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Downing Three VCT PLC  -  DP3F   

Downing THREE VCT plc - Half-Yearly Report

Released 16:13 27-Sep-2018

Downing THREE VCT plc - Half-Yearly Report

Downing THREE VCT plc

Half-Yearly Report
for the six months ended 30 June 2018

LEI: 2138008V2JDU2K6ZHF80

Performance summary

‘D’ Share pool30 Jun
2018
 31 Dec
2017
 30 Jun
2017
 Pence Pence Pence
Net asset value per ‘D’ Share- - 23.7
Net asset value per ‘E’ Share- - 0.1
Cumulative distributions per ‘D’ Share103.79 103.79 80.0
Total return per ‘D’ Share and ‘E’ Share103.79 103.79 103.8


‘F’ Share pool30 Jun
2018
 31 Dec
2017
 30 Jun
2017
 Pence Pence Pence
Net asset value per ‘F’ Share53.6 69.6 69.6
Cumulative distributions per ‘F’ Share49.0 30.0 27.5
Total return per ‘F’ Share102.6 99.6 97.1


‘H’ Share pool30 Jun
2018
 31 Dec
2017
 30 Jun
2017
 Pence Pence Pence
Net asset value per ‘H’ Share78.7 82.3 84.6
Cumulative distributions per ‘H’ Share22.5 20.0 17.5
Total return per ‘H’ Share101.2 102.3 102.1


‘J’ Share pool30 Jun
2018
 31 Dec 2017 30 Jun 2017
 Pence Pence Pence
Net asset value per ‘J’ Share91.2 94.7 95.7

CHAIRMAN’S STATEMENT

Introduction

I am pleased to present the Half-Yearly Report for the six months ended 30 June 2018. The Company has a number of share pools, each of which is in a different stage in its planned exit life. Generally progress has been satisfactory over the period for the share pools that have recently passed or are approaching their planned exit date.

Net asset values and overview

‘F’ Share pool
The ‘F’ Share pool launched in 2012 and began exiting from its investments earlier this year. In April the share class paid its first dividends in its realisation phase of 19.0p per share.

At 30 June 2018 the net asset value (“NAV”) for a holding of one ‘F’ Share was 53.6p, an increase of 3.0p (4.3%) over the period. Total Return (NAV plus dividends paid to date) is now 102.6p for a combined holding, compared to the original cost, net of income tax relief, of 70p per share.

The pool still holds 12 investments, but plans are being progressed for exits from each of them.

Since the period end one further exit has been achieved. As a result, the Share pool will pay a further dividend of 18.0p per ‘F’ Share on 9 November 2018. This will bring total distributions to 67.0p and leave a remaining NAV of 35.6p.

The task of exiting the remaining investments is likely to take some time to complete, although we expect significant progress to be made over the remainder of the year. The Manager does not, however, expect to be in a position to make the final distribution until 2019.

‘H’ Share pool

The ‘H’ Share pool raised funds in 2014 and has now completed its initial investment phase. The target date to start realising investments is 2019.

At 30 June 2018, the net asset value (“NAV”) for a holding of one ‘H’ Share was 78.7p which represents a net decrease of 1.1p (1.3%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 101.2p, compared to the initial NAV, before income tax relief, of 100.0p.

‘J’ Share pool
The ‘J’ Share pool raised funds in 2015 and is continuing to build its initial investment portfolio. The target date to start realising investments is 2020.

At 30 June 2018, the net asset value (“NAV”) and total return for a holding of one ‘J’ Share was 91.2p which represents a net decrease of 3.5p (3.7%) over the period, compared to the initial NAV, before income tax relief, of 100.0p. This deficit has arisen partly due to a provision that has been required against one investment.

Due to the VCT regulations, the ‘J’ Share pool is effectively prohibited from paying dividends in its first three years. The Share pool will therefore commence returning funds to shareholders in 2019.

The Investment Manager’s Report will provide more detail on each of the share pools.

