Half-yearly report

    Half-yearly report
             



Eclipse VCT 3 plc
Unaudited Half-Yearly Report  for the  Six Months  Ended 29  February
2008
 
Financial Highlights
 

                        Six months to 29 Six months to 28  Year to 31
                           February 2008    February 2007 August 2007
                                                                     
Net assets (£'000)               £27,735          £30,431     £29,825
Net total return  after                                        £1,842
tax (£'000)                     £(1,619)           £2,391
Net  asset  value   per
share                              94.1p           103.0p      101.1p
Cumulative dividends
paid since launch                   2.2p             0.7p        0.7p

 
Eclipse VCT 3 plc ("Eclipse 3", "Fund" or "Company") is a venture
capital trust ("VCT") which aims to provide shareholders with
attractive tax-free dividends and long-term capital growth.
 
Eclipse 3 invests primarily in unquoted and AIM-quoted companies and
aims to deliver absolute returns on its investments.  Eclipse 3 was
launched in August 2005 and raised approximately £29.1 million (£28.7
million net of expenses) through an offer for subscription which
closed on 5 April 2006. 
 
The Investment Manager is Octopus Investments Limited ("Octopus" or
"Manager").  Eclipse 3 co-invests with other funds managed by
Octopus. This is viewed as a benefit as it means Eclipse 3 will not
only be able to invest in a wider range of opportunities but also in
larger and more developed companies than are typically available to a
single VCT.
 
The table below shows the movement in net asset value ("NAV") per
share and lists the dividends that have been paid since the launch of
Eclipse 3:

                        Dividend paid
Period Ended        NAV     in period NAV + cumulative dividends
28 February 2006  94.9p             -                      94.9p
31 August 2006    95.7p             -                      95.7p
28 February 2007 103.0p          0.7p                     103.7p
31 August 2007   101.1p             -                     101.8p
29 February 2008  94.1p          1.5p                      96.3p

 
Chairman's Statement
 
I am pleased to present the interim results for the six months to 29
February 2008 which indicate continued progress by the Manager in
building a diversified investment portfolio in line with the original
investment objectives.
 
Results Review
In what have been turbulent times in the stock markets since last
summer, particularly arising from concerns over the sub-prime
mortgage lending in the US, there has been an impact on the
volatility of the share prices of UK smaller companies listed on AIM,
and the holdings within the quoted Eclipse 3 portfolio have not been
immune.  In the six months to 29 February 2008, the NAV per share
decreased 6.9% to 94.1p.  However, a 1.5p per share dividend has been
paid in the period and as such the total return has only fallen
5.4%.  The Manager crystallised a profit of nearly £619,000 from the
sale of Gyro International Limited and took profits of £64,000 from
the disposal of BBI Holdings plc.  Unfortunately a loss on the exit
from NPI Media Group Limited has cancelled out the returns on these
profitable realisations.  However, given the success of the Gyro
realisation and the Board's intention to provide a regular, tax-free
stream of dividends where possible, a dividend of 1.0p per share has
been declared.  This dividend will be paid on 27 June 2008 to those
shareholders on the register on 30 May 2008.  Dividends paid since
launch will subsequently total 3.2p per share.
 
Investment Portfolio
During the period, eight new investments and several follow-on
investments were made totalling £8.3 million. As mentioned above, the
Fund realised a gain on the disposal of BBI Holdings plc and from the
sale of Gyro International Limited.  The reduction in NAV, not
otherwise attributed to the small net loss resulting from
realisations, comes from a decline in the value of the AIM portfolio.
 
Further information on the holdings in the portfolio can be found in
the Investment Manager's review.
 
Share Price
The Company's mid market share price currently stands at 88.0p
compared to the NAV of 94.1p.  Octopus is working towards developing
strategies to increase liquidity in the market by stimulating trade
in VCT shares in the secondary market.
 
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager
with advice on the ongoing compliance with Her Majesty's Revenue &
Customs ("HRMC") rules and regulations concerning VCTs.  The Board
has been advised that Eclipse 3 is in compliance with the conditions
laid down by HMRC for maintaining approval as a VCT. 
 
