Octopus VCT 4 plc Octopus Vct 4 Plc : Half-yearly Report
29 April 2015 - 6:41PM
UK Regulatory
TIDMOVC4
Octopus VCT 4 plc
Unaudited Half-Yearly Report for the Period Ended 28 February 2015
29 April 2015
Octopus VCT 4 plc, managed by Octopus Investments Limited, today
announces the Half-Yearly results for the period ended 28 February 2015.
These results were approved by the Board of Directors on 28 April 2015.
About Octopus VCT 4 plc
Octopus VCT 4 plc ('OVCT 4' or 'Company') is a venture capital trust
('VCT') with a portfolio of investments in the renewable energy sector,
with a particular focus on solar energy, where the Investment Manager is
confident that investments have been structured to achieve a sustained
and reasonable level of predictable income.
OVCT 4 was incorporated on 17 August 2011 with the first allotment of
equity being on 6 March 2012. The total amount raised by 18 May 2012 was
GBP8.2 million. The Offer for new subscriptions for shares closed on 19
June 2012. Whilst OVCT 4 has the ability to invest in a variety of
sectors and technologies, the focus has been in the renewable energy
sector and, in particular, on solar energy.
Venture Capital Trusts (VCTs)
VCTs were introduced in the Finance Act 1995 to provide a means for
private individuals to invest in unquoted companies in the UK.
Subsequent Finance Acts have introduced changes to VCT legislation. The
tax benefits currently available to eligible new investors in VCTs
include:
-- up to 30% up-front income tax relief;
-- exemption from income tax on dividends paid; and
-- exemption from capital gains tax on disposals of shares in VCTs.
OVCT 4 has been provisionally approved as a VCT by HM Revenue & Customs
('HMRC'). In order to maintain its approval the VCT must comply with
certain requirements on a continuing basis. At least 70% of the VCT's
investments must comprise 'qualifying holdings' of which at least 70%
must be in eligible Ordinary shares. A 'qualifying holding' consists of
up to GBP5 million invested in any one year in new shares or securities
in an unquoted company (or companies quoted on AIM) which is carrying on
a qualifying trade and whose gross assets do not exceed a prescribed
limit at the time of investment. The definition of a 'qualifying trade'
excludes certain activities such as property investment and development,
financial services and asset leasing. As at 28 February 2015, qualifying
investments represented 87.6% of the Company's portfolio. OVCT 4 will
continue to monitor its compliance with these qualification
requirements.
Financial Summary
Six months to Six months to Year to
28 February 2015 28 February 2014 31 August 2014
Net assets (GBP'000s) 7,277 7,037 7,481
Return on ordinary
activities after tax
(GBP'000s) 209 (365) 79
Net asset value per 88.1p 85.2p 90.5p
share ("NAV")
Dividends paid since 10.0p 5.0p 5.0p
launch
Total return 98.1p 90.2p 95.5p
Chairman's Statement
I am pleased to present the half-yearly report for Octopus VCT 4 plc for
the period ended 28 February 2015.
Performance
As mentioned in previous Annual Reports, due to the nature of the
Company's investments which have a planned twenty five year life, the
Net Asset Value (NAV) is forecast to decline to zero over this period.
This is because the Company intends to pay annual dividends and the
value of the investee solar companies will reduce as their remaining
years of operation decline with time.
With most of the portfolio companies having been operating for two years
or more, they have been revalued once again to reflect current market
conditions and the reduction in their revenue generating lives since
inception. To date they have been performing in line with expectations
and have distributed in total GBP911,000 of income to the Company.
The revaluation of the solar companies in this period, together with VCT
running costs and payment of the recent dividend have resulted in the
Net Asset Value (NAV) of the Company falling from 90.5p per share to
88.1p per share. However, if the 5.0p dividend paid in the period were
added back, the NAV would have risen by 2.6p per share. The Total Return
since launch is 98.1p per share.
NAV changes since August 2014
NAV at 31 August 2014 90.5p
Cash distributions from SolarCos +1.9p
Revaluation of SolarCos +2.3p
VCT running costs -1.6p
Dividends paid -5.0p
NAV at 28 February 2015 88.1p
Our focus remains on paying the targeted 5p dividend each year and to
this end the underlying assets have been performing satisfactorily. The
focus is also on keeping the VCT fixed running costs as low as possible
in order to maintain returns to investors., 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 qualifying funds are 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 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 qualifying
investments as the Company intends to hold the assets for their full
operating lives of twenty five years.
All seven sites are currently generating revenue in line with their
forecasts, and are receiving their FIT/ROC and electricity sale revenues
on a regular basis.
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 a number of these loans were repaid. Repayments were
received in December 2014 from Delambre Energy (GBP62,500), Huygens
Energy (GBP62,500) and Akycha Power (GBP50,000), together with accrued
interest.
