TIDMOTV3
Octopus Titan VCT 3 plc
Final Results
24 February 2009
Octopus Titan VCT 3 plc (the "Company"), managed by Octopus
Investments Limited, today announces the final results for the year
ended 31 October 2008.
These results were approved by the Board of Directors on 24 February
2009.
You may view the Annual Report in full at www.octopusinvestments.com
and navigating to the VCT Annual and Interim Reports under the 'Learn
More' section.
About Octopus Titan VCT 3 plc
Octopus Titan VCT 3 plc ("Titan 3," "Company" or "Fund") 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 Ventures Limited
("Octopus" or "Manager").
Titan 3 was incorporated on 4 March 2008 with the first allotment of
equity being 21 July 2008. Titan 3 is currently open for subscription
(the "Offer") until the earlier of 2.00pm on 3 April 2009 or the date
on which the maximum subscription is reached. The Company will invest
primarily in unquoted UK smaller companies and aims to deliver
absolute returns on its investments.
Financial Highlights
As at 31 October 2008
Net assets (GBP'000s) 3,844
Net loss after tax (GBP'000s) (96)
Net asset value per share 92.2p
Chairman's Statement
This is the first annual report for Octopus Titan VCT 3 plc covering
the period from incorporation in March 2008 to 31 October 2008
Background
In the period to 31 October 2008, the Company had raised gross
proceeds of over GBP4.1 million and a further GBP2.6 million has been
raised between 31 October 2008 and the signing of this report. The
Offer period for new subscriptions for shares will close on 3 April
2009, the last working day of the current tax year.
As the global financial crisis feeds through to the real economy,
many businesses are experiencing weakening demand coupled with
liquidity pressures. Whilst the short term outlook may be far from
encouraging, we believe that there will be many interesting
opportunities to invest in smaller private companies over the next 12
to 24 months, and at much lower valuations than we have seen in
recent years. Fortunately, we are given until the end of the third
accounting period after which the equity was subscribed to invest at
least 70% of the funds raised into qualifying investments. This
should allow the Investment Manager to be highly selective in
choosing investments which will create the Fund's portfolio.
Net Asset Value
It is frustrating to have to report in the early life of the Company
a decline in net asset value per share ("NAV") from the initial NAV
of 94.5p to 92.2p at the period end. This has been largely due to the
relatively low cash balances in the Company during the short
accounting period and to the low interest rates providing
insufficient income to cover the Company's expenses since its
formation. These costs include such items as a Stock Exchange listing
fee, accrued audit fees and of course accrued fees for the printing
of this report amongst others. In time, as qualifying investments are
made, income should flow from the investment portfolio allowing for
the expenses to be covered. Over the longer term as the underlying
portfolio of investments is created, the Company's NAV will be linked
increasingly to the value of the investments in the portfolio
companies.
Investment Portfolio
During the last few days of October, the Fund made its first
qualifying investment into Calastone Limited
(www.calastone.com) totalling GBP200,000. Following the period end, an
investment of GBP280,000 was completed into Zoopla Ltd
(www.zoopla.co.uk). Further details of these investments are set out
in the Investment Manager's
Review on pages 5 to 6. It is very early days, but the Investment
Manager is generally encouraged by the performance of these two
portfolio companies and by the quality of new investment
opportunities which they are currently evaluating.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager
with advice concerning ongoing compliance with Her Majesty's Revenue
& Customs ("HMRC") rules and regulations concerning VCTs. The Board
has been advised that Octopus Titan VCT 3 plc is in compliance with
the conditions laid down by HMRC for maintaining approval as a VCT.
This is discussed further in Shareholder Information on page 7. A key
requirement now is to achieve the required 70% qualifying investment
level. As at 31 October 2008
5.2% of the portfolio (as measured by HMRC rules) was invested in VCT
qualifying investments. Your Board continues to be confident that the
70% target will be met by the required date.
Outlook
The Investment Manager is seeing an increasing number of interesting
opportunities as capital and credit become scarcer. We anticipate
that later in 2009 we shall see a more realistic pricing of
investments as the recessionary conditions and liquidity shortages
impact the broader economy.