A key requirement is for 70% of the portfolio to be invested in
qualifying investments by the end of the third accounting period
following that in which new share capital was subscribed.  As at 29
February 2008, over 67% of the portfolio (according to HMRC
regulations) was invested in VCT qualifying investments, in line with
our expectations at this stage of the Fund's life.  In light of the
current deal flow, the Board is confident of achieving the required
investment level.
 
Outlook
The Board's focus is to continue to generate capital growth.  As the
Fund becomes fully invested the challenge for the Manager will be the
realisation and timing of gains from a relatively illiquid portfolio
to support the development of an attractive tax-free dividend profile
whilst also releasing funds for new investment. The diversified
nature of the portfolio should assist the Manager in achieving this
objective.  However, the economic environment in the UK has become
more uncertain over the last six months and this may have an impact
on the liquidity in the markets, and as such, the volatility of
company valuations in the future.
 
 
 
R Gregory Melgaard
Chairman
23 April 2008
 
Investment Manager's Review
 
Personal Service
At Octopus, we pride ourselves not only on our team's track record
but also on our personalised customer service.  We believe in open
communication and our regular updates are designed to keep you
involved and informed.
 
If you have any questions about this review, or if it would help to
speak to one of the fund managers, please do not hesitate to contact
us on 020 7710 2800.
 
Portfolio Review
During the period to 29 February 2008 a further £8.3 million was
invested in eight new and several follow-on investments.  This takes
the total currently invested by Eclipse 3 in unquoted and AIM quoted
investments to £16.9 million by value.  The remaining funds are
invested in cash and money market securities awaiting investment in
suitable qualifying opportunities.

                                         Carrying
                                         value at            % equity
                                               29 % equity    held by
               Investment    Unrealised  February  held by  all funds
Unquoted          at cost profit/(loss)      2008  Eclipse managed by
investments       ('£000)       (£'000)   (£'000)    VCT 3    Octopus
The Grill
Group Limited       1,984             -     1,984    15.9%      51.6%
Sweet Cred
Holdings
Limited             1,677             -     1,677     7.7%      24.5%
The History
Press Limited       1,604             -     1,604    15.2%      60.0%
Bruce Dunlop &
Associates
Limited             1,250             -     1,250    12.0%      33.3%
T4 Holdings
Limited             1,000             -     1,000    11.1%      41.7%
Tristar
Worldwide
Limited             1,000             -     1,000    10.0%      35.0%
CSL DualCom
Limited               918            68       986    11.5%      45.8%
Promotion
Space Limited         727             -       727     9.1%      28.2%
Audio Visual
Machines
Limited               711             -       711    11.3%      45.0%
Adrenalin
Design Limited        905         (226)       679    11.0%      42.9%
Hydrobolt
Limited               410             -       410     0.0%       0.0%
Perfect Pizza
Limited               372             -       372     4.9%      34.3%
The Capital
Pub Company 2
plc                   200             -       200     1.2%       8.2%
Blanc
Brasserie
Holdings plc           55             -        55     0.7%       3.3%
Red-M Group
Limited               241         (241)         -     1.7%       9.3%
Total unquoted
investments        13,054         (399)    12,655                    
                                                                     
AIM-quoted
investments                                                          
                                                                     
Tanfield Group
plc                   143           545       688     0.2%       2.6%
Hexagon Human
Capital plc           677          (32)       645     2.7%      11.5%
Plastics
Capital plc           500          (65)       435     1.9%      12.7%
CBG Group plc         383            24       407     2.0%      14.2%
Hasgrove plc          400           (7)       393     1.6%       7.9%
Pressure
Technologies
plc                   165            77       242     1.0%       5.3%
Northern Bear
plc                   299          (87)       212     1.2%       8.4%
Vertu Motors
plc                   250          (77)       173     0.5%       3.2%
Healthcare
Locums plc            100            71       171     0.2%       0.9%
Brulines
Holdings plc          147            23       170     0.5%       2.6%
Optimisa plc          195          (47)       148     1.0%       5.3%
Cantono plc           420         (273)       147     1.4%       9.9%
Concateno plc          85            55       140     0.1%       0.5%
Myhome
International
plc                   350         (248)       102     0.8%       6.3%
Cohort plc             68            23        91     0.1%       2.2%
Autoclenz
Holdings plc          125          (75)        50     1.0%      12.8%
Invocas plc            40           (5)        35     0.1%       1.3%
Total
AIM-quoted
investments         4,347          (98)     4,249                    
Total
investments        17,401         (497)    16,904                    

