Downing THREE VCT plc - Half-year report
**Downing THREE VCT plc*
**LEI: 2138008V2JDU2K6ZHF80***
*Half-Yearly Report*
*for the six months ended 30 June 2020*
*Performance summary*
*‘F’ Share pool* *30 Jun*
*2020* * * *31 Mar*
*2020* * * *31 Dec*
*2019* * * *30 Jun*
*2019* *Pence* * * *Pence* * * *Pence* * * *Pence*
Net asset value per ‘F’ Share 18.5 21.3 24.5 30.3
Cumulative distributions per ‘F’ Share 72.0 72.0 72.0 67.0
Total return per ‘F’ Share 90.5 93.3 96.5 97.3
*‘H’ Share pool* *30 Jun*
*2020* * * *31 Mar*
*2020* * * *31 Dec*
*2019* * * *30 Jun*
*2019* *Pence* * * *Pence* * * *Pence* * * *Pence*
Net asset value per ‘H’ Share 23.3 22.3 33.2 43.5
Cumulative distributions per ‘H’ Share 35.0 35.0 35.0 30.0
Total return per ‘H’ Share 58.3 57.3 68.2 73.5
*‘J’ Share pool* *30 Jun*
*2020* * * *31 Mar*
*2020* * * *31 Dec 2019* * * *30 Jun 2019* *Pence* * * *Pence* * * *Pence* * * *Pence*
Net asset value per ‘J’ Share 37.6 43.8 50.3 68.3
Cumulative distributions per ‘J’ Share 7.5 5.0 5.0 2.5
Total return per ‘J’ Share 45.1 48.8 55.3 70.8
*Forthcoming dividends*
* * * * * * *‘H’ Shares* *‘J’ Shares*
Interim 2020 – Payable 27 November 2020 4.5p 10.0p
*CHAIRMAN’S STATEMENT*
*Introduction*
I present the Half-Yearly Report for the six months ended 30 June 2020.
As Shareholders will be aware, a number of the Company’s portfolio businesses have faced some significant challenges over the last couple of years. With significant exposure to the hospitality sector, the coronavirus pandemic has unfortunately further impacted a number of the portfolio companies
The Company has three share pools, two of which are in process of realising investments and one which is preparing to start the realisation process.
A brief summary of each share pool is provided below.
*Net asset values and overview*
*‘F’ Share pool*
The ‘F’ Share pool launched in 2012 and is currently in its realisation phase. Exits from a number of investments have been effectively put on hold as a result of the ongoing pandemic, however the Manager is still working on a number of possible divestments in order to return funds to Shareholders.
At 30 June 2020, the net asset value (“NAV”) for a holding of one ‘F’ Share was 18.5p, a decrease of 6.0p (24.5%) over the period. Total Return (NAV plus dividends paid to date) is now 90.5p, compared to the original cost, net of income tax relief, of 70p per share.
The ‘F’ Share pool still holds nine investments, with plans resuming for exits from each of them.
The task of exiting from the remaining investments is dependent on third parties and it is therefore difficult to accurately estimate when this process will complete. A number of investments in the portfolio are in industries that have been severely impacted by the effective lockdown in the UK, and as a result have suffered delays in the divestment timeline.
The Investment Manager notes that it is currently unclear when further exits will be achieved, although are seeking opportunities where possible. The Manager anticipates that the next major distribution will be paid in 2021.
*‘H’ Share pool*
The ‘H’ Share pool was launched in 2014 and the process of returning funds to investors was scheduled to commence in 2020, however as a result of the effective lockdown there have been a number of hurdles which have arisen and have unfortunately delayed this process.
At 30 June 2020, the net asset value (“NAV”) for a holding of one ‘H’ Share was 23.3p which represents a net decrease of 9.9p (29.8%) over the period. Total Return (NAV plus dividends paid to date) is now 58.3p, compared to the initial NAV, before income tax relief, of 100.0p (or original cost, net of income tax relief, which was typically between 70.0p and 75.0p, depending on costs). In view of the poor performance, as reported previously, the Board has agreed with the Investment Manager such that no further management fees will be paid in respect of the H Share pool.
In line with the dividend policy, the Board is proposing to pay a dividend of 4.5p per ‘H’ Share on 27 November 2020, to Shareholders on the register at the close of business on 6 November 2020.
*‘J’ Share pool*
The ‘J’ Share pool raised funds in 2015 and completed its initial investment phase in 2019. At 30 June 2020, the pool held 13 investments with a total value of £2.5 million.
