Final Results

Octopus AIM VCT PLC Final Results 27 May 2009 Octopus AIM VCT PLC (the "Company"), managed by Octopus Investments Limited, today announces the final results for the year ended 28 February 2009. These results were approved by the Board of Directors on 26 May 2009. You may view the Annual Report in full at www.octopusinvestments.com by navigating to VCT Meetings & Reports under the 'Services' section. About Octopus AIM VCT PLC Octopus AIM VCT PLC (the "Company" or "Fund") is a venture capital trust ("VCT") which aims to provide shareholders with attractive tax-free dividends and long-term capital growth. The investment manager is Octopus Investments Limited ("Octopus" or "Manager"). The Company was launched as Close AIM VCT PLC in spring of 1998 and raised £10.1 million from private investors through an issue of Ordinary Shares. Between October 2000 and March 2001 a further £20.0 million was raised through an issue of C Shares. Furthermore, between 16 March 2004 and final closing on 5 April 2004 the Company raised £3.3 million by way of a D Share issue. The C Shares were merged and converted into Ordinary Shares on 31 May 2004 at a conversion ratio determined by a price mechanism related to the respective net assets per share of both the Ordinary Shares and C Shares at 29 February 2004 (which resulted in C Shareholders receiving 1.0765 Ordinary Shares for each C Share held). A further £15.0m was raised between 6 January 2005 and 8 April 2005 through an issue of New D Shares. In the year covered by this report, the Ordinary Shares converted into D Shares on 31 May 2008 at a conversion ratio of 0.5448 D Shares for each Ordinary Share. The two classes of shares were combined and renamed New Ordinary Shares which is now the only class of share capital. Financial Summary Year to 28 February 2009 New Ordinary shares* Net assets ('000) £19,443 Net loss after tax ('000) £(12,285) Net asset value per share ("NAV") 64.50p Cumulative dividends paid since launch 2.50p Total return (NAV plus dividends paid) 67.00p *No comparatives are shown for New Ordinary Shares given the conversion of Ordinary Shares to 'D' Shares on 31 May 2008. The resulting share class was named "New Ordinary Shares". Ordinary shares were converted into 'D' Shares at a conversion ratio of 0.5448 'D' Shares for every Ordinary share. All of the 'D' Shares were then redesignated into New Ordinary shares on 31 May 2008. Prior period pre-conversion of the share classes are shown below. Year to 29 February 2008 Ordinary Shares D Shares Total Net assets ('000) £17,346 £17,437 £34,783 Net loss after tax ('000) £(6,709) £(1,625) £(8,334) Net asset value per share ("NAV") 60.06p 110.23p - Cumulative dividends paid since launch 64.61p 11.05p - Total return (NAV plus dividends paid) 124.67p 121.28p - Ordinary D shares Dividends paid in New Ordinary Shares (pence per the Period Ended Shares # C shares # share) 28 February 1999 - 1.88p - - 29 February 2000 - 3.13p - - 28 February 2001 - 37.25p - - 28 February 2002 - 6.50p 2.55p - 28 February 2003 - 3.50p 1.50p - 29 February 2004 - 0.50p 0.50p - 28 February 2005 - 0.50p 0.50p 0.50p 28 February 2006 - 2.15p 2.31p 2.25p 28 February 2007 - 4.20p 4.52p 3.30p 31 August 2007 - 2.50p 2.69p 2.50p 29 February 2008 - 2.50p 2.69p 2.50p 31 August 2008 - 2.50p 2.69p 2.50p 28 February 2009 2.50 - - - Total dividends (capital 67.11p and revenue) 2.50p 19.65p 13.55p Total return as at 28 - February 2009 67.00p - - # Subsequently converted to Ordinary shares. Notes * The Ordinary Shares were first listed on 17 March 1998. * Dividends paid before 5 April 1999 were paid to qualifying shareholders inclusive of the associated tax credit. * The D Shares were first listed on 17 March 2004. * The C Shares were converted into Ordinary Shares on 31 May 2004, in accordance with the conversion factor of 1.0765 Ordinary Shares for each C Share. This adjustment is shown in the net asset value per C share above. * The Ordinary Shares were converted into D Shares on 31 May 2008, in accordance with the conversion factor of 0.5448 D Shares for each Ordinary Share. This adjustment is shown in the net asset value per Ordinary share above. * New D Shares issued between 6 January 2005 and 8 April 2005, did not rank for the final dividend. * All dividends paid by the Company are free of income tax. It is an HM Revenue & Customs requirement that dividend vouchers indicate the tax element should dividends have been subject to income tax. Investors should ignore this figure on their dividend voucher and need not disclose any income they receive from a VCT on their tax return. * The above table excludes the tax benefits investors received upon subscription. * The net asset value of the Company is not its share price as quoted on the official list of the London Stock Exchange. The share price of the Company can be found in the Investment Companies section of the Financial Times on a daily basis. Investors are reminded that it is common for shares in VCTs to trade at a discount to their net asset value, primarily as a result of the initial tax relief which is non-transferable. Chairman's Statement Introduction Following the appointment of Octopus Investments Limited ("Octopus") as investment manager in place of Close Investments Limited in July 2008 your Company's name was changed to its present form. The appointment of Octopus followed the move to that Company by Andrew Buchanan and Kate Tidbury who had been responsible for the management of the Company's portfolio for many years. At the end of May 2008 the Ordinary shares and 'D' Shares were combined and renamed New Ordinary Shares which is now the only class of share capital. Despite our commitment to manage as best we can the discount against net asset value at which your shares stand in the market close to 10% by the repurchase of shares, the discount has recently widened. However, at the end of the period the discount stood at around 7%. During the year we repurchased 284,564 Ordinary shares, 526,701 D Shares and 723,039 New Ordinary Shares. In recent years, the Chancellor has in his budget tightened the criteria for VCT qualifying investments on several occasions thus dampening the demand for new VCT shares. At a time when many small companies are finding it difficult to obtain credit it is particularly disappointing that the Chancellor has shown such indifference in the recent Budget by totally ignoring the potential for VCTs to foster growth in small companies. Performance The year to 28 February 2009, which these accounts cover, has been a turbulent one and has seen smaller companies deserted by many investors. Share prices have fallen under the weight of several factors, which have not been avoidable as the Company has to maintain exposure to the stock market in order to retain VCT status. This background has made the last year a very difficult one for shareholders of all sorts, but particularly for those invested in very small companies. The Investment Manager's Review will deal with this matter more fully, but in the year to 28 February 2009 the FTSE All Share Index fell by 36.8% and the FTSE AIM All-Share index by 61.2%. Thus, although very disappointing, the fall in the NAV of 44.8% after adding back the dividend paid needs to be viewed in the context of the conditions that have prevailed and the need to remain invested. Portfolio Activity has been very subdued this year as new issues have all but dried up, and with the combined portfolio already fully invested for HM Revenue and Customs ("HMRC") purposes, your Manager has been very selective about