 
Review of Investments
At 29 February 2008, the Eclipse 3 portfolio comprised investments in
15 unquoted and 17 AIM-quoted companies.  The unquoted investments
are in ordinary shares with full voting rights as well as loan note
securities and a small number of preference shares.  The AIM-quoted
investments are in ordinary shares with full voting rights.
 
During the period, three investments were fully disposed of; Gyro
International Limited, NPI Media Group Limited and BBI Holdings plc. 
Gyro was particularly successful crystallising a profit of nearly
£619,000 for the Fund and returning a 69% IRR.  We exited from BBI
Holdings plc following an agreed bid for the company at a 99.4%
premium to the original book cost.
 
On a less positive note the investment in NPI Media Group Limited was
disposed of at a loss to a new vehicle, The History Press Limited,
which Eclipse 3, and the other three Eclipse funds, are shareholders
in.  The value at which the transaction took place was considered
prudent and, in due course, a recovery of the investment value may
occur through the progress made by The History Press. The structure
of the investment held by the Eclipse funds in The History Press
ensures the Funds rank ahead of all other investors.  In addition, a
provision has been made against Adrenalin Design Limited and a
further provision has been made against Red-M Group Limited,
effectively valuing our holding in this company at zero.  Octopus
considers these provisions totalling £467,250 to be prudent, based on
underperformance against the investment plan.
 
With regard to the AIM portfolio, it was a difficult period for small
quoted companies resulting in the FTSE AIM All-Share falling by 8.0%
over the six months to 29 February 2008.  The AIM exposure of Eclipse
3 wasn't immune and also suffered, falling by a net £541,000 in value
over the 6 month period.  Since the period end the AIM portfolio has
suffered further in the wake of recent volatility and lack of
liquidity in the AIM market, however we remain confident that these
investments will deliver value over the medium term.  As at 29
February 2008, the AIM portfolio had contributed net realised gains
of over £847,000.
 
A summary of the realisations in the period is shown below:

                      Initial                     Proceeds of   Total
                   investment  Cost of investment  investment  profit
Realisations             date    realised (£'000)     (£'000) (£'000)
Gyro
International
Limited          October 2006                 704       1,323     619
BBI Holdings plc     May 2006                  64         127      63
NPI Media Group
Limited          January 2007               1,898         912   (986)
                                            2,666       2,362   (304)

 
New Investments
During the period, eight new investments and several follow-on
investments were made totalling £8.3 million.  These investments are
set-out below:
 
The Grill Group Limited (Unquoted)
Investment date:                September 2007
Cost:                                 £1,983,500
Valuation:                          £1,983,500
The Grill Group has three restaurant brands: Smollensky's, with nine
Bar & Grill and Burgershack sites in London, Le Frog Bistros and
Pastiche with eight restaurants in the North West and Midlands.  In
September 2007, Octopus committed £6 million to fund the acquisition
of the Smollensky's chain of restaurants by the Shire Group, which
owned the Le Frog and Pastiche chains.The investment strategy
includes the operational turnaround of Smollensky's during the first
twelve months, followed by the roll-out of the Smollensky's and Le
Frog restaurant brands.
 
Optimisa plc (AIM-quoted)
Investment date:                October 2007
Cost:                               £195,000
Valuation:                          £148,500
Optimisa provides market research and consultancy services. Recently
Optimisa completed the earnings enhancing acquisition of EQ Group, a
business operating in a very similar sector. Historically Optmisa and
EQ have competed for contracts and we expect the larger and more
diversified group to exploit a number of synergies and cross selling
opportunities. Optimisa which is currently capitalised at £13.8
million is expected to make a profit of £2.8 million on a turnover of
£24.1 million for the year to December 2008.
 
