Octopus VCT 3 plc Octopus Vct 3 Plc : Correction Half-yearly Report

 
TIDMOCV3 
 
 
   Octopus VCT 3 plc 
 
   Correction - Half-Yearly Results 
 
   25 May 2017 
 
   Correction of RNS published at 18:18 on 23 May 2017 
 
   The following amendments have been made to the Chairman's Statement 
 
   Remove the following paragraph: 
 
   I am sorry to say that the targeted NAV of 90p at the five year point is 
not going to be achieved. The primary reason is that the VCTs are 
smaller than anticipated, and this has led to higher running costs as a 
percentage of assets than expected. The other main causes are the 
significant fall in projected power prices since the original investment 
was made and the insolvency of Oskamera, the key developer for five out 
of the seven sites, which led to some unbudgeted costs. 
 
   Update and include the following paragraph: 
 
   I am sorry to say that the targeted NAV of 90p at the five year point is 
not going to be achieved. The underlying solar assets have performed 
broadly in line with expectations, however shareholder returns have been 
lower than expected for two main reasons. 
 
   Firstly, there has been a significant fall in long term projected power 
prices since the original investment was made. As investors may remember, 
the solar company revenues are derived from two main sources: 
 
 
   -- Government backed subsidies such as the FIT or ROCs 
 
   -- Selling the wholesale electricity produced by the solar sites 
 
 
   It is these wholesale electricity revenues, which represent around 40% 
of the solar site revenues that have been impacted heavily by the 
reduction in long term energy forecasts. 
 
   Secondly, the VCTs are smaller than anticipated at the time of launch. 
This small size has led to higher than anticipated running costs of the 
VCT wrapper as a percentage of its assets. The VCTs are smaller than 
expected because the government reduced the subsidies available to 
renewable energy sites such as the ones held in OVCT 3 and OVCT 4 midway 
through the fundraising period. Despite the manager, Octopus Investments, 
reducing its annual management fee to encourage further investment, less 
money was raised than anticipated at the outset. 
 
   The remainder of the announcement remains unchanged. 
 
   Unaudited Half-Yearly Report for the Period Ended 28 February 2017 
 
   23 May 2017 
 
   Octopus VCT 3 plc, managed by Octopus Investments Limited, today 
announces the Half-Yearly results for the period ended 28 February 2017. 
 
   These results were approved by the Board of Directors on 23 May 2017. 
 
   You may, in due course, view the Half-Yearly Report in full at 
www.octopusinvestments.com . All other statutory information will also 
be found there. 
 
   Financial Summary 
 
 
 
 
                              Six months to 28  Six months to 29   Year to 31 
                                February 2017     February 2016    August 2016 
 
Net assets (GBP'000s)                    6,061             6,443         6,605 
Return on ordinary 
 activities after tax 
 (GBP'000s)                              (132)             (212)          (49) 
Net asset value per share                73.5p             78.1p         80.1p 
 ("NAV") 
Dividends paid since launch              20.0p             15.0p         15.0p 
Total Value per share                    93.5p             93.1p         95.1p 
 
 
   Chairman's Statement 
 
   I am pleased to present the half-yearly report for Octopus VCT 3 plc for 
the period ended 28 February 2017. 
 
   Performance 
 
   The power generating companies which together comprise the portfolio 
have been revalued to reflect current market conditions and the 
reduction in their revenue generating lives since inception. To date 
they have performed in line with expectations, and have made total 
distributions of GBP1,651,000 (equivalent to 20 pence per share) to the 
Company. 
 
   Due to the nature of the Company's investments, which have a planned 25 
year life, the NAV is designed to fall to zero over the life of the 
Company. This is because the Company intends to pay annual dividends and 
the value of the investee solar companies reduces as their remaining 
years of operation decline over time. Because of this factor and others 
explained below the underlying NAV has decreased from 80.1 pence per 
share at 31 August 2016 to 73.5 pence per share at 28 February 2017, 
while the Total Value per share, including dividends paid to date of 20p 
stands at 93.5p (down from 95.1p at 31 August 2016). 
 
   The majority of the reduction in NAV over the last 6 months is directly 
attributable to the distribution of a 5p dividend to shareholders in 
February 2017. The remainder of the drop in NAV can be mainly attributed 
to the impact of the higher than expected running costs of the VCT as a 
result of the small size of the funds with the final adjustment 
reflecting the latest valuation of the assets during the period. 
 
   I am sorry to say that the targeted NAV of 90p at the five year point is 
not going to be achieved. The underlying solar assets have performed 
broadly in line with expectations, however shareholder returns have been 
lower than expected for two main reasons. 
 
