TIDMDPV3
Downing Planned Exit VCT 3 PLC
Final results for the year ended 31 January 2011
FINANCIAL HIGHLIGHTS
(All "pence per share") Year ended Year ended
31 Jan 11 31 Jan 10
'C' & 'A' pools
Net asset value 92.9 96.0
Total distributions paid since launch 5.0 -
Total Return 97.9 96.0
'D' & 'E' pools
Net asset value 93.6 94.5
Total distributions paid since launch 2.5 -
Total Return 96.1 94.5
The Ordinary shares now have negligible value.
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present my report of the year ended 31 January 2011. It has been
a busy year for the Company, with the completion of the 'D' Share fundraising
and significant progress made in investing funds in both the 'C' Share and 'D'
Share pools.
'C' Share pool
Portfolio activity
The 'C' Share pool made six VCT qualifying investments during the year at a cost
of GBP1.2 million. Several of the new investments were in the pub and
hotel/leisure sectors although the largest investment was a renewable energy
project which has helped to diversify the portfolio.
At the year end, approximately 42% of the pool's funds were invested in VCT
qualifying investments. A further GBP0.6 million was invested in non-qualifying
investments.
The investment valuations have been reviewed by the Board at the year end. The
Board concluded that it was appropriate to hold all the 'C' Share pool
investments at values equivalent to original cost as none had shown any
significant deviation from plan.
Net asset value, results and dividends
At 31 January 2011 the 'C' Share NAV stood at 92.8p and the 'A' Share NAV at
0.1p, giving a combined NAV of 92.9p. Total Return (NAV plus cumulative
dividends to date) was 97.9p for one combined 'C' and one 'A' Share.
The total return on ordinary activities for the 'C' Shares for the year was
GBP137,000 relates wholly to revenue items.
In accordance with its policy, the Board is proposing to pay a dividend of 5p
per 'C' Share on 15 July 2011 to Shareholders on the register at the close of
business on 17 June 2011.
'D' Share pool
In March 2010 the Offer for subscription for the 'D' Share pool closed being
fully subscribed and having raised net proceeds of GBP9.45 million.
Portfolio activity
The 'D' pool made five VCT qualifying investments during its first year at a
total cost of GBP1.1 million. The share pool also took advantage of a number of
opportunities to make non-qualifying investments which help the fund to reduce
the "cash drag" which can arise when running costs exceed the level of income
that can be produced from holding a substantial proportion of the pool's funds
as cash deposits at the very low interest rates currently available. It also
made thirteen non-qualifying investments were made at a total cost of GBP5.7
million during the year.
As with the 'C' Share pool, no investments have experienced any significant
deviations from plan to date and the Directors have concluded that they should
all be valued at amounts equal to original cost at the year end.
Net asset value, results and dividends
At 31 January 2011 the 'D' Share NAV stood at 93.5p and the 'E' Share NAV at
0.1p, giving a combined NAV of 93.6p. Total Return (NAV plus cumulative
dividends to date) was 96.1p for one combined 'D' and one 'E' Share, an increase
of 1.6% over the initial NAV (net of issue costs).
The total return on ordinary activities for the 'D' Shares for the year was
GBP160,000 relating wholly to revenue items.
In accordance with its stated policy, the Board is proposing to pay a dividend
of 2.5p per 'D' Share on 15 July 2011 to Shareholders on the register at the
close of business on 17 June 2011.
Ordinary Share pool
The Ordinary Shares originally issued by the Company in 2004/05 still exist, but
the task of returning funds to these Shareholders is considered to be complete
and no further dividends are expected to be paid to Ordinary Shareholders. Steps
will be taken to wind up this share class in due course.
Share buybacks
The Company has a general policy of buying in for cancellation its own shares
that become available in the market. During the year the company repurchased
5,891 'D' Shares and 5,138 'E' Shares at an average price of 86p and 0.1p
respectively and a total consideration of GBP5,042.
