Final Results

Downing Protected VCT III plc FINAL RESULTS for the year ended 31 January 2009 Financial Highlights 31 Jan 2009 31 Jan 2008 Ordinary shares Pence Pence Net asset value per Ordinary Share 36.3 96.5 Cumulative distributions per Ordinary 60.0 2.5 Share Total return per Ordinary Share 96.3 99.0 CHAIRMAN'S STATEMENT I am pleased to present the fourth Annual Report of Downing Protected VCT III plc. This has been a very busy year for your Company, in which the planned return of capital to Ordinary Shareholders got well underway and the Company launched a successful new fundraising. Venture capital investments Ordinary Share pool In line with Company's strategy, the Ordinary Share pool exited from a large number of its investments during the year. This realised £8.0 million, with all exits being achieved at or near original cost. In some cases, these exits arose from reorganisations of existing investments which resulted in the Company making £3.0 million of new investments. The net proceeds from the investment realisations were used to help fund the dividend of 55.5p per Ordinary Share paid in November 2008. At the year end, the Ordinary Share pool had a portfolio comprising six major investments, which were valued at £3.9 million. I can report that, since the year end, the Ordinary Share pool has realised two of these remaining investments at values equal to original cost, generating a further £2.1 million of cash. Most of these proceeds were used to fund the dividend paid in March 2009 of 21p per Ordinary Share. Further details regarding the investment portfolio and activity can be found in the Investment Manager's report and Review of Investments. Performance incentive Ordinary share pool Following the payment of the dividend to Ordinary Shareholders in March 2009, the Company has now paid more than 80p per Ordinary Share to Shareholders and has achieved a compound return of at least 8% per annum. It has therefore met the targets for which a performance incentive fee is payable to key executives of the investment management team ("Management Team") and the Directors. It is estimated that the sum due is 8.1p per Ordinary Share plus additional sums depending on the timing and quantum of future dividends. The Company has exited most of its investments and returned funds to Ordinary Shareholders at a much quicker rate that was expected when the Company was set up. As a result, the Management Team believes that the performance incentive has not operated quite as anticipated and has produced a higher value than expected. Your Board is considering, with the Management Team, ways in which the performance incentive fee may be limited to a level that all parties, including Ordinary Shareholders, would consider fair and sensible. I hope to report to Ordinary Shareholders on the outcome of these discussions in the near future. Net Asset Value, Results and Dividends Ordinary Shares At 31 January 2009, the Company's Ordinary Share Net Asset Value ("NAV") stood at 36.3p per share, a decrease of 2.7p or 6.9% compared to the NAV at 31 January 2008, after adjusting for the dividends of 57.5p per share which were paid during the year. The Total Return (NAV plus dividends paid to date) to Ordinary Shareholders that invested at the Company's launch now stands at 96.3p. The total return on ordinary activities for the Ordinary Shares for the year was as follows: Revenue Capital Total £'000 £'000 £'000 Ordinary Shares 157 (427) (270) Dividends paid to Ordinary Shareholders in respect of the year ended 31 January 2009 and since the year end were as follows: Pence per Ordinary share 14 November 2008 55.5 13 March 2009 21.0 The Board is not proposing to pay a final dividend in respect of the year ended 31 January 2009. 'C' Share/ 'A' Share Fundraising In September 2008, the Company launched a new fundraising along with its sister company, Downing Protected VCT III plc. Subscribers in this offer for subscription will receive one 'C' Share and one 'A' Share for every £1 that they subscribe. By 31 January 2009, the Company had allotted no 'C' Shares or 'A' Shares to investors. At the date of this report, the fundraising had raised a total of £13 million between the two VCTs. The 'A' Shares are being issued as a means of performance incentive for the management team. Initially, the 'A' Shares will have a value of 0.1p per share, however, if certain hurdles are met, then the 'A' Shares will accumulate value and will pay a dividend determined by a formula in the Articles of Association. Throughout this report, the term "'C' Share(s)" has been used to refer to the pool of assets allocated to the 'C' Shares and 'A' Shares combined. Share buybacks The Company has, from time to time, bought its own shares for cancellation. During the year, the Company repurchased 20,250 Ordinary Shares at an average price of 77.0p per share for cancellation. In view of the fact that the Company is in the advanced stages of returning funds to Ordinary Shareholders, the Board does not intend to