Octopus AIM VCT PLC : Final Results

Octopus AIM VCT plc   

Final Results

30 May 2013

Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 28 February 2013.

These results were approved by the Board of Directors on 30 May 2013.

You may, in due course, view the Annual Report in full at www.octopusinvestments.com by navigating Investor, Venture Capital Trusts, Octopus AIM VCT plc.  All other statutory information will also be found there.

Results and Dividend	Year ended	Year ended
	28 February 2013	29 February 2012
	£'000	£'000
Net profit/(loss) attributable to shareholders	5,471	(768)
Appropriations:
Interim dividend paid: 2.5 pence per Ordinary share (2012: 2.5 pence per Ordinary share)	1,183	1,142
Final dividend proposed: 2.5 pence per Ordinary share (2012: 2.5 pence per Ordinary share)	1,265	1,183

The proposed final dividend will, if approved by shareholders, be paid on 25 July 2013 to shareholders on the register on 19 June 2013.

Chairman's Statement

Introduction
I am pleased to report that the year under review was a good one for your Company particularly as this time last year I suggested that you should not be too downhearted about the prospects for your Portfolio in spite of the then cloudy investment outlook. In the year the Net Asset Value of your shares  increased by 13.6% (2012 a decline of 2.6%) in both cases after adding back 5.0 pence of dividend, the Total Return was £5.5m (2012 a loss of £0.8m) and at the year end the appreciation over cost of your portfolio was 25.1%.

Share Buy-backs
In January 2013, your Board announced that pursuant to their policy of managing the discount at which your shares stand in the market and to assist in providing some liquidity in your shares, it would now buy back at a 5% discount rather than the 10% previously. Your Board continues to buy back shares.

Enhanced Buy Back (EBB)
In October last year your Board offered shareholders the opportunity of participating in an Enhanced Buy Back Facility (EBB). Some 25% of shareholders who had already held their shares for at least five years took advantage of this facility. This enabled them to realise their existing shares at a lower cost than would have been the case in the market. They also obtained up front tax relief in exchange for committing their capital to an investment in your Company for another five years. The advantage to the Company is the knowledge that this investment is likely to remain for another five years.

New Share Offer
In February your Company also issued a prospectus to raise up to £10m by the issue of new shares. This had raised a total of £4.4m at the date of this report and accounts and remains open until the end of January 2014 for all shareholders wishing to subscribe unless fully subscribed earlier.

In my Interim Statement I expressed concern that the FSA (now the FCA), in their consultation paper CP12/19, were seeking to treat all VCTs as Unregulated Collective Schemes. This would mean that only FSA defined "sophisticated investors" could subscribe for shares in a VCT thus severely restricting the ability of your Company to raise capital. I am glad to say that following representation by the venture capital industry generally, we are now hopeful that this will not progress.

Performance and the Portfolio
The increase in the Total Return of your shares of 13.6%, which occurred entirely in the second half of the year, may be compared with a reduction in the AIM index of 10.3% and an increase in the Small Cap index of 24.6%. Purchases amounted to £3.7m and sales to £2.6m which realised net gains of £455,000. These are dealt with in the Manager's Review.

The principal purchases, most of which have since performed strongly, were Judges Scientific (specialist instrument manufacturer), WANdisco (software), Futura Medical (innovative pharmaceutical products),Tangent Communications (Direct Marketing), D P Poland (Domino's Pizza master franchise) and Fusionex (software). Of disposals, Zetar was the largest at a 50% premium on cost  as a result of a takeover which together with reductions in holdings in Omega Diagnostics, Mears, Advanced Computer Software, WANdisco, Brooks Macdonald  and Idox accounted for the gains on realisations.

Changes in issued Share Capital
At the end of the year there were 46,671,336 shares in issue compared with 45,422,653 at the end of the previous year. As a result of the implementation of the Enhanced Buy Back facility 10,289,443 shares were issued and 10,801,537 were purchased and subsequently cancelled as were 1,082,315 shares acquired as a result of the buy-back policy.

Since the year end 4,413,848 new shares have been issued following the launch of the Prospectus offer in February 2013.

Dividend
A dividend of 2.5p per share was paid to shareholders in November 2012 and your Board propose that a final dividend of 2.5p per share will be paid on 25 July 2013. It is your Board's intention that the annual dividend will be not less than 5p per share. These dividends are not subject to tax and therefore assuming a dividend of 5p per share and a market price of          95.0p per share the shares carry a tax free yield of 5.3% using the share price as at 30 May 2013.

VCT Qualifying Status
PricewaterhouseCoopers LLP provides your Board and Investment Manager with advice concerning continuing compliance with HMRC regulations for VCTs. Your Board has been advised that Octopus AIM VCT plc is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.

A key requirement is to maintain at least a 70% qualifying investment level. As at 28 February 2013, 92.8% of the portfolio, as measured by HMRC rules, was invested in qualifying investments. 

Annual General Meeting
The Annual General Meeting will be held on Wednesday 17 July 2013. I very much hope you will be able to come to the meeting after which our Investment Managers will make a presentation.

Outlook
Your Board believes there is a lot of potential within AIM. The proposal in the 2013 Budget to exempt stamp duty on transfers in AIM quoted shares from April 2014 should assist in increasing the liquidity in that market and reduce the costs of equity funding for small companies. However as VCTs do not pay stamp duty on the cost of qualifying investments there will be no investment cost benefit to the Company. If in addition it is decided that AIM stocks may be included in ISAs, which is currently subject to a full consultation, a significant growth in AIM could result. 

