TIDMOTV3
Octopus Titan VCT 3 plc
Final Results
7 February 2012
Octopus Titan VCT 3 plc, managed by Octopus Investments Limited, today announces
the final results for the year ended 31 October 2011.
These results were approved by the Board of Directors on 7 February 2012.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com by navigating to Services, Investor Services, Venture
Capital Trusts, Octopus Titan VCT 3 plc. All other statutory information will
also be found there.
Octopus Titan VCT 3 plc 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 predominately unquoted companies and is
managed by Octopus Investments Limited.
Chairman's Statement
I am pleased to present the annual results for Octopus Titan VCT 3 plc (the
Company) for the year ended 31 October 2011.
I am also pleased to report that David Bundred has agreed to join the Board,
effective from 12 December 2011. David has considerable industrial experience
and has invested personally in several private technology companies, and in many
of these he has taken an active role in guiding the businesses and mentoring the
management teams. At the same time, Chris Hulatt has decided to step down as
Director to focus more on his principal job of CFO at Octopus Investments. I
should like to take this opportunity to thank Chris for his dedication and
advice to this Board since its inception.
Performance
The Net Asset Value (NAV) of the Company during the year has declined from 96.7
pence per share to 92.9 pence per share, a negative return of 3.9%. This decline
is predominantly in respect of the unquoted company portfolio, as I will discuss
further in this statement.
The requirement under the VCT rules to have 70% of the Company's assets
represented by qualifying holdings by 31 October 2011 was comfortably met. Such
qualifying investments amounted to over 77%, as measured by HMRC rules, at the
year end. Having now achieved this important milestone, it is unlikely that the
Company will be adding further companies to its portfolio until sufficient cash
has been raised through realisations within the existing portfolio, or through
significant subscriptions for shares in the Company. However, the Company will
continue to make follow on investments in to the existing portfolio.
By value, 72.9% of the Company's net assets were in unquoted investments, 2.2%
in AIM-quoted investments and 17.9% in Octopus Open Ended Investment Companies.
Investment Portfolio
A total of six new investments were made during the year totalling GBP3.0 million.
In addition, fifteen follow-on investments were made amounting to GBP4.0 million.
Our investments are discussed in more detail in the Investment Manager's Review
on pages x to x. You will see that, in the interests of diversification and
adhering to the mandate of the Company, we have continued to add to the
portfolio with investments in companies covering a wide range of activities.
Notable increases in fair value have been recognised in Calastone, Nature
Delivered and TouchType, totalling GBP1.3 million. However, elsewhere in the
portfolio there have been decreases in fair value, with Diverse Energy, Money
Workout and The Skills Market having been written down to nil value. Overall the
fair value of the portfolio has decreased by GBP0.6 million during the year.
When building a portfolio of early stage investments, there is the expectation
that a number of the businesses will suffer significant decreases in fair value.
These decreases will typically occur prior to the opportunity of seeing
increases in value from other companies in the portfolio. However, as the
Investment Manager highlights in their review, there are a number of maturing
companies that are performing strongly and ahead of original expectations and
these should enable the NAV to make progress over the coming years.
Top-up
I am pleased to announce that the Company, together with the four other Titan
VCTs managed by Octopus Investments, is offering the opportunity to invest into
the Titan family of funds through a Top-up fund raising. With the capacity to
raise up to GBP1.25 million into each VCT, this will provide shareholders and
other investors with the opportunity to benefit from the tax reliefs available
to qualifying investors, and the expected future capital gains intended from the
VCTs which would be paid to shareholders as dividends.
These shares will be issued at a price equal to the most recently published NAV
per share adjusted for the offer costs of 5.5%, calculated by dividing the NAV
by 0.945, to avoid any dilution of current shareholder value.
The majority of funds raised will be used to further support existing portfolio
companies where the Investment Manager sees the opportunity for potential gains.
However, there is the possibility that a small proportion will also be used to
invest a new portfolio company that is deemed appropriate for this VCT.
For further details, including a copy of the full brochure, please do not
hesitate to contact Octopus using the contact details provided on page x of this
report.
Open Ended Investment Companies (OEICs)
During the year the Company's holding in the Absolute UK Equity Fund was
disposed of in its entirety. Over the lifetime of this investment, a profit of
GBP0.8 million has been realised which is 39% above the original cost of the
holding. The Micro Cap Growth Fund has also continued to perform well, ending
the year GBP1.2 million above its original cost. This strategy of investing in
OEICs has helped compensate for the low return received on uninvested cash
during the early life of the Company, and we feel that it was appropriate
investing the non-qualifying element of the Company in this way.
The Board will continue to monitor these funds and believes it remains a
sensible strategy to maintain part of our non-qualifying portfolio in these
OEICs due to their highly liquid status, and potential to achieve greater
returns when compared to cash deposits. Further details of these OEICs may be
found at www.octopusinvestments.com where monthly factsheets are published.
Investment Strategy
The investment strategy in respect of the non-qualifying portfolio will continue
to be monitored by your Board. As envisaged in the Company's prospectus, between
15% and 25% of the Company will be retained as non-qualifying for liquidity to
provide follow-on investments in the existing portfolio. As our existing
portfolio of unquoted companies matures, we will find that some of the companies
may require further rounds of investment where the investments may not be
qualifying for VCT purposes. However, 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 and protect value.
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 the Company is compliant with the conditions
laid down by HMRC for maintaining provisional approval as a VCT.
A key requirement now is to maintain the 70% qualifying investment level. As at
31 October 2011, 77.1% of the portfolio, as measured by HMRC rules, was invested
in VCT qualifying investments.