investment opportunities. Only three new qualifying investments were made in the year, and of these, two Advanced Computer Software and Praesepe, were to back management teams which have previously delivered a successful result for your Company. Your Manager has started to make a few non-qualifying investments in smaller companies at prevailing low ratings to benefit from market recovery as confidence is restored. Dividend Your Board has declared a final dividend of 2.5p per share which is made up of a revenue dividend of 0.4p and a capital dividend of 2.1p which is subject to approval by HMRC. The record date and payment of this dividend will be announced on the London Stock Exchange news service in due course. If approval is received the dividend payment for the year will amount to 5p per share, made up of a revenue dividend of 0.8p and a capital dividend of 4.2p. Assuming the current market price of 63p per share this represents a tax free yield of 7.9%. VCT Qualifying Status PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs. The Board has been advised that Octopus AIM VCT PLC is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT. As at 28 February 2009, nearly 80.0% of the portfolio (as measured by HMRC rules) was invested in VCT qualifying investments. VAT on Management Fees The Government has announced that VCTs will be exempt from paying VAT on investment management fees with effect from 1 October 2008. This follows a European Court of Justice Judgement against the Government in a case relating to VAT payable by investment trusts. It is now virtually certain that a VAT repayment will be obtained for VAT paid on management fees for the last four years. However, the extent and timing of repayments is not yet known. We will follow developments with the help of our advisers. For the purposes of these accounts, and with guidance from our advisers at Octopus, we have accrued income of £350,000. Risks and Uncertainties As required under the new Listing Rules under which your Company operates, we are required to comment on the potential risks and uncertainties which could have a material impact over the Company's performance. The key risk derives from the need to maintain compliance with the HMRC regulations requiring 70 per cent of your Company to be invested in qualifying holdings. In addition, the current fall in GDP combined with a contraction in the lending markets is a more challenging economic backdrop for smaller companies and this could continue to have an adverse effect on share prices. Further details are set out in the Director's Report on page 24. Annual General Meeting In order to ensure that the Company can look forward to a successful long-term future as an AIM VCT, your Board believes that it is important that the Company maintains an attractive dividend yield (where possible within the constraints of the performance of the Company and the level of cash reserves). Whilst there are some signs that a secondary market in VCT shares is starting to develop, the Board also intends to continue to offer a share buyback facility to allow any shareholders who need to sell their shares to do so. The Board further believes that the Company should have the ability to conduct top up share offers to raise further cash resources. Increasing the size of the Company would reduce the running costs of the VCT as a percentage of net assets (by spreading the fixed costs over a larger base), while also providing further financial resources with which to take advantage of the investment opportunities that will emerge in the coming years. In order to be able to issue new shares to investors, it is important that the Company's life extends beyond the five year minimum holding period that applies to investors who wish to obtain upfront income tax relief by participating in a top up share offer. Therefore, a resolution will be proposed at the Annual General Meeting to extend the life of the Company until 2015, and the Board anticipates that it will put a similar resolution to shareholders at subsequent Annual General Meetings in order to preserve the ability of the Company to conduct top ups in future years. Outlook Your Company's portfolio is 80% invested in qualifying investments. This is fortunate as a paltry £13 million of new money was raised on the AIM market in the last quarter of 2008 and a mere £3 million in the first quarter of 2009, which may be compared with £300 million in the same period in 2008. In my statement last year I said that the year under review had been an exceptionally difficult time for financial assets and smaller companies in particular. All I can say is that that year was nothing compared with the year currently under review. When the market capitalisation of major financial institutions can double and halve not just once but twice in a three month period one realises that volatility knows no bounds and uncertainty is rife. Some see green shoots, others do not or if they do fear that they will be quickly frosted and that the recovery from the worst global recession since the nineteen thirties will be slow. There is no doubt that credit is tight. However, if smaller companies remain less favoured by banks, there is an interesting opportunity for investors to provide capital to good companies at attractive share price ratings. With this in mind, the Board's strategy remains to maintain an appropriate level of liquidity in the balance sheet to achieve four aims which should benefit VCT investors in the years to come: * to take advantage of new investment opportunities as they arise; * to support further investment in existing portfolio companies if required; * to assist liquidity in the Company's shares through the buy back facility; * to establish a consistent dividend flow over time. By adhering to sound investment principles in applying these aims, I hope and trust that in a year's time, as the stock market discriminates between companies, it will be possible to report a higher NAV. Michael Reeve Chairman 26 May 2009 Investment Manager's Review The AIM Market In the twelve months to 28 February 2009 the FTSE AIM Index fell by 61%, severely impacted by the well publicised banking crisis and a rapidly deteriorating economic outlook. As is usual during periods of uncertainty, investors shun small companies in favour of larger and more liquid investments. However, as you will be aware, the latter fared little better as the banking crisis unfolded. The severe derating of shares has been particularly marked in the microcap sector where your VCT makes its investments. This has made the process of investing harder in the short term, because new companies looking to float have been put off by the constant stream of bad news about the economy and financial markets and the inevitably lower values afforded to businesses by the stock market. This is well illustrated in the chart below, which shows the funds raised on AIM over the year. Most of the VCT qualifying opportunities that have arisen have been further fundraisings for existing companies, many of which have been at lower prices than a year ago. Performance The total return of the New Ordinary Shares fell by 44.8% in the year to 28 February 2009. Although disappointing, this reflected the market conditions outlined above. The FTSE All share Index fell 36.8% and the FTSE Smaller Companies Index ex Investment Trusts fell by 51.5%. The FTSE AIM Index fared even worse as the previous outperformance of the resource sector unwound and poorly financed companies suffered savage share price falls. The portfolio