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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Octopus 4 | LSE:OCV4 | London | Ordinary Share | GB00B6QM2B64 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2.40 | 0.90 | 3.90 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Octopus VCT 4 plc
Final Results
30 November 2016
Octopus VCT 4 plc, managed by Octopus Investments Limited, today
announces its final results for the year ended 31 August 2016.
Financial Summary
As at As at
31 August 2016 31 August 2015
Net assets (GBP'000s) 6,605 7,066
(Loss)/profit on ordinary activities after tax (GBP'000s) (49) 14
Net asset value (NAV) per share 80.1p 85.7p
Cumulative dividends paid since launch 15.0p 10.0p
NAV plus cumulative dividends paid 95.1p 95.7p
Dividends paid in year 5.0p 5.0p
Proposed final dividend for the year 5.0p 5.0p
Key Dates
Annual General Meeting 25
January 2017 at 4.00 p.m.
Dividend Payment Date 10 February 2017
Half Yearly Results to 28 February 2017 Announced May 2017
Chairman's Statement
Introduction
I am pleased to present the Annual Report of Octopus VCT 4 plc (the
Company) for the year ended 31 August 2016.
Performance
During the period the Total NAV Return (current NAV plus cumulative
dividends paid to date) of the Company has decreased from 95.7 pence per
share at 31 August 2015 to 95.1 pence per share at 31 August 2016.
As a reminder, the NAV (Net Asset Value) excluding dividends is designed
to fall to zero over the life of the Company as the annual dividend is
paid out and the value of the solar companies gradually reduces over
their 25 year operating lives. Consequently the underlying NAV has
decreased from 85.7p per share at 31 August 2015 to 80.1p per share at
31 August 2016.
On a day to day basis, our investments continue to perform in line with
expectations. The technical issues experienced at two of the sites are
being resolved and revenue is growing back to expected levels. The cost
of fixing these sites has been greater than originally budgeted but
outperformance from other sites in the portfolio over the summer period
has comfortably offset the loss of output at these two sites.
Both the valuation of the Company's investments and its capacity to pay
dividends in the longer term are derived from the forecast revenue flows,
based on estimates of power prices over the remaining life of the
assets. Since the launch of the Company prices and longer term power
price forecasts have fallen and if prices remain at current levels it
will not be possible to maintain the payment of a 5p annual dividend.
It should be noted that 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 in spite of close attention to
costs by the Manager and your Board.
Dividend Policy and Dividend
The current cash balance held by the Company is sufficient to cover the
next dividend of 5p, whilst maintaining a prudent reserve for operating
purposes. Therefore, in line with the dividend policy stated in the
Prospectus, your Board has proposed a final dividend of 5.0p per share
in respect of the year ended 31 August 2016. This dividend, if approved
by shareholders at the AGM, will be paid on 10 February 2017 to
shareholders on the register on 13 January 2017.
Investment Portfolio
The Company is fully invested in seven companies, each containing an
operational solar site. These sites have a range of capacities between
1-2MWp and benefit from either the Feed In Tariff (FIT) or Renewables
Obligation Certificates (ROCs), which form part of their revenue stream
alongside the electricity they sell on the wholesale market.
There are no plans to make any further investments. The Company has also
made two non-qualifying loans to the solar companies from which it earns
interest. Due to changes to legislation, no new non-qualifying loans
will made in the future.
Key Portfolio Operational Risks
The Company owns a portfolio of fully operational assets, therefore, the
number of risks faced is reduced as all core construction phases are
effectively complete. Three sites have passed and signed off their final
acceptance certificates (full two year performance testing), largely
releasing the EPC of their contractual obligations to the site. The
other four sites are currently undergoing their final acceptance
certificates process. 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 via
Power Purchase Agreements (PPAs) to reduce income volatility. However, it
should be noted that long term power price forecasts 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 and the companies have insurance that, in the
event of a fault lasting more than 5 days, can be called to claim for
revenue losses. Furthermore, once the site has completed its construction
contract, operation and maintenance contracts are put in place that
incentivise availability and performance levels.
