TIDMOTV3
Octopus Titan VCT 3 plc
Final Results
23 January 2013
Octopus Titan VCT 3 plc ("Titan"), managed by Octopus Investments Limited
("Octopus"), today announces the final results for the year ended 31 October
2012.
These results were approved by the Board of Directors on 23 January 2013.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com
Octopus Titan VCT 3 plc
Registered Number: 06523078
Financial Summary
As at As at
31 October 2012 31 October 2011
=------------------------------------------------------------------------------
Net assets ( GBP'000s) 25,034 18,811
Return on ordinary activities after tax 5,264 (780)
( GBP'000s)
Net asset value (NAV) per share 116.4p 92.9p
Cumulative dividends paid since launch 1.0p -
NAV plus cumulative dividends paid to 31 117.4p 92.9p
October 2012
Special Dividend proposed 20.0p -
Chairman's Statement
I am pleased to present the annual results for Octopus Titan VCT 3 plc (the
'Company' or the 'Fund') for the year ended 31 October 2012.
Performance
During the year the Total Return of the Company, being the Net Asset Value (NAV)
plus cumulative dividends paid, has increased significantly from 92.9 pence per
share to 117.4 pence per share, representing an increase of 24.5 pence per share
or a 26.4% growth in value. This appreciation reflects the overall performance
of the investment portfolio, and particularly the strong performance from four
companies in the portfolio.
As the portfolio starts to mature, it is encouraging to see strong performance
from a handful of companies and the impact they have had on increasing the NAV.
As the Fund develops and matures further, we anticipate further growth in the
portfolio value delivered by other companies which are currently at an earlier
stage in their development.
By value, 84.3% of the Company's net assets were in unquoted investments, 2.1%
in AIM-quoted investments and 13.6% in Octopus Open Ended Investment Companies
(OEICs), money market funds, cash and debtors, less creditors.
The Fund's holding in Nature Delivered was realised after the year end on 30
November 2012. This yielded GBP5,884,000 for the Fund of which GBP3,764,000 was paid
in cash and GBP2,120,000 was reinvested. The overall exit price represents a
return of a significant multiple on the cost of the Fund's investment in Nature
Delivered.
Dividend and Dividend Policy
It remains your Board's objective to maintain a regular dividend whilst
retaining the appropriate level of liquidity in the Company. As a result of
realisations, notably that of Nature Delivered, and the overall performance of
the investment portfolio during the year, your Board has declared a special
dividend of 20.0 pence per share. Therefore, total dividends paid in the year
will be 21.0 pence per share.
The special dividend will be paid on 28 March 2013 to those shareholders who are
on the register on 11 January 2013. The payment date has been amended from the
original date of payment in order to give shareholders more time to apply to
reinvest their special dividend.
Given the size of the special dividend, the Board is hoping to offer
shareholders the facility to re-invest their cash dividend in to new shares of
the Company. Further details of this will be sent to you shortly.
Investment Portfolio
Over the year, the portfolio has seen an overall increase in fair value of
GBP6,356,000 which is largely attributable to substantial increases in fair value
in Nature Delivered, Secret Escapes, Zoopla, Calastone and TouchType totalling
GBP7,441,000. However, elsewhere in the portfolio there have been decreases in
fair value. Diverse Energy, Elonics and AQS Holdings have been written down to
nil value representing a reduction in fair value of GBP487,000 during the year. In
addition, Vega-Chi, Michelson Diagnostics and Applied Superconductor having
suffered a combined decrease in fair value of GBP886,000 in the year.
Given that the Fund's portfolio had been largely formed by the start of the
year, the Investment Manager's focus has been to develop and nurture the
existing portfolio. This included making 13 follow-on investments amounting to
GBP2,786,000, of which the largest investments were made in to Secret Escapes,
Certivox and Semafone totalling GBP1,452,000.
During the year the Fund disposed of 31.4% of its holding in Zoopla, receiving
proceeds of GBP361,000 on an investment cost of GBP210,500 and therefore realising a
gain of GBP150,000. The Company also disposed of its entire holding in Evi
Technologies which incurred a small loss of GBP16,000.
Top-up and Buybacks
As I mentioned in my interim report, the Company successfully raised GBP1,215,000,
net of costs, through a 'top-up' offer which was fully subscribed. The majority
of these funds are being used to support existing portfolio companies where the
Investment Manager sees the opportunity for building further value.
Following the success of the 2012 'top-up', the Board has announced its
intention to launch a further offer for new shares in conjunction with the four
other Octopus Titan VCTs. For further details, including a copy of the full
brochure when it is available, please contact Octopus using the details provided
on page X of this report.
During the period, the company repurchased 48,975 shares which reduced the share
capital by GBP5,000. Further details can be found in Note 14 of the accounts. In
common with many other VCTs, and as recently announced, your Board has decided
to reduce the discount to NAV at which it will repurchase shares from 10% to
5%.
Open Ended Investment Companies (OEICs)
The Fund has maintained a holding in the Micro Cap Growth Fund which has also
continued to perform well, ending the year GBP854,000 above its original cost. The
strategy of investing in OEICs has helped compensate for the low return received
on uninvested cash which was particularly important during the early life of the
Company.
Your Board believes that it remains a sensible strategy to maintain part of the
Fund's non-qualifying portfolio in OEICs given their potential to achieve
greater returns as compared to cash deposits. Further details of the Micro Cap
Growth Fund 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 was envisaged in the Company's prospectus,
between 15% and 25% of the Company's assets will be retained as non-qualifying
to provide liquidity for follow-on investments in the existing portfolio. Some
of the portfolio companies will 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 to protect shareholder
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 2012, 91.37% 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 14 March 2013 at 3.30 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.
