Octopus AIM VCT PLC : Final Results

Octopus AIM VCT plc

Final Results

27 May 2016

Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 29 February 2016.

These results were approved by the Board of Directors on 27 May 2016.

You may, in due course, view the Annual Report in full at www.octopusinvestments.com by navigating to Investors, and selecting Octopus AIM VCT plc from the drop down menu.  All other statutory information will also be found there.

Financial Summary

	As at 29 February 2016	As at 28 February 2015
Net assets (£'000)	77,224	72,612
Net profit/(loss) after tax (£'000)	742	(5,226)
Net asset value (NAV)  per share	101.6p	110.2p
Ordinary Dividends per share paid in year	5.3p	5.5p
Special Dividend per share paid in year	4.0p	-
Proposed Final Dividend per share*	2.5p	2.8p

* Subject to shareholder approval at the Annual General Meeting, the proposed final dividend will be paid on 22 July 2016 to shareholders on the register on 24 June 2016.

 

Chairman's Statement

 

Introduction

The year to 29 February 2016 was characterised by an unsettled stock market which had the effect of dampening the enthusiasm for share prices even when companies demonstrated good business progress. The year opened with worries about an impending General Election which turned briefly to euphoria on the news of a single party majority in May before international political and economic concerns once again created the conditions for market volatility. This uncertainty has continued into 2016, with attention now on the European Referendum in June.  Against this background performance was rather muted with the 9.3p of dividends paid out in the year only just exceeding the fall in the Net Asset Value (NAV) to give a small positive total return. Some of the mature holdings in the portfolio have seen their share prices advance on good news but it has been significantly harder for the earlier stage companies which have yet to make a profit. Their shares have tended to fare much worse in a risk averse market even when they have met expectations.

Royal Assent was also given to the second Finance Act of the year in November, bringing new VCT regulations which reconcile with EU State Aid rules.  Your Managers are not expecting to have to change their approach in any substantial way as a result of these new regulations. 

During the year your company raised £12.4 million by the issue of new shares and a further £8.7million has been raised since the year end. Your Company continued to buy back from selling shareholders.

Performance

Adding back the 5.3p of ordinary and 4p special dividends paid out in the year, the Net Asset value rose marginally, by 0.6%.  This compares with a fall in the AIM index of 1.7%, a fall in the FTSE All Share Index of 7.3% and a rise in the Smallcap Index ex Investment Trusts of 1.6%, all on a total return basis.

As these figures suggest it has been smaller companies' shares which have performed relatively well, reflecting the fact that larger companies are perceived to be more exposed to international concerns about Chinese growth and the weak oil price as well as political worries around the Eurozone and the effects of the immigration crisis. However, within the portfolio, performance has tended to polarise with the better established and profitable companies seeing their share prices advance on good news, and those yet to make a profit struggling to get investor attention and seeing their share prices under pressure, particularly those thought to be in need of further funding.

There have been signs that the appetite for takeovers has started to revive. In the year under review, the cash offer for Advanced Computer software completed and Chime Communications, Synabor and Enables IT were all subject to takeover bids. Several other portfolio companies have accelerated their growth through acquisitions during the year.       

2016 did not match the previous year for the amount raised by new issues on AIM although secondary fundraisings were even more in evidence.  In the year under review AIM has raised £5.4 billion in new capital, fulfilling its purpose of providing additional growth capital for its members. After a strong December and January for fundraisings, February was quieter although the pipeline of new companies looking to float on AIM seems to be steady.

In the interim accounts I reported that we had invested £4 million in qualifying holdings. In the second half of the year we invested a further £1.9 million in qualifying investments which included three new holdings in Scientific Digital Imaging, Tyratech and Haydale Graphene together with two further follow-on investments into Microsaic and Nektan. The last was in the format of a convertible loan note.  In addition we invested £5.2 million in non-qualifying holdings in the year, in order to put the funds raised to work in the market. We made disposals totalling £5.9 million at a net profit of £4.3 million.

Further details of performance are contained in the Investment Managers' Review.

New VCT Regulations

VCTs have always been subject to UK regulations, not least as they confer tax benefits on investors.  In recent years these regulations have become subject themselves to European State Aid rules.  The Chancellor proposed new rules in his Summer Budget in July 2015 and, following discussions with European authorities in Brussels, these became law following the granting of Royal Assent in November 2015.  These are in addition to existing rules which already limited investment to companies with gross assets of no more than £15 million, 250 employees and where no more than £5 million of State Aided funds had been raised within the past 12 months.

The new rules now in force relate to the age of companies receiving a first investment, a lifetime limit on State Aided funds and rules designed to target any funds raised on a company's growth. They also recognise that there is a class of company which is 'knowledge intensive' and therefore hungrier for capital, and some of the limits are more generous for these types of companies.

