Octopus VCT 4 plc Octopus Vct 4 Plc : Half-yearly Report
May 23 2016 - 1:22PM
UK Regulatory
TIDMOCV4
Octopus VCT 4 plc
Unaudited Half-Yearly Report for the Period Ended 29 February 2016
23 May 2016
Octopus VCT 4 plc, managed by Octopus Investments Limited, today
announces the Half-Yearly results for the period ended 29 February 2016.
These results were approved by the Board of Directors on 23 May 2016.
You may, in due course, view the Half-Yearly Report in full at
www.octopusinvestments.com by navigating Investors, Octopus VCT 4 plc.
All other statutory information will also be found there.
Financial Summary
Six months to Six months to Year to
29 February 2016 28 February 2015 31 August 2015
Net assets (GBP'000s) 6,442 7,277 7,066
Return on ordinary
activities after tax
(GBP'000s) (212) 209 14
Net asset value per 78.1p 88.1p 85.7p
share ("NAV")
Dividends paid since 15.0p 10.0p 10.0p
launch
Total Value per share 93.1p 98.1p 95.7p
Chairman's Statement
I am pleased to present the half-yearly report for Octopus VCT 4 plc for
the period ended 29 February 2016.
Performance
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 85.7 pence per
share at 31 August 2015 to 78.1 pence per share at 29 February 2016,
while the Total Value per share, including dividends paid to date of 15p
stands at 93.1p (down from 95.7p at 31 August 2015).
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 GBP1,239,000 (equivalent to 12.5 pence per share) to
the Company.
The drop in NAV is slightly higher than expected because valuations have
been affected by falling power price forecasts in response to the
reduction in global demand for energy. Projected power prices over the
remaining life of the assets, as prepared by an industry expert, have
been applied to forecast revenues with the result that the targeted NAV
of 90p at the five year point is most unlikely to be achieved. In
addition, 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, so this conclusion
may change over time. The current forecast energy price leads to a
projection showing that the Company could pay an annual dividend of
circa. 4.4p until the end of the investment horizon.
Regarding revenue generation, the level of irradiance during the winter
months was lower than anticipated resulting in some under-performance
leading in turn to a reduction in revenues over the past six months. On
the other hand, the technical issues which affected two sites in the
portfolio are being resolved and production is gradually returning to
expected levels. Furthermore, the Company has entered into Power
Purchase Agreements (PPAs) for sale of electricity at a fixed price
which is higher than the current wholesale electricity price.
While recent performance has been below budget, revenue generated since
the start of operations is greater than that budgeted, due largely to
better than anticipated electricity revenues negotiated through the
fixed price PPAs.
Please see the table below for movements in NAV from 31 August 2015 to
29 February 2016, including dividends paid during the period.
NAV changes since August 2015
NAV at 31 August 2015 85.7p
Cash distributions from SolarCos +1.8p
Revaluation of SolarCos -2.8p
VCT running costs -1.6p
Dividends paid -5.0p
NAV at 29 February 2016 78.1p
The focus remains on generating revenues to pay the targeted 5p annual
dividend. In order to maintain returns to investors the fixed running
costs of the Company are carefully controlled, but the smaller than
anticipated amount of funds raised for the Company in 2011/2012 and the
resulting reduction in economies of scale leaves less margin for
protection of the dividend than would otherwise have been the case.
Investment Policy & Portfolio
The Company is fully invested into seven companies, each containing an
operational solar site. These sites have a range of capacities between 1
and 2MW 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 three years and have been
performing satisfactorily as a portfolio since the start of operations.
However, as mentioned in the Year End Financial Statements in August
2015, two sites in the portfolio had experienced a number of technical
issues which resulted in under-performance and loss of revenues for
those specific sites. The issues are being resolved and overall, the
portfolio companies are generating revenues in line with their forecasts
and receiving revenues on a regular basis.
There are no plans to make any further qualifying investments as the
Company intends to hold the assets for their full operating lives of 25
years.
The Company also holds a small portion of funds for making short term
non-qualifying loans from which it earns interest. Within the period
under review repayments were received in from Daubree Energy
(GBP172,000), Debes Energy (GBP102,000) and Lacaille Energy (GBP43,000),
together with accrued interest.
There has been a change in legislation by HM Treasury in response to
European regulations whereby the Company will no longer be able to make
non-qualifying investments. All new investments have to be qualifying
and there are restrictions on the type of investments used for liquidity
management. However, the existing holdings of non-qualifying loans to
Delambre Energy and Huygens Energy may continue until maturity.
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. Indeed all sites have now passed and signed off their
final acceptance certificates (full two year performance testing),
largely releasing the Engineering Procurement Construction of their
contractual obligations to the site. 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.
-- Business Rates -business rates are due to be assessed and determined by
October 2016. Currently, there is uncertainty over the potential impact
which this revaluation may have, but given the proportion of the site
operation costs it represents, it could affect future dividends and the
NAV.
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 29 February 2016, qualifying investments
represented 92.31% of the Company's portfolio. Octopus expects the
required investment hurdle to be maintained.