The Board expects to undertake any buybacks in respect of the 'C' Shares/'A'
Shares and 'D' Shares and 'E' Shares at approximately a 10% discount to the
latest published NAV of those share classes, subject to regulatory restrictions
and other factors such as availability of liquid funds. No buybacks in respect
of the Ordinary Shares will be undertaken.
Annual General Meeting
The Company's sixth Annual General Meeting will be held at 10 Lower Grosvenor
Place, London SW1W 0EN at 11:05 a.m. on 7 July 2011.
One item of special business is proposed in respect of the authority to make
market purchases of shares.
Outlook
In spite of exhortations from the Government and the press, the banks continue
to be slow to lend to small businesses. This gives the Manager the chance to
build the VCT-qualifying portfolio of both the 'C' Share and the 'D' Share pools
in order to meet their respective deadlines, the first of which is January
2012. We hope to see a flow of good quality opportunities.
Hugh Gillespie
Chairman
INVESTMENT MANAGER'S REPORT
Introduction
The Company has three share pools, each at different phases of their investment
cycles. The 'C' Share pool currently holds investments in 17 companies and the
'D' Share pool completed its fundraising and started building its investment
portfolio in 2011. The Ordinary Share pool has effectively realised all of its
investments and only has one small investment remaining.
Investment activity
C Share Pool
In its first full year of operation the C Share Pool invested GBP2.5m across 11
companies and disposed of four non-qualifying investments at cost of GBP0.9m,
bringing the total invested in the pool since September 2009 to GBP5.9m. During
the year the Company invested GBP0.9m in Future Biogas (SF) Limited, a 1.4MWh
self-contained biogas plant in Norfolk, GBP0.4m in Urban and Country Leisure
Limited, a period restaurant and bar located in the centre of Warwick and GBP0.3m
in Quadrate Catering Limited which is due to open a Marco Pierre White
restaurant in "The Cube", a large mixed use building in the centre of
Birmingham. The portfolio held 42% of qualifying investments at year end and is
making good progress towards the 70% threshold. The 'C' Share pool generated
GBP367,000 of income and GBP137,000 of net profit in the year.
D Share Pool
The 'D' Share pool closed in March 2010, having raised GBP10.0m gross. During the
year the Company made investments of GBP7.5m and disposals of GBP0.1m. At year end
the investment portfolio was valued at GBP7.4m with GBP2.0m of cash which will be
used to fund future investments in 2011/2012. The Company invested GBP2.0m in
Aminghurst Limited, a property development company which is developing a large
plot of land in East Portlemouth, Devon, GBP1.0m in Woolmer Properties Limited
which is refurbishing a large family house in Chelsea and GBP0.6m in Fenkle Street
LLP which owns a large freehold office building in Newcastle. The portfolio,
held 12% of qualifying investments at year end which is expected to increase in
2011 as we make progress towards the 70% threshold. The 'D' Share pool generated
GBP476,000 of income and GBP160,000 of net profit in the year.
Portfolio valuation
The 'C' Share portfolio was valued at the year end and there were no movements
in value. The 'D' Share portfolio has only recently been invested and is
currently valued at cost.
Outlook
The general economic conditions in the UK are expected to see a modest
improvement in 2011 and the continued lack of traditional funding is likely to
mean that the Company will continue to have ample opportunities to invest in
good quality businesses in the coming year. The Company will continue to expand
its current 'D' Share portfolio to provide the core of its income and growth and
focus on finding qualifying investments for the 'C' share pool as we begin
exiting from some of the non-qualifying investments. The Company is focused on
achieving its target returns through these challenging economic times and will
seek to return funds to 'C' Share investors in 2013-2014 and 'D' Share investors
in 2014-2015.