To summarise the changes, in order to qualify companies must:

• have fewer than 250 full time equivalent employees; and
• have less than £15 million of gross assets at the time of investment and no more than £16 million immediately post investment; and
• be less than seven years old (or 10 years if a knowledge intensive fund) if raising State Aided funds for the first time; and
• have raised no more than £5 million of State Aided funds in the previous 12 months and less than the lifetime limit of £12 million (or £20 million if a knowledge intensive fund); and
• produce a business plan to show that its funds are being raised for growth.

Follow-on investments are allowed to provide further capital for an existing investment up to the lifetime limit, and in certain circumstances a company may obtain clearance to raise money to develop a new business or market. Money raised from VCTs is not allowed to be used for acquisitions, or to buy out debt or existing equity. In addition, non-qualifying purchases of AIM shares are no longer allowed.

Draft clarification notes to go with the VCT legislation have just been published and so it is still too early to come to any conclusions about what effect these new rules will have on VCT qualifying deal flow for AIM companies.  Your VCT has made two investments since the rules became law and has seen a steady flow of qualifying opportunities.  At 88%, the VCT is well above the minimum 70% qualifying requirement and therefore under no immediate pressure to invest its cash.

Dividends

An interim dividend of 2.5p was paid to shareholders in January 2016. It is your Board's intention to continue to pay a minimum of 2.5p each half year and to adjust annually, based on the year-end share price, the final dividend so that shareholders receive either 5p per annum or a 5% yield, whichever is the greater at the time. This will enable dividends to progress with a rising NAV, whilst maintaining the minimum historic level. With respect to the year to February 2016 your Board has so far declared and paid an interim dividend of 2.5p and now has pleasure in recommending a final dividend of 2.5p, which brings the total dividend for the year to 5p which is higher than an annualised yield of 5%, based on the share price of 95.875p on 29 February 2016.

Special dividends are by definition special and do not form part of the minimum payment. A 4p special dividend was paid in respect of the year to 28 February 2015 following the exceptional profit realised on the takeover of Advanced Computer Software. No special dividend is proposed for the year ended 29 February 2016.

Dividend Reinvestment scheme

In common with many other VCTs in the industry, your Company has started a Dividend Reinvestment Scheme (DRIS).  Some shareholders have already taken advantage of this opportunity. For investors who do not need income, but value the additional tax relief on their reinvested dividends, this is an attractive scheme and I hope more shareholders will find it useful. In the course of the year 468,005 new shares have been issued under this scheme. The dividend referred to above will be eligible for the DRIS.

Share Buy Backs

In the year ended 29 February 2016 we bought back 1,494,656 shares for cancellation.  The average month end discount to Net Asset Value at which your shares have traded through the year has been 5.1% compared to the closing monthly bid price in line with the Board's policy of 5%.                                                                                                                               

Share Issues

In the year to 29 February 2016 we have raised a total of £12.4 million of new capital.  This figure is made up, first, of £8.5 million raised under the combined offer with Octopus AIM VCT 2 plc ("AIM VCT 2") which launched on 29 August 2014. This offer closed, fully subscribed, on 1 July 2015. A further combined fundraise with AIM VCT 2 was launched on 21 December 2015 to raise up to £20 million, with an overallotment facility of £10 million. By the year end £3.9 million had been raised under this offer.  At the date of this report a further £8.7 million had been raised in the period since 29 February 2016. The offer remains open and the Company can raise up to a further £5.4 million before reaching the maximum of £18 million. 

VCT 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 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 29 February 2016 some 88% of the portfolio as measured by HMRC rules was invested in qualifying investments.

 

Risks and uncertainties

In accordance with the Listing Rules under which your Company operates your Board has to comment on the potential risks and uncertainties which could have a material impact on the Company's performance. A risk arises from the requirement to maintain compliance with HMRC regulations requiring 70% of your Company's assets to be invested in qualifying holdings. Other risks include economic conditions which impact particularly on smaller companies in which your Company invests and this could have an adverse impact on share prices.

Annual General Meeting

The Annual General Meeting will be held on Thursday, 7 July 2016. I very much hope that you will be able to come. After the formal business our Investment Managers will make a presentation. At the Annual General Meeting, a resolution will be proposed to extend the life of the Company until 2022 in order to preserve the VCT status of the Company for the benefit of both existing shareholders and new investors participating in the present share offer. I have been Chairman since the formation of the Company and will be retiring at the Annual General Meeting. I am delighted to announce that Roger Smith will be succeeding me. We will seek to appoint a new non-executive director during the course of the year.

Outlook

Markets have been generally more volatile in the last few months in the face of more pronounced fears about global economic growth.  While many of the widely reported international concerns are of less relevance to smaller UK companies such as those in the portfolio, the EU Referendum is now casting a shadow over the market which will continue until the result is known at the end of June.