At 30 June 2020, the net asset value (“NAV”) for a holding of one ‘J’ Share was 37.6p which represents a net decrease of 10.2p (20.3%) over the period after adjusting for the dividends paid out of 2.5p. Total Return (NAV plus dividends paid to date) is now 45.1p, compared to the initial NAV, before income tax relief, of 100.0p (or original cost, net of income tax relief, of 70.0p and 75.0p, depending on costs).
The Board acknowledges that overall performance of the ‘J’ Share pool is very poor. As noted previously, the Board has reached agreement with the Investment Manager such that no further management fees will be paid in respect of the J Share pool.
In line with the dividend policy, the Board is proposing to pay a final dividend of 10.0p per ‘J’ Share on 27 November 2020, to Shareholders on the register at the close of business on 6 November 2020.
*Dividends*
In line with the Company’s stated policies, interim dividends will be paid as follows:
‘H’ Shares 4.5p per share
‘J’ Shares 10.0p per share
Each of the above dividends will be paid on 27 November 2020, to Shareholders on the register at 6 November 2020.
*Share buybacks*
The Company is now unlikely to make any further purchases of any of its shares as the process of returning funds to all groups of shareholders is progressing.
No share buybacks in respect of any share class were undertaken during the period.
*Outlook*
The further losses of value on all pools since the valuation at 31 March 2020 are extremely disappointing. Although there is the possibility of recoveries in value, the recent increase in coronavirus infections in the UK may further harm the sectors in which many of the portfolio companies operate and could result in further losses.
The Board has given consideration to the best way forward from this position. The Board does not consider that a change of manager at this stage is practical or would be in the best interest of shareholders, but believes that continuing to work closely with the existing manager to ensure everything is done to recover value is the best route.
The Board does not expect to raise any new funds for the Company in future and so is now considering putting proposals to Shareholders for the Company to take advantage of the VCT winding up regulations which involves entering into a members’ voluntary liquidation. This will allow the company to reduce its running cost while it realises the investments across all share pools. The Board intends to prepare proposals for shareholder approval in the coming months.
Michael Robinson
*Chairman*
30 September 2020
*INVESTMENT MANAGER’S REPORT*
*‘F’ SHARE POOL*
As at 30 June 2020, the ‘F’ Share pool held nine investments. Focus for the ‘F’ Share pool remains on the realisation of its investments and maximising Shareholder returns which has been delayed due to the ongoing coronavirus pandemic.
*Net asset value, results and dividend*
At 30 June 2020, the net asset value (“NAV”) for a holding of one ‘F’ Share was 18.5p, an decrease of 6.0p (24.5%) over the period. Total Return (NAV plus dividends paid to date) is now 90.5p.
The loss on ordinary activities for the ‘F’ Shares, after taxation was £639,000 for the period, comprising a revenue loss of £30,000 and a capital loss of £609,000.
*‘F’ Share pool – Portfolio valuation*
The period to 30 June 2020 has seen a number of unforeseen developments which has impacted the ‘F’ Share portfolio. The portfolio companies are heavily exposed to the effective lockdown in the UK economy, resulting in an unrealised loss of £609,000.
The most significant decreases in valuation were in respect of Pearce and Saunders Limited and Downing Pub EIS ONE Limited which both operate in the pub and hospitality industry.
Pearce and Saunders Limited, the owner of freehold pubs in south east London, was decreased by £457,000 to reflect the forced closure of the site and the wider economic impact of COVID-19.
Downing Pub EIS ONE Limited, which acquired the holdings of two other pub companies in 2017, was decreased in value by £134,000 following the collapse of the proposed management buy out that was due to complete in March 2020.
The Investment Manager has supported both of the above investee companies during this difficult time as well as ensuring the businesses have taken advantage of the Government support that has been made available.
There were a small number of valuation increases in the period. The most notable being a £42,000 increase in value to Fresh Green Power Limited, the domestic rooftop solar company, which was increased due to improved operating performance over the period.
*Realisation plans*
A number of the investment companies within the portfolio had proposed exit plans in place which have now been effectively paused or have collapsed as a result of the ongoing pandemic and have forced the Investment Manager to seek other opportunities to exit.
Despite the divestment timeline suffering, the Investment Manager is hopeful that there are reasonable prospects for completion from a small number of the investee companies across the remainder of the year if conditions improve, although shareholders should note it is currently unclear when and if these will be achieved. The exact timing will be dependent on third parties and a number of external factors.
*Outlook*
Valuations of investments within the ‘F’ Share pool have been impacted as a result of the ongoing coronavirus pandemic. The pool is exposed to a number of the sectors which have suffered heavily from the effective lockdown in the UK. Focus for the Investment Manager remains on the exit of the final nine investments in the portfolio as well as continuing to support all investee companies during this difficult period.