   Firstly, there has been a significant fall in long term projected power 
prices since the original investment was made. As investors may remember, 
the solar company revenues are derived from two main sources: 
 
 
   -- Government backed subsidies such as the FIT or ROCs 
 
   -- Selling the wholesale electricity produced by the solar sites 
 
 
   It is these wholesale electricity revenues, which represent around 40% 
of the solar site revenues that have been impacted heavily by the 
reduction in long term energy forecasts. 
 
   Secondly, the VCTs are smaller than anticipated at the time of launch. 
This small size has led to higher than anticipated running costs of the 
VCT wrapper as a percentage of its assets. The VCTs are smaller than 
expected because the government reduced the subsidies available to 
renewable energy sites such as the ones held in OVCT 3 and OVCT 4 midway 
through the fundraising period. Despite the manager, Octopus Investments, 
reducing its annual management fee to encourage further investment, less 
money was raised than anticipated at the outset. 
 
   If forecast power prices do not recover, the continued payment of an 
annual dividend of 5p over the complete life of the Company is under 
threat. Forecast energy prices are volatile and this conclusion may 
therefore change over time, but the current future forecast of energy 
prices leads to a projection showing that the Company could pay an 
annual dividend in the region of circa 4p until the end of the 
investment horizon. 
 
   Please see the table below for movements in NAV from 31 August 2016 to 
28 February 2017, including dividends paid during the period. 
 
 
 
 
     NAV changes since August 2016 
     NAV at 31 August 2016        80.1p 
Cash distributions from SolarCos  +2.6p 
    Revaluation of SolarCos       -2.8p 
       VCT running costs          -1.4p 
         Dividends paid           -5.0p 
    NAV at 28 February 2017       73.5p 
 
   Investment Policy & Portfolio 
 
   The Company is fully invested in 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 over four years and have been 
performing satisfactorily as a portfolio since the start of operations. 
As mentioned in the Year End Financial Statements in August 2016, two 
sites in the portfolio have previously experienced a number of technical 
issues which have since been resolved. The work has now been completed 
and the sites are expected to generate revenue in line with their 
planned output. 
 
   The Company also holds a small portion of short term non-qualifying 
loans from which it earns interest. Within the period under review 
repayments were received in from Adala Solar (GBP88,750), Akycha Power 
(GBP26,250), Daubree Energy (GBP40,500), Debes Energy (GBP25,000), 
Delambre Energy (GBP12,500) and Lacaille Energy (GBP12,500), 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 can 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 28 February 2017, qualifying investments 
represented 89.9% of the Company's portfolio. Octopus expects the 
required investment hurdle to be maintained. 
 
   Outlook 
 
   As it stands today and as highlighted in the annual report for the year 
ended 31 August 2016, the downward pressure on energy prices means that 
maintenance of the 5p per annum dividend and achieving the total return 
of 110p per share at the five year point is most unlikely. As a reminder, 
the 110p total return comprises of the sum of four annual dividends of 
5p each and targeted NAV of the solar assets of 90p at the five year 
point (i.e. 5p x 4 + 90p = 110p). 
 
   The Board is mindful that investors will pass or have passed through 
their five year VCT qualifying period in 2017. Whilst the fund was 
established as a VCT with a 25 year limited life, the Board is aware 
that some investors may wish to realise their investment earlier, once 
outside their minimum five year VCT holding period. 
 
   Due to the sub-optimal size of the portfolio, the Company's ability to 
satisfy any such requests risks having a significant detrimental effect 
on the value for remaining shareholders. As such, the Board is currently 
considering options to provide an equitable liquidity solution for all, 
once all shareholders have passed through their five year VCT qualifying 
holding period. This may include an earlier, orderly wind up of the VCT 
through the sale of its assets and the return of capital to 
shareholders. More information will be provided to shareholders in due 
course. 
 
   Gregor Michie 
 
   Chairman 
 
   23 May 2017 
 
   Director's Responsibilities Statement 
 
   We confirm that to the best of our knowledge: 
 
 
   -- the half-yearly financial statements have been prepared in accordance 
      with Financial Reporting Standard 104 'Interim Financial Reporting' 
      issued by the Financial Reporting Council; 
 
   -- 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 
 
   Gregor Michie 
 
   Chairman 
 
   23 May 2017 
 
   Condensed Income Statement 
 
 
 
 
                                Six months to 28           Six months to 29              Year to 31 
                                  February 2017              February 2016               August 2016 
 
                            Revenue  Capital   Total   Revenue  Capital   Total   Revenue  Capital   Total 
                            GBP'000  GBP'000  GBP'000  GBP'000  GBP'000  GBP'000  GBP'000  GBP'000  GBP'000 
 
Loss on valuation of fixed 
 asset investments                -    (234)    (234)        -    (233)    (233)        -     (95)     (95) 
 
