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Octopus VCT 3 plc (OVC3)

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Thursday 11 December, 2014

Octopus VCT 3 plc

Octopus VCT 3 plc : Final Results

Octopus VCT 3 plc : Final Results

Octopus VCT 3 plc                           

Final Results

11 December 2014

Octopus VCT 3 plc, managed by Octopus Investments Limited, today announces its final results for the year ended 31 August 2014.

 

                                                                                                                       
Financial Summary

  As at
31 August 2014
As at
31 August 2013
     
Net assets (£'000s)  

7,481
 

7,818
Return on ordinary activities after tax (£'000s) 76 86
Net asset value (NAV) per share 90.5p 94.6p
Dividends paid in year 5.0p -
Total Return 95.5p 94.6p
Proposed final dividend for the year 5.0p 5.0p

The dividend of 5.0p per share will, if approved at the AGM, be paid on 13 February 2015 to shareholders on the register on 16 January 2015.

Chairman's Statement

Introduction
I am pleased to present the Annual Report of Octopus VCT 3 plc (the Company) for the year ended 31 August 2014.

Performance
During the period the Total Return (NAV plus cumulative dividends paid) of the Company has risen from 94.6 pence per share at 31 August 2013 to 95.5 pence per share at 31 August 2014, a positive return of 1.0%. Despite a small decrease in the value of the portfolio, this rise has occurred largely due to the loan interest receivable by the Company exceeding the running costs, which are capped at 2.15% of the Company's net assets.

As a reminder, the Net Asset Value (NAV) is designed to fall to zero over the life of the Company as the annual dividend is paid out, and consequently the value of the solar companies reduces as they approach the end of their 25 year operating lives.

The focus remains on paying the targeted 5p dividend each year and to date the underlying assets have been performing well. The focus is also on keeping the VCT fixed running costs as low as possible in order to maximise returns to investors.

Dividend Policy and Dividend

In line with the dividend policy stated in the Prospectus your Board has proposed a final dividend of 5p per share in respect of the year ended 31 August 2014. This dividend, if approved by shareholders at the AGM, will be paid on 13 February 2015 to shareholders on the register on 16 January 2015.

Investment Portfolio

The Company is fully invested into 7 companies, each containing an operational solar site. These sites have a range of capacities between 1-2MW and benefit from either the Feed In Tariff (FIT) or Renewables Obligation Certificates (ROCs), which form part of their revenue stream alongside the electricity they sell on the wholesale market. The sites have all been operating for between 18 months and 2 years. As already mentioned, the sites have been performing well and are slightly ahead of forecasts in terms of revenues, which they are now all receiving on a regular basis. The Board and Investment Manager remains satisfied with their performance.

There are no plans to make any further investments as the Company intends to hold the assets for their full operating lives of twenty five years.

Resignation and Appointment of Director

This will be my last Chairman's Statement as I have recently repatriated to Australia and, as a result, I shall be resigning from the Board on 31 December 2014. Gregor Michie will be appointed as Non-Executive Chairman with effect from that date. Gregor is an accomplished businessman with a wealth of experience and I am delighted that he is able to join the Board.

VCT Qualifying Status

PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice concerning ongoing compliance with HMRC rules and regulations concerning VCTs.  The Board has been advised that the Company is compliant with the conditions laid down by HMRC for maintaining provisional approval as a VCT. 

A key requirement is to achieve a 70% qualifying investment level prior to 31 August 2014. Encouragingly, as at 31 August 2014, 83.1% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments. The Board continues to be confident that the 70% target will be maintained on an ongoing basis.

Annual General Meeting

The Directors look forward to meeting as many shareholders as possible at our Annual General Meeting on Wednesday, 28 January 2015 to be held at the offices of Octopus Investments Limited, 33 Holborn, London, EC1N 2HT. The AGM will start at 4.00 p.m.

Outlook
The main variables in the medium to longer term which will potentially affect the performance over this period are the wholesale electricity price achieved by each site, as well as the weather experienced in any given year. Good summers, as experienced in 2014, could enable over-performance opportunities for the portfolio of sites.

The prospectus issued by the Company in 2011 indicated a target return at the five year point of 110p through NAV and accumulated dividends. The Manager has modelled a range of forecast returns that show this 110p being at the upper end of the range at five years, rather than the mid-range. However, it should be noted that a prudent approach is always taken when valuing the solar companies. Therefore, it may provide a slighter lower valuation than could be achieved if the assets were actually sold on the open market. In addition, it should be noted that there are a number of factors that could lead the sites to over perform such as technical enhancements and continued good weather over the summer months.

