Final Results
Octopus IHT AIM VCT PLC
Final Results
20 March 2009
Octopus IHT AIM VCT PLC, managed by Octopus Investments Limited,
today announces the final results for the year ended 30 November
2008.
These results were approved by the Board of Directors on 20 March
2009.
You may view the Annual Report in full at www.octopusinvestments.com
and navigating to the VCT Annual and Interim Reports under the 'Learn
More' section.
About Octopus IHT AIM VCT PLC
Octopus IHT 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 IHT AIM VCT PLC in
March 2006 and raised £25 million through an offer for subscription.
Following your Company's change in name and management agreement,
shareholders should be made aware that existing share certificates
have not been replaced and remain valid.
Financial Summary
Year to 30 November Year to 30 November
2008 2007
Net assets (£'000s) 16,049 23,518
Net (loss) / profit after tax
(£'000s) (6,901) 362
Net asset value per share 64.6p 94.2p
Dividend per share - paid and
proposed in year 2.0p 2.0p
Cumulative dividends since
launch - paid and proposed 6.4p 3.4p
Shareholder Value per Share since launch
Ordinary Shares pence per
share
Total dividends paid during the period to
30 November 2006* 1.4
Total dividends paid during the period to
30 November 2007 2.0
Total dividends paid during the period to
30 November 2008 2.0
Total dividends 5.4
Net asset value at 30 November 2008 64.6
Total cumulative return at 30 November 2008 70.0
* Investors subscribing by 17 January 2006 were entitled to this
dividend. Investors subscribing thereafter were not entitled to this
first dividend.
Chairman's Statement
Introduction
I have pleasure in presenting the Company's third report and
accounts. These cover a period in the stock market which has
generally been described as difficult and challenging. While that is
true for many investors, the Company has had cash to invest during
this period. So although the existing portfolio has been exposed to
the challenges facing all investors, it has also been able to invest
at attractive share price ratings which could not have been imagined
two years earlier. It has therefore been a mixed year for the
Company. However, I can report that the important threshold of 70%
of funds invested in qualifying investments was reached within the
required three year period.
Change in Name and Manager
Shareholders will be aware that in the year to November 2008, which
is the period covered in this report, there has been a change to the
corporate identity of the Company. Following the move by fund
managers Andrew Buchanan and Kate Tidbury from Close Investments
Limited ("Close") to Octopus Investments Limited ("Octopus"), the
Board agreed to novate the management agreement to Octopus. As a
result, it was necessary to change the name of the Company. This
change was approved at an EGM at the beginning of September.
Shareholders' existing share certificates remain valid and have not
been replaced.
Andrew and Kate have joined fund manager Richard Power's larger and
better resourced team at Octopus. This highly skilled team is
involved in smaller company and VCT investment. Along with Andrew and
Kate, the team has been involved with AIM since the market's
inception. Octopus itself is an award-winning, market leading VCT
manager and smaller companies specialist. It acts as manager of 14
other listed investment companies and has a total of approximately
£600 million under management.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager
with advice on the ongoing compliance with HM Revenue & Customs
("HMRC") rules and regulations concerning VCTs. The Board has been
advised that Octopus IHT AIM VCT PLC is in compliance with the
conditions laid down by HMRC for maintaining approval as a VCT. As
at 30 November 2008, over 73% of the portfolio (as measured by HMRC
rules) was invested in VCT qualifying investments.
Dividend
The Directors have proposed a final dividend of 1p per 'A' and 'B'
Ordinary share (comprising 0.35p of revenue and 0.65p of capital) in
respect of the year ended 30 November 2008, although it will be
recognised in the 2009 accounts. This dividend is subject to
approval from HMRC. The proposed final dividend, if approved by
shareholders, will be paid once HMRC approval has been obtained.
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 three 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 £140,000, which is the anticipated VAT rebate.
The VAT saving on management fees for the 2008/2009 year ahead on
Ordinary shares is approximately £48,000.
Performance
The Net Asset Value ("NAV") has fallen throughout the second half of
the year to 30 November 2008. At the end of November 2007, the NAV
was 94.2p per 'A' and 'B' Ordinary share. The interim accounts
reported a NAV of 86.5p as at 31 May 2008. At the end of November
2008, the NAV had fallen to 64.6p per 'A' and 'B' Ordinary share,
post the payment of a 1p dividend. While the economic climate has
taken its toll on some of our investments, notably in the case of
Hatpin which failed during the year, it is not necessarily true that
the lower share prices, which comprise the NAV, reflect poor trading
by the companies concerned. It is much more the case that the
dramatic events in the banking sector, which have come to light in
the year under review, have drastically reduced investor appetite for
small quoted companies. Thus lower share prices reflect selling
pressure, risk aversion and the absence of buyers and only then the
perception that trading will be more difficult in the future.
It is never a happy event to report a lower NAV, but it is some
consolation that the Company's managers had not rushed to invest at
prices prevailing a year or more ago. As a result, the portfolio is
less mature at this stage than might have been expected at the time
of the prospectus. The benefits of a more mature portfolio have
therefore yet to be fully realised.