Annual General Meeting
The VCT's Annual General Meeting will take place on 21 March 2012 at 3.00 p.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.
Electronic communications
Based on feedback from shareholders, and in order to reduce the cost of printing
and the consequential impact on the environment, we now offer shareholders the
opportunity to forgo their printed report and account documents, in favour of
receiving email or letter notification with details of how to view the documents
online. If you would like to change the format in which you receive this report,
please contact Octopus using the contact details provided on page x of this
report.
Outlook
The current economic outlook remains uncertain from both a domestic and
international point of view. Although many of the portfolio companies are not
heavily impacted by the macro-economic climate, the effects of the longstanding
credit squeeze and flat economy have inevitably caused challenges. Despite
these, the portfolio continues to show strong performance from a number of
companies which are achieving, or exceeding, budgets and targets, and we expect
this performance to be reflected in the NAV over the medium term.
Our interests continue to be aligned with those of the entrepreneurs and
companies in which we have invested. Those interests are to deliver business
growth and realise substantial shareholder value. Whilst there have been
inevitable setbacks in the early life of the portfolio, your Board has
confidence that the Company continues to adhere to the mandate offered in the
prospectus, and has the potential to make absolute returns from the maturing
portfolio
Mark Hawkesworth
Chairman
7 February 2012
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 was established in 2000 and has a strong commitment to both smaller
companies and to VCTs. We currently manage 19 VCTs, including this VCT, and
manage over GBP340 million in the VCT sector. Octopus has over 200 employees and
has been voted 'Best VCT Provider of the Year' by the financial adviser
community every year since 2006.
Investment Policy Summary
The investment approach of the Company is not designed to deliver a return that
is measured against a stock market index. Instead, the focus of the Company is
on generating absolute returns over the medium-term. In order to achieve this,
the Company focuses on providing early stage, development and expansion funding
to unquoted companies with a typical deal size of GBP0.5 million to GBP1 million and
will continue to comprise 25-30 unquoted companies, predominantly focussed
within the environment, technology, media, telecoms and consumer lifestyle and
well-being sectors.
Investment Strategy
The investee companies are those that we believe have great potential but need
some financial support to realise it. Each company that we target has the
potential to create a large business by taking a relatively modest market share.
We are particularly interested in businesses that address current market trends
and have created a balanced investment portfolio spanning multiple industries
and business sectors.
Having reached the level of invested funds required by HMRC, our focus has now
shifted to managing the portfolio and helping the investee companies growth. The
current portfolio of holdings built by the Company now encompass investments in
27 unquoted companies and one AIM-quoted company, with a focus on the
environmental, technology, media, telecoms and consumer lifestyle and wellbeing
sectors.
As Investment Manager, we have typically purchased a significant minority equity
stake in these qualifying companies, providing financial capital to the business
to build and grow its operations and then to sell to an acquirer at some point
in the future. These entrepreneurial early stage businesses, which we invest in,
frequently face challenges as they seek to establish themselves in their market,
often developing new products and services. The amount of capital we initially
deploy is intended to be only the first investment that we will make into a
business, prior to seeing if the company meets or exceeds its initial
objectives.
If the business is unsuccessful in meeting these first objectives we strive to
minimise the financial exposure the Company faces without committing further
money to the investment. Other businesses which meet some of their objectives,
but not necessarily all, will require more time to prove their concept and these
businesses will typically be reduced in value prior to our making a further
investment. This is in order for us to see them progress forward and prove their
business model and opportunity. Finally, there are those that meet and exceed
the expectations originally set. It is these businesses which we wish to
increase our exposure of investment from the Company as they remain on course to
create a large business.
We maintain liquidity in the Company to ensure adequate resources are available
to support further portfolio funding needs as they arise. This situation should
be further aided following the Top-up as described in the Chairman's Statement
and it is an important feature of our model in delivering returns to
shareholders.
Portfolio Review
As at 31 October 2011 the NAV of the Company was 92.9p per share compared to
96.7p per share at 31 October 2010. This represents a reduction of 3.9%. This
reduction was largely due to an overall reduction in value of the companies in
the unquoted portfolio, despite encouraging uplifts in Graze, Calastone and
TouchType. Disappointingly Diverse Energy, Money Workout and The Skills Market
were written down to nil and significant write downs were also made to the
holdings in Soil Exchange, 10 CMS and Mi-Pay. The standard running costs of the
Company also contributed to the decline in Total Return. However, the OEIC
holdings went some way in offsetting this fall, with an appreciation in value of
GBP373,000 in the year.
The Company now holds over 77% of assets in qualifying holdings from an HMRC
perspective and we continue to work with each portfolio business as they develop
their proposition in their respective markets. As Investment Manager and, as
discussed above, 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.
Since the balance sheet date, although no new Investments have been made, the
Company has continued to support investee companies by investing a further
GBP179,000 into MiPay, GBP12,000 into GetOptics, GBP124,000 into PrismaStar, GBP75,000
into Phase Vision and GBP250,000 in 10CMS Limited.
Outlook
The macro-economic environment has remained challenging for smaller companies,
which have felt the effects of the reduced availability of finance and the
economic slowdown. Small companies also find themselves under pressure from
suppliers who want to be paid 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.
Ironically, this environment also provides opportunities for entrepreneurial
growth businesses to attract talented individuals to join them. These
individuals deliver the business plan and small companies are able to react
quickly to customer needs and deliver an enhanced customer service by comparison
to slower moving large corporate businesses. It is noticeable that a number of
the businesses in the Company portfolio have these characteristics and continue
to grow aggressively despite the inclement economic environment.