has suffered from both deteriorating economic conditions and from reduced bank funding, especially in the second half of the financial year. The businesses in the Company's portfolio have direct experience of the treatment the smallest companies have been subjected to as the banking industry's problems have unfolded. Sadly, even before the banking crisis really had its full effect, four investments, Cains Beer Company, Hatpin, Food & Drink and Landround had called in administrators. The reasons range from poor management controls to the early impact of the economic downturn. Two companies have delisted - Conder Environmental and Independent Media Support. Both of these investments have been written down to nil, although there may be a small payment to shareholders eventually. Since the year end Playgolf has, as expected, appointed an administrator. As an indebted leisure facilities developer, with Bank of Scotland as its bank, the events of the last few months had created a certain inevitability. However, there are holdings that continue to perform well. Notable amongst these are Craneware, Pressure Technologies, Animalcare and Mattioli Woods, although unfortunately this is not reflected in present share prices as increased fear and deteriorating sentiment have overridden trading results. It is not surprising therefore that the NAV fell more in the second half of the financial year. It has to be hoped that the worst, in terms of share price falls, is now over and is reflected in share price ratings. As the last interim and annual accounts noted, smaller company shares have been steadily derated. This process has gathered considerable momentum in the last six months of the financial year. It has appeared, for much of the time, to be indiscriminate and a function of greater risk aversion rather than any view of an individual company's prospects. Examples of this would be Vertu Motors and Bond International Software where the cyclical nature of their businesses and the likelihood of downgrades to forecasts caused their share prices to fall to levels, which suggested that they were in danger of failing. Both have since seen their share prices rebound quite strongly. Portfolio Activity During the year two new holdings were established, being Advanced Computer Software, which has been set up by a management team to consolidate software operators in the healthcare sector. It has made two acquisitions so far. The second is Optare which manufactures both double and single deck buses. The holding in Pipex returned cash to shareholders, following the sale of its internet service provision business and the company was renamed Freedom4 Group. Maelor has also changed its name to IS Pharma. The holding in Hartest was sold and the bid for Imprint Search & Selection was accepted. In the months since the year end in February we have reluctantly accepted the bid for Pilat Media Global, although since this bid has now failed your company continues to hold the investment. The holding in Clipper Ventures was sold. We remain wary of bids for portfolio companies where potential acquirors can capitalise on the present low ratings and, in the interests of shareholders, will do our best to resist such situations. However, we are also making investments in non-qualifying holdings in order to capitalise on present low ratings, particularly now that the portfolio has had its two Floating Rate Notes redeemed and it has substantial liquidity to take advantage of these situations. Since the year end we have bought a number of non-qualifying holdings with the intention of improving the Net Asset Value. These are listed in Note 17. Ten Largest Holdings by value Mattioli Woods plc Mattioli Woods plc is a provider of pensions consultancy and administration services Cost: £523,000 Valuation: £928,000 Valuation basis: Bid Price Equity held: 2.29% Last audited accounts: 31 May 2008 Profit before tax: £3.51m Net assets: £14.03m Mears Group plc Mears is a building maintenance contractor to local authorities, the MOD and the private sector. Provider of domiciliary care for the elderly on local authority contracts. Cost: £170,000 Valuation: £916,000 Valuation basis: Bid Price Equity held: 0.50% Last audited accounts: 31 December 2008 Profit before tax: £16.58m Net assets: £95.7m Advanced Computer Software plc The group was formed to acquire and manage software businesses in sectors where the directors believe there are opportunities for consolidation. It has made one healthcare related acquisition to date. Cost: £600,000 Valuation: £706,000 Valuation basis: Bid price Equity held: 1.85% Last audited accounts: 28 February 2009 Profit before tax: £1.1m Net assets: £25.44m Melorio plc Melorio plc was formed to consolidate the UK vocational training market. In September 2007, it acquired CLW, the UK's largest provider of on-site construction assessment and training. As well as the construction industry, Melorio will focus on acquisitions within the utility, logistics and care sectors. Cost: £816,000 Valuation: £685,000 Valuation basis: Bid price Equity held: 2.09% Last audited accounts: 31 March 2009 Profit before tax: £7.6 million Net assets: £42.7 million Research Now plc Research Now operates specialist online research panels in the UK, Europe, the US and Asia. Cost: £454,000 Valuation: £618,000 Valuation basis: Bid Price Equity held: 1.64% Last audited accounts: 31 October 2008 Profit before tax: £5.7m Net assets: £24.81m Brooks MacDonald Group plc Brooks MacDonald is a provider of asset management and financial consulting services with a particular emphasis on the pensions. market Cost: £330,000 Valuation: £589,000 Valuation basis: Bid Price Equity held: 2.37% Last audited accounts: 30 June 2008 Profit before tax: £2.03m Net assets: £5.84m Praesepe plc Praesepe operates low stake high street gaming outlets under the Casino brand. The Group was established to consolidate this marketplace. Cost: £550,000 Valuation: £550,000 Valuation basis: Bid price Equity held: 3.25% Last audited accounts: 31 December 2008 Profit before tax: £3.87m loss Net assets: £8.7m Pressure Technologies plc Pressure Technologies the holding company for Chesterfield Special Cylinders ("CSC"). CSC designs, manufactures and offers testing and refurbishment services for a range of speciality high pressure, seamless steel gas cylinders for global energy and defence markets. Cost: £302,000 Valuation: £432,000 Valuation basis: Bid price Equity held: 1.78% Last audited accounts: 30 September 2008 Profit before tax: £5.0 million Net assets: £11.2 million Idox plc Idox is a leading developer and supplier of software solutions and services to local government for core functions relating to land, people and property. Cost: £362,000 Valuation: £398,000 Valuation basis: Bid Price Equity held: 1.40% Last audited accounts: October 2008 Profit before tax: £6.6million Net assets: £25.4 million Animalcare plc Animalcare is a manufacturer and distributor of veterinary medicines, identification chips and other products for pets and livestock. Cost: £300,000 Valuation: £382,000 Valuation basis: Bid price Equity held: 2.77% Last audited accounts: June 2008 Profit before tax: £1.1 million Net assets: £14.6 million Outlook The steady stream of bad news about the state of the banks, the economy and Government finances, continues to dominate the press, not helped by the recent budget, which underlined the extent of the debt problem facing this country. There remain substantial economic problems, which will require some time to resolve. However, for those companies without uncomfortable levels of debt, life, whilst undoubtedly tougher, goes on. Trade even in a recession continues. This message seems to have got through to the stock market in the last few weeks and there have been signs recently of investors looking for value amongst share prices which have fallen too far. It is for this reason that smaller companies have outperformed their larger peers in the current financial year, as the scale of the ratings discounts, at which they were trading, have become apparent. For your VCT, this should mean that there is scope for the asset values to recover as investments made over the past three years mature and as the economy stops shrinking, begins to flatten out and then grow. In time too it will mean that new issues revive. If you have any questions on any aspect of your investment, please call Kate Tidbury or Andrew Buchanan on 0800 316 2347. The Octopus AIM Team Octopus Investments Limited 26 May 2009 Directors' Responsibility Statement The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services Authority. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements the Directors are required to: * select suitable accounting policies and then apply them consistently; * make judgments and estimates that are reasonable and prudent; * state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; * 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 proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that to the best of their knowledge that the financial statements for the year ended 28 February 2009 comply with the requirements set out above and that suitable accounting policies, consistently applied and supported by reasonable and prudent judgement, have been used in their preparation. They also confirm that the annual report includes a fair review of the development and performance of the business together with a description of the principal risks and uncertainties faced by the Company. Under applicable law and regulations, the Directors are responsible for preparing a Directors' Report (including Business Review), Directors' Remuneration Report and Corporate Governance Statement which comply with that law and those regulations. In so far as the Directors are 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. The Manager is responsible for the maintenance and integrity of the corporate and financial information included on the Investment Manager's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. The work carried out by PKF (UK) LLP as independent auditor of the Company does not involve consideration of the maintenance and integrity of the website and accordingly they accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. The Directors confirm to the best of their knowledge that: * the financial statements prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) and the 2003 Statement of Recommended Practice, "Financial Statements of Investment Trust Companies" (SORP), revised December 2005, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company. * the annual 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. Brief biographical notes on the Directors are given on page 22. On Behalf of the Board Michael Reeve Chairman 26 May 2009 Income Statement Year to 28 February 2009 Ordinary Shares* New Ordinary Shares** Total Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gain/(Loss) on disposal of fixed asset investments 10 - 229 229 - (2,608) (2,608) - (2,379) (2,379) Loss on valuation of fixed asset investments 10 - (1,335) (1,335) - (8,725) (8,725) - (10,060) (10,060) Loss on valuation of current asset investments 11 - - - - (2) (2) - (2) (2) Investment Income 2 86 - 86 544 - 544 630 - 630 Investment management fees 3 (25) (76) (101) (112) (335) (447) (137) (411) (548) Management fee VAT rebate 3 - - - 78 236 314 78 236 314 Other expenses 4 (43) - (43) (197) - (197) (240) - (240) Profit/(loss) on ordinary activities before tax 18 (1,182) (1,164) 313 (11,434) (11,121) 331 (12,616) (12,285) Taxation on profit/(loss) on ordinary activities 6 4 16 20 (28) 8 (20) (24) 24 - Profit/(loss) on ordinary activities after tax 22 (1,166) (1,144) 285 (11,426) (11,141) 307 (12,592) (12,285) Earnings/(loss) per share - basic and diluted 8 0.0p (4.0)p (4.0)p 0.8p (33.6)p 32.8p - - - * the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AITC Statement of Recommended Practice * all revenue and capital items in the above statement derive from continuing operations * the accompanying notes are an integral part of the financial statements * the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds The Company has no recognised gains or losses other than the results for the year as set out above. Accordingly a statement of total recognised gains or losses is not required. Other than revaluation movements arising on investments held at fair value through profit and loss account, there were no differences between the profit/ (loss) as stated above and at historical cost * Ordinary Shares for the period 1 March 2008 to 31 May 2008 **No comparatives are shown for New Ordinary Shares given the conversion of Ordinary Shares to D Shares on 31 May 2008. The resulting share class was named "New Ordinary Shares." Ordinary shares were converted into D Shares at a conversion ratio of 0.5448 D Shares for every Ordinary Share. Income Statement Year to 29 February 2008 Ordinary Shares D Shares Total Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Loss/(gain) on disposal of fixed asset investments 10 - (1,587) (1,587) - 987 987 - (600) (600) Loss on disposal of current asset investments 11 - - - - (4) (4) - (4) (4) Loss on valuation of fixed asset investments 10 - (4,831) (4,831) - (2,544) (2,544) - (7,375) (7,375) Loss on valuation of current asset investments 11 - (18) (18) - (25) (25) - (43) (43) Investment Income 2 369 - 369 494 - 494 863 - 863 Investment management fees 3 (133) (398) (531) (114) (341) (455) (247) (739) (986) Other expenses 4 (114) - (114) (75) - (75) (189) - (189) Profit/(loss) on ordinary activities before tax 122 (6,834) (6,712) 305 (1,927) (1,622) 427 (8,761) (8,334) Taxation on profit/(loss) on ordinary activities 6 3 - 3 (59) 56 (3) (56) 56 - Profit/(loss) on ordinary activities after tax 125 (6,834) (6,709) 246 (1,871) (1,625) 371 (8,705) (8,334) Earnings/(loss) per share - basic and diluted 8 0.4p 23.2p (22.8)p 1.6p (11.8)p (10.2)p * the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AITC Statement of Recommended Practice * all revenue and capital items in the above statement derive from continuing operations * the accompanying notes are an integral part of the financial statements * the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds The Company has no recognised gains or losses other than the results for the year as set out above. Accordingly a statement of total recognised gains or losses is not required. Other than revaluation movements arising on investments held at fair value through profit and loss account, there were no differences between the profit/(loss) as stated above and at historical cost. Balance Sheet As at 28 February 2009 As at 29 February 2008 New Ordinary Ordinary Notes Shares Shares D Shares Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Fixed asset investments 10 12,821 14,170 11,686 25,856 Current assets: Investments 11 6,163 1,901 4,264 6,165 Debtors 12 485 127 115 242 Cash at bank 167 1,211 1,432 2,643 6,815 3,239 5,811 9,050 Creditors: amounts falling due within one year 13 (193) (63) (60) (123) Net current assets 6,622 3,176 5,751 8,927 Net assets 19,443 17,346 17,437 34,783 