TIDMOTV4
Octopus Titan VCT 4 plc
Final Results
10 February 2011
Octopus Titan VCT 4 plc (the "Company"), managed by Octopus Investments Limited,
today announces the final results for the year ended 31 October 2010.
These results were approved by the Board of Directors on 10 February 2011.
You may view the Annual Report in full at www.octopusinvestments.com shortly by
navigating to VCT Meetings & Reports under the 'Services' section.
About Octopus Titan VCT 4 plc
Octopus Titan VCT 4 plc ('Titan 4' or 'the VCT') is a venture capital trust
(VCT) which aims to provide shareholders with attractive tax-free dividends and
long-term capital growth, by investing in a diverse portfolio of predominately
unquoted companies. The Company is managed by Octopus Investments Limited
('Octopus' or 'Investment Manager').
Titan 4 was incorporated on 30 September 2009 with the first allotment of equity
taking place on 1 February 2010. The Offer for new subscriptions for shares was
open until 31 August 2010 by which time the Offer had become fully subscribed
and the total amount raised was GBP22.48 million. The Company invests primarily in
unquoted UK smaller companies and aims to deliver a substantial level of returns
on its investments over the medium to long term.
Further details of the VCT's progress are discussed in the Chairman's Statement
and Investment Manager's Review on pages X to X.
On 31 August 2010 the VCT changed its Registered Office from 8 Angel Court,
London, EC2R 7HP to 20 Old Bailey, London, EC4M 7AN.
Venture Capital Trusts (VCTs)
VCTs were introduced in the Finance Act 1995 to provide a means for private
individuals to invest in unquoted companies in the UK. Subsequent Finance Acts
have introduced changes to VCT legislation. The tax benefits currently available
to eligible new investors in VCTs include:
· Up to 30% up-front income tax relief;
· exemption from income tax on dividends paid; and
· exemption from capital gains tax on disposals of shares in
VCTs.
Titan 4 has been provisionally approved as a VCT by Her Majesty's Revenue &
Customs (HMRC). In order to maintain its approval, the Company must comply with
certain requirements on a continuing basis. By the end of the Company's third
accounting period at least 70% of the Company's investments must comprise
'qualifying holdings' (as defined in the legislation) of which at least 30% must
be in eligible ordinary shares. A 'qualifying holding' consists of up to GBP1
million invested in any one year in new shares or securities in an unquoted UK
company (or companies listed on AIM) which is carrying on a qualifying trade and
whose gross assets do not exceed a prescribed limit at the time of investment.
The definition of a 'qualifying trade' excludes certain activities such as
property investment, and development, financial services and asset leasing. The
Company will do all it can to ensure its compliance with these qualification
requirements.
Financial Summary
+---------------------------+
Ordinary shares | Period to 31 October 2010 |
| |
| |
| |
Net assets ( GBP'000s) | 21,171 |
| |
Return on ordinary activities after tax ( GBP'000s) | (187) |
| |
Net asset value per share | 93.8p |
=-------------------------------------------------+---------------------------+
Chairman's Statement
Introduction
I am pleased to present the first Annual Report of Octopus Titan VCT 4 plc for
the 13-month period ended 31 October 2010.
Performance
As at 31 October 2010 the VCT's net asset value per share (NAV) has declined
from the initial NAV of 94.5p to 93.8p at the period end which is primarily due
to the standard running costs of the VCT. There was a revenue loss of GBP250,000
for the period which reflects the low interest rates on liquid resources as well
as the yield on our early stage portfolio yet to develop.
In time, as more qualifying investments are made, income should flow from the
investment portfolio allowing for the expenses to be covered. Over the longer
term, as the underlying portfolio of investments is created, the VCT's NAV will
be linked increasingly to the value of the investments in the portfolio
companies.
Investment Portfolio
During the period, the VCT made seven investments totalling GBP1.84 million. All
of these investments are discussed in more detail in the Investment Manager's
Review on pages X to X in which you will see that we have made investments in a
diverse range of companies in some exciting market sectors. There was no change
in valuation of the portfolio during the year as all of the investments were
made in the latter few months and therefore cost is considered to be a
reasonable approximation to fair value at the balance sheet date. On balance, we
are encouraged by the performance of the portfolio so far and the good flow of
investment opportunities which it is seeing.
By value, 8.7% of the VCTs net assets are in unquoted investments, 27.5% in
Octopus Open Ended Investment Companies (OEICs) and 63.8% is currently in cash
or cash equivalents. The current surplus cash of the VCT is invested in a range
of Standard & Poor's AAA-rated money market funds to fit with the Board's policy
of preserving the capital of the VCT before its deployment into qualifying
investments.
Open Ended Investment Companies (OEICs)
The VCT invested in four OEICs during the period which cumulatively saw an
uplift in fair value of GBP239,000. The best performance was seen by the Octopus
UK Micro Cap Growth Fund which increased in value by 12% between investment in
June 2010 and the period end. The Board has met with the respective fund
managers and believe it is in the best interests to continue to hold investments
in OEICs for the foreseeable future, as set out in the original prospectus.
Further details of the OEICs may be found at www.octopusinvestments.com where
monthly factsheets are available.
Investment Strategy
Your Board will continue to review the investment strategy in respect of the
non-qualifying portfolio and specifically how we invest our cash resources. As
envisaged in the VCT's prospectus, between 15% and 25% of the VCT will be
retained for liquidity and follow-on investments in the existing portfolio. As
our existing portfolio of unquoted companies matures, we will find that some
companies may require further rounds of investment but these investments may not
be qualifying for VCT purposes (for instance in situations where the company now
employs more than 50 people). Your Board believes that there will be
circumstances where it will be in our shareholders' interests to continue to
invest, not least to avoid dilution. Since this was not set out clearly in our
prospectus, we have sought to further clarify the investment strategy and added
a second paragraph to the Non-Qualifying section as set out on page · of the
Directors' Report.