The continuing turmoil in the Eurozone does have a significant impact on the
confidence of not only the consumer, but also on large corporate purchasers and
institutional investors. Until we start to see a return of confidence it is
likely that the mergers and acquisitions market will remain quiet and there is
unlikely to be an uplift in the number of IPOs on the stock market.
If you have any questions on any aspect of your investment, please call one of
the team on 0800 316 2349.
Alex Macpherson
Octopus Investments Limited
7 February 2012
Investment Portfolio
%
% equity
voting held by
Investment rights all
cost as at held funds
31 October Movement in valuation Fair value at 31 by managed
Fixed asset 2011 to 31 October 2011 October 2011 Titan by
investments Sector ( GBP'000) ( GBP'000) ( GBP'000) 3 Octopus
=----------------------------------------------------------------------------------------------------
Nature
Delivered Consumer lifestyle
Limited & wellbeing 798 907 1,705 7.44% 31.66%
Calastone
Limited Technology 1,266 261 1,527 4.95% 34.10%
True Knowledge
Limited Media 1,427 (17) 1,410 8.33% 55.72%
Zoopla Limited Media 669 709 1,378 3.74% 21.73%
Secret Escapes Consumer lifestyle
Limited & wellbeing 646 86 732 7.93% 17.13%
Executive
Channel
Limited Media 641 60 701 7.42% 36.76%
Certivox
Limited Technology 584 15 599 12.37% 26.53%
TouchType
Limited Telecommunications 384 164 548 4.20% 20.07%
Metrasens Consumer lifestyle
Limited & wellbeing 466 43 509 6.69% 28.03%
Vega-Chi
Limited Technology 500 - 500 4.64% 15.03%
Applied
Superconductor
Limited Technology 493 - 493 6.76% 20.59%
Michelson
Diagnostics Consumer lifestyle
Limited & wellbeing 442 - 442 5.57% 42.47%
Mi-Pay Limited Telecommunications 669 (259) 410 9.64% 32.12%
e-Therapeutics Consumer lifestyle
plc & wellbeing 402 7 409 1.10% 6.35%
Surrey
Nanosystems
Limited Technology 383 - 383 5.75% 31.24%
AQS Holdings
Limited Environmental 660 (296) 364 12.71% 38.64%
UltraSoC
Technologies
Limited Technology 361 - 361 10.04% 55.55%
Semafone
Limited Telecommunications 360 - 360 8.29% 41.45%
GetOptics Consumer lifestyle
Limited & wellbeing 410 (90) 320 7.52% 34.79%
Bowman Power
Limited Environmental 275 28 303 2.33% 15.56%
Phase Vision
Limited Technology 400 (165) 235 12.18% 52.88%
10CMS Limited Technology 450 (261) 189 11.51% 40.84%
PrismaStar
Inc. Media 300 (150) 150 4.80% 31.97%
Elonics
Limited Technology 305 (229) 76 3.11% 19.54%
Phasor
Solutions
Limited Technology 50 (25) 25 0.87% 32.14%
Diverse Energy
Limited Environmental 367 (367) - 5.54% 30.17%
Money Workout
Limited Technology 445 (445) - 6.89% 33.51%
Skills Market
Limited Technology 186 (186) - 2.71% 12.28%
=----------------------------------------------------------------------------------------------------
Total fixed
asset
investments 14,339 (210) 14,129
=----------------------------------------------------------------------------------------------------
Money market
securities 1,131 - 1,131
Open ended investment companies 2,162 1,200 3,362
Cash at bank 115 - 115
=----------------------------------------------------------------------------------------------------
Total
investments 17,747 990 18,737
=----------------------------------------------------------------------------------------------------
Debtors less
creditors 74
=----------------------------------------------------------------------------------------------------
Total net
assets 18,811
=----------------------------------------------------------------------------------------------------
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 measure is
used where appropriate. Subsequent adjustment to the fair value of unquoted
investments can be made using sector multiples based on information as at 31
October 2011, 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, the Company made six new investments amounting to GBP3.0 million
and fifteen follow-on investments amounting to GBP4.0 million. The AIM-quoted and
unquoted investments are in Ordinary shares with full voting rights as well as
loan note securities.
Quoted and unquoted investments are valued in accordance with the accounting
policy set out on page x, which takes account of current industry guidelines for
the valuation of venture capital portfolios and is compliant with IPEVC
valuation guidelines and current financial reporting standards. 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 Company's 10 largest investments by value.
Nature Delivered Limited
Graze.com delivers tasty nutritious snacks to grazers up and down the country.
All boxes are handpicked from over 100 delicious snacks and delivered in the
post. Founded in 2007 and launched in 2009, graze.com was created to solve
office snacking for the better. Delivered directly to customers' desks or home
anywhere in the UK through Royal Mail, each graze box is packed with four
snacks, from flavoured nuts, traditional rice crackers and exotic dried fruits
to freshly baked bread, marinated olives and dips. Grazers choose the foods
they like then graze.com hand picks the perfect box and sends it to them for
just GBP3.49, including delivery using Royal Mail. The boxes fit perfectly through
the letter box and arrive with the rest of your post, they are being delivered
everywhere in the UK, from the Channel Islands to the Shetland Islands.
Graze.com won New Product of the Year at the Growing Business Awards in 2009 and
were voted Venture Candy's Best Food and Drink Company 2010 by Metro readers; it
is also part of the Smarta 100.