Outlook
The economic climate remains uncertain with little visibility on when the UK
economy will return to reasonable growth. Inevitably, there have been
continuing challenges for small companies exposed to the UK marketplace not
least because of the increased pressure on working capital. While several
companies have not achieved their expectations, in part due to the weak markets,
others have exceeded their original business plans and some of these are
starting to deliver significant value.
The Investment Manager strives to improve the performance of the weaker
performing companies through the introduction of new management and, where
appropriate, follow-on funding. However, priority will be given to those
companies that are performing well and have the prospect of delivering the most
value to the portfolio. Some of that strong performance has been demonstrated in
the significant uplift in NAV over the last year, and more is expected as the
portfolio continues to mature.
Mark Hawkesworth
Chairman
23 January 2013
Investment Manager's Review
Personal Service
At Octopus Investments Limited ("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 13 VCTs, including this VCT, and
manage over GBP340 million in the VCT sector. Octopus has over 200 employees and
was voted 'Best VCT Provider of the Year' by the financial adviser community in
2006 to 2010.
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 the Company making a typical initial deal size of
GBP0.5 million to GBP1 million and will continue to comprise 20-25 unquoted
companies, predominantly focussed within the following sectors:
* Environment
* Technology
* Media
* Telecoms
* 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 are able to be innovative in mature markets. We 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 developing capital growth. The current
portfolio of holdings built by the Company now encompasses investments in 24
unquoted companies and one AIM-quoted company in a range of sectors.
As Investment Manager, we have typically purchased a significant minority equity
stake in these qualifying companies, providing financial capital to each
business to build and grow its operations and then usually to sell to an
acquirer at some point in the future. These entrepreneurial early stage
businesses 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 where we still believe that there is a promising opportunity, and to
allow them to progress forward and prove their business model. Finally, there
are those that meet and exceed the expectations originally set. It is these
businesses in which we wish to increase our investment exposure 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 2012, the Total Return (being the net asset value plus the
cumulative dividends) of the Company was 117.4p per share compared to 92.9p per
share at 31 October 2011. This represents a considerable gain of 26.4%. The
performance of the portfolio was excellent during the year with a number of
notable uplifts in fair value contributing to this large appreciation in the
value of the fund.
The Company now holds 91.37% of its assets in qualifying holdings from an HMRC
perspective and we continue to work with each portfolio business as they develop
capital growth in their respective markets.
As Investment Manager, it is our continued intention to invest more into those
businesses in which we first invested a small amount of money as they meet or
exceed the initial milestone objectives we agreed with them. This approach can
be demonstrated through 13 follow on investments being made totalling GBP2.8m.
There were no new investments during the year as the focus has been to develop
the established diverse portfolio.
Investment highlights
As mentioned above, the portfolio has excelled during the year with significant
uplifts in fair value in a number of companies. The top performing portfolio
businesses are from a range of sectors and experienced notable growth as shown
in the below table.
+------------------------------------------------------------------------------+
|Company Industry Cost, GBP'000 Uplift in year, Effect of uplift|
| GBP'000 on NAV, p|
+------------------------------------------------------------------------------+
| |
| |
|Nature Consumer 4,180 |
|Delivered lifestyle & 798 19.44|
|Limited wellbeing |
| |
|Secret Consumer 1,288 |
|Escapes lifestyle & 1,265 5.99|
|Limited wellbeing |
| |
|Zoopla Media 1,335 |
|Limited 459 6.21|
| |
|Calastone Technology |
|Limited 1,265 260 1.21|
| ----------------------------------------------------+
| 7,063 |
| 3,787 32.85|
+------------------------------------------------------------------------------+
We continue to have one quoted investment, e-therapeutics, which has performed
well in the year with an increase in fair value of GBP114,000 giving rise to an
increase in NAV of 0.5p per share.
Realisations in the year
The fund successfully disposed of 31.4% of its holding in Zoopla during the
year, realising a gain of GBP150,000 on an investment cost of GBP210,500, rendering
the investment a success. The Company also fully disposed of Evi Technologies
recognising a small loss of GBP16,000.
Post year end
Since the balance sheet date, although no new investments have been made, the
Company has continued to support investee companies by investing a further
GBP242,000 into Calastone, GBP109,000 into Bowman Power and GBP74,000 into Vega-Chi.
In addition, the Company disposed of its holding in Nature Delivered Limited for
GBP5,884,000 of which GBP3,764,000 was paid in cash and GBP2,120,000 was reinvested.
Outlook
The continued uncertainty in the current economy remains a concern for small
companies. There are still fierce challenges for these companies, with many
being subjected the pressure of tough trading conditions and tight working
capital. It remains unclear when the timing of the economic downturn will revert
and until it does cash requirements will remain a concern for small companies.
Despite this, there remain opportunities for entrepreneurs and small companies
as shown in this portfolio. They can execute business plans quickly to meet and
enhance customer experiences in comparison to slower moving large corporate
businesses. A number of businesses in this portfolio have already shown these
characteristics and continue to grow aggressively, despite the volatile economic
environment.
