TIDMOTV3
Octopus Titan VCT 3 plc
Final Results
16 February 2010
Octopus Titan VCT 3 plc, managed by Octopus Investments Limited, today announces
the final results for the year ended 31 October 2009.
These results were approved by the Board of Directors on 16 February 2010.
You may view the Annual Report in full at www.octopusinvestments.com
<http://www.octopusinvestments.com/> by navigating to Services, Investor
Services, Venture Capital Trusts, Octopus Titan VCT 3. All other statutory
information will also be found there.
About Octopus Titan VCT 3 plc
Octopus Titan VCT 3 plc ('Titan 3' 'Company' or 'Fund') is a venture capital
trust which aims to provide shareholders with attractive tax-free dividends and
long-term capital growth, by investing in a diverse portfolio of predominantly
unquoted companies. The Company is managed by Octopus Investments Limited
('Octopus' or 'Manager').
Titan 3 was incorporated on 4 March 2008 with the first allotment of equity
being on the 21 July 2008. Titan 3 raised over GBP20.0 million through an offer
for subscription. The Company will invest primarily in unquoted smaller UK
companies and aims to deliver absolute returns on its investments.
Further details of the Fund's progress are discussed in the Chairman's Statement
and Investment Manager's Review on pages 6 to 16.
Venture Capital Trusts ("VCTs")
VCTs were introduced in the Finance Act 1995 to provide a means for private
individuals to invest in unlisted 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-front income tax relief of 30%
* exemption from income tax on dividends paid
* exemption from capital gains tax on disposals of shares in VCTs
The Company has been provisionally 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" 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 company (including companies listed on
AIM) which is carrying on a qualifying trade and whose gross assets do not
exceed GBP7 million at the time of investment, and whose total number of employees
is less than 50, also at the time of investment. The Company will continue to
ensure its compliance with these qualification requirements.
Financial Summary
+----------------------------------+---------------------+---------------------+
| |As at 31 October 2009|As at 31 October 2008|
+----------------------------------+---------------------+---------------------+
+----------------------------------+---------------------+---------------------+
|Net assets ( GBP'000s) | 20,290| 3,844|
+----------------------------------+---------------------+---------------------+
|Return on ordinary activities| 1,204| (96)|
|after tax ( GBP'000s) | | |
+----------------------------------+---------------------+---------------------+
|Net asset value per share (NAV) | 100.1p| 92.2p|
+----------------------------------+---------------------+---------------------+
Chairman's Statement
I am pleased to present the Company's second annual report for the year ended
31 October 2009.
Performance
I am delighted to be able to report a positive total return for the year of
8.6% comprising an increase in Net Asset Value of 7.9p to 100.1p. This has been
driven by a strong overall performance in the two Octopus Open Ended Investment
Companies ('OEICs') and an increase in the fair value of the investment into
Zoopla.
The Fund is now invested in nine unquoted companies and one AIM-quoted company.
The focus continues to be to invest in a broad range of unquoted smaller UK
companies with the potential for high growth in order to generate income and
capital growth over the long-term. By value, 11.9% of the Company's net assets
are in unquoted investments, 1.5% in AIM-quoted investments and 28.4% in Octopus
OEICS leaving 58.2% currently in cash or cash equivalents.
Investment Portfolio
The year under review, particularly the first half, has been challenging for
many businesses, with the impact of the credit crunch combining with a worsening
of the economic environment. Inevitably, this has had an impact on the portfolio
and, as a result, two reductions in fair value have been made. That said, we are
optimistic about both the progress and potential of our portfolio companies but
as yet it is too early to recognise any significant uplift in value in all but
one of these.
During the year, the Fund made nine new investments totalling GBP2.42 million. All
of these investments are discussed in more detail in the Investment Manager's
Review on pages 8 to 16 in which you will see that we have made investments in a
diverse range of companies in some exciting market sectors. In the case of
Zoopla, we have been able to recognise an uplift in fair value but,
unfortunately, we have had to make a reduction in the fair value of the
investment in The Skills Market of GBP50,000 and in Phasor Solutions of GBP13,000.
On balance however, the Investment Manager is encouraged by the performance of
the portfolio and the good flow of investment opportunities which it is seeing.
Open Ended Investment Companies (OEICs)
The Company's investments in the two Octopus Partner OEICs have seen significant
uplifts in fair value over the year to 31 October 2009. The Absolute Return
Fund and the UK Smaller Companies Fund have increased in value 46% and 34%
during the year, resulting in an increase of 35% and 37% over cost of investment
in the funds respectively. The Board has met with the respective fund managers
and believe it is in the best interests to continue to hold investments in these
OEICs for the foreseeable future, as set out in the original prospectus.
Further details of these OEICs may be found at www.octopusinvestments.com
<http://www.octopusinvestments.com/> where monthly factsheets are available.
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 Titan 3 is in
compliance with the conditions laid down by HMRC for maintaining provisional
approval as a VCT. This is discussed further in Shareholder Information on page
5.
A key requirement now is to achieve the 70% qualifying investment level prior to
31 October 2011. As at 31 October 2009, over 13.5% of the portfolio, as measured
by HMRC rules, was invested in VCT qualifying investments. In view of the
current investment activity, the Board continues to be confident that the 70%
target will be met by the required date.
Investment Management Agreement
The Board announced on 20 October 2009 that the Investment Management Agreement
between Titan 3 and Octopus Ventures Limited had been novated to Octopus
Investments Limited. This change was made as a result of an internal
reorganisation of the Octopus group, the terms of the Investment Management
Agreement and the composition of the fund management team within Octopus
responsible for managing the Company's assets remains unchanged.
Annual General Meeting
I look forward to meeting as many shareholders as possible at our second Annual
General Meeting on Wednesday, 14 April 2010 to be held at the offices of Octopus
Investments Limited, 8 Angel Court, London, EC2R 7HP. The AGM will start at
2.45pm.
Outlook
Octopus launched a fourth Fund (Octopus Titan VCT 4 plc) during the current tax
year. This will give the Titan VCT family a significant presence in the
marketplace which we believe will be an advantage for all of us. The Octopus
team now has uncommitted resources of GBP39 million for investment in emerging
companies in our defined market sectors.
Despite the recent improvement in stock markets, we remain cautious about the
wider economic environment and the impact this may have on portfolio companies.
