TIDMOTV1
Octopus Titan VCT 1 plc
Final Results
10 February 2011
Octopus Titan VCT 1 plc (the "Company"), managed by Octopus Investments Limited,
today announces the final results for the year ended 31 October 2010.
These results were approved by the Board of Directors on 10 February 2011.
You may view the Annual Report in full at www.octopusinvestments.com shortly by
navigating to VCT Meetings & Reports under the 'Services' section.
About Octopus Titan VCT 1 plc
Octopus Titan VCT 1 plc ('Titan 1' or 'the VCT') is a venture capital trust
(VCT) which aims to provide shareholders with attractive tax-free dividends and
long-term capital growth, by investing in a diverse portfolio of predominately
unquoted companies. The Company is managed by Octopus Investments Limited
('Octopus' or 'Investment Manager').
Titan 1 was incorporated on 12 October 2007. In collaboration with Octopus Titan
VCT 2 plc ('Titan 2'), the VCTs raised over GBP30.8 million in aggregate ( GBP29.5
million net of expenses) through an Offer for Subscription. A further GBP1.37
million in aggregate ( GBP1.29 million net of expenses) has been raised by way of a
top-up. Titan 1 invests primarily in unquoted UK smaller companies and aims to
deliver absolute returns on its investments.
Further details of the VCT's progress are discussed in the Chairman's Statement
and Investment Manager's Review on pages X to X.
On 31 August 2010 the VCT changed its Registered Office from 8 Angel Court,
London, EC2R 7HP to 20 Old Bailey, London, EC4M 7AN.
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.
Titan 1 has been approved as a VCT by HM Revenue & Customs (HMRC). In order to
maintain its approval the Company must comply with certain requirements on a
continuing basis. By the end of the Company's third accounting period at least
70% of the Company's investments must comprise 'qualifying holdings' (as defined
in the legislation) of which at least 30% must be in eligible ordinary shares.
A 'qualifying holding' consists of up to GBP1 million invested in any one year in
new shares or securities in an unquoted UK company (or companies listed 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. The Company will continue to ensure its
compliance with these qualification requirements.
Financial Summary
As at 31 October 2010 As at 31 October 2009
Net assets ( GBP'000s) 15,523 15,014
Return on ordinary activities after 18 1,134
tax ( GBP'000s)
Net asset value per share 94.9p 96.1p
Dividend per share - paid since
launch 2.0p 1.0p
Chairman's Statement
I am pleased to present the annual results for the year ended 31 October 2010.
Performance
During the year Titan 1 has seen a modest reduction in net asset value (NAV)
from 96.1p to 94.9p which, after taking dividends into account, represents a
negative total return (being NAV plus cumulative dividends paid) of 0.2%. This
small reduction is due in part to our small top-up issue last summer. However I
am pleased to say that, as reported in our Interim Management Statement for the
quarter ended 31( )January 2011, the NAV at that date has risen to 96.0p.
The VCT was invested in 22 unquoted companies and one AIM-quoted company at the
year end (subsequent to the year end the VCT invested into one further
business). I am pleased to report that we have achieved our obligation to have
70% of our assets represented by qualifying holdings at the year end. In the
light of this, we are unlikely to invest in any more new companies until we have
received cash through realisations. We are not expecting to realise any of our
portfolio in the immediate future.
You will see in the Directors' Remuneration Report that following achievement of
the VCT qualifying rate, the fees of the Chairman and independent Non-Executive
Director are set to rise with effect from 1 May 2011 to bring them in line with
the other Titan VCTs and current market rates.
Investment Portfolio
The VCT made twelve new investments during the year totalling GBP3.7 million, in
addition to seven follow-on investments amounting to GBP1.6 million. All of our
investments are discussed in more detail in the Investment Manager's Review on
pages X to X in which you will see that we now have a portfolio of investments
in a diverse range of companies. In the case of Zoopla, we have been able to
recognise another significant uplift in value following the initial investment
made in 2009. Nature Delivered (trading as Graze) is another company that has
seen an uplift, both cases a result of further funding rounds at increased
values.
We have had to make small reductions in fair value in respect of a few of our
unquoted investments, the largest of which was Key Revolution which was placed
in Administration during January 2010. These reductions reflect the prudent
approach we continue to adopt to company valuations. In general, we are
encouraged by the performance of the portfolio and the good range of investments
held by the VCT at this stage.
Cash and Liquid Resources
All of the bonds that the VCT held at the start of the year reached maturity and
have been repaid. This has naturally reduced our income during the year.
However, much of this cash has been used in making qualifying investments.
Open Ended Investment Companies (OEICs)
After significant uplifts in the valuation of the two Octopus OEICs during the
prior year, 2010 has seen a reduction in the overall value of the Fund's
holdings in the two OEICs. The Absolute UK Equity Fund decreased in value by
16% whilst the UK Micro Cap Growth Fund increased by approximately 1%. Despite
this, the overall valuation of the OEICs remain almost 20% above original cost.
The Board continues to monitor these funds and believes it remains a sensible
strategy to maintain part of our non-qualifying portfolio in these OEICs, as set
out in the original prospectus. Further details of these OEICs may be found at
www.octopusinvestments.com where monthly factsheets are available.
Investment Strategy
Now that the VCT has achieved its initial investment targets in qualifying
companies, your Board will continue to review the investment strategy in respect
of the non-qualifying portfolio and specifically how we invest our cash
resources. As envisaged in the VCT's prospectus, between 15% and 25% of the
VCT will be retained for liquidity and follow-on investments in the existing
portfolio. As our existing portfolio of unquoted companies matures, we will
find that some companies may require further rounds of investment but these
investments may not be qualifying for VCT purposes (for instance in situations
where the company now employs more than 50 people). Your Board believes that
there will be circumstances where it will be in our shareholders' interests to
continue to invest, not least to avoid dilution. Since this was not set out
clearly in our prospectus, we have sought to further clarify the investment
strategy and added a second paragraph to the Non-Qualifying section as set out
on page · of the Directors' Report.
We intend that the remainder of our cash reserves will continue to be invested
in Octopus managed OEICS and lower risk, readily realisable investments.
Dividend and Dividend Policy
It is your Board's policy to strive to maintain a regular dividend flow where
possible. Whilst our primary aim is to create distributable capital gains, we
anticipate declaring modest dividends in the early years. These are likely to be
smaller than originally envisaged due to the substantial reduction in interest
rates during the last two years. However, since the portfolio is beginning to
mature and as your Board views prospects with modest confidence, we believe it
appropriate to recommend an increase in our final dividend to 0.75p per share
for the year ended 31 October 2010 (2009: 0.5p per share) making a total for the
year of 1.25p per share (2009: 1.0p per share). Subject to shareholder approval
at the Annual General Meeting, this dividend will be paid on 8 April 2011 to
those shareholders on the register on 11 March 2011.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides both the Board and the Investment Manager
with advice concerning ongoing compliance with HMRC rules and regulations
concerning VCTs. The Board has been advised that Titan 1 is in compliance with
the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is for 70% of the portfolio to be invested in qualifying
investments by the end of the third accounting period following that in which
new share capital was subscribed. As at 31 October 2010, over 79% of the
portfolio (as measured by HMRC rules) was invested in VCT qualifying
investments.
Annual General Meeting
The Company's Annual General Meeting will take place on 30 March 2011 at 2.30
p.m. I look forward to welcoming you to the meeting which will be held at the
new offices of Octopus Investments Limited, at 20 Old Bailey, London, EC4M 7AN.
Top-up offer
In July 2010 we launched a top-up offer which raised GBP0.685 million ( GBP1.37
million in aggregate with Titan 2) which resulted in allotting 737,621 shares at
a price of 92.9p. We would like to thank existing shareholders for their
continuing support and to welcome new shareholders.
