Final Results

Octopus Protected VCT plc Final Results 12 May 2010 Octopus Protected VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2010. These results were approved by the Board of Directors on 12 May 2010. You may, in due course, view the Annual Report in full at www.octopusinvestments.com < http://www.octopusinvestments.com/> by navigating to Services, Investor Services, Venture Capital Trusts, Octopus Protected VCT plc. All other statutory information will also be found there. About Octopus Protected VCT plc Octopus Protected VCT plc ("Protected," "Company" or "Fund") is a venture capital trust ("VCT") and is managed by Octopus Investments Limited ("Octopus"). The Fund was launched in July 2006 and raised over £27.1 million (£25.9 million net of expenses) through an offer for subscription by the time it closed on 5 April 2008.  The objective of the Fund is to invest in a diversified portfolio of UK smaller companies in order to generate income and capital growth over the long-term. Further details of the Fund's progress are discussed in the Chairman's Statement and Investment Manager's Review on pages [<li>] to [<li>]. Venture Capital Trusts (VCTs) VCTs were introduced in the Finance Act 1995 to provide a means for private individuals to invest in unlisted companies in the UK.  Subsequent Finance Acts have introduced changes to VCT legislation. The tax benefits currently available to eligible new investors in VCTs include: ·                     up-front income tax relief of 30% ·                     exemption from income tax on dividends paid ·                     exemption from capital gains tax on disposals of shares in VCTs The Company has been provisionally approved as a VCT by HM Revenue & Customs. In order to maintain its approval the Company must comply with certain requirements on a continuing basis.  By the end of the Company's third accounting period at least 70% of the Company's investments must comprise 'qualifying holdings' of which at least 30% must be in eligible Ordinary shares.  A 'qualifying holding' consists of up to £1 million invested in any one year in new shares or securities in an unquoted company (including companies listed on AIM) which is carrying on a qualifying trade and whose gross assets do not exceed £7 million at the time of investment, and whose total number of employees is less than 50, also at the time of investment.  The Company will continue to ensure its compliance with these qualification requirements. Financial Summary +-----------------------+ Ordinary shares |Year to 31 January 2010|Year to 31 January 2009 | |   |  | | | Net assets (£'000s) | 24,552| 25,139 | | Net revenue profit after tax| | (£'000s) | 245| 582 | | Net total profit/(loss) after| | tax (£'000s) | 244| (101) | | Net asset value per share (NAV) | 90.1p| 92.2p | | Proposed dividend per share | 1.5p| 1.5p +-----------------------+ Chairman's Statement Introduction I am pleased to present the fourth Annual Report of Octopus Protected VCT plc for the year ended 31 January 2010. Performance At 31 January 2010 the total return (being NAV plus dividends paid) of the Fund was 96.1p, which compares to 95.2p at 31 January 2009. This increase is largely due to the successful sale of the Fund's investment in Funeral Services Partnership which resulted in a return of almost 1.4 times the original investment of £1 million in October 2007. Aside from this the performance of the Fund has been relatively stable as there have been no changes in the valuations of the companies in its portfolio and because a proportion of its assets remain held in cash and cash equivalent securities.  The investments held are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines and Financial Reporting Standards and are therefore subject to regular valuation reviews. Given your Company's performance, and in line with HM Revenue & Customs ("HMRC") requirements, your Board has proposed a final dividend of 1.5 pence per share (comprising 0.1 pence from revenue reserves) in respect of the year ended 31 January 2010.  This dividend, if approved by shareholders at the AGM, will be paid be paid on 4 August 2010 to shareholders on the register on 9 July 2010. In addition to the 1.50 pence interim dividend paid in October 2009, this will take dividends for the year ended 31 January 2010 to 3.0 pence. Investment Portfolio The year under review, particularly during the first 6 months, has proved challenging for many businesses due to the difficult economic environment. However it is encouraging to report that none of your Company's investments suffered any reductions in their fair value. That said it is too early to recognise any uplift in values, although we are optimistic about the potential of the portfolio companies. During the year the Fund has made nine new investments totalling £13,000,000 and completed two follow on investments into existing portfolio companies Bruce Dunlop & Associates International Limited and Vulcan Services II Limited, totalling £18,000 and £1,000,000 respectively. New investments include CSL DualCom Limited, the UK's leading supplier of dual path signalling devices, which link burglar alarms to the police or a private security firm, Diagnos Limited, which develops and sells sophisticated automotive diagnostic software and hardware, and Clifford Thames Group Limited, a provider of data and support services for the auto industry. The Fund has also made six investments into companies that have been established to seek suitable qualifying investments across a range of sectors. All of these investments are discussed in more detail in the Investment Managers Review on pages ● to ● Investment Strategy The Fund is being invested on the basis of taking less risk than a typical VCT. Typically the Fund will receive its return from interest paid on secured loan notes as well as an exposure to the value of the shares of a company.   The investment strategy is to derive sufficient return from the secured loan notes to achieve the Fund's investment aims and to use the equity exposure to boost returns.  As portfolio companies are unquoted the Fund will receive a return from an equity holding when a company is sold. The Manager of the Fund aims to reduce risk by investing in well managed and profitable businesses with strong recurring cash-flows.  Furthermore with the majority of the investment being made in the form of a secured loan, in the event of the business failing, the Fund will rank ahead of unsecured creditors and equity investors. VCT Qualifying Status PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice concerning ongoing compliance with Her Majesty's Revenue & Customs ('HMRC') rules and regulations concerning VCTs. The Board has been advised that Octopus Protected VCT plc is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT. This is discussed further on page ●. A key requirement is now to maintain the 70% qualifying investment level. As at 31 January 2010, 77% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments. VAT on Management Fees The Government announced that VCTs are now exempt from paying VAT on investment management fees with effect from 1 October 2008 and with retrospective application.  