Octopus AIM VCT PLC : Final Results
Octopus AIM VCT plc
Final Results
7 June 2012
Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 29 February 2012.
These results were approved by the Board of Directors on 7 June 2012.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com.
Financial Summary
| As at 29 February 2012 | As at 28 February 2011 | |
| Net assets (£'000) | 39,689 | 38,940 |
| Net (loss)/profit after tax (£'000) | (768) | 6,056 |
| Net asset value (NAV) per share | 86.9p | 94.4p |
| Final proposed dividend | 2.5p | 2.5p |
Key Dates
Annual General Meeting 12 July 2012 (11.00 a.m. at 20 Old Bailey, London EC4M 7AN)
2012 final dividend paid 26 July 2012
Half yearly results to 31 August 2012 announced October 2012
Chairman's Statement
Introduction
It is disappointing to have to report a decline in the Net Asset Value of your shares of 2.6% in the year under review compared with an increase of 21.2% in the previous year, in both cases after adding back 5.0 pence of dividend. This decline may be compared with that of 6.4% in the Small Cap Index. This performance should be seen in the context of continuing difficult economic conditions. As the euro zone crisis continues so does the lack of growth in the UK economy and the general lack of confidence impacts on market prices. More encouragingly, the contact which our management team has continued to have with many companies in which we are invested indicates rather a different story. They report that, in the markets in which they are operating, on the whole trading is holding up well. However, it remains a fact that good results often do not seem to benefit share prices.
A total of £1.9 million was raised by the issue of new shares prior to 6 April 2012. Your Board has decided to make another Top Up Offer to 31 July 2012 (unless it is completed before or extended after 31 July 2012) by the issue of up to another 2,148,981 shares to raise £1.9 million. This will give shareholders and other investors an opportunity of making such an investment in the 2012/13 tax year.
The Budget
The 2012 budget, which has now received State Aid approval from Brussels, provided with effect from 6 April 2012 for the increase in the gross asset limit for investee companies from £7 million to £15 million and for the number of employees to be raised from 50 to 250. Both this lessening of investment restriction and the increase in the 2012 Budget, from £2 million to £5 million, in the annual investment limit, are to be welcomed. Although the changes will place some additional restraints and obligations on your Manager as to how they invest the VCT going forwards, the changes should not have a great impact on the portfolio which is already over 80% invested in qualifying companies.
Changes in Issued Share Capital
At the year end there were 45,422,653 shares in issue compared with 41,247,611 at the end of the previous year. 5,017,425 shares were allotted as a result of the Top Up issues and 842,383 shares were cancelled in the year which had been acquired as a result of the policy to buy back shares at a 10% discount to Net Asset Value. Post the year end a further 2,148,981 shares were issued and a further 171,123 bought back for cancellation. As a result, at the date of this report there are 47,400,511 shares in issue.
Portfolio
After a slow start, by the end of the year there were signs of deal flow improving. Purchases and sales during the year amounted to £5,570,000 and disposals to £2,954,000 respectively. These are all dealt with in the Manager's Review. New investments were made in Enteq Up Stream (recovery products and technology for gas production), Escher Group (software technology for post offices worldwide), MyCelx (cleaning technology),TLA Worldwide (the second largest US major baseball league agency) and Corero Network Security (software against spam on online computers). Disposals included System C Healthcare, Hamworthy, both of which were sold at a profit, and ClarityCommerce which was sold at a loss; all of which were the subject of bids. The investment in Colliers and Optare were also sold. The profit and loss on disposals was £653,000 and £731,000 respectively.
Dividend
A dividend of 2.5p per share was paid to shareholders in November 2011 and your Board propose that a final dividend of 2.5p per share will be paid in July 2012. Thereafter it is proposed that dividends will be paid in January and July with the intention that the annual dividend will be not less than 5p per share.
Vct Qualifying Status
PricewaterhouseCoopers LLP provides your Board and Investment Manager with advice concerning continuing compliance with HMRC regulations for VCTs. Your Board has been advised that Octopus AIM VCT is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is to maintain at least a 70% qualifying investment level. As at 29 February 2012, some 97.9% of the portfolio, as measured by HMRC rules, was invested in qualifying investments.
