TIDMDP3F
Downing THREE VCT PLC
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2018
LEI: 2138008V2JDU2K6ZHF80
FINANCIAL HIGHLIGHTS
31 Dec 31 Dec
2018 2017
Pence Pence
'F' Share pool
Net asset value per 'F' Share 28.4 69.6
Cumulative distributions per 'F' Share 67.0 30.0
------- -------
Total return per 'F' Share 95.4 99.6
======= =======
'H' Share pool
Net asset value per 'H' Share 51.3 82.3
Cumulative distribution per 'H' Share 25.0 20.0
------- -------
Total return per 'H' Share 76.3 102.3
======= =======
'J' Share pool
Net asset value per 'J' Share 88.9 94.7
Cumulative distribution per 'J' Share - -
Total return per 'J' Share 88.9 94.7
======= =======
CHAIRMAN'S STATEMENT
Introduction
It is disappointing to have to report that there have been negative
developments in a number of investee companies in the later part of the
year ended 31 December 2018. This has resulted in falls in total return
of each of the Company's share pools across the year.
Three energy related investments in particular have suffered heavily,
requiring substantial provisions. 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.
'F' Share pool
The 'F' Share pool was launched in 2012 and now holds a portfolio of 10
investments with a total value of GBP3.1 million.
At 31 December 2018, the 'F' Share NAV stood at 28.4p, which represents
a decrease of 6.0% over the year after adjusting for the dividends of
37.0p per share paid in the year. Dividends paid to date total 67.0p per
share such that Total Return (NAV plus cumulative dividends to date) is
now 95.4p, compared to the initial cost to original subscribers net of
income tax relief of 70.0p.
The F Share pool is in the process of realising its investments and
returning funds to investors. The Investment Manager is optimistic that
this process will complete before the end of the year.
'H' Share pool
The 'H' Share pool was launched in 2014 and completed its initial
investment phase this year. At 31 December 2018, the pool held 13
investments with a total value of GBP6.6 million.
At 31 December 2018, the 'H' Share NAV stood at 51.3p, which represents
a decrease over the year of 31.6% after adjusting for the dividends of
5.0p per share paid in the year. Total Return (NAV plus cumulative
dividends to date) is now 76.3p, compared to the initial NAV of 100.0p.
Major provisions have been required against the share pool's investments
in Hermes Wood Pellets Limited, Apex Energy Limited, Zora Energy
Renewables Limited and Quadrate Spa Limited, accounting for most of the
fall in value.
In line with the dividend policy, the Board is proposing to pay a final
dividend of 5.0p per 'H' Share on 14 June 2019 to Shareholders on the
register at the close of business on 17 May 2019.
'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 2018, the pool held 16
investments with a total value of GBP7.5 million.
At 31 December 2018, the 'J' Share NAV and Total Return stood at 88.9p,
which represents a decrease over the year of 6.1%.
In line with VCT regulations the 'J' Share pool is able to pay dividends
following its first three years. In line with the dividend policy, the
Board is proposing to pay a final dividend of 2.5p per 'J' Share on 14
June 2019 to Shareholders on the register at the close of business on 17
May 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.
During the year to 31 December 2018, the Company repurchased and
subsequently cancelled 19,400 'H' Shares and 19,725 'J' Shares for an
aggregate consideration of GBP15,940 and GBP18,677 respectively, being
an average price of 82.0p per 'H' Share and 94.5p per 'J' 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.
Share premium
In August 2018, the 'H' and 'J' Share premium reserve was cancelled and
transferred to the special reserve, contributing an additional GBP24.6
million to distributable reserves.
Annual General Meeting ("AGM")
The Company's twelfth AGM will be held at St. Magnus House, 3 Lower
Thames Street, London, EC3R 6HD at 11.05 a.m. on 5 June 2019.
One item 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.
Outlook
Despite the fact that many of the businesses in which the Company has
invested own substantial assets, the fact that the businesses are young
(in line with the VCT regulations) and thus immature means there are
still significant risks associated with them. This has been highlighted
by the setbacks seen in several of the investee companies during the
year. Close monitoring of the investee companies has always been a key
part of the Investment Manager's role and will continue to remain so.
The Board is ensuring that the Manager takes all reasonable steps that
it can to seek to recover as much value as possible from the investments
that have faced difficulties.
