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Downing Three VCT PLC  -  DP3F   

Downing THREE VCT plc : Final Results

Released 18:29 26-Apr-2017

Downing THREE VCT plc : Final Results

Downing THREE VCT PLC
FINAL RESULTS FOR THE YEAR ENDED 31 December 2016

FINANCIAL HIGHLIGHTS
   31 Dec
 2016
   31 Dec
2015
  Pence   Pence
'C' Share pool      
Net asset value per 'C' Share -   53.2
Net asset value per 'A' Share -   0.1
Cumulative distributions per 'C' Share 120.3   75.0
Adjusted for performance fee estimate -   (7.4)
Total return per 'C' Share and 'A' Share 120.3   120.9
       
'D' Share pool      
Net asset value per 'D' Share 36.4   51.3
Net asset value per 'E' Share 0.1   0.1
Cumulative distributions per 'D' Share 66.5   49.5
Total return per 'D' Share and 'E' Share 103.0   100.9
       
'F' Share pool      
Net asset value per 'F' Share 69.4   71.5
Cumulative distributions per 'F' Share 25.0   20.0
Total return per 'F' Share 94.4   91.5
       
'H' Share pool      
Net asset value per 'H' Share 86.2   90.5
Cumulative distribution per 'H' Share 15.0   10.0
Total return per 'H' Share 101.2   100.5
       
'J' Share pool      
Net asset value per 'J' Share 95.8   98.5
Cumulative distribution per 'J' Share -   -
Total return per 'J' Share 95.8   98.5

CHAIRMAN'S STATEMENT


Introduction
I am pleased to present the Annual Report for the year ended 31 December 2016. As the Company now has a number of planned exit share pools in different stages of their life, the Manager has had to focus on progressing investment realisations in some pools while also working on building new investment portfolios for the more recent pools. Overall, progress has been satisfactory.

A brief summary of each share pool is provided below.

'C' Share pool
The final distribution to 'C' Shareholders was made in March 2016. Total Return to those investors was 120.36p per Share compared to the original cost net of income tax relief of 70.0p. The Board congratulates the Manager on delivering a very successful outcome for investors. Since the year end, the 'C' and 'A' Shares, which had negligible residual value, were cancelled.

'D' Share pool
The 'D' Shares were originally issued in 2010 and at the year end held a portfolio of seven live investments with a total value of £2.4 million.

At 31 December 2016, the NAV of a combined holding of one 'D' Share and one 'E' Share stood at 36.5p, which represents an increase of 4.1% over the year after adjusting for the dividends of 17.0p per share paid in the year. Total Return (NAV plus cumulative dividends to date) is now 103.0p, compared to the initial cost to original subscribers net of income tax relief of 70p.

'F' Share pool
The 'F' Share pool was launched in 2012 and now holds a portfolio of 23 investments with a total value of £7.2 million.

At 31 December 2016, the 'F' Share NAV stood at 69.4p, which represents an increase of 4.1% over the year after adjusting for the dividends of 5.0p per share paid in the year. Dividends paid to date total 25.0p per share such that Total Return (NAV plus cumulative dividends to date) is now 94.4p, compared to the initial cost to original subscribers net of income tax relief of 70p.

In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'F' Share on 30 June 2017 to Shareholders on the register at the close of business on 26 May 2017.

'H' Share pool
The 'H' Share pool was launched in 2014 and is due to complete its initial investment phase next year. At 31 December 2016, the pool held 15 investments with a total value of £11.0 million.

At 31 December 2016, the 'H' Share NAV stood at 86.2p, which represents an increase over the year of 0.8% after adjusting for the dividends of 5.0p per share paid in the year. Total Return (NAV plus cumulative dividends to date) is now 101.2p, compared to the initial NAV of 100.0p.

In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'H' Share on 30 June 2017 to Shareholders on the register at the close of business on 26 May 2017.

'J' Share pool
The 'J' Share Pool was launched in December 2014 and is still in its initial investment phase. At 31 December 2016, the pool held 14 VCT qualifying investments with a total value of £10.3 million.

At 31 December 2016, the 'J' Share NAV stood at 95.8p, compared to the initial NAV of 100.0p.

Due to VCT regulations the 'J' Share pool is effectively prohibited from paying dividends in its first three years.

Share buybacks
For share classes where all investors are still within the initial five year period (currently the 'H' Share and 'J' Share classes), the Company operates a general policy of buying in its own shares for cancellation when any become available in the market. During this period, any such purchases will be undertaken at a price equal to the latest published NAV (i.e. at nil discount). Any buybacks are subject to regulatory restrictions and other factors such as the availability of liquid funds.

The Company is now unlikely to make any further purchases of 'D' Shares, 'E' Shares and 'F' Shares as the process of returning funds to those Shareholders is now underway in the case of the 'D' and 'E' Shares and is due to start early next year in the case of the 'F' Shares.

A resolution to renew the buyback authority for the Company to purchase its own shares will be proposed at the forthcoming Annual General Meeting.

Annual General Meeting ("AGM")
The Company's tenth AGM will be held at Ergon House, Horseferry Road, London, SW1P 2AL at 10:50 a.m. on 20 June 2017.

Two items of special business will be proposed at the AGM. As mentioned above, the Company will seek to renew the authority for the Company to buy back shares.

Also, the Company is seeking Shareholder approval to amend the Company's Articles of Association to simplify the process of cancelling share classes once they have come to the end of their planned exit life. The proposed changes will eliminate the requirement for a Shareholder Circular to be issued in order to cancel a share class once it has reduced to a negligible residual value. This will result in some costs savings for the Company.

Outlook
Although the long term implications of Brexit may not yet be clear, the impact on the Company is not expected to be significant. The majority of the share pools are already fully invested and progressing satisfactorily. The 'J' Share is still making new investments as it builds its portfolio and faces greater challenges from new VCT rules than it is likely to from factors connected with Britain leaving the EU. VCT rules brought in over the last year or so have reduced the scope of investments that can be made, however the Manager is confident that a reasonable portfolio can be built which can deliver shareholders the targeted results.