Dividends

In line with the Company’s stated policies, interim dividends will be paid as follows:

‘F’ Shares 18.0p per share
‘H’ Shares 2.5p per share

The ‘F’ Share dividend will be paid on 9 November 2018 to Shareholders on the register at 19 October 2018. The ‘H’ Share dividend will be paid on 14 December 2018 to Shareholders on the register at 23 November 2018

Share buybacks

The Company has a general policy in the first five years after the launch of a share class, of buying in its own shares that become available in the market for cancellation. As a result, the Company will currently buy ‘H’ Shares and ‘J’ Shares that become available in the market and will, subject to liquidity and regulatory constraints, buy at prices approximately equal to net asset value i.e. with no discount.

During the period to 30 June 2018, the Company repurchased and subsequently cancelled 19,400 'H' Shares and 19,725 ‘J’ Shares for an aggregate consideration of £15,940 and £18,677 respectively, being an average price of 82.0p per ‘H’ Share and 94.5p per ‘J’ Share.

No share buybacks in respect of any other share classes were undertaken during the period.

Outlook
Over the remainder of the year we expect to see significant headway made in realising most of the remaining investments in the ‘F’ Share pool. As the process of realising investments usually includes transactions with third parties, timings can be unpredictable, and Shareholders should note that the exit process will take time to complete. While the Manager is focussing on delivering exits in a timely manner, the Board is keen to see that full value is achieved for all investments even if this may sometimes take longer to deliver.

In respect of the ‘H’ Share pool and ‘J’ Share pool, we expect this to be a stable period with the Manager focussing on nurturing the investments such that they will be well positioned to deliver successful exits when the time comes.

I look forward to updating Shareholders on progress in my statement with the year end report to 31 December 2018 but will also communicate additionally with ‘F’ Shareholders as and when there is any news of further distributions.

Michael Robinson
Chairman

INVESTMENT MANAGER’S REPORT
‘F’ SHARE POOL

As at 30 June 2018, the ‘F’ Share pool holds 12 investments and focus has now shifted to the process of realising its investments in order to return funds to ‘F’ Shareholders.

Investment activity
During the period, the full exit of Goonhilly Earth Station Limited completed and resulted in a good outcome for ‘F’ Shareholders generating proceeds of £1.2 million and an uplift over cost of £216,000.

Partial disposals also completed in two of the smaller portfolio companies. There was a partial loan note redemption in the Scottish licensed leisure company, Fubar Stirling Limited which generated a total gain over carrying value of £4,000.

There was also a partial loan note redemption in Fresh Green Power Limited, the domestic rooftop solar company, which was redeemed at par.

The majority of the portfolio investments remain valued at or above cost with there being several valuation movements in the period which generated an uplift over opening value of £104,000.

The most significant increase in valuation was in Merlin Renewables Limited, the anaerobic digestion plant in Norfolk. In August 2018, the plant was exited and the carrying value was uplifted to reflect the sale price at the period end.

An uplift of £20,000 was recognised in Atlantic Dogstar Limited, which owns a group of London pubs, following a revaluation of the sites.

Downing Pub EIS One Limited, which acquired the holdings of Pabulum Pubs Limited and Augusta Pub Company Limited in the prior year, was uplifted by £18,000 supported by independent sales valuations from industry specialists.

Other smaller movements in the portfolio included an uplift of £10,000 in Lambridge Solar Limited and £3,000 in Fresh Green Power Limited.

One valuation write down took place in the period. Green Energy Production UK Limited, the operator of rooftop solar assets in Lincolnshire, had a reduction in value of £24,000 following a period of recurring operational issues.

Realisation plans
The pool’s second most significant investment holding is Merlin Renewables Limited, the anaerobic digestion plant in Norfolk. Following the period end, an exit was achieved which delivered a significant return to the pool.

Plans are in place for the successful exit of the remaining portfolio companies however we anticipate that the exercise will take some time to complete in full.

Net asset value, results and dividend
At 30 June 2018, the net asset value (“NAV”) for a holding of one ‘F’ Share was 53.6p, an increase of 3.0p (4.3%) over the period. Total Return (NAV plus dividends paid to date) is now 102.6p for a combined holding.

The gain on ordinary activities for the ‘F’ Shares, after taxation was £333,000 for the period, comprising a revenue profit of £9,000 and a capital gain of £324,000.

The Company will pay an interim dividend of 18.0p per ‘F’ Share on 9 November 2018 to ‘F’ Shareholders on the register at 19 October 2018.

