Downing THREE VCT plc
Final results for the year ended 31 December 2014
FINANCIAL SUMMARY
| 31 Dec 2014 | 31 Dec 2013 | ||
| Pence | Pence | ||
| 'C' Share pool | |||
| Net asset value per 'C' Share | 98.2 | 90.7 | |
| Net asset value per 'A' Share | 0.1 | 0.1 | |
| Cumulative distributions per 'C' Share | 25.0 | 22.5 | |
| Total return per 'C' Share and 'A' Share | 123.3 | 113.3 | |
| 'D' Share pool | |||
| Net asset value per 'D' Share | 71.3 | 76.9 | |
| Net asset value per 'E' Share | 0.1 | 0.1 | |
| Cumulative distributions per 'D' Share | 22.5 | 17.5 | |
| Total return per 'D' Share and 'E' Share | 93.9 | 94.5 | |
| 'F' Share pool | |||
| Net asset value per 'F' Share | 75.5 | 79.9 | |
| Cumulative distributions per 'F' Share | 15.0 | 10.0 | |
| Total return per 'F' Share | 90.5 | 89.9 | |
| 'H' Share pool | |||
| Net asset value per 'H' Share | 94.7 | - | |
| Cumulative distribution per 'H' Share | 5.0 | - | |
| Total return per 'H' Share | 99.7 | - |
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Annual Report for the year ended 31 December 2014. The Company now has five share pools each of which are in different phases of their expected life. The Manager has continued to invest funds for those pools that are still in their initial investment phase and has made good progress in working towards realisations in the pools which are nearing their target exit date.
I welcome new Shareholders to the Company who invested in the current J Share fundraising. As the first J Shares were allotted after the year end, there is limited coverage of the J Share class in this report. The Half Yearly Report to 30 June 2015 will cover the initial investment activities of the J Share class.
A brief summary of each of the other share pools is provided below. More detailed reviews are provided in the Investment Manager's Report and Review of Investments.
'C' Share pool
The Company's 'C' Shares were originally issued in 2008 and 2009. The 'C' Share pool was fully invested at the year end and held a portfolio of 21 investments with a total value of £6.6 million.
At 31 December 2014, the Net Asset Value ("NAV") of a combined holding of one 'C' Share and one 'A' Share stood at 98.3p, which represents an increase of 11.0% over the year after adjusting for the dividends of 2.5p per share paid in the year. Dividends paid to date total 25.0p. Assuming that certain targets are met, it is estimated that a performance incentive fee will become payable equivalent to approximately 7p per 'C' Share. After providing for the estimated performance fee, Total Return (NAV plus cumulative dividends to date) is now estimated to be 116.3p, compared to the initial cost, net of income tax relief of 70p.
Since the year end, realisations from Atlantic Dogstar, East Dulwich Tavern and Westow House have been achieved, generating proceeds of £2.9 million. As 'C' Shareholders will be aware, the Company has used these funds to declare a special dividend of 50.0p per 'C' Share. Work is ongoing on further realisations and the Manager hopes to be in a position to distribute the remaining funds to 'C' Shareholders in the second half of this year.
'D' Share pool
The 'D' Shares were originally issued in 2010 and now hold a portfolio of 21 investments with a total value of £7.1 million.
At 31 December 2014, the Net Asset Value ("NAV") of a combined holding of one 'D' Share and one 'E' Share stood at 71.4p, which represents a decrease of 0.8% over the year after adjusting for the dividends of 5.0p per share paid in the year. Dividends paid to date total 22.5p such that Total Return (NAV plus cumulative dividends to date) is now 93.9p, compared to the initial NAV of 94.5p.
The fifth anniversary of the close of the 'D' Share fundraising occurs in April and so plans are now being advanced for the exit of a number of the share pool's investments. The Manager believes the share pool will be able to make its first major return of capital distribution later this year. In view of the fact that this is imminent, no usual final dividend will be paid this year.
'F' Share pool
The 'F' Share pool was launched in 2012 and completed its initial investment phase this year. At 31 December 2014, the pool held 17 VCT qualifying or partly qualifying investments and a further 7 non-qualifying investments, most of which are in the form of secured loans.
At 31 December 2014, the 'F' Share NAV stood at 75.5p, which represents an increase of 0.8% over the year after adjusting for the dividends of 5.0p per share paid in the year. Dividends paid to date total 15.0p such that Total Return (NAV plus cumulative dividends to date) is now 90.5p, compared to the initial NAV of 94.5p.
In line with the dividend policy, the Board is proposing to pay a final dividend of 2.5p per 'F' Share on 19 June 2015 to Shareholders on the register at the close of business on 22 May 2015.
'H' Share pool
The 'H' Share pool was launched in 2014 and it is still in its initial investment phase. At 31 December 2014, the pool held 7 non-qualifying investments, most of which are secured loans.
At 31 December 2014, the 'H' Share NAV stood at 94.7p. Total Return (NAV plus cumulative dividends to date) is now 99.7p, 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 19 June 2015 to Shareholders on the register at the close of business on 22 May 2015.
Share buybacks
The Company operates a general policy of buying in its own shares that are within the initial five year period for cancellation when any become available in the market. The current policy is in respect of the 'F' Shares, 'H' Shares and 'J' Shares. In the initial years after issue any such purchases will be undertaken at a price equal to the latest published NAV (i.e. at nil discount). The Company is now unlikely to make any further purchases of 'C' Shares, 'A' Shares, 'D' Shares or 'E' Shares as the process of returning funds to those Shareholders has already started or is expected to start later this year. All buybacks are subject to regulatory restrictions and other factors such as the availability of liquid funds.
A resolution to renew the authority for the Company to purchase its own shares will be proposed at the forthcoming AGM.
Fundraising
The 'H' Share pool fundraising closed during the year having raised a total of £13.6 million. The Company launched the fundraising for the new 'J' Share pool in December 2014 although did not allot any shares before the year end. As at the date of this report, £7.4m had been raised.