This follows a European Court of Justice Judgement against the Government in a case relating to VAT payable by investment trusts.  I am pleased to report that an amount of £96,900 has been received post year end. This is below the £110,000 originally accrued, however we are pursuing HMRC for the full rebate together with interest.  On this basis, and with guidance from our advisers at Octopus, the £110,000 remains accrued in these accounts. Change of Company Name At the forthcoming Annual General Meeting it is proposed to change the name of the Company to Octopus Apollo VCT 3 plc. The proposed change of name is to bring the VCT in line with other VCTs managed by Octopus that follow the same investment strategy.  There will be no change to the way in which this VCT is managed or the type of investments that it makes. Outlook Your Board remains confident that the Fund will be able to meet its investment objectives and produce good returns for shareholders.  The imperative is to find lower risk investments and take advantage of current market conditions whenever possible. Since 31 January 2010, the Fund has made two such investments into Businessco Services 3 Limited and Carebase (Col) Limited. Further details of these investments can be found in the Investment Managers Review. Last year I reported that Octopus launched a further VCT called Octopus Protected VCT 2 PLC with the aim of investing alongside Protected and two other VCTs under the management of Octopus that have the same investment policy.  I can confirm that this remains the case and is allowing Protected to invest in larger, safer companies and to invest on more favourable terms than would otherwise be the case.  I believe this structure will enable Protected to be well placed to benefit from any economic recovery. Tony Morgan Chairman 12 May 2010 Investment Manager's Review Personal Service At Octopus, we focus on both managing your investments and keeping you informed throughout the investment process. We are committed to providing our investors with regular and open communication. Our updates are designed to keep you informed about the progress of your investment. During this time of economic upheaval, we consider it particularly important to be in regular contact with our investors and are working hard to manage your money in the current climate. Octopus Investments Limited was established in 2000 and has a strong commitment to both smaller companies and to VCTs. We currently manage 17 VCTs, including this Company, and manage nearly £300 million in the VCT sector. Octopus has over 145 employees and has been voted as 'Best VCT Provider of the Year' by the financial adviser community for the last four years. Investment Policy The investment approach of Protected is to seek lower risk investments.  The majority of companies in which the Octopus Protected VCT invests operate in sectors where there is a high degree of predictability.  Ideally, we seek companies that have contractual revenues from financially sound customers and will provide an exit to shareholders within three to five years. Portfolio Review As at 31 January 2010 the NAV stood at 90.1p, compared to 92.2p at 31 January 2009, and when adding back the 3.0p of cumulative dividends paid, this represents a positive total return of 1.0%. Recent improvements in the economy have created a better environment for the companies in the portfolio. There is a sense that the worst of the recession is over and that we may be on the road to recovery. We are confident about the stability in the market for the smaller private companies included the Fund's portfolio. The positive return is largely due to the successful exit of Funeral Services Partnership (FSP).  Protected originally invested £1,000,000 in FSP in October 2007 which together with a loan note redemption premium of £264,000 and capital profits realised on equity of £115,000, generated a return of almost 1.4 times the original investment. FSP had the characteristics we typically look for in our investments, having an experienced management team and being a successful business with strong recurring cash flows along with a clear market opportunity. The investment also had a defensive structure being low initial bank debt and an equity investor taking the main financial risk. The returns therefore predominantly came from our loan notes rather than our equity. A quote from Philip Greenfield, the managing director of FSP, corroborates the commitment and integrity we strive to provide here at Octopus and goes a long way to showing why the investment was such a success: "We know from experience that when growing a business there can be conflicts and differing agendas between management teams and institutional investors. We found the approach of Stuart and Octopus very refreshing with a real focus on what is right for the business, providing assistance and support to us throughout. This created a strong and trusting relationship that really helped us all to make great progress. We very much look forward to working with them again." Elsewhere, the Fund made nine new investments totalling £13,000,000 and completed two follow investments into existing portfolio companies Bruce Dunlop & Associates International Limited of £17,800 and Vulcan Services II Limited of £1,000,000. Since the date of these accounts we have completed a qualifying investment into Businessco Services 3 Limited, a company that seeks acquire businesses operating in the business services industry, of £1,000,000 and a non-qualifying investment into Carebase (Col) Limited of £350,000, a company involved in the construction of a care home. Outlook While the Company is invested in established businesses that are relatively unaffected by economic shifts, changes in the economy can of course alter the trading environment for the Company. It is fair to say that the worst of the economic upheavals appear to be over, leading to an improved environment which can aid progress of the Fund. We will continue to consider low risk investments in sound companies and to support existing holdings that merit capital for sensible expansion plans, including well priced acquisitions.  