Portfolio
A number of new holdings were established in the year and
particularly in the second half. Amongst these were CBG Group,
Tasty, Hasgrove and Advanced Computer Software, which are dealt with
more fully in the Investment Manager's Review. A complete list of
the portfolio is set out on pages 8 and 9
Since the year end, the Investment Manager has continued to make
investments or to support existing holdings. However, it is fair to
say that the number of new issues has reduced sharply, although
secondary fund raisings by existing quoted companies have been quite
numerous. That is a trend the managers expect to see continue. Since
the year end, the Company has invested in both Managed Support
Services and Praesepe. Both of these companies are existing AIM
companies which were raising additional capital for growth. Sadly, in
the same period, Fishworks PLC has appointed administrators so this
investment has been written down to nil.
Distribution in Specie
Shareholders will recall that the Company was established with 'A'
and 'B' Ordinary shares, The 'B' Ordinary shares were designed to
allow shareholders to elect to take an allocation of shares in the
underlying portfolio, pro rata to their shareholdings in the Company
at the end of three years. This redistribution of shares is the
Distribution in Specie. The intention was that if shareholders
elected to take part in the Distribution in Specie, they would then
have a portfolio of shares that qualify for Business Property Relief,
therefore taking the value of their investment outside any IHT
exposure after a further two years. However, rather than
automatically participating in the Distribution in Specie,
shareholders can remain as VCT investors by converting their
shareholding into 'A' shares. The 'A' shares will then be the only
share class of Octopus IHT AIM VCT and will subsequently become new
ordinary shares. These shareholders will then benefit from being
invested in a diversified portfolio with the on going tax benefits of
investing in a VCT which they will lose if they take the Distribution
in Specie.
The Share Conversion will happen in tandem with the Distribution in
Specie. The process is well under way and a circular will shortly be
posted to all shareholders. The first step requires the 'B' Ordinary
shareholders wishing to remain invested in the Company to elect for
the Share Conversion into 'A' Ordinary shares. Meanwhile, the 'B'
Ordinary shareholders not electing to convert will proceed with the
Distribution in Specie. They will end up with a portfolio of shares
which they can then elect to have managed by Octopus or another
provider if they wish. It will be necessary to call an additional
General Meeting as the process continues, so that particular steps
have the appropriate shareholder approval.
Outlook
Whether for small or larger companies, the outlook for the months
ahead is one of economic difficulties and even more challenges than
usual. However, for smaller companies, the difficulties are
compounded by the continuing crisis in the banking industry, which is
likely to mean that debt facilities are severely constrained. It
seems absurd that a reasonable company cannot borrow for normal
short-term financing requirements, but that is a measure of the
difficulties that the banks now face. This will have repercussions
for 'innocent' small companies. While the government has attempted to
ease the constraints, there appears, as yet, to be little benefit in
practice. That however, represents 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.
Keith Richard Mullins
Chairman
20 March 2009
Investment Manager's Review
The AIM Market
Over the last twelve months, the well publicised banking crisis and
the ensuing deteriorating economic outlook has had a severe impact on
AIM which fell by 61.8% in the period. 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, these have
fared little better as the banking crisis has unfolded.
The severe derating of shares which has been particularly marked in
the microcap sector where your VCT makes its investments has made the
process of investing harder in the short term. This is 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. There have, however, been some
opportunities to become involved in further fundraisings from
existing companies, many of these being at lower prices than a year
ago.
Performance
It is extremely disappointing to have to report a significant decline
in the NAV in these accounts. As at 30 November 2008, the NAV per
'A' and 'B' Ordinary share was 64.6p, a fall of 31.4%. It is of
limited consolation that the AIM Index fell by 61.8% and the smaller
companies' index (excluding investment trusts) fell by 51.9% in the
same period. To some extent, the Company has benefitted from having
cash in this period, although the cash balance has had to reduce as
investments were made.
Whilst new investments have been made at advantageous prices, the
existing portfolio has suffered from both deteriorating economic
conditions and from reduced bank funding, especially in the second
half of the financial year. It is no surprise that many of the
Government's current economic and financing measures are aimed at
promoting funding facilities for smaller companies. 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. It is not surprising therefore
that the majority of the NAV fall now being reported occurred in the
second half of the financial year and has continued into the current
year. It has to be hoped that the worst, in terms of share price
ratings, is now over and is reflected in share price ratings.
As the last interim and annual accounts noted, smaller company shares
have been steadily de-rated. 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. As a result, many share prices have reflected
the weight of selling and the absence of buyers. If the Government's
attempts to create liquidity in the banking industry succeed, then
the return of buyers will hopefully restore many smaller company
share prices to ratings based on logic rather than sentiment.