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
23 January 2013
Investment Portfolio
Movement %
Movement in % equity
in Fair valuation voting held by
Investment valuation value in year rights all
cost as at to 31 at 31 to 31 held funds
31 October October October October by managed
Fixed asset 2012 2012 2012 2012 Titan by
investments Sector ( GBP'000) ( GBP'000) ( GBP'000) ( GBP'000) 3 Octopus
=---------------------------------------------------------------------------------------
Nature
Delivered Consumer lifestyle
Limited & wellbeing 798 5,086 5,884 4,180 7.53 32.02
Secret Escapes Consumer lifestyle
Limited & wellbeing 1,265 1,374 2,639 1,288 7.93 17.44
Zoopla Limited Media 459 2,044 2,503 1,335 0.85 5.15
Calastone
Limited Technology 1,265 521 1,786 260 10.81 34.1
Certivox
Limited Technology 950 22 972 6 12.64 33.08
TouchType
Limited Telecommunications 384 544 928 379 4.20 20.07
Semafone
Limited Telecommunications 826 72 898 72 7.24 46.64
Mi Pay Limited Telecommunications 848 (99) 749 160 8.49 28.3
Executive
Channel Europe
Limited Media 640 61 701 - 7.29 36.12
Surrey
Nanosystems
Limited Technology 621 43 664 43 6.18 24.55
Metrasens Consumer lifestyle
Limited & wellbeing 465 171 636 127 6.68 28.01
GetOptics Consumer lifestyle
Limited & wellbeing 507 73 580 163 5.75 21.88
e-Therapeutics Consumer lifestyle
plc & wellbeing 402 120 522 114 1.1 8.23
Ultrasoc
Technologies
Limited Technology 492 - 492 - 10.69 65.21
Amplience
Limited Technology 700 (261) 439 - 12.12 63.13
Vega-Chi
Limited Technology 641 (296) 345 (296) 6.94 20.92
Bowman Power
Limited Environmental 312 (42) 270 (70) 2.69 15.55
Michelson
Diagnostics Consumer lifestyle
Limited & wellbeing 442 (221) 221 (221) 5.62 42.87
Phase Vision
Limited Technology 475 (330) 145 (164) 10.09 42.96
PrismaStar
Inc. Media 425 (301) 124 (150) 4.95 33.02
Applied
Superconductor
Limited Environmental 493 (370) 123 (370) 7.96 24.22
Phasor
Solutions
Limited Technology 50 (37) 13 (13) 0.62 23.5
AQS Holdings
Limited Environmental 660 (660) - (364) 14.2 50.7
Diverse Energy
Limited Environmental 414 (414) - (47) 5.47 29.76
Elonics
Limited Technology 306 (306) - (76) 3.11 19.54
=---------------------------------------------------------------------------------------
Total fixed asset investments 14,840 6,794 21,634 6,356
=---------------------------------------------------------------------------------------
Money market
funds 603 - 603 -
Open ended investment companies 1,268 853 2,121 178
Cash at bank 34 - 34 -
=---------------------------------------------------------------------------------------
Total
investments 16,745 7,647 24,392 6,534
=---------------------------------------------------------------------------------------
Debtors less
creditors 642
=---------------------------------------------------------------------------------------
Total net
assets 25,034
=---------------------------------------------------------------------------------------
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of the
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 2012, 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 thirteen follow-on investments amounting to
GBP2,786,000. 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 in note 1 to the financial statements, 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 hand picked 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.
Initial investment date: June
2009
Cost:
GBP798,000
Valuation:
GBP5,884,000
Voting rights held by Fund:
7.53%
Equity held by all funds managed by Octopus: 32.02%
Last submitted audited accounts: 28 February
2012
Turnover GBP20,929,775
Profit before tax:
GBP3,335,215
Net assets:
GBP5,758,161
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:
GBP1,265,000
Valuation:
GBP2,639,000
Voting rights held by Fund:
7.93%
Equity held by all funds managed by Octopus: 17.44%
Last submitted audited accounts: 31 December
2011
Turnover : GBP2,035,803
Loss before tax:
( GBP1,235,506)
Net assets:
GBP2,126,845
Zoopla Property Group Limited
Zoopla Property Group Ltd owns and operates some of the UK's leading online
property brands including Zoopla.co.uk and Primelocation.com. Over 16,000 estate
agent and lettings agent branches across the UK advertise on the company's
websites each month, in addition to all the leading new homes developers,
attracting over 28 million visitors a month and generating over 2 million
enquiries per month for the member estate/letting agents and property
developers. In addition to operating its own websites, Zoopla Property Group Ltd
exclusively powers the property search facility on a number of the UK's biggest
websites including The Times, The Telegraph, Independent, Evening Standard, The
Daily Mail, Homes & Property, AOL, MSN, Globrix, Homes24 and many more. Zoopla
Property Group Ltd launched in 2008 and has since acquired and integrated a
number of brands. Zoopla Property Group Ltd is a privately held company whose
shareholders include A&N Media (a division of the Daily Mail and General Trust)
as well as the Octopus Investments managed funds, and has a highly-experienced
management team, led by Founder & CEO, Alex Chesterman.
