Octopus Second AIM VCT plc : Final Results
Octopus Second AIM VCT plc
Final Results
22 March 2013
Octopus Second AIM VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 30 November 2012.
These results were approved by the Board of Directors on 22 March 2013.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com by navigating Investor, Venture Capital Trusts, Octopus Second AIM VCT plc. All other statutory information will also be found there.
Chairman's Statement
At the outset I would like to welcome all new shareholders and I hope that you are able to join your directors and managers at the Annual General Meeting ("AGM") on Thursday, 16 May 2013.
The year under review was positive for small company investors, despite them having to endure some periods of volatility caused by continuing economic and political uncertainty. It started with a period of some buoyancy at the turn of 2012, as an appetite for risk began to return. However, as I noted in the half-yearly report, with the fundamental problems of the Euro and other major economic concerns, this early optimism soon dissipated. Despite this, many portfolio companies have continued to trade well, to grow their profits and to pay dividends. Increasingly commentators are remarking on the existence of a two speed economy and it is certainly our manager's view that we are invested in growing companies - those in the fast lane rather than the slow lane. It is encouraging that investor sentiment improved again towards the end of the year and, at the time of writing this, the trend seems to be enduring, giving the prospect that better news from companies can be increasingly reflected in rising share prices in the year ahead.
Performance
At the end of the last financial year the Net Asset Value ("NAV") stood at 62.4p. A final dividend of 1.6p per share was paid on 8 June 2012, and an interim dividend of 1.6p was paid on 30 August 2012. The NAV at 30 November 2012 stood at 66.3p. That represents a rise, including the dividends added back, of 11.4%, a pleasing performance reflecting improved trading from many of our portfolio companies. By comparison, over the same period, the FTSE AIM All-Share Index has fallen by 0.5% and the FTSE Small cap Index (excluding Investment Trusts) has risen by 24.8%. As has often been remarked there is no perfect index match for comparing your Company's performance. However, it has been calculated that AIM (excluding its large resource sector - about 30% of the total) rose by 14% in the calendar year 2012. While I comment briefly on the outlook below, the manager's review describes current prospects more fully. It is encouraging to note that the NAV has continued to rise in the months since November and stood at 72.0p, unaudited, as at 18 March 2013.
Dividend and Share Buy-backs
Since the merger in 2010 your Board has set a dividend policy of a 5% yield on the share price. That has been achieved consistently to date. In addition your Board recently, after a great deal of discussion, decided to reduce the discount at which your Company buys back shares in the market from 10% to 5%. That had the effect of raising the share price, so your Board has pleasure in proposing a dividend of 1.7p, representing a continuation of the 5% yield policy on the higher share price, which of course has also risen as the NAV has increased.
Your Company has continued to buy-back shares. In the year to 30 November 2012, 1,835,870 shares were bought back at a total cost of £1,074,000. These were all bought back at around a 10% discount since the new policy of a 5% discount has only recently been implemented. It would be logical to expect the majority of shares to be bought back in the current financial year at a 5% discount as your Company provides liquidity for shareholders who want to sell.
Enhanced Buy-back
Shareholders will be aware that this VCT launched an Enhanced Buy-back in November 2012 to provide an opportunity for selling shares and reinvesting the proceeds. The Buy-back was limited to 50% of the shares in issue, being approximately 21.9 million shares. The Enhanced Buy-back completed post year end on 20 February 2013. In total 10,470,985 shares were sold back to the Company and 9,974,094 shares were reissued. Under present regulations these shares need to be held for five years in order to retain the initial income tax relief.
New Capital
Your Company raised new capital in the year to 30 November 2012 amounting to £1,837,000 through a top-up. In addition, your Company has recently launched a new fundraising exercise, with a full prospectus to raise up to £10 million. This Offer will close on 30 April 2013, unless extended by the Board or fully subscribed by an earlier date.
Retail Distribution Review
As many shareholders will be aware, the prospectus mentioned above allows investors to pay an ongoing charge to their adviser, if they have one, following the FSA's Retail Distribution Review ("RDR").
On new capital raised following the implementation of RDR, your Company will now pay any ongoing charges directly to relevant advisors. So as not to add to your Company's costs, your Board has negotiated that the Investment Manager's fee will reduce by the amount paid annually, on this capital, to advisers. The effect is to leave your Company bearing the same total cost as previously. This has had no impact in the year to 30 November 2012.
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 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 2012, some 92% 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 the current challenging 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 at 20 Old Bailey, London, EC4M 7AN on Thursday, 16 May 2013 at 11 a.m. My colleagues and I very much hope to see many shareholders at the meeting. 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 2019 in order to preserve the ability of the Company to conduct Top Up offers in the future.