Investment Portfolio as at 30 November 2008
+-----------------------------------------------------------------------------------------------------------------------+
| | | | | | |Carrying| | | | |
| | | | | | |value at| | | | |
| | | | |Unrealised| | 30| | | | |
| | |Investment| | profit/| |November| |% equity held by| | |
| Qualifying| | at cost| | (loss)| | 2008| | Octopus IHT AIM| | % equity held by all|
| Investments| Sector| (£'000)| | (£'000)*| | (£'000)| | VCT PLC| | funds managed by Octopus|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
| | | | | | | | | | | |
|CBG GROUP PLC |Non-life insurance | 952| | 79| | 1,031| | 5.13| | 18.09|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|IS PHARMA |Pharmaceuticals & | | | | | | | | | |
|(MAELOR PLC) |Biotechnology | 1,000| | (91)| | 909| | 4.22| | 8.68|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|ADVANCED COMP |Software & Computer | | | | | | | | | |
|SOFT PLC |Services | 750| | -| | 750| | 2.31| | 6.16|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|ANIMALCARE GROUP| | | | | | | | | | |
|PLC |Food Producers | 600| | 131| | 731| | 5.53| | 12.76|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|HASGROVE PLC |Media | 650| | 36| | 686| | 3.21| | 10.54|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|PRESSURE |Industrial | | | | | | | | | |
|TECHNOLOGIES PLC|Engineering | 352| | 175| | 527| | 2.08| | 10.96|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|TASTY PLC |Travel & Leisure | 500| | (33)| | 467| | 4.40| | 4.76|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|CLERKENWELL | | | | | | | | | | |
|VENTURES PLC |General Financial | 650| | (199)| | 451| | 2.10| | 7.97|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|MOUNT |Industrial | | | | | | | | | |
|ENGINEERING PLC |Engineering | 538| | (92)| | 446| | 3.15| | 8.2|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|MELORIO PLC |Support Services | 612| | (226)| | 386| | 1.57| | 5.82|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|ESSENTIALLY | | | | | | | | | | |
|GROUP LTD |Media | 659| | (278)| | 381| | 2.97| | 5.7|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
| |Pharmaceuticals & | | | | | | | | | |
|NEUROPHARM PLC |Biotechnology | 400| | (38)| | 362| | 1.00| | 4.25|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|OPTARE (DARWIN |Industrial | | | | | | | | | |
|HOLDINGS) PLC |Engineering | 850| | (510)| | 340| | 2.61| | 7.03|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
| |Software & Computer | | | | | | | | | |
|CRANEWARE PLC |Services | 175| | 109| | 284| | 0.55| | 1.6|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
| |Software & Computer | | | | | | | | | |
|IDOX PLC |Services | 236| | 47| | 283| | 0.92| | 3.07|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|RESEARCH NOW PLC|Media | 375| | (94)| | 281| | 1.42| | 4.78|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|BRULINES PLC |Support Services | 253| | 4| | 257| | 0.74| | 4.76|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|HEXAGON HUMAN | | | | | | | | | | |
|PLC |Support Services | 632| | (375)| | 257| | 1.97| | 15.67|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|PLASTICS CAPITAL| | | | | | | | | | |
|PLC |Chemicals | 535| | (321)| | 214| | 1.99| | 17.89|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|VERTU MOTORS PLC|General Retailers | 750| | (578)| | 172| | 1.36| | 7.69|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|TELEPHONETICS |Software & Computer | | | | | | | | | |
|PLC |Services | 456| | (285)| | 171| | 2.09| | 7.52|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|JELF GROUP PLC |General Financial | 180| | (51)| | 129| | 0.34| | 1.52|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|WORK GROUP PLC |Support Services | 707| | (619)| | 88| | 3.07| | 7.16|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|ADEPT TELECOM |Fixed Line | | | | | | | | | |
|PLC |Telecommunications | 750| | (670)| | 80| | 2.54| | 4.58|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|TWENTY PLC |Media | 750| | (675)| | 75| | 6.81| | 18.72|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|B GLOBAL PLC |Support Services | 200| | (136)| | 64| | 0.54| | 3.12|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|FISHWORKS PLC |Travel & Leisure | 275| | (218)| | 57| | 4.07| | 7.32|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|INDIVIDUAL | | | | | | | | | | |
|RESTAURANT GRP | | | | | | | | | | |
|PLC |Travel & Leisure | 217| | (161)| | 56| | 0.52| | 1.87|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|OPTIMISA PLC |Media | 511| | (459)| | 52| | 2.65| | 14.08|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|CLAIMAR CARE |Health care | | | | | | | | | |
|GROUP PLC |Equipment & Services| 500| | (460)| | 40| | 0.95| | 4.78|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|LOMBARD MEDICAL |Health care | | | | | | | | | |
|TECHNOLOGIES PLC|Equipment & Services| 375| | (355)| | 20| | 2.00| | 3.6|
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
| | | 16,390| | (6,343)| | 10,047| | | | |
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|Total | | | | | | | | | | |
|non-qualifying | | | | | | | | | | |
|AIM-listed | | | | | | | | | | |
|investments | | 397| | (104)| | 293| | | | |