Your Company has been in existence for fifteen years and many of the companies in your portfolio have already grown to a substantial size. In fact 80% of the holdings by value have forecast average profits in 2013 of more than £7m. This is encouraging as it demonstrates the maturing of some of the earlier investments in the portfolio. As many of our investee companies continue to report good trading and are emerging leaner and fitter from the financial crisis this should continue to translate into improved share prices. Our Investment Managers have also made some exciting new investments with money raised from disposals and from new share issues.  This augurs well for the future and our Investment Managers remain optimistic that the quality companies in the portfolio will continue to grow their profits handsomely.  The Company's existing liquid resources will enable it to take advantage of new opportunities as they arise.

Michael Reeve
Chairman
30 May 2013

Investment Manager's Review

Introduction
In terms of stock market activity, 2012/13 has been a much more rewarding year than the previous one.  The Net Asset Value (NAV) has risen as share prices have begun to catch up with the trading progress that many of the holdings have been reporting for the last few years.  New issues have returned in a good number and many of them have performed well post flotation.  Share trading volumes have also shown some improvement, and this has enabled us to take some profits in the larger holdings into rising prices. 

Despite improving investor sentiment which has endured past the year end, there are still share prices in the portfolio which have yet to catch up with events and we are hopeful that the positive result for the year to February 2013 can be built on in the current year.

The Alternative Investment Market ("AIM")
AIM once again came in for criticism in 2012 because the index failed to rise in a year when the smaller companies index performed better than it had for many years. Although there were a number of factors at play, one of the most significant ones was the underperformance of resource stocks that held the AIM index back.

Of more interest is that AIM remains the market of choice for small and growing companies to float and seek further capital to grow. You can see from the graph that follows that it remained open for business throughout the year under review and successfully funded a number of new companies in a year when the main UK market was all but closed for new issues.

The sum raised is shown by month in the graph below. Amounts raised are lower than in previous years, which is more a reflection of the nervousness of markets in general, and we would hope that the number and size of fundraisings will increase now that sentiment has started to improve.

Performance
The year under review was a much better one for smaller company shares as equity markets began to look beyond the constant diet of negative economic and political newsflow and focus on the value available from growing companies.  The Smaller Companies Index Ex Investment Trusts had a particularly good year, appreciating by 24.6%, helped by strong performances from its larger constituents.  AIM was much more subdued and fell by 10.3% during the year, held back by poorly performing resource stocks and its larger exposure to very small companies whose share prices are always the last to react to any stockmarket rally. 

Against this background the NAV rose by 13.6% if the two 2.5p dividends paid out in the year are added back.
Encouragingly, the biggest driver of performance in the fund was positive news from portfolio companies, many of which have been increasing their growth momentum.  The best performing sector was software, where further good progress by IDOX, Brady and Advanced Computer Software were rewarded with significant share price rises which we used to take some profits in the case of IDOX and Brady. Among the newer investments in the sector, WANdisco, a software company with a technology enabling simultaneous access, use and editing of the same computer code, caught investor imagination and more than quadrupled in the period.  Its 'Big Data' capability allows company servers to replicate each other enabling them to back each up in real time. We took some profits after the shares more than trebled but it remains a significant holding.  Fusionex was another new holding in the sector which got off to a good start post flotation, increasing by 60%  in the period.  Less encouragingly Corero and Active Risk Group both issued profit warnings as a result of slower than expected sales and their shareprices fell accordingly.

Elsewhere in the portfolio Breedon, EKF, DP Poland, Netcall, Staffline, and Vertu Motors all saw their share prices contribute positively to NAV performance as their businesses progressed ahead of expectations, in the case of the first three, assisted by successful fundraisings.  Animalcare suffered from an interruption in the supply chain of Buprecare, one of its well established and profitable drugs.  A new source has now been established and we expect profits growth to resume in the current year, which should lead to a recovery in the share price.  Enteq also suffered from a lull in demand for oil services and a failure to gain enough critical mass through acquisitions.  The former is now improving, and the business exceeded profits in its most recent reporting period, but the lack of critical mass will require further acquisitions in line with the strategy when the company floated.  Among the non-qualifying holdings Mears, SQS, RWS and Matchtech were also good contributors to performance.  Less good were the performances of Hargreaves Services and Immunodiagnostics.  Immunodiagnostics had been hit by increased competition and a resulting decline in manual vitamin D tests at a faster rate than the demand for automated tests had risen. The balance is now improving under new management and we are holding onto the shares which look cheap and generate good cashflow.

Portfolio Activity
A fall in stock market confidence in the late spring had a dampening effect on new issues, although existing companies have still been looking to investors rather than banks as a source of new capital, which has presented us with plenty of VCT qualifying opportunities to consider.  As the fund remains well above its 70% HMRC investment limit in qualifying holdings, we continue to be patient when making new investments, looking for attractive opportunities at realistic prices.

The interim report referred to the new investments in Corero, Judges Scientific and WANDisco, all of which were made in the first half of the year under review.  In the second half your Company made four further qualifying investments in Futura Medical, Tangent Communications, DP Poland and Fusionex.  The first three were follow on investments in existing AIM companies although they were new to the portfolio and Fusionex was a new issue. Futura Medical has been an AIM company for many years and has regularly raised capital to continue the development of its consumer sexual health products, which have taken longer than originally anticipated to get to market.  Having walked away from one licensing agreement which wasn't working, the company then raised itself enough capital to tie up an alternative commercial deal with Church and Dwight, the US owner of the Trojan brand of condoms.  Though still lossmaking, we believe the company is at a turning point, with considerable future returns to be made from commercialising its portfolio of products.  DP Poland is also an early stage company.  It has the franchise for Dominos Pizza in Poland and has spent the time since it originally floated on AIM in establishing a number of outlets in Warsaw.  It now has the involvement of individuals who were behind the establishment of Dominos Pizza UK and we believe that we have invested at a price, where the potential returns from expanding the number of outlets it operates, justify the higher risk inherent in an earlier stage business.  In contrast, Tangent Communications is already a profitable and dividend paying company engaged in printing and digital communications.  The money we have invested was part of a funding to make an acquisition of an on-line digital printing business to expand its operation in that area. Fusionex is a profitable enterprise software solutions provider based in Malaysia with a consequent low cost advantage in its international markets.  It floated on AIM in December.