Mark Hawkesworth
Chairman
24 February 2009
Investment Manager's Review
During the last six months Titan 3 has been raising funds through
share subscriptions, thus the investment process is yet to take full
pace. As is the requirement of a VCT, a minimum of 70% of the net
proceeds raised needs to be invested in qualifying companies by the
end of the third accounting period. There has been significant
upheaval and volatility in the financial markets that has been well
documented by the press and as a result, only one qualifying
investment was made during the period to 31 October 2008.
Investment Policy
The investment approach of Titan 3 is not designed to deliver a
return that is measured against a stock market index. Instead, the
focus of Titan 3 is on generating absolute returns over the
medium-term. In order to achieve this goal, the Fund will focus on
providing early stage, development and expansion funding to unquoted
companies with a typical deal size of GBP0.25 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 can create a large business by taking a relatively modest
market share. We are particularly interested in businesses that
address current market trends and aim to create a balanced investment
portfolio spanning multiple industries and business sectors.
We expect that the portfolio of holdings built by Titan 3 will
encompass investments in 20-25 unquoted companies, with a focus on
the environmental, technology, media, telecoms and consumer lifestyle
and wellbeing sectors. It is envisaged that, at the end of the
initial investment period, 75-85% of the proceeds of the Offer will
be invested in a range of Qualifying Investments with 15-25% invested
in a combination of cash, Open Ended Investment Companies ("OEICs")
managed by Octopus and money market securities managed by third party
specialists.
Portfolio Review
As at 31 October 2008, NAV, calculated as the value of all the assets
held by the Fund divided by the number of shares in issue, stood at
92.2p. This is marginally down from the initial NAV at original
investment of 94.5p (post initial fees) a fall of 2.4%. By contrast,
over the same period, the FTSE 100 index has fallen 27.7%, the FTSE
AIM All Share Index has fallen 56.7% and the FTSE UK Smaller
Companies index has fallen 38.8%. The fall in the NAV is due to
expenses exceeding income during the short life of the fund to date.
Fortunately, the structure of VCTs allows us to invest relatively
slowly, so we are able to be patient and not rush into investments.
In the short to medium term, we aim to make the most of low company
valuations for investors and take advantage of the opportunities
inherent in the current environment
We have taken a cautious approach to investments, only investing in
one unquoted company as at 31 October 2008.
Calastone Limited
On 29 October 2008, an investment was made into Calastone. 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. This will
be welcome in an industry which has not yet been able to invest in
the real-time exchange of information between participants to date.
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.
Furthermore, there is no barrier or cost of entry.
Initial investment date:
October 2008
Cost:
GBP200,000 (ordinary
shares)
Valuation:
GBP200,000
Valuation basis:
Fair Value (being
cost)
Equity held:
2.4%
Equity held by all funds managed by Octopus: 17.3%
Recent Investments
Since the period end Titan 3 has made an investment of GBP280,000 into
Zoopla Ltd, an award-winning online property information service and
community website. We will provide an update on the investment in the
next report.
Outlook
In the six months to 31 October 2008 we reviewed 374 business plans
and met with 116 businesses. We continue to see a good deal flow and
we are seeing strong management teams that are ambitious and highly
entrepreneurial. In deciding to provide support to companies we are
able to draw on the extensive industry knowledge and expertise within
our own team, as well as from the Octopus Investor Group whose advice
and knowledge is invaluable. These are exciting times to be investing
as the current environment presents opportunities to invest at
attractive valuations with the potential for rewards on recovery. We
anticipate completing a number of deals in the forthcoming months.
If you have any questions on any aspect of your investment, please
call one of the team on 0800 316 2347.
Alex Macpherson
Octopus Ventures Limited
24 February 2009
Directors' Responsibility Statement
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial statements
for each financial 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).
The financial statements are required by law to give a true and fair
view of the state of affairs of the Company and of the profit or loss
of the Company for that period. In preparing these financial
statements, the Directors are required to:
* select suitable accounting policies and then
apply them consistently;
* make judgements and 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 financial statements on the going
concern basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors confirm that to the best of their knowledge the
financial statements for the period ended 31 October 2008 comply with
the requirements set out above and that suitable accounting policies,
consistently applied and supported by reasonable and prudent
judgement, have been used in their preparation. They also confirm
that the annual report includes a fair review of the development and
performance of the business together with a description of the
principal risks and uncertainties faced by the Company.
