Octopus Apollo VCT plc : Final Results

Octopus Apollo VCT Plc  

 Final Results

25 May 2016

Octopus Apollo VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2016.

These results were approved by the Board of Directors on 25 May 2016.

You may, in due course, view the Annual Report in full at www.octopusinvestments.com. All other statutory information can also be found there.

Financial Summary

Combined Ordinary & D Ordinary shares	Year to 31 January 2016	Year to 31 January 2015*
Net assets (£'000s)	127,741	119,820
Return on ordinary activities after tax (£'000s)	2,831	2,549

Ordinary share class	Year to 31 January 2016	Year to 31 January 2015*
Net asset value per share (NAV)	82.3p	85.1p
Cumulative dividends paid since launch	32.5p	27.5p
NAV plus cumulative dividends paid	114.8p	112.6p
Proposed final dividend - Ordinary share**	2.5p	2.5p

D Ordinary share class	Year to 31 January 2016	Year to 31 December 2014***
Net asset value per share (NAV)	93.7p	100.7p
Cumulative dividends paid since launch***	5.0p	2.5p
NAV plus cumulative dividends paid	98.7p	103.2p

* These figures have been restated as disclosed in note 2. This applies for the 2015 figures stated throughout this report.
** The final proposed dividend of 2.5p per Ordinary share for the year ended 31 January 2016, is subject to shareholder approval at the Annual General Meeting, will be paid on 17 August 2016 to all Ordinary shareholders on the register on 29 July 2016.
*** The figures are from the latest audited Octopus VCT 2 Plc (OVCT 2) financial statements prior to the shares converting to D Ordinary shares on a 1:1 basis.

Chairman's Statement

Introduction

I am pleased to present the annual report of Apollo for the year ended 31 January 2016 and I should like to welcome all new shareholders following the recent and current fundraise and acquisition of the assets and liabilities of Octopus VCT 2 plc ("OVCT 2").

In addition to raising nearly £23 million in 2015, the Company launched an Offer for Subscription to raise up to £30 million, with an overallotment facility of a further £10 million, in November 2015. At the time of writing £31 million had been raised under the Offer. Further details can be found in the Directors' report and in note 16 of the financial statements.

In August 2015, the Company completed the Octopus VCT plc ("OVCT") merger by converting C Ordinary shares into Ordinary shares or by paying a dividend of 98.0p to those C Ordinary shareholders who elected to exit. Those shareholders who converted their C Ordinary shares did so at a conversion ratio of 1.17506. A total of 19,809,055 Ordinary shares were issued. 34,947,712 C Ordinary shareholders elected to receive the C share dividend, resulting in a total dividend of £34.3 million.

In January 2016 the Company acquired the assets of OVCT 2, increasing the net assets of the Company by £17.9 million. OVCT 2 was established in 2011 as a limited life VCT seeking to deliver a total value to shareholders at the end of the five year qualifying holding period of at least 105p per share.

The Company created a new D Ordinary share class through the issue of 19,082,726 shares to the former shareholders of OVCT 2 and the investment portfolio is currently separately accounted for under this share class.  The D Ordinary share class structure has been established to enable the Board to monitor the performance of the D share assets to ascertain whether the 105p total value target referred to above is achieved and therefore whether any management fee is payable to Octopus in respect of the D Ordinary share portfolio. D Ordinary shareholders will soon be offered the opportunity to realise their investment or to convert their shares into Ordinary shares. A letter will be sent to D Ordinary shareholders shortly setting out details of this process. Further details of this can be found in note 20 of the financial statements within this report. 

The commercial arrangement in respect of the D Ordinary shares is that no annual management fee has yet been paid to Octopus and will only be paid after five years, subject to D shareholders having received dividends and distributions totalling or exceeding 105p per share.

Board

Following the acquisition of OVCT 2's assets and liabilities ("transaction") I am delighted to welcome Ian Pearson, the former Chairman of OVCT 2 to the Board. Ian brings with him a wealth of knowledge both of OVCT 2, as well as of VCTs and smaller companies in general. I am also pleased that Christopher Powles and James Otter have continued as directors of the Company, retaining their considerable experience. I should also like to take this opportunity to thank Matt Cooper, who resigned following the transaction, for his outstanding contribution to the Company. Resolutions to appoint Ian Pearson and to re-elect myself and Christopher Powles will be proposed at the forthcoming AGM.