Called up equity share capital 14 15,965 14,762 7,923 22,685 Share premium 15 8,209 1,450 39 1,489 Special distributable reserve 15 16,412 7,311 9,100 16,411 Capital redemption 15 reserve 3,727 3,569 159 3,728 Capital reserve - 15 realised (11,052) (7,508) 459 (7,049) 15 - unrealised (12,381) (2,003) (316) (2,319) Own shares held in 15 treasury (1,636) (411) (28) (439) Revenue Reserve 15 199 176 101 277 Total equity shareholder's funds 19,443 17,346 17,437 34,783 Net asset value per share - basic and diluted 9 64.5p 60.1p 110.2p n/a The accompanying notes are an integral part of the financial statements. The statements were approved by the Directors and authorised for issue on 26 May 2009 and are signed on their behalf by: Michael Reeve Chairman Reconciliation of Movements in Shareholders' Funds Year to 29 February 2009 New Ordinary Ordinary Shares Shares Total £'000 £'000 £'000 Shareholders' funds at start of period 17,346 17,437 34,783 Loss for the period (1,144) (11,141) (12,285) Shares purchased and held in Treasury (147) (1,049) (1,196) Transfer between share class (16,055) 16,055 - Dividends paid - (1,859) (1,859) Shareholders' funds at end of period - 19,443 19,443 Reconciliation of Movements in Shareholders' Funds Year to 29 February 2008 Ordinary Shares D Shares Total £'000 £'000 £'000 Shareholders' funds at start of period 26,288 20,088 46,376 Loss for the period (6,709) (1,625) (8,334) Shares purchased for cancellation (354) (204) (558) Shares purchased and held in Treasury (411) (28) (439) Dividends paid (1,468) (794) (2,262) Shareholders' funds at end of period 17,346 17,437 34,783 Cash Flow Statement Year to 28 February 2009 Ordinary New Ordinary Shares* shares** Total £'000 £'000 £'000 Loss on ordinary activities before tax (1,164) (11,121) (12,285) Decrease/(increase) in debtor 127 (370) (243) Increase/(decrease) in creditors (63) 133 70 Loss/(Gain) on realisation of investments (229) 2,608 2,379 Loss/(Gain) on valuation of investments 1,335 8,727 10,062 Net cash inflow/(outflow) from operating activities 6 (23) (17) Taxation: UK Corporation tax paid - - - Capital expenditure and financial investment Purchase of investments - (1,706) (1,706) Disposal of investments 1,089 1,213 2,302 Net cash (outflow) / inflow from investing activities 1,089 (493) 596 Equity dividends paid Dividends paid - (1,859) (1,859) Net cash (outflow) / inflow before financing 1,095 (2,375) (1,280) Financing : Own shares held in treasury (147) (1,049) (1,196) Net cash (outflow) / inflow from financing 948 (3,424) (2,476) Interclass transfer (2,159) 2,159 - Increase/(decrease) in cash resources (1,211) (1,265) (2,476) * Ordinary shares for the period 29 February 2008 to 31 May 2008 **No comparatives are shown for New Ordinary Shares given the conversion of Ordinary shares to D shares on 31 May 2008. The resulting share class was named "New Ordinary Shares." Ordinary shares were converted into D shares at a conversion ratio of 0.5448 D shares for every Ordinary share. Reconciliation of Net Cash Flow to Movement in Liquid Resources Year to 28 February 2009 Ordinary New Ordinary Shares shares Total £'000 £'000 £'000 Increase/(decrease) in cash at bank (1,211) (1,265) (2,476) Decrease in liquid reserves - - - Opening net liquid resources 1,211 1,432 2,643 Net liquid resources at 28 February - 167 167 Cash Flow Statement Year to 29 February 2008 Ordinary shares D shares Total £'000 £'000 £'000 Loss on ordinary activities before tax (6,712) (1,622) (8,334) Decrease/ (increase) in debtors 32 33 65 Increase/ (decrease) in creditors 14 (6) 8 Loss / (Gain) on realisation of investments 1,587 (983) 604 Loss / (Gain) on valuation of investments 4,849 2,569 7,718 Net cash inflow/(outflow) from operating activities (230) (9) (239) Taxation: UK Corporation tax paid - - - Capital expenditure and financial investment Purchase of investments (1,389) (4,970) (6,359) Disposal of investments 3,847 4,543 8,390 Net cash (outflow) / inflow from investing activities 2,458 (427) 2,031 Equity dividends paid Dividends paid (1,468) (794) (2,262) Net cash (outflow) / inflow before financing 760 (1,230) (470) Financing : Cancellation of shares (355) (205) (560) Own shares held in treasury (405) (28) (433) Net cash (outflow) / inflow from financing (760) (233) (993) Increase/(decrease) in cash resources - (1,463) (1,463) Reconciliation of Net Cash Flow to Movement in Liquid Resources Year to 29 February 2008 Ordinary Shares D shares Total £'000 £'000 £'000 Increase/(decrease) in cash at bank - (1,463) (1,463) Decrease in liquid resources - - - Opening net liquid resources 1,211 2,895 4,106 Net liquid resources at 29 February 1,211 1,432 2,643 Notes to the Financial Statements 1. Principal Accounting policies The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (UK GAAP). Where presentational guidance set out in the Statement of Recommended Practice (SORP) "Financial Statements of Investment Trust Companies", revised December 2005, is consistent with the requirements of UK GAAP, the Directors have sought to prepare the financial statements on a consistent basis compliant with the recommendations of the SORP. The principal accounting policies have remained unchanged from those set out in the Company's 2008 annual report and financial statements. A summary of the principal accounting policies is set out below. The accounts have been drawn up to include a statutory Profit and Loss account in accordance with Schedule 4 of the Companies Act 1985. Investment company status was revoked on 3 March 2000. Investments Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date). These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board. Accordingly as permitted by FRS 26, the investments will be designated as fair value through profit and loss ("FVTPL") on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company's investments are measured at subsequent reporting dates at fair value. In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. This is consistent with the International Private Equity and Venture Capital (IPEVC) guidelines. For the avoidance of doubt, the Company does not hold any unquoted investments. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve unrealised. In 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 Floating Rate Notes ("FRN") and are designated as FVTPL. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve unrealised as appropriate. FRNs are classified as current asset investments as they are investments held for the short term and comparative classification in the Balance Sheet has been restated accordingly. The current asset investments are all invested with the Company's cash manager and are readily convertible into cash at the choice of the Company. The current asset investments are held for trading, are actively managed and the performance is evaluated on a fair value basis in accordance with a documented investment strategy. Information about them has to be provided internally on that basis to the Board. Income Investment income includes interest earned on bank balances and money market securities and includes income tax withheld at source. Dividend income is shown net of any related tax credit. Dividends receivable are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Fixed returns on debt and money market securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course. Expenses All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue with the exception of the investment management fee, which has been charged 25% to the revenue account and 75% to the realised capital reserve to reflect, in the Directors' opinion, the expected long term split of returns in the form of income and capital gains respectively from the investment portfolio. Revenue and capital The revenue column of the Income Statement includes all income and revenue expenses of the Company. The capital column includes realised and unrealised gains and losses on investments. Gains and losses arising from changes in fair value are considered to be realised only to the extent that they are readily convertible to cash in full at the balance sheet date. 