Final Results

Octopus Apollo VCT 3 plc (formerly Octopus Protected VCT plc) Final Results 17 May 2011 Octopus Apollo VCT 3 plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2011. These results were approved by the Board of Directors on 17 May 2011. You may, in due course, view the Annual Report in full at www.octopusinvestments.com by navigating to Services, Investor Services, Venture Capital Trusts, Octopus Apollo VCT 3 plc.  All other statutory information can also be found there. About Octopus Apollo VCT 3 plc Octopus Apollo VCT 3 plc ('Apollo 3' or 'Company' or 'Fund') is a venture capital trust ('VCT') which aims to provide shareholders with attractive tax- free dividends and long-term capital growth, by investing in a diverse portfolio of predominantly unquoted companies. The VCT is managed by Octopus Investments Limited ('Octopus' or 'Manager'). 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 2007.  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 x to x. 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 up to 30%; ·                     exemption from income tax on dividends paid; and ·                     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.  Now the Company has exceeded the end of its 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 the prescribed limited 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 2011|Year to 31 January 2010 | |   |  | | | Net assets (£'000s) | 24,332| 24,552 | | Net return after tax (£'000s) | 677| 244 | | Net asset value per share (NAV) | 89.6p| 90.1p | | Cumulative dividends paid since| | launch | 9.0p| 6.0p | | Proposed final dividend per| | share | 1.5p| 1.5p +-----------------------+ Chairman's Statement Introduction I am delighted to present the fifth Annual Report of Octopus Apollo VCT 3 plc for the year ended 31 January 2011. Performance It is pleasing to report a good performance for the year, one that has been in line with the investment mandate of this VCT. As the initial funds have now reached their investment targets, the net asset value ('NAV') of Apollo 3 has levelled, providing a stable return on your investment. At the year end the total return, being the change in NAV plus dividends paid in the year, was 2.8%, with the NAV now standing at 89.6 pence per share. Trading results of investee companies on the whole have been positive which has led to uplifts being recognised in Bluebell Telecom, Clifford Thames, CSL DualCom and Hydrobolt; these have been slightly offset by a reduction in the fair value of Bruce Dunlop. Overall net holding gains of £576,000 have been recognised in the year. Dividend It is your Board's policy to maintain a regular dividend flow where possible in order to take advantage of the tax free distributions a VCT is able to provide. Given the performance of your Company, your Board has proposed a final dividend of 1.5 pence per share (payable from revenue reserves) in respect of the year ended 31 January 2011.  This dividend, if approved by shareholders at the AGM, will be paid on 15 July 2011 to shareholders on the register on 17 June 2011. Alongside the 1.5 pence per share interim dividend paid in October 2010, this will take dividends in relation to the year ended 31 January 2011 to 3.0 pence per share (2010: 3.0 pence per share). Investment Portfolio A full list of the Company's investment portfolio is set out on page x. Vulcan Services II, a company set up to seek qualifying investments, was successful in acquiring Bluebell Telecom Limited, a company providing landline, mobile and data solutions to businesses. Further investment was made into Resilient Corporate Services, a company seeking VCT qualifying investments, and a small non-qualifying investment was made into Carebase (Col), a company used to purchase land in order to build the care home that fellow investee company Salus Services is funding. All of the investments are discussed further in the Investment Managers Review on pages x to x. The Fund has now invested sufficiently in order to meet all the requirements for it to fully qualify as a VCT. It now has the opportunity to make a few further low risk investments which should accelerate the NAV of the Fund over the next couple of years. Investment Strategy As set out in the prospectus, the aim of the Fund is to make investments on the basis of taking less risk than a typical VCT. To date the Investment Manager has been successful in achieving this aim, as can be witnessed by the absence of any significant falls in portfolio valuations. Typically the structure of the investments is weighted more heavily towards loan based instruments in favour of equity. This is considered to be of a lower risk nature as returns are fixed and payments are generally ranked above most other creditors, allowing for future visibility and security. This strategy also reduces the downward risk that is part and parcel of an equity investment. The Fund has also been able to take strong advantage of the reduced liquidity in the traditional lending market, which has led to good opportunities to invest into well managed and profitable businesses with strong recurring cash-flows. The Budget It is encouraging that, subject to EU approval, with effect from 6 April 2012 the gross asset limit for investee companies for VCTs is to be raised from £7m to £15m, and the number of employees is to be raised from 50 to 250. Should approval be obtained, this will open a wider area of investment opportunities that we are looking forward to being able to explore. Change of Name As I mentioned in my last annual statement, your VCT invests in line with three other VCTs managed by Octopus. It was therefore proposed, and subsequently approved, that the name of your VCT be changed to be in line with the other VCTs with whom it co-invests. The name was therefore changed to Octopus Apollo VCT 3 plc during the year. I would like to stress that this will not affect the way in which your Company is managed. 