TIDMDI3O
Downing Income VCT 3 plc
Final results for the year ended 31 March 2013
FINANCIAL SUMMARY
ORDINARY SHARE POOL
2013 2012
Pence Pence
Net asset value per share ("NAV") 89.5 87.0
Cumulative distributions paid since 1 April 2010 17.1 12.1
Total return (net asset value plus cumulative distributions
paid) 106.6 99.1
'E' SHARE POOL
2013 2012
Pence Pence
Net asset value per share ("NAV") 89.4 94.4
Cumulative distributions paid since launch 5.0 -
Total return (net asset value plus cumulative distributions
paid) 94.4 94.4
CHAIRMAN'S STATEMENT
I am pleased to present the Annual Report and Accounts for the year to
31 March 2013. It was a busy year for your Company, with the 'D' shares
being converted into Ordinary Shares, a new 'E' share class launched,
and a share realisation and reinvestment scheme being undertaken which
completed shortly after the year end.
The Company was also busy in terms of investment activity as
opportunities were taken within the Ordinary Share pool to reduce a
number of AIM holdings and complete some new unquoted investments, while
the 'E' Share pool made a good start in investing its funds, mostly in
unquoted businesses. The Ordinary Share pool returned a solid
performance for the year and there was no movement in the NAV of the 'E'
Share pool, which is still at an early stage in its life.
'E' Share Fundraising
The 'E' Share fundraising closed on 5 September 2012 having raised gross
proceeds of GBP5.8 million. Although the level of funds raised is a
little lower than originally hoped, the larger size of the Company is
still beneficial to all Shareholders in spreading the burden of fixed
running costs.
'D' Share conversion
Having paid dividends totalling 30.0p per 'D' Share, in accordance with
the plans set out at their launch, the 'D' Shares were converted into
Ordinary Shares on 7 September 2012 based on the relative net asset
value at 31 August 2012. 'D' Shareholders received 0.58164 Ordinary
Shares for each 'D' Share held.
In order to facilitate the conversion, and ensure that the nominal share
capital was maintained, the Ordinary Shares were subject to a bonus
issue and share consolidation. The end result is that the nominal value
of each Ordinary Share, which was 1p, is now 3.037p. This has had no
impact on the net asset value of each Ordinary Share and share
certificates showing "Ordinary Shares of 1p each" continue to remain
valid.
The results in this report for the Ordinary Share pool include both
those of the original Ordinary Share pool and the 'D' Share pool.
Share Realisation and Reinvestment Programme ("SRRP")
As Shareholders will be aware, the Company launched a Share Realisation
and Reinvestment Programme ("SRRP") in February 2013. This completed
shortly after the year end and was well received by investors with 2.1
million shares being tendered. The shares were purchased on 4 April 2013
and 11 April 2013 at 87.9p per share and the proceeds reinvested in new
shares issued at approximately 90.6p per share.
A further GBP181,000 was received in respect of the top-up share offer
that was launched alongside the SRRP, with shares being issued on the 4
April 2013 and 11 April 2013 at the same price.
Investment activities and performance
Ordinary Share pool
At 31 March 2013, the Ordinary Share portfolio comprised 32 investments,
which were valued at just over GBP11 million and was split 42:58 by
value between quoted and unquoted investments. The portfolio benefited
from particularly strong performances by two AIM-quoted holdings,
Pennant and Tracsis, and generated net unrealised gains of GBP799,000
and net realised losses of GBP24,000 over the year.
Further details on the investment activities and performance are given
in the Investment Manager's Report for the Ordinary Share pool.
'E' Share pool
During the year the 'E' Share pool made six qualifying investments at a
total cost of GBP1.7 million. The share pool also took advantage of a
number of non-qualifying opportunities which, in most cases, are in the
form of short term secured loans which will provide the share pool with
an attractive yield on funds before they are employed in qualifying
investments.
There was only one valuation movement during the year being of one
AIM-quoted investment, Universe Group plc, such that the portfolio
generated net unrealised gains of GBP55,000.
Further details on the investment activities and performance are given
in the Investment Manager's Report for the 'E' share pool.
Net asset value
Ordinary Shares
At the year end, the NAV per Ordinary Share stood at 89.5p. This
represents an increase of 7.5p (5.9%) over the year after adding back
dividends of 5.0p paid during the year.
'E' Shares
At the year end, the 'E' Share NAV stood at 89.4p. This represents no
change to the NAV over the year after adding back dividends of 5.0p paid
during the year.
Results
The total return on ordinary activities for the year was as follows:
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Ordinary Shares 161 573 734
'E' Shares (1) (1) (2)
160 572 732
Dividends
In line with the Company's stated policies, the Board is proposing to
pay the following final dividends on 30 September 2013 to Shareholders
on the register at 6 September 2013, as follows:
Ordinary Shares 2.5p per share
'E' Shares 2.5p per share
The payment of dividends is subject to Shareholder approval at the
Annual General Meeting ("AGM") on 17 September 2013.