Outlook
The Board would like to thank our Investment Managers for their continuing
success in building the Fund's portfolio as well as achieving recognition from
the industry through winning in 2010:
· 'VCT Manager of the Year' at the unquoted British Private Equity
awards;
· 'Early Stage Team of the Year' from the British Business Angel
Association'; and
· Accountancy Age's 'Finance Team of the Year' Award.
Economic recovery in the UK is still in a very early phase and the environment
within which portfolio companies are operating remains fragile. We do not expect
interest rates to change significantly over the next six months, which is
positive for small companies and we expect that bank finance will remain
difficult to obtain. Both these issues should not have a significant impact on
our early stage portfolio companies, which rely predominately on equity capital
for their finance.
Your Board remains satisfied to date with the overall progress being made by the
early stage companies now within the portfolio. The Investment Manager's
activities in respect of our Fund will concentrate on the management of the
portfolio companies. The Investment Manager has developed an in depth team of
senior financial and industrial managers who assist in this process.and we will
continue to retain liquidity within the VCT in order to support the companies
achieving their objectives.
Octopus has recently launched Octopus Titan VCT 5 plc giving the Titan VCT
family even greater presence in the marketplace which we believe will continue
to be an advantage as new investment opportunities arise. The Titan VCT family
of funds now represents one of the UK 's largest investors in early stage
companies.
Lewis Jarrett
Chairman
10 February 2011
Investment Manager's Review
Personal Service
At Octopus, we focus on both 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. During this time of economic
upheaval, we consider it particularly important to be in regular contact with
our investors and are working hard to manage your money in the current climate.
Octopus Investments Limited was established in 2000 and has a strong commitment
to both smaller companies and to VCTs. We currently manage 18 VCTs, including
this VCT, and manage over GBP300m in the VCT sector. Octopus has over 180
employees and has been voted as 'Best VCT Provider of the Year' by the financial
adviser community for the last four years.
Investment Policy Summary
The investment approach of Titan 1 is not designed to deliver a return that is
measured against a stock market index. Instead, the focus of Titan 1 is on
generating absolute returns over the medium-term. In order to achieve this goal,
the VCT focuses on providing early stage, development and expansion funding to
predominantly unquoted companies with a typical deal size of GBP0.5 million to GBP1
million.
Investment Strategy
The investee companies are those that we believe have great potential but need
some financial support to realise it. Each company that we target has the
potential to create a large business by taking a relatively modest market share.
We are particularly interested in businesses that address current market trends
and have created a balanced investment portfolio spanning multiple industries
and business sectors.
Having reached the level of invested funds required by HMRC, our focus will now
shift to managing the portfolio and helping the investee companies through a
difficult economic period. The current portfolio of holdings built by Titan 1
now encompass investments in 22 unquoted companies and one AIM-quoted company,
with a focus on the environmental, technology, media, telecoms and consumer
lifestyle and wellbeing sectors.
Liquidity has been maintained in the VCT to ensure that adequate resources are
available to support further portfolio funding needs as they arise. The
environment has remained challenging for smaller companies, which have felt the
effects of the credit squeeze combined with the economic slowdown. As well as
seeing reductions in banking facilities, small companies also find themselves
under pressure from suppliers who want paying earlier, customers who delay
payments and weaker trading conditions. The resulting pressure on cash will
remain, even as the economy recovers, due to increasing working capital
requirements. We are therefore monitoring carefully all the portfolio companies
to ensure that they not only control costs but also take advantage of some of
the opportunities that occur in these circumstances. We have sought to further
support those companies that we believe have strong growth potential but need
some financial support to realise it. Each company that we target is expected to
have unique selling points and be capable of growing to a size that will make it
attractive for acquisition by a larger company or will enable it to float on the
stock market.
Portfolio Review
As at 31 October 2010 the NAV stood at 94.9p, compared to 96.1p at 31 October
2009, and when adding back the 1p of dividends paid during the year, this
represents a reduction of 0.2%. The period showed satisfactory performance in
the qualifying holdings that the VCT holds and a slightly disappointing period
for the non-qualifying OEIC holdings with a reduction in value of 16% in the
Absolute Return Fund, offset slightly by a rise of 1% in the Micro Cap Fund. As
the portfolio has become fully invested we have commenced the sale of some of
the Absolute Return OEIC holding.
Titan 1 now holds 79.1% of assets in qualifying holdings from an HMRC
perspective and we continue to work with each portfolio businesses as they
develop their propositions in their respective markets. As Investment Manager
it is our intention to take those businesses in which we have invested a small
amount of money as a first investment and invest further as they meet or exceed
the initial milestone objectives we agreed with them. In this way we are able
to invest further into those businesses that are meeting and exceeding
expectations and this can be demonstrated through the further investments in
Zoopla, Calastone, True Knowledge and Graze.
Since the balance sheet date, Titan 1 has invested GBP367,000 into Diverse Energy,
a company focusing on the infrastructure of energy for global
telecommunications. This brought the total portfolio to 24 current trading
businesses. In addition, a further GBP307,000, GBP18,500 and GBP133,334 was invested
into Zoopla, Skills Market and Money Workout, respectively.
Outlook
At the time of writing, we are looking to make a number of follow-on investments
to support the current portfolio as discussed above. It is encouraging to note
the uplift in prices on stock markets in recent months. This is filtering
through to smaller listed businesses, although this has yet to have a dramatic
effect on prices for unquoted businesses. This, combined with the current
increase in activity in mergers and acquisitions, is an encouraging indicator
for the economy and for small trading businesses. However, we have not yet seen
a significant uptick in the number of small businesses being listed on the
stock market. Assuming this general trend continues, it is a positive one for
the future of high growth businesses as this area of the market tends to lag the
listed business market. We do need to remain mindful of the impact the
austerity measures being put in place by the UK Government will have on the UK
consumer. There is also a concern that a rise in the level of inflation will in
turn cause interest rates to rise, which could have an adverse knock on effect
on the economy.
Overall, the environment provides a great opportunity for businesses like those
in the Titan portfolio to take advantage of, as their size enables them to move
quickly to adapt and respond to market conditions resulting in greater market
share. While the current market is not without its challenges, which a number of
our portfolio businesses are facing at the moment, it still enables us to be
cautiously optimistic about the future for small high growth businesses in
general and our investment strategy specifically.
If you have any questions on any aspect of your investment, please call one of
the team on 0800 316 2347.
Alex Macpherson
Octopus Investments Limited
10 February 2011
Investment Portfolio
%
equity
% held by
Investment equity all
cost as at held funds
31 October Movement in fair Fair value as at by managed
Qualifying 2010 value to 31 October 31 October 2010 Titan by
investments Sector ( GBP'000) 2010 ( GBP'000) ( GBP'000) 1 Octopus
Zoopla
Limited Media 764 1,399 2,163 4.2% 14.2%
True
Knowledge
Limited Media 1,220 - 1,220 9.4% 44.9%
Calastone
Limited Technology 1,135 - 1,135 10.8% 34.1%
Nature
Delivered
Limited Consumer lifestyle
(Graze) & wellbeing 798 55 853 6.9% 27.1%
e-
Therapeutics Consumer lifestyle
plc & wellbeing 450 (7) 443 0.3% 8.8%
Mi-Pay
Limited Telecommunications 429 - 429 5.8% 24.8%
AQS Holdings
Limited Environmental 421 - 421 5.6% 26.5%
Executive
Channel
Limited Media 379 - 379 6.1% 32.2%
UltraSoC
Technologies
Limited Technology 361 - 361 10.0% 55.6%
Semafone
Limited Telecommunications 360 - 360 8.8% 41.5%
Phase Vision
Limited Technology 400 (50) 350 12.2% 52.6%
Surrey
Nanosystems
Limited Technology 320 - 320 5.8% 31.2%
Elonics
Limited Technology 305 - 305 3.1% 19.5%
PrismaStar
Inc. Media 300 - 300 4.5% 30.0%
Bowman Power
Limited Environmental 275 - 275 2.7% 17.9%
GetOptics Consumer lifestyle
Limited & wellbeing 361 (90) 271 7.5% 34.8%
Metrasens Consumer lifestyle
Limited & wellbeing 268 - 268 4.5% 25.4%
Michelson
Diagnostics Consumer lifestyle
Limited & wellbeing 248 - 248 4.4% 28.1%
Money
Workout
Limited Technology 312 (156) 156 6.9% 33.5%
Skills
Market
Limited Technology 155 (50) 105 2.7% 12.3%
TouchType
Limited Telecommunications 53 - 53 1.5% 8.0%
Phasor
Solutions
Limited Technology 100 (50) 50 1.8% 31.2%
The Key
Revolution
Limited* Telecommunications 641 (641) - 12.4% 35.9%
Total
qualifying
investments 10,055 410 10,465
Money market
securities 602 - 602
OEICs 3,215 640 3,855
Cash at bank 71 - 71
Total
investments 13,943 1,050 14,993
Net current
assets 530
Total net
assets 15,523
*went in to liquidation January 2010
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of fair
value of a financial asset that is either quoted or not quoted in an active
market is the transaction price (i.e. cost).
