Final Results
Octopus Second AIM VCT plc (formerly Octopus IHT AIM VCT plc)
Final Results
23 March 2011
Octopus Second AIM VCT plc, managed by Octopus Investments Limited, today
announces the final results for the year ended 30 November 2010.
These results were approved by the Board of Directors on 23 March 2011.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com by navigating to Services, Investor Services, Venture
Capital Trusts, Octopus Second AIM VCT plc. All other statutory information
will also be found there.
About Octopus Second AIM VCT plc
Octopus Second 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. On 12 August 2010 the Company
acquired the assets and liabilities of Octopus Third AIM VCT plc (formerly
Octopus Second AIM VCT plc) ("the merger") and changed its name from Octopus IHT
AIM VCT plc to Octopus Second AIM VCT plc. Shareholders of Octopus Third AIM VCT
will have received 0.48356191 Ordinary shares in the Company for each Ordinary
share they had prior to the merger.
On 9 July 2010 the VCT issued a prospectus, proposing to raise a further £10
million by way of a top-up into the existing share class. Full details of the
offer can be found in the prospectus sent to shareholders.
On 31 August 2010 the Company changed its Registered Office from 8 Angel Court,
London, EC2R 7HP to 20 Old Bailey, London, EC4M 7AN.
Venture Capital Trusts (VCTs)
VCTs were introduced in the Finance Act 1995 to provide a means for private
individuals to invest in unlisted companies in the UK. Subsequent Finance Acts
have introduced changes to VCT legislation. The tax benefits currently available
to eligible new investors in VCTs include:
·                    upfront income tax relief of 30%,
·                    exemption from income tax on dividends paid; and
·                    exemption from capital gains tax on disposals of shares in
VCTs.
The Company has been approved as a VCT by HM Revenue & Customs. In order to
maintain its approval the Company must comply with certain requirements on a
continuing basis. Above all, the Company is required at all times to hold at
least 70% of its investments (as defined in the legislation) in VCT qualifying
holdings, of which at least 30% must comprise eligible Ordinary shares. For
this purpose a 'VCT qualifying holding' consists of up to £1 million invested in
any one year in new shares or securities of a UK unquoted company (which may be
quoted on AIM) which is carrying on a qualifying trade, and whose gross assets
at the time of investment do not exceed a prescribed limit. The definition of
'qualifying trade' excludes certain activities such as property investment and
development, financial services and asset leasing. The Company will continue to
ensure its compliance with these qualification requirements.
Financial Summary
 Year to 30 November 2010 Year to 30 November 2009
Net assets (£'000s)* 24,774 10,783
Net profit / (loss) after tax
(£'000s) 1,281 1,484
Net asset value per share 67.9p 69.5p
Dividend per share - paid in
year 2.50p** 2.00p
Dividend proposed 1.65p 1.00p
--------------------------------------------------------------------------------
* The significant increase in net assets of the current year is largely due to
the merger and subsequent incorporation of the net assets of Octopus Third AIM
VCT plc.
**1.00p of this was paid pre-merger
Chairman's Statement
Introduction
This is my first opportunity to welcome all the new shareholders following the
merger of Octopus IHT AIM VCT with Octopus Third AIM VCT in August 2010. The
resultant company used the corporate structure of IHT AIM VCT, but adopted the
name of Second AIM VCT. Thus, former shareholders of IHT AIM VCT will have seen
no change in the number of shares they hold, but holders of Octopus Third AIM
VCT will have 0.48356191 new shares for each Ordinary share they had prior to
the merger. These accounts cover the year to 30 November 2010, which is the
usual year end for the former IHT AIM VCT. I appreciate that the new
shareholders have not received a set of accounts for some time, as the year end
of Third AIM VCT was extended by two months to the end of April 2010, requiring
accounts to be released by the end of August 2010, by which time the merger was
complete. I hope that all shareholders will find the contents interesting and
useful and I hope that I will be able to meet as many of you as possible at the
Annual General Meeting in May.
In addition to the merger, your Company has also announced a fundraising, so
that shareholders and others can subscribe for new Ordinary shares. I will
comment on this later. Meanwhile, the stock market has recovered strongly, as
has the UK economy. While small companies in general lagged the broader market,
your Company's NAV plus cumulative dividends has also risen, albeit modestly,
and I believe can continue to do so in 2011.
Dividend
As part of the merger process your Board reconsidered its dividend policy and
concluded, in discussion with the Manager, that setting a target annual yield of
5% was both realistic and achievable. Therefore, as you may have read in the
merger prospectus, your Board has adopted this new dividend policy. An interim
dividend of 1.5 pence was paid in October 2010 in respect of the six months
period to May 2010 and, based on a share price of approximately 60 pence, was
equivalent to a 5% annual yield. It was paid to all shareholders, since both IHT
and Third AIM VCT had paid similar dividends per share and Third AIM VCT
investors were due a final dividend in respect of the year to February 2010.
Your Board has declared another dividend of 1.65 pence, subject to shareholders'
and Her Majesty's Revenue & Customs ("HMRC") approval. As the NAV and share
price change, so it would be your Board's intention to maintain the 5% target.
Your Company has continued to buy back shares, partly as a means of keeping the
discount to an acceptable level. Reflecting the movement in NAV in the six
months to 30 November 2010, the average share price paid has been approximately
60 pence.
New Capital
As the merger process required a prospectus to be produced, it seemed sensible
to take the additional
power to raise new capital using the same document, at a time when the Manager
was seeing an increased number of investment opportunities. Although the new
capital will have to be invested under the latest VCT regulations, which are
different from the regulations governing the capital at the time of the merger,
the Board set the limit at £10 million so as not to endanger the VCT qualifying
nature of the Company. At present, the Manager is confident of raising the full
£10 million.
As the Manager's Review will show, your Company has made some new investments
this year and indeed made several in December immediately after the year end. As
a provider of essential equity capital for small companies, which are capable of
being British success stories in years to come, we believe your Company
continues to fulfil the objectives of both investors and the government in
permitting tax relief to investors. AIM VCTs continue to act as an effective
channel by which investors can support small growing companies and it is to be
hoped that the government will continue to support them in their endeavours.
Merger
The merger of Octopus IHT AIM VCT and Octopus Third AIM VCT has gone smoothly.
There have been no major portfolio issues to resolve since there was a very high
overlap between the investments of the two VCTs. The costs came in below budget
and all the shares held in Treasury by either VCT were cancelled at the time of
the merger.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
concerning ongoing compliance with HMRC rules and regulations concerning VCTs.
The Board has been advised that Second AIM is in compliance with the conditions
laid down by HMRC for maintaining approval as a VCT.
A key requirement is to maintain at least the 70% qualifying investment level.
As at 30 November 2010, 83.0% of the portfolio, as measured by HMRC rules, was
invested in VCT qualifying investments.
Performance
At the end of November 2010 the Net Asset Value ('NAV') was 67.9 pence per
share, which compares with 69.5p at 30 November 2009 for Octopus IHT AIM VCT.
Shareholders in Octopus Third AIM VCT converted their shares at the ratio of 1
to 0.48356191 shares in the new Second AIM VCT, so to make a comparison these
NAV per share figures need to be adjusted by that conversion ratio. The merger
meant that the number of shares held was adjusted to reflect the higher NAV per
share of Octopus IHT AIM VCT, so the value of your investment at the merger date
remained the same (ignoring the merger costs).