Initial investment date: June
2009
Cost:
GBP798,000
Valuation:
GBP1,705,000
Voting rights held by Fund:
7.44%
Equity held by all funds managed by Octopus: 31.66%
Last submitted audited accounts: 28 February
2011
Turnover : GBP8,110,771
Loss before tax:
( GBP1,469,453)
Net assets:
GBP1,884,388
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 to purchase additional technology or
change their existing systems.
Initial investment date: October
2008
Cost:
GBP1,266,000
Valuation:
GBP1,527,000
Voting rights held by Fund:
4.95%
Equity held by all funds managed by Octopus: 34.10%
Last submitted audited accounts: 30 September
2010
Turnover : GBP1,523,185
Loss before tax:
( GBP1,180,742)
Net assets:
GBP1,160,790
True Knowledge Limited
True Knowledge has developed artificial intelligence software that understands
natural language text (initially just in English) and 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 patented technology that resolves this fundamental
problem by operating along a more intuitive system. It intelligently answers
questions asked on any topic in plain English.
True Knowledge was pursuing a strategy of advertising to the 1 million users per
week of its trueknowledge.com website. Earlier in 2011 the board agreed to focus
on the mobile market enabling individuals to use their smartphones to answer
questions on local search and over time a wide range of subjects.
Initial investment date: July
2008
Cost:
GBP1,427,000
Valuation:
GBP1,410,000
Voting rights rights held by Fund: 8.33%
Equity held by all funds managed by Octopus: 55.72%
Last submitted audited accounts: 30 November
2010
Turnover : GBP116,063
Loss before tax:
( GBP1,486,886)
Net assets:
GBP551,174
Zoopla Limited
Zoopla.co.uk is the UK's most comprehensive property website, focused on
empowering consumers with the resources they need to make better-informed
property decisions by combining property listings with market value data, local
information and community tools. By combining free, instant value estimates for
every UK home with sold prices, local market information and hundreds of
thousands of properties available for sale and to rent, Zoopla.co.uk has rapidly
become the destination for property consumers to search for property and do
their market research, and, as a result, has become one of the most valued
sources of both applicant and vendor leads for UK estate agents. Zoopla has been
awarded numerous accolades including being listed in the Top 10 UK Tech
Companies (Guardian) and the Top 10 Most Innovative UK Companies (Smarta 100),
as well as being voted the UK's Best Property Portal (Web User, Daily Mail
Awards, Website of the Year).
Initial investment date: January
2009
Cost:
GBP669,000
Valuation:
GBP1,378,000
Voting rights held by Fund:
3.74%
Equity held by all funds managed by Octopus: 21.73%
Last submitted audited accounts: 31 December
2010
Turnover : GBP8,035,036
Loss before tax:
( GBP497,321)
Net assets:
GBP2,417,978
Secret Escapes Limited
Launched in February 2011, Secret Escapes is an online travel club that offers
its members exclusive discounts of up to 70 per cent on luxury hotels and
holidays. Offers are usually available for between three and seven days. The
founders are aiming for Secret Escapes to become the leading luxury holiday deal
provider in the UK.
Initial investment date: April
2011
Cost:
GBP646,000
Valuation:
GBP732,000 (latest funding round)
Equity held:
7.93%
Equity held by all funds managed by Octopus: 17.13%
Last submitted audited accounts: N/A
Executive Channel Limited
Executive Channel installs digital display screens in office buildings which it
uses to display advertising, up-to-date news and information, via the internet.
These screens are usually located in the elevator lobby to engage an exclusive
audience with high spending power in an uncluttered environment. Executive
Channel is leveraging the industry move in the media market from static
billboards, to interactive digital formats.
Initial investment date:
September 2010
Cost:
GBP641,000
Valuation:
GBP701,000
Voting rights held by Fund:
7.42%
Equity held by all funds managed by Octopus: 36.76%
Last submitted group accounts: 31 June
2010
Turnover : Not reported
Loss before tax: ( GBP682,303)
Net assets:
( GBP681,303)
CertiVox Limited
CertiVox was founded in 2009 based on the simple belief that everyone deserves
the right to secure their online information exchanges simply and easily. Its
leading-edge technology enables industries around the world - including defence,
government, legal and financial services - to protect and control their
information exchanges, whether through PCs, smart devices or the cloud. By
combining state-of-the-art crypto technology with its unique on-demand
encryption key management service, CertiVox is the only company in the global
market today that can arm businesses and individuals with frictionless end-to-
end encryption, key management and identity management services for the web 2.0
world.
Initial investment date: March
2011
Cost:
GBP584,000
Valuation:
GBP599,000 (latest funding round)
Equity held:
12.37%
Equity held by all funds managed by Octopus: 26.53%
Last submitted audited accounts: N/A
TouchType Limited
TouchType is a leader in the development of text prediction technology designed
to significantly boost the accuracy, fluency and speed of text entry on mobile
and computing devices. TouchType's core product is the Fluency prediction
engine. It is a set of software algorithms which improve upon the existing
market leader's 'keystroke per character' performance by 44%. This results in
users having to make less than half the number of keystrokes compared to a
standard QWERTY keyboard. A patent for the engine is pending. The Fluency
prediction engine powers TouchType's award winning Apps, Swiftkey and Swiftkey
X, for use on Android phones and tablets, which have been downloaded more than
4 million times since launch.
