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Tuesday, 28 November 2017

Octopus VCT 3 plc : Half-year Report

     

Published: 18:49 CET 28-11-2017 /GlobeNewswire /Source: Octopus VCT 3 plc / : OCV3 /ISIN: GB00B4KQKM77

Octopus VCT 3 plc : Half-year Report

Octopus VCT 3 plc

Unaudited Interim Report for the Period Ended 31 August 2017

 

28 November 2017                                                                                                                                                

 

Octopus VCT 3 plc, managed by Octopus Investments Limited, today announces the Interim results for the period ended 31 August 2017.

 

These results were approved by the Board of Directors on 28 November 2017.

 

You may, in due course, view the Interim Report in full at www.octopusinvestments.com. All other statutory information will also be found there.

 

Financial Summary

The Company has extended the financial year end from 31 August 2017 to 28 February 2018. As the accounting period is beyond 14 months there is a requirement to produce an Interim report.

 

 

 

Six months to 

31 August 2017

Year to 

31 August 2017

Six months to 

31 August 2016

Year to

31 August 2016

 

 

 

 

 

Net assets (£'000s)

6,125

6,125

6,605

6,605

Return on ordinary activities after tax (£'000s)

65

(67)

163

(49)

Net asset value per share ("NAV")

74.3p

74.3p

80.1p

80.1p

Dividends paid since launch

20.0p

20.0p

15.0p

15.0p

Total value per share

94.3p

94.3p

95.1p

95.1p

 

 

 

 

 

 

Chairman's Statement

 

I am pleased to present the Interim report for Octopus VCT 3 plc for the period ended 31 August 2017.

 

Update on the Sale Process

The Company was established as a VCT with a 25 year limited life. Earlier in the year, having passed the initial five year VCT holding period, a number of Shareholders had expressed a desire to exit their investment. However, due to the sub-scale fund size, providing liquidity to those Shareholders would have resulted in a material detrimental effect on the returns to remaining Shareholders. The Board undertook a strategic review and concluded that the best outcome for all Shareholders would be an orderly wind up of the Company through the sale of the assets and a return of capital to all Shareholders and for the Company to be voluntarily wound up. The Board believes this is the best way to realise value for Shareholders and provide an equitable liquidity solution for all.

 

On 9 August 2017 Shareholders approved a proposal for the Board to conduct an orderly wind up of the VCT through the sale of its assets and to return capital to shareholders. The Investment Manager has been managing the sales process with approvals from the Board in each phase. Several bids have been received for the portfolio and the team have been assessing the offers. The Investment Manager intends to recommend a preferred bidder to the Board and, if approved, enter into a final bilateral phase of negotiations and diligence with that bidder with a target completion date in the next few months.

Performance
The power generating companies, which together comprise the portfolio, have been revalued to be consistent with the conservative valuation methodology in line with the International Private Equity and Venture Capital (IPEV) guidelines. From the market sounding, the Board has noted a keen interest in the assets and positive variance between current valuations and the buyers' offers.

 

During the 6 months to 31 August 2017 the underlying NAV has increased from 73.5p per share to 74.3p per share, while the Total Value per share, which includes the underlying NAV and dividends paid to date of 20p stands at 94.3p (an increase from 93.5p at 28 February 2017). The increase in NAV is due to additional income received. Dividends totalling £1,651,000 (equivalent to 20p per share) have been paid to date. No further dividends have been paid since February 2017.

 

The valuation has been impacted by a fall in long term electricity price forecasts, but this has been offset by lower operating and maintenance costs negotiated by the Investment Management team. Since inception, the portfolio of assets have been performing in line with budget, despite the insolvency of a key developer for five of the seven sites which had resulted in operational difficulties. These technical issues have since been fully resolved and the assets have managed to generate revenue above budget by entering purchase power agreements ("PPAs") above market electricity prices.

 

Please see the table below for movements in NAV from 28 February 2017 to 31 August 2017, including dividends paid during the period.

