TIDMOTV3
Octopus Titan VCT 3 plc
Final Results
9 February 2011
Octopus Titan VCT 3 plc (the "Company"), managed by Octopus Investments Limited,
today announces the final results for the year ended 31 October 2010.
These results were approved by the Board of Directors on 9 February 2011.
You may view the Annual Report in full at www.octopusinvestments.com shortly by
navigating to VCT Meetings & Reports under the 'Services' section.
About Octopus Titan VCT 3 plc
Octopus Titan VCT 3 plc ('Titan 3' or 'the VCT') is a venture capital trust
(VCT) which aims to provide shareholders with attractive tax-free dividends and
long-term capital growth, by investing in a diverse portfolio of predominately
unquoted companies. The Company is managed by Octopus Investments Limited
('Octopus' or 'Investment Manager').
Titan 3 was incorporated on 4 March 2008 and raised over GBP20.0 million through
an Offer for Subscription. Titan 3 invests primarily in unquoted smaller UK
companies and aims to deliver absolute returns on its investments.
Further details of the VCT's progress are discussed in the Chairman's Statement
and Investment Manager's Review on pages X to X.
On 31 August 2010 the VCT changed its Registered Office from 8 Angel Court,
London, EC2R 7HP to 20 Old Bailey, London, EC4M 7AN.
Venture Capital Trusts ("VCTs")
VCTs were introduced in the Finance Act 1995 to provide a means for private
individuals to invest in unquoted companies in the UK. Subsequent Finance Acts
have introduced changes to VCT legislation. The tax benefits currently available
to eligible new investors in VCTs include:
* Up to 30% up-front income tax relief;
* exemption from income tax on dividends paid; and
* exemption from capital gains tax on disposals of shares in VCTs.
Titan 3 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' (as defined in the legislation) of which at least 30% must
be in eligible ordinary shares. A 'qualifying holding' consists of up to GBP1
million invested in any one year in new shares or securities in an unquoted UK
company (or companies listed on AIM) which is carrying on a qualifying trade and
whose gross assets do not exceed a prescribed limit at the time of investment.
The definition of a 'qualifying trade' excludes certain activities such as
property investment, and development, financial services and asset leasing. The
Company will continue to ensure its compliance with these qualification
requirements.
Financial Summary
As at 31 October 2010 As at 31 October 2009
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Net assets ( GBP'000s) 19,607 20,290
Return on ordinary activities after (683) 1,204
tax ( GBP'000s)
Net asset value per share (NAV) 96.7p 100.1p
=-------------------------------------------------------------------------------
Chairman's Statement
I am pleased to present the annual results for the year ended 31 October 2010.
Performance
During the year there was a decrease in net asset value (NAV) from 100.1p to
96.7p. This decrease was partly due to the normal running costs of the VCT
giving rise to a revenue loss of GBP241,000, and partly due to a small reduction
in fair value of the OEICs, which had seen significant uplifts in 2009 (see
below). The currently prevailing low rates of interest have meant that very
little interest income has been received to offset the running costs of the VCT.
At the balance sheet date of 31 October 2010, the VCT was invested in 21
unquoted companies and one AIM-quoted company. The focus is to continue to
invest in a broad range of unquoted smaller UK companies with the potential for
high growth in order to generate capital growth over the long-term. By value,
39.2% of the VCT's net assets were in unquoted investments, 1.4% in AIM-quoted
investments and 27.3% in Octopus OEICS (see below), leaving 32.1% in cash or
cash equivalents.
Investment Portfolio
The VCT made twelve new investments during the year totalling GBP3.4 million, in
addition to seven follow-on investments amounting to GBP1.6 million. Our
investments are discussed in more detail in the Investment Manager's Review on
pages X to X. You will see that we have continued to add to the portfolio with
investments in companies covering a diverse range of activities. In the case of
Zoopla, we have been able to recognise another significant uplift in value
following the initial investment made in 2009, and we have also increased the
value of the investment in Nature Delivered (trading as Graze), both reflecting
subsequent further funding rounds at increased values. Inevitably, we have had
to make a reduction in fair value in respect of five investments where the
original business plans and milestones have been delayed or where there is
uncertainty over whether they will be achieved. We continue to adopt a prudent
approach to the valuation of investments, but we are generally encouraged by the
performance of the portfolio at this relatively early stage in its development,
and the diverse range of investments held by the VCT.
Open Ended Investment Companies (OEICs)
After significant uplifts in the valuation of the two Octopus OEICs in the prior
year, this year has seen a reduction in the overall value of the investments.
The Absolute UK Equity Fund decreased in value by 16% whilst the UK Micro Cap
Growth Fund increased by approximately 1%. Although the Absolute UK Equity Fund
reduction was significant in the year to 31 October 2010, the value remained
13% above cost at the year end and has increased further since that date. The
Board continues to monitor these funds and believes it remains a sensible
strategy to maintain part of our non-qualifying portfolio in these OEICs, as set
out in the original prospectus. Further details of these OEICs may be found
atwww.octopusinvestments.com where monthly factsheets are available.
Investment Strategy
As the VCT moves closer to achieving its initial investment targets in
qualifying companies, your Board will continue to review the investment strategy
in respect of the non-qualifying portfolio and specifically how we invest our
cash resources. As envisaged in the VCT's prospectus, between 15% and 25% of
the VCT will be retained for liquidity and follow-on investments in the existing
portfolio. As our portfolio of unquoted companies matures, we will find that
some companies may require further rounds of investment but these investments
may not be qualifying for VCT purposes (for instance in situations where the
company now employs more than 50 people). Your Board believes that there will be
circumstances where it will be in our shareholders' interests to continue to
invest, not least to avoid dilution. Since this was not set out clearly in our
prospectus, we have sought to further clarify the investment strategy and added
a second paragraph to the Non-Qualifying section as set out on page · of the
Directors' Report.
We intend that the remainder of our cash reserves will continue to be invested
in Octopus managed OEICS and lower risk, readily realisable investments.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
concerning ongoing compliance with HMRC rules and regulations concerning VCTs.
The Board has been advised that Titan 3 is compliant with the conditions laid
down by HMRC for maintaining provisional approval as a VCT.
A key requirement now is to achieve the 70% qualifying investment level prior to
31 October 2011. As at 31 October 2010, 40.4% 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. Investments in a further two companies have
been made since the year end and several follow-on investments into the existing
portfolio are planned by mid 2011. Additionally, the pipeline of quality
investment opportunities is encouraging.
Annual General Meeting
The VCT's Annual General Meeting will take place on 30 March 2011 at 11.30 a.m.
I look forward to welcoming you to the meeting which will be held at the offices
of Octopus Investments Limited, at 20 Old Bailey, London, EC4M 7AN.
Outlook
Economic recovery is still in a very early phase and the environment in which
portfolio companies are operating remains fragile. Ongoing uncertainty,
exacerbated by the change in government and the associated spending review, has
caused some businesses to delay investment decisions and to react cautiously to
unpredictable growth prospects.
Despite some positive economic figures recently being released, it is
anticipated that growth in the first half of the next financial year will be
weak. Whilst we do not expect interest rates to change significantly over the
next six months, banks remain reluctant to lend. However, this should not have a
significant impact on our early stage portfolio companies, which rely
predominately on equity capital for their funding.