Initial investment date: August
2010
Cost:
GBP384,000
Valuation:
GBP548,000
Voting rights held by Fund:
4.20%
Equity held by all funds managed by Octopus: 20.07%
Last submitted group accounts: 31 December
2010
Turnover : GBP152,181
Loss before tax: ( GBP362,138)
Net assets:
GBP504,479
Metrasens Limited
Metrasens provides metal detection products for the healthcare and security
markets. Its Ferroguard MRI (magnetic resonance imaging) detection system
provides visual and audio alarms at the point of detection. It is used in
hospitals in rooms containing MRI units, where it's crucial, for health and
safety reasons, to detect such material. The Ferroguard system not only
increases safety but also decreases potential costs, through reducing the
likelihood of injuries and damage from projectiles in the MRI units. Metrasens
has recently announced it has signed a distribution agreement with Invivo, the
largest US distributor for medical equipment. Metrasens has also developed a
Portable Security Pole, designed for multiple applications, such as street knife
detection operations and mobile phone detection in prisons.
Initial investment date:
February 2010
Cost:
GBP466,000
Valuation:
GBP509,000
Voting rights held by Fund:
6.69%
Equity held by all funds managed by Octopus: 28.03%
Last submitted audited group accounts: 31 October 2010
Turnover : GBP668,962
Loss before tax: ( GBP498,960)
Net assets:
GBP1,362,746
Vega-Chi Limited
Vega-Chi enables institutional investors to trade convertible and high-yield
bonds directly with each other without having to go through intermediaries. It
provides an alternative pool of liquidity where participants can achieve best
price execution, transaction cost savings, improved liquidity and anonymity.
Furthermore, the Vega-Chi trading system offers full pre-trade and post-trade
transparency and access to full historical data allowing investment managers to
make better informed decisions.
Initial investment date: January
2011
Cost:
GBP500,000
Valuation:
GBP500,000 (latest funding round)
Equity held:
4.64%
Equity held by all funds managed by Octopus: 15.03%
Last submitted audited accounts: February
2011
Turnover : GBP171,000
Loss before interest & tax:
( GBP1,087,000)
Net assets:
GBP1,859,000
Directors' Responsibilities 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 they must not approve unless they are satisfied that they
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
Generally Accepted Accounting Practice (United Kingdom Accounting Standards and
applicable laws).
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and accounting 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 are
sufficient to show and explain the Company's transactions and 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
7 February 2012
Income Statement
+----------------------+
| Year to 31 October |
| 2011 |
=--------------------------------------------------+----------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=--------------------------------------------------+----------------------+
| |
| |
Loss on disposal of current asset investments | - (2) (2)|
| |
| |
| |
Fixed asset investment holding losses 9 | - (597) (597)|
| |
Current asset investment holding gains 11 | - 373 373|
| |
| |
| |
Other income 2 | 101 - 101|
| |
| |
| |
Investment management fees 3 | (98) (294) (392)|
| |
Other expenses 4 | (263) - (263)|
| |
| |
=--------------------------------------------------+----------------------+
Return on ordinary activities before tax | (260) (520) (780)|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
=--------------------------------------------------+----------------------+
Return on ordinary activities after tax | (260) (520) (780)|
=--------------------------------------------------+----------------------+
Earnings per share - basic and diluted 7 | (1.3)p (2.6)p (3.9)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 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
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 2011 | 31 October 2010
| |
| GBP'000 | GBP'000
=-----------------------------------------+-----------------+-----------------
Shareholders' funds at start of year | 19,607 | 20,290
=-----------------------------------------+-----------------+-----------------
Return on ordinary activities after tax | (780) | (683)
| |
Purchase of own shares | (16) | -
=-----------------------------------------+-----------------+-----------------
Shareholders' funds at end of year | 18,811 | 19,607
=-----------------------------------------+-----------------+
The accompanying notes form an integral part of the financial statements.
Balance Sheet
+-------------------+
| As at 31 October| As at 31 October
| 2011| 2010
| |
Notes| GBP'000 GBP'000| GBP'000 GBP'000
=-------------------------------------+-------------------+---------------------
| |
| |
Fixed asset investments* 9 | 14,129| * *
| |
Current assets: | |
| |
Debtors 10 | 123 | * 59
| |
Money market securities and | |
other deposits* 11 | 4,493 | * 11,509
| |
Cash at bank | 115 | * 189
=-------------------------------------+-------------------+---------------------
| 4,731 | * 11,727
| |
Creditors: amounts falling due | |
within one year 12 | (49) | a. (81)
=-------------------------------------+-------------------+---------------------
Net current assets | 4,682| * *
=-------------------------------------+-------------------+---------------------
| |
=-------------------------------------+-------------------+---------------------
Net assets | 18,811| * *
=-------------------------------------+-------------------+---------------------
| |
| |
Called up equity share capital 13 | 2,025 | * 2,027
| |
Special distributable reserve 14 |17,139 | * 17,155
| |
Capital reserve - losses on | |
disposals 14 | (534) | a. (506)
| |
- | |
holding gains 14 | 990 | * 1,482
| |
Capital redemption reserve 2 * -
| |
Revenue reserve 14 | (811) | a. (551)
=-------------------------------------+-------------------+---------------------
Total equity shareholders' funds | 18,811| * *
=-------------------------------------+-------------------+---------------------
NAV per share 8 | 92.9p| * *
+-------------------+
* Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 7
February 2012 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 2011|31 October 2010
| |
Notes| GBP'000| GBP'000
=-----------------------------------------------+---------------+---------------
| |
| |
Net cash outflow from operating activities | (650)| (611)
| |
| |
| |
Capital expenditure and financial | |
investment: | |
| |
Purchase of fixed asset investments 9 | (6,990)| (4,957)
| |
Sale of fixed asset investments 9 | 225| -
| |
| |
| |
Management of liquid resources: | |
| |
Purchase of current asset investments 11 | (4,965)| (4,617)
| |
Disposal of current asset investments 11 | 12,352| 9,845
| |
| |
| |
Taxation | -| -
| |
| |
| |
Dividends paid | -| -
| |
| |
| |
Financing: | |
| |
Purchase of own shares | (16)| -
=-----------------------------------------------+---------------+---------------
Decrease in cash resources at bank | (44)| (340)
+---------------+
The accompanying notes form an integral part of the financial statements.
