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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Downing Three Vct Plc | LSE:DP3F | London | Ordinary Share | GB00B6ZS1P26 | F SHS 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 13.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Downing THREE VCT PLC
FINAL RESULTS FOR THE YEARED 31 December 2016
FINANCIAL HIGHLIGHTS
31 Dec 31 Dec
2016 2015
Pence Pence
'C' Share pool
Net asset value per 'C' Share - 53.2
Net asset value per 'A' Share - 0.1
Cumulative distributions per 'C' Share 120.3 75.0
Adjusted for performance fee estimate - (7.4)
Total return per 'C' Share and 'A' Share 120.3 120.9
'D' Share pool
Net asset value per 'D' Share 36.4 51.3
Net asset value per 'E' Share 0.1 0.1
Cumulative distributions per 'D' Share 66.5 49.5
Total return per 'D' Share and 'E' Share 103.0 100.9
'F' Share pool
Net asset value per 'F' Share 69.4 71.5
Cumulative distributions per 'F' Share 25.0 20.0
Total return per 'F' Share 94.4 91.5
'H' Share pool
Net asset value per 'H' Share 86.2 90.5
Cumulative distribution per 'H' Share 15.0 10.0
Total return per 'H' Share 101.2 100.5
'J' Share pool
Net asset value per 'J' Share 95.8 98.5
Cumulative distribution per 'J' Share - -
Total return per 'J' Share 95.8 98.5
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Annual Report for the year ended 31 December
2016. As the Company now has a number of planned exit share pools in
different stages of their life, the Manager has had to focus on
progressing investment realisations in some pools while also working on
building new investment portfolios for the more recent pools. Overall,
progress has been satisfactory.
A brief summary of each share pool is provided below.
'C' Share pool
The final distribution to 'C' Shareholders was made in March 2016. Total
Return to those investors was 120.36p per Share compared to the original
cost net of income tax relief of 70.0p. The Board congratulates the
Manager on delivering a very successful outcome for investors. Since the
year end, the 'C' and 'A' Shares, which had negligible residual value,
were cancelled.
'D' Share pool
The 'D' Shares were originally issued in 2010 and at the year end held a
portfolio of seven live investments with a total value of GBP2.4
million.
At 31 December 2016, the NAV of a combined holding of one 'D' Share and
one 'E' Share stood at 36.5p, which represents an increase of 4.1% over
the year after adjusting for the dividends of 17.0p per share paid in
the year. Total Return (NAV plus cumulative dividends to date) is now
103.0p, compared to the initial cost to original subscribers net of
income tax relief of 70p.
'F' Share pool
The 'F' Share pool was launched in 2012 and now holds a portfolio of 23
investments with a total value of GBP7.2 million.
At 31 December 2016, the 'F' Share NAV stood at 69.4p, which represents
an increase of 4.1% over the year after adjusting for the dividends of
5.0p per share paid in the year. Dividends paid to date total 25.0p per
share such that Total Return (NAV plus cumulative dividends to date) is
now 94.4p, compared to the initial cost to original subscribers net of
income tax relief of 70p.
In line with the dividend policy, the Board is proposing to pay a final
dividend of 2.5p per 'F' Share on 30 June 2017 to Shareholders on the
register at the close of business on 26 May 2017.
'H' Share pool
The 'H' Share pool was launched in 2014 and is due to complete its
initial investment phase next year. At 31 December 2016, the pool held
15 investments with a total value of GBP11.0 million.
At 31 December 2016, the 'H' Share NAV stood at 86.2p, which represents
an increase over the year of 0.8% after adjusting for the dividends of
5.0p per share paid in the year. Total Return (NAV plus cumulative
dividends to date) is now 101.2p, 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 30 June 2017 to Shareholders on the
register at the close of business on 26 May 2017.
'J' Share pool
The 'J' Share Pool was launched in December 2014 and is still in its
initial investment phase. At 31 December 2016, the pool held 14 VCT
qualifying investments with a total value of GBP10.3 million.
At 31 December 2016, the 'J' Share NAV stood at 95.8p, 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.
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 'D' Shares,
'E' Shares and 'F' Shares as the process of returning funds to those
Shareholders is now underway in the case of the 'D' and 'E' Shares and
is due to start early next year in the case of the 'F' Shares.
A resolution to renew the buyback authority for the Company to purchase
its own shares will be proposed at the forthcoming Annual General
Meeting.
Annual General Meeting ("AGM")
The Company's tenth AGM will be held at Ergon House, Horseferry Road,
London, SW1P 2AL at 10:50 a.m. on 20 June 2017.
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.
Also, the Company is seeking Shareholder approval to amend the Company's
Articles of Association to simplify the process of cancelling share
classes once they have come to the end of their planned exit life. The
proposed changes will eliminate the requirement for a Shareholder
Circular to be issued in order to cancel a share class once it has
reduced to a negligible residual value. This will result in some costs
savings for the Company.
