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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Octopus T. 4 | LSE:OTV4 | London | Ordinary Share | GB00B5467F20 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 92.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Octopus Titan VCT 4 plc
Final Results
17 February 2012
Octopus Titan VCT 4 plc, managed by Octopus Investments Limited, today announces
the final results for the year ended 31 October 2011.
These results were approved by the Board of Directors on 17 February 2012.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com by navigating to Services, Investor Services, Venture
Capital Trusts, Octopus Titan VCT 4 plc. All other statutory information will
also be found there.
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 2011. Further progress has been made
during the period in identifying and investing in high-quality early stage
investments with good growth potential.
There has been a recent change in the constitution of your Board. Chris Hulatt
has decided to step down as Director to focus more on his principal job of CFO
at Octopus Investments. I should like to take this opportunity to thank Chris
for his dedication and advice on this Board since its inception. I am delighted
that Alex Macpherson has agreed to replace Chris on the Board with effect from
12 December 2011. Alex has extensive experience in identifying early stage
businesses and has responsibility within Octopus Investments Limited (Octopus)
for evaluating the potential of companies for investment.
Performance
During the year the Net Asset Value (NAV) of the Company has declined from 93.8
pence per share to 89.0 pence per share, a reduction of 5.1%. 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 currently exceed any income generated.
The focus for the Company is to continue to invest in a broad range of unquoted
smaller UK companies with the potential for high growth in order to generate
capital growth over the long-term, and to achieve the VCT requirement of having
a 70% qualifying investment level prior to 31 October 2012.
Investment Portfolio
The VCT made seven new investments during the year totalling GBP3.4 million in
addition to making three follow on investments amounting to GBP1.1 million in
existing portfolio companies. The Investment Manager's Review on pages X to X
discusses this activity in more detail. These additions have been in companies
engaged in a diverse range of activities.
At 31 October 2011, the net assets of the Company were 28.2% in unquoted
investments, 30.1% in Octopus Open Ended Investment Companies (OEICs) and 41.7%
in cash or cash equivalents. Cash is invested in a range of money market funds
that focus on capital preservation to fit with the Board's policy of preserving
the capital of the Company before its deployment in Qualifying Investments.
Significant increases in fair value have been recognised in TouchType and Secret
Escapes. This, along with other smaller increases, totalled GBP353,000. However,
elsewhere the portfolio has suffered decreases in fair value, with Diverse
Energy being written down to GBPnil. Overall the fair value of the investee
company portfolio has decreased by GBP663,000 during the year.
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.
Top-up
I am pleased to announce that the Company, together with the four other Titan
VCTs managed by Octopus, is offering the opportunity to invest in the Titan
family of funds through a Top-up fund-raising. With the capacity to raise up to
GBP1.25 million for each of the five VCTs, this will provide shareholders and
other investors with the opportunity to benefit from the tax reliefs available
to qualifying investors, and the tax-exempt flow of dividends from capital
gains.
These shares will be issued at a price equal to the most recently published NAV
per share adjusted for the offer costs of 5.5%, so as to avoid any dilution in
value to existing shareholders. The funds raised will be invested in both new
deals and in existing portfolio companies where further investment is merited.
For further information, including a copy of the full brochure, please contact
Octopus using the details provided on page X of this report.
Open Ended Investment Companies (OEICs)
The VCT remains invested in four OEICs which cumulatively saw an uplift in fair
value of GBP228,000 in the year, with the Octopus UK Micro Cap Growth Fund
accounting for the majority of this.
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 highly liquid status and potential to achieve greater returns when
compared to cash deposits. Further details of these OEICs may be found at
www.octopusinvestments.com where monthly factsheets are 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, which are
expected to increase following the Top-up (see above). As envisaged in the
Company's prospectus, between 15% and 25% of the assets of the Company will be
retained as non-qualifying 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 these investments may not be
qualifying for VCT purposes, there will be circumstances where it will be in our
shareholders' interests to continue to invest.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
concerning ongoing compliance with HMRC rules and regulations concerning VCTs.
The Board has been advised that the Company is compliant with the conditions
laid down by HMRC for maintaining provisional approval as a VCT.
As mentioned above, a key requirement now is to achieve the 70% qualifying
investment level prior to 31 October 2012. As at 31 October 2011, 31.6% of the
portfolio, as measured by HMRC rules, was invested in VCT qualifying
investments. In view of the current investment activity, the Board is confident
that the 70% target will be met by the required date.
Annual General Meeting
I look forward to meeting shareholders at the Annual General Meeting on 4 April
2012 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.