Reconciliation of Return before Taxation to Cash Flow from
Operating Activities
+---------------------+
| Year to 31 October| Year to 31 October
| 2011| 2010
| |
| GBP'000| GBP'000
=-----------------------------------+---------------------+---------------------
Return on ordinary activities | |
before tax | (780)| (683)
| |
Loss on disposal of current asset | |
investments | 2| -
| |
Loss on valuation of fixed asset | |
investments | 597| (287)
| |
(Gain)/loss on valuation of | |
current asset investments | (373)| 427
| |
(Increase)/decrease in debtors | (64)| (47)
| |
(Decrease)/increase in creditors | (32)| (21)
=-----------------------------------+---------------------+---------------------
Outflow from operating activities | (650)| (611)
+---------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+------------------+
| Year to | Year to
| 31 October 2011 | 31 October 2010
| |
| GBP'000 | GBP'000
=---------------------------------------+------------------+-----------------
Decrease in cash resources at bank | (44) | (340)
| |
Movement in cash equivalents | (7,016) | (5,655)
| |
Opening net funds | 11,668 | 17,663
=---------------------------------------+------------------+-----------------
Net funds at 31 October | 4,608 | 11,668
+------------------+
Net funds at 31 October comprised:
+-----------------+
| Year to | Year to
| 31 October 2011 | 31 October 2010
| |
| GBP'000 | GBP'000
=------------------------+-----------------+-----------------
Cash at bank | 115 | 159
| |
OEICs | 3,362 | 5,344
| |
Money market funds | 1,131 | 6,165
=------------------------+-----------------+-----------------
Net funds at 31 October | 4,608 | 11,668
=------------------------+-----------------+
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 Company's business activities and the factors likely to affect its future
development, performance and position are set out in the Chairman's Statement
and Investment Manager's Review on pages x to x. Further details on the
management of financial risk may be found in note 15 to the Financial
Statements.
The Board receives regular reports from the Investment Manager and the Directors
have a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. The assets of the
company consist of cash, Money Market Funds and OEIC Investments, which are
readily realisable (24% of net assets) and accordingly, the company has adequate
financial resources to continue in operational existence for the foreseeable
future. Thus, as no material uncertainties leading to significant doubt about
going concern have been identified, it is appropriate to continue to adopt the
going concern basis in preparing the financial statements.
The principal accounting policies have remained unchanged from those set out in
the Company's 2010 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 or loss; therefore all gains and losses arising from
investments held are attributable to financial assets held at fair value through
profit or 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 are held at fair value
through profit or loss. Cash and short term deposits are held at amortised cost.
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 estimates 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) at cost.
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 or 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 the documented investment strategy. The Company's investments
are measured at subsequent reporting dates at fair value with the holding gains
and losses recorded in the income statement each year. In accordance with the
investment strategy, the investments are held with a view to long-term capital
growth and it is therefore possible that individual holdings may increase in
value to a point where they represent a significantly higher proportion of total
assets than the original cost.
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 or losses arising from the revaluation of investments at the year end are
recognised as part of the capital return within the income statement and
allocated to the capital reserve - investment 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 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 - investment 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 option of the Company. The current
asset investments are held for trading, are actively managed and the performance
is evaluated in accordance with a documented investment strategy. Information
about them has to be provided internally on that basis to the Board.
Other income
Investment income includes interest earned on bank balances and money market
funds and includes income tax withheld at source. Dividend income is shown net
of any related tax credit.
Dividends receivable are brought into account when the Company's right to
receive payment is established and there is no reasonable doubt that payment
will be received. Fixed returns on debt and money market funds are recognised 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 has been
charged 25% to the revenue account and 75% to the capital reserve to reflect, in
the Directors' opinion, the expected long-term split of returns in the form of
income and capital gains respectively from the investment portfolio.
The transaction costs incurred when purchasing or selling assets are written off
to the Income Statement in the year 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 gains and losses arising from the revaluation of investments at the
period end. 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 or
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
funds, as well as OEICs.
Loans and receivables
The Company's loans and receivables are initially recognised at fair value which
is normally transaction cost and subsequently measured at amortised cost using
the effective interest method.
Financing strategy and capital structure
FRS 29 'Financial Instruments: Disclosures' comprise 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.
The value of the managed capital is indicated in note 13. The Board considers
the distributable reserves and the total return for the year when recommending a
dividend. In addition, the Board is authorised to make market purchases up to a
maximum of 5% of the issued Ordinary share capital of the Company in accordance
with Special Resolution 8 in order to maintain sufficient liquidity in the
Company.
Capital management is monitored and controlled using the internal control
procedures set out on page · of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
Financial instruments
The Company's principal financial assets are its investments and the policies in
relation to those assets are set out above. Financial liabilities and equity
instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a
residual interest in the assets of the entity after deducting all of its
financial liabilities. Where the contractual terms of share capital do not have
any terms meeting the definition of a financial liability then this is classed
as an equity instrument. Dividends and distributions relating to equity
instruments are debited direct to equity.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are declared by the
Board, and for final dividends when they are approved by the shareholders.