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 Apollo VCT 3 plc is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT. A key requirement is now to maintain the 70% qualifying investment level. As at 31 January 2011, 79.2% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments. Outlook Concerns about the macro-economic climate remain in the form of the sustainability of the economic recovery, inflationary pressures and the fragile condition of public finances within the UK. These factors combined with the recent increases in oil prices provide an uncertain environment for many businesses. However the majority of investments in your Company's portfolio have continued to report good trading results and the persistent reluctance of banks to lend to small companies continues to provide relevant investment opportunities into financially strong businesses. At present, the prospect of economic growth returning to the UK appears realistic and this should provide a good background against which your Company can continue to align its performance with its original objectives. Tony Morgan Chairman 17 May 2011 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 uncertainty, 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 £320 million in the VCT sector. Octopus has over 180 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 Octopus Apollo VCT 3 plc is to seek lower risk investments.  The majority of companies in which Apollo 3 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. Performance As at 31 January 2011 the NAV stood at 89.6p, compared to 90.1p at 31 January 2010, and when adding back the 3.0p of dividends paid, this represents a steady total return of 2.8%. The valuation uplifts in Clifford Thames, CSL DualCom and Bluebell Telecom have resulted from our valuing a proportion of the redemption premiums that have been negotiated and are due to be paid on the repayment of the loans issued to the companies. There has also been an uplift in Hydrobolt that has been recognised as a result of the company's strong performance. A small reduction in fair value was recorded in Bruce Dunlop as the equity proportion of the investment was written down to nil. This decrease is in recognition of the fact that Bruce Dunlop, in common with most media related companies, is finding trading tough. We remain confident in the management's running of the business and hope the Company will trade its way back to budget in the coming years. This decrease in fair value amounts to a reduction in value of £48,000, against a total cost of £1,018,000, with the remainder of our funds being invested in debt that ranks ahead of all other investors on exit. The majority of investments are loan based on which a steady flow of interest is received into the Fund. This is now nearing the level whereby interest receipts offset the running costs of the Fund. This income versus expenditure parity will allow for any profits on realisations and loan note redemption premiums to be paid out directly to shareholders, or recognised as an uplift to the value of your investment. Portfolio Review We review many businesses each year and carefully assess which would be suitable for your Company in order to successfully meet the low risk mandate of this VCT. It is a long process that we go though and involves thorough scenario planning that ultimately results in us having to turn down the majority of business cases that we see. That said we have been successful during the year in deploying the funds previously held by Vulcan Services II into Bluebell Telecoms, and have also made a small, non-qualifying investment into Carebase (Col). We believe both investments follow the investment mandate of this VCT; Bluebell has strong recurring cash flows and a good management team and Carebase (Col) is asset backed. Further to this, since the year end we have made a further investment of £1 million into Clifford Thames. We have also used the funds previously held in GreenCo Services to further our investment into CSL DualCom, and the funds of PubCo Services to acquire Salus Services, injecting further capital into the company to enable the business to build another care home. GreenCo and PubCo were initially intending to invest into the environmental sector and the restaurant and bar sector respectively. However given the change in market conditions these sectors were not considered appropriate. All the investments that have been made post year end have been into businesses that we have already invested in, and therefore we know them well and are informed and confident of their continued success.  With regards to Clifford Thames and CSL DualCom, in addition to investing more funds, we have significantly increased the possible return on our investment without, we believe, taking significantly more risk. Outlook We remain cautious about the year ahead and continue to be on the lookout for potential difficulties in the portfolio to enable ourselves to be prepared and plan appropriately. However in general we are confident that the investee companies are well positioned to weather the uncertain times ahead and we remain optimistic that your Company's NAV will be able to make progress, despite the economic environment in which we find ourselves. If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2347. Stuart Nicol Investment Director Octopus Investments 17 May 2011 Investment Portfolio Fair % Investment value Movement equity % at cost Movement at 31 in fair held equity 31 January in January value in by managed Qualifying 2011 valuation 2011 year Apollo by investments Sector (£'000) (£'000) (£'000) (£'000) 3 Octopus ------------------------------------------------------------------------------------- Clifford Thames Group Limited Automotive 2,000 314 2,314 314 2.8% 8.0% Bluebell Telecom Services Limited Telecommunications 2,000 220 2,220 220 4.4% 6.5% Salus Services 1 Limited Care homes 2,000 - 2,000 - 15.7% 100.0% GreenCo Services Limited Environmental 2,000 - 2,000 - 8.2% 57.4% PubCo Services Limited Restaurants & bars 2,000 - 2,000 - 11.4% 56.9% CSL DualCom Limited* Security devices 1,000 25 1,025 25 0.0% 0.0% Tristar Limited Chauffeur services 1,000 - 1,000 - 1.3% 35.0% Diagnos Limited* Automotive 1,000 - 1,000 - 0.0% 0.0% Businessco Services 2 Limited Business services 1,000 - 1,000 - 5.0% 49.0% Ticketing Services 1 Limited Ticketing 1,000 - 1,000 - 25.3% 100.0% Ticketing Services 2 Limited Ticketing 1,000 - 1,000 - 25.3% 100.0% Resilient Corporate Services Limited Business services 1,000 - 1,000 - 24.5% 49.0% Bruce Dunlop & Associates International Limited Media 1,018 (48) 970 (48) 1.7% 30.0% Hydrobolt Limited Manufacturing 606 79 685 79 2.8% 43.3% British Country Inns plc Restaurants & bars 100 (30) 70 (14) 1.3% 1.3% ------------------------------------------------------------------------------------- Total Qualifying fixed asset investments 18,724 560 19,284 576 Non- qualifying fixed asset investments   350 - 350 - ------------------------------------------------------------------------------------- Total fixed asset investments   19,074 560 19,634 576 Money market funds   4,274 - 4,274 Cash at bank   207 - 207 ------------------------------------------------------------------------------------- Total investments   23,555 560 24,115 Debtors less creditors       217 ------------------------------------------------------------------------------------- Total net assets       24,332 *Debt based investments Valuation Methodology The investments held by Apollo 3 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 of unquoted investments has been made using sector multiples based on information as at 31 January 2011, where applicable and adjustment to the fair value has also 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. Ten Largest Holdings Listed below are the ten largest investments by value as at 31 January 2011: Clifford Thames Group Limited (Clifford Thames) 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, Clifford Thames has a well-established and impressive client list including Ford, GM Europe, Jaguar Land Rover, Mazda and Fiat. Further information can be found at the company's websitewww.clifford-thames.com. +---------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +---------------------+---+------------+---+------------+ | A Ordinary shares |   | £457,000 |   | £457,000 | +---------------------+---+------------+---+------------+ | B preference shares |   | £5,000 |   | £5,000 | +---------------------+---+------------+---+------------+ | Loan stock |   | £1,538,000 |   | £1,852,000 | +---------------------+---+------------+---+------------+ | Total |   | £2,000,000 |   | £2,314,000 | +---------------------+---+------------+---+------------+ Investment date:                                                  January 2010 Equity held:                                                           2.8% Last audited accounts:                                       31 March 2010 Revenues:                                                            £31.6 million Profit before interest & tax:                                 £2.7 million Net assets:                                                             £10.1 million Income receivable recognised in year:              £164,000 Valuation basis:                                                    Earnings multiple Bluebell Telecom Services Limited ('Bluebell') (formerly Vulcan Services II Limited) Bluebell provides landline, mobile and data solutions to businesses, helping to cut costs and improve efficiency through simple rationalisation and more effective deployment of voice and data services. Further information can be found at the company's websitewww.bluebelltelecom.com. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | A Ordinary shares |   | £214,000 |   | £214,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | £1,786,000 |   | £2,006,000 | +-------------------+---+------------+---+------------+ | Total |   | £2,000,000 |   | £2,220,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  September 2010 Equity held:                                                           4.4% Last audited accounts:                                       N/A* Revenues:                                                        N/A* Profit before interest & tax:                                N/A* Net assets:                                                           N/A* Income receivable recognised in year:              £80,000 Valuation basis:                                                    Earnings multiple *The first year's statutory accounts are yet to be produced Salus Services 1 Limited ('Salus') Salus is funding the construction of a care home based in Colchester. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | A Ordinary shares |   | £2,000,000 |   | £2,000,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | - |   | - | +-------------------+---+------------+---+------------+ | Total |   | £2,000,000 |   | £2,000,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  January 2010 Equity held:                                                           15.7% Last audited accounts:                                       31 December 2009 Revenues:                                                             £0.0 million Loss before interest & tax:                                  £(0.0) million Net assets:                                                            £0.6 million Income receivable recognised in year:              £101,000 Valuation basis:                                                    Earnings multiple GreenCo Limited ('GreenCo') GreenCo was set up to acquire VCT qualifying trades. Since the year end the funds have been used to invest further into DualCom due to the company's positive financial performance since initial investment. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | A Ordinary shares |   | £605,000 |   | £605,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | £1,395,000 |   | £1,395,000 | +-------------------+---+------------+---+------------+ | Total |   | £2,000,000 |   | £2,000,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  April 2009 Equity held:                                                           8.2% Last audited accounts:                                       N/A Revenues:                                                             £0.0 million Profit before interest & tax:                                 £0.0 million Net assets:                                                            £2.0 million Income receivable recognised in year:              £6,000 Valuation basis:                                                    Earnings multiple PubCo Services Limited ('PubCo') PubCo was set up to acquire VCT qualifying trades. Since the year end, the funds have been used successfully to acquire the net assets of Salus Services 1 Limited, enabling the company to fund the construction of a second care home. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | A Ordinary shares |   | £605,000 |   | £605,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | £1,395,000 |   | £1,395,000 | +-------------------+---+------------+---+------------+ | Total |   | £2,000,000 |   | £2,000,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  April 2009 Equity held:                                                           11.4% Last audited accounts:                                       N/A Revenues:                                                             £0.0 million Profit before interest & tax:                                 £0.0 million Net assets:                                                            £2.0 million Income receivable recognised in year:              £6,000 Valuation basis:                                                    Earnings multiple CSL DualCom Limited ('DualCom') 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 websitewww.csldual.com. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | C Ordinary shares |   | £100,000 |   | £100,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | £900,000 |   | £925,000 | +-------------------+---+------------+---+------------+ | Total |   | £1,000,000 |   | £1,025,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  February 2009 Equity held:                                                           0.0% Last audited accounts:                                        31 March 2010 Revenues:                                                        £8.2 million Profit before interest & tax:                                £1.2 million Net assets:                                                            £1.2 million Income receivable recognised in year:              £46,000 Valuation basis:                                                    Steady state cashflow multiple Tristar Worldwide Limited ('Tristar') 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; the Company has offices in the UK, US and Hong Kong as well as an affiliate network providing service in over 70 countries worldwide.  Further information can be found at the company's websitewww.tristarworldwide.com. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | A Ordinary shares |   | £20,000 |   | £20,000 | +-------------------+---+------------+---+------------+ | B Ordinary shares |   | £280,000 |   | £280,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | £700,000 |   | £700,000 | +-------------------+---+------------+---+------------+ | Total |   | £1,000,000 |   | £1,000,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  January 2008 Equity held:                                                           1.3% Last audited accounts:                                       31 May 2010 Revenues:                                                           £32.6 million Profit before interest & tax:                                £0.1 million Net assets:                                                            £2.0 million Income receivable recognised in year:              £188,000 Valuation basis:                                                    Earnings multiple 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 websitewww.autologic-diagnos.co.uk. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | B Ordinary shares |   | £50,000 |   | £50,000 | +-------------------+---+------------+---+------------+ | C Ordinary shares |   | £50,000 |   | £50,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | £900,000 |   | £900,000 | +-------------------+---+------------+---+------------+ | Total |   | £1,000,000 |   | £1,000,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  February 2009 Equity held:                                                           0.0% Last audited accounts:                                        31 December 2009 Revenues:                                                       £6.2 million Profit before interest & tax:                                £1.8 million Net assets:                                                            £2.6 million Income receivable recognised in year:              £38,000 Valuation basis:                                                    Earnings multiple BusinessCo 2 Services Limited ('BusinessCo 2') BusinessCo 2 has been set up to investigate and seek the acquisition of companies engaged in the provision of business support services. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | A Ordinary shares |   | £304,000 |   | £304,000 | +-------------------+---+------------+---+------------+ | Loan stock |   | £696,000 |   | £696,000 | +-------------------+---+------------+---+------------+ | Total |   | £1,000,000 |   | £1,000,000 | +-------------------+---+------------+---+------------+ Investment date:                                                  November 2008 Equity held:                                                           5.0% Last audited accounts:                                       N/A Revenues:                                                             £0.0 million Profit before interest & tax:                                 £0.0 million Net assets:                                                            £1.0 million Income receivable recognised in year:              £3,000 Valuation basis:                                                    Earnings multiple Ticketing Services 1 Limited Ticketing Services 1 Limited is involved in the purchase and resale, at a margin, of tickets from various ticketed events. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | Ordinary shares |   | £390,000 |   | £390,000 | +-------------------+---+------------+---+------------+ | C Ordinary shares |   | £610,000 |   | £610,000 | +-------------------+---+------------+---+------------+ | Total |   | £1,000,000 |   | £1,000,000 | +-------------------+---+------------+---+------------+ Investment date: Equity held:                                                           25.3% Last audited accounts:                                       N/A Revenues:                                                             £0.0 million Profit before interest & tax:                                 £0.0 million Net assets:                                                            £1.0 million Income receivable recognised in year:              £nil Valuation basis:                                                    Earnings multiple Ticketing Services 2 Limited Ticketing Services 2 Limited is involved in the purchase and resale, at a margin, of tickets from various ticketed events. +-------------------+---+------------+---+------------+ | Asset class |   | Cost |   | Valuation | +-------------------+---+------------+---+------------+ | Ordinary shares |   | £390,000 |   | £390,000 | +-------------------+---+------------+---+------------+ | C Ordinary shares |   | £610,000 |   | £610,000 | +-------------------+---+------------+---+------------+ | Total |   | £1,000,000 |   | £1,000,000 | +-------------------+---+------------+---+------------+ Investment date: Equity held:                                                           25.3% Last audited accounts:                                       N/A Revenues:                                                             £0.0 million Profit before interest & tax:                                 £0.0 million Net assets:                                                            £1.0 million Income receivable recognised in year:              £nil Valuation basis:                                                    Earnings multiple Directors' Responsibilities Statement The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). 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 and 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 and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as each of the Directors is aware: ·            there is no relevant audit information of which the Company's auditor are 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. 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. 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 they face. On behalf of the board Tony Morgan Chairman 17 May 2011 Income Statement +----------------------+ |Year ended 31 January |     | 2011 | | |     |Revenue Capital Total| | |   Notes| £'000 £'000 £'000| | |     |      | | | Loss on disposal of fixed asset investments 10 | - (25) (25)| | | Gain on disposal of current asset investments 12 | - 19 19| | |     |      | | | Fixed asset investment holding gains 10 | - 576 576| | | Current asset investment holding gains 12 | - 37 37| | |     |      | | | Investment income 2 | 917 - 917| | |     |      | | | Investment management fees 3 | (127) (379) (506)| | |     |      | | | Other expenses 4 | (341) - (341)| | |     |      | | | Return on ordinary activities before tax   | 449 228 677| | |     |      | | | Taxation on return on ordinary activities 6 | - - -| | |     |      | | | Return on ordinary activities after tax   | 449 228 677| | | Earnings per share - basic and diluted 8 | 1.7p 0.8p 2.5p| +----------------------+ * 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 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. The accompanying notes are an integral part of the financial statements Income Statement Year ended 31 January     2010     Revenue Capital Total   Notes £'000 £'000 £'000 Gain on disposal of current asset investments   - 255 255 Loss on disposal of current asset investments   - (28) (28) Fixed asset investment holding gains   - - - Current asset investment holding gains   - 144 144 Investment income 2 638 - 638 Investment management fees 3 (124) (372) (496) Other expenses 4 (269) - (269) Return on ordinary activities before tax   245 (1) 244 Taxation on return on ordinary activities 6 - - - Return 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 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. The accompanying notes are an integral part of the financial statements Reconciliation of Movements in Shareholders' Funds +-----------------+ | Year ended | Year ended   | 31 January 2011 | 31 January 2010 | |   | £'000 | £'000 | | Shareholders' funds at start of year | 24,552 | 25,139 | | Return on ordinary activities after tax | 677 | 244 | | Purchase of own shares | (81) | (13) | | Dividends paid | (816) | (818) | | Shareholders' funds at end of year | 24,332 | 24,552 The Company has no recognised gains or losses other than the results for the year as set out above. Balance Sheet +-------------------+ | As at 31 January| As at 31 January     | 2011| 2010 | |   Notes|£'000 £'000|£'000 £'000 | |     |    | | | Fixed asset investments* 10 |   19,634|   17,708 | | Current assets:   |    | | | Debtors 11 | 274  | 243 | | Investments - money market funds* 12 |4,274  |6,305 | | Cash at bank   | 207  | 374 | |     |4,755  |6,922 | | Creditors: amounts falling due | | within one year 13 | (57)  | (78) | | Net current assets   |   4,698|   6,844 | | Total assets less current | | liabilities   |   24,332|   24,552 | |     |    | | | Called up equity share capital 14 |   2,715|   2,725 | | Special distributable reserve 15 |   21,747|   22,617 | | Capital redemption reserve 15 |   23|   13 | | Capital reserve gains & losses on | | disposal 15 |   (1,165)|   (406) | | Capital reserve holding gains & | | losses 15 |   508|   (479) | | Revenue reserve 15 |   504|   82 | | Total shareholders' funds   |   24,332|   24,552 | | Net asset value per share 9 |   89.6p|   90.1p +-------------------+ *Held at fair value through profit and loss The statements were approved by the Directors and authorised for issue on 17 May 2011 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  2011| January  2010 | |   Notes| £'000| £'000 | |     |  | | | Net cash inflow/(outflow) from | | operating activities   | 18| (375) | |     |  | | | Taxation 6 | -| - | |     |  | | | Financial investment:   |  | | | Purchase of fixed asset | | investments 10 | (1,735)| (14,017) | | Sales of fixed asset | | investments 10 | 360| 1,254 | |     |  | | | Dividends paid 7 | (816)| (818) | |     |  | | | Management of liquid | | resources:   |  | | | Purchase of current asset | | investments 12 | (9,068)| (9,847) | | Sales of current asset | | investments 12 | 11,155| 20,505 | |     |  | | | Financing   |  | | | Purchase of own shares 14 | (81)| (13) | |     |  | ------------------------------------+-----------------------+------------------- (Decrease)/increase in cash   | (167)| 3,311 ------------------------------------+-----------------------+------------------- The accompanying notes are an integral part of the financial statements. Reconciliation of Return before Taxation to Cash Flow from Operating Activities +-----------------------+ | Year to 31 January | Year to 31 January   | 2011| 2010 | |   | £'000| £'000 | | Return on ordinary activities | | before tax | 677| 244 | | Increase in debtors | (31)| (31) | | Decrease in creditors | (21)| (217) | | Loss/(gain) on disposal of fixed| | assets | 25| (255) | | (Gain)/loss on disposal of | | current assets | (19)| 28 | | Holding gain on fixed asset | | investments | (576)| - | | Holding gain on current asset | | investments | (37)| (144) +-----------------------+ Inflow/(outflow) from operating | | activities | 18| (375) +-----------------------+ Reconciliation of Net Cash Flow to Movement in Net Funds +------------------------+    |Year to 31 January  2011|Year to 31 January  2010 | |    | £'000| £'000 | | Decrease in cash at bank  | (167)| (3,311) | | Movement in cash equivalent  | | securities | (2,031)| (10,542) | | Opening net funds  | 6,679| 20,532 | | Net funds at 31 January  | 4,481| 6,679 +------------------------+ Net Funds at 31 January comprised: +------------------------+   | As at 31 January  2011 | As at 31 January  2010 | |   | £'000 | £'000 | | Cash at bank | 207 | 374 | | Floating rate notes | - | 1,931 | | Money market funds | 4,274 | 4,374 | | Net Funds at 31 January | 4,481 | 6,679 -------------------------+------------------------+ 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 2010 Annual Report and financial statements. A summary of the principal accounting policies is set out below. The Company presents its income statement in a three column format to give shareholders additional detail of the performance of the Company, split between items of a revenue or capital nature. The 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. 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. 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. Current asset investments comprising money market funds and deposits are held at amortised cost. 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 Apollo VCT 3 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). Fixed returns on non- equity shares and debt securities which are held at fair value are computed using the effective interest rate, to distinguish between the interest income receivable (which is disclosed as interest income within the revenue column of the Income Statement) and other fair value movements arising on these instruments (which are disclosed as holding gains within the capital column of the Income Statement.) 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 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 - gains/(losses) on disposal. The current asset investments are all invested with the Company's cash manager and are readily convertible into cash at the option of the Company.  The current asset investments are held for trading, are actively managed and the performance is evaluated in accordance with a documented investment strategy.  Information about them has to be provided internally on that basis to the Board. Income Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis (including time amortisation of any premium or discount to redemption) so as to reflect the effective interest rate, provided there is no reasonable doubt that payment will be received in due course. Income from fixed interest securities and deposit interest is included on an effective interest rate basis. 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 not 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 not 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 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 fair value which is usually transaction cost and subsequently measured at 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. The Company does not have any externally imposed capital requirements. The value of the managed capital is indicated in note 15. The Board considers the distributable reserves and the total return for the year when recommending a dividend. In addition, the Board is authorised to make market purchases up to a maximum of 5% of the issued ordinary share capital of the Company in accordance with Special Resolution 8 in order to maintain sufficient liquidity in the VCT. 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 x 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 paid, and for final dividends when they are approved by the shareholders. 2.         Income   31 January 2011 31 January 2010   £'000 £'000 Interest receivable on bank balances and bonds 14 92 Money market securities - dividend income 21 101 Loan note interest receivable 882 445   917 638 3.         Investment management fees   31 January 2011 31 January 2010   Revenue Capital Total Revenue Capital Total   £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 127 379 506 124 372 496 --------------------------------------------------------------------- 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 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. 4.         Other expenses   31 January 2011 31 January 2010   £'000 £'000 Directors' remuneration 53 53 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 3 4 Accounting and administration services 74 75 Legal and professional expenses 2 1 Other expenses 197 124   341 269 The total expense ratio for the Company for the year to 31 January 2011 was 2.9 per cent (2010: 3.1 per cent).  Total annual running costs are capped at 3.3 per cent. 5.         Directors' remuneration   31 January National 31 January National 2011 Insurance 2010 Insurance   £'000 £'000 £'000 £'000 Directors' emoluments Mr Tony Morgan 21 2 21 2 (Chairman) Mr Rob Johnson 11 1 - - (appointed 01/06/10) Mr Matt Cooper 16 1 16 1 Mr Neil Wilson 5 - 16 1 (resigned 01/06/10)   53 4 53 4 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 (2010: three). 6.         Tax on ordinary activities The corporation tax charge for the year was £nil (2010: £nil). The current tax charge for the year differs from the standard rate of corporation tax in the UK of 28% (2010: 28%).  