Octopus VCT 3 plc Octopus Vct 3 Plc : Half-year Report

 
TIDMOCV3 
 
   Octopus VCT 3 plc 
 
   Unaudited Interim Report for the Period Ended 31 August 2017 
 
   28 November 2017 
 
 
   Octopus VCT 3 plc, managed by Octopus Investments Limited, today 
announces the Interim results for the period ended 31 August 2017. 
 
   These results were approved by the Board of Directors on 28 November 
2017. 
 
   You may, in due course, view the Interim Report in full at 
www.octopusinvestments.com. All other statutory information will also be 
found there. 
 
   Financial Summary 
 
   The Company has extended the financial year end from 31 August 2017 to 
28 February 2018. As the accounting period is beyond 14 months there is 
a requirement to produce an Interim report. 
 
 
 
 
                Six months to       Year to 31    Six months to       Year to 31 
               31 August 2017      August 2017   31 August 2016      August 2016 
 
Net assets 
 (GBP'000s)             6,125            6,125            6,605            6,605 
Return on 
 ordinary 
 activities 
 after tax 
 (GBP'000s)                65             (67)              163             (49) 
Net asset               74.3p            74.3p            80.1p            80.1p 
 value per 
 share 
 ("NAV") 
Dividends               20.0p            20.0p            15.0p            15.0p 
 paid since 
 launch 
Total value             94.3p            94.3p            95.1p            95.1p 
 per share 
 
 
 
   Chairman's Statement 
 
   I am pleased to present the Interim report for Octopus VCT 3 plc for the 
period ended 31 August 2017. 
 
   Update on the Sale Process 
 
   The Company was established as a VCT with a 25 year limited life. 
Earlier in the year, having passed the initial five year VCT holding 
period, a number of Shareholders had expressed a desire to exit their 
investment. However, due to the sub-scale fund size, providing liquidity 
to those Shareholders would have resulted in a material detrimental 
effect on the returns to remaining Shareholders. The Board undertook a 
strategic review and concluded that the best outcome for all 
Shareholders would be an orderly wind up of the Company through the sale 
of the assets and a return of capital to all Shareholders and for the 
Company to be voluntarily wound up. The Board believes this is the best 
way to realise value for Shareholders and provide an equitable liquidity 
solution for all. 
 
   On 9 August 2017 Shareholders approved a proposal for the Board to 
conduct an orderly wind up of the VCT through the sale of its assets and 
to return capital to shareholders. The Investment Manager has been 
managing the sales process with approvals from the Board in each phase. 
Several bids have been received for the portfolio and the team have been 
assessing the offers. The Investment Manager intends to recommend a 
preferred bidder to the Board and, if approved, enter into a final 
bilateral phase of negotiations and diligence with that bidder with a 
target completion date in the next few months. 
 
   Performance 
 
   The power generating companies, which together comprise the portfolio, 
have been revalued to be consistent with the conservative valuation 
methodology in line with the International Private Equity and Venture 
Capital (IPEV) guidelines. From the market sounding, the Board has noted 
a keen interest in the assets and positive variance between current 
valuations and the buyers' offers. 
 
   During the 6 months to 31 August 2017 the underlying NAV has increased 
from 73.5p per share to 74.3p per share, while the Total Value per share, 
which includes the underlying NAV and dividends paid to date of 20p 
stands at 94.3p (an increase from 93.5p at 28 February 2017). The 
increase in NAV is due to additional income received. Dividends 
totalling GBP1,651,000 (equivalent to 20p per share) have been paid to 
date. No further dividends have been paid since February 2017. 
 
   The valuation has been impacted by a fall in long term electricity price 
forecasts, but this has been offset by lower operating and maintenance 
costs negotiated by the Investment Management team. Since inception, the 
portfolio of assets have been performing in line with budget, despite 
the insolvency of a key developer for five of the seven sites which had 
resulted in operational difficulties. These technical issues have since 
been fully resolved and the assets have managed to generate revenue 
above budget by entering purchase power agreements ("PPAs") above market 
electricity prices. 
 