Outlook
Although the long term implications of Brexit may not yet be clear, the
impact on the Company is not expected to be significant. The majority of
the share pools are already fully invested and progressing
satisfactorily. The 'J' Share is still making new investments as it
builds its portfolio and faces greater challenges from new VCT rules
than it is likely to from factors connected with Britain leaving the EU.
VCT rules brought in over the last year or so have reduced the scope of
investments that can be made, however the Manager is confident that a
reasonable portfolio can be built which can deliver shareholders the
targeted results.
We expect to see significant headway made in realising most of the
remaining investments in the 'D' Share pool over the next few months.
The Manager will also be developing plans during the course of this year
for realisation of investments from the 'F' Share pool, ahead of the
commencement of the return of funds to those investors early next year.
I look forward to updating Shareholders on progress in my statement with
the Half Yearly Report to 30 June 2017.
Michael Robinson
Chairman
26 April 2017
INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL
Introduction
The 'D' Share pool holds investments in seven companies and is fully
invested. The focus this year has been on realisations and ten full or
partial exits have completed in the period. We have realisation plans in
place for the remainder of the portfolio.
Net asset value and results
At 31 December 2016, the 'D' Share NAV stood at 36.4p and the 'E' Share
NAV at 0.1p, giving a combined NAV of 36.5p. Total Return (NAV plus
cumulative dividends to date) was 103.0p for a combined holding of one
'D' and one 'E' Share. This represents a net increase of 2.1p over the
year (after adjusting for dividends paid during the year of 17.0p per
'D' Share), equivalent to an increase of 4.1%.
The return on ordinary activities for the 'D' Shares for the period was
a gain of GBP206,000 (2015: GBP690,000) being a revenue loss of
GBP30,000 (2015: profit GBP306,000) and a capital gain of GBP236,000
(2015: GBP384,000).
'D' Share pool - divestment activity
Ten full or partial exits have completed in the period generating total
proceeds of GBP2.2 million.
The most significant of these were Quadrate Catering Limited and
Quadrate Spa Limited which generated proceeds of GBP581,000 and
GBP520,000 and uplifts over cost of GBP140,000 and GBP168,000
respectively.
Other significant realisations included, Kidspace Adventures (Holdings)
Limited which generated proceeds of GBP470,000, an uplift over cost of
GBP95,000 and Future Biogas (SF) Limited which returned GBP203,000 over
a cost of GBP169,000.
'D' Share pool - portfolio valuation
The majority of the 'D' Share portfolio performed in line with
expectations during the year. There were a few small valuation movements
in the period that resulted in an unrealised gain of GBP27,000.
Fenkle Street LLP, is a property development company based in Newcastle.
The hotel is trading well and the valuation has increased by GBP50,000
to reflect the expected future cash flows of the company.
Avon Solar Limited, the owner of residential rooftop solar assets in the
UK, was uplifted by GBP22,000 due to continued good performance.
Unfortunately these gains were partially offset by a reduction in value
on Mosaic Spa and Health Clubs Limited which has continued to have minor
performance issues and has resulted in an unrealised loss of GBP45,000.
Outlook
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 make a final distribution to investors.
Downing LLP
26 April 2017
REVIEW OF INVESTMENTS - 'D' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and
Wales, were held at 31 December 2016:
'D' Share pool
Valuation
movement % of
Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying and partially
qualifying investments
Mosaic Spa and Health Clubs
Limited* 521 300 (45) 8.1%
Westcountry Solar Solutions
Limited 250 250 - 6.8%
Avon Solar Limited 210 240 22 6.5%
Quadrate Spa Limited 144 - - 0.0%
1,125 790 (23) 21.4%
Non-qualifying investments
Gara Rock Resort Limited 1,322 1,322 - 35.8%
Fenkle Street LLP 122 270 50 7.3%
Future Biogas (Reepham Road)
Limited 320 - - 0.0%
1,764 1,592 27 43.1%
2,889 2,382 27 64.5%
Cash at bank and in hand 1,313 35.5%
Total investments 3,695 100.0%
* Part-qualifying investment
Summary of investment movements
Disposals
Gain/
(loss)
Disposal against Total realised
Cost MV at 01/01/16* proceeds cost gain during the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying
and partially
qualifying
investments
Future Biogas
(Reepham Road)
Limited 261 196 261 - 65
Quadrate
Catering
Limited 441 539 581 140 42
Liverpool
Nurseries
(Holdings)
Limited - - 12 12 12
Kidspace
Adventures
Holdings
Limited 375 465 470 95 5
Quadrate Spa
Limited 352 520 520 168 -
Camandale
Limited 422 2 2 (420) -
Non-qualifying
investments
Future Biogas
(SF) Limited 169 169 203 34 34
Kilmarnock
Monkey Bar
Limited - - 6 6 6
Redmed Limited 27 24 28 1 4
Commercial
Street Hotel
Limited 100 100 100 - -
Total 'D' Share
pool 2,147 2,015 2,183 36 168
*Adjusted for additions in the year
INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL
Introduction
The 'F' Share pool holds 23 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 2016, the 'F' Share NAV stood at 69.4p. Total Return (NAV
plus cumulative dividends to date) for Shareholders who invested in the
original share offer is now 94.4p. This represents a net increase of
2.9p per share over the year (after adjusting for dividends paid during
the year of 5.0p per Share), equivalent to an increase of 4.1%.