This NAV per share is after paying total dividends in the year of 2.5p (1.5p
having been paid post merger), and after bearing the merger costs, which were
equivalent to 0.6p per share. Adding back these payments, which were made from
the capital of the Company, means that the adjusted NAV was 71.0p per share.
Comparing this with the 69.5p of November 2009 implies a rise in the NAV of
2.2%. By way of comparison the AIM index rose by 11.2% and the FTSE Small-cap ex
investment trusts index by 4.9%. Given the very substantial representation of
the resources sector in these indices, which your Company cannot invest in, your
Board regards this as a creditable performance, which should continue to improve
as smaller companies return to favour.
Outlook
Commentators and newspapers continue to reiterate their concerns about the major
issues facing the world, and about the difficulty politicians will have in
finding and implementing solutions. These remain substantially as they have been
over the past year - the sustainability of recovery, inflationary pressures, the
fragile condition of public finances in many countries, and the long-term
effects of some of the measures being taken. These difficulties have been
complicated more recently by a sharply higher oil price, itself reflecting
political turmoil in the Middle East and North Africa.
However, the majority of small companies themselves have continued to report
good trading results, despite the persistent reluctance of banks to lend to them
as a group. It seems likely that this will have two effects. First, it will
present investment opportunities for your Company. Secondly, it will begin to
reinforce distinctions between better and poorly managed companies and to the
extent that they are listed companies held in the portfolio, there will be a
beneficial impact on the NAV. At present, the UK economy does seem set to grow
again this year and this should again provide a good background against which
your Company's NAV can make progress.
Keith Richard Mullins
Chairman
23 March 2011
Investment Manager's Review
The Alternative Investment Market ('AIM')
Despite the good trading results that many AIM and other smaller companies
reported in March 2010, it was not until much later in the year that prices in
general started to rise. In the case of AIM, the Index then powered ahead
fuelled by renewed enthusiasm for resource stocks which continue to have a
disproportionate impact on the index. The small-cap index ex investment trusts
showed a much more modest gain of 4.9% over the period under review, with nearly
all of this being achieved towards the end. Your Company benefitted to a small
degree from this recovery in share prices, which has continued into the present
year. However, the start of 2009/10 was marked by the continuing aftermath of
the financial crisis, the impending General Election and grave concerns about
the capacity of both the global and the UK economies to recover. Even so in the
last accounts we remarked that we believed "that it would be wrong to be too
pessimistic", that "we have seen the beginnings of bid activity around the
portfolio which is a sure sign of value" and that "recent trading statements
have indicated that trading is in line with expectations or better". That was
the correct investment stance a year ago and we believe that it remains so now.
However, a general appreciation of the benefits for smaller company share prices
had to wait until September, with the micro-cap sector that your portfolio has
the greatest exposure to inevitably the last to react.
AIM received a poor press for most of the year, which was not merited by the
trading performance of many companies. However, as sentiment improved
progressively, so flotations and other fund raisings increased in value and in
frequency. It would be overstating the position to say that by the end of
November 2010, AIM had returned to normal, but at least it displayed a sense of
purpose and of positive direction. AIM was attracting both new UK and overseas
companies. In the twelve months to 30 November 2010, AIM raised £6.5bn of new
capital, nearly £1bn more than in the year previously.
Performance
In the year to 30 November 2010, the AIM index rose by 30.3%. Significant
contributions to this movement came from the resources sector, which produced a
total return of 72% (source: Dimson and Marsh, RBS HGSC Index 2011) and together
with the oil sector, these two accounted for 40% of AIM's value at the period
end and therefore had a significant influence on the index's movement. Since
VCTs are substantially precluded from investing in these sectors, comparisons
are not really relevant. We continue to regard the FTSE Small-cap ex investment
trusts index as more meaningful as a comparison, despite the fact that a VCT can
not invest in any of that index's constituents. In the year to 30 November
2010 this index rose by 4.9% and in the same period the NAV of your company fell
from 69.5p to 67.9p per share. However, during the year total dividends of
2.5p were paid to shareholders. This should be added back to give a year end
NAV of 70.4p and a resultant performance showing a small increase in the NAV.
The holders of Third AIM VCT will have had a different performance. The
performance since inception of these old classes of shares is included in the
table on page x so that shareholders can see what the NAV returns would have
been as well as details of dividends paid.
This is not as good as we had hoped that it would be at the start of the year
for three main reasons. First, a few holdings performed below expectations
including Hasgrove, CBG Group, and Bond International Software. We believe that
the managements of these companies are working to improve the present situation
and that their share prices will recover in time. Second, there is still a
substantial element of the portfolio where an appreciation in the share price
depends on the company management completing deals to drive the value in the
investment. In cases such as Managed Support Services and Praesepe progress has
been slower than first hoped, although both companies now have made acquisitions
of a size to enable the businesses to progress and build value for shareholders.
However, the biggest factor in the disappointing performance was the number of
holdings where the newsflow was good, but the share prices did not react
positively. Examples of this would be Vertu Motors, where the share price still
sits at around half of net asset value despite a constant round of forecast
upgrades, and Chime Communications which still sits at a discount to its peers
although its shares have had a strong run since the period end.
Good performance was seen in the share price rises of Brooks Macdonald, EKF,
Craneware, IS Pharma, Praesepe, Idox, Plastics Capital, Breedon Aggregates and
Animalcare as well as in companies which were the subject of takeover bids.
Portfolio Activity
Your portfolio is set out on page x of the accounts and includes holdings in
Octopus Third AIM VCT at an adjusted book cost on the merger date, 12 August
2010.
We remarked a year ago that early signs of take-over activity had been seen and
this was a recurring theme throughout the year. As a result we sold Research
Now, Melorio, Win, Clapham House, Innovision and Mount Engineering to acquiring
companies. The aggregate profit on these sales was £879,000 which can be
distributed in capital dividends in the future. We also accepted part shares
part cash for Telephonetics, and we increased the resultant holding in Netcall,
the acquirer. The only entire holding sold in the market, rather than to an
acquirer, was Pressure Technologies, for a profit of £20,000. Clerkenwell also
wound itself up and returned cash to shareholders after it failed to find a
qualifying trade. We made a small loss on this investment. Since the period
end, IS Pharma has announced that it is in merger talks with Sinclair Pharma. At
this stage, take-over activity shows no sign of slackening.
We have added to the number of non-qualifying holdings during the second half of
the year, with aggregate purchases of £1.3m, which included more RWS, but also
new holdings in Hargreaves Services, Matchtech and Immunodiagnostic Systems. The
objective is to supplement the paltry returns currently on offer from cash
balances.
In the interim report for Octopus IHT AIM VCT investors, it was reported that
three new investments had been made, Snacktime and Access Intelligence (both
qualifying holdings) and RWS (a non-qualifying holding). In the second half of
the year, we have invested an aggregate £1.58m into 3 new qualifying holdings,
which were EKF Diagnostics, Netcall and Marwyn Materials, which has been renamed
Breedon Aggregates. These new investments were made by both of the constituent
VCTs, but the £1.58m cost is the total for the two VCTs together.
