Octopus VCT 3 plc : Final Results

Octopus VCT 3 plc

Final Results

21 June 2018

Octopus VCT 3 plc, managed by Octopus Investments Limited, today announces its final results for the year ended 28 February 2018.

Financial Summary

Chairman's Statement

Introduction
I am pleased to present the Annual Report of Octopus VCT 3 plc ("Company") for the period ended 28 February 2018.

Update on the Sale Process and Performance
The Company was originally established as a VCT with a 25-year limited life.  On 9 August 2017 in line with the Board's recommendation the Shareholders approved a proposal to conduct an orderly wind up of the VCT, through the sale of the Company's assets ("Assets") to return capital to its Shareholders in 2018.  The Investment Manager has been managing the sale process with approvals from the Board during each phase.  In November, following the completion of a competitive tender process for the Assets, the Board approved a bilateral phase of negotiation and due diligence with the preferred bidder. Subsequently, the due diligence process was completed and a sale ("Sale") of the Assets finalised on 2 May 2018. The value achieved from the sale of the Assets was higher than the previous valuations, increasing the underlying NAV from 74.3 per share on 31 August 2017 to 91.7p as at 28 February 2018. The Total Value per share, which includes the underlying NAV and dividends paid to date of 20p, now stands at 111.7p, up from 94.3 on 31 August 2017. The Prospectus indicated a potential return at this stage of 110p per share.

No dividends have been paid since February 2017 as a result of the sale and orderly wind up process. Most of the cash from the sale of the Assets will be paid to Shareholders as a dividend by the end of July 2018. A small amount of capital will be retained by the Company for a period of three to four months following the sale of the Assets, to cover potential liabilities and unforeseen costs, in accordance with the sales agreement. The remaining capital will then be distributed to Shareholders as a second dividend, however, this is expected to be minimal.

PricewaterhouseCoopers LLP provides the Board and the Investment Manager with advice concerning ongoing compliance with HMRC's 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 for VCTs is to maintain at least a 70% Qualifying Investment level.  As at 28 February 2018, 86.3% of the portfolio, as measured in accordance with HMRC's rules, was invested in VCT Qualifying Investments. In order to ensure the Company continues to comply with the VCT qualification requirement to hold at least 30% of its portfolio in equity, the Company invested in a new issue of VCT qualifying shares by an AIM traded company.

Annual General Meeting
The Directors look forward to meeting as many shareholders as possible at our Annual General Meeting on 31 August 2018, to be held at the offices of Octopus Investments Limited, 6th Floor, 33 Holborn, London, EC1N 2HT. The AGM will start at 4.00 p.m.

Outlook
The Board is not proposing to pay a final dividend in respect of the period ended 28 February 2018. However, as the sale of the Assets has now completed, your Board is proposing to pay a dividend to the Company's Shareholders in July.  As noted previously, a small amount of cash will be retained to accommodate for any potential liabilities, VCT wind up costs and VCT running costs up to the point of liquidation.  Following the expiry of three to four months, the remaining value will be distributed as a second dividend. The process for the liquidation of the company is expected to commence following the 2018 AGM on 31 August 2018.

Gregor Michie
Chairman
21 June 2018
       

Investment Manager's Review (Unaudited)

Personal Service
At Octopus we have a dual focus, on managing investments and keeping Shareholders informed throughout the investment cycle and process.  We are committed to providing the VCT's Shareholders with regular and open communication. Our updates are designed to keep Shareholder's informed about the progress of their investments.

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 five other VCTs and currently has over £6 billion of funds under management.  Octopus has around 800 employees.

Portfolio Review
The Company was invested in a portfolio of seven individual solar companies, each of which owned and operated a solar site in the 1-2MWp range. The first five sites were accredited for FIT and the remaining two sites were accredited under ROCs.

Octopus has managed the performance of the solar sites on behalf of the Company in order to maximise the value to the VCT's Shareholders.  This has included overseeing construction and the resolution of various technical issues following the insolvency of a construction contractor.  All of these works were disclosed to the buyer of the sites and checked by a technical advisor.  The portfolio of the seven sites has overall been performing in line with expectations since the start of the operations.

Company Performance
Between 31 August 2016 and 28 February 2018, the NAV increased due to the price achieved on sale of the Assets. The table below shows the movements between the two periods:

Company Outlook
With the successful completion of the sale of the seven solar assets, the Investment Manager no longer manages the sites.  The team was heavily involved in sharing information with the buyer and answering all legal, technical and financial due diligence queries during the sale process. The Investment Manager's team is happy to have negotiated on behalf of the Shareholders the sale of the assets at a level that exceeded the holding value. The process for the liquidation of the company is expected to commence following the 2018 AGM on 31 August 2018.

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
21 June 2018

Investment Portfolio

Valuation Overview
Investments are regularly reviewed to ensure that the fair values are appropriately stated.  Quoted investments are valued in accordance with the bid-price on the relevant date, unquoted investments are valued in accordance with current International Private Equity and Venture Capital (IPEVC) valuation guidelines. The sale of the Assets has resulted in a positive variance between previous valuations compared to the final sales price.

Valuation Methodology
As at 28 February 2018 these assets are valued at the consideration offered by the Buyer. The price was agreed on 2 May 2018 for a consideration of £15.1m across both VCTs (Octopus VCT 3 plc and Octopus VCT 4 plc). As a result, the valuation methodology has changed from discounted cash flows method to the fair value as indicated by the sale price of the assets. The total consideration is split between each of the assets based on site capacity.

Investment Portfolio

Adala Solar Limited
Adala Solar constructed a 1.24MWp solar site near Congresbury in Somerset in July 2012. The site has been fully operational for over four 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 1.05MWp solar site near Newport on the Isle of Wight in July 2012. The site has been fully operational for over four 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 1.22MWp solar site near Cullompton in Devon in July 2012. The site has been fully operational for over four 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 1.21MWp solar site near Tiverton in Devon in July 2012. The site has been fully operational for over four 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 1.94MWp 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 1.80MWp 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 1.09MWp solar site near Crediton in Devon in July 2012. The site is receiving revenues from the FIT, as well as the sale of the electricity it produces on the wholesale market.

Beeks Financial Cloud Group plc
Beeks Financial is a niche cloud computing and connectivity provider for financial markets. In order to ensure that the VCTs continue to comply with the VCT qualification requirement to hold 30% of their respective portfolios in equity until they are placed into members' voluntary liquidation the Company invested in Beeks Financial.

Directors' Responsibilities Statement

The Directors are responsible for preparing the Strategic Report, Directors' Report, Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.

Company law requires the Directors to prepare financial statements for each financial year.  Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice ("GAAP"), including Financial Reporting Standard 102 - "The Financial Reporting Standard Applicable in the United Kingdom and Republic of Ireland ("FRS 102"), (United Kingdom accounting standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period.  In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on a going concern basis unless it is inappropriate to do so;
• prepare a Strategic Report, Directors' Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration report comply with the Companies Act 2006.  They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that:

• so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware;
• the Directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information; and
• the Directors do not consider the going concern basis to be appropriate and these financial statements have therefore been prepared on a basis other than going concern.

The Directors are responsible for preparing the annual report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the annual report and the financial statements, taken as a whole, provide the information necessary to assess the Company's performance, business model and strategy and is fair, balanced and understandable.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm, to the best of their knowledge:

• that the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
• the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Gregor Michie
Chairman
21 June 2018

Income Statement

• 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.

The statements were approved by the Directors and authorised for issue on 21 June 2018 and are signed on their behalf by:

Gregor Michie
Chairman
Company No: 0774405

  This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.