Since the year end we have made two further qualifying investments in new issues.  The first, Cambridge Cognition specialises in brain health diagnostics and has developed a new mobile test for Alzheimer's which can be easily used by doctors in surgery.  Quixant manufactures a specialist computer which sits inside gaming slot machines and enables the machine to function to meet local regulations in different markets.  Its technology allows the different games played on one machine to be changed over faster than existing technologies out in the market. 

The year under review also included a number of disposals. Sales of Brooks Macdonald, Idox, Brady, WANdisco and Mears all came in the category of profit taking after a period of strong performance.  The tidying-up process of some of the smaller holdings post the merger with Phoenix continued, and we sold our holdings in Autoclenz, Vitesse Media and Interquest. Zetar was the subject of a takeover bid and we sold the holding at a 50% profit.  We also sold the non-qualifying holding in Hargreaves after the company revealed that it had been the victim of fraud in the Netherlands. Hargreaves was also dealing with the complications of closing its deep coal mining operation at Maltby, and we took the decision that it was going to take some time to restore investor confidence in the business.

Since the period end we have taken some further profits in WANdisco.

The table below shows those companies in which our investments were fully disposed of during the year. Further partial disposals were also made in the year:

Investee company	Sales proceeds (£)	Profit/(loss) on disposal (£)
Zetar Plc	844,400	258,000
Hargreaves Services Plc	288,800	22,000
Vitesse Media Plc	10,300	2,300
InterQuest Plc	71,200	(4,500)
Autoclenz Holdings Plc	127,900	(52,600)

Outlook
There are tentative signs that the determinedly downbeat tone of economic commentators is beginning to lighten, with the latest revisions to GDP numbers suggesting that there may not have actually been a double-dip recession last year.  We have certainly found that the news from smaller companies both in the portfolio and elsewhere has remained surprisingly positive and encouragingly we have begun to see share prices react to good news.  This would seem to indicate that appetite for risk is returning, particularly where there is a promise of good growth and where valuations remain low by historic standards.  There has been a marked pick up in fundraising opportunities in the past month and even more encouragingly, figures from the Investment Management Association show that smaller company funds have been attracting new investment since the Autumn of 2012.  We believe that there will be attractive opportunities to invest the cash raised in the recent fundraising for future returns.

Investment Portfolio as at 28 February 2013

Fixed asset investments	Sector	Book cost as at 28 February 2013 (£'000)	Cumulative change in fair value (£'000)	Fair Value at 28 February 2013 (£'000)	Movement in year ('£000)	% equity held by AIM VCT Plc	% equity held by all funds managed by Octopus
Advanced Computer Software Plc	Software & Computer Services	577	1,983	2,560	1,094	0.7%	2.9%
Idox Plc	Software & Computer Services	353	1,993	2,346	986	1.3%	3.3%
Brooks MacDonald Group Plc	Speciality & Other Finance	746	1,237	1,983	(97)	1.2%	2.4%
Breedon Aggregates Limited	Construction & Building	902	826	1,728	451	1.2%	1.9%
EKF Diagnostics Plc	Healthcare	931	537	1,468	180	2.1%	6.0%
Escher Group Holdings Plc	Software & Computer Services	1,003	382	1,385	(206)	3.2%	5.5%
WANdisco Plc	Software & Computer Services	292	1,016	1,308	1,016	0.8%	2.8%
Netcall Plc	Telecommunication Services	436	863	1,299	498	2.9%	5.1%
Staffline Recruitment Plc	Support Services	333	930	1,263	490	1.6%	13.9%
Vertu Motors Plc	General Retailers	1,265	(212)	1,053	307	1.3%	8.0%
MyCelx Technologies Plc	Oil Services	900	128	1,028	43	3.3%	7.8%
Mattioli Woods Plc	Speciality & Other Finance	523	456	979	201	2.2%	3.6%
DP Poland Plc	Leisure & Hotels	546	400	946	400	3.8%	6.4%
Brady Plc	Software & Computer Services	569	337	906	115	1.2%	2.0%
TLA Worldwide Plc	Media & Entertainment	807	81	888	81	4.6%	11.4%
RWS Holdings Plc	Support Services	367	420	787	163	0.3%	4.0%
Tasty Plc	Leisure & Hotels	369	397	766	49	2.6%	4.9%
Animalcare Group Plc	Food Producers & Processors	304	437	741	(126)	2.6%	8.1%
GB Group Plc	Support Services	330	404	734	227	0.8%	1.8%
Matchtech Group Plc	Support Services	346	379	725	207	1.1%	11.0%
Futura Medical Plc	Pharmaceuticals & Biotech	613	85	698	85	1.4%	4.4%
Enteq Upstream Plc	Oil Services	1,033	(362)	671	(464)	1.7%	3.8%
Omega Diagnostics Plc	Healthcare	536	28	564	147	4.9%	9.0%
Craneware Plc	Software & Computer Services	183	376	559	4	0.5%	1.2%
Judges Scientific Plc	Electronic & Electrical	300	253	553	253	1.0%	1.6%
Tangent Communications Plc	Support Services	578	(58)	520	(58)	2.1%	6.0%
Gooch & Housego Plc	Electronic & Electrical	489	27	516	41	0.5%	3.4%
Cohort Plc	Aerospace & Defence	300	199	499	122	0.9%	4.4%
Cello Group Plc	Media & Entertainment	895	(399)	496	73	1.5%	7.0%
Mears Group Plc	Support Services	139	311	450	99	0.1%	0.2%
Fusionex International Plc	Software & Computer Services	279	167	446	167	0.4%	1.4%
Augean Plc	Support Services	397	45	442	34	1.3%	5.3%
Sinclair Pharma Plc	Pharmaceuticals & Biotech	771	(344)	427	77	0.4%	1.2%
Synectics Plc	Support Services	344	45	389	79	0.6%	0.7%
Bond International Plc	Software & Computer Services	354	34	388	58	2.3%	3.5%
Chime Communications Plc	Media & Entertainment	320	45	365	14	0.2%	0.5%
SQS Software Plc	Software & Computer Services	291	53	344	119	0.5%	9.8%
Immunodiagnostic Systems Plc	Healthcare	528	(194)	334	(137)	0.4%	2.5%
Corac Plc	Engineering & Machinery	348	(23)	325	46	0.8%	1.8%
Plastics Capital Plc	Engineering & Machinery	400	(80)	320	52	1.5%	17.5%
Adept Telecom Plc	Telecommunication Services	600	(304)	296	86	2.0%	4.1%
Altitude Group Plc	Media & Entertainment	600	(317)	283	(150)	3.9%	4.6%
Vianet Group Plc	Support Services	359	(77)	282	21	1.1%	4.6%
Hasgrove Plc	Media & Entertainment	250	25	275	90	2.1%	13.3%
Goals Soccer Centres Plc	Leisure & Hotels	205	43	248	42	0.4%	2.4%
Active Risk Group Plc	Software & Computer Services	862	(628)	234	(460)	5.2%	9.8%
Access Intelligence Plc	Software & Computer Services	375	(150)	225	-	3.2%	10.0%
Jelf Group Plc	Speciality & Other Finance	186	10	196	30	0.3%	0.8%
Corero Network Security Plc	Software & Computer Services	540	(352)	188	(352)	2.1%	4.7%
Datong Electronics Plc	Electronic & Electrical	500	(316)	184	82	2.8%	3.4%
In-Deed Online Plc	Support Services	301	(122)	179	(93)	3.5%	5.9%
Daisy Group Plc	Telecommunication Services	201	(25)	176	(5)	0.1%	0.1%
Woodspeen Plc	Support Services	350	(233)	117	(214)	5.4%	11.4%
Inditherm Plc	Chemicals	204	(93)	111	(26)	6.7%	6.7%
Marwyn Management Plc	Investment Companies	550	(451)	99	(95)	0.7%	1.9%
Work Group Plc	Support Services	943	(884)	59	(94)	4.2%	6.3%
Tanfield Group Plc	Engineering & Machinery	226	(170)	56	(120)	0.2%	1.2%
Dods Group Plc	Media & Entertainment	202	(164)	38	4	0.2%	0.9%
SnackTime Plc	Support Services	531	(507)	24	(101)	2.1%	7.5%
Synarbor Plc	Support Services	14	8	22	-	0.8%	0.8%
		28,996	8,495	37,491	5,533
Fully realised investments still held as part of the portfolio		980	(980)	-	-
Total investments		29,976	7,515	37,491	5,533
Money market funds		5,799	-	5,799
Total fixed asset investments and money market funds		35,775	7,515	43,290
Cash at bank				841
Debtors less creditors				(8)
Total net assets				44,123