With the backdrop of Brexit, the economic and political environment in
the UK has remained uncertain over the past year and little clarity has
been obtained as to the likely outcome of the ongoing negotiations
between the UK and the EU. Although this could potentially have some
impact on the process of disposing of investments, the Board feels that
any impact will be relatively limited.
In the coming year, we expect to see the remaining 'F' Share portfolio
realised in order to distribute the final funds to invesetors. The 'H'
Share pool passes its five year anniversary at the end of 2019 and will
then seek to start the return of capital process.
I will update Shareholders on progress in my statement with the Half
Yearly Report to 30 June 2019. I will also communicate with 'F'
Shareholders as and when there is news about further dividends.
Michael Robinson
Chairman
25 April 2019
INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL
Introduction
The 'F' Share pool holds 10 investments and is fully invested in a
portfolio focussed on asset backed businesses and those with predictable
revenue streams. The focus for this year has been on realisations with
the 'F' Share pool making two significant distributions during the
period.
Net asset value and results
At 31 December 2018, the 'F' Share NAV stood at 28.4p. This represents a
net decrease of 4.2p per share over the year (after adjusting for
dividends paid during the year of 37.0p per Share), equivalent to a
decrease of 6.0%. Total Return (NAV plus cumulative dividends to date)
for Shareholders who invested in the original share offer is now 95.4p.
The return on ordinary activities for the 'F' Share pool for the year
was a loss of GBP451,000 (2017: GBP561,000) being a revenue loss of
GBP21,000 (2017: GBP215,000) and a capital loss of GBP430,000 (2017:
GBP346,000).
'F' Share pool - investment activity
During the year, total proceeds of GBP2.0 million were received from
three full exits and one partial exit, generating a total gain over
opening value of GBP350,000.
Goonhilly Earth Station Limited, the operator of a satellite earth
station in Cornwall, was sold during the summer and generated proceeds
of GBP1.2 million for the Share pool. This represented an uplift over
cost of GBP217,000.
Proceeds of GBP770,000 were received from the sale of Merlin Renewables
Limited, the anaerobic digestion plant in Norfolk compared to a cost of
GBP500,000.
In addition to the above, there was also a full exit of the Scottish
licensed leisure company, Fubar Stirling Limited, which generated
proceeds of GBP12,000 and a total gain over carrying value of GBP5,000.
There was also a partial loan note redemption in Fresh Green Power
Limited, the domestic rooftop solar company, which was redeemed at par.
With the pool in the process of realising its investments following the
passing of the five year anniversary of the close of the 'F' Share offer,
no new investments were made in the period.
Plans are in place for the exit of the remaining portfolio companies and
we anticipate this exercise will complete in full by the third quarter
of 2019.
'F' Share pool -- portfolio valuation
The majority of investments remain valued at or above cost, however
there were a small number of substantial decreases in value in the
portfolio that resulted in an unrealised loss over opening value of
GBP780,000.
Pearce and Saunders Limited, the owner of three freehold pubs in south
east London, has increased in value by GBP174,000 in line with expected
exit proceeds.
Portfolio company, Atlantic Dogstar Limited was uplifted by GBP35,000,
based on the minimum expected returns.
The most notable write down in the period related to Apex Energy Limited,
who are the developer of a standby electricity generation plant in the
East Midlands. The investment was reduced in value by GBP900,000
following several material shortcomings in the plant and equipment
supplied that have severely impacted operations. Work is ongoing to
establish what steps could result in some recovery of value, including
legal action against the third party operator.
London City Shopping Centre Limited, which was seeking to develop a site
near the Barbican, London, was unable to find a buyer for the site or
secure additional funding to progress with the development. As a result,
the business has entered administration and has now been fully provided
against. This resulted in a valuation decrease of GBP66,000.
Outlook
Focus for the 'F' Share pool remains on the realisation of its
investments. Realisation plans are in place for the remaining
investments in the portfolio with some expected to complete in the next
few months in order to distribute the final funds to investors.