Share buybacks
The Company operates a general policy of purchasing its own shares that
become available in the market. The Company's current policy is to buy
any Ordinary Shares at approximately a 15% discount to the latest
published NAV and any 'E' Shares at a nil discount as indicated in the
'E' Share prospectus. Buybacks are subject to regulatory restrictions
and other factors such as availability of liquid funds.
During the year, the Company repurchased 412,871 Ordinary Shares for an
aggregate consideration of 73.4p per share; 30,825 'D' Shares for an
aggregate consideration of 46.0p per share; and 11,185 'E' Shares for an
aggregate consideration of 89.0p per share. These shares were
subsequently cancelled.
Annual General Meeting
The next AGM of the Company will be held at 10 Lower Grosvenor Place,
London, SW1W 0EN at 11:30am on 17 September 2013.
One item of special business is proposed, a special resolution to renew
the authority to allow the Company to make market purchases of the
Company's shares.
Outlook
The Board is encouraged with the Company's performance over the last
year and believes that the adjustments to strategy made at the time of
the merger in 2010, namely a reduced level of exposure to AIM and a
focus on AIM investments where the Manager holds a stake large enough to
be influential, are now starting to provide benefits. Over the next
year, we expect to see the 'E' Share pool make further qualifying
investments and, to a lesser extent the Ordinary Share pool, where funds
for investment will come from proceeds of realisations of existing
portfolio companies.
Although the economy remains fragile, there are now some early signs of
optimism of recovery. The Manager will continue to work closely with all
portfolio companies to ensure that they are able to take full advantage
of improving conditions.
Longer term, with changes to the VCT regulation last year allowing VCTs
to make larger qualifying investments, there is now a clear trend
towards larger VCTs, which have several attractions, including reduced
running costs on a per share basis. The Board is considering what
options are available to the Company in this direction.
Andrew Griffiths
Chairman
INVESTMENT MANAGER'S REPORT - ORDINARY SHARE POOL
The Ordinary Share pool and 'D' Share pool merged on 31 August 2012 to
create one share pool with net assets of approximately GBP11 million.
This report covers activity across both pools over the year to 31 March
2013.
At the year end, the Ordinary Share Pool held 23 unquoted investments
and nine quoted investments. Investment activity during the year has
continued to focus on the rebalancing of the inherited portfolio
following the change of manager. The Ordinary Share pool is effectively
fully invested and therefore further investment activity will be limited
to reinvesting proceeds from divestments when suitable opportunities
arise.
Investment activity
Quoted investment activity
The Ordinary Share pool began the year with GBP4.6 million of quoted
investments held in 12 companies. Over the year, the portfolio was
rationalised further, consistent with the strategy to balance quoted
investments with unquoted investments. This is now largely complete and
we will seek to add quoted holdings, on a case by case basis, when
appropriate opportunities arise. Over the period, GBP800,000 was raised
from the quoted portfolio, divesting from three companies in their
entirety and partially realising another five investments.
Significant sales included Synergy Healthcare plc (realising GBP216,000
of proceeds and profit of GBP79,000 on cost), Tracsis plc (where
proceeds of GBP165,000 were realised with a profit of GBP95,000 on
cost). DODs Group plc and Sinclair IS Pharma plc positions were sold
down in their entirety, reflecting our concerns about the future
prospects for these companies. These holdings realised a loss against
cost of GBP197,000 and GBP37,000 respectively.
No material new quoted investments were made during the year.
Unquoted investment activity
The Ordinary Share pool made seven unquoted investments during the year,
five of which were new and two of which were follow-on investments.
The largest qualifying investment of GBP500,000 was made in Vulcan
Renewables Limited. Vulcan is building an anaerobic digestion plant in
Doncaster, which will produce both gas and electricity to be supplied to
the National Grid. As a result, Vulcan will receive Feed-in-Tariff and
Renewable Heat Incentive scheme payments.
GBP400,000 was invested in Baron House Developments LLP, a
non-qualifying opportunity. The partnership is developing a new Hampton
by Hilton Hotel in Newcastle. The investment attracts a fixed yield
along with a share of the development profit.
A non-qualifying investment of GBP300,000 was made in Southampton Hotel
Developments Limited which is developing a Hilton branded hotel and spa
next to the Ageas Bowl cricket ground (formerly known as the Rosebowl)
near Southampton.
A GBP100,000 investment was made in Mosaic Spa and Health Clubs Limited.
Mosaic owns two freehold spa and health clubs, one in Shrewsbury and a
second in Hereford. Mosaic also runs a spa and health club management
company.
