Octopus Apollo VCT plc : Final Results
Octopus Apollo VCT plc (formerly Octopus Apollo VCT 3 plc)
Final Results
26 April 2013
Octopus Apollo VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2013.
These results were approved by the Board of Directors on 26 April 2013.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com. All other statutory information can also be found there.
About Octopus Apollo VCT plc
Octopus Apollo VCT plc ('Apollo' or 'Company') 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 Company is managed by Octopus Investments Limited ('Octopus' or 'Manager').
The Company, originally named Octopus Apollo VCT 3 plc, 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. On 27 September 2012, the Company acquired the net assets of Octopus Apollo VCT 1 plc, Octopus Apollo VCT 2 plc and Octopus Apollo VCT 4 plc. On the same day, the Company was renamed Octopus Apollo VCT plc. The objective of the Company 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 Company's progress are discussed in the Chairman's Statement and Investment Manager's Review on pages · to ·.
Venture Capital Trusts (VCTs)
VCTs were introduced in the Finance Act 1995 to provide a means for private individuals to invest in unquoted 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 to 30% up-front income tax relief;
· exemption from income tax on dividends paid; and
· exemption from capital gains tax on disposals of shares in VCTs.
The Company has been approved as a VCT by HMRC. In order to maintain its approval the Company must comply with certain requirements on a continuing basis:
- at least 70% of the Company's investments must comprise 'qualifying holdings'* (as defined in the legislation);
- for cash raised post-April 2011 at least 70% of the 70% of qualifying holdings must be invested into Ordinary shares with no preferential rights;
- for cash raised pre-April 2011 at least 30% of the 70% of qualifying holdings must be invested into Ordinary shares with no preferential rights;
- no single investment made can exceed 15% of the total Company value; and
- a minimum of 10% of each Qualifying Investment must be in Ordinary shares with no preferential rights.
*A 'qualifying holding' consists of up to £5 million invested in any one year in new shares or securities in an unquoted UK company (or companies listed on AIM) which is carrying on a qualifying trade and whose gross assets do not exceed a prescribed limit at the time of investment. The definition of a 'qualifying trade' excludes certain activities such as property investment and development, financial services and asset leasing.
Financial Summary
| Ordinary shares | Year to 31 January 2013 | Year to 31 January 2012 |
| Net assets (£'000s) | 47,774 | 24,337 |
| Net return after tax (£'000s) | 223 | 1,260 |
| Net asset value per share (NAV) | 89.3p | 90.9p |
| Cumulative dividends paid since launch | 17.5p | 12.5p |
| Proposed dividend per share | 2.5p | 3.0p |
Chairman's Statement
Introduction
I am pleased to present the annual report of Octopus Apollo VCT plc for the year ended 31 January 2013. This is the first annual report since the Company, renamed from Octopus Apollo VCT 3 plc, successfully acquired the net assets of Octopus Apollo VCT 1 plc ('Apollo 1'), Octopus Apollo VCT 2 plc ('Apollo 2') and Octopus Apollo VCT 4 plc ('Apollo 4'). Merger related expenses incurred during the year to 31 January 2013 amounted to £290,000 and were within the allocated budget. Further details of the acquisition of Apollo 1, Apollo 2 and Apollo 4 can be found in notes 21 to 23 of the financial statements within this report.
Following the acquisition on 27 September 2012, the Company invited new investors to participate in the new enlarged VCT via a top-up offer. In addition, existing shareholders were provided with the opportunity to participate in an enhanced buyback facility. It is pleasing to report that 71% of eligible shareholders participated in the enhanced buyback facility.
Performance
The net asset value ('NAV") has fallen from 90.9 pence per share as at 31 January 2012 to 89.3 pence per share as at 31 January 2013. However, when adding back the 5.0p of dividends paid in the year, the total return (NAV plus cumulative dividends paid) has risen by 3.3%, from 103.4 pence per share as at 31 January 2012 to 106.8 pence per share as at 31 January 2013.
One of the benefits of acquiring the net assets of Apollo 1, Apollo 2 and Apollo 4 was to deliver cost benefits of running one enlarged company. As these benefits are delivered and we continue to receive a consistent level of loan interest income, your Board and Investment Manager expect the total return to continue to make progress.
Strong trading results of Clifford Thames and Hydrobolt led to upward revaluations totalling £413,000. These gains were offset by a prudent downward revaluation of £38,000 of Tristar Worldwide. As a result, an overall positive revaluation, both realised and unrealised, of £398,000 has been recognised in these financial statements. This compares with gains of £770,000 in the year ended 31 January 2012 due to the exit of Autologic.
Dividend and Dividend Policy
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 2.5 pence per share in respect of the year ended 31 January 2013. This dividend, if approved by shareholders at the AGM, will be paid on 20 June 2013 to shareholders on the register on 24 May 2013. This is in line with the policy outlined in the 2012 prospectus, of paying an annual dividend of 5 pence per share in two stages during the year.
Investment Portfolio
During the year, the Company invested a total of £25,233,000 of which, £20,950,000 was invested in acquiring the fixed asset investments of Apollo 1, Apollo 2 and Apollo 4. Ten of these investments were follow-on investments, whilst nine new investments, totalling £9,600,000, were also made by the funds collectively. This includes investments in the media sector (Atlantic Screen International and 3AM Music), renewable energy sector (Donoma Power, Sula Power, Tanganyika Heat, Erie Heat and Winnipeg Heat), an engineering company (Mablaw 555) and a care home company (Salus Services 2).