Overall, your Board and Investment Manager remain confident that the Company will achieve its objective of providing shareholders with a sustained and predictable level of income.

Raymond Greenshields
Chairman
10 December 2014

Investment Manager's Review

Personal Service
At Octopus we have a dual focus, on managing your investments and keeping you informed throughout the investment process.  We are committed to providing our investors with regular and open communication. Our updates are designed to keep you informed about the progress of your investment.

Octopus Investments Limited was established in 2000 and has a strong commitment to both smaller companies and to VCTs.  We currently manage 8 VCTs, including this VCT, and currently have over £4.9 billion of funds under management.  Octopus has over 300 employees.

Portfolio Review

The Company (or VCT) has invested in a portfolio of 7 individual solar companies, each of which owns and operates a solar site in the 1-2MW range. The first 5 sites have all been accredited for FIT and have just reached the second full year of operation since commissioning. The remaining 2 sites were accredited under ROCs and are at their 18 month milestone of operation. Accreditation had taken longer than expected for the solar site owned by Akycha Power Limited, but it was finally confirmed as FIT accredited in July 2014. This means that the valuation of Akycha has had a significant increase having previous been held at a lower, more cautious value.

Overall, since the start of operations the portfolio of 7 sites has been performing well, and is slightly up against forecasts. The general theme has been that the good performance over the summer months, due to the sunny weather experienced along with good technical performance of the sites, has made up for worse than anticipated winters, as well as any site related issues that may have temporarily affected returns. In addition, it is worth highlighting that the price the electricity produced by each site has achieved when sold on the wholesale market has also been greater than forecast, which is positive news.

Company Performance
As at 31 August 2014 the NAV stood at 90.5 pence per share, compared to 94.6 pence per share at 31 August 2013.
This anticipated decrease is a result of the revaluation of the solar assets, the deduction of Company running costs, as well as the payment of the first annual dividend - this is explained in more detail below. Overall, the higher than anticipated returns from the underlying portfolio of 7 companies have been slightly offset by the Company running costs, which are proportionately higher due to the smaller amount of funds under management than was originally targeted.

In the Half-Yearly Report, a section was included to provide the background to the first main NAV decrease. This will be a regular feature of the reports going forward so that the NAV between the inception of the Company and the date of the report can be 'tracked'. Again, by reviewing this extended period we endeavour to provide more clarity as to the nature of the movements on the NAV as it covers the full investment period through to the payment of any dividends, as well as the most recent asset revaluations.

The six months to 31 August 2014 has seen a considerable increase in the NAV since the interim report. This is largely due to an uplift in the value of the portfolio as a result of all the sites now being fully operational. In particular, the site owned by Akycha Power Limited received its final accreditation from Ofgem enabling it to be paid all of its accrued income which, in turn, will enable it to make loan interest payments to the Company. Overall the income received by the Company exceeded the running costs, which has also had a positive impact on the NAV.

As previously mentioned, it should be noted that despite the good performance of the underlying sites in the portfolio, which have provided the cash distributions to the Company, the fixed running costs of the Company have been slightly higher proportionately due to the smaller than anticipated fundraise into the VCTs in 2011/2012. However, we continue to review costs in order to keep these at a minimum and ensure the potential NAV is optimised.

In addition, the table below shows the movements between the previous NAV table provided in the previous Half-Yearly Report and this report:

Changes in NAV between February 2014 and August 2014
NAV at 28 February 2014 85.2p
Revaluation of solar companies 5.0p
Revenue from solar companies 1.9p
VCT running costs (1.6)p
NAV at 31 August 201490.5p

Company Outlook

More generally, no new investments are anticipated going forward given that the Company is now fully invested. The only exception is that any excess cash held by the Company may be invested via short term loans to other solar businesses, as and when required, in order to improve returns. The long term aim is to hold the existing assets for their full 25 year life. Now that all sites are up and running, with at least 18 months of operational history, there are not expected to be any material deviations from the sites' current cost and performance forecasts. The key variable, which is ultimately driving the value and returns of the underlying solar companies in the medium to longer term, is the price at which the electricity generated by the sites can be sold on the wholesale market. In addition, the levels of sunlight each year will play a part in the returns the investee companies can generate, especially over the summer period when production is typically at its peak.