Investment performance
Overall, the portfolio increased in value by GBP799,000 over the year,
comprising mainly of gains in the quoted portfolio. This is a
significant improvement on prior year and is reflective of the Manager's
strategy to focus on fewer, larger quoted holdings over which the
Manager can have a greater degree of understanding and influence.
Quoted investment performance
The holdings within the quoted portfolio experienced a gain in value of
GBP803,000, equivalent to an uplift of 14.2%.
The largest gains were in Pennant International plc (which showed an
increase of GBP823,000) and Tracsis plc (which showed an increase of
GBP699,000 in addition to a GBP95,000 realised profit on sales).
Pennant International plc, now the Company's largest holding
representing 12.1% of the pool, is an integrated logistics and support
solutions business - mainly servicing the defence industries. In the
year, it announced its largest ever contract win representing GBP16
million of turnover over the next 5 years. In the year to end of
December 2012, it also announced a 40% increase in turnover and a
doubling of pre-tax profits. We continue to monitor Pennant's progress
and valuation; since the year end we have taken some profits in the
holding to reduce the overall exposure in the share pool.
Tracsis plc, the provider of optimisation software for the transport
sector, also experienced positive trading in the year. Its fully owned
subsidiary MPEC, which provides monitoring solutions for rail
infrastructure, has performed particularly, well reflecting the
continued Government spend on the upgrading of the UK rail network.
Investment performance
Quoted investment performance (continued)
Tracsis plc increased in value by GBP699,000 to GBP1,136,000 from an
initial cost of GBP282,000. In addition, profits of GBP95,000 were
taken on the sale of a portion of the holding. We continue to believe
in the long term prospects of Tracsis plc and monitor the valuation
against the opportunities that we believe they can deliver for their
shareholders.
Ludorum plc saw its valuation decline by GBP386,000 despite starting to
become profitable in the year as merchandising income from "Chuggington",
the children's animated TV show, continued to develop. We believe
Ludorum still has good prospects, reflected in its positive ratings on
Disney Channels and the BBC. Sales in the USA of its new product,
Stacktrack (www.stackyourtrack.com) have been encouraging and we eagerly
await the launch of this product in Europe which will coincide with the
launch of Series 3 of Chuggington in the autumn. The Company holds both
loan stock and equity in Ludorum plc, which provides more investor
rights (and a paid yield) than would normally be inferred with a
straight equity investment. We believe that the current share price
does not yet reflect the intrinsic value of the "Chuggington" asset.
Elektron Technology plc experienced continued poor trading, due to
challenging macro conditions and what, we believe is, a weak management
team with poor financial discipline and corporate governance. Its value
in the share pool decreased by GBP265,000 over the year. Our lack of
confidence in management to deliver the much needed turnaround in this
company, combined with the fact that we believe the board is highly
overpaid, has led us to exit from this holding after the year end.
Tristel plc, a manufacturer and distributor of disinfectants to
hospitals and vet practices, saw its valuation fall by GBP84,000,
reflecting a slow take up of some of its new products and declining
profitability as it invested in its new production facilities. Again
our lack of confidence in the ability of management to implement a cost
cutting exercise has led us to exit this legacy holding, in full, after
the year end.
Unquoted investment
On a positive note, a number of small uplifts were recognised in the
following unquoted investments: GBP60,000 in Domestic Solar Limited,
GBP50,000 in Data Centre Response Limited, GBP29,000 in Leytonstone Pub
Limited, GBP15,000 in Tramps Nightclub Limited and GBP11,000 in Kidspace
Adventures Holdings Limited. All these investments are performing well
and in line with expectations and uplifts at the year-end were supported
by underlying trading.
Real Time Logistic Solutions Limited, having previously been valued at
GBPnil, was sold after the year end for GBP105,000, realising a book
profit of GBP73,000.
The valuation of the investments in Cadbury House Holdings Limited,
Hoole Hall Country Club Holdings Limited and Hoole Hall Spa and Leisure
Club Limited were reduced by GBP119,000, GBP84,000 and GBP33,000
respectively at the year end as a result of indications that the market
for such hotels has weakened recently and the fact that the companies
have a relatively high level of prior ranking finance.
Camandale also experienced a reduction in its valuation of GBP39,000
after one of the two pubs owned by the company was transferred for
GBP30,000 into a new investment, Kilmarnock Monkey Bar Limited. The new
valuation of Camandale reflects the standalone valuation of the
remaining pub, The Riverbank.
Net asset value, results and dividend
The Ordinary Share NAV increased by 5.9% over the year (after adjusting
for the dividends paid during the year) and stood at 89.5p at 31 March
2013.
The return on ordinary activities after tax for the Ordinary Shares for
the year was GBP734,000, comprising a revenue return of GBP161,000 and a
capital return of GBP573,000.
The Board is proposing to pay a final dividend of 2.5p per Ordinary
Share on 30 September 2013, subject to Shareholder approval at the
forthcoming AGM, to Shareholders on the register at 6 September 2013.
