Octopus AIM VCT PLC : Final Results
Octopus AIM VCT plc
Final Results
30 May 2014
Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 28 February 2014.
These results were approved by the Board of Directors on 30 May 2014.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com by navigating Investor, Venture Capital Trusts, Octopus AIM VCT plc. All other statutory information will also be found there.
Financial Summary
| As at 28 February 2014 | As at 28 February 2013 | |
| Net assets (£'000) | 69,730 | 44,123 |
| Net profit after tax (£'000) | 19,148 | 5,471 |
| Net asset value (NAV) per share | 125.2p | 93.7p |
| Dividends per share paid in year | 5.0p | 5.0p |
| Final proposed dividend | 3.0p* | 2.5p |
*If approved at the AGM, the dividend will be paid on 24 July 2014 to those shareholders on the register on 27 June 2014.
Key Dates
Final dividend payment date 24 July 2014
Annual General Meeting 17 July 2014 (12.30 pm. at 20 Old Bailey, London EC4M 7AN)
Half yearly results to 31 August 2014 announced October 2014
Annual results to 28 February 2015 announced June 2015
Annual Report and financial statements published June/July 2015
Chairman's Statement
Introduction
Your Company has had another good year. The net asset value of your shares continued to increase in the second half of the year with the result that a total increase of 38.8 per cent was achieved in the year to 28 February 2014 including the 5p dividend which was paid in the year. This may be compared with the increase in the AIM Index of 20.5 per cent in the same period.
Your Company invests in company shares quoted on AIM but is restricted to the type of activity an investee company pursues which effectively eliminates approximately 30 per cent of AIM companies. Recent changes which make investment in AIM shares more attractive include nil stamp duty on purchase with effect from 28 April 2014 and their eligibility to be held in ISA portfolios. It is most refreshing to see the Government take such positive steps to enhance the attraction of investing in Europe's most important small companies. As our Investment Manager points out in their review on page X, ISA eligibility is believed to account for a 20 per cent increase in AIM trading volume compared to a year earlier. This is most encouraging for the future of your company and may herald a new era of recognising that, as the banking system continues to draw in its horns, small company equity financing is becoming ever more important.
The major tax concessions applicable to investors in VCTs which were designed to attract capital to small businesses only apply to investors in new shares. Therefore there is little secondary market in VCT shares. However it should not be forgotten that income from shares acquired in that market is not subject to income tax and realised gains are not subject to Capital Gains Tax.
Fund raising
Since 28 February 2013 we have raised a total of £9.8 million pursuant to a prospectus offer and £4.1m under the Top- up offer which closed on 28 March 2014. In total we have issued 2,332,244 shares since that date. In the year ended 28 February 2014 we bought back 1,237,083 shares. The average month end discount to net asset value at which your shares have traded through the year has been 5.8 per cent compared to the closing monthly bid price in line with the Board's policy of 5 per cent.
Performance
In the interim accounts I reported that we had invested £2.4 million in new qualifying holdings, namely Cambridge Cognition, Quixant, Nektan and Clean Air Power. In the second half of the year we invested £2.2 million in four new holdings, Enables IT, Proxama and Nasstar together with another unquoted company Rated People. The latter followed a Board decision to invest in unquoted companies where there was an high expectation that they would float within the next 9 to 12 months. We also made additional investments in Corac and Nektan.
We made disposals totalling £3.5 million at a net profit of £0.9 million. We sold our entire holding in Corero and Marwyn Management and took profits in Proxama, Quixant, WANdisco, Plus500 and Omega Diagnostics. Active Risk was the subject of a takeover.
Your Company, like all Venture Capital Trusts, invests in smaller companies, which by their nature are riskier than more established larger companies and hence attract the tax concessions, which encourage such investment. The fact that the fair market value of your company's investment portfolio is approximately twice its cost is a just tribute to the ability of your investment managers to fish successfully in such difficult waters.
Dividend
An interim dividend of 2.5p was paid to shareholders in January 2014. Shareholders will know that it is the Company's present policy to pay a dividend of at least 2.5p a share twice yearly and this remains the case. However, in the light of the recent rises in the Net Asset Value your Board has pleasure in recommending a rise in the final dividend to 3.0p which will be paid in July 2014. This is equivalent to an annualised yield of 5% based on the share price of 119p on 28th February 2014.
In refining the dividend policy it is your Board's intention to continue to pay a minimum of 2.5p each half year or a 5% yield based on share price, whichever is the greater at the time. This will enable dividends to progress with a rising NAV, whilst maintaining the minimum historic level.
VCT Status
PricewaterhouseCoopers LLP provides your Board and Investment Manager with advice concerning continuing compliance with HMRC regulations for VCTs. Your Board has been advised that Octopus AIM VCT is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is to maintain at least a 70 per cent qualifying investment level. As at 28 February 2014 some 82.8 per cent of the portfolio as measured by HMRC rules was invested in qualifying investments.
Risks and uncertainties
In accordance with the Listing Rules under which your Company operates your Board has to comment on the potential risks and uncertainties which could have a material impact on the Company's performance. A risk arises from the requirement to maintain compliance with HMRC regulations requiring 70 per cent of your Company's assets to be invested in qualifying holdings. Other risks include economic conditions which impact particularly on smaller companies in which your Company invests and this could have an adverse impact on share prices.