The differences are explained below. Current tax reconciliation: 31 January 2011 31 January 2010   £'000 £'000 Profit on ordinary activities before tax 677 244 Non taxable gains/(losses) 570 371 Net return on ordinary activities 107 (127) Current tax at 28% (2010: 28%) 30 (36) Unutilised tax losses - 54 Income not liable to tax (16) (18) Utilisation of tax losses (14)                               - Total current tax charge -                               - The Company has excess management charges of approximately £142,000 (2010: £193,000) 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 2011 31 January 2010   £'000 £'000 Recognised as distributions in the financial statements for the year Previous year's final dividend 408 409 Current year's interim dividend 408 409   816 818   31 January 2011 31 January 2010   £'000 £'000 Paid and proposed in respect of the year Interim dividend - 1.5p per share (2010: 1.5p per share) 408 409 Final dividend 1.5p per share (2010: 1.5p per share) 407 409   815 818 The final dividend of 1.5p per share for the year ended 31 January 2011, subject to shareholder approval at the Annual General Meeting, will be paid on 15 July 2011 to shareholders on the register on 17 June 2011. 8.         Earnings/(loss) per share The revenue earnings per share is based on 27,215,442 (2010: 27,262,160) shares, being the weighted average number of shares in issue during the year, and on a return after tax of £449,000 (2010: £245,000). The capital earnings per share is based on 27,215,442 (2010: 27,262,160) shares, being the weighted average number of shares in issue during the year, and on a return after tax of £228,000 (2010: loss of £1,000). The total earnings per share is based on 27,215,442 (2010: 27,262,160) shares, being the weighted average number of shares in issue during the year, and a return for the year totaling £677,000 (2010: £244,000) 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 2011 is based on net assets of £24,332,000 (2010: £24,552,000) divided by the 27,153,642 (2009: 27,256,003) 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. See note 12. 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 2011 are summarised below. Fixed asset investments: Level 3: Unquoted investments Total unquoted investments   £'000 £'000 Valuation and net book amount: Book cost at 1 February 17,724 17,724 2010 Cumulative revaluation (16) (16) Opening fair value at 1 17,708 17,708 February 2010 Movement in the year: Purchases at cost 1,735 1,735 Proceeds from the sale of (360) (360) investments Loss on disposal of (25) (25) investments Change in fair value in 576 576 year Closing fair value at 31 19,634 19,634 January 2011 Closing cost at 31 January 19,074 19,074 2011: Closing holding gain at 560 560 31 January 2011: Valuation at 31 January 19,634 19,634 2011 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 16. The loan and equity investments are considered to be one instrument due to the legal binding within the investment agreement. Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review on pages x to x. 11.        Debtors   31 January 2011 31 January 2010   £'000 £'000 Other debtors - 9 Prepayments and accrued income 274 239   274 243 12.        Current Asset Investments Current asset investments at 31 January 2011 comprised bonds and money market funds (31 January 2010:  bonds and money market funds). Level 1: money market funds     Total   £'000 £'000 Valuation and net book amount: Book cost at 1 February 2010: Bonds 5,321 Money market funds 1,410 -----------     6,731 Revaluation to 1 February 2010: Bonds (426) Money market funds - -----------     (426) Valuation as at 1 February 2010   6,305 Movement in the year: Purchases at cost: Money market funds                               9,068 -----------     9,068 Disposal proceeds: Bonds (2,983) Money market funds (8,172) -----------     (11,155) Profit in year on realisation of investments: Bonds 19 -----------     19 Revaluation in year: Bonds 37 -----------     37 Valuation as at 31 January 2011   4,274 Cost at 31 January 2011: Bonds 1,983 Money market funds 2,306 -----------     4,289 Revaluation to 31 January 2011: Bonds (15) Money market funds - -----------     (15) Valuation as at 31 January 2011   4,274 All current asset investments held at the year end sit with the level 1 hierarchy for the purposes of FRS 29. Level 1 money market funds: Level 1 valuations are based on quoted prices (unadjusted) in active markets for identical assets or liabilities. At 31 January 2011 and 31 January 2010 there were no commitments in respect of investments approved by the Manager but not yet completed. 13.        Creditors: amounts falling due within one year   31 January 2011 31 January 2010   £'000 £'000 Accruals 54 78 Other creditors 3 -   57 78 ----------------------------------------------------- 14.        Share capital   31 January 2011 31 January 2010   £'000 £'000 Authorised: 50,000,000 Ordinary shares of 10p 5,000 5,000 Allotted and fully paid up: 27,153,642 Ordinary shares of 10p (2010: 27,256,003) 2,715 2,725 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 out on page x.  The Company is not subject to any externally imposed capital requirements. The Company did not issue any shares in the year (2010: nil). During the year the Company repurchased the following shares for cancellation: * 13 May 2010: 24,486 Ordinary shares at a price of 81.0p * 29 July 2010: 24,215 Ordinary shares at a price of 79.0p * 29 October 2010: 13,140 Ordinary shares at a price of 77.75p * 12 November 2010: 22,210 Ordinary shares at a price of 79.0p * 23 December 2010: 18,210 Ordinary shares at a price of 79.9p The total nominal value of the shares repurchased was £10,226 representing 0.38% of the issued share capital. 15.        Reserves Capital Capital reserve reserve Special Capital gains/ holding distributable redemption (losses) on gains/ Revenue   reserve* reserve disposal (losses) reserve*   £'000 £'000 £'000 £'000 £'000 As at 1 February 2010 22,617 13 (406) (479) 82 Repurchase of own shares (81) 10 - - - Return on ordinary activities after tax - - - - 449 Management fees allocated as capital expenditure - - (379) - - Current year gains/losses on disposal - - (6) - - Prior period holding gains/losses now crystallised - - (374) 374 - Current period holding gains on investments - - - 613 - Dividends paid (789) - - - (27) As at 31 January 2011 21,747 23 (1,165) 508 504 *Distributable reserves 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 2011 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 2010 21,814 Movement in year (728) As at 31 January 2011 21,086 The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount to net asset value at which the Company's ordinary shares trade. In the event that the revenue reserve and capital reserve gains/(losses) on disposal do not have sufficient funds to pay dividends, these will be paid from the special distributable reserve. 