The Company received £5,326,000 from part and full disposals over the period. This includes £4,500,000 from the disposal of Carebase and Salus Services Holdings 1, both of which were engaged in the construction of a care home in Colchester, and £826,000 from the repayment of loans made to Tristar Worldwide and Sula Power.
A full list of the Company's investment portfolio is set out on page -. All of the investments are discussed further in the Investment Manager's Review on pages - to -.
The Company 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 limited number of further investments with the aim of accelerating the NAV of the Company over the foreseeable future.
Investment Strategy
As set out in the prospectus, the aim of the Company is to make investments that focus more on capital preservation than a typical VCT. To date the Investment Manager has been successful in achieving this aim, as evidenced by the positive return on ordinary activities.
Typically the structure of the investments is weighted more heavily towards loan based instruments as opposed to 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 an intrinsic element of an equity investment.
The Company has continued to be in a position 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.
It is the intention of the Board that the Company should remain as a VCT and continue to invest in accordance with the original investment mandate.
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 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 2013, 71.1% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments.
Annual General Meeting
The Company's Annual General Meeting will take place on 6 June 2013 at 3.00 p.m. I look forward to welcoming you to the meeting which will be held at the offices of Octopus Investments Limited at 20 Old Bailey, London, EC4M 7AN. Directions to their office can be found by visiting their website at: www.octopusinvestments.com.
Electronic Communications
Based on feedback from shareholders, and in order to reduce the cost of printing and the consequential impact on the environment, we now offer shareholders the opportunity to forgo their printed report and account documents in favour of receiving electronic or mail notification with details of how to view the documents online. If you would like to change the format in which you receive this report, please contact Octopus using the contact details provided on page - of this report.
Outlook
There remains significant uncertainty in the UK economy with no great view on when reasonable economic growth will return. Small and medium-sized businesses with good growth potential are continually facing challenges, none more so than increased pressure on working capital. Whilst the media headlines may say otherwise, many banks are still reluctant to lend to businesses, preventing them from developing as they might. This, however, presents good opportunities as these businesses look to explore alternative sources of funding. Where possible, the Investment Manager will seek out such investments that meet our investment strategy and have the prospect of delivering the most value to the portfolio.
Murray Steele
Chairman
26 April 2013
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 13 VCTs, including this Company, and manage nearly £340 million in the VCT sector. Octopus has over 230 employees and has previously been voted as 'Best VCT Provider of the Year' by the financial adviser industry.
Investment Policy
The investment approach of Octopus Apollo VCT plc is to invest with a focus on capital preservation. The majority of companies in which Apollo 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 the Company within three to five years.
Performance
The Company made a net return of 3.3% between 31 January 2012 and 31 January 2013. Whilst the NAV decreased slightly from 90.9p per share to 89.3p per share, 5.0p of dividends were paid over the period, bringing cumulative dividends paid to date to 17.5p and the total return (NAV plus cumulative dividends) to 106.8p pence per share.
The disposal of Carebase (Col) and Salus Services Holdings, in addition to loan repayments from Tristar Worldwide and Sula Power Limited, led to £5,326,000 of cash inflows back to the Company. An overall gain of £23,000 was realised from the investment in Salus Services Holdings.
Strong trading results led to fair value uplifts on Clifford Thames and Hydrobolt. Both of these companies are performing strongly in their respective sectors of automotive software and industrial bolt manufacturing and we anticipate they will continue to grow in the future. Their uplifts totalled £413,000 and were partially offset by a small reduction in the fair value of Tristar Worldwide of £38,000. Tristar, a chauffeur driven vehicle hire company, has continued to develop following setbacks in the recession post 2009. While the slight change in its valuation to 31 January 2013 reflects a small change in its recent trading results, we do however remain confident in the company overall.
The majority of investments in the portfolio are loan-based, from which a steady flow of interest is received into the Company. This is now at the level whereby interest receipts more than offset the running costs of the Company. These returns will allow for any gains on realisations and loan note redemption premiums to be paid out to shareholders by way of dividends or recognised as an uplift to the value of your investment.
Portfolio Review
New VCT qualifying investments totalling £9,600,000 have been made during the period. This includes £4,000,000 into three companies operating ground source heat pumps. These are companies that are seeking suitable locations in which to construct and operate heat pumps, utilising renewable heat energy sources from within the ground. In expanding the Company's renewable energy investments, £1,500,000 was invested into Sula Power and Donoma Power, both constructing and operating solar sites at two carefully selected locations. £1,100,000 has been invested into Atlantic Screen International and 3AM Music, companies that operate in the media sector, commissioning and owning copyrights to music scores for a variety of films and television programmes. £2,000,000 has been invested into Mablaw 555, a company operating as Technical Software Consultants, providing crack detection systems to the oil and gas industry. Finally, a new investment of £1,000,000 was made into Salus Services 2 Limited, a company seeking a suitable care home investment.
Following the acquisition of the net assets of Apollo 1, Apollo 2 and Apollo 4 on 27 September 2012, the Company acquired £20,950,000 of fixed asset investments, of which £15,633,000 were follow-on investments for this Company. This included a further £4,200,000 into Clifford Thames, £3,500,000 into CSL DualCom, £3,300,000 into Borro, £1,100,000 into Bluebell Telecom and £1,000,000 into Resilient. The remaining balance of £2,200,000 was invested into Shakti Power, Hydrobolt, Tristar Worldwide, Kala Power and Bruce Dunlop & Associates.