Your Board is generally pleased with the overall progress being made by the
portfolio and remains confident that the VCT is on track to meet its investment
objectives and produce returns for shareholders that are consistent with the
objectives of the VCT. The recession has led to some delay in the portfolio
companies accomplishing their ambitions but we remain cautiously optimistic.
However, it is likely that the NAV will continue to track downwards before the
profitable realisation of investments is achieved in the medium term. The Board
does not propose to declare a dividend before profitable realisations are
achieved.
Octopus has recently launched Octopus Titan VCT 5 plc giving the Titan VCT
family even greater presence in the marketplace which it believes will continue
to be an advantage in terms of attracting quality investment opportunities.
Mark Hawkesworth
Chairman
9 February 2011
Investment Manager's Review
Personal Service
At Octopus, we focus on both managing your investments and keeping you informed
throughout the investment process. We are committed to providing our investors
with regular and open communication. Our updates are designed to keep you
informed about the progress of your investment. During this time of economic
upheaval, we consider it particularly important to be in regular contact with
our investors and are working hard to manage your money in the current climate.
Octopus Investments Limited was established in 2000 and has a strong commitment
to both smaller companies and to VCTs. We currently manage 18 VCTs, including
this VCT, and manage over GBP300m in the VCT sector. Octopus has over 180
employees and has been voted as 'Best VCT Provider of the Year' by the financial
adviser community for the last four years.
Investment Policy
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 VCT focuses on providing early stage, development and expansion funding to
predominantly 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 has the
potential to create a large business by taking a relatively modest market share.
We are particularly interested in businesses that address current market trends
and 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 20-30 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% retained for liquidity and follow-on
investments. The cash reserves will be invested in a combination of cash, Open
Ended Investment Companies (OEICs)* managed by Octopus and money market
securities managed by third party specialists.
Liquidity will be maintained in the VCT to ensure that adequate resources are
available to support further portfolio funding needs as they arise. The
environment has remained challenging for smaller companies, which have felt the
effects of the credit squeeze combined with the economic slowdown. As well as
seeing reductions in banking facilities, small companies also find themselves
under pressure from suppliers who want paying earlier, customers who delay
payments and weaker trading conditions. The resulting pressure on cash will
remain, even as the economy recovers, due to increasing working capital
requirements. We are therefore monitoring carefully all the portfolio companies
to ensure that they not only control costs but also take advantage of some of
the opportunities that occur in these circumstances. We have sought to further
support those companies that we believe have strong growth potential but need
some financial support to realise it. Each company that we target is expected to
have unique selling points and be capable of growing to a size that will make it
attractive for acquisition by a larger company or will enable it to float on the
stock market.
*Titan 3 has invested in two OEICs managed by Octopus, the CF Octopus Absolute
UK Equity Fund and the CF Octopus UK Micro Cap Growth Fund.
Portfolio Review
As at 31 October 2010 the NAV stood at 96.7p, compared to 100.1p at 31 October
2009; this represents a negative return of 3.4%. The period showed satisfactory
performance in the qualifying holdings that the VCT holds and a slightly
disappointing period for the non-qualifying OEIC holdings with a reduction in
value of 16% in the Absolute UK Equity Fund, offset slightly by a rise of 1% in
the UK Micro Cap Growth Fund.
At 31 October 2010, Titan 3 held 40.4% in qualifying funds from an HMRC
perspective and we are continuing to work with each portfolio business as they
develop their propositions in their respective markets. As Investment Manager
it is our intention to take those businesses in which we have invested a small
amount of money as a first investment and invest further as they meet or exceed
the initial milestone objectives we agreed with them. In this way we are able
to invest further into those businesses that are meeting and exceeding
expectations and this can be demonstrated through the further investments in
Calastone, True Knowledge and Graze.
Since the balance sheet date, Titan 3 has invested GBP367,000 into Diverse Energy,
a company focusing on the infrastructure of energy for global
telecommunications, GBP450,000 into 10CMS, an interactive merchandising platform
and GBP500,000 into Vega-Chi, an electronic multilateral trading facility. This
brought the total portfolio to 25 current trading businesses in the qualifying
holdings. In addition a further non-qualifying investment of GBP296,000 was
invested into Zoopla and a qualifying investment of GBP246,000, GBP18,500 and
GBP133,332 was made into Semafone, Skills Market, and Money Workout respectively.
At 31 January 2011, the VCT held 50.1% in qualifying funds from an HMRC
perspective.
Outlook
At the time of writing, we are looking to make a number of follow-on investments
to support the current portfolio. It is encouraging to note the uplift in
prices on stock markets in recent months. This is filtering through to smaller
listed businesses, although this has yet to have a dramatic effect on prices for
unquoted businesses. This, combined with the current increase in activity in
mergers and acquisitions, is an encouraging indicator for the economy and for
small trading businesses. However, we have not yet seen a significant uptick in
the number of small businesses being listed on the stock market. Assuming this
general trend continues, it is a positive one for the future of high growth
businesses as this area of the market tends to lag the listed business market.
We do need to remain mindful of the impact the austerity measures being put in
place by the UK Government will have on the UK consumer. There is also a concern
that a rise in the level of inflation will in turn cause interest rates to rise
which could have an adverse knock on effect on the economy.
Overall, the environment provides a great opportunity for businesses like those
in the Titan 3 portfolio to take advantage of. Their size enables them to move
quickly to adapt and respond to market conditions resulting in greater market
share. Whilst the current market is not without its challenges, which a number
of our portfolio businesses are facing at the moment, it still enables us to be
cautiously optimistic about the future for small high growth businesses in
general and our investment strategy specifically.
If you have any questions on any aspect of your investment, please call one of
the team on 0800 316 2347.
Alex Macpherson
Octopus Investments Limited
9 February 2011
Investment Portfolio
%
Movement equity
in Fair % held by
Investment valuation value at equity all
cost as at to 31 31 held funds
31 October October October by managed
Qualifying 2010 2010 2010 Titan by
investments Sector ( GBP'000) ( GBP'000) ( GBP'000) 3 Octopus
=-------------------------------------------------------------------------------
Zoopla
Limited Media 373 709 1,082 2.1% 14.2%
True
Knowledge
Limited Media 927 - 927 4.5% 44.9%
Nature
Delivered
Limited Consumer lifestyle
(Graze) & wellbeing 798 55 853 6.9% 27.1%
Calastone
Limited Technology 520 - 520 5.0% 34.1%
Mi-Pay
Limited Telecommunications 429 - 429 5.8% 24.8%
AQS Holdings
Limited Environmental 421 - 421 5.6% 26.5%
UltraSoC
Technologies
Limited Technology 361 - 361 10.0% 55.6%
Phase Vision
Limited Technology 400 (50) 350 12.2% 52.2%
Surrey
Nanosystems
Limited Technology 320 - 320 5.8% 31.2%
Elonics
Limited Technology 305 - 305 3.1% 19.5%
Executive
Channel
Limited Media 300 - 300 4.8% 32.2%
PrismaStar
Inc. Media 300 - 300 4.5% 30.0%
e-
Therapeutics Consumer lifestyle
plc & wellbeing 284 (6) 278 0.3% 8.8%
Bowman Power
Limited Environmental 275 - 275 2.7% 17.9%
GetOptics Consumer lifestyle
Limited & wellbeing 361 (90) 271 7.5% 34.8%
Metrasens Consumer lifestyle
Limited & wellbeing 268 - 268 4.5% 25.4%
Michelson
Diagnostics Consumer lifestyle
Limited & wellbeing 248 - 248 4.4% 28.1%
Money Workout
Limited Technology 312 (156) 156 6.9% 33.5%
Semafone
Limited Telecommunications 114 - 114 2.8% 41.5%
Skills Market
Limited Technology 155 (50) 105 2.7% 12.3%
TouchType
Limited Telecommunications 53 - 53 1.5% 8.0%
Phasor
Solutions
Limited Technology 50 (25) 25 0.9% 31.2%
=-------------------------------------------------------------------------------
Total
qualifying
investments 7,574 387 7,961
=-------------------------------------------------------------------------------
Money market
securities 6,165 - 6,165
OEICs 4,248 1,096 5,344
Cash at bank 159 - 159
=-------------------------------------------------------------------------------
Total
investments 18,146 1,483 19,629
=-------------------------------------------------------------------------------
Net current
assets (22)
=-------------------------------------------------------------------------------
Total net
assets 19,607
=-------------------------------------------------------------------------------
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of fair
value of a financial asset that is either quoted or not quoted in an active
market is the transaction price (i.e. cost).