 

NAV changes since February 2017

NAV at 28 February 2017

73.5p

Cash distributions from SolarCos

+1.9p

Revaluation of SolarCos

+0.7p

VCT running costs

-1.8p

NAV at 31 August 2017

74.3p

 

Investment Policy & Portfolio

The Company is fully invested into seven companies, each containing an operational solar site. These sites have a range of capacities around 1MW and benefit from either the Feed in Tariff (FIT) or Renewable Obligations Certificates (ROCs), which form part of their revenue stream alongside the electricity they sell on the wholesale market.

 

The sites have been operating for five years and have been performing satisfactorily as a portfolio since the start of operations. Remedial works have now been completed on all the five sites where the previous Engineering, Procurement and Construction contractor ("EPC") became insolvent.

 

The Company also holds a small portion of short term non-qualifying loans from which it earns interest. This has no impact on the overall VCT qualification. Within the period under review repayments were received from Adala Solar (£50,000), Akycha Power (£59,375), Daubree Energy (£15,000) and Debes Energy (£15,000), together with accrued interest.

 

Cash and Liquid Resources

Cash is held on deposit with HSBC. As the Company is fully invested the amount of cash held by the Company at the period end is modest. Cash is paid from the solar companies up to the Company as and when needed to fund expenditure or pay dividends and the Company therefore currently holds no other deposit accounts or money market funds.

 

Principal Risks and Uncertainties

Now that the Company owns a portfolio of fully operational assets the number of risks faced is reduced as the core construction phases have been completed. The key risks on the ongoing operations are:

 

  • Power Prices - Revenues are derived from two sources; first, the Government backed subsidies such as the FIT or ROCs and secondly; from selling the wholesale electricity produced by the solar sites. The wholesale electricity revenues, which represent over 40% of the total revenues are variable and will be subject to market forces. The Investment Team uses industry recognised forecasts to predict the electricity prices for the life of the sites. It also mitigates price fluctuations in the short term via forward selling the electricity by Power Purchase Agreements (PPAs) to reduce income volatility. However, it should be noted that long term power price forests can rise and fall, and therefore can have an impact on the value or NAV of the underlying solar sites.
  • Site Technical Issues - all sites are potentially vulnerable to unforeseen technical issues and, to the extent possible, all equipment is warranted to industry standard levels. In addition, each site has insurance in place so that, in the event of a fault occurring that causes the plant temporarily to cease operating and generating revenues, the insurance coverage may be invoked to claim for such losses.
  • Weather - all forecasts are based on an assumed level of sunlight each year, but this does vary significantly year-on-year, with a concomitant effect on revenues. However, a prudent approach is taken in the revenue forecasting to reduce the likelihood of this occurring.
  • Site Market Value - there are a number of drivers of the value of a solar site. Underlying assumptions are continually revised for macroeconomic changes (e.g. inflation), industry specific drivers (e.g. electricity price forecasts, business rates, embedded benefits) and track record of specific site performance.

 

VCT Qualifying Status

PricewaterhouseCoopers LLP provides the Board and Octopus, the Company's Investment Manager, with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs.  The Company's portfolio already exceeds the HMRC threshold which requires that 70% of the VCT's investments must comprise 'qualifying holdings' by the end of its third accounting period. As at 31 August 2017, qualifying investments represented 86.5% of the Company's portfolio. Octopus expects the required investment hurdle to be maintained.

 

Outlook

From the competitive process, there has been a keen interest shown in the portfolio assets. The Investment Manager has entered into advanced negotiations regarding the sale of the assets and it is possible that these negotiations may result in a positive variance to the valuations presented in this report. In order to achieve the best outcome for our shareholders in the competitive sale process, it is probable that the process may take longer than anticipated, and therefore, it is currently not possible to give a precise date for completion. 

