Octopus Second AIM VCT plc : Final Results
Octopus Second AIM VCT plc
Final Results
22 March 2012
Octopus Second AIM VCT plc, managed by Octopus Investments Limited, today announces the final results for the period ended 30 November 2011.
These results were approved by the Board of Directors on 22 March 2012.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com by navigating to Services, Investor Services, Venture Capital Trusts, Octopus Second AIM VCT plc. All other statutory information will also be found there.
Chairman's Statement
Introduction
I would like to start this statement by welcoming the new shareholders who subscribed for shares in the open offer either at the end of the last tax year or the beginning of this one. I know you will have received the interim report in the interval, but I hope you will enjoy reading all the information in these accounts. Equally, I hope you will be able to attend the Annual General Meeting, details of which can be found at the back of these accounts. By the time you receive this document, you will have become aware of your Board's intention to seek to raise up to £3.0 million of new capital. I will be able to report on the fundraising progress at the AGM.
The last year has been a difficult one for any number of people in all sorts of respects and has not been an ideal background for investors in smaller companies. Perhaps the year to the end of November 2011 can best be described as testing and frustrating for smaller companies investors. As the end of my statement points out, the manager is indeed optimistic that prospects for many of the holdings are encouraging and it is no surprise to some that the first three months of the new financial year have seen a remarkably positive change in investor sentiment. That has seen the NAV rise encouragingly.
Dividend
As the Income Statement on page x shows, dividend income has increased this year and not just as a result of the merger. Many companies in the portfolio have increased their own dividend payments and this, as well as prior year realised gains, have allowed your Board to pay an interim dividend of 1.6p per share in early October and now to declare a final dividend of 1.6p per share again. This will be payable, if approved at the AGM, on 8 June 2012. These payments are a little better than the 5% yield policy established by the Board at the time of the merger and reflect historical profits as well as the recent trend of rising NAV.
Your Company has continued to buy back shares in the last year partly as a means of keeping the discount at an acceptable level but also to provide liquidity in the marketplace. This activity will have helped to stabilise the NAV and in total 2,193,803 shares have been bought back.
Performance
I mentioned earlier that the year under review had been testing and frustrating. It has been particularly frustrating for investors in small capitalisation companies, which have continued to trade well, improve their cash flows and profitability and to increase their dividends, as generally these companies have not seen their progress reflected in a higher share price, until just the last few months. Your managers have been equally frustrated.
The sentiment of investors and the stock market in general, for the year to November 2011, has been against smaller companies, seeing them as a risky asset class. Over the period the AIM index fell by 18.3% in the year to November 2011 and the SmallCap index (excluding investment trusts) by 10.8%. Against this background the NAV of your portfolio has moved from 67.9p to 62.4p per share. After adding back the capital dividends of 3.25p paid in the year, the adjusted NAV fall is 3.3%. Though this is disappointing, it nevertheless compares reasonably with the market generally. The manager's report goes into performance in more detail on pages x to x .
New Capital
The merger, to which I referred earlier, necessitated a full prospectus and the decision was taken to incorporate a fund raising within it. Such a fund raising can be open for a year and in that time your Company raised approximately £6.8 million gross of new capital. It seems sensible to your Board to try to raise the balance of the original target in a Top-Up offer this tax year. As a result you will already be aware that the manager, Octopus Investments, has launched a Top-Up, which can issue up to £3 million.
The Manager's report will go into new investments in detail, but it will show that there have been investments made which qualify for what are known as both 'old' and 'new' rules. That means that your Company has invested some of both its new capital, raised in the last year, as well as its older original capital, in new VCT qualifying holdings.
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 Second 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 30 November 2011, some 83% of the portfolio, as measured by HMRC rules, was invested in qualifying investments.
Outlook
At the time of writing sentiment in financial markets has turned much more positive and, although there remain major issues to resolve internationally, it seems at last that there is some recognition of the commercial progress that many holdings have been making and the de-rating that many smaller companies' shares have suffered. In the last year, many of the good companies in the portfolio have managed to improve profits and to increase their dividend payments. That has been achieved against a consistently poor background, representing a challenge to which many management teams have risen impressively.
It would therefore, I believe, be quite wrong to be downhearted about the prospects for your portfolio in the coming year. Even a small change in sentiment would have a dramatic effect upon the share prices of some of the strongly growing companies which your Company holds. The current year has started encouragingly and I look forward to talking to you further at the AGM.
Keith R. Mullins
Chairman
22 March 2012
Investment Manager's review
Introduction
A year ago we wrote that we believed that the NAV could rise in the following year based on our view that share prices could increase, since they were undervalued and relatively unappreciated by investors. Unfortunately, the belief that the NAV could rise in the year to November was confounded by a number of major economic and political concerns, particularly in Europe, which impacted market sentiment to the detriment of share prices.
It remains the case that many companies are trading well and have managed to do so throughout the last year. The consequence of that was a general de-rating of smaller company shares, and despite some signs that sentiment is changing for the better in 2012, we still perceive current valuations as reflecting an overly pessimistic view of the future.
The Alternative Investment Market ("AIM")
AIM was criticised last year as a disappointing market, because the number of companies traded on it fell and because it did not raise as much new capital for its constituents as the previous year (£5.3 billion versus £6.5 billion). In fact, the number of companies traded fell from 1,196 in November 2010 to 1,150 last November. A net decrease of 46 does not seem to warrant the level of criticism and it is worth noting that approximately two new companies per week joined AIM and that is hardly the mark of a poor market.