Downing Managers 3 Limited
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England and Wales,
were held at 31 January 2011:
'C' Share pool Valuation
movement
Cost Valuation in year % of
GBP000 GBP000 GBP000 portfolio
Bijou Wedding Venues Limited** 1,215 1,215 - 18.6%
Hoole Hall Country Club Holdings Limited* 1,206 1,206 - 18.5%
Future Biogas (SF) Limited** 930 930 - 14.2%
The Thames Club Limited* 500 500 - 7.7%
East Dulwich Tavern Limited 344 344 - 5.3%
Westow House Limited 304 304 - 4.6%
Quadrate Catering Limited** 290 290 - 4.3%
The 3D Pub Co Limited 267 267 - 4.1%
Quadrate Spa Limited** 258 258 - 4.0%
Honeycombe Pubs VCT plc* 175 175 - 2.7%
Atlantic Dogstar Limited 162 162 - 2.5%
Chapel Street Hotel (2008) LLP* 63 63 - 1.0%
Chapel Street Food and Beverage Limited 50 50 - 0.8%
Chapel Street Services Limited 50 50 - 0.8%
Vermont Developments Limited* 25 25 - 0.4%
Commercial Street Hotel Limited* 12 12 - 0.2%
Chapel Street Hotel Limited* 3 3 - 0.0%
-------------------------------------
5,854 5,854 - 89.7%
Cash at bank and in hand 673 10.3%
----------- ----------
Total investments 6,527 100.0%
*Non qualifying investment
**Partially qualifying investment
'D' Share pool Valuation
movement
Cost Valuation in year % of
GBP000 GBP000 GBP000 portfolio
Aminghurst Limited* 2,000 2,000 - 21.5%
Woolmer Properties Limited* 994 994 - 10.7%
Fenkle Street LLP* 635 635 - 6.9%
Edison House Limited 595 595 - 6.4%
Lullingstone Limited 577 577 - 6.2%
Camandale Limited** 531 531 - 5.7%
Quadrate Catering Limited** 436 436 - 4.7%
Quadrate Spa Limited** 386 386 - 4.2%
Looe Road Student Accommodation 301 301 - 3.2%
Retallack Surfpods Limited* 250 250 - 2.7%
Slopingtactic Limited** 196 196 - 2.1%
The Kirkhouse Limited* 175 175 - 1.9%
Ridgeway Pub Company Limited 137 137 - 1.5%
Hoi Polloi Pub Co Limited* 100 100 - 1.1%
Fenkle Street Developments LLP* 32 32 - 0.3%
Commercial Street Hotel Limited 18 18 - 0.2%
---------------------------------------------
7,363 7,363 - 79.3%
Cash at bank and in hand 1,920 20.7%
------------- ------------
Total investments 9,283 100.0%
Ordinary Share pool Valuation
movement
Cost Valuation in year % of
GBP GBP GBP portfolio
Tancred Trading Limited 5 5 - 100%
Cash at bank and in hand - -
------------- ------------
Total investments 5 100%
*Non qualifying investment
**Partially qualifying investment
Summary of investment movements
Additions Cost
GBP'000
'C' Share pool
Future Biogas (SF) Limited** 930
Urban and Country Leisure Limited* 385
Quadrate Catering Limited** 290
The 3D Pub Co Limited 267
Quadrate Spa Limited** 258
Bijou Wedding Venues Limited** 200
Chapel Street Food and Beverage Limited 50
Chapel Street Services Limited 50
Commercial Street Hotel Limited* 12
Quadrate Hotel Limited* 12
Chapel Street Hotel Limited* 3
--------
Total 'C' Share pool 2,457
'D' Share pool
Aminghurst Limited* 2,000
Woolmer Properties Limited* 994
Fenkle Street LLP* 635
Edison House Limited* 595
Lullingstone Limited* 577
Camandale Limited** 531
Quadrate Catering Limited** 436
Quadrate Spa Limited** 386
Looe Road Student Accommodation* 301
Retallack Surfpods Limited* 250
Slopingtactic Limited** 196
The Kirkhouse Limited* 175
Ridgeway Pub Company Limited** 155
Hoi Polloi Pub Co Limited* 100
Towson Trading Limited* 100
Fenkle Street Developments LLP* 32
Commercial Street Hotel Limited* 18
Quadrate hotel Limited* 18
--------
Total 'D' Share pool 7,499
--------
Total 9,956
Disposals (Loss) / Total realised
gain (loss)/ gain
MV at Disposal against during the
Cost 01/02/10 proceeds cost year
GBP'000 GBP000 GBP'000 GBP'000 GBP'000
'C' Share pool
Urban and Country Leisure 385 n/a 385
Limited* - -
Lilliput Development LLP* 328 328 328 - -
Uno Developments Limited* 182 182 182 - -
Quadrate Hotel Limited* 12 n/a 12 - -
-------------------------------------------------
907 510 907 - -
'D' Share pool
Towson Trading Limited* 100 n/a 100 - -
Quadrate hotel Limited* 18 n/a 18 - -
Ridgeway Pub Company Limited** 18 n/a 18 - -
-------------------------------------------------
136 n/a 136 - -
-------------------------------------------------
1,043 510 1,043 - -
*Non
qualifying investment
**Partially qualifying investment
Statement of Directors' responsibilities
The Directors are responsible for preparing 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 Services 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).
