TIDMOTV4
Octopus Titan VCT 4 plc
Final Results
25 January 2013
Octopus Titan VCT 4 plc, 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 25 January 2013.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com
Octopus Titan VCT 4 plc
Registered Number: 07035434
Financial Summary
As at As at
31 October 2012 31 October 2011
=------------------------------------------------------------------------------
Net assets ( GBP'000s) 21,023 20,086
Return on ordinary activities after tax (296) (1,085)
( GBP'000s)
Net asset value (NAV) per share 87.7p 89.0p
Chairman's Statement
Introduction
I am pleased to present the Annual Report of Octopus Titan VCT 4 plc (the
"Company") for the year ended 31 October 2012.
Performance
During the year the Net Asset Value (NAV) of the Company has declined from 89.0
pence per share to 87.7 pence per share, a reduction of 1.5%. This decline is
partly attributable to the unquoted investee company portfolio, where we have
adopted a prudent approach to valuations, and also to the standard running costs
of the Company that exceeded the income generated.
The focus during the year was for the Company to continue to invest in a broad
range of unquoted smaller UK companies with the potential to generate
significant capital growth. This is discussed in the portfolio review.
The requirement under the VCT rules to have 70% of the Company's assets
represented by qualifying holdings by 31 October 2012 was achieved in good
time. Such qualifying investments amounted to over 75.64%, as measured by HMRC
rules, at the year end. Having now achieved this important milestone, the focus
of the Company will be to develop the existing portfolio by making follow-on
investments where investment companies have met their targets and exceeded
expectations. The Company, however, has sufficient liquidity to invest into new
companies should the right opportunity arise.
Investment Portfolio
The VCT made eight new investments during the year totalling GBP4.5 million in
addition to making nine follow on investments amounting to GBP3.8 million in
existing portfolio companies. The Investment Manager's Review on pages X to X
discusses this activity in more detail.
At 31 October 2012, the net assets of the Company were 63.8% in unquoted
investments, 16.2% in Octopus Open Ended Investment Companies (OEICs) and 20.0%
in cash or cash equivalents and debtors and creditors. Cash is invested in a
range of money market funds that focus on capital preservation to fit with the
Board's policy of preserving capital pending its deployment in Qualifying
Investments.
Secret Escapes and TouchType have seen significant increases in fair value of
GBP1,288,000 and GBP379,000 respectively. There were, however, a number of companies
which did not meet their targets or budgets and suffered decreases in fair value
in keeping with our prudent approach to valuations. The overall uplifts in fair
value exceeded the write downs resulting in a gain of GBP91,000 in the portfolio.
As is highlighted in the Investment Manager's review, it is not uncommon when
building a portfolio of early stage investments that a number of businesses will
suffer decreases in fair value, and these will typically occur prior to
increases in valuations from other members of the portfolio. However, as the
portfolio is developed and investments mature, a number of strong companies are
expected to come through that will allow the NAV to grow in years to come. The
earlier funds raised in the Titan portfolio have followed this pattern.
Top-up and buybacks
As mentioned in the interim report, the Company successfully raised GBP1,242,000
net of costs during the year which saw the Top-up offer fully subscribed.
Following the success of the 2012 Top-up, the Board are in discussions to make a
further offer of new shares alongside the other four Octopus Titan VCT's. We
expect to write to you with further details in the near future.
During the period, the company repurchased 11,125 shares. Further details can be
found in Note 13 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 Company fully disposed of both the Absolute Return Fund and the Absolute
European Fund during the year, realising gains of GBP129,000 and GBP6,000
respectively. Our remaining holdings are in Octopus UK Micro Cap Growth Fund,
which saw an uplift in fair value of GBP183,000, and in the Foundation Fund which
experienced an GBP11,000 decrease in fair value.
The Board continues to monitor these funds and believes it remains a sensible
strategy to maintain part of our non-qualifying portfolio in these OEICs due to
their liquid status and potential to achieve greater returns compared with cash
deposits. Further details of these 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 investment of our cash resources). As envisaged in
the Company's prospectus, between 15% and 25% of the assets of the Company will
be retained for liquidity and follow-on investments. As our existing portfolio
of unquoted companies starts to mature, many are likely to require further
rounds of investment and, although some of these investments may be non-
qualifying for VCT purposes, there will be circumstances in which it will be in
our shareholders' interests to continue to invest, subject always to maintenance
of the qualifying level of 70%.