Despite this background there is no reason to be disheartened as far as smaller companies are concerned, and the performance of your portfolio depends as ever, more on the progress made by individual companies rather than any macro-economic or political factors.  There are several holdings in the healthcare and technology sector expected to move into profit over the next two or more years and among the more mature holdings a number have produced good results in the recent March results season.

Michael Reeve
Chairman
27 May 2016

Investment Manager's Review

 

Introduction

Smaller company share prices proved resilient during the year to 29 February 2016 in contrast to the FTSE 100 which saw some steep declines in some of its members exposed to a weak oil price and international markets.  At the interim stage we reported that the wider stock market had once again become a more difficult place after an initial burst of enthusiasm following the General Election result in May had passed. This more cautious tone persisted for the remainder of the year, with the result that the NAV total return was slightly down in the second half although it remained just in positive territory for the year as a whole.

It was the share prices of earlier stage companies needing cash to fulfil growth plans that were most affected and we talk about some examples in the portfolio later on in this report.  More established and profitable companies saw their share prices advance despite market conditions and these contributed positively to performance in the year. Overall it seems quite likely, at this stage, that similar conditions will prevail through 2016, with companies only seeing their share prices advance as a result of positive results rather than on any general market trends.

While AIM itself has had some criticism in 2015, it has continued to support existing companies even though the number of new flotations was lower than in the previous twelve months. The benefit of increased market nervousness is that valuations have tended to be more realistic, which bodes well for investing the cash being raised under the current offer.
 

The Alternative Investment Market

The year to 29 February 2016 started well with the AIM Index participating in a general rise in the stock market.  However, its higher exposure to resource stocks meant that it could not sustain this rise as worries about a Chinese slowdown intensified and it ended 1.7% down by the end of the period, behind smaller companies generally although still well ahead of the FTSE 100.    Despite this volatility, and a lower level of new listings on AIM than in 2014, the market raised a very substantial sum, £5.4 billion, for existing AIM listed companies for the year as a whole. That is the highest level of secondary fundraising on AIM since 2010 and is proof that the market will support companies with good reasons for asking for additional growth capital. The ability of AIM to attract a range of new issues and to raise further funds for small growing companies is its most important characteristic as far as the VCT is concerned.

2015 finished with a large number of companies testing the temperature of the water, as they examined the possibility of floating in the first quarter of 2016. These are beginning to come through in the form of prospectus's landing on our desks although this has been slower than we expected at the end of 2015, probably as a result of more turbulent market conditions.  However, assuming that owners and managers set a higher priority on growth than some arbitrary valuation, we would expect to see a healthy flow of new companies coming to AIM in 2016.  We also expect to see many existing AIM companies continue to use their listing to raise finance for further growth.

Performance

Dividend payments in the year were higher than usual as a result of a special dividend paid out of the profit from the Advanced Computer Software holding which was taken over in March 2015. Adding these back to show the total return, the Net Asset Value decreased in the year by slightly less than the 9.8p of dividends paid out, giving a total return of 0.6%. This compares with a total return for the FTSE Smallcap Index of 1.6% and for AIM of -1.7%. The FTSE All Share Index was affected by a sell-off in larger companies perceived to be exposed to global growth and a weak oil price and it underperformed returning -7.3% in the twelve month period.   The portfolio benefited from its exposure to small growing companies many of which are operating in a domestic economy that has been enjoying better growth than many of its international counterparties.   

Within the portfolio it was the older, more established and already profitable companies that tended to perform best in these market conditions, with a number of the not yet profitable earlier stage companies seeing their share prices decline. Among the latter Mycelx, highlighted in the accounts a year ago, continued to suffer from a weak share price as a result of fears about the prolonged effect of a low oil price.  The management has cut costs and is preserving its cash. Several other earlier stage companies had a negative impact on the performance of the NAV in the year including Oxford Pharmascience and Proxama. Oxford Pharmascience has a technology that reduces the harmful effects of drugs on the stomach through slow release of the active ingredients. Although the share price has performed poorly, the company raised £20 million in 2015 and so has cash to fund further trials if it should prove necessary. Proxama, a company with near field communications technology to allow people to transact by tapping their mobile phone, has seen its share price decline on fears that it will need more money in order to execute its strategy.  It has recently announced a series of contracts that indicate that it may now be managing to get some sales traction.

EKF Diagnostics was the other holding that performed particularly badly in the year.  Difficulties with its US molecular diagnostics laboratory were compounded by some lumpy order patterns in its point of care diagnostics business, and the company ended up announcing a strategic review which resulted in a potential bid.  When any formal bid failed to materialise, the company announced that it would be cutting costs and concentrating its efforts on restoring shareholder value through focusing on the point of care business. 