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 those financial statements, the Directors are required to:
*select suitable accounting policies and then apply them consistently;
*make judgments and estimates that are reasonable and prudent;
*state whether applicable 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 and disclose with
reasonable accuracy at any time the financial position of the Company and to
enable them to ensure that the financial statements, and the Directors'
Remuneration Report, comply with the requirements of 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.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information relating to the Company included on the Manager's
websites. 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 jurisdiction.
Statement as to disclosure of information to Auditors
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 Auditors are
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 Auditors.
By order of the Board
Grant Whitehouse
Secretary
INCOME STATEMENT
for the year ended 31 January 2011
Year ended Year ended
31 January 2011 31 January 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 843 - 843 248 - 248
Losses on investments - - - - (50) (50)
---------------------------------------------
843 - 843 248 (50) 198
Investment management fees (212) - (212) (62) - (62)
Other expenses (214) - (214) (105) (503) (608)
---------------------------------------------
Return/ (loss) on ordinary
activities before tax 417 - 417 81 (553) (472)
Tax on ordinary activities (120) - (120) (21) - (21)
---------------------------------------------
Return/ (loss) attributable to
equity shareholders 297 - 297 60 (553) (493)
Basic and diluted return/ (loss)
per:
Ordinary share - - - (0.4p) (5.5p) (5.9p)
'C' share 1.9p - 1.9p 1.5p - 1.5p
'A' share - - - - - -
'D' share 1.7p - 1.7p - - -
'E' share - - - - - -
All Revenue and Capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year. The
total column within the Income Statement represents the profit and loss account
of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all
gains and losses are recognised in the Income Statement noted above.
Other than revaluation movements arising on investments held at fair value
through the profit and loss, there were no differences between the
return/deficit as stated above and at historical cost.
'C' Share pool
Year ended Year ended
31 January 2011 31 January 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 367 - 367 217 - 217
Gains on investments - - - - - -
--------------------------------------------
367 - 367 217 - 217
Investment management fees (90) - (90) (53) - (53)
Other expenses (140) - (140) (39) - (39)
--------------------------------------------
Return on ordinary activities
before tax 137 - 137 125 - 125
Tax on ordinary activities - - - (21) - (21)
--------------------------------------------
Return attributable to equity
shareholders 137 - 137 104 - 104
'D' Share pool
Year ended Year ended
31 January 2011 31 January 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 476 - 476 - - -
Gains on investments - - - - - -
--------------------------------------------
476 - 476 - - -
Investment management fees (122) - (122) - - -
Other expenses (74) - (74) - - -
--------------------------------------------
Return on ordinary activities
before tax 280 - 280 - - -
Tax on ordinary activities (120) - (120) - - -
--------------------------------------------
Return attributable to equity
shareholders 160 - 160 - - -
Ordinary Share pool
Year ended Year ended
31 January 2011 31 January 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income - - - 31 - 31
Losses on investments - - - - (50) (50)
--------------------------------------------
- - - 31 (50) (19)
Investment management fees - - - (9) - (9)
Other expenses - - - (66) (503) (569)
--------------------------------------------
