Octopus VCT 3 plc Octopus Vct 3 Plc: Half-yearly Report
May 23 2017 - 1:18PM
UK Regulatory
TIDMOCV3
Octopus VCT 3 plc
Unaudited Half-Yearly Report for the Period Ended 28 February 2017
23 May 2017
Octopus VCT 3 plc, managed by Octopus Investments Limited, today
announces the Half-Yearly results for the period ended 28 February 2017.
These results were approved by the Board of Directors on 23 May 2017.
You may, in due course, view the Half-Yearly Report in full at
www.octopusinvestments.com. All other statutory information will also be
found there.
Financial Summary
Six months to Six months to
28 February 29 February Year to
2017 2016 31 August 2016
Net assets (GBP'000s) 6,061 6,443 6,605
Return on ordinary activities
after tax (GBP'000s) (132) (212) (49)
Net asset value per share 73.5p 78.1p 80.1p
("NAV")
Dividends paid since launch 20.0p 15.0p 15.0p
Total Value per share 93.5p 93.1p 95.1p
Chairman's Statement
I am pleased to present the half-yearly report for Octopus VCT 3 plc for
the period ended 28 February 2017.
Performance
The power generating companies which together comprise the portfolio
have been revalued to reflect current market conditions and the
reduction in their revenue generating lives since inception. To date
they have performed in line with expectations, and have made total
distributions of GBP1,651,000 (equivalent to 20 pence per share) to the
Company.
Due to the nature of the Company's investments, which have a planned 25
year life, the NAV is designed to fall to zero over the life of the
Company. This is because the Company intends to pay annual dividends and
the value of the investee solar companies reduces as their remaining
years of operation decline over time. Because of this factor and others
explained below the underlying NAV has decreased from 80.1 pence per
share at 31 August 2016 to 73.5 pence per share at 28 February 2017,
while the Total Value per share, including dividends paid to date of 20p
stands at 93.5p (down from 95.1p at 31 August 2016).
The majority of the reduction in NAV over the last 6 months is directly
attributable to the distribution of a 5p dividend to shareholders in
February 2017. The remainder of the drop in NAV can be mainly attributed
to the impact of the higher than expected running costs of the VCT as a
result of the small size of the funds with the final adjustment
reflecting the latest valuation of the assets during the period.
I am sorry to say that the targeted NAV of 90p at the five year point is
not going to be achieved. The primary reason is that the VCTs are
smaller than anticipated, and this has led to higher running costs as a
percentage of assets than expected. The other main causes are the
significant fall in projected power prices since the original investment
was made and the insolvency of Oskamera, the key developer for five out
of the seven sites, which led to some unbudgeted costs.
If forecast power prices do not recover, the continued payment of an
annual dividend of 5p over the complete life of the Company is under
threat. Forecast energy prices are volatile and this conclusion may
therefore change over time, but the current future forecast of energy
prices leads to a projection showing that the Company could pay an
annual dividend in the region of circa 4p until the end of the
investment horizon.
Please see the table below for movements in NAV from 31 August 2016 to
28 February 2017, including dividends paid during the period.
NAV changes since August 2016
NAV at 31 August 2016 80.1p
Cash distributions from SolarCos +2.6p
Revaluation of SolarCos -2.8p
VCT running costs -1.4p
Dividends paid -5.0p
NAV at 28 February 2017 73.5p
Investment Policy & Portfolio
The Company is fully invested in 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 over four years and have been
performing satisfactorily as a portfolio since the start of operations.
As mentioned in the Year End Financial Statements in August 2016, two
sites in the portfolio have previously experienced a number of technical
issues which have since been resolved. The work has now been completed
and the sites are expected to generate revenue in line with their
planned output.
The Company also holds a small portion of short term non-qualifying
loans from which it earns interest. Within the period under review
repayments were received in from Adala Solar (GBP88,750), Akycha Power
(GBP26,250), Daubree Energy (GBP40,500), Debes Energy (GBP25,000),
Delambre Energy (GBP12,500) and Lacaille Energy (GBP12,500), 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 can 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 28 February 2017, qualifying investments
represented 89.9% of the Company's portfolio. Octopus expects the
required investment hurdle to be maintained.
Outlook
As it stands today and as highlighted in the annual report for the year
ended 31 August 2016, the downward pressure on energy prices means that
maintenance of the 5p per annum dividend and achieving the total return
of 110p per share at the five year point is most unlikely. As a reminder,
the 110p total return comprises of the sum of four annual dividends of
5p each and targeted NAV of the solar assets of 90p at the five year
point (i.e. 5p x 4 + 90p = 110p).
The Board is mindful that investors will pass or have passed through
their five year VCT qualifying period in 2017. Whilst the fund was
established as a VCT with a 25 year limited life, the Board is aware
that some investors may wish to realise their investment earlier, once
outside their minimum five year VCT holding period.