Alternative Investments Fund Managers Directive ("AIFMD")
AIFMD was introduced under EU Legislation to bring consistency of reporting across all fund types. In accordance with this legislation, the Company applied to the Financial Conduct Authority to register as its own Alternative Investment Fund Manager and confirmation of the registration was received on 14 April 2014. The Company will be required to make an annual report, which will include investments made, principal exposures, liquidity and risk management.
Annual General Meeting
The Annual General Meeting will be held on Thursday 17 July 2014. I very much hope that you will be able to come. After the formal business our Investment Managers will make a presentation and refreshments will be provided.
At the Annual General Meeting, a resolution will be proposed to extend the life of the Company until 2020 in order to preserve the ability of the company to conduct Top-Up offers in the future.
Outlook
The economic outlook is certainly brighter than it was but there are still quite a lot of uncertainties. The UK might be performing better than many of its trading partners but ultimately its performance is to a degree dependent on their performance. There is still considerable scope for fluctuations in market prices, often quite substantial as we have seen in recent months. Your Company's investment portfolio cannot be immune from what is happening in the market generally. The latest unaudited NAV of 120.9p struck on 26 May, which is slightly below the level at the end of February, reflects this.
Success in the future ultimately rests with your investment managers' continuing ability to pick investments with long term growth and potential to increase in value. It is worth recalling that in the much covered Pfizer Astra Zeneca debate, an often overlooked fact is six out of seven of Astra's mid stage pipeline assets, which it said hold the key to its future prosperity, were bought-in. The overwhelming evidence is that smaller, more entrepreneurial businesses are the engine room of the economy, are better at research and new product innovation as measured in almost any terms. That is why companies such as yours are important to the future of our country and that is why your Board believes that we are in the right place to bring prosperity to all shareholders.
Michael Reeve
Chairman
30 May 2014
Strategic Report
The Directors are required by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 to include a Strategic Report to Shareholders.
The following sections form part of the Strategic Report:
- Our Strategy
- Business Review
- Investment Manager's Review
The purpose of the report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their legal duty to promote the success of the Company in accordance with section 172 of the Companies Act.
Our Strategy
The Company's Objective
The objective of the Company is to invest in a broad range of predominantly AIM-quoted companies in order to generate income and long-term capital growth. Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value. Start-up companies will usually be avoided.
Investment Policy
The Company's investment policy has been designed to enable it to comply with the VCT qualifying conditions. The Board intends that the long-term disposition of Company's assets will be not less than 80 per cent in a portfolio of qualifying AIM, ISDX Growth Market traded investments or unquoted companies where the management view an initial public offering (IPO) on AIM or the ISDX Growth Market is a short to medium term objective. Now the qualifying target has been achieved, the Board intends that approximately 20 per cent of its funds will be invested in non-qualifying investments generally comprising gilts, floating rate securities and short-term money market deposits with, or issued by, major companies and institutions with a minimum Moody's long term debt rating of 'A'. A proportion of the 20 per cent could be invested in an authorised UK smaller company fund managed by Octopus or direct in equity investments and bonds. This 20 per cent could provide a reserve of liquidity which should maximise the Company's flexibility as to the timing of investment acquisitions and disposals, dividend payments and share buybacks.
Risk is spread by investing in a number of different businesses across a range of industry sectors using a mixture of securities. The maximum amount invested in any one company is limited to the amount permitted pursuant to VCT legislation in a fiscal year and no more than 15 per cent of the Company's assets, at cost, will be invested in the same company. The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale. However, shareholders should be aware that the Company's qualifying investments are held with a view to long-term capital growth as well as income and will often have limited marketability; as a result it is possible that individual holdings may grow in value to the point where they represent a significantly higher proportion of total assets prior to a realisation opportunity being available. Investments will normally be made using the Company's equity shareholders' funds and it is not intended that the Company will take on any borrowings.
The Company's Articles permit borrowings of amounts up to 10 per cent of the sum equal to the aggregate of the amount paid up on the allotted or issued share capital of the Company and the amount standing to the credit of the capital and revenue reserves of the Company (whether or not distributable) after adding thereto or deducting therefrom any balance to the credit or debit of the profit and loss account.
No material changes may be made to the Company's investment policy described above without the prior approval of shareholders by the passing of an Ordinary Resolution. The Directors will continually monitor the investment process and ensure compliance with the investment policy.
Business Review
Performance
The Board is responsible for the Company's investment strategy and performance, although the management of the Company's investment portfolio is delegated to Octopus through the investment management agreement, as referred to in the Directors' Report.
The ongoing charges of the Company were 2.2 per cent of average net assets during the year to 28 February 2014 (2013: 2.3 per cent).
| Results and Dividend | Year ended | Year ended |
| 28 February 2014 | 28 February 2013 | |
| £'000 | £'000 | |
| Net profit/(loss) attributable to shareholders | 19,140 | 5,471 |
| Appropriations: | ||
| Interim dividend paid: 2.5 pence per Ordinary share (2013: 2.5 pence per Ordinary share) | 1,369 | 1,183 |
| Final dividend proposed: 3.0 pence per Ordinary share (2013: 2.5 pence per Ordinary share) | 1,640 | 1,265 |
The proposed final dividend will, if approved by shareholders, be paid on 24 July 2014 to shareholders on the register on 27 June 2014.
Key Performance Indicators ("KPIs")
As a VCT, the Company's objective is to provide shareholders with an attractive income and capital return by investing its funds in a broad spread of AIM or ISDX Growth Market traded UK companies which meet the relevant criteria for VCTs.