-- Weather- all forecasts are based on an assumed level of sunlight each
year, however it should be noted that not all years will have an equal
amount. Less sunlight reduces revenues received but a prudent approach is
taken in forecasting revenue to reduce the likelihood of occurring
shortfall against budget.
-- Site Market Value - there are a number of drivers in the value of a solar
site. Underlying assumptions are continually revised for macroeconomic
changes (e.g. inflation expectations), industry specific drivers (e.g.
business rates, embedded benefits), in addition to the track record of
specific site performance.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager
with advice concerning ongoing compliance with HMRC rules and
regulations concerning VCTs. The Board has been advised that the
Company is compliant with the conditions laid down by HMRC for
maintaining approval as a VCT.
A key requirement is to maintain at least a 70% qualifying investment
level. As at 31 August 2016, 88.6% of the portfolio, as measured by HMRC
rules, was invested in VCT qualifying investments. The Board is
confident that the 70% target will be maintained on an ongoing basis.
Annual General Meeting
The Directors look forward to meeting as many shareholders as possible
at our Annual General Meeting on 25 January 2017, to be held at the
offices of Octopus Investments Limited, 33 Holborn, London, EC1N 2HT.
The AGM will start at 4.00 p.m.
Outlook
Over the preceding six month period there has been a slight recovery in
oil and gas prices in the short term, partially due to the depreciation
of Sterling, resulting in higher UK price expectations of international
coal and gas supplies. However, world oil and gas prices remain
depressed and the negative impact of low energy prices has affected the
power generation industry as a whole. The decline in electricity prices
has reduced revenue generation and the value of electricity generators.
We expect UK power prices to remain depressed in the wake of the current
over-supply and demand slump for global energy. This has impacted
forecast revenue generation and overall asset value, and hence the
Company's ability to deliver a NAV plus cumulative dividends paid of
110p per share at the 5 year point. As a reminder, the 110p comprises
the sum of four annual dividends of 5p each and a targeted NAV of the
solar assets of 90p at the 5 year point (i.e. 5p x 4 + 90p = 110p).
As it stands today, and as highlighted in the half yearly report ended
29 February 2016, achieving a 90p NAV at the 5 year point is most
unlikely and would require energy price forecasts to increase materially
in the short term. Other key reasons that should be noted as to why the
target is unlikely to be met include the drastic FIT reductions
implemented by the Government in late 2011 (the Fund Manager reduced
fees in an attempt to offset the reduction), as well as the impact of
relatively higher running costs as a result of the lower than
anticipated funds raised at the outset.
The recent well publicised announcements by the Government in respect of
ending the various subsidy regimes for large scale solar PV in the UK
may have a positive effect on the value of the existing portfolio of
assets given that there is now a limited supply of 'green' energy to
meet increasing demand. As noted in the half yearly report, the
valuations of the assets has been updated to reflect this positive
uplift, with the two ROC sites having their discount rate lowered in
line with the market.
Finally, the Board is mindful that investors will pass through their
five year VCT qualifying period over the course of Spring and Summer
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 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. The Board is therefore
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 orderly wind up of the VCT through
the sale of its assets and the return of capital to shareholders.
The conclusions of these deliberations will be communicated at the
earliest opportunity and shareholders will be invited to vote on the
Board's recommendations as appropriate. In the meantime, in order to
protect the interests of all shareholders, the Board has decided to
suspend the share buyback facility in the intervening period. All
shareholders will have passed through their five year holding period in
September 2017 by which point I expect to be in a position to make
recommendations for the future of the VCT and the provision of liquidity
to shareholders. An update will be provided in the interim report.
Graham Paterson
Chairman
30 November 2016
Investment Manager's Review
Personal Service
At Octopus we have a dual focus, on managing your investments and
keeping you informed throughout the investment process. We are
committed to providing our investors with regular and open
communication. Our updates are designed to keep you informed about the
progress of your investment.