The momentum of VCT qualifying investments has continued since the year end, and
the fund has invested a further £760,000 in three more qualifying investments,
Corac, Brady and Woodspeen.
The table below shows the investee companies that were disposed of in total
during the year:
+-----------------+--------------+--------------+--------------+---------------+
|Realisation |First | Cost of| Proceeds of| Total|
| |investment | investment| investment| gain/(loss)|
| |date | (£'000)| (£'000)| (£'000)|
+-----------------+--------------+--------------+--------------+---------------+
|Telephonetics plc|July 2006 | 305| 128| (177)|
+-----------------+--------------+--------------+--------------+---------------+
|Pressure |May 2007 | 381| 401| 20|
|Technologies plc | | | | |
+-----------------+--------------+--------------+--------------+---------------+
|Mount Engineering|June 2007 | 602| 818| 216|
|plc | | | | |
+-----------------+--------------+--------------+--------------+---------------+
|Clerkenwell |August 2007 | 63| 43| (20)|
|Ventures plc | | | | |
+-----------------+--------------+--------------+--------------+---------------+
|Melorio plc |October 2007 | 410| 754| 344|
+-----------------+--------------+--------------+--------------+---------------+
|Fishworks plc** |November 2007 | 184| -| (184)|
+-----------------+--------------+--------------+--------------+---------------+
|Research Now plc |December 2007 | 461| 661| 200|
+-----------------+--------------+--------------+--------------+---------------+
|Innovision plc |July 2009 | 120| 234| 114|
+-----------------+--------------+--------------+--------------+---------------+
|WIN plc* |August 2010 | 61| 65| 4|
+-----------------+--------------+--------------+--------------+---------------+
|Clapham House |August 2010 | 33| 34| 1|
|plc* | | | | |
+-----------------+--------------+--------------+--------------+---------------+
*These were investments inherited from the merger with Octopus Third AIM VCT
plc. The date of first investment made by Octopus Third AIM VCT plc was
September 2004 for WIN plc and November 2003 for Clapham House plc.
**Fishworks plc was dissolved in the year but had already been written down to
nil in previous accounts.
Investment Portfolio
% %
equity equity
Book Fair held held by
cost as Cumulative Value at by all
at 30 change in 30 Second funds
November fair November Movement AIM managed
2010   value    2010 in year VCT by
Investments Sector (£'000) (£'000) (£'000) (£'000) Plc Octopus
-----------------------------------------------------------------------------------------
Healthcare
IS Pharma plc equipment 1,112 212 1,324 123 3.0% 4.8%
Animalcare Group
plc Food producers 924 313 1,237 153 5.3% 9.0%
Craneware plc Software 530 642 1,172 457 0.8% 1.5%
Advanced
Computer
Software plc Software 915 244 1,159 (17) 1.0% 2.3%
EKF Diagnostics Healthcare
plc equipment 869 113 982 113 2.7% 8.9%
Brulines
(Holdings) plc Support services 866 (92) 774 (122) 2.6% 4.6%
Chime
Communications
plc Media & marketing 750 23 773 90 0.5% 0.7%
Praesepe plc Travel & leisure 670 87 757 161 2.4% 4.5%
Managed Support
Services plc Support services 828 (110) 718 (76) 5.7% 9.8%
Breedon
Aggregates
Limted Construction 601 100 701 100 0.9% 2.3%
Brooks MacDonald
Group plc General financial 600 97 697 97 0.7% 2.8%
Clarity Commerce
Solutions plc Software 651 (21) 630 18 4.3% 8.3%
Idox plc Software 381 212 593 138 1.2% 2.6%
Access
Intelligence plc Support services 544 - 544 - 4.2% 9.1%
Vertu Motors plc General retailers 777 (233) 544 (41) 0.9% 3.6%
Matchtech Group
plc Support services 442 50 492 50 1.0% 10.4%
Immunodiagnostic Healthcare
Systems plc equipment 454 26 480 25 0.2% 2.8%
Plastics Capital
plc Chemicals 485 (52) 433 159 2.6% 16.5%
Lombard Medical Healthcare
Technologies plc equipment 599 (215) 384 3 1.9% 1.9%
Netcall plc Telecommunications 421 (88) 333 (17) 2.1% 5.0%
Food & drug
Snacktime plc retailers 367 (55) 312 (55) 1.5% 7.3%
Tasty plc Travel & leisure 334 (33) 301 (11) 2.9% 7.3%
Hargreaves
Services plc Support services 282 (8) 274 (8) 0.1% 2.9%
Hasgrove plc Media 436 (170) 266 58 2.0% 12.0%
RWS Holdings plc Support services 249 (17) 232 (17) 0.2% 4.1%
Bond
International
Software plc Software 303 (97) 206 (99) 1.1% 3.4%
Omega
Diagnostics Healthcare
Group plc equipment 203 (20) 183 (92) 1.3% 4.3%
Twenty plc Media 566 (420) 145 38 7.8% 14.7%
Industrial
Optare plc engineering 657 (521) 135 (67) 1.0% 1.5%
Colliers
International UK
plc Real estate 196 (63) 132 (63) 0.7% 3.1%
Mattioli Woods
plc General financial 96 34 130 34 0.3% 2.6%
CBG Group plc Non-life insurance 637 (520) 117 (150) 3.3% 17.2%
Mears Group plc Support services 93 8 101 8 0.0% 0.3%
Atlantic Global
plc Software 119 (23) 97 (22) 3.2% 3.2%
Adept Telecom
plc Telecommunications 501 (420) 82 4 1.7% 4.4%
Work Group plc Support services 473 (395) 79 15 2.1% 6.2%
Zetar plc Food producers 68 (2) 66 (2) 0.2% 3.6%
Jelf Group plc General financial 122 (57) 65 19 0.1% 0.5%
Cello Group plc Media 54 10 64 10 0.2% 9.6%
Strategic
Thought Group
plc Software 46 10 56 10 0.5% 7.0%
Altitude Group
plc Media 24 26 50 26 0.7% 5.1%
Electronic
Datong plc equipment 29 9 38 9 0.4% 3.4%
Individual
Restaurant
Company plc Travel & leisure 160 (132) 28 (4) 0.5% 1.1%
Daisy Group plc Telecommunications 20 1 21 1 0.0% 0.1%
Media Square plc Media 8 (5) 3 (4) 0.2% 1.0%
Total fixed asset investments 19,462 (1,552) 17,910 1,052
Money market
funds  6,587 - 6,587
Total fixed investments and money
market funds   24,497
-----------------------------------------------------------------------------------------
Cash at bank    126
Debtors less
creditors    151
-----------------------------------------------------------------------------------------
Total net assets    24,774
Top 10 Holdings
Listed below are the ten largest investments by value as at 30 November 2010
IS Pharma plc
IS Pharma plc is an international pharmaceutical company involved in the
development and commercialisation of niche healthcare products, with a
specialisation in cancer care.
Initial investment date: Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â March 2008
Cost:                                      £1,112,000
Valuation:                              £1,324,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 3.0%
Last audited accounts:Â Â Â Â Â Â March 2010
Profit before tax:                 £2.6 million
Net assets:                           £30.3 million
Animalcare Group plc
Animalcare Group plc manufactures and distributes veterinary medicines for pets
and livestock.
