4.0%
Zora Energy Renewables Limited 300 300 - 3.0%
SF Renewables (Solar) Limited 281 281 - 2.8%
Oak Grove Renewables Limited 420 232 - 2.3%
Mosaic Spa and Healthclubs Limited 27 27 - 0.2%
8,143 8,001 46 79.5%
Non-qualifying investments
Fenkle Street LLP 287 287 - 2.8%
Snow Hill Developments LLP 43 43 - 0.4%
London City Shopping Centre
Limited 15 15 - 0.1%
345 345 - 3.3%
8,488 8,346 46 82.8%
Cash at bank and in hand 1,743 17.2%
Total investments 10,089 100.0%
Summary of investment movements
Additions
Cost
GBP'000
VCT qualifying investments
Ormsborough Limited 1,000
Exclusive Events Venues Limited 500
Garthcliff Shipping Limited 400
Managed Storage Services (1) Limited 400
Pilgrim Trading Limited 297
Mosaic Spa and Healthclubs Limited 27
Non-qualifying investments
Fenkle Street LLP 287
Snow Hill Developments LLP 43
London City Shopping Centre Limited 15
Total 'J' Share pool 2,969
Disposals
Gain/
(loss) Total realised
MV at Disposal against gain during
Cost 01/01/17 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments wound up without
commencing a trade
Brownfields Limited 900 900 901 1 1
Rhodes Solutions
Limited 1,000 1,000 1,000 - -
Vectis Alpha
Limited 900 900 900 - -
Morava Limited 1,150 1,150 1,148 (2) (2)
Cedarville Limited 1,000 1,000 995 (5) (5)
Total 'J' Share
pool 4,950 4,950 4,944 (6) (6)
Directors' responsibilities statement
The Directors are responsible for preparing the Strategic Report, The
Report of the Directors, the Directors' Remuneration 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 period.
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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 993 34 1,027 585 40 625
Gain/(loss) on investments - 535 535 - 580 580
993 569 1,562 585 620 1,205
Investment management fees (594) - (594) (643) - (643)
Other expenses (264) - (264) (296) - (296)
(Loss)/return on ordinary
activities before tax 135 569 704 (354) 620 266
Tax on total comprehensive
income and ordinary activities (27) - (27) 21 - 21
(Loss)/return for the year
attributable to equity shareholders 108 569 677 (333) 620 287
Basic and diluted return/
(loss) per:
'C' Share - - - (0.4p) - (0.4p)
'A' Share - - - - - -
'D' Share - 0.9p 0.9p (0.3p) 2.3p 2.0p
'E' Share - - - - - -
'F' Share 2.0p 3.2p 5.2p (1.0p) 3.8p 2.8p
'H' Share 0.4p 0.7p 1.1p 0.3p 0.4p 0.7p
'J' Share (1.5p) 0.4p (1.1p) (2.0p) (0.8p) (2.8p)
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 Year ended 31 December
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 12 34 46 83 40 123
Gain on investments - 59 59 - 196 196
12 93 105 83 236 319
Investment management fees (32) - (32) (52) - (52)
Other expenses (17) - (17) (31) - (31)
Return on ordinary activities
before tax (37) 93 56 - 236 236
Tax on total comprehensive
income and ordinary activities 31 - 31 (30) - (30)
(Loss)/return attributable
to equity shareholders (6) 93 87 (30) 236 206
'F' Share pool
Year ended 31 December Year ended 31 December
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 449 - 449 99 - 99
Gain on investments - 346 346 - 415 415
449 346 795 99 415 514
Investment management fees (136) - (136) (136) - (136)
Other expenses (91) - (91) (73) - (73)
(Loss)/return on ordinary
activities before tax 222 346 568 (110) 415 305
Tax on total comprehensive
income and ordinary activities (7) - (7) 3 - 3
(Loss)/return attributable to
equity shareholders 215 346 561 (107) 415 308
'H' Share pool
Year ended 31 December Year ended 31 December
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 364 - 364 355 - 355
Gain on investments - 90 90 - 53 53
364 90 454 355 53 408
Investment management fees (229) - (229) (239) - (239)
Other expenses (82) - (82) (61) - (61)
Return/(loss) on ordinary
activities before tax 53 90 143 55 53 108
Tax on total comprehensive
income and ordinary activities 5 - 5 (11) - (11)
Return/(loss) attributable
to equity shareholders 58 90 148 44 53 97
'J' Share pool
Year ended 31 December Year ended 31 December
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 168 - 168 42 - 42
Gain/(loss) on investments - 40 40 - (84) (84)