Cash and Liquid Resources
Cash awaiting investment is held on deposit with HSBC. The Company is
broadly fully invested, resulting in modest levels of cash in the
Company at the period end. Cash is paid from the solar companies up to
the Company as and when needed to fund expenditure. In light of this the
Company 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 all core construction phases are
effectively complete. The key risks to the ongoing operations are:
-- Power Prices- Revenues are derived from two sources; first,
Government-backed subsidies such as FITs and ROCs and secondly from sales
of the electricity produced by the solar sites. This portion of revenues,
which represents over 40% of the total, is variable and will be subject
to market forces. The Investment Team uses industry recognised forecasts
to predict electricity prices for the life of the sites. It also
mitigates price fluctuations in the short term via forward selling the
electricity, using Power Purchase Agreements (PPAs) to reduce income
volatility, so as to achieve budgeted revenue. However, it should be
noted that long term electricity prices can rise and fall, and can
therefore have an impact on the Company's revenues and the 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 to
be unable to generate revenues temporarily, the insurance can be invoked
to claim for such losses.
-- Weather- all forecasts are based on an assumed level of sunlight each
year, which is derived from historical averages, but this of course will
vary from year to year. Less sunlight could potentially affect the
Company's ability to pay the dividend, as lower revenues would be
received by the sites. However, a prudent approach is adopted in the
revenue forecasting to reduce the likelihood of this occurring.
-- Site Market Value - there are a number of drivers in the value or NAV of
a solar site, including long term power prices and the level of return
for the risk of owning the asset (which is largely driven by the
technology employed and track record). Power prices can be mitigated to a
degree by forward selling the electricity produced via PPAs. However, the
rate of return (and thus its value) for each site cannot be predicted as
easily in the medium to longer term, but a good operational track record
can be quantified and therefore taken into consideration.
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 2015, qualifying investments
represented 87.6% of the Company's portfolio. Octopus expects the
required investment hurdle to be maintained.
Outlook
Over the preceding six month period the oil price, which is one of the
key market drivers, has suffered a well-documented decline driven by a
global slump in the demand for energy, which has driven down UK
wholesale electricity prices. However, this recent downward shift in
pricing has not had a direct impact on the Company's ability to pay a
dividend due to the purchase of forward sales contracts for its
electricity at a fixed price which is higher than the prevailing market
price. The Company therefore remains confident of maintaining a 5p per
annum dividend in the short term.
A continuation of lower electricity prices could reduce revenue
generation and overall asset value, and hence the Company's ability to
deliver a total return of 110p per share at the 5 year point. As a
reminder, the 110p total return 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 annual report for the year ended 31 August 2014,
achieving a 90p NAV at the 5 year point remains challenging and is at
the upper end of the current range of forecasts. Despite this there is
plenty of well documented evidence to support rising energy prices in
the long term. Finally, it should be highlighted that the combination of
the PPAs in place and an above average sunny summer in 2015 could
deliver over-performance within the current portfolio during the current
financial year.
Graham Paterson
Chairman
28 April 2015
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 'Half-Yearly Financial Reports' issued by the UK
Accounting Standards Board;
-- 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
Graham Paterson
Chairman
28 April 2015
Income Statement
Six months to 28 February
2015 Six months to 28 February 2014 Year to 31 August 2014
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 - - - - 3 3 - 3 3
Loss on valuation
of fixed asset
investments - 193 193 - (428) (428) - (14) (14)
Other Income 156 - 156 156 - 156 317 - 317
Management fees (12) (36) (48) (6) (19) (25) (13) (39) (52)
Other expenses (81) - (81) (71) - (71) (157) - (157)
Profit/(loss) on
ordinary
activities before
tax 63 157 220 79 (444) (365) 147 (50) 97
Taxation on return
on ordinary
activities (11) - (11) - - - (18) - (18)
Profit/(loss) on
ordinary
activities after
tax 52 157 209 79 (444) (365) 129 (50) 79
Earnings per share
- basic and
diluted 0.6p 1.9p 2.5p 1.0p (5.4p) (4.4p) 1.6p (0.6p) 1.0p
-- 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.