On a positive note some of the more established holdings in the portfolio enjoyed strong share price gains in the year and more than compensated for the poor share price performance of anything considered by the market to be small and early stage. Breedon, Staffline, Brooks Macdonald, Idox, Vertu Motors and GB Group all saw their share prices respond well to good figures showing strong progress in their respective businesses with the promise of further growth to come.  In particular, Breedon has made a takeover bid for Hope Group, a rival UK aggregates and cement business which will double its size, making it the largest independent UK based aggregates business and give it a much coveted entry into the London cement market.  It is awaiting the approval of the Competition and Markets Authority. They are all now well established, and by VCT standards, sizeable businesses.

Encouragingly, several other portfolio companies saw their businesses develop significantly in the year and were rewarded with share price gains.  Tasty, a restaurant operator, has now built its estate to more than 50 outlets and has the funding to grow it by 15 units a year out of existing resources.  This fund first invested in 2007 and it took three years before the company reached profitability, since then it has accelerated its growth plans. Adept Telecom made a significant acquisition, increasing its ability to win business with larger customers and Animalcare demonstrated that it could successfully launch several new animal medicines into the market in a twelve month period.  DP Poland, which owns the Dominos Pizza franchise in Poland, is still a long way from profitability but it has now demonstrated a financial model that works, and the shares have strengthened as a result.  Learning Technologies also reaped the benefit of several acquisitions made since it reversed the business of Epic into Indeed On-line and is now bidding for and winning substantial government contracts.

Among the non-qualifying holdings Skyepharma was the best performer, and is now subject to a takeover bid from Vectura, another mid-sized pharmaceutical company specialising in the respiratory sector.  The combined Group will be cash generative as well as having a portfolio of products in development providing potential for future growth. RWS, Restore and Gooch and Housego all performed well in the year.

Portfolio Activity

In addition to the £4 million invested in six qualifying investments in the first half of the year, we invested a further £1.9 million in five further qualifying investments in the second half. Two of these were follow on investment into Nektan and Microsaic, both of which have yet to generate any significant sales and are still proving their business models.  All of the new investments were in existing AIM companies.  Among them, only Scientific Digital Imaging is already profitable although Tyratech is already selling its head lice treatment based on natural plant extracts to WalMart in the US and Boots in the UK and will be using the funds raised to accelerate its sales towards profitability.  Haydale also has existing sales.  It has a technology to functionalise graphene to enable its properties of strength and conductivity to be used in conjunction with other substances.

We have also invested a proportion of our newly raised cash in non-qualifying holdings with a view to improving returns by putting liquid assets to work. We invested in a number of larger AIM companies, which we know well and which, as relatively developed profitable and dividend paying companies, represent a balance to the risk, which the younger qualifying companies necessarily inject into the portfolio. In total we invested £5.2 million into new non-qualifying holdings in the year. In aggregate therefore we have invested over £11.1 million in the year to February 2016, which compares with the £12.4 million raised by the company.

During the year we made disposals of £5.9 million realising an overall profit over book cost of £4.3 million.  The major sale in the year was the disposal of Advanced Computer Software Group, which we covered in the interim statement.  In the second half of the year Chime Communications and Synabor were taken over for cash.  Enables IT was also taken over, and as a result the fund now has a holding in 1 Spatial, a software Group which specialises in managing vast quantities of geospatial data. The holding in Staffline was trimmed, but the only other holding which was sold entirely in the second half was Goals Soccer Centres, which had always been a non-qualifying holding and produced a small profit.

Outlook

Markets have had a very unsettled start to 2016, with worries about a further slowdown in China, continuing weakness in the oil price and worries about the possibility of rising interest rates exacerbated by a new uncertainty posed by the EU referendum in June.  Despite the US raising rates in December, the prospect of a rate rise in the UK still seems to be some way off, and forecasts remain for slow economic growth.  As far as the domestic economy is concerned this is a similar outlook to this time last year and goes some way to explain why many smaller UK focused companies have continued to publish encouraging trading statements which have often been followed by upgrades to analysts' forecasts.  On a more cautious note, it has become apparent in the recent reporting season that the market is very nervous about companies disappointing with some share prices falling substantially on bad news.  Inevitably it is the still unprofitable companies perceived to need further funding that are most vulnerable in this situation, with the specific risk increased where VCTs are no longer able to follow their money at a lower price under new regulations and therefore at risk of returns being diluted.  We believe that share price performance will continue to be driven by the progress of individual companies and take comfort from the fact that 85% by value of the equity portfolio is represented by profitable companies and 70% by dividend paying companies.

A relatively positive UK economic outlook is also a reason to believe that capital raising and flotations will remain a significant feature of AIM this year. In those circumstances we would expect to invest the present cash balance profitably for shareholders in new qualifying holdings.