We intend that the remainder of our cash reserves will continue to be invested
in Octopus managed OEICS and lower risk, readily realisable investments.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
concerning ongoing compliance with HMRC rules and regulations concerning VCTs.
The Board has been advised that Titan 4 is complaint with the conditions laid
down by HMRC for maintaining provisional approval as a VCT.
A key requirement now is to achieve the 70% qualifying investment level prior to
31 October 2012. As at 31 October 2010, 8.8% of the portfolio, as measured by
HMRC rules, was invested in VCT qualifying investments. In view of the current
investment activity, the Board continues to be confident that the 70% target
will be met by the required date.
Annual General Meeting
I look forward to meeting as many shareholders as possible at our first Annual
General Meeting on 6 April 2011 to be held at the offices of Octopus Investments
Limited, 20 Old Bailey, London, EC4M 7AN. The AGM will start at 3.00 p.m.
Outlook
Economic recovery is still in a very early phase and the environment in which
portfolio companies are operating remains fragile. Ongoing uncertainty,
exacerbated by the change in government and the associated spending review,
contributed to businesses delaying some decisions and reacting cautiously to the
unpredictable change in growth prospects.
It is anticipated that growth in the first half of the next financial year will
be weak. We do not expect interest rates to change significantly over the next
six months, which is positive for small companies. Whilst banks remain reluctant
to lend, this should not have a significant impact on our early stage portfolio
companies, which rely predominately on equity capital for their finance.
Your Board is pleased with the overall progress to date being made by the
Investment Manager in investing the VCT's funds. We remain confident that the
VCT will be able to meet its investment objectives and produce returns for
shareholders that are consistent with the objectives of the VCT.
Octopus has recently launched Octopus Titan VCT 5 plc giving the Titan VCT
family even greater presence in the marketplace which we believe will continue
to be an advantage as new opportunities arise.
Gregor Michie
Chairman
10 February 2011
Investment Manager's Review
Personal Service
At Octopus we have a dual focus, on 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 contact with our
investors. We are working hard to manage your money in the current climate.
Octopus Investments Limited was established in 2000 and has a strong commitment
to both smaller companies and to VCTs. We currently manage 18 VCTs, including
this VCT, and manage over GBP300m in the VCT sector. Octopus has over 180
employees and has been voted as 'Best VCT Provider of the Year' by the financial
adviser community for the last four years.
Investment Policy
The focus of Titan 4 is on generating a substantial level of returns over the
medium to long term by providing early stage, development and expansion funding
to unquoted companies with a typical deal size of GBP0.2 million to GBP2 million. It
is expected that the portfolio of holdings that will be built will encompass
investments in 20-30 unquoted companies.
The Directors control the overall risk of the portfolio by ensuring that the
Company has exposure to a diversified range of companies from a number of
different sectors. In order to limit the risk to the portfolio that is derived
from any particular investment, no more than 15% by value of the Company's
investments (at the time of investment) will be invested in any single company
(including both Qualifying and Non-Qualifying investments).
Investment Strategy
The investee companies are those that we believe have great potential but need
some financial support to realise it. Each company that we target will have the
potential to create a large business by taking a relatively modest market share.
We are particularly interested in businesses that address current market trends
and aim to create a balanced investment portfolio spanning multiple industries
and business sectors.
We expect that the portfolio of holdings built by Titan 4 will encompass
investments focussing on the environmental, technology, media, telecoms and
consumer lifestyle and wellbeing sectors. It is envisaged that, at the end of
the three year initial investment period, 75-85% of the proceeds of the Offer
will be invested in a range of qualifying investments with 15-25% invested in a
combination of cash, Open Ended Investment Companies (OEICs)* managed by Octopus
and money market securities managed by third party specialists.
*Titan 4 has invested in four OEICs, two of which are managed by Octopus, the CF
Octopus Absolute UK Equity Fund and the CF Octopus Micro Cap Growth Fund.
Portfolio Review
As at 31 October 2010 the NAV stood at 93.8p, compared to the initial NAV of
94.5p. This decline in NAV is due to the standard running costs of the VCT. Over
the longer term, the NAV will be linked increasingly to the value of the
investments in the portfolio companies.
There have been no changes in the valuations of the investee companies at 31
October 2010 as all of the investments were made in the latter few months of the
period and so cost is considered to be a reasonable approximation to fair value
at the balance sheet date. However, we are pleased with the general performance
across the portfolio with a number of companies showing strength in their niche
markets so we expect an uplift in the NAV in the future.
Titan 4 now holds 8.8% in qualifying funds from an HMRC perspective and we
continue to work with each portfolio business as they develop their propositions
in their respective markets. As Investment Manager it is our intention to take
those businesses in which we have invested a small amount of money as a first
investment and invest further as they meet or exceed the initial milestone
objectives we agreed with them. In this way we are able to invest further into
those businesses that are meeting and exceeding expectations.
Since the balance sheet date, Titan 4 has invested GBP367,000 into Diverse Energy,
a company focusing on the infrastructure of energy for global
telecommunications, GBP450,000 into 10CMS, an interactive merchandising platform
and GBP500,000 into Vega-Chi, an electronic multilateral trading facility. This
has brought the total portfolio to 10 current trading businesses.