Loss on ordinary activities
before tax - - - (44) (553) (597)
Tax on ordinary activities - - - - - -
--------------------------------------------
Loss attributable to equity
shareholders - - - (44) (553) (597)
BALANCE SHEET
as at 31 January 2011
2011 2010
'C' 'D' Total 'C' 'D' Total
Share Share (incl. Ord Share Share (incl. Ord
pool pool Shares) pool pool Shares)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 5,854 7,363 13,222 4,304 - 4,309
Current assets
Debtors 201 250 451 109 - 2,591
Cash at bank and in hand 673 1,920 2,593 2,559 1,196 3,755
----------------------------------------------
874 2,170 3,044 2,668 1,296 6,346
Creditors: amounts falling
due within one year (60) (173) (233) (82) (95) (177)
----------------------------------------------
Net current assets 814 1,997 2,811 2,586 2,583 6,169
----------------------------------------------
Net assets 6,668 9,360 16,033 6,890 3,583 10,478
Capital and reserves
Called up share capital 18 25 144 18 13 132
Capital redemption reserve 4 - 5 4 - 5
Special reserve 6,495 9,300 15,795 - - -
Share premium account - - - 6,764 3,570 10,334
Revaluation reserve - - - - - -
Capital reserve - realised - - - - - -
Revenue reserve 151 35 89 104 - 7
----------------------------------------------
Total equity shareholders' funds 6,668 9,360 16,033 6,890 3,583 10,478
Basic and diluted net asset value per
Ordinary Share - - 0.1p - - 0.1p
'C'/'D' Share 92.8p 93.5p 95.9p 94.4p
'A'/'E' Share 0.1p 0.1p 0.1p 0.1p
The Ordinary share pool is now so small as to be immaterial and as such is not
analysed separately above. It is, however, included in the total column.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended Year ended
31 January 2011 31 January 2010
'C' 'D' Total 'C' 'D' Total
Share Share (incl. Ord Share Share (incl. Ord
pool pool Shares) pool pool Shares)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening shareholders' funds 6,890 3,583 10,478 - - 3,657
Issue of shares - 6,219 6,219 7,180 3,791 10,971
Share issue costs - (347) (347) (394) (208) (602)
Purchase of own shares - (5) (5) - - -
Total recognised return/ (loss)
for the year 137 160 297 104 - (493)
Distributions (359) (250) (609) - - (3,055)
----------------------------------------------
Closing shareholders' funds 6,668 9,360 16,033 6,890 3,583 10,478
CASH FLOW STATEMENT
for the year ended 31 January 2011
Year ended Year ended
31 January 2011 31 January 2010
'C' 'D' 'C' 'D' Total
Share Share Share Share (incl.Ord
pool pool Total pool pool Shares)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash inflow/ (outflow)
from operating activities
45 (12) 33 77 (2,387) (2,968)
------------------------------------------------------
Taxation
Corporation tax paid (21) - (21) - - (54)
Capital expenditure
Purchase of investments (2,457) (7,499) (9,956) (7,286) - (7,491)
Sale of investments 906 136 1,042 2,982 - 6,933
------------------------------------------------------
Net cash outflow from
capital expenditure (1,551) (7,363) (8,914) (4,304) - (558)
------------------------------------------------------
Equity dividends paid (359) (250) (609) - - (3,055)
------------------------------------------------------
Net cash outflow
before financing (1,886) (7,625) (9,511) (4,227) (2,387) (6,635)
Financing
Proceeds from share issue - 8,696 8,696 7,181 3,791 10,972
Share issue costs - (342) (342) (395) (208) (603)
Purchase of own shares - (5) (5) - - -
------------------------------------------------------
Net cash inflow from
financing - 8,349 8,349 6,786 3,583 10,369
------------------------------------------------------
(Decrease)/ increase in
cash (1,886) 724 (1,162) 2,559 1,196 3,734
The Ordinary share pool is now so small as to be immaterial and as such is not
analysed separately in the comparative above. It is, however, included in the
total column. There were no cash flow movements with respect to the Ordinary
Share pool in the current year.