Downing LLP
25 April 2019
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 2018:
Valuation
movement % of
'F' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying and partially
qualifying investments
Pearce and Saunders Limited 497 671 174 21.7%
Downing Pub EIS One Limited 490 620 32 20.1%
Lambridge Solar Limited 500 605 10 19.6%
Atlantic Dogstar Limited 200 270 35 8.8%
Fresh Green Power Limited 189 210 (19) 6.8%
Apex Energy Limited 1,000 100 (900) 3.2%
Green Energy Production UK
Limited 100 54 (46) 1.7%
2,976 2,530 (714) 81.9%
Non-qualifying investments
Baron House Developments LLP 481 481 - 15.6%
Pearce and Saunders DevCo
Limited 46 46 - 1.5%
London City Shopping Centre
Limited 66 - (66) 0.0%
593 527 (66) 17.1%
3,569 3,057 (780) 99.0%
======== =========
Cash at bank and in hand 31 1.0%
----------- ----------
Total investments 3,088 100.0%
=========== ==========
Summary of investment movements
Disposals
Gain/
(loss) Total realised
Disposal against gain during
Cost MV at 01/01/18 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying and partially qualifying
investments
Goonhilly Earth Station Limited 954 954 1,171 217 217
Merlin Renewables Limited 500 642 770 270 128
Fubar Stirling Limited 101 7 12 (89) 5
Fresh Green Power Limited 11 11 11 - -
Total 'F' Share pool 1,566 1,614 1,964 398 350
======= ================ ========== ======== ==============
INVESTMENT MANAGER'S REPORT- 'H' SHARE POOL
The 'H' Share pool raised funds in 2014 and the task of building the
initial VCT qualifying portfolio is now complete. It is disappointing to
report that the 'H' Share pool has suffered heavily from difficulties in
a several of its investments. The required write downs have had a
significant negative impact on Total Return over the year.
Net asset value and results
At 31 December 2018, the net asset value per 'H' Share was 51.3p. This
represents a net decrease of 26.0p per share over the year (after
adjusting for dividends paid during the year of 5.0p per share),
equivalent to a decrease of 31.6%. Total Return (NAV plus cumulative
dividends to date) for Shareholders who invested in the original share
offer is now 76.3p.
The return on ordinary activities for the 'H' Share pool for the year
was a loss of GBP3.5 million (2017: GBP148,000) being a revenue profit
of GBP194,000 (2017: GBP58,000) and a capital loss of GBP3.7 million
(2017: GBP90,000).
Investment activity
With the pool being fully qualifying, no new investments were made in
the period. One full and one partial exit completed generating proceeds
of GBP632,000.
Proceeds of GBP257,000 were generated from the sale of Oak Grove
Renewables Limited, the operator of an anaerobic digestion plant in
Norfolk. This represented a loss over cost of GBP163,000.
In December 2018, the GBP375,000 non-qualifying loan in Hedderwick
Limited was transferred to the Downing Three VCT plc 'J' Share.
'H' Share pool -- portfolio valuation
The period to 31 December 2018 has seen a number of disappointing
developments, resulting in an unrealised loss of GBP3.7 million.
The most notable write down in the period related to Hermes Wood Pellets
Limited. The company was planning to build, commission and operate a
wood pelleting plant in Goole, Yorkshire. However, due to significant
delays and cost overruns the contractor was unable to procure a
construction contractor which would deliver the project within budget.
As a result, a significant shortfall has been created resulting in a
valuation write down of GBP1.3 million. Management is working to find a
solution which can recover some equity value to Shareholders.
Apex Energy Limited is the developer of a standby electricity generation
plant in the East Midlands. The investment was reduced in value by
GBP1.2 million following several material shortcomings in the plant and
equipment supplied that have severely impacted operations. Work is
ongoing to establish what steps could result in some recovery of value,
including legal action against the third party operator.
The investments in Quadrate Spa Limited and Quadrate Catering Limited,
which own and operate a health club business and a top floor restaurant
in The Cube complex in Birmingham were reduced in value by GBP458,000
and GBP149,000 respectively as a result of continued performances
issues.
Zora Energy Renewables Limited is a wood pellet sales and distribution
business. To date the business has been unable to develop at the rate
originally planned and a provision of GBP896,000 has been required.
The unrealised losses were partially offset by gains in the period
totalling GBP235,000.
The most significant gain related to Atlantic Dogstar Limited, which
owns a group of London pubs. The investment was uplifted by GBP176,000
based on the minimum expected returns.
Outlook
The falls in value experienced by the 'H' Share pool are extremely
disappointing. We have dedicated substantial resources to the portfolio
companies in question in seeking to address the issues and are
developing plans to recover as much value as possible for investors.
The process of realising all of the investments to return funds to
investors is scheduled to commence in 2020. We believe there are
opportunities to achieve some growth from the current portfolio
valuation before the exit date.