The Board has a number of performance measures to assess the Company's success in meeting its objectives. Performance, measured by the change in NAV per share and total return per share, is also measured against the FTSE Small-Cap Index and the FTSE All-Share Index. This is shown in the graphs on page X of the Strategic Report. These indices have been adopted as an informal benchmark. Investment performance, cash returned to shareholders and share price are also measured against the Company's peer group of the other AIM VCTs. The Chairman's Statement, on pages X to X includes a review of the Company's activities and future prospects; further details are also provided within the Investment Manager's Review on pages X to X. Further details of the Company's risk management policies are provided in note 16 to the financial statements. The ongoing charges of the Company were 2.2 per cent of average net assets during the year to 28 February 2014 (2013: 2.3 per cent).
Principal Risks, Risk Management and Regulatory Environment
Investments are made on a selective, stock-picking basis. Octopus researches all potential investments carefully, meets the management before investing and continues to meet them regularly thereafter. However, as all equities carry a level of risk, the Board also sets certain other parameters to mitigate risk, namely control of gearing (the Company has never had any debt), size of investment (a maximum of 10 per cent at cost of portfolio value), sector spread and investment of the non-VCT qualifying element of the portfolio. The policy is to take some profits once a holding has reached a certain weighting of the portfolio in order to secure value.
In accordance with the Listing Rules under which your Company operates, your Board has to comment on the potential risks and uncertainties which could have a material impact on the Company's performance. Risks include the current challenging economic conditions which impact particularly on smaller companies in which your Company invests and this could have an adverse impact on share prices.
The Board carries out a regular review of the risk environment in which the Company operates. The main areas of risk identified by the Board are as follows:
VCT qualifying status risk: the Company is required at all times to observe the conditions laid down in the Income Tax Act 2007 for the maintenance of approved VCT status. A risk arises from the requirement to maintain compliance with HMRC regulations requiring 70 per cent of your Company's assets to be invested in qualifying holdings. The loss of such approval could lead to the Company losing its exemption from corporation tax on capital gains, to investors being liable to pay income tax on dividends received from the Company and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment.
Octopus keeps the Company's VCT qualifying status under continual review and reports to the Board regularly throughout the year. The Board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role.
Investment risk: the majority of the Company's investments are in AIM or ISDX Growth Market companies which are VCT qualifying holdings and which, by their nature, entail a higher level of risk and lower liquidity than investments in larger quoted companies. The Directors and Octopus aim to limit the risk attached to the portfolio as a whole by careful selection and timely realisation of investments, by carrying out rigorous due diligence procedures and by maintaining a wide spread of holdings in terms of financing stage, industry sector and geographical location. The Board reviews the investment portfolio with Octopus on a regular basis.
Financial risk: as a VCT, the Company is exposed to market price risk, credit risk, liquidity risk, fair value and cash flow interest rate risks. The majority of the Company's income and expenditure is denominated in sterling and hence the Company has limited foreign currency risk. The Company is financed through equity and does not have any borrowings. The Company does not use derivative financial instruments.
Credit risk: Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. Octopus and the Board carry out a regular review of counterparty risk.
The Company has cash deposits which are held on the balance sheet of HSBC Bank Plc and in cash funds managed by BlackRock. The risk of loss to this cash is deemed to be low due to the historical credit ratings and a current Standard & Poor's rating of AA for HSBC and AAA for BlackRock. Inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to mis-posting or breaches of regulations.
Regulatory risk: the Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority, the FCA AIFM rules and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
Reputational risk: inadequate or failed controls might result in breaches of regulation or loss of shareholder trust.
Internal control risk: the Board reviews annually the system of internal controls, both financial and non-financial, operated by the Company and Octopus. These include controls designed to ensure that the Company's assets are safeguarded and that proper accounting records are maintained.
Competitive Risk: retention of key personnel is vital to the success of the Company. Incentives to the Octopus key staff are monitored by Octopus.
Economic risk: the risk that the value of a security or portfolio of securities could decline in the future is mitigated by holding a diversified portfolio, across a broad range of sectors.
Events such as an economic recession and movement in interest rates could affect smaller companies' valuations.
Price risk: the risk that the value of a security or portfolio of securities will decline in the future is mitigated by holding a diversified portfolio, across a broad range of sectors.
Cash flow risk: the risk that the Company's available cash will not be sufficient to meet its financial obligations is managed by frequent budgeting and close monitoring of available cash resources.
Market risk: A substantial portion of the Company's investments are in AIM traded companies as well as some unquoted companies. All of these investments involve a higher degree of risk than investment in larger fully listed companies. In particular, smaller companies often have limited product lines, markets or financial resources, may be dependent for their management on a small number of key individuals and may be more susceptible to political, exchange rate, taxation and other regulatory changes.
Liquidity risk: the Company's investments may be difficult to realise. The spread between the buying and selling price of shares may be wide and thus the price used for valuation may not be achievable.
The Board seeks to mitigate the internal risks by setting policy, regularly reviewing performance, enforcing contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the 'Turnbull' guidance and Octopus use testing controls, an internal audit programme and Compliance monitoring. Details of the Company's internal controls are contained in the Corporate Governance section on pages X to X.
Further details of the Company's risk management policies are provided in note 16 to the financial statements.