Subsequent measurement
Further funding rounds are a good indicator of fair value and this is measure is
used were appropriate. Subsequent adjustment to the fair value of unquoted
investments can be made using sector multiples based on information as at 31
October 2010, where applicable. In some cases the multiples can be compared to
equivalent companies, especially where a particular sector multiple does not
appear appropriate. It is currently industry norm to discount the quoted
earnings multiple to reflect the lack of liquidity in the investment, there
being no ready market for our holding. Typically the discount is 30% but this
can be increased where the relevant multiple appears too high. A lower discount
would also be possible if an investment was close to an exit event.
In accordance with the International Private Equity and Venture Capital (IPEVC)
valuation guidelines investments made within 12 months are usually kept at cost
unless performance indicates that fair value has changed.
Quoted investments are valued at market bid price. No discounts are applied. If
you would like to find out more regarding the IPEVC valuation guidelines, please
visit their website at: www.privateequityvaluation.com.
Review of Investments
During the year, Titan 3 made twelve new investments amounting to GBP3.4 million
and seven follow-on investments. The unquoted investments are in ordinary shares
with full voting rights as well as loan note securities.
Quoted and unquoted investments are valued in accordance with the accounting
policy set out on page X, which takes account of current industry guidelines for
the valuation of venture capital portfolios and is compliant with IPEVC
valuation guidelines and current financial reporting standards. The valuations
listed are a reflection of the total investment i.e. both the equity and loan
note elements.
Listed below are details of the VCT's 10 largest investments by value.
Zoopla Limited
Zoopla.co.uk is an award-winning online property information service and
community website, presenting information on house pricing, free valuation
estimates, for sale listings, and local community information. Zoopla has become
the UK's leading website for house prices and value data, as it provides the
most comprehensive source of residential property market information. It is also
the UK's most active property community. Following the acquisition of
PropertyFinder from News International Ltd and REA Group approximately a year
ago, Zoopla launched estate agent listings on a pay-for-performance basis and
expects to become the premier UK website for those interested in the property
market. We encourage you to view the website atwww.zoopla.co.uk.
As previously reported the company recently signed another transformational deal
working with three of the UK's four largest estate agent groups and now the
three estate agency CEOs sit on the Zoopla board. During the last quarter the
company undertook its first advertising campaign on national TV. This proved
very successful and as a result the businesses decided to raise some further
funds in order to increase the level of awareness the company has in the UK.
This round of financing was completed by the current investors led by Atlas
Ventures and Octopus. A second burst of television advertising is due to
commence in January 2011 as the company seeks significant growth in 2011.
Initial investment date: January 2009
Cost: GBP373,204
Valuation: GBP1,082,008 (latest funding
round)
Equity held: 2.1%
Equity held by all funds managed by Octopus: 14.2%
Last submitted audited accounts: 31 December 2009
Turnover GBP1,160,153
Loss before interest & tax: ( GBP2,864,126)
Net assets: GBP699,922
True Knowledge Limited
True Knowledge has developed an Internet search engine website that answers
questions. Finding information on the Internet currently involves a process of
trial and error, hoping that the search engine retrieves the information you are
looking for. True Knowledge has devised technology that resolves this
fundamental problem by operating along a more intuitive system. It intelligently
answers questions asked on any topic in plain English. It can be used just like
a conventional search engine, but users can also add knowledge directly to it.
There are currently nearly 250 million facts in the database, which is being
continually expanded.
The company continues to grow exponentially in unique users per month and
revenues. In November, the number of unique users grew to 5.2 million. This
growth is largely the result of acquiring more data; publishing questions and
answers; and enabling Google, and other search companies, to index them. The
company has automated many of the processes associated with accessing data and
publishing questions and answers. This should enable the business to continue
its rapid growth, with the expectation that the number of unique users will grow
at least two fold in the next six months.
Revenue growth over the last six months has been on average 20%, and the company
is now exploring various techniques to earn more revenues from the growing
number of unique users. In the meantime the company will be undertaking a
further round of funding, in which Octopus will feature prominently.
Initial investment date: July 2008
Cost: GBP926,804
Valuation: GBP926,804 (latest funding
round)
Equity held: 4.5%
Equity held by all funds managed by Octopus: 44.9%
Last submitted accounts: 31 January 2010
(abbreviated)
Net assets: ( GBP104,707)
Nature Delivered Limited (trading as Graze)
Graze is the first UK company to deliver healthy and nutritionally balanced food
by post straight to the home or office. The company was founded in April 2007
and has a growing customer base that regularly place orders via its website.
Graze's snack boxes cost only GBP3.49 and are sent by Royal Mail for next day
delivery. The Graze product range includes over 100 products to choose from,
all free from artificial colourings, flavourings and preservatives. Customers
can also place orders for personalised boxes, specifically tailored to meet
their tastes, dietary and nutritional requirements. Graze promotes a varied and
balanced diet through facilitating the intake of a wide variety of smaller
portions of natural, high energy foods throughout the day. Its boxes contain up
to four portions of dried fruit; bread; olives and vegetables, in line with the
National Health Service's recognised 'five-a-day' scheme. Its product is in tune
with customer needs and the demands of modern living, as people become ever more
conscious of health and convenience. The company's sales continue to grow ahead
of budget.
Initial investment date: June 2009
Cost: GBP797,627
Valuation: GBP852,306 (latest funding
round)
Equity held: 6.9%
Equity held by all funds managed by Octopus: 27.1%
Last submitted accounts: 31 December 2009
(abbreviated)
Net assets: GBP1,371,320
Calastone Limited
Calastone is the UK's only independent transaction service for the mutual fund
industry. It enables buyers and sellers of mutual funds on different platforms
to communicate orders electronically, by providing a universal message
communication and 'translation' service - the "Calastone Transaction Network"
(CTN). This is being welcomed in an industry which has not previously been able
to invest in the real-time exchange of information between participants. Orders
are commonly communicated by fax or telephone with a high level of manual re-
keying and manual error correction. Calastone's 'translation' service means that
neither the transmitter nor receiver need purchase additional technology or
change their existing systems.