168 40 208 42 (84) (42)
Investment management fees (197) - (197) (208) - (208)
Other expenses (74) - (74) (96) - (96)
Loss on ordinary activities
before tax (103) 40 (63) (262) (84) (346)
Tax on total comprehensive
income and ordinary activities (56) - (56) 52 - 52
Loss attributable to
equity shareholders (159) 40 (119) (210) (84) (294)
BALANCE SHEET
as at 31 December 2017
2017 2016
GBP000 GBP000
Fixed assets
Investments 24,699 30,836
Current assets
Debtors 322 133
Cash at bank and in hand 3,933 2,337
4,255 2,470
Creditors: amounts falling due
within one year (262) (286)
Net current assets 3,993 2,184
Net assets 28,692 33,020
Capital and reserves
Called up share capital 60 78
Capital redemption reserve 124 106
Special reserve 5,146 9,888
Share premium reserve 24,639 24,639
Revaluation reserve 1 (790)
Capital reserve - realised (1,039) (1,033)
Revenue reserve (239) 132
Total equity shareholders' funds 28,692 33,020
Basic and diluted net asset value
per Share:
'D' Share - 36.4p
'E' Share - 0.1p
'F' Share 69.6p 69.4p
'H' Share 82.3p 86.2p
'J' Share 94.7p 95.8p
BALANCE SHEET (ANALYSED BY SHARE POOL)
as at 31 December 2017
'D' Shares
2017 2016
GBP000 GBP000
Fixed assets
Investments - 2,382
Current assets
Debtors 1 4
Cash at bank and in hand 20 1,313
21 1,317
Creditors: amounts falling due
within one year (21) (65)
Net current assets - 1,252
Net assets - 3,634
Capital and reserves
Called up share capital 25 25
Capital redemption reserve 124 -
Special reserve - 3,584
Share premium reserve - -
Revaluation reserve (249) (507)
Capital reserve - realised - -
Revenue reserve 100 532
Total equity shareholders' funds - 3,634
'F' Shares
2017 2016
GBP000 GBP000
Fixed assets
Investments 5,451 7,207
Current assets
Debtors 123 25
Cash at bank and in hand 2,042 357
2,165 382
Creditors: amounts falling due
within one year (88) (80)
Net current assets 2,077 302
Net assets 7,528 7,509
Capital and reserves
Called up share capital 11 11
Capital redemption reserve - -
Special reserve 7,835 8,321
Revaluation reserve 356 64
Capital reserve - realised (1,033) (1,033)
Revenue reserve 359 146
Total equity shareholders' funds 7,528 7,509
'H' Shares
2017 2016
GBP000 GBP000
Fixed assets
Investments 10,902 10,967
Current assets
Debtors 89 104
Cash at bank and in hand 128 609
217 713
Creditors: amounts falling due
within one year (82) (88)
Net current assets 135 625
Net assets 11,037 11,592
Capital and reserves
Called up share capital 13 13
Capital redemption reserve - -
Special reserve (2,689) (2,017)
Share premium reserve 13,608 13,608
Revaluation reserve 38 (52)
Capital reserve - realised - -
Revenue reserve 67 40
Total equity shareholders' funds 11,037 11,592
'J' Shares
2017 2016
GBP000 GBP000
Fixed assets
Investments 8,346 10,280
Current assets
Debtors 109 -
Cash at bank and in hand 1,743 32
1,852 32
Creditors: amounts falling due
within one year (71) (30)
Net current assets 1,781 2
Net assets 10,127 10,282
Capital and reserves
Called up share capital 11 11
Capital redemption reserve - -
Special reserve - -
Share premium reserve 11,031 11,031
Revaluation reserve (144) (189)
Capital reserve - realised (6) -
Revenue reserve (765) (571)
Total equity shareholders' funds 10,127 10,282
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2017
Capital
Called up Capital Share reserve
share redemption Special premium Revaluation - Revenue
capital reserve reserve reserve reserve realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2016 78 106 15,749 24,639 (1,466) (1,033) 1,350 39,423
Total comprehensive
income - - - - 406 214 (333) 287
Transactions with
owners
Issue of new shares - - - - - - - -
Share issue costs - - - - - - - -
Transfer between
Reserves* - - (5,861) - 270 6,476 (885) -
Dividend paid - - - - - (6,690) - (6,690)
At 31 December 2016 78 106 9,888 24,639 (790) (1,033) 132 33,020
Total comprehensive
income - - - - 268 301 108 677
Transactions with
owners
Purchase of
own shares - - - - - - (66) (66)
Transfer between
Reserves* - - (4,742) - 523 4,632 (413) -
Cancellation of
shares (18) 18 - - - - - -