Annual General Meeting ("AGM")
The Company's eighth AGM will be held at Ergon House, Horseferry Road, London, SW1P 2AL at 3:05 p.m. on 16 June 2015.
One item of special business will be proposed at the AGM in connection with the authority for the Company to buy back shares as described above.
Outlook
Over the coming year we expect to see the completion of the return of funds to C Shareholders to conclude a good outcome for C Shareholders. We also expect to see a significant proportion of funds returned to 'D' Shareholders and believe that there are some prospects for uplifts in value to be achieved in the exit process.
Investment activity is expected to be limited over the coming year in the F Share pool, which is now fully invested and working towards starting to exit in 2018. We expect to see a significant number of new qualifying investments added to the H Share pool over the year as the process of building the initial investment portfolio is due to complete by the end of the year.
In summary, it is expected to be another busy year for the Manager. The Board remains satisfied generally with progress although there are some investments that require intensive monitoring to ensure that the Company is ultimately able to provide each group of shareholders with a satisfactory outcome.
Michael Robinson
Chairman
21 April 2015
INVESTMENT MANAGER'S REPORT- 'C' SHARE POOL
Introduction
At the year end, the 'C' Share pool held investments in 21 companies and was fully invested. The process of exiting from the investments is now underway and the first return of capital dividend has now been paid to 'C' Shareholders, funded by the initial realisations.
Net asset value and results
At 31 December 2014, the 'C' Share NAV stood at 98.2p and the 'A' Share NAV at 0.1p, giving a combined NAV of 98.3p. Total Return (NAV plus cumulative dividends to date) was 123.3p for a combined holding of one 'C' and one 'A' Share. This represents a net increase of 10.0p over the period (after adjusting for dividends paid during the period of 2.5p per 'C' Share), equivalent to an increase of 11.0%.
The return on ordinary activities of the 'C' Share pool for the period was £711,000 (2013: £75,000), comprising a revenue profit of £182,000 (2013: £162,000) and a capital gain of £529,000 (2013: loss £87,000).
'C' Share pool - investment activity
In the year, the Company made no new investments and made further investments totalling £650,000 in to Atlantic Dogstar Limited, Westow House Limited and East Dulwich Tavern Limited prior to their exit. Proceeds of £2.9m were received for the three public houses in January 2015.
A repayment of non-qualifying loan was made on Hoole Hall County Club of £371,000. No other disposals occurred during the period.
'C' Share pool - portfolio valuation
The majority of the investments within the 'C' Share pool performed satisfactorily throughout the year. An unrealised value increase was recognised on the cumulative values of Atlantic Dogstar Limited, Westow House Limited and East Dulwich Tavern Limited in anticipation of their sale. Unfortunately this gain was partially offset by value reductions on two investments resulting in an overall unrealised gain of £530,000.
Atlantic Dogstar Limited owned two pubs in London: The Dogstar in Brixton and The Clapton Hart in Clapton. Westow House Limited owned the Westow House, a pub in Crystal Palace, South London. East Dulwich Tavern Limited owned a London pub of the same name. Proceeds for the three companies of £2.9m were realised in the year against a cost of £1.7m, generating a total gain of £698,000 after the year end.
AEW Pubs No 1 Limited, East Dulwich Pub No 1 Limited and Westow House Pub No 1 were set up to purchase shares previously held by an investment partner who became insolvent. These shares were purchased for £1 and, at exit, these companies were valued at £261,000, £31,000 and £16,000 respectively.
Vermont Developments Limited is in a sales process and a valuation based on expected proceeds less an appropriate discount resulted in a £95,000 increase in value.
Future Biogas (Spring Farm) Limited, the owner and operator of a biogas plant in Norfolk, has not performed in line with initial expectations and while the issues have now been resolved, performance to date is notably below plan. This has resulted in a decrease in the valuation of £254,000.
A small decrease in value of £9,000 was made on Mosaic Spa and Health Clubs Limited in the period.
Outlook
Overall, we are very satisfied with the 'C' Share portfolio and optimistic that further investment realisations will be achieved in a timely manner and at full value. The exit from the three pub companies achieved in January 2015 is a good start and funded the dividend of 50p per 'C' Share paid on 20 March 2015. We hope to be in a position to complete the task of returning funds to 'C' Shareholders during the second half of this year.