Electronic communications
Based on feedback from shareholders, and in order to reduce the cost of printing
and the impact on the environment, we now offer shareholders the opportunity to
forgo their printed report and account documents, in favour of receiving email
or letter notification with details of how to view the documents online. If you
would like to change the format in which you receive this report, please contact
Octopus using the contact details provided on page X of this report.
Outlook
The current economic climate continues with uncertainty both domestically and
internationally which has generally had the effect of reducing funding available
for small unquoted companies. Despite the fact that many of the portfolio
companies are insulated from the worst of the macro-economic situation, the
effects of the continuing credit squeeze and flat economy has inevitably created
challenges. That said, some existing portfolio companies have achieved growth
during the period and the shortage of alternative sources of finance has
increased the investment opportunities available to VCTs.
Aligning our interests with those of the entrepreneurs' in whose companies we
have invested remains a priority, with growth and profitability being the
primary focus. Your Company, following the mandate offered in the prospectus,
has successfully invested in the equity of a diverse range of early stage
companies which have the potential of making significant returns for
shareholders. This process continues apace as we work through our third year as
a qualifying VCT.
Gregor Michie
Chairman
17 February 2012
Investment Manager's Review
Personal Service
We are committed to providing our investors with regular and open communication
with updates that 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 19 VCTs and over
GBP340m in the VCT sector. Octopus has over 200 employees and has been voted
'Best VCT Provider of the Year' by the financial adviser community every year
since 2006.
Investment Policy
The investment approach of Titan 4 is not designed to deliver a return that is
measured against a stock market index. Rather the focus of Titan 4 is on
generating absolute returns over the medium-term. In order to achieve this, the
Fund focuses on providing early stage, development and expansion funding to
unquoted companies with a typical deal size of GBP0.5 million to GBP1 million and
the portfolio will comprise 20-25 unquoted companies, predominantly within the
environment, technology, media, telecoms and consumer lifestyle and well-being
sectors.
Investment Strategy
The investee companies are those that we believe have great potential but need
some financial support to realise it. Each company that we target 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.
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.
As Investment Manager, we typically purchase a significant minority equity stake
in qualifying companies, providing financial capital to the business to build
and grow its operations and then to sell to an acquirer at some point in the
future. These entrepreneurial early stage businesses 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 a further
investment. This is in order for us to see them progress and prove their
business model and opportunity. Finally, there are those that meet and exceed
the expectations originally set. It is these businesses in which we wish to
increase our 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 2011 the NAV of the Company was 89.0p per share compared to
93.8p per share at 31 October 2010, a reduction of 5.1%. This reduction was
largely due to an overall decrease in fair value in the unquoted portfolio,
despite encouraging uplifts in TouchType and Secret Escapes. Disappointingly,
Diverse Energy was written down to nil and significant write downs were also
made to the holdings in Elonics, PrismaStar and 10 CMS. The standard running
costs of the Company also contributed to the decline in Total Return at a stage
when little income is generated from the portfolio. However, the OEIC holdings
went some way in offsetting this fall, with an increase in fair value of
GBP228,000 in the year.
The Company now holds 31% of assets in qualifying holdings from an HMRC
perspective and we continue to work with each portfolio business as they develop
their proposition in their respective markets..
Since the balance sheet date, new Investments have been made into Rangespan
( GBP500,000) and Artesian ( GBP500,000), both technology companies. The Company has
also continued to support existing portfolio companies PrismaStar and 10 CMS
Limited by investing a further GBP124,000 and GBP300,000 into the businesses.
Outlook
The macro-economic environment has remained challenging for smaller companies,
which have felt the effects of the reduced availability of finance and the
economic slowdown. Small companies also find themselves under pressure from
suppliers who want to be paid earlier, customers who delay payments and weaker
trading conditions. The resulting pressure on cash will remain, even as the
economy recovers, due to increasing working capital requirements.
On the other hand, this environment also provides opportunities for
entrepreneurial growth businesses to attract talented individuals to join them
who are capable of delivering the business plan. Small companies are also able
to react quickly to customer needs and to deliver an enhanced customer service
more quickly than slower moving large corporate businesses.
The continuing turmoil in the Eurozone does have a significant impact on the
confidence of not only the consumer, but also on large corporate purchasers and
institutional investors. Until we start to see a return of confidence it is
likely that the mergers and acquisitions market will remain quiet and the number
of IPOs on the stock market will remain well below its pre-crisis level.