Taking a longer term view, which a VCT affords, we expect to be able to develop and generate successful exits that will bring rewards for shareholders. If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2347. Stuart Nicol Director Octopus Investments 12 May 2010 Investment Portfolio Fair Investment value at % at cost 31 Movement 31 equity January in January % equity managed Qualifying 2010 valuation 2010 held by by investments Sector (£'000) (£'000) (£'000) Protected Octopus -------------------------------------------------------------------------------- Clifford Thames Group Limited Automotive 2,000 - 2,000 3.00% 8.00% Vulcan Services II Oil & gas Limited services 2,000 - 2,000 24.50% 49.00% GreenCo Services Limited Environmental 2,000 - 2,000 32.80% 57.40% PubCo Services Restaurants & Limited bars 2,000 - 2,000 30.40% 56.90% Salus Services 1 Limited Care homes 2,000 - 2,000 48.10% 100.00% Bruce Dunlop & Associates International Limited Media 1,018 - 1,018 1.74% 35.05% Tristar Chauffeur Limited Services 1,000 - 1,000 2.50% 35.00% Diagnos Limited* Automotive 1,000 - 1,000 0.00% 0.00% CSL DualCom Security Limited* devices 1,000 - 1,000 0.00% 0.00% BusinessCo Services 2 Business Limited services 1,000 - 1,000 24.50% 49.00% Ticketing Services 1 Limited Ticketing 1,000 - 1,000 49.40% 100.00% Ticketing Services 2 Limited Ticketing 1,000 - 1,000 49.40% 100.00% Hydrobolt Limited Manufacturing 606 - 606 2.73% 4.63% British Country Inns Restaurants & plc bars 100 (16) 84 1.30% 1.30% -------------------------------------------------------------------------------- Total Qualifying investments 17,724 (16) 17,708 Floating rate notes   1,931 - 1,931 Money market funds   4,374 - 4,374 Cash at bank   374 - 374 -------------------------------------------------------------------------------- Total investments   24,403 (16) 24,387 Debtors less creditors       165 -------------------------------------------------------------------------------- Total net assets       24,552 *Debt based investment Valuation Methodology The investments held by Protected are all unquoted and as such there is no trading platform from which prices can be easily obtained. As a result, the methodology used in fair valuing the investments is the transaction price of the recent investment round. Subsequent adjustment to the fair value has then been made according to any significant under or over performance of the business. If you would like to find out more regarding The International Private Equity and Venture Capital ('IPEVC') Valuation Guidelines, please visit the following website: www.privateequityvaluation.com < http://www.privateequityvaluation.com/>. Review of Investments During the year, the Fund made nine new investments amounting to £13 million and two follow-on investments into Bruce Dunlop & Associates International Limited and Vulcan Services II limited for £17,784 and £1,000,000 respectively. Investments are valued in accordance with the accounting policy set out on page ●, which takes account of current industry guidelines for the valuation of venture capital portfolios and is compliant with International Private Equity and Venture Capital Valuations guidelines and current financial reporting standards. Clifford Thames Group Limited ('CT') Clifford Thames is a market leading provider of consultancy and business outsourcing services for the automotive industry, and is a key partner of most of the world's leading car manufacturers.  With offices in eight countries, having recently opened up in China and Poland, Clifford Thames has a well established and impressive client list including Ford, GM Europe, Jaguar Land Rover, Mazda and Fiat. Our investment into CT was made via BusinessCo Services Limited. This was a company that we had previously created to invest in this type of business. Further information can be found at the company's website www.clifford-thames.com < http://www.clifford-thames.com/>. Investment date:                                  January 2009 Cost:                                                      £2 million Valuation:                                              £2 million Equity held:                                           3.0% Last audited accounts:                       N/A Vulcan Services II Limited Vulcan II has been established to seek the acquisition of businesses engaged in any of the activities of design, manufacture, development, marketing or sale of equipment and components for use in the oil and gas sector. Investment date:                                  November 2008 Cost:                                                      £2.0 million Valuation:                                              £2.0 million Equity held:                                           24.5% Last audited accounts:                       N/A GreenCo Limited GreenCo Services Limited ("GreenCo") has been set up to investigate and seek the acquisition of companies engaged in the provision of environmental products or services. Investment date:                                  April 2009 Cost:                                                      £2.0 million Valuation:                                              £2.0 million Equity held:                                           32.8% Last audited accounts:                       N/A PubCo Limited PubCo Services Limited ("PubCo") has been set up to acquire and operate freehold pubs. Investment date:                                  April 2009 Cost:                                                      £2.0 million Valuation:                                              £2.0 million Equity held:                                           30.4% Last audited accounts:                       N/A Salus Services 1 Limited Salus Services 1 Limited ("Salus") has been set up to investigate and seek the acquisition of companies engaged in the provision of products or services into the health care sector. Investment date:                                  January 2010 Cost:                                                      £2.0 million Valuation:                                              £2.0 million Equity held:                                           48.1% Last audited accounts:                       N/A Bruce Dunlop & Associates International Limited ('BDA') BDA provides promotion and design services to broadcasters and advertisers worldwide and also creates brand films and internal communications for leading UK corporations, including Hallmark, Barclays, Discovery and Sony. After a tough early 2009 the business stabilised its trading in summer 2009 and since then has been trading in line with a revised budget. Further information can be found at the company's website www.bdacreative.com. Investment date:                                  December 2007 Cost:                                                      £1.0 million Valuation:                                              £1.0 million Equity held:                                           1.7% Revenues                                               £4.5 million Profit before interest & tax:                                £0.3 million Net assets:                                            £1.0 million Tristar Worldwide Limited Tristar is one of the world's leading chauffeur companies, carrying over 500,000 passengers for 400 clients in the last year alone. The business operates in 70 countries with its own vehicles in the UK and a rapidly expanding service in the US. It has a blue chip customer base which includes Virgin, Emirates, BP, Goldman Sachs and Bank of America-Merrill Lynch.  