The Directors are responsible for keeping proper 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 1985. 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.
Under applicable law and regulations, the Directors are responsible
for preparing a Directors' Report (including Business Review),
Directors' Remuneration Report and Corporate Governance Statement
which comply with that law and those regulations.
In so far as 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.
The Company's financial statements are published on the Octopus
Investments website. The investment manager is responsible for the
maintenance and integrity of the corporate and financial information
set out on their website; this is not the responsibility of the
Company. The work carried out by Grant Thornton UK LLP as
independent auditor of the Company does not involve consideration of
the maintenance and integrity of the website and accordingly they
accept no responsibility for any changes that have occurred to the
financial statements since they were initially presented on the
website.
Legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation
in other jurisdictions.
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.
On Behalf of the Board
Mark Hawkesworth
Chairman
24 February 2009
Income Statement
Period to 31 October 2008
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
Loss on valuation of current asset
investments 11 - (24) (24)
Other income 2 17 - 17
Investment management fees 3 (5) (14) (19)
Other expenses 4 (70) - (70)
Loss on ordinary activities before
tax (58) (38) (96)
Taxation on loss on ordinary
activities 6 - - -
Loss on ordinary activities after tax (58) (38) (96)
Loss per share - basic and diluted 7 (3.7)p (2.5)p (6.2)p
* 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 accompanying notes are an integral part of the financial
statements
* 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.
Note of Historical Cost Profits and Losses
Period ended 31 October
2008
GBP'000
Loss on ordinary activities before taxation (96)
Unrealised loss on valuation of investments 24
Historical cost loss on ordinary activities (72)
before taxation
Historical cost loss on ordinary activities (72)
after taxation
Reconciliation of Movements in Shareholders' Funds
Period ended 31 October
2008
GBP'000
Shareholders' funds at start of period -
Loss profit on ordinary activities after
tax (96)
Issue of equity (net of expenses) 3,940
Shareholders' funds at end of period 3,844
Balance Sheet
As at 31 October 2008
Notes GBP'000 GBP'000
Fixed asset investments 9 200
Current assets:
Debtors 10 40
Investments 11 480
Cash at bank 3,218
3,738
Creditors: amounts falling due within one
period 12 (94)
Net current assets 3,644
Total assets less current liabilities 3,844
Called up equity share capital 13 417
Share Premium 14 3,523
Capital reserve - realised 14 (14)
- unrealised 14 (24)
Revenue reserve 14 (58)
Total shareholders' funds 3,844
Net asset value per share 8 92.2p
The accompanying notes are an integral part of the financial
statements.
The statements were approved by the Directors and authorised for
issue on 24 February 2009 and are signed on their behalf by:
Mark Hawkesworth
Chairman
Cash Flow Statement
Period to 31 October
2008
Notes GBP'000
Net cash outflow from operating activities (18)
Capital expenditure and Financial
investment :
Purchase of fixed asset investments 9 (200)
Management of Liquid resources :
Purchase of current asset investments 10 (504)
Financing :
Issue of shares 13 4,079
Share issue expense (139)
Increase in cash resources 3,218
Reconciliation of Net Cash Flow to Movement in Liquid Resources
Period to 31 October 2008
GBP'000
Increase in cash at bank 3,218
Movement in current asset investments 480
Opening net funds -
Net funds at 31 October 3,698
Funds at 31 October comprised:
Period to 31 October 2008
GBP'000
Cash at Bank 3,218
OEICs 480
Net Funds resources at 31 October 3,698
Reconciliation of Profit before Taxation to Cash Flow from Operating
Activities
Period to 31 October 2008
GBP'000
Loss on ordinary activities before tax (96)
Loss on valuation of current asset
investments 24
Increase in debtors (40)
Increase in creditors 94
Outflow from operating activities (18)
Notes to the Financial Statements
1. Principal Accounting policies
The financial statements have been prepared under the historical cost
convention, except for the revaluation of certain financial
instruments, and in accordance with UK Generally Accepted Accounting
Practice (UK GAAP). Where presentational guidance set out in the
Statement of Recommended Practice (SORP) "Financial Statements of
Investment Trust Companies", revised December 2005, is consistent
with the requirements of UK GAAP, the directors have sought to
prepare the financial statements on a consistent basis compliant with
the recommendations of the SORP.