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
17 February 2012
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 2011 2011 2011 2011 Titan by
investments Sector ( GBP'000) ( GBP'000) ( GBP'000) ( GBP'000) 4 Octopus
=------------------------------------------------------------------------------------
Secret Escapes Consumer lifestyle
Limited & wellbeing 646 86 732 86 7.93% 17.13%
Executive
Channel
Limited Media 641 60 701 60 7.42% 36.76%
Michelson
Diagnostics Consumer lifestyle
Limited & wellbeing 650 - 650 - 8.19% 42.47%
Certivox
Limited Technology 584 15 599 15 12.37% 26.53%
TouchType
Limited Telecommunications 385 164 549 164 4.20% 20.07%
Vega-Chi
Limited Technology 500 - 500 - 4.64% 15.03%
Applied
Superconductor
Limited Technology 493 - 493 - 6.76% 20.59%
True Knowledge
Limited Media 378 (10) 368 (10) 3.35% 55.72%
UltraSoC
Technologies
Limited Technology 361 - 361 - 10.04% 55.55%
Bowman Power
Limited Environmental 275 28 303 28 2.33% 15.56%
10CMS Limited Technology 450 (261) 189 (261) 11.51% 40.84%
PrismaStar
Inc. Media 300 (150) 150 (150) 4.80% 31.97%
Elonics
Limited Technology 305 (229) 76 (228) 3.11% 19.54%
Diverse Energy
Limited Environmental 367 (367) - (367) 5.54% 30.17%
=------------------------------------------------------------------------------------
Total fixed
asset
investments 6,335 (664) 5,671 (663)
=------------------------------------------------------------------------------------
Money market
securities 8,316 - 8,316 -
Open ended
investment
companies 5,580 467 6,047 228
Cash at bank 107 - 107 -
=------------------------------------------------------------------------------------
Total
investments 20,338 (197) 20,141 (435)
=------------------------------------------------------------------------------------
Debtors less
creditors (55)
=------------------------------------------------------------------------------------
Total net
assets 20,086
=------------------------------------------------------------------------------------
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of fair
value of a financial asset that is either quoted or not quoted in an active
market is the transaction price (i.e. cost).
Subsequent measurement
Further funding rounds are a good indicator of fair value and this measure is
used where appropriate. Subsequent adjustment to the fair value of unquoted
investments can be made using sector multiples based on information as at 31
October 2011, where applicable. In some cases the multiples can be compared to
equivalent companies, especially where a particular sector multiple does not
appear appropriate. It is currently industry norm to discount the quoted
earnings multiple to reflect the lack of liquidity in the investment, there
being no ready market for our holding. Typically the discount is 30% but this
can be increased where the relevant multiple appears too high. A lower discount
would also be possible if an investment was close to an exit event.
In accordance with the International Private Equity and Venture Capital (IPEVC)
valuation guidelines investments made within 12 months are usually kept at cost
unless performance indicates that fair value has changed.
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 seven new investments and three follow on
investments amounting to GBP4.5 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.
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:
GBP646,000
Valuation:
GBP732,000 (latest funding round)
Equity held:
7.93%
Equity held by all funds managed by Octopus: 17.13%
Last submitted audited accounts: N/A
Executive Channel Limited
Executive Channel installs digital display screens in office buildings which it
uses to display advertising, up-to-date news and information, via the internet.
These screens are usually located in the elevator lobby to engage an exclusive
audience with high spending power in an uncluttered environment. Executive
Channel is leveraging the industry move in the media market from static
billboards, to interactive digital formats.
Initial investment date:
September 2010
Cost:
GBP641,000
Valuation:
GBP701,000 (latest funding round)
Voting rights held by Fund:
7.42%
Equity held by all funds managed by Octopus: 36.76%
Last submitted group accounts: 30 June
2010
Turnover Not reported
Loss before tax: ( GBP682,303)
Net assets:
( GBP681,303)
Michelson Diagnostics Limited
Michelson Diagnostics is the medical equipment and scanner specialist, whose
unique laser scanning technology can image skin and other surface tissue at a
much higher resolution than ever before. Michelson Diagnostics'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 is certified by the CE & Food and Drug
Administration (FDA) regulatory clearance for clinical use in Europe and the
USA. The 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. The company has
gained acceptance with several leading Key Opinion Leaders and has now placed
its first machines with dermatologists in order to prove the business model.