 

 

Gregor Michie

Chairman

28 November 2017

 

 

Director's Responsibilities Statement

 

We confirm that to the best of our knowledge:

 

  • the Interim financial statements have been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting' issued by the Financial Reporting Council;

 

  • the Interim report includes a fair review of the information required by the Financial Conduct Authority Disclosure and Transparency Rules, being:

 

  • an indication of the important events that have occurred during the twelve months and their impact on the condensed set of financial statements;
     
  • a description of the principal risks and uncertainties for the remaining six months of the year; and
     
  • a description of related party transactions that have taken place in the twelve months of the current financial year, that may have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last annual report that could do so.

 

On behalf of the Board

 

 

Gregor Michie

Chairman

28 November 2017

 

 

 

Condensed Income Statement

 

 

 

 

 

 

Unaudited

Six months to 31 August 2017

Unaudited

Six months to 31 August 2016

 

Revenue

Capital

Total

Revenue

Capital

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on valuation of fixed asset investments

-

61

61

-

138

138

 

 

 

 

 

 

 

Investment income

158

-

158

127

-

127

 

Investment management fees

(20)

(7)

(27)

(30)

7

(23)

 

 

 

 

 

 

 

Other expenses

(127)

-

(127)

(77)

-

(77)

 

 

 

 

 

 

 

Profit/(loss) on ordinary activities before tax

11

54

65

20

145

165

 

 

 

 

 

 

 

Taxation on profit/(loss) on ordinary activities

-

-

-

(2)

-

(2)

 

 

 

 

 

 

 

Profit/(loss) on ordinary activities after tax

11

54

65

18

145

163

Earnings per share - basic and diluted

0.1p

0.6p

0.7p

0.2p

1.8p

2.0p

 

 

 

 

 

Unaudited

Year to 31 August 2017

Audited

Year to 31 August 2016

 

Revenue

Capital

Total

Revenue

Capital

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on valuation of fixed asset investments

-

(173)

(173)

-

(95)

(95)

 

 

 

 

 

 

 

Investment income

377

-

377

275

-

275

 

Investment management fees

(38)

(13)

(51)

(36)

(12)

(48)

 

 

 

 

 

 

 

Other expenses

(220)

-

(220)

(169)

-

(169)

 

 

 

 

 

 

 

Profit/(loss) on ordinary activities before tax

119

(186)

(67)

70

(107)

(37)

 

 

 

 

 

 

 

Taxation on profit/(loss) on ordinary activities

-

-

-

(12)

-

(12)

 

 

 

 

 

 

 

Profit/(loss) on ordinary activities after tax

119

(186)

(67)

58

(107)

(49)

Earnings per share - basic and diluted

1.4p

(2.3)p

(0.9)p

0.7p

(1.3)p

(0.6)p

 

  • The 'Total' column of this statement is the profit and loss account of the Company; the revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies.
  • All revenue and capital items in the above statement derive from continuing operations.
  • The Company has only one class of business and derives its income from investments made in shares and securities.
  • The company has no other comprehensive income for the period.
  • The accompanying notes are an integral part of the Interim report.

 

 

Condensed Balance Sheet

 

 

 

 

 

 

Unaudited

As at 31 August 2017

Audited

As at 31 August 2016

 

 

£'000

£'000

£'000

£'000

 

Fixed asset investments

 

-

 

6,468

 

Current assets:

 

 

 

 

 

Fixed asset investments

 

6,001

 

-

 

Debtors

97

 

215

 

 

Cash at bank

170

 

25

 

 

 

267

 

240

 

 

Creditors: amounts falling due within one year

(143)

 

(103)

 

 

Net current assets

 

124

 

137

 

Net assets

 

6,125

 

6,605

 

 

 

 

 

 

 

Called up equity share capital

 

82

 

82

 

Share Premium

 

99

 

99

 

Special Distributable Reserve

 

6,455

 

6,749

 

Capital Redemption Reserve

 

2

 

2

 

Capital Reserve Realised

 

(169)

 

(156)

 