Since the year end, £1,500,000 has been invested in Healthcare Services and Technology, a company aiming to invest in a software and services company in the health care market.
Outlook
Despite concerns over the tough economic conditions for small and medium-sized businesses , strong opportunities remain for entrepreneurs who have been able to plan and operate under such pressures. A large number of businesses in this portfolio have shown such characteristics of resilience and have continued to grow in the face of volatile conditions.
As banks continue to frustrate small and medium-sized businesses with their lending restrictions, we are presented with a number of ongoing investment opportunities. These businesses often prefer our approach of a more partnership orientated, intelligent form of investment. Whilst we are optimistic both about the existing portfolio and future market opportunities, we will continue to invest cautiously and in line with the mandate of this VCT. We will do our utmost to ensure that our portfolio companies continue to withstand the current harsh economic climate and deliver long term value to the Company.
If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2347.
Benjamin Davis
Octopus Investments Limited
26 April 2013
Investment Portfolio
*100% debt investments
Valuation Methodology
The investments held by Apollo 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 2013, 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.
Investment Portfolio - Ten Largest Holdings
Listed below are the ten largest investments by value as at 31 January 2013:
Clifford Thames Group Limited (Clifford Thames)
Clifford Thames is a market-leading provider of consultancy, business outsourcing, software and data 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 website www.clifford-thames.com.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £2,133,500 | £2,635,500 | ||
| B preference shares | £13,500 | £13,500 | ||
| Loan stock | £5,050,000 | £5,050,000 | ||
| Total | £7,197,000 | £7,699,000 |
Investment date: January 2010
Equity held: 7.6%
Last audited accounts: 31 March 2012
Revenues: £45.8 million
Profit before interest & tax: £2.9 million
Net assets: £13.4 million
Income receivable recognised in year: £248,500
Valuation basis: Earnings multiple
CSL DualCom Limited ('CSL')
CSL 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 both a telephone line or broadband connection and a wireless link. CSL 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.
| Asset class | Cost | Valuation | ||
| Loan stock | £6,911,000 | £6,911,000 | ||
| Total | £6,911,000 | £6,911,000 |
Investment date: February 2009
Equity held: 2.0%
Last audited accounts: 31 March 2012
Revenues: £11.0 million
Profit before interest & tax: £2.5 million
Net assets: £5.7 million
Income receivable recognised in year: £255,500
Valuation basis: Transaction price
Borro Loan 2 Limited ('Borro')
Founded in 2008, Borro is an online consumer finance business, providing short term asset secured loans to customers nationwide. Further information can be found at the company's website www.borro.com.
| Asset class | Cost | Valuation | ||
| Loan stock | £3,500,000 | £3,500,000 | ||
| Total | £3,500,000 | £3,500,000 |
Investment date: December 2011
Equity held: 0.0%
Last audited accounts: 31 December 2011
Revenues: £nil*
Profit before interest & tax: £nil*
Net assets: £1*
Income receivable recognised in year: £235,500
Valuation basis: Transaction price
*Borro Loan 2 Limited is the loan book company and a 100% subsidiary of 'Borro Limited', a company registered in England and whose results are publically available from Companies House. Accordingly, Borro Loan 2 Limited has nil revenues and nominal net assets.
Bluebell Telecom Services Limited ('Bluebell')
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 website www.bluebelltelecom.com.
| Asset class | Cost | Valuation | ||
| A2 shares | £421,000 | £641,000 | ||
| Ordinary shares | £50,000 | £50,000 | ||
| Loan stock | £2,633,000 | £2,633,000 | ||
| Total | £3,104,000 | £3,324,000 |
Investment date: September 2010
Equity held: 6.5%
Last audited accounts: 30 April 2012
Revenues: £13.6 million
Profit before interest & tax: £1.5 million
Net assets: £11.2 million
Income receivable recognised in year: £289,500
Valuation basis: Earnings multiple
Resilient Corporate Services Limited ('Resilient')
Resilient has financed a solar renewable energy site investment.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £2,000,000 | £2,000,000 | ||
| Total | £2,000,000 | £2,000,000 |
Investment date: March 2010
Equity held: 41.2%
Last unaudited accounts: 29 February 2012
Revenues: £0.0 million
Loss before interest & tax: £0.0 million
Net assets: £3.0 million
Income receivable recognised in year: £2,500
Valuation basis: Transaction price
Mablaw 555 Limited ('Technical Software Consultants')
Technical Software Consultants designs and manufactures equipment to solve a range of oil and gas industry inspection needs, including crack sizing, structural monitoring and stress mapping. Further information can be found at the company's website www.tscinspectionsystems.com.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £100 | £100 | ||
| B Ordinary shares | £199,900 | £199,900 | ||
| Loan stock | £1,800,000 | £1,800,000 | ||
| Total | £2,000,000 | £2,000,000 |
Investment date: April 2012
Equity held: 6.6%
Last audited accounts: -*
Revenues: £nil*
Profit before interest & tax: £nil*
Net assets: £nil*
Income receivable recognised in year: £99,500
Valuation basis: Transaction price
*The company has not yet released any accounts. The company's first set of accounts is due to be filed at Companies House by September 2013.
Winnipeg Heat Limited ('Winnipeg')
Winnipeg is currently seeking a suitable location at which to construct and operate a ground source heat pump.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £600,000 | £600,000 | ||
| Loan stock | £1,400,000 | £1,400,000 | ||
| Total | £2,000,000 | £2,000,000 |
Investment date: April 2012
Equity held: 49.9%
Last audited accounts: -*
Revenues: £nil*
Profit before interest & tax: £nil*
Net assets: £nil*
Income receivable recognised in year: £nil
Valuation basis: Transaction price
*The company has not yet released any accounts. The company's first sets of account is due to be filed at Companies House by November 2013.