Initial investment date: October
2010
Cost:
GBP650,000
Valuation:
GBP650,000 (latest funding round)
Voting rights held by Fund:
8.19%
Equity held by all funds managed by Octopus: 42.47%
Last submitted audited group accounts: 31 March 2011
Turnover GBP250,800
Loss before tax: GBP(904,642)
Net assets:
GBP1,958,546
CertiVox Limited
CertiVox was founded in 2009 based on the simple belief that everyone deserves
the right to secure their online information exchanges simply and easily. Its
leading-edge technology enables industries around the world - including defence,
government, legal and financial services - to protect and control their
information exchanges, whether through PCs, smart devices or the cloud. By
combining state-of-the-art crypto technology with its unique on-demand
encryption key management service, CertiVox is the only company in the global
market today that can arm businesses and individuals with frictionless end-to-
end encryption, key management and identity management services for the web 2.0
world.
Initial investment date: March
2011
Cost:
GBP584,000
Valuation:
GBP599,000 (latest funding round)
Equity held:
12.37%
Equity held by all funds managed by Octopus: 26.53%
Last submitted audited accounts: n/a
TouchType Limited
TouchType is a leader in the development of text prediction technology designed
to significantly boost the accuracy, fluency and speed of text entry on mobile
and computing devices. TouchType's core product is the Fluency prediction
engine. It is a set of software algorithms which improve upon the existing
market leader's 'keystroke per character' performance by 44%. This results in
users having to make less than half the number of keystrokes compared to a
standard QWERTY keyboard. A patent for the engine is pending. The Fluency
prediction engine powers TouchType's award winning Apps, Swiftkey and Swiftkey
X, for use on Android phones and tablets, which have been downloaded more than
4 million times since launch.
Initial investment date: August
2010
Cost:
GBP385,000
Valuation:
GBP549,000 (latest funding round)
Voting rights held by Fund:
4.20%
Equity held by all funds managed by Octopus: 20.07%
Last submitted group accounts: 31 December
2010
Turnover GBP152,181
Loss before tax: ( GBP362,138)
Net assets:
GBP504,479
Vega-Chi Limited
Vega-Chi enables institutional investors to trade convertible and high-yield
bonds directly with each other without having to go through intermediaries. It
provides an alternative pool of liquidity where participants can achieve best
price execution, transaction cost savings, improved liquidity and anonymity.
Furthermore, the Vega-Chi trading system offers full pre-trade and post-trade
transparency and access to full historical data allowing investment managers to
make better informed decisions.
Initial investment date: January
2011
Cost:
GBP500,000
Valuation:
GBP500,000 (latest funding round)
Equity held:
4.64%
Equity held by all funds managed by Octopus: 15.03%
Last submitted audited accounts: February
2011
Turnover GBP171,000
Loss before interest & tax:
( GBP1,087,000)
Net assets:
GBP1,859,000
Applied Superconductor Limited
Applied Superconductor Ltd produces devices for utility and industry electrical
networks employing superconductor technologies. Its specialist area is fault
current management. Applied Semiconductor's Superconducting Fault Current
Limiters protect high-voltage electricity networks from the damaging effects of
faults by blocking current surges that arise when short-circuits occur. Applied
Semiconductor's solutions reduce asset management costs whilst improving network
safety, stability and efficiency. Fault Current Limiters support the connection
of renewable energy generators to distribution networks assisting the industry
to meet Low Carbon Policy targets.
Initial investment date: June
2011
Cost:
GBP493,000
Valuation:
GBP493,000 (latest funding round)
Equity held:
6.76%
Equity held by all funds managed by Octopus: 20.59%
Last submitted audited accounts: 31 December
2010
Turnover GBP542,003
Loss before interest & tax: GBP(118,699)
Net assets:
GBP(760,140)
True Knowledge Limited
True Knowledge has developed artificial intelligence software that understands
natural language text (initially just in English) and answers questions. Finding
information on the Internet currently involves a process of trial and error,
hoping that the search engine retrieves the information you are looking for.
True Knowledge has devised Patented technology that resolves this fundamental
problem by operating along a more intuitive system. It intelligently answers
questions asked on any topic in plain English.
True Knowledge was pursuing a strategy of advertising to the 1 million users per
week of its trueknowledge.com website. Earlier in 2011 the board agreed to focus
on the mobile market enabling individuals to use their smartphones to answer
questions on local search and over time a wide range of subjects.
Initial investment date: July
2008
Cost:
GBP378,000
Valuation:
GBP368,000 (forthcoming funding round)
Voting rights rights held by Fund: 3.35%
Equity held by all funds managed by Octopus: 55.72%
Last submitted audited accounts: 30 November
2010
Turnover GBP116,063
Loss before tax:
( GBP1,486,886)
Net assets:
GBP551,174
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 2010
Cost:
GBP361,000
Valuation:
GBP361,000 (latest funding round)
Equity held:
10.04%
Equity held by all funds managed by Octopus: 55.55%
Last submitted audited accounts: 31 December
2010
Turnover n/a
Loss before tax:
( GBP340,719)
Net assets:
GBP1,707,973
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 turbo-generator, 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 from exhausts into electrical
power.
