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Octopus VCT 3 plc (OVC3)

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Wednesday 30 April, 2014

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 2014

30 April 2014                                                                                                                                                            

Octopus VCT 3 plc, managed by Octopus Investments Limited, today announces the Half-Yearly results for the period ended 28 February 2014.

These results were approved by the Board of Directors on 29 April 2014.

 

Financial Headlines

85.2p                                                     Net asset value (NAV) at 28 February 2014

5.0p                                                        Dividends paid since launch

90.2p                                                     NAV plus cumulative dividends paid

About Octopus VCT 3 plc

Octopus VCT 3 plc ('OVCT 3' or 'Company') 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 have been structured 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 2014, qualifying investments represented 83.4% of the Company's portfolio. OVCT 3 will continue to ensure its compliance with these qualification requirements.

Financial Summary

Six months to
28 February 2014
Six months to 28 February 2013Year to
31 August 2013
Net assets (£'000s) 7,040 7,737 7,818
Return on ordinary activities after tax (£'000s) (365) 5 86
Net asset value per share ("NAV") 85.2p 93.6p 94.6p
Dividends paid in the period 5.0p - -

Chairman's Statement

I am pleased to present the half-yearly report for Octopus VCT 3 plc for the period ended 28 February 2014.

Performance
As I mentioned in my Chairman's Statement in the Annual Report, due to the nature of the Company's investments, which have an estimated twenty five year life, together with the intention to pay an annual dividend, it is anticipated that the net asset value will fall to zero over the life of the Company as the value of the solar companies reduces as they approach the end of their operating lives. Please see the following section in the report for more information on the NAV decrease since inception.

During the first couple of years of the Company we incurred, as expected, costs associated with setting up the Company and establishing the investee solar companies which outweighed the income generated from the newly established solar companies. Going forward however, we expect the income generated by the solar companies as well as cash balances held by the Company to cover the ongoing operating costs of the Company and annual dividends made to shareholders.

Having been operating for over a year, the solar companies have now been revalued to reflect that, even though they are performing in line with expectations, they have distributed £588,000 of income to the Company and have fewer years left of their useful life. The net result of these adjustments is a £428,000 downwards movement in their remaining value, equivalent to 5.2p per share.

Recognising this revaluation of the solar companies in this period alone has resulted in the Net Asset Value (NAV) of the Company falling from 94.6p per share to 85.2p per share, reflecting the 5.0p dividend, and a 4.4p loss in the period.

Investment Policy & Portfolio

The qualifying funds are all now 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 Renewables Obligation Certificates (ROCs), which form part of their revenue stream alongside the electricity they sell on the wholesale market. There are no plans to make any further qualifying investments as the Company intends to hold the assets for their full operating lives of twenty five years.

All seven sites are currently generating revenue in line with their forecasts, and six are receiving their FIT/ROC and electricity sale revenues on a regular basis. One site owned by investee company Akycha Power Limited is still awaiting its final accreditation from Ofgem and, once this is received, it will be paid all its accrued revenue.

The Company also holds a small portion of funds for making short term non-qualifying loans from which it earns interest. Within the period it made two such loans of £62,500 to two investee companies to cover short term working capital needs.

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 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 plc 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 year ended 31 August 2013.

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 2014, qualifying investments represented 83.4% 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
The underlying assets are expected to deliver predictable revenue streams to the Company for the next twenty five years. The main impact on these revenue streams will be the price at which the electricity they produce can be sold on the wholesale market. The forecasts used by the Investment Manager are provided regularly by industry leading experts and therefore give a high level of confidence on the projected returns.

Raymond Greenshields
Chairman
29 April 2014

Background to the NAV decrease

Please find below a summary to illustrate the decrease in NAV between the inception of the Company and 28 February 2014. By reviewing this extended period we endeavour to provide more clarity to the nature of the movements on the NAV as it covers the full investment period through to the payment of the first dividend, as well as the recent asset revaluations.

VCT Underlying Assets Value (pence per share)VCT Cash & Accruals
(pence per share)
NAV
(pence per share)
Comments
As at inception 0.0 94.5 94.5 Starting NAV
Current investments & non-qualifying loans into solar companies 87.1 7.4 94.5 Zero net effect on NAV - the decrease in the underlying assets value is equal to the increase in cash of the VCT
Cash distributions from solar companies to VCT less reduction in valuation of solar companies 81.9¹ 14.8 96.7 An overall increase in NAV due to SolarCo distributions being greater than the asset value decrease - distributions increased the VCT's cash balance, and revaluations decreased underlying assets
VCT start up and running costs 81.9 8.3 90.2 VCT running costs since inception - deducted from VCT's cash balance
VCT dividend 81.9 3.3 85.2 First 5.0p annual dividend paid in February 2014 - deducted from VCT's cash balance

¹NB this includes a lower valuation of the investee company Akycha Power Limited which is still pending its Ofgem accreditation - there is a potential 2.0p uplift in NAV on accreditation.