2. Other Income
Year to Year to
31 October 2011 31 October 2010
GBP'000 GBP'000
=-----------------------------------------------------------------
Money market funds and OEICs 28 56
Loan note interest 73 94
=-----------------------------------------------------------------
101 150
3. Investment Management Fees
Year to 31 October Year to 31 October
2011 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=--------------------------------------------------------------------
Investment management fee 98 294 392 101 302 403
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 2011 31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Directors' remuneration 50 53
Fees payable to the Company's auditor for the 9 9
audit of the financial statements
Fees payable to the Company's auditor for other 2 2
services - tax compliance
Legal and professional expenses 3 3
Accounting and administration services 59 71
Trail Commission 62 106
Other expenses 78 46
=-------------------------------------------------------------------------------
263 290
Total annual running costs are capped at 3.2% of net assets (excluding
irrecoverable VAT). For the year to 31 October 2011 the running costs, as
defined in the prospectus, were 3.1% of net assets (2010: 3.0%).
5. Directors' Remuneration
Year to Year to
31 October 2011 31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Directors'
emoluments
Mark Hawkesworth
(Chairman) 20 20
Tim Lebus 15 15
Chris Hulatt (paid
to Octopus
Investments
Limited) 15 15
=-------------------------------------------------------------------------------
50 50
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
(2010: three).
6. Tax on Ordinary Activities
The corporation tax charge for the year was GBPnil (2010: 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 26.83% (2010: 28%).
The differences are explained below.
Current tax reconciliation: Year to Year to
31 October 2011 31 October 2010
GBP'000 GBP'000
=----------------------------------------------------------------------------
(Loss)/gain on ordinary activities before tax (780) (683)
Current tax at 26.83% (2010: 28%) (209) (191)
Income not taxable for tax purposes - (51)
Expenses not deductible for tax purposes 69 62
Unrelieved tax losses 140 *
=----------------------------------------------------------------------------
Total current tax charge - -
=----------------------------------------------------------------------------
Excess management charges of GBP1,779,000 (2010: GBP1,140,000) have been carried
forward at 31 October 2011 and are available for offset against future taxable
income subject to agreement with HMRC. The Company has not recognised the
deferred tax asset of GBP477,000 (2010: GBP319,000) in respect of these excess
management charges.
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so as
to maintain its approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
7. Earnings per Share
The total, revenue and capital earnings per share are based on 20,255,857 (31
October 2010: 20,268,149) 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 return 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 2011 is based on 20,250,554
(31 October 2010: 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 have been no transfers between these classifications in the year (2010:
one). 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
2011 are summarised below and in
note 11.
Level 1:
AIM-quoted Level 3:
investments Unquoted investments Total investments
31 October 2011 31 October 2011 31 October 2011
GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
Valuation and net
book amount:
Book cost as at 1
November 2010 285 7,290 7,575
Cumulative
revaluation (6) 392 386
=-------------------------------------------------------------------------------
Valuation at 1
November 2010 279 7,682 7,961
Movement in the
year:
Purchases at cost 342 6,648 6,990
Disposal proceeds (225) - (225)
Revaluation in year 13 (610) (597)
=-------------------------------------------------------------------------------
Valuation at 31
October 2011 409 13,720 14,129
=-------------------------------------------------------------------------------
Book cost at 31
October 2011: 402 13,938 14,340
Revaluation to 31
October 2011: 7 (218) (211)
=-------------------------------------------------------------------------------
Valuation at 31
October 2011 409 13,720 14,129
=-------------------------------------------------------------------------------
The investment portfolio is managed with capital growth as the primary focus.
The loan and equity investments are considered as one instrument for valuation
purposes due to the legal binding within the investment agreement and therefore
they are combined in the table shown above.
Level 3 valuations include assumptions based on non-observable market data, such
as discounts applied either to reflect fair value of financial assets held at
the price of recent investment, or, in the case of unquoted investments, to
adjust earnings multiples. Further details in respect of the methods and
assumptions applied in determining the fair value of the investments are
described in the Investment Manager's Review and within the principal accounting
policies in note 1.
At 31 October 2011 and 31 October 2010 there were no commitments in respect of
investments approved by the manager but not yet completed.
10. Debtors
31 October 2011 31 October 2010
GBP'000 GBP'000
=---------------------------------------------------
Trade debtors - 5
Prepayments 123 8
Accrued income - 46
=---------------------------------------------------
123 59
11. Current Asset Investments
Current asset investments at 31 October 2011 comprised money market funds and
OEICs.
GBP'000 GBP'000
=-----------------------------------------------------------------
Valuation and net book amount:
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 1 November 2010 11,509
=-----------------------------------------------------------------
Purchase at cost:
- Money market funds 4,965
=-----------------------------------------------------------------
4,965
Disposal proceeds
- OEICs (2,352)
- Money market funds (10,000)
=-----------------------------------------------------------------
(12,352)
Loss in year on realisation of investments
- OEICs (2)
(2)
=-----------------------------------------------------------------
Revaluation in year
- OEICs 373
373
=-----------------------------------------------------------------
Valuation as at 31 October 2011 4,493
=-----------------------------------------------------------------
Book cost as 31 October 2011
- Money market funds 1,131
- OEICs 2,162
=-----------------------------------------------------------------
3,293
Revaluation as at 31 October 2011 -
- OEICs 1,200 1,200
=-----------------------------------------------------------------
=-----------------------------------------------------------------
Valuation as at 31 October 2011 4,493
=-----------------------------------------------------------------
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 and OEIC's at 31 October 2011 was GBP4,493,000
(2010: GBP11,509,000).