AIM is now a much more stable market than it probably has been for a number of years, although it remains relatively out of favour with very many investors, who regard it as too risky. That view is overly simplistic in our opinion and ignores the trading performance of many holdings in the portfolio and AIM in general. It has been a subdued year for AIM, which must be a reflection, to some degree, of wider economic concerns. However, it seems totally incorrect to regard AIM as an historic anomaly. It clearly continues to meet a need and with around 80% of the funds raised being for existing companies it is quite apparent that shareholders are backing their investments. The market would thus appear to be working: companies, whose investors believe that their investments deserve additional funds, are achieving their capital raising objectives.
Performance
The year under review was a difficult one for funds investing in smaller companies, as a succession of shocks to the economies and banks of Europe coupled with a lack of political direction made stockmarkets extremely nervous, which is never a good background for the performance of smaller company shares. In the twelve months to 30 November the AIM Index fell by 18.3% and the Smaller Companies Index Ex Investment Trusts by 10.8%. As always, the performance of AIM was heavily influenced by resource stocks which were affected by fears of declining demand in the face of a double dip recession. Against this background the VCT was relatively robust, seeing its NAV decline by 3.3% if the total dividends of 3.25p paid out in the year are added back.
Despite a performance that was better than the small cap market in general, we were still disappointed not to be able to show a positive return in a year which the NAV had initially got off to a good start and in which many holdings in the portfolio made good progress. The period was dominated by global concerns rather than the trading performance of smaller UK companies leading to remarkable volatility in stock market prices. It was a frustrating time to be an investor and we sympathise with all shareholders who wonder where any sense of market pricing efficiency went. We remain convinced that this can change, and the fact that we continue to see bid activity in the portfolio supports the view that current share prices reflect good value.
Several of your investments also showed good progress over the year. Among the larger holdings, Idox showed that it has successfully diversified its business away from a dependence on the public sector, although business with local authorities is now improving. Advanced Computer Software has demonstrated that it is generating significant amounts of cash as well as achieving steady organic growth, and a disposal of a non core business will eliminate gearing by the year end. EKF, which started life as a cash shell and has yet to make a profit, has now established itself in Europe and the US with acquisitions, and we expect profitability to follow as it opens up new markets for its point of care diagnostics. Breedon Aggregates is now profitable and trading ahead of initial projections. Tasty has also seen significant upgrades to profit forecasts and now has the critical mass to grow its restaurant business organically. Brooks Macdonald has also demonstrated strong growth despite facing more challenging markets. In the current year we expect a profit from the merged Sinclair IS Pharma, and some progress from Vertu Motors once retail conditions start to improve.
Portfolio Activity
There is no denying that the wider economic concerns have made new flotations fewer in number in 2010/11 and those that we have invested in have mainly materialised in the second half of the year. However, the flow of fundraisings for existing businesses has been more evenly spread over the year and reflects the need for companies to use equity rather than debt to finance growth in the current banking environment. Thus, despite what has seemed like a quiet year, we have found several interesting investment opportunities which we expect to develop profitably over the next few years. Because the portfolio remains well above its 70% investment limit in qualifying holdings, we can afford to be patient when making new investments and wait for attractive opportunities at realistic prices.
The interim report referred to the new investments in Corac, Woodspeen and Brady, all of which were made in the first half of the year under review. In the second half your company invested in In-Deed Online, Enteq Upstream, Escher, Mycelx Technologies, GB Group and TLA Worldwide. In-Deed is an early stage, newly established online conveyancing business, with links to a number of property portals, in to which we have invested a small sum reflecting the near start-up nature of the company. Enteq is a management team with an established record in the oil services industry, seeking to acquire a group of international companies in the sector again. Escher is a profitable and established company, providing software to national postal services internationally, enabling them to provide financial and other non-postal services. Mycelx owns a proprietary technology for removing pollutant particles from water in environmentally sensitive areas and, at present, is concentrating its sales effort on oil well operators. GB Group provides identity verification services for a variety of customers with a growing international flavour. Finally TLA manages sports personalities, particularly baseball players in America. In total, for the year under review as a whole, £4.56 million was invested into new qualifying holdings at cost. The cash invested was a mix of the newly raised funds, as a result of last year's prospectus and of your company's previously existing capital.
In addition we also invested into non-qualifying shares, establishing holdings in Goals Soccer Centres, SQS, Staffline Recruitment, Hamworthy and Gooch and Housego. In all we invested £1.3m in non-qualifying shares as part of our strategy of keeping around 10% of the portfolio invested in situations which are expected to provide a higher return than cash in a low interest rate environment. Since the year end, Hamworthy has been the subject of a successful takeover, demonstrating the attractiveness of UK companies with winning technologies to overseas trade buyers.
The year under review also included a number of disposals, which are listed in the table below. Many of the disposals were as a result of bids, although sadly these did not result in an overall net profit for the fund. Clarity was an example of an opportunistically timed bid from private equity, of which we will no doubt see more, but where a longer term view by more shareholders might have been rewarded in time and CBG was taken over for cash. Both of these bids were at significant premiums to the then prevailing share prices. Individual Restaurant Group was taken over by a private company, and the structure of the deal meant that it would no longer be a VCT qualifying holding, so we elected to take cash We also sold out of the holding in Managed Support Services when it disposed of its trading business and ceased to qualify. It had suffered from too much debt at the wrong time in the economic cycle.