We expect to see significant headway made in realising most of the remaining investments in the 'D' Share pool over the next few months. The Manager will also be developing plans during the course of this year for realisation of investments from the 'F' Share pool, ahead of the commencement of the return of funds to those investors early next year.

I look forward to updating Shareholders on progress in my statement with the Half Yearly Report to 30 June 2017.

Michael Robinson
Chairman
26 April 2017

INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL

Introduction
The 'D' Share pool holds investments in seven companies and is fully invested. The focus this year has been on realisations and ten full or partial exits have completed in the period. We have realisation plans in place for the remainder of the portfolio.

Net asset value and results
At 31 December 2016, the 'D' Share NAV stood at 36.4p and the 'E' Share NAV at 0.1p, giving a combined NAV of 36.5p. Total Return (NAV plus cumulative dividends to date) was 103.0p for a combined holding of one 'D' and one 'E' Share. This represents a net increase of 2.1p over the year (after adjusting for dividends paid during the year of 17.0p per 'D' Share), equivalent to an increase of 4.1%.

The return on ordinary activities for the 'D' Shares for the period was a gain of £206,000 (2015: £690,000) being a revenue loss of £30,000 (2015: profit £306,000) and a capital gain of £236,000 (2015: £384,000).

'D' Share pool - divestment activity
Ten full or partial exits have completed in the period generating total proceeds of £2.2 million.

The most significant of these were Quadrate Catering Limited and Quadrate Spa Limited which generated proceeds of £581,000 and £520,000 and uplifts over cost of £140,000 and £168,000 respectively.

Other significant realisations included, Kidspace Adventures (Holdings) Limited which generated proceeds of £470,000, an uplift over cost of £95,000 and Future Biogas (SF) Limited which returned £203,000 over a cost of £169,000.

'D' Share pool - portfolio valuation
The majority of the 'D' Share portfolio performed in line with expectations during the year. There were a few small valuation movements in the period that resulted in an unrealised gain of £27,000.

Fenkle Street LLP, is a property development company based in Newcastle. The hotel is trading well and the valuation has increased by £50,000 to reflect the expected future cash flows of the company.

Avon Solar Limited, the owner of residential rooftop solar assets in the UK, was uplifted by £22,000 due to continued good performance.

Unfortunately these gains were partially offset by a reduction in value on Mosaic Spa and Health Clubs Limited which has continued to have minor performance issues and has resulted in an unrealised loss of £45,000.

Outlook
Realisation plans are in place for the remaining investments in the portfolio with some expected to complete in the next few months in order to make a final distribution to investors.

Downing LLP
26 April 2017

REVIEW OF INVESTMENTS - 'D' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2016:

'D' Share pool

   

 

Cost
 

 

Valuation
Valuation
 movement
in year
 

% of
portfolio
   £'000  £'000 £'000  
         
VCT qualifying and partially qualifying investments        
Mosaic Spa and Health Clubs Limited* 521 300 (45) 8.1%
Westcountry Solar Solutions Limited 250 250 - 6.8%
Avon Solar Limited 210 240 22 6.5%
Quadrate Spa Limited 144 - - 0.0%
  1,125 790 (23) 21.4%
Non-qualifying investments        
Gara Rock Resort Limited 1,322 1,322 - 35.8%
Fenkle Street LLP 122 270 50 7.3%
Future Biogas (Reepham Road) Limited 320 - - 0.0%
  1,764 1,592 27 43.1%
         
  2,889 2,382 27 64.5%
         
Cash at bank and in hand   1,313   35.5%
         
Total investments   3,695   100.0%

*              Part-qualifying investment

Summary of investment movements

Disposals

   

 

 

Cost
 

 

MV at  01/01/16*
   

 

Disposal
proceeds
  Gain/
(loss)
against
cost
  Total realised
gain during  the year
 
  £'000   £'000   £'000   £'000   £'000    
VCT qualifying and partially qualifying investments                      
Future Biogas (Reepham Road) Limited 261   196   261   -   65    
Quadrate Catering Limited 441   539   581   140   42    
Liverpool Nurseries (Holdings) Limited -   -   12   12   12    
Kidspace Adventures Holdings Limited 375   465   470   95   5    
Quadrate Spa Limited 352   520   520   168   -    
Camandale Limited 422   2   2   (420)   -    
                       
Non-qualifying investments                      
Future Biogas (SF) Limited 169   169   203   34   34    
Kilmarnock Monkey Bar Limited -   -   6   6   6    
Redmed Limited 27   24   28   1   4    
Commercial Street Hotel Limited 100   100   100   -   -    
                       
Total 'D' Share pool 2,147   2,015   2,183   36   168    

*Adjusted for additions in the year

INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL


Introduction
The 'F' Share pool holds 23 investments and is fully invested in a portfolio focussed on asset backed businesses and those with predictable revenue streams.

Net asset value and results
At 31 December 2016, the 'F' Share NAV stood at 69.4p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 94.4p. This represents a net increase of 2.9p per share over the year (after adjusting for dividends paid during the year of 5.0p per Share), equivalent to an increase of 4.1%.

The return on ordinary activities for the 'F' Share pool for the year was a gain of £308,000 (2015: £108,000) being a revenue loss of £107,000 (2015: profit £165,000) and a capital gain of £415,000 (2015: loss £57,000).

'F' Share pool - investment activity
Four new investments were made in the period totalling £700,000. £300,000 was invested into Vectis Alpha Limited which is seeking to build and develop renewable energy plants; £150,000 was invested into Brownfields Trading Limited which is seeking to develop small-scale waste disposal projects; £125,000 was invested into both Rhodes Solutions Limited and Morava Limited which are both exploring opportunities in the wood refinery sector.

Three full exits were completed in the period generating total proceeds of £1.3 million.