Downing Managers 3 Limited
21 April 2015
REVIEW OF INVESTMENTS - 'C' SHARE POOL
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 December 2014:
'C' Share pool
| Cost | Valuation | Valuation movement in year | % of portfolio | ||
| £'000 | £'000 | £'000 | |||
| VCT qualifying investments and partially qualifying investments | |||||
| Atlantic Dogstar Limited | 663 | 1,260 | 307 | 17.8% | |
| East Dulwich Tavern Limited | 644 | 734 | 28 | 10.4% | |
| Westow House Limited | 429 | 606 | 54 | 8.5% | |
| Domestic Solar Limited | 500 | 560 | - | 7.9% | |
| Future Biogas (Spring Farm) Limited* | 697 | 476 | (254) | 6.7% | |
| Redmed Limited | 350 | 451 | - | 6.4% | |
| Quadrate Spa Limited* | 363 | 363 | - | 5.1% | |
| Quadrate Catering Limited | 330 | 359 | - | 5.1% | |
| AEW Pubs No 1 Limited | - | 261 | 261 | 3.7% | |
| The 3D Pub Co Limited | 267 | 227 | - | 3.2% | |
| Ecossol Limited | 250 | 213 | - | 3.0% | |
| Mosaic Spa and Health Clubs Limited* | 125 | 96 | (9) | 1.4% | |
| East Dulwich Pub No 1 Limited | - | 31 | 31 | 0.4% | |
| Westow House Pub No 1 Limited | - | 16 | 16 | 0.2% | |
| Chapel Street Food and Beverage Limited | 50 | 13 | - | 0.2% | |
| Chapel Street Services Limited | 50 | 13 | - | 0.2% | |
| 4,718 | 5,679 | 434 | 80.2% | ||
| Non-qualifying investments | |||||
| The Thames Club Limited | 500 | 500 | - | 7.1% | |
| Hoole Hall Country Club Holdings Limited | 210 | 210 | - | 3.0% | |
| Vermont Developments Limited | 25 | 120 | 95 | 1.7% | |
| Honeycombe Pubs VCT Limited | 188 | 66 | - | 0.9% | |
| Chapel Street Hotel Limited | 2 | 1 | - | 0.0% | |
| 925 | 897 | 95 | 12.7% | ||
| 5,643 | 6,576 | 529 | 92.9% | ||
| Cash at bank and in hand | 503 | 7.1% | |||
| Total investments | 7,079 | 100.0% | |||
* Part-qualifying investment
Summary of investment movements
Additions
| Cost | |
| VCT qualifying investments and partially qualifying investments | £'000 |
| East Dulwich Tavern Limited | 300 |
| Atlantic Dogstar Limited | 225 |
| Westow House Limited | 125 |
| Total 'C' Share pool | 650 |
Disposals
| Cost | MV at 01/01/14 * | Disposal proceeds | Gain against cost | Total realised gain during the year | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Non-qualifying investments | |||||||||
| Hoole Hall Country Club Holdings Limited | 371 | 371 | 371 | - | - | ||||
| 371 | 371 | 371 | - | - | |||||
* Adjusted for additions in the year
INVESTMENT MANAGER'S REPORT- 'D' SHARE POOL
Introduction
The 'D' Share pool holds investments in 21 companies and is now fully invested. The portfolio as a whole remains relatively stable although has had one setback that has hindered overall performance. We are now developing realisation plans for the portfolio for the unwinding process which will start shortly.
Net asset value and results
At 31 December 2014, the 'D' Share NAV stood at 71.3p and the 'E' Share NAV at 0.1p, giving a combined NAV of 71.4p. Total Return (NAV plus cumulative dividends to date) was 93.9p for a combined holding of one 'D' and one 'E' Share. This represents a net decrease of 0.6p over the period (after adjusting for dividends paid during the period of 5.0p per 'D' Share), equivalent to an decrease of 0.8%.
The return on ordinary activities for the 'D' Shares for the period was a loss of £59,000 (2013: gain £215,000) being a revenue profit of £233,000 (2013: £221,000) and a capital loss of £292,000 (2013: loss £6,000).
'D' Share pool - investment activity
No new investments or full exits were completed in the period, but one partial loan repayment of £143,000 was made on the non-qualifying loan in Aminghurst Limited.
'D' Share pool - portfolio valuation
The majority of the 'D' Share portfolio performed in line with expectations during the year. There were a small number of valuation movements and one notable valuation decrease which resulted in a net unrealised loss of £292,000.
Future Biogas (Reepham Road) Limited, the owner and operator of a biogas plant in Norfolk, has not performed in line with initial expectations and while the issues have now been resolved, performance to date is notably below plan. This has resulted in a decrease in the valuation of £320,000.
Mosaic Spa and Health Clubs Limited owns and manages two health clubs: The Shrewsbury Club, in Shrewsbury; and Holmer Park in Hereford. It also provides gym and spa management services to hotels, universities and corporate clients. Both Holmer Park and the Shrewsbury club have underperformed against expectations throughout the period and the value has been reduced by £41,000.
Small reductions in value were also made on three investments: £26,000 on Camandale Limited, the owner of The Riverbank pub in Kilmarnock, Scotland; £16,000 on Kilmarnock Monkey Bar Limited; and £14,000 on Liverpool Nurseries (Holdings) Limited.
On the positive side, a valuation increase of £39,000 was made on Kidspace Adventures Holdings Limited, the owner of three well established children's play areas in Croydon, Romford and Epsom. The company continues to perform well.
The profits of Alpha Schools Holdings Limited, the independent primary school operator, have also continued to increase and the value has been increased by £36,000 to reflect this.
Slopingtactic Limited, the owner of the Lamb and Lion freehold pub in York, has demonstrated good performance in the year and the value has been increased by £30,000.
Progressive Energies Limited, generate electricity from solar panels on domestic properties in the UK. The investment is performing beyond initial expectations and an increase in value of £20,000 has been recognised.
Outlook
The 'D' share pool investments are generally performing satisfactorily and steps have been taken to improve performance where necessary. Exit plans for a number of investments are progressing well and once the initial disposals are completed we expect the pool to declare its first return of capital dividend. We believe there are reasonable prospects for a substantial proportion of the investment portfolio to be exited at full value over the next year.