Outlook
At the time of writing, we are looking to make a number of further investments
to support the current portfolio. It is encouraging to note the uplift in
prices on the stock markets in recent months. This is filtering through to
smaller listed businesses, although it has yet to have a dramatic effect on
prices for unquoted businesses. This, combined with the current increase in
activity in mergers and acquisitions is an encouraging indicator for the economy
and for small trading businesses. However, we have not yet seen a significant
uplift in the number of small businesses being listed on the stock market.
Assuming this general trend continues it is a positive one for the future of
high growth businesses as this area of the market tends to lag the listed
business market. We do need to remain mindful of the impact the austerity
measures being put in place by the UK Government will have on the UK consumer.
There is also a concern that a rise in the level of inflation will in turn cause
interest rates to rise which could have an adverse knock on effect on the
economy.
Overall, the environment provides a great opportunity for businesses like those
in the Titan 4 portfolio to take advantage of, as their size enables them to
move quickly to adapt and respond to market conditions resulting in greater
market share. While the current market is not without its challenges, which a
number of our portfolio businesses are facing at the moment, it still enables us
to be cautiously optimistic about the future for small high growth businesses in
general and our investment strategy specifically.
If you have any questions on any aspect of your investment, please call one of
the team on 0800 316 2347.
Alex Macpherson
Octopus Investments Limited
10 February 2011
%
Fair equity
Investment value % held by
Portfolio Investment as at equity all
cost as at 31 held funds
31 October October by managed
Qualifying 2010 Movement in fair value to 2010 Titan by
investments Sector ( GBP'000) 31 October 2010 ( GBP'000) ( GBP'000) 4 Octopus
UltraSoC
Technologies
Limited Technology 361 - 361 10.0% 55.6%
Elonics
Limited Technology 305 - 305 3.1% 19.5%
PrismaStar
Inc. Media 300 - 300 4.5% 30.0%
Executive
Channel
Limited Media 300 - 300 4.8% 32.2%
Bowman Power
Limited Environmental 275 - 275 2.7% 17.9%
Michelson
Diagnostics Consumer lifestyle
Limited & wellbeing 248 - 248 4.4% 28.1%
TouchType
Limited Telecommunications 53 - 53 1.5% 8.0%
Total
qualifying
investments 1,842 - 1,842
Money market
securities 13,478 - 13,478
OEICs 5,580 239 5,819
Cash at bank 112 - 112
Total
investments 21,012 239 21,251
Net current
assets (80)
Total net
assets 21,171
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of fair
value of a financial asset that is either quoted or not quoted in an active
market is the transaction price (i.e. cost).
Subsequent measurement
Further funding rounds are a good indicator of fair value and this is measure is
used were appropriate. Subsequent adjustment to the fair value of unquoted
investments can be made using sector multiples based on information as at 31
October 2010, where applicable. In some cases the multiples can be compared to
equivalent companies, especially where a particular sector multiple does not
appear appropriate. It is currently industry norm to discount the quoted
earnings multiple to reflect the lack of liquidity in the investment, there
being no ready market for our holding. Typically the discount is 30% but this
can be increased where the relevant multiple appears too high. A lower discount
would also be possible if an investment was close to an exit event.
In accordance with the International Private Equity and Venture Capital (IPEVC)
valuation guidelines investments made within 12 months are usually kept at cost
unless performance indicates that fair value has changed.
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 period, Titan 4 made seven investments amounting to GBP1.84 million.
The unquoted investments are in ordinary shares with full voting rights as well
as loan note securities.
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.
UltraSoC Technologies Limited
UltraSoC Technologies, is a pioneering company developing advanced debugging
technology for the embedded electronic systems increasingly used in many
everyday products from cars to mobile phones.
UltraSoC was spun-out from the universities of Essex and Kent in 2008 after
being founded by Cambridge entrepreneur Dr Karl Heeks and Professor Klaus
McDonald-Maier, Research Director at the University of Essex's School of
Computer Science and Electronic Engineering.
The company is developing UltraDebug, an advanced debugging technology for
multiple processor systems used to debug the application software that delivers
the functionality and performance in many modern embedded electronic systems.
Initial investment date:
September 2010
Cost:
GBP361,494
Valuation:
GBP361,494 (latest funding round)
Equity held:
10.0%
Equity held by all funds managed by Octopus: 55.6%
Last submitted accounts: 31 December
2009 (abbreviated)
Net assets GBP174,013
Elonics Limited
Elonics is a semiconductor company specialising in the design and development of
multi-band radio frequency integrated circuit products. Founded in 2003 and
based in Livingston, United Kingdom, Elonics has developed an innovative radio
frequency architecture called DigitalTune that is the foundation for a family of
silicon tuners for television and radio.
Elonics' innovative technology allows manufacturers to design high performance
consumer electronics products with unrivalled performance, power consumption and
low system cost. Elonics' first product family is the E4000 series of silicon
tuner solutions targeted at the reception of multi-standard digital TV and
radio.
Initial investment date:
September 2010
Cost:
GBP305,349
Valuation:
GBP305,349 (latest funding round)
Equity held:
3.1%
Equity held by all funds managed by Octopus: 19.5%
Last submitted accounts: 31 December 2009
Net assets ( GBP507,024)
PrismaStar Inc.
Founded in 2005, PrismaStar is a 'software as a service' business providing
patented technology to help consumers shopping online find the very best
products and services, personalised to their individual tastes. You can trial
the company's technology by visiting:http://www.prismastar.com/our-
solution/answeroil-demo/.
Following our investment in the summer, Prismastar has been busy building its
management team and closing sales contracts. It recently launched a new suite of
software with Mothercare, and is rolling out its service to Vodafone across more
product categories in the UK.