This could be reflected directly through trading performance or indirectly
through the availability of credit. We also need to ensure that, where
appropriate, our portfolio companies have sufficient resources to take advantage
of the opportunities that will present themselves. Our Investment Manager is
seeing a high level of new investment opportunities and we will continue to
maintain our strategy of seeking to keep an appropriate level of liquidity in
the Fund to provide support for the existing portfolio.
Mark Hawkesworth
Chairman
16 February 2010
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 17 VCTs, including
this Company, and manage over GBP230m in the VCT sector. Octopus has over 100
employees and has been voted as 'Best VCT Provider of the Year' by the financial
adviser community for the last four years.
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 will have 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 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 predominantly 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 three year 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.
*Titan 3 has invested in two OEICs managed by Octopus, the CF Octopus Partner
Fund - (Absolute Return) and the CF Octopus Partner Fund - (UK Smaller
Companies).
Portfolio Review
As at 31 October 2009 the NAV stood at 100.1p, compared to 92.2p at 31 October
2008, this represents a positive total return of 8.6%. Recent improvements in
the economy have created a better environment for the companies in the
portfolio. There is a sense that the worst of the recession is over and that we
may be on the road to recovery. We are excited about the potential in the market
for smaller private companies, including those in your portfolio.
At this point in time, small growing businesses have an opportunity to work
nimbly in a rocky economic landscape and both grow and take market share. We
work with each company, providing expertise and guidance to help them achieve
their goals. As an example of a business taking advantage of the economic
environment, portfolio company Zoopla recently made a series of acquisitions,
including the websites Hot Property, Think Property and the Property Finder
Group, which have added significantly to Zoopla's proposition, user base and
brand profile. Given the company's progress, we made a further investment into
Zoopla in October of GBP93,500.
The following events occurred between the balance sheet date and the approval of
these financial statements:
* 16 December 2009: GBP499,998 investment into Calastone
* 9 January 2010: A previous GBP103,000 non-qualifying investment in Zoopla
became qualifying.
Outlook
At the time of writing, we are actively engaged with a number of new businesses
and expect to be completing these investments early in 2010. Historically, a
time of great pressure for small business is frequently the first two quarters
coming out of recession. It is at this time that cash flow remains constrained,
but there is the opportunity to return to growth. As a result, this is a good
time to be making investments and providing financial capital to those
businesses that we believe have the opportunity to grow significantly. Times of
disruption in industries are also the times when there are the greatest
opportunities to make a significant difference to the way in which an industry
is structured, or a service is delivered. There are, and will always be,
significant challenges as a result of the size and nature of the businesses we
invest into. They are often at the forefront of new ideas within their industry
sectors, which can leave them exposed, and we recognise the risks associated
with investing into such businesses. However, it is precisely these sorts of
businesses that can change the way in which we live our lives, or the way in
which we do business, thus creating large successful businesses from our
investment. As a result, we look forward with expectation to the coming year.
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
16 February 2010
Investment Portfolio
+----------------+------------+-----------+----------+--------+-------+--------+
| | | Investment| | Fair| %|% equity|
|Qualifying | |cost at 31 | Movement|value at| equity| managed|
|investments |Sector | October| in| 31 |held by| by|
| | | 2009 | valuation| October|Titan 3| Octopus|
| | | ( GBP'000)| | 2009| | |
+----------------+------------+-----------+----------+--------+-------+--------+
|True Knowledge |Media | | | | | |
|Limited | | 550| -| 550| 0.7%| 38.8%|
+----------------+------------+-----------+----------+--------+-------+--------+
|Zoopla Limited |Media | 373| 139| 512| 2.5%| 16.7%|
+----------------+------------+-----------+----------+--------+-------+--------+
|e-Therapeutics |Consumer | | | | | |
|plc |lifestyle & | | | | | |
| |wellbeing | 284| 24| 308| 0.3%| 5.1%|
+----------------+------------+-----------+----------+--------+-------+--------+
|Surrey |Technology | | | | | |
|NanoSystems | | | | | | |
|Limited | | 300| -| 300| 4.9%| 28.5%|
+----------------+------------+-----------+----------+--------+-------+--------+
|GetOptics |Consumer | | | | | |
|Limited |lifestyle & | | | | | |
| |wellbeing | 285| -| 285| 4.9%| 27.1%|
+----------------+------------+-----------+----------+--------+-------+--------+
|Nature Delivered|Consumer | | | | | |
|Limited |lifestyle & | | | | | |
| |wellbeing | 275| -| 275| 4.8%| 24.2%|
+----------------+------------+-----------+----------+--------+-------+--------+
|Calastone |Technology | | | | | |
|Limited | | 200| -| 200| 2.4%| 23.5%|
+----------------+------------+-----------+----------+--------+-------+--------+
|Phase Vision |Technology | | | | | |
|Limited | | 200| -| 200| 8.9%| 49.0%|
+----------------+------------+-----------+----------+--------+-------+--------+
|The Skills |Technology | | | | | |
|Market Limited | | 100| (50)| 50| 2.0%| 15.7%|
+----------------+------------+-----------+----------+--------+-------+--------+
|Phasor Solutions|Technology | | | | | |
|Limited | | 50| (13)| 37| 0.9%| 30.7%|
+----------------+------------+-----------+----------+--------+-------+--------+
|Total qualifying investments | 2,617| 100| 2,717| | |
+-----------------------------+-----------+----------+--------+-------+--------+
|Money market securities | -| -| 11,393| | |
+-----------------------------+-----------+----------+--------+-------+--------+
|OEICs | 4,248| 1,523| 5,771| | |
+-----------------------------+-----------+----------+--------+-------+--------+
|Cash at bank | -| -| 499| | |
+-----------------------------+-----------+----------+--------+-------+--------+
|Total investments | -| -| 20,380| | |
+-----------------------------+-----------+----------+--------+-------+--------+
|Net current assets | -| -| (90)| | |
+-----------------------------+-----------+----------+--------+-------+--------+
|Total net assets | -| -| 20,290| | |
+-----------------------------+-----------+----------+--------+-------+--------+
Valuation Methodology
The investments held by Titan 3 are all early stage businesses with growth
opportunities. As a result the methodology used in fair valuing the investments
is the transaction price of the recent investment round. Subsequent adjustment
to the fair value has then been made according to the significant under or over
performance of the business.
Quoted investments are valued at market bid price. No discounts are applied.