*Downing LLP*
30 September 2020
*SUMMARY OF INVESTMENT PORTFOLIO*
*‘F’ SHARE POOL*
as at 30 June 2020
**Cost** **Valuation** **Unrealised** ** **
**gain/(loss)** ** **
**in period** **% of** ** **
**Portfolio** ** by**
** value**
* * **£’000** **£’000** **£’000** * *
* * * *
*VCT qualifying and partially qualifying investments* * *
Downing Pub EIS ONE Limited 490 522 (134) *26.7%*
Fresh Green Power Limited 189 273 42 *14.0%*
Atlantic Dogstar Limited 200 179 (79) *9.2%*
Pearce and Saunders Limited 497 93 (457) *4.7%*
Green Energy Production UK Limited 100 64 10 *3.3%*
Apex Energy Limited 1,000 26 9 *1.3%* * * * *
*Non-qualifying investments* * *
Baron House Developments LLP 481 673 - *34.4%*
London City Shopping Centre Limited 66 - - *0.0%*
Pearce and Saunders DevCo Limited 44 - - *0.0%* * * 3,067 1,830 (609) *93.6%*
* * * *
*Cash at bank and in hand* 126 *6.4%* * *
*Total* 1,956 *100.0%*
*SUMMARY OF INVESTMENT MOVEMENTS*
*‘F’ SHARE POOL*
as at 30 June 2020
*Disposals* **Cost** **Market **
**value at **
**01/01/20** **Disposal**
**proceeds** **Gain**
**against**
**cost** ** Total** ** **
**realised** ** **
**gain**
* * **£’000 ** **£’000** **£’000 ** **£’000** **£’000 **
* *
Pearce and Saunders DevCo Limited 2 2 2 - - 2 2 2 - -
*INVESTMENT MANAGER’S REPORT*
*‘H’ SHARE POOL *
The ‘H’ Share pool raised funds in 2014 and the task of building the initial VCT qualifying portfolio is complete. During the period, the share pool suffered some further provisions in respect of its investments within the leisure and hospitality industry which have been severely impacted by the ongoing coronavirus pandemic.
*Investment activity*
During the period a partial exit was successfully completed from Pearce and Saunders Limited, the owner of freehold pubs in south east London. Proceeds of £230,000 were generated, which represented an uplift over cost of £172,000.
*‘H’ Share pool – Portfolio valuation*
The period to 30 June 2020 has seen a number of disappointing valuation movements, resulting in an unrealised loss of £1.7 million.
A significant portion of the unrealised loss for the period related to three investments which have been severely impacted by the effective lockdown within the UK and its resulting consequences. Further details on each is noted below.
Atlantic Dogstar Limited, owns a group of London pubs. As a result of the lockdown restrictions, the two London pubs were forced to close and the planned management buy out that was due to complete in March 2020 collapsed, leading to a reduction in value of £394,000.
The investments in Quadrate Spa Limited and Quadrate Catering Limited, which own and operate a health club business and a top floor restaurant in The Cube complex in Birmingham were both written down to nil, generating a combined loss of £1.1 million.
A sale and leaseback transaction was due to complete in February 2020. However as a result of the coronavirus pandemic, both companies are not operational following government-imposed lockdown measures and the offer has been withdrawn. We continue to monitor the situation and are assisting management where possible.
*Realisation plans*
Prior to the unforeseen coronavirus pandemic, there were a number of realisation plans in place for the exit of several portfolio companies. As a result of the ongoing situation, these plans have either collapsed or have been delayed. It is currently unclear when further exits will be achieved, although the manager is seeking opportunities where possible.
*Net asset value and results*
At 30 June 2020, the net asset value per ‘H’ Share was 23.3p, a net decrease of 9.9p (29.8%) over the period. Total Return (NAV plus dividends paid to date) is now 58.3p. The loss on ordinary activities for the ‘H’ Shares, after taxation, for the period was £1.3 million, comprising a revenue profit of £217,000 and a capital loss of £1.5 million.
The Company will pay an interim dividend of 4.5p per ‘H’ Share, on 27 November 2020 to Shareholders on the register at 6 November 2020.
*Outlook*
Regrettably, the coronavirus pandemic has further hit investment valuations during the period to 30 June 2020, with a large number of portfolio companies within the leisure and hospitality sectors being impacted most severely. We will continue to assist and support each investee company within the portfolio as much as possible, seeking to position them as well as we can to facilitate an exit when feasible.