Recent versions of the product will enable the company to open and close sales
with a greater number of eCommerce retailers and affiliates. The challenges
ahead include filling key management positions, supporting sales, software
implementation, and product development. These will take some time to fill, but
once in place the business has ample scope to grow its customer base in the EU
and USA.
Initial investment date:
September 2010
Cost:
GBP300,000
Valuation:
GBP300,000 (latest funding round)
Equity held:
4.5%
Equity held by all funds managed by Octopus: 30.0%
Last submitted 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.
The company continues to grow ahead of budget.
Initial investment date:
September 2010
Cost:
GBP299,990
Valuation:
GBP299,990 (latest funding round)
Equity held:
4.8%
Equity held by all funds managed by Octopus: 32.2%
Last submitted accounts: n/a (none filed)
Bowman Power Limited
Bowman Power is a leader in the development of clean power generation
technology, designed to substantially increase the performance of standard
diesel and gas fuelled engines. Based in Southampton, Bowman Power's core
product is a turbogenerator, which recovers waste heat from engines, in order to
both boost their power and efficiency, whilst reducing their emissions. Bowman
Power is the first company worldwide to emerge with economical, production grade
solutions to turn waste heat in exhausts into electrical power.
The period was dominated by dealing with the results of deploying the first 20
units in customer sites with a German power generation company. Initial trials
had shown that the equipment worked and delivered the required performance,
substantial operating hours in the field are needed to test durability and
overall functionality in real use.
Initial investment date: July
2010
Cost:
GBP274,950
Valuation:
GBP274,950 (latest funding round)
Equity held:
2.7%
Equity held by all funds managed by Octopus: 17.9%
Last submitted audited group accounts: 30 September 2009
Turnover GBP589,057
Loss before tax: ( GBP2,054,360)
Net assets:
( GBP639,521)
Michelson Diagnostics Limited
Michelson Diagnostics is the medical equipment and scanner specialists, whose
unique laser scanning technology can image skin and other surface tissue at a
much higher resolution than ever before. CEO Jon Holmes founded Michelson with
four colleagues in 2006. The company's first product based on its patented
technology, the VivoSight scanner, may revolutionise the market for the non-
invasive diagnosis and treatment of non-melanoma skin cancer (NMSC). The
VivoSight scanner has already won CE & Food and Drug Administration (FDA)
regulatory clearance for clinical use in Europe and the USA, and is now being
trialled by leading skin cancer specialists at their clinics.
Michelson's VivoSight scanner will, for the first time, enable clinicians to
'see' under the skin surface in real time, to help them decide whether to treat
a lesion, what treatment to use, and to show them how far a tumour has spread,
so that surgery is required only once and conserves healthy tissue. This is
expected to make non-melanoma skin cancer treatment more efficient and cost
effective, and to be better for the patient by reducing unnecessary surgery.
Initial investment date: October
2010
Cost: GBP247,554
Valuation:
GBP247,554 (latest funding round)
Equity held:
4.4%
Equity held by all funds managed by Octopus: 28.1%
Last submitted accounts: 31 March 2010
(abbreviated)
Net assets GBP582,998
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. The company's core product, the Fluency prediction
engine, is a patent pending set of software algorithms which improve upon the
existing market leader's keystroke per character performance by 44% resulting in
users having to make less than half the number of keystrokes compared to a
standard QWERTY keyboard. The Fluency prediction engine powers the company's
mobile phone application, Swiftkey, for use on Android phones.
Having released Swiftkey initially in beta form, the company moved to a paid
application in September 2010 and has now been downloaded more than 700,000
times in total. Swiftkey was received very well and it became the top downloaded
application in the Android market in over 25 countries within two weeks of its
launch, while attracting a great deal of interest across the internet, social
media and technical blogs. Whilst the company remains at an early stage in its
development, the reception from the industry has been very positive and Swiftkey
was recently placed third in the CES 2011 Mobile App Showdown, the pre-eminent
consumer electronics show globally.
Initial investment date: August
2010
Cost:
GBP52,505
Valuation:
GBP52,505 (latest funding round)
Equity held:
1.5%
Equity held by all funds managed by Octopus: 8.0%
Last submitted accounts: 31 August 2009
(abbreviated)
Net assets GBP474,000
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company. Under that law the
Directors have elected to prepare financial statements in accordance with United
Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting
Practice).
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
In so far as 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
Gregor Michie
Chairman
10 February 2011
Income Statement
+------------------------------------------+
|Period from 30 September 2009 to 31 |
|October 2010 |
| |
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
| |
| |
| |
Current asset investment | |
holding gains 11 | - 239 239|
| |
| |
| |
Other income 2 | 34 - 34|
| |
| |
| |
Investment management fees 3 | (59) (176) (235)|
| |
| |
| |
Other expenses 4 | (225) - (225)|
| |
| |
| |
Return on ordinary activities | |
before tax | (250) 63 (187)|
| |
| |
| |
Taxation on return on ordinary | |
activities 6 | - - -|
| |
| |
| |
Return on ordinary activities | |
after tax | (250) 63 (187)|
| |
Earnings per share - basic and | |
diluted 7 | (2.2)p 0.5p (1.7)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
+--------------------+
| Period from |
| 30 September 2009 |
| to 31 October 2010 |
| |
| GBP'000 |
| |
Shareholders' funds at start of year | - |
| |
Return on ordinary activities after tax | (187) |
| |
Issue of equity (net of expenses) | 21,358 |
| |
Shareholders' funds at end of period | 21,171 |
+--------------------+
The accompanying notes form an integral part of the financial
statements.
