TIDMDP3C
DOWNING PLANNED EXIT VCT 3 PLC
FINAL RESULTS FOR THE YEAR ENDED 31 JANUARY 2013
FINANCIAL SUMMARY
31 Jan 2013 31 Jan 2012
Pence Pence
'C' Share pool
Net asset value per 'C' Share 94.7 91.5
Net asset value per 'A' Share 0.1 0.1
Cumulative distributions per 'C' Share 17.5 12.5
Total return per 'C' Share and 'A' Share 112.3 104.1
'D' Share pool
Net asset value per 'D' Share 79.7 83.3
Net asset value per 'E' Share 0.1 0.1
Cumulative distributions per 'D' Share 12.5 7.5
Total return per 'D' Share and 'E' Share 92.3 90.9
'F' Share pool
Net asset value per 'F' Share 88.5 n/a
Cumulative distributions per 'F' Share 5.0 n/a
Total return per 'F' Share 93.5 n/a
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Annual Report for the year ended 31 January
2013. The Company has continued to increase in size over the year, with
a successful 'F' Share fundraising. Although a small number of
investments have faced difficulties, generally investment performance
has been satisfactory over the year.
Fundraisings and company structure
The original 'F' Share offer for subscription launched in October 2011
and closed on 28 September 2012. This was followed by an 'F' Share
top-up offer that closed in December 2013. In total, the offers raised
gross proceeds of GBP10.8 million for the 'F' Share class.
With the Company's Ordinary Shares having been cancelled in August 2012
(after returning all their funds to Shareholders) the Company now has
three active share pools; 'C' Shares (and 'A' Shares), 'D' Shares (and
'E' Shares), 'F' Shares.
'C' Share pool
The Company's 'C' Shares were originally issued in 2008 and 2009. The
'C' Share pool is effectively fully invested and holds a portfolio of 19
investments, of which 14 are VCT qualifying or part qualifying.
At 31 January 2013, the NAV of a combined holding of one 'C' Share and
one 'A' Share stood at 94.8p, an increase of 9% over the year after
adding back dividends of 5p paid in the year. 'C' Share dividends paid
to date total 17.5p such that total return (NAV plus cumulative
dividends to date) is now 112.3p
In line with the intention set out in the 'C' Share prospectus, the
Board is proposing to pay a final dividend of 2.5p per 'C' Share on 19
July 2013 to Shareholders on the register at the close of business on 28
June 2013.
A detailed review of the 'C' Share pool is presented in the Investment
Manager's report and Review of Investments.
'D' Share pool
The 'D' Shares were originally issued in 2010. The 'D' Share pool is now
also effectively fully invested and holds a portfolio of 20 investments,
of which 17 are qualifying or partially qualifying.
At 31 January 2013, the NAV of a combined holding of one 'D' Share and
one 'E' Share stood at 79.8p, an increase of 1.8% over the year after
adding back dividends of 5p per share paid in the year. 'D' Share
dividends paid to date total 12.5p such that total return (NAV plus
cumulative dividends to date) is now 92.3p.
In line with the intention set out in the 'D' Share prospectus, the
Board is proposing to pay a final dividend of 2.5p per 'D' Share on 19
July 2013 to Shareholders on the register at the close of business on 28
June 2013.
A detailed review of the 'D' Share pool is presented in the Investment
Manager's report and Review of Investments.
'F' Share pool
The 'F' Share pool was launched in 2012 and the Manager has been
actively investing its fund over its initial period. At 31 January 2013,
the pool held eight VCT qualifying investments and a further 9
non-qualifying investments, most of which are in the form of secured
loans.
At 31 January 2013, the 'F' Share NAV stood at 88.5p, which represents a
small decrease over the initial period after adjusting for the dividends
of 5p per share paid in the year. Total Return (NAV plus cumulative
dividends to date) is now 93.5p.
In line with the intention set out in the 'F' Share prospectus, the
Board is proposing to pay a final dividend of 2.5p per 'F' Share on 19
July 2013 to Shareholders on the register at the close of business on 28
June 2013.
A detailed review of the 'F' Share pool is presented in the Investment
Manager's report and Review of Investments.