If you would like to find out more regarding The International Private Equity
and Venture Capital ('IPEVC') Valuation Guidelines, please visit their website
at: www.privateequityvaluation.com <http://www.privateequityvaluation.com/>.
Review of Investments
During the year, the Fund made nine new investments amounting to GBP2,418,000.
Quoted and unquoted investments are valued in accordance with the accounting
policy set out on page 37, which takes account of current industry guidelines
for the valuation of venture capital portfolios and is compliant with
International Private Equity and Venture Capital Valuations guidelines and
current financial reporting standards.
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're
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 over 120 million facts in the database, which is being
continually expanded.
The company has launched a plug-in for the Mozilla Firefox browser where True
Knowledge sits on top of the search results provided by Google. Having
dramatically improved performance response times, the company's focus is now on
securing paying customers. There has also been considerable interest in True
Knowledge's ability to answer questions in relation to local search and the
company is now providing information to Siri for its local search solution on
the iPhone.
Initial investment date: July 2008
Cost: GBP550,000
Valuation: GBP550,000
Equity held: 0.7%
Equity held by all funds managed by Octopus: 38.8%
Last audited accounts: 31 July 2009
Loss before interest & tax: ( GBP1,478,219)
Net current assets: GBP462,892
Zoopla Limited
Zoopla is an award-winning online property information service and community
website, presenting information on house pricing and 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, with over a million user contributions to
its website in 2008. It recently launched estate agent listings on a
pay-for-performance basis and expects to become one of the premier UK websites
for those interested in the property market. We would encourage you to view the
website at www.zoopla.co.uk <http://www.zoopla.co.uk/>.
In August, Zoopla announced the purchase of The PropertyFinder Group, from News
International Ltd and REA Group, which includes propertyfinder.com, one of the
best-known and most-visited property websites in the country, with over two
million unique visitors per month, as well as other online property assets
including HotProperty.co.uk and UKPropertyshop.co.uk. This purchase comes hot on
the heels of its acquisition in July of ThinkProperty.com from Guardian Media
Group. The integration of the two companies took place in the autumn of 2009.
These acquisitions have accelerated the company's growth and Zoopla currently
holds the number 3 and number 4 slot in Nielson's analysis of property portals.
Initial investment date: January 2009
Cost: GBP373,204
Valuation: GBP511,951
Equity held: 2.5%
Equity held by all funds managed by Octopus: 16.7%
Last audited accounts N/A
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.
e-Therapeutics announced its results in July with news of the continued
development of its drug pipeline. The company has also announced a placing of
approximately 10% of the issued shares to Gartmore at 38p per share, a premium
to the Fund's entry price of 26%.
Initial investment date: March 2009
Cost: GBP284,392
Valuation: GBP308,255
Equity held: 0.3%
Equity held by all funds managed by Octopus: 5.1%
Last audited accounts: 24 July 2009
Loss before tax: ( GBP1,957,000)
Net assets: GBP947,000
Surrey NanoSystems Limited
Surrey NanoSystems was founded in November 2006 in partnership with the
University of Surrey's Advanced Technology Institute. The company is a pioneer
in the development of highly advanced equipment and processes for growing carbon
nanotubes (CNTs). CNTs are molecular-scale tubes of graphitic carbon that
possess extraordinary electronic and mechanical properties.
Surrey NanoSystems is unique in its ability to consistently grow CNTs at
temperatures as low as 350 °C. Historically, nanotechnology specialists have been
unable to grow CNTs below 700 °C, preventing their use in a range of other
applications, due to the damage high temperatures cause to other materials used
in semiconductor chips. For this reason, NanoGrowth( ®), the company's unique
growth technology, represents a major breakthrough for the rapidly developing
field of nanoelectronics, the future manufacture of high performance
semiconductor chips and their use in a far broader range of sectors.
Initial investment date: July 2009
Cost: GBP300,036
Valuation: GBP300,036
Equity held: 4.9%
Equity held by all funds managed by Octopus: 28.5%
Last audited accounts: N/A
GetOptics Limited
GetOptics is an online retailer of contact lenses. It is a new company formed to
acquire Getlenses and Postoptics. Following the investment, GetOptics is the
largest online retailer of contact lenses in the UK. With a turnover of GBP6.5
million and 25-30% market share of the online market, the company will have
unrivalled buying power in the e-commerce lens market, founded on very good
relations with contact lens manufacturers.
As a result of the combination, GetOptics will have the opportunity to grow with
minimal capital expenditure over the coming years and the chance to roll out
best practices learned across the business in marketing, business development,
supply chain management and systems.
Initial investment date: September 2009
Cost: GBP285,000
Valuation: GBP285,000
Equity held: 4.9%
Equity held by all funds managed by Octopus: 27.1%
Last audited accounts: N/A
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 over 15,000 existing customers who regularly place orders via its
website. Graze's snack boxes cost only GBP2.99 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 three
portions of fruit and vegetables, in line with the National Health Service's
recognised 'five-a-day' scheme. Its product is very much in tune with customer
needs and the demands of modern living, as people become ever more conscious of
health and convenience.
Initial investment date: June 2009
Cost: GBP275,000
Valuation: GBP275,000
Equity held: 4.8%
Equity held by all funds managed by Octopus: 24.2%
Last audited accounts: N/A
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. 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.
Furthermore, there is no barrier or cost of entry.
Over the last few months, the company has been signing clients on a regular
basis and, during August 2009, was able to announce a significant milestone in
sending its one millionth message across its network. Calastone has also
recently announced an offering into the settlement market further extending its
services to its client base.
Initial investment date: October 2008
Cost: GBP199,998
Valuation: GBP199,998
Equity held: 2.4%
Equity held by all funds managed by Octopus: 23.5%
Last audited accounts: N/A
Phase Vision Limited
Phase Vision is a manufacturer of optical inspection solutions for high-speed,
three-dimensional shape measurement with micro-scale accuracy. The company has
developed (and patented) a unique optical approach to the measurement of very
large (>100cm) industrial items with free-form or curved surfaces, such as ship
propellers and aircraft wings to tighten manufacturing tolerances, increase
throughput and reduce waste.
Phase Vision's metrology solutions are more cost efficient than current laser
processes, and accurately measure mechanical systems to micron level, thus
providing superior performance. Phase Vision's systems use a fringe projection
approach and comprise of one or more projector/camera units that project, and
image, patterns of light onto the object to be measured. Sophisticated
algorithms are then used to accurately calculate the dimension of the object.