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|Total fixed | | | | | | | | | | |
|asset | | | | | | | | | | |
|investments | | 16,787| | (6,447)| | 10,340| | | | |
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|Floating Rate | | | | | | | | | | |
|Notes | | 5,486| | (437)| | 5,049| | | | |
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|Total | | | | | | | | | | |
|investments | | 22,273| | (6,884)| | 15,389| | | | |
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|Net current | | | | | | | | | | |
|assets | | | | | | 660| | | | |
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
|Total | | | | | | | | | | |
|investments | | | | | | 16,049| | | | |
|----------------+--------------------+----------+-+----------+-+--------+-+----------------+-+-------------------------|
| | | | | | | | | | | |
+-----------------------------------------------------------------------------------------------------------------------+
*Please refer to notes 10 & 11 in the Notes to the Financial
Statements to provide clarity on the unrealised loss carried forward
Disposals
A summary of these realisations is shown below:
+-------------------------------------------------------------------+
| | | Proceeds of | Total |
| | Cost of investment | investment | gain/(loss) |
| Realisations | realised (£'000) | (£'000) | (£'000) |
|-----------------+---------------------+-------------+-------------|
| Qualifying | | | |
|-----------------+---------------------+-------------+-------------|
| BBI Holdings | 197 | 434 | 237 |
|-----------------+---------------------+-------------+-------------|
| Non qualifying | | | |
|-----------------+---------------------+-------------+-------------|
| Close Special | | | |
| Situations Fund | 3,250 | 3,283 | 33 |
|-----------------+---------------------+-------------+-------------|
| Royal Bank of | | | |
| Scotland FRN | 3,002 | 2,994 | (8) |
|-----------------+---------------------+-------------+-------------|
| Abbey National | | | |
| Treasury | | | |
| Services | 3,001 | 2,997 | (4) |
+-------------------------------------------------------------------+
During the year, apart from disposals of FRNs to finance investments,
the only other disposal was BBI which was bid for, and the holding in
the Close Special Situations Fund, which was completed at the end of
July 2008. The latter achieved a small profit overall despite
deteriorating market conditions over the summer.
Ten Largest Holdings
Listed below are the ten largest investments by value as at 30
November 2008:
CBG Group plc
Based in Manchester, CBG Group plc is a corporate insurance, risk
management and financial services intermediary. The company offers a
range of services principally in the area of commercial insurance,
business risk management, healthcare and employee benefits. We
expect the company to continue to acquire further businesses in the
North-West of England.
Initial investment date: November 2008
Cost: £952,000
Valuation: £1,031,000
Valuation basis: Bid price
Equity held: 5.13%
Last audited accounts: December 2007
Profit before tax: £1.6 million
Net assets: £9.5 million
IS Pharma plc
IS Pharma plc is an international pharmaceutical company involved in
the development and commercialisation of niche healthcare products.
Initial investment date: March 2008
Cost: £1,000,000
Valuation: £909,000
Valuation basis: Bid price
Equity held: 4.22%
Last audited accounts: March 2008
Profit before tax: £1.2 million
Net assets: £8.7 million
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.
Initial investment date: July 2008
Cost: £750,000
Valuation: £750,000
Valuation basis: Bid price
Equity held: 2.31%
Last audited accounts: December 2007
Profit before tax: £0.7million loss
Net assets: £3.8 million
Animalcare plc
Manufacturer and distributor of veterinary medicines, identification
chips and other products for pets and livestock.
Initial investment date: December 2007
Cost: £600,000
Valuation: £731,000
Valuation basis: Bid price
Equity held: 5.53%
Last audited accounts: June 2008
Profit before tax: £1.1 million
Net assets: £14.6 million
Hasgrove plc
Hasgrove plc is a pan-European marketing and communications services
group. The group offers its clients consultancy and implementation
solutions across a range of disciplines including brand design,
creative advertising, public relations and public affairs.
Initial investment date: November 2008
Cost: £650,000
Valuation: £686,000
Valuation basis: Bid price
Equity held: 3.21%
Last audited accounts: December 2007
Profit before tax: £2.4 million
Net assets: £18.4 million
Pressure Technologies plc
Pressure Technologies plc is 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.
Initial investment date: June 2007
Cost: £352,000
Valuation: £527,000
Valuation basis: Bid price
Equity held: 2.08%
Last audited accounts: September 2008
Profit before tax: £5.0 million
Net assets: £11.2 million
Tasty plc
Operator of Oriental and Pizza restaurants.
Initial investment date: September 2008
Cost: £500,000
Valuation: £467,000
Valuation basis: Bid price
Equity held: 4.4%
Last audited accounts: December 2007
Profit before tax: £3.0million loss
Net assets: £9.0 million
Clerkenwell Ventures plc
Shell which has failed to find a qualifying investment and is now
returning cash to shareholders.