Risks and Uncertainties
In accordance with the Listing Rules under which your Company operates, your Board has to comment on the potential risks and uncertainties which could have a material impact on the Company's performance. A risk arises from the requirement to maintain compliance with HMRC regulations requiring 70% of your Company's assets to be invested in qualifying holdings. Other risks include the current challenging economic conditions which impact particularly on smaller companies in which your Company invests and this could have an adverse impact on share prices.
Annual General Meeting
The Annual General Meeting will be held on Thursday, 12 July 2012. My colleagues and I very much hope to see many shareholders at the meeting. After the formal business our Investment Managers will make a presentation.
At the Annual General Meeting a resolution will be proposed to extend the life of the Company until 2018 in order to preserve the ability of the Company to conduct Top Up offers in the future.
Outlook
For the same reasons as we all read about in the papers every day, it is difficult to describe the outlook as anything but cloudy. One reads that Corporate UK is sitting on £750 billion of cash and that if the UK is not in a double dip recession, most of Europe apart from Germany is in recession. There seems unsurprisingly little confidence in Corporate UK to spend that cash pile and until it has some incentive to do so it is unlikely that growth will return to the economy. The good news is that, in the last year, many of the companies in the portfolio have managed to improve profits and to increase their dividend payments, helped by the fact that smaller companies of the kind in which VCTs invest can, by their nature, be more flexible in their reaction to prevailing market trends. However, austerity does not make people cheerful and until investors become more confident and cheerful, stock markets are unlikely to reflect any improved performance particularly as far as smaller companies are concerned.
In previous financial reports I have commented that as banks appear to be reluctant to lend to smaller businesses we should see an improved flow in the pipeline for investment. That has been slower to come about than expected, although there have been signs recently of this trend reversing. However, good investment opportunities do arise in times of recession, perhaps even more so than in times of plenty. Our Investment Managers are looking out for them and have substantial liquidity with which to take advantage of them.
It would, I think, be quite wrong to be downhearted about prospects for your portfolio in the coming year and it is certainly true that even a small change in sentiment towards economic growth would have a dramatic effect upon some of the strongly growing companies, which your Company holds. I look forward to talking to you further at the AGM.
Michael Reeve
Chairman
7 June 2012
Investment Manager's Review
Introduction
A year ago we wrote that we believed that the NAV could rise in the following year based on our view that share prices could increase, since they were undervalued and relatively unappreciated by investors. That remains the case. However, the belief that the NAV could rise was confounded by a number of major economic and political concerns, particularly in Europe which impacted sentiment to the detriment of share prices.
It remains the case that many companies are trading well and have managed to do so throughout the last year. The consequence of that is a general de-rating of many shares which have left valuations still reflecting a pessimistic view of the future which we do not share.
The Alternative Investment Market ("AIM")
AIM has been criticised in the last year as a disappointing market, because the number of companies traded on it has fallen and because it has not raised as much new capital for its constituents as the previous year (£1,183 million in 2011 versus £623 million in 2012). In fact, the number of companies traded has fallen from 1,178 in February 2011 to 1,122 in February 2012. The small decrease does not seem to warrant the level of criticism and of course this number reflects the impact of the 100 new companies which have joined the market. The new companies equate to approximately two new companies per week and that is hardly the mark of a poor market.
It has therefore been a subdued year for AIM, which must be a reflection, to some degree, of wider economic concerns. However, it seems totally incorrect to regard AIM as an historic anomaly. It clearly continues to meet a need and with around 85% of the funds raised in 2011 being for existing companies it is quite apparent that shareholders are backing their investments. The market would thus appear to be working: companies, whose investors believe that their investments deserve additional funds, are achieving their capital raising objectives.