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 approval as a VCT.
Annual General Meeting
I look forward to meeting shareholders at the Annual General Meeting on 14 March
2013 to be held at the offices of Octopus Investments Limited, 20 Old Bailey,
London, EC4M 7AN. The AGM will start at 10.00 p.m.
Regulation Proposal
The Manager, on behalf of the Board, has been consulting with the Association of
Investment Companies ('AIC') which has been leading discussions with the FSA on
issues arising from their Consultation Paper CP12/19, which seeks to treat all
VCTs as Unregulated Collective Investment Schemes (UCIS). It is widely
understood that the FSA's current proposal would include VCTs under the
promotion restrictions to ordinary retail investors. The VCT industry believes
that VCTs should remain a viable source of funding for UK small businesses
supported by ordinary retail investors. We believe they should be treated in the
same way as Investment Trusts, which are excluded from the proposal, on the
grounds that VCTs are also independent, listed companies governed by independent
boards of directors. The Manager is working alongside the AIC to urge the FSA to
ensure VCTs are excluded from the policy statement, which is expected in the
second quarter 2013.
Outlook
There remains uncertainty surrounding the economic climate. As a result of the
flat economy, there are ongoing challenges for small companies especially in
relation to pressure on working capital. Having said this, many of our portfolio
companies have continued to grow and have demonstrated an ability to adapt to a
difficult economic environment.
We continue to align our interests with those of the entrepreneurs in whose
companies we have invested, with potential for revenue growth and profitability
being our primary focus. We are confident that your Company has invested in the
equity of a diverse range of early stage companies which have the potential of
making significant returns for shareholders over the medium term.
Gregor Michie
Chairman
25 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 uncertainty, 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 20-30 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 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.
Having now reached the level of invested funds required by HMRC, our focus will
now shift to managing the portfolio and developing capital growth. The current
portfolio of holdings built by the Company now encompasses investments in 21
unquoted companies in a range of sectors.
As Investment Manager, we typically purchase a significant minority equity stake
in qualifying companies, providing financial capital to each business to build
and grow its operations and then to sell to an acquirer at some point in the
future. These entrepreneurial early stage businesses frequently face challenges
as they seek to establish themselves in their markets. 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 an additional
investment to fund their further progress. 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.
Liquidity in the Company is maintained to ensure adequate resources are
available to support further portfolio funding needs as they arise. This will be
assisted by the Top-up as described in the Chairman's Statement and is an
important feature of our model in delivering returns to shareholders.
Portfolio Review
As at 31 October 2012, the NAV of the Company was 87.7p per share compared to
89.0p per share at 31 October 2011, a reduction of 1.5%. This reduction was due
to the standard running costs of the fund exceeding the uplift in fair values of
the current portfolio and the OEICs.
The Company now holds 75.6% of its assets in qualifying holdings from an HMRC
perspective and we continue to work with each portfolio business as they develop
their proposition in their respective markets.
As Investment Manager, it is our continued 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. This approach can be demonstrated through eight follow on investments
being made, totalling GBP4,500,000. There were nine new investments during the
year in order to diversify the portfolio amounting to GBP3,800,000.
Investment highlights
As mentioned above, the portfolio has experienced an overall uplift of GBP91,000
in the year. This is largely due to increases in valuation for Secret Escapes
and Touchtype which have performed particularly well.
+------------------------------------------------------------------------------+
| Uplift in |
| Cost, value in Effect of uplift|
|Company Industry GBP'000 year, p on NAV,p|
| |
| |
| |
|Secret Escapes Consumer lifestyle and |
|Limited well being 1,467 1,288 5.37|
| |
|TouchType |
|Limited Telecommunications 384 379 1.58|
| ----------------------------------------+
| |
| 1,851 1,667 6.95|
+------------------------------------------------------------------------------+
A number of companies, however, struggled to meet expectations and as a result
experienced downward revaluations in fair value. Vega-Chi, Michelson
Diagnostics, Applied Superconductor and Aframe endured the largest write downs,
with a combined decrease in fair value of GBP1,239,000 during the year.
Realisations in the year
The Company fully disposed of Evi Technologies during the year recognising a
small loss of GBP11,000.
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
GBP109,000 into Bowman Power and GBP74,000 into Vega-Chi.
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 to the pressures of tough trading conditions and tight working
capital. It remains unclear when 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 and needs 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 2347.