We took profits from a number of holdings, such as Lombard Medical, IS Pharma (at the time of its merger with Sinclair Pharma), Craneware and Animalcare. Since the period end we have taken some further profits in Chime and Advanced Computer Software as well as selling out of Optare and Colliers, both of which were suffering from too much debt. This has reduced the number of holdings in the portfolio, particularly where the prospects of significant recovery was remote.
The table below shows the investee companies that were disposed of in total during the year:
| Realisation | First investment date | Cost of investment (£'000) | Proceeds of investment (£'000) | Total gain/(loss) (£'000) |
| CBG Group plc | November 2008 | 637 | 170 | (467) |
| Individual Restaurant Company plc | November 2006 | 160 | 25 | (135) |
| Clarity Commerce Solutions plc | October 2009 | 651 | 437 | (214) |
| Managed Support Services plc | February 2009 | 828 | 120 | (708) |
Investment Portfolio
| Fixed asset investments | Sector | Book cost as at 30 November 2011 (£'000) | Cumulative change in fair value (£'000) | Fair Value at 30 November 2011 (£'000) | Movement in year to 30 November 2011 ('£000) | % equity held by Second AIM VCT plc | % equity held by all funds managed by Octopus |
| Advanced Computer Software plc | Software & Computer Services | 916 | 654 | 1,570 | 410 | 1.0% | 2.4% |
| Animalcare Group plc | Food Producers & Processors | 869 | 682 | 1,551 | 441 | 4.7% | 8.3% |
| EKF Diagnostics plc | Health | 870 | 202 | 1,072 | 89 | 1.8% | 6.3% |
| Idox plc | Software & Computer Services | 381 | 682 | 1,063 | 470 | 1.2% | 4.4% |
| Craneware plc | Software & Computer Services | 479 | 435 | 914 | (74) | 0.6% | 1.2% |
| Breedon Aggregates Limted | Construction & Building | 601 | 250 | 851 | 150 | 0.9% | 2.2% |
| Enteq Upstream plc | Oil Services | 687 | 137 | 824 | 137 | 4.6% | 14.0% |
| Sinclair IS Pharma plc | Pharmaceuticals & Biotech | 921 | (172) | 749 | (350) | 0.9% | 1.9% |
| Brooks MacDonald Group plc | Specialty & Other Finance | 609 | 136 | 745 | 40 | 0.7% | 2.4% |
| Escher Group Holdings plc | Software & Computer Services | 750 | (66) | 684 | (66) | 2.6% | 8.1% |
| Brady plc | Software & Computer Services | 515 | 157 | 672 | 157 | 1.6% | 3.9% |
| MyCelx Technologies plc | Oil Services | 600 | 57 | 657 | 57 | 2.2% | 7.6% |
| Chime Communications plc | Media & Entertainment | 750 | (100) | 650 | (123) | 0.4% | 0.6% |
| Brulines (Holdings) plc | Support Services | 867 | (307) | 560 | (215) | 2.6% | 6.7% |
| TLA Worldwide plc | Equity Investment Instruments | 538 | - | 538 | - | 4.2% | 15.7% |
| Tasty plc | Leisure & Hotels | 334 | 189 | 523 | 223 | 2.3% | 4.9% |
| Omega Diagnostics Group plc | Health | 553 | (46) | 507 | (25) | 4.8% | 13.1% |
| Hargreaves Services plc | Support Services | 314 | 188 | 502 | 197 | 0.2% | 3.9% |
| Vertu Motors plc | General Retailers | 777 | (290) | 487 | (56) | 0.9% | 5.9% |
| Plastics Capital plc | Engineering & Machinery | 485 | (8) | 477 | 43 | 2.6% | 17.9% |
| Matchtech Group plc | Support Services | 442 | 35 | 477 | (16) | 1.0% | 11.4% |
| Hamworthy plc | Engineering & Machinery | 326 | 136 | 462 | 136 | 0.1% | 3.5% |
| Netcall plc | Telecommunication Services | 421 | 14 | 435 | 102 | 2.1% | 5.1% |
| Marwyn Management plc | Investment Companies | 670 | (304) | 366 | (392) | 1.2% | 1.9% |
| RWS Holdings plc | Support Services | 249 | 113 | 362 | 130 | 0.2% | 4.3% |
| Active Risk Group plc | Software & Computer Services | 535 | (190) | 345 | (199) | 3.3% | 11.0% |
| Woodspeen plc | Support Services | 250 | 28 | 278 | 28 | 3.9% | 11.4% |
| Staffline Recruitment Group plc | Support Services | 225 | 31 | 256 | 31 | 0.5% | 13.5% |
| Immunodiagnostic Systems plc | Health | 454 | (206) | 248 | (232) | 0.2% | 3.1% |
| Access Intelligence plc | Software & Computer Services | 544 | (299) | 245 | (299) | 4.8% | 10.2% |
| GB Group plc | Software & Computer Services | 220 | 19 | 239 | 19 | 0.5% | 2.2% |
| Corac plc | Engineering & Machinery | 252 | (34) | 218 | (34) | 0.7% | 2.3% |
| Lombard Medical Technologies plc | Health | 589 | (372) | 217 | (163) | 1.8% | 1.8% |
| In-Deed Online plc | General Retailers | 201 | (3) | 198 | (3) | 2.3% | 5.8% |
| Snacktime plc | Food Retailers | 367 | (190) | 177 | (134) | 1.5% | 8.9% |
| Hasgrove plc | Media & Entertainment | 436 | (267) | 169 | (97) | 2.0% | 13.2% |
| Bond International Software plc | Software & Computer Services | 303 | (138) | 165 | (41) | 1.1% | 3.4% |