Grasshoppper 2007 Limited, the company that owns The Grasshopper Inn, a public house near Westerham, Kent was sold and generated proceeds equivalent to the original cost of £378,000.

The divestment of Kidspace Adventures Holdings Limited, the owner of three well established children's play areas in Croydon, Romford and Epsom, realised £313,000 which was £63,000 more than the investment cost.

The final repayment on Redmed Limited, the owner and operator of a bar in Lincoln, was made which completed the exit of the investment and generated proceeds of £16,000.

One notable partial divestment took place in the period being the part repayment of a non-qualifying loan to Gara Rock Resort Limited, formerly Aminghurst Limited, which generated proceeds of £581,000.

F' Share pool - portfolio valuation
The majority of investments remain valued at or above cost and there were several valuation movements in the period that resulted in an unrealised gain of £410,000.

Pearce and Saunders Limited, the owner of three freehold pubs in south east London, has previously been written down in value due to poor performance of the underlying pub companies, however rising property prices have benefitted the investment and the valuation has been increased by £248,000 and is now held at original cost.

The valuation of anaerobic digestion plant, Merlin Renewables Limited has increased by £75,000 as the plant continues to perform ahead of expectations.

Four smaller movements have also been recognised in the period. Atlantic Dogstar Limited, which owns a group of London pubs, are performing to plan and the valuation has been increased by £27,000.

Lambridge Solar Limited, Augusta Pub Company Limited and Pabulum Pubs Limited are all performing well and have been increased in value by £26,000, £25,000 and £9,000 respectively.

Outlook
The focus now for the 'F' Share portfolio is on close monitoring and support of the portfolio companies to ensure that prospects for growth are optimised in the period until the realisation process commences in early 2018.

Downing LLP
26 April 2017

REVIEW OF INVESTMENTS - 'F' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2016:

'F' Share pool  

 

Cost
 

 

Valuation
Valuation
 movement
in year
 

% of
portfolio
   £'000  £'000 £'000  
         
VCT qualifying and partially qualifying investments        
Apex Energy Limited 1,000 1,000 - 13.2%
Vulcan Renewables Limited 653 779 - 10.3%
Goonhilly Earth Station Limited 760 760 - 10.0%
Merlin Renewables Limited 500 575 75 7.6%
Lambridge Solar Limited 500 569 26 7.5%
Pearce and Saunders Limited 497 497 248 6.6%
Augusta Pub Company Limited 290 349 25 4.6%
Vectis Alpha Limited 300 300 - 4.0%
Pabulum Pubs Limited 200 237 9 3.2%
Atlantic Dogstar Limited 200 227 27 3.0%
Fresh Green Power Limited 200 200 - 2.6%
City Falkirk Limited 422 177 - 2.3%
Fubar Stirling Limited 268 169 - 2.2%
Brownfields Trading Limited 150 150 - 2.0%
Morava Limited 125 125 - 1.7%
Rhodes Solutions Limited 125 125 - 1.7%
Green Energy Production UK Limited 100 100 - 1.3%
Cheers Dumbarton Limited 48 17 - 0.2%
Lochrise Limited 13 - - 0.0%
  6,351 6,356 410 84.0%
Non-qualifying investments        
Baron House Developments LLP 481 481 - 6.4%
Gara Rock Resort Limited 258 258 - 3.4%
London City Shopping Centre Limited 66 66 - 0.9%
Pearce and Saunders DevCo Limited 46 46 - 0.6%
  851 851 - 11.3%
         
  7,202 7,207 410 95.3%
         
Cash at bank and in hand   357   4.7%
         
Total investments   7,564   100.0%

Summary of investment movements

Additions

  Cost
  £'000
VCT qualifying and partially qualifying investments  
Vectis Alpha Limited 300
Brownfields Trading Limited 150
Morava Limited 125
Rhodes Solutions Limited 125
   
Total 'F' Share pool 700

Disposals

   

 

 

Cost
 

 

MV at  01/01/16*
   

 

Disposal
proceeds
   

Gain
against
cost
  Total realised
gain during  the year
   
  £'000 £'000   £'000   £'000   £'000  
VCT qualifying and partially qualifying investments      
Kidspace Adventures Holdings Limited 250   310   313   63   3  
Redmed Limited 18   14   16   (2)   2  
Grasshopper 2007 Limited 378   378   378   -   -  
                     
Non-qualifying investments                    
Gara Rock Resort Limited 581   581   581   -   -  
Southampton Hotel Developments Limited 298   -   -   (298)   -  
                     
Total 'F' Share pool 1,525   1,283   1,288   (237)   5  

*Adjusted for additions in the year

INVESTMENT MANAGER'S REPORT- 'H' SHARE POOL

The 'H' Share pool raised funds in 2014 and has made good progress in building its VCT qualifying portfolio and is fully qualifying as at 31 December 2016.

Net asset value and results
At 31 December 2015, the net asset value per 'H' Share was 86.2p. Total Return (NAV plus cumulative dividends to date) for Shareholders who invested in the original share offer is now 101.2p. This represents a net increase of 0.7p per share over the year (after adjusting for dividends paid during the year of 5.0p per Share), equivalent to an increase of 0.8%.

The return on ordinary activities for the 'H' Share pool for the year was a gain of £97,000 (2015: £112,000) being a revenue profit of £44,000 (2015: £217,000) and a capital gain of £53,000 (2015: loss £105,000).

Investment activity
The pool made seven qualifying investments in the period totalling £5.3 million, as well as one non-qualifying investment for £850,000 as we continue to build the qualifying portfolio of the 'H' share pool.

Brief details of the investments made in the year are as follows:

The qualifying investments include £1.5 million in Hermes Renewables Limited, which is seeking to build and operate a wood pelleting plant.

£1.0 million was invested in Zora Energy Renewables Limited, a new wood pellet sales and distribution business.

£850,000 was invested in Quadrate Catering Limited which operates a restaurant in the Cube Complex in Birmingham.