The AIM Team
Octopus Investments Limited
27 May 2016

Investment Portfolio

Quoted Investments	Sector	Cost as at 29 February 2016 (£'000)	Cumulative change in fair value (£'000)	Fair Value at 29 February 2016 (£'000)	Movement in year ('£000)	% equity held by AIM VCT plc	% equity held by all funds managed by Octopus
Staffline Recruitment plc	Support Services	334	4,626	4,960	1,756	1.3%	11.0%
Breedon Aggregates Limited	Construction & Building	859	3,971	4,830	1,413	0.6%	1.2%
GB Group plc	Support Services	715	2,220	2,935	1,034	0.9%	9.0%
Brooks MacDonald Group plc	Finance	746	1,979	2,725	583	1.1%	8.3%
Quixant plc	Technology Hardware	697	1,952	2,649	500	2.3%	6.4%
Tasty plc	Leisure & Hotels	622	1,834	2,456	402	2.8%	5.2%
Idox plc	Software	353	2,040	2,393	493	1.3%	3.6%
Mattioli Woods plc	Finance	529	1,740	2,269	261	1.6%	2.4%
Learning Technologies Group plc	Support Services	1,320	782	2,102	876	1.5%	2.4%
Vertu Motors plc	General Retailers	1,265	449	1,714	153	0.7%	5.0%
TLA Worldwide plc	Media	807	888	1,695	(40)	2.8%	6.1%
Netcall plc	Telecommunication Services	438	1,236	1,674	(463)	2.6%	4.5%
Ergomed plc	Pharmaceuticals & Biotech	1,440	31	1,471	15	3.1%	10.7%
RWS Holdings plc	Support Services	367	885	1,252	127	0.3%	6.7%
Skyepharma plc	Pharmaceuticals & Biotech	672	448	1,120	241	0.3%	0.6%
Animalcare Group plc	Food Producers & Processors	306	806	1,112	66	2.6%	6.8%
Restore Group plc	Support Services	467	605	1,072	78	0.4%	9.6%
Gooch & Housego plc	Electronic & Electrical	489	549	1,038	216	0.5%	11.9%
Cello Group plc	Media	895	122	1,017	(73)	1.4%	5.4%
Craneware plc	Software	183	831	1,014	303	0.5%	1.9%
Nektan Limited	Software	845	(340)	505	(714)	2.6%	16.2%
Abcam Plc	Pharmaceuticals & Biotech	895	109	1,004	109	0.1%	2.1%
Clinigen Group plc	Pharmaceuticals & Biotech	935	47	982	47	0.1%	3.3%
DP Poland plc	Leisure & Hotels	546	401	947	64	2.8%	4.7%
Adept Telecom plc	Telecommunication Services	601	321	922	304	1.9%	3.8%
Escher Group Holdings plc	Software	1,003	(119)	884	(147)	3.2%	5.5%
Bond International plc	Software	353	496	849	17	2.2%	3.3%
Brady plc	Software	947	(99)	848	(432)	1.8%	3.0%
CityFibre Infrastructure Holdings Plc	Telecommunication Services	1,025	(201)	824	(201)	0.6%	1.6%
Advanced Medical Solutions	Pharmaceuticals & Biotech	757	48	805	48	0.2%	7.7%
Nasstar plc	Software	481	312	793	(24)	2.5%	7.1%
Judges Scientific plc	Electronic & Electrical	314	443	756	(101)	0.8%	1.4%
Next Fifteen plc	Media	688	45	733	45	0.5%	7.0%
SQS Software plc	Software	291	404	695	(57)	0.4%	13.1%
Oxford Pharmascience Group plc	Pharmaceuticals & Biotech	1,350	(709)	641	(709)	1.1%	3.5%
Sinclair Pharma plc	Pharmaceuticals & Biotech	765	(151)	614	48	0.3%	0.6%
EKF Diagnostics plc	Health	931	(322)	609	(706)	1.3%	2.4%
Tyratech	Chemicals	600	-	600	-	5.5%	19.9%
Cambridge Cognition Group plc	Health	601	(43)	558	(17)	5.0%	17.8%
Ideagen plc	Software	419	139	558	102	0.7%	5.4%
Omega Diagnostics plc	Health	465	90	555	29	3.5%	6.2%
Gear4Music Holdings plc	Media	557	(44)	513	(44)	2.0%	5.1%
Gamma Communications Plc	Telecommunication Services	488	24	512	24	0.1%	7.3%
Haydale Graphene Plc	Chemicals	598	(131)	467	(131)	2.5%	9.0%
Mears Group plc	Support Services	139	320	459	(78)	0.1%	0.1%
Iomart Group plc	Software	268	122	390	86	0.1%	8.1%
Plastics Capital plc	Engineering & Machinery	400	(16)	384	(56)	1.1%	9.1%
Midatech Pharma plc	Pharmaceuticals & Biotech	600	(218)	382	(274)	0.7%	3.0%
Access Intelligence plc	Software	375	(19)	356	169	2.7%	5.3%
Microsaic plc	Engineering & Machinery	625	(314)	311	(325)	2.3%	8.6%
Proxama plc	Software	763	(458)	305	(244)	3.0%	12.1%
Vianet Group plc	Support Services	359	(77)	282	42	1.1%	4.6%
Scientific Digital	Healthcare equipment	179	89	268	89	3.5%	12.0%
Futura Medical plc	Pharmaceuticals & Biotech	613	(371)	242	(129)	1.1%	5.2%
Fusionex International plc	Software	282	(44)	239	(451)	0.4%	1.3%
Sphere Medical	Health	600	(375)	225	(375)	2.6%	4.4%
ReNeuron Group Plc	Pharmaceuticals & Biotech	324	(146)	178	(146)	0.2%	1.2%
Tangent Communications plc	Support Services	578	(419)	159	(14)	2.1%	4.7%
WANdisco plc	Software	241	(88)	153	(379)	0.4%	0.7%
Altitude Group plc	Media	600	(450)	150	(117)	3.9%	4.5%
TP Group plc	Engineering & Machinery	648	(502)	146	(66)	1.3%	6.3%
Enteq Upstream plc	Oil Services	1,032	(908)	124	(26)	1.7%	3.7%
MyCelx Technologies plc	Oil Equipment	1,470	(1,369)	101	(912)	5.3%	11.5%
Dods Group plc	Media	203	(114)	89	34	0.2%	0.2%
1Spatial plc	Software	300	(253)	47	(28)	0.1%	0.2%
Tanfield Group plc	Engineering & Machinery	226	(182)	44	(17)	0.6%	0.6%
Lombard Medical Technologies plc	Health	408	(368)	40	(166)	0.3%	0.7%
Work Group plc	Support Services	943	(911)	32	(15)	4.1%	6.2%
Clean Air Power Limited	Industrial	485	(485)	-	(161)	2.0%	8.8%
Total Quoted Investments		42,619	21,157	63,777	1,936
Unquoted Investments	Sector	Cost as at 29 February 2016 (£'000)	Cumulative change in fair value (£'000)	Fair Value at 29 February 2015 (£'000)	Movement in year ('£000)	% equity held by AIM VCT plc	% equity held by all funds managed by Octopus
Hasgrove plc	Media	88	62	150	70	2.2%	13.0%
Rated People Limited	Software	354	(322)	32	(322)	0.5%	1.5%
Total Unquoted Investments		442	(260)	182	(252)
Loan Note Investments	Sector	Cost as at 29 February 2016 (£'000)	Cumulative change in fair value (£'000)	Fair Value at 29 February 2015 (£'000)	Movement in year ('£000)	% equity held by AIM VCT plc	% equity held by all funds managed by Octopus
Nektan Limited	Software	500	-	500	-	N/A	16.2%
Access Intelligence plc	Software	120	-	120	-	N/A	5.3%
Total Loan Note Investments		620	-	620	-
Total Investments		43,681	20,897	64,578	1,684
Money Market Funds				5,269
Total fixed asset investments and money market funds				69,847
Cash at bank				9,751
Debtors less creditors				(2,374)
Total net assets				77,224