Calastone is moving quickly to own the space and therefore seeks to sign up
distributors and their counterparties, the fund providers (or their third party
administrators). Progress is excellent in both dimensions as demonstrated by the
fact that clients are now calling in asking to join CTN. The board believes the
company is experiencing beneficial network effects where the existing
distributors are encouraging fund providers to join the CTN and vice versa.
Internally the focus is now on streamlining processes so that distributors and
fund providers can be made operational faster driving up transaction volumes
thereby growing its revenues rapidly.
Over the last period growth has continued at Calastone with new client sign ups
to the core offering and to the newly launched additional services such as
settlement and custodian. Calastone has also started to sign up its initial
clients from the Luxembourg office which was opened earlier in 2010 and the
company expects to see continued growth in Europe as we move into 2011.
Initial investment date: October 2008
Cost: GBP520,266
Valuation: GBP520,266 (latest funding
round)
Equity held: 5.0%
Equity held by all funds managed by Octopus: 34.1%
Last submitted accounts: 30 September 2009
(abbreviated)
Net assets: GBP482,635
Mi-Pay Limited
Mi-Pay was founded in 2004 with the objective to establish itself as a leading
processor of payments for the fast-emerging mobile money sector. The service
enables customers to 'top-up' their pre-paid mobile phone directly online, or
via their mobile phone, rather than using indirect brand channels such as
PayPoint or bank ATMs. Benefits of the direct service include cost reductions
for mobile network operators and a more personal engagement with customers,
removing the anonymity of customer relationships and allowing for substantial
improvements in customer retention.
Mi-Pay continues to make progress in a very dynamic and fast moving market, most
recently agreeing terms with several tier one European, Middle Eastern and
African mobile operators to provide its direct top up service. Mi-Pay was also
delighted to appoint Allan Jakobsen as CEO in August 2010.
Initial investment date: February 2010
Cost: GBP429,153
Valuation: GBP429,153 (latest funding
round)
Equity held: 5.8%
Equity held by all funds managed by Octopus: 24.8%
Last submitted audited group accounts: 31 December 2009
Turnover GBP1,736,649
Loss before tax: ( GBP2,082,813)
Net assets: ( GBP1,065,558)
AQS Holdings Limited
Soil Xchange is a subsidiary of AQS, which is a waste management business
focusing on soil stabilisation and remediation by means of a proprietary process
and equipment. Soil Xchange's aim is to create strategic hubs across the UK,
specifically with the objective of taking in hazardous soil and waste, and
exchanging it for recycled, clean soil, using AQS' market leading soil
remediation knowledge and equipment, the 'Eco Warrior'.
Soil Xchange's first hub has now been opened in East London and negotiations are
underway in respect of the second London hub, as well as further hubs in North
East and North West England. The company is also in discussions to licence its
technology to a business that would deploy a similar hub roll-out strategy
across Australia.
Initial investment date: February 2010
Cost: GBP421,000
Valuation: GBP421,000 (latest funding
round)
Equity held: 5.6%
Equity held by all funds managed by Octopus: 26.5%
Last submitted audited group accounts: 31 March 2010
Turnover GBP5,952,822
Loss before tax: ( GBP418,617)
Net assets: GBP3,400,647
UltraSoC Technologies Limited
UltraSoC Technologies, is a pioneering company developing advanced debugging
technology for the embedded electronic systems increasingly used in many
everyday products from cars to mobile phones.
UltraSoC was spun-out from the universities of Essex and Kent in 2008 after
being founded by Cambridge entrepreneur Dr Karl Heeks and Professor Klaus
McDonald-Maier, Research Director at the University of Essex's School of
Computer Science and Electronic Engineering.
The company is developing UltraDebug, an advanced debugging technology for
multiple processor systems used to debug the application software that delivers
the functionality and performance in many modern embedded electronic systems.
Initial investment date: September 2010
Cost: GBP361,431
Valuation: GBP361,431 (latest funding
round)
Equity held: 10.0%
Equity held by all funds managed by Octopus: 55.6%
Last submitted accounts: 31 December 2009
(abbreviated)
Net assets GBP174,013
Phase Vision Limited
Phase Vision is a manufacturer of optical inspection solutions for high speed,
three dimensional shape measurement with micro-scale accuracy. It 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.
Phase Vision raised GBP800k in August 2010 from its present shareholders. This was
to give the management time to build up the sales pipeline to achieve the sales
revenues that had fallen behind due to late completion of a saleable product and
the underperformance of the sales team. Real progress is being made in building
the pipeline through cold calling, with appointments being made, leading to firm
proposals.
Initial investment date: May 2009
Cost: GBP399,776
Valuation: GBP349,781 (latest funding
round)
Equity held: 12.2%
Equity held by all funds managed by Octopus: 52.2%
Last submitted audited accounts: 31 March 2010
Turnover GBP104,341
Loss before tax: ( GBP852,213)
Net assets: GBP145,682
Surrey NanoSystems Limited
Surrey NanoSystems (SNS) is engaged in developing nanoelectronics materials and
processes to support the continued scaling of semiconductor devices. The company
is conducting innovative research into nanomaterial growth at temperatures
compatible with mainstream microchip fabrication. The Company has already made
significant advances in developing practical techniques for fabricating
interconnection vias and novel materials for inter-layer insulation - key
challenges on the semiconductor industry's roadmap as process geometries shrink.
The target semiconductor segment remains buoyant, with major vendors continuing
to place emphasis on technology development programmes to secure competitive
advantage.
Restructuring of the business to focus on technology development has been
completed as has initial commissioning of all equipment shipped to date. Non
Disclosure Agreements (NDAs) have been executed with European and US production
equipment suppliers, companies which already have a significant position in the
target sector, with the opportunity to grow share Progress has also been made
with patenting, including an application being granted in China, a major step
forwards. In addition, the NanoGrowth and NanoSoft trademarks were registered to
SNS in Europe.
SNS has also moved forward with its commercialisation strategy, identifying
existing equipment suppliers as the target recipients of its technology,
enabling them to take a leading position in the circa $300M insulating material
tool market.
Initial investment date: July 2009
Cost: GBP319,770
Valuation: GBP319,770 (latest funding
round)
Equity held: 5.8%
Equity held by all funds managed by Octopus: 31.2%
Last submitted accounts: 30 June 2009
(abbreviated)
Net assets ( GBP415,311)
Elonics Limited
Elonics is a semiconductor company specialising in the design and development of
multi-band radio frequency integrated circuit products. Founded in 2003 and
based in Livingston, United Kingdom, Elonics has developed an innovative radio
frequency architecture called DigitalTune that is the foundation for a family of
silicon tuners for television and radio.
Elonics' innovative technology allows manufacturers to design high performance
consumer electronics products with unrivalled performance, power consumption and
low system cost. Elonics' first product family is the E4000 series of silicon
tuner solutions targeted at the reception of multi-standard digital TV and
radio.