| Gooch & Housego plc | Electronic & Electrical | 165 | (9) | 156 | (9) | 0.2% | 1.1% |
| SQS Software plc | Software & Computer Services | 206 | (57) | 149 | (59) | 0.3% | 5.6% |
| Goals Soccer Centres plc | Leisure & Hotels | 147 | (14) | 133 | (13) | 0.3% | 3.5% |
| Adept Telecom plc | Telecommunication Services | 501 | (376) | 125 | 43 | 1.7% | 4.1% |
| Atlantic Global plc | Software & Computer Services | 119 | (22) | 97 | - | 3.3% | 3.3% |
| Mattioli Woods plc | Specialty & Other Finance | 96 | (2) | 94 | (36) | 0.3% | 3.5% |
| Mears Group plc | Support Services | 93 | (15) | 78 | (23) | 0.0% | 0.3% |
| Jelf Group plc | Specialty & Other Finance | 122 | (44) | 78 | 13 | 0.1% | 0.9% |
| Work Group plc | Support Services | 473 | (397) | 76 | (3) | 2.1% | 6.1% |
| Altitude Group plc | Media & Entertainment | 24 | 47 | 71 | 21 | 0.7% | 4.6% |
| Zetar plc | Food Producers & Processors | 68 | (2) | 66 | - | 0.2% | 3.8% |
| Optare plc | Engineering & Machinery | 656 | (599) | 57 | (77) | 0.5% | 1.4% |
| Cello Group plc | Media & Entertainment | 54 | (6) | 48 | (16) | 0.2% | 8.5% |
| Daisy Group plc | Telecommunication Services | 20 | 4 | 24 | 2 | 0.0% | 0.1% |
| Datong plc | Electronic & Electrical | 29 | (10) | 19 | (19) | 0.6% | 3.4% |
| Colliers International UK plc | Real Estate | 153 | (139) | 14 | (89) | 0.5% | 3.0% |
| Twenty plc | Media & marketing | 565 | (561) | 4 | (141) | 7.8% | 12.2% |
| Media Square plc | Media & marketing | 7 | (7) | - | (3) | 0.2% | 1.0% |
| Total fixed asset investments | 22,798 | (1,056) | 21,742 | (68) | |||
| Current asset investments | 3,901 | 3,901 | |||||
| Total fixed investments and money market funds | 25,643 | ||||||
| Cash at bank | 636 | ||||||
| Debtors less creditors | 311 | ||||||
| Total net assets | 26,590 | ||||||
Top 10 Holdings
Listed below are the ten largest investments by value as at 30 November 2011:
Advanced Computer Software plc
Advanced Computer Software plc provides software to the Healthcare Sector and other commercial markets.
Initial investment date: July 2008
Cost: £916,000
Valuation: £1,570,000
Equity held: 1.0%
Last audited accounts: February 2011
Revenue: £95.4 million
Profit before tax: £3.1 million
Net assets: £84.6 million
Animalcare Group plc
Animalcare Group plc manufactures and distributes veterinary medicines for pets and livestock.
Initial investment date: December 2007
Cost: £869,000
Valuation: £1,551,000
Equity held: 4.7%
Last audited accounts: June 2011
Revenue: £11.8 million
Profit before tax: £2.9 million
Net assets: £15.8 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: £870,000
Valuation: £1,072,000
Equity held: 1.8%
Last audited accounts: December 2010
Revenue: £6.5 million
Loss before tax: £2.1 million
Net assets: £23.5 million
Idox plc
Idox plc is a leading software and information management solutions provider, predominately to the public and engineering sectors.
Initial investment date: August 2008
Cost: £381,000
Valuation: £1,063,000
Equity held: 1.2%
Last audited accounts: October 2011
Revenue: £38.6 million
Profit before tax: £5.6 million
Net assets: £34.4 million
Craneware plc
Craneware is a leading provider of software solutions that improve the financial performance of US hospital and healthcare organisations.
Initial investment date: September 2007
Cost: £479,000
Valuation: £914,000
Equity held: 0.6%
Last audited accounts: June 2011
Revenue: $35.5 million
Profit before tax: $8.9 million
Net assets: $32.4 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: £601,000
Valuation: £851,000
Equity held: 0.9%
Last audited accounts: December 2010
Revenue: £42.7 million
Loss before tax: £1.8 million
Net assets: £56.8 million
Enteq Upstream plc
Enteq Upstream PLC is an investment vehicle, focused on acquiring and consolidating companies providing specialist products and technologies to the upstream oil and gas services market.
Initial investment date: June 2011
Cost: £687,000
Valuation: £824,000
Equity held: 4.6%
First audited accounts: March 2012
Revenue: N/A
Profit before tax: N/A
Net assets: N/A
Sinclair IS Pharma plc
Sinclair IS Pharma plc is an international pharmaceutical company involved in the development and commercialisation of niche healthcare products.
Initial investment date: March 2008
Cost: £921,000
Valuation: £749,000
Equity held: 0.9%
Last audited accounts: June 2011
Revenue: £32.9 million
Loss before tax: £11.7 million
Net assets: £123.9 million
Brooks MacDonald Group plc
Brooks Macdonald Group plc is a wealth management group.