Dividend paid - - - - - (4,939) - (4,939)
At 31 December 2017 60 124 5,146 24,639 1 (1,039) (239) 28,692
CASH FLOW STATEMENT
for the year ended 31 December 2017
Year ended 31 December 2017
'D' 'F'
Share Share 'H' 'J'
pool pool Share pool Share pool Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash inflow/(outflow) from
operating activities (33) 124 66 (228) (71)
Cash flow from investing
activities
Purchase of investments - (684) - (2,969) (3,653)
Sale of investments 2,440 2,786 155 4,944 10,325
Net cash inflow/(outflow)
from investing activities 2,440 2,102 155 1,975 6,672
Net cash inflow/(outflow) before
financing activities 2,407 2,226 221 1,747 6,601
Cash flows from financing
activities
Equity dividends paid 8(3,726) (541) (672) - (4,939)
Purchase of own shares - - (30) (36) (66)
Net cash outflow from
financing activities (3,726) (541) (702) (36) (5,005)
(Decrease)/increase in cash (1,319) 1,685 (481) 1,711 1,596
Cash and cash equivalents at
start of year 1,339 357 609 32 2,337
Cash and cash equivalents at
end of year 20 2,042 128 1,743 3,933
Cash and cash equivalents
comprise
Cash at bank and in hand 20 2,042 128 1,743 3,933
Total cash and cash
equivalents 20 2,042 128 1,743 3,933
Year ended 31 December 2016
'C' 'D' 'F' 'H' 'J'
Share Share Share Share Share
pool pool pool pool pool Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash inflow/(outflow)
from operating activities 95 199 (38) (62) (197) (3)
Cash flow from investing
activities
Purchase of investments - - (700) (6,200) (8,050) (14,950)
Sale of investments 749 2,182 1,287 3,183 - 7,401
Net cash inflow/(outflow)
from investing activities 749 2,182 587 (3,017) (8,050) (7,549)
Net cash inflow/(outflow) before
financing activities 844 2,381 549 (3,079) (8,247) (7,552)
Cash flows from financing
activities
Equity dividends paid (3,780) (1,697) (541) (672) - (6,690)
Net cash outflow from financing
activities (3,780) (1,697) (541) (672) - (6,690)
(Decrease)/increase in cash (2,936) 684 8 (3,751) (8,247) (14,242)
Cash and cash equivalents at
start of year 2,962 629 349 4,360 8,279 16,579
Cash and cash equivalents at
end of year 26 1,313 357 609 32 2,337
Cash and cash equivalents
comprise
Cash at bank and in hand 26 1,313 357 609 32 2,337
Total cash and cash
equivalents 26 1,313 357 609 32 2,337
NOTES TO THE ACCOUNTS
for the year ended 31 December 2017
1. General information
Downing THREE 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") revised
November 2014 and updated January 2017 as well as the Companies Act
2006.
The financial statements are presented in Sterling (GBP) 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 periods 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 'H' Shares 'J' Shares
Revenue return/ (loss)
(GBP'000) (6) - 215 58 (159)
Net capital (loss)/gain
for the year (GBP'000) 93 - 346 90 40
Total return/ (loss)
after taxation (GBP'000) 87 - 561 148 (119)
Weighted average
number of shares in issue 9,979,109 14,994,862 10,821,660 13,405,535 10,624,578
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 31 Dec per
2017 2016 per share GBP'000 share GBP'000
'C'
Shares - 7,158,326 - - - 3
'A'
Shares - 10,750,064 - - - -
'D'
Shares 9,979,109 9,979,109 - - 36.4p 3,619
'E'
Shares 14,994,862 14,994,862 - - 0.1p 15
'F'
Shares 10,821,660 10,821,660 69.6p 7,528 69.4p 7,509
'H'
shares 13,409,158 13,446,972 82.3p 11,037 86.2p 11,592
'J'
Shares 10,695,258 10,733,377 94.7p 10,127 95.8p 10,282
28,692 33,020
The 'D' Share pool, 'F' Share pool, 'H' Share pool and 'J' Share pool
are treated as separate investment pools. 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 risk
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
GBP960,000 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, (GBP322,000, 2016: GBP286,000) 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.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Downing THREE VCT plc via Globenewswire
(END) Dow Jones Newswires
April 04, 2018 12:27 ET (16:27 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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