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Octopus VCT 3 plc (OVC3)

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Wednesday 24 April, 2013

Octopus VCT 3 plc

Octopus VCT 3 plc : Half-yearly report

Octopus VCT 3 plc : Half-yearly report

Octopus VCT 3 plc 

 

Unaudited Half-Yearly Report for the Period Ended 28 February 2013

Company Number: 07744056

 

24 April 2013                                                                                                                                                            

Octopus VCT 3 plc, managed by Octopus Investments Limited, today announces the Half-Yearly results for the period ended 28 February 2013.

These results were approved by the Board of Directors on 24 April 2013.

 

 

 About Octopus VCT 3 plc

Octopus VCT 3 plc ('OVCT 3', 'Company' or 'Fund') is a venture capital trust ('VCT') with a portfolio of investments in the renewable energy sector, with a particular focus on solar energy where the Investment Manager is confident that investments can be structured with a relatively high level of capital preservation and the ability to achieve a sustained and reasonable level of highly predictable income.

OVCT 3 was incorporated on 17 August 2011 with the first allotment of equity being on 6 March 2012. The total amount raised by 18 May 2012 was £8.2 million. The Offer for new subscriptions for shares closed on 19 June 2012. Whilst OVCT 3 has the ability to invest in a variety of sectors and technologies, the focus has been in the renewable energy sector, and, in particular, on solar energy.

Venture Capital Trusts (VCTs)

VCTs were introduced in the Finance Act 1995 to provide a means for private individuals to invest in unquoted companies in the UK.  Subsequent Finance Acts have introduced changes to VCT legislation. The tax benefits currently available to eligible new investors in VCTs include:

  • up to 30% up-front income tax relief;
  • exemption from income tax on dividends paid; and
  • exemption from capital gains tax on disposals of shares in VCTs.

OVCT 3 has been provisionally approved as a VCT by HM Revenue & Customs ('HMRC'). In order to maintain its approval the VCT must comply with certain requirements on a continuing basis.  By the end of its third accounting period at least 70% of the VCT's investments must comprise 'qualifying holdings' of which at least 70% must be in eligible Ordinary shares. A 'qualifying holding' consists of up to £5 million invested in any one year in new shares or securities in an unquoted company (or companies quoted on AIM) which is carrying on a qualifying trade and whose gross assets do not exceed a prescribed limit at the time of investment. The definition of a 'qualifying trade' excludes certain activities such as property investment and development, financial services and asset leasing. As at 28 February 2013, qualifying investments represented 95.5% of the Company's portfolio. OVCT 3 will continue to ensure its compliance with these qualification requirements.

Financial Summary

Six months to
28 February 2013
Period to 29 February 2012 Period to
31 August 2012
Net assets (£'000s) 7,737 50 7,732
Return on ordinary activities after tax (£'000s) 5 - (77)
Net asset value per share ("NAV") 93.6p 100.0p 93.6p

Chairman's Statement

I am delighted to present to you the half-yearly report for Octopus VCT 3 plc for the period ended 28 February 2013.

Performance
During the period since the year end the Net Asset Value (NAV) of the Company has remained consistent at 93.6p per share. This is due to the portfolio valuation being unchanged in the period, with investments remaining valued at cost, in accordance with the International Private Equity and Venture Capital ("IPEVC") valuation guidelines, with the exception of Kushida Power Limited, which was written down in the year ended 31 August 2012. Income has exceeded running costs by £5,000 in the period which has had a marginal impact on the NAV.

Investment Policy and Portfolio
The Company has invested, and will continue to invest, into a portfolio of unquoted companies where the focus will be predominantly in the solar sector. These solar investments will typically be 1-5 Mega Watt solar farms in the UK which either benefit from UK Government Feed In Tariffs or Renewable Obligation Certificates.

To date, £7.4 million has been invested into 8 solar companies which have either successfully constructed solar power units that have been connected to the National Grid, or are seeking to do so.

In the period under review, the Company disposed of qualifying loans in Akycha Power Limited, Adala Solar Limited and Kushida Power Limited to the value of £250,000, £125,000 and £239,190 respectively. The cash generated from these disposals was reinvested in non-qualifying loans of £250,000 in Delambre Energy Limited and £405,000 in Huygens Limited.