Balance Sheet
+-------------------+
| As at 31 October|
| 2010|
| |
Notes| GBP'000 GBP'000|
| |
Fixed asset investments* 9 | 1,842|
| |
| |
| |
Current assets: | |
| |
Debtors 10 | 15 |
| |
Money market securities and other deposits* 11 |19,297 |
| |
Cash at bank | 112 |
| |
|19,424 |
| |
Creditors: amounts falling due within one year 12 | (95) |
| |
Net current assets | 19,329|
| |
Net assets | 21,171|
| |
| |
| |
Called up equity share capital 13 | 2,258 |
| |
Share premium 14 | - |
| |
Special distributable reserve 14 |19,092 |
| |
Capital redemption reserve 14 | 8 |
| |
Capital reserve - (losses) on disposals 14 | (176) |
| |
- holding gains 14 | 239 |
| |
Revenue reserve 14 | (250) |
| |
Total shareholders' funds | 21,171|
| |
Net asset value per share 8 | 93.8p|
+-------------------+
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 10
February 2011 and are signed on their behalf by:
Gregor Michie
Chairman
Company No: 07035434
The accompanying notes form an integral part of the financial statements.
Cash Flow Statement
+--------------------------+
| Period from 30 September|
| 2009 to 31 October 2010|
| |
| GBP'000|
| |
| |
| |
Net cash outflow from | |
operating activities | (346)| 12
| |
| |
| |
Financial investment: | |
| |
Purchase of fixed asset investments 9 | (1,842)|(3,054)
| |
| |
| |
Management of funds: | |
| |
Purchase of current asset investments 11| (27,008)|(2,146)
| |
Sale of current asset investments 11| 7,950| 5,461
| |
| |
| |
Financing: | |
| |
Issue of shares | 21,447| -
| |
Redemption of shares | (89)|
=------------------------------------------+--------------------------+
Increase in cash resources | |
at bank | 112|
The accompanying notes form an integral part of the financial statements.
Reconciliation of Return before Taxation to Cash Flow from Operating Activities
+-------------------------------------+
| Period from 30 September 2009 to 31 |
| October 2010|
| |
| GBP'000|
| |
Return on ordinary activities before tax| (187)|
| |
Gain on valuation of current asset | |
investments | (239)|
| |
Increase in debtors | (15)|
| |
Increase in creditors | 95|
| |
Inflow from operating activities | (346)|
+-------------------------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+-------------------------------------+
| Period from 30 September 2009 to 31 |
| October 2010|
| |
| GBP'000|
| |
Increase in cash resources | 112|
| |
Movement in cash equivalent securities | 19,297|
| |
Opening cash funds | -|
| |
Net funds at 31 October | 19,409|
+-------------------------------------+
Net Funds at 31 October comprised:
+--------------------------------------------------+
| Period from 30 September 2009 to 31 October 2010 |
| |
| GBP'000 |
| |
Cash at bank | 112 |
| |
Money market funds | 13,478 |
| |
OEICs | 5,819 |
| |
Net Funds at 31 October | 19,409 |
=------------------------+--------------------------------------------------+
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). A summary of the
principal accounting policies is set out below.
The Company presents its income statement in a three column format to give
shareholders additional detail of the performance of the Company, split between
items of a revenue or capital nature.
The preparation of the financial statements requires management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions
mainly relate to the fair valuation of the fixed asset investments particularly
unquoted investments. Estimates are based on historical experience and other
assumptions that are considered reasonable under the circumstances. The
estimates and the assumptions are under continuous review with particular
attention paid to the carrying value of the investments.
Capital valuation policies are those that are most important to the depiction of
the Company's financial position and that require the application of subjective
and complex judgements, often as a result of the need to make estimates about
the effects of matters that are inherently uncertain and may change in
subsequent periods. The critical accounting policies that are declared will not
necessarily result in material changes to the financial statements in any given
period but rather contain a potential for material change. The main accounting
and valuation policies used by the Company are disclosed below. Whilst not all
of the significant accounting policies require subjective or complex judgements;
the Company considers that the following accounting policies should be
considered critical.
The Company has designated all fixed asset investments as being held at fair
value through profit and loss; therefore all gains and losses arising from
investments held are attributable to financial assets held at fair value through
profit and loss. Accordingly, all interest income, fee income, expenses and
impairment losses are attributable to assets designated as being at fair value
through profit and loss.
Current asset investments comprising money market funds and deposits are held
for trading and are therefore automatically classified as fair value through
profit or loss.
Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Quoted investments are valued in accordance with the bid-
price on the relevant date, unquoted investments are valued in accordance with
current International Private Equity and Venture Capital ('IPEVC') valuation
guidelines, although this does rely on subjective estimates such as appropriate
sector earnings multiples, forecast results of investee companies, asset values
of subsidiary companies and liquidity or marketability of the investments held.
Although the Company believes that the assumptions concerning the business
environment and estimate of future cash flows are appropriate, changes in
estimates and assumptions could require changes in the stated values. This could
lead to additional changes in fair value in the future.
Investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly as permitted by FRS 26, the investments will be designated as fair
value through profit and loss ('FVTPL') on the basis that they qualify as a
group of assets managed, and whose performance is evaluated- on a fair value
basis in accordance with a documented investment strategy. The Company's
investments are measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is
established by reference to the closing bid price on the relevant date or the
last traded price, depending upon convention of the exchange on which the
investment is quoted. This is consistent with the International Private Equity
and Venture Capital ('IPEVC') guidelines.