Top ten holdings
Listed below are the ten largest investments, valued at bid price, as at 28 February 2013:

Advanced Computer Software Plc
Advanced Computer Software Plc provides software to the Healthcare Sector and other commercial markets.

Initial investment date:     July 2008
Cost:                                         £577,000
Valuation:                                £2,560,000
Equity held:                            0.7%
Last audited accounts:         February 2012
Revenue:                               £101.8 million
Profit before tax:             £6.9 million
Net assets:                              £98.2 million

Idox Plc
Idox is a leading developer and supplier of software services to local government for core functions relating to land, people and property, and also to the private sector for the management of engineering drawings.

Initial investment date:     May 2008
Cost:                                         £353,000
Valuation:                                   £2,346,000
Equity held:                             1.3%
Last audited accounts:          October 2012
Revenue:                                  £57.9 million
Profit before tax:               £6.9 million
Net assets:                                £38.9 million

Brooks MacDonald Group Plc
Brooks MacDonald is a provider of asset management and financial consulting services with a particular emphasis on the pensions market.

Initial investment date:          March 2005
Cost:                                             £746,000
Valuation:                                     £1,983,000
Equity held:                                 1.2%
Last audited accounts:               June 2012
Revenue:                                       £53.3 million
Profit before tax:                   £8.5 million
Net assets:                                    £23.7 million

Breedon Aggregates Limited
Breedon Aggregates supplies a diverse range of products to the construction and building sectors from a number of quarries and other sites in the Midlands and Scotland.

Initial investment date:          August 2010
Cost:                                              £902,000
Valuation:                                       £1,728,000
Equity held:                                    1.2%
Last audited accounts:               December 2012
Revenue:                                       £173.5 million
Profit before tax:            £5.8 million
Net assets:                                   £79.3 million
  
EKF Diagnostics Plc
EKF designs, develops, manufactures and distributes diagnostic instruments and reagents focussed on the diabetes, anaemia and chronic kidney disease markets. It has operations in Germany, Poland and Russia.

Initial investment date:                        July 2010
Cost:                                                  £931,000
Valuation:                                           £1,468,000
Equity held:                           2.1%
Last audited accounts:                   December 2011
Revenue:                                           £26.1 million
Loss before tax:                   £0.2 million
Net assets:                                         £39.4 million

Escher Group Holdings Plc
Escher Group Holdings Plc provides software, particularly for over the counter and financial services, to national Post Office organisations worldwide.

Initial investment date:         August 2011
Cost:                                            £1,003,000
Valuation:                                      £1,385,000
Equity held:                                 3.2%
Last audited accounts:             December 2012
Revenue:                                    $22.9 million
Profit before tax:         $4.4 million
Net assets:                                 $35.1 million

WANdisco Plc
WANdisco (Wide Area Network Distributed Computing) is a provider of enterprise software enabling simultaneous collaboration and handling of big data.