£613,000 was invested in each of Ironhide Generation Limited and Indigo Generation Limited. £492,000 was invested in Rockhopper Renewables Limited and £281,000 in SF Renewables (Solar) Limited. All of the above investments are in the process of acquiring land in India to build and operate ground mounted solar arrays.

One non-qualifying investment was made in Quadrate Spa Limited for £850,000 which owns and operates a health club business in The Cube complex in Birmingham. 

In the period, total proceeds of £3.2 million were received. Kidspace Adventures (Holdings) Limited, which owns three well established children's play areas in Croydon, Romford and Epsom, was sold and generated proceeds equivalent to cost of £1.1 million.

Three non-qualifying loans were repaid in full in the period being Hobblers Heath Limited which repaid £727,000, Pub People Limited, the public house operator in the East Midlands which repaid £984,000 and Ludlow Taverns Limited which repaid £388,000. 

The majority of investments remain valued at cost and there was a total unrealised gain of £53,000 in the period. There was one positive valuation movement in the period on Atlantic Dogstar Limited. The company owns a group of London pubs which are performing to plan and as such the valuation has been increased by £137,000. Unfortunately this was partially offset by a value write down on Oak Grove Renewables Limited of £84,000, due to performance issues at this anaerobic digestion plant.

Outlook
The 'H' Share pool has become fully qualifying at the year end and as a result our focus will now shift to the close monitoring and support of the portfolio companies in order to nurture growth before the planned exit date.

Downing LLP
26 April 2017

REVIEW OF INVESTMENTS - 'H' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2016:

'H' Share pool  

 

Cost
 

 

Valuation
Valuation
 movement
in year
 

% of
portfolio
   £'000  £'000 £'000  
         
VCT qualifying investments        
Hermes Renewables Limited 1,500 1,500 - 13.0%
Apex Energy Limited 1,300 1,300 - 11.3%
Atlantic Dogstar Limited 1,000 1,137 137 9.8%
Zora Energy Renewables Limited 1,000 1,000 - 8.6%
Quadrate Catering Limited 850 850 - 7.3%
Ironhide Generation Limited 613 613 - 5.3%
Indigo Generation Limited               613 613 - 5.3%
Antelope Pub Limited 500 500 - 4.3%
Rockhopper Renewables Limited 492 492 - 4.3%
SF Renewables (Solar) Limited 281 281 - 2.4%
Oak Grove Renewables Limited 420 231 (84) 2.0%
  8,569 8,517 53 73.6%
         
Non-qualifying investments        
Hedderwick Limited 1,250 1,250 - 10.8%
Quadrate Spa Limited 850 850 - 7.3%
Peace and Saunders Limited 193 193 - 1.7%
Augusta Pub Limited 155 155 - 1.3%
  2,448 2,448 - 21.1%
         
  11,017 10,965 53 94.7%
         
Cash at bank and in hand   609   5.3%
         
Total investments   11,574   100.0%

REVIEW OF INVESTMENTS - 'H' SHARE POOL (continued)

Summary of investment movements

Additions

  Cost
  £'000
VCT qualifying investments  
Hermes Renewables Limited 1,500
Zora Energy Renewables Limited 1,000
Quadrate Catering Limited 850
Indigo Generation Limited 613
Ironhide Generation Limited 613
Rockhopper Renewables Limited 492
SF Renewables (Solar) Limited 281
   
Non-qualifying investments  
Quadrate Spa Limited 850
   
Total 'H' Share pool 6,199

Disposals

   

 

 

Cost
 

 

MV at  01/01/16*
   

 

Disposal
proceeds
   

Gain
against
cost
  Total realised
gain during  the year
  £'000   £'000   £'000   £'000   £'000
                   
VCT qualifying investments                  
Kidspace Adventures Holdings Limited 1,084   1,084   1,084        
                   
Non-qualifying investments                  
Pub People Limited 984   984   984   -   -
Hobblers Heath Limited 727   727   727   -   -
Ludlow Taverns Limited 388   388   388   -   -
                   
  3,183   3,183   3,183   -   -

*Adjusted for additions in the year

INVESTMENT MANAGER'S REPORT- 'J' SHARE POOL
Introduction
The fundraising for the 'J' Share pool was launched in December 2014 and raised £11 million prior to closing in 2015. The majority of these funds have now been invested as at the period end and the Share pool is due to become qualifying at the end of 2017.

Net asset value and results
At 31 December 2016, the net asset value and total return per 'J' Share was 95.8p. This represents a net decrease of 2.7p per share over the year, equivalent to an increase of 2.7%.

The loss on ordinary activities for the 'J' Share, after taxation, for the period was £294,000 (2015: loss £158,000), being a revenue loss of £210,000 (2015: loss £53,000) and a capital loss of £84,000 (2015: loss £105,000).

Investment activity
During the period, 11 qualifying investments have been made totalling £8.0 million as we start to build the qualifying portfolio of the 'J' Share pool.

The qualifying investments include £900,000 in Vectis Alpha Limited which is seeking to build and develop renewable energy plants.

£900,000 was also invested in Brownfields Trading Limited which is seeking to develop small-scale waste disposal projects.

£800,000 was invested in Yamuna Renewables Limited, which is planning to build a wood pellet plant in Austria.

£613,000 was invested in each of Ironhide Generation Limited and Indigo Generation Limited. £492,000 was invested in Rockhopper Renewables Limited and £281,000 into SF Renewables (Solar) Limited. All of the above investments are in the process of acquiring land in India to build and operate ground mounted solar arrays.

Jito Renewables Limited, Rhodes Renewables Limited and Morava Renewables Limited are all exploring opportunities in the wood refinery sector following investments of £1 million, £1 million and £1.2 million respectively.

£300,000 was invested in Zora Energy Renewables Limited, a new wood pellet sales and distribution business.