12. Creditors: Amounts Falling Due Within One Year
31 October 2011 31 October 2010
GBP'000 GBP'000
=----------------------------------------------------
Accruals 49 79
Other creditors - 2
=----------------------------------------------------
49 81
13. Share Capital
31 October 2011 31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Authorised:
50,000,000 Ordinary shares of 10p 5,000 5,000
=-------------------------------------------------------------------------------
Allotted:
20,250,554 (2010: 20,268,149) Ordinary shares of 2,025 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.
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 Board considers the distributable reserves and the total return for the year
when recommending a dividend. In addition, the Board is authorised to make
market purchases up to a maximum of 5% of the issued Ordinary share capital of
the Company in accordance with Special Resolution 8 in order to maintain
sufficient liquidity in the Company.
Capital management is monitored and controlled using the internal control
procedures set out on page · of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
The Company did not issue any shares in the year (2010: nil).
The Company repurchased the following Ordinary shares for cancellation (2010:
nil shares):
17,595 at a price of 88.5p per
· 18 February 2011: share
14. Reserves
Special Capital reserve Capital reserve Capital
distributable gains/(losses) holding redemption Revenue
reserve on disposal gains/(losses) reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
As at 1 17,155 -
November
2010 (506) 1,482 (551)
Purchase of (16) 2
own shares
Return on
ordinary - - (260)
activities
after tax - -
Management
fees - -
allocated as
capital
expenditure - (294) -
Current year - - -
losses on
disposal (2) -
Holding - - -
gains 268 (268)
Current year
losses on - - -
fair value
of
investments - (224)
=-------------------------------------------------------------------------------
Balance as 17,139* 2 (811)*
at 31
October 2011 (534)* 990
*Available for potential distribution by way of a dividend.
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.
GBP'000
=-------------------------------
As at 1 November 2010 16,098
Movement in year (304)
=-------------------------------
As at 31 October 2011 15,794
=-------------------------------
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 2011.
31 October 2011 31 October 2010
GBP000 GBP000
Assets at fair value through profit or loss
Fixed asset investments 14,129 7,961
Current asset investments 4,493 11,509
=--------------------------------------------------------------------------
Total 18,622 19,470
Loans and receivables
Cash at bank 115 159
Accrued income - 51
=--------------------------------------------------------------------------
Total 115 210
Liabilities at amortised cost
Accruals and other creditors 49 81
=--------------------------------------------------------------------------
Total 49 81
Fixed asset investments (see note 9) are carried 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.
72.9% (2010: 39.2%) 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 2011 would have increased net assets and the
total return for the period by GBP1,372,000 (2010: GBP796,100). An equivalent change
in the opposite direction would have reduced net assets and the total return for
the period by the same amount.
23.9% (2010: 59.4%) 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 2011 would have
increased net assets and the total return for the year by GBP449,300 (2010:
GBP1,151,000). 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 2011 As at 31 October 2010
=-------------------------------------------------------------------------------
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 297 12% 3.0 225 12% 3.5
=-------------------------------------------------------------------------------
297 225
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 year.
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% (2010: 0.5%) at 31
October 2011. The amounts held in floating rate investments at the balance
sheet date were as follows:
31 October 2011 31 October 2010
GBP'000 GBP'000
=------------------------------------------------------------------------------
Floating-rate investments in unquoted companies 495 495
Cash on deposit & money market funds 1,247 6,324
=------------------------------------------------------------------------------
1,742 6,819
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the year by GBP17,420 (2010: GBP68,000).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2011. By cost, no individual investment exceeded 9.1% (2010: 11.0%) of
the Company's net assets at 31 October 2011.
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 2011 the Company's financial assets exposed to credit risk
comprised the following:
31 October 2011 31 October 2010
GBP'000 GBP'000
=------------------------------------------------------------------------------
Fixed-rate investments in unquoted companies 297 225
Floating-rate investments in unquoted companies 495 495
Cash on deposit & money market funds 1,247 6,324
Accrued dividends and interest receivable - 43
=------------------------------------------------------------------------------
2,039 7,087
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 2011
these investments were valued at GBP4,608,000 (2010: GBP11,688,000).
16. Post Balance Sheet Events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* On 22 November 2011 a further GBP179,355 was invested into Mi-Pay Limited
* On 25 November 2011 a further GBP12,281 was invested into GetOptics Limited
* On 21 December 2011 a further GBP74,516 was invested into Phase Vision Limited
* On 30 December 2011 a further GBP124,267 was invested into PrismaStar Limited
* On 6 and 13 January 2012 further amounts of GBP190,000 and GBP60,000 were
invested into 10CMS 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 GBP62,000 was paid during the year (2010: GBP106,000) and there
was GBPnil outstanding at the year end.
There were no further contingencies, guarantees or financial commitments as at
31 October 2011.
18. Related Party Transactions
Chris Hulatt, a non-executive Director of Octopus Titan VCT 3 plc during the
course of the year prior to his resignation, is a Director of Octopus
Investments Limited. Octopus Titan VCT 3 plc has employed Octopus Investments
throughout the year as Investment Manager. Post year end, Tim Lebus became an
observer on behalf of Octopus Investments Limited, the Investment Manager, to a
number of Octopus Ventures investee companies. Octopus Titan VCT 3 plc has paid
Octopus Investments GBP392,000 (2010: GBP403,000) 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 GBP59,000 (2010: GBP71,000) 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 the
Company 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 the Company,
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 2011 on the
basis that the directors consider that the liability becomes due at the point
that the performance criteria are met; this has not been achieved and therefore
no liability has been recognised.
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#1583459]
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