Performance

The NAV of the Ordinary share class has fallen from 85.1p per Ordinary share as at 31 January 2015 to 82.3p per share as at 31 January 2016. After adding back the 5.0p of dividends paid in the year, the total value (NAV plus cumulative dividends paid) has risen by 2.6%, from 112.6p per share as at 31 January 2015 to 114.8p per share as at 31 January 2016.

The D Ordinary shares were issued on completion of the transaction. As at 31 January 2016 the NAV per share of the D Ordinary shares had fallen to 93.7p due to a downward valuation in the two anaerobic digestion portfolio companies Winnipeg and Tanganyika. Further information is provided in the Investment Manager's Review.  

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 the Ordinary share portfolio your Board has proposed a final dividend of 2.5 pence per Ordinary share in respect of the year ended 31 January 2016. This will bring the total dividends paid on the Ordinary share class to 5p for the year. The dividend will be payable on 17 August 2016 to Ordinary shareholders on the register at 29 July 2016.

In view of the forthcoming liquidity event for holders of the Company's D Ordinary shares no dividend has been proposed in respect of this share class.

Dividend Reinvestment Scheme (DRIS)

In common with a number of VCTs, the Company introduced a dividend reinvestment scheme following approval at the general meeting held on 21 November 2014. This is an attractive scheme for investors who do not need income, but would prefer to benefit from additional income tax relief on their re-invested dividend. I hope that shareholders will find this scheme beneficial.

Share Buybacks

Your Company has continued to buy back shares as required. Subject to shareholder approval of resolution 10 at the forthcoming annual general meeting this facility will remain in place to provide liquidity to investors who may wish to sell their shares. Details of the share buybacks undertaken during the year can be found in the Directors' Report.

Investment Portfolio 

The transaction with OVCT 2 on 27 January 2016 resulted in the Company acquiring its £17.3 million investment portfolio which had been invested under a similar mandate to Apollo's.

During the year, the Company has disposed of its remaining 26 solar assets for proceeds of £23.9 million). Eight solar companies were disposed in April 2015 for £4.9 million, three solar companies in August 2015 resulting in proceeds of £1.6 million, six solar companies in September 2015 for proceeds of £5.7 million and a further nine solar companies in October 2015 for £11.7 million). The Ordinary shares also disposed of its £25 million holding in Terido LLP in August 2015.

During the year the Company made £53.7m of new investments, including a further £3 million into Vista Retail Services Limited, £5m into Healthcare Services and Technology Limited and £10m into Terido LLP (which was later disposed of). £17.5 million was invested into six new investment companies between February and October 2015 (£10 million was also invested into four of these investment companies by OVCT 2 before it merged with Apollo) and a further £0.8 million invested into Aquaso Limited. £5 million was invested into SCM World Limited in August 2015 and £5 million into Anglo European Group in October 2015. £7.4 million was invested into three Reserve Power Companies in November 2015.

In January 2016, the Company was forced, due to the difficulties in the oil and gas industry, to restructure its investment in Technical Software Consultants which resulted in the holding being transferred to the Investment Company Aquaso. The restructure resulted in a net loss to date of £0.6m on the investment.

Investment Strategy

As set out in the prospectus, the aim of the Company is to make investments to achieve an appropriate balance of income and capital growth, having regard for venture capital legislation. 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. Such investments provide fixed returns 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.

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 the Company 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 2016, over 100% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments. This has arisen by reinvesting disposal proceeds still held within the 6 month disposal grace period into qualifying portfolio companies.

Annual General Meeting

The Company's Annual General Meeting will take place on 19 July 2016 at 4.00 p.m. I look forward to welcoming you to the meeting which will be held at the offices of Octopus Investments Limited at 33 Holborn, London, EC1N 2HT. 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 or Capita using the contact details provided in the Annual Report.

Outlook

Since the Company's launch we have seen significant Government changes to the subsidy regime for the renewable energy sector and an economy which has until recently struggled to grow following the global financial crisis.  However the returns to shareholders have shown low volatility year on year, which is testament to the prudent investment approach adopted by the Investment Manager.  The general economic outlook is now more certain, the portfolio has generally been performing well and your Board and Investment Manager believe we can continue to find suitable investments to support the Company's mandate.