The principal accounting policies are set out below:
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 unquoted investments, fair value is established in
accordance with industry guidelines by using measurements of value
such as price of recent transaction, earnings multiple and net
assets; where no reliable fair value can be estimated using such
techniques, unquoted investments are carried at cost subject to
provision for impairment where necessary.
Gains and losses arising from changes in fair value of investments
are recognised as part of the capital return within the profit and
loss account and allocated to the revaluation reserve.
In 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 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 profit and loss account and allocated to the revaluation
reserve as appropriate.
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 realised 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.
Revenue and capital
The revenue column of the Income statement includes all income and
revenue expenses of the Company. The capital column includes
realised and unrealised 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
and allocated to the realised or unrealised capital reserve on the
basis of whether they are readily convertible to cash in full at the
balance sheet date.
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 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 period (other than
cash), government securities, investment grade bonds and investments
in money market managed funds.
Loans and receivables
The Company's loans and receivables are initially recognised at cost
and subsequently measured at fair value, being amortised cost using
the effective interest rate method.
Financial instruments
The Company's principal financial assets are its investments and the
policies in relation to those assets are set out above. Financial
liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the
assets of the entity after deducting all of its financial
liabilities. Where the contractual terms of share capital do not have
any terms meeting the definition of a financial liability then this
is classed as an equity instrument. Dividends and distributions
relating to equity instruments are debited direct to equity.
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 when the dividends
proposed by the Board are approved by the shareholders.
2. Income
31 October 2008
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Loan note interest receivable 17 - 17
3. Investment management fees
31 October 2008
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Investment management fee 4 12 16
Irrecoverable VAT thereon 1 2 3
5 14 19
As mentioned above in Accounting Policies, for the purposes of the
revenue and capital columns in the income statement, the management
fee (including VAT) has been allocated 25 per cent to revenue and 75
per cent 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 Investments provides investment management and accounting and
administration services to the Company under a management agreement
which runs for a period of five accounting periods with effect from
21 July 2008 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, or the required
notice period was given. The basis upon which the management fee is
calculated is disclosed within note 18 to the financial statements.
The Chancellor of the Exchequer announced in his budget statement on
12 March 2008 that the Finance Act 2008 would contain draft
legislation exempting VCTs from VAT on management fees with effect
from 1 October 2008. This legislation has now been passed and as such
all VCTs have been made exempt from VAT on management fees from this
date.
4. Other expenses
31 October 2008
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Accounting and administration services 3 - 3
Directors' remuneration 13 - 13
Fees payable to the Company's auditor for the -
audit of the financial statements 6 6
Fees payable to the Company's auditor for other -
services - tax compliance 1 1
Legal and professional expenses 32 - 32
Other expenses 15 - 15
70 - 70
Total annual running costs are capped at 2.9% of net assets
(excluding irrecoverable VAT). For the period to 31 October 2008 the
running costs were 1.8% of net assets.
5. Directors' remuneration
31 October 2008
GBP'000
Directors' emoluments
Mark Hawkesworth 5
Tim Lebus 4
Chris Hulatt (paid to Octopus Investments Limited) 4
Total 13
None of the Directors received any other remuneration or benefit from
the Company during the period. The Company has no employees other
than non-executive Directors. The average number of non-executive
Directors in the period was three.
6. Tax on ordinary activities
The corporation tax charge for the period was GBPnil
Factors affecting the tax charge for the current period:
The current tax charge for the period differs from the standard rate
of corporation tax in the UK of 29%. The differences are explained
below.
Current tax reconciliation: 31 October 2008
GBP'000
Loss on ordinary activities before tax (96)
Current tax at 29% (28)
Income not liable to tax -
Expenses not deductible for tax purposes 7
Unrelieved tax losses 21
Total current tax charge -
Excess management charges of GBP73,000 have been carried forward at 31
October 2008 and are available for offset against future taxable
income subject to agreement with HMRC.