Outlook
Although the macro economic climate is still challenging, particularly
at Government and domestic levels, there is evidence that corporate
balance sheets are in good shape, which could lead to further merger and
acquisition activity in the quoted portfolio in the coming months.
Given that the portfolio is now largely fully invested, the focus will
continue to be on rigorous portfolio management of the individual
investments to optimize the capital growth and yield. This will enable
continued dividend payments to Shareholders by the Company.
Downing LLP
REVIEW OF INVESTMENTS - ORDINARY SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and
Wales, were held at 31 March 2013:
% of
Valuation movement portfolio
Cost Valuation in year by value
GBP'000 GBP'000 GBP'000
Top ten venture capital
investments
Pennant International
Group plc * 193 1,383 823 12.1%
Tracsis plc * 282 1,136 699 10.0%
Cadbury House Holdings
Limited 1,134 976 (119) 8.6%
Ludorum plc * 1,254 774 (386) 6.8%
Accumuli plc * 400 724 46 6.4%
Leytonstone Pub Limited 582 611 29 5.4%
Domestic Solar Limited 500 560 60 4.9%
Vulcan Renewables Limited 500 500 - 4.4%
Aminghurst Limited 403 403 - 3.5%
Baron House Developments
LLP 400 400 - 3.5%
5,648 7,467 1,152 65.6%
Other venture capital
investments
Hoole Hall Country Club
Holdings Limited 480 396 (84) 3.5%
Tramps Night Club Limited 295 326 15 2.9%
Elektron Technology plc * 530 319 (265) 2.8%
Southampton Hotel
Developments Limited 300 300 - 2.6%
The 3D Pub Co Limited 383 268 - 2.4%
Hoole Hall Spa and Leisure
Club Limited 300 267 (33) 2.4%
Kidspace Adventure
Holdings Limited 250 261 11 2.3%
Future Biogas (SF) Limited 216 242 - 2.1%
SPC International Limited - 240 - 2.1%
Data Centre Response
Limited 132 181 50 1.6%
Kidspace Adventures
Limited 129 129 - 1.1%
Tristel plc * 325 126 (84) 1.1%
Real Time Logistic
Solutions Limited 32 105 105 0.9%
Mosaic Spa and Health
Clubs Limited 100 100 - 0.9%
Giving Limited 83 83 - 0.7%
Animalcare Group plc * 35 77 (28) 0.7%
Plastics Capital plc * 100 76 11 0.7%
Camandale Limited 364 40 (39) 0.3%
Kilmarnock Monkey Bar
Limited 30 30 - 0.3%
EPI Service Limited 230 27 - 0.2%
Keycom plc ** 275 5 (12) -
The Thames Club Limited 225 - - -
4,814 3,598 (353) 31.6%
10,462 11,065 799 97.2%
Cash at bank and in hand 320 2.8%
Total investments 11,385 100.0%
All venture capital investments are unquoted unless otherwise stated
* Quoted on AIM
** Quoted on the ISDX Growth Market
Investment movements for the year ended 31 March 2013
Additions
Non
Qualifying qualifying Total
GBP'000 GBP'000 GBP'000
New investments
Baron House Developments LLP - 400 400
Kilmarnock Monkey Bar Limited - 30 30
Mosaic Spa and Health Clubs Limited 86 14 100
Southampton Hotel Developments Limited - 300 300
Vulcan Renewables Limited 500 - 500
586 744 1,330
Follow-on investments
Aminghurst Limited - 14 14
Helcim Group Limited - 90 90
Tracsis plc - 1 1
Sundry - 1 1
- 106 106
586 850 1,436
Disposals
Profit/ Realised
(loss) gain/
Cost Value at 01/04/12 Proceeds vs cost (loss)
*
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Market sales
Animal Care Group
plc 4 13 11 7 (2)
DODs Group plc 270 67 73 (197) 6
Elektron Technology
plc 20 22 12 (8) (10)
Pennant
International Group
plc 20 55 88 68 33
Sinclair IS Pharma
plc 191 147 154 (37) 7
Synergy Healthcare
plc 137 188 216 79 28
Tracsis plc 70 109 165 95 56
Tristel plc 150 125 81 (69) (44)
862 726 800 (62) 74
Unquoted (including
loan note
redemptions)
Camandale Limited 32 31 22 (10) (9)
Data Centre Response
Limited 20 20 20 - -
EPI Service Limited 15 4 4 (11) -
Helcim Group Limited 758 168 79 (679) (89)
Kidspace Adventures
Limited 21 21 21 - -
Ludlow Taverns
Springhill Limited 50 50 50 - -
Tramps Night Club
Limited 15 15 15 - -
911 309 211 (700) (98)
Total disposals 1,773 1,035 1,011 (762) (24)
* After adjusting for purchases in the year
INVESTMENT MANAGER'S REPORT - 'E' SHARE POOL
The 'E' Share pool completed fundraising during the period, raising net
proceeds of approximately GBP5.5 million and the task of investing these
funds is now well underway.