Initial investment date: September 2010
Cost: GBP305,349
Valuation: GBP305,349 (latest funding
round)
Equity held: 3.1%
Equity held by all funds managed by Octopus: 19.5%
Last submitted accounts: 31 December 2009
Net assets ( GBP507,024)
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company for that period. Under that
law the Directors have elected to prepare financial statements in accordance
with United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
In so far as each of the Directors are aware:
* there is no relevant audit information of which the Company's auditor is
unaware; and
* the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditor is aware of that information.
To the best of my knowledge:
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
* the management report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
The financial statements are published at www.octopusinvestments.com, a website
maintained by Octopus Investments. The maintenance and integrity of the website
is, so far as it relates to the Company, the responsibility of Octopus
Investments. The work carried out by the auditor does not involve considerations
of the maintenance and integrity of the website and, accordingly, the auditor
accepts no responsibility for any changes that have occurred to the accounts
since they were originally presented on the website. Visitors to the website
need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the accounts differ from legislation in other
jurisdictions.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
On Behalf of the Board
Mark Hawkesworth
Chairman
9 February 2011
Income Statement
+----------------------+
| Year to 31 October |
| 2010 |
=----------------------------------------------+----------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=----------------------------------------------+----------------------+
| |
| |
Fixed asset investment holding gains 9 | 287 287|
| |
Current asset investment holding losses 11 | - (427) (427)|
| |
| |
| |
Other income 2 | 150 - 150|
| |
| |
| |
Investment management fees 3 | (101) (302) (403)|
| |
Other expenses 4 | (290) - (290)|
| |
| |
=----------------------------------------------+----------------------+
Return on ordinary activities before tax | (241) (442) (683)|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
=----------------------------------------------+----------------------+
Return on ordinary activities after tax | (241) (442) (683)|
=----------------------------------------------+----------------------+
Earnings per share - basic and diluted 7 | (1.2)p (2.2)p (3.4)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 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.
The accompanying notes form an integral part of the financial statements.
Income Statement
+---------------------------+
| Year to 31 October 2009 |
=--------------------------------------------------+---------------------------+
| Revenue Capital Total |
| |
Notes | GBP'000 GBP'000 GBP'000 |
=--------------------------------------------------+---------------------------+
| |
| |
Fixed asset investment holding gains 9 | 100 100 |
| |
Current asset investment holding losses 11 | - 1,546 1,546 |
| |
| |
| |
Other 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 Company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds.
The Company has no recognised gains or losses other than the results for the
period as set out above.
The accompanying notes form an integral part of the financial statements.
Reconciliation of Movements in Shareholders' Funds
+-----------------+
| Year to | Year to
| 31 October 2010 | 31 October 2009
| |
| GBP'000 | GBP'000
=-----------------------------------------+-----------------+-----------------
Shareholders' funds at start of year | 20,290 | 3,844
=-----------------------------------------+-----------------+-----------------
Return on ordinary activities after tax | (683) | 1,204
| |
Issue of equity (net of expenses) | - | 15,242
=-----------------------------------------+-----------------+-----------------
Shareholders' funds at end of year | 19,607 | 20,290
=-----------------------------------------+-----------------+
The accompanying notes form an integral part of the financial statements.
Balance Sheet
+-------------------+
| As at 31 October| As at 31 October
| 2010| 2009
| |
Notes| GBP'000 GBP'000| GBP'000 GBP'000
=---------------------------------------+-------------------+-------------------
| |
| |
Fixed asset investments* 9 | 7,961| 2,717
| |
Current assets: | |
| |
Debtors 10 | 59 | 12
| |
Money market securities and other | |
deposits* 11 |11,509 |17,164
| |
Cash at bank | 159 | 499
=---------------------------------------+-------------------+-------------------
|11,727 |17,675
| |
Creditors: amounts falling due | |
within one year 12 | (81) | (102)
=---------------------------------------+-------------------+-------------------
Net current assets | 11,646| 17,573
=---------------------------------------+-------------------+-------------------
| |
=---------------------------------------+-------------------+-------------------
Net assets | 19,607| 20,290
=---------------------------------------+-------------------+-------------------
| |
| |
Called up equity share capital 13 | 2,027 | 2,027
| |
Share premium | - |17,155
| |
Special distributable reserve 14 |17,155 | -
| |
Capital reserve - (losses) on | |
disposals 14 | (506) | (204)
| |
- holding | |
gains 14 | 1,482 | 1,622
| |
Revenue reserve 14 | (551) | (310)
=---------------------------------------+-------------------+-------------------
Total equity shareholders' funds | 19,607| 20,290
=---------------------------------------+-------------------+-------------------
NAV per share 8 | 96.7p| 100.1p
+-------------------+
* Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 9
February 2011 and are signed on their behalf by:
Mark Hawkesworth
Chairman
Company No: 06523078
The accompanying notes form an integral part of the financial statements.
Cash Flow Statement
+---------------+
| Year to| Year to
|31 October 2010|31 October 2009
| |
Notes| GBP'000| GBP'000
=-----------------------------------------------+---------------+---------------
| |
| |
Net cash outflow from operating activities | (611)| (356)
| |
| |
| |
Capital expenditure and financial | |
investment: | |
| |
Purchase of fixed asset investments 9 | (4,957)| (2,417)
| |
| |
| |
Management of Liquid resources: | |
| |
Purchase of current asset investments 11 | (4,617)| (20,198)
| |
Disposal of current asset investments | 9,845| 5,060
| |
| |
| |
Financing: | |
| |
Issue of shares 13 | -| 16,017
| |
Redemption of preference shares | -| (50)
| |
Share issue expense | -| (775)
=-----------------------------------------------+---------------+---------------
Decrease in cash resources at bank | (340)| (2,719)
+---------------+
The accompanying notes form an integral part of the financial statements.
Reconciliation of Return before Taxation to Cash Flow from
Operating Activities
+--------------------+
| Year to| Year to
| 31 October 2010|31 October 2009
| |
| GBP'000| GBP'000
=------------------------------------------+--------------------+---------------
Return on ordinary activities before tax | (683)| 1,204
| |
Gain on valuation of fixed asset | |
investments | (287)| (100)
| |
Loss/(gain) on valuation of current asset | |
investments | 427| (1,546)
| |
(Increase)/decrease in debtors | (47)| 28
| |
(Decrease)/increase in creditors | (21)| 58
=------------------------------------------+--------------------+---------------
Outflow from operating activities | (611)| (356)
+--------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+---------------+
| Year to| Year to
|31 October 2010|31 October 2009
| |
| GBP'000| GBP'000
=-----------------------------------------------+---------------+---------------
Decrease in cash resources at bank | (340)| (2,719)
| |
Movement in current asset investments | (5,655)| 15,138
| |
Gain on valuation of current asset investments | -| 1,546
| |
Opening net funds | 17,663| 3,698
=-----------------------------------------------+---------------+---------------
Net funds at 31 October | 11,668| 17,663
+---------------+
Net funds at 31 October comprised:
+-----------------+
| Year to | Year to
| 31 October 2010 | 31 October 2009
| |
| GBP'000 | GBP'000
=------------------------+-----------------+-----------------
Cash at bank | 159 | 499
| |
OEICs | 5,344 | 5,770
| |
Money market funds | 6,165 | 11,394
=------------------------+-----------------+-----------------
Net funds at 31 October | 11,668 | 17,663
=------------------------+-----------------+
The accompanying notes form an integral part of the financial statements.