Share buybacks
The Company has a general policy of buying in its own shares for
cancellation when any become available in the market. The current policy
is to buy in 'C' Shares, 'A' Shares, 'D' Shares or 'E' Shares at
approximately a 10% discount to the latest published NAV of those share
classes. In respect of the new 'F' Shares, in the initial years after
issue, any such purchases will be undertaken at a price equal to the
latest published NAV (i.e. at nil discount). All buybacks are subject to
regulatory restrictions and other factors such as availability of liquid
funds.
During the year, the Company repurchased 15,050 'C' Shares for an
aggregate consideration of GBP12,267 being an average price of 81.5p per
share and which represented 0.2% of the Company's issued 'C' Share
capital. 10,000 'A' Shares were repurchased for an aggregate
consideration of GBP10 being an average price of 0.1p per share and
which represented 0.1% of the Company's issued 'A' Share capital. These
shares were subsequently cancelled. No 'D' Shares, 'E' Shares or 'F'
Shares were repurchased during the year.
Annual General Meeting and Share Class Meetings
The Company's eighth Annual General Meeting will be held at 10 Lower
Grosvenor Place, London SW1W 0EN at 11:05 a.m. on 5 July 2013.
On item of special business will be proposed at the AGM in connection
with authority for the Company to buy back shares as described above.
Outlook
The Company has three share pools, each of them are at different stages
in their life. In respect of the 'C' Share pool and, to a lesser extent,
the 'D' Share pool, during the current year the Manager will be starting
to look ahead to potential exit plans for the investments, while
continuing to closely monitor the portfolio companies to ensure that
they stay on track to deliver full value.
The current year will see the process of building the 'F' Share
portfolio continue. The Manager reports that it is continuing to see a
good flow of investment opportunities which should allow the share pools
to develop portfolios which have the potential to deliver the targeted
returns. I look forward to reporting progress to Shareholders in my
report with the Half-Yearly Statement to 31 July 2013.
Hugh Gillespie
Chairman
INVESTMENT MANAGER'S REPORT- 'C' SHARE POOL
Introduction
The 'C' Share pool holds investments in 19 companies and is now fully
invested. Further investment activity is likely to be limited to
reinvesting proceeds from divestments when short term investment
opportunities arise. The 'C' Share portfolio has continued to perform
well and this has been reflected in a healthy increase in net asset
value over the year.
Net asset value and results
At 31 January 2013, the 'C' Share NAV stood at 94.7p and the 'A' Share
NAV at 0.1p, giving a combined NAV of 94.8p. Total Return (NAV plus
cumulative dividends to date) was 112.3p for a combined holding of one
'C' and one 'A' Share. This represents a net increase of 8.2p over the
year (after adjusting for dividends paid during the year of 5.0p per 'C'
Share), equivalent to an increase of 9%.
The Total Return on ordinary activities for 'C' Share pool for the year
was GBP585,000 (2012: 444,000) comprising a revenue profit of GBP286,000
(2012: GBP124,000) and a capital gain of GBP299,000 (2012: GBP320,000).
'C' Share pool - Investment activity
During the year, the Company made three small follow on investments
totalling GBP80,000 and also had loan stock redemptions of GBP27,000.
'C' Share pool - Portfolio valuation
The majority of the investments within the 'C' Share portfolio performed
well throughout the year and the values of a number of these have been
uplifted at the year end.
The valuation of the investment in Atlantic Dogstar Limited was
increased by GBP114,000. The company owns and operates The Dogstar pub
in Brixton and The Clapton Hart in Clapton. Both pubs are trading
significantly ahead of their original business plans. An independent
valuation of each of pubs was commissioned, on which the year end
valuation has been based.
The valuation of the investment in Redmed Limited was increased by
GBP105,000. The company owns The Annexe nightclub in Lincoln city centre,
which is producing results that are 40% ahead of the original business
plan.
Domestic Solar Limited owns a portfolio of solar panels on the rooftops
of domestic properties across the UK. The panels have now been
operational for over a year and are starting to establish a track record
of income generation. An uplift of GBP60,000 in the value of the
investment in Domestic Solar was made at the year end.
Further increases in value were recognised in Westow House Limited,
GBP87,000, East Dulwich Tavern Limited, GBP41,000 and Bijou Wedding
Venues Limited, GBP17,000, to reflect that the businesses are performing
well and in line with expectations.
On the negative side, a reduction in valuation of GBP88,000 was made
against Honeycombe Pubs VCT plc. The company owns a bar in Burnley,
Lancashire. Trading continues to be difficult and a third party
valuation has indicated that the value had fallen from previous carrying
levels.