Investment activity
During the share pool's first period, GBP3.3 million was invested across
13 companies; six of the investments were VCT qualifying investments
including one AIM-quoted investment. An overview of the largest
investments made during the period is detailed below.
A GBP500,000 partially-qualifying investment was made in Mosaic Spa and
Health Clubs Limited. Mosaic currently has approximately 30 management
contracts to provide gym and spa management to hotels, universities and
corporate clients and owns a freehold health club known near Shrewsbury.
In October 2012, a second freehold club in Hereford, Holmer Park, was
purchased by Mosaic.
Investments of GBP400,000 and GBP200,000 were made in Fresh Green Power
Limited and Green Energy Production UK Limited respectively. Both
companies own a portfolio of Photo-Voltaic solar panels installed on
residential rooftops and consequently receive Feed-in Tariffs.
An investment of GBP300,000 was made in Vulcan Renewables Limited.
Vulcan is building an anaerobic digestion plant in Doncaster, which will
produce both gas and electricity to be supplied to the National Grid. As
a result, Vulcan will receive Feed-in Tariff and Renewable Heat
Incentive scheme payments.
In October 2012, a qualifying investment of GBP283,000 was made in Oak
Grove Renewables Limited, which is developing a 2MW biogas plant in
Norfolk. The plant will produce biogas through an anaerobic digestion
process which is then used to generate electricity. Oak Grove Renewables
will benefit from the receipt of Feed-in Tariffs for electricity
generation.
An investment of GBP106,000 was also made in AIM-quoted Universe Group
plc in the form of equity shares and a GBP40,000 yielding loan note.
Universe is a provider of point of sale payment and loyalty systems for
the fuel industry.
During the year, the share pool made GBP1.5 million of non-qualifying
VCT investments, the largest of these being a GBP500,000 investment in
Baron House Developments LLP, GBP270,000 in Hoole Hall Hotel Limited,
GBP232,000 in West Tower Holdings Limited, GBP210,000 in Aminghurst
Limited and GBP200,000 in Southampton Hotel Developments Limited. These
investments are short-term loans and are made with the intention of the
monies being repaid and invested into VCT qualifying investments in due
course. These provide a significantly higher yield than holding funds as
cash or deposits.
Investment performance
As all the unquoted investments were made within the last 12 months and
have performed to plan. All were held at valuations equal to cost at
the year end. The exception is Universe Group plc, where an increased
share price has resulted in an uplift of GBP55,000.
Net asset value, results and dividend
The 'E' Share NAV was unchanged over the year (after adjusting for the
dividends paid during the year) and stood at 89.4p at 31 March 2013.
The loss on ordinary activities after tax for the 'E' Shares for the
period was GBP2,000, comprising a revenue loss of GBP1,000 and a capital
loss of GBP1,000.
The Board is proposing to pay a final dividend of 2.5p per 'E' Share on
30 September 2013, subject to Shareholder approval at the forthcoming
AGM, to Shareholders on the register at 6 September 2013.
Outlook
The 'E' Share pool has made good progress in employing funds in secured
loans over the period whilst sourcing qualifying investments in a number
of secure Government backed renewable energy investments. Dealflow of
potential VCT qualifying investments for 2013/14 is looking promising,
due to the continued lack of traditional sources of funding. This should
provide the 'E' Share pool with the prospect of completing a number of
new, good quality VCT qualifying investments over the next 12 months.