Initial investment date:          May 2012
Cost:                                             £292,000
Valuation:                                     £1,308,000
Equity held:                                  0.8%
First audited accounts:        March 2012
Revenue:                                       $6.0 million
Loss before tax:                    $7.9 million
Net assets:                                   $12.2 million

Netcall Plc
Netcall is a provider of software and telephony services particularly to call centres enabling efficient customer interaction and process management and improving customer satisfaction.

Initial investment date:          July 2010
Cost:                                             £436,000
Valuation:                                      £1,299,000
Equity held:                                    2.9%
Last audited accounts:               June 2012
Revenue:                                      £14.6 million
Profit before tax:                   £2.1 million
Net assets:                                     £15.5 million

Staffline Recruitment Plc
Staffline is a provider of labour to employers.

Initial investment date:          December 2004
Cost:                                               £333,000
Valuation:                                         £1,263,000
Equity held:                                      1.6%
Last audited accounts:           31 December 2012
Revenue:                                        £367 million
Profit before tax:                   £8.5 million
Net assets:                                        £39.8 million

Vertu Motors Plc
Vertu Motors Plc (which trades under the Bristol Street Motors, Macklin Motors, Vertu Honda and Bristol Street Motor Nation brands) was formed in late 2006 to acquire and consolidate UK motor retail businesses.

Initial investment date:          December 2006
Cost:                                               £1,265,000
Valuation:                                         £1,053,000
Equity held:                                   1.3%
Last audited accounts:                  29 February 2012
Revenue:                                         £1,088.3 million
Profit before tax:                   £5.5 million
Net assets:                                       £100.5 million

Directors' Responsibilities Statement

The Directors are responsible for preparing the Directors' Report, the Directors' 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 law). 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 of the Company and of the 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 judgments and accounting estimates that are reasonable and prudent; and
• state whether they have been prepared in accordance with UK accounting standards, subject to any material departures disclosed and explained in the financial statements.

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.

Website publication

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors' responsibilities pursuant to DTR 4

The Directors confirm, to the best of their knowledge:

• that the financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
• that the annual report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that it faces.

On Behalf of the Board

Michael Reeve
Chairman
30 May 2013

Income Statement
		Year to 28 February 2013			Year to 29 February 2012
	Notes	Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gain/(loss) on disposal of fixed asset investments	10	-	455	455	-	(93)	(93)
Gain/(loss) on valuation of fixed asset investments	10	-	5,533	5,533	-	(136)	(136)
Investment Income	2	523	-	523	475	-	475
Investment management fees	3	(202)	(606)	(808)	(197)	(590)	(787)
Other expenses	4	(232)	-	(232)	(227)	-	(227)
Profit/(loss) on ordinary activities before tax		89	5,382	5,471	51	(819)	(768)
Taxation on profit/(loss) on ordinary activities	6	-	-	-	-	-	-
Profit/(loss) on ordinary activities after tax		89	5,382	5,471	51	(819)	(768)
Return per share - basic and diluted	8	0.2p	11.4p	11.6p	0.1p	(1.8)p	(1.7)p

• the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice
• 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. Accordingly a statement of recognised gains and losses is not required.

Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the profit/(loss) as stated above and at historical cost.

The accompanying notes are an integral part of the financial statements.

Balance sheet

		As at 28 February 2013		As at 29 February 2012
	Notes
		£'000	£'000	£'000	£'000
Fixed asset investments*	10		37,491		30,436
Current assets:
Investments*	11	5,799		8,609
Debtors	12	71		56
Cash at bank		841		668
		6,711		9,333
Creditors: amounts falling due within one year	13	(79)		(80)
Net current assets			6,632		9,253
Net assets			44,123		39,689
Called up equity share capital	14		467		454
Shares to be issued	14		402		279
Share premium	15		11,939		-
Special distributable reserve	15		45,182		56,054
Capital redemption reserve	15		121		2
Capital reserve realised	15		(22,758)		(20,353)
Capital reserve unrealised	15		8,495		3,067
Revenue reserve	15		275		186
Total equity shareholders' funds			44,123		39,689
Net asset value per share - basic and diluted	9		93.7p		86.9p

* held at fair value through profit & loss

The accompanying notes are an integral part of the financial statements.

The statements were approved by the Directors and authorised for issue on 30 May 2013 and are signed on their behalf by:

Michael Reeve
Chairman

Company number: 03477519

	Note	Year to 28 February 2013	Year to 29 February 2012
		£'000	£'000
Shareholders' funds at start of year		39,689	38,940
Profit/(loss) on ordinary activities after tax		5,471	(768)
Share capital bought back		(10,872)	(681)
Issue of shares		12,071	4,558
Increase/(decrease) in shares to be issued		123	(73)
Dividends paid	7	(2,359)	(2,287)
Shareholders' funds at end of year		44,123	39,689

Reconciliation of Movements in Shareholders' Funds

Cash flow statement

		Year to 28 February 2013	Year to 29 February 2012
	Notes	£'000	£'000
Net Cash outflow from operating activities		(533)	(754)
Taxation	6	-	-
Financial investment:
Purchase of fixed asset investments	10	(3,671)	(5,570)
Sale of fixed asset investments	10	2,604	2,954
Net cash outflow from investing activities		(1,067)	(2,616)
Equity dividends paid		(2,359)	(2,287)
Management of liquid resources:
Purchase of current asset investments	11	(7,859)	(14,185)
Sale of current asset investments	11	10,669	16,231
Net cash inflow from management of liquid resources		2,810	2,046
Net cash outflow before financing		(1,149)	(3,611)
Financing
Proceeds from issue of shares	15	11,792	4,558
Shares to be issued	15	402	(73)
Purchase of own shares	15	(10,872)	(681)
Net cash inflow from financing activities		1,322	3,804
Increase in cash		173	193