Approved venture capital trusts 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
venture capital trust, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or
disposal of investments.
7. Loss per share
The loss per share is based on loss after tax of GBP(96,000) and on
1,542,460 shares, being the weighted average number of 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.
8. Net asset value per share
The calculation of net asset value per share as at 31 October 2008 is
based on net assets of GBP3,844,000 divided by 4,168,564 ordinary
shares in issue at that date.
9. Fixed asset investments
GBP'000 GBP'000
Movement in the period:
Purchases at cost 200
Valuation at 31 October 2008 200
Book cost at 31 October 2008:
- ordinary shares 200
Valuation at 31 October 2008 200
Further details of the fixed asset investments held by the Company
are shown within the Investment Manager's Review on pages 6 to 7.
All investments are designated as fair value through profit or loss
at the time of acquisition, and all capital gains or losses on
investments so designated. Given the nature of the Company's venture
capital investments, the changes in fair value of such investments
recognised in these financial statements are not considered to be
readily convertible to cash in full at the balance sheet date and
accordingly these gains are treated as unrealised.
At 31 October 2008 there were no commitments in respect of
investments approved by the Manager but not yet completed.
10. Debtors
31 October 2008
GBP'000
Prepayments 2
Unpaid share capital 38
40
11. Current asset investments
Current asset investments at 31 October 2008 comprised bonds, money
market funds and OEICs.
GBP'000 GBP'000
Movement in the period:
Purchases at Cost 504
Revaluation in period (24)
Valuation as at 31 October 2008 480
Book cost at 31 October 2008:
- OEICs 504
Revaluation to 31 October 2008:
- OEICs (24)
Valuation as at 31 October 2008 480
When the Company revalues its investments during the period, any
gains or losses arising are credited / charged to the capital reserve
- unrealised unless any diminution in value is considered to be
permanent, in which case it is charged to the Capital reserve -
realised.
When an investment is sold any balance held on the capital reserve -
unrealised is transferred to the capital reserve - realised as a
movement in reserves.
12. Creditors: amounts falling due within one period
31 October 2008
GBP'000
Accruals 37
Shares classed as financial liabilities 50
Other creditors 7
94
13. Share capital
31 October 2008
GBP'000
Authorised:
50,000,000 ordinary shares of 10p 5,000
50,000 Redeemable Preference shares of GBP1 50
Allotted:
4,168,564 ordinary shares of 10p (fully paid) 417
50,000 Redeemable Preference shares of GBP1 (partly 50
paid)
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 13. The Company is not subject to any
externally imposed capital requirements.
The Company issued 4,168,564 ordinary shares during the period at a
price of 100p per share.
On 21 July 2008, the company made an allotment of 50,000 Redeemable
Preference shares of GBP1 each. These shares were allotted at par and
GBP0.25 was paid on each share. These were subsequently redeemed on 19
January 2009 out of the proceeds of a first share issue. As a result,
no capital redemption reserve transfer was deemed necessary.
Following this redemption, a resolution was passed whereby these
preference shares were re-designated as ordinary shares of 10p each
and rank pari-passu with the existing ordinary shares.
The holders of the Redeemable Preference shares shall not be entitled
to receive notice of, attend or vote at any General Meeting of the
Company.
With regards to income, the holders of the Redeemable Preference
shares shall be entitled in priority to any payment of dividend on
any other class of share to a cumulative preferential dividend of
0.1% of total annual profits per annum. Subject to this distribution,
any further profits available for distribution shall be distributed
amongst the holders of the ordinary shares.
The Redeemable Preference shares shall confer the right to be paid
pari passu with, and in proportion to, the amount of capital paid to
the holders of the ordinary shares, but do not confer any right to
participate in any surplus assets of the Company.
The Company shall have the right to redeem at par the whole or any
part of the Redeemable Preference shares at any time after the date
of issue upon giving the holders of the said shares not less than
three months notice. Any notice of redemption shall specify the
particular shares to be redeemed, the date for redemption and the
details of redemption. The Company shall not be entitled to re-issue
as Redeemable Preference shares any shares redeemed under the
foregoing provisions.