Performance
The year under review was a difficult one for funds investing in smaller companies, as a succession of shocks to the economies and banks of Europe coupled with a lack of political direction made stock markets extremely nervous, which is never a good background for the performance of smaller company shares. In the year to 29 February 2012, the AIM index fell by 11.2% and the Smaller Companies Index excluding Investment Trusts by 6.4%. By comparison the NAV of your company fell by 2.6% if the 5 pence of dividends paid in the year are added back.
Although it was disappointing not to be able to build on the recovery in NAV achieved in the preceding two years, the resilience of the underlying investments in the portfolio is demonstrated by this solid performance against the background of some very unsettled markets, particularly in the latter half of the year.
The performance history for different shareholders who bought in at various times over the last fourteen years, is unavoidably complicated to work out. We have therefore tried to make it easier for shareholders by setting it out in a table showing adjusted NAVs, dividends and resulting total returns with a column for each share class. All the figures have been adjusted for conversion ratios and the result therefore shows what would have been the position had no conversions or mergers taken place. It is on page x.
A number of companies in the portfolio performed well as businesses during the year, although this was not always reflected in share prices. Brooks Macdonald has continued to grow both its profits and assets under management, and its share price has been solid after a strong period of appreciation. Advanced Computer Software and Idox have both continued to generate cash and grow their businesses with the help of acquisitions, despite exposure to the public sector in both cases. EKF, which started life as a cash shell and has yet to make a profit, has now established itself in Europe and the US with acquisitions and we expect profitability to follow as it opens up new markets for its point of care diagnostics. Tasty has also seen significant upgrades to profit forecasts and now has the critical mass to grow its restaurant business organically. In the current year we expect a profit from the merged Sinclair IS Pharma, and some progress from Vertu Motors once retail conditions start to improve.
There were some disappointments in the portfolio, the most significant of which in terms of performance were Immunodiagnostics and MSS. Immunodiagnostics suffered from increased competition in the manual vitamin D testing market before it has gained enough traction with its automated IDS-iSYS sales resulting in downgrades to forecasts. The share price was badly hit, but we believe that it will recover from current levels as sales of automated kits pick up. MSS suffered from a very competitive building services market and working capital constraints and we took the decision to sell this holding at a loss.
On a more positive note, some of the more recent investments contributed positively to performance in the year. Escher announced a large $50 million US contract which will extend over many years and the announcement of which resulted in a significant rise in the share price. Breedon Aggregates announced a maiden profit ahead of forecasts for the year to December 2011 and has started to reduce its debt levels as well as raising some further cash to fund acquisitions since the period end.
Portfolio Activity
There is no denying that the wider economic concerns have made new flotations fewer in number in 2011 and those that we have invested in mainly materialised in the first half of the financial year. However, the flow of fundraisings for existing businesses has been more evenly spread over the year and reflects the need for companies to use equity rather than debt to finance growth in the current banking environment. Thus, despite what has seemed like a quiet year, we have found several interesting investment opportunities which we expect to develop profitably over the next few years. Because the portfolio remains well above its 70% investment limit in qualifying holdings, we can afford to be patient when making new investments and wait for attractive opportunities at realistic prices.
The interims referred to new investments in Enteq Upstream, Indeed Online, Escher and MyCelx, all of which were new issues. In the second half your Company invested in GB Group and TLA Worldwide. The former provides identity verification services for a variety of customers with a growing international flavour. TLA manages sports personalities, particularly baseball players in America. In total, for the year under review as a whole, £4.332 million has been invested into new qualifying holdings at cost. The cash invested has been a mix of the newly raised funds, as a result of last year's prospectus, and of your company's previously existing capital.
In addition we have also invested £1.238 million into non-qualifying shares, establishing holdings in Hamworthy and Gooch and Housego as well as adding to an existing holding in Augean. This is in line with our strategy of keeping around 10% of the portfolio invested in situations which are expected to provide a higher return than cash in a low interest rate environment. Hamworthy was then the subject of a successful cash takeover, demonstrating the attractiveness of UK companies with winning technologies to overseas trade buyers.