Capital Reserve Unrealised

 

(344)

 

(171)

 

Revenue Reserve

 

-

 

-

 

Total equity shareholders' funds

 

6,125

 

6,605

 

Net asset value per share

 

74.3p

 

80.1p

 

 

 

The statements were approved by the Directors and authorised for issue on 28 November 2017 and are signed on their behalf by:

 

 

Gregor Michie

Chairman

 

 

Company Number: 07744056


 

Condensed Statement of Changes in Equity

 

 

Share
Capital

Share
Premium

Special
distributable
reserves

Capital
redemption
reserve

Capital
reserve
realised

Capital
reserve
unrealised

 

Revenue
reserve

Total

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

As at 1 September 2015

82

99

7,104

2

(144)

(76)

-

7,067

 

 

Management fee allocated
as capital expenditure

-

-

-

-

(12)

-

-

(12)

 

 

Current period losses
on fair value of investments

-

-

-

-

-

(95)

-

(95)

 

 

Profit on ordinary
activities after tax

-

-

-

-

-

-

58

58

 

 

Contributions by
and distributions to owners

 

 

 

 

 

 

 

 

 

 

Dividends paid

-

-

(355)

-

-

-

(58)

(413)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as at
31 August 2016

82

99

6,749

2

(156)

(171)

-

6,605

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 September 2016

82

99

6,749

2

(156)

(171)

-

6,605

 

 

 

Management fee allocated
as capital expenditure

-

-

-

-

(13)

-

-

(13)

 

 

Current period losses
on fair value of investments

 

-

 

-

 

-

 

-

 

-

 

(173)

 

-

 

(173)

 

 

Profit on ordinary
activities after tax

-

-

-

-

-

-

119

119

 

 

Contributions by and
distributions to owners

 

 

 

 

 

 

 

 

 

 

Dividends paid

-

-

(294)

-

-

-

(119)

(413)

 

 

Balance as at 31 August 2017

82

99

6,455

2

(169)

(344)

-

6,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Cash Flow Statement

 

 

 

Unaudited

Year to 31 August 2017

£'000

  Audited Year to 31  August 2016

£'000

 

 

 

 

Cash flows from operating activities

 

 

 

Return on ordinary activities before tax

 

(67)

(37)

Adjustments for:

 

 

 

Decrease/(increase) in debtors

 

118

(109)

Increase in creditors

 

51

34

Loss on valuation of fixed asset investments

 

173

95

Cash from operations

 

275

(17)

Income tax paid

 

(11)

(19)

Net cash generated from operating activities

 

264

(36)

 

 

 

 

Cash flows from investing activities

 

 

 

Receipt of loan note principal

 

294

381

Total cash flows from investing activities

 

294

381

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid

 

(413)

(413)

Total cash flows from financing activities

 

(413)

(413)

 

 

 

 

Increase/(decrease) in cash and cash equivalents

 

145

(68)

 

 

 

 

Opening cash and cash equivalents

 

25

93

 

 

 

 

Closing cash and cash equivalents

 

170

25

 

 

 

 

Cash and cash equivalents comprise

 

 

 

Cash at bank

 

170

25

 

 

170

25

 

Condensed Notes to the Interim Report

 

1. Accounting Policies   

1.1 Basis of preparation

The Company has extended the financial year end from 31 August 2017 to 28 February 2018. As the accounting period is beyond 14 months there is a requirement to produce an Interim report. The unaudited interim results have been prepared in accordance with the Financial Reporting Council's (FRC) Financial Reporting Standard 104 Interim Financial Reporting (March 2015) and the Statement of Recommended Practice for Investment Companies re-issued by the Association of Investment Companies in January 2017.

 

1.2 Going concern

On 9 August 2017 Shareholders approved a proposal for the Board to conduct an orderly wind up of the VCT through the sale of its assets and return capital to shareholders.  The sale of these assets is expected to occur within the next few months therefore the Directors do not consider it is appropriate to continue to prepare the accounts on a going concern basis and the financial statements have been prepared on a break up basis.