Reconciliation of Profit before Taxation to Cash Flow from Operating Activities
	Note	Year to 28 February 2013	Year to 29 February 2012
		£'000	£'000
Profit/(loss) on ordinary activities before tax		5,471	(768)
Increase in debtors	12	(15)	(37)
Decrease in creditors	13	(1)	(178)
(Gain)/loss on disposal of fixed asset investments	10	(455)	93
(Gain)/loss on valuation of fixed asset investments	10	(5,533)	136
Outflow from operating activities		(533)	(754)

Reconciliation of Net Cash Flow to Movement in Net Funds
		Year to 28 February 2013	Year to 29 February 2012
		£'000	£'000
Increase in cash at bank		173	193
Movement in cash equivalent securities		(2,810)	(2,046)
Opening net funds		9,277	11,130
Net funds at 29 February 2012		6,640	9,277

Analysis of changes in Net Funds:

	As at 1 March 2012	Cash Flows	As at 28 February 2013
Cash at Bank	668	173	841
Money market funds	8,609	(2,810)	5,799
Net funds	9,277	(2,637)	6,640

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 principal accounting policies have remained unchanged from those set out in the Company's 2012 Annual Report and financial statements.  A summary of the principal accounting policies is set out below.

The Company presents its Income Statement in a three column format to give shareholders additional detail of the performance of the Company, split between items of a revenue or capital nature.

The preparation of the financial statements requires Management to make accounting 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.

The Company has designated all fixed asset investments as being held at fair value through profit and loss; therefore all gains and losses arising from investments held are attributable to financial assets held at fair value through profit and loss.  Accordingly, all interest income, fee income, expenses and investment gains and losses are attributable to assets designated as being at fair value through profit or loss. 

Current asset investments comprising money market funds are held for trading and are therefore automatically classified as fair value through profit or loss.

AIM and ISDX Growth Market Quoted investments are valued in accordance with the bid-price on the relevant date.

Although the Company believes that the assumptions concerning the business environment and estimate of future cash flows are appropriate, changes in estimates and assumptions could require changes in the stated values. This could lead to additional changes in fair value in the future.

Investments
Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date).

These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board.  Accordingly as permitted by FRS 26, the investments will be designated as fair value through profit and loss ("FVTPL") on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy.  The Company's investments are measured at subsequent reporting dates at fair value. 

In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. 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 International Private Equity and Venture Capital valuation guidelines.

Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve unrealised. 

In 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 deposits 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 unrealised.

The current asset investments are all invested with the Company's cash manager and are readily convertible into
cash at the choice of the Company. The current asset investments are held for trading, are actively managed and
the performance is evaluated on a fair value basis in accordance with a documented investment strategy.
Information about them has to be provided internally on that basis to the Board.

Income
Investment income includes interest earned on bank balances and money market securities 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 securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course.

Expenses
All expenses are accounted for on an accruals basis.  Expenses are charged wholly to revenue with the exception of the investment management fee, which has been charged 25% to the revenue account and 75% to the realised 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 transactions 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 and holding gains and losses on investments. Upon disposal of investments gains and losses relating to the assets are transferred from the capital reserve unrealised to the capital reserve realised.

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 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, 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) and investments in money market managed funds.

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.

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.

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.

Dividends
Dividends payable are recognised as distributions in the financial statements when the Company's liability to make payment has been established.  This liability is established for interim dividends when they are paid, and for final dividends when they are approved by the shareholders.

2.             Income

	28 February 2013	29 February 2012
	£'000	£'000
Income receivable on money market securities and bank balances	73	86
Dividends receivable from fixed asset investments	450	380
Loan interest received	-	9
	523	475

3.             Investment management fees

	28 February 2013			29 February 2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee	202	606	808	197	590	787
	202	606	808	197	590	787

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 Limited provides investment management and accounting and administration services to the Company under a management agreement which initially ran with Close Investment Limited from 3 February 1998 and was then novated to Octopus Investments Limited for a period of five years with effect from 29 July 2008 and may be terminated at any time thereafter by not less than 12 months' notice given by either party. No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The management fee is an annual charge and is set at 2% of the Company's net assets.

During the year Octopus Investments Limited charged management fees of £808,000 (2012: £787,000). At the year end there was £nil outstanding (2012: £nil). Octopus Investments Limited received £509,000 (2012:£131,000) as a result of upfront fees charged on allotments of Ordinary Shares.

4.             Other expenses

	28 February 2013	29 February 2012
	£'000	£'000
Directors' remuneration	79	69
Fees payable to the Company's auditor for the audit of the financial statements	25	23
Other expenses	128	135
	232	227

The ongoing charges of the Company were 2.3 per cent of average net assets during the year to 28 February 2013 (2012: 2.5 per cent). 

5.             Directors' remuneration

	28 February 2013	29 February 2012
	£'000	£'000
Directors' emoluments
Michael Reeve	25	25
Marion Sears	18	8
Roger Smith	18	18
Stephen Hazell-Smith	18	18
	79	69

None of the Directors received any other remuneration or benefit from the Company during the year.  The Company has no employees other than non-executive Directors.  The average number of non-executive Directors in the year was four (2012: four). The above table represents the gross remuneration received by the Directors and excludes Employer's National Insurance contributions, which amounted to £7,000 (2012: £6,000). The Directors received no pension contributions from the Company during the year (2012: £nil).

6.             Tax on ordinary activities
The corporation tax charge for the year was £nil (2012: £nil).

Factors affecting the tax charge for the current year:

The current tax charge for the year differs from the effective small company rate of corporation tax in the UK of 20.0% (2012: 20.08%).  The differences are explained below.
                                                                                                                                                                                                               

Current tax reconciliation:	28 February 2013	29 February 2012
	£'000	£'000
Profit/(loss) on ordinary activities before tax	5,471	(768)
Current tax at 20.0% (2012: 20.08%)	1,094	(154)
Income not liable to tax	(90)	(78)
(Gains)/losses not deductible for tax	(1,197)	46
Excess management expenses carried forward	193	186
Total current tax charge	-	-

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 venture capital trust, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.