Murray Steele
Chairman             
25 May 2016

Investment Manager's Review

Personal Service

At Octopus we have dual focus on 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.

Octopus was established in 2000 and has a strong commitment to both smaller companies and to VCTs.  We currently manage seven VCTs, including this one, and manage over £500 million in the VCT sector.

Investment Policy

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 that will provide an exit to the Company within three to five years.

Performance

The Company made a net return per Ordinary share of 2.6% between 31 January 2015 and 31 January 2016. Whilst the NAV per Ordinary share decreased slightly from 85.1p to 82.3p, 5.0p of dividends were paid over the period, bringing cumulative dividends paid to date to 32.5p and the total value (NAV plus cumulative dividends) to 114.8p pence per share.

The D Ordinary shares were issued on completion of the transaction on 27 January. As at 31 January 2016 the NAV of the D Ordinary shares had decreased to 93.7p per share due to a downward valuation in the two anaerobic digestion portfolio companies, Tanganyika and Winnipeg.  There have been problems with feedstock and equipment and this has resulted in operating levels being significantly below capacity.  Consequently we have replaced our operational support provider and plans are underway to make plant modifications, conduct additional maintenance and provide further operator training to bring performance back to satisfactory levels.

Portfolio Review

The fund is comprised of 32 portfolio companies with a total valuation of £116.6 million. The £17.3m portfolio of assets of OVCT 2 plc acquired in January 2016 was made up predominantly of investments in renewable energy sectors and in investment companies. These assets are currently being accounted for separately from the assets held by the Ordinary shares, in a new class of share known as the D Ordinary shares, until all D Ordinary shareholders have reached the fifth anniversary of their investment, later in 2016.

In the year under review the Company invested £5 million in SCM World Limited, a company that provides training, content and event services, and £5 million in Anglo European Group Limited, a specialist manufacturer of steel sections for door and window reinforcement and a further £3 million into Vista Retail Services Limited.

The Company used the investment company Healthcare Services and Technology Limited to invest in Care Monitoring and Management Limited, a company that provides electronic visit verification and monitoring services to local authorities, care providers and facilities management companies. The investment company, Aquaso Limited, also invested in Technical Software Consultant Limited ("TSC") as part of the restructure of the business. The net loss to date on TSC is £0.6m but the investment team are working hard to recover the value.

The Company provided £2.5m of funding to Coupra Limited, Dyscova Limited, Emercor Limited, Finnavor Limited, Haravar Limited each and £5m to Galvara Limited, six investment companies which have been set up ahead of acquiring qualifying trading businesses. The D ordinary shares also invested £2.5 million into each of Coupra Limited, Emercor Limited, Finnavor Limited and Haravar Limited prior to merging with Apollo.

During the year, the Company disposed of its £25 million investment in Terido, a trading partnership managed by Octopus which supports a diverse range of secured asset backed lending in sectors including residential property and solar. This was to provide liquidity for the Apollo C shareholders who did not elect to convert to Ordinary shares. 

In April 2015, Tanganyika and Winnipeg made partial repayments of £1m and £0.6m on their outstanding loan notes. The Company disposed of investments in Grain Power Limited, Howbery Solar Limited, Gnowee Power Limited, Helaku Power Limited, Hella Solar Limited, Nima Power Limited, Tuwale Power Limited and Michabo Power Limited. These disposals generated proceeds for the Company of £4.9m, resulting in an overall gain since initial investment of £0.6m.

In August 2015, the Company disposed of investments in Evaki Power Limited, Intina Power Limited and Teruko Power Limited. These disposals generated proceeds for the Company of £1.6m, resulting in an overall gain since initial investment of £0.1m.

In September 2015, the Company disposed of investments in Cyrah Power Limited, Tonatiuh Trading Limited, Yata Power Limited, GreenCo Services2 Limited, Huitzilopochtli Limited and Jokim Limited generating proceeds of £5.7m and an overall gain of £0.7m.

In October 2015, Ordinary shares disposed of investments in Resilient Corporate Services Limited, Healthcare Education Business Services Limited, Mallina Power Limited, Misae Power Limited, Paivatar Power Limited, Saas Business Services Limited, Mediaco Business Services Limited, Horrebow Energy Limited and Personnel Advisory Services Limited. This resulted in an overall gain since initial investment of £1m and generated proceeds of £11.7m.