Shakti Power Limited ('Shakti')
Shakti Power Limited has constructed and operates a solar renewable energy site at a carefully selected location in Dunsfold, Surrey.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £1,825,000 | £1,825,000 | ||
| Total | £1,825,000 | £1,825,000 |
Investment date: December 2011
Equity held: 47.7%
Last audited accounts: 31 December 2011
Revenues: £0.0 million
Loss before interest & tax: £0.2 million
Net assets: £5.8 million
Income receivable recognised in year: £nil
Valuation basis: Transaction price
Hydrobolt Limited ('Hydrobolt')
Hydrobolt is a specialist manufacturer of high integrity fasteners for the oil and gas and energy sectors.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £192,000 | £561,000 | ||
| B Ordinary shares | £261,000 | £261,000 | ||
| Loan stock | £700,000 | £700,000 | ||
| Total | £1,153,000 | £1,522,000 |
Investment date: April 2008
Equity held: 4.6%
Last audited accounts: 31 March 2012
Revenues: £18.9 million
Profit before interest & tax: £2.7 million
Net assets: £7.1 million
Income receivable recognised in year: £74,000
Valuation basis: Earnings multiple
Tanganyika Heat Limited ('Tanganyika')
Tanganyika is currently seeking a suitable location at which to construct and operate a ground source heat pump.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £300,000 | £300,000 | ||
| Loan stock | £700,000 | £700,000 | ||
| Total | £1,000,000 | £1,000,000 |
Investment date: April 2012
Equity held: 49.9%
Last unaudited accounts: -*
Revenues: £nil*
Profit before interest & tax: £nil*
Net assets: £nil*
Income receivable recognised in year: £nil
Valuation basis: Transaction price
*The company has not yet released any accounts. The company's first set of accounts is due to be filed at Companies House by November 2013.
Erie Heat Limited ('Erie')
Erie is currently seeking a suitable location at which to construct and operate a ground source heat pump.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £300,000 | £300,000 | ||
| Loan stock | £700,000 | £700,000 | ||
| Total | £1,000,000 | £1,000,000 |
Investment date: April 2012
Equity held: 49.9%
Last unaudited accounts: -*
Revenues: £nil*
Profit before interest & tax: £nil*
Net assets: £nil*
Income receivable recognised in year: £nil
Valuation basis: Transaction price
*The company has not yet released any accounts. The company's first set of accounts is due to be filed at Companies House by November 2013.
Salus Services 2 Limited ('Salus 2')
Salus 2 is currently seeking a suitable investment within the care home construction industry.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £300,000 | £300,000 | ||
| Loan stock | £700,000 | £700,000 | ||
| Total | £1,000,000 | £1,000,000 |
Investment date: January 2012
Equity held: 49.9%
Last unaudited accounts: 30 November 2011
Revenues: £0.0 million
Loss before interest & tax: £0.0 million
Net assets: £1.0 million
Income receivable recognised in year: £nil
Valuation basis: Transaction price
Directors' Responsibilities Statement
The Directors are responsible for preparing the Directors' Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
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 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 United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws), 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 financial statements are published at www.octopusinvestments.com, a website maintained by Octopus Investments. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of Octopus Investments. The work carried out by the auditor does not involve consideration of the maintenance and integrity of the website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the accounts since they were originally presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the accounts differ from legislation in other jurisdictions.
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
Murray Steele
Chairman
26 April 2013
Income Statement | ||||
| Year ended 31 January 2013 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Realised gain on disposal of fixed asset investments | 10 | - | 23 | 23 |
| Realised gain on disposal of current asset investments | 12 | - | - | - |
| Fixed asset investment holding gains | 10 | - | 375 | 375 |
| Investment income | 2 | 1,678 | - | 1,678 |
| Investment management fees | 3 | (167) | (893) | (1,060) |
| Other expenses | 4 | (770) | - | (770) |
| Return on ordinary activities before tax | 741 | (495) | 246 | |
| Taxation on return on ordinary activities | 6 | (201) | 178 | (23) |
| Return on ordinary activities after tax | 540 | (317) | 223 | |
| Earnings per share - basic and diluted | 8 | 1.5p | (0.9)p | 0.6p |
- 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 2012 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Realised gain on disposal of fixed asset investments | - | 1,200 | 1,200 | |
| Realised gain on disposal of current asset investments | - | 15 | 15 | |
| Fixed asset investment holding loss | - | (445) | (445) | |
| Investment income | 2 | 1,392 | - | 1,392 |
| Investment management fees | 3 | (121) | (365) | (486) |
| Other expenses | 4 | (320) | - | (320) |
| Return on ordinary activities before tax | 951 | 405 | 1,356 | |
| Taxation on return on ordinary activities | 6 | (96) | - | (96) |
| Return on ordinary activities after tax | 855 | 405 | 1,260 | |
| Earnings per share - basic and diluted | 8 | 3.2p | 1.5p | 4.7p |
- 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 31 January 2013 | Year ended 31 January 2012 | |
| £'000 | £'000 | |
| Shareholders' funds at start of year | 24,337 | 24,332 |
| Return on ordinary activities after tax | 223 | 1,260 |
| Shares issued upon acquisition of assets and liabilities of Octopus Apollo VCT 1, 2 and 4 plc | 26,522 | - |
| Stamp duty on shares issued | (31) | - |
| Issue of shares | 2,835 | - |
| Purchase of own shares | (4,233) | (304) |
| Dividends paid | (1,879) | (951) |
| Shareholders' funds at end of year | 47,774 | 24,337 |
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 2013 | As at 31 January 2012 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 10 | 39,976 | 19,671 | ||
| Current assets: | |||||
| Debtors | 11 | 936 | 374 | ||
| Investments - money market funds* | 12 | 4,737 | 3,059 | ||
| Cash at bank | 3,863 | 1,447 | |||
| 9,536 | 4,880 | ||||
| Creditors: amounts falling due within one year | 13 | (1,738) | (214) | ||
| Net current assets | 7,798 | 4,666 | |||
| Total assets less current liabilities | 47,774 | 24,337 | |||
| Called up equity share capital | 14 | 5,350 | 2,677 | ||
| Share premium | 15 | 2,488 | - | ||
| Special distributable reserve | 15 | 39,911 | 21,443 | ||
| Capital redemption reserve | 15 | 594 | 61 | ||
| Capital reserve gains & losses on disposal | 15 | (1,213) | (343) | ||
| Capital reserve holding gains & losses | 15 | 644 | 91 | ||
| Revenue reserve | 15 | - | 408 | ||
| Total shareholders' funds | 47,774 | 24,337 | |||
| Net asset value per share | 9 | 89.3p | 90.9p | ||
*Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 26 April 2013 and are signed on their behalf by:
Murray Steele
Chairman
Company number: 05840377
The accompanying notes are an integral part of the financial statements.
