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

 
TIDMOCV3 
 
 
   Octopus VCT 3 plc 
 
   Unaudited Half-Yearly Report for the Period Ended 29 February 2016 
 
   23 May 2016 
 
 
   Octopus VCT 3 plc, managed by Octopus Investments Limited, today 
announces the Half-Yearly results for the period ended 29 February 2016. 
 
   These results were approved by the Board of Directors on 23 May 2016. 
 
   You may, in due course, view the Half-Yearly Report in full at 
www.octopusinvestments.com by navigating Investors, Octopus VCT 3 plc. 
All other statutory information will also be found there. 
 
   Financial Summary 
 
 
 
 
 
                        Six months to      Six months to 28        Year to 
                       29 February 2016     February 2015       31 August 2015 
 
Net assets 
 (GBP'000s)                       6,443                 7,278            7,067 
Return on ordinary 
 activities after 
 tax (GBP'000s)                   (212)                   210               15 
Net asset value per               78.1p                 88.1p            85.7p 
 share ("NAV") 
Dividends paid since              15.0p                 10.0p            10.0p 
 launch 
Total Value per                   93.1p                 98.1p            95.7p 
 share 
 
 
 
   Chairman's Statement 
 
   I am pleased to present the half-yearly report for Octopus VCT 3 plc for 
the period ended 29 February 2016. 
 
   Performance 
 
   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 85.7 pence per 
share at 31 August 2015 to 78.1 pence per share at 29 February 2016, 
while the Total Value per share, including dividends paid to date of 15p 
stands at 93.1p (down from 95.7p at 31 August 2015). 
 
   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 GBP1,239,000 (equivalent to 12.5 pence per share) to 
the Company. 
 
   The drop in NAV is slightly higher than expected because valuations have 
been affected by falling power price forecasts in response to the 
reduction in global demand for energy. Projected power prices over the 
remaining life of the assets, as prepared by an industry expert, have 
been applied to forecast revenues with the result that the targeted NAV 
of 90p at the five year point is most unlikely to be achieved. In 
addition, 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, so this conclusion 
may change over time. The current forecast energy price leads to a 
projection showing that the Company could pay an annual dividend of 
circa. 4.4p until the end of the investment horizon. 
 
   Regarding revenue generation, the level of irradiance during the winter 
months was lower than anticipated resulting in some under-performance 
leading in turn to a reduction in revenues over the past six months. On 
the other hand, the technical issues which affected two sites in the 
portfolio are being resolved and production is gradually returning to 
expected levels. Furthermore, the Company has entered into Power 
Purchase Agreements (PPAs) for sale of electricity at a fixed price 
which is higher than the current wholesale electricity price. 
 
   While recent performance has been below budget, revenue generated since 
the start of operations is greater than that budgeted, due largely to 
better than anticipated electricity revenues negotiated through the 
fixed price PPAs. 
 
   Please see the table below for movements in NAV from 31 August 2015 to 
29 February 2016, including dividends paid during the period. 
 
 
 
 
     NAV changes since August 2015 
     NAV at 31 August 2015        85.7p 
Cash distributions from SolarCos  +1.8p 
    Revaluation of SolarCos       -2.8p 
       VCT running costs          -1.6p 
         Dividends paid           -5.0p 
    NAV at 29 February 2016       78.1p 
 
 
   The focus remains on generating revenues to pay the targeted 5p annual 
dividend. In order to maintain returns to investors the fixed running 
costs of the Company are carefully controlled, but the smaller than 
anticipated amount of funds raised for the Company in 2011/2012 and the 
resulting reduction in economies of scale leaves less margin for 
protection of the dividend than would otherwise have been the case. 
 
   Investment Policy & Portfolio 
 
   The Company is 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 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 three years and have been 
performing satisfactorily as a portfolio since the start of operations. 
However, as mentioned in the Year End Financial Statements in August 
2015, two sites in the portfolio had experienced a number of technical 
issues which resulted in under-performance and loss of revenues for 
those specific sites. The issues are being resolved and overall, the 
portfolio companies are generating revenues in line with their forecasts 
and receiving revenues on a regular basis. 
 