Top ten holdings

Listed below are the ten largest investments, valued at bid price, as at 29 February 2016:

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

Initial investment date:          December 2004
Cost:                                     £334,000
Valuation:                              £4,960,000
Equity held:                           1.3%
Last audited accounts:           31 December 2015
Revenue:                               £702.2 million
Profit before tax:                    £5.5 million
Net assets:                             £73.2 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:                                     £859,000
Valuation:                              £4,830,000
Equity held:                           0.6%
Last audited accounts:          31 December 2015
Revenue:                               £318 million
Profit before tax:                    £31.3 million
Net assets:                             £233 million

GB Group Plc
GB Group specialises in ID verification to help customers avoid ID theft and fraud and to verify the age and circumstances of both customers and employees for regulatory and commercial reasons.

Initial investment date:          November 2011
Cost:                                     £715,000
Valuation:                              £2,935,000
Equity held:                           1.0%
Last audited accounts:           31 March 2015
Revenue:                                £57.3 million
Profit before tax:                     £5.9 million
Net assets:                              £46.1 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:                              £2,725,000
Equity held:                           1.1%
Last audited accounts:          30 June 2015
Revenue:                               £77.7 million
Profit before tax:                    £11.4 million
Net assets:                            £74.2 million

Quixant Plc
Quixant designs and manufactures advanced PC based computer systems for the gaming industry.