Subsequent measurement
Further funding rounds are a good indicator of fair value and this is measure is
used were appropriate. Subsequent adjustment to the fair value of unquoted
investments can be made using sector multiples based on information as at 31
October 2010, where applicable. In some cases the multiples can be compared to
equivalent companies, especially where a particular sector multiple does not
appear appropriate. It is currently industry norm to discount the quoted
earnings multiple to reflect the lack of liquidity in the investment, there
being no ready market for our holding. Typically the discount is 30% but this
can be increased where the relevant multiple appears too high. A lower discount
would also be possible if an investment was close to an exit event.
In accordance with the International Private Equity and Venture Capital (IPEVC)
valuation guidelines investments made within 12 months are usually kept at cost
unless performance indicates that fair value has changed.
Quoted investments are valued at market bid price. No discounts are applied.
If you would like to find out more regarding the IPEVC valuation guidelines,
please visit their website at: www.privateequityvaluation.com.
Review of Investments
During the year, Titan 1 made twelve new investments amounting to GBP3.7 million
and seven follow-on investments.
The AIM-quoted investment and unquoted investments are in ordinary shares with
full voting rights as well as loan note securities.
Quoted and unquoted investments are valued in accordance with the accounting
policy set out on page X, which takes account of current industry guidelines for
the valuation of venture capital portfolios and is compliant with IPEVC
Valuation guidelines and current financial reporting standards.
Listed below are details of the VCT's 10 largest investments by value.
Zoopla Limited
Zoopla.co.uk is an award-winning online property information service and
community website, presenting information on house pricing, free valuation
estimates, for sale listings, and local community information. Zoopla has become
the UK's leading website for house prices and value data, as it provides the
most comprehensive source of residential property market information. It is also
the UK's most active property community. Following the acquisition of
PropertyFinder from News International Ltd and REA Group approximately a year
ago, Zoopla launched estate agent listings on a pay-for-performance basis and
expects to become the premier UK website for those interested in the property
market. We encourage you to view the website atwww.zoopla.co.uk.
As previously reported the company recently signed another transformational deal
working with three of the UK's four largest estate agent groups and now the
three estate agency CEOs sit on the Zoopla board. During the last quarter the
company undertook its first advertising campaign on national TV. This proved
very successful and as a result the businesses decided to raise some further
funds in order to increase the level of awareness the company has in the UK.
This round of financing was completed by the current investors led by Atlas
Ventures and Octopus. A second burst of television advertising is due to
commence in January 2011 as the company seeks significant growth in 2011.
Initial investment date: January
2009
Cost:
GBP764,206
Valuation:
GBP2,164,015 (latest funding round)
Equity held:
4.2%
Equity held by all funds managed by Octopus: 14.2%
Last submitted audited accounts: 31 December
2009
Turnover GBP1,160,153
Loss before interest & tax:
( GBP2,864,126)
Net assets:
GBP699,922
True Knowledge Limited
True Knowledge has developed an Internet search engine website that answers
questions. Finding information on the Internet currently involves a process of
trial and error, hoping that the search engine retrieves the information you are
looking for. True Knowledge has devised technology that resolves this
fundamental problem by operating along a more intuitive system. It intelligently
answers questions asked on any topic in plain English. It can be used just like
a conventional search engine, but users can also add knowledge directly to it.
There are currently nearly 250 million facts in the database, which is being
continually expanded.
The company continues to grow exponentially in unique users per month and
revenues. In November, the number of unique users grew to 5.2 million. This
growth is largely the result of acquiring more data; publishing questions and
answers; and enabling Google, and other search companies, to index them. The
company has automated many of the processes associated with accessing data and
publishing questions and answers. This should enable the business to continue
its rapid growth, with the expectation that the number of unique users will grow
at least two fold in the next six months.
Revenue growth over the last six months has been on average 20%, and the company
is now exploring various techniques to earn more revenues from the growing
number of unique users. In the meantime the company will be undertaking a
further round of funding, in which Octopus will feature prominently.
Initial investment date: July
2008
Cost:
GBP1,220,186
Valuation:
GBP1,220,186 (latest funding round)
Equity held:
9.4%
Equity held by all funds managed by Octopus: 44.9%
Last submitted accounts: 31
January 2010 (abbreviated)
Net assets:
( GBP104,707)
Calastone Limited
Calastone is the UK's only independent transaction service for the mutual fund
industry. It enables buyers and sellers of mutual funds on different platforms
to communicate orders electronically, by providing a universal message
communication and 'translation' service - the "Calastone Transaction Network"
(CTN). This is being welcomed in an industry which has not previously been able
to invest in the real-time exchange of information between participants. Orders
are commonly communicated by fax or telephone with a high level of manual re-
keying and manual error correction. Calastone's 'translation' service means that
neither the transmitter nor receiver need purchase additional technology or
change their existing systems.
Calastone is moving quickly to own the space and therefore seeks to sign up
distributors and their counterparties, the fund providers (or their third party
administrators). Progress is excellent in both dimensions as demonstrated by the
fact that clients are now calling in asking to join CTN. The board believes the
company is experiencing beneficial network effects where the existing
distributors are encouraging fund providers to join the CTN and vice versa.
Internally the focus is now on streamlining processes so that distributors and
fund providers can be made operational faster driving up transaction volumes
thereby growing its revenues rapidly.
Over the last period growth has continued at Calastone with new client sign ups
to the core offering and to the newly launched additional services such as
settlement and custodian. Calastone has also started to sign up its initial
clients from the Luxembourg office which was opened earlier in 2010 and the
company expects to see continued growth in Europe as we move into 2011.
Initial investment date: October
2008
Cost:
GBP1,134,744
Valuation:
GBP1,134,744 (latest funding round)
Equity held:
10.8%
Equity held by all funds managed by Octopus: 34.1%
Last submitted accounts: 30 September
2009 (abbreviated)
Net assets:
GBP482,635
Nature Delivered Limited (trading as Graze)
Graze is the first UK company to deliver healthy and nutritionally balanced food
by post straight to the home or office. The company was founded in April 2007
and has a growing customer base that regularly place orders via its website.
Graze's snack boxes cost only GBP3.49 and are sent by Royal Mail for next day
delivery. The Graze product range includes over 100 products to choose from,
all free from artificial colourings, flavourings and preservatives. Customers
can also place orders for personalised boxes, specifically tailored to meet
their tastes, dietary and nutritional requirements. Graze promotes a varied and
balanced diet through facilitating the intake of a wide variety of smaller
portions of natural, high energy foods throughout the day. Its boxes contain up
to four portions of dried fruit; bread; olives and vegetables, in line with the
National Health Service's recognised 'five-a-day' scheme. Its product is in tune
with customer needs and the demands of modern living, as people become ever more
conscious of health and convenience. The company's sales continue to grow ahead
of budget.