Outlook
Over the preceding six month period the oil and gas price, the key
market driver for the wholesale power price, has suffered a steep
decline and forecast electricity prices have followed suit. The negative
impact of low energy prices has affected the whole industry.
As it stands today and as highlighted in the annual report for the year
ended 31 August 2015, the downward pressure on energy prices means that
the 5p per annum dividend and the total return of 110p per share at the
five year point are under threat. 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).
It should be highlighted that the announcement by the Government in
respect of ending the various subsidy regimes for large scale solar PV
in the UK has had positive effect on the value of existing portfolio of
those assets which continue to attract the subsidy. Prospective buyers
of such assets have lowered their earnings expectations by a marginal
reduction in the discount rate they apply to purchases, and this has
been reflected in the valuation of the two ROC sites in your portfolio.
Graham Paterson
Chairman
23 May 2016
Responsibility Statement of the Directors in respect of the half-yearly
report
We confirm that to the best of our knowledge:
-- the half-yearly financial statements have been prepared in accordance
with the statement '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
Graham Paterson
Chairman
23 May 2016
Income Statement
Six months to 29 February Six months to 28 February
2016 2015 Year to 31 August 2015
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
Gain on disposal
of fixed asset
investments - - - - - - - - -
Loss on valuation
of fixed asset
investments - (233) (233) - 193 193 - (62) (62)
Other Income 148 - 148 156 - 156 309 - 309
Management fees (6) (19) (25) (12) (36) (48) (37) (12) (49)
Other expenses (92) - (92) (81) - (81) (165) - (165)
Profit/(loss) on
ordinary
activities before
tax 50 (252) (202) 63 157 220 107 (74) 33
Taxation on return
on ordinary
activities (10) - (10) (11) - (11) (19) - (19)
Profit/(loss) on
ordinary
activities after
tax 40 (252) (212) 52 157 209 88 (74) 14
Earnings per share
- basic and
diluted 0.5p (3.1)p (2.6)p 0.6p 1.9p 2.5p 1.1p (0.9)p 0.2p
There is no other comprehensive income for the period
-- 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 and from bank and money market
funds.
-- The Company has no recognised gains or losses other than the results for
the period as set out above.
-- The accompanying notes are an integral part of the half-yearly report.
Balance Sheet
As at 29 February As at 28 February
2016 2015 As at 31 August 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed asset
investments* 6,395 7,199 6,944
Current
assets:
Debtors 115 76 104
Cash at bank 33 82 92
148 158 196
Creditors:
amounts
falling due
within one
year (101) (80) (74)
Net current
assets 47 78 122
Net assets 6,442 7,277 7,066
Called up
equity share
capital 82 83 82
Share Premium 99 99 99
Special
Distributable
Reserve 6,689 7,029 7,101
Capital
Redemption
Reserve 2 1 2
Capital
Reserve -
Unrealised (309) 179 (76)
Capital
Reserve -
Realised (161) (166) (142)
Revenue
Reserve 40 52 -
Total
shareholders'
funds 6,442 7,277 7,066
Net asset 78.1p 88.1p 85.7p
value per
share
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue
on 23 May 2016 and are signed on their behalf by:
Graham Paterson Chairman
Company Number: 07743878
Statement of Changes in Equity
Capital
Special reserve
Share Share distributable - Capital redemption Revenue
Capital Premium reserves realised Capital reserve - unrealised reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1
September
2014 83 99 7,442 (130) (14) 1 - 7,481
Management fee
allocated as
capital
expenditure - - - (12) - - - (12)
Current period
losses on
fair value of
investments - - - - (62) - - (62)
Profit on
ordinary
activities
after tax - - - - - - 88 88
Contributions
by and
distributions
to owners
Repurchase of
own shares (1) - (16) - - 1 - (16)
Dividends paid - - (325) - - - (88) (413)
Balance as at
31 August
2015 82 99 7,101 (142) (76) 2 - 7,066
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 6,689 (161) (309) 2 40 6,442
Cash flow statement
Six months to 29 February 2016 Six months to 28 February 2015 Year to 31 August 2015
GBP'000 GBP'000 GBP'000
Cash flows from
operating activities
Return on ordinary
activities before
tax (202) 220 33
Adjustments for:
(Increase)/decrease
in debtors (11) 17 (13)
(Decrease)/increase
in creditors 16 (14) (5)
Gain/(loss) on
disposal of fixed
assets - - -
(Gain)/loss on
valuation of fixed
asset investments 233 (193) 62
Cash from operations 36 30 77
Income taxes paid - - (21)
Net cash generated
from operating
activities 36 30 56
Cash flows from
investing activities
Purchase of fixed
asset investments - - -
Receipt of loan note
principal 317 175 175
Total cash flows from
investing
activities 317 175 175
Cash flows from
financing activities
Purchase of own
shares - - (16)
Dividends paid (412) (413) (413)
Total cash flows from
financing
activities (412) (413) (429)
Decrease in cash and
cash equivalents (59) (208) (198)
Opening cash and cash
equivalents 92 290 290
Closing cash and cash
equivalents 33 82 92
This announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX 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 4 plc via Globenewswire
HUG#2014707
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May 23, 2016 13:22 ET (17:22 GMT)
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