*Downing LLP*
30 September 2020
*SUMMARY OF INVESTMENT PORTFOLIO*
*‘H’ SHARE POOL*
as at 30 June 2020
* * **Cost** **Valuation** **Unrealised** ** **
**gain/(loss)**
** in period** **% of** ** **
**portfolio** ** by**
** value**
* * **£’000** **£’000** **£’000** * *
*VCT qualifying investments* * *
Altantic Dogstar Limited 1,000 898 (394) *32.5%*
SF Renewables (Solar) Limited 281 243 (10) *8.8%*
Hermes Wood Pellets Limited 1,500 228 - *8.2%*
Rockhopper Renewables Limited 492 185 (61) *6.7%*
Indigo Generation Limited 613 149 (66) *5.4%*
Pearce and Saunders Limited 136 136 - *4.9%*
Ironhide Generation Limited 613 134 (80) *4.9%*
Zora Energy Renewables Limited 1,000 65 (25) *2.4%*
Apex Energy Limited 1,300 33 11 *1.2%*
Quadrate Catering Limited 850 - (701) *0.0%* * *
*Non-qualifying investments* * *
Quadrate Spa Limited 850 - (392) *0.0%* * * 8,635 2,071 (1,718) *75.0%*
* * * *
*Cash at bank and in hand* 693 *25.0%* * *
*Total* 2,764 *100%*
*SUMMARY OF INVESTMENT MOVEMENTS*
*‘H’ SHARE POOL*
as at 30 June 2020
*Disposals* **Cost** **Market ** **value**
** at ** **01/01/20** **Disposal**
**proceeds** **Gain**
**against **
**cost** ** Total**
** realised**
** gain**
* * **£’000 ** **£’000** **£’000 ** **£’000** **£’000 **
* *
Pearce and Saunders Limited 58 58 230 172 172 58 58 230 172 172
*INVESTMENT MANAGER’S REPORT*
*‘J’ SHARE POOL*
At the period end, the ‘J’ Share pool held 13 investments across a range of industries. It is disappointing to have to report that several investee companies have suffered further setbacks which have required significant provisions for the six months to 30 June 2020
*‘J’ Share pool – Portfolio valuation*
As noted in the year end accounts, the portfolio faced a number of challenges in the first few months of 2020, leading to an unrealised loss of £932,000 as at 30 June 2020.
A significant portion of the unrealised loss for the period related to three investments. Further details on each is noted below.
The most notable provision is in respect of Garthcliff Shipping Limited, which owns a feeder container vessel that is chartered to third parties to transport containers to and from ports. Following a period of reduced demand for container vessels as worldwide economies suffered as a result of the coronavirus pandemic, a buyer for the vessel has been sought and the value has been reduced by £322,000 in line with anticipated exit proceeds.
Pilgrim Trading Limited, the operator of two children’s nurseries in London, were closed from March 2020 as a result of the Government imposed lockdown, leading to a provision of £218,000 to reflect the forced closure of the sites and the wider impact of COVID-19.
Exclusive Events Venues Limited, the operator of an exclusive use wedding venue in Chester, England, completed refurbishment in February 2020. In line with government imposed measures, the venue was forced to postpone events, resulting in a provision of £157,000.
We continue to work closely and support each of the portfolio companies, ensuring that they have benefited from the Government aid that is available and take sensible decisions as they deal with these extraordinary circumstances.
*Realisation plans*
As a result of the unforeseen coronavirus pandemic, several of the realisation plans that were in place have either collapsed or have been delayed. It is currently unclear when further exits will be achieved, although the manager is seeking opportunities where possible.
*Net asset value, results and dividend*
At 30 June 2020, the net asset value per ‘J’ Share was 37.6p, a net decrease of 10.2p (20.3%) over the period, after adding back dividends paid in the period of 2.5p. Total return (NAV plus dividends paid to date) is 45.1p. The loss on ordinary activities for the ‘J’ Share pool, after taxation, was £1.1 million for the period, comprising a revenue loss of £158,000 and a capital loss of £932,000.
The Company will pay an interim dividend of 10.0p per ‘J’ Share on 27 November 2020, to Shareholders on the register at 6 November 2020.
*Outlook*
The falls in value experienced by the ‘J’ Share pool during the year are extremely disappointing. Businesses in the leisure, hospitality and children’s nurseries sectors have clearly suffered heavily from the lockdown and provisions have been required as a result. We continue to dedicate substantial resources to supporting the investee companies through these difficult and unprecedented times as we look to continue the process of realising investments and return funds to investors.