Initial investment date: January
2009
Cost:
GBP459,000
Valuation:
GBP2,503,000
Voting rights held by Fund:
0.85%
Equity held by all funds managed by Octopus: 5.15%
Last submitted audited accounts: 31 December
2011
Turnover GBP13,816,236
Loss before tax:
( GBP890,030)
Net assets:
GBP2,811,549
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:
GBP1,265,000
Valuation:
GBP1,786,000
Voting rights held by Fund:
10.81%
Equity held by all funds managed by Octopus: 34.10%
Last submitted audited accounts: 30 September
2011
Turnover GBP3,324,658
Loss before tax:
( GBP435,182)
Net assets:
GBP1,051,426
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:
GBP950,000
Valuation:
GBP972,000
Equity held:
12.64%
Equity held by all funds managed by Octopus: 33.08%
Last submitted audited accounts: 30 June 2011
Turnover : NA
Net assets:
GBP1,720,269
TouchType Limited
TouchType is a leader in the development of artificial intelligence and machine
learning technologies, encapsulated in its Fluency prediction engine, a patent
pending set of software algorithms. Its first product, SwiftKey(TM), a text
prediction technology designed to significantly boost the accuracy, fluency and
speed of text entry on mobile and computing devices, resulting in users having
to make less than half the number of keystrokes compared to a standard QWERTY
keyboard. SwiftKey(TM) has enjoyed tremendous success as both an Android App,
with over 10 million downloads to date, and as the installed text prediction
technology on a increasing range of smartphones and tablets. It has won several
high profile industry awards, including a prestigious Global Mobile Award for
the "Most Innovative App" and the Guardian Digital Innovation Award for the
"Best Startup Business".
Initial investment date: August
2010
Cost:
GBP384,000
Valuation:
GBP928,000
Voting rights held by Fund:
4.20%
Equity held by all funds managed by Octopus: 20.07%
Last submitted group accounts: 31 December
2011
Turnover : GBP654,623
Loss before tax: ( GBP1,285,798)
Net assets:
GBP1,005,210
Semafone Limited
Based in London, Semafone was founded in 2009 by a consortium of call centre
professionals, who were instrumental in the development of its fraud prevention
software for use in call centres. It aims to secure sensitive data passed over
the phone, including bank details, personal identification data and credit/debit
card transactions. Without interrupting caller and agent dialogue, customers
input their card details via the telephone keypad, eliminating the need to read
out the card number and three digit security number to the phone operator
therefore removing the risk of operator fraud. Semafone has secured valued
customers such as BSkyB, the John Lewis Partnership, Argos, Specsavers and the
Manchester Airports Group.
Initial investment date: June
2010
Cost:
GBP826,000
Valuation:
GBP898,000
Voting rights held by Fund:
7.24%
Equity held by all funds managed by Octopus: 46.64%
Last submitted group accounts: 31 December
2011
Turnover GBP2,025,528
Loss before tax: ( GBP1,114,892)
Net liabilities:
( GBP312,180)
Mi-Pay Limited
Mi-Pay was founded in 2004 with its 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.
Initial investment date:
February 2010
Cost:
GBP848,000
Valuation:
GBP749,000
Voting rights held by Fund:
8.49%
Equity held by all funds managed by Octopus: 28.3%
Last submitted group accounts: 31 December
2011
Turnover GBP2,401,949
Loss before tax: ( GBP2,781,342)
Net assets:
GBP1,069,602
Executive Channel Europe 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:
GBP640,000
Valuation:
GBP701,000
Voting rights held by Fund:
7.29%
Equity held by all funds managed by Octopus: 36.12%
Last submitted group accounts: 30 June
2011
Turnover 293,292
Loss before tax: ( GBP900,612)
Net assets:
GBP1,746,998
Surrey NanoSystems Limited
Surrey NanoSystems has developed a leading technology portfolio addressing the
needs of the global nanoelectronics sector. Its proven technologies deliver
precise, ordered nano-material structures for advanced manufacturing processes,
meeting the scaling challenges of the semiconductor industry.
Surrey NanoSystems works with its partners to deliver practical nano-materials
and technologies to the semiconductor, renewable-energy and clean technology
industries. This partnering approach facilitates the migration of materials and
processes developed on Surrey NanoSystems bespoke research platforms to
production-ready tooling.
Initial investment date: July
2009
Cost:
GBP621,000
Valuation:
GBP664,000
Voting rights held by Fund:
6.18%
Equity held by all funds managed by Octopus: 24.55%
Last submitted group accounts: 30 June
2011
Turnover not disclosed
Loss before tax: not disclosed
Net assets:
GBP941,229
How Octopus creates and delivers value for the shareholders of the Company
The Company 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, in aggregate from the five Titan VCTs managed by Octopus. The focus
is on establishing a portfolio of qualifying investments in companies that have
the potential to achieve a high level of profitability through the combination
of:-
· Scalability: The potential to deliver services to significant numbers of new
customers at very low incremental cost and to generate repeat sales from
customers.
· Scope: The ability to expand into complimentary areas by leveraging customer
and/or distributor relationships, new product development or brand positioning.
· Pricing power: An ability to charge high and defensible prices for its
products or services as a result of having intellectual property rights, a
strong brand and/or a dominant position in a market niche.
The Investment Manager looks to identify opportunities where the people involved
- the entrepreneur, management team, investors, advisers and any other
significant stakeholders - have a proven record of success. Although the
Company has the ability to invest across a wide range of industries, the focus
will be on several principal sectors:-
· environment
· technology
· media
· telecoms
· consumer lifestyle and wellbeing
Directors' Responsibilities Statement
The Directors are responsible for preparing the Directors' Report, the
Remuneration report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable laws).
Under company law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
and profit or loss of the company for that period. In preparing these financial
statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and 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 is aware:
· there is no relevant audit information of which the Company's
auditor is unaware; and
· the Directors have taken all steps that they ought to have taken to
make themselves aware of any relevant audit information and to establish that
the auditor is aware of that information.
The 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.
To the best of my knowledge:
· the financial statements, prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Standard and
applicable laws), give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· the Investment managers and Directors' reports include fair reviews
of the development and performance of the business and the position of the
Company, together with a description of the principal risks and uncertainties
that it faces.