One valuation adjustment was made in the period on Oak Grove Renewables which was written down by £84,000 due to performance issues at the anaerobic digestion plant. The remaining investments are all held at cost.

Outlook
The task of building the 'J' Share portfolio is progressing well. A number of new businesses have been backed which we believe have good potential for growth over the planned life of the Share pool.

Downing LLP
26 April 2017

REVIEW OF INVESTMENTS - 'J' SHARE POOL

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2016:

'J' Share pool  

 

Cost
 

 

Valuation
Valuation
 movement
in year
 

% of
portfolio
   £'000  £'000 £'000  
         
VCT qualifying investments        
Morava Limited 1,150 1,150 - 11.2%
Cederville Limited 1,000 1,000 - 9.7%
Pilgrim Trading Limited 1,000 1,000 - 9.7%
Rhodes Solutions Limited 1,000 1,000 - 9.7%
Jito Trading Limited 1,000 1,000 - 9.7%
Brownfields Trading Limited 900 900 - 8.7%
Vectis Alpha Limited 900 900 - 8.7%
Yamuna Renewables Limited 800 800 - 7.8%
Indigo Generation Limited 613 613 - 5.9%
Ironhide Generation Limited 613 613 - 5.9%
Rockhopper Renewables Limited 492 492 - 4.8%
Zora Energy Renewables Limited 300 300 - 2.9%
SF Renewables (Solar) Limited 281 281 - 2.7%
Oak Grove Renewables Limited 420 231 (84) 2.3%
  10,469 10,280 (84) 99.7%
         
Cash at bank and in hand   32   0.3%
         
Total investments   10,312   100.0%

Summary of investment movements

Additions

  Cost
  £'000
VCT qualifying investments  
Morava Limited 1,150
Jito Trading Limited 1,000
Rhodes Solutions Limited 1,000
Brownfields Trading Limited 900
Vectis Alpha Limited 900
Yamuna Renewables Limited 800
Indigo Generation Limited 613
Ironhide Generation Limited 613
Rockhopper Renewables Limited 492
Zora Energy Renewables Limited 300
SF Renewables (Solar) Limited 281
   
Total 'J' Share pool 8,049

Directors' responsibilities statement
The Directors are responsible for preparing the Strategic Report, The Report of the Directors, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS 102). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.

In preparing these financial statements the Directors are required to:

*select suitable accounting policies and then apply them consistently;
*make judgements and accounting estimates that are reasonable and prudent;
*state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
*prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions, to disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

Statement as to disclosure of information to Auditor
The Directors in office at the date of the report have confirmed, as far as they are aware, that there is no relevant audit information of which the Auditor is unaware. Each of the Directors has confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the Auditor.

INCOME STATEMENT
for the year ended 31 December 2016


 
  Year ended 31 December 2016

 

Year ended 31 December 2015

 

 

 

Revenue
 

Capital
 

Total
   

Revenue
 

Capital
 

Total
  £'000 £'000 £'000   £'000 £'000 £'000
                 
Income   585 40 625   2,449 - 2,449

 

               
(Loss)/gain on investments   - 580 580   - (200) (200)
    585 620 1,205   2,449 (200) 2,249
                 
Investment management fees   (643) - (643)   (695) - (695)
                 
Other expenses   (296) - (296)   (275) - (275)
                 
Return/(loss) on ordinary activities before tax
(354)

620

266
   

1,479

(200)

1,279
                 
Tax on total comprehensive income and ordinary activities    

21
 

-
 

21
   

(162)
 

-
 

(162)
                 
Return/(loss) for the year and total comprehensive income
(333)

620

287
   

1,317

(200)

1,117
                 
Basic and diluted return/(loss) per:              
'C' Share   (0.4p) - (0.4p)   9.5p (4.4p) 5.1p
'A' Share   - - -   - - -
'D' Share   (0.3p) 2.3p 2.0p   3.1p 3.8p 6.9p
'E' Share   - - -   - - -
'F' Share   1.0p 3.8p 2.8p   1.5p (0.5p) 1.0p
'H' Share   0.3p 0.4p 0.7p   1.6p (0.8p) 0.8p
'J' Share   (2.0p) (0.8p) (2.8p)   (0.8p) (1.6p) (2.4p)

All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS 102"). The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 by the Association of Investment Companies ("AIC SORP").

Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return/loss as stated above and at historical cost.

INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 December 2016

'C' Share pool


 
  Year ended 31 December 2016

 

Year ended 31 December 2015
     

 

 

 

 

Revenue Capital Total   Revenue Capital Total

 

£'000 £'000 £'000   £'000 £'000 £'000
                 
Income   6 - 6   815 - 815
(Loss)/gain on investments   - - -   - (317) (317)
    6 - 6   815 (317) 498
Investment management fees   (8) - (8)   (56) - (56)
Other expenses   (35) - (35)   (41) - (41)
Loss/(return) on ordinary activities before tax
(37)

-

(37)
   

718

(317)

401
Tax on total comprehensive income and ordinary activities    

7
 

-
 

7
   

(36)
 

-
 

(36)
Loss/(return) attributable to equity shareholders

 

 


(30)

-

(30)
 
682

(317)

365

'D' Share pool


 
  Year ended 31 December 2016

 

Year ended 31 December 2015
     

 

 

 

 

Revenue Capital Total   Revenue Capital Total

 

£'000 £'000 £'000   £'000 £'000 £'000
                 
Income   83 40 123   528 - 528
Gain/(loss) on investments   - 196 196   - 384 384
    83 236 319   528 384 912
Investment management fees   (52) - (52)   (97) - (97)
Other expenses   (31) - (31)   (54) - (54)
Return on ordinary activities before tax - 236 236   377 384 761
Tax on total comprehensive income and ordinary activities    

(30)
 

-
 

(30)
   

(71)
 

-
 

(71)
Return attributable to equity shareholders

 

 


(30)

236

206
 
306

384

690

'F' Share pool


 
  Year ended 31 December 2016

 