NOTES TO THE ACCOUNTS
for the year ended 31 January 2011
1 Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted
Accounting Practice ("UK GAAP") and in accordance with the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" revised January 2009 ("SORP").
The financial statements are prepared under the historical cost convention
except for the certain financial instruments measured at fair value and on the
basis that it is not necessary to prepare consolidated accounts.
The Company implements new Financial Reporting Standards ("FRS") issued by the
Accounting Standards Board when required. No new standards were issued for
implementation for the year under review. The Association of Investment
Companies issued a new SORP in January 2009 which has been adopted for these
financial statements.
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 net revenue 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 FRS26.
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.
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 that does not require portfolio investments 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.
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.
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 period.
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
accounts.
2. Basic and diluted return per share
Ordinary 'C' 'A' 'D' 'E'
Shares Shares Shares Shares Shares
Revenue return ( GBP'000) - 137 - 160 -
Weighted average number 10,064,617 7,173,376 10,760,064 9,235,460 14,235,528
of shares in issue
Net capital gain for - - - - -
the financial year ( GBP'000)
Weighted average number 10,064,617 7,173,376 10,760,064 9,235,460 14,235,528
of shares in issue
As the Company has not issued any convertible securities or share options, there
is no dilutive effect on return per share. The return per share disclosed
therefore represents both the basic and diluted return per share.
3. Basic and diluted net asset value per share
2011 2010
Shares in Issue Net asset value Net asset value
per per
2011 2010 share GBP'000 share GBP'000
Ordinary Shares 10,064,617 10,064,617 0.1 5 0.1 5
'C' Shares 7,173,376 7,173,376 92.8 6,657 95.9 6,879
'A' Shares 10,760,064 10,760,064 0.1 11 0.1 11
'D' Shares 9,994,109 3,786,175 93.5 9,345 94.4 3,574
'E' Shares 14,994,862 8,786,175 0.1 15 0.1 9
-------- -------
16,033 10,478
The Ordinary Share pool, 'C' Share pool and 'D' Share pool are treated as
separate investment pools. Within the 'C' Share pool the Directors allocate the
assets and liabilities of the Company between the 'C' Shares and 'A' Shares such
that each share class has sufficient net assets to represent its dividend and
return of capital rights. Within the 'D' Share pool the Directors allocate the
assets and liabilities of the Company between the 'D' Shares and 'E' Shares such
that each share class has sufficient net assets to represent its dividend and
return of capital rights.
4 Principal financial risks
As a VCT, the majority of the Company's assets are represented by financial
instruments which are held as part of the investment portfolio. In order to
ensure continued compliance with relevant VCT regulation and to be in a position
to deliver the long term capital growth, which is part of the Company's
investment objective, the Board is very much aware of the need to manage and
mitigate the risks associated with these financial instruments.
The management of these risks starts with the application of a clear investment
policy which has been developed by the Board who are experienced investment
professionals. Furthermore, the Board has appointed an experienced Investment
Manager to whom they have communicated the Company's investment objectives and
whose remuneration is linked to the achievement of those objectives. The
Investment Manager reports regularly to the Board on performance, and to
facilitate the direct Board involvement with key decisions, on whether or not to
invest, disinvest and the nature, terms and the security of investments being
made.
In assessing the risk profile of its investment portfolio, the Board has
identified two principal classes of financial instrument; loan notes and
unquoted equity. All investments are "fair value through the profit and loss
account".
In addition to its investment portfolio, the VCT maintains a cash position.
Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc. The
Directors consider that the risk profile associated with cash deposits is low
and thus the carrying value in the financial statements is a close approximation
of the fair value.
The Board has reviewed the Company's financial risk profile. Despite the fact
that there has been a clear deterioration in the economic climate, the Board has
concluded that, as a result of the manner in which the Company structures its
investments so as to try to reduce downside risk, the Company's exposure to
financial risk has not changed significantly since the previous year.
The main risks arising from the Company's financial instruments are interest
rate, market risk and credit risk. The Board reviews and agrees policies for
managing each of these risks and they are summarised below. These policies have
remained unchanged since the beginning of the financial year. A review of the
specific financial risks faced by the Company is presented below.