On behalf of the Board
Mark Hawkesworth
Chairman
23 January 2013
Income Statement
+---------------------+
| Year to 31 October |
| 2012 |
----------------------------------------------------+---------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
----------------------------------------------------+---------------------+
| |
| |
Gain on disposal of fixed asset investments 10 | - 154 154|
| |
Loss on disposal of current asset investments | - 81 81|
| |
| |
| |
Fixed asset investment holding losses 10 | - 6,356 6,356|
| |
Current asset investment holding gains | - 178 178|
| |
| |
| |
Other income 2 | 99 - 99|
| |
| |
| |
Investment management fees 3 | (94) (282) (376)|
| |
Performance fee incentive 19 | - (937) (937)|
| |
Other expenses 4 | (291) - (291)|
| |
| |
----------------------------------------------------+---------------------+
Return on ordinary activities before tax | (286) 5,550 5,264|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
----------------------------------------------------+---------------------+
Return on ordinary activities after tax | (286) 5,550 5,264|
----------------------------------------------------+---------------------+
Earnings per share - basic and diluted 8 | (1.4)p 26.5p 25.1p|
+---------------------+
* The 'Total' column of this statement is the profit and loss account of the
Company; the supplementary revenue return and capital return columns have
been prepared under guidance published by the Association of Investment
Companies.
* All revenue and capital items in the above statement derive from
continuing operations.
* The Company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds.
The Company has no recognised gains or losses other than the results for the
year as set out above.
The accompanying notes form an integral part of the financial statements.
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 | - (597) (597)|
| |
Current asset investment | |
holding gains | - 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)|
=------------------------------------+-----------------------------------------+
Loss per share - basic and | |
diluted 8 | (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 had 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.
Reconciliation of Movements in Shareholders' Funds
+-----------------+
| Year to | Year to
| 31 October 2012 | 31 October 2011
| |
| GBP'000 | GBP'000
=-----------------------------------------+-----------------+-----------------
Shareholders' funds at start of year | 18,811 | 19,607
=-----------------------------------------+-----------------+-----------------
Return on ordinary activities after tax | 5,264 | (780)
| |
Net proceeds of share issue | 1,215 | -
| |
Purchase of own shares | (41) | (16)
| |
Dividends paid | (215) | -
=-----------------------------------------+-----------------+-----------------
Shareholders' funds at end of year | 25,034 | 18,811
=-----------------------------------------+-----------------+
The accompanying notes form an integral part of the financial statements.
Balance Sheet
+-------------------+
| As at 31 October| As at 31 October
| 2012| 2011
| |
Notes| GBP'000 GBP'000| GBP'000 GBP'000
=--------------------------------------+-------------------+-------------------
| |
| |
Fixed asset investments* 10 | 21,634| 14,129
| |
Current assets: | |
| |
Debtors 11 | 1,629 | 123
| |
Money market funds and other | |
deposits* 12 | 2,724 | 4,493
| |
Cash at bank | 34 | 115
=--------------------------------------+-------------------+-------------------
| 4,387 | 4,731
| |
Creditors: amounts falling due | |
within one year 13 | (987) | (49)
=--------------------------------------+-------------------+-------------------
Net current assets | 3,400| 4,682
=--------------------------------------+-------------------+-------------------
| |
=--------------------------------------+-------------------+-------------------
Net assets | 25,034| 18,811
=--------------------------------------+-------------------+-------------------
| |
| |
Called up equity share capital 14 | 2,150 | 2,025
| |
Share premium 15 | 1,085 | -
| |
Special distributable reserve 15 | 16,883 |17,139
| |
Capital reserve - losses on | |
disposals 15 |(1,642) | (534)
| |
- | |
holding gains 15 | 7,648 | 990
| |
Capital redemption reserve 15 | 7 | 2
| |
Revenue reserve 15 |(1,097) | (811)
=--------------------------------------+-------------------+-------------------
Total equity shareholders' funds | 25,034| 18,811
=--------------------------------------+-------------------+-------------------
NAV per share 9 | 116.4p| 92.9p
+-------------------+
* Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 23
January 2013 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 2012|31 October 2011
| |
Notes| GBP'000| GBP'000
=----------------------------------------------+---------------+---------------
| |
| |
Net cash outflow from operating | |
activities | (662)| (650)
| |
| |
| |
Capital expenditure and financial | |
investment: | |
| |
Purchase of fixed asset investments 10 | (2,786)| (6,990)
| |
Sale of fixed asset investments 10 | 380| 225
| |
| |
| |
Management of liquid resources: | |
| |
Purchase of current asset investments | (1,696)| (4,965)
| |
Disposal of current asset investments | 3,724| 12,352
| |
| |
| |
Taxation | -| -
| |
| |
| |
Dividends paid 7 | (215)| -
| |
| |
| |
Financing: | |
| |
Issue of own shares 14 | 1,215| -
| |
Purchase of own shares 14 | (41)| (16)
=----------------------------------------------+---------------+---------------
Decrease in cash resources at bank | (81)| (44)
+---------------+
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
| 2012| 2011
| |
| GBP'000| GBP'000
=-----------------------------------+---------------------+--------------------
Return on ordinary activities | |
before tax | 5,264| (780)
| |
(Gain) on disposal of fixed asset | |
investments | (154)| -
| |
(Gain)/loss on disposal of | |
current asset investments | (81)| 2
| |
(Gain)/loss on valuation of fixed | |
asset investments | (6,356)| 597
| |
Gain on valuation of current | |
asset investments | (178)| (373)
| |
Increase in debtors | (91)| (64)
| |
Increase/(decrease) in creditors | 938| (32)
=-----------------------------------+---------------------+--------------------
Outflow from operating activities | (662)| (650)
+---------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+-----------------+
| Year to | Year to
| 31 October 2012 | 31 October 2011
| |
| GBP'000 | GBP'000
=----------------------------------------+-----------------+-----------------
Decrease in cash resources at bank | (81) | (44)
| |
Movement in cash equivalents | (1,769) | (7,016)
| |
Opening net funds | 4,608 | 11,668
=----------------------------------------+-----------------+-----------------
Net funds at 31 October | 2,758 | 4,608
+-----------------+
Net funds at 31 October comprised:
+-----------------+
| Year to | Year to
| 31 October 2012 | 31 October 2011
| |
| GBP'000 | GBP'000
=-------------------------+-----------------+-----------------
Cash at bank | 34 | 115
| |
OEICs | 2,121 | 3,362
| |
Money market funds | 603 | 1,131
=-------------------------+-----------------+-----------------
Net funds at 31 October | 2,758 | 4,608
=-------------------------+-----------------+
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 and Venture Capital Trusts' (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 16 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 (11% 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 2011 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
those that are 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.