The market for chauffeur services has been heavily affected in the current economic environment but we believe has now stabilised.  Tristar has achieved a good performance in the circumstances where many of its competitors are suffering to a greater extent. The company's focus on a joined up international service is proving to be an important selling feature for clients, and the latest office opening in Hong Kong has been well received.  Further information can be found at the company's website www.tristarworldwide.com < http://www.tristarworldwide.com/>. Investment date:                                  January 2008 Cost:                                                      £1.0 million Valuation:                                              £1.0 million Equity held:                                           2.5% 'A shares' (35.0% 'A shares' held by all funds managed by Octopus) Last audited accounts:                       31 May 2009 Revenues:                                             £35.1 million Profit before interest & tax:                                £ 0.7 million Net assets:                                            £ 2.0 million Diagnos Limited Diagnos develops and sells sophisticated automotive diagnostic software and hardware that enables independent mechanics, dealerships and garages to service and repair vehicles. Mechanics require a diagnostic tool to communicate with the in-car computer in order to measure, monitor and, where necessary, fix the electronic process or system. Further information can be found at the company's website www.autologic-diagnos.co.uk < http://www.autologic-diagnos.co.uk/>. Investment date:                                  February 2009 Cost:                                                      £1.0 million Valuation:                                              £1.0 million Equity held:                                           0.0% Last audited accounts:                       N/A Revenues                                               £0.4 million Loss before interest & tax:                                 £(0.02) million Net assets:                                            £2.7 million CSL DualCom Limited (subsidiary of Dualcom Holdings Limited) CSL DualCom Limited ('DualCom') is the UK's leading supplier of dual path signalling devices, which link burglar alarms to the police or a private security firm. The devices communicate using a telephone line or broadband connection and a wireless link from Vodafone, which has been a partner since 2000. DualCom has developed a number of new products for the sector, which have enabled the business to steadily grow its market share of new connections and its profitability since the initial investment. Further information can be found at the company's website www.csldual.com < http://www.csldual.com/>. Investment date:                                  February 2009 Cost:                                                      £1.0 million Valuation:                                              £1.0 million Equity held:                                           N/A Last audited accounts:                                       31 March 2009 Revenues                                               £7.2 million Profit before interest & tax:                                £0.8 million Net assets:                                            £0.7 million BusinessCo 2 Services Limited BusinessCo Services 2 Limited ("BusinessCo") has been set up to investigate and seek the acquisition of companies engaged in the provision of business support services. Investment date:                                  November 2008 Cost:                                                      £1.0 million  Valuation:                                             £1.0 million Equity held:                                           24.5% Last audited accounts:                       N/A Ticketing Services 1 Limited Ticketing Services 1 Limited is involved in the purchase and resale, at a margin, of tickets from various ticketed events. Investment date: Cost:                                                      £1.0 million  Valuation:                                             £1.0 million Equity held:                                           49.4% Last audited accounts:                       N/A Ticketing Services 2 Limited Ticketing Services 2 Limited is involved in the purchase and resale, at a margin, of tickets from various ticketed events. Investment date: Cost:                                                      £1.0 million  Valuation:                                             £1.0 million Equity held:                                           49.4% Last audited accounts:                       N/A Recent Transactions Since the end of the period under review, two further investments have been made. The Fund invested £1,000,000 into Businessco Services 3 Limited and £350,000 into Carebase (Col) Limited. Directors' Responsibility Statement The Directors are responsible for preparing the Annual Report and the accounts in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In preparing these financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and 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 disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as each of the Directors is aware: - there is no relevant audit information of which the Company's auditor is unaware; and - the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. To the best of my knowledge: - the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and - the management report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Tony Morgan Chairman 12 May 2010 Income Statement +----------------------+ |Year ended 31 January |     | 2010 | | |     |Revenue Capital Total| | |   Notes| £'000 £'000 £'000| | |     |      | | | Gain on disposal of fixed asset investments 10 | - 255 255| | | Loss on disposal of current asset investments   | - (28) (28)| | |     |      | | | Loss on valuation of fixed asset investments   | - - -| | | Gain on valuation of current asset investments   | - 144 144| | |     |      | | | Investment income 2 | 638 - 638| | |     |      | | | Investment management fees 3 | (124) (372) (496)| | | VAT management fee rebate 3 | - - -| | |     |      | | | Other expenses 4 | (269) - (269)| | |     |      | | | Profit/(loss) on ordinary activities before tax   | 245 (1) 244| | |     |      | | | Taxation on profit/(loss) on ordinary activities 6 | - - -| | |     |      | | | Profit/(loss) on ordinary activities after tax   | 245 (1) 244| | | Earnings per share - basic and diluted 8 | 0.9p (0.0)p 0.9p| +----------------------+ * The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies * all revenue and capital items in the above statement derive from continuing operations * the 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 year as set out above. Income Statement Year