As at 28 February 2013, there is an unrecognised deferred tax asset of £607,000 (2012: £414,000) in respect of surplus management expenses. 

7.             Dividends

	28 February 2013	29 February 2012
	£'000	£'000
Recognised as distributions in the financial statements for the year
Previous year's final dividend - 2.5p per share	1,180	1,145
Current year's interim dividend - 2.5p per share	1,179	1,142
	2,359	2,287

	28 February 2013	29 February 2012
	£'000	£'000
Paid and proposed in respect of the year
Interim dividend - 2.5p per share (2012: 2.5p per share)	1,179	1,142
Final dividend proposed: 2.5p per share (2012: 2.5p share)	1,265	1,183
	2,444	2,325

8.             Return per share - basic and diluted
The return per share is based on profit after tax of £5,471,000 (2012: loss after tax of £768,000), and 47,141,571 Ordinary shares (2012: 45,406,494), being the weighted average number of shares in issue during the year.

There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical.

9.        Net asset value per share - basic and diluted
The calculation of net asset value per share as at 28 February 2013 is based on net assets of £44,123,000 (2012: £39,689,000) divided by 47,088,019 (2012: 45,671,549), being the sum of 46,671,336 Ordinary shares in issue at that date and 416,683 shares to be issued at the same date.

There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted net asset value per share are identical.

10.          Fixed asset investments
FRS 29, regarding financial instruments that are measured in the balance sheet at fair value 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 or ISDX Growth Market listed investments classified as held at fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The Company held no such investment in the current or prior year.

Level 3: the fair value of financial instruments that are not traded in an active market (for example investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The Company held no such investments in the current or prior year.

There have been no transfers between these classifications in the period (2012: 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 28 February 2013 are summarised below and in note 11.

		Level 1: AIM quoted equity investments
		£'000
Book cost at 1 March 2012		27,847
Opening impairment in value of investments treated as losses realised		(478)
Opening unrealised gain at 1 March 2012		3,067
Valuation at 1 March 2012		30,436
Purchases at cost		3,671
Proceeds from the sale of investments		(2,604)
Profit on realisation of investments		455
Change in fair value in year		5,533
Closing valuation at 28 February 2013		37,491
Book cost at 28 February 2013		29,976
Closing impairment in value of investments treated as losses realised		(980)
Closing unrealised gain at 28 February 2013		8,495
Valuation at 28 February 2013		37,491

Level 1 valuations are valued in accordance with the bid-price on the relevant date. Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review.

All investments are designated as fair value through profit or loss from the time of acquisition, and all capital gains or losses on investments so designated.  Given the nature of the Company's venture capital investments, the changes in fair value of such investments recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and accordingly these gains are treated as unrealised. 

When the Company revalues the investments still held during the period, any gains or losses arising are credited /
charged to the Capital reserve unrealised.

When an investment is sold any balance held on the Capital reserve unrealised is transferred to the
Capital reserve realised as a movement in reserves. 

At 28 February 2013 there were no commitments in respect of investments approved by the Manager but not yet completed (2012: £557,540):

Transaction costs on purchases and disposals for the year were £11,000 and £8,000 respectively.

11.          Current asset investments at fair value through profit and loss

Current asset investments represent level 1 investments as described in note 10 above. All current asset investments relate to money market funds*.

		2013				2012
		£'000				£'000
Book cost and valuation at 1 March		8,609				10,655
Purchases at cost				7,859			14,185
Disposal proceeds		(10,669)				(16,231)
		5,799				8,609

12.          Debtors

	28 February 2013	29 February 2012
	£'000	£'000
Prepayments and accrued income	71	36
Other debtors	-	20
	71	56

13.          Creditors: amounts falling due within one year

	28 February 2013	29 February 2012
	£'000	£'000
Accruals	50	44
Other creditors	29	36
	79	80

14.          Share capital

	28 February 2013	29 February 2012
	£'000	£'000
Allotted and fully paid up:
46,671,336 Ordinary shares of 1.0p (2012: 45,422,653 shares of 1.0p)	467	454

The value of shares to be issued at 28 February 2013 amounted to £402,000 (2012: £279,000). 

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.

During the year the Company repurchased the following shares to be cancelled:

Date	Number of shares	Price per share	Total value of shares
16 March 2012	108,029	79.5p	85,883
30 March 2012	63,094	79.5p	50,160
11 May 2012	83,230	81.25p	67,624
31 May 2012	17,309	77.5p	13,414
21 June 2012	106,691	77.0p	82,152
11 July 2012	23,000	76.0p	17,480
13 July 2012	67,043	76.0p	50,953
2 August 2012	182,106	77.0p	140,222
14 September 2012	195,084	78.5p	153,141
30 November 2012	92,167	77.75p	71,683
20 December 2012	76,609	80.0p	61,287
10 January 2013	67,953	81.75p	55,552
Totals	1,082,315		849,551

The total nominal value of the shares repurchased for cancellation was £10,823 representing 2.3% of the issued share capital.  

The Company issued the following shares during the year to 28 February 2013 in connection with the offers for subscription announced on 6 February 2012 and 25 April 2012:

• 5 April 2012: 2,148,981 Ordinary shares at a price of 94.4p
• 31 July 2012: 694,111 Ordinary shares at a price of 90.7p

On 1 February 2013, existing shareholders were notified of an offer for subscription aimed at raising a further £10 million of funds for this Company.

On 19 February 2013, as part of the EBB, in total 10,801,537 Ordinary shares were sold back to the Company and 10,289,443 Ordinary shares were reissued.