Alex Macpherson
Octopus Investments Limited
25 January 2013
Investment Portfolio
Movement %
Movement Fair in fair % equity
in fair value value in voting held by
Investment value to as at year to rights all
cost as at 31 31 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) 4 Octopus
=-------------------------------------------------------------------------------------
Secret Escapes Consumer lifestyle
Limited and well being 1,467 1,373 2,840 1,288 8.54 17.44
Certivox
Limited Technology 1,613 21 1,634 6 16.34 33.08
Rangespan Consumer lifestyle
Limited and well being 1,125 - 1,125 - 6.43 25.71
Ultrasoc
Technologies
Limited Technology 954 - 954 - 20.73 65.21
TouchType
Limited Telecommunications 384 544 928 379 4.20 20.07
Amplience
Limited Technology 1,174 (259) 915 - 13.50 63.13
Semafone
Limited Telecommunications 755 - 755 - 3.56 46.64
Iovox Limited Telecommunications 750 - 750 - 9.35 24.94
Executive
Channel Europe
Limited Media 640 61 701 - 7.29 36.12
Lifebook Consumer lifestyle
Limited and well being 555 - 555 - 11.34 32.64
Artesian
Solutions
Limited Technology 500 - 500 - 6.04 24.17
Vega-Chi
Limited Technology 640 (294) 346 (295) 6.94 20.92
Michelson
Diagnostics Consumer lifestyle
Limited and well being 650 (326) 324 (324) 8.26 42.87
Bowman Power
Limited Environmental 312 (42) 270 (69) 2.69 15.55
Aframe Limited Media 500 (251) 249 (250) 6.88 20.65
The Faction Consumer lifestyle
Collective SA and well being 167 - 167 - 5.53 11
Y-Plan
(Leanworks) Consumer lifestyle
Limited and well being 151 - 151 - 5.16 14.63
PrismaStar
Inc. Media 425 (300) 125 (151) 4.95 33.02
Applied
Superconductor
Limited Environmental 493 (370) 123 (370) 7.96 24.22
Diverse Energy
Limited Environmental 414 (414) - (46) 5.47 29.76
Elonics
Limited Technology 306 (306) - (77) 3.11 19.54
=-------------------------------------------------------------------------------------
Total fixed asset investments 13,975 (563) 13,412 91
=-------------------------------------------------------------------------------------
Money market
funds 3,396 - 3,396 -
Open ended investment companies 2,790 614 3,404 172
Cash at bank 91 - 91 -
=-------------------------------------------------------------------------------------
Total
investments 20,252 51 20,303 263
=-------------------------------------------------------------------------------------
Debtors less
creditors 720
=-------------------------------------------------------------------------------------
Total net
assets 21,023
=-------------------------------------------------------------------------------------
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of fair
value of a financial asset that is either quoted or not quoted in an active
market is the transaction price (i.e. cost).
Subsequent measurement
Further funding rounds are a good indicator of fair value and this measure is
used where appropriate. Subsequent adjustment to the fair value of unquoted
investments can be made using sector multiples based on information as at 31
October 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. 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 year, the Company made eight new investments and nine follow on
investments amounting to GBP8,298,000. 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
in accounting note 1, 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.
Listed below are details of the Company's 10 largest investments by value.
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:
GBP1,467,000
Valuation:
GBP2,840,000
Equity held:
8.54%
Equity held by all funds managed by Octopus: 17.44%
Last submitted audited accounts: 31 December
2011
Turnover : GBP2,035,803
Loss before tax:
( GBP1,235,508)
Net assets:
GBP2,126,845
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:
GBP1,613,000
Valuation:
GBP1,634,000
Equity held:
16.34%
Equity held by all funds managed by Octopus: 33.08%
Last submitted audited accounts: 30 June 2011
Turnover : n/a
Net assets:
GBP1,720,269
Rangespan Limited
Launched in 2011 by a team of ex-Amazon.com senior executives and engineers,
Rangespan is a technology company with an automated supply chain service. The
team has extensive experience in e-commerce best practice and scalable software
development, as well as a fanatical focus on customer experience. The Rangespan
service enables retailers to list tens of thousands of new products online
without a lengthy technology integration project, ongoing product data
management, upfront costs, or assuming additional inventory risk.