Year ended 31 December 2015
     

 

 

 

 

Revenue Capital Total   Revenue Capital Total

 

£'000 £'000 £'000   £'000 £'000 £'000
                 
Income   99 - 99   407 - 407
Loss on investments   - 415 415   - (57) (57)
    99 415 514   407 (57) 350
Investment management fees   (136) - (136)   (144) - (144)
Other expenses   (73) - (73)   (85) - (85)
Return/(loss) on ordinary activities before tax
(110)

415

305
   

178

(57)

121
Tax on total comprehensive income and ordinary activities    

3
 

-
 

3
   

(13)
 

-
 

(13)
Return/(loss) attributable to equity shareholders

 

 


(107)

415

308
 
165

(57)

108

'H' Share pool


 
  Year ended 31 December 2016

 

Year ended 31 December 2015
     

 

 

 

 

Revenue Capital Total   Revenue Capital Total

 

£'000 £'000 £'000   £'000 £'000 £'000
                 
Income   355 - 355   594 - 594
Loss on investments   - 53 53   - (105) (105)
    355 53 408   594 (105) 489
Investment management fees   (239) - (239)   (253) - (253)
Other expenses   (61) - (61)   (69) - (69)
Return/(loss) on ordinary activities before tax
55

53

108
   

272

(105)

167
Tax on total comprehensive income and ordinary activities    

(11)
 

-
 

(11)
   

(55)
- (55)
Return/(loss) attributable to equity shareholders

 

 


44

53

97
 
217

(105)

112

'J' Share pool


 
  Year ended 31 December 2016

 

Year ended 31 December 2015
     

 

 

 

 

Revenue Capital Total   Revenue Capital Total

 

£'000 £'000 £'000   £'000 £'000 £'000
                 
Income   42 - 42   104 - 104
Loss on investments   - (84) (84)   - (105) (105)
    42 (84) (42)   104 (105) (1)
Investment management fees   (208) - (208)   (144) - (144)
Other expenses   (96) - (96)   (26) - (26)
Loss on ordinary activities before tax
(262)

(84)

(346)
 
(66)

(105)

(171)
Tax on total comprehensive income and ordinary activities    

52
 

-
 

52
   

13
 

-
 

13
Loss attributable to equity shareholders

 

 


(210)

(84)

(294)
 
(53)

(105)

(158)

BALANCE SHEET
as at 31 December 2016


 
  2016

 

2015

 

  £000   £000
Fixed assets        
Investments   30,836   22,707
         
Current assets        
Debtors   133   632
Cash at bank and in hand   2,337   16,578
    2,470   17,210
 

Creditors: amounts falling due within one year
  (286)   (494)
         
Net current assets   2,184   16,716
         
Net assets   33,020   39,423
         

Capital and reserves

       
Called up share capital   78   78
Capital redemption reserve   106   106
Special reserve   9,888   15,749
Share premium reserve   24,639   24,639
Revaluation reserve   (790)   (1,466)
Capital reserve - realised   (1,033)   (1,033)
Revenue reserve   132   1,350
         
Total equity shareholders' funds   33,020   39,423
         
Basic and diluted net asset value per Share:        
'C' Share   -   53.2p
'A' Share   -   0.1p
'D' Share   36.4p   51.3p
'E' Share   0.1p   0.1p
'F' Share   69.4p   71.5p
'H' Share   86.2p   90.5p
'J' Share   95.8p   98.5p


 
  2016

 

2015
    £000

 

£000
Fixed assets        
Investments   -   748
Current assets        
Debtors   -   174
Cash at bank and in hand   26   2,962
    26   3,136
Creditors: amounts falling due within one year   (23)   (71)
Net current assets   3   3,065
Net assets   3   3,813
         

Capital and reserves

       
 Called up share capital   18   18
 Capital redemption reserve   106   106
 Special reserve   -   2,733
 Share premium reserve   -   -
 Revaluation reserve   (106)   55
 Capital reserve - realised   -   -
 Revenue reserve   (15)   901
 Total equity shareholders' funds   3   3,813

BALANCE SHEET (ANALYSED BY SHARE POOL)
as at 31 December 2016

'C' Shares

'D' Shares


 
  2016

 

2015
    £000

 

£000
 Fixed assets        
Investments   2,382   4,369
 Current assets        
Debtors   4   251
Cash at bank and in hand   1,313   629
    1,317   880
Creditors: amounts falling due within one year   (65)   (124)
Net current assets   1,252   756
Net assets   3,634   5,125
         

 Capital and reserves

       
 Called up share capital   25   25
 Capital redemption reserve   -   -
 Special reserve   3,584   5,206
 Share premium reserve   -   -
 Revaluation reserve   (507)   (667)
 Capital reserve - realised   -   -
 Revenue reserve   532   561
  Total equity shareholders' funds   3,634   5,125

BALANCE SHEET (ANALYSED BY SHARE POOL) (continued)
as at 31 December 2016

'F' Shares


 
  2016

 

2015
    £000

 

£000
Fixed assets        
Investments   7,207   7,379
Current assets        
Debtors   25   129
Cash at bank and in hand   357   349
    382   478
Creditors: amounts falling due within one year   (80)   (115)
Net current assets   302   363
Net assets   7,509   7,742
         

Capital and reserves

       
Called up share capital   11   11
Capital redemption reserve   -   -
Special reserve   8,321   9,155
Revaluation reserve   64   (644)
Capital reserve - realised   (1,033)   (1,033)
Revenue reserve   146   253
Total equity shareholders' funds   7,509   7,742

'H' Shares


 
  2016

 

2015
    £000

 

£000
Fixed assets        
Investments   10,967   7,896
Current assets        
Debtors   104   49
Cash at bank and in hand   609   4,360
    713   4,409
Creditors: amounts falling due within one year   (88)   (138)
Net current assets   625   4,271
Net assets   11,592   12,167
         