Phase Vision's clients include some of the biggest names in the automotive,
aerospace, chemical and medical device engineering sectors. The market for
large-scale measurement with micro-scale accuracy is estimated to be worth
around GBP2 billion per year, with growth of around 6% per annum.
Since Octopus' investment, the business has strengthened its organisational
structure, and built more robust manufacturing and financial controls into its
processes. Development of the product continues and nears completion, while the
management are also gaining increased traction with another large tier one
potential customer.
Initial investment date: May 2009
Cost: GBP199,984
Valuation: GBP199,984
Equity held: 8.9%
Equity held by all funds managed by Octopus: 49.0%
Last audited accounts: N/A
The Skills Market Limited (Trading as iProfile)
The company, formerly known as SkillsMarket, works with recruiters to make the
business of finding and placing the right people a lot simpler and quicker. The
company's website enables candidates to transform any static CV into a dynamic
professional profile kept up-to-date by candidates themselves. The aim of
iProfile is to bring the traditional CV template into the 21st Century.
Recruiters save time and money on CV processing by searching up-to-date
databases and unleash the potential of candidate information - making it more
accurate and responsive, with the ability to search and sort in real-time,
transforming the efficiency of recruitment processes.
The company was affected by the economic environment and therefore required an
injection of capital. Titan 3 invested at this time in order to take advantage
of a turnaround in the company and the general recruiting market.
Initial investment date: July 2009
Cost: GBP100,000
Valuation: GBP50,000
Equity held: 2.0%
Equity held by all funds managed by Octopus: 15.7%
Last audited accounts: N/A
Phasor Solutions Limited
Phasor provides flat panel, phased array antennae at a fraction of the cost
associated with traditional phased array technology. Phased array products are
groups of antennae constituting a radar system that enhances and controls signal
strength. They are used across many industries, including travel and
engineering, and can facilitate communication signals. Phasor has the potential
to transform the 'communication on the move' market through its phased array
product offering. Phasor develops phased array antennae with multiple commercial
uses, which include enabling moving host units, such as trains and airplanes, to
deliver broadband Internet access and high-speed communications. Additionally,
Phasor's product range, which will be expanded to include radars, has numerous
other applications in both the aerospace and military sectors.
Phasor received its first production chips from the foundry and the team have
been testing these together with a specialist semiconductor design consultancy.
Whilst this is a time delay, the effect on cash flow is less significant than
expected.
Initial investment date: March 2009
Cost: GBP49,996
Valuation: GBP37,497
Equity held: 0.9%
Equity held by all funds managed by Octopus: 30.7%
Last audited accounts: N/A
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. 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:
<li> select suitable accounting policies and then apply them consistently;
<li> make judgments and estimates that are reasonable and prudent;
<li> state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
<li> 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.
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.
In so far as each of the Director's is aware:
<li> there is no relevant audit information of which the Company's auditor is
unaware
<li> 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:
<li> 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
<li> 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
16 February 2010
+------------------------------------------------------------------------------+
|Income Statement |
| |
|+----------------------------------------------+-----+---------------------+ |
|| | | Year to 31 October | |
|| | | 2009 | |
|+----------------------------------------------+-----+-------+-------+-----+ |
|| | |Revenue|Capital|Total| |
|+----------------------------------------------+-----+-------+-------+-----+ |
|| |Notes| GBP'000| GBP'000| GBP'000| |
|+----------------------------------------------+-----+-------+-------+-----+ |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Gain on valuation of fixed asset investments | 9 | | 100| 100| |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Gain on valuation of current asset investments| 11 | -| 1,546|1,546| |
|+----------------------------------------------+-----+-------+-------+-----+ |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Income | 2 | 73| -| 73| |
|+----------------------------------------------+-----+-------+-------+-----+ |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Investment management fees | 3 | (64)| (190)|(254)| |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Other expenses | 4 | (261)| -|(261)| |
|+----------------------------------------------+-----+-------+-------+-----+ |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Return on ordinary activities before tax | | (252)| 1,456|1,204| |
|+----------------------------------------------+-----+-------+-------+-----+ |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Taxation on return on ordinary activities | 6 | -| -| -| |
|+----------------------------------------------+-----+-------+-------+-----+ |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Return on ordinary activities after tax | | (252)| 1,456|1,204| |
|+----------------------------------------------+-----+-------+-------+-----+ |
||Earnings per share - basic and diluted | 7 | (1.9)p| 10.6p| 8.7p| |
|+----------------------------------------------+-----+-------+-------+-----+ |
| |
| |
| * 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 |
|year as set out above. |
| |
| |
|Income Statement |
+------------------------------+-----+-----------------------------------------+
| | | Seven months ended 31 October 2008 |
+------------------------------+-----+-------+-------+-------------------------+
| | |Revenue|Capital| Total|
+------------------------------+-----+-------+-------+-------------------------+
| |Notes| GBP'000| GBP'000| GBP'000|
+------------------------------+-----+-------+-------+-------------------------+
+------------------------------+-----+-------+-------+-------------------------+
|Gain on valuation of fixed | 9 | -| -| -|
|asset investments | | | | |
+------------------------------+-----+-------+-------+-------------------------+
|Loss on valuation of current | 11 | -| (24)| (24)|
|asset investments | | | | |
+------------------------------+-----+-------+-------+-------------------------+
+------------------------------+-----+-------+-------+-------------------------+
|Income | 2 | 17| -| 17|
+------------------------------+-----+-------+-------+-------------------------+
+------------------------------+-----+-------+-------+-------------------------+
|Investment management fees | 3 | (5)| (14)| (19)|
+------------------------------+-----+-------+-------+-------------------------+
|Other expenses | 4 | (70)| -| (70)|
+------------------------------+-----+-------+-------+-------------------------+
+------------------------------+-----+-------+-------+-------------------------+
|Return on ordinary activities | | (58)| (38)| (96)|
|before tax | | | | |
+------------------------------+-----+-------+-------+-------------------------+
+------------------------------+-----+-------+-------+-------------------------+
|Taxation on return on ordinary| 6 | -| -| -|
|activities | | | | |
+------------------------------+-----+-------+-------+-------------------------+
+------------------------------+-----+-------+-------+-------------------------+
|Return on ordinary activities | | (58)| (38)| (96)|
|after tax | | | | |
+------------------------------+-----+-------+-------+-------------------------+
|Earnings per share - basic and| 7 | (3.7)p| (2.5)p| (6.2)p|
|diluted | | | | |
+------------------------------+-----+-------+-------+-------------------------+
* 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.