In the case of unquoted investments, fair value is established by using measures
of value such as the price of recent transactions, earnings multiple and net
assets. This is consistent with IPEVC valuation guidelines.
Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the income statement and
allocated to the capital reserve - holding gains/(losses).
In the preparation of the valuations of assets the Directors are required to
make judgements and estimates that are reasonable and incorporate their
knowledge of the performance of the investee companies.
Current asset investments
Current asset investments comprise money market funds, bonds and OEICs and are
designated as FVTPL. Gains and losses arising from changes in fair value of
investments are recognised as part of the capital return within the Income
Statement and allocated to the capital reserve - gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager
and are readily convertible into cash at the choice of the Company. The current
asset investments are held for trading, are actively managed and the performance
is evaluated on a fair value basis in accordance with a documented investment
strategy. Information about them has to be provided internally on that basis to
the Board.
Income
Investment income includes interest earned on bank balances and money market
funds and includes income tax withheld at source.
Fixed returns on debt and money market funds are recognised on a time
apportionment basis so as to reflect the effective yield, provided there is no
reasonable doubt that payment will be received in due course.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
wholly to revenue with the exception of the investment management fee, which is
to be charged 25% to the revenue account and 75% to the capital reserve to
reflect, in the Directors' opinion, the expected long-term split of returns in
the form of income and capital gains respectively from the investment portfolio.
The transaction costs incurred when purchasing or selling assets are written off
to the Income Statement in the period that they occur.
Revenue and capital
The revenue column of the Income Statement includes all income and revenue
expenses of the Company. The capital column includes gains and losses on
disposal of investments and on holding investments. Gains and losses arising
from changes in fair value of investments are recognised as part of the capital
return within the income statement.
Taxation
Corporation tax payable is applied to profits chargeable to corporation tax, if
any, at the current rate. The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue return on the
'marginal' basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing
differences that have originated but not reversed at the balance sheet date 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 differences can
be deducted.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand. Liquid
resources are current asset investments which are disposable without curtailing
or disrupting the business and are either readily convertible into known amounts
of cash at or close to their carrying values or traded in an active market.
Liquid resources comprise term deposits of less than one year (other than cash),
government securities, investment grade bonds and investments in money market
managed funds, as well as OEICs.
Loans and receivables
The Company's loans and receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective interest method.
Financing strategy and capital structure
FRS 29 'Financial Instruments: Disclosures' comprises disclosures' relating to
financial instruments.
We define capital as shareholders' funds and our financial strategy in the
medium term is to manage a level of cash that balances the risks of the business
with optimising the return on equity. The Company currently has no borrowings
nor does it anticipate that it will drawdown any borrowing facilities in the
future to fund the acquisition of investments.
The company does not have any externally imposed capital requirements.
Financial instruments
During the course of the year, the Company held non-current asset investments,
shares in OEICs (open ended investment companies), money market funds and cash
deposits. The Company holds financial assets that comprise investments in
unlisted companies. The carrying value for all financial assets and liabilities
is fair value.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are paid, and for final
dividends when they are approved by the shareholders.
2. Income
Period ended
31 October 2010
GBP'000
Interest receivable on bank balances 34
3. Investment Management Fees
Period ended 31 October 2010
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Investment management fee 59 176 235
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 1 February 2010 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
Period ended
31 October 2010
GBP'000
Directors' remuneration 37
Fees payable to the Company's auditor for the audit of the
financial statements 7
Fees payable to the Company's auditor for other services - tax
compliance 1
Accounting and administration services 46
UK Listing Fees 30
Trail commission 62
Other expenses 42
225
Total annual running costs are capped at 3.2% of net assets (excluding
irrecoverable VAT). For the period to 31 October 2010 the running costs, as
defined in the prospectus, were 1.9% of net assets.
5. Directors' remuneration
Period ended
31 October 2010
GBP'000
Directors' emoluments
Gregor Michie (Chairman) 15
Lars McBride 11
Chris Hulatt (paid to Octopus Investments Limited) 11
37
None of the Directors received any other remuneration or benefit from the
Company during the period. The Company has no employees other than non-
executive Directors. The average number of non-executive Directors in the
period was three.
The Company's policy is for the Directors to be remunerated in the form of fees,
payable quarterly in arrears. The fees are not specifically related to the
Directors' performance, either individually or collectively. There are no
service contracts, long-term incentive schemes, share option schemes or pension
schemes in place.
6. Tax on ordinary activities
The corporation tax charge for the period was GBPnil.
The current tax charge for the period differs from the standard rate of
corporation tax in the UK of 28%. The differences are explained below.
Current tax reconciliation: 31 October 2010
GBP'000
Loss on ordinary activities before tax (187)
Current tax at 28% (52)
Unutilised tax losses 119
Income not taxable for tax purposes (67)
Total current tax charge -
The company has excess management charges of approximately GBP426,000 to carry
forward to offset against future taxable profits subject to agreement with HMRC.
The Company has not recognised the deferred tax asset of GBP119,000 in respect of
these excess management charges.
Approved VCT are exempt from tax on capital gains within the Company. Since the
directors intend that the Company will continue to conduct its affairs so as to
maintain its approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
7. Earnings per Share
The total, revenue and capital earnings per share is based on 11,541,206
ordinary shares, being the weighted average number of ordinary shares in issue
during the year.
There are no potentially dilutive capital instruments in issue and, therefore no
diluted returns per share figures are relevant. The basic and diluted earnings
per share are therefore identical.
8. Net asset value per share
The calculation of net asset value per share as at 31 October 2010 is based on
net assets of GBP21,171,000 and 22,578,706 ordinary shares in issue at that date.