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of accounting
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of certain financial
instruments, and in accordance with UK Generally Accepted Accounting Practice
(UK GAAP), and the Statement of Recommended Practice (SORP) "Financial
Statements of Investment Trust Companies" (revised 2009).
The principal accounting policies have remained unchanged from those set out in
the Company's 2009 Annual Report and financial statements. A summary of the
principal accounting policies is set out below.
The Company presents its income statement in a three column format to give
shareholders additional detail of the performance of the Company, split between
items of a revenue or capital nature.
The preparation of the financial statements requires Management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions
mainly relate to the fair valuation of the fixed asset investments particularly
unquoted investments. Estimates are based on historical experience and other
assumptions that are considered reasonable under the circumstances. The
estimates and the assumptions are under continuous review with particular
attention paid to the carrying value of the investments.
Capital valuation policies are those that are most important to the depiction of
the Company's financial position and that require the application of subjective
and complex judgements, often as a result of the need to make estimates about
the effects of matters that are inherently uncertain and may change in
subsequent periods. The critical accounting policies that are declared will not
necessarily result in material changes to the financial statements in any given
period but rather contain a potential for material change. The main accounting
and valuation policies used by the Company are disclosed below. Whilst not all
of the significant accounting policies require subjective or complex judgements,
the Company considers that the following accounting policies should be
considered critical.
The Company has designated all fixed asset investments as being held at fair
value through profit and loss; therefore all gains and losses arising from
investments held are attributable to financial assets held at fair value through
profit and loss. Accordingly, all interest income, fee income, expenses and
investment gains and losses are attributable to assets designated as being at
fair value through profit or loss.
Current asset investments comprising money market funds and deposits are held
for trading and are therefore automatically classified as fair value through
profit or loss.
Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Quoted investments are valued in accordance with the bid-
price on the relevant date, unquoted investments are valued in accordance with
current IPEVC valuation guidelines, although this does rely on subjective
estimates such as appropriate sector earnings multiples, forecast results of
investee companies, asset values of subsidiary companies and liquidity or
marketability of the investments held.
Although the Company believes that the assumptions concerning the business
environment and estimate of future cash flows are appropriate, changes in
estimates and assumptions could require changes in the stated values. This could
lead to additional changes in fair value in the future.
Investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly as permitted by FRS 26, the investments will be designated as fair
value through profit and loss ('FVTPL') on the basis that they qualify as a
group of assets managed, and whose performance is evaluated- on a fair value
basis in accordance with a documented investment strategy. The Company's
investments are measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is
established by reference to the closing bid price on the relevant date or the
last traded price, depending upon convention of the exchange on which the
investment is quoted. This is consistent with the IPEVC valuation guidelines.
In the case of unquoted investments, fair value is established by using measures
of value such as the price of recent transactions, earnings multiple and net
assets. This is consistent with IPEVC valuation guidelines.
Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the income statement and
allocated to the capital reserve - holding gains/(losses).
In the preparation of the valuations of assets the Directors are required to
make judgements and estimates that are reasonable and incorporate their
knowledge of the performance of the investee companies.
Current asset investments
Current asset investments comprise money market funds, bonds and OEICs and are
designated as FVTPL. Gains and losses arising from changes in fair value of
investments are recognised as part of the capital return within the Income
Statement and allocated to the capital reserve - gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager
and are readily convertible into cash at the choice of the Company. The current
asset investments are held for trading, are actively managed and the performance
is evaluated on a fair value basis in accordance with a documented investment
strategy. Information about them has to be provided internally on that basis to
the Board.
Income
Investment income includes interest earned on bank balances and money market
securities and includes income tax withheld at source. Dividend income is shown
net of any related tax credit.
Dividends receivable are brought into 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.
The transaction costs incurred when purchasing or selling assets are written off
to the Income Statement in the period that they occur.
Revenue and capital
The revenue column of the Income Statement includes all income and revenue
expenses of the Company. The capital column includes gains and losses on
disposal and holding gains and losses on investments. Gains and losses arising
from changes in fair value of investments are recognised as part of the capital
return within the income statement.
Taxation
Corporation tax payable is applied to profits chargeable to corporation tax, if
any, at the current rate. The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue return on the
'marginal' basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing
differences that have originated but not reversed at the balance sheet date.
Where transactions or events have occurred at that date that will result in an
obligation to pay more, or a right to pay less tax. 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 differences can
be deducted.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand. Liquid
resources are current asset investments which are disposable without curtailing
or disrupting the business and are either readily convertible into known amounts
of cash at or close to their carrying values or traded in an active market.
Liquid resources comprise term deposits of less than one year (other than
cash), government securities, investment grade bonds and investments in money
market managed funds, as well as OEICs.
Loans and receivables
The Company's loans and receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective interest method.
Financing strategy and capital structure
FRS 29 'Financial Instruments: Disclosures' comprises disclosures' relating to
financial instruments.
We define capital as shareholders' funds and our financial strategy in the
medium term is to manage a level of cash that balances the risks of the business
with optimising the return on equity. The Company currently has no borrowings
nor does it anticipate that it will drawdown any borrowing facilities in the
future to fund the acquisition of investments.
The company does not have any externally imposed capital requirements.
Financial instruments
During the course of the year, the Company held non-current asset investments,
shares in OEICs (open ended investment companies), money market funds and cash
deposits. The Company holds financial assets that comprise investments in
unlisted companies and qualifying loans. The carrying value for all financial
assets and liabilities is fair value.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are paid, and for final
dividends when they are approved by the shareholders.
2. Income
Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
=------------------------------------------------------------------
Money market funds and OEICs 56 60
Loan note interest 94 -
Dividends - qualifying quoted - 13
=------------------------------------------------------------------
150 73
3. Investment Management Fees
Year to 31 October Year to 31 October
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=--------------------------------------------------------------------
Investment management fee 101 302 403 64 190 254
For the purposes of the revenue and capital columns in the income statement, the
management fee has been allocated 25% to revenue and 75% to capital, in line
with the Board's expected long term return in the form of income and capital
gains respectively from the Company's investment portfolio.
Octopus 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 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.
4. Other Expenses
Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Directors' remuneration 53 73
Fees payable to the Company's auditor for the 9
audit of the financial statements 7
Fees payable to the Company's auditor for other 2
services - tax compliance 2
Legal and professional expenses 3 5
Accounting and administration services 71 53
Trail Commission 106 49
Other expenses 46 72
=-------------------------------------------------------------------------------
290 261
Total annual running costs are capped at 3.2% of net assets (excluding
irrecoverable VAT). For the year to 31 October 2010 the running costs, as
defined in the prospectus, were 3.0% of net assets (2009: 2.7%).
5. Directors' Remuneration
Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Directors' emoluments
Mark Hawkesworth (Chairman) 20 28
Tim Lebus 15 21
Chris Hulatt (paid to Octopus
Investments Limited) 15 24
=-------------------------------------------------------------------------------
50 73
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
(2009: three).
6. Tax on Ordinary Activities
The corporation tax charge for the year was GBPnil (2009: GBPnil)
Factors affecting the tax charge for the current year:
The current tax charge for the period differs from the standard rate of
corporation tax in the UK of 28% (2009: 28%).