Initial investment date:
November 2011
Cost:
GBP1,125,000
Valuation:
GBP1,125,000
Equity held:
6.43%
Equity held by all funds managed by Octopus: 25.71%
Last submitted audited accounts: 31 March
2012
Turnover GBP558,232
Loss before tax:
( GBP863,025)
Net assets:
GBP1,617,100
UltraSoC Technologies Limited
UltraSoC Technologies Ltd develops advanced debugging technology for the
embedded electronic systems used in products, from cars to mobile phones.
UltraSoC Technologies is developing next-generation, silicon Intellectual
Property (IP) that addresses the challenges of debugging the application
software which provides the functionality and performance in modern electronic
products.
Initial investment date:
September 2011
Cost:
GBP954,000
Valuation:
GBP954,000
Equity held:
20.73%
Equity held by all funds managed by Octopus: 65.21%
Last submitted audited accounts: 31 December
2011
Turnover n/a
Loss before tax:
( GBP956,662)
Net assets:
GBP856,760
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
Amplience Limited
Amplience is a leading Commerce Content Management platform for global brands
and retailers. The platform enables retailers to deliver engaging retail
experiences across multi-digital channels, including smartphones and tablets. It
makes it quicker and cheaper for retailers to update content on websites, while
also demonstrably increasing the amount their customers spend.
Initial investment date:
December 2010
Cost:
GBP1,174,000
Valuation:
GBP915,000
Equity held:
13.50%
Equity held by all funds managed by Octopus: 63.13%
Last submitted audited accounts: 31 December
2011
Turnover GBP405,602
Loss before tax:
( GBP1,580,674)
Net liabilities:
( GBP682,547)
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:
GBP755,000
Valuation:
GBP755,000
Voting rights held by Fund:
3.56%
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)
Iovox Limited
The Iovox platform gives real-time visibility into all aspects of telephone
traffic, enabling customers to clearly identify the source and result of each
call, creating a proven record of all leads generated through real-time reports.
Offline lead tracking is complimented by other functionality such as call
whispers (automated pre-connection notifications, notifying both the caller and
receiver of the lead-generator in each case), recording and time-based calling.
Initial investment date: August
2012
Cost:
GBP750,000
Valuation:
GBP750,000
Equity held:
9.35%
Equity held by all funds managed by Octopus: 24.94%
Last submitted audited accounts: 31 December
2011 (abbreviated)
Turnover Not disclosed
Loss before tax: Not
disclosed
Net liabilities:
( GBP237,727)
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
Lifebook Limited
LifeBook offers an opportunity to share the life experiences of an individual
with their loved ones in the form of an autobiography. Though the content is
that of the Author, LifeBook provides many professional human touch points
during the process. It is not just about the book, but the whole experience of
telling their story. With an ageing population in many parts of the developed
world, the number of potential authors aged 50 and above is substantial. For
example, in the UK, there are over 20m people aged 50 or more, nearly a third of
the entire population, and many have a high level of disposable income.
Initial investment date:
September 2012
Cost:
GBP555,000
Valuation:
GBP555,000
Equity held:
11.34%
Equity held by all funds managed by Octopus: 32.64%
Last submitted audited accounts: n/a
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 GBP0.2 million to
GBP2 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 Fund
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
Gregor Michie
Chairman
25 January 2013
Income Statement
+----------------------+
| Year to 31 October |
| 2012 |
=---------------------------------------------------+----------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=---------------------------------------------------+----------------------+
| |
| |
Loss on disposal of fixed asset investments 9 | - (1) (1)|
| |
Gain on disposal of current asset investments | - 110 110|
| |
| |
| |
Fixed asset investment holding gains 9 | - 91 91|
| |
Current asset investment holding gains | - 172 172|
| |
| |
| |
Other income 2 | 40 - 40|
| |
| |
| |
Investment management fees 3 | (101) (303) (404)|
| |
| |
| |
Other expenses 4 | (304) - (304)|
| |
| |
=---------------------------------------------------+----------------------+
Return on ordinary activities before tax | (365) 69 (296)|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
=---------------------------------------------------+----------------------+
Return on ordinary activities after tax | (365) 69 (296)|
=---------------------------------------------------+----------------------+
(Loss)/earnings per share - basic and diluted 7 | (1.6)p 0.3p (1.3)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.