Downing Managers 3 Limited
21 April 2015
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 2014:
'D' Share pool
| Cost | Valuation | Valuation movement in year | % of portfolio | |
| £'000 | £'000 | £'000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Future Biogas (Reepham Road) Limited | 842 | 522 | (320) | 7.3% |
| Quadrate Spa Limited* | 496 | 496 | - | 6.9% |
| Quadrate Catering Limited | 441 | 481 | - | 6.7% |
| Kidspace Adventures Holdings Limited | 375 | 448 | 39 | 6.3% |
| Domestic Solar Limited | 400 | 448 | - | 6.3% |
| Alpha Schools Holdings Limited | 367 | 438 | 36 | 6.1% |
| Liverpool Nurseries (Holdings) Limited | 435 | 386 | (14) | 5.4% |
| Mosaic Spa and Health Clubs Limited* | 475 | 347 | (41) | 4.8% |
| Green Electricity Generation Limited | 250 | 303 | - | 4.2% |
| Westcountry Solar Solutions Limited | 250 | 250 | - | 3.5% |
| West Tower Property Limited | 250 | 250 | - | 3.5% |
| Slopingtactic Limited | 196 | 225 | 30 | 3.2% |
| Ecossol Limited | 250 | 213 | - | 3.0% |
| Avon Solar Energy Limited | 210 | 210 | - | 2.9% |
| Progressive Energies Limited | 170 | 190 | 20 | 2.7% |
| Ridgeway Pub Company Limited | 137 | 126 | - | 1.8% |
| Camandale Limited* | 516 | 31 | (26) | 0.4% |
| 6,060 | 5,364 | (276) | 75.0% | |
| Non-qualifying investments | ||||
| Aminghurst Limited | 1,507 | 1,507 | - | 21.1% |
| Fenkle Street LLP | 122 | 122 | - | 1.7% |
| Commercial Street Hotel Limited | 100 | 100 | - | 1.4% |
| Kilmarnock Monkey Bar Limited | 42 | 26 | (16) | 0.4% |
| 1,771 | 1,755 | (16) | 24.6% | |
| 7,831 | 7,119 | (292) | 99.6% | |
| Cash at bank and in hand | 31 | 0.4% | ||
| Total investments | 7,150 | 100.0% |
* Part-qualifying investment
Summary of investment movements
Disposals
| Cost | MV at 01/01/14 * | Disposal proceeds | Loss against cost | Total realised gain during the year | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Non-qualifying investments | ||||||||||
| Aminghurst Limited | 143 | 143 | 143 | - | - | |||||
| Total 'D' Share pool | 143 | 143 | 143 | - | - | |||||
* Adjusted for additions in the year
INVESTMENT MANAGER'S REPORT- 'F' SHARE POOL
Introduction
The 'F' Share pool has continued to build a qualifying investment portfolio with a focus on asset backed businesses and those with predictable revenue streams and the pool is now fully qualifying. In the period four new qualifying investments were made at a total cost of £2.1m. One follow on investment of £43,000 was also made.
Several non-qualifying investments were exited in the period: two full exits; and five partial exits, generating total proceeds of £998,000.
Net asset value and results
At 31 December 2014, the 'F' Share NAV stood at 75.5p. Total Return (NAV plus cumulative dividends to date) for shareholders who invested in the original share offer is now 90.5p. This represents a net increase of 0.6p per share over the period (after adjusting for dividends paid during the period of 5.0p per Share), equivalent to an increase of 0.8%.
The return on ordinary activities for the 'F' Share pool for the period was a gain of £71,000 (2013: loss £389,000) being a revenue profit of £82,000 (2013: £15,000) and a capital loss of £11,000 (2013: £404,000).
'F' Share pool - investment activity
In January 2014, a new investment of £760,000 was made in Goonhilly Earth Station Limited. The company operates a large satellite communications site in Cornwall. The investment provided funding to allow the Company to secure a long lease on its site and to develop additional facilities on the site.
The 'F' Share pool invested £378,000 in March 2014 in to Grasshopper 2007 Limited. The company operates the Grasshopper Inn, a public house near Westerham, Kent, which operates as a traditional pub, restaurant and wedding venue.
In July 2014, an investment of £500,000 was made in Lambridge Solar Limited. The company operates a ground mounted array of solar panels in Lincolnshire.
£500,000 was invested in to Merlin Renewables Limited in October 2014. The company is developing an anaerobic digestion plant in Norfolk. The plant will qualify for government backed subsidies as it produces gas and supplies it to the national gas grid.
A further investment of £43,000 was made in to London City Shopping Centre Limited.
Two full exits of non-qualifying investments were completed in the period for the 'F' Share. Retallack Surfpods Limited generated exit proceeds of £98,000 in March 2014. The company owned holiday apartments in a Cornish holiday park.
In December 2014, the £500,000 non-qualifying loan in Pub People Limited was transferred to the Downing Three VCT plc H Share.
Partial repayments of non-qualifying loans in the period included Hoole Hall Hotel Limited (£181,000), Aminghurst Limited (£143,000); Dominions House (£48,000); and Redmed Limited (£26,000).
£193,200 of qualifying loan notes in Pearce & Saunders Limited, the pub company which owns three South East London pubs, were transferred to the 'G' Share pool in the period.
'F' Share pool - portfolio valuation
The majority of the 'F' Share pool investments have performed in line with expectations over the period and continue to be valued at original cost. However, there have been two adjustments and a net unrealised loss of £11,000 has been made in the period.
Performance of the nightclub owned by City Falkirk Limited has continued to operate below expectations and a further reduction in value of £38,000 has been made. Whilst we continue to work closely with the club's management to bring trading back on track, it is clear that the depressed economic conditions are a major contributing factor to the weak performance.
On the positive side, Kidspace Adventures Holdings Limited, which owns three well established children's play areas in Croydon, Romford and Epsom, continues to perform well. As such the valuation has been increased by £26,000.
Outlook
The 'F' Share portfolio is now fully qualifying. The focus for the coming year is to continue to drive growth and build value from these investments in order to achieve good exits over the next 3 years when realisations are planned.