   Please see the table below for movements in NAV from 28 February 2017 to 
31 August 2017, including dividends paid during the period. 
 
 
 
 
    NAV changes since February 2017 
    NAV at 28 February 2017       73.5p 
Cash distributions from SolarCos  +1.9p 
    Revaluation of SolarCos       +0.7p 
       VCT running costs          -1.8p 
     NAV at 31 August 2017        74.3p 
 
   Investment Policy & Portfolio 
 
   The Company is fully invested into 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 five years and have been performing 
satisfactorily as a portfolio since the start of operations. Remedial 
works have now been completed on all the five sites where the previous 
Engineering, Procurement and Construction contractor ("EPC") became 
insolvent. 
 
   The Company also holds a small portion of short term non-qualifying 
loans from which it earns interest. This has no impact on the overall 
VCT qualification. Within the period under review repayments were 
received from Adala Solar (GBP50,000), Akycha Power (GBP59,375), Daubree 
Energy (GBP15,000) and Debes Energy (GBP15,000), 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 may 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 31 August 2017, qualifying investments 
represented 86.5% of the Company's portfolio. Octopus expects the 
required investment hurdle to be maintained. 
 
   Outlook 
 
   From the competitive process, there has been a keen interest shown in 
the portfolio assets. The Investment Manager has entered into advanced 
negotiations regarding the sale of the assets and it is possible that 
these negotiations may result in a positive variance to the valuations 
presented in this report. In order to achieve the best outcome for our 
shareholders in the competitive sale process, it is probable that the 
process may take longer than anticipated, and therefore, it is currently 
not possible to give a precise date for completion. 
 
   Gregor Michie 
 
   Chairman 
 
   28 November 2017 
 
   Director's Responsibilities Statement 
 
   We confirm that to the best of our knowledge: 
 
 
   -- the Interim financial statements have been prepared in accordance with 
      Financial Reporting Standard 104 'Interim Financial Reporting' issued by 
      the Financial Reporting Council; 
 
 
   -- the Interim 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 
      twelve months 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 
      twelve 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 
 
   28 November 2017 
 
   Condensed Income Statement 
 
 
 
 
 
                                           Unaudited                          Unaudited 
                                  Six months to 31 August 2017       Six months to 31 August 2016 
                                Revenue     Capital      Total     Revenue     Capital      Total 
                                GBP'000     GBP'000     GBP'000    GBP'000     GBP'000     GBP'000 
 
 
Gain on valuation of fixed 
 asset investments                      -          61         61           -         138        138 
 
Investment income                     158           -        158         127           -        127 
 
  Investment management fees         (20)         (7)       (27)        (30)           7       (23) 
 
Other expenses                      (127)           -      (127)        (77)           -       (77) 
 
Profit/(loss) on ordinary 
 activities before tax                 11          54         65          20         145        165 
 
Taxation on profit/(loss) on 
 ordinary activities                    -           -          -         (2)           -        (2) 
 
Profit/(loss) on ordinary 
 activities after tax                  11          54         65          18         145        163 
Earnings per share - basic           0.1p        0.6p       0.7p        0.2p        1.8p       2.0p 
 and diluted 
 
 
 
 
 
                                        Unaudited                     Audited 
                                  Year to 31 August 2017       Year to 31 August 2016 
                               Revenue   Capital    Total   Revenue   Capital    Total 
                               GBP'000   GBP'000   GBP'000  GBP'000   GBP'000   GBP'000 
 
 
Loss on valuation of fixed 
 asset investments                    -     (173)    (173)         -      (95)     (95) 
 
Investment income                   377         -      377       275         -      275 
 
  Investment management fees       (38)      (13)     (51)      (36)      (12)     (48) 
 
Other expenses                    (220)         -    (220)     (169)         -    (169) 
 
Profit/(loss) on ordinary 
 activities before tax              119     (186)     (67)        70     (107)     (37) 
 
Taxation on profit/(loss) on 
 ordinary activities                  -         -        -      (12)         -     (12) 
 
Profit/(loss) on ordinary 
 activities after tax               119     (186)     (67)        58     (107)     (49) 
Earnings per share - basic 
 and diluted                       1.4p    (2.3)p   (0.9)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 Interim report. 
 