Outlook
Although there remain substantial serious international economic and political problems, which the world's politicians have to work through, it is equally true that many small companies have prospered in the last year. There appears no logical reason why they and others should not do so again in the year ahead. Such a trend should be reinforced by the anticipated steady, if unspectacular, improvement in the outlook for the UK economy. As that continues the prospects for shareholders become very encouraging.
The portfolio remains a valuable mixture of longer term investments and newer holdings. Both sets of companies have strong growth characteristics and as the wider investment community comes to appreciate their attractions, I would expect to see the NAV of your company rise. I look forward to discussing these and others issues with you at the AGM.
Keith R. Mullins
Chairman
22 March 2013
Investment Manager's Review
Introduction
After a very dull year in 2011 when the Net Asset Value failed to make any progress, despite better news from the underlying investments, the year to November 2012 was much more encouraging. We are pleased to report that the value of your investments did rise despite the ever present economic and political uncertainties, which made it a volatile journey.
We have been encouraged by the good newsflow from many of the investee companies, which has resulted in some significant share price movements, particularly in the larger holdings in the portfolio, which have enabled us to take some profits where prices have risen. Despite improving investor sentiment which has endured past the year end and into 2013 there are still share prices in the portfolio which have yet to catch up with events and we are hopeful that the positive result for the year to November 2012 can be built on in the current year.
The Alternative Investment Market ("AIM")
AIM once again came in for criticism for 2012 because the index failed to rise in a year that the smaller companies index performed better than it had for many years. There were a number of factors at play here, one of the most significant ones was the performance of resource stocks that, as the Chairman has noted in his statement, held the index back.
Of more interest is that AIM remains the market of choice for small and growing companies to float and seek further capital to grow. You can see from the graph below that it remained open for business throughout the year under review and successfully funded a number of new companies in a year when the main UK market was all but closed for new issues.
Performance
The year under review was a much better one for smaller company shares as equity markets became more comfortable with some of the negative economic and political newsflow and investors at last started to focus on the value available from growing companies. The FTSE Small cap Index (excluding Investment Trusts) finished the period particularly strongly and was up by 24.8% over the year, helped by gathering momentum from some of its larger constituents. By contrast, the AIM All-Share Index posted a small negative return in the period, held back by a combination of its exposure to resource stocks and its larger exposure to very small companies whose share prices are always the last to react in any stockmarket rally. Against this background the NAV rose by 11.4% if the two 1.6p dividends paid out in the period are added back.
The most encouraging aspect of the rise in the NAV was the extent to which it was the result of positive news from portfolio companies, many of which have been increasing their growth momentum. The best performing sector was software, where further good progress by IDOX, Brady and Advanced Computer Software were rewarded with significant share price rises enabling us to take some profits. Among the newer investments in the sector, Escher's share price reacted well to news of a large contract win in America and WANdisco, a software company with a technology enabling simultaneous access, use and editing of the same computer code, caught investor's imagination and its share price more than doubled in the period. Less encouragingly Corero and Active Risk Group both issued profit warnings as a result of slower than expected sales and Craneware failed to recover its rating and market confidence after it disappointed on growth in the early part of the year. Elsewhere in the portfolio Breedon, EKF, Brooks Macdonald and Vertu Motors all saw their share prices contribute positively to NAV performance as their businesses progressed ahead of expectations, in the case of the first three, assisted by successful fundraisings and acquisitions. Animalcare suffered from an interruption in the supply chain of Buprecare, one of its well established and profitable drugs. A new source has now been established and we expect profits growth to resume in the current year, which should lead to a recovery in the share price.
Portfolio Activity
A fall in stock market confidence in the late spring had a dampening effect on new issues, although existing companies have still been looking to investors rather than banks as a source of new capital, which has presented us with plenty of VCT qualifying opportunities to consider. As the fund remains well above its 70% HMRC investment limit in qualifying holdings, we continue to be patient when making new investments, looking for attractive opportunities at realistic prices.
The interim report referred to the new investments in Corero, Judges Scientific and WANdisco, all of which were made in the first half of the year under review. In the second half your Company made three further qualifying investments in Futura Medical, Tangent Communications and DP Poland. The latter are all follow on investments in existing AIM companies although they are new to the portfolio. Futura Medical has been an AIM company for many years and has regularly raised capital to continue the development of its consumer sexual health products, which have taken longer than originally anticipated to get to market. Having walked away from one licensing agreement which wasn't working, the company has now raised itself enough capital to tie up an alternative commercial deal. Though still loss making, we believe the company is at a turning point, with considerable future returns to be made from commercialising its portfolio of products. DP Poland is also an early stage company. It has the franchise for Domino's Pizza in Poland and has spent the time since it originally floated on AIM in establishing a number of outlets in Warsaw. It now has the involvement of individuals, who were behind the establishment of Domino's Pizza UK, and we believe that we have invested at a price where the potential returns from expanding the number of outlets it operates, justify the higher risk inherent in an earlier stage business. In contrast, Tangent Communications is already a profitable and dividend paying company engaged in printing and digital communications. The money we have invested was part of a funding to make an acquisition of an on-line digital printing business to expand its operation in that area. In total, for the year under review as a whole, £2.0million was invested into new qualifying investments.