Downing Managers 3 Limited
21 April 2015
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 2014:
| 'F' Share pool | Cost | Valuation | Valuation movement in year | % of portfolio |
| £'000 | £'000 | £'000 | ||
| VCT qualifying and partially qualifying investments | ||||
| Goonhilly Earth Station Limited | 760 | 760 | - | 9.3% |
| Tor Solar PV Limited | 680 | 680 | - | 8.3% |
| Vulcan Renewables Limited | 588 | 588 | - | 7.2% |
| Merlin Renewables Limited | 500 | 500 | - | 6.1% |
| Lambridge Solar Limited | 500 | 500 | - | 6.1% |
| Pearce and Saunders Limited* | 451 | 451 | - | 5.6% |
| Grasshopper 2007 Limited | 378 | 378 | - | 4.6% |
| Kidspace Adventures Holdings Limited | 250 | 299 | 26 | 3.7% |
| Augusta Pub Company Limited | 290 | 290 | - | 3.5% |
| Fubar Stirling Limited | 268 | 268 | - | 3.3% |
| Redmed Limited* | 250 | 251 | 1 | 3.1% |
| City Falkirk Limited | 421 | 206 | (38) | 2.5% |
| Fresh Green Power Limited | 200 | 200 | - | 2.5% |
| Pabulum Pubs Limited | 200 | 200 | - | 2.5% |
| Green Energy Production UK Limited | 100 | 100 | - | 1.2% |
| Cheers Dumbarton Limited | 48 | 17 | - | 0.2% |
| Lochrise Limited | 13 | - | - | 0.0% |
| 5,897 | 5,688 | (11) | 69.7% | |
| Non-qualifying investments | ||||
| Aminghurst Limited | 967 | 967 | - | 11.8% |
| Baron House Developments LLP | 481 | 481 | - | 5.9% |
| Hoole Hall Hotel Limited | 84 | 84 | - | 1.0% |
| Dominions House Limited | 59 | 59 | - | 0.7% |
| The 3D Pub Co Limited | 55 | 55 | - | 0.7% |
| London City Shopping Centre Limited | 43 | 43 | - | 0.5% |
| Southampton Hotel Developments Limited | 298 | - | - | 0.0% |
| 1,987 | 1,689 | (11) | 20.6% | |
| 7,884 | 7,377 | (11) | 90.3% | |
| Cash at bank and in hand | 792 | 9.7% | ||
| Total investments | 8,169 | 100.0% |
* Part-qualifying investment
Summary of investment movements
Additions
| Cost | |
| £'000 | |
| VCT qualifying and partially qualifying investments | |
| Goonhilly Earth Station Limited | 760 |
| Merlin Renewables Limited | 500 |
| Lambridge Solar Limited | 500 |
| Grasshopper 2007 Limited | 378 |
| Non-qualifying investments | |
| London City Shopping Centre Limited | 43 |
| Total 'F' Share pool | 2,181 |
Disposals
| Cost | MV at 01/01/14 * | Disposal proceeds | Gain against cost | Total realised loss during the year | |||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
| VCT qualifying and partially qualifying investments | |||||||||||
| Pearce and Saunders Limited | 193 | 193 | 193 | - | - | ||||||
| Non-qualifying investments | |||||||||||
| Pub People Holdings Limited | 500 | 500 | 500 | - | - | ||||||
| Hoole Hall Hotel Limited | 181 | 181 | 181 | - | - | ||||||
| Aminghurst Limited | 143 | 143 | 143 | - | - | ||||||
| Retallack Surfpods Limited | 98 | 98 | 98 | - | - | ||||||
| Dominion House Limited | 48 | 48 | 48 | - | - | ||||||
| Redmed Limited | 26 | 26 | 26 | - | - | ||||||
| Southampton Hotel Developments Limited | 2 | 2 | - | - | (2) | ||||||
| 1,191 | 1,191 | 1,189 | - | (2) | |||||||
* Adjusted for additions in the year
INVESTMENT MANAGER'S REPORT- 'H' SHARE POOL
Fundraising
The 'H' Share fundraising launched in December 2013 and has raised £13.6 million. 13,446,972 'H' Shares were allotted in the period at an average price of 101.2p per share. The task of investing these new funds is now underway.
Investment activity
The first investment was a non-qualifying secured loan of £525,000 in April 2014 in Future Biogas (SF) Limited. The company owns and operates a 1.4MW self-contained biogas plant in Norfolk.
In July, the share pool made a second non-qualifying secured loan investment of £420,000 to Ludlow Taverns Springhill Limited, secured by a charge over The Springhill pub in Wolverhampton.
£1.4m was invested in Vulcan Renewables Limited. The company has built a 2.0MW anaerobic digestion plant near Doncaster. Some of the gas produced is used to create electricity and some is injected in to the National Gas Grid for which feed in tariffs are received.
£2.3m was invested in Deeside Solar Farm Limited, which generates electricity from an array of solar panels. During the period £450,000 of loan notes were repaid, leaving a residual cost of £1.8m.
£1.8m was invested in to Woodbridge Solar Limited, another solar electricity generator.
Pub People Limited own and operate more than 50 pubs in the East Midlands. The 'H' Share pool invested £984,000 in the company.
£193,000 of non-qualifying loan notes in Pearce & Saunders Limited, the pub company which owns three South East London pubs, were transferred from the 'G' Share pool in the period.
Since the end of the period, the 'H' Share has invested £1.8m in 4 companies.
Net asset value and results
At 31 December 2014, the net asset value per 'H' Share was 94.7p, a decrease of 5.3p on the initial price resulting from the initial "cash drag" from holding uninvested funds.
Results and dividend
The loss on ordinary activities for the 'H' Shares, after taxation, for the period was £46,000, being wholly related to Revenue.
Outlook
The task of building the 'H' Share portfolio is now underway. We have a good pipeline of potential investment opportunities from which we expect to be able to build a solid qualifying portfolio with good potential for growth over the next five years. This will be complimented with non-qualifying investments that will provide additional yield before the new funds are utilised in qualifying investments. We expect to be very active to this end over the coming year.