Income Statement
+-----------------------+
|Year to 31 October 2011|
=---------------------------------------------------+-----------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=---------------------------------------------------+-----------------------+
| |
| |
Fixed asset investment holding losses | - (663) (663)|
| |
Current asset investment holding gains | - 228 228|
| |
| |
| |
Other income 2 | 60 - 60|
| |
| |
| |
Investment management fees 3 | (106) (318) (424)|
| |
| |
| |
Other expenses 4 | (286) - (286)|
=---------------------------------------------------+-----------------------+
Return on ordinary activities before tax | (332) (753) (1,085)|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
=---------------------------------------------------+-----------------------+
Return on ordinary activities after tax | (332) (753) (1,085)|
=---------------------------------------------------+-----------------------+
Earnings/(loss) per share - basic and diluted 7 | (1.5)p (3.3)p (4.8)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 31 October 2012|Year to 31 October 2011|
| | |
| GBP'000| GBP'000|
=------------------------------+-----------------------+-----------------------+
Shareholders' funds at start | 20,086| 21,171|
of year | | |
=------------------------------+-----------------------+-----------------------+
Return on ordinary activities | (296)| (1,085)|
after tax | | |
=------------------------------+-----------------------+-----------------------+
Purchase of own shares | (9)| -|
| | |
Issue of equity (net of | 1,242| -|
expenses) | | |
=------------------------------+-----------------------+-----------------------+
Shareholders' funds at end of | 21,023| 20,086|
year | | |
=------------------------------+-----------------------+-----------------------+
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* 9 | 13,412| 5,671|
| | |
| | |
| | |
Current assets: | | |
| | |
Debtors 10 | 780 | 13 |
| | |
Money market funds and other | | |
deposits* 11 | 6,800 |14,363 |
| | |
Cash at bank | 91 | 107 |
=--------------------------------------+-------------------+-------------------+
| 7,671 |14,483 |
| | |
Creditors: amounts falling due | | |
within one year 12 | (60) | (68) |
=--------------------------------------+-------------------+-------------------+
Net current assets | 7,611| 14,415|
=--------------------------------------+-------------------+-------------------+
Net assets | 21,023| 20,086|
=--------------------------------------+-------------------+-------------------+
| | |
| | |
Called up equity share capital 13 | 2,398 | 2,258 |
| | |
Share premium 14 | 1,101 | - |
| | |
Special distributable reserve 14 |19,083 |19,092 |
| | |
Capital redemption reserve 14 | 9 | 8 |
| | |
Capital reserve - losses on | | |
disposals 14 | (672) | (494) |
| | |
- | | |
holding gains/(losses) 14 | 51 | (196) |
| | |
Revenue reserve 14 | (947) | (582) |
=--------------------------------------+-------------------+-------------------+
Total shareholders' funds | 21,023| 20,086|
=--------------------------------------+-------------------+-------------------+
Net asset value per share 8 | 87.7p| 89.0p|
| +-------------------+
*Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 25
January 2013 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
+---------------------+----------------------+
| Year to 31 October| Year to 31 October|
| 2012| 2011|
| | |
| GBP'000| GBP'000|
=---------------------------------+---------------------+----------------------+
| | |
| | |
Net cash inflow/(outflow) from | | |
operating activities | (796)| (675)|
| | |
| | |
| | |
Financial investment: | | |
| | |
Purchase of fixed asset | | |
investments 9 | (8,298)| (4,492)|
| | |
Sale of fixed asset investment 9 | -| -|
| | |
| | |
| | |
Management of liquid | | |
resources: | | |
| | |
Purchase of current asset | | |
investments | (3,750)| (13,264)|
| | |
Sale of current asset | | |
investments | 11,595| 18,426|
| | |
| | |
| | |
Taxation 6 | -| -|
| | |
| | |
| | |
Dividends paid | -| -|
| | |
| | |
| | |
Financing: | | |
| | |
Issue of shares 13| 1,242| -|
| | |
Purchase of own shares 13| (9)| -|
=---------------------------------+---------------------+----------------------+
Decrease in cash resources at | | |
bank | (16)| (5)|
=---------------------------------+---------------------+----------------------+
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 | (296)| (1,085)|
| | |
Loss on disposal of fixed assets | 1| -|
| | |
Gain on disposal of current assets| (110)| -|
| | |
(Gain)/loss on valuation of fixed | | |
asset investments | (91)| 663|
| | |
Gain on valuation of current asset| | |
investments | (172)| (228)|
| | |
(Increase)/decrease in debtors | (120)| 2|
| | |
Decrease in creditors | (8)| (27)|
=----------------------------------+---------------------+---------------------+
Outflow from operating activities | (796)| (675)|
+---------------------+---------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+-----------------------+-----------------------+
|Year to 31 October 2012|Year to 31 October 2011|
| | |
| GBP'000| GBP'000|
=------------------------------+-----------------------+-----------------------+
Decrease in cash resources at | | |
bank | (16)| (5)|
| | |
Movement in cash equivalents | (7,563)| (4,934)|
| | |
Opening net funds | 14,470| 19,409|
=------------------------------+-----------------------+-----------------------+
Net funds at 31 October | 6,891| 14,470|