Reconciliation of Movements in Shareholders' Funds
Six months ended Six months ended Year ended
28 February 2015 28 February 2014 31 August 2014
GBP'000 GBP'000 GBP'000
Shareholders' funds
at start of period 7,481 7,815 7,815
Profit/(loss) on
ordinary activities
after tax 209 (365) 79
Dividends paid (413) (413) (413)
Shareholders' funds
at end of period 7,277 7,037 7,481
Balance Sheet
As at 28 February As at 28 February
2015 2014 As at 31 August 2014
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed asset
investments* 7,199 6,767 7,181
Current
assets:
Debtors 76 97 93
Cash at bank 82 211 290
158 308 383
Creditors:
amounts
falling due
within one
year (80) (38) (83)
Net current
assets 78 270 300
Net assets 7,277 7,037 7,481
Called up
equity share
capital 83 83 83
Share Premium 99 99 99
Special
Distributable
Reserve 7,029 7,388 7,442
Capital
Redemption
Reserve 1 1 1
Capital
Reserve -
Unrealised 179 (428) (14)
Capital
Reserve -
Realised (166) (110) (130)
Revenue
Reserve 52 4 -
Total
shareholders'
funds 7,277 7,037 7,481
Net asset 88.1p 85.2p 90.5p
value per
share
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue
on 28 April 2015 and are signed on their behalf by:
Graham Paterson
Chairman
Company Number: 07743878
Cash flow statement
Six months to Six months to Year to
28 February 2015 28 February 2014 31 August 2014
GBP'000 GBP'000 GBP'000
Net cash inflow from
operating activities 30 263 354
Taxation - - (12)
Financial investment:
Purchase of fixed asset
investments - (225) (225)
Sale of fixed asset
investments 175 53 53
Dividends paid (413) (413) (413)
Decrease in cash
resources at bank (208) (322) (243)
Six months to Six months to Period to 31
28 February 2015 28 February 2014 August 2014
GBP'000 GBP'000 GBP'000
Profit/(loss) on
ordinary activities
before tax 209 (365) 97
Decrease in debtors 17 215 219
(Decrease)/increase
in creditors (3) (12) 27
(Gain)/loss on
valuation of fixed
asset investments (193) 428 14
Gain on disposal of
fixed asset
investments - (3) (3)
Inflow from
operating
activities 30 263 354
Reconciliation of net cash flow to movement in net
funds
Six months to Six months to Year to 31 August
28 February 2015 28 February 2014 2014
GBP'000 GBP'000 GBP'000
Decrease in cash
resources at
bank (208) (322) (243)
Opening net cash
resources 290 533 533
Net funds at
period end 82 211 290
Notes to the Half-Yearly Report
1. Basis of preparation
The unaudited half-yearly results which cover the period to 28 February
2015 have been prepared in accordance with the Accounting Standards
Board's (ASB) statement on half-yearly financial reports (July 2007).
2. Publication of non-statutory accounts
The unaudited half-yearly results for the six months ended 28 February
2015 do not constitute statutory accounts within the meaning of Section
415 of the Companies Act 2006.
3. Earnings per share
The earnings per share at 28 February 2015 is calculated on the basis of
8,263,597 shares (28 February 2014: 8,263,597 shares and 31 August 2014:
8,263,597 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
The net asset value per share is based on net assets as at 28 February
2015 and 8,263,597 Ordinary shares in issue at that date (28 February
2014: 8,263,597 shares and 31 August 2014: 8,263,597 shares).
5. Related Party Transactions
Katrina Johnston, a non-executive director of Octopus VCT 4 plc during
the period ended 28 February 2015, is an employee of Octopus Investments
Limited. Octopus VCT 4 plc paid Octopus Investments Limited GBP3,750
excluding VAT in the period for Katrina Johnston's Director's fees (28
February 2014: GBP3,750 and 31 August 2014: GBP7,500). However Katrina
Johnston was not paid anything personally in the period as this was
considered to be a normal part of her role as an Octopus Investments
Limited employee.
Octopus provides investment management, administration & 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
asset value. However, it is agreed that Octopus will reduce its annual
management fee as necessary in order to avoid the Company exceeding its
total expense cap of 2.15%. During the period to 28 February 2015,
GBP48,000 was payable to Octopus in respect of management fees, of which
GBP24,000 remained outstanding at the balance sheet date. During the
comparative period to 28 February 2014, GBP25,000 was payable to Octopus
and GBPnil remained outstanding. For the year to 31 August 2014,
GBP52,000 was payable to Octopus and GBP29,000 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 28
February 2015 GBP12,000 was paid to Octopus Investments Limited and
there was GBPnil outstanding at the balance sheet date. During the
comparative period to 28 February 2014, GBP12,000 was payable to Octopus
and GBPnil remained outstanding. For the year to 31 August 2014,
GBP23,000 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. During the period to 28 February
2015 GBP3,750 was paid to Octopus Investments Limited and there was
GBPnil outstanding at the balance sheet date. During the comparative
period to 28 February 2014, GBP3,750 was payable to Octopus and GBPnil
remained outstanding. For the year to 31 August 2014, GBP7,500 was
payable to Octopus and GBPnil remained outstanding at the balance sheet
date.
Octopus Capital Limited, a related party by virtue of being 100% owner
of Octopus Investments Limited, owns 49.5% of Lightsource Renewable
Energy Limited. Lightsource managed the underlying assets in the
portfolio during the period.
Octopus VCT 4 plc owns 49.9% of the equity in each of its investee
companies, with Octopus VCT 3 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.
1. 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 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 4 plc via Globenewswire
HUG#1916924
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