*Downing LLP*
30 September 2020
*SUMMARY OF INVESTMENT PORTFOLIO*
*‘J’ SHARE POOL*
as at 30 June 2020
* * **Cost** **Valuation** **Unrealised** ** **
**(loss)/gain** ** **
**in period** **% of**
**portfolio** ** **
**by value**
* * **£’000** **£’000** **£’000** * *
*VCT qualifying investments* * *
Pilgrim Trading Limited 1,297 1,079 (218) *27.0%*
Exclusive Events Venues Limited 500 343 (157) *8.6%*
SF Renewables (Solar) Limited 281 243 (10) *6.1%*
Rockhopper Renewables Limited 492 185 (61) *4.6%*
Indigo Generation Limited 613 149 (66) *3.7%*
Ironhide Generation Limited 613 135 (80) *3.4%*
Garthcliff Shipping Limited 400 78 (322) *2.0%*
Zora Energy Renewables Limited 300 20 (7) *0.5%*
Ormsborough Limited 1,000 - - *0.0%*
Jito Trading Limited 1,000 - - *0.0%*
Yamuna Renewables Limited 800 - - *0.0%* * * * *
*Non-qualifying investments* * *
Fenkle Street LLP 287 306 (11) *7.7%*
London City Shopping Centre Limited 15 - - *0.0%* * * 7,598 2,538 (932) *63.6%*
* * * *
*Cash at bank and in hand* 1,454 *36.4%* * *
*Total* 3,992 *100%*
*UNAUDITED SUMMARISED BALANCE SHEET *
as at 30 June 2020
* * * * * * *30 Jun 2020* * * *30 Jun*
*2019* * * *31 Dec *
*2019*
** ** * * * * * *
*‘F’ Shares* * *
*‘H’ Shares* *
‘J’ Shares* * *
* *
*Total* * * * *
* *
*Total* * * * *
* *
*Total*
** ** * * * * *£’000* *£’000* *£’000* *£’000* * * *£’000* * * *£’000*
** ** * * * *
*Fixed assets* * * * *
Unquoted investments 1,830 2,071 2,538 6,439 * * 13,118 9,758
*Current assets*
Debtors 93 460 6 559 588 678
Cash at bank and in hand 126 693 1,454 2,273 2,949 2,193 219 1,153 1,460 2,832 3,537 2,871
Creditors: amounts falling due within one year (41) (105) 14 (132) (250) (164)
*Net current assets* 178 1,048 1,474 2,700 3,287 2,707
*Net assets* 2,008 3,119 4,012 9,139 16,405 12,465 * *
*Capital and reserves* * *
Called up share capital 11 13 11 35 35 35
Capital redemption reserve 149 - - 149 149 149
Special reserve 3,903 9,077 10,741 23,721 24,714 23,726
Share premium account - - - - - -
Revaluation reserve (1,379) (6,565) (2,247) (10,191) (7,007) (6,932)
Capital reserve – realised (1,099) - (3,349) (4,448) (1,300) (4,447)
Revenue reserve 423 594 (1,144) (127) (186) (66)
* *
*Total equity shareholders’ funds* 2,008 3,119 4,012 9,139
16,405 12,465
*Basic and diluted net asset value per:*
*‘F’ Share* 18.5p 30.3p 24.5p
*‘H’ Share* 23.3p 43.5p 33.2p
*‘J’ Share* 37.6p 68.3p 50.3p
*STATEMENT OF CHANGES IN EQUITY*
for the six months ended 30 June 2020
* * *Called up*
* share*
*capital* *Capital*
*redemption*
*reserve* *Special*
*reserve* *Share*
*premium*
*reserve* *Revaluation*
*reserve* *Capital*
*reserve*
*- realised* *Revenue*
*reserve* *Total*
* * *£’000* *£’000* *£’000* *£’000* *£’000* *£’000* *£’000* *£’000*
* * * * * * * * * * * * * * * * * *
*At 1 January 2019* 35 149 25,206 - (4,748) (1,029) (187) 19,426
Total comprehensive income - - - - (4,888) 220 121 (4,547)
Realisation of impaired valuations - - - - 2,881 (2,881) - -
Transactions with owners
Transfer between reserves - - (1,480) - (177) 1,657 - -
Dividend paid - - - - - (2,414) - (2,414)
*At 31 December 2019* 35 149 23,726 - (6,932) (4,447) (66) 12,465
Total comprehensive income - - - - (3,259) 172 29 (3,058)
Transactions with owners
Purchase of own shares - - - - - - - -
Transfer between reserves - - (5) - - 5 - -
Dividend paid - - - - - (178) (90) (268)
*At 30 June 2020* 35 149 23,721 - (10,191) (4,448) (127) 9,139
* * * * * * * * * * * * * * * * * *