Octopus Investments Limited was established in 2000 and has a strong
commitment to both smaller companies and to VCTs. Octopus also acts as
Investment Manager to seven other VCTs and currently has over GBP6
billion of funds under management. Octopus has around 500 employees
Portfolio Review
The Company has invested in a portfolio of seven individual solar
companies, each of which owns and operates a solar site in the 1-2MWp
range. The first five sites have all been accredited for the FIT and
have just passed their fourth full year of operation since
commissioning. The remaining two sites were accredited under ROCs and
are at their three and a half year point of operations.
During this period, the Board approved to engage Quintas Energy as the
new asset manager. Octopus will continue to be the investment manager
and work closely with Quintas Energy to monitor the overall operations
of the solar companies. Overall, this has had a positive financial
impact to the valuation. The investment manager believes that the
companies will receive a better service and enable Octopus to drive
asset optimisation projects for the sites.
Over the previous period three sites, Debes which owns a FIT site,
Delambre and Huygens which own the two ROC sites, had experienced
technical issues during the financial year. For all three sites, they
experienced technical difficulties during the period. For the Huygens
site, the issue was rectified before the summer months, as a result, the
site was able to generate electricity 5% above budget during the last
six months. However, when considering the overall performance for the
whole financial year, the site produced 21% less electricity compared to
budget. The other two sites were affected to a much less extent in
revenue loss. At Debes, the site was operating around 89% of capacity
and Delambre at 91%. The lower than anticipated performance has had a
negative impact to the valuation of these companies. The investment team
continues to closely monitor the issues and working with the new asset
manager to ensure all issues are resolved.
Other than the abovementioned issues the portfolio of seven sites has
overall been performing in line with expectations since the start of
operations due to good PPA terms.
Company Performance
Between 31 August 2015 and 31 August 2016, the NAV has decreased, as
would be expected. This is primarily due to the payment of the 5p
dividend in January 2016. The table below shows the movements between
the two periods:
Changes in NAV between August 2015 and August 2016
NAV at 31 August 2015 85.7
Cash distributions from solar companies 3.3
Revaluation of solar companies (1.2)
VCT running costs (2.7)
Dividends paid (5.0)
NAV at 31 August 2016 80.1
It should be noted that the fixed running costs of the Company have been
proportionately higher due to the smaller than anticipated fundraise
into the VCTs in 2011/2012. However, we continue to review costs in
order to keep these at a minimum and ensure the potential NAV is
optimised.
Company Outlook
The Board is mindful that investors will pass through their five year
VCT qualifying period over the course of Spring and Summer 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 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 orderly wind up of the VCT through the sale
of its assets and the return of capital to shareholders.
For the assets, the key risk is the impact of long term power prices
which have dropped during the past year, despite slightly recovering
because of the depreciation of the Sterling. Unfortunately, there is
little that can be done in the immediate term, apart from negotiating
better purchasing power agreements for electricity generated. The team
have explored the possibility of extending the asset life beyond the
current 25 years. However, this option would not have significant
positive impact to the NAV. The team continue to investigate ways in
which we can optimise or enhance the existing portfolio to create more
value through technical improvements.
As previously mentioned, the Government has effectively ended subsidies
for new solar PV projects in the UK. This has the potential to increase
the value of existing assets in the portfolio given there will now be a
finite amount available in the market, and investors have become
increasingly interested in such asset classes due to their relatively
predictable income and established technology. During the period we have
monitored the market closely and have adjusted the discount rates for
the two ROC sites according to market trends, which has had a positive
impact to the valuations.
We continue to monitor the renewables sector on a regular basis and the
discount rates used to value the solar sites within the Company's
portfolio are in line with market practice seen at present. Any changes
to discount rates used by market participants in the future may cause us
to change the discount rates we use to determine fair value of the
investments.
If you have any questions on any aspect of your investment, please call
one of the team on 0800 316 2295.