Outlook
The focus for the ‘F’ Share portfolio remains on exiting from its remaining investments. Progress continues to be made however exact timing on the final exit is dependent on transactions involving third parties.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
‘F’ SHARE POOL

as at 30 June 2018

 CostValuationUnrealised gain/(loss) in period% of portfolio by value
 £’000£’000£’000 
     
VCT qualifying and partially qualifying investments    
Apex Energy Limited1,0001,000-17.2%
Merlin Renewables Limited5007187712.3%
Downing Pub EIS One Limited4906071810.4%
Lambridge Solar Limited5006051010.4%
Pearce and Saunders Limited497497-8.5%
Atlantic Dogstar Limited200255204.4%
Fresh Green Power Limited18923134.0%
Green Energy Production UK Limited10076(24)1.3%
Fubar Stirling Limited955-0.1%
     
Non-qualifying investments    
Baron House Developments LLP481481-8.3%
London City Shopping Centre Limited6666-1.1%
Pearce and Saunders DevCo Limited4646-0.8%
     
 4,1644,58710478.8%
     
Cash at bank and in hand 1,234 21.2%
     
Total 5,821 100.0%

SUMMARY OF INVESTMENT MOVEMENTS
‘F’ SHARE POOL

as at 30 June 2018

DisposalsCostMarket value
at
01/01/18
Disposal proceedsGain
against cost
 Total realised
gain
 £’000 £’000£’000 £’000£’000
      
VCT qualifying and partially qualifying investments     
Goonhilly Earth Station Limited9559551,171216216
Fubar Stirling Limited626-4
Fresh Green Power Limited111111--
      
 9729681,188216220

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 now fully qualifying.

Investment activity

With the pool being fully invested, no new investments were made in the period.

Valuations movements during the period totalled an unrealised loss of £318,000, mainly due to the significant write down in value in Quadrate Spa Limited. The non qualifying investment owns and operates a health club business in The Cube complex in Birmingham and has been written down by £458,000 at the period end as a result of poor performance.

This movement has been partially offset by the valuation uplifts in the period that totalled £140,000.

Atlantic Dogstar Limited, which owns a group of London Pubs, was uplifted by £102,000 following a revaluation of the sites.

Oak Grove Renewables Limited, which operates an anaerobic digestion plant in Norwich, was exited during the period, however is awaiting the receipt of deferred consideration from the sale. As the likelihood of receiving this payment has now increased, the carrying value was uplifted by £21,000.

Net asset value and results

At 30 June 2018, the net asset value per ‘H’ Share was 78.7p, a net decrease of 1.1p (1.3%) over the period. Total Return (NAV plus dividends paid to date) is now 101.2p.

Results and dividend

The loss on ordinary activities for the ‘H’ Shares, after taxation, for the period was £146,000, comprising a revenue profit of £172,000 and a capital loss of £318,000.

The Company will pay an interim dividend of 2.5p per ‘H’ Share, on 14 December 2018 to Shareholders on the register at 23 November 2018.

Outlook
The ‘H’ Share pool is now fully invested and our focus is now on close monitoring and support of the portfolio companies in order to nurture growth before reaching its five year anniversary at the end of 2019.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
‘H’ SHARE POOL

as at 30 June 2018

 CostValuationUnrealised gain/(loss)

in period
% of portfolio

by value
 £’000£’000£’000 
VCT qualifying investments    
Hermes Wood Pellets Limited1,5001,500-14.2%
Apex Energy Limited1,3001,300-12.3%
Atlantic Dogstar Limited1,0001,27910212.1%
Zora Energy Renewables Limited1,0001,000-9.4%
Quadrate Catering Limited850850-8.0%
Ironhide Generation Limited613613-5.8%
Indigo Generation Limited613613-5.8%
Antelope Pub Limited500500-4.7%
Rockhopper Renewables Limited492492-4.6%
SF Renewables (Solar) Limited281281-2.6%
Oak Grove Renewables Limited420252212.4%
Pearce and Saunders Limited193193-1.8%
     
Non-qualifying investments    
Hedderwick Limited1,2501,3201712.5%
Quadrate Spa Limited850392(458)3.7%
     
 10,86210,585(318)99.9%
     
Cash at bank and in hand 11 0.1%
     
Total 10,596 100%


INVESTMENT MANAGER’S REPORT
‘J’ SHARE POOL

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 and the focus for this share pool is on the close monitoring of the investee companies.