Downing LLP
REVIEW OF INVESTMENTS - 'E' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and
Wales, were held at 31 March 2013:
% of
Valuation movement portfolio
Cost Valuation in year by value
GBP'000 GBP'000 GBP'000
Qualifying investments **
Mosaic Spa and Health
Clubs Limited ** 500 500 - 9.6%
Fresh Green Power Limited 400 400 - 7.7%
Vulcan Renewables Limited 300 300 - 5.8%
Oak Grove Renewables
Limited 283 283 - 5.5%
Green Energy Production UK
Limited 200 200 - 3.9%
Universe Group plc * ** 106 161 55 3.1%
1,789 1,844 55 35.6%
Non-qualifying investments
Baron House Developments
LLP 500 500 - 9.6%
Hoole Hall Hotel Limited 270 270 - 5.2%
West Tower Holdings
Limited 232 232 - 4.5%
Aminghurst Limited 210 210 - 4.1%
Southampton Hotel
Developments Limited 200 200 - 3.9%
The 3D Pub Co Limited 80 80 - 1.5%
Dominions House Limited 54 54 1.0%
1,546 1,546 - 29.8%
3,335 3,390 55 65.4%
Cash at bank and in hand 1,796 34.6%
Total investments 5,186 100.0%
All venture capital investments are unquoted unless otherwise stated
* Quoted on AIM
** includes partly non-qualifying investments
Investment movements for the year ended 31 March 2013
Additions
Non
Qualifying qualifying Total
GBP'000 GBP'000 GBP'000
Aminghurst Limited - 210 210
Baron House Developments LLP - 500 500
Claireville St LLP - 500 500
Dominions House Limited - 54 54
Fresh Green Power Limited 400 - 400
Green Energy Production UK Limited 200 - 200
Hoole Hall Hotel Limited - 270 270
Mosaic Spa and Health Clubs Limited 430 70 500
Oak Grove Renewables Limited 283 - 283
Southampton Hotel Developments Limited - 200 200
The 3D Pub Co Limited - 80 80
Universe Group plc 105 1 106
Vulcan Renewables Limited 300 - 300
West Tower Holdings Limited - 300 300
1,718 2,185 3,903
Disposals
* Profit/ Realised
(loss) gain/
Cost Value at 01/04/12 Proceeds vs cost (loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Claireville St LLP 500 500 500 - -
West Tower Holdings
Limited 68 68 68 - -
568 568 568 - -
* After adjusting for purchases in the year
Statement of Directors' responsibilities
The Directors are responsible for preparing the Report of the Directors,
the Directors' Remuneration Report, the Corporate Governance Statement
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 and 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 and
to disclose with reasonable accuracy at any time the financial position
of the Company and to enable them to ensure that the financial
statements and the Directors Remuneration Report comply with the
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 that,
as far as they are aware, 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 March 2013
Company position
2013 2012
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 516 - 516 350 - 350
Gains/(losses) on
investments - 830 830 - (1,850) (1,850)
516 830 1,346 350 (1,850) (1,500)
Investment management
fees (69) (207) (276) (12) (35) (47)
Other expenses (259) (79) (338) (191) (2) (193)
Return on ordinary
activities before tax 188 544 732 147 (1,887) (1,740)
Tax on ordinary
activities (28) 28 - - - -
Return attributable to
equity shareholders 160 572 732 147 (1,887) (1,740)
Basic and diluted return
Ordinary Share 1.4p 4.7p 6.1p 1.3p (14.2p) (12.9p)
'D' Share N/A N/A N/A 0.1p (9.4p) (9.3p)
'E' Share - - - - (0.1p) (0.1p)
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 shown
above.
Other than revaluation movements arising on investments held at fair
value through the Income Statement, there were no differences between
the return as stated above and at historical cost.
Split as:
Ordinary Shares (including 'D' Shares)
2013 2012
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 394 - 394 349 - 349
Gain/(losses) on investments - 775 775 - (1,850) (1,850)
394 775 1,169 349 (1,850) (1,501)
Investment management fees (48) (144) (192) (11) (33) (44)
Other expenses (164) (79) (243) (191) (2) (193)
Return on ordinary activities
before tax 182 552 734 147 (1,885) (1,738)
Tax on ordinary activities (21) 21 - - - -
Return attributable to equity
shareholders 161 573 734 147 (1,885) (1,738)
'E' Shares
2013 2012
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 122 - 122 1 - 1
Gains on investments - 55 55 - - -
122 55 177 1 - 1
Investment management fees (21) (63) (84) (1) (2) (3)
Other expenses (95) - (95) - - -
Return on ordinary activities
before tax 6 (8) (2) - (2) (2)
Tax on ordinary activities (7) 7 - - - -
Return attributable to equity
shareholders (1) (1) (2) - (2) (2)
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 March 2013
2013 2012
Ordinary 'D' 'E' Ordinary 'D' 'E'
Shares Shares Shares Total Shares Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening
Shareholders'
funds 9,795 2,177 3,515 15,487 12,121 2,624 - 14,745
Issue of
shares - - 3,212 3,212 33 - 2,549 2,582
Unallotted
shares 181 - (1,108) (927) - - 1,108 1,108
Share issue
costs - - (177) (177) (2) - (140) (142)
Purchase of
own shares (305) (14) (10) (329) (312) (44) - (356)
Total
recognised
gains/
(losses) for
the year 734 - (2) 732 (1,476) (262) (2) (1,740)
Dividends paid (591) (667) (288) (1,546) (569) (141) - (710)
'D' share
conversion 1,496 (1,496) - - - - - -
Closing
Shareholders'
funds 11,310 - 5,142 16,452 9,795 2,177 3,515 15,487
BALANCE SHEET
as at 31 March 2013
2013 2012
Ordinary 'E' Ordinary 'D' 'E'
Shares Shares Total Shares Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 11,065 3,390 14,455 8,514 1,351 - 9,865
Current assets