+-----------------------+-----------------------+
Net Funds at 31 October comprised:
+-------------------------+-------------------------+
| | |
| Year to 31 October 2012 | Year to 31 October 2011 |
| | |
| GBP'000 | GBP'000 |
=-------------------------+-------------------------+-------------------------+
Cash at bank | 91 | 107 |
| | |
Money market funds | 3,396 | 8,316 |
| | |
OEICs | 3,404 | 6,047 |
=-------------------------+-------------------------+-------------------------+
Net Funds at 31 October | 6,891 | 14,470 |
=-------------------------+-------------------------+-------------------------+
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 15 to the Financial
Statements.
The Board receives regular reports from the Investment Manager and the Directors
have a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. The assets of the
company consist of cash, Money Market Funds and OEIC Investments, which are
readily realisable (32.8% 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 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 and loss. Accordingly, all interest income, fee income, expenses and
impairment losses are attributable to assets designated as being at fair value
through profit or loss.
Current asset investments comprising money market funds and OEICs 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 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.
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 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 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 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 (open ended
investment companies) 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 choice of the Company. The current
asset investments 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.
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.
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
We define capital as shareholders' funds and our financial strategy in the
medium term is to manage a level of cash that balances the risks of the business
with optimising the return on equity. The Company currently has no borrowings
nor does it anticipate that it will drawdown any borrowing facilities in the
future to fund the acquisition of investments.
The company does not have any externally imposed capital requirements.
The value of the managed capital is indicated in note 13. The Board considers
the distributable reserves and the total return for the year when recommending a
dividend. In addition, the Board is authorised to make market purchases up to a
maximum of 5% of the issued Ordinary share capital of the Company in accordance
with Special Resolution 8 in order to maintain sufficient liquidity in the VCT.
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 paid, and for final
dividends when they are approved by the shareholders.
2. Other income
Year ended 31 October 2012 Year ended
31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Interest on bank balances and
dividends receivable on money 40
market funds 60
3. Investment Management Fees
Year ended 31 October Year ended 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 101 303 404 106 318 424
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
Year ended 31 October 2012 Year ended
31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Directors' remuneration 50 50
Fees payable to the Company's 12 8
auditor for the audit of the
financial statements
Fees payable to the Company's 2 2
auditor for other services - tax
compliance
Accounting and administration 61 79
services
UK Listing Fees 19 6
Trail commission 98 89
Other expenses 62 52
=------------------------------------------------------------------------------
304 286
=------------------------------------------------------------------------------
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 2.9% of net assets (2011: 2.9%).
5. Directors' remuneration
Year to 31 October 2012 Year ended
31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Directors' emoluments
Gregor Michie (Chairman) 20 20
Lars McBride 15 15
Alex Macpherson 13 -
Chris Hulatt (paid to Octopus 2 15
Investments Limited)
=------------------------------------------------------------------------------
50 50
=------------------------------------------------------------------------------
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 (2011: three).
6. Tax on ordinary activities
The corporation tax charge for the period 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%).
Current tax reconciliation: 31 October 2012 31 October 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Loss on ordinary activities before tax (296) (1,085)
Capital (gains)/losses not taxable (372) 435
--------------------------------
(668) (650)
Current tax at 24.83% (2011: 26.83%) (166) (174)
Unrelieved tax losses - 65
Expenses not deductible/income not taxable for 166 109
tax purposes
=------------------------------------------------------------------------------
Total current tax charge - -
=------------------------------------------------------------------------------
The Company has losses arising from management charges of approximately
GBP1,840,000 (2011: GBP1,130,000) to carry forward to offset against future taxable
profits subject to agreement with HMRC. The Company has not recognised the
deferred tax asset of GBP431,000 (2011: GBP300,000) in respect of these excess
management charges.