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), government securities, investment grade bonds and investments in money market managed funds. Loans and receivables The Company's loans and receivables are initially recognised at fair value and subsequently measured at amortised cost. 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. 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 when the dividends proposed by the Board are approved by the shareholders. 2. Income 28 February 2009 New Ordinary Ordinary Shares shares Total £'000 £'000 £'000 Dividends received (fixed asset investments) 36 166 202 Income on money market securities and bank balances 50 377 427 Other - 1 1 86 544 630 29 February 2008 Ordinary Shares 'D' shares Total £'000 £'000 £'000 Dividends received (fixed asset investments) 76 102 198 Income on money market securities and bank balances 293 392 665 369 494 863 3. Investment management fees 28 February 2009 Ordinary Shares New Ordinary shares Total £'000 £'000 £'000 Investment management fee: Revenue 25 112 137 Capital 76 335 411 Total 101 447 548 VAT rebate: Revenue - (78) (78) Capital - (236) (236) Total - (314) (314) 29 February 2008 Ordinary Shares 'D' shares Total £'000 £'000 £'000 Investment management fee: Revenue 133 114 247 Capital 398 341 739 Total 531 455 986 For the purposes of the revenue and capital columns in the Income Statement, the management fee (including VAT) has been allocated 25% to revenue and 75% to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio. Octopus provides investment management and accounting and administration services to the Company under a management agreement dated 03 February 1998 which was revised in September 2000 and again in January 2004 for an initial fixed term to June 2008 and may be terminated at any time thereafter by not less than twelve months' notice given by either party. No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The basis upon which the management fee is calculated is disclosed within note 19 to the financial statements. The Chancellor of the Exchequer announced in his budget statement on 12 March 2008 that the Finance Act 2008 would contain draft legislation exempting VCTs from VAT on management fees with effect from 1 October 2008. This legislation was passed in July 2008 and as such all VCTs have been made exempt from VAT on management fees from this date, thus VAT has not been included on management fees for this year and has been rebated for previous years. 4. Other expenses 28 February 2009 New Ordinary Ordinary Shares shares Total £'000 £'000 £'000 Directors' remuneration (including VAT & NIC) 10 58 68 Fees payable to the Company's auditor for the audit of the financial statements* 2 17 19 Fees payable to the Company's auditor - Deloitte fee for share merger - 12 12 Other administration expenses 31 110 141 43 197 240 29 February 2008 Ordinary Shares 'D' shares Total Shares £'000 £'000 £'000 Directors' remuneration (including VAT & NIC) 44 29 73 Fees payable to the Company's auditor for the audit of the financial statements* 9 6 15 Other administration expenses 61 40 101 114 75 189 *Please note all 2008 audit fees were payable to Deloitte & Touche LLP. All fees relating to the Company's auditor in 2009 were paid wholly to PKF LLP except as otherwise noted above. The total expense ratio for the Company for the year to 28 February 2009 was 3.2 per cent (2008: 3.4 per cent). 5. Directors' remuneration (Excluding including VAT & NIC) 28 February 2009 29 February 2008 £'000 £'000 Directors' emoluments Michael Reeve 24 24 Roger Smith 18 18 Stephen Hazell-Smith 18 18 Frank Malcolm - 5 60 65 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 (2008: three). 6. Tax on ordinary activities The corporation tax charge for the year was £nil (2008: £nil) Factors affecting the tax charge for the current year: The current tax charge for the year differs from the standard rate of corporation tax in the UK of 20.9% (2008: 30.0%). The differences are explained below. 28 February 2009 Ordinary Shares Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities before tax 18 (1,182) (1,164) Current tax at 20.9% 4 (247) (243) Income not liable to tax (8) - (8) Expenses not deductible for tax purposes - 231 231 Total current tax charge (4) (16) (20) 28 February 2009 New Ordinary Shares Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities before tax 313 (11,434) (11,121) Current tax at 20.9% 65 (2,389) (2,324) Income not liable to tax (37) - (37) Expenses not deductible for tax purposes - 2,362 2,362 Excess management expenses - 19 19 Total current tax charge 28 (8) 20 28 February 2009 Total Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities before tax 331 (12,616) (12,285) Current tax at 20.9% 69 (2,636) (2,567) Income not liable to tax (45) - (45) Expenses not deductible for tax purposes - 2,593 2,593 Excess management expenses - 19 19 Total current tax charge 24 (24) - 29 February 2008 Ordinary Shares Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities before tax 122 (6,834) (6.712) Current tax at 30.0% 37 (2,050) (2,013) Income not liable to tax (41) - (41) Non-taxable losses on investments - 1,931 1,931 Marginal relief adjustment 1 - 1 Excess management expenses - 119 119 Total current tax charge (3) - (3) 29 February 2008 D Shares Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities before tax 305 (1,927) (1,622) Current tax at 30.0% 91 (578) (487) Income not liable to tax (19) - (19) Non-taxable losses on investments - 476 476 Marginal relief adjustment (13) - (13) Excess management expenses - 46 46 Total current tax charge 59 (56) 3 29 February 2008 Total Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities before tax 427 (8,761) (8,334) Current tax at 30.0% 128 (2,628) (2,500) Income not liable to tax (60) - (60) Non-taxable losses on investments - 2,407 2,407 Marginal relief adjustment (12) - (12) Excess management expenses - 165 165 Total current tax charge 56 (56) - Approved venture capital trusts are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a venture capital trust, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments. 7. Dividends The final dividend of 2.5p per share for New Ordinary Shares for the year ended 28 February 2009, subject to shareholder approval at the Annual General Meeting, will be paid once HMRC approval has been obtained. The interim dividend declared of 2.5 pence per New Ordinary share for the six months ending 31 August 2008 was paid on 9 January 2009 to shareholders on the register on 12 December 2008. 8. Earnings per share The earning per share is based on loss after tax of (£1,144,000) on Ordinary Shares and (£11,141,000) on New Ordinary Shares, (2008: (£6,709,000) for Ordinary Shares and (£1,625,000) for D Shares) on 28,719,324 Ordinary Shares and 33,947,228 New Ordinary shares (2008: 29,426,743 Ordinary Shares and 15,882,684 D Shares), being the weighted average number of shares in issue during the year. There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical. 9. Net asset value per share The calculation of net asset value per New Ordinary Share (basic and diluted) as at 28 February 2009 is based on net assets of £19,443,000 (2008: £17,346,000 for Ordinary Shares and £17,437,000 for D Shares) divided by 30,148,687 (2007: 28,883,802 Ordinary Shares and 15,818,800 D Shares) New Ordinary Shares in issue at that date (excluding treasury shares). 