In addition we added to our non-qualifying holding in Gooch and Housego and made a new non-qualifying investment in Augean, replacing the holding in Hamworthy, which had been taken over in the first half of the year and maintaining the non-qualifying portion of the portfolio at around 8% of the whole.
Since the year end we have made one further qualifying investment in Fusionex, a profitable enterprise software solutions provider based in Malaysia, which floated on AIM in December.
The year under review also included a number of complete disposals, which are listed in the table below. Apart from Atlantic Global, Hamworthy and Zetar, which were all subject to takeover bids in the year, and Optare and Colliers, which we sold when they ceased to qualify as VCT investments, the remainder of the sales in IDOX, Advanced Computer Software, Brady, Chime Communications and Omega Diagnostics have been part disposals of holdings, which have performed well and where we have taken profits in order to manage the size of the holding.
Since the year end we have taken some further profits in IDOX and Advanced Computer Software as well as reducing the holdings in Omega Diagnostics and Mears. We have sold the non-qualifying holding in Hargreaves, since the year end, after the company revealed that it had been the victim of fraud in Belgium. Hargreaves is also having to deal with the complications of closing its deep coal mining operation at Maltby, and we took the decision that it was going to take some time to restore investor confidence in the business.
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) |
| Colliers | October 2009 | 153 | 11 | (142) |
| Optare | June 2008 | 656 | 15 | (641) |
| Hamworthy | June 2011 | 326 | 460 | 134 |
| Atlantic Global | May 2001 | 119 | 163 | 44 |
| Zetar | March 2005 | 68 | 96 | 28 |
Investment Portfolio
| Fixed asset investments | Sector | Book cost at 30 November 2012 (£'000) | Cumulative change in fair value (£'000) | Fair Value at 30 November 2012 (£'000) | Movement in year to 30 November 2012 (£'000) | % equity held by Octopus Second AIM VCT plc | % equity held by all funds managed by Octopus Investments Limited |
| Advanced Computer Software plc | Software & Computer Services | 809 | 993 | 1,802 | 463 | 0.7% | 3.0% |
| Idox plc | Software & Computer Services | 358 | 1,363 | 1,721 | 734 | 1.1% | 3.4% |
| EKF Diagnostics plc | Healthcare Equipment | 870 | 381 | 1,251 | 179 | 1.7% | 6.0% |
| Animalcare Group plc | Pharmaceuticals & Biotech | 870 | 328 | 1,198 | (355) | 4.6% | 8.1% |
| Breedon Aggregates Limted | Construction & Materials | 602 | 438 | 1,040 | 188 | 0.8% | 1.9% |
| Brooks MacDonald Group plc | General Financial | 609 | 328 | 937 | 191 | 0.6% | 2.3% |
| Sinclair IS Pharma plc | Pharmaceuticals & Biotech | 920 | (2) | 918 | 169 | 0.8% | 1.2% |
| Escher Group Holdings plc | Software & Computer Services | 753 | 109 | 862 | 176 | 2.4% | 6.9% |
| Netcall plc | Software & Computer Services | 421 | 308 | 729 | 294 | 2.1% | 5.1% |
| Craneware plc | Software & Computer Services | 479 | 232 | 711 | (203) | 0.6% | 1.2% |
| Vianet Group plc | Support Services | 867 | (156) | 711 | 151 | 2.6% | 4.6% |
| MyCelx Technologies plc | Oil Equipment | 600 | 86 | 686 | 29 | 2.2% | 7.6% |
| Vertu Motors plc | General Retailers | 777 | (93) | 684 | 197 | 0.9% | 7.8% |
| Brady plc | Software & Computer Services | 394 | 274 | 668 | 153 | 0.8% | 2.0% |
| Enteq Upstream plc | Oil Equipment | 687 | (27) | 660 | (165) | 1.2% | 3.8% |
| TLA Worldwide plc | Media | 538 | 81 | 619 | 81 | 3.1% | 11.4% |
| Tasty plc | Travel & Leisure | 335 | 245 | 580 | 56 | 2.3% | 4.9% |
| WANdisco plc | Software & Computer Services | 228 | 340 | 568 | 340 | 0.6% | 3.2% |
| Chime Communications plc | Media | 541 | 24 | 565 | 96 | 0.3% | 0.5% |
| GB Group plc | Software & Computer Services | 220 | 304 | 524 | 285 | 0.5% | 1.9% |