ended 31 January     2009     Revenue Capital Total   Notes £'000 £'000 £'000 Gain on disposal of current asset investments   - 58 58 Loss on disposal of current asset investments   - - - Loss on valuation of fixed asset investments   - (16) (16) Loss on valuation of current asset investments   - (595) (595) Investment income 2 1,453 - 1,453 Investment management fees 3 (147) (444) (591) VAT management fee rebate 3 27 83 110 Other expenses 4 (338) - (338) Profit/(loss) on ordinary activities before tax   995 (914) 81 Taxation on profit/(loss) on ordinary activities 6 (413) 231 (182) Profit/(loss) on ordinary activities after tax   582 (683) (101) Earnings per share - basic and diluted 8 2.1p (2.5)p (0.4)p * The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies * all revenue and capital items in the above statement derive from continuing operations * the 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 year as set out above. Reconciliation of Movements in Shareholders' Funds +---------------+ | Year ended| Year ended   |31 January 2010|31 January 2009 | |   | £'000| £'000 | | Shareholders' funds at start of year | 25,139| 26,114 | | Gain/(loss) on ordinary activities after tax| 244| (101) | | Purchase of own shares | (13)| (54) | | Dividends paid | (818)| (820) | | Shareholders' funds at end of year | 24,552| 25,139 Balance Sheet +--------------------+ | As at 31 January | As at 31 January  2009     | 2010| (re-stated) | |   Notes|£'000 £'000| £'000 £'000 | |     |    | | | Fixed asset investments* 10 |   17,708|   4,690 | | Current assets:   |    | | | Debtors 11 | 243  | 212 | | Investments - money market | | funds* 10 |6,305  |16,847 | | Cash at bank   | 374  | 3,685 | |     |6,922  |20,744 | | Creditors: amounts falling | | due within one year 12 | (78)  | (295) | | Net current assets   |   6,844|   20,449 | | Net assets   |   24,552|   25,139 | |     |    | | | Called up equity share | | capital 13 |   2,725|   2,727 | | Capital redemption reserve 14 |   13|   11 | | Special distributable | | reserve 14 |   22,617|   23,039 | | Capital reserve gains & | | losses on disposal 14 |   (406)|   (325) | | Capital reserve holding | | gains & losses 14 |   (479)|   (559) | | Revenue reserve 14 |   82|   246 | | Total shareholders' funds   |   24,552|   25,139 | | Net asset value per share 9 |   90.1p|   92.2p +--------------------+  *Held at fair value through profit and loss The statements were approved by the Directors and authorised for issue on 12 May 2010 and are signed on their behalf by: Tony Morgan Chairman Company number: 05840377 The accompanying notes are an integral part of the financial statements. Cash Flow Statement +--------------------+ | Year to 31      | Year to 31     | January  2010| January  2009 | |   Notes| £'000| £'000 | |     |  | | | Net Cash (outflow)/inflow from | | operating activities   | (375)| 647 | |     |  | | | Taxation   | -| (18) | |     |  | | | Financial investment:   |  | | | Purchase of fixed asset | | investments 10 | (14,017)| (1,606) | | Sales of fixed asset investments 10 | 1,254| | |     |  | | | Management of liquid resources:   |  | | | Purchase of current asset | | investments   | (9,847)| (13,249) | | Sales of current asset | | investments   | 20,505| 18,769 | |     2,480 4,543 | |     |  | | | Dividends paid   | (818)| (820) | |     |  | | | Financing   |  | | | Purchase of own shares 13 | (13)| (54) | |     | (831)| (874) --------------------------------------+--------------------+-------------------- (Decrease)/increase in cash   | (3,311)| 3,669 --------------------------------------+--------------------+-------------------- Reconciliation of Profit before Taxation to Cash Flow from Operating Activities +-----------------------+ | Year to 31 January | Year to 31 January   | 2010| 2009 | |   | £'000| £'000 | | Profit on ordinary activities | | before tax | 244| 81 | | Decrease in debtors | (31)| 40 | | Decrease in creditors | (217)| (27) | | Gains on disposal of fixed | | assets | (255)| - | | Loss/(gains) on disposal of | | current assets | 28| (58) | | Loss on valuation of fixed asset| | investments | -| 16 | | Loss/(gains) on valuation of | | current asset investments | (144)| 595 +-----------------------+ (Outflow)/inflow from operating | | activities | (375)| 647 +-----------------------+ Reconciliation of Net Cash Flow to Movement in Net Funds +----------------------+ | Year to 31 January | Year to 31 January    | 2010| 2009 | |    | £'000| £'000 | | (Decrease)/increase in cash at  | | bank | (3,311)| 3,669 | | Movement in cash equivalent  | | securities | (10,542)| (6,057) | | Opening cash funds  | 20,532| 22,920 | | Net funds at 31 January  | 6,679| 20,532 +----------------------+ Net Funds at 31 January comprised: +--------+   | As at| As at | 31 | 31 |January |January | 2010| 2009 | |   | £'000| £'000 | | Cash at bank | 374| 3,685 | | Bonds                                                                      | -| 2,876 | | Floating rate notes | 1,931| 2,301 | | Money market funds | 4,374| 11,670 | | Net Funds at 31 January | 6,679| 20,532 ---------------------------------------------------------------------------+--------+ Notes to the Financial Statements 1.         Principal accounting policies The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial Statements of Investment Trust Companies' (revised 2009). The principal accounting policies have remained unchanged from those set out in the Company's 2009 Annual Report and financial statements. A summary of the principal accounting policies is set out below. 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 such investments held are attributable to financial assets held at fair value through profit and loss. Accordingly, all interest income, fee income, expenses and impairment losses are attributable to assets designated as being at fair value through profit and loss. Current asset investments comprising money market funds are held for trading and therefore automatically classified as financial assets held at fair value through profit and loss. The preparation of the financial statements requires Management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the unquoted fixed asset investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with particular attention paid to the carrying value of the investments. Capital valuation policies are those that are most important to the depiction of the Company's financial position and that require the application of subjective and complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. The critical accounting policies that are declared will not necessarily result in material changes to the financial statements in any given period but rather contain a potential for material change. The main accounting and valuation policies used by the Company are disclosed below. Whilst not all of the significant accounting policies require subjective or complex judgements, the Company considers that the following accounting policies should be considered critical. Investments are regularly reviewed to ensure that the fair values are appropriately stated. Unquoted investments are valued in accordance with current International Private Equity and Venture Capital ('IPEVC') valuation guidelines, although this does rely on subjective estimates such as appropriate sector earnings multiples, forecast results of investee companies, asset values of subsidiary companies and liquidity or marketability of the investments held. For the avoidance of doubt, Octopus Protected VCT plc only invests in unquoted investments. 