Cash and Liquid Resources

Cash not yet invested is held on deposit with HSBC. The funds raised at launch are almost fully invested resulting in the modest levels of cash in the Company at the period end. In light of this the Company currently holds no other deposit accounts or money market funds in which excess cash could be deposited.

Principal Risks and Uncertainties
Risks faced by Octopus VCT 3 include economic, investment and strategic, regulatory, reputational, operational and financial risks. These risks and the ways in which they are managed are described in more detail in the Company's Annual Report and Accounts for the period ended 31 August 2012.

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. In fact, as at 28 February 2013, qualifying investments represented 95.5% of the portfolio. Octopus does not foresee any issues with maintaining the required investment hurdle of 70% up to and beyond the end of the Company's third accounting period.

Outlook
There remains continued uncertainty in the UK about the sustainability of the economic recovery, and the outlook for the public finances and inflation. However, whilst your Investment Manager will conduct the management of the Company with this in mind, the investments made to date are largely independent of the wider macro-economic environment. In particular, the income from the solar plants is index linked and guaranteed for at least 20 years.

Against this background 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.

I shall be writing to you again at the year end to provide a more detailed review of the portfolio.

Raymond Greenshields
Chairman
24 April 2013

Investment Portfolio

Investments SectorInvestment cost as at 28 February 2013 (£'000)Movement in fair value to 28 February 2013 (£'000)Fair Value as at 28 February 2013 (£'000)Movement in period (£'000)% equity held by Octopus VCT 3 plc% equity held by all funds managed by Octopus
Delambre Energy Limited Solar 1,250 - 1,250 - 49.9% 100.0%
Huygens Energy Limited Solar 1,202 - 1,202 - 49.9% 100.0%
Daubree Energy Limited Solar 1,000 - 1,000 - 49.9% 100.0%
Debes Energy Limited Solar 1,000 - 1,000 - 49.9% 100.0%
Adala Solar Limited Solar 875 - 875 - 49.9% 100.0%
Lacaille Energy Limited Solar 797 - 797 - 49.9% 100.0%
Akycha Power Limited Solar 750 - 750 - 49.9% 100.0%
Kushida Power Limited Solar 559 (36) 523 - 49.9% 100.0%
Fixed asset investments 7,433(36)7,397-
Cash at bank              309
Debtors less creditors                31
Total net assets7,737

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 'Half-Yearly Financial Reports' issued by the UK Accounting Standards Board;
     
  • 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

Raymond Greenshields
Chairman
24 April 2013

Income Statement

Six months to 28 February 2013 Period to 29 February 2012 Period to 31 August 2012
RevenueCapitalTotal Revenue Capital Total Revenue Capital Total
£'000£'000£'000 £'000 £'000 £'000 £'000 £'000 £'000
Loss on valuation of fixed asset investments --- - - - - (36) (36)
Income 153-153 - - - 150 - 150
Investment management fees (11)(33)(44) - - - (12) (36) (48)
Other expenses (104)-(104) - - - (143) - (143)
Profit/(loss) on ordinary activities before tax38(33)5 - - - (5) (72) (77)
Taxation on profit/(loss)  on ordinary activities --- - - - - - -
Profit/(loss) on ordinary activities after tax38(33)5 - - - (5) (72) (77)
Profit/(loss) per share - basic and diluted0.4p(0.4)p0.0p - -               - (0.1)p (2.1)p (2.2)p
  • The 'Total' column of this statement is the profit and 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.
  • The accompanying notes are an integral part of the half-yearly report.
Reconciliation of Movements in Shareholders' Funds
Six months ended
28 February 2013
Period ended
29 February 2012
Period ended
31 August 2012
£'000 £'000 £'000
Shareholders' funds at start of period7,732 - -
Return on ordinary activities after tax 5 - (77)
Issue of equity (net of expenses) - 50 7,909
Buy back of shares - - (100)
Shareholders' funds at end of period7,737 50 7,732

Balance Sheet
As at 28 February 2013 As at 29 February 2012 As at 31 August 2012
£'000£'000 £'000 £'000 £'000 £'000
Fixed asset investments* 7,397 - 7,356
Current assets:
Debtors 90 50 152
Cash at bank 309 3,267 307
399 3,317 459
Creditors: amounts falling due within one year (59) (3,267) (83)
Net current assets 340 50 376
Net assets7,737 50 7,732
Called up equity share capital 83 50 83
Share Premium 99 - 99
Special Distributable Reserve 7,626 - 7,626
Capital Redemption Reserve 1 - 1
Capital Reserve - Unrealised (36) - (36)
Capital Reserve - Realised (69) - (36)
Revenue Reserve 33 - (5)
Total equity shareholders' funds7,737 50 7,732
Net asset value per share93.6p 100.0p 93.6p