Initial investment date: Â Â Â Â Â Â Â Â Â December 2007
Cost:                                      £924,000
Valuation:                              £1,237,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 5.3%
Last audited accounts:Â Â Â Â Â Â Â June 2010
Loss before tax:                  (£0.6) million
Net assets:                            £14.1 million
Craneware plc
Craneware is a leading provider of software solutions that improve the financial
performance of US hospital and healthcare organisations.
Initial investment date: Â Â Â Â Â Â Â Â Â September 2007
Cost:                                      £530,000
Valuation:                              £1,172,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 0.8%
Last audited accounts:Â Â Â Â Â Â June 2010
Profit before tax:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $7.3 million
Net assets:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $22.1 million
Advanced Computer Software plc
Advanced Computer Software plc provides software to the Healthcare Sector and
other commercial markets.
Initial investment date: Â Â Â Â Â Â Â Â Â July 2008
Cost:                                      £915,000
Valuation:                              £1,159,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 1.0%
Last audited accounts:Â Â Â Â Â Â Â February 2010
Profit before tax:                 £4.2 million
Net assets:                           £78.5 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: Â Â Â Â Â Â Â Â Â July 2010
Cost:                                      £869,000
Valuation:                              £982,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2.7%
Last audited accounts:Â Â Â Â Â Â December 2009
Loss before tax:                  (£0.3) million
Net assets:                           £5.6 million
Brulines (Holdings) plc
Brulines (Holdings) plc designs and sells fluid monitoring systems to pubs and
bars. The company is the market leader in its field and manages information from
over 22,000 licensed premises, over one in three pubs in the UK. The system
allows the landlord to reconcile the amount of beer being dispensed against what
is being delivered. It also sells monitoring systems for petrol forecourts and
vending machines.
Initial investment date: Â Â Â Â Â Â Â Â Â October 2006
Cost:                                      £866,000
Valuation:                              £774,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2.6%
Last audited accounts:Â Â Â Â Â Â Â March 2010
Profit before tax:                  £4.0 million
Net assets:                            £21.0 million
Chime Communications plc
Chime Communications plc provides public relations, advertising, market research
and direct marketing, design, event management and sports marketing for a range
of clients.
Initial investment date: Â Â Â Â Â Â Â Â Â April 2008
Cost:                                      £750,000
Valuation:                              £773,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 0.5%
Last audited accounts:Â Â Â Â Â Â Â December 2009
Profit before interest & tax:                £18.6 million
Net assets:                            £116.8 million
Praesepe plc
Praesepe plc is an operator of low stake, high volume adult gaming and bingo
centres in the UK.
Initial investment date: Â Â Â Â Â Â Â Â Â February 2009
Cost:                                      £670,000
Valuation:                              £757,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 2.4%
Last audited accounts:Â Â Â Â Â Â December 2009
Loss before tax:                (£1.4) million
Net assets:                           £29.4 million
Managed Support Services plc
Managed Support Services plc maintains and services all types of commercial
buildings on behalf of private and public sector organisations.
Initial investment date: Â Â Â Â Â Â Â Â Â February 2009
Cost:                                      £828,000
Valuation:                              £718,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 5.7%
Last audited accounts:Â Â Â Â Â Â Â March 2010
Loss before tax:                  (£4.9) million
Net assets:                            £7.6 million
Breedon Aggregates Limited (formerly Marwyn Materials)
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, having been acquired by Marwyn Materials in September 2010.
Initial investment date: Â Â Â Â Â Â Â Â August 2010
Cost:                                      £601,000
Valuation:                              £701,000
Equity held:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 0.9%
Last audited accounts:Â Â Â Â Â Â December 2009
Loss before tax:                  (£0.8) million
Net assets:                           £11.9 million
Outlook
The recent news of the earthquake and Tsunami in Japan added to fears of
political instability in the Middle East that have resulted, in the short term,
in a more volatile stock market environment. This has inevitably had an impact
on share prices as the possibilities for international growth are contemplated.
However, the balance of the news from your portfolio companies has continued to
be positive since the year end, and the NAV has started to respond and now
stands at 70.0 pence as at 14 March 2011. There were a number of opportunities
to invest our cash balances in new qualifying holdings in the final quarter of
2010, and we are optimistic that these conditions will continue in 2011. There
are no immediate signs that the banks want to increase their lending to small
companies, and the balance seems to have swung in favour of equity fundraisings,
many of which have turned out surprisingly successful in terms of the sums
raised.
Our prime source of information about the direction, health and prospects of the
economy derives, as you might expect, from conversations with the management
teams of the companies making up your portfolio, as well as other companies in
which we are invested. That provides our knowledge of the state of both
corporate and personal demand, the raw material price pressures and all the
other evidence we have about labour availability and wage rates, for example. We
are well aware of the tendency of managements to remain optimistic for too long
and to
fail to recognise turning points in economic trends. However, when they are
themselves part of the evidence of a turning point, the message can be very
powerful: as it was this time last year. There have been recent reminders of the
difficulties companies and the UK economy face - for example, the initial GDP
growth rate for the fourth quarter of 2010 being negative. However, both an
elongated break over Christmas and the snow disruption have probably yet to be
fully understood and early conversations with managements since January suggest
that economic progress remains the order of the day.
We are not complacent about the severity of many problems ahead, nor of their
magnitude. However, we are also well aware of the momentum in the economy, of
the confidence of many of the managements we meet, particularly those with long
term contracts from corporate customers and those with interesting product
virtues. So while we remain on the lookout for signs of increasing economic
difficulty, whether that is international oil prices and political instability
or domestic inflation and unemployment, as it affects individual companies in
your portfolio, our fundamental belief is that smaller company shares remain
undervalued and relatively unappreciated by investors. It is also true that many
of the holdings in your portfolio are beginning to mature as businesses, and
this is why we feel that the NAV can rise this year, despite the set back caused
to share prices by the Japanese earthquake.
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
23 March 2010
 Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors' Report, the
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 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).
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 judgements 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;
and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of the financial
statements and other information included in annual reports may differ from
legislation in other jurisdictions.
The Directors confirm, to the best of their knowledge, that:
* the financial statements, which have been prepared in accordance with UK
Generally Accepted Accounting Practice, and the 2009 Statement of
Recommended Practice, 'Financial Statements of Investments Trust Companies'
and Venture Capital Trusts' (SORP), give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
* the management report, comprising the Chairman's Statement, Investment
Manager's Review, Investment Portfolio and Directors' Report includes a fair
review of the development and performance of the business and the position
of the Company, together with a description of the principal risks and
uncertainties that it faces.
The names and functions of all the Directors are stated on page x.