Initial investment date: June 2007
Cost: £650,000
Valuation: £451,000
Valuation basis: Bid price
Equity held: 2.1%
Last audited accounts: September 2008
Profit before interest & tax: £0.7 million
Net assets: £29.8 million
Mount Engineering plc
Manufacturer and supplier of thread conversion adaptors mainly for
the oil industry.
Initial investment date: June 2007
Cost: £538,339
Valuation: £446,000
Valuation basis: Bid price
Equity held: 3.15%
Last audited accounts: December 2007
Profit before tax: £1.3 million
Net assets: £16.7 million
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.
Initial investment date: October 2007
Cost: £612,000
Valuation: £386,000
Valuation basis: Bid price
Equity held: 1.57%
Last audited accounts: March 2008
Profit before tax: £1.7 million
Net assets: £30.6 million
New Investments
The priority for the year was to make enough VCT qualifying
investments to achieve the 70% limit and thus maintain VCT status.
This was achieved through the managers continuing to be selective,
despite the flow of issues being more subdued than has historically
been the case. Over the year, a total of £6.7m was invested in ten
qualifying investments. In the second half of the financial year, the
Company completed four new investments, in addition to the investment
in Darwin (since renamed Optare), which was mentioned in the interim
report. These investments were in CBG Group, a regionally based
insurance, risk management and financial intermediary with a
corporate customer base, in Advanced Computer Software, a company set
up to consolidate providers of software to the NHS, in Tasty, an
operator of restaurants and in Hasgrove, a marketing and
communications services group. In total, the investments amounted to
£2.9m. The investments in Hasgrove and CBG were to provide equity
capital, alongside bank debt, to established businesses whose
existing bank financed models for growth are harder to achieve in
present market conditions. It is hoped that the injection of fresh
equity will enable them to take advantage of opportunities to keep
growing in current market conditions. Meanwhile, Tasty was an
investment to give an experienced management team the chance to grow
their business to critical mass and profitability.
The Company has continued to invest since the end of the financial
year, having invested in two existing AIM companies since the period
end. The first new holding is in Preasepe, an operator of adult
gaming centres. The new funds will allow this well respected
management team to continue to grow and make acquisitions. The other
new holding is Managed Support Services, which has been rescued by
new management and is now looking to grow. This management team has
achieved success in similar circumstances previously so we have, in
effect, backed a management team with a small profitable operation.
At the same time, one holding, Fishworks, has appointed
administrators and its value has been written down to nil. Sadly,
Fishworks' new management ran out of time to complete its turnaround
and with the bank refusing to be co-operative at all, there was no
alternative but administration.
Outlook
While there remain substantial difficulties ahead, particularly for
companies with too much debt which may yet fail, we do not believe
that world trade will cease and that some variant of individual self-
sufficiency will become the norm. However, smaller company share
price ratings seem to reflect that view of the future, which means
that they discount a worse outcome than is likely in many cases.
Recent actions by the Government, which include cutting base rates to
0.5% and injecting further liquidity into the banking system, should,
in time, start to alleviate the additional pressures that a shortage
of capital is placing on small companies. Although there will
undoubtedly be casualties in the intervening period, this should
leave room for a recovery in smaller company share prices and ratings
as economic activity revives and fear and risk aversion diminish.
If you have any questions on any aspect of your investment, please
call one of the team on 0800 316 2347.
The AIM Team
Octopus Investments Limited
20 March 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 the
financial statements for the year ended 30 November 2008 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:
* the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
* the 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 18
On Behalf of the Board
Keith Richard Mullins
Chairman
20 March 2009
Income Statement
Year to 30 November 2008
Revenue Capital Total
Notes £'000 £'000 £'000
Loss on disposal of fixed asset
investments 10 - (252) (252)
Loss on disposal of current asset
investments 11 - (459) (459)
Loss on valuation of fixed asset
investments 10 - (5,904) (5,904)
Loss on valuation of current asset
investments 11 - (399) (399)
Investment Income 2 564 - 564
Investment management fees 3 (103) (310) (413)
VAT management fee rebate 3 26 79 105
Other expenses 4 (134) - (134)
Profit/(loss) on ordinary activities
before tax 353 (7,245) (6,892)
Taxation on profit/(loss) on ordinary
activities 6 (59) 50 (9)
Profit/(loss) on ordinary activities
after tax 294 (7,195) (6,901)
Earnings per share - basic and diluted 8 1.2p (28.8)p (27.6)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, there were no differences between the
profit/(loss) as stated above and at historical cost.
Income Statement
Year to 30 November 2007
Revenue Capital Total
Notes £'000 £'000 £'000
Gain on disposal of fixed asset
investments 10 - 154 154
Loss on disposal of current asset
investments 11 - (16) (16)
Loss on valuation of fixed asset
investments - (48) (48)
Gain on valuation of current asset
investments - 140 140
Investment Income 2 858 - 858
Investment management fees 3 (144) (432) (576)
Other expenses 4 (138) - (138)
Profit/(loss) on ordinary activities
before tax 576 (202) 374
Taxation on profit/(loss) on ordinary
activities 6 (97) 85 (12)
Profit/(loss) on ordinary activities
after tax 479 (117) 362
Earnings per share - basic and diluted 8 1.9p (0.5)p 1.4p
* 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, there were no differences between the
profit/(loss) as stated above and at historical cost.