A GBP37,000 reduction in value of Ecossol Limited was made at the year
end to reflect that the business, which owns a portfolio of commercial
solar installations, has experienced technical difficulties at a number
of the installations. This has affected the income generating abilities
of the panels. This performance is below forecast and, therefore, a
cautionary provision has been made until the technical difficulties are
resolved.
Overall the portfolio showed net unrealised gains of GBP299,000.
Outlook
Although the British economy remains in a fragile state, we believe that
'C' Share portfolio is reasonably resilient and can continue to produce
good results over the remaining planned life of the share pool.
We will be seeking to start returning funds to 'C' Shareholders late in
2014, being five years after the close of the 'C' Share offer, and will
be starting preliminary work on planning investment realisations during
the coming year.
Downing Managers 3 Limited
REVIEW OF INVESTMENTS - 'C' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and
Wales, were held at 31 January 2013:
'C' Share pool
Valuation
movement % of
Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying and partially
qualifying investments
Bijou Wedding Venues Limited 815 901 17 13.3%
Atlantic Dogstar Limited 438 728 114 10.7%
Future Biogas (SF) Limited 627 703 - 10.4%
Domestic Solar Limited 500 560 60 8.3%
Redmed Limited* 429 534 105 7.9%
Westow House Limited 304 418 87 6.2%
East Dulwich Tavern Limited 344 385 41 5.7%
Quadrate Spa Limited* 363 363 - 5.4%
Quadrate Catering Limited 330 330 - 4.9%
Ecossol Limited 250 213 (37) 3.1%
The 3D Pub Co Limited 267 186 - 2.7%
Mosaic Spa and Health Clubs
Limited* 125 125 - 1.8%
Chapel Street Food and Beverage
Limited 50 50 - 0.7%
Chapel Street Services Limited 50 50 - 0.7%
Non-qualifying investments
Hoole Hall Country Club Holdings
Limited 581 581 - 8.6%
The Thames Club Limited 500 500 - 7.4%
Honeycombe Pubs VCT plc 175 87 (88) 1.3%
Vermont Developments Limited 25 25 - 0.4%
Chapel Street Hotel Limited 2 2 - 0.0%
6,175 6,741 299 99.5%
Cash at bank and in hand 35 0.5%%
Total investments 6776 100.0%
*Part-qualifying investment
Summary of investment movements
Additions
Cost
GBP'000
VCT qualifying investments and partially qualifying
investments
Quadrate Spa Limited* 53
The 3D Pub Co Limited 18
Atlantic Dogstar Limited 9
Total 'C' Share pool 80
Disposals
Total
Gain realised
MV at Disposal against gain during
Cost 01/02/12 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying
investments
The 3D Pub Co
Limited 18 18 18 - -
Non-qualifying
investments
Redmed Limited 9 9 9 - -
27 27 27 - -
*Part-qualifying investment
Adjusted for additions in the year
INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL
Introduction
The 'D' Share pool now holds investments in 20 companies and is
effectively fully invested. The portfolio has experienced reasonably
stable performance over the year, with the main problems encountered
early in the share pool's life mostly now behind us.
Net asset value and results
At 31 January 2013, the 'D' Share NAV stood at 79.7p and the 'E' Share
NAV at 0.1p, giving a combined NAV of 79.8p. Total Return (NAV plus
cumulative dividends to date) was 92.3p for a combined holding of one
'D' and one 'E' Share. This represents a net increase of 1.5p over the
year (after adjusting for dividends paid during the year of 5.0p per 'D'
Share), equivalent to an increase of 1.8%.
The return on ordinary activities for the 'D' Shares for the year was a
return of GBP150,000 (2012 loss: GBP527,000) being a revenue surplus of
GBP174,000 (2012: GBP57,000) and a capital loss of GBP24,000 (2012:
GBP584,000).
'D' Share pool - investment activity
During the year, the Company made a small number of new investments
totalling GBP600,000. These were partly financed by loan stock
redemptions which produced proceeds of GBP469,000.
The main new addition was an investment of GBP250,000 in West Tower
Property Limited in January 2013. The funding assisted the company in
its purchase of "The West Tower", an exclusive wedding venue located in
Aughton, Lancashire.