| Matchtech Group plc | Support Services | 442 | 76 | 518 | 41 | 1.0% | 10.9% |
| Plastics Capital plc | Chemicals | 485 | 21 | 506 | 29 | 2.6% | 17.6% |
| Omega Diagnostics Group plc | Healthcare Equipment | 484 | 17 | 501 | 59 | 4.4% | 9.6% |
| RWS Holdings plc | Support Services | 249 | 249 | 498 | 137 | 0.2% | 4.4% |
| DP Poland plc | Travel & Leisure | 364 | 97 | 461 | 97 | 2.5% | 6.4% |
| Futura Medical plc | Pharmaceuticals & Biotech | 407 | (14) | 393 | (14) | 0.9% | 4.4% |
| Gooch & Housego plc | Electronic & Electrical | 326 | 32 | 358 | 41 | 0.4% | 3.2% |
| Hargreaves Services plc | Support Services | 314 | 18 | 332 | (170) | 0.2% | 3.6% |
| Access Intelligence plc | Software & Computer Services | 544 | (218) | 326 | 82 | 4.7% | 10.0% |
| Lombard Medical Technologies plc | Healthcare Equipment | 589 | (268) | 321 | 104 | 1.0% | 1.0% |
| Staffline Recruitment Group plc | Support Services | 225 | 91 | 316 | 59 | 0.5% | 13.9% |
| Judges Scientific plc | Electronic & Electrical | 200 | 109 | 309 | 109 | 0.6% | 1.6% |
| Tangent Communications plc | Support Services | 385 | (86) | 299 | (87) | 1.4% | 6.0% |
| Augean plc | Support Services | 291 | - | 291 | - | 1.0% | 5.8% |
| Corero Network Security plc | Software & Computer Services | 360 | (92) | 268 | (92) | 1.4% | 4.7% |
| Hasgrove plc | Media | 436 | (175) | 261 | 92 | 2.1% | 13.3% |
| SQS Software plc | Software & Computer Services | 207 | 8 | 215 | 68 | 0.3% | 9.7% |
| Active Risk Group plc | Software & Computer Services | 535 | (323) | 212 | (134) | 3.3% | 9.8% |
| Bond International Software plc | Software & Computer Services | 303 | (97) | 206 | 41 | 1.1% | 3.4% |
| Corac plc | Industrial Engineering | 252 | (59) | 193 | (25) | 0.5% | 1.8% |
| Adept Telecom plc | Telecommunications | 501 | (315) | 186 | 61 | 1.7% | 4.1% |
| Goals Soccer Centres plc | Travel & Leisure | 148 | 26 | 174 | 41 | 0.3% | 2.4% |
| Marwyn Management plc | Investment Companies | 670 | (497) | 173 | (193) | 1.2% | 1.9% |
| In-Deed Online plc | General Retailers | 199 | (38) | 161 | (37) | 2.3% | 5.8% |
| Immunodiagnostic Systems plc | Healthcare Equipment | 454 | (298) | 156 | (92) | 0.2% | 2.9% |
| Mears Group plc | Support Services | 93 | 25 | 118 | 40 | 0.0% | 0.3% |
| Mattioli Woods plc | General Financial | 96 | (7) | 89 | (5) | 0.3% | 3.6% |
| Woodspeen plc | Support Services | 250 | (167) | 83 | (194) | 3.9% | 11.4% |
| Jelf Group plc | General Financial | 122 | (46) | 76 | (1) | 0.1% | 0.8% |
| Cello Group plc | Media | 54 | 3 | 57 | 9 | 0.2% | 7.1% |
| Altitude Group plc | Support Services | 24 | 22 | 46 | (25) | 0.6% | 4.5% |
| Work Group plc | Support Services | 473 | (432) | 41 | (35) | 2.1% | 6.3% |
| Snacktime plc | Food & Drug Retailers | 367 | (337) | 30 | (147) | 1.5% | 8.7% |
| Datong plc | Electronic & Electrical | 29 | (6) | 23 | 5 | 0.6% | 3.4% |
| Daisy Group plc | Telecommunications | 20 | 1 | 21 | (3) | 0.0% | 0.1% |
| 22,776 | 2,876 | 25,652 | 2,920 | ||||
| Fully realised investments still held | 573 | (573) | - | ||||
| Total investments | 23,349 | 2,303 | 25,652 | ||||
| Money market funds | 2,850 | - | 2,850 | ||||
| Total fixed asset investments and money market funds | 28,502 | ||||||
| Cash at bank | 135 | ||||||
| Debtors less creditors | 75 | ||||||
| Total net assets | 28,712 |
Top 10 Holdings
Listed below are the ten largest investments by value as at 30 November 2012:
Advanced Computer Software plc
Advanced Computer Software plc provides software to the Healthcare Sector and other commercial markets.
Initial investment date: July 2008
Cost: £809,000
Valuation: £1,802,000
Equity held: 0.7%
Last audited accounts: February 2012
Revenue: £101.8 million
Profit before tax: £6.9 million
Net assets: £98.2 million
Idox plc
Idox plc is a leading software and information management solutions provider, predominately to the public and engineering sectors.