 
 
 
 
  Condensed Balance Sheet 
 
                                   Unaudited                 Audited 
                              As at 31 August 2017     As at 31 August 2016 
                              GBP'000     GBP'000      GBP'000     GBP'000 
Fixed asset investments                           -                    6,468 
Current assets: 
Fixed asset investments                       6,001                        - 
Debtors                              97                      215 
Cash at bank                        170                       25 
                                    267                      240 
Creditors: amounts falling 
 due within one year              (143)                    (103) 
Net current assets                              124                      137 
Net assets                                    6,125                    6,605 
 
Called up equity share 
 capital                                         82                       82 
Share Premium                                    99                       99 
Special Distributable 
 Reserve                                      6,455                    6,749 
Capital Redemption Reserve                        2                        2 
Capital Reserve Realised                      (169)                    (156) 
Capital Reserve Unrealised                    (344)                    (171) 
Revenue Reserve                                   -                        - 
Total equity shareholders' 
 funds                                        6,125                    6,605 
Net asset value per share                     74.3p                    80.1p 
 
 
   The statements were approved by the Directors and authorised for issue 
on 28 November 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                      -         -               -            -       (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 
 
 As at 1 September 2016                      82        99           6,749            2      (156)        (171)         -    6,605 
 
   Management fee allocated 
   as capital expenditure                     -         -               -            -       (13)            -         -     (13) 
 Current period losses on fair                                                                                              (173) 
 value of investments                         -         -               -            -          -        (173)         - 
 Profit on ordinary 
  activities after tax                        -         -               -            -          -            -       119      119 
 Contributions by and 
  distributions to owners 
 Dividends paid                               -         -           (294)            -          -            -     (119)    (413) 
 Balance as at 31 August 2017                82        99           6,455            2      (169)        (344)         -    6,125 
 
 
 
 
 
 
Condensed Cash Flow Statement 
 
 
 
 
                               Unaudited 
                         Year to 31 August 2017   Audited Year to 31 August 2016 
                                GBP'000                       GBP'000 
 
Cash flows from 
operating activities 
Return on ordinary 
 activities before 
 tax                                       (67)                             (37) 
Adjustments for: 
Decrease/(increase) 
 in debtors                                 118                            (109) 
Increase in creditors                        51                               34 
Loss on valuation of 
 fixed asset 
 investments                                173                               95 
Cash from operations                        275                             (17) 
Income tax paid                            (11)                             (19) 
Net cash generated 
 from operating 
 activities                                 264                             (36) 
 
Cash flows from 
investing activities 
Receipt of loan note 
 principal                                  294                              381 
Total cash flows from 
 investing 
 activities                                 294                              381 
 
Cash flows from 
financing activities 
Dividends paid                            (413)                            (413) 
Total cash flows from 
 financing 
 activities                               (413)                            (413) 
 
Increase/(decrease) 
 in cash and cash 
 equivalents                                145                             (68) 
 
Opening cash and cash 
 equivalents                                 25                               93 
 
Closing cash and cash 

 equivalents                                170                               25 
 
Cash and cash 
equivalents comprise 
Cash at bank                                170                               25 
                                            170                               25 
 
 
   Condensed Notes to the Interim Report 
 
   1. Accounting Policies 
 
   1.1 Basis of preparation 
 
   The Company has extended the financial year end from 31 August 2017 to 
28 February 2018. As the accounting period is beyond 14 months there is 
a requirement to produce an Interim report. The unaudited interim 
results have been prepared in accordance with the Financial Reporting 
Council's (FRC) Financial Reporting Standard 104 Interim Financial 
Reporting (March 2015) and the Statement of Recommended Practice for 
Investment Companies re-issued by the Association of Investment 
Companies in January 2017. 
 