Fixed Asset 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 is provided internally on that basis to the Board. Accordingly, as
permitted by FRS 26, the investments are 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 a
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 the 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
classified as held for trading carried at 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 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 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, and the
performance fee which has been charged 100% to capital, as the fees relate to
the gains made on fixed asset investments.
The transaction costs incurred when purchasing or selling assets are written off
to the Income Statement in the year that they occur. The performance, however,
has been attributed fully to capital since it has arisen through capital growth
of companies.
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 14. 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 X 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 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------
Money market funds and OEICs 5 28
Loan note interest 94 73
=------------------------------------------------------------------
99 101
3. Investment Management Fees
Year to 31 October Year to 31 October
2012 2011
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=---------------------------------------------------------------------
Investment management fee 94 282 376 98 294 392
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 19 to the financial statements.
4. Other Expenses
Year to Year to
31 October 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Directors' remuneration 50 50
Fees payable to the Company's auditor for the 12 9
audit of the financial statements
Fees payable to the Company's auditor for 2 2
other services - tax compliance
Legal and professional expenses 1 3
Accounting and administration services 56 59
Trail Commission 83 62
Other expenses 87 78
=------------------------------------------------------------------------------
291 263
Total annual running costs are capped at 3.2% of net assets (excluding
irrecoverable VAT). For the year to 31 October 2012 the running costs, as
defined in the prospectus, were 2.81% of net assets (2011: 3.1%).
5. Directors' Remuneration
Year to Year to
31 October 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Directors'
emoluments
Mark Hawkesworth
(Chairman) 20 20
Tim Lebus 15 15
David Bundred 12 -
Chris Hulatt
(paid to Octopus
Investments
Limited) 3 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
(2011: three).
6. Tax on Ordinary Activities
The corporation tax charge for the year was GBPnil (2011: 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 24.83% (2011: 26.83%).
The differences are explained below.
Current tax reconciliation: Year to Year to
31 October 2012 31 October 2011
GBP'000 GBP'000
=-----------------------------------------------------------------------------
(Loss)/gain on ordinary activities before tax 5,264 (780)
Capital gains not taxable (6,534) -
--------------------------------
(1,270) (780)
Current tax at 24.83% (2011: 26.83%) (315) (209)
Income not taxable for tax purposes - -
Expenses not deductible for tax purposes - 69
Unrelieved tax losses 315 140
=-----------------------------------------------------------------------------
Total current tax charge - -
=-----------------------------------------------------------------------------
Excess management charges of GBP2,292,000 (2011: GBP1,779,000) have been carried
forward at 31 October 2012 and are available for offset against future taxable
income subject to agreement with HMRC. The Company has not recognised the
deferred tax asset of GBP536,000 (2011: GBP477,000) in respect of these excess
management charges.
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so as
to maintain its approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
7. Dividends
Year to Year to
31 October 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Recognised as distributions in the financial
statements for the period
Previous year's final dividend - -
Current period's interim dividend 215 -
=------------------------------------------------------------------------------
215 -
=------------------------------------------------------------------------------
Paid and proposed in respect of the period
Interim dividend paid - 1.0p per share (2011:
nil) 215 -
Proposed Special dividend - 20.0p per share
(2011: nil) 4,300 -
=------------------------------------------------------------------------------
4,515 -
=------------------------------------------------------------------------------
The special dividend of 20.0p will be paid on 28 March 2013 to shareholders on
the register on 11 January 2013.
8. Earnings per Share
The total earnings per share are based on a total gain of GBP5,264,000 (2011: loss
of GBP780,000) and 20,960,151 (2011: 20,255,857) Ordinary shares, being the
weighted average number of Ordinary shares in issue during the year.
The revenue earnings per share are based on a revenue loss of GBP286,000 (2011:
loss of GBP260,000) and 20,960,151 (2011: 20,255,857) Ordinary shares, being the
weighted average number of Ordinary shares in issue during the year.
The capital earnings per share are based on a capital profit of GBP5,550,000
(2011: loss of GBP520,000) and 20,960,151 (2011: 20,255,857) 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.
9. Net Asset Value per Share
The calculation of NAV per share as at 31 October 2012 is based on net assets of
GBP25,034,000 (2011: GBP18,811,000) and 21,497,993 (31 October 2011: 20,250,554)
Ordinary shares in issue at that date.