Initial investment date: August 2008
Cost: £358,000
Valuation: £1,721,000
Equity held: 1.1%
Last audited accounts: October 2012
Revenue: £57.9 million
Profit before tax: £6.9 million
Net assets: £38.9 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: £1,251,000
Equity held: 1.7%
Last audited accounts: December 2011
Revenue: £21.7 million
Loss before tax: £2.4 million
Net assets: £37.4 million
Animalcare Group plc
Animalcare Group plc manufactures and distributes veterinary medicines for pets and livestock.
Initial investment date: December 2007
Cost: £870,000
Valuation: £1,198,000
Equity held: 4.6%
Last audited accounts: June 2012
Revenue: £10.9 million
Profit before tax: £2.1 million
Net assets: £16.8 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: £602,000
Valuation: £1,040,000
Equity held: 0.8%
Last audited accounts: December 2011
Revenue: £168.9 million
Profit before tax: £1.4 million
Net assets: £59.0 million
Brooks MacDonald Group plc
Brooks Macdonald Group plc is a wealth management group.
Initial investment date: August 2008
Cost: £609,000
Valuation: £937,000
Equity held: 0.6%
Last audited accounts: June 2012
Revenue: £53.3 million
Profit before tax: £8.5 million
Net assets: £23.7 million
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: £920,000
Valuation: £918,000
Equity held: 0.8%
Last audited accounts: June 2012
Revenue: £51.4 million
Loss before tax: £9.8 million
Net assets: £114.3 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: £753,000
Valuation: £862,000
Equity held: 2.4%
Last audited accounts: December 2011
Revenue: $13.9 million
Profit before tax: $2.0 million
Net assets: $25.7 million
Netcall plc
Netcall is a provider of software and telephony services particularly to call centres enabling efficient customer interaction and process management and improving customer satisfaction.
Initial investment date: July 2010
Cost: £421,000
Valuation: £729,000
Equity held: 2.1%
Last audited accounts: June 2012
Revenue: £14.6 million
Profit before tax: £2.1 million
Net assets: £15.5 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: £711,000
Equity held: 0.6%
Last audited accounts: June 2012
Revenue: $41.1 million
Profit before tax: $11.2 million
Net assets: $37.4 million
Outlook
Despite economic commentators remaining determinedly downbeat, the news from smaller companies both in this portfolio and elsewhere has been surprisingly positive and encouragingly we have begun to see share prices react to good news. This would seem to indicate that appetite for risk is returning, particularly where there is a promise of good growth and where valuations remain low by historic standards. More recently there has been talk of the economy growing without a triple-dip and we believe that steady, albeit low growth is a good background against which to invest in smaller companies.
An analysis of the investments in the portfolio shows how far many of the holdings have progressed, with over 80% of the equity portfolio by value invested in companies forecast by analysts to be reporting a profit this year and more than 60% of it invested in companies forecast to pay a dividend. Although some share prices have performed well, many of the smaller companies in the portfolio are still trading on modest ratings, and with profits growth of 25% targeted by analysts for the fund's top twenty holdings which are profitable we see scope for further appreciation in the NAV in the current year.
The AIM Team
Octopus Investments Limited
- March 2013
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 - to - 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 -.
On Behalf of the Board
Keith Richard Mullins
Chairman
22 March 2013
Income Statement
| Year to 30 November 2012 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Gain on disposal of fixed asset investments | 10 | - | 318 | 318 |
| Gain on valuation of fixed asset investments | 10 | - | 2,920 | 2,920 |
| Investment Income | 2 | 363 | - | 363 |
| Investment management fees | 3 | (138) | (412) | (550) |
| Other expenses | 4 | (189) | - | (189) |
| Profit on ordinary activities before tax | 36 | 2,826 | 2,862 | |
| Taxation on profit on ordinary activities | 6 | - | - | - |
| Profit on ordinary activities after tax | 36 | 2,826 | 2,862 | |
| Return per share - basic and diluted | 8 | 0.1p | 6.5p | 6.6p |
- the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice
- all revenue and capital items in the above statement derive from continuing operations
- the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of recognised gains and losses is not required.
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the loss as stated above and at historical cost.
The accompanying notes form an integral part of the financial statements.
