TIDMOCV3
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 Year to 31 Six months to Year to 31
31 August 2017 August 2017 31 August 2016 August 2016
Net assets
(GBP'000s) 6,125 6,125 6,605 6,605
Return on
ordinary
activities
after tax
(GBP'000s) 65 (67) 163 (49)
Net asset 74.3p 74.3p 80.1p 80.1p
value per
share
("NAV")
Dividends 20.0p 20.0p 15.0p 15.0p
paid since
launch
Total value 94.3p 94.3p 95.1p 95.1p
per share
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 GBP1,651,000 (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 (GBP50,000), Akycha Power (GBP59,375), Daubree
Energy (GBP15,000) and Debes Energy (GBP15,000), 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 Unaudited
Six months to 31 August 2017 Six months to 31 August 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 0.1p 0.6p 0.7p 0.2p 1.8p 2.0p
and diluted
Unaudited Audited
Year to 31 August 2017 Year to 31 August 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Audited
As at 31 August 2017 As at 31 August 2016
GBP'000 GBP'000 GBP'000 GBP'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
Special Capital Capital Capital
Share Share distributable redemption reserve reserve Revenue
Capital Premium reserves reserve realised unrealised 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 - - - - (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 (173)
value of investments - - - - - (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 Audited Year to 31 August 2016
GBP'000 GBP'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 GBP7,500 excluding VAT in the period for Katrina
Shenton's Director's fees (31 August 2016: GBP7,500). 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 GBP27,000 is
reflected in the condensed income statement, resulting in an annual
management fee for the year to 31 August 2017 of GBP51,000, of which
GBP51,000 remained outstanding at the balance sheet date. For the year
to 31 August 2016, GBP48,000 was payable to Octopus, of which GBPnil
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 GBP23,000 was paid to Octopus and there was GBP23,000
outstanding at the balance sheet date. For the year to 31 August 2016,
GBP22,000 was payable to Octopus and GBPnil remained outstanding at the
balance sheet date.
In addition, Octopus also provides company secretarial services for an
additional fee of GBP7,500 per annum. For the period to 31 August 2017,
GBP7,500 was payable to Octopus and GBP7,500 remained outstanding at the
balance sheet date. For the year to 31 August 2016, GBP7,500 was payable
to Octopus and GBPnil 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 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
November 28, 2017 12:49 ET (17:49 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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