*INCOME STATEMENT*
for the six months ended 30 June 2020
*Company Total *
* * * *
*Six months ended*
*30 Jun 2020*
* * * * * *
*Six months ended*
*30 Jun 2019* * * **Year** ** ended**
**31 Dec ** **2019**
* * **Revenue** **Capital** **Total** ** ** **Revenue** **Capital** **Total** * * **Total**
* * **£’000** **£’000** **£’000** ** ** **£’000** **£’000** **£’000** * * **£’000**
Income 866 - 866 296 16 312 670
Gains/(losses) on investments
- realised - 172 172 - 88 88 204
- unrealised - (3,259) (3,259) - (2,189) (2,189) (4,888) 866 (3,087) (2,221) 296 (2,085) (1,789) (4,014)
Investment management fees (19) - (19) (180) - (180) (307)
Other expenses (797) - (797) (129) - (129) (250)
*Return/(loss) on ordinary activities before taxation* 50 (3,087) (3,037) (13) (2,085) (2,098) (4,571)
Tax on total comprehensive income and ordinary activities (21) - (21) 14 - 14 24
* *
*Return/(loss) attributable to equity shareholders* 29 (3,087) (3,058) 1 (2,085) (2,084) (4,547)
*Return per ‘F’ Share* (0.3p) (5.6p) (5.9p) 0.1p 1.9p 2.0p 1.0p
*Return per ‘H’ Share* 1.6p (11.5p) (9.9p) 0.1p (2.8p) (2.7p) (8.0p)
*Return per ‘J’ Share* (1.5p) (8.7p) (10.2p) (0.2p) (17.9p) (18.1p) (33.6p)
*INCOME STATEMENT* (analysed by Share pool)
for the six months ended 30 June 2020
*‘F’ Shares*
* * * *
*Six months ended*
*30 Jun 2020*
* * * * * *
*Six months ended*
*30 Jun 2019* * * **Year** ** ended **
**31 Dec ** **2019**
* * **Revenue** **Capital** **Total** ** ** **Revenue** **Capital** **Total** * * **Total**
* * **£’000** **£’000** **£’000** ** ** **£’000** **£’000** **£’000** * * **£’000**
Income 111 - 111 75 - 75 105
Gains/(losses) on investments
- realised - - - - - - 110
- unrealised - (609) (609) - 201 201 (10) 111 (609) (498) 75 201 276 205
Investment management fees (19) - (19) (24) - (24) (49)
Other expenses (117) - (117) (27) - (27) (52)
*Return/(loss) on ordinary activities before taxation* (25) (609) (634) 24 201 225 104
Tax on total comprehensive income and ordinary activities (5) - (5) (17) - (17) 10
* *
*Return attributable to equity shareholders* (30) (609) (639) 7 201 208 114
*INCOME STATEMENT* (analysed by Share pool)
for the six months ended 30 June 2020
*‘H’ Shares*
* * * *
*Six months ended*
*30 Jun 2020*
* * * * * *
*Six months ended*
*30 Jun 2019* * * **Year** ** ended **
**31 Dec ** **2019**
* * **Revenue** **Capital** **Total** ** ** **Revenue** **Capital** **Total** * * **Total**
* * **£’000** **£’000** **£’000** ** ** **£’000** **£’000** **£’000** * * **£’000**
Income 671 - 671 134 - 134 382
Gains/(losses) on investments
- realised - 172 172 - 88 88 88
- unrealised - (1,718) (1,718) - (463) (463) (1,293) 671 (1,546) (875) 134 (375) (241) (823)
Investment management fees - - - (76) - (76) (131)
Other expenses (403) - (403) (46) - (46) (91)
*Return/(loss) on ordinary activities before taxation* 268 (1,546) (1,278) 12 (375) (363) (1,045)
Tax on total comprehensive income and ordinary activities (51) - (51) (1) - (1) (28)
* *
*Return/(loss) attributable to equity shareholders* 217 (1,546) (1,329) 11 (375) (364) (1,073)
*INCOME STATEMENT* (analysed by Share pool)
for the six months ended 30 June 2020
*‘J’ Shares*
* * * *
*Six months ended*
*30 Jun 2020*
* * * * * *
*Six months ended*
*30 Jun 2019* * * **Year** ** ended**
**31 Dec ** **2019**
* * **Revenue** **Capital** **Total** ** ** **Revenue** **Capital** **Total** * * **Total**
* * **£’000** **£’000** **£’000** ** ** **£’000** **£’000** **£’000** * * **£’000**