14. Reserves
Capital Capital
Share reserve reserve Revenue
Premium realised unrealised reserve
GBP'000 GBP'000 GBP'000 GBP'000
As at date of incorporation - - - -
Loss on ordinary activities after
tax - - - (96)
Capitalisation of management fees - (14) - 14
Gains/losses on revaluation - - (24) 24
Issue of Equity 3,523 - - -
Balance as at 31 October 2008 3,523 (14) (24) (58)
When the Company revalues its investments during the period, any
gains or losses arising are credited/charged to the revenue reserve.
Unrealised gains/losses are then transferred to the capital reserve -
unrealised. When an investment is sold any balance held on the
capital reserve - unrealised reserve is transferred to the capital
reserve - realised as a movement in reserves.
15. 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.
Fixed asset investments (see note 9) 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 are
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 13. 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 23 to 27, 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 pages 6 and 7. An analysis of investments
between debt and equity instruments is given in note 9.
5.2% 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 2008 would have increased net assets and the total return for
the period by GBP20,000 an equivalent change in the opposite direction
would have reduced net assets and the total return for the period by
the same amount.
12.5% by value of the Company's net assets comprises of OEIC's held
at fair value. A 10% overall increase in the valuation of the OEIC's
at 31 October 2008 would have increased net assets and the total
return for the year by GBP48,000 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. As a
result, the Company is exposed to fair value interest rate risk due
to fluctuations in the prevailing levels of market interest rates.
Floating rate
The Company's floating rate investments comprise cash held on
interest-bearing deposit accounts 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 4.5% at 31 October 2008. The amounts held
in floating rate investments at the balance sheet date were as
follows:
31 October 2008
GBP000
Cash on deposit 3,206
3,206
A 1% increase in the base rate would increase income receivable from
these investments and the total return for the period by GBP32,000.
Credit risk
There were no significant concentrations of credit risk to
counterparties at 31 October. By cost, no individual investment
exceeded 7.9% of the Company's net assets at 31 October 2008
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 2008 the Company's financial assets exposed to credit
risk comprised the following:
31 October 2008
GBP000
Cash on deposit 3,206
3,206
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.
Bankruptcy or insolvency of a custodian could cause the Company's
rights with respect to securities held by a 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 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 may 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 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 2008 these investments were valued at GBP 3.7 million.
16. Post balance sheet events
The following events occurred between the balance sheet date and the
signing of these financial statements:
* On 7 January 2008 Titan 3 invested GBP280,000 into
Zoopla.co.uk, acquiring 249,160 ordinary shares in the company.
* On 19 January 50,000 Redeemable Preference shares were
redeemed out of the proceeds of a first share issue.
* Since the period end, the Company has issued and allotted
2,629,601 for cash totalling gross proceeds of GBP2.6m.
17. Contingencies, guarantees and financial commitments
As mentioned in the Chairman's Statement on pages 4 and 5, there may
be an opportunity to obtain a repayment of VAT paid on management
fees to Octopus. It is not yet clear to what degree this may be
possible. There were no further contingencies, guarantees or
financial commitments as at 31 October 2008.
18. Related party transactions
Chris Hulatt, a non-executive Director of Octopus Titan VCT 3 plc, is
a Director of Octopus Ventures and Octopus Investments Limited, the
parent company of Octopus Ventures Limited. Octopus Titan VCT 3 plc
has employed Octopus throughout the period as investment manager.
Octopus Titan VCT 3 plc has paid Octopus GBP19,000 (including
irrecoverable VAT at the applicable rate) in the period 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 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 period
GBP2,000 (including irrecoverable VAT at the applicable rate) 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 period (commencing no earlier than
close of the 2011 financial period), 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 Ventures and Octopus Investments, in equal
proportions. If, on a subsequent financial period end, the
Performance Value of Octopus Titan 3 falls short of the Performance
Value on the previous financial period end, no incentive fee will
arise. If, on a subsequent financial period end, the performance
exceeds the previous best Performance Value of Octopus Titan 3, the
Investment Manager and Octopus Investments will be entitled to 20% of
such excess in aggregate.
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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