Apollo continues to hold appropriate investments to meet all the requirements for it to fully qualify as a VCT. The Investment Manager 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.

Outlook

We remain optimistic about the outlook for the portfolio and future investment prospects. The Company has a large and diverse portfolio, has weathered the difficult economic conditions of the past few years and has continued to grow. 

The investment team has been increasingly active in the search for new opportunities and has seen the pipeline of potential deals steadily increase and improve in quality. The new investments and exits during the last twelve months has further raised the profile of the investment team, resulting in more inbound opportunities.   

The strong take up in current fundraisings and the recent exits provide significant financial capacity for new investments and, as one of the largest VCTs in the country, Apollo has the ability to pursue larger deals than most VCTs and provide significant follow-on investment, which is a strong competitive advantage. 

If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2295.

Grant Paul-Florence
Octopus Investments Limited
25 May 2016

Statutory Income Statement

		Year ended 31 January 2016			Restated Year ended 31 January 2015
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Realised gain on disposal of fixed asset investments		-	1,112	1,112	-	1,311	1,311
Change in fair value of fixed asset investments		-	1,776	1,776	-	1,198	1,198
Investment income		4,524	-	4,524	3,623	-	3,623
Investment management fees		(595)	(2,182)	(2,777)	(460)	(1,844)	(2,304)
Other expenses		(1,625)	-	(1,625)	(1,247)	-	(1,247)
Return on ordinary activities before tax		2,304	706	3,010	1,916	665	2,581
Taxation on return on ordinary activities		(615)	436	(179)	(286)	254	(32)
Return on ordinary activities after tax		1,689	1,142	2,831	1,630	919	2,549
Earnings per share - basic and diluted		1.2p	0.8p	2.0p	2.1p	1.2p	3.3p

• The 'Total' column of this statement is the profit and loss account of the Company; the 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 other comprehensive income for the period.

Non-Statutory Income Statement - Ordinary shares (un-audited)

		Year ended 31 January 2016			Restated Year ended 31 January 2015
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Realised gain on disposal of fixed asset investments		-	1,112	1,112	-	1,311	1,311
Change in fair value of fixed asset investments		-	1,776	1,776	-	1,198	1,198
Investment income		4,524	-	4,524	3,623	-	3,623
Investment management fees		(595)	(2,182)	(2,777)	(460)	(1,844)	(2,304)
Other expenses		(1,628)	-	(1,628)	(1,247)	-	(1,247)
Return on ordinary activities before tax		2,301	706	3,007	1,916	665	2,581
Taxation on return on ordinary activities		(615)	436	(179)	(286)	254	(32)
Return on ordinary activities after tax		1,686	1,142	2,828	1,630	919	2,549
Earnings per share - basic and diluted		1.2p	0.8p	2.0p	2.1p	1.2p	3.3p

• The 'Total' column of this statement is the profit and loss account of the Company; the 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.

Comparative numbers reflect the 2015 audited statutory income statement which combined the Ordinary and Apollo C Ordinary share income statements

The Company has no other comprehensive income for the period.

Non-Statutory Income Statement - D Ordinary shares (un-audited)

		Period ended 31 January 2016
		Revenue	Capital	Total
		£'000	£'000	£'000
Realised gain on disposal of fixed asset investments		-	-	-
Change in fair value of fixed asset investments		-	-	-
Investment income		-	-	-
Investment management fees		-	-	-
Other expenses		3	-	3
Return on ordinary activities before tax		3	-	3
Taxation on return on ordinary activities		-	-	-
Return on ordinary activities after tax		3	-	3
Earnings per share - basic and diluted		0.0p	0.0p	0.0p

• The 'Total' column of this statement is the profit and loss account of the Company; the 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.

Apollo D acquired OVCT 2's net assets and liabilities on 27 January 2016, therefore there are no comparative balances.

The Company has no other comprehensive income for the period.