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. Fixed assets 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 are designated as being at fair value through profit or loss ("FVTPL") on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy.  The Company's investments are measured at subsequent reporting dates at fair value. In the case of unquoted investments, fair value is established by using measures of value such as price of recent transaction, earnings multiple and net assets. This is consistent with International Private Equity and Venture Capital valuation guidelines. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the income statement and allocated to the capital reserve - holding gains/(losses). In preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies. Current asset investments Current asset investments comprise money market funds and are classified 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 - gains/(losses) on valuation/disposal, as appropriate. 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 funds and includes income tax withheld at source. Dividend income is shown net of any related tax credit. Dividends receivable are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received.  Fixed returns on debt and money market funds are recognised on a time apportionment basis, 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. Revenue and capital The revenue column of the Income Statement includes all income and revenue expenses of the Company.  The capital column includes holding gains and losses on investments, as well as gains and losses on disposal.  Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the income statement. Taxation Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP. Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date 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 can be deducted. Cash and liquid resources Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand.  Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), and investments in money market funds. Loans and receivables The Company's loans and receivables are initially recognised at cost and subsequently measured at fair value, being amortised cost using the effective interest method. Financing strategy and capital structure FRS 29 'Financial Instruments: Disclosures' comprises disclosures relating to financial instruments. 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. 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. Capital management is monitored and controlled using the internal control procedures set out on page ● of this report. The capital being managed includes equity and fixed-interest investments, cash balances and liquid resources including debtors and creditors. 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 declared by the Board, and for final dividends when they are approved by the shareholders. 2.         Income   31 January 2010 31 January 2009   £'000 £'000 Interest receivable money market funds and bank balances 92 629 Money market securities - dividend income 101 620 Loan note interest receivable 445 204   638 1,453 3.         Investment management fees   31 January 2010 31 January 2009   Revenue Capital Total Revenue Capital Total   £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 124 372 496 130 394 524 Irrecoverable VAT thereon - - - 17 50 67 VAT rebate - - - (27) (83) (110)   124 372 496 120 361 481 For the purposes of the revenue and capital columns in the income statement, the management fee (including VAT where applicable) 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 provides investment management and accounting and administration services to the Company under a management agreement which runs for a period of five years with effect from 27 July 2006 and may be terminated at any time thereafter by not less than twelve months' notice given by either party.  No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given.  The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The basis upon which the management fee is calculated is disclosed within note 19 to the financial statements. The Chancellor of the Exchequer announced in his budget statement on 12 March 2008 that the Finance Act 2008 would contain draft legislation exempting VCTs from VAT on management fees with effect from 1 October 2008. This legislation was passed in July 2008 and as such all VCTs are now exempt from paying VAT on management fees from this date.  VAT has not been included on management fees since 1 November 2008 and an amount of £96,900 has been refunded post year end. 4.         Other expenses   31 January 2010 31 January 2009   £'000 £'000 Directors' remuneration 53 50 Fees payable to the Company's auditor for the audit of the financial statements 12 12 Fees payable to the Company's auditor for other services - tax compliance 4 4 Accounting and administration services 75 92 Legal and professional expenses 1 44 Other expenses 124 136   269 338 The total expense ratio for the Company for the year to 31 January 2010 was 3.1 per cent (2009: 2.9 per cent).  Total running costs are capped at 3.5 per cent. 5.         Directors' remuneration   31 January 2010 31 January 2009   £'000 £'000 Directors' emoluments Mr Tony Morgan (Chairman) 21 20 Mr Neil Wilson 16 15 Mr Matt Cooper 16 15   53 50 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 three (2009: three). 6.         Tax on ordinary activities The corporation tax charge for the year was £nil (2009: £182,000). The current tax charge for the year differs from the standard rate of corporation tax in the UK of 28% (2009: 28%).  The differences are explained below. Current tax reconciliation: 31 January 2010 31 January 2009   £'000 £'000 Profit on ordinary activities before tax 244 81 Non taxable gains/(losses) 371 (553) Net (loss)/profit on ordinary activities (127) 634 Current tax at 28% (2009: 28%) (36) 178 Unutilised tax losses 54 - Income not liable to tax (18) - Marginal relief - (14) Adjustment in respect of prior year - 18 Total current tax charge - 182 The company has excess management charges of approximately £193,000 (2009: £nil) to carry forward to offset against future taxable profits. Approved venture capital trusts 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. 7.         