Income 84 - 84 87 16 103 183
(Losses)/gains on investments
- realised - - - - - - 5
- unrealised - (932) (932) - (1,927) (1,927) (3,584) 84 (932) (848) 87 (1,911) (1,824) (3,396)
Investment management fees - - - (80) - (80) (127)
Other expenses (277) - (277) (56) - (56) (107)
*Loss on ordinary activities before taxation* (193) (932) (1,125) (49) (1,911) (1,960) (3,630)
Tax on total comprehensive income and ordinary activities 35 - 35 32 - 32 42
* *
*Loss attributable to equity shareholders* (158) (932) (1,090) (17) (1,911) (1,928) (3,588)
*UNAUDITED CASH FLOW STATEMENT*
for the six months ended 30 June 2020
** ** * * * *
* 30 Jun 2020* * * *30 Jun*
* 2019* * * *31 Dec*
* 2019*
* * * * * * * *
*‘F’*
*Shares* * *
*‘H’*
*Shares* *
‘J’ Shares* * *
* *
*Total* * * *Total* * * * *
* *
*Total*
* * * * * * *£’000* *£’000* *£’000* *£’000* * * *£’000* * * *£’000* * * * *
*Net cash (outflow)/inflow from operating activities* (57) 230 (57) 116 204 147
*Cash flows from investing activities*
Purchase of investments - - - - - -
Sale of investments 2 230 - 232 1,920 2,698
*Net cash inflow from investing activities* 2 230 - 232 1,920 2,698
*Net cash (outflow)/inflow before financing activities* (55) 460 (57) 348 2,124 2,845
*Cash flows from financing activities*
Purchase of own shares - - - - - -
Equity dividends paid - - (268) (268) (937) (2,414)
*Net cash outflow from financing* - - (268) (268) (937) (2,414)
*(Decrease)/increase in cash* * * (55) 460 (325) 80 1,187 431
*NOTES TO THE UNAUDITED CASH FLOW STATEMENT *
for the six months ended 30 June 2020
** ** ** ** * * * *
* 30 Jun 2020* * * *30 Jun*
* 2019* * * *31 Dec*
* 2019*
** ** * * * * *‘F’*
*Shares* *‘H’*
*Shares* *‘J’ *
*Shares* * *
*Total * * * * *
*Total * * * * *
*Total *
** ** * * * * *£’000* *£’000* *£’000* *£’000* * * *£’000* * * *£’000*
* Cash (outflow)/inflow from operating activities and returns on investments* * * * * * *
Return/(loss) on ordinary activities before taxation (634) (1,278) (1,125) (3,037) * * (2,098) * * (4,571)
Corporation tax paid - - - - * * 29 (17)
(Gains)/losses on investments 609 1,546 932 3,087 * * 2,101 * * 4,684
(Increase)/decrease in other debtors (24) (9) 153 120 * * 190 * * 102
(Decrease)/increase in other creditors (8) (29) (17) (54) * * (18) * * (51)
Net cash (outflow)/inflow from operating activities (57) 230 (57) 116 * * 204 * * 147 * * * *
* Analysis of net funds* * * * *
Beginning of period 181 233 1,779 2,193 * * 1,762 * * 1,762
Net cash (outflow)/inflow (55) 460 (325) 80 * * 1,187 * * 431
End of period 126 693 1,454 2,273 * * 2,949 * * 2,193
*NOTES TO THE UNAUDITED FINANCIAL STATEMENTS*
*1. General information*
Downing THREE VCT plc (“the Company”) is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.
*2. Accounting policies - Basis of accounting*
The unaudited half-yearly results cover the six months to 30 June 2020 and have been prepared in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” issued in February 2018 (“AIC SORP”) and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2019, which were prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (“FRS 102”).
*3. *All revenue and capital items in the Income Statement derive from continuing operations.
*4. *The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
*5. *The comparative figures are in respect of the six-month period ended 30 June 2019 and the year ended 31 December 2019 respectively.