On Behalf of the Board
Keith Richard Mullins
Chairman
23 March 2011
Income Statement
+---------------------+
| Year to 30 November |
  | 2010 |
| |
  |Revenue Capital Total|
| |
 Notes| £'000 £'000 £'000|
| |
  |    |
| |
Gain on disposal of fixed asset investments 11 | - 601 601|
| |
Gain on disposal of current asset investments 12 | - 8 8|
| |
  |    |
| |
Gain on valuation of fixed asset investments 11 | - 1,052 1,052|
| |
Gain on valuation of current asset investments 12 | - - -|
| |
  |    |
| |
Investment Income 2 | 182 - 182|
| |
  |    |
| |
Investment management fees 3 | (71) (213) (284)|
| |
VAT management fee rebate 3 | - - -|
| |
  |    |
| |
Merger costs 6 | (68) - (68)|
| |
Other expenses 4 | (210) - (210)|
| |
  |    |
| |
(Loss)/profit on ordinary activities before tax  | (167) 1,448 1,281
| |
  |    |
| |
Taxation on (loss)/profit on ordinary activities 7 | - - -|
| |
  |    |
| |
(Loss)/profit on ordinary activities after tax  | (167) 1,448 1,281|
| |
Earnings per share - basic and diluted 9 | (0.8p) 6.7p 5.9p|
+---------------------+
* 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 of the Company up to 11 August 2010 and thereafter reflects that
of the enlarged entity.
* This includes the assets and liabilities of Octopus Third AIM VCT plc that
were transferred to the Company on 12 August 2010. No restatement has been
made for the comparable periods.
* 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
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 as stated above and at historical cost.
Income Statement
+---------------------+
| Year to 30 November |
  | 2009 |
| |
  |Revenue Capital Total|
| |
 Notes| £'000 £'000 £'000|
| |
  |    |
| |
Gain on disposal of fixed asset investments  | - 903 903|
| |
Gain on disposal of current asset investments  | - 68 68|
| |
  |    |
| |
Gain on valuation of fixed asset investments  | - 642 642|
| |
Gain on valuation of current asset investments  | - 111 111|
| |
  |    |
| |
Investment Income 2 | 195 - 195|
| |
  |    |
| |
Investment management fees 3 | (65) (196) (261)|
| |
VAT management fee rebate 3 | 12 37 49|
| |
  |    |
| |
Other expenses 4 | (218) - (218)|
| |
  |    |
| |
(Loss)/profit on ordinary activities before tax  | (76) 1,565 1,489|
| |
  |    |
| |
Taxation on (loss)/profit on ordinary activities 7 | (5) - (5)|
| |
  |    |
| |
(Loss)/Profit on ordinary activities after tax  | (81) 1,565 1,484|
| |
Earnings per share - basic and diluted 9 | (0.4)p 7.8p 7.4p|
+---------------------+
* 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
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 as stated above and at historical cost.
Balance Sheet
+--------------------+
| As at 30 November|As at 30 November
  | 2010|2009
| |
 Notes|£'000 £'000|£'000 £'000
| |
  |   |
| |
Fixed asset investments* 11 | Â 17,910| Â 8,632
| |
Current assets: Â | Â Â |
| |
Investments* 12 |6,587 Â |1,838
| |
Debtors 13 | 211 Â | 249
| |
Cash at bank  | 126  | 186
| |
  |6,924  |2,273
| |
Creditors: amounts falling due | |
within one year 14 | (60) Â |(122)
| |
Net current assets  |  6,864|  2,151
| |
  |   |
| |
Net assets  |  24,774|  10,783
| |
  |   |
| |
Called up equity share capital 15 | Â 4| Â 2
| |
Shares to be issued 15 | Â 154| Â -
| |
Share premium 16 | Â 13,658| Â -
| |
Special distributable reserve 16 | Â 13,481| Â 14,364
| |
Capital reserve realised 16 | Â (807)| Â (305)
| |
Capital reserve un-realised 16 | Â (1,552)| Â (2,814)
| |
Own shares held in Treasury 16 | Â -| Â (467)
| |
Revenue reserve 16 | Â (164)| Â 3
| |
Total equity shareholders' funds  |  24,774|  10,783
| |
Net asset value per share - | |
basic and diluted 10 | Â 67.9p| Â 69.5p
+--------------------+
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 23
March 2011 and are signed on their behalf by:
Keith Richard Mullins
Chairman
Company No: 05528235
The accompanying notes form an integral part of the financial statements.
Reconciliation of Movements in Shareholders' Funds
+---------------+
| Year ended| Year ended
| 30 November| 30 November
 | 2010| 2009
| |
Notes| £'000| £'000
| |
Shareholders' funds at start of year | 10,783| 16,049
| |
Profit on ordinary activities after tax | 1,281| 1,484
| |
Distribution in Specie | |
                                      8 | -| (5,644)
| |
Shares issued upon acquisition of assets and | |
liabilities from Octopus Third AIM VCT | |
plc                             16 | 13,084| -
| |
Stamp duty on shares | |
issued                                   16 | (57)| -
| |
Share capital bought back | (416)| (703)
| |
Issue of shares | 633| -
| |
Shares to be issued | 154| -
| |
Dividends paid | |
                                      8 | (688)| (403)
| |
Shareholders' funds at end of year | 24,774| 10,783
+---------------+
 |  |
+---------------+
Cash Flow Statement
+-----------------+
| Year to 30 | Year to 30
  | November 2010| November 2009
| |
  | £'000| £'000
| |
  |  |
| |
Net Cash outflow from operating | |
activities | (404)| (125)
| |
  |  |
| |
Taxation: UK | |
Corporation tax paid  | -| (9)
| |
  |  |
| |
Financial investment  |  |
| |
Purchase of | |
investments  | (2,917)| (2,865)
| |
Disposal of | |
investments  | 3,551| 1,846
| |
  |  |
| |
Management of liquid | |
resources  |  |
| |
Purchase of current | |
asset investments  | (13,238)| (2,340)
| |
Sale of current asset | |
investments  | 8,497| 4,607
| |
  |  |
----------------------------------+-----------------+-----------------
Net cash (outflow) / inflow from | |
investing activities | (4,511)| 1,114
| |
  |  |
| |
Equity dividends paid  |  |
| |
Distribution in Specie  | -| (249)
| |
Other dividends paid  | (688)| (403)
----------------------------------+-----------------+-----------------
Net cash (outflow) / inflow before| |
financing | (5,199)| 462
| |
  |  |
| |
Financing  |  |
| |
Cash received on acquisition of | |
net assets of Octopus Third AIM | |
VCT plc | 4,825| -
| |
Stamp duty on shares issued to | |
acquire net assets of Octopus | |
Third AIM VCT plc | (57)| -
| |
Proceeds from issue of | |
shares  | 633| -
| |
Shares to be issued  | 154|
| |
Purchase of own shares  | (416)| (703)
----------------------------------+-----------------+-----------------
Net cash inflow / (outflow) from | |
financing | 5,139| (703)
| |
  |  |
| |
Decrease in cash  | (60)| (241)
+-----------------+
The accompanying notes form an integral part of the financial
statements.