Initial investment date: June
2009
Cost:
GBP797,627
Valuation:
GBP852,306 (latest funding round)
Equity held:
6.9%
Equity held by all funds managed by Octopus: 27.1%
Last submitted accounts: 31 December
2009 (abbreviated)
Net assets:
GBP1,371,320
e-Therapeutics plc
e-Therapeutics is an AIM listed drug discovery and development company. It
focuses on three core areas: the discovery of new drugs; discovering novel uses
for existing drugs; and analysis of the interactions between different drugs.
The company has developed a unique drug discovery technology that enables it to
assess drug candidates for high efficacy and safety ahead of clinical trials.
The use of this technology dramatically reduces the time between drug discovery
and market applicability, and reduces the risks associated with clinical trials.
The company is currently progressing with the preclinical and clinical
development of a number of innovative drug candidates to which the new
technology was applied. The treatments are now at an advanced stage of testing,
validating the therapeutic attributes that e-Therapeutics' drug discovery system
predicted for each candidate. The development and commercialisation of the
company's drug candidates that have generated clinical data will be supported
initially by licensing these to partners operating in smaller pharmaceutical
markets.
The company continues down its development roadmap and has been busy adding
additional weight to the senior management team. The recent addition of
Development Director Steve Self to the board should ensure that the company's
proprietary drug development program is of the highest standard as it moves into
its next stage.
Initial investment date: March
2009
Cost:
GBP450,000
Valuation:
GBP443,250 (bid price)
Equity held:
0.3%
Equity held by all funds managed by Octopus: 8.8%
Last submitted audited group accounts: 31 January 2010
Turnover GBPnil
Loss before tax: ( GBP2,255,000)
Net assets:
GBP2,486,000
Mi-Pay Limited
Mi-Pay was founded in 2004 with the objective to establish itself as a leading
processor of payments for the fast-emerging mobile money sector. The service
enables customers to 'top-up' their pre-paid mobile phone directly online, or
via their mobile phone, rather than using indirect brand channels such as
PayPoint or bank ATMs. Benefits of the direct service include cost reductions
for mobile network operators and a more personal engagement with customers,
removing the anonymity of customer relationships and allowing for substantial
improvements in customer retention.
Mi-Pay continues to make progress in a very dynamic and fast moving market, most
recently agreeing terms with several tier one European, Middle Eastern and
African mobile operators to provide its direct top up service. Mi-Pay was also
delighted to appoint Allan Jakobsen as CEO in August 2010.
Initial investment date:
February 2010
Cost:
GBP429,153
Valuation:
GBP429,153 (latest funding round)
Equity held:
5.8%
Equity held by all funds managed by Octopus: 24.8%
Last submitted audited group accounts: 31 December 2009
Turnover GBP1,736,649
Loss before tax: ( GBP2,082,813)
Net assets:
( GBP1,065,558)
AQS Holdings Limited
Soil Xchange is a subsidiary of AQS, which is a waste management business
focusing on soil stabilisation and remediation by means of a proprietary process
and equipment. Soil Xchange's aim is to create strategic hubs across the UK,
specifically with the objective of taking in hazardous soil and waste, and
exchanging it for recycled, clean soil, using AQS' market leading soil
remediation knowledge and equipment, the 'Eco Warrior'.
Soil Xchange's first hub has now been opened in East London and negotiations are
underway in respect of the second London hub, as well as further hubs in North
East and North West England. The company is also in discussions to licence its
technology to a business that would deploy a similar hub roll-out strategy
across Australia.
Initial investment date:
February 2010
Cost:
GBP421,000
Valuation:
GBP421,000 (latest funding round)
Equity held:
5.6%
Equity held by all funds managed by Octopus: 26.5%
Last submitted audited group accounts: 31 March 2010
Turnover GBP5,952,822
Loss before tax: ( GBP418,617)
Net assets:
GBP3,400,647
Executive Channel Limited
Executive Channel installs digital display screens in office buildings which it
uses to display advertising, up-to-date news and information, via the internet.
These screens are usually located in the elevator lobby to engage an exclusive
audience, with high spending power in an uncluttered environment.
The company continues to grow ahead of budget.
Initial investment date:
September 2010
Cost:
GBP378,954
Valuation:
GBP378,954 (latest funding round)
Equity held:
6.1%
Equity held by all funds managed by Octopus: 32.2%
Last submitted accounts: n/a (none filed)
UltraSoC Technologies Limited
UltraSoC Technologies, is a pioneering company developing advanced debugging
technology for the embedded electronic systems increasingly used in many
everyday products from cars to mobile phones.
UltraSoC was spun-out from the universities of Essex and Kent in 2008 after
being founded by Cambridge entrepreneur Dr Karl Heeks and Professor Klaus
McDonald-Maier, Research Director at the University of Essex's School of
Computer Science and Electronic Engineering.
The company is developing UltraDebug, an advanced debugging technology for
multiple processor systems used to debug the application software that delivers
the functionality and performance in many modern embedded electronic systems.
Initial investment date: October
2010
Cost:
GBP361,369
Valuation:
GBP361,369 (latest funding round)
Equity held:
10.0%
Equity held by all funds managed by Octopus: 55.6%
Last submitted accounts: 31 December
2009 (abbreviated)
Net assets GBP174,013
Semafone Limited
Based in London, Semafone was founded in 2009 by a consortium of call centre
professionals, who were instrumental in the development of 'Semafone'; a fraud
prevention software for use in call centres. Semafone aims to secure sensitive
data passed over the phone, including bank details, personal identification data
and credit/debit card transactions. Without interrupting caller and agent
dialogue, customers input their card details via the telephone keypad,
eliminating the need to read out the card number and three digit security number
to the phone operator, removing the risk of operator fraud. The company has
already secured a number of blue chip clients.
The company continues to grow sales, although behind budget. In part, this has
been owing to technology bugs in the product as the team attempt to standardise
the technology in order for it to become a basic product applicable to multiple
implementations. The CEO has recruited more technical resource to assist with
this challenge and will continue to build the company's team in 2011. The sales
pipeline remains strong and the business may seek to capitalise on the
international opportunity for the Semafone product, although no decision has
been made at this point.
Initial investment date: June
2010
Cost:
GBP360,113
Valuation:
GBP360,113 (latest funding round)
Equity held:
8.8%
Equity held by all funds managed by Octopus: 41.5%
Last submitted accounts: n/a (none filed)
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company for that period. Under that
law the Directors have elected to prepare financial statements in accordance
with United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgments and 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; and
· prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements 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.
In so far as each of the Directors are aware:
· there is no relevant audit information of which the Company's
auditor is unaware; and
· the Directors have taken all steps that they ought to have taken to
make themselves aware of any relevant audit information and to establish that
the auditor is aware of that information.
To the best of my knowledge:
· the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
· the management 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.
The financial statements are published at www.octopusinvestments.com, a website
maintained by Octopus Investments. The maintenance and integrity of the website
is, so far as it relates to the Company, the responsibility of Octopus
Investments. The work carried out by the auditor does not involve considerations
of the maintenance and integrity of the website and, accordingly, the auditor
accepts no responsibility for any changes that have occurred to the accounts
since they were originally presented on the website. Visitors to the website
need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the accounts differ from legislation in other
jurisdictions.
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.
On Behalf of the Board
Lewis Jarrett
Chairman
10 February 2011
Income Statement
+---------------------+
| Year to 31 October |
| 2010 |
| |
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
| |
| |
| |
Realised loss on disposal of current asset | |
investments 12 | - (101) (101)|
| |
| |
| |
Fixed asset investment holding gains 10 | - 822 822|
| |
Current asset investment holding losses 12 | - (408) (408)|
| |
| |
| |
Other income 2 | 180 - 180|
| |
| |
| |
Investment management fees 3 | (70) (212) (282)|
| |
Other expenses 4 | (193) - (193)|
| |
| |
| |
Return on ordinary activities before tax | (83) 101 18|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
| |
Return on ordinary activities after tax | (83) 101 18|
| |
Earnings per share - basic and diluted 8 | (0.5)p 0.6p 0.1p|
+---------------------+
* The 'Total' column of this statement is the profit and 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.