10. Fixed asset investments (AIM and PLUS Quoted) 29 February 2008 New Ordinary Ordinary Shares shares Total £'000 £'000 £'000 Book cost as at 29 February 16,155 11,980 28,135 Revaluation to 29 February (1,985) (294) (2,279) Valuation at 29 February 14,170 11,686 25,856 28 February 2009 Opening valuation at 29 February 14,170 11,686 25,856 Purchases at cost - 1,706 1,706 Disposal proceeds (1,089) (1,213) (2,302) (Loss)/Profit on realisation of investments - current year 229 (2,608) (2,379) Revaluation in year (1,335) (8,725) (10,060) Transfer between share classes (11,975) 11,975 - Closing valuation at 28 February - 12,821 12,821 Book cost at 28 February: - 25,160 25,160 Revaluation to 28 February: - (12,339) (12,339) - 12,821 12,821 Valuation at 28 February - 12,821 12,821 28 February 2007 Ordinary Shares 'D' shares Total £'000 £'000 £'000 Book cost as at 28 February 18,265 7,917 26,182 Revaluation to 28 February 2,846 2,250 5,096 Valuation at 28 February 21,111 10,167 31,278 29 February 2008 Opening valuation at 28 February 21,111 10,167 31,278 Purchases at cost 1,386 4,955 6,341 Disposal proceeds (1,909) (1,879) 3,788 (Loss) / Profit on realisation of investments - current year (1,587) 987 (600) Revaluation in year (4,831) (2,544) (7,375) Closing valuation at 29 February 14,170 11,686 25,856 Book cost at 29 February: 16,155 11,980 28,135 Revaluation to 29 February: (1,985) (294) (2,279) Valuation at 29 February 14,170 11,686 25,856 Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review on pages 8 to 17. All investments are designated as fair value through profit or loss from the time of acquisition, and all capital gains or losses on investments so designated. Given the nature of the Company's venture capital investments, the changes in fair value of such investments recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and accordingly these gains are treated as unrealised. At 28 February 2009 and 28 February 2008 there were no commitments in respect of investments approved by the manager but not yet completed. Transaction costs on purchases and disposals for the year were £3,000. 11. Current asset investments Current asset investments at 28 February 2009 comprised Floating Rate Notes ("FRNs")*. 29 February 2008 New Ordinary Ordinary Shares shares Total £'000 £'000 £'000 Book cost at 29 February 1,919 4,286 6,205 Revaluation to 29 February (18) (22) (40) Valuation as at 29 February 1,901 4,264 6,165 28 February 2009 £'000 £'000 £'000 Opening valuation at 29 February 1,901 4,264 6,165 Disposal proceeds: - - Profit/(loss) in year on realisation of investments: - - Revaluation in year: - (2) (2) Transfer between share classes (1,901) 1,901 - Closing valuation as at 28 February - 6,163 6,163 Book cost at 28 February: - 6,205 6,205 Revaluation to 28 February: - (42) (42) - 6,163 6,163 Closing valuation as at 28 February - 6,163 6,163 28 February 2007 Ordinary Shares 'D' shares Total £'000 £'000 £'000 Book cost at 28 February 3,920 7,007 10,927 Revaluation to 28 February - 3 3 Valuation as at 28 February 3,920 7,010 10,930 29 February 2008 £'000 £'000 £'000 Opening valuation at 28 February 3,920 7,010 10,930 Disposal proceeds: (2,001) (2,717) (4,718) Profit/(loss) in year on realisation of investments: - (4) (4) Revaluation in year: (18) (25) (43) Closing valuation as at 29 February 1,901 4,264 6,165 Book cost at 29 February: 1,919 4,286 6,205 Revaluation to 29 February: (18) (22) (40) Closing valuation as at 28 February 1,901 4,264 6,165 * FRNs represent money held pending investment and can be accessed with 5 workings days notice. FRNs were classified as fixed asset investments in the prior year but are classified as current asset investments in the current year. Transaction costs on purchases and disposals for the year were £nil. 12. Debtors 28 February 29 February 2008 2009 New Ordinary Ordinary Shares Shares 'D' shares Total £'000 £'000 £'000 £'000 Prepayments and accrued income 42 50 62 112 Inter class debtor - 3 - 3 Sales awaiting settlement 78 63 53 116 Other debtors 365 11 - 11 485 127 115 242 13. Creditors: amounts falling due within one year 28 February 2009 29 February 2008 New Ordinary Ordinary Shares Shares 'D' shares Total £'000 £'000 £'000 £'000 Bank overdraft - current account 18 - - - Accruals 175 57 57 114 Purchases awaiting settlement - 6 - 6 Inter class Creditor - - 3 3 193 63 60 123 14. Share capital 28 February 2009 29 February 2008 New Ordinary Ordinary Shares Shares 'D' shares Total £000 £000 £000 £000 Authorised: 70,000,000 New Ordinary shares of 50p each 35,000 - - - 45,000,000 Ordinary shares of 50p each - 22,500 - 22,500 25,000,000 D shares of 50p each - - 12,500 12,500 35,000 22,500 12,500 35,000 Allotted and fully paid up (including Treasury shares) 31,930,030 New Ordinary shares of 50p each 15,965 - - - 29,522,615 Ordinary Shares of 50p each - 14,762 - 14,762 15,846,847 D Shares of 50p each - - 7,923 7,923 15,965 14,762 7,923 22,685 The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page 25. The Company is not subject to any externally imposed capital requirements. At an Extraordinary General Meeting and separate class meetings held on 22 April 2008, shareholders approved extraordinary resolutions to revise the merger arrangement. The revised arrangements made to the Articles of Association merged the two share classes by converting the Ordinary Shares into D Shares ("the Conversion") at a ratio of 0.5448 D Shares for each Ordinary Share and then redesignating all of the D Shares into New Ordinary Shares ("New Shares") on 31 May 2008. The Company did not issue any other shares in the year (2008: nil). During the year the Company did not purchase any shares for cancellation (2008: 432,825 Ordinary Shares and 168,341 D Shares at a cost of £353,878 and £204,767 respectively, representing 1.44 per cent of the Ordinary Shares and 1.05 per cent of the D Shares in issue at 28 February 2007). Prior to the share conversion on 31 May 2008, the Company purchased 284,564 Ordinary shares for a weighted average price of 51.8p per share for total consideration £147,306 and 526,701 'D' shares for a weighted average price of 96.3p per share for total consideration £507,472. Post 31 May 2008, the Company purchased 723,039 New Ordinary shares for a weighted average price of 74.0p per share for total consideration £534, 990.(2008: 638,813 Ordinary Shares and 28,047 D Shares at a cost of £411,163 and £27,881 respectively). This represented 0.96% of Ordinary shares, 2.27% of D shares and 3.16% of New Ordinary shares (2008: 2.13 per cent of the Ordinary Shares and 0.18 per cent of the D Shares in issue at 28 February 2007.). 