Balance Sheet
As at 30 November As at 30
2008 November 2007
Notes £'000 £'000 £'000 £'000
Fixed asset investments 10 10,340 9,833
Current assets:
Investments 11 5,049 12,698
Debtors 12 293 123
Cash at bank 427 1,754
5,769 14,575
Creditors: amounts falling due
within one year 13 (60) (890)
Net current assets 5,709 13,685
Net assets 16,049 23,518
Called up equity share capital 14 3 3
Special distributable reserve 15 22,771 23,604
Capital reserve - realised 15 59 (418)
-
unrealised 15 (6,884) 80
Own shares held in Treasury 15 (69) -
Revenue reserve 15 169 249
Total equity shareholders'
funds 16,049 23,518
Net asset value per share 9 64.6p 94.2p
The accompanying notes are an integral part of the financial
statements.
The statements were approved by the Directors and authorised for
issue on 20 March 2009 and are signed on their behalf by:
Keith Richard Mullins
Chairman
20 March 2009
Reconciliation of Movements in Shareholders' Funds
Year ended Year ended
30 November 2008 30 November 2007
£'000 £'000
Shareholders' funds at start of
year 23,518 23,675
(Loss)/profit on ordinary
activities after tax (6,901) 362
Cancellation of own shares (69) (19)
Dividends paid (499) (500)
Shareholders' funds at end of year 16,049 23,518
Cash Flow Statement
Year to 30 Year to 30
November 2008 November 2007
£'000 £'000
Net Cash (outflow) / inflow from
operating activities (4) 118
Return on investments and servicing of
finance
Interest paid - (1)
Taxation: UK Corporation tax paid (15) (29)
Capital expenditure and financial
investment
Purchase of investments (9,581) (5,786)
Disposal of investments 9,709 6,420
Settlement creditor (810) -
Net cash (outflow) / inflow from
investing activities (682) 634
Equity dividends paid
Revenue dividends paid (499) (500)
Net cash (outflow) / inflow before
financing (1,200) 222
Financing
Purchase of own shares (69) (19)
Overpayment of shares purchased (58) (58)
Net cash (outflow) / inflow from
financing (127) (19)
(Decrease) / increase in cash (1,327) 203
Reconciliation of Net Cash Flow to Movement in Liquid Resources
Year to 30 Year to 30
November 2008 November 2007
Notes £'000 £'000
(Decrease)/Increase in cash at bank (1,327) 203
Movement in cash equivalent 11
securities (7,648) (5,877)
Opening net liquid resources 14,451 20,125
Net liquid resources at 30 November 5,476 14,451
Liquid Resources at 30 November comprised:
As at 30 November As at 30 November
2008 2007
£'000 £'000
Cash at Bank 427 1,754
Floating Rate Notes 5,049 8,956
Open Ended Investment Companies - 3,741
Net liquid resources at 30
November 5,476 14,451
Reconciliation of (loss) / profit before Taxation to Cash Flow from
Operating Activities
Year to 30 Year to 30
November 2008 November 2007
£'000 £'000
(Loss) / profit on ordinary activities
before tax (6,892) 374
Net capital return before tax 7,245 202
Investment management fees charged to
capital (231) (432)
(Increase)/decrease in debtors (112) 16
Decrease in creditors (14) (42)
(Outflow)/Inflow from operating
activities (4) 118
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 2007 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 15 July 2008.
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
Open Ended Investment Companies ("OEICs") 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 and OEICs 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
30 November 2008 30 November 2007
£'000 £'000
Income on money market securities
and bank balances 452 777
Dividends received (fixed asset
investments) 77 25
Management Fee rebates 35 56
564 858
3. Investment management fees
30 November 2008 30 November 2007
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 103 310 413 144 432 576
VAT rebate (26) (79) (105) - - -
77 231 308 144 432 576
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
which runs for a period of five years with effect from 6 October 2005
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
30 November 2008 30 November 2007
£'000 £'000
Directors' remuneration 42 42
Fees payable to the Company's
auditor for the audit of the
financial statements* 22 18
Fees payable to the Company's
auditor - Other services 3 2
Bank charges and safe custody fees 6 (3)
Legal and professional expenses 12 32
Other administration expenses 49 47
134 138
*Please note all 2007 audit fees were payable to Deloitte & Touche
LLP. All fees relating to the Company's auditor in 2008 were paid
wholly to PKF LLP.
The total expense ratio for the Company for the year to 30 November
2008 was 2.8 per cent (2007: 3.0 per cent). Total running costs are
capped at 3.5 per cent.
5. Directors' remuneration
30 November 2008 30 November 2007
£'000 £'000
Directors' emoluments
Keith Richard Mullins 16 16
Christopher Holdsworth Hunt 13 13
Andrew Paul Raynor 13 13
42 42
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 (2007: three).