Myhome International plc (AIM-quoted)
Investment date:               November 2007
Cost:                              £350,000
Valuation:                        £102,100
Myhome is an acquisitive national franchise group.  The company has
become a market leader in the growing sector of residential cleaning
under the brand of Myhome, and has extended its offering by rolling
out other franchises including electrical, plumbing and cleaning
services.  In June 2006 the company acquired Ovenclean, the UK's
leading domestic oven cleaning franchise with a ten year growth
history and over 165 franchisees. More recently Myhome completed the
acquisition of ChipsAway, a mobile service delivered to customers'
homes and offices, repairing scratches, chips and other minor damage
to car paintwork using proprietary technology.  Myhome which is
currently capitalised at £11.3 million is expected to make a profit
before tax of £3.6 million on a turnover of £16.2 million for the
year to 30 September 2008.
 
Plastics Capital plc (AIM-quoted)
Investment date:            December 2007
Cost:                             £500,000
Valuation:                       £435,000
Plastics Capital was set up to build a group of niche plastics
manufacturing companies, each with a strong market position and good
cash generation characteristics.  The group currently comprises three
separate businesses with factories located in Knaresborough,
Leicester, Dartford and Poole with an aggregate turnover in excess of
£15 million.   We expect Plastics Capital, which is currently valued
at £24.2 million, is expected to achieve a profit before tax of £4.3
million for the year ending March 2009.
 
The History Press Limited (Unquoted)
Investment date:            December 2007
Cost:                             £1,603,506
Valuation:                       £1,603,506
The History Press was incorporated in order to buy the assets of NPI
Media Limited from administration. It is the UK market leading
publisher of distinctive 'local interest' history books.  In December
2007 Eclipse 3 invested £1 million, as part of a £4 million
investment by Octopus funds, into a new vehicle, The History Press
Limited, set up to acquire NPI through a restructuring process. In
addition, guarantees totalling £1.5 million (Eclipse 3 - £519,000)
were provided to support working capital facilities. NPI had
performed poorly since the initial investment and had been
particularly impacted by its printing operations. Through the
restructuring process, initiated by Octopus, The History Press only
acquired the publishing assets from NPI and we believe that this will
make a more robust and exciting investment for the future. Through
the new investment, Eclipse 3 realised just under half its original
investment in NPI, the balance being written off. A considerable
amount of time has been put into the investment by Octopus, and this
has included the recruitment of a new management team.
 
Bruce Dunlop & Associates Limited (Unquoted)
Investment date:          December 2007
Cost:                          £1,250,000
Valuation:                    £1,250,000
Bruce Dunlop Associates provides promotion and design services to
broadcasters and advertisers worldwide and also creates brand films
and internal communications for leading UK corporations, including
Hallmark, Barclays, Discovery and Sony. The company operates from
offices in London, Munich, Dubai, Singapore and Sydney. 
 
Tristar Worldwide Limited (Unquoted)
Investment date:          January 2008
Cost:                          £1,000,000
Valuation:                    £1,000,000
Tristar is one of the world's leading chauffeur companies, carrying
over 400,000 passengers for 400 clients in 2007 alone. The business
operates in 44 countries with its own vehicles in the UK and a
rapidly expanding service in the US. It has a blue chip customer base
which includes Virgin, Emirates, BP, Goldman Sachs and Merrill Lynch.
 
Hydrobolt Limited (Unquoted)
Investment date:          February 2008
Cost:                          £410,000
Valuation:                    £410,000
Hydrobolt is a specialist manufacturer of high integrity fasteners
for the oil & gas and energy sectors, and the investment was for the
management buy-out of Hydrobolt. 
 
In addition to the new investments above, the Company made follow-on
investments in another three of the unquoted portfolio companies
during the period under review.  These include an investment of
£136,927 in NPI Media Limited, which has subsequently been sold to
The History Press Limited, £676,819 into Sweet Cred Holdings Limited
and £209,311 into Promotion Space Limited.
 