A further GBP150,000 was invested in Aminghurst Limited, which is
completing the development of an apartment and hotel complex near
Salcombe in South Devon. This is a non-qualifying investment for the
share pool which should deliver an attractive yield and gives the
company a charge over the development.
In addition to the above, a number of transactions also took place in
respect of a reorganisation of Gingerbread Pre-School Nurseries where
the trade was ultimately acquired by Liverpool Nurseries (Holdings). As
part of the reorganisation a new manager and investment partner was
brought in and is making progress in recovering from the initial
difficulties that the business faced.
'D' Share pool - portfolio valuation
The majority of the 'D' Share portfolio performed in line with
expectations during the year, however, there were a small number of
valuation movements which resulted in a net unrealised loss of
GBP24,000.
Domestic Solar Limited and Green Electricity Generation Limited both own
a portfolio of solar panels on the rooftops of domestic properties
across the UK. The panels have now been generating income for over a
year and have started to establish reliable track records, resulting in
an uplift of GBP48,000 for Domestic Solar Limited and GBP7,000 for Green
Electricity Generation Limited.
Alpha Schools (Holdings) Limited, an independent primary school operator,
is performing well and in line with expectations and was revalued
upwards by GBP14,000.
On the negative side, Camandale Limited suffered a further write down of
GBP45,000 as independent valuations of the two bars owned by the company
in Kilmarnock indicated that their value has fallen.
A GBP38,000 reduction in value of Ecossol Limited was made at the year
end to reflect that the business, which owns a portfolio of commercial
solar installations, has experienced technical difficulties at a number
of the installations which has affected the income generating abilities
of the panels. This performance is below forecast; therefore, a
cautionary provision has been made until the technical difficulties are
resolved.
A GBP10,000 decrease in the value of Ridgeway Pub Company Limited was
made at the year end. The investment, which owns and operates two pubs
in Oxfordshire, is operating behind budget with no immediate sign of
improvement. As a result, a small reduction in value has been made.
Outlook
The difficult economic conditions are expected to continue for some time
and will provide challenges for many of the portfolio companies.
Although some minor problems in the portfolio remain, the major ones
have been resolved and we are working closely with all investment
partners to ensure that full value can be extracted from the investments
over the life of the share pool.
Downing Managers 3 Limited
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 January 2013:
'D' Share pool
Valuation
movement % of
Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying and partially
qualifying investments
Future Biogas (Reepham Road)
Limited 748 748 - 9.3%
Quadrate Spa Limited* 496 496 - 6.2%
Mosaic Spa and Health Clubs
Limited* 475 475 - 5.9%
Liverpool Nurseries (Holdings)
Limited* 467 467 - 5.8%
Domestic Solar Limited 400 448 48 5.6%
Quadrate Catering Limited 441 441 - 5.5%
Alpha Schools (Holdings) Limited 367 381 14 4.7%
Kidspace Adventures Holdings
Limited* 375 375 - 4.7%
Green Electricity Generation
Limited 250 257 7 3.2%
Avon Solar Energy Limited 250 250 - 3.1%
West Tower Property Limited 250 250 - 3.1%
Westcountry Solar Solutions
Limited* 250 250 - 3.1%
Ecossol Limited 250 212 (38) 2.6%
Slopingtactic Limited 196 196 - 2.4%
Progressive Energies Limited 170 170 - 2.1%
Ridgeway Pub Company Limited 136 126 (10) 1.6%
Camandale Limited* 561 113 (45) 1.4%
Non-qualifying investments
Aminghurst Limited 2,150 2,150 - 26.8%
Fenkle Street LLP 122 122 - 1.5%
Commercial Street Hotel Limited 100 100 - 1.2%
8,454 8,027 (24) 99.8%
Cash at bank and in hand 6 0.2%
Total investments 8,033 100.0%
*Part-qualifying investment
Summary of investment movements
Additions
Cost
GBP'000
VCT qualifying and partially qualifying investments
West Tower Property Limited 250
Quadrate Spa Limited* 77
Liverpool Nurseries (Holdings) Limited* ** 467
Non-qualifying investments
Liverpool Nurseries (House) Limited** 203
Aminghurst Limited 150
Liverpool Nurseries (Greenbank) Limited** 138
Kidspace Adventures Holdings Limited 125
Liverpool Nurseries (Cottage) Limited** 67
Total 'D' Share pool 1,477
Disposals
Total
Loss realised
MV at Disposal against gain during
Cost 01/02/12 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT qualifying and partially qualifying
investments
Gingerbread
Pre-Schools (UK)
Limited** 576 395 395 (181) -
Non-qualifying
investments
Retallack Surfpods
Limited 250 250 250 - -
Liverpool
Nurseries (House)
Limited** 203 203 203 - -
Liverpool
Nurseries
(Greenbank)
Limited** 138 138 138 - -
Kidspace
Adventures
Limited 135 135 135 - -
Liverpool
Nurseries
(Cottage)
Limited** 67 67 67 - -
Hoi Polloi Pub Co
Limited 60 60 60 - -
Fenkle Street LLP 24 24 24 - -
Total 'D' Share
pool 1,453 1,272 1,272 (181) -
*Part-qualifying investments
**Part of reorganisation of Liverpool Nurseries companies
Adjusted for additions in the year
INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL
Introduction
As set out in the 'F' Share prospectus, the pool is expected to
initially invest much of its funds in non-qualifying secured loans and,
over the next three years, the pool will build a qualifying investment
portfolio with a focus on asset backed businesses and those with
predictable revenue streams.