Gender and Diversity
The Board of Directors currently comprises one female and three male Non-Executive Directors with considerable experience of the VCT industry. The gender, diversity and constitution of the Board will be reviewed on an annual basis.
Human Rights Issues
Due to the structure of the Company with no employees and only four Non-Executive Directors, there are no Human Rights Issues to report.
Environment Policy and Greenhouse Gas Emissions
The Board has no specific environmental policy; however, the Company recognises the need to conduct its business, including investment decisions, in a manner that is responsible to the environment wherever possible.
The Company does not produce any reportable emissions as the fund management is outsourced to Octopus with no physical assets or property held by the Company. As the Company has no employees or operations, it is not responsible for any direct emissions.
Investment Manager's Review
Introduction
The NAV rose strongly in the year to 28 February 2014, building on the progress of the previous twelve months. More optimistic market sentiment has enabled smaller companies to close the gap in valuation at which they had been trading for many years and the portfolio has been further supported by continuing good trading news from many of its holdings. A revival in new issues was also helpful and many of the newer holdings in the portfolio performed exceptionally well as a result. There was an additional boost to the Alternative Investment Market's ("AIM") standing as AIM shares became eligible for inclusion in ISAs and trading volumes in AIM shares have benefitted since.
There was a reasonable amount of change to the portfolio in the period. New money raised has been invested in earlier stage companies which we expect to drive future growth. A stronger equity market has allowed us to sort out some of the remaining tail of older small investments as well as enabling us to take some profits as valuations have risen. We expect this process to continue and there are several potential new investments in the pipeline for the current financial year. There is still a bias towards profitable companies in the portfolio reflecting the maturity of the VCT.
Since the period end the market has become more volatile, reacting to news of a slowing rate of growth in China and political problems in the Ukraine. However, this is balanced by the improving economic outlook in the UK where estimates for the economic growth rate in 2013 have been revised upwards pointing to the recovery gathering pace in 2014. This should help smaller domestic companies to accelerate their growth rates, thus justifying the upwards re-rating that share prices benefitted from in 2013. We have been encouraged by upgrades to forecasts in 2014 which would appear to support this optimism. Interestingly, takeover activity in the stock market was close to an all-time low in 2013 and we expect this to change as companies start to think about how to deploy the cash which has been building on their balance sheets.
The Alternative Investment Market
In striking contrast to the previous year, the twelve months to 28 February 2014 saw a strong rise in the FTSE AIM All Share Index, particularly during the second half of the year. That reflects both the greater acceptance of the UK's economic recovery, and of companies' trading results and also the impact of AIM shares being includable within ISAs. That last point alone is believed to account for a 20 per cent increase in AIM share trading volumes compared to a year earlier.
Noticeably the rise in the AIM index has again been subdued by the effect of the large resources sector within the market. Although not quite for the same period, Professors Marsh and Dimson, in compiling the Numis Smaller Companies Index, have calculated that AIM resources companies fell in the calendar year by 16.4 per cent and that without this influence the AIM index would have risen by 39.6 per cent.
It also provides a more sympathetic background against which to understand the increasing number of flotations and money raising as the year progressed. Again in the calendar year, rather than the twelve months to 28 February 2014, AIM is reported to have raised more capital for new companies than any year since 2007. The market has certainly been open and a growing number of advisers and executives have appreciated that. It is also interesting that there has been a marked change in the type of companies raising money on AIM in 2013. Less than a quarter of the cash raised on AIM last year went to oil and gas and basic materials companies combined and technology companies accounted for 18 per cent of the cash raised against 6.6 per cent in 2012. Thus, for a VCT there were more opportunities for investment in 2013.
Performance
2013 as a whole was one of the best years for the performance of smaller company shares since the Numis Smaller Companies index started in 1986 and this had a very beneficial impact on NAV in the twelve months to February 2014, which rose by 38.8 per cent over the period if the dividends of 5.0p paid out in the year are added back. AIM rose by 20.5 per cent and the FTSE Smaller Companies Index ex Investment Trusts by 37.1 per cent. The fact that the AIM Index lagged can be explained once again by the underperformance of the Resource sector which is still a relatively large constituent of the Index.
Once again it was largely individual company newsflow which pushed share prices higher, with performance in the portfolio being driven by holdings in a diverse range of sectors. There were some notable successes among the more recent investments of the last two years including the software company WANdisco which has a technology enabling simultaneous access, use and editing of the same computer code as well as a 'big data' product which ensures that networks cannot fail, Quixant, a supplier of hardware and software which sits inside gaming machines, Fusionex, another software company and Mycelx a supplier of equipment to clean hydrocarbons from water at high pressure which turned profitable in the period. Proxama, a very recent holding was also a good contributor to the rise in the NAV.
Among some of the more established holdings, Staffline, Advanced Computer Software and Breedon Aggregates were all good contributors to performance, helped by acquisitions which led to upgraded profit forecasts. Tasty, the operator of Wildwood and Dim T restaurants had a successful fundraising allowing it to accelerate its roll out of restaurants and its shares reacted well. GB Group's shares performed well as awareness increased of the need for identity verification in an increasingly on-line world. It has been assembling the pieces to do this across borders in contrast to others that tend to have strengths in individual countries. Judges Scientific performed very well as profit expectations were upgraded.