| Cash Flow Statement | |||
| Year to 31 January 2013 | Year to 31 January 2012 | ||
| Notes | £'000 | £'000 | |
| Net cash inflow from operating activities | 192 | 643 | |
| Taxation | 6 | - | (96) |
| Financial investment: | |||
| Purchase of fixed asset investments | 10 | (4,283) | (4,714) |
| Sale of fixed asset investments | 10 | 5,326 | 5,432 |
| Dividends paid | 7 | (1,879) | (951) |
| Management of liquid resources: | |||
| Purchase of current asset investments | 12 | (5,478) | (9,957) |
| Sale of current asset investments | 12 | 3,800 | 11,187 |
| Current asset investments acquired on acquisition of net assets of Octopus Apollo VCT 1, 2 and 4 plc | 21-23 | 1,454 | - |
| Financing | |||
| Purchase of own shares | 14 | (4,233) | (304) |
| Cash received on acquisition of net assets of Octopus Apollo VCT 1, 2 and 4 plc | 21-23 | 3,672 | - |
| Stamp duty on shares issued to acquire net assets of Octopus Apollo VCT 1, 2 and 4 plc | (31) | - | |
| Cash received from fund raising top-up offer not allotted shares | 13 | 1,041 | - |
| Issue of own shares | 2,835 | - | |
| Increase in cash | 2,416 | 1,240 | |
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 2013 | Year to 31 January 2012 | |
| £'000 | £'000 | |
| Return on ordinary activities after tax | 223 | 1,356 |
| Decrease in debtors | 39 | (100) |
| Increase in creditors | 328 | 157 |
| Gain on disposal of fixed assets | (23) | (1,200) |
| Gain on disposal of current assets | - | (15) |
| Holding (gain)/loss on fixed asset investments | (375) | 445 |
| Inflow from operating activities | 192 | 643 |
| Reconciliation of Net Cash Flow to Movement in Net Funds | |||
| Year to 31 January 2013 | Year to 31 January 2012 | ||
| £'000 | £'000 | ||
| Increase in cash at bank | 2,416 | 1,240 | |
| Movement in cash equivalent securities | 1,678 | (1,215) | |
| Opening net funds | 4,506 | 4,481 | |
| Net funds at 31 January | 8,600 | 4,506 | |
Net Funds at 31 January comprised:
| As at 31 January 2013 | As at 31 January 2012 | |
| £'000 | £'000 | |
| Cash at bank | 3,863 | 1,447 |
| Money market funds | 4,737 | 3,059 |
| Net Funds at 31 January | 8,600 | 4,506 |
Non cash transactions relating to the acquisition of the net assets of Octopus Apollo VCT 1, 2 and 4 are disclosed in notes 21 to 23.
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' and Venture Capital Trusts (revised 2009).
The principal accounting policies have remained unchanged from those set out in the Company's 2012 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 or loss;
therefore all gains and losses arising from such investments held are attributable to financial assets held at fair value
through profit or loss. Accordingly, all interest income, fee income, expenses and impairment losses are
attributable to assets designated as being at fair value through profit or 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 the Board 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.
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 the subsidiary companies of investee companies and liquidity or marketability of the investments held. For the avoidance of doubt, Octopus Apollo VCT plc only invests in unquoted investments.
Although the Company believes that the assumptions concerning the business environment and estimates 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 multiples 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).
Investments deemed to be associates, due to the shareholding and level of influence exerted over the Company are measured at fair value using a consistent methodology to the rest of the Company's portfolio as permitted by FRS 9.
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 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 - 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 final dividends when they are approved by the shareholders, and for interim dividends when they are approved by the Board.