Recent Transactions
Since the period end, the Fund has made one further investment.
 
Hydrobolt Limited
Eclipse 3 invested a  further £998,500 in  the management buy-out  of
Hydrobolt Limited in April  2008 as part  of £3.5 million  investment
across all the  Eclipse funds.   As mentioned above,  Hydrobolt is  a
specialist manufacturer of high integrity fasteners for the oil & gas
and energy sectors.
 
If you have any questions on any aspect of your investment, please
call one of the team on 020 7710 2800.
 
Simon Rogerson
Chief Executive
 

Profit and Loss Account
                 Six months to 29       Six months to 28      Year to 31 August
                   February 2008          February 2007             2007
              Revenue Capital   Total Revenue Capital Total Revenue Capital Total
                £'000   £'000   £'000   £'000   £'000 £'000   £'000   £'000 £'000
                                                                                 
Gain       on
disposal   of
investments
held at  fair
value               -     321     321       -     698   698       -     926   926
                                                                                 
Unrealised
(loss)/gain
on fair value
of
investments         - (1,762) (1,762)       -   1,625 1,625       -     822   822
                                                                                 
Income            346       -     346     506       -   506     950       -   950
                                                                                 
Investment
management
fees             (87)   (263)   (350)    (82)   (247) (329)   (166)   (499) (665)
Other
expenses        (174)       -   (174)   (109)       - (109)   (191)       - (191)
                                                                                 
Profit/(loss)
on   ordinary
activities
before tax         85 (1,704) (1,619)     315   2,076 2,391     593   1,249 1,842
                                                                                 
Taxation   on
profit/(loss)
on   ordinary
activities          -       -       -    (60)      60     -    (33)       -  (33)
                                                                                 
Profit/(loss)
on   ordinary
activities
after tax          85 (1,704) (1,619)     255   2,136 2,391     560   1,249 1,809
Revenue   and
capital
(loss)/return
per  share  -
basic     and
diluted          0.3p  (5.8)p  (5.5)p    0.9p    7.2p  8.1p    3.3p    2.8p  6.1p

 
 
*           The total column of this statement is the profit and loss
  account of the Company
 
*           All revenue and capital items in the above statement
  derive from continuing operations
 
*           The accompanying notes are an integral part of the
  interim financial information
 
*           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 securities.
 
 

Reconciliation of Movements in Shareholders' Funds
                        Six months ended Six months ended  Year to 31
                        29 February 2008 28 February 2007 August 2007
                                   £'000            £'000       £'000
Shareholders' funds at
start of period                   29,825           28,247      28,247
                                                                     
(Loss)/profit on
ordinary activities
after tax                        (1,619)            2,391       1,809
Cancellation of own
shares                              (28)                -        (24)
Dividends paid                     (443)            (207)       (207)
Shareholders' funds at
end of period                     27,735           30,431      29,825

 

Balance Sheet
                  As at 29 February As at 28 February As at 31 August
                               2008              2007            2007
                     £'000    £'000    £'000    £'000   £'000   £'000
                                                                     
Fixed asset
investments                  16,892             9,705          12,535
Current assets:                                                      
Investments -
money market
securities          10,235            18,557           17,080        
Debtors                200             1,690              241        
Cash at bank           490               584               46        
                    10,925            20,831           17,367        
Creditors:
amounts falling
due within one
year                  (82)             (105)             (77)        
Net current
assets                       10,843            20,726          17,290
                                                                     
Net assets                   27,735            30,431          29,825
                                                                     
Called up equity
share capital        2,947             2,953                    2,950
Special
distributable
reserve             25,061            25,114                   25,089
Capital
redemption
reserve                  6               208                        3
Revaluation
Reserve              (376)             1,893                      882
Profit and loss
account                 97               263                      901
Total
shareholders'
funds                        27,735            30,431          29,825
Net asset value
per share                     94.1p            103.0p          101.1p

 