Reconciliation of Movements in Shareholders' Funds
++-----------------------------------------------------------------------------+
++-----------------------------+-----------------------+-----------------------+
| |Year to 31 October 2009|Period ended 31 October|
| | | 2008|
+------------------------------+-----------------------+-----------------------+
| | GBP'000| GBP'000|
+------------------------------+-----------------------+-----------------------+
|Shareholders' funds at start | 3,844| |
|of year | | -|
+------------------------------+-----------------------+-----------------------+
|Return on ordinary activities | 1,204| |
|after tax | | (96)|
+------------------------------+-----------------------+-----------------------+
|Issue of equity (net of | 15,242| |
|expenses) | | 3,940|
+------------------------------+-----------------------+-----------------------+
|Shareholders' funds at end of | 20,290| |
|year | | 3,844|
+------------------------------+-----------------------+-----------------------+
+------------------------------------------------------------------------------+
|Balance Sheet |
+--------------------------------+-----+-------------------+-------------------+
| | | As at 31 October| As at 31 October|
| | | 2009| 2008|
+--------------------------------+-----+------+------------+-----+-------------+
| |Notes| GBP'000| GBP'000| GBP'000| GBP'000|
+--------------------------------+-----+------+------------+-----+-------------+
+--------------------------------+-----+------+------------+-----+-------------+
|Fixed asset investments* | 9 | | 2,717| | 200|
+--------------------------------+-----+------+------------+-----+-------------+
|Current assets: | | | | | |
+--------------------------------+-----+------+------------+-----+-------------+
|Debtors | 10 | 12| | 40| |
+--------------------------------+-----+------+------------+-----+-------------+
|Investments* | 11 |17,164| | 480| |
+--------------------------------+-----+------+------------+-----+-------------+
|Cash at bank | | 499| |3,218| |
+--------------------------------+-----+------+------------+-----+-------------+
| | |17,675| |3,738| |
+--------------------------------+-----+------+------------+-----+-------------+
|Creditors: amounts falling due | 12 | (102)| | (94)| |
|within one year | | | | | |
+--------------------------------+-----+------+------------+-----+-------------+
|Net current assets | | | 17,573| | 3,644|
+--------------------------------+-----+------+------------+-----+-------------+
+--------------------------------+-----+------+------------+-----+-------------+
|Net assets | | | 20,290| | 3,844|
+--------------------------------+-----+------+------------+-----+-------------+
+--------------------------------+-----+------+------------+-----+-------------+
|Called up equity share capital | 13 | 2,027| | 417| |
+--------------------------------+-----+------+------------+-----+-------------+
|Share premium | 14 |17,155| |3,523| |
+--------------------------------+-----+------+------------+-----+-------------+
|Capital reserve - gains/(losses)| 14 | (204)| | (14)| |
|on disposal | | | | | |
+--------------------------------+-----+------+------------+-----+-------------+
|- holding gains/(losses) | 14 | 1,622| | (24)| |
+--------------------------------+-----+------+------------+-----+-------------+
|Revenue reserve | 14 | (310)| | (58)| |
+--------------------------------+-----+------+------------+-----+-------------+
|Total equity shareholders' funds| | | 20,290| | 3,844|
+--------------------------------+-----+------+------------+-----+-------------+
|NAV per share | 8 | | 100.1p| | 92.2p|
+--------------------------------+-----+------+------------+-----+-------------+
* At fair value through profit and loss
The accompanying notes are an integral part of the financial statements.
The statements were approved by the Directors and authorised for issue on 16
February 2010 and are signed on their behalf by:
Mark Hawkesworth
Chairman
Company No: 06523078
+----------------------------------------------------------+-------------------+
|Cash Flow Statement | |
+-------------------------------+-----+--------------------+-------------------+
| | | Year to 31 October| Period to 31 |
| | | 2009| October 2008|
+-------------------------------+-----+--------------------+-------------------+
| |Notes| GBP'000| GBP'000|
+-------------------------------+-----+--------------------+-------------------+
+-------------------------------+-----+--------------------+-------------------+
|Net cash outflow from operating| | (356)| (68)|
|activities | | | |
+-------------------------------+-----+--------------------+-------------------+
+-------------------------------+-----+--------------------+-------------------+
|Capital expenditure and | | | |
|financial investment: | | | |
+-------------------------------+-----+--------------------+-------------------+
|Purchase of fixed asset | 9 | (2,417)| (200)|
|investments | | | |
+-------------------------------+-----+--------------------+-------------------+
+-------------------------------+-----+--------------------+-------------------+
|Management of Liquid resources:| | | |
+-------------------------------+-----+--------------------+-------------------+
|Purchase of current asset | 11 | (20,198)| (504)|
|investments | | | |
+-------------------------------+-----+--------------------+-------------------+
|Disposal of current asset | | 5,060| |
|investments | | | |
+-------------------------------+-----+--------------------+-------------------+
+-------------------------------+-----+--------------------+-------------------+
|Financing: | | | |
+-------------------------------+-----+--------------------+-------------------+
|Issue of shares | 13 | 16,017| 4,079|
+-------------------------------+-----+--------------------+-------------------+
|(Redemption)/issue of | | (50)| 50|
|preference shares | | | |
+-------------------------------+-----+--------------------+-------------------+
|Share issue expense | | (775)| (139)|
+-------------------------------+-----+--------------------+-------------------+
|(Decrease)/increase in cash | | (2,719)| 3,218|
|resources at bank | | | |
+-------------------------------+-----+--------------------+-------------------+
+--------------------------------------------------------+---------------------+
|Reconciliation of Net Cash Flow to Movement in Net Funds| |
+---------------------------------++---------------------+---------------------+
| || Year to 31 October| Period to 31 October|
| || 2009| 2008|
+---------------------------------++---------------------+---------------------+
| || GBP'000| GBP'000|
+---------------------------------++---------------------+---------------------+
|(Decrease)/increase in cash || | |
|resources at bank || (2,719)| 3,218|
+---------------------------------++---------------------+---------------------+
|Movement in current asset || | |
|investments || 15,138| 504|
+---------------------------------++---------------------+---------------------+
|Gain/(loss) on valuation of || | |
|current asset investments || 1,546| (24)|
+---------------------------------++---------------------+---------------------+
|Opening net funds || 3,698| -|
+---------------------------------++---------------------+---------------------+
|Net funds at 31 October || 17,663| 3,698|
+---------------------------------++---------------------+---------------------+
Net funds at 31 October comprised:
+-----------------------+-----------------------+-------------------------+
| |Year to 31 October 2009|Period to 31 October 2008|
+-----------------------+-----------------------+-------------------------+
| | GBP'000| GBP'000|
+-----------------------+-----------------------+-------------------------+
|Cash at bank | 499| 3,218|