The return on ordinary activities for the 'F' Share pool for the year
was a gain of GBP308,000 (2015: GBP108,000) being a revenue loss of
GBP107,000 (2015: profit GBP165,000) and a capital gain of GBP415,000
(2015: loss GBP57,000).
'F' Share pool - investment activity
Four new investments were made in the period totalling GBP700,000.
GBP300,000 was invested into Vectis Alpha Limited which is seeking to
build and develop renewable energy plants; GBP150,000 was invested into
Brownfields Trading Limited which is seeking to develop small-scale
waste disposal projects; GBP125,000 was invested into both Rhodes
Solutions Limited and Morava Limited which are both exploring
opportunities in the wood refinery sector.
Three full exits were completed in the period generating total proceeds
of GBP1.3 million.
Grasshoppper 2007 Limited, the company that owns The Grasshopper Inn, a
public house near Westerham, Kent was sold and generated proceeds
equivalent to the original cost of GBP378,000.
The divestment of Kidspace Adventures Holdings Limited, the owner of
three well established children's play areas in Croydon, Romford and
Epsom, realised GBP313,000 which was GBP63,000 more than the investment
cost.
The final repayment on Redmed Limited, the owner and operator of a bar
in Lincoln, was made which completed the exit of the investment and
generated proceeds of GBP16,000.
One notable partial divestment took place in the period being the part
repayment of a non-qualifying loan to Gara Rock Resort Limited, formerly
Aminghurst Limited, which generated proceeds of GBP581,000.
F' Share pool - portfolio valuation
The majority of investments remain valued at or above cost and there
were several valuation movements in the period that resulted in an
unrealised gain of GBP410,000.
Pearce and Saunders Limited, the owner of three freehold pubs in south
east London, has previously been written down in value due to poor
performance of the underlying pub companies, however rising property
prices have benefitted the investment and the valuation has been
increased by GBP248,000 and is now held at original cost.
The valuation of anaerobic digestion plant, Merlin Renewables Limited
has increased by GBP75,000 as the plant continues to perform ahead of
expectations.
Four smaller movements have also been recognised in the period. Atlantic
Dogstar Limited, which owns a group of London pubs, are performing to
plan and the valuation has been increased by GBP27,000.
Lambridge Solar Limited, Augusta Pub Company Limited and Pabulum Pubs
Limited are all performing well and have been increased in value by
GBP26,000, GBP25,000 and GBP9,000 respectively.
Outlook
The focus now for the 'F' Share portfolio is on close monitoring and
support of the portfolio companies to ensure that prospects for growth
are optimised in the period until the realisation process commences in
early 2018.
Downing LLP
26 April 2017
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 2016:
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 - 13.2%
Vulcan Renewables Limited 653 779 - 10.3%
Goonhilly Earth Station Limited 760 760 - 10.0%
Merlin Renewables Limited 500 575 75 7.6%
Lambridge Solar Limited 500 569 26 7.5%
Pearce and Saunders Limited 497 497 248 6.6%
Augusta Pub Company Limited 290 349 25 4.6%
Vectis Alpha Limited 300 300 - 4.0%
Pabulum Pubs Limited 200 237 9 3.2%
Atlantic Dogstar Limited 200 227 27 3.0%
Fresh Green Power Limited 200 200 - 2.6%
City Falkirk Limited 422 177 - 2.3%
Fubar Stirling Limited 268 169 - 2.2%
Brownfields Trading Limited 150 150 - 2.0%
Morava Limited 125 125 - 1.7%
Rhodes Solutions Limited 125 125 - 1.7%
Green Energy Production UK
Limited 100 100 - 1.3%
Cheers Dumbarton Limited 48 17 - 0.2%
Lochrise Limited 13 - - 0.0%
6,351 6,356 410 84.0%
Non-qualifying investments
Baron House Developments LLP 481 481 - 6.4%
Gara Rock Resort Limited 258 258 - 3.4%
London City Shopping Centre
Limited 66 66 - 0.9%
Pearce and Saunders DevCo
Limited 46 46 - 0.6%
851 851 - 11.3%
7,202 7,207 410 95.3%
Cash at bank and in hand 357 4.7%
Total investments 7,564 100.0%
Summary of investment movements
Additions
Cost
GBP'000
VCT qualifying and partially qualifying investments
Vectis Alpha Limited 300
Brownfields Trading Limited 150
Morava Limited 125
Rhodes Solutions Limited 125
Total 'F' Share pool 700
Disposals
Gain
Disposal against Total realised
Cost MV at 01/01/16* proceeds cost gain during the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying
and partially
qualifying
investments
Kidspace
Adventures
Holdings
Limited 250 310 313 63 3
Redmed Limited 18 14 16 (2) 2
Grasshopper
2007 Limited 378 378 378 - -
Non-qualifying
investments
Gara Rock
Resort
Limited 581 581 581 - -
Southampton
Hotel
Developments
Limited 298 - - (298) -
Total 'F' Share
pool 1,525 1,283 1,288 (237) 5
*Adjusted for additions in the year
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 2016.