6. Tax on ordinary activities
The corporation tax charge for the year was £nil (2007: £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 20.7% (2007: 20%). The differences are
explained
below.
Current tax reconciliation: 30 November 2008 30 November 2007
£'000 £'000
(Loss)/profit on ordinary 374
activities before tax (6,892)
Current tax at 20.7% (2007: 20%) (1,427) 75
Income not liable to tax (16) (18)
Expenses not deductible for tax (45)
purposes 1,452
Total current tax charge 9 12
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
30 November 2008 30 November 2007
£'000 £'000
Recognised as distributions in the
financial statements for the year
Previous year's final dividend 250 250
Current year's interim dividend 249 250
499 500
30 November 2008 30 November 2007
£'000 £'000
Paid and proposed in respect of the
year
Interim dividend paid - 1p per
share (2007: 1p per share) 249 250
Final dividend 1p per share (2007:
1p per share) 250 250
499 500
The final dividend of 1p per share for the year ended 30 November
2008, subject to shareholder approval at the Annual General Meeting,
will be paid once HMRC approval has been obtained.
8. Earnings per share
The earnings per share is based on (loss)/profit after tax of
(£6,897,000) (2007: £374,000) and on 24,967,724 (2007: 25,053,501)
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 share as at 30 November 2008
is based on net assets of £16,049,000 (2007: £23,518,000) divided by
24,864,861 (2007: 24,980,111) ordinary shares in issue at that date
(excluding treasury shares).
10. Fixed asset investments
AIM-quoted investments
Year Ended 30 Year Ended 30
November 2007 November 2006
£'000 £'000
Book cost as at 30 November 10,196 4,082
Revaluation to 30 November (363) (314)
Valuation at 30 November 9,833 3,768
November 2008 November 2007
£'000 £'000
Opening valuation at 1 December 9,833 3,768
Purchases at cost 7,097 6,378
Disposal proceeds (434) (419)
(Loss) / Profit on realisation of
investments - current year (252) 154
Revaluation in year (5,904) (48)
Closing valuation at 30 November 10,340 9,833
Book cost at 30 November:
- Ordinary shares 16,787 10,196
Revaluation to 30 November:
- Ordinary shares (6,447) (363)
Valuation at 30 November 10,340 9,833
Further details of the fixed asset investments held by the Company
are shown within the Investment Manager's Review on pages 7 to 14.
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 30 November 2008 and 30 November 2007 there were no commitments in
respect of investments approved by the manager but not yet completed.
11. Current asset investments
Current asset investments at 30 November 2008 and at 30 November 2007
comprised Open Ended Investment Company ("OEICs") and Floating Rate
Notes ("FRNs")*.
Year Ended 30 Year Ended 30
November 2007 November 2006
£'000 £'000
Book cost at 30 November:
FRNs 9,005 15,022
OEICs 3,250 3,250
12,255 18,272
Revaluation to 30 November:
FRNs (49) (9)
OEICs 491 311
442 302
Valuation as at 30 November 12,697 18,574
November 2008 November 2007
£'000 £'000
Opening valuation at 1 December 12,697 18,574
Purchases at Cost:
FRNs 2,484 -
OEICs - -
2,484 -
Disposal proceeds:
FRNs (5,991) (6,001)
OEICs (3,283) -
(9,274) (6,001)
Profit/(loss) in year on realisation of
investments:
FRNs (2) (16)
OEICs (457) -
(459) (16)
Revaluation in year:
FRNs (399) (40)
OEICs - 180
(399) 140
Closing valuation as at 30 November 5,049 12,697
Book cost at 30 November:
FRNs 5,486 9,005
OEICs - 3,250
5,486 12,255
Revaluation to 30 November:
FRNs (437) (49)
OEICs - 491
(437) 442
Closing valuation as at 30 November 5,049 12,697
* 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.
12. Debtors
30 November 2008 30 November 2007
£'000 £'000
Other debtors 198 -
Prepayments and accrued income 95 123
293 123
13. Creditors: amounts falling due within one year
30 November 2008 30 November 2007
£'000 £'000
Other creditors (60) (890)
(60) (890)
14. Share capital
30 November 2008 30 November 2007
£ £
Authorised:
275,000,000 'A' Ordinary shares
of 0.01p each 27,500 27,500
275,000,000 'B' Ordinary shares
of 0.01p each 27,500 27,500
55,000 55,000
Allotted and fully paid up: £ £
7,299,461 'A' Ordinary shares of
0.01p (2007: 7,299,461) 730 730
17,680,650 'B' Ordinary shares of
0.01p (2007: 17,680,650) 1,768 1,768
2,498 2,498
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 23. The Company is not subject to any
externally imposed capital requirements.
The Company did not issue any shares in the year (2007: nil).