Income Statement
| Year to 30 November 2011 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Loss on disposal of fixed asset investments | - | (697) | (697) | |
| Loss on valuation of fixed asset investments | - | (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 | 6 | - | - | - |
| Loss on ordinary activities after tax | (40) | (1,168) | (1,208) | |
| Loss per share - basic and diluted | 8 | (0.1p) | (2.9p) | (3.0p) |
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 loss as stated above and at historical cost. The accompanying notes form an integral part of the financial statements. |
Balance Sheet
| As at 30 November 2012 | As at 30 November 2011 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 10 | 25,652 | 21,742 | ||
| Current assets: | |||||
| Investments* | 11 | 2,850 | 3,901 | ||
| Debtors | 12 | 274 | 506 | ||
| Cash at bank | 135 | 636 | |||
| 3,259 | 5,043 | ||||
| Creditors: amounts falling due within one year | 13 | (199) | (195) | ||
| Net current assets | 3,060 | 4,848 | |||
| Net assets | 28,712 | 26,590 | |||
| Called up equity share capital | 14 | 4 | 4 | ||
| Share premium | 15 | 1,756 | 20 | ||
| Special distributable reserve | 15 | 30,607 | 31,681 | ||
| Capital reserve realised | 15 | (6,363) | (3,855) | ||
| Capital reserve un-realised | 15 | 2,876 | (1,056) | ||
| Revenue reserve | 15 | (168) | (204) | ||
| Total equity shareholders' funds | 28,712 | 26,590 | |||
| Net asset value per share - basic and diluted | 9 | 66.3 | 62.4 | ||
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 22 March 2013 and are signed on their behalf by:
Keith R. 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 2012 | Year ended 30 November 2011 | |
| Notes | £'000 | £'000 |
| Shareholders' funds at start of year | 26,590 | 24,774 |
| Profit/(Loss) on ordinary activities after tax | 2,862 | (1,208) |
| Share capital bought back 14 | (1,074) | (1,362) |
| Issue of shares 14 | 1,736 | 5,770 |
| Dividends paid 7 | (1,402) | (1,384) |
| Shareholders' funds at end of year | 28,712 | 26,590 |
Cash flow statement
| Year to 30 November 2012 | Year to 30 November 2011 | ||
| Notes | £'000 | £'000 | |
| Net Cash outflow from operating activities | (140) | (603) | |
| Taxation: UK Corporation tax paid | 6 | - | - |
| Financial investment | |||
| Purchase of investments | 10 | (2,409) | (5,963) |
| Disposal of investments | 10 | 1,737 | 1,366 |
| Net cash outflow from investing activities | (672) | (4,597) | |
| Equity dividends paid | 7 | (1,402) | (1,384) |
| Management of liquid resources | |||
| Purchase of current asset investments | 11 | (5,159) | (16,364) |
| Sale of current asset investments | 11 | 6,210 | 19,050 |
| Net cash inflow from management of liquid resources | 1,051 | 2,686 | |
| Net cash outflow before financing | (1,163) | (3,898) | |
| Financing | |||
| Proceeds from issue of shares | 15 | 1,736 | 5,770 |
| Purchase of own shares | 15 | (1,074) | (1,362) |
| Net cash inflow from financing | 662 | 4,408 | |
| (Decrease)/increase in cash | (501) | 510 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year to 30 November 2012 | Year to 30 November 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes | £'000 | £'000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Decrease)/Increase in cash at bank | (501) | 510 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Movement in cash equivalent securities | 11 | (1,051) | (2,686) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Opening net funds | 4,537 | 6,713 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net funds at 30 November | 2,985 | 4,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Analysis of changes in Net Funds
| As at 1 December 2011 | Cash flows | As at 30 November 2012 | |
| £'000 | £,000 | £'000 | |
| Cash at Bank | 636 | (501) | 135 |
| Money market cash funds 11 | 3,901 | (1,051) | 2,850 |
| Net funds at 30 November | 4,537 | (1,552) | 2,985 |
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 principal accounting policies have remained unchanged from those set out in the Company's 2011 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 designated 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 - unrealised.
The current asset investments are all invested with the Company's cash manager and are readily convertible into cash at the choice of the Company. The current asset investments are held for trading, are actively managed and the performance is evaluated on a fair value basis in accordance with a documented investment strategy. Information about them has to be provided internally on that basis to the Board.
Income
Investment income includes interest earned on bank balances and money market securities and includes income tax withheld at source. Dividend income is shown net of any related tax credit.
Dividends receivable are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Fixed returns on debt and money market securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue with the exception of the investment management fee, which has been charged 25% to the revenue account and 75% to the 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 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Income receivable on money market securities and bank balances | 37 | 38 |
| Dividends receivable from fixed asset investments | 326 | 277 |
| 363 | 315 |
3. Investment Management Fees
| 30 November 2012 | 30 November 2011 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 138 | 412 | 550 | 135 | 403 | 538 |
| 138 | 412 | 550 | 135 | 403 | 538 | |
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.
During the year Octopus Investments Limited charged management fees of £550,000 (2011: £538,000). At the year end there was £151,000 outstanding (2011: £148,000). Octopus Investments Limited received £48,000 (2011: £25,000) as a result of upfront fees charged on the allotments of Ordinary Shares.