If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2295.

Matt Setchell
Octopus Investments Limited
10 December 2014

Directors' Responsibilities Statement

The Directors are responsible for preparing the Strategic Report, Directors' Report, Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year.  Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws).  Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period.  In preparing these financial statements, the Directors are required to:

·       select suitable accounting policies and then apply them consistently;
·       make judgements and accounting estimates that are reasonable and prudent; and

  • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration report comply with the Companies Act 2006.  They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that:

  • so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
  • the Directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for preparing the annual report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the annual report and the financial statements, taken as a whole, provide the information necessary to assess the Company's performance, business model and strategy and is fair, balanced and understandable.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

To the best of our knowledge:

  • the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
  • the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Raymond Greenshields
Chairman
10 December 2014

Income Statement

    

 

 

Year ended 31 August 2014
 

 

 

Year ended 31 August 2013
    

Revenue
 

Capital
Total  

Revenue
 

Capital
Total
   £'000£'000£'000 £'000 £'000 £'000
         
Gain on disposal of fixed asset investments  -33 - 3 3
Loss on valuation of fixed asset investments  -(14)(14) - - -
            
Other income  317-317 307 - 307
            
Management fees  (14)(41)(55) (8) (25) (33)
Other expenses  (156)-(156) (177) - (177)
            
Profit/(loss) on ordinary activities before tax 147(52)95 122 (22) 100
            
Taxation on return on ordinary activities  (19)-(19) (14) - (14)
            
Profit/(loss) on ordinary activities after tax 128(52)76 108 (22) 86
Earnings per share - basic and diluted 1.6p(0.6)p1.0p 1.3p (0.3)p 1.0p
  • The 'Total' column of this statement is the profit or loss account of the Company; the supplementary 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.

Reconciliation of Movements in Shareholders' Funds

 

  

Year ended 31 August 2014
 

Year ended 31 August 2013
 £'000 £'000
Shareholders' funds at start of period7,818 7,732
Profit/(loss) on ordinary activities after tax 76 86
Dividends paid (413) -
Shareholders' funds at end of period7,481 7,818

Balance Sheet

 
  As at 31 August 2014 As at 31 August 2013
  £'000£'000 £'000 £'000
Fixed asset investments*   7,181   7,020
         
Current assets:        
Debtors  93  312  
Cash at bank  291  536  
   384  848  
Creditors: amounts falling due within one year  (84)  (50)  
Net current assets   300   798
Net assets  7,481   7,818
         
Called up equity share capital   83   83
Share Premium   99   99
Special Distributable Reserve   7,444   7,626
Capital Redemption Reserve   1   1
Capital Reserve - Unrealised   (14)   -
Capital Reserve - Realised   (132)   (94)
Revenue Reserve   -   103
Total shareholders' funds  7,481   7,818
Net asset value per share  90.5p   94.6p

*Held at fair value through profit or loss

The statements were approved by the Directors and authorised for issue on 10 December 2014 and are signed on their behalf by:

Raymond Greenshields
Chairman
Company No: 07744056

Cash Flow Statement    
   

Year ended 31 August 2014
Year ended 31 August 2013
  £'000 £'000
     
Net cash inflow/(outflow) from operating activities  

353
(110)
      
Taxation (13) -
      
Financial investment:      
Purchase of fixed asset investments  (225) (800)
Disposal of fixed asset investments  53 1,139
       
Dividends paid   (413) -
      
Increase in cash resources at bank (245) 229

Reconciliation of Return before Taxation to Cash Flow from Operating Activities
  Year ended 31 August 2014 Year ended 31 August 2013
  £'000 £'000
Profit/(loss) on ordinary activities before tax 95 100
Decrease/(increase) in debtors 219 (160)
Increase/(decrease) in creditors 28 (47)
Loss on valuation of fixed asset investments 14 -
Gain on disposal of fixed asset investments (3) (3)
Outflow from operating activities353 (110)

Reconciliation of Net Cash Flow to Movement in Net Funds
  Year ended 31 August 2014 Year ended 31 August 2013
  £'000 £'000
Decrease in cash resources at bank (245) 229
Opening net liquid resources 536 307
Net funds at 31 August 2014291 536

Net Funds at 31 August comprised:

  As at 31 August 2014 As at 31 August 2013
  £'000 £'000
Cash at bank 291 536
Net Funds at 31 August 2014291 536



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 3 plc via Globenewswire

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