Market risk
Market risk arises from uncertainty about fair values or future cash flows of
financial instruments because of changes in market prices. This is a fundamental
aspect of investing in unquoted companies and one which is regularly assessed by
the Board and the Investment Manager.
Market price risk
The Company has no holdings in any listed or quoted equities at the year end. As
such it has no direct exposure to substantial movements experienced by stock
markets. The Company generally structures its investments such that the
majority of any losses are initially borne by its investment partners. Therefore
the Company has reduced its exposure to a fall in the value of the businesses in
which it invests and any underlying assets held by those businesses, such that
it has a charge over substantial assets of the underlying business. The
sensitivity of the investments to a 10% increase or decrease in valuation would
be an increase or decrease in total return of GBP1,322,000 (2010: GBP430,000) and an
increase or decrease in net asset value of the same amount or 8% (2010: 4%).
Interest rate risk
The Company's investment portfolio includes floating rate and fixed rate
financial instruments, the fair values of which are influenced by differing
degrees to changes in market price. Generally, unless the risk profile
attaching to the loan note changes, the fair value of variable and floating rate
investments is unlikely to alter materially. The fair value of fixed rate
investments would, theoretically, increase as base rates fall. However, as a
result of the structuring of the Company's investments, the fixed rate
investments (loan notes) have strict redemption and transferability conditions
and, therefore, any theoretical uplift in fair value would not be a fair
reflection of the realisable value of this class of investment.
The Company's future cash flows can be influenced by changes in interest rates
resulting in an increase or decrease in income from investments linked to the
base rate, and by the credit worthiness of the borrowers of the funds. The
maximum exposure to this risk amounts to the value of variable and floating rate
assets of GBP2.8 million (2010: GBP3.9 million). Sensitivity has been tested by the
impact on the NAV over a one year period of a fall in the base rate to nil,
being the largest possible fall. The estimated impact on performance and NAV is
not deemed significant.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument is
unable to discharge a commitment to the Company made under that instrument.
Credit risk in respect of investments in liquidity funds is minimised by
investing in AA-, or better, rated funds.
Investments in loan stocks comprise a fundamental part of the Company's venture
capital investments and are managed within the main investment management
procedures. The Company's policy is to invest in businesses with substantial
assets, with security being taken over the assets of the business.
Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc,
consequently the Directors consider that the risk profile associated with cash
deposits is low
Interest, dividends and other receivables are predominantly covered within the
investment management procedures.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting
obligations associated with its financial liabilities. As the Company only ever
has a very low level of creditors being GBP233,000 (2010: GBP177,000), holds
significant cash balances and no borrowings, the Board believes that the
Company's exposure to liquidity risk is low.
5 Related party transactions
Downing Managers 3 Limited ("DM3"), a wholly owned subsidiary, is the Company's
Investment Manager. During the year ended 31 January 2011, GBP212,000 (2010:
GBP62,000) was payable to DM3. Additionally, DM3 provides accounting, secretarial
and administrative services for an annual fee of GBP47,500 (plus VAT and RPI) per
annum. During the year ended 31 January 2011, GBP47,500 (2010: GBP44,000) was due in
respect of administration fees. At the year end a balance of GBP67,000 (2010:
GBP16,000) was due to DM3.
Downing Corporate Finance Limited, a company of which Nicholas Lewis and Tony
McGing are directors, was owed GBPnil in commission on share allotments at the
year end (2010: GBP95,000).
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 January 2011, but has been extracted
from the statutory financial statements for the year ended 31 January 2011 which
were approved by the Board of Directors on 27 May 2011 and will be delivered to
the Registrar of Companies following the Company's Annual General Meeting. 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 year ended 31 January 2010 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
January 2011 will be printed and posted to shareholders shortly. Copies will
also be available to the public at the registered office of the Company at 10
Lower Grosvenor Place, London, SW1W 0EN and will be available for download from
www.downing.co.uk.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Downing Planned Exit VCT 3 PLC via Thomson Reuters ONE
[HUG#1519530]
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