Investment Portfolio

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
29 April 2014

Income Statement

Six months to 28 February 2014 Six months to 28 February 2013 Year to 31 August 2013
RevenueCapitalTotal Revenue Capital Total Revenue Capital Total
£'000£'000£'000 £'000 £'000 £'000 £'000 £'000 £'000
Gain on disposal of fixed asset
investments
-33 - 3 3
Loss on valuation of fixed asset investments -(428)(428) - - - - - -
Income 156-156 153 - 153 307 - 307
Investment management fees (6)(19)(25) (11) (33) (44) (8) (25) (33)
Other expenses (71)-(71) (104) - (104) (177) - (177)
Profit/(loss) on ordinary activities before tax79(444)(365) 38 (33) 5 122 (22) 100
Taxation on profit/(loss)  on ordinary activities --- - - - (14) - (14)
Profit/(loss) on ordinary activities after tax79(444)(365) 38 (33) 5 108 (22) 86
Profit/(loss) per share - basic and diluted1.0p(5.4)p(4.4)p 0.4p (0.4)p 0.0p 1.3p (0.3)p 1.0p
  • 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.
Reconciliation of Movements in Shareholders' Funds
Six months ended
28 February 2014
Six months ended
28 February 2013
Year ended
31 August 2013
£'000 £'000 £'000
Shareholders' funds at start of period7,818 7,732 7,732
(Loss)/profit on ordinary activities after tax (365) 5 86
Dividends paid (413) - -
Shareholders' funds at end of period7,040 7,737 7,818

Balance Sheet
As at 28 February 2014 As at 28 February 2013 As at 31 August 2013
£'000£'000 £'000 £'000 £'000 £'000
Fixed asset investments* 6,767 7,397 7,020
Current assets:
Debtors 97 90 312
Cash at bank 214 309 536
311 399 848
Creditors: amounts falling due within one year (38) (59) (50)
Net current assets 273 340 798
Net assets7,040 7,737 7,818
Called up equity share capital 83 83 83
Share Premium 99 99 99
Special Distributable Reserve 7,388 7,626 7,626
Capital Redemption Reserve 1 1 1
Capital Reserve - Unrealised (428) (36) -
Capital Reserve - Realised (110) (69) (94)
Revenue Reserve 7 33 103
Total equity shareholders' funds7,040 7,737 7,818
Net asset value per share85.2p 93.6p 94.6p

*Held at fair value

The statements were approved by the Directors and authorised for issue on 29 April 2014 and are signed on their behalf by:

Raymond Greenshields
Chairman

Company Number: 07744056

Cash flow statement
Six months to
28 February 2014
Six months to
28 February 2013
Year to
31 August 2013
£'000 £'000 £'000
Net cash inflow/(outflow) from operating activities263 43 (110)
Financial investment:
Purchase of fixed asset investments (225) (655) (800)
Sale of fixed asset investments 53 614 1,139
Dividends paid(413) - -
(Decrease)/increase in cash resources at bank(322) 2 229

Six months to
28 February 2014
Six months to
28 February 2013
Year to
31 August 2013
£'000 £'000 £'000
(Loss/profit) on ordinary activities before tax (365) 5 86
Decrease/(increase) in debtors 215 62 (160)
Decrease in creditors (12) (24) (33)
Loss on valuation of fixed asset investments 428 - -
Gain on disposal of fixed asset investments (3) (3)
Inflow/(outflow) from operating activities263 43 (110)

  

Reconciliation of net cash flow to movement in net funds
Six months to
28 February 2014
Six months to
28 February 2013
Year to
31 August 2013
£'000 £'000 £'000
(Decrease)/increase in cash resources at bank (322) 2 229
Opening net cash resources 536 307 307
Net funds at period end214 309 536

Notes to the Half-Yearly Report

1.             Basis of preparation
The unaudited half-yearly results which cover the period to 28 February 2014 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 2014 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 2014 is calculated on the basis of 8,263,597 shares (28 February 2013: 8,263,597 shares and 31 August 2013: 8,263,597 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 2014 and 8,263,597 Ordinary shares in issue at that date (28 February 2013: 8,263,597 shares and 31 August 2013: 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 2014, 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 (28 February 2013: £3,750 and 31 August 2013: £7,500). 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 Company exceeding its total expense cap of 2.15%. During the period to 28 February 2014, £25,000 was payable to Octopus in respect of management fees and there was £nil outstanding at the balance sheet date (28 February 2013: £44,000 and £nil and 31 August 2013: £33,000 and £nil).

Octopus is also entitled to receive an annual accounting and administration fee of 0.3% of net funds raised. During the period to 28 February 2014 £12,000 was paid to Octopus Investments Limited and there was £nil outstanding at the balance sheet date (28 February 2013: £12,000 and £nil and 31 August 2013: £23,000 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 2014 £3,750 was paid to Octopus Investments Limited and there was £nil outstanding at the balance sheet date (28 February 2013: £3,750 and £nil and 31 August 2013: £7,500 and £nil). 

Octopus Capital Limited, a related party by virtue of being 100% owner of Octopus Investments Limited, owns 49.5% of Lightsource Renewable Energy Limited. Lightsource managed the underlying assets in the portfolio during the period.

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.






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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