The year under review also included a number of disposals, many of which were as a result of bids, although sadly these did not result in an overall net profit for the Fund. Clarity was an example of an opportunistically timed bid from private equity, of which we will no doubt see more, but where a longer term view by more shareholders might have been rewarded in time and CBG was taken over for cash. Both of these bids were at significant premiums to the then prevailing share prices. Individual Restaurant Group was taken over by a private company, and the structure of the deal meant that it would no longer be a VCT qualifying holding, so we elected to take cash We also sold out of the holding in Managed Support Services when it disposed of its trading business and ceased to qualify. It had suffered from too much debt at the wrong time in the economic cycle.
We took profits from holdings in Silverdell, Brooks Macdonald and Advanced Computer Software as well as selling out of Optare, Adventis, Northern Bear and Colliers, all of which were suffering from too much debt and were sold at a loss. This has reduced the number of holdings in the portfolio, particularly where the prospects of significant recovery was remote.
Outlook
After a much steadier start to 2012, when a reduced aversion to risk resulted in an outperformance of smaller companies in the first quarter, uncertainty and fear are lurking again, fuelled this time by election results in Greece and France. There is a growing awareness that achieving an acceptable economic solution for Europe is at odds with the political will of the electorate and this is likely to mean that intermittent periods of market turmoil remain a feature for the foreseeable future.
Notwithstanding these problems, many of the companies in the portfolio have continued to make good commercial progress and we have been rewarded with some positive share price movements in the recent results season. The unaudited NAV at the beginning of May stood at 90.5p, up from 86.9p at the end of February although it has fallen back to 86.2p as at 31 May as a result of recent market movements.
We do not deny the seriousness of the issues that still have to be resolved, nor of potential ones, such as any inflationary pressures resulting from quantative easing. However, the portfolio is predominantly not exposed to the retail sector or to the consumer directly so to that extent it is defensive. It is though exposed to growth companies, which we believe is the correct stance to have because it is such companies which will continue to develop and make progress, even in challenging circumstances, and which will be re-rated as the economic clouds lift. We are therefore confident that in time the portfolio will produce a rising NAV.
The AIM team
Octopus Investments Limited
7 June 2012
Investment Portfolio as at 29 February 2012
| Investments | Sector | Book cost as at 29 February 2012 (£'000) | Movement in year ('£000) | Fair Value at 29 February 2012 (£'000) | Cumulative change in fair value (£'000) | % equity held by AIM VCT plc | % equity held by all funds managed by Octopus | ||||
| Brooks Macdonald Group plc | Specialty & Other Finance | 773 | 332 | 2,274 | 1,501 | 1.7% | 2.4% | ||||
| Escher Group Holdings plc | Software & Computer Services | 1,003 | 588 | 1,591 | 588 | 3.5% | 8.3% | ||||
| Advanced Computer Software Group plc | Software & Computer Services | 573 | 401 | 1,462 | 889 | 0.8% | 2.8% | ||||