Initial investment date: July
2010
Cost:
GBP275,000
Valuation:
GBP303,000 (latest funding round)
Equity held:
2.33%
Equity held by all funds managed by Octopus: 15.56%
Last submitted audited group accounts: 31 December 2010
Turnover GBP3,017,767
Loss before tax: ( GBP4,388,057)
Net assets:
( GBP1,755,925)
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each
financial year which they must not approve unless they are satisfied that they
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company for that period. Under that law the Directors have
elected to prepare financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards and
applicable laws).
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and accounting estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
In so far as each of the Directors 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.
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
17 February 2012
Income Statement
+-----------------------+
|Year to 31 October 2011|
=----------------------------------------------+-----------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=----------------------------------------------+-----------------------+
| |
| |
Fixed asset investment holding losses 9 | - (663) (663)|
| |
Current asset investment holding gains 11 | - 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)|
=----------------------------------------------+-----------------------+
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 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
+------------------------------------------+
| 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)|
=-----------------------------------+------------------------------------------+
Loss 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
+-----------------------+------------------+
|Year to 31 October 2011| Period from|
| | 30 September 2009|
| |to 31 October 2010|
| | |
| GBP'000| GBP'000|
=-----------------------------------+-----------------------+------------------+
Shareholders' funds at start of year| 21,171| -|
=-----------------------------------+-----------------------+------------------+
Return on ordinary activities after | (1,085)| |
tax | | (187)|
| | |
Issue of equity (net of expenses) | -| 21,358|
=-----------------------------------+-----------------------+------------------+
Shareholders' funds at end of period| 20,086| 21,171|
=-----------------------------------+-----------------------+------------------+
The accompanying notes form an integral part of the financial statements.
Balance Sheet
=--------------------------------------+-------------------+-------------------+
| As at 31 October| As at 31 October|
| 2011| 2010|
| | | |
Notes| GBP'000| GBP'000| GBP'000 GBP'000|
=--------------------------------------+------+------------+-------------------+
Fixed asset investments* 9 | | 5,671| 1,842|
| | | |
| | | |
| | | |
Current assets: | | | |
| | | |
Debtors 10 | 13| | 15 |
| | | |
Money market securities and other | | | |
deposits* 11 |14,363| |19,297 |
| | | |
Cash at bank | 107| | 112 |
=--------------------------------------+------+------------+-------------------+
|14,483| |19,424 |
| | | |
Creditors: amounts falling due | | | |
within one year 12 | (68)| | (95) |
=--------------------------------------+------+------------+-------------------+
Net current assets | | 14,415| 19,329|
=--------------------------------------+------+------------+-------------------+
Net assets | | 20,086| 21,171|
=--------------------------------------+------+------------+-------------------+
| | | |
| | | |
Called up equity share capital 13 | 2,258| | 2,258 |
| | | |
Special distributable reserve 14 |19,092| |19,092 |
| | | |
Capital redemption reserve 14 | 8| | 8 |
| | | |
Capital reserve - losses on | | | |
disposals 14 | (494)| | (176) |
| | | |
- | | | |
holding losses 14 | (196)| | 239 |
| | | |
Revenue reserve 14 | (582)| | (250) |
=--------------------------------------+------+------------+-------------------+
Total shareholders' funds | | 20,086| 21,171|
=--------------------------------------+------+------------+-------------------+
Net asset value per share 8 | | 89.0p| 93.8p|
| | +-------------------+
*Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 17
February 2012 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| Period from 30 |
| 2011| September 2009 to 31 |
| | October 2010|
| | |
| GBP'000| GBP'000|
=---------------------------------+---------------------+----------------------+
| | |
| | |
Net cash outflow from operating | | |
activities | (675)| (346)|
| | |
| | |
| | |
Financial investment: | | |
| | |
Purchase of fixed asset | | |
investments 9 | (4,492)| (1,842)|
| | |
| | |
| | |
Management of liquid resources: | | |
| | |
Purchase of current asset | | |
investments 11| (13,264)| (27,008)|
| | |
Sale of current asset | | |
investments 11| 18,426| 7,950|
| | |
| | |
| | |
Taxation 6 | -| -|
| | |
| | |
| | |
Dividends paid | -| -|
| | |
| | |
| | |
Financing: | | |
| | |
Issue of shares | -| 21,447|
| | |
Redemption of shares | -| (89)|
=---------------------------------+---------------------+----------------------+
Decrease/increase in cash | | |
resources at bank | (5)| 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 |
| Year to 31 October| September 2009 to 31 |
| 2011| October 2010|
| | |
| | GBP'000|
=--------------------------------+---------------------+-----------------------+
Return on ordinary activities | | |