Investment activity

During the period, three adjustments were made to the valuations, leading an unrealised loss totalling £288,000.

Oak Grove Renewables Limited, which operates an anaerobic digestion plant in Norwich, was fully exited after the period end. As a result, the carrying value was uplifted by £22,000 to reflect the pending exit proceeds.

Ormsborough Limited, who own several pubs and restaurants across Yorkshire, had a reduction in value of £312,000 due to overspend on recent developments.

Net asset value and results
At 30 June 2018, the net asset value per ‘J’ Share was 91.2p, a net decrease of 3.5p (3.7%) over the period.

The loss on ordinary activities for the ‘J’ Shares, after taxation, was £369,000 for the period, comprising a revenue loss of £81,000 and a capital loss of £288,000.

Outlook
The emphasis for the ‘J’ share pool now gradually shifts to the close monitoring of the Share pool’s investments as we seek to optimise growth over the planned exit life, however we also expect there to be a small number of further additions to utilise the remaining cash of the pool.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
‘J’ SHARE POOL

as at 30 June 2018

 CostValuationUnrealised gain/

(loss) in period
% of portfolio

by value
 £’000£’000£’000 
VCT qualifying investments    
Pilgrim Trading Limited1,2971,297-13.9%
Jito Trading Limited1,0001,000-10.7%
Yamuna Renewables Limited800800-8.5%
Ormsborough Limited1,000735(312)7.8%
Indigo Generation Limited613613-6.5%
Ironhide Generation Limited613613-6.5%
Exclusive Events Venues Limited500500-5.3%
Rockhopper Renewables Limited492492-5.3%
Garthcliff Shipping Limited400400-4.3%
Managed Storage Services (1) Limited400400-4.3%
Zora Energy Renewables Limited300300-3.2%
SF Renewables (Solar) Limited281281-3.0%
Oak Grove Renewables Limited420252222.7%
Mosaic Spa and Healthclubs Limited272920.3%
     
Non-qualifying investments    
Fenkle Street LLP287287-3.1%
Snow Hill Developments LLP4343-0.5%
London City Shopping Centre Limited1515-0.2%
     
 8,4888,057(288)86.1%
     
Cash at bank and in hand 1,299 13.9%
     
Total 9,356 100%


UNAUDITED SUMMARISED BALANCE SHEET

as at 30 June 2018

   

30 Jun 2018
 30 Jun
2017
 31 Dec
2017
   

‘D’
Shares
 

‘F’ Shares
 

‘H’ Shares

‘J’ Shares
 

 

Total
  

 

Total
  

 

Total
  £’000£’000£’000£’000£’000 £’000 £’000
           
Fixed assets          
Unquoted investments - 4,587 10,585 8,057 23,229  29,026  24,699 
           
Current assets          
Debtors - 39 35 445 519  324  322 
Cash at bank and in hand 7 1,234 11 1,299 2,551  2,486  3,933 
  7 1,273 46 1,744 3,070  2,810  4,255 
           
Creditors: amounts falling due within one year 
(7

)

(56

)

(89

)

(63

)

(215

)
  

(312


)
 (262)
           
Net current assets - 1,217 (43)1,681 2,855  2,498  3,993 
           
Net assets - 5,804 10,542 9,738 26,084  31,524  28,692 
           
Capital and reserves          
Called up share capital 25 11 13 11 60  60  60 
Capital redemption reserve 124 - - - 124  124  124 
Special reserve - 5,995 (3,024)- 2,971  8,017  5,146 
Share premium account - - 13,608 11,031 24,639  24,639  24,639 
Revaluation reserve (249)463 (279)(432)(497) (481) 1 
Capital reserve – realised - (1,033)- (6)(1,039) (1,039) (1,039)
Revenue reserve 100 368 224 (866)(174) 204  (239)
 

Total equity shareholders’ funds
 

-
  

5,804
  

10,542
  

9,738
  

26,084
   

31,524
  28,692 
           
Basic and diluted net asset value per:    
‘D’ Share -      23.7p - 
‘E’ Share -      0.1p - 
‘F’ Share  53.6p    69.6p 69.6p
‘H’ Share   78.7p   84.6p 82.3p
‘J’ Share    91.2p  95.7p 94.7p