15. Reserves Ordinary Shares Own Special Capital Capital Capital shares Share Distributable Redemption Reserve Reserve held in Revenue premium reserve Reserve realised unrealised treasury reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 As at 28 1,450 3,569 February 2008 7,311 (7,508) (2,003) (411) 176 Profit on - ordinary activities - - - - - 22 Repurchase of - own shares - - - - (147) - Capitalisation - of management fees - - (76) - - - Gains/(losses) - on revaluation - - 229 (1,335) - - Transfer to (1,450) "New Ordinary Shares" (7,311) (3,569) 7,355 3,338 558 (198) Balance as at - - 28 February 2009 - - - - - Own Share Special Capital Capital Capital shares Premium Distributable Redemption Reserve Reserve held in Revenue account reserve Reserve realised unrealised treasury reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 As at 28 February 2008 39 9,100 159 459 (316) (28) 101 D share conversion 6,720 - - - - - - Transfer from "Ordinary Shares" 1,450 7,311 3,569 (7,355) (3,338) (558) 198 Repurchase of own shares - - - - - (1,050) - Capitalisation of management fees - - - (74) - - - Losses on valuation - - - (2,608) (8,727) - - Profit on ordinary activities after tax - - - - - - 285 Dividends paid - - - (1,474) - - (385) Reverse b/fwd stamp duty paid by Close - 1 (1) - - - - Balance as at 28 February 2009 8,209 16,412 3,727 (11,052) (12,381) (1,636) 199 * Formerly D shares When the Company revalues its investments during the period, any gains or losses arising are credited/charged to the Income Statement. Unrealised gains/losses are then transferred to the capital reserve - unrealised. When an investment is sold any balance held on the capital reserve unrealised is transferred to the capital reserve - realised as a movement in reserves. 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 at which the Company's shares trade to net asset value. 16. Financial instruments and risk management The Company's financial instruments comprise equity investments, FRNs, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying unquoted and AIM-quoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity. Fixed and current asset investments (see note 10 and 11) are valued at fair value. For quoted investments this is bid price. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the year end is equal to their book value. In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date. Market risk The Company's strategy for managing investment risk is determined with regard to the Company's investment objective, as outlined on page 26. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed in accordance with the policies and procedures described in the Corporate Governance statement on pages 34 to 37, having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in smaller companies, by their nature, usually involve a higher degree of risk than investments in larger companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board. Details of the Company's investment portfolio at the balance sheet date are set out on pages 10 to 13. 99.6% (31 February 2008: 93% for Ordinary Shares and 91% for D shares) by value of the Company's net assets comprises equity securities listed on the London Stock Exchange or quoted on AIM. A 30% increase in the bid price of these securities as at 28 February 2009 would have increased net assets and the total return for the year by £5,700,000 (31 February 2008: £4,800,000 for Ordinary Shares and £4,800,000 for D shares); a corresponding fall would have reduced net assets and the total return for the year by the same amount. Interest rate risk Some of the Company's financial assets are interest-bearing. As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. Floating rate The Company's floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market securities. The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 1.0% at 28 February 2009 (29 February 2008: 5.25%). The amounts held in floating rate investments at the balance sheet date were as follows: 28 February 2009 29 February 2008 New Ordinary Ordinary Shares Shares 'D' Shares Total Shares £'000 £'000 £'000 £'000 Floating rate 4,264 notes 6,163 1,901 6,165 Cash on deposit 167 1,211 1,432 2,643 6,330 3,112 5,696 8,808 A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £63,300 (29 February 2008: £88,080) 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 28 February 2009 the Company's financial assets exposed to credit risk comprised the following: 28 February 2009 29 February 2008 New Ordinary Ordinary 'D' Total Shares Shares Shares Shares £'000 £'000 £'000 £'000 Floating rate notes 6,163 1,901 4,264 6,165 Cash on deposit 167 1,211 1,432 2,643 Accrued dividends and interest receivable 18 25 24 49 6,348 3,137 5,720 8,857 Credit risk relating to listed money market securities is mitigated by investing in money market instruments issued by major companies and institutions with a minimum Moody's long term debt rating of 'A'. Those assets of the Company which are traded on recognised stock exchanges are held on the Company's behalf by third party custodians (BNP Paribas in the case of listed money market securities and quoted equity securities). Bankruptcy or insolvency of a custodian could cause the Company's rights with respect to securities held by the custodian to be delayed or limited. Credit risk arising on the sale of investments is considered to be small due to the short settlement and the contracted agreements in place with the settlement lawyers. The Company's interest-bearing deposit and current accounts are maintained with Royal Bank of Scotland. Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 28 February 2009 or 29 February 2008. Liquidity risk The Company's financial assets include investments in AIM-quoted companies, which by their nature; involve a higher degree of risk than investments on the main market. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The Company's listed money market securities are considered to be readily realisable as they are of high credit quality as outlined above. The Company's liquidity risk is managed on a continuing basis by the Investment Manager in accordance with policies and procedures laid down by the Board. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 28 February 2009 these investments were valued at £167,000, (29 February 2008 £1,211,000 for Ordinary shares and £1,432,000 for 'D' shares). 17. Post balance sheet events The following events occurred between the balance sheet date and the signing of these financial statements: * The Company has purchased 66,242 New Ordinary shares at a weighted average price of 59.8p per share. These shares are held in Treasury. Date Company Valuation (£) Purchase/Sell (P/S) 12 March Optimisa plc 7,821 S 2009 24 April Clipper Ventures 79,688 S 2009 20 April Hargreaves Services 120,000 P 2009 28 April System C Healthcare 382,500 P 2009 29 April Matchtech 194,350 P 2009 6 May 2009 Ashley House 87,600 P 7 May 2009 Advanced Computer 10,9880 P Software 11 May Immunodiagnostoc Ststems 229,000 P 2009 20 May B Global plc 18,518 S 2009 * 24 April 2009, Play golf was placed into administration 18. Contingencies, guarantees and financial commitments There were no contingencies, guarantees or financial commitments as at 28 February 2009 (2008: £nil). 19. Related party transactions Octopus acts as the Investment Manager of the Company. Under the management agreement, Octopus receives a fee of 2.0% per annum of the net assets of the Company for the investment management services. During the period 1 August to 28 February 2009, the Company incurred management fees of £275,000 (2008: £nil) payable to Octopus. At the period end there was £Nil (2008: £nil) outstanding to Octopus. Prior to 1 August 2008, Close acted as the Investment Manager of the Company. During the period 1 March 2008 to 31 July 2008, the Company incurred management fees of £309,000 (including VAT at the applicable rate at that time) payable to Close. At the period end there was £nil outstanding to Close. ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.

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