Initial investment date: August 2008
Cost: £609,000
Valuation: £745,000
Equity held: 0.7%
Last audited accounts: June 2011
Revenue: £52.2 million
Profit before tax: £7.3 million
Net assets: £19.1 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: £750,000
Valuation: £684,000
Equity held: 2.6%
Last audited accounts: December 2010
Revenue: $14.0 million
Profit before tax: $2.2 million
Net assets: $3.7 million
Outlook
We believe that smaller companies in general have been de-rated in the last year, despite the commercial progress which many companies have reported. That also applies to your company's portfolio where share prices have failed to rise in line with forecast upgrades. There are signs now that appetite for risk is returning, and the AIM and Smaller Companies Indices have started 2012 strongly. The NAV of the VCT has also been rising as news of company progress has started to be reflected in share prices.
We do not deny the seriousness of the issues that still have to be resolved, nor of potential ones, such as any inflationary pressures resulting from quantitative easing. However, the portfolio is predominantly not exposed to the retail sector or to the consumer directly so to that extent it is defensive. It is though exposed to growth companies, which we believe is the correct stance to have because it is such companies which will continue to develop and make progress, even in challenging circumstances, and which will be re-rated as the economic clouds lift. We are therefore confident that in time the portfolio will produce a rising NAV.
The AIM Team
Octopus Investments Limited
22 March 2012
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. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services 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 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;
- state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, 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 are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.
The Directors confirm, to the best of their knowledge:
- that the financial statements, which have been prepared in accordance with UK Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- that the management report, comprising the Chairman's Statement, Investment Manager's Review, Investment Portfolio and Directors' Report, set out on pages x to x includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The names and functions of all the Directors are stated on page x
On Behalf of the Board
Keith Richard Mullins
Chairman
22 March 2012
Income Statement
| Year to 30 November 2011 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Loss on disposal of fixed asset investments | 11 | - | (697) | (697) |
| Loss on valuation of fixed asset investments | 11 | - | (68) | (68) |
| Investment Income | 2 | 315 | - | 315 |
| Investment management fees | 3 | (135) | (403) | (538) |
| Other expenses | 4 | (220) | - | (220) |
| Loss on ordinary activities before tax | (40) | (1,168) | (1,208) | |
| Taxation on loss on ordinary activities | 7 | - | - | - |
| Loss on ordinary activities after tax | (40) | (1,168) | (1,208) | |
| Earnings per share - basic and diluted | 9 | (0.1)p | (2.9)p | (3.0)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 AITC Statement of Recommended Practice
- all revenue and capital items in the above statement derive from continuing operations
- the accompanying notes are an integral part of the financial statements
- 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 loss as stated above and at historical cost.
The accompanying notes form an integral part of the financial statements.
Income Statement
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the profit as stated above and at historical cost. The accompanying notes form an integral part of the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet
| As at 30 November 2011 | As at 30 November 2010 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 11 | 21,742 | 17,910 | ||
| Current assets: | |||||
| Investments* | 12 | 3,901 | 6,587 | ||
| Debtors | 13 | 506 | 211 | ||
| Cash at bank | 636 | 126 | |||
| 5,043 | 6,924 | ||||
| Creditors: amounts falling due within one year | 14 | (195) | (60) | ||
| Net current assets | 4,848 | 6,864 | |||
| Net assets | 26,590 | 24,774 | |||
| Called up equity share capital | 15 | 4 | 4 | ||
| Shares to be issued | 15 | - | 154 | ||
| Share premium | 16 | 20 | 13,658 | ||
| Special distributable reserve | 16 | 31,681 | 13,481 | ||
| Capital reserve realised | 16 | (3,855) | (807) | ||
| Capital reserve un-realised | 16 | (1,056) | (1,552) | ||
| Revenue reserve | 16 | (204) | (164) | ||
| Total equity shareholders' funds | 26,590 | 24,774 | |||
| Net asset value per share - basic and diluted | 10 | 62.4p | 67.9p | ||
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 22 March 2012 and are signed on their behalf by:
Keith Richard Mullins
Chairman
Company No: 05528235
The accompanying notes form an integral part of the financial statements.
| Reconciliation of Movements in Shareholders' Funds | ||
| Year ended 30 November 2011 | Year ended 30 November 2010 | |
| Notes | £'000 | £'000 |
| Shareholders' funds at start of year | 24,774 | 10,783 |
| (Loss)/Profit on ordinary activities after tax | (1,208) | 1,281 |
| Shares issued upon acquisition of assets and liabilities from Octopus Third AIM VCT plc | - | 13,084 |
| Stamp duty on shares issued 6 | - | (57) |
| Share capital bought back | (1,362) | (416) |
| Issue of shares | 5,770 | 633 |
| Shares to be issued | - | 154 |
| Dividends paid 8 | (1,384) | (688) |
| Shareholders' funds at end of year | 26,590 | 24,774 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year to 30 November 2011 | Year to 30 November 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes | £'000 | £'000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase/(Decrease) in cash at bank | 510 | (60) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Movement in cash equivalent securities | 12 | (2,686) | 4,749 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Opening net liquid resources | 6,713 | 2,024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net liquid resources at 30 November | 4,537 | 6,713 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liquid Resources at 30 November comprised:
| As at 30 November 2011 | As at 30 November 2010 | |
| £'000 | £'000 | |
| Cash at Bank | 636 | 126 |
| Money market cash funds 12 | 3,901 | 6,587 |
| Net liquid resources at 30 November | 4,537 | 6,713 |
The accompanying notes form an integral part of the financial statements.