Dividends   31 January 2010 31 January 2009   £'000 £'000 Recognised as distributions in the financial statements for the year Previous year's final dividend 409 410 Current year's interim dividend 409 410   818 820   31 January 2010 31 January 2009   £'000 £'000 Proposed in respect of the year Interim dividend - 1.5p per share (2009: 1.5p per share) 409 410 Final dividend 1.5p per share (2009: 1.5p per share) 409 409   818 819 The final dividend of 1.5p per share for the year ended 31 January 2010, subject to shareholder approval at the Annual General Meeting, will be paid on 4 August 2010 to shareholders on the register on 9 July 2010. 8.         Earnings/(loss) per share The revenue earnings per share is based on 27,262,160 (2009: 27,324,977) shares, being the weighted average number of shares in issue during the year, and on a profit after tax of £245,000 (2009: £582,000). The capital earnings per share is based on 27,262,160 (2009: 27,324,977) shares, being the weighted average number of shares in issue during the year, and on a loss after tax of £1,000 (2009: £683,000). The total earnings per share is based on 27,262,160 (2009: 27,324,977) shares, being the weighted average number of shares in issue during the year, and a profit for the year totaling £244,000 (2009: loss of £101,000) There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are therefore identical. 9.        Net asset value per share The calculation of net asset value per share as at 31 January 2010 is based on net assets of £24,552,000 (2009: £25,139,000) divided by the 27,256,003 (2009: 27,272,119) shares in issue at that date. 10.               Fixed asset investments at fair value through profit or loss Effective from 1 January 2009 the Company adopted the amendment to Financial Reporting Standard 29 Financial Instruments: Disclosures regarding financial instruments that are measured in the balance sheet at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1: quoted prices in active markets for identical assets and liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held is the current bid price. These instruments are included in level 1 and comprise money market funds 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 date 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 holds no such investment in the current or prior year. Level 3: the fair value of financial instruments that are not traded in an active market (for example investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. There have been no transfers between these classifications in the period (2009: 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 31 January 2010 are summarised below. Fixed asset investments: Level 3: Unquoted Level 3: Unquoted Total unquoted equity investments loan investments investments   £'000 £'000 £'000 Valuation and net book amount: Book cost at 1 4,706 February 2009 1,482 3,224 Cumulative (16) revaluation (16) - Valuation at 1 4,690 February 2009 1,466 3,224 Movement in the year: Purchases at cost 6,401 7,616 14,017 Proceeds from the (1,254) sale of investments (554) (700) Gain on disposal of 255 investments 255 - Change in fair value - in year - - Closing fair value 17,708 at 31 January 2010 7,568 10,140 Closing cost at 31 17,724 January 2010: 7,584 10,140 Closing holding loss (16) at 31 January 2010: (16) - Valuation at 31 17,708 January 2010 7,568 10,140 Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect impairment of financial assets held at the price of recent investment, or to adjust earnings multiples. The sensitivity of these valuations to a reasonable possible change in such assumptions is given in note 15. Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review on pages ● to ●. Current asset investments Level 1 money market funds: Level 1 valuations are based on quoted prices (unadjusted) in active markets for identical assets or liabilities. The valuation of money market funds at 31 January 2010 was £4,374,000 (2009: £11,670,000) and the valuation of floating rate notes was £1,931,000 (2009: £5,177,000). At 31 January 2010 and 31 January 2009 there were no commitments in respect of investments approved by the Manager but not yet completed. 11.        Debtors   31 January 2010 31 January 2009   £'000 £'000 Other debtors 4 8 Prepayments and accrued income 239 204   243 212 12.        Creditors: amounts falling due within one year   31 January 2010 31 January 2009   £'000 £'000 Accruals 78 - Corporation tax - 164 Other creditors - 1 Applications - 130   78 295 ----------------------------------------------------- 13.        Share capital   31 January 2010 31 January 2009   £'000 £'000 Authorised: 50,000,000 Ordinary shares of 10p 5,000 5,000 Allotted and fully paid up: 27,256,003 Ordinary shares of 10p (2009: 27,272,119) 2,725 2,727 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 did not issue any shares in the year (2009: nil). During the year the Company repurchased the following shares for cancellation: * 19 June 2009: 16,216 Ordinary shares at a price of 81.0p per share The total nominal value of the shares repurchased was £1,621.60 representing 0.059% of the issued share capital. 14.        Reserves Capital Capital reserve - reserve - Special gains & holding Capital distributable losses on gains & redemption Revenue   reserve disposal losses reserve reserve Total   £'000 £'000 £'000 £'000 £'000 £'000 As at 1 22,412 February 2009 23,039 (832) (52) 11 246 Transfer to - comply with SORP 2009** - 507 (507) - - As at 1 22,412 February 2009 restated 23,039 (325) (559) 11 246 Repurchase of own shares - (11) cancellation (13) - - 2 - Profit/(loss) on ordinary 245 activities after tax - - - - 245 Management fees allocated as (372) capital expenditure - (372) - - - Prior period holding - gains/losses now crystallised - 64 (64) - - Current year gains/losses on 227 disposal - 227 - - - Current period gains/losses on 144 fair value of investments - - 144 - - Dividends paid (409) - - - (409) (818) Balance as at 21,827 31 January 2010 22,617* (406) (479) 13 82* *Available for potential distribution by way of a dividend **This transfer is to comply with SORP 2009 whereby gains or losses on investments held by the Company are to be maintained in capital reserve holding gains/(losses) All investments are designated as fair value through profit or loss at the time of acquisition, and all capital gains or losses on such investments are so designated. When the Company revalues the investments still held during the period, any gains or losses arising are credited/ charged to the Capital reserve - holding gains & losses. When an investment is sold any balance held on the Capital reserve - holding gains & losses is transferred to the Capital reserve - gains & losses on disposal as a movement in reserves. At 31 January 2010 there were no commitments in respect of investments approved by the Manager but not yet completed. Reserves available for potential distribution by way of a dividend are:   £'000 As at 1 February 2009 23,285 Movement in year (586) As at 31 January 2010 22,699 15.        