before tax | (1,085)| (187)|
| | |
Loss on valuation of fixed asset | | |
investments | 663| -|
| | |
Gain on valuation of current | | |
asset investments | (228)| (239)|
| | |
Decrease/(increase) in debtors | 2| (15)|
| | |
(Decrease)/increase in creditors | (27)| 95|
=--------------------------------+---------------------+-----------------------+
Outflow from operating activities| (675)| (346)|
+---------------------+-----------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+---------------------+-----------------------+
| | Period from 30 |
| Year to 31 October| September 2009 to 31 |
| 2011| October 2010|
| | |
| GBP'000| GBP'000|
=--------------------------------+---------------------+-----------------------+
(Decrease)/increase in cash | | |
resources at bank | (5)| 112|
| | |
Movement in cash equivalents | (4,934)| 19,297|
| | |
Opening net funds | 19,409| -|
=--------------------------------+---------------------+-----------------------+
Net funds at 31 October | 14,470| 19,409|
+---------------------+-----------------------+
Net Funds at 31 October comprised:
+-----------------------+-------------------------------+
| | Period from 30 September 2009 |
|Year to 31 October 2011| to 31 October 2010|
| | |
| GBP'000| GBP'000|
=----------------------+-----------------------+-------------------------------+
Cash at bank | 107| 112|
| | |
Money market funds | 8,316| 13,478|
| | |
OEICs | 6,047| 5,819|
=----------------------+-----------------------+-------------------------------+
Net Funds at 31 October| 14,470| 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).
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 (71.5% 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
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 deposits 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.
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 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 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, bonds and OEICs (open
ended investment companies) and are designated as FVTPL. Gains and losses
arising from changes in fair value of investments are recognised as part of the
capital return within the Income Statement and allocated to the capital reserve
- investment gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager
and are readily convertible into cash at the 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.
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
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
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 7 in order to maintain sufficient liquidity in the VCT.
Capital management is monitored and controlled using the internal control
procedures set out on page · of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
Financial instruments
The Company's principal financial assets are its investments and the policies in
relation to those assets are set out above. Financial liabilities and equity
instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a
residual interest in the assets of the entity after deducting all of its
financial liabilities. Where the contractual terms of share capital do not have
any terms meeting the definition of a financial liability then this is classed
as an equity instrument. Dividends and distributions relating to equity
instruments are debited direct to equity.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are paid, and for final
dividends when they are approved by the shareholders.
2. Other income
Year ended 31 October 2011 Period ended
31 October 2010
GBP'000
=-------------------------------------------------------------------------------
Interest and dividends receivable on 60
bank balances 34
3. Investment Management Fees
Year ended 31 October Period ended 31 October
2011 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=------------------------------------------------------------------------
Investment management fee 106 318 424 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
Year to 31 October 2011 Period ended
31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Directors' remuneration 50 37
Fees payable to the Company's auditor 8
for the audit of the financial
statements 7
Fees payable to the Company's auditor 2
for other services - tax compliance 1
Accounting and administration services 79 50
UK Listing Fees 6 30
Trail commission 89 62
Other expenses 52 38
=-------------------------------------------------------------------------------
286 225
=-------------------------------------------------------------------------------
Total annual running costs are capped at 3.2% of net assets (excluding
irrecoverable VAT). For the year to 31 October 2011 the running costs, as
defined in the prospectus, were 2.9% of net assets (2010: 2.9%).
5. Directors' remuneration
Year to 31 October 2011 Period ended
31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Directors' emoluments
Gregor Michie (Chairman) 20 15
Lars McBride 15 11
Chris Hulatt (paid to Octopus 15 11
Investments Limited)
=-------------------------------------------------------------------------------
50 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 (2010: three).
6. Tax on ordinary activities
The corporation tax charge for the period was GBPnil.
Factors affecting the tax charge for the current year:
The current tax charge for the period differs from the standard rate of
corporation tax in the UK of 26.83% (2010: 28%).