Notes to the Financial Statements
1. Principal Accounting policies
Basis of accounting
The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (revised 2009).
The comparatives reported in these financial statements reflect the activities of what were previously the 'A' Ordinary shares of the Company and are therefore as previously reported. In addition, these results include the transfer of the assets and liabilities of Octopus Third AIM VCT plc to the Company, with effect from 12 August 2010. Results for the current year are reported for the one share class of the enlarged VCT now in issue, namely Ordinary Shares. These were formerly the 'A' Ordinary shares of the Company, redesignated Ordinary Shares on 12 August 2010.
The principal accounting policies have remained unchanged from those set out in the Company's 2010 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 and deposits are held for trading and are therefore automatically classified as fair value through profit or loss.
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. This is consistent with the International Private Equity and Venture Capital ('IPEVC') valuation guidelines.
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - unrealised.
In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.
Current asset investments
Current asset investments comprise of 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 - realised.
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 capital reserve to reflect, in the Directors' opinion, the expected long-term split of returns in the form of income and capital gains respectively from the investment portfolio.
The transaction costs incurred when purchasing or selling assets are written off to the Income Statement in the period that they occur.
Revenue and capital
The revenue column of the Income Statement includes all income and revenue expenses of the Company. The capital column includes gains and losses on disposal and holding gains and losses on investments.
Upon disposal of investments, gains 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), government securities, investment grade bonds 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
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Income on money market securities and bank balances | 38 | 30 |
| Dividends received (fixed asset investments) | 277 | 152 |
| 315 | 182 |
3. Investment Management Fees
| 30 November 2011 | 30 November 2010 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 135 | 403 | 538 | 71 | 213 | 284 |
| 135 | 403 | 538 | 71 | 213 | 284 | |
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 for a period of five years with effect from 6 October 2005 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. Following the merger of funds in the prior year, the net assets of the resulting fund have grown. This has led to an increase in the investment management fee payable during the year.
During the year Octopus Investments Limited charged management fees of £538,000 (2010: £284,000). At the year end there was £nil outstanding (2010: £nil). Octopus Investments Limited received £nil (2010: £17,000) as a result of upfront fees charged on the allotments of Ordinary Shares.
4. Other Expenses
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Directors' remuneration | 55 | 49 |
| Fees payable to the Company's auditor for the audit of the financial statements | 22 | 26 |
| Legal and professional expenses | 12 | 69 |
| Other administration expenses* | 131 | 66 |
| 220 | 210 | |
*other administrative expenses have increased due to the merger of funds in the prior year and the resulting larger fund
The total expense ratio for the Company for the year to 30 November 2011 was 2.9 per cent based upon net assets as at 30 November 2011, (2010: 3.4 per cent based upon average net assets throughout the year, due to the merger).
5. Directors' Remuneration
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Directors' emoluments | ||
| Keith Richard Mullins | 16 | 16 |
| Christopher Holdsworth Hunt (resigned 12 August 2010) | - | 12 |
| Andrew Paul Raynor | 13 | 13 |
| Elizabeth Anita Kennedy (appointed 12 August 2010) | 13 | 4 |
| Alastair James Ritchie (appointed 12 August 2010) | 13 | 4 |
| 55 | 49 |
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 (2010: three). The above table represents the gross remunerations received by the directors and excludes Employer's National Insurance contributions.
6. Merger costs
In the prior year, the Company merged with Octopus Third AIM VCT plc. At the time of the consolidation of Octopus Second AIM VCT plc and Octopus Third AIM VCT plc, the prospectus estimated that total costs to combine the Company with Octopus Third AIM VCT plc would be £238,000. The actual costs were £228,000. £136,000 of this was borne by Octopus Third AIM VCT plc, while £92,000 was borne by the Company due to the relatively lower total net assets of the Company. The total stamp duty on the issue of shares was £57,000 (£33,000 of this was borne by Octopus Third AIM when determining its assets and liabilities at the date of the merger). The cash payment of the total £57,000 was borne by the Company. £68,000 was disclosed as merger costs in the Income Statement as the stamp duty went to the share premium account.
7. Tax on Ordinary Activities
The corporation tax charge for the year was £nil (2010: £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 20.33% (2010: 21%).
The differences are explained below:
| Current tax reconciliation: | 30 November 2011 | 30 November 2010 |
| £'000 | £'000 | |
| (Loss)/Profit on ordinary activities before tax Current tax at 20.33% (2010: 21%) | (1,208) (246) | 1,281 269 |
| Income not liable to tax Expenses not deductible for tax purposes (Gains)/Losses not subject to tax Excess management expenses carried forward | (56) 2 155 145 | (36) 19 (348) 96 |
| 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 30 November 2011, there is an unrecognised deferred tax asset of £292,000 (2010: £154,000) in respect of surplus management expenses.
8. Dividends
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for the year | ||
| Previous year's final dividend | 697 | 154 |
| Current year's interim dividend | 687 | 534 |
| 1,384 | 688 |
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Paid and proposed in respect of the year | ||
| Interim dividend paid - 1.6p per share (2010: 1.5p per share) | 687 | 534 |
| Final dividend 1.6p (2010: 1.65p) per share | 673 | 610 |
| 1,360 | 1,144 |
9. Earnings Per Share - basic and diluted
The earnings per share is based on 40,589,911 (2010: 21,644,414) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical.