buy in any further Ordinary Shares for cancellation. Annual General Meeting The Company's fourth Annual General Meeting will be held at Kings Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU at 11.20 a.m. on 29 July 2009. One item of special business, seeking approval for the Company to be able to buy its own shares as described above will be proposed. Outlook The Investment Manager is working towards completing the process of realising the Ordinary Share portfolio and is optimistic that this can achieved over the next few months. In this event, the Directors expect to declare a further dividend to Ordinary Shareholders which will return most of the remaining Ordinary Share value to them. Although there are several influencing factors, the Directors expect total funds returned to Ordinary Shareholders to exceed 90p per share, which the Board believes would be a satisfactory outcome, when set against the background of the current economic turmoil. With much of the work complete on the Company's Ordinary Share pool, the Investment Manager has now started the process of investing funds raised from the 'C' Share fundraising. Conditions remain challenging and the Manager reports that investment opportunities are not plentiful. However, the Manager is confident that, over the next three years, a new portfolio capable of delivering targeted returns can be built. Hugh Gillespie Chairman INVESTMENT MANAGER'S REPORT Introduction The year under review has seen us make good progress in realising the investments from the Ordinary Share pool. These realisations have provided funds for the large dividend payments made to Ordinary Shareholders in November 2008 and March 2009. Portfolio activity A total of 13 realisations or part realisations were achieved during the year. All realisations were achieved at levels either equal to, or very close to, original cost, with a small total realised loss of £33,000 arising, while generating proceeds of £8.0 million. The Ordinary Share pool also made new investments totalling £3.0 million during the year. All the new investments were non-qualifying and, in some cases have helped to facilitate an exit path from existing qualifying investments. Valuation The Company has suffered some small unrealised losses on its portfolio during the year. The largest has been in respect of an investment in Vermont Developments Limited. Vermont is now in administration and we are exploring how to extract value from the development land in Salford over which we have a charge. In view of the uncertainty as to what level recovery we can achieve we have made a provision of £352,239 against the net cost of the investment. Additionally, we have made small provisions of £16,000 against the investment in Honeycombe Pubs VCT limited and £25,000 against that in Universe Contracting Limited. Total unrealised losses for the year stand at £393,000, equivalent to 3.9p per Ordinary share. Ordinary Share pool- remaining investments Since the year end, the Ordinary Share pool has exited from Hoole Hall Country Club Limited and Downing Acquisitions 1 Limited. All exits have been at values equal to the carrying values at 31 January 2009. The main investments remaining within the Ordinary Share pool are those in Liongold Limited and Coastal Partnerships Limited. Both companies are involved in a residential development project in North Devon. The development is progressing satisfactorily and we are hopeful that an exit will be achieved from both investments, at current carrying values, later this year. 'C' Share funds Although some new funds had been raised by 31 January 2009 under the Company's 'C' Share offer, the process of investing these funds did not commence until after the year end. The economic climate remains difficult for many businesses and there are now a number of more distressed businesses seeking finance. Stronger businesses appear to have adopted more defensive strategies and as a result may be seeking less funding. We expect this position to shift as businesses start to anticipate improving conditions and wish to take advantage of low asset prices. This should to provide us with the type of good quality, "asset-backed" investment opportunities which we are seeking. Downing Protected Managers III Limited REVIEW OF INVESTMENTS Portfolio of investments The following investments, all of which are incorporated in England and Wales, were held at 31 January 2009: Valuation movement Ordinary share pool Cost Valuation in year % of £'000 £'000 £'000 portfolio VCT-Qualifying investments Liongold Contracting Limited 1,000 1,000 - 25.2% Honeycombe Pubs VCT Limited 216 200 (16) 5.0% Non-qualifying investments Hoole Hall Country Club 1,375 1,375 - 36.0% Holdings Limited Downing Acquisitions 1 Limited 750 750 - 19.7% Coastal Partnerships Limited 330 330 - 8.7% Vermont Development Limited 452 100 (352) 2.6% Chapel Street Hotel (2008) LLP 32 32 - 0.8% Heyford Homes (Thornton Hall) 9 9 - 0.2% Limited Sanguine Hospitality Limited 5 5 - 0.1% Universe Contracting