The differences are explained below.
Current tax reconciliation: Year to Year to
31 October 2010 31 October 2009
GBP'000 GBP'000
=----------------------------------------------------------------------------
(Loss)/gain on ordinary activities before tax (683) 1,204
Current tax at 28% (2009: 28%) (191) 337
Income not taxable for tax purposes (51) (467)
Expenses not deductible for tax purposes 62 -
Unrelieved tax losses 180 130
=----------------------------------------------------------------------------
Total current tax charge - -
=----------------------------------------------------------------------------
Excess management charges of GBP1,184,000 (2009: GBP542,000) have been carried
forward at 31 October 2010 and are available for offset against future taxable
income subject to agreement with HMRC. The Company has not recognised the
deferred tax asset of GBP332,000 (2009: GBP152,000) 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, revenue and capital earnings per share are based on 20,268,149 (31
October 2009: 13,746,520) ordinary shares, being the weighted average number of
ordinary shares in issue during the year.
There are no potentially dilutive capital instruments in issue and, therefore no
diluted returns per share figures are relevant. The basic and diluted earnings
per share are therefore identical.
8. Net Asset Value per Share
The calculation of NAV per share as at 31 October 2010 is based on 20,268,149
(31 October 2009: 20,268,149) ordinary shares in issue at that date.
9. Fixed Asset Investments
Effective from 1 November 2009, the Company adopted the amendment to FRS 29
regarding financial instruments that are measured in the balance sheet at fair
value; this requires disclosure of fair value measurements by level of the
following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities.
The fair value of financial instruments
traded in active markets is based on quoted market prices at the balance sheet
date. A market is regarded as
active if quoted prices are readily and regularly available, and those prices
represent actual and regularly
occurring market transactions on an arm's length basis. The quoted market price
used for financial assets held is
the current bid price. These instruments are included in level 1 and comprise
AIM-listed investments classified as
held at fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using
valuation techniques. These valuation techniques maximise the use of observable
data where it is available and
rely as little as possible on entity-specific estimates. If all significant
inputs required to fair value an instrument
are observable, the instrument is included in level 2. The Company held no such
investment in the current or
prior year.
Level 3: the fair value of financial instruments that are not traded in an
active market (for example investments in
unquoted companies) is determined by using valuation techniques such as earnings
multiples. If one or more of
the significant inputs is not based on observable market data, the instrument is
included in level 3.
There has been one transfer between these classifications in the year (2009:
none). The change in fair value
for the current and previous year is recognised through the income statement.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in
investments at fair value through profit or loss during the year to 31 October
2010 are summarised below and in
note 11.
Level 1: Level 1: Level 3: Level 3:
AIM-quoted AIM-quoted Unquoted Unquoted Total
investments investments investments investments investments
Equity Loan Equity Loan
investments investments investments investments
31 October 31 October 31 October 31 October 31 October
2010 2010 2010 2010 2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
Valuation and
net book
amount:
Book cost as
at 1 November
2009 - - 1,709 908 2,617
Cumulative
revaluation - - 100 - 100
=-------------------------------------------------------------------------------
Valuation at
1 November
2009 - - 1,809 908 2,717
Movement in
the year:
Purchases at
cost - 4,957 - 4,957
Transfer
between
levels 60 225 (60) (225) -
Loan
converted to
equity - - 188 (188) -
Revaluation
in year (6) 269 24 287
=-------------------------------------------------------------------------------
Valuation at
31 October
2010 54 225 7,163 519 7,961
=-------------------------------------------------------------------------------
Book cost at
31 October
2010: 60 225 6,795 495 7,575
Revaluation
to 31 October
2010: (6) - 368 24 386
=-------------------------------------------------------------------------------
Valuation at
31 October
2010 54 225 7,163 519 7,961
=-------------------------------------------------------------------------------
Level 3 valuations include assumptions based on non-observable market data, such
as discounts applied either to reflect fair value of financial assets held at
the price of recent investment, or, in the case of unquoted investments, to
adjust earnings multiples. The sensitivity of these valuations to a reasonable
possible change in such assumptions is given in note X. Further details in
respect of the methods and assumptions applied in determining the fair value of
the investments are described in the Investment Managers review and within the
principal accounting policies in note 1.
Further details of the fixed asset investments held by the Company are shown
within the Investment Manager's Review on pages X to X.
At 31 October 2010 and 31 October 2009 there were no commitments in respect of
investments approved by the manager but not yet completed.
10. Debtors
31 October 2010 31 October 2009
GBP'000 GBP'000
=---------------------------------------------------
Trade debtors 5 -
Prepayments 8 8
Accrued income 46 4
=---------------------------------------------------
59 12
11. Current Asset Investments
Current asset investments at 31 October 2010 comprised money market funds and
OEICs.
GBP'000 GBP'000
=------------------------------------------------------
Valuation and net book amount:
Book cost as 1 November 2009
- Money market funds 11,394
- OEICs 4,248
=------------------------------------------------------
15,642
Revaluation as at 1 November 2009
- OEICs 1,522
=------------------------------------------------------
Valuation as at 1 November 2009 17,164
=------------------------------------------------------
Purchase at cost:
- Money market funds 4,617
=------------------------------------------------------
4,617
Disposal proceeds
- Money market funds (9,845)
=------------------------------------------------------
(9,845)
Revaluation in the year
- OEICs (427)
=------------------------------------------------------
(427)
=------------------------------------------------------
Valuation as at 31 October 2010 11,509
=------------------------------------------------------
Book cost as 1 November 2010
- Money market funds 6,165
- OEICs 4,248
=------------------------------------------------------
10,413
Revaluation as at 1 November 2010
- OEICs 1,096
=------------------------------------------------------
1,096
=------------------------------------------------------
Valuation as at 31 October 2010 11,509
=------------------------------------------------------
All current asset investments held at the year end sit within the level 1
hierarchy for the purposes of FRS29.
Level 1 money market funds: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
valuation of money market funds at 31 October 2010 was GBP11,509,000 (2009:
GBP17,164,000).
12. Creditors: Amounts Falling Due Within One Year
31 October 2010 31 October 2009
GBP'000 GBP'000
=----------------------------------------------------
Accruals 79 93
Other creditors 2 9
=----------------------------------------------------
81 102
13. Share Capital
31 October 2010 31 October 2009
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Authorised:
50,000,000 Ordinary shares of 10p 5,000 5,000
=-------------------------------------------------------------------------------
Allotted:
20,268,149 (2009: 20,268,149) Ordinary shares of 2,027 2,027
10p (fully 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 X.
The Company is not subject to any externally imposed capital requirements.
The Company did not issue any shares in the year (2009: 16,099,585).
14. Reserves
Special Capital reserve Capital reserve
Share distributable gains/(losses) holding Revenue
Premium reserve on disposal gains/(losses) reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
As at 1 -
November 2009 17,155 (204) 1,622 (310)
Return on -
ordinary
activities
after tax - - - (241)
Management
fees allocated
as capital
expenditure - - (302) - -
Holding losses - - - (140) -
Share premium 17,155
account
cancellation (17,155) - - -
=-------------------------------------------------------------------------------
Balance as at 17,155
31 October
2010 - (506) 1,482 (551)
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)' is transferred to the 'capital reserve -
gains/(losses) on disposal' as a movement in reserves.