10. Net Asset Value Per Share - basic and diluted
The calculation of NAV per share as at 30 November 2011 is based on 42,586,289 (2010: 36,470,759) Ordinary shares in issue at that date.
11. 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 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 (2010: none). The change in fair value
for the current and previous year is recognised through the profit and loss account.
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 30 November 2011 are summarised below and in note 12.
| Level 1: AIM-quoted equity investments | Total investments | |
| £'000 | £'000 | |
| Book cost as at 1 December 2010 | 19,462 | 19,462 |
| Revaluation to 1 December 2010 | (1,552) | (1,552) |
| Valuation at 1 December 2010 | 17,910 | 17,910 |
| Purchases at cost | 5,963 | 5,963 |
| Disposal proceeds | (1,366) | (1,366) |
| Loss on realisation of investments - current year | ||
| Revaluation in year | (68) | (68) |
| Closing valuation at 30 November 2011 | 21,742 | 21,742 |
| Book cost at 30 November 2011: | ||
| - Ordinary shares | 22,798 | 22,798 |
| Revaluation to 30 November 2011: | ||
| - Ordinary shares | (1,056) | (1,056) |
| Valuation at 30 November 2011 | 21,742 | 21,742 |
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 30 November 2011 there were no commitments in respect of investments approved by the manager but not yet completed.
Transaction costs on purchases and disposals for the year were £18,000 and £4,000 respectively.
12. Current Asset Investments
Current asset investments at 30 November 2011 and at 30 November 2010 comprised of money market funds* and FRNs. These fall into level 1 of the fair value hierarchy as defined in note 11.
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Book cost at 1 December: | ||
| Money market funds | 6,587 | 10 |
| FRNs | - | 1,832 |
| 6,587 | 1,842 | |
| Revaluation to 1 December: | ||
| Money market funds | - | - |
| FRNs | - | (4) |
| - | (4) | |
| Valuation as at 1 December | 6,587 | 1,838 |
| Purchases at Cost: | ||
| Money market funds | 16,364 | 13,238 |
| 16,364 | 13,238 | |
| Disposal proceeds: | ||
| Money market funds | (19,050) | (6,661) |
| FRNs | - | (1,836) |
| (19,050) | (8,497) | |
| Profit/(loss) in year on realisation of investments: | ||
| Money market funds | - | - |
| FRNs | - | 8 |
| - | 8 | |
| Revaluation in year: | ||
| Money market funds | - | - |
| Closing valuation as at 30 November | 3,901 | 6,587 |
| Book cost at 30 November: | ||
| Money market funds | 3,901 | 6,587 |
| Revaluation to 30 November: | ||
| Money market funds | - | - |
| Closing valuation as at 30 November | 3,901 | 6,587 |
*Money market funds represent money held pending investment and can be accessed with 1 working day notice.
13. Debtors
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Other debtors | 458 | 145 |
| Prepayments and accrued income | 48 | 66 |
| 506 | 211 |
14. Creditors: Amounts Falling Due Within One Year
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Accruals and other creditors | 195 | 60 |
| 195 | 60 |
15. Share Capital
| 30 November 2011 | 30 November 2010 | ||
| £'000 | £'000 | ||
| Allotted and fully paid up: | |||
| 42,586,289 Ordinary shares of 0.01p (2010: 36,244,288) | 4 | 4 | |
| 4 | 4 | ||
| Non-allotted and fully paid up: Nil Ordinary shares of 0.01p (2010: 226,471) | - | - | |
| - | - |
The value of shares to be issued at 30 November 2011 amounted to £Nil (2010: £154,000).
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.
The Company repurchased the following Ordinary shares during the year to be cancelled:
· 03 December 2010: 150,641 Ordinary shares at a price of 60.5p per share
· 23 December 2010: 108,653 Ordinary shares at a price of 61.7p per share
· 28 January 2011: 269,507 Ordinary shares at a price of 64.5p per share
· 04 February 2011: 71,799 Ordinary shares at a price of 64.5p per share
· 16 February 2011: 147,142 Ordinary shares at a price of 65.5p per share
· 04 March 2011: 154,036 Ordinary shares at a price of 64.7p per share
· 24 March 2011: 71,789 Ordinary shares at a price of 62.2p per share
· 21 April 2011: 103,863 Ordinary shares at a price of 62.2 per share
· 05 May 2011: 11,605 Ordinary shares at a price of 62.5p per share
· 06 May 2011: 214,307 Ordinary shares at a price of 62.5p per share
· 03 June 2011: 40,653 Ordinary shares at a price of 61.2p per share
· 17 June 2011: 63,969 Ordinary shares at a price of 61.7p per share
· 08 July 2011: 229,347 Ordinary shares at a price of 63.0p per share
· 27 July 2011: 5,000 Ordinary shares at a price of 62.5p per share
· 29 July 2011: 173,513 Ordinary shares at a price of 62.5p per share
· 02 September 2011: 34,965 Ordinary shares at a price of 57.7p per share
· 07 September 2011: 78,768 Ordinary shares at a price of 56.1p per share
· 30 September 2011: 27,497 Ordinary shares at a price of 56.7p per share
· 21 October 2011: 65,325 Ordinary shares at a price of 56.2p per share
· 11 November 2011: 171,424 Ordinary shares at a price of 57.5p per share
The total nominal value of the shares repurchased was £219 (2010: £148) representing 0.01% (2010: 0.41%) of the issued share capital.