The accompanying notes form an integral part of the financial statements.
Income Statement
+---------------------+
| Year to 31 October |
| 2009 |
| |
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
| |
| |
| |
Realised loss on disposal of fixed asset | |
investments | - (315) (315)|
| |
Realised gain on disposal of current asset | |
investments | - 45 45|
| |
| |
| |
Fixed asset investment holding losses | - (206) (206)|
| |
Current asset investment holding gains | - 1,676 1,676|
| |
| |
| |
Other income 2 | 438 - 438|
| |
| |
| |
Investment management fees 3 | (73) (208) (281)|
| |
Other expenses 4 | (223) - (223)|
| |
| |
| |
Return on ordinary activities before tax | 142 992 1,134|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
| |
Return on ordinary activities after tax | 142 992 1,134|
| |
Earnings per share - basic and diluted 8 | 0.9p 6.4p 7.3p|
+---------------------+
* The 'Total' column of this statement is the profit and 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.
The accompanying notes form an integral part of the financial statements.
Reconciliation of Movements in Shareholders' Funds
+------------------------+-----------------------+
| Year ended 31 October| Year ended 31 October|
| 2010| 2009|
| | |
| GBP'000| GBP'000|
| | |
Shareholders' | | |
funds at start of year | 15,014| 14,036|
| | |
Return on ordinary activities | | |
after tax | 18| 1,134|
| | |
Issue of equity (net of | | |
expenses) | 647| -|
| | |
Dividends paid | (156)| (156)|
| | |
Shareholders' funds at end of | | |
period | 15,523| 15,014|
+------------------------+-----------------------+
The accompanying notes form an integral part of the financial statements.
Balance Sheet
+-------------------+
| As at 31 October| As at 31 October
| 2010| 2009
| |
Notes| GBP'000 GBP'000| GBP'000 GBP'000
| |
| |
| |
Fixed asset investments* 10 | 10,465| 4,370
| |
Current assets: | |
| |
Debtors 11 | 588 | 97
| |
Money market securities and other | |
deposits* 12 | 4,457 |10,069
| |
Cash at bank | 71 | 578
| |
| 5,116 |10,744
| |
Creditors: amounts falling due | |
within one year 13 | (58) | (100)
| |
Net current assets | 5,058| 10,644
| |
| |
| |
Net assets | 15,523| 15,014
| |
| |
| |
Called up equity share capital 14 | 1,635 | 1,562
| |
Share premium 15 | 574 | -
| |
Special distributable reserve 15 |13,040 |13,196
| |
Capital reserve - (losses) on | |
disposals 15 | (773) | (405)
| |
- holding | |
gains 15 | 1,050 | 581
| |
Revenue reserve 15 | (3) | 80
| |
Total equity shareholders' funds | 15,523| 15,014
| |
Net asset value per share 9 | 94.9p| 96.1p
+-------------------+
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 10
February 2011 and are signed on their behalf by:
Lewis Jarrett
Chairman
Company No: 06397764
The accompanying notes form an integral part of the financial statements.
Cash Flow Statement
+---------------+---------------+
| Year to| Year to|
|31 October 2010|31 October 2009|
| | |
Notes| GBP'000| GBP'000|
| | |
| | |
| | |
Net cash (outflow)/inflow | | |
from operating activities | (828)| 12|
| | |
| | |
| | |
Financial investment: | | |
| | |
Purchase of fixed asset investments 10 | (5,273)| (3,054)|
| | |
| | |
| | |
Management of funds: | | |
| | |
Purchase of current asset investments 12 | (4,791)| (2,146)|
| | |
Sale of current asset investments 12 | 9,894| 5,461|
| | |
| | |
| | |
Dividends paid 7 | (156)| (156)|
| | |
| | |
| | |
Financing: | | |
| | |
Issue of shares | 647| -|
| | |
(Decrease)/increase in cash resources at | | |
bank | (507)| 117|
+---------------+---------------+
The accompanying notes form an integral part of the financial statements.
Reconciliation of Return before Taxation to Cash Flow from
Operating Activities
+--------------------+---------------+
| Year to| Year to|
| 31 October 2010|31 October 2009|
| | |
| GBP'000| GBP'000|
| | |
Return on ordinary activities before tax | 18| 1,134|
| | |
Loss on disposal of fixed asset | | |
investments | -| 315|
| | |
Loss/(gain) on disposal of current asset | | |
investments | 101| (45)|
| | |
(Gain)/loss on valuation of fixed asset | | |
investments | (822)| 206|
| | |
Loss/(gain) on valuation of current | | |
asset investments | 408| (1,676)|
| | |
(Increase)/decrease in debtors | (491)| 65|
| | |
(Decrease)/increase in creditors | (42)| 13|
| | |
(Outflow)/inflow from operating | | |
activities | (828)| 12|
+--------------------+---------------+
The accompanying notes form an integral part of the financial statements.
Reconciliation of Net Cash Flow to Movement in Net Funds
+-----------------+-----------------+
| Year to | Year to |
| 31 October 2010 | 31 October 2009 |
| | |
| GBP'000 | GBP'000 |
| | |
(Decrease)/increase in cash at bank | (507) | 117 |
| | |
Movement in cash equivalents | (5,612) | (1,594) |
| | |
Opening net cash resources | 10,647 | 12,124 |
| | |
Net funds at 31 October | 4,528 | 10,647 |
+-----------------+-----------------+
Net funds at 31 October comprised:
+-----------------+-----------------+
| Year to | Year to |
| 31 October 2010 | 31 October 2009 |
| | |
| GBP'000 | GBP'000 |
| | |
Cash at bank | 71 | 578 |
| | |
Bonds | - | 4,083 |
| | |
Money market funds | 602 | 1,124 |
| | |
OEICs | 3,855 | 4,862 |
| | |
Net funds at 31 October | 4,528 | 10,647 |
=------------------------+-----------------+-----------------+
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of accounting
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of certain financial
instruments, and in accordance with UK Generally Accepted Accounting Practice
(UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial
Statements of Investment Trust Companies' (revised 2009).
The principal accounting policies have remained unchanged from those set out in
the Company's 2009 Annual Report and financial statements. A summary of the
principal accounting policies is set out below.
The Company presents its income statement in a three column format to give
shareholders additional detail of the performance of the Company, split between
items of a revenue or capital nature.
The preparation of the financial statements requires Management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions
mainly relate to the fair valuation of the fixed asset investments particularly
unquoted investments. Estimates are based on historical experience and other
assumptions that are considered reasonable under the circumstances. The
estimates and the assumptions are under continuous review with particular
attention paid to the carrying value of the investments.
Capital valuation policies are those that are most important to the depiction of
the Company's financial position and that require the application of subjective
and complex judgements, often as a result of the need to make estimates about
the effects of matters that are inherently uncertain and may change in
subsequent periods. The critical accounting policies that are declared will not
necessarily result in material changes to the financial statements in any given
period but rather contain a potential for material change. The main accounting
and valuation policies used by the Company are disclosed below. Whilst not all
of the significant accounting policies require subjective or complex judgements,
the Company considers that the following accounting policies should be
considered critical.
The Company has designated all fixed asset investments as being held at fair
value through profit and loss; therefore all gains and losses arising from
investments held are attributable to financial assets held at fair value through
profit and loss. Accordingly, all interest income, fee income, expenses and
investment gains and losses are attributable to assets designated as being at
fair value through profit or loss.
Current asset investments comprising money market funds and deposits are held
for trading and are therefore automatically classified as fair value through
profit or loss.
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 IPEVC valuation guidelines, although this does rely on subjective
estimates such as appropriate sector earnings multiples, forecast results of
investee companies, asset values of subsidiary companies and liquidity or
marketability of the investments held.
Although the Company believes that the assumptions concerning the business
environment and estimate of future cash flows are appropriate, changes in
estimates and assumptions could require changes in the stated values. This could
lead to additional changes in fair value in the future.
Investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly, as permitted by FRS 26, the investments will be designated as fair
value through profit and loss (FVTPL) on the basis that they qualify as a group
of assets managed, and whose performance is evaluated, on a fair value basis in
accordance with a documented investment strategy. The Company's investments are
measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is
established by reference to the closing bid price on the relevant date or the
last traded price, depending upon convention of the exchange on which the
investment is quoted. This is consistent with the IPEVC valuation guidelines.
In the case of unquoted investments, fair value is established by using measures
of value such as the price of recent transactions, earnings multiple and net
assets. This is consistent with IPEVC valuation guidelines.
Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the income statement and
allocated to the capital reserve - holding gains/(losses).
In the preparation of the valuations of assets the Directors are required to
make judgements and estimates that are reasonable and incorporate their
knowledge of the performance of the investee companies.
Current asset investments
Current asset investments comprise money market funds, bonds and OEICs and are
designated as FVTPL. Gains and losses arising from changes in fair value of
investments are recognised as part of the capital return within the Income
Statement and allocated to the capital reserve - gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager
and are readily convertible into cash at the choice of the Company. The current
asset investments are held for trading, are actively managed and the performance
is evaluated on a fair value basis in accordance with a documented investment
strategy. Information about them has to be provided internally on that basis to
the Board.
Income
Investment income includes interest earned on bank balances and money market
securities and includes income tax withheld at source. Dividend income is shown
net of any related tax credit.
Dividends receivable are brought into account when the Company's right to
receive payment is established and there is no reasonable doubt that payment
will be received. Fixed returns on debt and money market securities are
recognised on a time apportionment basis so as to reflect the effective yield,
provided there is no reasonable doubt that payment will be received in due
course.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
wholly to revenue with the exception of the investment management fee, which has
been charged 25% to the revenue account and 75% to the capital reserve to
reflect, in the Directors' opinion, the expected long-term split of returns in
the form of income and capital gains respectively from the investment portfolio.
The transaction costs incurred when purchasing or selling assets are written off
to the Income Statement in the period that they occur.
Revenue and capital
The revenue column of the income statement includes all income and revenue
expenses of the Company. The capital column includes gains and losses on
disposal and holding gains and losses on investments. Gains and losses arising
from changes in fair value of investments are recognised as part of the capital
return within the income statement.
Taxation
Corporation tax payable is applied to profits chargeable to corporation tax, if
any, at the current rate. The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue return on the
"marginal" basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing
differences that have originated but not reversed at the balance sheet date.
Where transactions or events have occurred at that date that will result in an
obligation to pay more, or a right to pay less tax, with the exception that
deferred tax assets are recognised only to the extent that the Directors
consider that it is more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying timing differences can
be deducted.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand. Liquid
resources are current asset investments which are disposable without curtailing
or disrupting the business and are either readily convertible into known amounts
of cash at or close to their carrying values or traded in an active market.
Liquid resources comprise term deposits of less than one year (other than cash),
government securities, investment grade bonds and investments in money market
managed funds, as well as OEICs.
Loans and receivables
The Company's loans and receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective interest method.
Financing strategy and capital structure
FRS 29 'Financial Instruments: Disclosures' comprises disclosures' relating to
financial instruments.
We define capital as shareholders' funds and our financial strategy in the
medium term is to manage a level of cash that balances the risks of the business
with optimising the return on equity. The Company currently has no borrowings
nor does it anticipate that it will drawdown any borrowing facilities in the
future to fund the acquisition of investments.
The Company does not have any externally imposed capital requirements.
Financial instruments
During the course of the year, the Company held non-current asset investments,
shares in OEICs (open ended investment companies), money market funds and cash
deposits. The Company holds financial assets that comprise investments in
unlisted companies and qualifying loans. The carrying value for all financial
assets and liabilities is fair value.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are paid, and for
final dividends when they are approved by the shareholders.
2. Income
Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
Money market funds & OEICs 31 312
Bond interest receivable 42 118
Loan note interest receivable 107 8
180 438
3. Investment Management Fees
Year to 31 October Year to 31 October
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 70 212 282 73 208 281
For the purposes of the revenue and capital columns in the income statement, the
management fee has been allocated 25% to revenue and 75% to capital, in line
with the Board's expected long-term return in the form of income and capital
gains respectively from the Company's investment portfolio.
Octopus provides investment management and accounting and administration
services to the Company under a management agreement. This agreement runs for a
period of five years with effect from 2 November 2007 and may be terminated at
any time thereafter by not less than 12 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, or the required notice period was given.
The basis upon which the management fee is calculated is disclosed within note
19 to the financial statements.
4. Other Expenses
Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
Directors' remuneration 33 33
Fees payable to the Company's auditor for the 9
audit of the financial statements 9
Fees payable to the Company's auditor for other 2
services - tax compliance 2
Legal and professional expenses 3 1
Accounting and administration services 46 46
Trail commission 25 78
Other expenses 75 54
193 223
Total annual running costs are capped at 3.2% of net assets (excluding
irrecoverable VAT). For the year to 31 October 2010 the running costs, as
defined in the prospectus, were 2.9% of net assets (2009: 2.7%).
5. Directors' Remuneration
Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
Directors' emoluments
Lewis Jarrett (Chairman) 15 15
Kevin D'Silva 10 10
Matt Cooper 8 8
33 33
None of the Directors received any other remuneration from the Company during
the year. The Company has no employees other than non-executive Directors. The
average number of non-executive Directors in the year was three (2009: three).
6. Tax on Ordinary Activities
The corporation tax charge for the period was GBPnil (2009: GBPnil)
Factors affecting the tax charge for the current year:
The current tax charge for the period differs from the standard rate of
corporation tax in the UK of 28% (2009: 28%).
The differences are explained below.
Current tax reconciliation: Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
Return on ordinary activities before tax 18 1,134
Current tax at 28% (2009: 28%) 5 318
Income not taxable for tax purposes (54) (366)
Unrelieved tax losses 49 48
Total current tax charge - -
Excess management charges of GBP567,000 (2009: GBP241,000) have been carried forward
at 31 October 2010 and are available for offset against future taxable income
subject to agreement with HMRC. The Company has not recognised the deferred tax
asset of GBP159,000 (2009: GBP67,000) in respect of these excess management charges.
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so as
to maintain its approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
7. Dividends
Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
Recognised as distributions in the financial
statements for the period
Previous year's final dividend 78 78
Current period's interim dividend 78 78
156 156
Paid and proposed in respect of the period
Interim dividend paid - 0.5p per share (2009:
0.5p per share) 78 78
Proposed final dividend - 0.75p per share (2009:
0.5p per share) 123 78
201 156
The final dividend of 0.75p per share for the year ended 31 October 2010,
subject to shareholder approval at the Annual General Meeting, will be paid on
8 April 2011 to those shareholders on the register on 11 March 2011.
8. Earnings per Share
The total, revenue and capital earnings per share is based on 15,790,677 (31
October 2009: 15,616,881) ordinary shares, being the weighted average number of
ordinary shares in issue during the year.
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.
9. Net Asset Value per Share
The calculation of NAV per share as at 31 October 2010 is based on 16,354,502
(31 October 2009: 15,616,881) ordinary shares in issue at that date.
10. Fixed Asset Investments
Effective from 1 November 2009, the Company adopted the amendment to FRS 29
regarding financial instruments that are measured in the balance sheet at fair
value; this requires disclosure of fair value measurements by level of the
following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities.
The fair value of financial instruments
traded in active markets is based on quoted market prices at the balance sheet
date. A market is regarded as
active if quoted prices are readily and regularly available, and those prices
represent actual and regularly
occurring market transactions on an arm's length basis. The quoted market price
used for financial assets held is
the current bid price. These instruments are included in level 1 and comprise
AIM-listed investments classified as
held at fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using
valuation techniques. These valuation techniques maximise the use of observable
data where it is available and
rely as little as possible on entity-specific estimates. If all significant
inputs required to fair value an instrument
are observable, the instrument is included in level 2. The Company held no such
investment in the current or
prior year.