Due to the sub-optimal size of the portfolio, the Company's ability to
satisfy any such requests risks having a significant detrimental effect
on the value for remaining shareholders. As such, the Board is currently
considering options to provide an equitable liquidity solution for all,
once all shareholders have passed through their five year VCT qualifying
holding period. This may include an earlier, orderly wind up of the VCT
through the sale of its assets and the return of capital to
shareholders. More information will be provided to shareholders in due
course.
Gregor Michie
Chairman
23 May 2017
Director's Responsibilities Statement
We confirm that to the best of our knowledge:
-- the half-yearly financial statements have been prepared in accordance
with Financial Reporting Standard 104 'Interim Financial Reporting'
issued by the Financial Reporting Council;
-- the half-yearly 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 first
six months of the financial year 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
first six 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
23 May 2017
Condensed Income Statement
Six months to 28 February Six months to 29 February
2017 2016 Year to 31 August 2016
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Loss on valuation of fixed
asset investments - (234) (234) - (233) (233) - (95) (95)
Investment Income 219 - 219 148 - 148 275 - 275
Investment management
fees (18) (6) (24) (6) (19) (25) (36) (12) (48)
Other expenses (93) - (93) (92) - (92) (169) - (169)
Profit/(loss) on ordinary
activities before tax 108 (240) (132) 50 (252) (202) 70 (107) (37)
Taxation on profit/(loss) on
ordinary activities - - - (10) - (10) (12) - (12)
Profit/(loss) on ordinary
activities after tax 108 (240) (132) 40 (252) (212) 58 (107) (49)
Earnings per share - basic
and diluted 1.3p (2.9)p (1.6)p 0.5p (3.1)p (2.6)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 half-yearly report.
Condensed Balance Sheet
As at 28 February As at 29 February As at 31 August
2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed asset
investments 6,029 6,395 6,468
Current assets:
Debtors 64 115 215
Cash at bank 60 34 25
124 149 240
Creditors:
amounts falling
due within one
year (92) (101) (103)
Net current
assets 32 48 137
Net assets 6,061 6,443 6,605
Called up equity
share capital 82 82 82
Share Premium 99 99 99
Special
Distributable
Reserve 6,337 6,692 6,749
Capital
Redemption
Reserve 2 2 2
Capital Reserve
Realised (162) (163) (156)
Capital Reserve
Unrealised (405) (309) (171)
Revenue Reserve 108 40 -
Total equity
shareholders'
funds 6,061 6,443 6,605
Net asset value 73.5p 78.1p 80.1p
per share
The statements were approved by the Directors and authorised for issue
on 23 May 2017 and are signed on their behalf by:
Gregor Michie
Chairman
Company Number: 07744056
Condensed Statement of Changes in Equity
Special Capital Capital
Share distri- redeemp- Capital reserve
Share Pre- butable tion reserve un- Revenue
Capital mium reserves reserve realised realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 September 2015 82 99 7,104 2 (144) (76) - 7,067
Management fee allocated as
capital expenditure - - - - (19) - - (19)
Current period losses on fair
value of investments - - - - - (233) - (233)
Profit on ordinary activities
after tax - - - - - - 40 40
Contributions by and
distributions to owners
Dividends paid - - (412) - - - - (412)
Balance as at 29 February
2016 82 99 6,692 2 (163) (309) 40 6,443
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
Management fee allocated as
capital expenditure - - - - (6) - - (6)
Current period losses on fair
value of investments - - - - - (234) - (234)
Profit on ordinary activities
after tax - - - - - - 108 108
Contributions by and
distributions to owners
Dividends paid - - (412) - - - - (412)
Balance as at 28 February 2017 82 99 6,337 2 (162) (405) 108 6,061
Condensed Cash Flow Statement
Six months to 28 Six months to 29 Year to 31
February 2017 February 2016 August 2016
GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
Return on ordinary
activities before tax (132) (202) (37)
Adjustments for:
Decrease/(increase) in
debtors 151 (9) (109)
(Decrease)/increase in
creditors (12) 14 34
Loss on valuation of fixed
asset investments 234 233 95
Cash from operations 241 36 (17)
Income taxes paid - - (19)
Net cash generated from
operating activities 241 36 (36)
Cash flows from investing
activities
Receipt of loan note
principal 206 317 381
Total cash flows from
investing activities 206 317 381
Cash flows from financing
activities
Dividends paid (412) (412) (413)
Total cash flows from
financing activities (412) (412) (413)
Increase/(decrease) in
cash and cash
equivalents 35 (59) (68)
Opening cash and cash
equivalents 25 93 93
Closing cash and cash
equivalents 60 34 25
Cash and cash equivalents
comprise
Cash at bank 60 34 25
60 34 25
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Octopus VCT 3 plc via Globenewswire
(END) Dow Jones Newswires
May 23, 2017 13:18 ET (17:18 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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