Initial investment date:          September 2013
Cost:                                     £697,000
Valuation:                              £2,649,000
Equity held:                           2.3%
Last audited accounts:          31 December 2015
Revenue:                               $41.8 million
Profit before tax:                    $9.2 million
Net assets:                             $25.7 million

Tasty Plc
Tasty is the operator of Wildwood and Dim T restaurants in the 'casual dining' sector.

Initial investment date:             May 2007
Cost:                                        £622,000
Valuation:                                 £2,456,000
Equity held:                              2.8%
Last audited accounts:             27 December 2015
Revenue:                                 £35.8 million
Profit before tax:                     £3.1 million
Net assets:                              £19.2 million

Idox Plc
Idox is a leading software and information management solutions provider, mainly to the public and engineering sectors.

Initial investment date:          May 2008
Cost:                                     £353,000
Valuation:                              £2,393,000
Equity held:                           1.3%
Last audited accounts:          31 October 2015
Revenue:                              £62.6 million
Profit before tax:                   £9.8 million
Net assets:                            £53.6 million

Mattioli Woods Plc
Mattioli Woods is a financial advisor and investment manager and administrator, particularly of pension funds.

Initial investment date:          November 2005
Cost:                                     £529,000
Valuation:                              £2,269,000
Equity held:                           1.6%
Last audited accounts:          31 May 2015
Revenue:                               £34.6 million
Profit before tax:                    £5.3 million
Net assets:                             £39.5 million

Learning Technologies Group plc
Learning Technologies is a learning technologies agency which provides a comprehensive and integrated range of e-learning services and technologies to corporate and government clients.

Initial investment date:           June 2011
Cost:                                       £1,320,000
Valuation:                                £2,102,000
Equity held:                             1.5%
Last audited accounts:            31 December 2015
Revenue:                                 £19.9 million
Profit before tax:                      £1.5 million
Net assets:                               £25.5 million

Vertu Motors plc
The Vertu Motors group operates a nationwide chain of 120 franchised motor dealerships offering sale, servicing, parts and bodyshop facilities for new and used car and commercial vehicles.

Initial investment date:           December 2006
Cost:                                       £1,265,000
Valuation:                               £1,714,000
Equity held:                            0.8%
Last audited accounts:            29 February 2016
Revenue:                                £2.4 billion
Profit before tax:                     £26 million
Net assets:                              £197.9 million

Directors' Responsibilities Statement

The Directors are responsible for preparing the Strategic Report, Directors' Report, Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.

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 UK Generally Accepted Accounting Practice ("GAAP"), including Financial Reporting Standard 102 - 'The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland' ("FRS 102"), (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;
• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
• prepare a Strategic Report, Directors' Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to 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.

The directors confirm that: 

• so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
• the Directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for preparing the annual report in accordance with applicable law and regulations. The Directors consider the annual report and the financial statements, taken as a whole, provides the information necessary to assess the Company's performance, business model and strategy and is fair, balanced and understandable.

The Directors are responsible for ensuring the annual report and the financial statements are made available on the Company's website. Financial statements are published on the 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 Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
The Directors confirm, to the best of their knowledge:

• that the financial statements, prepared in accordance with UK GAAP, including FRS 102, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and
• the annual report, including the strategic report, includes a fair review of the development and performance of the business and the financial position of the Company taken as a whole, together with a description of the principal risks and uncertainties that it faces.

On Behalf of the Board

Michael Reeve
Chairman
27 May 2016

Income Statement

 

	Year to 29 February 2016			Year to 28 February 2015
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gain/(Loss) on disposal of fixed asset investments	-	59	59	-	(298)	(298)
Gain/(Loss) on valuation of fixed asset investments	-	1,684	1,684	-	(4,005)	(4,005)
Investment Income	816	-	816	703	-	703
Investment management fees	(340)	(1,021)	(1,361)	(302)	(906)	(1,208)
Other expenses	(456)	-	(456)	(418)	-	(418)
Net return on ordinary activities before taxation	20	722	742	(17)	(5,209)	(5,226)
Taxation	-	-	-	-	-	-
Net return on ordinary activities after taxation	20	722	742	(17)	(5,209)	(5,226)
Earnings per share - basic and diluted	0.0p	1.0p	1.0p	0.0p	(8.8p)	(8.8p)

• the 'Total' column of this statement represents the statutory Income Statement 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 Comprehensive Income is not required.