Net asset value and results
At 31 December 2015, the net asset value per 'H' Share was 86.2p. Total
Return (NAV plus cumulative dividends to date) for Shareholders who
invested in the original share offer is now 101.2p. This represents a
net increase of 0.7p per share over the year (after adjusting for
dividends paid during the year of 5.0p per Share), equivalent to an
increase of 0.8%.
The return on ordinary activities for the 'H' Share pool for the year
was a gain of GBP97,000 (2015: GBP112,000) being a revenue profit of
GBP44,000 (2015: GBP217,000) and a capital gain of GBP53,000 (2015: loss
GBP105,000).
Investment activity
The pool made seven qualifying investments in the period totalling
GBP5.3 million, as well as one non-qualifying investment for GBP850,000
as we continue to build the qualifying portfolio of the 'H' share pool.
Brief details of the investments made in the year are as follows:
The qualifying investments include GBP1.5 million in Hermes Renewables
Limited, which is seeking to build and operate a wood pelleting plant.
GBP1.0 million was invested in Zora Energy Renewables Limited, a new
wood pellet sales and distribution business.
GBP850,000 was invested in Quadrate Catering Limited which operates a
restaurant in the Cube Complex in Birmingham.
GBP613,000 was invested in each of Ironhide Generation Limited and
Indigo Generation Limited. GBP492,000 was invested in Rockhopper
Renewables Limited and GBP281,000 in SF Renewables (Solar) Limited. All
of the above investments are in the process of acquiring land in India
to build and operate ground mounted solar arrays.
One non-qualifying investment was made in Quadrate Spa Limited for
GBP850,000 which owns and operates a health club business in The Cube
complex in Birmingham.
In the period, total proceeds of GBP3.2 million were received. Kidspace
Adventures (Holdings) Limited, which owns three well established
children's play areas in Croydon, Romford and Epsom, was sold and
generated proceeds equivalent to cost of GBP1.1 million.
Three non-qualifying loans were repaid in full in the period being
Hobblers Heath Limited which repaid GBP727,000, Pub People Limited, the
public house operator in the East Midlands which repaid GBP984,000 and
Ludlow Taverns Limited which repaid GBP388,000.
The majority of investments remain valued at cost and there was a total
unrealised gain of GBP53,000 in the period. There was one positive
valuation movement in the period on Atlantic Dogstar Limited. The
company owns a group of London pubs which are performing to plan and as
such the valuation has been increased by GBP137,000. Unfortunately this
was partially offset by a value write down on Oak Grove Renewables
Limited of GBP84,000, due to performance issues at this anaerobic
digestion plant.
Outlook
The 'H' Share pool has become fully qualifying at the year end and as a
result our focus will now shift to the close monitoring and support of
the portfolio companies in order to nurture growth before the planned
exit date.
Downing LLP
26 April 2017
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 2016:
Valuation
movement % of
'H' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying investments
Hermes Renewables Limited 1,500 1,500 - 13.0%
Apex Energy Limited 1,300 1,300 - 11.3%
Atlantic Dogstar Limited 1,000 1,137 137 9.8%
Zora Energy Renewables Limited 1,000 1,000 - 8.6%
Quadrate Catering Limited 850 850 - 7.3%
Ironhide Generation Limited 613 613 - 5.3%
Indigo Generation Limited 613 613 - 5.3%
Antelope Pub Limited 500 500 - 4.3%
Rockhopper Renewables Limited 492 492 - 4.3%
SF Renewables (Solar) Limited 281 281 - 2.4%
Oak Grove Renewables Limited 420 231 (84) 2.0%
8,569 8,517 53 73.6%
Non-qualifying investments
Hedderwick Limited 1,250 1,250 - 10.8%
Quadrate Spa Limited 850 850 - 7.3%
Peace and Saunders Limited 193 193 - 1.7%
Augusta Pub Limited 155 155 - 1.3%
2,448 2,448 - 21.1%
11,017 10,965 53 94.7%
Cash at bank and in hand 609 5.3%
Total investments 11,574 100.0%
REVIEW OF INVESTMENTS - 'H' SHARE POOL (continued)
Summary of investment movements
Additions
Cost
GBP'000
VCT qualifying investments
Hermes Renewables Limited 1,500
Zora Energy Renewables Limited 1,000
Quadrate Catering Limited 850
Indigo Generation Limited 613
Ironhide Generation Limited 613
Rockhopper Renewables Limited 492
SF Renewables (Solar) Limited 281
Non-qualifying investments
Quadrate Spa Limited 850
Total 'H' Share pool 6,199
Disposals
Gain
Disposal against Total realised
Cost MV at 01/01/16* proceeds cost gain during the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying
investments
Kidspace
Adventures
Holdings
Limited 1,084 1,084 1,084
Non-qualifying
investments
Pub People
Limited 984 984 984 - -
Hobblers Heath
Limited 727 727 727 - -
Ludlow Taverns
Limited 388 388 388 - -
3,183 3,183 3,183 - -
*Adjusted for additions in the year
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 period end and the Share pool is
due to become qualifying at the end of 2017.