Fundraising
The original 'F' Share fundraising closed in September 2012, shortly
after which a top up share offer was launched, which, in turn, closed in
December 2012. Both share offers were launched in conjunction with
Downing Planned Exit VCT 3 plc. The joint offers raised total proceeds
of GBP21.6 million, of which GBP10.8 million was in respect of Downing
Planned Exit VCT 2 plc.
Net asset value and results
At 31 January 2013, the 'F' Share NAV stood at 88.5p. The 'F' Shares
paid a first dividend of 5p per share in November 2012. Total Return
(NAV plus cumulative dividends to date) for shareholders who invested in
the original share offer is now 93.5p. This represents a net decrease of
1.0p per share against the price at launch of 94.5p per share (after
adjusting for dividends paid during the year of 5.0p per Share),
equivalent to a decrease of 1.1%.
The return on ordinary activities for the 'F' Share pool for the year
was a loss of GBP105,000 being a revenue loss of GBP10,000 and a capital
loss of GBP95,000.
'F' Share pool - investment activity
During the 'F' Share pool's first period, the Company invested GBP1.8
million in eight VCT qualifying investments.
Three separate investments were made in City Falkirk Limited, Fubar
Stirling Limited and Cheers Dumbarton Limited totalling GBP738,000. Each
of these companies owns and operates a nightclub in Scotland. A
GBP13,000 investment was also made in Lochrise Limited who manages the
nightclubs and is associated with the Castle Leisure Group, an
experienced operator in the region.
Four investments during the year were made in secure Government-backed
renewable investments:
A net investment of GBP680,000 was made in Tor Solar PV Limited which
owns a portfolio of Solar PV panels located on farms in the South West
of the UK.
GBP560,000 was invested in Vulcan Renewables Limited. Vulcan Renewables
is developing a 2MW maize fed biogas plant near Doncaster which will
generate both gas and electricity.
A GBP200,000 investment was made in Fresh Green Power Limited and
GBP100,000 was invested in Green Energy Production UK Limited. Both
companies install and own solar PV systems on the roofs of domestic
properties in the UK.
The four investments above will benefit from the receipt of
Feed-in-Tariffs from the production of electricity. Vulcan Renewables
will also receive payments under the Renewable Heat Incentive scheme
from gas injection into the gas main.
In addition, the share pool made 9 non-qualifying investments and two
investments with a non-qualifying element, mostly in the form of
short-term secured loans. These provide the share pool with a steady
yield on its funds which are not yet employed in qualifying
opportunities.
There were also a small number of loan stock redemptions that took place,
returning some GBP561,000 to the share pool.
'F' Share pool - portfolio valuation
As all the investments were made within the last 12 months, the majority
of the investments were held at valuations equal to cost at the year
end. Some valuation adjustments have however been necessary where
businesses have not performed to plan.