10. Fixed Asset Investments
Where financial instruments are measured in the balance sheet at fair value; FRS
29 requires disclosure of the fair value measurements by level based on the
following fair vale investment 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-quoted 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
investments 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 (2011:
nil). 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
2012 are summarised below.
Level 1: Level 3:
AIM-quoted Unquoted
investments investments Total investments
31 October 2012 31 October 2012 31 October 2012
GBP'000 GBP'000 GBP'000
=------------------------------------------------------------------------------
Valuation and net
book amount:
Book cost as at 1
November 2011 402 13,938 14,340
Cumulative
revaluation 7 (218) (211)
=------------------------------------------------------------------------------
Valuation at 1 13,720 14,129
November 2011 409
Movement in the
year:
Purchases at cost - 2,786 2,786
Disposal proceeds - (1,791) (1,791)
Profit on
realisation of
investments - 154 154
Revaluation in year 113 6,243 6,356
=------------------------------------------------------------------------------
Valuation at 31
October 2012 522 21,112 21,634
=------------------------------------------------------------------------------
Book cost at 31 14,438
October 2012: 402 14,840
Revaluation to 31 6,674
October 2012: 120 6,794
=------------------------------------------------------------------------------
Valuation at 31 21,112 21,634
October 2012 522
=------------------------------------------------------------------------------
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. The costs incurred in the disposals amount to GBP15,000.
At 31 October 2012 and 31 October 2011 there were no commitments in respect of
investments approved by the manager but not yet completed.
11. Debtors
31 October 2012 31 October 2011
GBP'000 GBP'000
=-------------------------------------------------------
Prepayments 126 123
Disposal proceeds 1,503 -
=-------------------------------------------------------
1,629 123
Disposal proceeds of GBP186,000 are due in more than one year.
12. Current Asset Investments
Current asset investments at 31 October 2012 comprised money market funds and
OEIC's.
31 October 2012 31 October 2011
GBP'000 GBP'000
=--------------------------------------------------------
Money Market funds 603 1,131
OEIC's 2,121 3,362
=--------------------------------------------------------
2,724 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 and OEICs: 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 2012 was GBP2,724,000
(2011: GBP4,493,000).
13. Creditors: Amounts Falling Due Within One Year
31 October 2012 31 October 2011
GBP'000 GBP'000
=----------------------------------------------
Accruals 987 49
=----------------------------------------------
987 49
14. Share Capital
31 October 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Authorised:
50,000,000 Ordinary shares of 10p 5,000 5,000
=------------------------------------------------------------------------------
Allotted:
21,497,993 (2011: 20,250,554) Ordinary shares 2,150 2,025
of 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 X of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
The Company issued 1,296,414 shares at a price of 99.1p during the year (2011:
No shares were issued during the year).
The Company repurchased the following Ordinary shares for cancellation (2011:
17,595 shares):
· 2 March 2012: 33,500 at a price of 83.5p per share
· 30 April 2012 15,475 at a price of 84.2p per share
15. Reserves
Capital Capital
Special reserve reserve Capital
Share distributable gains/(losses) holding redemption Revenue
Premium reserve on disposal gains/(losses) reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=-----------------------------------------------------------------------------------
As at 1 - 17,139* 2 (811)*
November
2011 (534)* 990
Purchase of - (41) 5 -
own shares - -
Issue of 1,085 - - -
Equity - -
Return on
ordinary - - - (286)
activities
after tax - -
Management -
fees - -
allocated
as capital
expenditure - (1,219) -
Current -
year gains - - -
on disposal
- fixed
assets 154 -
Current -
year gains - - -
on disposal
- current
assets 81 -
Holding - - - -
gains on
disposal (124) 124
Current -
year fair - - -
value gain
- Fixed
asstets - 6,356
Current -
year gain - - -
fair value
gain -
Current
assets - 178
Dividends - (215) - -
paid - -
=-----------------------------------------------------------------------------------
Balance as
at 31 1,085 16,883* 7 (1,097)*
October
2012 (1,642)* 7,648
*Reserves considered when calculating 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. Holding gains/losses are
then transferred to the 'capital reserve - holding gains/(losses)'. When an
investment is sold, any balance held on the 'capital reserve - holding
gains/(losses)' is transferred to the 'capital reserve - gains/(losses) on
disposal' as a movement in reserves.
Distributable Reserves:
GBP'000
=---------------------------------
As at 1 November 2011 15,794
Movement in year (1,650)
=---------------------------------
As at 31 October 2012 14,144
=---------------------------------
This is the minimum value of reserves available for potential distribution,
which will be impacted by the future realisibility, into cash, of gains and
losses included in the Capital Holding reserve.
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.
16. Financial Instruments and Risk Management
The Company's financial instruments comprise equity and fixed interest
investments, cash balances and liquid resources including debtors and creditors.
The Company holds financial assets in accordance with its investment policy of
investing mainly in a portfolio of VCT qualifying unquoted securities whilst
holding a proportion of its assets in cash or near-cash investments in order to
provide a reserve of liquidity.
Classification of financial instruments
The Company held the following categories of financial instruments, all of which
are included in the balance sheet at fair value, at 31 October 2012.
31 October 2012 31 October 2011
GBP000 GBP000
Assets at fair value through profit or loss
Fixed asset investments 21,634 14,129
Current asset investments 2,724 4,493
=---------------------------------------------------------------------------
Total 24,358 18,622
Loans and receivables
Cash at bank 34 115
Disposal proceeds 1,503 -
=---------------------------------------------------------------------------
Total 1,537 115
Liabilities at amortised cost
Accruals 987 49
=---------------------------------------------------------------------------
Total 987 49
Fixed asset investments (see note 10) 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 to X.