Downing Managers 3 Limited
21 April 2015
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 2014:
| 'H' Share pool | Cost | Valuation | Valuation movement in period | % of portfolio |
| £'000 | £'000 | £'000 | ||
| Non-qualifying investments | ||||
| Deeside Solar Farm Limited | 1,800 | 1,800 | - | 13.9% |
| Woodbridge Solar Limited | 1,800 | 1,800 | - | 13.9% |
| Vulcan Renewables Limited | 1,410 | 1,410 | - | 10.8% |
| Pub People Limited | 984 | 984 | - | 7.6% |
| Future Biogas (Spring Farm) Limited | 525 | 525 | - | 4.0% |
| Ludlow Taverns Springhill Limited | 420 | 420 | - | 3.2% |
| Pearce and Saunders Limited | 193 | 193 | - | 1.5% |
| 7,132 | 7,132 | 54.9% | ||
| 7,132 | 7,132 | - | 54.9% | |
| Cash at bank and in hand | 5,856 | 45.1% | ||
| Total investments | 12,988 | 100% |
* Part-qualifying investment
Summary of investment movements
Additions
| Cost | |
| £'000 | |
| Non-qualifying investments | |
| Deeside Solar Farm Limited | 2,250 |
| Woodbridge Solar Limited | 1,800 |
| Vulcan Renewables Limited | 1,410 |
| Pub People Limited | 984 |
| Future Biogas (Spring Farm) Limited | 525 |
| Ludlow Taverns Springhill Limited | 420 |
| Pearce and Saunders Limited | 193 |
| Total 'H' Share pool | 7,582 |
Disposals
| Cost | MV at 01/01/14 * | Disposal proceeds | Gain against cost | Total realised gain during the period | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Non-qualifying investments | |||||||||
| Deeside Solar Farm Limited | 450 | 450 | 450 | - | - | ||||
| 450 | 450 | 450 | - | - | |||||
* Adjusted for additions in the period
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). 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 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 2014
| Year ended 31 December 2014 | | Period ended 31 December 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 1,466 | - | 1,466 | 1,066 | - | 1,066 | ||
| | ||||||||
| Gain/(loss) on investments | - | 226 | 226 | - | (462) | (462) | ||
| 1,466 | 226 | 1,692 | 1,066 | (462) | 604 | |||
| Investment management fees | (564) | - | (564) | (334) | - | (334) | ||
| Other expenses | (296) | - | (296) | (206) | (35) | (241) | ||
| Return/(loss) on ordinary activities before tax | 606 | 226 | 832 | 526 | (497) | 29 | ||
| Tax on ordinary activities | (155) | - | (155) | (128) | - | (128) | ||
| Return/(loss) attributable to equity shareholders | 451 | 226 | 677 | 398 | (497) | (99) | ||
| Basic and diluted return/(loss) per: | ||||||||
| 'C' Share | 2.5p | 7.4p | 9.9p | 2.3p | (1.2p) | 1.1p | ||
| 'A' Share | - | - | - | - | - | - | ||
| 'D' Share | 2.3p | (2.9p) | (0.6p) | 2.2p | (0.1p) | 2.1p | ||
| 'E' Share | - | - | - | - | - | - | ||
| 'F' Share | 0.8p | (0.1p) | 0.7p | 0.1p | (3.7p) | (3.6p) | ||
| 'H' Share | (0.5p) | - | (0.5p) | - | - | - | ||
All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. The total column within the Income Statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement noted above.
Other than revaluation movements arising on investments held at fair value through the profit and loss, there were no differences between the return/loss as stated above and at historical cost.
INCOME STATEMENT (ANALYSED BY SHARE POOL)
for the year ended 31 December 2014
'C' Share pool
| Year ended 31 December 2014 | | Period ended 31 December 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Income | 391 | - | 391 | 351 | - | 351 | ||
| Gain/(loss) on investments | - | 529 | 529 | - | (52) | (52) | ||
| 391 | 529 | 920 | 351 | (52) | 299 | |||
| Investment management fees | (89) | - | (89) | (82) | - | (82) | ||
| Other expenses | (64) | - | (64) | (58) | (35) | (93) | ||
| Return/(loss) on ordinary activities before tax | 238 | 529 | 767 | 211 | (87) | 124 | ||
| Tax on ordinary activities | (56) | - | (56) | (49) | - | (49) | ||
| Return/(loss) attributable to equity shareholders | | 182 | 529 | 711 | 162 | (87) | 75 | |
'D' Share pool
| Year ended 31 December 2014 | | Period ended 31 December 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Income | 473 | - | 473 | 458 | - | 458 | ||
| Loss on investments | - | (292) | (292) | - | (6) | (6) | ||
| 473 | (292) | 181 | 458 | (6) | 452 | |||
| Investment management fees | (103) | - | (103) | (98) | - | (98) | ||
| Other expenses | (67) | - | (67) | (68) | - | (68) | ||
| Return/(loss) on ordinary activities before tax | 303 | (292) | 11 | 292 | (6) | 286 | ||
| Tax on ordinary activities | (70) | - | (70) | (71) | - | (71) | ||
| Return/(loss) attributable to equity shareholders | | 233 | (292) | (59) | 221 | (6) | 215 | |
'F' Share pool
| Year ended 31 December 2014 | | Period ended 31 December 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Income | 424 | - | 424 | 257 | - | 257 | ||
| Loss on investments | - | (11) | (11) | - | (404) | (404) | ||
| 424 | (11) | 413 | 257 | (404) | (147) | |||
| Investment management fees | (184) | - | (184) | (154) | - | (154) | ||
| Other expenses | (117) | - | (117) | (80) | - | (80) | ||
| Return/(loss) on ordinary activities before tax | 123 | (11) | 112 | 23 | (404) | (381) | ||
| Tax on ordinary activities | (41) | - | (41) | (8) | - | (8) | ||
| Return/(loss) attributable to equity shareholders | | 82 | (11) | 71 | 15 | (404) | (389) | |
'H' Share pool
| Year ended 31 December 2014 | | Period ended 31 December 2013 | ||||||