+-----------------------+-----------------------+-------------------------+
|OEICs | 5,771| 480|
+-----------------------+-----------------------+-------------------------+
|Money market funds | 11,393| -|
+-----------------------+-----------------------+-------------------------+
|Net funds at 31 October| 17,663| 3,698|
+-----------------------+-----------------------+-------------------------+
+--------------------------------------------------------+---------------------+
|Reconciliation of Operating Loss before Taxation to Cash| |
|Flow from Operating Activities | |
+---------------------------------++---------------------+---------------------+
| || Year to 31 October| Period to 31 October|
| || 2009| 2008|
+---------------------------------++---------------------+---------------------+
| || GBP'000| GBP'000|
+---------------------------------++---------------------+---------------------+
|Return on ordinary activities || | |
|before tax || 1,204| (96)|
+---------------------------------++---------------------+---------------------+
|Gain on valuation of fixed asset || | |
|investments || (100)| -|
+---------------------------------++---------------------+---------------------+
|Gain/(loss) on valuation of || | |
|current asset investments || (1,546)| 24|
+---------------------------------++---------------------+---------------------+
|Decrease/(increase) in debtors || 28| (40)|
+---------------------------------++---------------------+---------------------+
|Increase in creditors || 58| 44|
+---------------------------------++---------------------+---------------------+
|Outflow from operating activities|| (356)| (68)|
+---------------------------------++---------------------+---------------------+
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 2008 annual report and financial statements. A summary of the
principal accounting policies is set out below.
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
impairment losses are attributable to assets designated as being at fair value
through profit and loss.
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.
Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Quoted investments are valued in accordance with the
bid-price on the relevant date, unquoted investments are valued in accordance
with current International Private Equity and Venture Capital ('IPEVC')
valuation guidelines, 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 International Private Equity
and Venture Capital ('IPEVC') 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 the accounts on the ex-dividend date.
Fixed returns on debt and money market securities are recognised on a time
apportionment basis so as to reflect the effective interest rate, 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 is 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.
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. This is 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 year (other than cash),
government securities, investment grade bonds and investments in money market
managed funds, as well as OEICs.
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.
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 directly to equity.
Capital management is monitored and controlled using the internal control
procedures set out on page 25 of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
The company does not have any externally imposed capital requirements.
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 declared by the
Board, and for final dividends when they are approved by the shareholders.
2. Income
+----------------------------+-----------------------+-------------------------+
| |Year to 31 October 2009|Period to 31 October 2008|
+----------------------------+-----------------------+-------------------------+
| | GBP'000| GBP'000|
+----------------------------+-----------------------+-------------------------+
|Money market funds | 60| 17|
+----------------------------+-----------------------+-------------------------+
|Dividends - qualifying| 13| -|
|quoted | | |
+----------------------------+-----------------------+-------------------------+
| | 73| 17|
+----------------------------+-----------------------+-------------------------+
3. Investment Management Fees
+-------------------------+---------------------+---------------------+
| | Year to 31 October |Period to 31 October |
| | 2009 | 2008 |
+-------------------------+-------+-------+-----+-------+-------+-----+
| |Revenue|Capital|Total|Revenue|Capital|Total|
+-------------------------+-------+-------+-----+-------+-------+-----+
| | GBP'000| GBP'000| GBP'000| GBP'000| GBP'000| GBP'000|
+-------------------------+-------+-------+-----+-------+-------+-----+
|Investment management fee| 64| 190| 254| 4| 12| 16|
+-------------------------+-------+-------+-----+-------+-------+-----+
|Irrecoverable VAT thereon| -| -| -| 1| 2| 3|
+-------------------------+-------+-------+-----+-------+-------+-----+
|Total fees | 64| 190| 254| 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 May 2008 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 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
+------------------------------+-----------------------+-----------------------+
| |Year to 31 October 2009| Period to 31 October|
| | | 2008|
+------------------------------+-----------------------+-----------------------+
| | GBP'000| GBP'000|
+------------------------------+-----------------------+-----------------------+
|Accounting and administration | 53| |
|services | | 3|
+------------------------------+-----------------------+-----------------------+
|Directors' remuneration | 73| 13|
+------------------------------+-----------------------+-----------------------+
|Fees payable to the Company's | 7| |
|auditor for the audit of the | | |
|financial statements | | 5|
+------------------------------+-----------------------+-----------------------+
|Fees payable to the Company's| 2| |
|auditor for other services -| | |
|tax compliance | | 1|
+------------------------------+-----------------------+-----------------------+
|Legal and professional | 5| |
|expenses | | 32|
+------------------------------+-----------------------+-----------------------+
|Trail Commission | 49| 10|
+------------------------------+-----------------------+-----------------------+
|Other expenses | 73| 6|
+------------------------------+-----------------------+-----------------------+
| | 261| 70|
+------------------------------+-----------------------+-----------------------+
Total annual running costs are capped at 2.9% of net assets (excluding
irrecoverable VAT). For the period to 31 October 2009 the running costs were
2.2% (2008: 1.8%) of net assets.
5. Directors' Remuneration
+-----------------------------+-----------------------+------------------------+
| |Year to 31 October 2009| Period to 31 October|
| | | 2008|
+-----------------------------+-----------------------+------------------------+
| | GBP'000| GBP'000|
+-----------------------------+-----------------------+------------------------+
|Directors' emoluments | | |
+-----------------------------+-----------------------+------------------------+
|Mark Hawkesworth (Chairman) | 28| 5|
+-----------------------------+-----------------------+------------------------+
|Tim Lebus | 21| 4|
+-----------------------------+-----------------------+------------------------+
|Chris Hulatt (paid to Octopus| | |
|Investments Limited) | 24| 4|
+-----------------------------+-----------------------+------------------------+
|Total | 73| 13|
+-----------------------------+-----------------------+------------------------+
None of the Directors received any other remuneration or benefit 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
(2008: three).