Limited 25 - (25) - 4,194 3,801 (393) 99.5% Cash at bank and in hand 21 0.5% Total investments 3,822 100.0% Summary of investment movements Additions Cost £'000 Non-Qualifying investments Hoole Hall Country Club Holdings Limited 1,375 Downing Acquisition 1 Limited 1,000 Universe Contracting Limited 600 Chapel Street Hotel (2008) LLP 31 3,006 Disposals Total Loss realised Disposal against loss during Cost proceeds cost the year £'000 £'000 £'000 £'000 Qualifying investments Hoole Hall Country Club Limited 1,112 1,112 - - Honeycombe Pubs VCT plc 1 1 - - Cymbal Contracting Limited 1,450 1,450 - - Nu Nu plc 1,000 1,000 - - Ebury Contracting Limited 1,000 966 (34) (34) Ebury Contracting (South East) Limited 1,000 993 (7) (7) Chapel Contractors Limited 460 460 - - Downing Office Villages Contractor Limited 252 252 - - 6,275 6,234 (41) (41) Non-Qualifying investments Universe Contracting Limited 575 575 - - Heyford Homes (Thornton Hall) Limited 368 368 - - Hoole Hall Country Club Limited 262 262 - - Downing Acquisition 1 Limited 250 250 - - Sanguine Hospitality Limited 245 252 7 7 Vermont Development Limited 48 48 - - 8,023 7,989 (34) (34) STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for preparing the annual 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 Services 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). The financial statements are required to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements the Directors are required to: * select suitable accounting policies and then apply them consistently; * make judgments and estimates that are reasonable and prudent; * state whether applicable 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 confirm that they have complied with the above requirements in preparing the financial statements. They also confirm that the annual report includes a fair review of the development and performance of the business together with a description of the principal risks and uncertainties faced by the Company. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. Statement as to disclosure of information to Auditors 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 Auditors are 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 Auditors. INCOME STATEMENT for the year ended 31 January 2009 Year ended 31 January 2009 Year ended 31 January 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Income 412 - 412 567 - 567 Losses on - (427) (427) - (21) (21) investments 412 (427) (15) 567 (21) 546 Investment (81) - (81) (97) - (97) management fees Other expenses (120) - (120) (135) - (135) Return on ordinary 211 (427) (216) 335 (21) 314 activities before tax Tax on ordinary (54) - (54) (100) - (100) activities Return attributable to 157 (427) (270) 235 (21) 214 equity shareholders Return per 1.6p (4.2p) (2.7p) 2.3p (0.2p) 2.1p share All Revenue and Capital items in the above statement derive from continuing operations. 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 Income Statement, there were no differences between the return/deficit at historical cost. The total column of this statement represents the company's Income Statement prepared in accordance with UK Accounting Standards. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Year ended Year ended 31 January 31 January 2009 2008 £'000 £'000 Opening shareholders' funds 9,730 9,709 Purchase of own shares (16) (41) Total recognised (losses)/gains for the year (270) 214 Dividends paid (5,787) (152) Closing shareholders' funds 3,657 9,730 BALANCE SHEET as at 31 January 2009 2009 2008 £'000 £'000 Fixed assets Unquoted investments 3,801 9,211 Current assets Debtors 20 161 Cash at bank and in hand 21 562 41 723 Creditors: amounts falling due within one year (165) (184) Net current (liabilities) assets (124) 539 Net assets less current liabilities 3,677 9,750 Creditors: amounts falling due after more than one year (20) (20) Net assets 3,657 9,730 Capital and reserves Called up share capital 101 101 Capital redemption reserve 1 1 Special reserve 3,882 9,456 Capital reserve - unrealised (393) - Capital reserve - realised - (89) Revenue reserve 66 261 Total equity shareholders' funds 3,657 9,730 Basic and diluted net asset value per Ordinary share 36.3p 96.5p CASH FLOW STATEMENT for the year ended 31 January 2009 Year Year ended ended 31 Jan 31 Jan 2009 2008 £'000 £'000 Net cash inflow from operating activities 379 271 Taxation Corporation tax paid (100) (70) Capital expenditure Purchase of investments (3,006) (4,710) Proceeds from disposal of investments 7,989 4,230 Net cash inflow/(outflow) from capital expenditure 4,983 (480) Equity dividends paid (5,787) (152) Net cash outflow before financing (525) (431) Financing Repurchase of shares (16) (41) Net cash outflow from financing (16) (41) Decrease in cash (541) (472) 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" revised December 2005 ("SORP"). The financial statements are prepared under the historical cost convention except for the revaluation of certain financial instruments. Presentation