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so as
to maintain its approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
7. Earnings per Share
The total earnings per share is based on a total loss of GBP296,000 (2011:
GBP1,085,000) and 23,377,457 (2011: 22,578,706) ordinary shares, being the
weighted average number of ordinary shares in issue during the period.
The revenue earnings per share is based on a revenue loss of GBP365,000 (2011:
GBP332,000) and 23,377,457 (2011: 22,578,706) ordinary shares, being the weighted
average number of ordinary shares in issue during the period
The capital earnings per share is based on a capital gain of GBP69,000 (2011: loss
of GBP753,000) and 23,377,457 (2011: 22,578,706) ordinary shares, being the
weighted average number of ordinary shares in issue during the period
There are no potentially dilutive capital instruments in issue and, therefore no
diluted return per share figures are relevant. The basic and diluted earnings
per share are therefore identical.
8. Net asset value per share
The calculation of net asset value per share as at 31 October 2012 is based on
net assets of GBP21,023,000 (2011: GBP20,086,000) and 23,982,316 (2011:
22,578,706) ordinary shares in issue at that date.
9. 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. The Company held no
such investments 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 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:
none). The change in fair value for the current and previous year is recognised
through the income statement.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in investments at fair value through profit or
loss during the year to 31 October 2012 are summarised below.
Level 3:
Unquoted investments Total investments
31 October 2012 31 October 2012
GBP'000 GBP'000
=-------------------------------------------------------------------------
Valuation and net book amount:
Book cost as at 1 November 2011 6,334 6,334
Cumulative revaluation (663) (663)
=-------------------------------------------------------------------------
Valuation at 1 November 2011 5,671 5,671
Movement in the year:
Purchases at cost 8,298 8,298
Disposal proceeds (647) (647)
Loss on realisation of investments (1) (1)
Revaluation in year 91 91
=-------------------------------------------------------------------------
Valuation at 31 October 2012 13,412 13,412
=-------------------------------------------------------------------------
Book cost at 31 October 2012: 13,975 13,975
Revaluation to 31 October 2012: (563) (563)
=-------------------------------------------------------------------------
Valuation at 31 October 2012 13,412 13,412
=-------------------------------------------------------------------------
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 and therefore they are combined in the table shown above. The costs
incurred in the disposals amount to GBP11,000.
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.
At 31 October 2012 and 31 October 2011, there were no commitments in respect of
investments not yet completed.
10. Debtors
31 October 2012 31 October 2011
GBP'000 GBP'000
=-------------------------------------------------------
Prepayments 133 11
Disposal proceeds 647 2
=-------------------------------------------------------
780 13
=-------------------------------------------------------
Disposal proceeds of GBP132,000 are due in more than one year.
11. 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 3,396 8,316
OEIC's 3,404 6,047
=--------------------------------------------------------
6,800 14,363
=--------------------------------------------------------
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 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 GBP6,800,000
(2011: GBP14,363,000).
12. Creditors: amounts falling due within one year
31 October 2012 31 October 2011
GBP'000 GBP'000
=-----------------------------------------------------
Accruals 60 58
Other creditors - 10
=-----------------------------------------------------
60 68
=-----------------------------------------------------
13. 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 and fully paid up:
23,982,316 (2011: 22,578,706) ordinary shares 2,398 2,258
of 10p
=------------------------------------------------------------------------------
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 VCT.
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 1,414,735 shares at a price of 92.6p during the year (2011:
No shares were issued during the year).
The Company repurchased the following Ordinary shares for cancellation (2011:
nil shares):
· 2 March 2012: 11,125 at a price of 83.2p per share
14. Reserves
Capital
Capital reserve
Special reserve holding Capital
Share distributable gains/(losses) gains/ redemption Revenue
Premium reserve on disposal (losses) reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=------------------------------------------------------------------------------
Balance as - 19,092 (494) 8
at 1
November
2011 (196) (582)
Return on - - - - - (365)
ordinary
activities
after tax
Purchase of - (9) - - 1 -
own shares
Issue of 1,101 - - - - -
Equity
Management - - (303) - - -
fees
allocated as
capital
expenditure
Current year - - 109 -
gains on
disposal
Current - - - 263 - -
period gains
on
revaluation
Prior year - - 16 (16)
gains on
disposal
=------------------------------------------------------------------------------
Balance as 1,101 19,083* (672)* 9
at 31
October 2012 51 (947)*
=------------------------------------------------------------------------------
*Reserve 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.