Downing LLP
25 April 2019
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 2018:
Valuation
movement % of
'H' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying investments and partially qualifying
investments
Atlantic Dogstar Limited 1,000 1,350 176 20.2%
Quadrate Catering Limited 851 702 (149) 10.5%
Ironhide Generation Limited 613 613 - 9.2%
Indigo Generation Limited 613 613 - 9.2%
Antelope Pub Limited 500 500 - 7.5%
Rockhopper Renewables Limited 492 492 - 7.4%
SF Renewables (Solar) Limited 282 324 42 4.8%
Hermes Wood Pellets Limited 1,500 228 (1,272) 3.4%
Pearce and Saunders Limited 193 193 - 2.9%
Apex Energy Limited 1,300 130 (1,170) 1.9%
Zora Energy Renewables Limited 1,000 104 (896) 1.5%
-------- ----------- --------- -----------
8,344 5,249 (3,269) 78.5%
Non-qualifying investments
Hedderwick Limited 875 945 17 14.1%
Quadrate Spa Limited 850 392 (458) 5.9%
1,725 1,337 (441) 20.0%
10,069 6,586 (3,710) 98.5%
======== =========
Cash at bank and in hand 103 1.5%
----------- -----------
Total investments 6,689 100.0%
=========== ===========
Summary of investment movements
Disposals
Gain Total realised
Disposal against gain during
Cost MV at 01/01/18 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying and partially qualifying
investments
Oak Grove Renewables Limited 420 231 257 (163) 26
Non-qualifying investments
Hedderwick Limited 375 375 375 - -
795 606 632 (163) 26
======= =============== ========= ======== ==============
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 2018:
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 - 14.2%
Jito Trading Limited 1,000 1,000 - 11.0%
Yamuna Renewables Limited 800 800 - 8.8%
Ormsborough Limited 1,000 689 (358) 7.5%
Indigo Generation Limited 613 613 - 6.7%
Ironhide Generation Limited 613 613 - 6.7%
Exclusive Events Venues Limited 500 500 - 5.5%
Rockhopper Renewables Limited 492 492 - 5.4%
Garthcliff Shipping Limited 400 400 - 4.4%
SF Renewables (Solar) Limited 281 323 42 3.5%
Zora Energy Renewables Limited 300 31 (269) 0.3%
Mosaic Spa and Healthclubs Limited 24 26 2 0.3%
7,320 6,784 (583) 74.3%
Non-qualifying investments
Hedderwick Limited 375 375 - 4.1%
Fenkle Street LLP 287 295 8 3.2%
Snow Hill Developments LLP 43 43 - 0.5%
London City Shopping Centre Limited 15 - (15) 0.0%
720 713 (7) 7.8%
8,040 7,497 (590) 82.1%
======== =========
Cash at bank and in hand 1,628 17.9%
----------- -----------
Total investments 9,125 100.0%
=========== ===========
Summary of investment movements
Additions
Cost
GBP'000
Non-qualifying investments
Hedderwick Limited 375
Total 'J' Share pool 375
=======
Gain/
(loss) Total realised
Disposal against gain during
Cost MV at 01/01/18 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying and
partially qualifying
investments
Oak Grove
Renewables
Limited 420 231 257 (163) 26
Mosaic Spa
and
Healthclubs
Limited 3 3 4 1 1
Managed
Storage
Services
(1)
Limited 400 400 400 - -
Total 'J'
Share pool 823 634 661 (162) 27
======= ================ ========== ======== ==============
Directors' responsibilities statement
The Director's 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 2018
Year ended 31 December 2018 Year ended 31 December 2017*
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 885 32 917 993 34 1,027
(Loss)/return on investments - (4,677) (4,677) - 535 535
--------- --------- ------- --------- --------- -------
885 (4,645) (3,760) 993 569 1,562
Investment management fees (430) - (430) (594) - (594)
Other expenses (256) - (256) (264) - (264)
--------- --------- ------- --------- --------- -------
(Loss)/return on ordinary activities before tax 199 (4,645) (4,446) 135 569 704
Tax on total comprehensive income and
ordinary activities (112) - (112) (27) - (27)
--------- --------- ------- --------- --------- -------
(Loss)/return for the year attributable to equity
shareholders 87 (4,645) (4,558) 108 569 677
========= ========= ======= ========= ========= =======
Basic and diluted (loss)/return per:
'D' Share - - - - 0.9p 0.9p
'F' Share (0.2p) (4.0p) (4.2p) 2.0p 3.2p 5.2p
'H' Share 1.5p (27.6p) (26.1p) 0.4p 0.7p 1.1p
'J' Share (0.8p) (5.0p) (5.8p) (1.5p) 0.4p (1.1p)
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 2017 includes the
'D' Share pool which has subsequently been cancelled.
INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 December 2018
'D' Share pool
Year ended 31 December 2018 Year ended 31 December 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income - - - 12 34 46
Gain on
investments - - - - 59 59
- - - 12 93 105
Investment
management
fees - - - (32) - (32)
Other expenses - - - (17) - (17)
------- -------- -------- -------- -------- --------
(Loss)/return
on ordinary
activities
before tax - - - (37) 93 56
Tax on total
comprehensive
income and
ordinary
activities - - - 31 - 31
------- -------- -------- -------- -------- --------
(Loss)/return
attributable
to equity
shareholders - - - (6) 93 87
======= ======== ======== ======== ======== ========
'F' Share pool
Year ended 31 December 2018 Year ended 31 December 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 172 - 172 449 - 449
(Loss)/gain on
investments - (430) (430) - 346 346
172 (430) (258) 449 346 795
Investment
management
fees (98) - (98) (136) - (136)
Other expenses (68) - (68) (91) - (91)
------- -------- -------- -------- -------- --------
(Loss)/return
on ordinary
activities
before tax 6 (430) (424) 222 346 568
Tax on total
comprehensive
income and
ordinary
activities (27) - (27) (7) - (7)
------- -------- -------- -------- -------- --------
(Loss)/return
attributable
to equity
shareholders (21) (430) (451) 215 346 561
======= ======== ======== ======== ======== ========
'H' Share pool
Year ended 31 December 2018 Year ended 31 December 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 515 - 515 364 - 364
(Loss)/gain on
investments - (3,684) (3,684) - 90 90
515 (3,684) (3,169) 364 90 454
Investment
management
fees (169) - (169) (229) - (229)
Other expenses (105) - (105) (82) - (82)
------- -------- -------- -------- -------- --------
Return on
ordinary
activities
before tax 241 (3,684) (3,443) 53 90 143
Tax on total
comprehensive
income and
ordinary
activities (47) - (47) 5 - 5
------- -------- -------- -------- -------- --------
Return
attributable
to equity
shareholders 194 (3,684) (3,490) 58 90 148
======= ======== ======== ======== ======== ========
'J' Share pool
Year ended 31 December 2018 Year ended 31 December 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 198 32 230 168 - 168
(Loss)/gain on
investments - (563) (563) - 40 40
198 (531) (333) 168 40 208
Investment
management
fees (163) - (163) (197) - (197)
Other expenses (83) - (83) (74) - (74)
------- -------- -------- -------- -------- --------
(Loss)/return
on ordinary
activities
before tax (48) (531) (579) (103) 40 (63)
Tax on total
comprehensive
income and
ordinary
activities (38) - (38) (56) - (56)
------- -------- -------- -------- -------- --------
(Loss)/return
attributable
to equity
shareholders (86) (531) (617) (159) 40 (119)
======= ======== ======== ======== ======== ========
BALANCE SHEET
as at 31 December 2018
2018 2017
GBP000 GBP000
Fixed assets
Investments 17,140 24,699
Current assets
Debtors 779 322
Cash at bank and in hand 1,762 3,933
------- -------
2,541 4,255
Creditors: amounts falling due within one year (255) (262)
------- -------
Net current assets 2,286 3,993
Net assets 19,426 28,692
======= =======
Capital and reserves
Called up share capital 35 60
Capital redemption reserve 149 124
Special reserve 25,206 5,146
Share premium reserve - 24,639
Revaluation reserve (4,748) 1
Capital reserve -- realised (1,029) (1,039)
Revenue reserve (187) (239)
------- -------
Total equity shareholders' funds 19,426 28,692
======= =======
Basic and diluted net asset value per Share:
'F' Share 28.4p 69.6p
'H' Share 51.3p 82.3p
'J' Share 88.9p 94.7p
The financial statements were approved and authorised for issue by the
Board of Directors on 25 April 2019 and were signed on its behalf by:
Michael Robinson
Chairman
Company number: 5334413
* The comparative Balance Sheet at 31 December 2017 includes the 'D'
Share pool which has subsequently been cancelled.