Matt Setchell
Octopus Investments Limited
30 November 2016
Investment Portfolio
% Equity
Movement Fair held by
Investment in fair value as % equity all
cost as at value to at 31 held by funds
31 August 31 August August Movement Octopus managed
2016 2016 2016 in period VCT 4 by
Investments Sector (GBP'000) (GBP'000) (GBP'000) (GBP'000) plc Octopus
Delambre
Energy Solar 1,395 (60) 1,335 97 49.9% 100.0%
Huygens
Energy Solar 1,202 (45) 1,157 (28) 49.9% 100.0%
Adala Solar Solar 860 55 915 (39) 49.9% 100.0%
Akycha Power Solar 735 56 791 (36) 49.9% 100.0%
Daubree
Energy Solar 828 (30) 798 (18) 49.9% 100.0%
Debes Energy Solar 878 (108) 770 (27) 49.9% 100.0%
Lacaille
Energy Solar 740 (38) 702 (44) 49.9% 100.0%
Fixed asset
investments 6,638 (170) 6,468 (95)
Cash at bank 26
Debtors less
creditors 111
Total net assets 6,605
All solar companies within the portfolio saw changes in valuations due a
number of factors including, cash distributions made up to the VCTs,
updates to the long term energy forecasts, both site under and over
performance, changes in rates and tax assumptions . These are reflected
in the above movements for the period.
Valuation Overview
Due to the nature of assets owned by the portfolio companies being UK
based solar sites with 25 year revenue streams, they are considered to
be limited life assets. Consequently, they are expected to gradually
decrease in value to zero over their productive life. This is because
the Government backed revenue streams only extend to 25 years (for FIT
projects), and the planning permission, lease length and design life of
equipment are also based on the same timeframe. As the number of years
of revenue production reduces, the value of the assets is expected to
decline. In addition, after each dividend is paid out you should expect
to see the NAV decrease accordingly at the following valuation by an
equivalent amount.
However, it should be noted that, in addition to the expected decline
over time, the NAV may fluctuate slightly year-on-year. This is because
the valuation is also based on the expected future revenues from selling
the electricity generated by the sites, which is impacted by factors
such as the level of sunlight in any particular year.
Valuation Methodology
Until payment of the first dividend in early 2014, each company had been
valued at cost. In February 2014, the first valuations were performed
using a non-cost approach and also taking into account dividends paid
out by each company up to that point. This methodology has continued to
be used for the valuations in this period.
Future estimates of fair value are based on the Investment Manager's
assessment of market value, which is based on a Net Present Value (NPV)
approach. This NPV is calculated by estimating the rate of return an
incoming investor may require, and using this rate to discount the value
of future cash flows into present value terms.
Any cash and accrued revenues owed to the company, less any debt or loan
interest owed by the company at the time of valuation, is then added to
this NPV to provide a final valuation of the equity in the company.
Investment Portfolio
Adala Solar Limited
Adala Solar constructed a 1.2MWp solar site near Congresbury in Somerset
in July 2012. The site has been fully operational for over 4 years and
is receiving revenues from the FIT, as well as the sale of the
electricity it produces on the wholesale market.
Akycha Power Limited
Akycha Power constructed a 1.0MWp solar site near Newport on the Isle of
Wight in July 2012. The site has been fully operational for over 4 years
and is receiving revenues from the FIT, as well as the sale of the
electricity it produces on the wholesale market.
Daubree Energy Limited
Daubree Energy constructed a 1.2MWp solar site near Cullompton in Devon
in July 2012. The site has been fully operational for over 4 years and
is receiving revenues from the FIT, as well as the sale of the
electricity it produces on the wholesale market.
Debes Energy Limited
Debes Energy constructed a 1.2MWp solar site near Tiverton in Devon in
July 2012. The site has been fully operational for over 4 years and is
receiving revenues from the FIT, as well as the sale of the electricity
it produces on the wholesale market.
Delambre Energy Limited
Delambre Energy constructed a 1.9MWp solar site near Ivybridge in Devon
in March 2013. The site has been fully operational for around three and
half years and is receiving revenues from the sale of the ROCs, as well
as the sale of the electricity it produces on the wholesale market.
However, due to some poorly installed cables during construction, and
the subsequent insolvency of the EPC, this company has taken on an
additional liability for rectification works.
Huygens Energy Limited
Huygens Energy constructed a 1.8MWp solar site near Cullompton in Devon
in March 2013. The site has been fully operational for around three and
half years and is receiving revenues from the sale of the ROCs, as well
as the sale of the electricity it produces on the wholesale market.