The Company repurchased the following shares; these are currently
held in Treasury:
* 29 August 2008: 15,250 'A' Ordinary shares at a
price of 70p per share
* 31 October 2008: 100,000 'B' Ordinary shares at
a price of 59p per share
The total nominal value of the shares repurchased was £12
representing 0.46% of the issued share capital.
15. Reserves
Own
Special Capital Capital shares
distributable reserve reserve held in Revenue
reserve realised unrealised treasury reserve
£'000 £'000 £'000 £'000 £'000
As at 30 November
2007 23,604 (418) 80 - 249
Repurchase of own
shares - - - (69) -
Loss on ordinary
activities after
tax - - - - 294
Capitalisation of
management fees - (181) - - -
Prior period
gains/losses on
disposal 661 (661) - -
Transfer between
reserves (833) 833 -
Gains/losses on
revaluation - (711) (6,303) - -
Dividends paid - (125) - - (374)
Balance as at 30
November 2008 22,771 59 (6,884) (69) 169
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.
A transfer of £833,000 was made between the Special distributable
reserve and the capital reserve realised to account for the realised
losses on disposal and the capitalisation of management fees.
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 either bid price or the
latest traded price, depending on the convention of the exchange on
which the investment is quoted. 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 23. 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 32 to 35, 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 8 and 9.
95.9% (30 November 2007: 95.8%) 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 30 November 2008 would have increased net assets and the total
return for the year by £4,617,000 (30 November 2007: £2,253,000); 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 3.0% at 30 November 2008 (30 November 2007:
5.75%). The amounts held in floating rate investments at the balance
sheet date were as follows:
30 November 2008 30 November 2007
£000 £000
Floating rate notes 5,049 8,956
Open Ended Investment Companies - 3,741
Cash on deposit 427 1,754
5,476 14,451
A 1% increase in the base rate would increase income receivable from
these investments and the total return for the year by £54,760 (30
November 2007: £144,500)
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 30 November 2008 the Company's financial assets exposed to credit
risk comprised the following:
30 November 2008 30 November 2007
£000 £000
Investments in floating rate
instruments 5,049 8,956
Cash on deposit 427 1,754
Open Ended Investment Companies - 3,741
Accrued dividends and interest
receivable 82 101
5,558 14,552
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 Capita
Registrars Limited in the case of 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 and Bank of Scotland.
Other than cash or liquid money market funds, there were no
significant concentrations of credit risk to counterparties at 30
November 2008 or 30 November 2007.
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 30 November 2008 these investments were valued at £5,476,000 (30
November 2007 £14,451,000).
17. Post balance sheet events
The following events occurred between the balance sheet date and the
signing of these financial statements:
* 30 January 2009 the Company purchased 30,550 'A' Ordinary
shares at a price of 54p per share. These shares are held in
Treasury.
* 6 February 2009 the Company purchased 50,250 'B' Ordinary
shares at a price of 54.5p per share. These shares are held in
Treasury.
* 27 February 2009 the Company purchased 150,000 'B' Ordinary
shares at a price of 53.0p per share. These shares are held in
Treasury.
The following investments have been completed since 30 November
2008:
* 1 January 2009, invested £200,000 in Lombard Medical plc
* 7 January 2009, Fishworks appointed administrators, investment
written down to nil.
* 27 February 2009, invested £550,000 in Praesepe plc
* 27 February 2009, invested £550,000 in Managed Support Services
plc
18. Contingencies, guarantees and financial commitments
There were no contingencies, guarantees or financial commitments as
at 30 November 2008 (2007: £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 30 November 2008, the
Company incurred management fees of £112,000 (2007: £nil) payable
to Octopus. At the period end there was £9,000 (2007: £nil)
outstanding to Octopus.
Prior to 1 August 2008, Close acted as the Investment Manager of
the Company. During the period 1 December 2007 to 31 July 2008,
the Company incurred management fees of £333,000 (including VAT at
the applicable rate at that time) payable to Close (2007:
£576,000). At the period end there was £nil outstanding to Close
(2007: amount due from Close of £18,000).
During the year, the VCT held an investment in the Close Special
Situations Fund. This fund held an investment in Tenon Group PLC,
a company of which Andrew Raynor is Chief Executive. As at 30
November 2008, Octopus IHT AIM held nil units in the Close Special
Situations Fund (2007: 3,412,432 units). The following transactions
occurred between Close Special Situation Fund and Octopus IHT AIM:
* 29 April 2008 the Company sold 341,243 units
* 16 June 2008 the Company sold 325,000 units
* 25 July 2008 the Company sold 486,982 units
* 1 August 2008 the Company sold 2,232,600 units
* 5 August 2008 the company sold 26,607 units
Buybacks of shares for cancellation during the year were transacted
through Winterflood Securities Limited, a subsidiary of Close
Brothers Group plc, the ultimate parent company of the Investment
Manager, Close Investments Limited for the period to 31 July 2008.
A total of 115,250 (2007: 20,400) 'A' Ordinary shares were
purchased at a weighted average price of 60 pence per share.
---END OF MESSAGE---
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solely responsible for the content of this announcement.
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