of Income Statement In order to better reflect the activities of a Venture Capital Trust ("VCT") and in accordance with guidance issued by the Association of Investment Companies ("AIC"), supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007. Investments All investments are designated as "fair value through profit or loss" assets and are measured at fair value. A financial asset is designated within this category if it is both acquired and managed, 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 Guidelines") together with FRS26. Listed fixed income investments are measured using bid prices in accordance with the IPEV Guidelines. In respect of unquoted instruments, fair value is established by using the IPEV Guidelines. The valuation methodologies used by the Company to ascertain the fair value of an investment in an unquoted entity are as follows: * Price of recent investment; * Earnings multiple; * Net assets; * Discounted cash flows or earnings (of underlying business); and * Discounted cash flows (from the investment). 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. If fair value cannot be reliably measured by methods listed, previous carrying value (less provision for impairment) may be used where it is considered to provide the best estimate of fair value at the reporting date. Where an investee company has gone into receivership or liquidation and there is no prospect of any recovery of value, the loss on the investment, although not physically disposed of, is treated as being realised. Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment expensed. 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 SORP, which 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 receivable basis by reference to the principal outstanding and at the effective interest rate and only where there is reasonable certainty of collection. Expenses All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows: Expenses which are incidental to the 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 a policy of charging 100% of the Investment Management fees to the revenue account. Deferred taxation Deferred taxation 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 financial statements. 2. Basic and diluted return per share Ordinary Shares Revenue return per share based on: Net revenue after taxation (£'000) 157 Weighted average number of ordinary shares in issue 10,043,406 Capital return/(loss) per share based on: Net capital gain for the financial year (£'000) (427) Weighted average number of ordinary shares in issue 10,043,406 As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per Ordinary Share. The return per share disclosed therefore represents both the basic and diluted return per Ordinary Share. 3. Net asset value per ordinary share 2009 2008 Net asset Net asset value value per share Net asset per share Net asset value value Pence £'000 Pence £'000 Ordinary 36.3p 3,657 96.5 9,730 shares Net asset value per ordinary share is based on net assets at the year end, and on 10,064,617 (2008: 10,084,867) ordinary shares, being the number of ordinary shares in issue at the year end. 4. Principal Financial Risks The principal financial risks faced by the Company, which include interest rate, liquidity and marketability risks. In addition to these risks, the Company, as a fully listed company on the London Stock Exchange and as a Venture Capital Trust, operates in a complex regulatory environment and therefore faces a number of related risks. A breach of the VCT Regulations could result in the loss of VCT status and consequent loss of tax relief's currently available to Shareholders and the Company being subject to capital gains tax. Serious breaches of other regulations, such as the UKLA Listing Rules, the Companies Act 1985 and the Companies Act 2006 could lead to suspension from the Stock Exchange and damage to the Company's reputation. The Board reviews and agrees policies for managing each of these risks. They receive quarterly reports from the Managers which monitor the compliance of these risks, and place reliance on the Managers to give updates in the intervening periods. These policies have remained unchanged since the beginning of the financial period. The principal financial risks are outlined further as follows: Credit risk Credit risk is the risk that a counter-party to a financial instrument is unable to discharge a commitment to the Company made under that instrument. Investments in loan stocks comprise a fundamental part of the Company's venture capital investments and are managed within the main investment management procedures. Cash is mainly held by Bank of Scotland plc and Royal Bank of Scotland plc which are an A+/A-1-rated financial institutions. The Directors consider that the risk profile associated with cash deposits is low and thus the carrying value in the financial statements is a close approximation of the fair value Interest, dividends and other receivables are predominantly covered within the investment