As mentioned above, City Falkirk owns a large nightclub in Falkirk,
Scotland. The club was purchased out of administration in April 2012 at,
what was considered to be, an attractive price. It has become apparent
that the long period in administration, when there was poor customer
service and a lack of maintenance, has damaged the business. This along
with generally challenging trading conditions has resulted in the
performance of the club falling well behind forecast. Accordingly, a
cautionary reduction in value of GBP82,000 was recognised at the year
end. Lochrise Limited acts as the manager to City Falkirk and a number
of other bars and clubs. The value of Lochrise is based on the
performance of the nightclubs and bars that it manages. In view of the
performance of City Falkirk and other disappointing trading, a full
provision of GBP13,000 has been made.
Outlook
The 'F' Share pool is expected to continue to be an active investor over
the next year. Dealflow of potential investments is looking promising so
we expect to see the pool complete a number of new qualifying
investments.
Monitoring of the portfolio companies will become an increasing
proportion of our work and is essential to ensure that the businesses
remain on track and that, if it is required, prompt, appropriate action
is taken.
Downing Managers 3 Limited
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 January 2013:
Valuation
movement % of
'F' Share pool Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000
VCT qualifying and partially
qualifying investments
Tor Solar PV Limited* 680 680 - 7.1%
Vulcan Renewables Limited 560 560 - 5.8%
City Falkirk Limited* 422 340 (82) 3.6%
Fubar Stirling Limited 268 268 - 2.8%
Fresh Green Power Limited 200 200 - 2.1%
Green Energy Production UK Limited 100 100 - 1.0%
Cheers Dumbarton Limited 48 48 - 0.5%
Lochrise Limited 13 - (13) 0.0%
Non-qualifying investments
Aminghurst Limited 1,110 1,110 - 11.6%
Baron House Developments LLP 625 625 - 6.5%
Clareville St LLP 500 500 - 5.2%
Southampton Hotel Developments
Limited 300 300 - 3.1%
West Tower Holdings Limited 290 290 - 3.0%
Hoole Hall Hotel Limited 265 265 - 2.8%
Kidspace Adventures Holdings
Limited 250 250 - 2.6%
Retallack Limited 250 250 - 2.6%
3D Pub Co Limited 55 55 - 0.6%
5,936 5,841 (95) 60.9%
Cash at bank and in hand 3,740 39.1%
Total investments 9,581 100.0%
*Part-qualifying investment
All of the above were also additions during the year.
Summary of investment movements
Disposals
Total
Gain realised
MV at Disposal against gain during
Cost 01/02/12 proceeds cost the year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Non-qualifying
investments
Holdland House
Developments
Limited 350 350 350 - -
Tor Solar PV Limited 136 136 136 - -
Baron House
Developments LLP 75 75 75 - -
561 561 561 - -
Adjusted for additions in the year
All of the above were also additions during the year.
DIRECTORS' RESPONSIBILITIES STATEMENT
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 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). 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 judgments 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.
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 January 2013
Year ended 31 January 2013 Year ended 31 January 2012
Revenue Capital Total
(incl. (incl. (incl.
Ord Ord Ord
Shares) Shares) Shares) Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 1,149 - 1,149 676 - 676
Gain/(loss) on
investments - 175 175 - (264) (264)
1,149 175 1,324 676 (264) 412
Investment
management
fees (308) - (308) (211) - (211)
Other expenses (238) - (238) (199) - (199)
Return/(loss)
on ordinary
activities
before tax 603 175 778 266 (264) 2
Tax on
ordinary
activities (152) - (152) (85) - (85)
Return/(loss)
attributable
to equity
shareholders 451 175 626 181 (264) (83)
Basic and
diluted
return/(loss)
per:
'C' Share 4.0p 4.2p 8.2p 1.7p 4.5p 6.2p
'A' Share - - - - - -
'D' Share 1.7p (0.2p) 1.5p 0.5p (5.8p) (5.3p)
'E' Share - - - - - -
'F' Share (0.1p) (1.2p) (1.3p) - - -
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/loss as stated above and at historical cost.
INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 January 2013
'C' Share pool
Year ended 31 January 2013 Year ended 31 January 2012
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 537 - 537 337 - 337
Gain on
investments - 299 299 - 320 320
537 299 836 337 320 657
Investment
management
fees (89) - (89) (88) - (88)
Other expenses (75) - (75) (74) - (74)
Return on
ordinary
activities
before tax 373 299 672 175 320 495
Tax on
ordinary
activities (87) - (87) (51) - (51)
Return
attributable
to equity
shareholders 286 299 585 124 320 444
'D' Share pool
Year ended 31 January 2013 Year ended 31 January 2012
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 433 - 433 339 - 339
Loss on
investments - (24) (24) - (584) (584)
433 (24) 409 339 (584) (245)
Investment
management
fees (110) - (110) (123) - (123)
Other expenses (88) - (88) (125) - (125)
Return/(loss)
on ordinary
activities
before tax 235 (24) 211 91 (584) (493)
Tax on
ordinary
activities (60) - (60) (34) - (34)
Return/(loss)
attributable
to equity
shareholders 175 (24) 151 57 (584) (527)
'F' Share pool
Year ended 31 January 2013 Year ended 31 January 2012
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 179 - 179 - - -
Loss on
investments - (95) (95) - - -
179 (95) 84 - - -
Investment
management
fees (109) - (109) - - -
Other expenses (75) - (75) - - -
Loss on
ordinary
activities
before tax (5) (95) (100) - - -
Tax on
ordinary
activities (5) - (5) - - -
Loss
attributable
to equity
shareholders (10) (95) (105) - - -
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 January 2013
Year ended 31 January 2013 Year ended 31 January 2012
Total
'C' 'D' 'F' (incl. 'C' 'D' Other
Share Share Share Ord Share Share Share
pool pool pool Shares) pool pool pools Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening
Shareholders'
funds 6,574 8,333 1,178 16,090 6,668 9,360 5 16,033
Issue of
shares - - 10,763 10,763 - - - -
Share issue
costs - - (592) (592) - - - -
Purchase of
own shares (12) - - (12) - - - -
Share capital
to be issued - - (1,178) (1,178) - - 1,178 1,178
Total
recognised
return/(loss)
for the year 585 151 (105) 626 444 (527) - (83)
Dividends paid (358) (500) (492) (1,350) (538) (500) - (1,038)
Closing
Shareholders'
funds 6,789 7,984 9,574 24,347 6,574 8,333 1,183 16,090
Other share pools comprise the Ordinary Share pool and the 'F' Share
pool.
The Ordinary Share pool had opening Shareholders funds of GBP5,000 at 1
February 2012. These were eliminated when the class was cancelled during
the year.
BALANCE SHEET
as at 31 January 2013
Year ended 31 January 2013 Year ended 31 January 2012
'C' 'D' 'F' 'C' 'D' Other
Share Share Share Share Share Share
pool pool pool Total pool pool pools Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 6,741 8,027 5,841 20,609 6,389 7,846 5 14,240
Current assets
Debtors 157 90 73 320 114 99 1,178 1,391
Cash at bank and in
hand 35 6 3,740 3,781 179 493 - 672
192 96 3,813 4,101 293 592 1,178 2,063
Creditors: amounts
falling due within
one year (144) (139) (80) (363) (108) (105) - (213)
Net current
assets/(liabilities) 48 (43) 3,733 3,738 185 487 1,178 1,850
Net assets 6,789 7,984 9,574 24,347 6,574 8,333 1,183 16,090
Capital and reserves
Called up share
capital 18 25 11 54 18 25 101 144
Share capital to be
issued - - - - - - 1,178 1,178
Capital redemption
reserve 106 - - 106 4 - 1 5
Special reserve 5,977 8,384 - 14,361 6,173 8,975 - 15,148
Share Premium reserve - - 10,160 10,160 - - - -
Revaluation reserve 566 (427) (95) 44 267 (584) - (317)
Capital reserve -
realised 53 - (492) (439) 53 - - 53
Revenue reserve 69 2 (10) 61 59 (83) (97) (121)
Total equity
shareholders' funds 6,789 7,984 9,574 24,347 6,574 8,333 1,183 16,090
Basic and diluted net
asset value per
Ordinary Share - - - 0.1p
'C'/'D'/'F' Share 94.7 79.7 88.5 91.5p 83.3p - -
'A'/'E' Share 0.1 0.1 n/a 0.1p 0.1p - -
Other share pools comprise the Ordinary Share pool and the 'F' Share
pool.