Following the Company's petition, the Companies Court ordered that the special
resolution passed by the shareholders on 14 October 2009 to effect the
cancellation of the share premium account be confirmed. The order relating to
the same was duly registered by the Registrar of Companies on 25 November 2009.
The purpose of the special distributable reserve was to create a reserve which
will be capable of being used by the Company to pay dividends and for the
purpose of making repurchases of its own shares in the market with a view to
narrowing the discount to net asset value at which the Company's ordinary shares
trade. In the event that the capital reserve gains/(losses) on disposal do not
have sufficient funds to pay dividends these will be paid from the special
distributable reserve.
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.
Classification of financial instruments
The company held the following categories of financial instruments, all of which
are included in the balance sheet at fair value, at 31 October 2010.
31 October 2010 31 October 2009
GBP000 GBP000
Assets at fair value through profit or loss
Investments 7,961 2,717
Current asset investments 11,509 17,164
=--------------------------------------------------------------------------
Total 19,470 19,881
Loans and receivables
Cash at bank 159 499
Accrued income 51 4
=--------------------------------------------------------------------------
Total 210 503
Liabilities at amortised cost
Accruals and other creditors 81 102
=--------------------------------------------------------------------------
Total 81 102
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.
In carrying on its investment activities, the Company is exposed to various
types of risk associated with the financial instruments and markets in which it
invests. The most significant types of financial risk facing the Company are
price risk, interest rate risk, credit risk and liquidity risk. The Company's
approach to managing these risks is set out below together with a description of
the nature and amount of the financial instruments held at the balance sheet
date.
Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page X. The management of
market risk is part of the investment management process and is a central
feature of venture capital investment. The Company's portfolio is managed 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 X and X. An analysis of investments between debt and equity
instruments is given in note 9.
40.6% (2009:13.4%) by value of the Company's net assets comprises investments in
unquoted companies held at fair value. The valuation methods used by the
Company include the application of a price/earnings ratio derived from listed
companies with similar characteristics, and consequently the value of the
unquoted element of the portfolio can be indirectly affected by price movements
on the London Stock Exchange. A 10% overall increase in the valuation of the
unquoted investments at 31 October 2010 would have increased net assets and the
total return for the period by GBP796,100 (2009: GBP271,700). An equivalent change
in the opposite direction would have reduced net assets and the total return for
the period by the same amount.
58.7% (2009: 84.6%) by value of the Company's net assets comprises of OEICs and
money market securities held at fair value. A 10% overall increase in the
valuation of the OEICs and money market securities at 31 October 2010 would have
increased net assets and the total return for the year by GBP1,151,000 (2009:
GBP1,716,000). 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.
Fixed rate
The table below summarises weighted average effective interest rates for the
fixed interest-bearing financial instruments:
As at 31 October 2010 As at 31 October 2009
=-------------------------------------------------------------------------------
Weighted
Weighted average
Total fixed average Total fixed time for
rate Weighted time for rate Weighted which
portfolio average which rate portfolio average rate is
by value interest is fixed by value interest fixed in
GBP'000 rate % in years GBP'000 rate % years
=-------------------------------------------------------------------------------
Fixed-rate
investments
in unquoted
companies 225 12% 3.5 - n/a n/a
=-------------------------------------------------------------------------------
225 -
Due to the relatively short period to maturity of the fixed rate investments
held within the portfolio, it is considered that an increase or decrease of 1%
in interest rates as at the reporting date would not have had a significant
effect on the Company's net assets or total return for the period.
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing
deposit accounts 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% (2009: 0.5%) at 31
October 2010. The amounts held in floating rate investments at the balance
sheet date were as follows:
31 October 2010 31 October 2009
GBP'000 GBP'000
=------------------------------------------------------------------------------
Floating-rate investments in unquoted companies 495 -
Cash on deposit & money market funds 6,324 11,892
=------------------------------------------------------------------------------
6,819 11,892
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the year by GBP68,000 (2009: GBP119,000).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2010. By cost, no individual investment exceeded 11.0% (2009: 14.6%) of
the Company's net assets at 31 October 2010.
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Company. The Investment Manager and the Board carry out a regular review of
counterparty risk. The carrying values of financial assets represent the maximum
credit risk exposure at the balance sheet date.
At 31 October 2010 the Company's financial assets exposed to credit risk
comprised the following:
31 October 2010 31 October 2009
GBP'000 GBP'000
=------------------------------------------------------------------------------
Fixed-rate investments in unquoted companies 225 -
Floating-rate investments in unquoted companies 495 -
Cash on deposit & money market funds 6,324 11,892
Accrued dividends and interest receivable 43 -
=------------------------------------------------------------------------------
7,087 11,892
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 Bank plc and Blackrock Inc.
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 2010
these investments were valued at GBP11,668,000 (2009: GBP17,663,000).
16. Post Balance Sheet Events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* On 5 November 2010 a further GBP12,500 was invested into Skills Market
Limited
* On 30 November 2010 a further GBP6,000 was invested into Skills Market
Limited
* On 7 December 2010 a new investment of GBP367,000 was made into Diverse Energy
Limited
* On 9 December 2010 a further GBP296,000 was invested into Zoopla Limited
* On 22 December 2010 a further GBP246,000 was invested into Semafone Limited
* On 24 December 2010 a new investment of GBP450,000 was made into Curlet (UK)
Limited (10CMS)
* On 27 January 2011 a further GBP116,666 was invested into Money Workout
Limited
* On 28 January 2011 a new investment of GBP500,000 was made into Vega-Chi
Limited
* On 4 February 2011 a further GBP16,666 was invested into Money Workout
Limited
17. Contingencies, Guarantees and Financial Commitments
Provided that intermediary continues to act for a shareholder and the
shareholder continues to be the beneficial owner of the shares, intermediaries
will be paid an annual trail commission of 0.5% of the initial net asset value.
Trail commission of GBP106,000 was paid during the year (2009: GBP49,000) and there
was GBPnil outstanding at the year end.
There were no further contingencies, guarantees or financial commitments as at
31 October 2010.
18. Related Party Transactions
Chris Hulatt, a non-executive Director of Octopus Titan VCT 3 plc, is a Director
of Octopus Investments Limited. Octopus Titan VCT 3 plc has employed Octopus
Investments throughout the year as Investment Manager. Octopus Titan VCT 3 plc
has paid Octopus Investments GBP403,000 (2009: GBP255,000) in the year as a
management fee and there is GBPnil outstanding at the balance sheet date. The
management fee is payable quarterly in advance and is based on 2.0% of the net
asset value calculated at annual intervals as at 31 October.
Octopus Investments Limited also provides accounting, administrative and company
secretarial services to the Company, payable quarterly in advance for a fee of
0.3% of the net asset value calculated at annual intervals as at 31 October.
During the year GBP71,000 (2009: GBP53,000) 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.
No performance fee has been recognised for the year ended 31 October 2010 on the
basis that the directors do not believe that the necessary criteria will be met
in the foreseeable future, and therefore the amount of any possible obligation
is not material.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Octopus Titan VCT 3 PLC via Thomson Reuters ONE
[HUG#1487371]
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