   There are no plans to make any further qualifying investments as the 
Company intends to hold the assets for their full operating lives of 25 
years. 
 
   The Company also holds a small portion of funds for making short term 
non-qualifying loans from which it earns interest. Within the period 
under review repayments were received in from Daubree Energy 
(GBP172,000), Debes Energy (GBP102,000) and Lacaille Energy (GBP43,000), 
together with accrued interest. 
 
   There has been a change in legislation by HM Treasury in response to 
European regulations whereby the Company will no longer be able to make 
non-qualifying investments. All new investments have to be qualifying 
and there are restrictions on the type of investments used for liquidity 
management. However, the existing holdings of non-qualifying loans to 
Delambre Energy and Huygens Energy may continue until maturity. 
 
   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. Indeed all sites have now passed and signed off their 
final acceptance certificates (full two year performance testing), 
largely releasing the Engineering Procurement Construction of their 
contractual obligations to the site. 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. 
 
   -- Business Rates -business rates are due to be assessed and determined by 
      October 2016. Currently, there is uncertainty over the potential impact 
      which this revaluation may have, but given the proportion of the site 
      operation costs it represents, it could affect future dividends and the 
      NAV. 
 
   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 29 February 2016, qualifying investments 
represented 92.31% of the Company's portfolio. Octopus expects the 
required investment hurdle to be maintained. 
 
   Outlook 
 
   Over the preceding six month period the oil and gas price, the key 
market driver for the wholesale power price, has suffered a steep 
decline and forecast electricity prices have followed suit. The negative 
impact of low energy prices has affected the whole industry. 
 
   As it stands today and as highlighted in the annual report for the year 
ended 31 August 2015, the downward pressure on energy prices means that 
the 5p per annum dividend and the total return of 110p per share at the 
five year point are under threat. 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). 
 
   It should be highlighted that the announcement by the Government in 
respect of ending the various subsidy regimes for large scale solar PV 
in the UK has had positive effect on the value of existing portfolio of 
those assets which continue to attract the subsidy. Prospective buyers 
of such assets have lowered their earnings expectations by a marginal 
reduction in the discount rate they apply to purchases, and this has 
been reflected in the valuation of the two ROC sites in your portfolio. 
 
   Gregor Michie 
 
   Chairman 
 
   23 May 2016 
 
   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 '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 2016 
 
   Income Statement 
 
 
 
 
                                  Six months to 29 February   Six months to 28 February 
                                             2016                        2015              Year to 31 August 2015 
                                  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 
 
Gain on disposal of fixed asset 
 investments                         -        -        -         -        -        -         -        -        - 
 
Gain/(loss) on valuation of 
 fixed asset investments                -    (233)     (233)        -      193       193        -     (62)     (62) 
 
Income                                148        -       148      155        -       155      309        -      309 
 
  Investment management fees          (6)     (19)      (25)     (12)     (36)      (48)     (37)     (12)     (49) 
 
Other expenses                       (92)        -      (92)     (79)        -      (79)    (164)        -    (164) 
 
Profit/(loss) on ordinary 
 activities before tax                 50    (252)     (202)       64      157       221      108     (74)       34 
 
Taxation on profit/(loss) on 
 ordinary activities                 (10)        -      (10)     (11)        -      (11)     (19)        -     (19) 
 
Profit/(loss) on ordinary 
 activities after tax                  40    (252)     (212)       53      157       210       89     (74)       15 
Profit/(loss) per share - basic 
 and diluted                         0.5p   (3.1)p    (2.6)p     0.6p     1.9p      2.5p     1.1p   (0.9)p     0.2p 
 
 
   There is no other comprehensive income for the period. 
 
 
   -- 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. 
 