BALANCE SHEET (ANALYSED BY SHARE POOL)
as at 31 December 2018
'D' Shares
2018 2017
GBP000 GBP000
Fixed assets
Investments - -
Current assets
Debtors - 1
Cash at bank and in hand - 20
------ ------
- 21
Creditors: amounts falling due within one year - (21)
------ ------
Net current assets - -
------ ------
Net assets - -
====== ======
Capital and reserves
Called up share capital - 25
Capital redemption reserve - 124
Revaluation reserve - (249)
Revenue reserve - 100
------ ------
Total equity shareholders' funds - -
====== ======
'F' Shares
2018 2017
GBP000 GBP000
Fixed assets
Investments 3,057 5,451
Current assets
Debtors 55 123
Cash at bank and in hand 31 2,042
------- -------
86 2,165
Creditors: amounts falling due within one year (70) (88)
------- -------
Net current assets 16 2,077
------- -------
Net assets 3,073 7,528
======= =======
Capital and reserves
Called up share capital 11 11
Capital redemption reserve 149 -
Special reserve 4,229 7,835
Revaluation reserve (721) 356
Capital reserve -- realised (1,033) (1,033)
Revenue reserve 438 359
------- -------
Total equity shareholders' funds 3,073 7,528
======= =======
'H' Shares
2018 2017
GBP000 GBP000
Fixed assets
Investments 6,586 10,902
Current assets
Debtors 284 89
Cash at bank and in hand 103 128
------- -------
387 217
Creditors: amounts falling due within one year (111) (82)
------- -------
Net current assets 276 135
------- -------
Net assets 6,862 11,037
======= =======
Capital and reserves
Called up share capital 13 13
Special reserve 10,086 (2,689)
Share premium reserve - 13,608
Revaluation reserve (3,483) 38
Revenue reserve 246 67
------- -------
Total equity shareholders' funds 6,862 11,037
======= =======
'J' Shares
2018 2017
GBP000 GBP000
Fixed assets
Investments 7,497 8,346
Current assets
Debtors 440 109
Cash at bank and in hand 1,628 1,743
------ ------
2,068 1,852
Creditors: amounts falling due within one year (74) (71)
------ ------
Net current assets 1,994 1,781
------ ------
Net assets 9,491 10,127
====== ======
Capital and reserves
Called up share capital 11 11
Special reserve 10,891 -
Share premium reserve - 11,031
Revaluation reserve (544) (144)
Capital reserve -- realised 4 (6)
Revenue reserve (871) (765)
------ ------
Total equity shareholders' funds 9,491 10,127
====== ======
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Capital Share Capital
Called up share redemption Special premium Revaluation reserve 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 2017 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
Total
comprehensive
income - - - - (5,079) 434 87 (4,558)
Share premium
cancellation - - 24,639 (24,639) - - - -
Transactions with
owners
Purchase of own
shares - - - - - - (35) (35)
Transfer between
Reserves* - - (4,579) - 330 4,249 - -
Cancellation of
shares (25) 25 - - - - - -
Dividend paid - - - - - (4,673) - (4,673)
--------------- ------------- --------- ---------- ----------- ------------- -------- --------
At 31 December 2018 35 149 25,206 - (4,748) (1,029) (187) 19,426
=============== ============= ========= ========== =========== ============= ======== ========
* A transfer of GBP330,000 (2017: GBP523,000) representing previously
recognised unrealised gains on disposal of investments during the year
ended 31 December 2018 has been made from the Revaluation Reserve to the
Capital Reserve realised. A transfer of GBP4.2 million (2017: GBP4.6
million) representing realised gains on disposal of investments, less
capital expenses and capital dividends in the year was made from Capital
Reserve -- realised to Special reserve. In 2017 a transfer of GBP413,000
was made from Capital Reserve -- realised to Revenue reserve to
reconcile the D Share pool reserves.