Debtors 104 30 134 565 108 - 673
Cash at bank and in hand 320 1,796 2,116 825 767 3,518 5,110
424 1,826 2,250 1,390 875 3,518 5,783
Creditors: amounts falling
due within one year (179) (74) (253) (109) (49) (3) (161)
Net current assets 245 1,752 1,997 1,281 826 3,515 5,622
Net assets 11,310 5,142 16,452 9,795 2,177 3,515 15,487
Capital and reserves
Called up share capital 377 57 434 112 278 25 415
Capital redemption reserve 3,857 - 3,857 3,612 6 - 3,618
Share premium account 1,971 5,387 7,358 1,971 - 2,384 4,355
Share capital to be issued 181 - 181 - - 1,108 1,108
Special reserve 3,493 - 3,493 2,878 2,075 - 4,953
Capital reserve - realised 1,145 (346) 799 2,392 3 (2) 2,393
Capital reserve - unrealised 603 55 658 (782) (151) - (933)
Revenue reserve (317) (11) (328) (388) (34) - (422)
Total equity shareholders'
funds 11,310 5,142 16,452 9,795 2,177 3,515 15,487
Basic and diluted net asset 89.5p 89.4p 87.0p 78.4p 94.4p
value per share
CASH FLOW STATEMENT
for the year ended 31 March 2013
2013 2012
Ordinary 'D' 'E' Ordinary 'D' 'E'
Shares Shares Shares Total Shares Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash inflow/(outflow)
from operating activities 137 - (26) 111 (91) (20) 1 (110)
Capital expenditure
Purchase of investments (1,436) - (3,903) (5,339) (1,962) (230) - (2,192)
Disposal of investments 1,406 - 568 1,974 2,173 923 - 3,096
Net cash (outflow)/inflow
from capital expenditure (30) - (3,335) (3,365) 211 693 - 904
Acquisitions
Acquisition costs - - - - (7) - - (7)
Net cash outflow
from acquisitions - - - - (7) - - (7)
Equity dividends paid (593) (667) (288) (1,548) (570) (141) - (711)
Net cash (outflow)/inflow
before financing (486) (667) (3,649) (4,802) (457) 532 1 76
Financing
Proceeds of share issue - - 3,161 3,161 26 - 2,480 2,506
Unallotted share issue
proceeds 181 - (1,108) (927) - - 1,108 1,108
Share issue costs - - (126) (126) (6) - (71) (77)
Purchase of own shares (286) (14) - (300) (307) (33) - (340)
Net cash (outflow)/inflow
from financing (105) (14) 1,927 1,808 (287) (33) 3,517 3,197
(Decrease)/increase in cash (591) (681) (1,722) (2,994) (744) 499 3,518 3,273
NOTES TO THE ACCOUNTS
for the year ended 31 March 2013
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally
Accepted Accounting Practice and in accordance with the Statement of
Recommended Practice "Financial Statements of Investment Trust Companies
and Venture Capital Trusts" January 2009 ("SORP").
The financial statements are prepared under the historical cost
convention except for the revaluation of certain financial instruments.
The Company implements new Financial Reporting Standards issued by the
Accounting Standards Board when required.
Presentation of income statement
In order to better reflect the activities of a Venture Capital Trust and
in accordance with guidance issued by the Association of Investment
Companies ("AIC"), 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
FRS 26.
Investments quoted on recognised stock markets are measured using bid
prices.
The valuation methodologies for unlisted instruments 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 the 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.
Where an investee company has gone into receivership, liquidation, or
administration where there is little likelihood of a recovery, the loss
on the investment, although not physically disposed of, is treated as
being realised.
Gains and losses arising from changes in fair value are included in the
income statement as a capital item.
It is not the Company's policy to exercise either significant or
controlling influence over investee companies. Therefore, the results of
these companies are not incorporated into the revenue account 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.
In respect of disclosures required by the SORP for the 10 largest
investments held by the Company, the most recent publicly available
accounts information, either as filed at Companies House, or announced
to the London Stock Exchange, is disclosed. In the case of unlisted
investments, this may be abbreviated information only.
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 apportioned basis, by reference to
the principal outstanding and at the effective interest rate applicable
and only where there is reasonable certainty of collection.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the income
statement, all expenses have been presented as revenue items except as
follows:
* Expenses which are incidental to the acquisition of an
investment are deducted from the Capital Account.
* 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 and accordingly the investment
management fee and finance costs have been allocated 25% to revenue and
75% to capital, in order to reflect the Directors' expected long-term
view of the nature of the investment returns of the Company.
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.
Deferred taxation is not discounted and 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 the obligations or rights crystallise based on
tax rates and law enacted or substantively enacted at the balance sheet
date. 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 tax assets are only
recognised if it is expected that future taxable profits will be
available to utilise such assets and are recognised on a non-discounted
basis.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are
included within the accounts at amortised cost.