| IDOX plc | Software & Computer Services | 364 | 556 | 1,402 | 1,038 | 1.4% | 4.4% | ||||
| EKF Diagnostics Holdings plc | Health | 931 | (69) | 1,288 | 357 | 2.2% | 6.3% | ||||
| Breedon Aggregates Ltd | Construction & Building | 902 | (75) | 1,277 | 375 | 1.3% | 2.2% | ||||
| Enteq Upstream plc | Oil Services | 1,031 | 103 | 1,134 | 103 | 6.9% | 14.0% | ||||
| Brady plc | Software & Computer Services | 741 | 50 | 1,030 | 289 | 1.6% | 2.7% | ||||
| MyCelx Technologies Corporation | Oil Services | 900 | 86 | 986 | 86 | 3.3% | 7.6% | ||||
| Animalcare Group plc | Food Producers & Processors | 304 | 5 | 868 | 564 | 2.7% | 8.3% | ||||
| TLA Worldwide plc | Media & Entertainment | 807 | - | 807 | - | 6.3% | 15.7% | ||||
| Netcall plc | Telecommunication Services | 436 | 107 | 801 | 365 | 2.9% | 5.1% | ||||
| Mattioli Woods plc | Specialty & Other Finance | 523 | (320) | 778 | 255 | 2.2% | 3.5% | ||||
| Staffline Recruitment Group plc | Support Services | 333 | 60 | 773 | 440 | 1.7% | 13.7% | ||||
| Vertu Motors plc | General Retailers | 1,265 | 27 | 747 | (518) | 1.3% | 7.0% | ||||
| Tasty plc | Leisure & Hotels | 369 | 420 | 717 | 348 | 2.6% | 4.9% | ||||
| Active Risk Group plc | Software & Computer Services | 862 | (33) | 695 | (167) | 5.2% | 9.8% | ||||
| RWS Holdings plc | Support Services | 367 | 188 | 625 | 258 | 0.3% | 4.5% | ||||
| Hargreaves Services plc | Support Services | 267 | 121 | 590 | 323 | 0.2% | 3.9% | ||||
| Mears Group plc | Support Services | 155 | (169) | 573 | 418 | 0.3% | 0.3% | ||||
| Craneware plc | Software & Computer Services | 183 | (244) | 554 | 371 | 0.5% | 1.2% | ||||
| Omega Diagnostics Group plc | Health | 673 | (146) | 535 | (138) | 5.7% | 10.5% | ||||
| Matchtech Group plc | Support Services | 346 | (39) | 518 | 172 | 1.1% | 11.3% | ||||
| GB Group plc | Support Services | 330 | 177 | 507 | 177 | 0.8% | 2.2% | ||||
| Zetar plc | Food Producers & Processors | 587 | (78) | 502 | (85) | 2.2% | 3.8% | ||||
| Immunodiagnostic Systems plc | Health | 528 | (562) | 471 | (57) | 0.4% | 3.2% | ||||
| Altitude Group plc | Media & Entertainment | 600 | 17 | 433 | (167) | 4.0% | 4.6% | ||||
| Cello Group plc | Media & Entertainment | 895 | (285) | 424 | (471) | 1.5% | 8.4% | ||||
| Cohort plc | Aerospace & Defence | 300 | 149 | 378 | 78 | 0.9% | 4.6% | ||||
| Chime Communications plc | Media & Entertainment | 320 | (24) | 351 | 31 | 0.2% | 0.5% | ||||
| Sinclair IS Pharma plc | Pharmaceuticals & Biotech | 771 | (177) | 350 | (421) | 0.4% | 1.6% | ||||
| Woodspeen Training plc | Support Services | 350 | (311) | 331 | (19) | 5.4% | 11.4% | ||||
| Bond International Software plc | Software & Computer Services | 354 | (107) | 330 | (24) | 2.3% | 3.5% | ||||
| Quadnetics Group plc | Support Services | 344 | 128 | 309 | (35) | 0.6% | 0.7% | ||||
| Corac Group plc | Engineering & Machinery | 346 | (81) | 278 | (68) | 0.8% | 1.8% | ||||
| In-Deed Online plc | Support Services | 301 | (29) | 272 | (29) | 3.5% | 5.9% | ||||
| Plastics Capital plc | Engineering & Machinery | 400 | (52) | 268 | (132) | 1.5% | 17.9% | ||||
| Brulines (Holdings) plc | Support Services | 359 | (36) | 261 | (98) | 1.1% | 4.7% | ||||
| Gooch & Housego plc | Electronic & Electrical | 248 | (14) | 234 | (14) | 0.3% | 2.1% | ||||
| SQS Software Quality Systems AG | Software & Computer Services | 291 | (81) | 225 | (66) | 0.5% | 9.9% | ||||