CASH FLOW STATEMENT
for the year ended 31 January 2013
Year ended 31 January 2013 Year ended 31 January 2012
'C' 'D' 'F' 'C' 'D' Other
Share Share Share Share Share Share
pool pool pool Total pool pool pools Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash inflow from
operating
activities 327 251 (3) 575 259 260 - 519
Taxation
Corporation tax paid (48) (33) - (81) - (120) - (120)
Capital expenditure
Purchase of
investments (80) (1,477) (6,497) (8,054) (2,842) (5,627) - (8,469)
Sale of investments 27 1,272 561 1,860 2,627 4,560 - 7,187
Net cash outflow
from capital
expenditure (53) (205) (5,936) (6,194) (215) (1,067) - (1,282)
Equity dividends
paid (358) (500) (492) (1,350) (538) (500) - (1,038)
Net cash outflow
before financing (132) (487) (6,431) (7,050) (494) (1,427) - (1,921)
Financing
Proceeds from share
issue - - 10,763 10,763 - - - -
Share issue costs - - (592) (592) - - - -
Purchase of own
shares (12) - - (12) - - - -
Net cash inflow from
financing (12) - 10,171 10,159 - - - -
(Decrease)/increase
in cash (144) (487) 3,740 3,109 (494) (1,427) - (1,921)
Other Share pools comprise the Ordinary and 'F' Share pools.
There were no cash flow movements with respect to the Ordinary Share
pool in either year.
NOTES TO THE ACCOUNTS
for the year ended 31 January 2013
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 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 Financial Reporting Council when required.
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. 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 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 in the
foreseeable future.
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.
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. Deferred taxation is not
discounted.
Other debtors, other creditors and loan notes
Other debtors (including accrued income), other creditors and loan notes
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 share premium account for the relevant share
class.
2. Basic and diluted return per share
'C' Shares 'A' Shares 'D' Shares 'E' Shares 'F' Shares
Revenue return/
(loss) (GBP'000) 286 - 175 - (10)
Weighted average
number of shares
in issue 7,173,376 10,760,064 10,000,000 15,000,000 8,129,676
Net capital
gain/(loss) for
the financial
year (GBP'000) 299 - (24) - (95)
Weighted average
number of shares
in issue 7,173,376 10,760,064 10,000,000 15,000,000 8,129,676
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.
3. Basic and diluted net asset value per share
2013 2012
Shares in issue Net asset value Net asset value
per per
2013 2012 share GBP'000 share GBP'000
Ordinary
Shares - 10,064,617 n/a n/a 0.1p 5
'C' Shares 7,158,326 7,173,376 94.7p 6,778 91.5p 6,563
'A' Shares 10,750,064 10,760,064 0.1p 11 0.1p 11
'D' Shares 9,994,109 9,994,109 79.7p 7,969 83.3p 8,318
'E' Shares 14,994,862 14,994,862 0.1p 15 0.1p 15
'F' Shares 10,821,660 - 88.5p 9,574 n/a n/a
Share
capital
to be
issued 1,178
24,347 16,090
The 'C' Share pool, 'D' Share pool and 'F' 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 risks
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:
*Investment 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:
Investment 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. 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.
It is estimated that an increase of 1% in interest rates would have
increased total return before taxation for the year by GBP4,000 for the
'C' Share pool, GBP- for the 'D' Share pool and GBP44,000 for the 'F'
Share pool. As the Bank of England base rate stood at 0.5% per annum
throughout the year, it is not believed that a reduction from this level
is likely.
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 "Investment risks" above. In addition the
credit risk is partially mitigated by registering floating charges over
the assets of certain 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.
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, (GBP363,000) and has no borrowings, the Board
believes that the Company's exposure to liquidity risk is low. The
Company always holds sufficient levels of funds as cash in order to meet
expenses and other cash outflows as they arise. For these reasons, the
Board believes that the Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Manager in
line with guidance agreed with the Board and is reviewed by the Board at
regular intervals.
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 2013, GBP308,000 (2012: GBP211,000) 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 2013, GBP52,000 (2012: GBP49,000) was
due in respect of administration fees. At the year end a balance of
GBP94,000 (2012: GBP61,000) was due to DM3.
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 2013,
but has been extracted from the statutory financial statements for the
year ended 31 January 2013, which were approved by the Board of
Directors on 24 May 2013 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 s498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 January 2012 have been
delivered to the Registrar of Companies and received an Independent
Auditor's Report which was unqualified and did not contain any emphasis
of matter nor statements under s498(2) and (3) of the Companies Act
2006.
A copy of the full annual report and financial statements for the year
ended 31 January 2013 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#1704561
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