Current tax reconciliation: 31 October 2011 31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Loss on ordinary activities before tax (1,085) (187)
Current tax at 26.83% (2010: 28%) (291) (52)
Unrelieved tax losses 182 119
Expenses not deductible/income not taxable for 109 (67)
tax purposes
=-------------------------------------------------------------------------------
Total current tax charge - -
=-------------------------------------------------------------------------------
The Company has losses arising from management charges of approximately
GBP1,130,000 (2010: 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 GBP300,000 (2010: GBP119,000) in respect of these excess
management charges.
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so as
to maintain its approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
7. Earnings per Share
The total, revenue and capital earnings per share is based on 22,578,706 (2010:
11,541,206) 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 2011 is based on
net assets of GBP20,086,000 (2010: GBP21,171,000) and 22,578,706 (2010:
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 2011 are summarised below and in note 11.
Level 3:
Unquoted investments Total investments
31 October 2011 31 October 2011
GBP'000 GBP'000
=---------------------------------------------------------------------------
Valuation and net book amount:
Book cost as at 1 November 2010 1,842 1,842
Cumulative revaluation - -
=---------------------------------------------------------------------------
Valuation at 1 November 2010 1,842 1,842
Movement in the year:
Purchases at cost 4,492 4,492
Revaluation in year (663) (663)
=---------------------------------------------------------------------------
Valuation at 31 October 2011 5,671 5,671
=---------------------------------------------------------------------------
Book cost at 31 October 2011: 6,334 6,334
Revaluation to 31 October 2011: (663) (663)
=---------------------------------------------------------------------------
Valuation at 31 October 2011 5,671 5,671
=---------------------------------------------------------------------------
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.
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 2011 and 31 October 2010, there were no commitments in respect of
investments not yet completed.
10. Debtors
31 October 2011 31 October 2010
GBP'000 GBP'000
=----------------------------------------------------
Other debtors - 5
Prepayments 11 4
Accrued income 2 6
=----------------------------------------------------
13 15
=----------------------------------------------------
11. Current Asset Investments
Current asset investments at 31 October 2011 comprised money market funds and
OEICs.
GBP'000 GBP'000
=--------------------------------------------------------------------------
Valuation and net book amount:
Book cost as at 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 1 November 2010 19,297
=--------------------------------------------------------------------------
* Valuation and net book amount
- Money market funds 13,264
- OEICs -
=--------------------------------------------------------------------------
13,264
Disposal proceeds
- Money market funds (18,426)
=--------------------------------------------------------------------------
(18,426)
Revaluation in the year
- OEICs 228
=--------------------------------------------------------------------------
228
=--------------------------------------------------------------------------
Valuation as at 31 October 2011 14,363
=--------------------------------------------------------------------------
Book cost as 31 October 2011
- Money market funds 8,316
- OEICs 5,580
=--------------------------------------------------------------------------
13,896
Revaluation as at 31 October 2011
- Money market funds -
- OEICs 467
=--------------------------------------------------------------------------
467
=--------------------------------------------------------------------------
Valuation as at 31 October 2011 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: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
valuation of money market funds and OEIC's at 31 October 2011 was GBP14,363,000
(2010: GBP19,297,000).
12. Creditors: amounts falling due within one year
31 October 2011 31 October 2010
GBP'000 GBP'000
=----------------------------------------------------
Accruals 58 85
Other creditors 10 10
=----------------------------------------------------
68 95
=----------------------------------------------------
13. Share capital
31 October 2011 31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Authorised:
50,000,000 ordinary shares of 10p 5,000 5,000
=-------------------------------------------------------------------------------
Allotted and fully paid up:
22,578,706 (2010: 22,578,706) ordinary shares of 2,258 2,258
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 7 in order to maintain
sufficient liquidity in the VCT.
Capital management is monitored and controlled using the internal control
procedures set out on page · of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
There were no shares issued during the year (2010: 22,578,706 ordinary shares
during the period at a price of 100p per share).
The Company did not repurchase any shares for cancellation during the year.
14. Reserves
Capital
Capital reserve reserve Capital
Special gains/(losses) holding redemption Revenue
distributable on disposal gains/ reserve reserve
reserve GBP'000 GBP'000 (losses) GBP'000 GBP'000
=-------------------------------------------------------------------------------
Balance as at 19,092 (176) 8
1 November
2010 239 (250)
Return on - - - - (332)
ordinary
activities
after tax
Management - (318) - - -
fees
allocated as
capital
expenditure
Current - - (435) - -
period losses
on
revaluation
=-------------------------------------------------------------------------------
Balance as at 19,092* (494)* 8
31 October
2011 (196) (582)*
=-------------------------------------------------------------------------------
*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. 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.