2. Income
| 31 January 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Interest receivable on bank balances and bonds | 17 | 2 |
| Money market securities - dividend income | 22 | 17 |
| Loan note interest receivable | 1,639 | 1,373 |
| 1,678 | 1,392 |
3. Investment management fees
| 31 January 2013 | 31 January 2012 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 167 | 499 | 666 | 121 | 365 | 486 |
| Investment performance fee | - | 394 | 394 | - | - | - |
| 167 | 893 | 1,060 | 121 | 365 | 486 | |
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. The investment performance fee, explained below, is allocated 100% to capital as it is deemed that capital appreciation on investments has primarily driven the total return of the Company above the required hurdle rate at which the performance fee is payable.
In prior periods, the management fee and administration and accountancy fee have been based on the audited net assets of the previous year end. However, due to the merger, fund raisings and significant number of share buybacks, it was deemed appropriate by the Board to calculate both the fees on a daily basis to compensate for the significant movement in the number of shares in issue.
Therefore for the year ended 31 January 2013, the management fee and administration and accountancy fee has been calculated by using the NAV as at 31 January 2012 and multiplying by the number of shares in issue, calculated on a daily basis.
Octopus provides investment management and accounting and administration services to the Company under a management agreement which 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 Company has established a performance incentive scheme whereby the Investment Manager is entitled to an annual performance-related incentive fee in the event that certain performance criteria are met. Further details of this scheme are disclosed within note 19 to the financial statements. As at 31 January 2013, £394,100 was due to the Investment Manager by way of annual performance fee (2012: £nil).
4. Other expenses
| 31 January 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Directors' remuneration | 58 | 53 |
| Fees payable to the Company's auditor for the audit of the financial statements | 21 | 12 |
| Fees payable to the Company's auditor for other services - tax compliance | 7 | 3 |
| Accounting and administration services | 107 | 73 |
| Legal and professional expenses | 6 | 1 |
| Merger related expenses | 290 | - |
| Other expenses | 281 | 178 |
| 770 | 320 |
The total expense ratio for the Company for the year to 31 January 2013 was 2.9 percent (2012: 2.9 per cent). Total annual running costs are capped at 3.3 per cent.
5. Directors' remuneration
| 31 January 2013 | 31 January 2012 | |||
| Emoluments | National Insurance | Emoluments | National Insurance | |
| £'000 | £'000 | £'000 | £'000 | |
| Directors' emoluments | ||||
| Murray Steele* (Chairman) | 7 | - | - | - |
| Tony Morgan** | 19 | 2 | 21 | 2 |
| Christopher Powles* | 5 | - | - | - |
| Rob Johnson*** | 11 | 1 | 16 | 1 |
| Matt Cooper | 16 | 1 | 16 | 1 |
| 58 | 4 | 53 | 4 | |
* Murray Steele and Christopher Powles were appointed on 28 September 2012
** Tony Morgan was Chairman of the Company from 1 February 2012 to 28 September 2012
*** Rob Johnson resigned on 28 September 2012
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 (2012: three).
6. Tax on ordinary activities
The corporation tax charge for the year was £23,100 (2012: £96,000).
The current tax charge for the year differs from the standard rate of corporation tax in the UK of 20% (2012: 26%). The differences are explained below.
| Current tax reconciliation: | 31 January 2013 | 31 January 2012 |
| £'000 | £'000 | |
| Profit on ordinary activities before tax | 246 | 1,356 |
| Non taxable gains/(losses) | (398) | (770) |
| Net return on ordinary activities | (152) | 586 |
| Current tax at 20% (2012: 26%) | (30) | 357 |
| Income not liable to tax | 4 | (207) |
| Marginal relief | - | (17) |
| Expenses disallowed | 49 | |
| Utilisation of tax losses | - | (37) |
| Total current tax charge | 23 | 96 |
The Company has excess management charges of £nil (2012: £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 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 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for the year | ||
| Previous year's final dividend | 804 | 407 |
| Current year's interim dividend | 1,075 | |
| 1,879 | 951 |
| 31 January 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Paid and proposed in respect of the year | ||
| Interim dividend - 2.0p per share (2012: 1.5p per share) | 1,075 | 544 |
| Final dividend - 2.5p per share (2012: 3.0p per share) | 1,337 | 803 |
| 2,412 | 1,347 |
The final dividend of 2.5p per share for the year ended 31 January 2013, subject to shareholder approval at the Annual General Meeting, will be paid on 20 June 2013 to shareholders on the register on 24 May 2013.
8. Earnings per share
The revenue earnings per share is based on 35,500,402 (2012: 26,997,980) shares, being the weighted average number of shares in issue during the year, and on a revenue return after tax of £540,000 (2012: £855,000).
The capital earnings per share is based on 35,500,402 (2012: 26,997,980) shares, being the weighted average number of shares in issue during the year, and on a capital return after tax of £(317,000) (2012: £405,000).
The total earnings per share is based on 35,500,402 (2012: 26,997,980) shares, being the weighted average number of shares in issue during the year, and on a total return after tax of £223,000 (2012: £1,260,000).
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 2013 is based on net assets of £47,774,000 (2012: £24,337,000) divided by the 53,502,660 (2012: 26,771,709) shares in issue at that date.
10. Fixed asset investments at fair value through profit or loss
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 data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The Company holds no such investments 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 year (2012: 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 2013 are summarised below.