Reconciliation of profit before Taxation to Cash
Flow from Operating Activities
+---------------------+
 | Year to 30 November| Year to 30 November
 | 2010| 2009
| |
 Note| £'000| £'000
| |
Profit on ordinary activities  | |
before tax | 1,281| 1,489
| |
Gain on disposal of current 12| |
asset investments | (8)| (68)
| |
Gain on disposal of fixed asset 11| |
investments | (601)| (903)
| |
Gain on valuation of fixed asset 11| |
investments | (1,052)| (111)
| |
Gain on valuation of current 12| |
asset investments | -| (642)
| |
Decrease in debtors 13| 38| 44
| |
(Decrease)/increase in creditors 14| (62)| 66
| |
(Outflow)/Inflow from operating  | |
activities | (404)| (125)
+---------------------+
Reconciliation of Net Cash Flow to Movement in Liquid Resources
+--------------------+
| Year to 30 November|
  | 2010| Year to 30 November 2009
| |
 Notes| £'000| £'000
| |
Decrease in cash at  | |
bank | (60)| (241)
| |
Movement in cash 12 | |
equivalent securities | 4,749| (3,211)
| |
Opening net liquid  | |
resources | 2,024| 5,476
| |
Net liquid resources at  | |
30 November | 6,713| 2,024
+--------------------+
Liquid Resources at 30 November comprised:
+----------------+
 | As at 30 | As at 30
| November 2010| November 2009
| |
 | £'000| £'000
| |
Cash at Bank | 126| 186
| |
Money market cash funds | |
                                      12 | 6,587| 10
| |
Floating Rate Notes | -| 1,828
| |
Net liquid resources at 30 November | 6,713| 2,024
----------------------------------------------+----------------+----------------
Notes to the Financial Statements
1.        Principal Accounting policies
Basis of accounting
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of certain financial
instruments, and in accordance with UK Generally Accepted Accounting Practice
(UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts' (revised
2009).
The results for the year to 30 November 2010 reflect the activities of what were
previously the 'A' Ordinary shares for the whole period. In addition, these
results include the transfer of the assets and liabilities of Octopus Third AIM
VCT plc to the Company, with effect from 12 August 2010. Results for the current
year are reported for the one share class of the enlarged VCT now in issue,
namely Ordinary Shares. These were formerly the 'A' Ordinary shares of the
Company, redesignated Ordinary Shares on 12 August 2010.
The comparatives reported in these financial statements reflect the activities
of what were previously the 'A' Ordinary shares of the Company and are therefore
as previously reported.
The principal accounting policies have remained unchanged from those set out in
the Company's 2009 Annual Report and financial statements. A summary of the
principal accounting policies is set out below.
The Company presents its income statement in a three column format to give
shareholders additional detail of the performance of the Company, split between
items of a revenue or capital nature.
The preparation of the financial statements requires Management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions
mainly relate to the fair valuation of the fixed asset investments.
The Company has designated all fixed asset investments as being held at fair
value through profit and loss; therefore all gains and losses arising from
investments held are attributable to financial assets held at fair value through
profit and loss. Â Accordingly, all interest income, fee income, expenses and
investment gains and losses are attributable to assets designated as being at
fair value through profit or loss.
Current asset investments comprising money market funds and deposits are held
for trading and are therefore automatically classified as fair value through
profit or loss.
Quoted investments are valued in accordance with the bid-price on the relevant
date.
Although the Company believes that the assumptions concerning the business
environment and estimate of future cash flows are appropriate, changes in
estimates and assumptions could require changes in the stated values. This could
lead to additional changes in fair value in the future.
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') valuation guidelines.
Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the Income Statement and
allocated to the capital reserve - unrealised.
In the preparation of the valuations of assets the Directors are required to
make judgements and estimates that are reasonable and incorporate their
knowledge of the performance of the investee companies.
Current asset investments
Current asset investments comprise money market funds and are designated as
FVTPL. Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the Income Statement and
allocated to the capital reserve - realised.
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 capital reserve to
reflect, in the Directors' opinion, the expected long-term split of returns in
the form of income and capital gains respectively from the investment portfolio.
The transaction costs incurred when purchasing or selling assets are written off
to the Income Statement in the period that they occur.
Revenue and capital
The revenue column of the Income Statement includes all income and revenue
expenses of the Company. The capital column includes gains and losses on
disposal and holding gains and losses on investments.
Upon disposal of investments, gains relating to the assets are transferred from
the capital reserve - unrealised to the capital reserve - realised.
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 differences 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 using the effective interest method.
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.
Financing strategy and capital structure
We define capital as shareholders' funds and our financial strategy in the
medium term is to manage a level of cash that balances the risks of the business
with optimising the return on equity. The Company currently has no borrowings
nor does it anticipate that it will drawdown any borrowing facilities in the
future to fund the acquisition of investments.
The Company does not have any externally imposed capital requirements.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are paid and for final
dividends when they are approved by the shareholders.
2.        Income
 30 November 2010 30 November 2009
 £'000 £'000
Income on money market securities and bank
balances 30 Â Â Â Â 87
Dividends received (fixed asset investments) 152 99
Interest received relating to VAT rebate - 9
 182   195
3.        Investment Management Fees
 30 November 2010 30 November 2009
 Revenue Capital Total Revenue Capital Total
 £'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 71 213 284 65 196 261
VAT rebate - - - (12) (37) (49)
 71 213 284 53 159 212
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 initially ran for a
period of five years with effect from 6 October 2005 and may be terminated at
any time thereafter by not less than 12 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 management fee is an annual charge and is set at 2% of the Company's net
assets.
During the year Octopus charged management fees of £284,000 (2009: £261,000). At
the year end there was £nil outstanding (2009: £nil). Octopus also received
£17,000 (2009: £nil) as a result of upfront fees charged on the allotments of
Ordinary Shares resulting from the offer.
4.        Other Expenses
 30 November 2010 30 November 2009
 £'000 £'000
Directors' remuneration 49 42
Fees payable to the Company's auditor for the
audit of the financial statements 26 22
Bank charges and safe custody fees - (3)
Legal and professional expenses 69 69
Other administration expenses 66 88
 210 218
The total expense ratio for the Company for the year to 30 November 2010 was
3.4 per cent based upon average net assets throughout the year (2009: 2.8 per
cent). Total running costs are capped at 3.5 per cent.
5.        Directors' Remuneration
 30 November 2010 30 November 2009
 £'000 £'000
Directors' emoluments
Keith Richard Mullins 16 16
Christopher Holdsworth Hunt 12 13
Andrew Paul Raynor 13 13
Elizabeth Anita Kennedy 4 -
Alastair James Ritchie 4 -
 49 42
None of the Directors received any other remuneration or benefit from the
Company during the year. Mr Holdsworth Hunt resigned as Director on 12 August
2010. The Company has no employees other than non-executive Directors. The
average number of non-executive Directors in the year was three (2009: three).
6. Â Â Â Â Â Â Â Merger costs
At the time of the consolidation of Octopus Second AIM VCT plc and Octopus Third
AIM VCT plc, the prospectus estimated that total costs to combine the Company
with Octopus Third AIM VCT plc would be £238,000. The actual costs were
£228,000. £136,000 of this was borne by Octopus Third AIM VCT plc, while £92,000
was borne by the Company due to the relatively lower total net assets of the
Company. The total stamp duty on the issue of shares was £57,000 (£33,000 of
this was borne by Octopus Third AIM when determining its assets and liabilities
at the date of the merger). The cash payment of the total £57,000 was borne by
the Company. £68,000 is disclosed as merger costs in the Income Statement as the
stamp duty went to the share premium account. Further details of the merger can
be found in note 18.