| Access Intelligence plc | Software & Computer Services | 375 | (75) | 225 | (150) | 3.3% | 10.2% | ||||
| Adept Telecom plc | Telecommunication Services | 600 | 47 | 210 | (390) | 2.0% | 4.1% | ||||
| Goals Soccer Centres plc | Leisure & Hotels | 205 | (56) | 207 | 2 | 0.4% | 2.9% | ||||
| Marwyn Management plc | Investment Companies | 550 | (163) | 194 | (356) | 0.7% | 1.9% | ||||
| Augean plc | Support Services | 181 | 10 | 191 | 10 | 0.6% | 4.5% | ||||
| Hasgrove plc | Media & Entertainment | 250 | (48) | 185 | (65) | 2.1% | 13.0% | ||||
| Daisy Group plc | Telecommunication Services | 201 | 19 | 181 | (20) | 0.1% | 0.1% | ||||
| Tanfield Group plc | Engineering & Machinery | 226 | 74 | 176 | (50) | 0.3% | 2.2% | ||||
| Jelf Group plc | Specialty & Other Finance | 186 | 16 | 166 | (20) | 0.3% | 0.9% | ||||
| Work Group plc | Support Services | 943 | (18) | 152 | (791) | 4.1% | 6.2% | ||||
| Inditherm plc | Chemicals | 204 | - | 136 | (68) | 6.7% | 6.7% | ||||
| SnackTime plc | Support Services | 531 | (212) | 124 | (407) | 2.1% | 8.9% | ||||
| Datong plc | Electronic & Electrical | 500 | (141) | 102 | (398) | 2.8% | 3.4% | ||||
| Autoclenz Holdings plc | Support Services | 181 | (81) | 100 | (81) | 4.6% | 12.7% | ||||
| InterQuest Group plc | Support Services | 76 | (19) | 73 | (3) | 0.4% | 4.7% | ||||
| Dods (Group) plc | Media & Entertainment | 203 | (28) | 34 | (169) | 0.5% | 2.2% | ||||
| Synarbor plc | Support Services | 15 | 7 | 22 | 7 | 0.8% | 0.8% | ||||
| Vitesse Media plc | Media & Entertainment | 8 | 7 | 9 | 1 | 1.0% | 4.1% | ||||
| Bright Futures Group plc | Support Services | 2 | (2) | - | (2) | 0.8% | 0.9% | ||||
| Twenty plc | Media | 500 | (56) | - | (500) | 4.4% | 12.2% | ||||
| Total investments | 27,369 | (136) | 30,436 | 3,067 | |||||||
| Money market funds | 8,609 | 8,609 | |||||||||
| Total fixed investments and money market funds | 39,045 | ||||||||||
| Cash at bank | 668 | ||||||||||
| Debtors less creditors | (24) | ||||||||||
| Total net assets | 39,689 | ||||||||||
Top ten holdings
Listed below are the ten largest investments, valued at bid price, as at 29 February 2012:
Brooks MacDonald Group plc
Brooks MacDonald is a provider of asset management and financial consulting services with a particular emphasis on the pensions market.
Initial investment date: March 2005
Cost: £773,000
Valuation: £2,274,000
Equity held: 1.7%
Last audited accounts: June 2011
Revenue: £52.2 million
Profit before tax: £7.3 million
Net assets: £19.1 million
Escher Group Holdings plc
Escher Group Holdings plc provides software, particularly for over the counter and financial services, to national Post Office organisations worldwide.
Initial investment date: August 2011
Cost: £1,003,000
Valuation: £1,591,000
Equity held: 3.5%
Last audited accounts: December 2011
Revenue: $13.9 million
Profit before tax: $1.9 million
Net assets: $25.7 million
Advanced Computer Software plc
Advanced Computer Software plc provides software to the Healthcare Sector and other commercial markets.
Initial investment date: July 2008
Cost: £573,000
Valuation: £1,462,000
Equity held: 0.8%
Last audited accounts: February 2011
Revenue: £95.4 million
Profit before tax: £3.1 million
Net assets: £84.6 million
Idox plc
Idox is a leading developer and supplier of software services to local government for core functions relating to land, people and property, and also to the private sector for the management of engineering drawings.