There were some disappointments in the portfolio as well. IDOX suffered a series of downgrades over the year as a result of failing to land some significant orders in its engineering software division. However, the business has a profitable and cash generative core and with some changes to the sales force there should be improvements to trading in 2014. Brady, a company selling risk management software to commodity trading and energy businesses also suffered from timing on contracts. Enteq Upstream was also unable to execute its strategy of growing through acquisition in the oil services sector, and the business that it has is still too small for its central overhead. Investors are having to be patient. Indeed On Line finally had to give up its business plan to develop and dominate the on-line conveyancing market. It turned itself into a cash shell, and has since been reversed into by an on-line training business, Learning Technologies. We have added to the holding with a new qualifying investment since the period end.
2013 also saw some of the more cyclical holdings recover strongly. Vertu Motors, Cello and Plastics Capital all had their shares re-rated as investors appreciated the potential for these businesses to grow against a more favourable economic backdrop. Among the non-qualifying holdings Matchtech, Staffline, SQS and Chime Communications all performed well.
Portfolio Activity
The year under review was a busy one for your fund reflecting the good supply of VCT qualifying fundraisings to be considered. These came in clusters during the year with the last few falling into December and January. Companies are still using equity as a source of growth capital, which has meant that we have had no trouble investing the funds raised in 2012 and 2013. As the fund remains well above its 70 per cent HMRC investment limit in qualifying holdings, we continue to be patient when making new investments, looking for attractive opportunities at realistic prices.
The interim report referred to the new investments in Cambridge Cognition, Quixant, Nektan and Clean Air Power all of which were made in the first half of the year under review. In the second half your Company invested £2.26 million in four further qualifying investments in Enables IT, Proxama, Corac Group, Nasstar, Rated People and Nektan. Corac and Nektan were adding to existing portfolio investments.
We have added to the non-qualifying investments in the portfolio with purchases of new holdings in EMIS, Restore and Lombard Medical Technologies, investing approximately £1.2 million. We also added substantially to existing holdings in Brady and Tasty, to the tune of £0.4 million.
Since the year end we have made one further qualifying investment in Learning Technologies, an existing portfolio company and added to the GB Group holding, as well as taking a new non-qualifying investment in Skyepharma.
The year under review also included a number of disposals, many of which were a continuation of the tidying up process which has been ongoing since 2010 mixed with some profit taking after shares performed well. Only two companies have been taken over in the year, Active Risk and Datong. Sadly neither was a profitable investment. We also sold the positions in Daisy, Inditherm, Jelf, Augean, Snacktime, Corero Network Security and Marwyn Management. However, through the year profits were taken from the holdings in Chime Communications, Quixant, Mycelx Technologies, WANdisco, Omega Diagnostics, Plus500 and Proxama, which we have continued to sell since the year end. The net result of these sales was a small gain of £0.9 million.
Outlook
The past year has finally seen smaller companies close the valuation gap to trade on a similar multiple to the rest of the market. Encouragingly, the domestic economic background of slow but accelerating growth still favours smaller companies making the re-rating, which these shares have enjoyed, sustainable. Larger multinational companies will find growth harder with international growth rates still under pressure and it is likely that they will resort to acquisitions to address this, further boosting the performance of smaller company shares.
We continue to see opportunities to invest new money raised in interesting growth companies in a variety of different sectors. Many of the more mature holdings have seen upgrades to profit forecasts, which justify some quite substantial increases in share prices. We would expect to carry on taking profits in some of the more mature holdings and re-investing the money raised into earlier stage companies to provide future growth. The current balance of the portfolio is that it is more than 80 per cent invested in companies forecast to make a profit in the current year and more than 60 per cent invested in dividend paying companies. This profile has hardly changed over the past year and seems to provide a good balance of risk and reward for investors for the future.
The AIM Team
Octopus Investments Limited
30 May 2014
Investment Portfolio
| Investments | Sector | Book cost as at 28 February 2014 (£'000) | Cumulative change in fair value (£'000) | Fair Value at 28 February 2014 (£'000) | Movement in year ('£000) | % equity held by AIM VCT plc | % equity held by all funds managed by Octopus |
| Advanced Comp Software Plc | Software & Computer Services | 577 | 3,042 | 3,619 | 1,059 | 0.6% | 3.3% |