STATEMENT OF CHANGES IN EQUITY
for the period ended 30 June 2018



 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  2017781069,88824,639(790)(1,033)13233,020
Total comprehensive income----268301108677
Transactions

with owners
        
Issue of new shares--------
Share issue

costs
--------
Purchase of

own shares
------(66)(66)
Transfer between
  reserves
--(4,742)-5234,632(413)-
Cancellation of
shares
(18)18------
Dividend paid-----(4,939)-(4,939)
At 31 December 2017601245,14624,6391(1,039)(239)28,692
Total comprehensive

income
----(502)220100(182)
Transactions with

owners
        
Purchase of own shares------(35)(35)
Transfer between
  reserves
--(2,175)-42,171--
Dividend paid-----(2,391)-(2,391)
Cancellation of shares--------
At 30 June 2018601242,97124,639(497)(1,039)(174)26,084
         


INCOME STATEMENT

for the six months ended 30 June 2018

Company Total

  

Six months ended
30 Jun 2018 
  

Six months ended
30 Jun 2017
 Year ended 31 Dec 2017
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income514 - 514  556 34590  1,027 
          
Gains/(losses) on investments         
- realised- 220 220  - 6262  267 
- unrealised- (502)(502) - 290290  268 
 514 (282)232  556 386942  1,562 
          
Investment management fees(239)- (239) (303)-(303) (594)
Other expenses(137)- (137) (146)-(146) (264)
          
Return/(loss) on ordinary activities before taxation138 (282)(144) 107 386493  704 
          
Tax on total comprehensive income and ordinary activities(38)- (38) (21)-(21) (27)
          
Return/(loss) attributable to equity shareholders100 (282)(182) 86 386472  677 
          
Return per ‘D’ Share- - -  (0.2p)1.0p0.8p 0.9p
Return per ‘E’ Share- - -  - --  
Return per ‘F’ Share0.1p3.0p3.1p 0.8p1.9p2.7p 5.2p
Return per ‘H’ Share1.3p(2.4p)(1.1p) 0.4p0.5p0.9p 1.1p
Return per ‘J’ Share(0.8p)(2.7p)(3.5p) (0.3p)0.2p(0.1p) (1.1p)

INCOME STATEMENT
for the six months ended 30 June 2018

‘D’ Shares 

Six months ended
30 Jun 2018 
  

Six months ended
30 Jun 2017
 Year ended 31 Dec 2017
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income--- 9 34 43  46 
          
Gains/(losses) on investments         
- realised--- - 68 68  59 
- unrealised--- - (4)(4) 
 --- 9 98 107  105 
          
Investment management fees--- (19)- (19) (32)
Other expenses--- (17)- (17) (17)
          
(Loss)/return on ordinary activities before taxation--- (27)98 71  56 
          
Tax on total comprehensive income and ordinary activities--- 5 - 5  31 
          
(Loss)/return attributable to equity shareholders--- (22)98 76  87 

INCOME STATEMENT
for the six months ended 30 June 2018

‘F’ Shares

 
 

Six months ended
30 Jun 2018 
  

Six months ended
30 Jun 2017
 Year ended 31 Dec 2017
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income113 -113  222 -222  449 
          
Gains on investments         
- realised- 220220  - --  215 
- unrealised- 104104  - 205205  131 
 113 324437  222 205427  795 
          
Investment management fees(58)-(58) (68)-(68) (136)
Other expenses(46)-(46) (47)-(47) (91)
          
Return on ordinary activities before taxation9 324333  107 205312  568 
          
Tax on total comprehensive income and ordinary activities- --  (21)-(21) (7)
          
Return attributable to equity shareholders9 324333  86 205291  561 

INCOME STATEMENT
for the six months ended 30 June 2018

‘H’ Shares

 
 

Six months ended
30 Jun 2018 
  

Six months ended
30 Jun 2017
 Year ended 31 Dec 2017
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income332 - 332  226 -226  364 
          
Gains/(losses) on investments         
- realised- - -  - --  
- unrealised- (318)(318) - 6161  90 
 332 (318)14  226 61287  454 
          
Investment management fees(102)- (102) (116)-(116) (229)
Other expenses(49)- (49) (43)-(43) (82)
          