| | ||||||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Income | 178 | - | 178 | - | - | - | ||
| Loss on investments | - | - | - | - | - | - | ||
| 178 | - | 178 | - | - | - | |||
| Investment management fees | (188) | - | (188) | - | - | - | ||
| Other expenses | (48) | - | (48) | - | - | - | ||
| (Loss)/return on ordinary activities before tax | (58) | - | (58) | - | - | - | ||
| Tax on ordinary activities | 12 | - | 12 | - | - | - | ||
| (Loss)/return attributable to equity shareholders | | (46) | - | (46) | - | - | - | |
BALANCE SHEET
as at 31 December 2014
| As at 31 December 2014 | | As at 31 December 2013 | |||||||||
| | |||||||||||
| | 'C' Share pool | 'D' Share pool | 'F' Share pool | 'H' Share pool | Total | 'C' Share pool | 'D' Share pool | 'F' Share pool | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| | |||||||||||
| Fixed assets | |||||||||||
| Investments | 6,576 | 7,119 | 7,377 | 7,132 | 28,204 | 5,768 | 7,554 | 6,396 | 19,718 | ||
| Current assets | |||||||||||
| Debtors | 67 | 152 | 139 | 59 | 417 | 23 | 93 | 53 | 169 | ||
| Cash at bank and in hand | 503 | 31 | 792 | 5,856 | 7,182 | 809 | 173 | 2,272 | 3,254 | ||
| 570 | 183 | 931 | 5,915 | 7,599 | 832 | 266 | 2,325 | 3,423 | |||
| Creditors: amounts falling due within one year | (109) | (172) | (134) | (319) | (734) | (95) | (132) | (77) | (304) | ||
| Net current assets | 4 | 11 | 797 | 5,596 | 6,865 | 737 | 134 | 2,248 | 3,119 | ||
| Net assets | 7,037 | 7,130 | 8,174 | 12,728 | 35,069 | 6,505 | 7,688 | 8,644 | 22,837 | ||
Capital and reserves | |||||||||||
| Called up share capital | 18 | 25 | 11 | 13 | 67 | 18 | 25 | 11 | 54 | ||
| Capital redemption reserve | 106 | - | - | - | 106 | 106 | - | - | 106 | ||
| Special reserve | 5,761 | 7,562 | 9,617 | (672) | 22,268 | 5,940 | 8,061 | - | 14,001 | ||
| Share premium reserve | - | - | - | 13,608 | 13,608 | - | - | 10,160 | 10,160 | ||
| Revaluation reserve | 932 | (713) | (508) | - | (289) | 403 | (421) | (499) | (517) | ||
| Capital reserve - realised | - | - | (1,033) | - | (1,033) | - | - | (1,033) | (1,033) | ||
| Revenue reserve | 220 | 256 | 87 | (221) | 342 | 38 | 23 | 5 | 66 | ||
| Total equity shareholders' funds | | 7,037 | 7,130 | 8,174 | 12,728 | 35,069 | 6,505 | 7,688 | 8,644 | 22,837 | |
| Basic and diluted net asset value per Share | |||||||||||
| 'C'/'D'/'F'/'H' Share | 98.2p | 71.3p | 75.5p | 94.7p | 90.7p | 76.9p | 79.9p | ||||
| 'A'/'E' Share | 0.1p | 0.1p | n/a | n/a | 0.1p | 0.1p | n/a | ||||
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2014
| Year ended 31 December 2014 | | Period ended 31 December 2013 | ||||||||||||
| | ||||||||||||||
| | 'C' Share pool | 'D' Share pool | 'F' Share pool | 'H' Share pool | Total | 'C' Share pool | 'D' Share pool | 'F' Share pool | Total | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Opening Shareholders' funds | 6,505 | 7,688 | 8,644 | - | 22,837 | 6,789 | 7,984 | 9,574 | 24,347 | |||||
| Issue of shares | - | - | - | 14,009 | 14,009 | - | - | - | - | |||||
| Share issue costs | - | - | - | (563) | (563) | - | - | - | - | |||||
| Purchase of own shares | - | - | - | - | - | - | (11) | - | (11) | |||||
| Total recognised return /(loss) for the period | 711 | (59) | 71 | (46) | 677 | 75 | 215 | (389) | (99) | |||||
| Dividends paid | (179) | (499) | (541) | (672) | (1,891) | (359) | (500) | (541) | (1,400) | |||||
| Closing Shareholders' funds | 7,037 | 7,130 | 8,174 | 12,728 | 35,069 | 6,505 | 7,688 | 8,644 | 22,837 | |||||
CASH FLOW STATEMENT
for the year ended 31 December 2014
| Year ended 31 December 2014 | | Period ended 31 December 2013 | ||||||||||||
| | ||||||||||||||
| | 'C' Share pool | 'D' Share pool | 'F' Share pool | 'H' Share pool | Total | 'C' Share pool | 'D' Share pool | 'F' Share pool | Total | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
Net cash inflow from operating activities | | 200 | 286 | 61 | 215 | 762 | 301 | 273 | 38 | 612 | ||||
| | ||||||||||||||
Taxation | ||||||||||||||
Corporation tax paid | (50) | (71) | (8) | - | (129) | (89) | (63) | (5) | (157) | |||||
| | ||||||||||||||
Capital expenditure | ||||||||||||||
Purchase of investments | | (650) | - | (2,181) | (7,582) | (10,413) | (83) | (136) | (2,157) | (2,376) | ||||
Sale of investments | 371 | 143 | 1,189 | 450 | 2,153 | 1,004 | 604 | 1,197 | 2,805 | |||||
Net cash (outflow)/inflow from capital expenditure | (279) | 143 | (992) | (7,132) | (8,260) | | 921 | 468 | (960) | 429 | ||||
| | ||||||||||||||
Equity dividends paid | | (179) | (499) | (541) | (672) | (1,891) | (359) | (500) | (541) | (1,400) | ||||
| | ||||||||||||||
| Net cash (outflow)/inflow before financing | (308) | (141) | (1,480) | (7,589) | (9,518) | 774 | 178 | (1,468) | (516) | |||||
| | ||||||||||||||
Financing | ||||||||||||||
Proceeds from share issue | - | - | - | 13,621 | 13,621 | - | - | - | - | |||||
Share issue costs | - | - | - | (175) | (175) | - | - | - | - | |||||
Purchase of own shares | - | - | - | - | - | - | (11) | - | (11) | |||||
| Net cash inflow/(outflow) from financing | - | - | - | 13,446 | 13,446 | - | (11) | - | (11) | |||||
| | ||||||||||||||
(Decrease)/increase in cash | | (308) | (141) | (1,480) | 5,857 | 3,928 | 774 | 167 | (1,468) | (527) | ||||
There were no cash flow movements with respect to the Ordinary Share pool in either year.