| Breedon Aggregates Limited | Construction & Building | 903 | 2,028 | 2,931 | 1,202 | 0.8% | 1.2% |
| Staffline Recruitment Plc | Support Services | 340 | 2,501 | 2,841 | 1,571 | 1.5% | 10.9% |
| Brooks MacDonald Group Plc | Speciality & Other Finance | 746 | 1,610 | 2,356 | 373 | 1.2% | 3.6% |
| Quixant plc | Technology Hardware | 697 | 1,498 | 2,195 | 1,498 | 2.3% | 6.3% |
| EKF Diagnostics Plc | Health | 931 | 1,063 | 1,994 | 526 | 1.3% | 3.8% |
| MyCelx Technologies plc | Equities | 870 | 1,119 | 1,989 | 999 | 3.1% | 6.9% |
| Idox Plc | Software & Computer Services | 353 | 1,547 | 1,900 | (446) | 1.3% | 3.9% |
| Escher Group Holdings plc | Software & Computer Services | 1,003 | 854 | 1,857 | 471 | 3.2% | 5.5% |
| WANdisco Plc | Software & Computer Services | 241 | 1,510 | 1,751 | 668 | 0.6% | 2.2% |
| Netcall plc | Telecommunication Services | 437 | 1,307 | 1,744 | 445 | 2.9% | 5.0% |
| Proxama plc | 600 | 1,140 | 1,740 | 1,140 | 3.0% | 8.6% | |
| Mattioli Woods Plc | Speciality & Other Finance | 526 | 1,182 | 1,708 | 726 | 2.0% | 3.1% |
| Vertu Motors Plc | General Retailers | 1,265 | 415 | 1,680 | 627 | 0.8% | 6.8% |
| Tasty Plc | Leisure & Hotels | 621 | 1,016 | 1,637 | 618 | 2.7% | 5.1% |
| Matchtech Group Plc | Support Services | 346 | 1,195 | 1,541 | 816 | 1.1% | 11.7% |
| TLA Worldwide plc | Media & Entertainment | 807 | 646 | 1,453 | 565 | 4.0% | 10.0% |
| GB Group plc | Support Services | 493 | 884 | 1,377 | 479 | 0.9% | 3.1% |
| Fusionex International plc | Software & Computer Services | 282 | 938 | 1,220 | 771 | 0.4% | 1.5% |
| RWS Holdings Plc | Support Services | 367 | 826 | 1,193 | 406 | 0.3% | 4.1% |
| Omega Diagnostics Plc | Health | 464 | 720 | 1,184 | 695 | 3.5% | 6.5% |
| Judges Scientific Plc | Electronic & Electrical | 314 | 823 | 1,137 | 570 | 0.9% | 1.4% |
| Cello Group Plc | Media & Entertainment | 895 | 98 | 993 | 497 | 1.5% | 6.8% |
| Gooch & Housego Plc | Electronic & Electrical | 489 | 374 | 863 | 347 | 0.5% | 4.9% |
| Nektan Limited * | 725 | 120 | 845 | 120 | 3.1% | 11.0% | |
| Animalcare Group Plc | Food Producers & Processors | 304 | 531 | 835 | 93 | 2.6% | 6.8% |
| Craneware Plc | Software & Computer Services | 183 | 617 | 800 | 241 | 0.5% | 1.8% |
| SQS Software Plc | Software & Computer Services | 291 | 458 | 749 | 405 | 0.4% | 8.5% |
| Nasstar plc | 480 | 264 | 744 | 264 | 2.7% | 7.9% | |
| Bond International Plc | Software & Computer Services | 354 | 388 | 742 | 355 | 2.2% | 3.4% |
| Brady plc | Software & Computer Services | 716 | 21 | 737 | (316) | 1.5% | 2.5% |
| Immunodiagnostic Systems Plc | Health | 528 | 188 | 716 | 381 | 0.4% | 3.5% |
| Cohort Plc | Aerospace & Defence | 300 | 391 | 691 | 192 | 0.9% | 4.0% |
| Plus 500 Ltd | Speciality & Other Finance | 147 | 502 | 649 | 502 | 0.1% | 0.3% |
| Futura Medical Plc | Pharmaceuticals & Biotech | 613 | 21 | 634 | (64) | 1.4% | 4.2% |
| Corac Plc | Engineering & Machinery | 648 | (23) | 625 | 1.3% | 5.7% | |
| Restore | 467 | 156 | 623 | 156 | 0.5% | 4.9% | |
| Mears Group Plc | Support Services | 139 | 479 | 618 | 168 | 0.1% | 0.1% |
| DP Poland Plc | Leisure & Hotels | 546 | 18 | 564 | (382) | 3.8% | 6.4% |
| Tangent Communications Plc | Support Services | 578 | (58) | 520 | - | 2.1% | 5.4% |
| Adept Telecom Plc | Telecommunication Services | 600 | (86) | 514 | 219 | 2.0% | 3.9% |
| Sinclair Pharma Plc | Pharmaceuticals & Biotech | 771 | (266) | 505 | 77 | 0.4% | 1.2% |
| Cambridge Cognition Group plc | Healthcare Equipment | 600 | (103) | 497 | (103) | 5.1% | 18.1% |
| Plastics Capital Plc | Engineering & Machinery | 400 | 88 | 488 | 168 | 1.3% | 15.5% |
| Synectics Plc | Support Services | 344 | 123 | 467 | 78 | 0.6% | 1.0% |
| Clean Air Power Limited | Industrial | 485 | (19) | 466 | (19) | 2.2% | 11.6% |
| Enteq Upstream Plc | Oil Services | 1,032 | (568) | 464 | (206) | 1.8% | 3.8% |
| Lombard Medical Technologies Plc | Health | 408 | 31 | 439 | 31 | 0.5% | 0.9% |
| Goals Soccer Centres Plc | Leisure & Hotels | 205 | 226 | 431 | 183 | 0.4% | 2.8% |
| Rated People Limited * | 354 | - | 354 | - | 1.4% | 4.1% | |
| Chime Communications Plc | Media & Entertainment | 194 | 121 | 315 | 94 | 0.1% | 0.3% |
| Emis Group | 318 | (12) | 306 | (12) | 0.1% | 1.6% | |
| Enables IT Group plc | 300 | (50) | 250 | (50) | 3.2% | 11.7% | |
| Vianet Group Plc | Support Services | 358 | (139) | 219 | (62) | 1.1% | 4.6% |
| Access Intelligence Plc | Software & Computer Services | 375 | (188) | 187 | (38) | 3.2% | 9.7% |
| Altitude Group Plc | Media & Entertainment | 600 | (417) | 183 | (100) | 3.9% | 4.6% |
| Woodspeen Plc | Support Services | 350 | (233) | 117 | - | 5.4% | 11.3% |
| Learning Technologies Group (formerly In-Deed Online Plc) | Support Services | 301 | (199) | 102 | (77) | 0.2% | 0.3% |
| Work Group Plc | Support Services | 943 | (849) | 94 | 35 | 4.2% | 6.3% |
| Hasgrove Plc * | Media & Entertainment | 88 | (9) | 79 | (18) | 1.7% | 10.2% |
| Tanfield Group Plc | Engineering & Machinery | 226 | (174) | 52 | (3) | 0.2% | 0.6% |
| Dods Group Plc | Media & Entertainment | 204 | (182) | 22 | (16) | 0.2% | 0.3% |
| Synarbor Plc * | Support Services | 14 | 8 | 22 | - | 0.8% | 0.8% |
| Total investments | 31,056 | 29,512 | 60,568 | 18,919 | |||
| Money market funds | 453 | ||||||
| Total investments and money market funds | 61,021 | ||||||
| Cash at bank | 8,629 | ||||||
| Debtors less creditors | 80 | ||||||
| Total net assets | 69,730 |
*Unquoted investments classified as level 3. See note 10.