 

Statement of Financial Position

	As at 29 February 2016		As at 28 February 2015
	£'000	£'000	£'000	£'000
Fixed asset investments*		64,578		57,711
Current assets:
Investments*	5,269		454
Debtors	48		203
Cash at bank	9,751		14,992
	15,068		15,649
Creditors: amounts falling due within one year	(2,422)		(748)
Net current assets		12,646		14,901
Net assets		77,224		72,612
Called up equity share capital		760		656
Shares to be issued		-		319
Share premium		21,643		13,951
Capital redemption reserve		24		9
Special distributable reserve		60,062		63,684
Capital reserve realised		(26,518)		(29,810)
Capital reserve unrealised		20,898		23,468
Revenue reserve		355		335
Total equity shareholders' funds		77,224		72,612
Net asset value per share - basic and diluted		101.6p		110.2p

* held at fair value through profit & loss (FVTPL)

The statements were approved by the Directors and authorised for issue on 27 May 2016 and are signed on their behalf by:

Michael Reeve
Chairman
Company number: 03477519

Statement of Changes in Equity

		Share Capital	Share Premium	Shares to be issued	Capital redemption reserve	Special distributable reserves	Capital reserve realised	Capital reserve unrealised	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
	As at 1 March 2014	547	873	1,327	2	64,455	(27,338)	29,512	352	69,730
	Management fee allocated as capital expenditure	-	-	-	-	-	(906)	-	-	(906)
	Current year (loss) on disposal						(298)	-	-	(298)
	Current period loss on fair value of investments	-	-	-	-	-	-	(4,005)	-	(4,005)
	Prior years' holding gains/losses now realised	-	-	-	-	-	2,039	(2,039)	-	-
	Loss on ordinary activities after tax	-	-	-	-	-	-	-	(17)	(17)
	Total other comprehensive income for the year	-	-	-	-	-	-	-	-	-
	Contributions by and distributions to owners:
	Repurchase and cancellation of own shares	(7)	-	-	7	(771)	-	-	-	(771)
	Issue of shares	116	13,717	(1,327)	-	-	-	-	-	12,506
	Share issue costs	-	(639)	-	-	-	-	-	-	(639)
	Cash received for shares to be issued	-	-	319	-	-	-	-	-	319
	Dividends paid	-	-	-	-	-	(3,307)	-	-	(3,307)
	Balance as at 28 February 2015	656	13,951	319	9	63,684	(29,810)	23,468	335	72,612
As at 1 March 2015		656	13,951	319	9	63,684	(29,810)	23,468	335	72,612
Management fee allocated as capital expenditure		-	-	-	-	-	(1,021)	-	-	(1,021)
Current year gains on disposal		-	-	-	-	-	59	-	-	59
Current period gain on fair value of investments		-	-	-	-	-	-	1,684	-	1,684
Prior years' holding gains/losses now realised		-	-	-	-	-	4,254	(4,254)	-	-
Gain on ordinary activities after tax		-	-	-	-	-	-	-	20	20
Total other comprehensive income for the year		-	-	-	-	-	-	-	-	-
Cancellation of Share Premium		-	(4,658)	-	-	4,658	-	-	-	-
Contributions by and distributions to owners:
Repurchase and cancellation of own shares		(15)	-	-	15	(1,499)	-	-	-	(1,499)
Issue of shares		119	12,989	(319)	-	-	-	-	-	12,789
Share issue costs		-	(639)	-	-	-	-	-	-	(639)
Dividends paid		-	-	-	-	(6,781)	-	-	-	(6,781)
Balance as at 29 February 2016		760	21,643	-	24	60,062	(26,518)	20,898	355	77,224

Statement of Cash Flows

	For the year to 29 February 2016	For the year to 28 February 2015
	£'000	£'000
Cash flows from operating activities
Return on ordinary activities before tax	742	(5,226)
Adjustments for:
Decrease in debtors	155	51
Increase in creditors	1,674	574
(Gain)/loss on disposal of fixed assets	(59)	298
(Gain)/loss on valuation of fixed asset investments	(1,684)	4,005
Cash from operations	828	(298)
Income taxes paid	-	-
Net cash generated from operating activities	828	(298)
Cash flows from investing activities
Purchase of fixed asset investments	(11,043)	(5,291)
Sale of fixed asset investments	5,919	3,845
Net cash flows from investing activities	(5,124)	(1,446)
Cash flows from financing activities
Purchase of own shares	(1,499)	(771)
Share issues*	12,469	13,194
Decrease in shares to be issued	(319)	(1,008)
Dividends Paid*	(6,781)	(3,307)
Net cash flows from financing activities	3,870	8,108
(Decrease)/Increase in cash and cash equivalents	(426)	6,364
Opening cash and cash equivalents	15,446	9,082
Closing cash and cash equivalents	15,020	15,446
Cash and cash equivalents comprise
Cash at Bank	9,751	14,992
Money Market Funds	5,269	454
	15,020	15,446

*Includes £491,000 of dividends where shares were issued under the DRIS.

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Octopus AIM VCT PLC via Globenewswire

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