CASH FLOW STATEMENT
for the year ended 31 December 2018
Year ended 31 December 2018
'F' 'H' 'J'
Share Share Share
pool pool pool Total
GBP'000 GBP'000 GBP'000 GBP'000
Net cash (outflow)/inflow
from operating activities 9 28 (382) (345)
----------- --------- ----------- ---------
Cash flow from
investing activities
Purchase of
investments - - (375) (375)
Sale of investments 1,964 632 661 3,257
----------- --------- ----------- ---------
Net cash inflow from
investing activities 1,964 632 286 2,882
----------- --------- ----------- ---------
Net cash inflow before
financing activities 1,973 660 (96) 2,537
Cash flows from
financing activities
Equity dividends paid (4,004) (669) - (4,673)
Purchase of own shares - (16) (19) (35)
Net cash outflow from
financing activities (4,004) (685) (19) (4,708)
----------- --------- ----------- ---------
(Decrease)/increase
in cash (2,031) (25) (115) (2,171)
Cash and cash
equivalents at start
of year 2,062 128 1,743 3,933
----------- --------- ----------- ---------
Cash and cash
equivalents at end
of year 31 103 1,628 1,762
=========== ========= =========== =========
Cash and cash
equivalents comprise
Cash at bank and in
hand 31 103 1,628 1,762
----------- --------- ----------- ---------
Total cash and cash
equivalents 31 103 1,628 1,762
=========== ========= =========== =========
Year ended 31 December 2017
'D' 'F' 'H' 'J'
Share Share Share Share
pool pool pool 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 (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
======= ======= ======= ======= =======
NOTES TO THE ACCOUNTS
for the year ended 31 December 2018
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.
All investments are held at the price of recent investment for an
appropriate period where there is considered to have been no change in
fair value. Where this basis is no longer considered appropriate, the
following factors will be considered:
- Where a value is demonstrated by a material arms-length transaction by
an independent third party in the shares of a company, this value may be
used;
- In the absence of the above, depending on each of the subsequent
trading performance and investment structure of an investee company, the
valuation basis will likely move to either:
i) an earnings multiple basis; or
ii) where a company's underperformance against plan indicates a
diminution in the value of the investment, provision against cost is
made, as appropriate.
- Premiums on loan stock investments are accrued at fair value when the
Company receives the right to the premium and when considered
recoverable;
- Where an earnings multiple or cost less impairment basis is not
appropriate and overriding factors apply, discounted cash flow, a net
asset valuation, or industry specific valuation benchmarks may be
applied.
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.
Dividends payable
Dividends payable are recognised as distributions in the financial
statements when the Company's liability to make payment has been
established, normally the record date.
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
'F' Shares 'H' Shares 'J' Shares
Revenue return/ (loss) (GBP'000) (21) 194 (86)
Per share (0.2p) 1.5p (0.8p)
========== ========== ==========
Net capital (loss)/gain for the
year (GBP'000) (430) (3,684) (531)
Per share (4.0p) (27.6p) (5.0p)
Total return/ (loss) after taxation
(GBP'000) (451) (3,490) (617)
Per share (4.2p) (26.1p) (5.8p)
========== ========== ==========
Weighted average number of shares
in issue 10,821,660 13,350,477 10,653,285
========== ========== ==========
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
2018 2017
Shares in issue Net asset value Net asset value
31 Dec 31 Dec per
2018 2017 per share GBP'000 share GBP'000
'D'
Shares - 9,979,109 - - - -
'E'
Shares - 14,994,862 - - - -
'F'
Shares 10,821,660 10,821,660 28.4p 3,073 69.6p 7,528
'H'
shares 13,389,758 13,409,158 51.3p 6,862 82.3p 11,037
'J'
Shares 10,675,533 10,695,258 88.9p 9,491 94.7p 10,127
------- -------
19,426 28,692
======= =======
The '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 above.
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 2018
GBP510,000 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, (GBP255,000, 2017: GBP262,000) 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.
6. Events after the end of the reporting period
After the end of the reporting period, in February 2019, a fire occurred
at the plant owned by Yamuna Renewables Limited, which is an invesetment
held by the 'J' Share pool. The facility has been brought back to full
operational capability and an insurance claim is being pursued, but the
interruption in supply during the key season trading period has impacted
customer confidence which is likely to take time to rebuild. A provision
against the valuation may be required when the impact has been fully
assessed. By way of illustration, a provision of 25% against the
previous carrying value would equate to a write down of GBP200,000,
equivalent to 1.9 pence per share, in the 'J' Share pool.
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 2018,
but has been extracted from the statutory financial statements for the
year ended 31 December 2018 which were approved by the Board of
Directors on 25 April 2019 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 2017 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 2018 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.
(END) Dow Jones Newswires
April 25, 2019 11:40 ET (15:40 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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