Share issue costs
Share issue costs have been deducted from the share premium account.
Segmental reporting
The Company only has one class of business and one market.
2. Basic and diluted return per share
Weighted average Revenue
number of shares return/ Capital
in issue (loss) gain/(loss)
GBP'000 GBP'000
Basic and diluted return per share
is based on:
Year ended 31
March 2013 Ordinary Shares 11,999,132 161 573
'E' Shares 5,472,928 (1) (1)
160 572
Year ended 31
March 2012 Ordinary Shares 11,452,527 145 (1,621)
'D' Shares 2,812,527 2 (264)
'E' Shares 2,007,202 - (2)
147 (1,887)
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per share class in issue.
The return per share disclosed therefore represents both basic and
diluted return per share class in issue.
3. Basic and diluted net asset value per share
NAV
Shares in issue Net assets per share
GBP'000 Pence
Year ended 31
March 2013 Ordinary Shares 12,436,875 11,129 89.5
'D' Shares - - -
'E' Shares 5,750,336 5,142 89.4
Share capital to be issued 181
16,452
Year ended 31
March 2012 Ordinary Shares 11,251,978 9,795 87.0
'D' Shares 2,777,944 2,177 78.4
'E' Shares 2,549,793 2,407 94.4
Share capital to be issued 1,108
15,487
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on net asset value per class of
share in issue. The net asset value per share disclosed therefore
represents both basic and diluted net asset value per class of share in
issue.
4. Financial Instruments
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; and
* 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:
As a VCT, the Company is exposed to investment risk 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 investment risk
is a fundamental part of the investment activities undertaken by the
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 elements of investment risk to which the Company is exposed are:
* Investment price risk; and
* Interest rate risk.
The Company has undertaken sensitivity analysis on its financial
instruments, split into the relevant component parts, taking into
consideration the economic climate at the time of review in order to
ascertain the appropriate risk allocation.
Investment price risk
Investment price risk arises from uncertainty about the future prices
and valuations of financial instruments held in accordance with the
Company's investment objectives. It represents the potential loss that
the Company might suffer through market price movements in respect of
quoted investments and also 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 and fixed interest
investments attract interest predominately at fixed rates. A summary of
the interest rate profile of the Company's investments is shown below.
Interest rate profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the
financial instruments as follows:
* "Fixed rate" assets represent investments with predetermined
yield targets and comprise loan note investments.
* "Floating rate" assets predominantly bear interest at rates
linked to the Bank of England base rate and comprise cash at bank.
* "No interest rate" assets do not attract interest and comprise
equity investments, hedge funds, non-interest bearing convertible loan
notes, loans and receivables (excluding cash at bank) and other
financial liabilities.
The Company monitors the level of income received from fixed, floating
and non-interest 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, investments in liquidity funds,
cash deposits and debtors.
The Manager manages credit risk in respect of loan notes 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. The level of security is a key
means of managing credit risk. Similarly, the management of credit risk
associated interest, dividends and other receivables is covered within
the investment management procedures.
Cash is mainly held at Royal Bank of Scotland plc, with a balance also
maintained at Bank of Scotland plc, both of which are A-rated financial
institutions and ultimately part-owned by the UK Government.
Consequently, the Directors consider that the risk profile associated
with cash deposits is low.
There have been no changes in fair value during the year that can be
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. The Company only normally ever has a
relatively low level of creditors (2013: GBP253,000, 2012: GBP161,000)
and has no borrowings. Also most quoted investments held by the Company
are considered to be readily realisable. The Company always holds
sufficient levels of funds as cash and readily realisable investments 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 Manager in line with
guidance agreed with the Board and is reviewed by the Board at regular
intervals.
5. Post balance sheet event
On 15 February 2013, the Company published an Offer Document in respect
of (i) a Tender Offer and Substitute Share Offer, together the Share
Realisation and Reinvestment Programme ("SRRP"), for existing
shareholders and (ii) a Top-up Offer to issue up to 1,252,593 additional
Ordinary Shares.
On 4 April 2013 and 11 April 2013 the following transactions took place
under the SRRP:
* A total of 2,151,470 Ordinary Shares were purchased for
cancellation at a price of 87.9p per Ordinary Share.
* A total of 2,086,669 Ordinary Shares were allotted in respect
of the proceeds of the shares tendered for cancellation at a price of
approximately 90.6p per Ordinary Share.
On 4 April 2013 and 11 April 2013, 198,907 Ordinary shares were allotted
at a price of approximately 90.6p per Ordinary Share as a result of new
subscriptions under the Top-up Offer.
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 March 2013,
but has been extracted from the statutory financial statements for the
year ended 31 March 2013 which were approved by the Board of Directors
on 24 July 2013 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 year ended 31 March 2012 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 March 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 Income VCT 3 plc via Thomson Reuters ONE
HUG#1718555
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