9. Fixed asset investments
The Company has 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. The Company held no such investment
in the current or prior year.
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. The
change in fair value for the current and previous year is recognised through the
income statement.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in
investments at fair value through profit or loss during the year to 31 October
2010 are summarised below and in
note 11.
Level 3:
Unquoted investments
Equity and loan investments Total investments
31 October 2010 31 October 2010
GBP'000 GBP'000
Valuation and net book amount:
Book cost as at 1 November 2009 - -
Cumulative revaluation - -
Valuation at 1 November 2009 - -
Movement in the year:
Purchases at cost 1,842 1,842
Profit/(loss) on realisation of
investments - current year - -
Revaluation in year - -
Valuation at 31 October 2010 1,842 1,842
Book cost at 31 October 2010: 1,842 1,842
Revaluation to 31 October 2010: - -
Valuation at 31 October 2010 1,842 1,842
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
disclosed in the Investment Manager's review and within the principal accounting
policies in note 1. The sensitivity of these valuations to a reasonable possible
change in such assumptions is given in note X.
Further details of the fixed asset investments held by the Company are shown
within the Investment Manager's Review on pages X to X.
At 31 October 2010, there were no commitments in respect of investments not yet
completed.
10. Debtors
31 October 2010
GBP'000
Other debtors 5
Prepayments 4
Accrued income 6
15
11. Current Asset Investments
Current asset investments at 31 October 2010 comprised money market funds and
OEICs.
GBP'000 GBP'000
Valuation and net book amount:
Book cost as 30 September 2009
- OEICs -
Revaluation as at 30 September 2009
- OEICs -
Valuation as at 30 September 2009 -
Purchase at cost:
- Money market funds 21,428
- OEICs 5,580
27,008
Disposal proceeds
- Money market funds (7,950)
(7,950)
Revaluation in the year
- OEICs 239
239
Valuation as at 31 October 2010 19,297
Book cost as 1 November 2010
- Money market funds 13,478
- OEICs 5,580
19,058
Revaluation as at 1 November 2010
- Money market funds -
- OEICs 239
239
Valuation as at 31 October 2010 19,297
All current asset investments held at the year end sit with the level 1
hierarchy for the purposes of FRS 29.
Level 1 money market funds: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
valuation of money market funds at 31 October 2010 was GBP19,297,000.
12. Creditors: amounts falling due within one year
31 October 2010
GBP'000
Accruals 85
Other creditors 10
95
13. Share capital
31 October 2010
GBP'000
Authorised:
50,000,000 ordinary shares of 10p 5,000
Allotted and fully paid up:
22,578,706 ordinary shares of 10p 2,258
The capital of the Company is managed in accordance with its investment policy
with a view to the achievement of its investment objective as set on page X.
The Company is not subject to any externally imposed capital requirements.
The Company issued 22,578,706 ordinary shares during the period at a price of
100p per share.
On 1 February 2010 the Company made an allotment of 50,000 redeemable preference
shares of GBP1 each. These shares were allotted at par and GBP0.25 was paid on each
share. These were subsequently redeemed on 1 February 2010 out of the proceeds
of a first share issue. Following this redemption a resolution was passed
whereby these preference shares were re-designated as ordinary shares of 10p
each and rank pari passu with the existing ordinary shares.
14. Reserves
Capital Capital
reserve reserve Capital
Share Special gains/(losses) holding redemption Revenue
Share capital premium distributable on disposal gains/ reserve reserve
GBP'000 GBP'000 reserve GBP'000 GBP'000 (losses) GBP'000 GBP'000
As at date of - - - - -
incorporation - -
Issue of 2,266 19,172 - - -
equity - -
Share (8) (80) - - 8
cancellation - -
Share premium - (19,092) 19,092 - - - -
account
cancellation
Return on - - - - - (250)
ordinary -
activities
after tax
Management - - - (176) - - -
fees allocated
as capital
expenditure
Current period - - - - 239 - -
gains on
revaluation
Balance as at 2,258 - 19,092 (176) 8
31 October
2010 239 (250)
When the Company revalues its investments during the period, any gains or losses
arising are credited/ charged to the income statement. Changes in fair value of
investments held are then transferred to the capital reserve - holding
gains/(losses). When an investment is sold, any balance held on the 'capital
reserve - holding gains/(losses)' is transferred to the 'capital reserve -
gains/(losses) on disposal' as a movement in reserves.
Following the Company's petition, the Companies Court ordered that the special
resolution passed be the shareholders on 20 October 2010 to effect the
cancellation of the share premium account be confirmed. The Order relating to
the same was duly registered by the Registrar of Companies on the same date.
The purpose of the special distributable reserve is 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 revenue reserve and 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 cash balances and liquid resources
including debtors and creditors. The Company intends to hold financial assets in
accordance with its investment policy of investing mainly in a portfolio of VCT
qualifying unquoted securities whilst holding a proportion of its assets in cash
or near-cash investments in order to provide a reserve of liquidity.
Classification of financial instruments
The company held the following categories of financial instruments, all of which
are included in the balance sheet at fair value, at 31 October 2010.
31 October 2010
GBP000
Assets at fair value through profit or loss
Investments 1,842
Current asset investments 19,297
Total 21,139
Loans and receivables
Cash at bank 112
Other debtors 5
Accrued income 6
Total 123
Liabilities at amortised cost
Accruals and other creditors 95
Total 95
Fixed asset investments (see note 9) are valued at fair value. Unquoted
investments are carried at fair value as determined by the directors in
accordance with current venture capital industry guidelines. The fair value of
all other financial assets and liabilities is represented by their carrying
value in the balance sheet. The Directors believe that the fair value of the
assets held at the period end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various
types of risk associated with the financial instruments and markets in which it
invests. The most significant types of financial risk facing the Company are
price risk, interest rate risk, credit risk and liquidity risk. The Company's
approach to managing these risks is set out below together with a description of
the nature and amount of the financial instruments held at the balance sheet
date.
Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page X. The management of
market risk is part of the investment management process and is a central
feature of venture capital investment. The Company's portfolio is managed with
regard to the possible effects of adverse price movements and, with the
objective of maximising overall returns to shareholders. Investments in unquoted
companies, by their nature, usually involve a higher degree of risk than
investments in companies quoted on a recognised stock exchange, though the risk
can be mitigated to a certain extent by diversifying the portfolio across
business sectors and asset classes. The overall disposition of the Company's
assets is regularly monitored by the Board.
Details of the Company's investment portfolio at the balance sheet date are set
out on pages X and X. An analysis of investments is given in note 9.
8.7% by value of the Company's net assets comprises investments in unquoted
companies held at fair value. The valuation methods used by the Company include
the application of a price/earnings ratio derived from listed companies with
similar characteristics, and consequently the value of the unquoted element of
the portfolio can be indirectly affected by price movements on the London Stock
Exchange. A 10% overall increase in the valuation of the unquoted investments at
31 October 2010 would have increased net assets and the total return for the
period by GBP184,200. An equivalent change in the opposite direction would have
reduced net assets and the total return for the period by the same amount.
91.1% by value of the Company's net assets comprises of OEICs and money market
securities held at fair value. A 10% overall increase in the valuation of the
OEICs and money market securities at 31 October 2010 would have increased net
assets and the total return for the year by GBP1,929,700. 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, some of which are
at variable rates. As a result, the Company is exposed to fair value interest
rate risk due to fluctuations in the prevailing levels of market interest rates.
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing
deposit accounts and, where appropriate, within interest bearing money market
funds. The benchmark rate which determines the rate of interest receivable on
such investments is the bank base rate, which was 0.5% at 31 October 2010. The
amounts held in floating rate investments at the balance sheet date were as
follows:
31 October 2010
GBP'000
Cash on deposit & money market funds 13,591
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the period by GBP135,910.
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2010. By cost, no individual investment exceeded 7.5% of the Company's
net assets at 31 October 2010.
Credit risk is the risk that counterparty to a financial instrument will fail to
discharge an obligation or commitment that it has entered into with the Company.
The Investment Manager and the Board carry out a regular review of counterparty
risk. The carrying values of financial assets represent the maximum credit risk
exposure at the balance sheet date.
At 31 October 2010 the Company's financial assets exposed to credit risk
comprised the following:
31 October 2010
GBP000
Cash on deposit & money market funds 13,591
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.
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. As a result, the Company may not be able to realise some of its
investments in these instruments quickly at an amount close to their fair value
in order to meet its liquidity requirements, or to respond to specific events
such as deterioration in the creditworthiness of any particular issuer.
The Company's liquidity risk is managed on a continuing basis by the Investment
Manager in accordance with policies and procedures laid down by the Board. The
Company's overall liquidity risks are monitored on a quarterly basis by the
Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 31 October 2010
these investments were valued at GBP19,409,000.
16. Post balance sheet events
The following events occurred between the balance sheet date and the signing of
these financial statements:
· On 7 December 2010 a new investment of GBP367,000 was made into Diverse
Energy Limited
· On 24 December 2010 a new investment of GBP450,000 was made into Curlet (UK)
Limited (10CMS)
· On 28 January 2011 a new investment of GBP500,000 was made into Vega-Chi
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 and there was GBPnil
outstanding at the year end.
There were no contingencies, guarantees or financial commitments as at 31
October 2010.
18. Related party transactions
Chris Hulatt, a non-executive director of Octopus Titan VCT 4 plc, is a Director
of Octopus Investments Limited. Octopus Titan VCT 4 plc has employed Octopus
throughout the period as Investment Manager. Octopus Titan VCT 4 plc has paid
Octopus GBP235,200 in the period as a management fee and there is GBPnil outstanding
at the balance sheet date. The management fee is payable quarterly in advance
and is based on 2.0% of the net asset value calculated at annual intervals as at
31 October.
Octopus Investments Limited also provides accounting and administrative services
to the Company, payable quarterly in advance for a fee of 0.3% of the net asset
value calculated at annual intervals as at 31 October. During the period
GBP35,280 was paid to Octopus Investments and there is GBPnil outstanding 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 period GBP11,250 was due to Octopus Investments Limited and there is
GBPnil outstanding 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. Therefore, only if by the end of a financial year (commencing
no earlier than close of the 2013 financial year), declared distributions per
Share have reached 40p in aggregate and if the Performance Value at that date
exceeds 130p per Share, a performance incentive fee equal to 20% of the excess
of such Performance Value over 100p per Share will be payable to Octopus.
If, on a subsequent financial year end, the Performance Value of Octopus Titan
4 falls short of the Performance Value on the previous financial year end, no
incentive fee will arise. If, on a subsequent financial period end, the
performance exceeds the previous best Performance Value of Octopus Titan 4, the
Investment Manager will be entitled to 20% of such excess in aggregate.
No performance fee has been recognised for the year ended 31 October 2010 on the
basis that the directors do not believe that the necessary criteria will be met
in the foreseeable future, and therefore the amount of any possible obligation
is not material.
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(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 4 PLC via Thomson Reuters ONE
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