Net asset value and results
At 31 December 2016, the net asset value and total return per 'J' Share
was 95.8p. This represents a net decrease of 2.7p per share over the
year, equivalent to an increase of 2.7%.
The loss on ordinary activities for the 'J' Share, after taxation, for
the period was GBP294,000 (2015: loss GBP158,000), being a revenue loss
of GBP210,000 (2015: loss GBP53,000) and a capital loss of GBP84,000
(2015: loss GBP105,000).
Investment activity
During the period, 11 qualifying investments have been made totalling
GBP8.0 million as we start to build the qualifying portfolio of the 'J'
Share pool.
The qualifying investments include GBP900,000 in Vectis Alpha Limited
which is seeking to build and develop renewable energy plants.
GBP900,000 was also invested in Brownfields Trading Limited which is
seeking to develop small-scale waste disposal projects.
GBP800,000 was invested in Yamuna Renewables Limited, which is planning
to build a wood pellet plant in Austria.
GBP613,000 was invested in each of Ironhide Generation Limited and
Indigo Generation Limited. GBP492,000 was invested in Rockhopper
Renewables Limited and GBP281,000 into SF Renewables (Solar) Limited.
All of the above investments are in the process of acquiring land in
India to build and operate ground mounted solar arrays.
Jito Renewables Limited, Rhodes Renewables Limited and Morava Renewables
Limited are all exploring opportunities in the wood refinery sector
following investments of GBP1 million, GBP1 million and GBP1.2 million
respectively.
GBP300,000 was invested in Zora Energy Renewables Limited, a new wood
pellet sales and distribution business.
One valuation adjustment was made in the period on Oak Grove Renewables
which was written down by GBP84,000 due to performance issues at the
anaerobic digestion plant. The remaining investments are all held at
cost.
Outlook
The task of building the 'J' Share portfolio is progressing well. A
number of new businesses have been backed which we believe have good
potential for growth over the planned life of the Share pool.
Downing LLP
26 April 2017
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 2016:
Valuation
movement % of
'J' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying investments
Morava Limited 1,150 1,150 - 11.2%
Cederville Limited 1,000 1,000 - 9.7%
Pilgrim Trading Limited 1,000 1,000 - 9.7%
Rhodes Solutions Limited 1,000 1,000 - 9.7%
Jito Trading Limited 1,000 1,000 - 9.7%
Brownfields Trading Limited 900 900 - 8.7%
Vectis Alpha Limited 900 900 - 8.7%
Yamuna Renewables Limited 800 800 - 7.8%
Indigo Generation Limited 613 613 - 5.9%
Ironhide Generation Limited 613 613 - 5.9%
Rockhopper Renewables Limited 492 492 - 4.8%
Zora Energy Renewables Limited 300 300 - 2.9%
SF Renewables (Solar) Limited 281 281 - 2.7%
Oak Grove Renewables Limited 420 231 (84) 2.3%
10,469 10,280 (84) 99.7%
Cash at bank and in hand 32 0.3%
Total investments 10,312 100.0%
Summary of investment movements
Additions
Cost
GBP'000
VCT qualifying investments
Morava Limited 1,150
Jito Trading Limited 1,000
Rhodes Solutions Limited 1,000
Brownfields Trading Limited 900
Vectis Alpha Limited 900
Yamuna Renewables Limited 800
Indigo Generation Limited 613
Ironhide Generation Limited 613
Rockhopper Renewables Limited 492
Zora Energy Renewables Limited 300
SF Renewables (Solar) Limited 281
Total 'J' Share pool 8,049
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 2016
Year ended 31 December 2016 Year ended 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 585 40 625 2,449 - 2,449
(Loss)/gain on investments - 580 580 - (200) (200)
585 620 1,205 2,449 (200) 2,249
Investment management fees (643) - (643) (695) - (695)
Other expenses (296) - (296) (275) - (275)
Return/(loss) on ordinary activities before tax (354) 620 266 1,479 (200) 1,279
Tax on total comprehensive income and
ordinary activities 21 - 21 (162) - (162)
Return/(loss) for the year and total comprehensive
income (333) 620 287 1,317 (200) 1,117
Basic and diluted return/(loss) per:
'C' Share (0.4p) - (0.4p) 9.5p (4.4p) 5.1p
'A' Share - - - - - -
'D' Share (0.3p) 2.3p 2.0p 3.1p 3.8p 6.9p
'E' Share - - - - - -
'F' Share 1.0p 3.8p 2.8p 1.5p (0.5p) 1.0p
'H' Share 0.3p 0.4p 0.7p 1.6p (0.8p) 0.8p
'J' Share (2.0p) (0.8p) (2.8p) (0.8p) (1.6p) (2.4p)
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 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 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 at historical cost.
INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 December 2016
'C' Share pool
Year ended 31 December 2016 Year ended 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 6 - 6 815 - 815
(Loss)/gain on
investments - - - - (317) (317)
6 - 6 815 (317) 498
Investment
management
fees (8) - (8) (56) - (56)
Other expenses (35) - (35) (41) - (41)
Loss/(return)
on ordinary (37) - (37) 718 (317) 401
activities
before tax
Tax on total
comprehensive 7 - 7 (36) - (36)
income and
ordinary
activities
Loss/(return)
attributable (30) - (30) 682 (317) 365
to equity
shareholders
'D' Share pool
Year ended 31 December 2016 Year ended 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 83 40 123 528 - 528
Gain/(loss) on
investments - 196 196 - 384 384
83 236 319 528 384 912
Investment
management
fees (52) - (52) (97) - (97)
Other expenses (31) - (31) (54) - (54)
Return on
ordinary
activities
before tax - 236 236 377 384 761
Tax on total
comprehensive (30) - (30) (71) - (71)
income and
ordinary
activities
Return
attributable (30) 236 206 306 384 690
to equity
shareholders
'F' Share pool
Year ended 31 December 2016 Year ended 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 99 - 99 407 - 407
Loss on
investments - 415 415 - (57) (57)
99 415 514 407 (57) 350
Investment
management
fees (136) - (136) (144) - (144)
Other expenses (73) - (73) (85) - (85)
Return/(loss)
on ordinary (110) 415 305 178 (57) 121
activities
before tax
Tax on total
comprehensive 3 - 3 (13) - (13)
income and
ordinary
activities
Return/(loss)
attributable (107) 415 308 165 (57) 108
to equity
shareholders
'H' Share pool
Year ended 31 December 2016 Year ended 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 355 - 355 594 - 594
Loss on
investments - 53 53 - (105) (105)
355 53 408 594 (105) 489
Investment
management
fees (239) - (239) (253) - (253)
Other expenses (61) - (61) (69) - (69)
Return/(loss)
on ordinary
activities
before tax 55 53 108 272 (105) 167
Tax on total
comprehensive
income and
ordinary
activities (11) - (11) (55) - (55)
Return/(loss)
attributable 44 53 97 217 (105) 112
to equity
shareholders
'J' Share pool
Year ended 31 December 2016 Year ended 31 December 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 42 - 42 104 - 104
Loss on
investments - (84) (84) - (105) (105)
42 (84) (42) 104 (105) (1)
Investment
management
fees (208) - (208) (144) - (144)
Other expenses (96) - (96) (26) - (26)
Loss on
ordinary (262) (84) (346) (66) (105) (171)
activities
before tax
Tax on total
comprehensive 52 - 52 13 - 13
income and
ordinary
activities
Loss
attributable (210) (84) (294) (53) (105) (158)
to equity
shareholders
BALANCE SHEET
as at 31 December 2016
2016 2015
GBP000 GBP000
Fixed assets
Investments 30,836 22,707
Current assets
Debtors 133 632
Cash at bank and in hand 2,337 16,578
2,470 17,210
Creditors: amounts falling due within one year (286) (494)
Net current assets 2,184 16,716
Net assets 33,020 39,423
Capital and reserves
Called up share capital 78 78
Capital redemption reserve 106 106
Special reserve 9,888 15,749
Share premium reserve 24,639 24,639
Revaluation reserve (790) (1,466)
Capital reserve - realised (1,033) (1,033)
Revenue reserve 132 1,350
Total equity shareholders' funds 33,020 39,423
Basic and diluted net asset value per Share:
'C' Share - 53.2p
'A' Share - 0.1p
'D' Share 36.4p 51.3p
'E' Share 0.1p 0.1p
'F' Share 69.4p 71.5p
'H' Share 86.2p 90.5p
'J' Share 95.8p 98.5p
2016 2015
GBP000 GBP000
Fixed assets
Investments - 748
Current assets
Debtors - 174
Cash at bank and in hand 26 2,962
26 3,136
Creditors: amounts falling due within one year (23) (71)
Net current assets 3 3,065
Net assets 3 3,813
Capital and reserves
Called up share capital 18 18
Capital redemption reserve 106 106
Special reserve - 2,733
Share premium reserve - -
Revaluation reserve (106) 55
Capital reserve - realised - -
Revenue reserve (15) 901
Total equity shareholders' funds 3 3,813
BALANCE SHEET (ANALYSED BY SHARE POOL)
as at 31 December 2016
'C' Shares
'D' Shares
2016 2015
GBP000 GBP000
Fixed assets
Investments 2,382 4,369
Current assets
Debtors 4 251
Cash at bank and in hand 1,313 629
1,317 880
Creditors: amounts falling due within one year (65) (124)
Net current assets 1,252 756
Net assets 3,634 5,125
Capital and reserves
Called up share capital 25 25
Capital redemption reserve - -
Special reserve 3,584 5,206
Share premium reserve - -