NOTES
1. Accounting policies
Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009 ("SORP").
The financial statements are prepared under the historical cost convention except for certain financial instruments measured at fair value and on the basis that it is not necessary to prepare consolidated accounts.
The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when required.
Presentation of Income Statement
In order to better reflect the activities of a venture capital trust and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.
Investments
Venture capital investments are designated as "fair value through profit or loss" assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company's documented investment policy. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") together with FRS26.
For unquoted investments, fair value is established using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:
· Price of recent investment;
· Multiples;
· Net assets;
· Discounted cash flows or earnings (of underlying business);
· Discounted cash flows (from the investment); and
· Industry valuation benchmarks.
The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.
Gains and losses arising from changes in fair value are included in the Income Statement for the period 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 9 that does not require portfolio investments to be accounted for using the equity method of accounting.
Income
Dividend income from investments is recognised when the Shareholders' rights to receive payment has been established, normally the ex-dividend date.
Interest income is accrued on a time apportionment basis, by reference to the principal sum outstanding and at the effective rate applicable and only where there is reasonable certainty of collection in the foreseeable future.
Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:
· Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
· Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. The Company has adopted the policy of allocating Investment Manager's fees 100% as revenue.
· Expenses and liabilities not specific to a Share class are generally allocated pro rata to the net assets.
· 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 period.
Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise.
Deferred taxation which is not discounted is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Deferred taxation is not discounted.
Other debtors 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 share premium account for the relevant share class.
2. Basic and diluted return per share
| 'C' Shares | 'A' Shares | 'D' Shares | 'E' Shares | 'F' Shares | 'H' Shares | |
| Revenue return (£'000) | 182 | - | 233 | - | 82 | (46) |
| Weighted average number of shares in issue | 7,158,326 | 10,750,064 | 9,979,109 | 14,994,862 | 10,821,660 | 9,139,447 |
| Net capital gain/(loss) for the period (£'000) | 529 | - | (292) | - | (11) | - |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share for any of the share classes. The return per share disclosed therefore represents both the basic and diluted return per share for all share classes.
3. Basic and diluted net asset value per share
| 31 Dec 2014 | 31 Dec 2013 | ||||||||||
| | Shares in issue | Net asset value | Net asset value | ||||||||
| 31 Dec 2014 | 31 Dec 2013 | per share | £'000 | per share | £'000 | ||||||
| | |||||||||||
'C' Shares | 7,158,326 | 7,158,326 | 98.2p | 7,026 | 90.7p | 6,494 | |||||
'A' Shares | 10,750,064 | 10,750,064 | 0.1p | 11 | 0.1p | 11 | |||||
'D' Shares | 9,979,109 | 9,979,109 | 71.3p | 7,115 | 76.9p | 7,673 | |||||
'E' Shares | 14,994,862 | 14,994,862 | 0.1p | 15 | 0.1p | 15 | |||||
'F' Shares | 10,821,660 | 10,821,660 | 75.5p | 8,174 | 79.9p | 8,644 | |||||
'H' shares | 13,446,972 | - | 94.7p | 12,728 | - | - | |||||
| | 35,069 | 22,837 | |||||||||
The 'C' Share pool, 'D' Share pool, 'F' Share pool and 'H' Share pool are treated as separate investment pools. Within the 'C' Share pool the Directors allocate the assets and liabilities of the Company between the 'C' Shares and 'A' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights. Within the 'D' Share pool the Directors allocate the assets and liabilities of the Company between the 'D' Shares and 'E' Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights.
4. Principal risks
The Company's financial instruments comprise investments held at fair value through profit and loss, being equity and loan stock investments in unquoted companies; loans and receivables, being cash deposits and short term debtors; 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 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:
· Investment risks
· Credit risk
· Liquidity risk
The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the period and there have also been no significant changes to the policies for managing those risks during the period.
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 period end are provided below:
Investment risks
As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key investment risks to which the Company is exposed are:
· Investment price risk
· Interest rate risk
Investment price risk
Investment price risk arises from uncertainty about the valuation of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.
Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.
There are three categories in respect of interest which are attributable to the financial instruments held by the Company as follows:
· "Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments.
· "Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank and liquidity fund investments and certain loan note investments.
· "No interest rate" assets do not attract interest and comprise equity investments and debtors.
The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors.
The Manager manages credit risk in respect of loan stock with a similar approach as described under "Investment risks" above. In addition the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. Similarly the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc, both of which are A-rated financial institutions and both also ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There have been no changes in fair value during the period that are directly attributable to changes in credit risk.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company has a relatively low level of creditors, (£734,000, 2013: £304,000) and has no borrowings, the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
5. Related party transactions
Downing Managers 3 Limited ("DM3"), a wholly owned subsidiary, is the Company's Investment Manager..
During the period ended 31 December 2014, £564,000 (2013: £334,000) was payable to DM3 in respect of Investment management fees. Additionally, DM3 provides accounting, secretarial and administrative services for an annual fee of £55,000 (2013: £49,000). At the period end a balance of £193,000 (2013: £67,000) was due to DM3.
ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 December 2014, but has been extracted from the statutory financial statements for the year ended 31 December 2014 which were approved by the Board of Directors on 21 April 2015 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 2013 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 2014 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.