Rectification works were completed over the winter of 2015 and it
returned to being fully operational in the summer of 2016.
Lacaille Energy Limited
Lacaille Energy constructed a 1.1MWp solar site near Crediton in Devon
in July 2012. The site has been fully operational for over 2 years and
is receiving revenues from the FIT, as well as the sale of the
electricity it produces on the wholesale market.
Income Statement
Year ended 31 August 2016 Year ended 31 August 2015
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Loss on
valuation
of fixed
asset
investments 10 - (95) (95) - (62) (62)
Investment
income 2 274 - 274 309 - 309
Investment
Management
fees 3 (36) (12) (48) (37) (12) (49)
Other
expenses 4 (168) - (168) (165) - (165)
Net return
on ordinary
activities
before tax 70 (107) (37) 107 (74) 33
Taxation 6 (12) - (12) (19) - (19)
Net return
on ordinary 58 (107) (49) 88 (74) 14
activities
after tax
Earnings per 8
share - 0.7p (1.3)p (0.6)p 1.1p (0.9)p 0.2p
basic and
diluted
-- The 'Total' column of this statement is the profit or loss account of the
Company; the supplementary 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. Accordingly a Statement of Comprehensive
Income is not required.
Statement of Financial Position
As at 31 August 2016 As at 31 August 2015
Notes GBP'000 GBP'000 GBP'000 GBP'000
Fixed asset
investments* 10 6,468 6,944
Current assets:
Debtors 11 215 104
Cash at bank 26 92
241 196
Creditors: amounts
falling due within one
year 12 (104) (74)
Net current assets 137 122
Net assets 6,605 7,066
Called up equity share
capital 13 82 82
Share Premium 99 99
Special Distributable
Reserve 6,747 7,101
Capital Redemption
Reserve 2 2
Capital Reserve -
Unrealised (171) (76)
Capital Reserve -
Realised (154) (142)
Revenue Reserve - -
Total shareholders'
funds 6,605 7,066
Net asset value per 9 80.1p 85.7p
share
*Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue
on 30 November 2016 and are signed on their behalf by:
Graham Paterson
Chairman
Company No: 07743878
Statement of Changes in Equity
Special Capital Capital Capital
Share Share distributable redemption reserve reserve Revenue
Capital Premium reserves reserve unrealised realised 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 7,442 1 (14) (130) - 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 - - - - - - 88 88
Contributions
by and
distributions
to owners:
Repurchase and
cancellation
of own shares (1) - (16) 1 - - - (16)
Dividends paid - - (325) - - - (88) (413)
Balance as at
31 August
2015 82 99 7,101 2 (76) (142) - 7,066
As at 1
September
2015 82 99 7,101 2 (76) (142) - 7,066
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 - - (354) - - - (58) (412)
Balance as at
31 August
2016 82 99 6,747 2 (171) (154) - 6,605
Statement of Cash Flow
Year ended 31 August Year ended 31 August
2016 2015
Notes GBP'000 GBP'000
Cash flows from
operating activities
Return on ordinary
activities before
tax (37) 33
Adjustments for:
Increase in debtors 11 (111) (13)
Increase/(decrease)
in creditors 12 37 (5)
Loss on valuation of
fixed asset
investments 10 95 62
Cash from operations (16) 77
Income taxes paid (19) (21)
Net cash generated
from operating
activities (35) 56
Cash flows from
investing activities
Receipt of loan note
principal 10 381 175
Net cash flows from
investing
activities 381 175
Cash flows from
financing activities
Purchase of own
shares - (16)
Dividends Paid (412) (413)
Net cash flows from
financing
activities (429)
(Decrease) in cash
and cash
equivalents (66) (198)
Opening cash and cash
equivalents 92 290
Closing cash and cash
equivalents 26 92
Cash and cash
equivalents comprise
Cash at Bank 26 92
26 92
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 4 plc via Globenewswire
(END) Dow Jones Newswires
December 01, 2016 05:56 ET (10:56 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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