Fixed asset investments:
| Level 3: Unquoted investments £'000 | Total unquoted investments £'000 | |
| Valuation and net book amount: | ||
| Book cost at 1 February 2012 | 19,580 | 19,580 |
| Cumulative revaluation | 91 | 91 |
| Opening fair value at 1 February 2012 | 19,671 | 19,671 |
| Movement in the year: | ||
| New purchases at cost | 4,283 | 4,283 |
| Investments acquired from Octopus Apollo VCT 1, 2 and 4 plc | 20,950 | 20,950 |
| Proceeds from the sale of investments | (5,326) | (5,326) |
| Gain on disposal of investments - current year | 23 | 23 |
| Change in fair value in year | 375 | 375 |
| Closing fair value at 31 January 2013 | 39,976 | 39,976 |
| Closing cost at 31 January 2013: | 39,510 | 39,510 |
| Closing holding gain at 31 January 2013: | 466 | 466 |
| Valuation at 31 January 2013 | 39,976 | 39,976 |
Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect the fair value of financial assets held at the price of recent investment, or, in the case of unquoted investments, 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 them being bound together when assessing portfolios returns to shareholders. This is consistent with their investment policy and results in certain loan notes achieving an upwards revaluation.
Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review on pages - to -.
11. Debtors
| 31 January 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Prepayments and accrued income | 936 | 374 |
| 936 | 374 |
12. Current Asset Investments
Current asset investments at 31 January 2013 comprised money market funds.
| 31 January 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Money market funds | 4,737 | 3,059 |
| 4,737 | 3,059 |
All current asset investments held at the year end sit with the level 1 hierarchy for the purposes of FRS 29.
At 31 January 2013 and 31 January 2012 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 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Accruals | 617 | 56 |
| Other creditors* | 1,121 | 158 |
| 1,738 | 214 |
* At 31 January 2013, other creditors included £1,041,000 of new funds raised from the top up offer for which new shares had not been allotted.
14. Share capital
| 31 January 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Authorised: | ||
| 110,000,000 Ordinary shares of 10p | 110,000 | 5,000 |
| Allotted and fully paid up: | ||
| 53,502,660 Ordinary shares of 10p (2012: 26,771,709) | 5,350 | 2,677 |
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 -. The Company is not subject to any externally imposed capital requirements.
The Company issued the following shares during the year:
- 27 September 2012: 28,901,401 Ordinary shares at a price of 91.0p per share
- 27 December 2012: 3,156,668 Ordinary shares at a price of 94.5p per share
During the year the Company repurchased the following shares for cancellation:
- 25 July 2012: 900,000 Ordinary shares at a price of 76.1p
- 31 July 2012: 815,025 Ordinary shares at a price of 79.5p
- 5 October 2012: 150,000 Ordinary shares at a price of 81.8p
- 17 October 2012: 1,649,411 Ordinary shares at a price of 79.8p
- 27 November 2012: 30,000 Ordinary shares at a price of 80.8p
- 11 December 2012: 500,000 Ordinary shares at a price of 80.8p
- 19 December 2012: 500,000 Ordinary shares at a price of 80.8p
- 25 January 2013: 498,915 Ordinary shares at a price of 80.8p
- 28 January 2013: 213,767 Ordinary shares at a price of 80.8p
- 31 January 2013: 70,000 Ordinary shares at a price of 80.8p
The total nominal value of the shares repurchased was £532,711 (2012: £38,193) representing 10.0% (2012: 1.4%) of the issued share capital.
5. Reserves
*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.
Reserves available for potential distribution by way of a dividend are:
| £'000 | |
| As at 1 February 2012 | 21,508 |
| Movement in year | 17,190 |
| As at 31 January 2013 | 38,698 |
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
The Company held the following categories of financial instruments, all of which are included in the balance sheet at fair value, at 31 January 2013 and 31 January 2012:
| 31 January 2013 | 31 January 2012 | |
| £'000 | £'000 | |
| Assets at fair value through profit or loss | ||
| Investments | 39,976 | 19,671 |
| Current asset investments | 4,737 | 3,059 |
| Total | 44,713 | 22,730 |
| Loans and receivables | ||
| Cash at bank | 3,863 | 1,447 |
| Accrued income | 927 | 369 |
| Total | 4,790 | 1,816 |
| Liabilities at amortised cost | ||
| Accruals and other creditors | 1,738 | 214 |
| Total | 1,738 | 214 |
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 are 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.
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 page -.
83.7% (31 January 2012: 80.5%) 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 2013 would have increased net assets and the total profit for the year by £3,976,000 (31 January 2012: £1,967,000) an equivalent change in the opposite direction would have reduced net assets and the total profit for the year by the same amount.
A number of 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.
9.9% (31 January 2012: 12.5%) 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 2013 would have increased net assets and the total profit for the year by £47,370 (31 January 2012: £30,590) 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 2013 | As at 31 January 2012 | |||||
| Total fixed rate portfolio by value £'000 | Weighted average interest rate % | Weighted average time for which rate is fixed in years | Total fixed rate portfolio by value £'000 | Weighted average interest rate % | Weighted average time for which rate is fixed in years | |
| Unquoted fixed-interest investments | 26,269 | 11.20% | 3.5 | 9,729 | 12.30% | 2 |
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 2013 (31 January 2012: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 31 January 2013 | 31 January 2012 | |
| £000 | £000 | |
| Unquoted floating loan notes | - | 1,179 |
| Listed floating rate notes | - | - |
| Money market funds | 4,737 | 3,059 |
| Cash on deposit | 3,863 | 1,447 |
| 8,600 | 5,685 |
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 £86,000 (31 January 2012: £56,850).
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 2013 the Company's financial assets exposed to credit risk comprised the following:
| 31 January 2013 | 31 January 2012 | |
| £000 | £000 | |
| Investments in floating rate instruments | - | 1,179 |
| Money market funds | 4,737 | 3,059 |
| Cash on deposit | 3,863 | 1,447 |
| Investments in fixed rate instruments | 26,269 | 9,729 |
| Accrued dividends and interest receivable | 953 | 369 |
| 35,822 | 15,783 |
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 2013 or 31 January 2012.