4. Other Expenses
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Directors' remuneration | 61 | 55 |
| Fees payable to the Company's auditor for the audit of the financial statements | 25 | 22 |
| Legal and professional expenses | 9 | 12 |
| Other administration expenses | 94 | 131 |
| 189 | 220 |
The ongoing charges of the Company for the year to 30 November 2012 were 2.6 per cent of average net assets during the year to 30 November 2012 (2011: 2.9 per cent).
5. Directors' Remuneration
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Directors' emoluments | ||
| Keith Richard Mullins | 18 | 16 |
| Andrew Paul Raynor | 15 | 13 |
| Elizabeth Anita Kennedy | 14 | 13 |
| Alastair James Ritchie | 14 | 13 |
| 61 | 55 |
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 (2011: four). The above table represents the gross remunerations received by the directors and excludes Employer's National Insurance contributions, which amounted to £4,300 (2011: £3,500). The Directors received no pension contributions from the Company during the year (2011:£nil).
6. Tax on Ordinary Activities
The corporation tax charge for the year was £nil (2011: £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% (2011: 20.33%).
The differences are explained below:
| Current tax reconciliation: | 30 November 2012 | 30 November 2011 |
| £'000 | £'000 | |
| Profit/(loss) on ordinary activities before tax Current tax at 20% (2011: 20.33%) | 2,862 572 | (1,208) (246) |
| Income not liable to tax Expenses not deductible for tax purposes (Gains)/Losses not subject to tax Excess management expenses carried forward | (65) 2 (648) 139 | (56) 2 155 145 |
| 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 2012, there is an unrecognised deferred tax asset of £431,000 (2011: £292,000) in respect of surplus management expenses.
7. Dividends
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for the year | ||
| Previous year's final dividend - 1.6p per share | 701 | 697 |
| Current year's interim dividend - 1.6p per share | 701 | 687 |
| 1,402 | 1,384 |
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Paid and proposed in respect of the year | ||
| Interim dividend paid - 1.6p per share (2011: 1.6p per share) | 701 | 687 |
| Final dividend proposed 1.7p per share (2011: 1.6p per share) | 719 | 673 |
| 1,420 | 1,360 |
8. Return Per Share - basic and diluted
The return per share is based on 43,151,333 (2011: 40,589,911) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year, and the profit on ordinary activities after tax for the year of £2,862,000 (2011: loss of £1,208,000).
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical.
9. Net Asset Value Per Share - basic and diluted
The calculation of NAV per share as at 30 November 2012 is based on 43,331,328 (2011: 42,586,289) Ordinary shares in issue at that date.
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted NAV per share are identical.
10. Fixed asset investments
FRS 29, regarding financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities. The fair value of financial instruments
traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as
active if quoted prices are readily and regularly available, and those prices represent actual and regularly
occurring market transactions on an arm's length basis. The quoted market price used for financial assets held is the current bid price. These instruments are included in level 1 and comprise AIM 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 (2011: 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 2012 are summarised below and in note 11.
| Level 1: AIM-quoted equity investments | |
| £'000 | |
| Book cost as at 1 December 2011 | 22,798 |
| Opening unrealised loss at 1 December 2011 | (1,056) |
| Valuation at 1 December 2011 | 21,742 |
| Purchases at cost | 2,409 |
| Disposal proceeds | (1,737) |
| Profit on realisation of investments | 318 |
| Change in fair value in year | 2,920 |
| Closing valuation at 30 November 2012 | 25,652 |
| Book cost at 30 November 2012 | 23,349 |
| Closing unrealised gain at 30 November 2012 | 2,876 |
| Impairment in value of investments treated as realised losses | (573) |
| Valuation at 30 November 2012 | 25,652 |
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 2012 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 £7,200 and £5,200 respectively.
11. Current Asset Investments
Current asset investments at 30 November 2012 and at 30 November 2011 comprised of money market funds*. These fall into level 1 of the fair value hierarchy as defined in note 10.
| 2012 | 2011 | |
| £'000 | £'000 | |
| Book cost at 1 December: | 3,901 | 6,587 |
| Revaluation to 1 December: | - | - |
| Valuation as at 1 December | 3,901 | 6,587 |
| Purchases at Cost: | 5,159 | 16,364 |
| Disposal proceeds: | (6,210) | (19,050) |
| Closing valuation as at 30 November | 2,850 | 3,901 |
| Book cost at 30 November: | 2,850 | 3,901 |
| Revaluation to 30 November: | - | - |
| Closing valuation as at 30 November | 2,850 | 3,901 |
*Money market funds represent money held pending investment and can be accessed within 1 working day's notice.