Financial instruments and risk management The Company's financial instruments comprise equity, investments, unquoted loans, FRNs, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying unquoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity. Fixed and current asset investments (see note 10) are valued at fair value. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet.  The Directors believe that the fair value of the assets held at the year end is equal to their book value. In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date. Fair value methods and assumptions Where investments are in quoted stocks, fair value is set as market price, discounted if appropriate. Unquoted investments are valued in line with IPEVC valuation guidelines. 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 Directors' Report 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 ● and ●. 72.6% (31 January 2009: 18.5%) by value of the Company's net assets comprises investments in unquoted companies held at fair value.  The valuation methods used by the Company include the application of a price/earnings ratio derived from listed companies with similar characteristics, and consequently the value of the unquoted element of the portfolio can be indirectly affected by price movements on the London Stock Exchange. A 10% overall increase in the valuation of the unquoted investments at 31 January 2010 would have increased net assets and the total profit for the year by £1,783,000 (31 January 2009: £469,000) an equivalent change in the opposite direction would have reduced net assets and the total profit for the year by the same amount. 25.7% (31 January 2009: 66.6%) by value of the Company's net assets comprises money market funds held at fair value.  A 1% overall increase in the valuation of the money market funds at 31 January 2010 would have increased net assets and the total profit for the year by £63,100 (31 January 2009: £1,685,000) an equivalent change in the opposite direction would have reduced net assets and the total profit 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. Fixed rate The table below summarises weighted average effective interest rates for the fixed interest-bearing financial instruments:   As at 31 January 2010 As at 31 January 2009 Weighted Weighted average Total average Total fixed time for fixed rate time for rate Weighted which portfolio Weighted which portfolio average rate is by average rate is by interest fixed in value interest fixed in   value £'000 rate % years £'000 rate % years Unquoted fixed-interest investments 1,824 10.82% 3.0 3,224 13.18% 4.0 Fixed-interest investments - - - 2,876 4.58% 0.5 Floating rate The Company's floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market funds.  The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 0.5% at 31 January 2010 (31 January 2009: 1.5%).  The amounts held in floating rate investments at the balance sheet date were as follows:   31 January 2010 31 January 2009   £000 £000 Unquoted floating loan notes - 700 Listed floating rate notes 1,931 4,477 Money market funds 4,374 11,670 Cash on deposit 374 3,685   6,679 20,532 Every 1% increase or decrease in the base rate would increase or decrease income receivable from these investments and the total profit for the year by £67,000 (31 January 2009: £184,000) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date. At 31 January 2010 the Company's financial assets exposed to credit risk comprised the following:   31 January 2010 31 January 2009   £000 £000 Investments in floating rate instruments 1,931 14,672 Cash on deposit 374 3,685 Investments in fixed rate instruments 1,824 6,100 Accrued dividends and interest receivable 5 95   4,134 24,552 Credit risk relating to listed money market funds is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by the UK Government and major UK institutions. Credit risk relating to loans to and preference shares in unquoted companies is considered to be part of market risk. Credit risk arising on the sale of investments is considered to be small due to the short settlement and the contracted agreements in place with the settlement lawyers. The Company's interest-bearing deposit and current accounts are maintained with HSBC Bank plc. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. Should the credit quality or the financial position of either entity deteriorate significantly the Investment Manager will move the cash holdings to another bank. Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 31 January 2010 or 31 January 2009. Liquidity risk The Company's financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally may be illiquid.  As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The Company's listed money market funds 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 31 January 2010 these investments were valued at £6,679,000 (31 January 2009: £20,628,000). 16.        Post balance sheet events The following events occurred between the balance sheet date and the signing of these financial statements: * On 11 March the Company invested £350,000 into Carebase (Col) Limited * On 31 March 2010 the Company invested £1,000,000 into Businessco Services 3 Limited 17.        Contingencies, guarantees and financial commitments There were no contingencies, guarantees or financial commitments as at 31 January 2010 (2009: £nil). 18.        Related party transactions Matt Cooper, a non-executive Director of Octopus Protected VCT plc, is also Chairman of Octopus Investments Limited. Octopus Protected VCT plc has employed Octopus Investments throughout the year as Investment Manager. Octopus Protected VCT plc has paid Octopus Investments £495,600 (2009: £592,100) in management fees. At 31 January 2010, £nil was outstanding (2009: £nil). The management fee is payable quarterly in advance and is based on 2.0% of the NAV calculated at annual intervals as at 31 January 2010. Octopus Investments also provides accounting and administrative services to the Company, payable quarterly in advance for a fee of 0.3% of the NAV calculated at annual intervals as at 31 January. During the year £75,417 (2009: £92,247) was paid to Octopus Investments and there is £nil outstanding at the balance sheet date, for the accounting and administrative services. No performance related incentive fee will be payable over the first five years. Thereafter, Octopus Investments will be entitled to an annual performance related incentive fee. This performance fee is equal to 20% of the amount by which the NAV from the start of the sixth accounting and subsequent accounting period exceeds simple interest of the HSBC Bank plc base rate for the same period. The NAV at the start of the sixth accounting period must be at least 100p. Any distributions paid out by the Fund will be added back when calculating this performance fee. [HUG#1415333]

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