 

The impact on the financial statements is that fixed assets have been transferred to current assets and a provision is recognised for the expected costs of liquidation. As the shareholders have approved the disposal of the Company's assets there is a constructive obligation to recognise this provision and the provision is probable and can be reliably estimated. 

 

2. Publication of non-statutory accounts

The unaudited interim results do not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006.

 

3. Earnings per share

Earnings per share at 31 August 2017 are calculated on the basis of 8,245,592 shares (31 August 2016: 8,245,592 shares), being the weighted average number of Ordinary shares in issue during the period.

 

There are no potentially dilutive capital instruments in issue and therefore no diluted returns per share figures are relevant. The basic and diluted earnings per share are therefore identical.

 

4. Net asset value per share

Net asset value per share is based on net assets as at 31 August 2017 and 8,245,592 Ordinary shares in issue at that date (31 August 2016: 8,245,592 shares).

 

5. Dividends

A final dividend, for the year ended 31 August 2016, of 5.0 pence per share was paid on 10 February 2017 to all shareholders on the register on 13 January 2017. No dividend is proposed for the period ended 31 August 2017.

 

6. Related Party Transactions

Katrina Shenton, a non-executive director of Octopus VCT 3 plc during the period ended 31 August 2017, was an employee of Octopus. Octopus VCT 3 plc paid Octopus £7,500 excluding VAT in the period for Katrina Shenton's Director's fees (31 August 2016: £7,500). However Katrina Shenton was not paid anything personally in the period as this was considered to be a normal part of her role as an Octopus employee.

 

Octopus provides investment management, administration and accounting services and company secretarial services to the Company under a management agreement which runs for a period of five years with effect from 17 August 2011 and may be terminated at any time thereafter by not less than twelve months' notice given by either party.  No compensation is payable in the event of terminating the agreement by either party if the required notice period is given.  The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided.

 

Octopus is entitled to receive an annual management fee of 1.25% of net funds raised. However, as the running costs for the fund are capped at 2.15% of the net funds raised, any excess will be met by Octopus through a reduction in its annual management fee. In light of this, during the 6 months to 31 August 2017, management fees in the sum of £27,000 is reflected in the condensed income statement, resulting in an annual management fee for the year to 31 August 2017 of £51,000, of which £51,000 remained outstanding at the balance sheet date. For the year to 31 August 2016, £48,000 was payable to Octopus, of which £nil remained outstanding at the balance sheet date.


Octopus is also entitled to receive an annual accounting and administration fee of 0.3% of net funds raised. During the period to 31 August 2017 £23,000 was paid to Octopus and there was £23,000 outstanding at the balance sheet date.
For the year to 31 August 2016, £22,000 was payable to Octopus and £nil remained outstanding at the balance sheet date.

 

In addition, Octopus also provides company secretarial services for an additional fee of £7,500 per annum. For the period to 31 August 2017, £7,500 was payable to Octopus and £7,500 remained outstanding at the balance sheet date. For the year to 31 August 2016, £7,500 was payable to Octopus and £nil remained outstanding at the balance sheet date. 

 

Octopus VCT 3 plc owns 49.9% of the equity in each of its investee companies, with Octopus VCT 4 plc also owning 49.9%. The remainder of the equity in each investee company is owned by OCS Services Limited, a wholly owned subsidiary of Octopus Capital Limited.

 

7. Other Information

Copies of this report are available from the registered office of the Company at 33 Holborn, London, EC1N 2HT.

 





This announcement is distributed by Nasdaq Corporate Solutions (One Liberty Plaza, 165 Broadway, New York, NY 10006. Tel: +1 212 401 8700. www.nasdaqomx.com) on behalf of Nasdaq Corporate Solutions clients. Source: Octopus VCT 3 plc, 20 Old Bailey, London EC4M 7AN, UK
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