Statutory Balance Sheet

		As at 31 January 2016		Restated As at 31 January  2015
		£'000	£'000	£'000	£'000
Fixed asset investments*			116,628		100,039
Current assets:
Debtors		5,305		2,882
Cash at bank		10,275		21,264
		15,580		24,146
Creditors: amounts falling due within one year		(4,467)		(4,365)
Net current assets			11,113		19,781
Net Assets			127,741		119,820
Called up equity share capital			13,896		8,636
Share premium			48,893		54,306
Special distributable reserve			60,748		53,989
Capital redemption reserve			2,557		2,101
Capital reserve gains & losses on disposal			(1,866)		(2,019)
Capital reserve holding gains & losses			3,510		2,521
Revenue reserve			3		286
Total shareholders' funds			127,741		119,820

*Held at fair value through profit or loss

The statements were approved by the Directors and authorised for issue on 25 May 2016 and are signed on their behalf by:

Murray Steele
Chairman
Company number: 05840377

Non-Statutory Balance Sheet - Ordinary shares (un-audited)

		As at 31 January 2016		Restated As at 31 January  2015
		£'000	£'000	£'000	£'000
Fixed asset investments*			99,306		100,039
Current assets:
Debtors		5,042		2,882
Cash at bank		10,275		21,264
		15,317		24,146
Creditors: amounts falling due within one year		(4,769)		(4,365)
Net current assets			10,548		19,781
Net Assets			109,854		119,820
Called up equity share capital			13,705		8,636
Share premium			31,200		54,306
Special distributable reserve			60,748		53,989
Capital redemption reserve			2,557		2,101
Capital reserve gains & losses on disposal			(1,866)		(2,019)
Capital reserve holding gains & losses			3,510		2,521
Revenue reserve			-		286
Total shareholders' funds			109,854		119,820
Net Asset Value per share - Ordinary shares			82.3p		85.1p

*Held at fair value through profit or loss

Comparative numbers reflect the 2015 audited statutory balance sheet which combined the Ordinary and Apollo C ordinary share balance sheets

Non-Statutory Balance Sheet - D Ordinary shares (un-audited)

		As at 31 January 2016		As at 31 January  2015
		£'000	£'000	£'000	£'000
Fixed asset investments*			17,322		-
Current assets:
Debtors		667		-
		667		-
Creditors: amounts falling due within one year		(102)		-
Net current assets			565		-
Net Assets			17,887		-
Called up equity share capital			191		-
Share premium			17,693		-
Capital reserve gains & losses on disposal			-		-
Capital reserve holding gains & losses			-		-
Revenue reserve			3		-
Total shareholders' funds			17,887		-
Net Asset Value per share - D Ordinary shares			93.7p		-

*Held at fair value through profit or loss

Apollo D acquired OVCT 2's net assets and liabilities on 27 January 2016, therefore there are no comparative balances.

Cash Flow Statement

		Year to 31  January  2016	Restated Year to 31  January  2015
		£'000	£'000
Reconciliation of return on ordinary activities to cash flows from operating activities
Return on ordinary activities after tax		2,831	2,549
(Increase) in debtors		(2,423)	(1,229)
Increase in creditors		102	699
Debtors obtained from transaction		382	614
Creditors obtained from transaction		(123)	(324)
(Gain) on disposal of fixed asset investments		(1,112)	(1,311)
(Gain) on valuation of fixed asset investments		(1,776)	(1,198)
Taxation		-	(552)
Total cash flow from operating activities		(2,119)	(752)
Cash flows from investing activities Cash acquired from transaction		303	377
Purchase of fixed asset investments		(53,650)	(15,505)
Sale of fixed asset investments		57,271	22,547
Purchase of current asset investments		-	(15)
Sale of current asset investments		-	4,269
Total cash flows from investing activities		3,924	11,673
Cash flows from financing activities
Purchase of own shares		(3,597)	(2,014)
Issue of own shares		30,670	8,283
Dividends paid		(39,867)	(3,836)
Total cash flows from financing activities		(12,794)	2,433
(Decrease)/increase in cash and cash equivalents		(10,989)	13,354
Opening cash and cash equivalents		21,264	7,910
Closing cash and cash equivalents		10,275	21,264

On 27 January 2016, Octopus Apollo VCT plc acquired the assets of Octopus VCT 2 plc. The transfer of assets from Octopus VCT 2 plc was settled by the issue of D Ordinary shares, rather than cash.

---

This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Octopus Apollo VCT plc via Globenewswire

HUG#2015553