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 2013 these investments were valued at £8,600,000 (31 January 2012: £4,506,000).
17. Post balance sheet events
The following events occurred between the balance sheet date and the signing of these financial statements:
- 15 February 2013 - the Company repurchased 18,868,091 Ordinary shares at a price of 89.7p per share. On the same date the Company issued 18,043,313 shares at a price of 94.5p per share. This was part of the enhanced buyback facility made available to shareholders as per the prospectus dated 17 August 2012
- 22March 2013 - the Company invested £1,500,000 in Healthcare Services and Technology Limited ('Healthcare Services')
- On 20 March 2013 - the Company issued 4,855,005 Ordinary shares at a price of 94.5p
- On 3 April 2013 - the Company issued 7,918,303 Ordinary shares at a price of 94.5p
- On 5 April 2013 - the Company issued 5,012,898 Ordinary shares at a price of 94.5p
18. Contingencies, guarantees and financial commitments
There were no contingencies, guarantees or financial commitments as at 31 January 2013 (2012: none).
19. Transactions with manager
Apollo VCT has employed Octopus throughout the year as the investment Manager.
Apollo has paid Octopus Investments £1,060,000 (2012: £486,000) in management fees. The management fee is payable quarterly in advance and is based on 2.0% of the NAV calculated daily from 31 January. These management fees include £394,100 (2012: £nil) in performance fees due to Octopus Investments, explained in further detail below.
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 daily from 31 January. During the year £106,882 (2012: £72,998) was paid to Octopus Investments and there is £106,882 outstanding at the balance sheet date, for the accounting and administrative services.
No performance related incentive fee was payable over the first five years. Now this time has surpassed, 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 Company 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 now happened, as a result Octopus Investments is entitled to £394,100 in performance fees (2012: £nil), of which £394,100 is outstanding at the balance sheet date (2012: £nil).
20. Related Party Transactions
Matt Cooper, a non-executive Director of Apollo is also Chairman of Octopus Investments Limited.
During the year to 31 January 2013, the Directors received the following dividends from the Company:
| Dividend received | |
| Murray Steele (Chairman) | £113 |
| Tony Morgan | £250 |
| Christopher Powles | £113 |
| Matt Cooper | £350 |
21. Acquisition of the assets and liabilities of Octopus Apollo VCT 1 plc
With effect from 27 September 2012, the Company acquired the assets and liabilities of Octopus Apollo VCT 1 plc ("Apollo 1") in exchange for new shares in the Company. On the same day, Apollo 1 was placed into members' voluntary liquidation pursuant to a scheme of reconstruction under Section 110 of the Insolvency Act 1986.
Shareholders in Apollo 1 received 1.043167 shares of the Company for every one Apollo 1 share held, resulting in 8,239,542 shares in the Company being issued. This calculation was based on the relative net asset value of the Company's shares and Apollo 1's shares at close of business on 27 September 2012.
The assets and liabilities of Apollo 1 acquired by the Company were as follows:
| 27 September 2012 | ||
| £000 | ||
| Fixed asset investments | 6,188 | |
| Debtors | 195 | |
| Current asset investments | 270 | |
| Cash at bank and in hand | 959 | |
| Creditors | (49) | |
| Total consideration | 7,563 | |
22. Acquisition of the assets and liabilities of Octopus Apollo VCT 2 plc
With effect from 27 September 2012, the Company acquired the assets and liabilities of Octopus Apollo VCT 2 plc ("Apollo 2") in exchange for new shares in the Company. On the same day, Apollo 2 was placed into members' voluntary liquidation pursuant to a scheme of reconstruction under Section 110 of the Insolvency Act 1986.
Shareholders in Apollo 2 received 1.042981 shares of the Company for every one Apollo 2 share held, resulting in 8,238,067 shares in the Company being issued. This calculation was based on the relative net asset value of the Company's shares and Apollo 2's shares at close of business on 27 September 2012.
The assets and liabilities of Apollo 2 acquired by the Company were as follows:
| 27 September 2012 | |
| £000 | |
| Fixed asset investments | 6,188 |
| Debtors | 195 |
| Current asset investments | 270 |
| Cash at bank and in hand | 967 |
| Creditors | (59) |
| Total consideration | 7,561 |
23. Acquisition of the assets and liabilities of Octopus Apollo VCT 4 plc
With effect from 27 September 2012, the Company acquired the assets and liabilities of Octopus Apollo VCT 4 plc ("Apollo 4") in exchange for new shares in the Company. On the same day, Apollo 4 was placed into members' voluntary liquidation pursuant to a scheme of reconstruction under Section 110 of the Insolvency Act 1986.
Shareholders in Apollo 4 received 1.080475 shares of the Company for every one Apollo 4 share held, resulting in 12,423,792 shares in the Company being issued. This calculation was based on the relative net asset value of the Company's shares and Apollo 4's shares at close of business on 27 September 2012.
The assets and liabilities of Apollo 4 acquired by the Company were as follows:
| 27 September 2012 | ||
| £000 | ||
| Fixed asset investments | 8,574 | |
| Debtors | 211 | |
| Current asset investments | 914 | |
| Cash at bank and in hand | 1,746 | |
| Creditors | (46) | |
| Total consideration | 11,399 | |
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 plc via Thomson Reuters ONE
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