6. Tax on Ordinary Activities
The corporation tax charge for the period was GBPnil (2008: 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% (2008: 29%).
The differences are explained below.
+-------------------------------+-----------------------+----------------------+
|Current tax reconciliation: |Year to 31 October 2009| Period to 31 October|
| | | 2008|
+-------------------------------+-----------------------+----------------------+
| | GBP'000| GBP'000|
+-------------------------------+-----------------------+----------------------+
|Loss on ordinary activities| 1,204| (96)|
|before tax | | |
+-------------------------------+-----------------------+----------------------+
|Current tax at 28% (2008: 29%) | 337| (28)|
+-------------------------------+-----------------------+----------------------+
|Income not taxable for tax| (467)| -|
|purposes | | |
+-------------------------------+-----------------------+----------------------+
|Expenses not deductible for tax| -| 7|
|purposes | | |
+-------------------------------+-----------------------+----------------------+
|Unrelieved tax losses | 130| 21|
+-------------------------------+-----------------------+----------------------+
|Total current tax charge | -| -|
+-------------------------------+-----------------------+----------------------+
Excess management charges of GBP537,000 (2008: GBP73,000) have been carried forward
at 31 October 2009 and are available for offset against future taxable income
subject to agreement with HMRC. The Company has not recognised the deferred tax
asset of GBP150,000 (2008: GBP20,000) in respect of these excess management charges.
Approved VCT 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. Earnings per Share
The total earnings per share is based on 13,746,520 (31 October
2008: 1,542,460) shares, being the weighted average number of shares in issue
during the year, and a return for the year totalling GBP1,204,000 (31 October
2008: GBP(96,000))..
The revenue and capital earnings per share are based on 13,746,520 (31 October
2008: 1,542,460) shares, being the weighted average number of shares in issue
during the year, and a revenue return for the year totalling GBP(252,000) (31
October 2008: GBP(58,000)) and a capital return for the year totalling GBP1,456,000
(31 October 2008: GBP(38,000)).
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 NAV per share as at 31 October 2009 is based on 20,268,149
(31 October 2008: 4,168,564) Ordinary shares in issue at that date.
9. Fixed Asset Investments
+----------------------------------+-------+-------+
| | GBP'000 | GBP'000 |
+----------------------------------+-------+-------+
| Valuation and net book amount: | | |
+----------------------------------+-------+-------+
| Book cost as 1 November 2008 | 200 | |
+----------------------------------+-------+-------+
| Cumulative revaluation | - | |
+----------------------------------+-------+-------+
| Valuation at 1 November 2008 | | 200 |
+----------------------------------+-------+-------+
| Movement in the year: | | |
+----------------------------------+-------+-------+
| Purchases at cost | 2,417 | |
+----------------------------------+-------+-------+
| Revaluation in year | 100 | |
+----------------------------------+-------+-------+
| Valuation at 31 October 2009 | | 2,717 |
+----------------------------------+-------+-------+
| Book cost at 31 October 2009: | | |
+----------------------------------+-------+-------+
| - Ordinary shares | 1,719 | |
+----------------------------------+-------+-------+
| - Loan notes/other securities | 898 | |
+----------------------------------+-------+-------+
| | | 2,617 |
+----------------------------------+-------+-------+
| Revaluation to 31 October 2009: | | |
+----------------------------------+-------+-------+
| - Ordinary shares | 100 | |
+----------------------------------+-------+-------+
| - Loan notes/other securities | - | |
+----------------------------------+-------+-------+
| Valuation at 31 October 2009 | | 2,717 |
+----------------------------------+-------+-------+
Further details of the fixed asset investments held by the Company are shown
within the Investment Manager's Review on pages 6 to 16.
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 holding gains or losses.
When the Company revalues the investments still held during the period, any
gains or losses arising are credited / charged 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.
At 31 October 2009 there were no commitments in respect of investments approved
by the Manager but not yet completed.
10. Debtors
+----------------------+-----------------+-----------------+
| | 31 October 2009 | 31 October 2008 |
+----------------------+-----------------+-----------------+
| | GBP'000 | GBP'000 |
+----------------------+-----------------+-----------------+
| Prepayments | 8 | 2 |
+----------------------+-----------------+-----------------+
| Accrued income | 4 | - |
+----------------------+-----------------+-----------------+
| Unpaid share capital | - | 38 |
+----------------------+-----------------+-----------------+
| | 12 | 40 |
+----------------------+-----------------+-----------------+
11. Current Asset Investments
Current asset investments at 31 October 2009 comprised bonds, money market funds
and OEICs.