The Company issued the following shares during the year in connection with the offer for subscription announced on 9 July 2010:
- 09 December 2010: 631,316 Ordinary shares at a price of 72.3p
- 07 January 2011: 406,135 Ordinary shares at a price of 74.3p
- 11 February 2011: 604,920 Ordinary shares at a price of 76.1p
- 22 March 2011: 1,346,742 Ordinary shares at a price of 73.3p
- 30 March 2011: 847,029 Ordinary shares at a price of 74.0p
- 5 April 2011: 3,071,375 Ordinary shares at a price of 72.7p
- 19 April 2011: 229,613 Ordinary shares at a price of 74.4p
- 06 May 2011: 155,954 Ordinary shares at a price of 73.6p
- 08 July 2011: 1,242,720 Ordinary shares at a price of 74.0p
16. Reserves
| Share premium | Special distributable reserve* | Capital reserve - realised* | Capital reserve - unrealised* | Revenue reserve* | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 December 2010 | 13,658 | 13,481 | (807) | (1,552) | (164) |
| Cancellation of share premium | (19,562) | 19,562 | |||
| Shares issued through offer | 5,924 | - | - | - | - |
| Repurchase of own shares | - | (1,362) | - | - | - |
| Loss on ordinary activities after tax | - | - | - | - | (40) |
| Management fees allocatied as capital expenditure | - | - | (403) | - | - |
| Current year gains/(losses) on disposal | - | - | (697) | - | - |
| Prior period gains/(losses) on disposal | - | - | (564) | 564 | - |
| (Losses) on revaluation | - | - | - | (68) | - |
| Dividends paid | - | - | (1,384) | - | - |
| Balance as at 30 November 2011 | 20 | 31,681 | (3,855) | (1,056) | (204) |
* Included within these reserves is an amount of £26,566,000 (2010: £10,958,000) 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. Unrealised gains/losses are then transferred 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.
A court order obtained on 11 November 2011, permitted the cancellation of the share premium account and the capital redemption reserve. As a result, £19,562,000 was transferred to special distributable reserve. The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount to net asset value at which the Company's ordinary shares trade. In the event that the revenue reserve and capital reserve gains/(losses)-realised do not have sufficient funds to pay dividends, these will be paid from the special distributable reserve.
17. 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 AIM-quoted 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 notes 11 and 12) are valued at fair value. For quoted investments this is either bid price or the latest traded price, depending on the convention of the exchange on which the investment is quoted. 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, as outlined on page x. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed 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 on pages x.
81.7% (30 November 2010: 72.3%) by value of the Company's net assets comprised equity securities listed on the London Stock Exchange or quoted on AIM. A 10% increase in the bid price of these securities as at 30 November 2011 would have increased net assets and the total return for the year by £2,174,000 (30 November 2010: £1,791,000); 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 30 November 2011 (30 November 2010: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Current investments | 3,901 | 6,587 |
| Cash at bank | 636 | 126 |
| 4,537 | 6,713 |
A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £45,370 (30 November 2010: £67,130).
Credit risk
There were no significant concentrations of credit risk to counterparties at 30 November 2011. By value, no individual bank holding or fixed rate note investment exceeded 10.2% (2010: 14.2%) of the Company's net assets at 30 November 2011.
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 30 November 2011 the Company's financial assets exposed to credit risk comprised the following:
| 30 November 2011 | 30 November 2010 | |
| £'000 | £'000 | |
| Current investments | 3,901 | 6,587 |
| Loans and receivables | ||
| Accrued dividends and interest receivable | 37 | 59 |
| Cash at bank | 636 | 126 |
| 4,574 | 6,772 |
Credit risk relating to listed money market securities is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by the UK Government and major UK companies and institutions.
Those assets of the Company which are traded on recognised stock exchanges are held on the Company's behalf by third party sub-custodians (for example, BlackRock in the case of listed money market securities and Charles Stanley Limited in the case of quoted equity securities). 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's interest-bearing deposit and current accounts are maintained with HSBC and The Co-operative Bank.
Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 30 November 2011 or 30 November 2010.
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 30 November 2011 these investments were valued at £4,537,000 (30 November 2010: £6,713,000).
18. Post balance sheet events
Company | Date | Number of shares | Cost £'000 | |
Advanced Computer Software plc | 29 December 2011 | 1,000 | 489 | |
Augean plc | 2 February 2012 | 240,000 | 73 | |
Animalcare Group plc | 16 February 2012 | 1,000 | 2 | |
Advanced Computer Software plc | 16 February 2012 | 5,000 | 3 | |
Breedon Aggregates plc | 16 February 2012 | 5,000 | 1 | |
Escher Group Holdings plc | 16 February 2012 | 500 | 1 | |
IDOX plc | 16 February 2012 | 5,000 | 1 | |
Tasty plc | 16 February 2012 | 1,000 | 1 | |
Escher Group Holdings plc | 21 February 2012 | 500 | 1 | |
Augean plc | 2 March 2012 | 42,340 | 13 | |
Corero Network Security plc | 2 March 2012 | 837,209 | 360 | |
Augean plc | 15 March 2012 | 83,000 | 25 | |
9 December 2011 | 217,101 shares bought back and cancelled at 55.8p |
20 January 2012 | 78,095 shares bought back and cancelled at 55.0p |
24 February 2012 | 44,388 shares bought back and cancelled at 58.5p |
16 March 2012 | 176,601 shares bought back and cancelled at 60.5p |
19. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at 30 November 2011 (2010: none).
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Octopus Second AIM VCT plc via Thomson Reuters ONE
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