Investment Income               219        -      219      148        -      148      275        -      275 
 
Investment management fees     (18)      (6)     (24)      (6)     (19)     (25)     (36)     (12)     (48) 
 
Other expenses                 (93)        -     (93)     (92)        -     (92)    (169)        -    (169) 
 
Profit/(loss) on ordinary 
 activities before tax          108    (240)    (132)       50    (252)    (202)       70    (107)     (37) 
 
Taxation on profit/(loss) 
 on ordinary activities           -        -        -     (10)        -     (10)     (12)        -     (12) 
 
Profit/(loss) on ordinary 
 activities after tax           108    (240)    (132)       40    (252)    (212)       58    (107)     (49) 
Earnings per share - basic 
 and diluted                   1.3p   (2.9)p   (1.6)p     0.5p   (3.1)p   (2.6)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 half-yearly report. 
 
 
 
 
Condensed Balance Sheet 
                              As at 28          As at 29          As at 31 
                            February 2017     February 2016      August 2016 
                          GBP'000  GBP'000  GBP'000  GBP'000  GBP'000  GBP'000 
 
Fixed asset investments              6,029             6,395             6,468 
Current assets: 
Debtors                        64               115               215 
Cash at bank                   60                34                25 
                              124               149               240 
Creditors: amounts 
 falling due within one 
 year                        (92)             (101)             (103) 
Net current assets                      32                48               137 
Net assets                           6,061             6,443             6,605 
 
Called up equity share 
 capital                                82                82                82 
Share Premium                           99                99                99 
Special Distributable 
 Reserve                             6,337             6,692             6,749 
Capital Redemption 
 Reserve                                 2                 2                 2 
Capital Reserve Realised             (162)             (163)             (156) 
Capital Reserve 
 Unrealised                          (405)             (309)             (171) 
Revenue Reserve                        108                40                 - 
Total equity 
 shareholders' funds                 6,061             6,443             6,605 
Net asset value per                  73.5p             78.1p             80.1p 
 share 
 
 
   The statements were approved by the Directors and authorised for issue 
on 23 May 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                   -         -               -            -       (19)            -         -     (19) 
Current period 
 losses 
 on fair value 
 of investments                -         -               -            -          -        (233)         -    (233) 
Profit on ordinary 
 activities after tax          -         -               -            -          -            -        40       40 
Contributions by 
 and distributions 
 to owners 
Dividends paid                 -         -           (412)            -          -            -         -    (412) 
 
 
Balance as at 
 29 February 2016             82        99           6,692            2      (163)        (309)        40    6,443 
 
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 
 
Management fee 
 allocated as capital 
 expenditure                   -         -               -            -        (6)            -         -      (6) 
Current period 
 losses 
 on fair value 
 of investments                -         -               -            -          -        (234)         -    (234) 
Profit on ordinary 
 activities after tax          -         -               -            -          -            -       108      108 
Contributions by 
 and distributions 
 to owners 
Dividends paid                 -         -           (412)            -          -            -         -    (412) 
Balance as at 28 
 February 2017                82        99           6,337            2      (162)        (405)       108    6,061 
 
 
   Condensed Cash Flow Statement 
 
 
 
 
                      Six months to 28 February 2017  Six months to 29 February 2016  Year to 31 August 2016 
                                  GBP'000                         GBP'000                     GBP'000 
 
Cash flows from 
operating 
activities 
Return on ordinary 
 activities before 
 tax                                           (132)                           (202)                    (37) 
Adjustments for: 
Decrease/(increase) 
 in debtors                                      151                             (9)                   (109) 
(Decrease)/increase 
 in creditors                                   (12)                              14                      34 
Loss on valuation of 
 fixed asset 
 investments                                     234                             233                      95 
Cash from operations                             241                              36                    (17) 
Income taxes paid                                  -                               -                    (19) 
Net cash generated 
 from operating 
 activities                                      241                              36                    (36) 
 
Cash flows from 
investing 
activities 
Receipt of loan note 
 principal                                       206                             317                     381 
Total cash flows 
 from investing 
 activities                                      206                             317                     381 
 
Cash flows from 
financing 
activities 
Dividends paid                                 (412)                           (412)                   (413) 
Total cash flows 
 from financing 
 activities                                    (412)                           (412)                   (413) 
 
Increase/(decrease) 
 in cash and cash 
 equivalents                                      35                            (59)                    (68) 
 
Opening cash and 
 cash equivalents                                 25                              93                      93 
 
Closing cash and 
 cash equivalents                                 60                              34                      25 
 
Cash and cash 
equivalents 
comprise 
Cash at bank                                      60                              34                      25 
                                                  60                              34                      25 
 
 
 
   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

May 25, 2017 13:51 ET (17:51 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.