At the date of issue of this report there were 46,671,336 Ordinary shares of 1p each in issue, with a further 416,683 shares waiting to be issued.

15.          Reserves

	Share capital	Shares to be issued	Share premium	Special distributable reserve*	Capital redemption reserve	Capital reserve realised*	Capital reserve unrealised	Revenue reserve*
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 1 March 2012	454	279	-	56,054	2	(20,353)	3,067	186
Repurchase of own shares	(119)	-	-	(10,872)	119	-	-	-
Shares issued	132	(279)	12,641	-	-	-	-	-
Cost of issue of shares	-	-	(702)	-	-	-	-	-
Cash received for shares to be issued	-	402	-	-	-	-	-	-
Profit on ordinary activities after tax	-	-	-	-	-	-	-	89
Management fees allocated as capital expenditure	-	-	-	-	-	(606)	-	-
Current year gains on disposal	-	-	-	-	-	455	-	-
Prior period losses/(gains) realised on disposal	-	-	-	-	-	607	(607)	-
Realisation of prior period unrealised losses on investments still held	-	-	-	-	-	(502)	502	-
Current period gains on fair value of investments	-	-	-	-	-	-	5,533	-
Dividends paid	-	-	-	-	-	(2,359)	-	-
Balance as at 28 February 2013	467	402	11,939	45,182	121	(22,758)	8,495	275

* Included within these reserves is an amount of £22,699,000 (2012: £35,887,000) which is considered distributable to shareholders.

When the Company revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement. Changes in fair value of investments held are then transferred to capital reserves unrealised. When an investment is sold any balance held on the capital reserve unrealised is transferred to the capital reserve realised as a movement in reserves.

16.          Financial instruments and risk management
The Company's financial instruments comprise equity investments, cash balances, investments in money market funds and debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying unquoted and AIM-quoted and ISDX Growth Market securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity.

Fixed and current asset investments (see note 10 and 11) are valued at fair value. For quoted investments this is bid price or the last traded price. 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 year 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. 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 in accordance with the policies and procedures described in the Corporate Governance statement on pages x to x, having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in smaller companies, by their nature, usually involve a higher degree of risk than investments in larger 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 in the investment managers review.

84.9% (29 February 2012: 77.3%) by value of the Company's net assets comprises equity securities listed on the London Stock Exchange or quoted on AIM. A 10% increase in the bid price of these securities as at 28 February 2013 would have increased net assets and the total return for the year by £3,749,100 (2012: £3,043,600); a corresponding fall would have reduced net assets and the total return for the year by the same amount.

Interest rate risk
Some of the Company's financial assets are interest-bearing.  As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates.

Floating rate
The Company's floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market securities.  The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 0.5% at 28 February 2013 (2012: 0.5%).  The amounts held in floating rate investments at the balance sheet date were as follows:

	28 February 2013 £'000	29 February 2012 £'000
Current asset investments	5,799	8,609
Cash at bank	841	668
	6,640	9,277

A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £66,400 (2012: £92,770).

Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date. 

At 28 February 2013 the Company's financial assets exposed to credit risk comprised the following:

	28 February 2013	29 February 2012
	£'000	£'000
Current investments	5,799	8,609
Cash at bank	841	668
Accrued dividends and interest receivable	20	13
	6,660	9,290

Credit risk relating to listed money market securities is mitigated by investing, where possible, in money market instruments issued by major companies and institutions with a minimum Moody's long term debt rating of 'A'.

Those assets of the Company which are traded on recognised stock exchanges are held on the Company's behalf by third party custodians.  Bankruptcy or insolvency of a custodian could cause the Company's rights with respect to securities held by the 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 has cash deposits which are held on the balance sheet of HSBC Bank Plc, The Royal Bank of Scotland Plc and in cash investment funds managed by BlackRock.

Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 28 February 2013 or 29 February 2012.

Liquidity risk
The Company's financial assets include investments in AIM-quoted companies, which by their nature involve a higher degree of risk than investments on the main market.  As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. 

The Company's listed money market securities are considered to be readily realisable as they are of high credit quality as outlined above. 

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 28 February 2013 these investments were valued at £6,640,000 (29 February 2012: £9,277,000).

 17.         Post balance sheet events
Since the year end, the Company has made the following investments:

Company	Date	Number of shares	Cost £'000
GB Group Plc	20 March 2013	180,000	163
MyCelx Technologies Plc	22 March 2013	15,000	44
Staffline Recruitment Group Plc	28 March 2013	1,000	4
MyCelx Technologies Plc	3 April 2013	600	2
Cambridge Cognition Group Plc	15 April 2013	857,142	600
MyCelx Technologies Plc	22 April 2013	300	2
Quixant Plc	15 May 2013	1,560,157	718

 

Disposals were made in Daisy Group Plc (1March 2013 and 5 March 2013), resulting in losses of £2,000 and £22,000 respectively.

The following shares have been bought back since the year end:

• 1 March 2013: 263,863 Ordinary shares at a price of 90.75p
• 25 March 2013: 145,961 Ordinary shares at a price of 90.0p
• 18 April 2013: 73,665 Ordinary shares at a price of 91.0p
• 9 May 2013: 20,000 Ordinary shares at a price of 91.0p
• 15 May 2013: 104,303 Ordinary shares at a price of 95.25p

The following shares have been issued since the year end:

• 4 April 2013: 3,329,654 Ordinary shares at a price of 101.3p
• 5 April 2013: 561,039 Ordinary shares at a price of 101.3p
• 3 May 2013: 523,155 Ordinary shares at a price of 104.4p

18.          Contingencies, guarantees and financial commitments
At 28 February 2013 there were no commitments in respect of investments approved by the manager but not yet completed (2012: £557,540)

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Source: Octopus AIM VCT PLC via Thomson Reuters ONE

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