12. Debtors
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Other debtors | 223 | 458 |
| Prepayments and accrued income | 51 | 48 |
| 274 | 506 |
13. Creditors: Amounts Falling Due Within One Year
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Accruals and other creditors | 199 | 195 |
| 199 | 195 |
14. Share Capital
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Allotted and fully paid up: | ||
| 43,331,328 Ordinary shares of 0.01p (2011: 42,586,289) | 4 | 4 |
| 4 | 4 |
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 -. The Company is not subject to any externally imposed capital requirements.
The Company repurchased the following Ordinary shares during the year to be cancelled:
· 09 December 2011: 217,101 Ordinary shares at a price of 55.8p per share
· 20 January 2012: 78,095 Ordinary shares at a price of 55.0p per share
· 24 February 2012: 44,388 Ordinary shares at a price of 58.5p per share
· 16 March 2012: 176,601 Ordinary shares at a price of 60.5p per share
· 29 March 2012: 9,170 Ordinary shares at a price of 60.0p per share
· 30 March 2012: 46,504 Ordinary shares at a price of 60.0p per share
· 20 April 2012: 91,992 Ordinary shares at a price of 61.0p per share
· 11 May 2012: 74,804 Ordinary shares at a price of 60.75p per share
· 17 May 2012: 272,013 Ordinary shares at a price of 59.75p per share
· 31 May 2012: 165,282 Ordinary shares at a price of 57.5p per share
· 21 June 2012: 48,290 Ordinary shares at a price of 57.0p per share
· 13 July 2012: 63,512 Ordinary shares at a price of 57.5p per share
· 14 September 2012: 61,044 Ordinary shares at a price of 58.0p per share
· 25 October 2012: 92,252 Ordinary shares at a price of 59.0p per share
· 21 November 2012: 6,025 Ordinary shares at a price of 58.5p per share
· 23 November 2012: 388,797 Ordinary shares at a price of 58.5p per share
The total cost of the shares repurchased was £1,074,000 (2011: £1,362,000).
The total nominal value of the shares repurchased was £184 (2011: £219) representing 4.6% (2011: 5.5%) of the issued share capital.
The Company issued the following shares during the year in connection with the offers for subscription announced on 6 February 2012 and 25 April 2012:
- 05 April 2012: 1,815,635 Ordinary shares at a price of 72.1p per share
- 31 July 2012: 765,274 Ordinary shares at a price of 69.0p per share
The total proceeds from the shares issued was £1,837,000. Issue costs of 5.5% amounted to £101,000 on the issue of these shares.
15. Reserves
* Included within these reserves is an amount of £24,076,000 (2011: £26,566,000) which is considered distributable to shareholders.
** Current year gains on disposal of £318,000 includes a £5,000 loss on the realisation of investments still held at the year end.
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.
16. Financial Instruments and Risk Management
The Company's financial instruments comprise equity investments, cash balances, investments in money market funds and debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying 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 10 and 11) 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 -. 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 - to -, 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 -.
89.3% (30 November 2011: 81.7%) 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 2012 would have increased net assets and the total return for the year by £2,565,200 (30 November 2011: £2,174,000); 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 2012 (30 November 2011: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 30 November 2012 | 30 November 2011 | |
| £'000 | £'000 | |
| Current investments | 2,850 | 3,901 |
| Cash at bank | 135 | 636 |
| 2,985 | 4,537 |
A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £29,850 (30 November 2011: £45,370).
Credit risk
Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 30 November 2012, or 30 November 2011. By value, no individual bank holding or fixed rate note investment exceeded 6.4% of the Company's net assets at 30 November 2012 (10.2% 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. Where financial assets expose the Company to credit risk, the maximum exposure is represented by their carrying value.
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.
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 2012 these investments were valued at £2,985,000 (30 November 2011: £4,537,000).
17. Post balance sheet events
Company | Date | Number of shares | Cost £'000 |
Fusionex International plc | 13 December 2012 | 123,791 | 186 |
Advanced Computer Software plc | 9 January 2013 | 2,000 | 2 |
IDOX plc | 9 January 2013 | 2,000 | 1 |
WANdisco plc | 9 January 2013 | 400 | 2 |
Futura Medical plc | 10 January 2013 | 2,000 | 2 |
WANdisco plc | 8 February 2013 | 400 | 3 |
GB Group plc | 20 March 2013 | 120,000 | 109 |
MyCelx Technologies plc | 22 March 2013 | 10,000 | 29 |
Cello Group plc | 22 March 2013 | 48,930 | 24 |
19 December 2012 | 115,430 shares bought back and cancelled at 60.75p |
10 January 2013 | 68,510 shares bought back and cancelled at 61.0p |
28 February 2013 | 30,000 shares bought back and cancelled at 69.0p |
1 March 2013 | 300,885 shares bought back and cancelled at 69.0p |
On 20 February 2013, as part of the Enhanced Buyback, in total 10,470,985 million shares were sold back to the company and 9,974,094 million shares were reissued.
18. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at 30 November 2012 (2011: 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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