Revaluation reserve (507) (667)
Capital reserve - realised - -
Revenue reserve 532 561
Total equity shareholders' funds 3,634 5,125
BALANCE SHEET (ANALYSED BY SHARE POOL) (continued)
as at 31 December 2016
'F' Shares
2016 2015
GBP000 GBP000
Fixed assets
Investments 7,207 7,379
Current assets
Debtors 25 129
Cash at bank and in hand 357 349
382 478
Creditors: amounts falling due within one year (80) (115)
Net current assets 302 363
Net assets 7,509 7,742
Capital and reserves
Called up share capital 11 11
Capital redemption reserve - -
Special reserve 8,321 9,155
Revaluation reserve 64 (644)
Capital reserve - realised (1,033) (1,033)
Revenue reserve 146 253
Total equity shareholders' funds 7,509 7,742
'H' Shares
2016 2015
GBP000 GBP000
Fixed assets
Investments 10,967 7,896
Current assets
Debtors 104 49
Cash at bank and in hand 609 4,360
713 4,409
Creditors: amounts falling due within one year (88) (138)
Net current assets 625 4,271
Net assets 11,592 12,167
Capital and reserves
Called up share capital 13 13
Capital redemption reserve - -
Special reserve (2,017) (1,345)
Share premium reserve 13,608 13,608
Revaluation reserve (52) (105)
Capital reserve - realised - -
Revenue reserve 40 (4)
Total equity shareholders' funds 11,592 12,167
BALANCE SHEET (ANALYSED BY SHARE POOL) (continued)
as at 31 December 2016
'J' Shares
2016 2015
GBP000 GBP000
Fixed assets
Investments 10,280 2,315
Current assets
Debtors - 28
Cash at bank and in hand 32 8,279
32 8,307
Creditors: amounts falling due within one year (30) (46)
Net current assets 2 8,261
Net assets 10,282 10,576
Capital and reserves
Called up share capital 11 11
Capital redemption reserve - -
Special reserve - -
Share premium reserve 11,031 11,031
Revaluation reserve (189) (105)
Capital reserve - realised - -
Revenue reserve (571) (361)
Total equity shareholders' funds 10,282 10,576
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016
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 2015 67 106 22,268 13,608 (289) (1,033) 342 35,069
Total
comprehensive
income - - - - (234) 34 1,317 1,117
Transactions with
owners
Issue of new
shares 11 - - 11,031 - - - 11,042
Share issue costs - - - - - - (309) (309)
Transfer between
reserves - - (6,519) - (943) 7,462 - -
Dividend paid - - - - - (7,496) - (7,496)
At 31 December
2015 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
CASH FLOW STATEMENT
for the year ended 31 December 2016
Year ended 31 December 2016
'C' 'D' 'F'
Share Share Share 'H' 'J' Share
pool pool pool Share pool pool Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash
inflow/(outflow) from
operating activities 16 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
(outflow)/inflow from
investing activities 749 2,182 587 (3,017) (8,050) (7,549)
Net cash outflow/(inflow) before
financing activities 844 2,381 549 (3,079) (8,247) (7,552)
Cash flows from financing
activities
Equity dividends paid 8 (3,780) (1,697) (541) (672) - (6,690)
Net cash (outflow)/inflow 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
Year ended 31 December 2015
'C' 'D' 'F'
Share Share Share 'H' 'J' Share
pool pool pool Share pool pool Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash inflow/(outflow) from
operating activities 534 160 157 46 (35) 862
Cash flows from investing
activities
Purchase of investments (158) (417) (1,725) (6,636) (2,830) (11,766)
Sale of investments 5,671 3,550 1,665 5,767 410 17,063
Net cash inflow/(outflow) from
investing activities 5,513 3,133 (60) (869) (2,420) 5,297
Net cash inflow/(outflow) before
financing activities 6,047 3,293 97 (823) (2,455) 6,159
Cash flows from financing
activities
Equity dividends paid (3,588) (2,695) (540) (673) - (7,496)
Proceeds from share issue - - - - 11,042 11,042
Share issue costs - - - - (309) (309)
Net cash (outflow)/inflow from
financing activities (3,588) (2,695) (540) (673) 10,733 3,237
Increase/(decrease) in cash 2,459 598 (443) (1,496) 8,278 9,396
Cash and cash equivalents at start
of year 503 31 792 5,856 - 7,182
Cash and cash equivalents at end of
year 2,962 629 349 4,360 8,278 16,578
Cash and cash equivalents comprise
Cash at bank and in hand 2,962 629 349 4,360 8,278 16,578
Total cash and cash equivalents 2,962 629 349 4,360 8,278 16,578
NOTES TO THE ACCOUNTS
for the year ended 31 December 2016
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 Ergon House, Horseferry Road, London, SW1P
2AL.