Capital and reserves

       
Called up share capital   13   13
Capital redemption reserve   -   -
Special reserve   (2,017)   (1,345)
Share premium reserve   13,608   13,608
Revaluation reserve   (52)   (105)
Capital reserve - realised   -   -
Revenue reserve   40   (4)
Total equity shareholders' funds   11,592   12,167


BALANCE SHEET (ANALYSED BY SHARE POOL) (continued)
as at 31 December 2016

'J' Shares


 
  2016

 

2015
    £000

 

£000
Fixed assets        
Investments   10,280   2,315
Current assets        
Debtors   -   28
Cash at bank and in hand   32   8,279
    32   8,307
Creditors: amounts falling due within one year   (30)   (46)
Net current assets   2   8,261
Net assets   10,282   10,576
         

Capital and reserves

       
Called up share capital   11   11
Capital redemption reserve   -   -
Special reserve   -   -
Share premium reserve   11,031   11,031
Revaluation reserve   (189)   (105)
Capital reserve - realised   -   -
Revenue reserve   (571)   (361)
Total equity shareholders' funds   10,282   10,576

STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016

  Called up share
capital
Capital
redemption
reserve
Special
reserve
Share
premium
reserve
Revaluation
reserve
Capital
reserve
- realised
Revenue
reserve
Total
  £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
                 
At 1 January 2015 67 106 22,268 13,608 (289) (1,033) 342 35,069
Total comprehensive income - - - - (234) 34 1,317 1,117
Transactions with owners                
Issue of new shares 11 - - 11,031 - - - 11,042
Share issue costs - - - - - - (309) (309)
Transfer between
reserves

-
- (6,519) - (943) 7,462 -
-
Dividend paid - - - - - (7,496) - (7,496)
At 31 December 2015 78 106 15,749 24,639 (1,466) (1,033) 1,350 39,423
Total comprehensive income - - - - 406 214 (333) 287
Transactions with owners                
Issue of new shares - - - - - - - -
Share issue costs - - - - - - - -
Transfer between
reserves
- - (5,861) - 270 6,476 (885) -
Dividend paid - - - - - (6,690) - (6,690)
At 31 December 2016 78 106 9,888 24,639 (790) (1,033) 132 33,020
                 

CASH FLOW STATEMENT
for the year ended 31 December 2016

 

  Year ended 31 December 2016
 

 
'C'
Share
pool
'D'
Share
pool
'F'
Share
pool
'H'
Share pool
'J' Share pool   
Total
  £'000 £'000 £'000 £'000 £'000 £'000

Net cash inflow/(outflow) from operating activities

 

16
95 199 (38) (62) (197) (3)

 

             

Cash flow from investing activities

             

Purchase of investments

  - - (700) (6,200) (8,050) (14,950)

Sale of investments

  749 2,182 1,287 3,183 - 7,401
  Net cash (outflow)/inflow from investing activities    

749
 

2,182
 

587
 

(3,017)
 

(8,050)
 

(7,549)

 

             

Net cash outflow/(inflow) before financing activities

844 2,381 549 (3,079) (8,247) (7,552)

 

             

Cash flows from financing activities

             
Equity dividends paid 8 (3,780) (1,697) (541) (672) - (6,690)
Net cash (outflow)/inflow from
financing activities
(3,780) (1,697) (541) (672) - (6,690)

 

             

(Decrease)/increase in cash

  (2,936) 684 8 (3,751) (8,247) (14,242)

Cash and cash equivalents at start of year

  2,962 629 349 4,360 8,279 16,579

Cash and cash equivalents at end of year

  26 1,313 357 609 32 2,337

 

             

Cash and cash equivalents comprise

             

Cash at bank and in hand

  26 1,313 357 609 32 2,337

Total cash and cash equivalents

  26 1,313 357 609 32 2,337

 

             


 
    Year ended 31 December 2015
      'C'
Share
pool
'D'
Share
pool
'F'
Share
pool
'H'
Share pool
'J' Share pool   
Total
      £'000 £'000 £'000 £'000 £'000 £'000

Net cash inflow/(outflow) from operating activities

  534 160 157 46 (35) 862

 

             

Cash flows from investing activities

             

Purchase of investments

  (158) (417) (1,725) (6,636) (2,830) (11,766)

Sale of investments

  5,671 3,550 1,665 5,767 410 17,063
 Net cash inflow/(outflow) from
investing activities
 

5,513
 

3,133
 

(60)
 

(869)
 

(2,420)

5,297

 

             
Net cash inflow/(outflow) before financing activities  

6,047
3,293 97 (823) (2,455) 6,159

 

             

Cash flows from financing activities

             
Equity dividends paid (3,588) (2,695) (540) (673) - (7,496)
 Proceeds from share issue - - - - 11,042 11,042

Share issue costs

  - - - - (309) (309)
Net cash (outflow)/inflow from financing activities (3,588) (2,695) (540) (673) 10,733 3,237

 

             

Increase/(decrease) in cash

  2,459 598 (443) (1,496) 8,278 9,396
Cash and cash equivalents at start of year 503 31 792 5,856 - 7,182
Cash and cash equivalents at end of year 2,962 629 349 4,360 8,278 16,578

 

             

Cash and cash equivalents comprise

             

Cash at bank and in hand

  2,962 629 349 4,360 8,278 16,578

Total cash and cash equivalents

  2,962 629 349 4,360 8,278 16,578

 

             

NOTES TO THE ACCOUNTS
for the year ended 31 December 2016

1. General information
Downing THREE VCT plc ("The Company") is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales and its registered office is Ergon House, Horseferry Road, London, SW1P 2AL.

2. Accounting policies
Basis of accounting
The Company has prepared its financial statements under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") revised November 2014 as well as the Companies Act 2006.

The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when required.

The financial statements are presented in Sterling (£).

Presentation of Income Statement
In order to better reflect the activities of a venture capital trust and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The return on ordinary activities is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.