+-----------------------------------+---------+---------+
| | GBP'000 | GBP'000 |
+-----------------------------------+---------+---------+
| Valuation and net book amount: | | |
+-----------------------------------+---------+---------+
| Book cost as 1 November 2008 | | |
+-----------------------------------+---------+---------+
| - OEICs | 504 | |
+-----------------------------------+---------+---------+
+-----------------------------------+---------+---------+
| Revaluation as at 1 November 2008 | | |
+-----------------------------------+---------+---------+
| - OEICs | (24) | |
+-----------------------------------+---------+---------+
| Valuation as at 31 October 2008 | | 480 |
+-----------------------------------+---------+---------+
| Purchase at cost: | | |
+-----------------------------------+---------+---------+
| - Money market funds | 16,454 | |
+-----------------------------------+---------+---------+
| - OEICs | 3,744 | |
+-----------------------------------+---------+---------+
| | | 20,198 |
+-----------------------------------+---------+---------+
| Disposal proceeds | | |
+-----------------------------------+---------+---------+
| - Money market funds | (5,060) | |
+-----------------------------------+---------+---------+
| | | (5,060) |
+-----------------------------------+---------+---------+
| Revaluation in the year | | |
+-----------------------------------+---------+---------+
| - OEICs | 1,546 | |
+-----------------------------------+---------+---------+
| | | 1,546 |
+-----------------------------------+---------+---------+
| Valuation as at 31 October 2009 | | 17,164 |
+-----------------------------------+---------+---------+
| Book cost as 1 November 2009 | | |
+-----------------------------------+---------+---------+
| - Money market funds | 11,394 | |
+-----------------------------------+---------+---------+
| - OEICs | 4,248 | |
+-----------------------------------+---------+---------+
| | | 15,642 |
+-----------------------------------+---------+---------+
| Revaluation as at 1 November 2009 | | |
+-----------------------------------+---------+---------+
| - Money market funds | - | |
+-----------------------------------+---------+---------+
| - OEICs | 1,522 | |
+-----------------------------------+---------+---------+
| Valuation as at 31 October 2009 | | 17,164 |
+-----------------------------------+---------+---------+
12. Creditors: Amounts Falling Due Within One Year
+-----------------------------------------+-----------------+-----------------+
| | 31 October 2009 | 31 October 2008 |
+-----------------------------------------+-----------------+-----------------+
| | GBP'000 | GBP'000 |
+-----------------------------------------+-----------------+-----------------+
| Accruals | 93 | 37 |
+-----------------------------------------+-----------------+-----------------+
| Shares classed as financial liabilities | - | 50 |
+-----------------------------------------+-----------------+-----------------+
| Other creditors | 9 | 7 |
+-----------------------------------------+-----------------+-----------------+
| | 102 | 94 |
+-----------------------------------------+-----------------+-----------------+
13. Share Capital
+----------------------------------------------+---------------+---------------+
| |31 October 2009|31 October 2008|
+----------------------------------------------+---------------+---------------+
| | GBP'000| GBP'000|
+----------------------------------------------+---------------+---------------+
|Authorised: | | |
+----------------------------------------------+---------------+---------------+
|50,000,000 Ordinary shares of 10p | 5,000| 5,000|
+----------------------------------------------+---------------+---------------+
|50,000 redeemable preference shares of GBP1 | -| 50|
+----------------------------------------------+---------------+---------------+
|Allotted: | | |
+----------------------------------------------+---------------+---------------+
|20,268,149 (2008: 4,168,564) Ordinary shares| 2,027| 417|
|of 10p (fully paid) | | |
+----------------------------------------------+---------------+---------------+
|50,000 redeemable preference shares of GBP1| -| 50|
|(partly 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 19.
The Company is not subject to any externally imposed capital requirements.
The Company issued 16,099,585 (2008: 4,168,564) Ordinary shares during the year
at a price of 100p per share.
14. Reserves
+----------------+-----------+------------------+------------------+-----------+
| | Share| Capital reserve| Capital reserve| Revenue|
| | Premium | gains/(losses) on| holding| reserve|
| | | disposal| gains/(losses)| |
+----------------+-----------+------------------+------------------+-----------+
| | GBP'000| GBP'000| GBP'000| GBP'000|
+----------------+-----------+------------------+------------------+-----------+
|As at 1 November| 3,523| (14)| (24)| (58)|
|2008 | | | | |
+----------------+-----------+------------------+------------------+-----------+
|Return on | | | | |
|ordinary | -| -| -| 1,204|
|activities after| | | | |
|tax | | | | |
+----------------+-----------+------------------+------------------+-----------+
|Management fees | | | | |
|allocated as | -| (190)| -| 190|
|capital | | | | |
|expenditure | | | | |
+----------------+-----------+------------------+------------------+-----------+
|Holding | -| -| 1,646| (1646)|
|gains/losses | | | | |
+----------------+-----------+------------------+------------------+-----------+
|Issue of equity | 13,632| -| -| -|
+----------------+-----------+------------------+------------------+-----------+
|Balance as at | 17,155| (204)| 1,622| (310)|
|31 October 2009 | | | | |
+----------------+-----------+------------------+------------------+-----------+
When the Company revalues its investments during the period, any gains or losses
arising are credited/ charged to the income statement. Changes in fair value of
investments held 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) reserve is transferred to the capital reserve -
gains/(losses) on disposal 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 19. 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 with
regard to the possible effects of adverse price movements and, 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 8 and 16. An analysis of investments between debt and equity
instruments is given in note 9.
13.4% (2008:5.2%) 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 2009 would have increased net assets and the total
return for the period by GBP271,700 (2008: 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.
84.6% (2008: 12.5%) 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 2009 would have
increased net assets and the total return for the year by GBP1,716,000 (2008:
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 0.5% (2008 4.5%) at 31
October 2009. The amounts held in floating rate investments at the balance sheet
date were as follows:
+-----------------+-----------------+-----------------+
| | 31 October 2009 | 31 October 2008 |
| | | |
| | GBP000 | GBP000 |
+-----------------+-----------------+-----------------+
+-----------------+-----------------+-----------------+
| Cash on deposit | 11,892 | 3,206 |
+-----------------+-----------------+-----------------+
| | 11,892 | 3,206 |
+-----------------+-----------------+-----------------+
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the period by GBP119,000 (2008: GBP32,000).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2009. By cost, no individual investment exceeded 14.6% (2008: 7.9%) of
the Company's net assets at 31 October 2009
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 2009 the Company's financial assets exposed to credit risk
comprised the following:
+------------------+-----------------+-----------------+
| | 31 October 2009 | 31 October 2008 |
| | | |
| | GBP000 | GBP000 |
+------------------+-----------------+-----------------+
+------------------+-----------------+-----------------+
| Cash on deposit | 11,892 | 3,206 |
+------------------+-----------------+-----------------+
| | 11,892 | 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 2009
these investments were valued at GBP17,663,000 (2008: GBP3,700,000).
16. Post Balance Sheet Events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* 16 December 2009: GBP499,998 investment into Calastone
* 9 January 2010: A previous GBP103,000 non-qualifying investment in Zoopla
became qualifying.
17. Contingencies, Guarantees and Financial Commitments
Provided that the intermediary continues to act for the client and the client
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.
There were no further contingencies, guarantees or financial commitments as at
31 October 2009.
18. Related Party Transactions
Chris Hulatt, a non-executive Director of Octopus Titan VCT 3 plc, is a Director
of Octopus Investments. Octopus Titan VCT 3 plc has employed Octopus Investments
throughout the period as Investment Manager (Prior to 20 October 2009 the
Investment Manager was Octopus Ventures Limited). Octopus Titan VCT 3 plc has
paid Octopus Investments GBP255,000 (2008: GBP19,000) 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 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
GBP53,000 (2008: GBP2,000) was paid to Octopus Investments and there is GBPnil
outstanding at the balance sheet date, for the accounting and administrative
services.
In addition, Octopus Investments 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.
If, on a subsequent financial year end, the Performance Value of Octopus Titan
3 falls short of the Performance Value on the previous financial year 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 will be entitled to 20% of such excess in aggregate.
[HUG#1385120]
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