Return/(loss) on ordinary activities before taxation181 (318)(137) 67 61128  143 
          
Taxation on total comprehensive income and ordinary activities(9)- (9) (13)-(13) 
          
Return/(loss) attributable to equity shareholders172 (318)(146) 54 61115  148 

INCOME STATEMENT
for the six months ended 30 June 2018

‘J’ Shares

 
 

Six months ended
30 Jun 2018 
  

Six months ended
30 Jun 2017
 Year ended 31 Dec 2017
 RevenueCapitalTotal RevenueCapitalTotal Total
 £’000£’000£’000 £’000£’000£’000 £’000
          
Income69 - 69  99 - 99  168 
          
(Losses)/gains on investments         
- realised- - -  - (6)(6) (6)
- unrealised- (288)(288) - 28 28  46 
 69 (288)(219) 99 22 121  208 
          
Investment management fees(79)- (79) (100)- (100) (197)
Other expenses(42)- (42) (39)- (39) (74)
          
(Loss)/gain on ordinary activities before taxation(52)(288)(340) (40)22 (18) (63)
          
Tax on total comprehensive income and ordinary activities(29)- (29) 8 - 8  (56)
          
(Loss)/gain attributable to equity shareholders(81)(288)(369) (32)22 (10) (119)

UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2018

    

30 Jun 2018
 30 Jun 2017 31 Dec 2017
   

‘D’
Shares
 

‘F’
Shares
 

‘H’
Shares

‘J’ Shares
 

 

Total
 Total  

 

Total
Note £’000£’000£’000£’000£’000 £’000 £’000
           
Net cash (outflow)/inflow from operating activities1 (13)60 234 (425)(144) (41) (71)
           
Cash flows from investing activities          
Purchase of investments - - - - -  (1,501) (3,653)
Sale of investments - 1,188 - - 1,188  3,659  10,325 
Net cash inflow from investing activities - 1,188 - - 1,188  2,158  6,672 
           
Net cash inflow/(outflow) before financing activities (13)1,248 234 (425)1,044  2,117  6,601 
           
Cash flows from financing activities          
Purchase of own shares - - (16)(19)(35) (14) (66)
Equity dividends paid - (2,056)(335)- (2,391) (1,954) (4,939)
Net cash outflow from financing - (2,056)(351)(19)(2,426) (1,968) (5,005)
Increase/(decrease) in cash2 (13)(808)(117)(444)(1,382) 149  1,596 

NOTES TO THE UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2018

    30 Jun 2018 30 Jun 2017 31 Dec 2017
   

‘D’
Shares
 

‘F’
Shares
 

‘H’
Shares

‘J’

Shares
 

 

Total
  

 

Total
  

 

Total
  £’000£’000£’000£’000£’000 £’000 £’000
1 Cash (outflow)/inflow from operating activities and returns on investments          
(Loss)/return on ordinary activities before taxation - 333 (137)(340)(144) 493  704 
Corporation tax paid - - - (38)(38) -  (18)
Losses/(gains) on investments - (324)318 288 282  (352) (535)
Decrease/(increase) in other debtors - 85 54 (336)(197) (191) (191)
(Decrease)/increase in other creditors (13)(34)(1)1 (47) 9  (31)
Net cash (outflow)/inflow  from operating activities (13)60 234 (425)(144) (41) (71)
           
2 Analysis of net funds          
Beginning of period 20 2,042 128 1,743 3,933  2,337  2,337 
Net cash (outflow)/inflow (13)(808)(117)(444)(1,382) 149  1,596 
End of period 7 1,234 11 1,299 2,551  2,486  3,933 

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

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.

2. Accounting policies - Basis of accounting
The unaudited half-yearly results cover the six months to 30 June 2018 and have been prepared in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” revised January 2009 and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2017, which were prepared 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”).

3. All revenue and capital items in the Income Statement derive from continuing operations.

4. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

5. The comparative figures are in respect of the six month period ended 30 June 2017 and the year ended 31 December 2017 respectively.

