Downing Protected VCT III plc
FINAL RESULTS for the year ended 31 January 2009
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
Total return per Ordinary Share 96.3 99.0
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 Â£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 Â£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
At the year end, the Ordinary Share pool had a portfolio comprising
six major investments, which were valued at Â£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 Â£2.1 million of cash. Most of these proceeds
were used to fund the dividend paid in March 2009 of 21p per Ordinary
Further details regarding the investment portfolio and activity can
be found in the Investment Manager's report and Review of
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
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
Â£'000 Â£'000 Â£'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:
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 Â£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 Â£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.
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
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.
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.
INVESTMENT MANAGER'S REPORT
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.
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
Â£33,000 arising, while generating proceeds of Â£8.0 million.
The Ordinary Share pool also made new investments totalling Â£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.
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 Â£352,239 against the net cost of the investment.
Additionally, we have made small provisions of Â£16,000 against the
investment in Honeycombe Pubs VCT limited and Â£25,000 against that in
Universe Contracting Limited. Total unrealised losses for the year
stand at Â£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
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:
Ordinary share pool Cost Valuation in year % of
Â£'000 Â£'000 Â£'000 portfolio
Liongold Contracting Limited 1,000 1,000 - 25.2%
Honeycombe Pubs VCT Limited 216 200 (16) 5.0%
Hoole Hall Country Club 1,375 1,375 - 36.0%
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%
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
Hoole Hall Country Club Holdings Limited 1,375
Downing Acquisition 1 Limited 1,000
Universe Contracting Limited 600
Chapel Street Hotel (2008) LLP 31
Disposal against loss during
Cost proceeds cost the year
Â£'000 Â£'000 Â£'000 Â£'000
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)
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
* make judgments and estimates that are reasonable and
* 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
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
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
for the year ended 31 January 2009
Year ended 31 January 2009 Year ended 31 January 2008
Revenue Capital Total Revenue Capital Total
Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000
Income 412 - 412 567 - 567
Losses on - (427) (427) - (21) (21)
412 (427) (15) 567 (21) 546
Investment (81) - (81) (97) - (97)
Other expenses (120) - (120) (135) - (135)
ordinary 211 (427) (216) 335 (21) 314
Tax on ordinary (54) - (54) (100) - (100)
attributable to 157 (427) (270) 235 (21) 214
Return per 1.6p (4.2p) (2.7p) 2.3p (0.2p) 2.1p
All Revenue and Capital items in the above statement derive from
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
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
as at 31 January 2009
Unquoted investments 3,801 9,211
Debtors 20 161
Cash at bank and in hand 21 562
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
31 Jan 31 Jan
Net cash inflow from operating activities 379 271
Corporation tax paid (100) (70)
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)
Repurchase of shares (16) (41)
Net cash outflow from financing (16) (41)
Decrease in cash (541) (472)
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
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.
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
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.
Dividend income from investments is recognised when the Shareholders'
rights to receive payment has been established, normally the ex
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.
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 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
Revenue return per share based on:
Net revenue after taxation (Â£'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 (Â£'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
Net asset Net asset
per share Net asset per share Net asset
Pence Â£'000 Pence Â£'000
Ordinary 36.3p 3,657 96.5 9,730
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
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 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.
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 Â£20,000 (2008:
Â£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
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
Â£1.8 million (2008: Â£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
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 Â£970,000 or 9.6p per
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 Â£81,000 (2008: Â£97,000) was payable to DPMIII.
Additionally, DPMIII provides accounting, secretarial and
administrative services for an annual fee of Â£40,000 (plus VAT and
RPI) per annum. During the year ended 31 January 2009, Â£44,000 (2008:
Â£43,000) was due in respect of administration fees. At the year end a
balance of Â£55,000 (2008: Â£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 www.downing.co.uk.
---END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.