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 as well as the Companies Act 2006.
The Company implements new Financial Reporting Standards ("FRS") issued
by the Financial Reporting Council when required.
The financial statements are presented in Sterling (GBP).
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 partnership companies is 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 accounts. 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 my 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.
3. Basic and diluted return per share
'C' Shares 'A' Shares 'D' Shares 'E' Shares 'F' Shares 'H' Shares 'J' Shares
Revenue return/
(loss) (GBP'000) (30) - (30) - (107) 44 (210)
Net capital
(loss)/gain for the - - 236 - 415 53 (84)
year (GBP'000)
Total return/
(loss) after (30) - 206 - 308 97 (294)
taxation
(GBP'000)
Weighted average
number of shares 7,158,326 10,750,064 9,979,109 14,994,862 10,821,660 13,446,972 10,733,377
in issue
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
2016 2015
Shares in issue Net asset value Net asset value
31 Dec 31 Dec per
2016 2015 per share GBP'000 share GBP'000
'C'
Shares 7,158,326 7,158,326 - 3 53.2p 3,802
'A'
Shares 10,750,064 10,750,064 - - 0.1p 11
'D'
Shares 9,979,109 9,979,109 36.4p 3,619 51.3p 5,110
'E'
Shares 14,994,862 14,994,862 0.1p 15 0.1p 15
'F'
Shares 10,821,660 10,821,660 69.4p 7,509 71.5p 7,742
'H'
shares 13,446,972 13,446,972 86.2p 11,592 90.5p 12,167
'J'
Shares 10,733,377 10,733,377 95.8p 10,282 98.5p 10,576
33,020 39,423
The 'C' Share pool, 'D' Share pool, 'F' Share pool, 'H' Share pool and
'J' Share pool are treated as separate investment pools. Within the 'C'
Share pool the Directors allocate the assets and liabilities of the
Company between the 'C' Shares and 'A' Shares such that each share class
has sufficient net assets to represent its dividend and return of
capital rights. Within the 'D' Share pool the Directors allocate the
assets and liabilities of the Company between the 'D' Shares and 'E'
Shares such that each share class has sufficient net assets to represent
its dividend and return of capital rights.
5. Principal risks
The Company's financial instruments comprise investments held at fair
value through profit and loss, being equity and loan stock investments
in unquoted companies, loans and receivables consisting of short term
debtors, cash deposits and financial liabilities, being creditors
arising from its operations. The main purpose of these financial
instruments is to generate cashflow and revenue and capital appreciation
for the Company's operations. The Company has no gearing or other
financial liabilities apart from short-term creditors and does not use
any derivatives.
The fair value of investments is determined using the detailed
accounting policy
The fair value of cash deposits and short term debtors and creditors equates to their carrying value in the Balance Sheet. Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value. The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are: *Market risks *Credit risk *Liquidity risk The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year. The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below: Market risks As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes. The key investment risks to which the Company is exposed are: *Investment price risk *Interest rate risk Investment price risk Investment price risk arises from uncertainty about the valuation of financial instruments held in accordance with the Company's investment objectives in addition to the appropriateness of the valuation method used. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds. Interest rate risk The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below. There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows: *"Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments. *"Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments. *"No interest rate" assets do not attract interest and comprise equity investments and debtors. The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations. Credit risk Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors. The Manager manages credit risk in respect of loan stock with a similar approach as described under "Market risks" above. In addition the credit risk is mitigated for all investments in loan stocks by taking security, covering the full par value of the loan stock, in the form of fixed and floating charges over the assets of the investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. Similarly the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures. Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both also ultimately part-owned by the UK Government. 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 2016 GBP1,270,000 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, (GBP286,000, 2015: GBP494,000) 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. 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 2016, but has been extracted from the statutory financial statements for the year ended 31 December 2016 which were approved by the Board of Directors on 26 April 2017 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 2015 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 2016 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Ergon House, London, SW1P 2AL 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 26, 2017 13:29 ET (17:29 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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