7.        Tax on Ordinary Activities
The corporation tax charge for the year was £nil (2009: £5,000).
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 21% (2009: 21%). The differences are explained
below.
Current tax reconciliation: 30 November 2010 30 November 2009
 £'000 £'000
Profit/(loss) on ordinary activities before
tax 1,281 1,489
Current tax at 21% (2009: 21%) 269 312
Income not liable to tax (36) (244)
Expenses not deductible for tax purposes 19 (68)
Gains/(losses) not subject to tax (348) -
Excess management expenses carried forward 96 -
Adjustment in respect of prior years - 5
Total current tax charge - 5
Approved VCTs 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 VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
As at 30 November 2010, there is an unrecognised deferred tax asset of £154,000
(2009: 68,000) in respect of surplus management expenses.
8.        Dividends
 30 November 2010 30 November 2009
 £'000 £'000
Recognised as distributions in the financial
statements for the year
Previous year's final dividend 154 246
Distribution in Specie - 5,644
Current year's interim dividend 534 157
 688 6,047
 30 November 2010 30 November 2009
 £'000 £'000
Paid and proposed in respect of the year
Interim dividend paid - 1.5p per share (2009:
1p per share) 534 157
Distribution in specie - 5,644
Final dividend 1.65p (2009: 1p) per share 610 154
 1,144 5,955
9.        Earnings Per Share - basic and diluted
The earnings per share is based on 21,644,414 (2009: 20,051,665 A) Ordinary
shares, being the weighted average number of Ordinary 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.
10.       Net Asset Value Per Share - basic and diluted
The calculation of NAV per share as at 30 November 2010 is based on 36,470,759
Ordinary (2009: 15,508,642 A Ordinary) shares, of which 226,471 were un-
allotted, in issue at that date (excluding Treasury shares).
11.              Fixed asset investments
Effective from 1 January 2009 the Company adopted the amendment to FRS 29
regarding financial instruments
that are measured in the balance sheet at fair value; this requires disclosure
of fair value measurements by level of the following fair value measurement
hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities.
The fair value of financial instruments
traded in active markets is based on quoted market prices at the balance sheet
date. A market is regarded as
active if quoted prices are readily and regularly available, and those prices
represent actual and regularly
occurring market transactions on an arm's length basis. The quoted market price
used for financial assets held is the current bid price. These instruments are
included in level 1 and comprise AIM listed investments classified as held at
fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using
valuation techniques. These valuation techniques maximise the use of observable
data where it is available and rely as little as possible on entity specific
estimates. If all significant inputs required to fair value an instrument are
observable, the instrument is included in level 2. The Company held no such
investment in the current or prior year.
Level 3: the fair value of financial instruments that are not traded in an
active market (for example investments in unquoted companies) is determined by
using valuation techniques such as earnings multiples. If one or more of the
significant inputs is not based on observable market data, the instrument is
included in level 3. The Company held no such investments in the current or
prior year.
There have been no transfers between these classifications in the period (2009:
none). The change in fair value
for the current and previous year is recognised through the profit and loss
account.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in
investments at fair value through profit or loss during the year to 30 November
2010 are summarised below and in note 12.
Level 1:
 AIM-quoted equity investments Total investments
 £'000 £'000
Book cost as at 1 December 2009 11,446 11,446
Revaluation to 1 December 2009 (2,814) (2,814)
Valuation at 1 December 2009 8,632 8,632
Purchases at cost 2,917 2,917
Disposal proceeds (3,551) (3,551)
Profit on realisation of
investments - current year 601 657
Assets acquired from Octopus
Third AIM VCT plc 8,259 8,259
Revaluation in year 1,052 996
Closing valuation at 30 November
2010 17,910 17,910
Book cost at 30 November 2010:
- Ordinary shares 19,461 19,883
Revaluation to 30 November 2010:
- Ordinary shares (1,551) (1,973)
Valuation at 30 November 2010 17,910 17,910
Level 1 valuations are valued in accordance with the bid-price on the relevant
date. Further details of the fixed
asset investments held by the Company are shown within the Investment Manager's
Review.
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.
When the Company revalues the investments still held during the period, any
gains or losses arising are
credited/charged 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.
At 30 November 2010 and 30 November 2009 there were no commitments in respect of
investments approved by the manager but not yet completed.
Transaction costs on purchases and disposals for the year were £9,000 and
£11,000 respectively.
12.       Current Asset Investments
Current asset investments at 30 November 2010 and at 30 November 2009 comprised
floating rate notes (FRNs*) and money market funds**.
 £'000 £'000
Book cost at 1 December 2009:
FRNs 1,832
Money market funds 10
  1,842
Revaluation to 1 December 2009:
FRNs (4)
Money market funds -
  (4)
Valuation as at 1 December 2009 Â 1,838
Purchases at Cost:
Money market funds 13,238
---------------------------------------------------------------------------
  13,238
Disposal proceeds:
FRNs (1,836)
Money market funds (6,661)
---------------------------------------------------------------------------
  (8,497)
Profit/(loss) in year on realisation of investments:
FRNs 8
Money market funds -
  8
Revaluation in year:
Money market funds -
---------------------------------------------------------------------------
  -
Closing valuation as at 30 November 2010 Â 6,587
Book cost at 30 November 2010:
Money market funds 6,587
Revaluation to 30 November 2010:
Money market funds -
---------------------------------------------------------------------------
Closing valuation as at 30 November 2010 Â 6,587
*FRNs represent money held pending investment and can be accessed with 5 working
days notice.
**Money market funds represent money held pending investment and can be accessed
with 1 working day notice.
13.       Debtors
 30 November 2010 30 November 2009
 £'000 £'000
Other debtors 145 199
Prepayments and accrued income 66 50
 211 249
----------------------------------------------------------------------
14.       Creditors: Amounts Falling Due Within One Year
 30 November 2010 30 November 2009
 £'000 £'000
Accruals and other creditors 60 122
 60 122
--------------------------------------------------------------------
15.       Share Capital
 30 November 2010 30 November 2009
 £ £
--------------------------------------------------------------------------------
Allotted and fully paid up:
36,244,288 Ordinary shares of 0.01p (2009:
16,283,536 'A') 3,624 1,628
 3,624 1,628
Non-allotted and fully paid up:
226,471 Ordinary shares of 0.01p (2009: nil) 23 -
 23 -
The value of shares to be issued at 30 November 2010 amounted to £154,000 (2009:
£nil). This represented 213,030 Ordinary shares at 72.29p.
During the year 'A' Ordinary shares were re-designated as Ordinary shares.
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 x.
The Company is not subject to any externally imposed capital requirements.
In the year to 30 November 2010, 20,489,637 Ordinary shares were issued to
acquire the assets and liabilities of Octopus Third AIM VCT plc.
The Company repurchased the following 'A' Ordinary shares during the year to be
held in Treasury:
·                    10 February 2010: 65,125 'A' Ordinary shares at a price of
61.0p per share
The Company repurchased the following 'A' Ordinary shares during the year to be
cancelled:
·                    19 May 2010: 17,419 'A' Ordinary shares at a price of
59.5p per share
On 25 May 2010 840,019 'A' Ordinary shares previously held in Treasury were
cancelled. At 30 November 2010 the Company held no shares in Treasury (2009:
774,894).