Top ten holdings
Listed below are the ten largest investments, valued at bid price, as at 28 February 2014:
Advanced Computer Software Plc
Advanced Computer Software Plc provides software to the Healthcare Sector and other commercial markets.
Initial investment date: July 2008
Cost: £577,000
Valuation: £3,619,000
Equity held: 0.61%
Last audited accounts: February 2013
Revenue: £120.9 million
Profit before tax: £9.2 million
Net assets: £139.1 million
Breedon Aggregates Limited
Breedon Aggregates supplies a diverse range of products to the construction and building sectors from a number of quarries and other sites in the Midlands and Scotland.
Initial investment date: August 2010
Cost: £903,000
Valuation: £2,930,000
Equity held: 0.75%
Last audited accounts: December 2013
Revenue: £224.5 million
Profit before tax: £11.0 million
Net assets: £149.0 million
Staffline Recruitment Plc
Staffline is a provider of labour to employers.
Initial investment date: December 2004
Cost: £340,000
Valuation: £2,841,000
Equity held: 1.49%
Last audited accounts: December 2013
Revenue: £416.2 million
Profit before tax: £8.6 million
Net assets: £45.8 million
Brooks MacDonald Group Plc
Brooks MacDonald is a provider of asset management and financial consulting services with a particular emphasis on the pensions market.
Initial investment date: March 2005
Cost: £746,000
Valuation: £2,356,000
Equity held: 1.16%
Last audited accounts: June 2013
Revenue: £63.2 million
Profit before tax: £10.4 million
Net assets: £57.6 million
Quixant Plc
Quixant designs and manufactures advanced PC based computer systems for the gaming industry.
Initial investment date: September 2013
Cost: £697,000
Valuation: £2,195,000
Equity held: 2.34%
Last audited accounts: December 2013
Revenue: £24.2 million
Profit before tax: £6.0 million
Net assets: £15.5 million
EKF Diagnostics Plc
EKF designs, develops, manufactures and distributes diagnostic instruments and reagents focussed on the diabetes, anaemia and chronic kidney disease markets. It has operations in Germany, Poland and Russia.
Initial investment date: July 2010
Cost: £931,000
Valuation: £1,994,000
Equity held: 1.31%
Last audited accounts: December 2013
Revenue: £31.8 million
Profit before tax: £0.6 million
Net assets: £40.9 million
MyCelx Technologies Corporation
MyCelx Technologies is a clean water technology company.
Initial investment date: April 2013
Cost: £870,000
Valuation: £1,989,000
Equity held: 3.13%
Last audited accounts: December 2013
Revenue: $21.4 million
Profit before tax: $1.3 million
Net assets: $19.0 million
Idox Plc
Idox is a leading developer and supplier of software services to local government for core functions relating to land, people and property, and also to the private sector for the management of engineering drawings.
Initial investment date: May 2008
Cost: £353,000
Valuation: £1,900,000
Equity held: 1.32%
Last audited accounts: October 2013
Revenue: £57.3 million
Profit before tax: £7.5 million
Net assets: £44.7 million
Escher Group Holdings Plc
Escher Group Holdings Plc provides software, particularly for over the counter and financial services, to national Post Office organisations worldwide.
Initial investment date: August 2011
Cost: £1,003,000
Valuation: £1,856,000
Equity held: 3.16%
Last audited accounts: December 2013
Revenue: $24.7 million
Profit before tax: $1.5 million
Net assets: $37.1 million
WANdisco Plc
WANdisco (Wide Area Network Distributed Computing) is a provider of enterprise software enabling simultaneous collaboration and handling of big data.
Initial investment date: May 2012
Cost: £241,000
Valuation: £1,751,000
Equity held: 0.56%
Last audited accounts: December 2013
Revenue: $8.0 million
Loss before tax: $(17.2) million
Net assets: $20.7 million
Directors' Responsibilities Statement
The Directors are responsible for preparing the Strategic Report, Directors' Report, Directors' Remuneration 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 Conduct 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). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs 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 accounting estimates that are reasonable and prudent;
- state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
- prepare a Strategic Report, Directors' Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors confirm that:
so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
the Directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.