Cash flow statement
                                 Six months Six months to
                                   ended 29   28 February  Year to 31
                              February 2008          2007 August 2007
                                      £'000         £'000       £'000
                                                                     
Net cash inflow/(outflow)
from operating activities                27       (1,606)       (112)
                                                                     
Financial investment :                                               
Purchase of investments             (8,319)       (5,384)     (9,551)
Sale of investments                   2,362         1,282       1,965
                                                                     
Management of liquid
resources :                                                          
Decrease in money market
securities                            6,845         6,488       7,965
                                                                     
Dividends paid                        (443)         (207)       (207)
                                                                     
Financing :                                                          
Issue of own shares                       -             -           -
Repurchase of own shares               (28)             -        (24)
Increase in cash resources              444           573          36

                                               
 

Reconciliation of net cash flow to movement in liquid resources
                     Six months ended 29 Six months to 28  Year to 31
                           February 2008    February 2007 August 2007
                                   £'000            £'000       £'000
Increase in cash
resources                            444              573          36
Movement in liquid
resources                        (6,845)          (6,488)     (7,965)
Opening net liquid
resources                         17,126           25,056      25,056
Net cash at end of
period                            10,725           19,141      17,127

 
 

Reconciliation of operating profit before taxation to cash flow from
operating activities
                                  Six months Six months to Year to 31
                                    ended 29   28 February     August
                               February 2008          2007       2007
                                       £'000         £'000      £'000
(Loss)/profit on ordinary
activities before tax                (1,619)         2,391      1,842
Profit on disposal of fixed
asset investments                      (222)         (698)      (940)
Decrease/(increase) in
debtors                                   41       (1,675)      (225)
Increase/(decrease) in
creditors                                  5             1       (61)
Unrealised loss/(gain) on
fixed asset investments                1,822       (1,625)      (728)
Inflow/(outflow) from
operating activities                      27       (1,606)      (112)

 
Notes to the Interim Financial Statements
 
1.             Basis of preparation
The unaudited interim results which cover the six months to 29
February 2008 have been prepared in accordance with applicable
accounting standards in the United Kingdom, to include an Profit and
Loss Account, Reconciliation of Movements in Shareholders' Funds,
Balance Sheet and Cash Flow Statement. 
 
2.             Publication of non-statutory accounts
The unaudited interim results for the six months ended 29 February
2008 and 28 February 2007 do not constitute statutory accounts within
the meaning of Section 240 of the Companies Act 1985 and have not
been delivered to the Registrar of Companies.  The comparative
figures for the year ended 31 August 2007 have been extracted from
the audited financial statements for that year, which have been
delivered to the Registrar of Companies.  The independent auditor's
report on those financial statements under Section 235 of the
Companies Act 1985 was unqualified.
 
3.             Earnings per share
The calculation of the revenue and capital (loss)/return per share is
based on the (loss)/return on ordinary activities after tax for the
period and on 29,505,588 shares (31 August 2007: 29,525,413 and 28
February 2007: 29,541,147 shares), being the weighted average number
of shares in issue during the period.
 
There are no potentially dilutive capital instruments in issue and,
therefore, no diluted return per share figures are relevant.
 
4.             Net asset value per share
The calculation of net asset value per share is based on the net
assets at 29 February 2008 and on 29,479,384 shares being the number
of shares in issue at the same date (31 August 2007: 29,502,399 and
28 February 2007: 29,541,147).
 
5.             Dividend
The interim dividend of 1.0p per share for the six months ended 29
February 2008 will be paid on 27 June 2008 to shareholders on the
register at the close of business on 30 May 2008.  A final dividend
of 1.5p per share, relating to the year ended 31 August 2007, was
paid on 19 February 2008 to shareholders on the register on 25
January 2008.
 
6.             During the six months ended 29 February 2008 the
Company bought back 33,015 shares at a weighted average price of
83.6p per share.
               
7.             Copies of this statement are being sent to all
shareholders. Copies are also available from the registered office of
the Company at 8 Angel Court, London, EC2R 7HP.
                                   

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