Investments
Venture capital investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") together with FRS 102 sections 11 and 12.

For unquoted investments, fair value is established using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:

*Price of recent investment;
*Multiples;
*Net assets;
*Discounted cash flows or earnings (of underlying business);
*Discounted cash flows (from the investment); and
*Industry valuation benchmarks.

The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.

Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment are expensed. Where an investee company has gone into receivership, liquidation or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.

It is not the Company's policy to exercise significant influence over investee companies. Therefore the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with the SORP and FRS 102 sections 14 and 15 that does not require portfolio investments, where the interest held is greater than 20%, to be accounted for using the equity method of accounting.

Income
Dividend income from investments is recognised when the Shareholders' rights to receive payment has been established, normally the ex-dividend date.

Interest income is accrued on a time apportionment basis, by reference to the principal sum outstanding and at the effective rate applicable and only where there is reasonable certainty of collection in the foreseeable future.

Distributions from partnership companies is recognised as they are paid to the Company. Where such items are considered capital in nature they are recognised as capital profits.

Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:

*Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
*Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. The Company has adopted the policy of allocating Investment *Manager's fees 100% as revenue.
*Expenses and liabilities not specific to a share class are generally allocated pro rata to the net assets.
*Performance incentive fees arising from the disposal of investments are deducted as a capital item.

Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting year.

Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise.

Deferred taxation which is not discounted is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Deferred taxation is not discounted.

Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.

Issue costs
Issue costs in relation to the shares issued for each share class have been deducted from the revenue reserve account for the relevant share class.

Significant estimates and judgements
Disclosure is required of judgements and estimates made my management in applying the accounting policies that have a significant effect on the financial statements. The area involving a higher degree of judgement and estimates is the valuation of unquoted investments as explained in the investment accounting policy.

3. Basic and diluted return per share

  'C' Shares 'A' Shares 'D' Shares 'E' Shares 'F' Shares 'H' Shares 'J' Shares
               
               
Revenue return/
(loss) (£'000)

(30)

-

(30)

-

(107)

44

(210)
               
Net capital (loss)/gain for the year (£'000)
-

-

236

-

415

53

(84)
               
Total return/ (loss) after taxation (£'000)  

 

(30)
 

 

-
 

 

206
 

 

-
 

 

308
 

 

97
 

 

(294)
               
Weighted average number of shares in issue

7,158,326


10,750,064


9,979,109


14,994,862


10,821,660


13,446,972


10,733,377

As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share for any of the share classes. The return per share disclosed therefore represents both the basic and diluted return per share for all share classes.

4. Basic and diluted net asset value per share

 

  2016 2015
  Shares in issue Net asset value Net asset value
  31 Dec 2016 31 Dec 2015 per share £'000  per share £'000

 

                   

'C' Shares

7,158,326 7,158,326   -   3    53.2p   3,802

'A' Shares

10,750,064 10,750,064     -   -   0.1p   11

'D' Shares

9,979,109 9,979,109   36.4p   3,619   51.3p   5,110

'E' Shares

14,994,862 14,994,862     0.1p   15   0.1p   15

'F' Shares

10,821,660 10,821,660   69.4p   7,509   71.5p   7,742

'H' shares

13,446,972 13,446,972 86.2p 11,592   90.5p 12,167

'J' Shares

10,733,377 10,733,377 95.8p 10,282   98.5p 10,576

 

      33,020     39,423

The 'C' Share pool, 'D' Share pool, 'F' Share pool, 'H' Share pool and 'J' Share pool are treated as separate investment pools. Within the 'C' Share pool the Directors allocate the assets and liabilities of the Company between the 'C' Shares and 'A' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights. Within the 'D' Share pool the Directors allocate the assets and liabilities of the Company between the 'D' Shares and 'E' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights.

5. Principal risks
The Company's financial instruments comprise investments held at fair value through profit and loss, being equity and loan stock investments in unquoted companies, loans and receivables consisting of short term debtors, cash deposits and financial liabilities, being creditors arising from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short-term creditors and does not use any derivatives.

The fair value of investments is determined using the detailed accounting policy

The fair value of cash deposits and short term debtors and creditors equates to their carrying value in the Balance Sheet.

Loans and receivables and other financial liabilities are stated at amortised cost which the Directors consider is equivalent to fair value.

The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:

*Market risks
*Credit risk
*Liquidity risk

The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.

The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below:

Market risks

As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.

The key investment risks to which the Company is exposed are:

*Investment price risk
*Interest rate risk

 
Investment price risk

Investment price risk arises from uncertainty about the valuation of financial instruments held in accordance with the Company's investment objectives in addition to the appropriateness of the valuation method used. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.

Interest rate risk

The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.

There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows:

*"Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments.
*"Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments.
*"No interest rate" assets do not attract interest and comprise equity investments and debtors.

The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors.

The Manager manages credit risk in respect of loan stock with a similar approach as described under "Market risks" above. In addition the credit risk is mitigated for all investments in loan stocks by taking security, covering the full par value of the loan stock, in the form of fixed and floating charges over the assets of the investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. Similarly the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both also ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low.

There have been no changes in fair value during the year that are directly attributable to changes in credit risk.
 

Of the investments in loan stock above, as at 31 December 2016 £1,270,000 relates to the principal of loan notes where, although the principal remains within term, the investee company is not fully servicing the interest obligations under the loan note and is thus in arrears.

Liquidity risk

Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company has a relatively low level of creditors, (£286,000, 2015: £494,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.

ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 December 2016, but has been extracted from the statutory financial statements for the year ended 31 December 2016 which were approved by the Board of Directors on 26 April 2017 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

The statutory accounts for the period ended 31 December 2015 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

A copy of the full annual report and financial statements for the year ended 31 December 2016 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Ergon House, London, SW1P 2AL and will be available for download from www.downing.co.uk.




This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Downing THREE VCT plc via Globenewswire


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Downing THREE VCT plc : Final Results - RNS