   1.2 Going concern 
 
   On 9 August 2017 Shareholders approved a proposal for the Board to 
conduct an orderly wind up of the VCT through the sale of its assets and 
return capital to shareholders.  The sale of these assets is expected to 
occur within the next few months therefore the Directors do not consider 
it is appropriate to continue to prepare the accounts on a going concern 
basis and the financial statements have been prepared on a break up 
basis. 
 
   The impact on the financial statements is that fixed assets have been 
transferred to current assets and a provision is recognised for the 
expected costs of liquidation. As the shareholders have approved the 
disposal of the Company's assets there is a constructive obligation to 
recognise this provision and the provision is probable and can be 
reliably estimated. 
 
   2. Publication of non-statutory accounts 
 
   The unaudited interim results do not constitute statutory accounts 
within the meaning of Section 415 of the Companies Act 2006. 
 
   3. Earnings per share 
 
   Earnings per share at 31 August 2017 are calculated on the basis of 
8,245,592 shares (31 August 2016: 8,245,592 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 
 
   Net asset value per share is based on net assets as at 31 August 2017 
and 8,245,592 Ordinary shares in issue at that date (31 August 2016: 
8,245,592 shares). 
 
   5. Dividends 
 
   A final dividend, for the year ended 31 August 2016, of 5.0 pence per 
share was paid on 10 February 2017 to all shareholders on the register 
on 13 January 2017. No dividend is proposed for the period ended 31 
August 2017. 
 
   6. Related Party Transactions 
 
   Katrina Shenton, a non-executive director of Octopus VCT 3 plc during 
the period ended 31 August 2017, was an employee of Octopus. Octopus VCT 
3 plc paid Octopus GBP7,500 excluding VAT in the period for Katrina 
Shenton's Director's fees (31 August 2016: GBP7,500). However Katrina 
Shenton was not paid anything personally in the period as this was 
considered to be a normal part of her role as an Octopus employee. 
 
   Octopus provides investment management, administration and 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 
funds raised. However, as the running costs for the fund are capped at 
2.15% of the net funds raised, any excess will be met by Octopus through 
a reduction in its annual management fee. In light of this, during the 6 
months to 31 August 2017, management fees in the sum of GBP27,000 is 
reflected in the condensed income statement, resulting in an annual 
management fee for the year to 31 August 2017 of GBP51,000, of which 
GBP51,000 remained outstanding at the balance sheet date. For the year 
to 31 August 2016, GBP48,000 was payable to Octopus, of which GBPnil 
remained outstanding at the balance sheet date. 
 
   Octopus is also entitled to receive an annual accounting and 
administration fee of 0.3% of net funds raised. During the period to 31 
August 2017 GBP23,000 was paid to Octopus and there was GBP23,000 
outstanding at the balance sheet date. For the year to 31 August 2016, 
GBP22,000 was payable to Octopus and GBPnil remained outstanding at the 
balance sheet date. 
 
   In addition, Octopus also provides company secretarial services for an 
additional fee of GBP7,500 per annum. For the period to 31 August 2017, 
GBP7,500 was payable to Octopus and GBP7,500 remained outstanding at the 
balance sheet date. For the year to 31 August 2016, GBP7,500 was payable 
to Octopus and GBPnil remained outstanding at the balance sheet date. 
 
   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. 
 
   7. Other Information 
 
   Copies of this report are available from the registered office of the 
Company at 33 Holborn, London, EC1N 2HT. 
 
   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 
 
 
 
 

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November 28, 2017 12:49 ET (17:49 GMT)

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