Initial investment date: May 2007
Cost: £364,000
Valuation: £1,402,000
Equity held: 1.4%
Last audited accounts: October 2011
Revenue: £38.6 million
Profit before tax: £5.6 million
Net assets: £34.4 million
EKF Diagnostics plc
EKF designs, develops, manufactures and distributes diagnostic instruments and reagents focussed on the diabetes, anaemia and chronic kidney disease markets. It has operations in Germany, Poland and Russia.
Initial investment date: July 2010
Cost: £931,000
Valuation: £1,288,000
Equity held: 2.2%
Last audited accounts: December 2011
Revenue: £21.7 million
Loss before tax: £2.3 million
Net assets: £37.4 million
Breedon Aggregates Limited
Breedon Aggregates supplies a diverse range of products to the construction and building sectors from a number of quarries and other sites in the Midlands and Scotland.
Initial investment date: August 2010
Cost: £902,000
Valuation: £1,277,000
Equity held: 1.3%
Last audited accounts: December 2011
Revenue: £168.9 million
Loss before tax: £1.5 million
Net assets: £5.9 million
Enteq Upstream plc
Enteq Upstream PLC is an investment vehicle, focused on acquiring and consolidating companies providing specialist products and technologies to the upstream oil and gas services market.
Initial investment date: June 2011
Cost: £1,031,000
Valuation: £1,134,000
Equity held: 6.9%
First audited accounts: March 2012
Revenue: N/A
Profit before tax: N/A
Net assets: N/A
Brady plc
Brady designs and sells software for the global commodity trading industry, including producers, traders, banks and investors.
Initial investment date: December 2010
Cost: £741,000
Valuation: £1,030,000
Equity held: 1.6%
Last audited accounts: 31 December 2011
Revenue: £19.2 million
Profit before tax: £2.4 million
Net assets: £23.9 million
MyCelx Technologies plc
MyCelx Technologies is a clean water technology company that provides technology solutions for commercial industrial markets worldwide.
Initial investment date: November 2011
Cost: £900,000
Valuation: £986,000
Equity held: 3.3%
Last audited accounts: December 2011
Revenue: $6.3 million
Loss before tax: $2.8 million
Net assets: $17.6 million
Animalcare Group plc
Animalcare Group plc manufactures and distributes veterinary medicines for pets and livestock.
Initial investment date: December 2007
Cost: £304,000
Valuation: £868,000
Equity held: 2.7%
Last audited accounts: June 2011
Revenue: £11.8 million
Profit before tax: £2.9 million
Net assets: £15.8 million
Directors' Responsibilities Statement
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 judgments and accounting estimates that are reasonable and prudent;
- state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; 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, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors 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, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company; and
- that 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
Michael Reeve
Chairman
7 June 2012
| Income Statement | |||||||
| Year to 29 February 2012 | Year to 28 February 2011 | ||||||
| Notes | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| (Loss)/gain on disposal of fixed asset investments | 11 | - | (93) | (93) | - | 2,611 | 2,611 |
| (Loss)/gain on valuation of fixed asset investments | 11 | - | (136) | (136) | - | 4,045 | 4,045 |
| Investment Income | 2 | 475 | - | 475 | 301 | - | 301 |
| Investment management fees | 3 | (197) | (590) | (787) | (139) | (418) | (557) |
| Merger costs | 6 | - | - | - | (134) | - | (134) |
| Other expenses | 4 | (227) | - | (227) | (210) | - | (210) |
| (Loss)/profit on ordinary activities before tax | 51 | (819) | (768) | (182) | 6,238 | 6,056 | |
| Taxation on profit on ordinary activities | 7 | - | - | - | - | - | - |
| (Loss)/profit on ordinary activities after tax | 51 | (819) | (768) | (182) | 6,238 | 6,056 | |
| Return per share - basic and diluted | 9 | 0.1p | (1.8)p | (1.7)p | (0.5)p | 17.7p | 17.2p |
- the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice
- all revenue and capital items in the above statement derive from continuing operations. In respect of the year to 28 February 2011, this includes the assets and liabilities of Octopus Phoenix VCT plc that were transferred to the Company on 12 August 2010.
- 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 loss as stated above and at historical cost.