*6. Dividends *
* * * * * * * *
*Six months ended*
*30 June 2020* * * *Year*
* ended*
*31 Dec*
*2019*
* * *Per share* * * *Revenue* *Capital* *Total* * * *Total*
*Paid in period* *pence* * * *£’000* *£’000* *£’000* * * *£’000*
* * * *
*‘F’ Shares *
Y/E Dec 2019 Interim 5.0p - - - 541 - - - 541
* *
*‘H’ Shares *
Y/E Dec 2019 Interim 5.0p - - - 670
Y/E Dec 2018 Final 5.0p - - - 669 - - - 1,339
*‘J’ Shares *
Y/E Dec 2019 Interim 2.5p 90 178 268 -
Y/E Dec 2019 Interim 2.5p - - - 267
Y/E Dec 2018 Final 2.5p - - - 267 90 178 268 534
*7. Basic and diluted return per share*
** ** *Weighted average number of shares in issue* * * * *
*Revenue*
*return/(loss)* * * * *
*Capital *
*return/(loss)* * * * *
*£’000* *Per share* * * * *
*£’000* *Per*
* share*
*‘F’ Shares* 10,821,660 (30) (0.3p) (609) (5.6p)
*‘H’ Shares* 13,389,758 217 1.6p (1,546) (11.5p)
*‘J’ Shares* 10,675,533 (158) (1.5p) (932) (8.7p)
* * 29 (3,087)
*8. Net asset value per share*
** ** *Shares in issue* * * *Net asset value* * * * * * *
*£’000* * * *Per Share*
* * * * * *
*‘F’ Shares* *10,821,660* * * 2,008 * * 18.5p
*‘H’ Shares* *13,389,758* * * 3,119 * * 23.3p
*‘J’ Shares* *10,675,533* * * 4,012 * * 37.6p
** ** ** ** * * 9,139 * *
*9. Reserves*
* * *Period ended*
* 30 June *
*2020* * * *Year ended *
*31 Dec*
* 2019*
* * *£’000* * * *£’000*
Capital redemption reserve 149 149
Special reserve 23,721 23,726
Revaluation reserve (10,191) (6,932)
Capital reserve - realised (4,448) (4,447)
Revenue reserve (127) (66) 9,104 12,430
The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £10,558,000 which are included in the calculation of distributable reserves. Total distributable reserves are £8,588,000 (31 Dec 2019: £11,400,000).
*10. *The fair value of investments is determined using the detailed accounting policy set out in the statutory accounts for the year ended 31 December 2019.
The Company has categorised its financial instruments using the fair value hierarchy as follows:
Level 1 Reflects financial instruments quoted in an active market;
Level 2 Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level 3 Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).
* *
* *
*Level*
*1* * *
* *
*Level 2* * *
* *
*Level 3* *Period *
*ended*
* 30 June*
* 2020* * * * *
* *
*Level*
*1* * *
* *
*Level*
* 2* * *
* *
*Level*
* 3* *Year *
*ended *
*31 Dec *
*2019* *£’000* *£’000* *£’000* *£’000* * * *£’000* *£’000* *£’000* *£’000*
Loan notes - - 1,943 1,943 - - 2,494 2,494
Unquoted equity
-
- 4,496 4,496
-
- 7,264 7,264 - - 6,439 6,439 - - 9,758 9,758
*11. *The unaudited condensed financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 December 2019 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor’s report on those financial statements was unqualified.
*12.* The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the “Statement: Half-Yearly Financial Reports” issued by the UK Accounting Standards Board as well as in accordance with FRS 104 Interim Financial Reporting and the half-yearly financial report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so. * *
*13. Risks and uncertainties*
Under the Disclosure and Transparency Directive, the Board is required, in the Company’s half-yearly results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year. The impact of the coronavirus pandemic has created heightened uncertainty but has not changed the nature of these risks.
The Board concluded that the key risks facing the Company over the remainder of the financial period are as follows:
i) Compliance risk of failure to maintain approval as a VCT; and
ii) Investment risk associated with investing in small and immature businesses.
The Company’s compliance with the VCT regulations is continually monitored by the Manager, who reports regularly to the Board on the current position. The Company has also reappointed Philip Hare & Associates LLP to provide regular reviews and advice in this area.
In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. The impact of the coronavirus pandemic has been significant on some portfolio companies and, in many cases, the VCT regulations restrict the Company from making further investment into these businesses, so the Manager seeks to provide whatever other support they can to these businesses, including encouraging them to take advantage of government support that may be available. The Company also has a limited period in which it must invest the majority of its funds. The Manager follows a rigorous process in vetting and carefully structuring new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business. The Board is satisfied that these approaches provide satisfactory management of the key risks.
*14. Going concern*
The Directors have reviewed the Company’s financial resources at the period end and conclude that the Company is well placed to manage its business risks despite the current economic outlook and impact of the COVID-19 pandemic that is still being experienced.
The Board confirms that it is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, the Board believes that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.
*15. *Copies of the unaudited half-yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company’s registered office or will be available for download from www.downing.co.uk.