 
 
 
 Balance Sheet 
                As at 29 February    As at 28 February 
                       2016                 2015          As at 31 August 2015 
                GBP'000   GBP'000    GBP'000    GBP'000    GBP'000    GBP'000 
 
Fixed asset 
 investments*                6,395                 7,199                 6,944 
Current 
assets: 
Debtors              115                   76                   106 
Cash at bank          34                   84                    93 
                     149                  160                   199 
Creditors: 
 amounts 
 falling due 
 within one 
 year              (101)                 (81)                  (76) 
Net current 
 assets                         48                    79                   123 
Net assets                   6,443                 7,278                 7,067 
 
Called up 
 equity share 
 capital                        82                    83                    82 
Share Premium                   99                    99                    99 
Special 
 Distributable 
 Reserve                     6,692                 7,031                 7,104 
Capital 
 Redemption 
 Reserve                         2                     1                     2 
Capital 
 Reserve - 
 Unrealised                  (309)                   179                  (76) 
Capital 
 Reserve - 
 Realised                    (163)                 (168)                 (144) 
Revenue 
 Reserve                        40                    53                     - 
Total equity 
 shareholders' 
 funds                       6,443                 7,278                 7,067 
Net asset                    78.1p                 88.1p                 85.7p 
 value per 
 share 
 
 
   *Held at fair value 
 
   The statements were approved by the Directors and authorised for issue 
on 23 May 2016 and are signed on their behalf by: 
 
   Gregor Michie 
 
   Chairman 
 
   Company Number: 07744056 
 
 
 
   Statement of Changes in Equity 
 
 
 
 
 
 
                                                       Capital 
                                           Special     reserve 
                       Share    Share   distributable     -                                    Capital redemption  Revenue 
                      Capital  Premium    reserves     realised  Capital reserve - unrealised       reserve        reserve   Total 
                      GBP'000  GBP'000        GBP'000   GBP'000                       GBP'000             GBP'000  GBP'000  GBP'000 
 As at 1 September 
  2014                     83       99          7,444     (132)                          (14)                   1        -    7,481 
 Management fee 
  allocated as 
  capital 
  expenditure               -        -              -      (12)                             -                   -        -     (12) 
 Current period 
  losses on fair 
  value of 
  investments               -        -              -         -                          (62)                   -        -     (62) 
 Profit on ordinary 
  activities after 
  tax                       -        -              -         -                             -                   -       89       89 
 Contributions by 
 and distributions 
 to owners 
 Repurchase of own 
  shares                  (1)        -           (16)         -                             -                   1        -     (16) 
 Dividends paid             -        -          (324)         -                             -                   -     (89)    (413) 
 
 Balance as at 31 
  August 2015              82       99          7,104     (144)                          (76)                   2        -    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     (163)                         (309)                   2       40    6,443 
 
 
 
 
 
 
 
 
 
Cash flow statement 
 
 
 
 
 
                        Six months to 29 February 2016  Six months to 28 February 2015  Year to 31 August 2015 
                                    GBP'000                         GBP'000                     GBP'000 
 
Cash flows from 

operating activities 
Return on ordinary 
 activities before 
 tax                                             (202)                             221                      34 
Adjustments for: 
(Increase)/decrease 
 in debtors                                        (9)                              17                    (13) 
(Decrease)/increase 
 in creditors                                       14                            (14)                     (6) 
Gain/(loss) on 
disposal of fixed 
assets                                               -                               -                       - 
(Gain)/loss on 
 valuation of fixed 
 asset investments                                 233                           (193)                      62 
Cash from operations                                36                              31                      77 
Income taxes paid                                    -                               -                    (21) 
Net cash generated 
 from operating 
 activities                                         36                              31                      56 
 
Cash flows from 
investing activities 
Purchase of fixed 
asset investments                                    -                               -                       - 
Receipt of loan note 
 principal                                         317                             175                     175 
Total cash flows from 
 investing 
 activities                                        317                             175                     175 
 
Cash flows from 
financing activities 
Purchase of own 
 shares                                              -                               -                    (16) 
Dividends paid                                   (412)                           (413)                   (413) 
Total cash flows from 
 financing 
 activities                                      (412)                           (413)                   (429) 
 
Decrease in cash and 
 cash equivalents                                 (59)                           (207)                   (198) 
 
Opening cash and cash 
 equivalents                                        93                             291                     291 
 
Closing cash and cash 
 equivalents                                        34                              84                      93 
 
 
 
   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 
 
   HUG#2014706 
 
 
 
 

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May 23, 2016 12:53 ET (16:53 GMT)

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