Reserves available for potential distribution by way of a dividend are:
GBP'000
=--------------------------------
As at 1 November 2011 18,016
Movement in year (552)
=--------------------------------
As at 31 October 2012 17,464
=--------------------------------
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 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 equity and fixed interest
investments and 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 2012.
31 October 2012 31 October 2011
GBP000 GBP000
Assets at fair value through profit or loss
Fixed asset investments 13,412 5,671
Current asset investments 6,800 14,363
=---------------------------------------------------------------------------
Total 20,212 20,034
Loans and receivables
Cash at bank 91 107
Accrued Income - 2
Disposal proceeds 647 -
=---------------------------------------------------------------------------
Total 738 109
Liabilities at amortised cost
Accruals 60 68
=---------------------------------------------------------------------------
Total 60 68
Fixed asset investments (see note 9) are carried at fair value. Unquoted
investments are carried at fair value as determined by the directors in
accordance with current venture capital industry guidelines. The fair value of
all other financial assets and liabilities is represented by their carrying
value in the balance sheet. 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 to X. An analysis of investments is given in note 9.
63.8% (2011: 28.2%) by value of the Company's net assets comprises investments
in unquoted companies held at fair value. The valuation methods used by the
Company include the application of a price/earnings ratio derived from listed
companies with similar characteristics, and consequently the value of the
unquoted element of the portfolio can be indirectly affected by price movements
on the London Stock Exchange. A 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 GBP671,000 (2011: GBP284,000). An equivalent change
in the opposite direction would have reduced net assets and the total return for
the period by the same amount.
32.3% (2011: 71.5%) 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 GBP340,000 (2011: GBP716,000). 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, 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.
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 2,150 11% 5.0 124 12% 5.0
=------------------------------------------------------------------------------
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% 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
=--------------------------------------------------------------------------
Cash on deposit & money market funds 3,487 8,423
=--------------------------------------------------------------------------
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the period by GBP34,870 (2011: GBP84,230).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2012. By cost, no individual investment exceeded 7.7% of the Company's
net assets at 31 October 2012.
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 2012 the Company's financial assets exposed to credit risk
comprised the following:
31 October 2012 31 October 2011
GBP'000 GBP'000
=--------------------------------------------------------------------------
Cash on deposit & money market funds 3,487 8,423
=--------------------------------------------------------------------------
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.
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. 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 GBP6,800,000.
16. Post balance sheet events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* On 15 November 2012 a further GBP109,000 was invested into Bowman Power
Limited.
* On 9 January 2013 a further GBP74,000 was invested into Vega-Chi Limited.
17. 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 GBP104,000 (2011: GBP90,000) was paid during the year and there
was GBP25,000 (2011: GBPnil) outstanding at the year end.
There were no contingencies, guarantees or financial commitments as at 31
October 2012 (2011: none).
18. Transactions with manager
Octopus Titan VCT 4 plc has employed Octopus Investments Limited throughout the
year as the Investment Manager.
Octopus Titan VCT 4 plc has paid Octopus GBP508,000 (2011: GBP424,000) in the year
as a management fee which includes a prepayment of GBP104,000 (2011: GBPnil) as 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
GBP77,000 (2011: GBP64,000) was paid to Octopus Investments and there was GBP16,000
(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 GBP4,000 (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. 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 the
Company falls short of the Performance Value on the previous financial year end,
no incentive fee will arise. If, on a subsequent financial period end, the
performance exceeds the previous best Performance Value of Octopus the Company,
the Investment Manager will be entitled to 20% of such excess in aggregate.
No performance fee has been recognised for the year ended 31 October 2012 on the
basis that the directors consider that the liability becomes due at the point
that the performance criteria are met; this has not been achieved and therefore
no liability has been recognised.
19. Related Party Transactions
Chris Hulatt, a non-executive director of Octopus Titan VCT 4 plc during the
year to 31 October 2012 until his resignation on 12 December 2011, is a Director
of Octopus Investments Limited. Alex Macpherson, an investment manager at
Octopus Investments Limited was appointed as a non-executive director of Octopus
Titan VCT 4 plc on 12 December 2011.
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 4 PLC via Thomson Reuters ONE
[HUG#1673326]
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