The Company repurchased the following Ordinary shares during the year to be
cancelled:
·                    21 July 2010: 64,805 Ordinary shares at a price of 57.75p
per share
·                    16 September 2010: 164,095 Ordinary shares at a price of
56.3p per share
·                    30 September 2010: 50,000 Ordinary shares at a price of
57.0p per share
·                    29 October 2010: 250,000 Ordinary shares at a price of
60.5p per share
·                    12 November 2010: 93,890 Ordinary shares at a price of
60.5p per share
The total nominal value of the shares repurchased was £148 (2009: £66)
representing 0.41% (2009: 4.05%) of the issued share capital.
The Company issued the following shares during the year in connection with the
offer for subscription announced on 9 July 2010:
* 6 October 2010: 508,175 Ordinary shares at a price of 69.54p
* 10 November 2010: 443,168 Ordinary shares at a price of 71.43p
16.       Reserves
Own
Special Capital Capital shares
Share distributable reserve - reserve - held in Revenue
 premium reserve* realised* unrealised* treasury reserve*
 £'000 £'000 £'000 £'000 £'000 £'000
As at 1
December 2009 - 14,364 (305) (2,814) (467) 3
Shares issued 13,084 - - - - -
to acquire
the assets
and
liabilities
of Octopus
Third AIM VCT
Stamp duty on
shares issued
to acquire
net assets of
Octopus Third
AIM VCT plc (57) - - - - -
Shares issued
through offer 631 - - - - -
Repurchase of
own shares - (416) - - - -
Profit on
ordinary
activities
after tax - - - - - (167)
Cancellation
of treasury
shares - (467) - - 467 -
Management
fees
allocatied as
capital
expenditure - - (213) - - -
Prior period
gains/losses
on disposal - - (210) 210 - -
Current year
gains/losses
on disposal - - 609 - - -
Gains/losses
on
revaluation - - - 1,052 - -
Dividends
paid - - (688) - - -
Balance as at
30 November 13,658 13,481 (807) (1,552) - (164)
2010
* *These reserves are considered distributable to shareholders.
When the Company revalues its investments during the year, 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 to net asset value at which the Company's ordinary shares
trade. In the event that the revenue reserve and capital reserve gains/(losses)-
realised do not have sufficient funds to pay dividends, these will be paid from
the special distributable reserve.
17. Â Â Â Â Â Â Financial Instruments and Risk Management
The Company's financial instruments comprise equity investments, 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 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 notes 11 and 12) 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 x. 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 x to x, 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 x.
72.3% (30 November 2009: 80.0%) by value of the Company's net assets comprised
equity securities listed on the London Stock Exchange or quoted on AIM. A 10%
increase in the bid price of these securities as at 30 November 2010 would have
increased net assets and the total return for the year by £1,791,000 (30
November 2009: £863,200); 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 0.5% at 30 November 2010
(30 November 2009: 0.5%). The amounts held in floating rate investments at the
balance sheet date were as follows:
 30 November 2010 30 November 2009
 £000 £000
Current investments 6,587 1,838
Cash at bank 126 186
 6,713 2,024
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the year by £67,130 (30 November 2009:
£20,240).
Credit risk
There were no significant concentrations of credit risk to counterparties at 30
November 2010. By value, no individual investment exceeded 5.3% (2009: 7.2%) of
the Company's net assets at 30 November 2010.
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 2010 the Company's financial assets exposed to credit risk
comprised the following:
 30 November 2010 30 November 2009
 £000 £000
Current investments 6,587 1,838
Cash at bank 126 186
Loans and receivables
Accrued dividends and interest receivable 59 44
 6,772 2,068
Credit risk relating to listed money market securities is mitigated by investing
in a portfolio of investment instruments of high credit quality, comprising
securities issued by the UK Government and major UK companies and institutions.
Those assets of the Company which are traded on recognised stock exchanges are
held on the Company's behalf by third party sub-custodians (BlackRock in the
case of listed money market securities and Charles Stanley 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
HSBC.
Other than cash or liquid money market funds, there were no significant
concentrations of credit risk to counterparties at 30 November 2010 or 30
November 2009.
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 2010
these investments were valued at £6,713,000 (30 November: 2009 £2,024,000).
18. Â Â Â Â Â Â The transfer of assets and liabilities of Octopus Third AIM VCT plc
('Merger')
On 12 August 2010, following approval from shareholders at the Extraordinary
General Meeting on 4 August 2010, shareholders of Third AIM had their shares
converted into Second AIM Ordinary shares on a relative net asset value basis.
20,489,637 Second AIM Ordinary shares were issued from this process, at a total
value of £13,084,000. Subsequently and on the same day, Third AIM plc was placed
into members' voluntary liquidation pursuant to a scheme of reconstruction under
section 110 of the Insolvency Act 1986.
The net asset values (NAV) of each Fund used for the purposes of conversion at
the calculation date of 11 August 2010 were:
Company NAV per share (p) Conversion ratio applied
---------------------------------------------------------------------------
Octopus Second AIM VCT plc 63.20209575 1.00000000
Octopus Third AIM VCT plc 30.56212615 0.48356191
19.      Post balance sheet events
Since the year end, the Company has made the following investments:
Company Date Number of shares Cost (£)
---------------------------------------------------------------------------
Corac Group plc 2 December 2010 1,679,810 251,972
Woodspeen Training plc 3 December 2010 1,388,750 249,975
Goals Soccer Centres plc 10 December 2010 125,000 125,940
Omega plc 14 December 2010 2,916,650 349,988
Brady plc 16 December 2010 873,300 257,624
SQS Software plc 20 December 2010 95,900 206,868
EKF Diagnostics plc 22 December 2010 1,000 296
Goals Soccer Centres plc 19 January 2011 18,000 21,763
Part disposals were made in Lombard medical technologies (12 January 2011),
Animalcare (26 January 2011) and IS Pharma (15 February 2011), resulting in a
combined profit of £129,119.
The following shares have been issued since the year end:
+------------------+---------------------------------+
| 9 December 2010 | 631,316 shares issued at 72.30p |
+------------------+---------------------------------+
| 7 January 2011 | 406,135 shares issued at 74.39p |
+------------------+---------------------------------+
| 11 February 2011 | 604,920 shares issued at 76.19p |
+------------------+---------------------------------+
The following shares have been bought back since the year end:
+------------------+-----------------------------------------------------+
| 23 December 2010 | 108,653 shares bought back and cancelled at 61.72p |
+------------------+-----------------------------------------------------+
| 28 January 2011 | 269,507 shares bought back and cancelled at 64.50p |
+------------------+-----------------------------------------------------+
| 4 February 2011 | 71,799 shares bought back and cancelled at 64.50p |
+------------------+-----------------------------------------------------+
| 16 February 2011 | 147,142 shares bought back and cancelled at 65.50p |
+------------------+-----------------------------------------------------+
| 4 March 2011 | 154,036 shares bought back and cancelled at 64.75p |
+------------------+-----------------------------------------------------+
There is due a further allotment of Ordinary shares on 22 March 2011.
20.      Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at 30
November 2010 (2009: none).
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Octopus Second AIM VCT plc via Thomson Reuters ONE
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