Level 3: the fair value of financial instruments that are not traded in an
active market (for example investments in
unquoted companies) is determined by using valuation techniques such as earnings
multiples. If one or more of
the significant inputs is not based on observable market data, the instrument is
included in level 3.
There has been one transfer between these classifications in the year (2009:
none). The change in fair value
for the current and previous year is recognised through the income statement.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in
investments at fair value through profit or loss during the year to 31 October
2010 are summarised below and in
note 12.
Level 1:
Level 1: AIM-quoted Level 3: Level 3:
AIM-quoted loan Unquoted Unquoted Total
investments investments investments investments investments
Equity Loan Equity Loan
investments investments investments investments
31 October 31 October 31 October 31 October 31 October
2010 2010 2010 2010 2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Valuation and
net book
amount:
Book cost as
at 1 November
2009 - - 3,566 1,215 4,781
Cumulative
revaluation - - (411) - (411)
Valuation at
1 November
2009 - - 3,155 1,215 4,370
Movement in
the year:
Purchases at
cost - 5,273 - 5,273
Transfer
between
levels 68 382 (68) (382) -
Loan
converted to
equity - - 365 (365) -
Revaluation
in year (7) 807 22 822
Valuation at
31 October
2010 61 382 9,532 490 10,465
Book cost at
31 October
2010: 68 382 9,137 468 10,055
Revaluation
to 31 October
2010: (7) - 395 22 410
Valuation at
31 October
2010 61 382 9,532 490 10,465
Level 3 valuations include assumptions based on non-observable market data, such
as discounts applied either to reflect fair value of financial assets held at
the price of recent investment, or, in the case of unquoted investments, to
adjust earnings multiples. Further details in respect of the methods and
assumptions applied in determining the fair value of the investments are
disclosed in the Investment Manager's review and within the principal accounting
policies in note 1. The sensitivity of these valuations to a reasonable possible
change in such assumptions is given in note X.
Further details of the fixed asset investments held by the Company are shown
within the Investment Manager's Review on pages X to X.
At 31 October 2010 and 31 October 2009, there were no commitments in respect of
investments not yet completed.
11. Debtors
31 October 2010 31 October 2009
GBP'000 GBP'000
Prepayments 13 9
Accrued income 575 88
588 97
12. Current Asset Investments
Current asset investments at 31 October 2010 comprised bonds, money market funds
and OEICs.
GBP'000 GBP'000
Valuation and net book amount:
Book cost as 1 November 2009
- Bonds 3,930
- Money Market Funds 1,120
- OEICs 3,542
8,592
Revaluation as at 1 November 2009
- Bonds 153
- Money Market Funds 4
- OEICs 1,320
1,477
Valuation as at 1 November 2009 10,069
Purchase at cost:
- Money Market Funds 4,791
4,791
Disposal proceeds
- Bonds (4,083)
- Money Market Funds (5,311)
- OEICs (500)
(9,894)
Loss in year on realisation of investments:
- OEICs (101)
(101)
Revaluation in the year
- OEICs (408)
(408)
4,457
Book cost as 31 October 2010
- Money Market Funds 602
- OEICs 3,215
3,817
Revaluation as at 31 October 2010
- OEICs 640
640
Valuation as at 31 October 2010 4,457
All current asset investments held at the year end sit with the level 1
hierarchy for the purposes of FRS 29.
Level 1 money market funds: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
valuation of money market funds at 31 October 2010 was GBP4,457,000 (2009:
GBP10,069,000).
13. Creditors: Amounts Falling Due Within One Year
31 October 2010 31 October 2009
GBP'000 GBP'000
Accruals 58 100
14. Share Capital
31 October 2010 31 October 2009
GBP'000 GBP'000
Authorised:
50,000,000 ordinary shares of 10p 5,000 5,000
Allotted and fully paid up:
16,354,502 ordinary shares of 10p 1,635 1,562
The capital of the Company is managed in accordance with its investment policy
with a view to the achievement of its investment objective as set on page X.
The Company is not subject to any externally imposed capital requirements.
The Company issued 737,621 ordinary shares at a weighted average price of 92.9p
per share during the period. The total nominal value of the shares issued was
GBP73,762 representing 4.5% of the issued share capital.
15. Reserves
Capital Capital
Special reserve reserve
Share distributable gains/(losses) holding Revenue
Premium reserve on disposal gains/(losses) reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1
November 2009 - 13,196 (405) 581 80 13,452
Return on
ordinary
activities
after tax - - - - (83) (83)
Management
fees
allocated as
capital
expenditure - - (212) - - (212)
Issue of
equity* 574 - - - - 574
Current
period losses
on disposal - - (101) - - (101)
Prior period
holding loss
on disposal - - (55) 55 - -
Current
period
gains/losses
on
revaluation - - - 414 - 414
Dividends
paid - (156) - - - (156)
Balance as at
31 October
2010 574 13,040 (773) 1,050 (3) 13,888
*net of Offer costs
When the Company revalues its investments during the year, any gains or losses
arising are credited/charged to the income statement. Unrealised gains/losses
are then transferred to the Capital reserve - holding gains/(losses). When an
investment is sold, any balance held on the 'capital reserve - holding
gains/(losses)' is transferred to the 'capital reserve - gains/(losses) on
disposal' as a movement in reserves.
The purpose of the special distributable reserve was to create a reserve which
will be capable of being used by the Company to pay dividends and for the
purpose of making repurchases of its own shares in the market with a view to
narrowing the discount to net asset value at which the Company's ordinary shares
trade. In the event that the revenue reserve and capital reserve gains/(losses)
on disposal do not have sufficient funds to pay dividends, these will be paid
from the special distributable reserve.
16. Financial Instruments and Risk Management
The Company's financial instruments comprise equity and fixed interest
investments, cash balances and liquid resources including debtors and creditors.
The Company holds financial assets in accordance with its investment policy of
investing mainly in a portfolio of VCT qualifying unquoted securities whilst
holding a proportion of its assets in cash or near-cash investments in order to
provide a reserve of liquidity.
Classification of financial instruments
Titan 1 held the following categories of financial instruments, all of which are
included in the balance sheet at fair value, at 31 October 2010.
31 October 2010 31 October 2009
GBP000 GBP000
Assets at fair value through profit or loss
Investments 10,465 4,370
Current asset investments 4,457 10,069
Total 14,922 14,439
Loans and receivables
Cash at bank 71 578
Accrued income 575 88
Total 646 666
Liabilities at amortised cost
Accruals and other creditors 58 100
Total 58 100
Fixed asset investments (see note 10) are valued at fair value. Unquoted
investments are carried at fair value as determined by the Directors in
accordance with current venture capital industry guidelines. The fair value of
all other financial assets and liabilities is represented by their carrying
value in the balance sheet. The Directors believe that the fair value of the
assets held at the period-end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various
types of risk associated with the financial instruments and markets in which it
invests. The most significant types of financial risk facing the Company are
price risk, interest rate risk, credit risk and liquidity risk. The Company's
approach to managing these risks is set out below together with a description of
the nature and amount of the financial instruments held at the balance sheet
date.
Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page X. The management of
market risk is part of the investment management process and is a central
feature of venture capital investment. The Company's portfolio is managed in
accordance with the policies and procedures described in the Corporate
Governance statement on pages X to X, having regard to the possible effects of
adverse price movements, with the objective of maximising overall returns to
shareholders. Investments in unquoted companies, by their nature, usually
involve a higher degree of risk than investments in companies quoted on a
recognised stock exchange, though the risk can be mitigated to a certain extent
by diversifying the portfolio across business sectors and asset classes. The
overall disposition of the Company's assets is regularly monitored by the Board.
Details of the Company's investment portfolio at the balance sheet date are set
out on page X to X. An analysis of investments between debt and equity
instruments is given in note 10.