The Directors are responsible for preparing the annual report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the annual report and the financial statements, taken as a whole, provides the information necessary to assess the Company's performance, business model and strategy and is fair, balanced and understandable.
The Directors are responsible for ensuring the annual report and the financial statements are made available on the Company's website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
The Directors confirm, to the best of their knowledge:
- that the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice, (United Kingdom Standard and applicable laws), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and
- the annual report, including the strategic report, includes a fair review of the development and performance of the business and the financial position of the Company taken as a whole, together with a description of the principal risks and uncertainties that it faces.
On Behalf of the Board
Michael Reeve
Chairman
30 May 2014
| Income Statement | |||||||
| Year to 28 February 2014 | Year to 28 February 2013 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Gain/(loss) on disposal of fixed asset investments | - | 882 | 882 | - | 455 | 455 | |
| Gain/(loss) on valuation of fixed asset investments | - | 18,919 | 18,919 | - | 5,533 | 5,533 | |
| Investment Income | 584 | - | 584 | 523 | - | 523 | |
| Investment management fees | (243) | (730) | (973) | (202) | (606) | (808) | |
| Other expenses | (264) | - | (264) | (232) | - | (232) | |
| Profit/(loss) on ordinary activities before tax | 77 | 19,071 | 19,148 | 89 | 5,382 | 5,471 | |
| Taxation on profit/(loss) on ordinary activities | - | - | - | - | - | - | |
| Profit/(loss) on ordinary activities after tax | 77 | 19,071 | 19,148 | 89 | 5,382 | 5,471 | |
| Return per share - basic and diluted | 0.1p | 36.8p | 36.9p | 0.2p | 11.4p | 11.6p | |
- 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 AIC Statement of Recommended Practice
- all revenue and capital items in the above statement derive from continuing operations
- the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of recognised gains and losses is not required.
Other than revaluation movements arising on investments held at fair value through the 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 2014 | As at 28 February 2013 | ||||
| £'000 | £'000 | £'000 | £'000 | ||
| Fixed asset investments* | 60,568 | 37,491 | |||
| Current assets: | |||||
| Investments* | 453 | 5,799 | |||
| Debtors | 254 | 71 | |||
| Cash at bank | 8,629 | 841 | |||
| 9,336 | 6,711 | ||||
| Creditors: amounts falling due within one year | (174) | (79) | |||
| Net current assets | 9,162 | 6,632 | |||
| Net assets | 69,730 | 44,123 | |||
| Called up equity share capital | 547 | 467 | |||
| Shares to be issued | 1,327 | 402 | |||
| Share premium | 873 | 11,939 | |||
| Special distributable reserve | 64,455 | 45,182 | |||
| Capital redemption reserve | 2 | 121 | |||
| Capital reserve realised | (27,338) | (22,758) | |||
| Capital reserve unrealised | 29,512 | 8,495 | |||
| Revenue reserve | 352 | 275 | |||
| Total equity shareholders' funds | 69,730 | 44,123 | |||
| Net asset value per share - basic and diluted | 125.2p | 93.7p | |||
* held at fair value through profit & loss (FVTPL)
The statements were approved by the Directors and authorised for issue on 30 May 2014 and are signed on their behalf by:
Michael Reeve
Chairman
Company number: 03477519
| Year to 28 February 2014 | Year to 28 February 2013 | ||
| £'000 | £'000 | ||
| Shareholders' funds at start of year | 44,123 | 39,689 | |
| Profit/(loss) on ordinary activities after tax | 19,148 | 5,471 | |
| Share capital bought back | (1,203) | (10,872) | |
| Issue of shares | 9,371 | 12,071 | |
| Increase/(decrease) in shares to be issued | 925 | 123 | |
| Dividends paid | (2,634) | (2,359) | |
| Shareholders' funds at end of year | 69,730 | 44,123 |
Reconciliation of Movements in Shareholders' Funds
| Reconciliation of Profit before Taxation to Cash Flow from Operating Activities | ||||
| Year to 28 February 2014 | Year to 28 February 2013 | |||
| £'000 | £'000 | |||
| Profit/(loss) on ordinary activities before tax | 19,148 | 5,471 | ||
| Increase in debtors | (183) | (15) | ||
| (Increase)/decrease in creditors | (8) | (1) | ||
| (Gain)/loss on disposal of fixed asset investments | (882) | (455) | ||
| (Gain)/loss on valuation of fixed asset investments | (18,919) | (5,533) | ||
| Outflow from operating activities | (844) | (533) | ||
| Reconciliation of Net Cash Flow to Movement in Net Funds | |||
| Year to 28 February 2014 | Year to 28 February 2013 | ||
| £'000 | £'000 | ||
| Increase in cash at bank | 7,788 | 173 | |
| Movement in cash equivalent securities | (5,346) | (2,810) | |
| Opening net funds | 6,640 | 9,277 | |
| Net funds at 28 February | 9,082 | 6,640 | |
Analysis of changes in Net Funds:
| As at 1 March 2013 | Cash Flows | As at 28 February 2014 | |
| Cash at Bank | 841 | 7,788 | 8,629 |
| Money market funds | 5,799 | (5,346) | 453 |
| Net funds | 6,640 | 2,442 | 9,082 |
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Octopus AIM VCT PLC via Globenewswire
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