Reserves available for potential distribution by way of a dividend are:
GBP'000
=-------------------------------
As at 1 November 2010 18,666
Movement in year (650)
=-------------------------------
As at 31 October 2011 18,016
=-------------------------------
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 2011.
31 October 2011 31 October 2010
GBP000 GBP000
Assets at fair value through profit or loss
Fixed asset investments 5,671 1,842
Current asset investments 14,363 19,297
=--------------------------------------------------------------------------
Total 20,034 21,139
Loans and receivables
Cash at bank 107 112
Other debtors - 5
Accrued income 2 6
=--------------------------------------------------------------------------
Total 109 123
Liabilities at amortised cost
Accruals and other creditors 68 95
=--------------------------------------------------------------------------
Total 68 95
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 and X. An analysis of investments is given in note 9.
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 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 GBP567,100. An equivalent change in the opposite direction would have
reduced net assets and the total return for the period by the same amount.
71.5% by value of the Company's net assets comprises of OEICs and money market
securities held at fair value. A 10% overall increase in the valuation of the
OEICs and money market securities at 31 October 2011 would have increased net
assets and the total return for the year by GBP1,436,300. 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.
Fixed rate
The table below summarises weighted average effective interest rates for the
fixed interest-bearing financial instruments:
As at 31 October 2011 As at 31 October 2010
=-------------------------------------------------------------------------------
Weighted
Weighted average
Total fixed average Total fixed time for
rate Weighted time for rate Weighted which
portfolio average which rate portfolio average rate is
by value interest is fixed by value interest fixed in
GBP'000 rate % in years GBP'000 rate % years
=-------------------------------------------------------------------------------
Fixed-rate
investments
in unquoted
companies 124 12% 5.0 - - -
=-------------------------------------------------------------------------------
124 -
Due to the relatively short period to maturity of the fixed rate investments
held within the portfolio, it is considered that an increase or decrease of 1%
in interest rates as at the reporting date would not have had a significant
effect on the Company's net assets or total return for the year.
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing
deposit accounts and, where appropriate, within interest bearing money market
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 2011. The
amounts held in floating rate investments at the balance sheet date were as
follows:
31 October 2011 31 October 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------
Cash on deposit & money market funds 8,423 13,591
=-------------------------------------------------------------------------
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the period by GBP84,230 (2010: GBP135,910).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
October 2011. By cost, no individual investment exceeded 3.2% of the Company's
net assets at 31 October 2011.
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 2011 the Company's financial assets exposed to credit risk
comprised the following:
31 October 2011 31 October 2010
GBP000 GBP000
=-------------------------------------------------------------------------
Cash on deposit & money market funds 8,423 * 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 2011
these investments were valued at GBP14,470,297.
16. Post balance sheet events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* On 29 November 2011 a new investment of GBP500,002.54 was made into Rangespan
* On 23 December 2011 a new investment of GBP500,000 was made into Artesian
* On 30 December 2011 a new investment of GBP124,267 was made into PrismaStar
* On 6 and 13 January 2012 further investments of GBP240,000 and GBP60,000 were
made into 10 CMS 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 GBP89,672 (2010: GBP62,000) was paid during the year and there
was GBPnil (2010: GBPnil) outstanding at the year end.
There were no contingencies, guarantees or financial commitments as at 31
October 2011 (2010: none).
18. Related party transactions
Octopus Titan VCT 4 plc has employed Octopus Investments Limited throughout the
year as the Investment Manager.
Chris Hulatt, a non-executive director of Octopus Titan VCT 4 plc throughout the
year ended 31 October 2011 and until his resignation on 12 December 2011, is a
Director of Octopus Investments Limited. Post year end 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. Octopus Titan
VCT 4 plc has employed Octopus throughout the period as Investment Manager.
Octopus Titan VCT 4 plc has paid Octopus GBP424,000 (2010: GBP235,000) in the year
as a management fee and there was GBPnil (2010: 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
GBP63,513 (2010: GBP35,280) was paid to Octopus Investments and there was GBPnil
(2010: 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 year there was 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 the
Company falls short of the Performance Value on the previous financial year end,
no incentive fee will arise. If, on a subsequent financial period end, the
performance exceeds the previous best Performance Value of Octopus the Company,
the Investment Manager will be entitled to 20% of such excess in aggregate.
No performance fee has been recognised for the year ended 31 October 2011 on the
basis that the directors consider that the liability becomes due at the point
that the performance criteria are met; this has not been achieved and therefore
no liability has been recognised.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Octopus Titan VCT 4 PLC via Thomson Reuters ONE
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