*Held at fair value

The statements were approved by the Directors and authorised for issue on 24 April 2013 and are signed on their behalf by:

Raymond Greenshields
Chairman

Company Number: 07744056

Cash flow statement
Six months to
28 February 2013
Period to
29 February 2012
Period to 31 August 2012
£'000 £'000 £'000
Net cash inflow/(outflow) from operating activities43 3,217 (110)
Financial investment:
Purchase of fixed asset investments (655) - (7,392)
Sale of fixed asset investments 614 - -
Management of liquid resources:
Purchase of current asset investments - - -
Sale of current asset investments - - -
Financing:
Issue of equity - 50 8,310
Share issue expenses - - (401)
Buy back of shares - - (100)
Increase in cash resources at bank2 3,267 307

                  

Six months to
28 February 2013
Period to
29 February 2012
Period to 31 August 2012
Profit/(loss) on ordinary activities before tax 5 - (77)
Decrease/(increase) in debtors 62 (50) (152)
(Decrease)/increase in creditors (24) 3,267 83
Loss on valuation of fixed asset investments - - 36
Inflow/(outflow) from operating activities43 3,217 (110)
     

                                                  

Reconciliation of net cash flow to movement in net funds
Six months to
28 February 2013
Period to
29 February 2012
Period to 31 August 2012
Increase in cash resources at bank 2 3,267 307
Movement in cash equivalents - - -
Opening net cash resources 307 - -
Net funds at period end309 3,267 307
     

Notes to the Half-Yearly Report

1.             Basis of preparation
The unaudited half-yearly results which cover the period to 28 February 2013 have been prepared in accordance with the Accounting Standards Board's (ASB) statement on half-yearly financial reports (July 2007).

2.             Publication of non-statutory accounts
The unaudited half-yearly results for the six months ended 28 February 2013 do not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006.

3.             Earnings per share
The earnings per share at 28 February 2013 is calculated on the basis of 8,263,597 shares (29 February 2012: 2 shares and 31 August 2012: 3,520,883 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
The net asset value per share is based on net assets as at 28 February 2013 and 8,263,597 Ordinary shares in issue at that date (29 February 2012: 2 shares and 31 August 2012: 8,263,597 shares).

5.             Related Party Transactions
Katrina Johnston, a non-executive director of Octopus VCT 3 plc during the period ended 28 February 2013, is an employee of Octopus Investments Limited. Octopus VCT 3 plc paid Octopus Investments Limited £3,750 excluding VAT in the period for Katrina Johnston's Director's fees (29 February 2012: £nil and 31 August 2012: £3,648). However Katrina Johnston was not paid anything personally in the period as this was considered to be a normal part of her role as an Octopus Investments Limited employee.

Octopus provides investment management, administration & 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 asset value. However, it is agreed that Octopus will reduce its annual management fee as necessary in order to avoid the fund exceeding its total expense cap of 2.15%. During the period to 28 February 2013, the full management fee of £44,000 was payable to Octopus in the period for management fees and there was £nil outstanding at the balance sheet date (29 February 2012: £nil and £nil and 31 August 2012: £48,000 and £48,000).

Octopus is also entitled to receive an annual accounting and administration fee and 0.3% of net funds raised. During the period to 28 February 2013 £12,000 was paid to Octopus Investments Limited and there was £nil outstanding at the balance sheet date (29 February 2012: £nil and £nil and 31 August 2012: £11,000 and £nil).

In addition, Octopus also provides Company secretarial services for an additional fee of £7,500 per annum.  During the period to 28 February 2013 £3,750 was paid to Octopus Investments Limited and there was £nil outstanding at the balance sheet date (29 February 2012: £nil and £nil and 31 August 2012: £4,000 and £nil). 

Octopus Investments Limited owns 25% of Lightsource Renewable Energy Limited. Lightsource managed the investments in the portfolio during the period.

7.             Copies of the interim report will shortly be available from the registered office of the Company at 20 Old Bailey, London, EC4M 7AN.




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Source: Octopus VCT 3 plc via Thomson Reuters ONE

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