16.        Financial instruments and risk management The Company's financial instruments comprise equity, investments, unquoted loans, 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. Classification of financial instruments Apollo 3 held the following categories of financial instruments, all of which are included in the balance sheet at fair value, at 31 January 2011:   31 January 2011 31 January 2010   £000 £000 Assets at fair value through profit or loss Investments 17,708 4,690 Current asset investments 6,305 16,847 Total 24,013 21,537 Loans and receivables Cash at bank 207 374 Accrued income 268 233 Total 475 607 Liabilities at amortised cost Accruals and other creditors 57 78 Total 57 78 Fixed asset investments (see note 10) are valued at fair value. Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines as detailed within the Investment Managers Review. 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 period-end is equal to their book value. In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date. Market risk The Company's strategy for managing investment risk is determined with regard to the Company's investment objective, as outlined on page x. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed in accordance with the policies and procedures described in the Directors' Report on pages x to x, having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in smaller companies, by their nature, usually involve a higher degree of risk than investments in larger companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board. Details of the Company's investment portfolio at the balance sheet date are set out on pages x and x. 80.7% (31 January 2010: 72.6%) 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 2011 would have increased net assets and the total profit for the year by £1,963,000 (31 January 2010: £1,771,000) an equivalent change in the opposite direction would have reduced net assets and the total profit for the year by the same amount. The Investment Manager considers that the majority of the investment valuations are based on earnings multiples which are ascertained with reference to the individual sector multiple or similarly listed entities. It is considered that due to the diversity of the sectors, the 10% sensitivity discussed above provides the most meaningful potential impact of average multiple changes across the portfolio. 17.6% (31 January 2010: 25.7%) 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 2011 would have increased net assets and the total profit for the year by £42,740 (31 January 2010: £63,100) 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 2011 As at 31 January 2010 Weighted Weighted average Total fixed average Total fixed time for rate Weighted time for rate Weighted which portfolio average which rate portfolio average rate is by interest is fixed by interest fixed in   value £'000 rate % in years value £'000 rate % years Unquoted fixed- interest investments 7,901 13.20% 3.0 1,824 10.82% 3.0 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 2011 (31 January 2010: 0.5%).  The amounts held in floating rate investments at the balance sheet date were as follows:   31 January 2011 31 January 2010   £000 £000 Unquoted floating loan notes 3,585 - Listed floating rate notes - 1,931 Money market funds 4,274 4,374 Cash on deposit 207 374   8,039 6,679 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 £44,810 (31 January 2010: £66,790) 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 2011 the Company's financial assets exposed to credit risk comprised the following:   31 January 2011 31 January 2010   £000 £000 Investments in floating rate instruments 3,585 1,931 Cash on deposit 207 374 Investments in fixed rate instruments 7,901 1,824 Accrued dividends and interest receivable 268 5   11,961 4,134 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 2011 or 31 January 2010. 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 2011 these investments were valued at £4,481,000 (31 January 2010: £6,679,000). 17.        Post balance sheet events The following events occurred between the balance sheet date and the signing of these financial statements: * on 23 March 2011 the Company invested £1 million into Clifford Thames Group Limited * on 23 March 2011 Greenco Services Limited purchased shares in CSL DualCom Limited * on 23 March 2011 PubCo Services Limited purchased shares in Salus Services 1 Limited 18.        Contingencies, guarantees and financial commitments There were no contingencies, guarantees or financial commitments as at 31 January 2011 (2010: none). 19.        Related party transactions Matt Cooper, a non-executive Director of Octopus Apollo VCT 3 plc ('Apollo 3'), is also Chairman of Octopus Investments Limited. Apollo 3 plc has employed Octopus Investments throughout the year as Investment Manager. Apollo 3 has paid Octopus Investments £506,000 (2010: £496,000) in management fees. At 31 January 2011, £nil was outstanding (2010: £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. 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 £73,653 (2010: £75,417) 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. The Board considers that the liability becomes due at the point that the performance criteria are met; this has not been achieved and therefore no liability has been recognised.  During the year to 31 January 2011, the Directors received the following dividends from the Company:   Dividend received Tony Morgan (Chairman) £150 Matt Cooper £301 This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. 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 Apollo VCT 3 plc via Thomson Reuters ONE [HUG#1516478]

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