84.3% (2011: 72.9%) 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 5% overall increase in the valuation of the
unquoted investments at 31 October 2012 would have increased net assets and the
total return for the period by GBP1,056,000 (2011: GBP686,000). An equivalent change
in the opposite direction would have reduced net assets and the total return for
the period by the same amount.
10.9% (2011: 23.9%) by value of the Company's net assets comprises of OEICs and
money market funds held at fair value. A 5% overall increase in the valuation
of the OEICs and money market funds at 31 October 2012 would have increased net
assets and the total return for the year by GBP136,000 (2011: GBP226,000). An
equivalent change in the opposite direction would have reduced net assets and
the total return for the year by the same amount.
The Investment Manager considers that the majority of the investment valuations
are based on earnings multiples which are ascertained with reference to the
individual sector multiple or similarly listed entities. It is considered that
due to the diversity of the sectors, the 5% sensitivity discussed above provides
the most meaningful potential impact of average multiple changes across the
portfolio.
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 2012 As at 31 October 2011
=------------------------------------------------------------------------------
Weighted
Weighted average
Total fixed average Total time for
rate Weighted time for fixed 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 1,268 10% 2.8 297 12% 3.0
=------------------------------------------------------------------------------
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 the base rate 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
funds. The benchmark rate which determines the rate of interest receivable on
such investments is the bank base rate, which was 0.5% (2011: 0.5%) at 31
October 2012. The amounts held in floating rate investments at the balance
sheet date were as follows:
31 October 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Floating-rate investments in unquoted
companies - 495
Cash on deposit & money market funds 603 1,247
=------------------------------------------------------------------------------
603 1,742
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the year by GBP6,000 (2011: GBP17,000).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2012. By cost, no individual investment exceeded 7.9% (2011: 9.1%) of
the Company's net assets at 31 October 2012.
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 2012 the Company's financial assets exposed to credit risk
comprised the following:
31 October 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Fixed-rate investments in unquoted companies 1,268 297
Floating-rate investments in unquoted
companies - 495
Cash on deposit & money market funds 603 1,247
=------------------------------------------------------------------------------
1,871 2,039
Credit risk relating to listed money market funds 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.
The investments in money market funds and OEICS are uncertified.
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. The Investment Manager has in place a
monitoring procedure in respect of counterparty risk which is reviewed on an
ongoing basis. Should the credit quality or the financial position of HSBC
deteriorate significantly, the Investment Manager will move the cash holdings to
another bank.
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 2012
these investments were valued at GBP2,758,000 (2011: GBP4,608,000).
17. Post Balance Sheet Events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* On 12 November 2012 a further GBP244,000 was invested into Calastone Limited.
* On 15 November 2012 a further GBP109,000 was invested into Bowman Power
Limited.
* On 30 November 2012 Titan disposed of its holding in Nature Delivered
Limited for GBP5,884,000 of which GBP3,764,000 was paid in cash and GBP2,120,000
was reinvested.
* On 9 January 2013 a further GBP74,000 was invested into Vega-Chi Limited.
18. Contingencies, Guarantees and Financial Commitments
Provided that an intermediary continues to act for a shareholder and the
shareholder continues to be the beneficial owner of the shares, intermediaries
will be paid an annual trail commission of 0.5% of the initial net asset value.
Trail commission of GBP83,000 was paid during the year (2011: GBP62,000) and there
was GBP21,000 (2011: GBP21,000) outstanding at the year end.
There were no further contingencies, guarantees or financial commitments as at
31 October 2012.
19. Transactions with manager
Octopus Titan VCT 3 plc has paid Octopus Investments GBP474,000 (2011: GBP392,000)
in the year as a management fee and there is GBP98,000 (2011: GBPnil) in prepayments
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 (2011: GBP59,000) was paid to Octopus Investments and
there is GBP15,000 (2011: GBPnil) in prepayments at the balance sheet date, for the
accounting and administrative services. In addition, Octopus also provides
secretarial services for a fee of GBP15,000 per annum. During the year there was
GBP2,500 (2011: GBPnil) in prepayments at the balance sheet date.
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. Included within accruals is a provision of GBP937,000 relating to
a performance fee payable to the investment manager on achieving a Total Return
of 130p and declaring dividends of 40p per share. At the year end, prior to
recognising the performance fee, the Total Return is 120.8p per share and
dividends declared amounted to 1p per share. The Board has decided to recognise
a provision for the performance fee to reflect the cost of the fee in the period
in which the fees were earned. The provision has been made on the basis that
fund has a constructive obligation to shareholders to accrue the dividend once
the Total Return is reached based on the dividends declared in comparable VCTs.
In recognising this provision the Board has made a material estimate as to the
probability of the fees becoming payable. The Board has considered the success
of other VCTs managed by Octopus Investments Limited with a similar portfolio of
investments. It is the Board's view that the performance of these more developed
funds is evidence that the Total Return and dividend hurdles will be reached and
therefore it has taken the decision to accrue the performance fee earned to date
on a Total Return of 120.8 pence per share.
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.
20. 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. During the year, Tim Lebus became an observer on behalf of
Octopus Investments Limited, the Investment Manager, to a number of Octopus
Ventures investee companies.
The Directors received the following dividends from the Company:
31 October 2012 31 October 2011
Mark Hawkesworth (Chairman) GBP106 GBPnil
Tim Lebus GBP106 GBPnil
David Bundred GBPnil GBPnil
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#1672405]
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