67.4% (2009: 29.2%) by value of the Company's net assets comprises investments
in unquoted companies held at fair value. The valuation methods used by the
Company include the application of a price/earnings ratio derived from listed
companies with similar characteristics, and consequently the value of the
unquoted element of the portfolio can be indirectly affected by price movements
on the London Stock Exchange. A 10% overall increase in the valuation of the
unquoted investments at 31 October 2010 would have increased net assets and the
total return for the year by GBP1,046,500 (2009: GBP437,000) an equivalent change in
the opposite direction would have reduced net assets and the total return for
the year by the same amount.
28.7% (2009: 67.3%) by value of the Company's net assets comprises of OEICs and
Money Market Securities held at fair value. A 10% overall increase in the
valuation of the OEICs and Money Market Securities at 31 October 2010 would have
increased net assets and the total return for the year by GBP445,700 (2009:
GBP1,007,000) an equivalent change in the opposite direction would have reduced
net assets and the total return for the year by the same amount.
Interest rate risk
Some of the Company's financial assets are interest-bearing, of which some are
at fixed rates and some variable. As a result, the Company is exposed to fair
value interest rate risk due to fluctuations in the prevailing levels of market
interest rates.
Fixed rate
The table below summarises weighted average effective interest rates for the
fixed interest-bearing financial instruments:
As at 31 October 2010 As at 31 October 2009
Weighted
Weighted average
Total fixed average Total fixed time for
rate Weighted time for rate Weighted which
portfolio average which rate portfolio average rate is
by value interest is fixed by value interest fixed in
GBP'000 rate % in years GBP'000 rate % years
Listed fixed-
interest
investments - N/A N/A 2,483 4.90% 0.6
Fixed-rate
investments
in unquoted
companies 382 12% 3.5 987 10.60% 3.5
382 3,470
Due to the relatively short period to maturity of the fixed rate investments
held within the portfolio, it is considered that an increase or decrease of 1%
in interest rates as at the reporting date would not have had a significant
effect on the Company's net assets or total return for the period.
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing
deposit accounts, libor rate on one loan note and, where appropriate, within
interest bearing money market securities. The benchmark rate which determines
the rate of interest receivable on such investments is the bank base rate, which
was 0.5% at 31 October 2010. The amounts held in floating rate investments at
the balance sheet date were as follows:
31 October 2010 31 October 2009
GBP000 GBP000
Floating rate notes - 1,599
Floating-rate investments in unquoted
companies 315 315
Cash on deposit & money market funds 673 2,234
988 4,148
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the period by GBP10,000 (2009: GBP41,000).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2010. By cost, no individual investment exceeded 11.4% (2009: 10.9%) of
the Company's net assets at 31 October 2010.
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Company. The Investment Manager and the Board carry out a regular review of
counterparty risk. The carrying values of financial assets represent the maximum
credit risk exposure at the balance sheet date.
At 31 October 2010 the Company's financial assets exposed to credit risk
comprised the following:
31 October 2010 31 October 2009
GBP000 GBP000
Investments in fixed interest instruments - 2,483
Investments in floating rate instruments - 1,599
Cash on deposit & money market funds 673 2,234
Fixed rate investments in unquoted companies 382 987
Accrued dividends and interest receivable 75 89
1,130 7,392
Credit risk relating to listed money market securities is mitigated by investing
in a portfolio of investment instruments of high credit quality, comprising
securities issued by the UK Government and major UK companies and institutions.
Credit risk relating to loans to and preference shares in unquoted companies is
considered to be part of market risk.
Those assets of the Company which are traded on recognised stock exchanges are
held on the Company's behalf by third party custodians (Goldman Sachs
International in the case of listed money market securities and Capita Financial
in the case of quoted equity securities). Bankruptcy or insolvency of a
custodian could cause the Company's rights with respect to securities held by
the custodian to be delayed or limited.
Credit risk arising on the sale of investments is considered to be small due to
the short settlement and the contracted agreements in place with the settlement
lawyers.
The Company's interest-bearing deposit and current accounts are maintained with
HSBC Bank plc.
Liquidity risk
The Company's financial assets include investments in unquoted equity securities
which are not traded on a recognised stock exchange and which generally may be
illiquid. They also include investments in AIM-quoted companies, which, by their
nature, involve a higher degree of risk than investments on the main market. As
a result, the Company may not be able to realise some of its investments in
these instruments quickly at an amount close to their fair value in order to
meet its liquidity requirements, or to respond to specific events such as
deterioration in the creditworthiness of any particular issuer.
The Company's listed money market securities are considered to be readily
realisable as they are of high credit quality as outlined above.
The Company's liquidity risk is managed on a continuing basis by the Investment
Manager in accordance with policies and procedures laid down by the Board. The
Company's overall liquidity risks are monitored on a quarterly basis by the
Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 31 October 2010
these investments were valued at GBP4,500,000 (2009: GBP10,600,000).
17. Post Balance Sheet Events
The following events occurred between the balance sheet date and the signing of
these financial statements:
· On 5 November 2010 a further GBP12,500 was invested into Skills Market
Limited
· On 30 November 2010 a further GBP6,000 was invested into Skills Market
Limited
· On 7 December 2010 a new investment of GBP367,000 was made into Diverse
Energy Limited
· On 9 December 2010 a further GBP307,000 was invested into Zoopla Limited
· On 27 January 2011 a further GBP116,667 was invested into Money Workout
Limited
· On 4 February 2011 a further GBP16,667 was invested into Money Workout
Limited
18. Contingencies, Guarantees and Financial Commitments
Provided that an intermediary continues to act for a shareholder and the
shareholder continues to be the beneficial owner of the shares, intermediaries
will be paid an annual trail commission of 0.5% of the initial net asset value.
Trail commission of GBP25,000 was paid during the year (2009: GBP78,000) and there
was GBPnil outstanding at the year end.
There were no other contingencies, guarantees or financial commitments as at 31
October 2010.
19. Related Party Transactions
Octopus Titan VCT 1 plc has employed Octopus Investments Limited throughout the
period as the Investment Manager.
Matt Cooper, a non executive Director of Octopus Titan VCT 1 plc, is also
Chairman of Octopus Investments. Octopus Titan VCT 1 plc has paid Octopus
GBP282,000 (2009: GBP281,000) in the year as a management fee and there is GBPnil
outstanding at the balance sheet date. The management fee is payable quarterly
in advance and is based on 2.0% of the net asset value calculated at annual
intervals as at 31 October.
Octopus Investments Limited also provides accounting, administrative and company
secretarial services to the Company, payable quarterly in advance for a fee of
0.3% of the net asset value calculated at annual intervals as at 31 October.
During the year GBP46,000 (2009: GBP46,000) was paid to Octopus Investments Limited
and there is GBPnil outstanding at the balance sheet date, for the accounting and
administrative services.
In addition, Octopus is entitled to performance related incentive fees. The
incentive fees are designed to ensure that there are significant tax-free
dividend payments made to Shareholders as well as strong performance in terms of
capital and income growth, before any performance related incentive fee payment
is made. Therefore, only if by the end of a financial year (commencing no
earlier than close of the 2011 financial year), declared distributions per Share
have reached 40p in aggregate and if the Performance Value at that date exceeds
130p per Share, a performance incentive fee equal to 20% of the excess of such
Performance Value over 100p per Share will be payable to Octopus.
If, on a subsequent financial year end, the Performance Value of Octopus Titan
VCT 1 plc falls short of the Performance Value on the previous financial year
end, no incentive fee will arise. If, on a subsequent financial year end, the
performance exceeds the previous best Performance Value of Octopus Titan VCT 1
plc, the Investment Manager will be entitled to 20% of such excess in aggregate.
No performance fee has been recognised for the year ended 31 October 2010 on the
basis that the directors do not believe that the necessary criteria will be met
in the foreseeable future, and therefore the amount of any possible obligation
is not material.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Octopus Titan VCT 1 PLC via Thomson Reuters ONE
[HUG#1487913]
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