6. Dividends

    

Six months ended
30 June 2018
 Year ended
31 Dec
2017
 Per share RevenueCapitalTotal Total
Paid in periodpence £’000£’000£’000 £’000
        
‘D’ Shares       
Special ‘D’ 201723.69p -- -  2,361
Special ‘E’ 20170.1p -- -  15
Y/e Dec 2016 Final13.5p -- -  1,350
   -- -  3,726
        
‘F’ Shares        
Y/E Dec 2017 Final19.0p -(2,056)(2,056) -
Y/E Dec 2016 Final2.5p -- -  271
Y/E Dec 2016 Interim2.5p -- -  270
   -(2,056)(2,056) 541
        
‘H’ Shares        
Y/E Dec 2016 Final2.5p -(335)(335) -
Y/E Dec 2016 Final2.5p -- -  336
Y/E Dec 2016 Interim2.5p -- -  336
   -(335)(335) 672

No dividends have been paid or declared in respect of the ‘J’ Shares.

7. Basic and diluted return per share

 Weighted average number of shares in issue  

Revenue
(loss)/return
  

Capital
return
    

£’000
Per share  

£’000
Per
 share
        
‘D’ Shares9,979,109 - - - -
‘E’ Shares14,994,862 - - - -
‘F’ Shares10,821,660 9 0.1p 324 3.0p
‘H’ Shares13,379,978 172 1.3p (318)(2.4p)
‘J’ Shares10,674,386 (81)(0.8p) (288)(2.7p)
   100   (282) 

8. Net asset value per share

 Shares in issue Net asset value
   £’000 Per Share
      
‘D’ Shares9,979,109 - -
‘E’ Shares14,994,862 - -
‘F’ Shares10,821,660 5,804 53.6p
‘H’ Shares13,389,758 10,542 78.7p
‘J’ Shares10,675,533 9,738 91.2p
   26,084  

9. Reserves

 Period ended 30 June
2018
 Year ended 31 Dec 2017
 £’000 £’000
    
Capital redemption reserve124  124 
Special reserve2,971  5,146 
Share premium reserve24,639  24,639 
Revaluation reserve(497) 
Capital reserve-realised(1,039) (1,039)
Revenue reserve(174) (239)
 26,024  28,632 

The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £1,423,000 which are included in the calculation of distributable reserves. Total distributable reserves are £335,000 (31 Dec 2017: £3,148,000).

10. The fair value of investments is determined using the detailed accounting policy set out in the statutory accounts for the year ended 31 December 2017.

The Company has categorised its financial instruments using the fair value hierarchy as follows:

Level 1 Reflects financial instruments quoted in an active market;
Level 2 Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level 3 Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).

  

 

Level
1
 

 

Level 2
 

 

Level 3
Period
ended
 30 June
 2018
  

 

Level
1
 

 

Level
 2
 

 

Level
 3
Year
ended
31 Dec
2017
 £’000£’000£’000£’000 £’000£’000£’000£’000
          
Loan notes--2,9852,985 --3,2833,283
Unquoted equity 

-
 

-
 

20,244
 

20,244
  

-
 

-
 

21,416

21,416
 --23,22923,229 --24,69924,699

11. The unaudited condensed financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 December 2017 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor’s report on those financial statements was unqualified.

12. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the “Statement: Half-Yearly Financial Reports” issued by the UK Accounting Standards Board as well as in accordance with FRS 104 Interim Financial Reporting and the half-yearly financial report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

13. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required, in the Company’s half-yearly results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year.

The Board concluded that the key risks facing the Company over the remainder of the financial period are as follows:

(i) Compliance risk of failure to maintain approval as a VCT; and
(ii) Investment risk associated with investing in small and immature businesses.

The Company’s compliance with the VCT regulations is continually monitored by the Manager, who reports regularly to the Board on the current position. The Company has also reappointed Philip Hare & Associates LLP to provide regular reviews and advice in this area. In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. It also has a limited period in which it must invest the majority of its funds. The Manager follows a rigorous process in vetting and carefully structuring new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business. The Board is satisfied that these approaches provide satisfactory management of the key risks.

14. Going concern
The Directors have reviewed the Company’s financial resources at the period end and conclude that the Company is well placed to manage its business risks.

The Board confirms that it is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, the Board believes that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.

15. Copies of the unaudited half-yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company’s registered office or will be available for download from www.downing.co.uk.


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Downing THREE VCT plc - Half-Yearly Report - RNS