management procedures. Liquidity risk The liquidity risk is the risk that the Company might encounter difficulty in meeting its obligations arising from issued financial instruments. The Company's financial instruments exposed to this risk are unsecured redeemable loan stock notes amounting to £20,000 (2008: £20,000). The loan notes are redeemable on the earlier of the date on which a winding-up takes place or 19 January 2015. The Company's liquid resources are managed in such way that at any time the balance of the cash at bank is considerably higher than Company's obligations on financial instruments, and, therefore, this risk is considered to be low. Market risk Market risk arises from uncertainty about fair values or future cash flows of financial instruments because of changes in market prices. The Company's investment portfolio is comprised of variable rate, floating rate and fixed rate financial instruments, the fair values of which are influenced by differing degrees by changes in market price. Generally, unless the risk profile attaching to the loan note changes, the fair value of variable and floating rate investments is unlikely to alter materiality. The fair value of fixed rate investments would, theoretically, increase as base rates fall. However, as a result of the structuring of the Company's investments, the fixed rate investments (loan notes) have strict redemption and transferability conditions and, therefore, any theoretical uplift in fair value would not be a fair reflection of the realisable value of this class of investment The Company's future cash flows can be influenced by changes in interest rates, resulting in an increase or decrease in income from investments linked to the base rate. The maximum exposure to this risk amounts to the value of variable and floating rate assets of £1.8 million (2008: £5.8 million). The Company has no holdings in any listed or quoted equities so has no direct exposure to substantial movements experienced by stock markets. As none of the financial instruments held by the Company are traded on any specified stock market, the Company is not exposed to a quantifiable equity price risk. The ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers. The ability of the Company to purchase or sell investments is also constrained by the requirements set down for Venture Capital Trusts. The Board (or a nominated Director) considers each investment purchase to ensure that an acquisition will enable the Company to continue to have an appropriate spread of market risk and that an appropriate risk reward profile is maintained. It is not the Company's policy to use derivative instruments to mitigate market risk, as the Board believes that the effectiveness of such instruments does not justify the cost involved. 5. Contingencies, guarantees and financial commitments Contingent liability re. Ordinary Share performance incentive Since the year end the Company has paid a dividend which triggers the payment of a performance incentive the Ordinary Share by way of additional interest on the loan notes issued to the Management Team and Directors. The amount of additional interest is dependent on the level of further distributions made to Shareholders before 27 June 2011. The maximum amount payable under these arrangements is 10% of the net proceeds paid to Shareholders and at current investment valuations is estimated to be approximately £970,000 or 9.6p per Ordinary share. Directors are currently unable to make a reliable estimate of the performance fees that will ultimately be payable. Other than as described above, at 31 January 2009, the Company had no contingencies, guarantees or financial commitments. 6. Related party transactions Downing Protected Managers III Limited ("DPMIII") a wholly owned subsidiary is the Company's Investment Manager. During the year ended 31 January 2009 £81,000 (2008: £97,000) was payable to DPMIII. Additionally, DPMIII provides accounting, secretarial and administrative services for an annual fee of £40,000 (plus VAT and RPI) per annum. During the year ended 31 January 2009, £44,000 (2008: £43,000) was due in respect of administration fees. At the year end a balance of £55,000 (2008: £35,000) was due to DPMIII. Announcement based on audited accounts The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 January 2009, but has been extracted from the statutory financial statements for the year ended 31 January 2009, which were approved by the Board of Directors on 29 May 2009 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006. The statutory accounts for the year ended 31 January 2008 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 S237(2) or (3) of the Companies Act 1985. A copy of the full annual report and financial statements for the year ended 31 January 2009 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Kings Scholars House, 230 Vauxhall Bridge Road, London SW1V 1AU and will be available for download from ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.