The accompanying notes are an integral part of the financial statements.
Balance sheet
| As at 29 February 2012 | As at 28 February 2011 | ||||
| Notes | |||||
| £'000 | £'000 | £'000 | £'000 | ||
| Fixed asset investments* | 11 | 30,436 | 28,049 | ||
| Current assets: | |||||
| Investments* | 12 | 8,609 | 10,655 | ||
| Debtors | 13 | 56 | 19 | ||
| Cash at bank | 668 | 475 | |||
| 9,333 | 11,149 | ||||
| Creditors: amounts falling due within one year | 14 | (80) | (258) | ||
| Net current assets | 9,253 | 10,891 | |||
| Net assets | 39,689 | 38,940 | |||
| Called up equity share capital | 15 | 454 | 412 | ||
| Shares to be issued | 15 | 279 | 352 | ||
| Share premium | 16 | - | 11,317 | ||
| Special distributable reserve | 16 | 56,054 | 25,194 | ||
| Capital redemption reserve | 16 | 2 | 15,710 | ||
| Capital reserve realised | 16 | (20,353) | (14,465) | ||
| Capital reserve unrealised | 16 | 3,067 | 285 | ||
| Revenue Reserve | 16 | 186 | 135 | ||
| Total equity shareholder's funds | 39,689 | 38,940 | |||
| Net asset value per share - basic and diluted | 10 | 86.9p | 94.4p | ||
* held at fair value through profit & loss
The accompanying notes are an integral part of the financial statements.
The statements were approved by the Directors and authorised for issue on 7 June 2012 and are signed on their behalf by:
Michael Reeve
Chairman
Company number: 03477519
| Note | Year to 29 February 2012 | Year to 28 February 2011 | |
| £'000 | £'000 | ||
| Shareholders' funds at start of year | 38,940 | 23,644 | |
| (Loss)/profit for the period | (768) | 6,056 | |
| Shares issued upon acquisition of assets and liabilities from Octopus Phoenix VCT plc | - | 6,656 | |
| Stamp duty on shares issued | - | (29) | |
| Share capital bought back | (681) | (801) | |
| Issue of shares | 4,558 | 4,995 | |
| Shares to be issued | (73) | 352 | |
| Dividends paid | 8 | (2,287) | (1,933) |
| Shareholders' funds at end of year | 39,689 | 38,940 |
Reconciliation of Movements in Shareholders' Funds
The accompanying notes are an integral part of the financial statements.
Cash Flow Statement
| Year to 29 February 2012 | Year to 28 February 2011 | ||
| Notes | £'000 | £'000 | |
| Net Cash outflow from operating activities | (754) | (546) | |
| Taxation | 7 | - | - |
| Financial investment: | |||
| Purchase of fixed asset investments | 11 | (5,570) | (6,112) |
| Sale of fixed asset investments | 11 | 2,954 | 7,572 |
| Net cash (outflow)/inflow from investing activities | (2,616) | 1,460 | |
| Equity dividends paid | (2,287) | (1,933) | |
| Management of liquid resources: | |||
| Purchase of current asset investments | 12 | (14,185) | (27,479) |
| Sale of current asset investments | 12 | 16,231 | 23,556 |
| Net cash inflow/(outflow) from management of liquid resources | 2,046 | (3,923) | |
| Financing | |||
| Cash received on acquisition of net assets of Octopus Phoenix VCT plc | |||
| - | 747 | ||
| Stamp duty on shares issued to acquire net assets of Octopus Phoenix VCT plc | |||
| - | (29) | ||
| Proceeds from issue of shares | 15 | 4,558 | 4,995 |
| Shares to be issued | 15 | (73) | 352 |
| Purchase of own shares | 15 | (681) | (801) |
| Net cash inflow from financing activities | 3,804 | 3,331 | |
| Increase in cash | 193 | 322 | |
| Reconciliation of Profit before Taxation to Cash Flow from Operating Activities | ||||
| Note | Year to 29 February 2012 | Year to 28 February 2011 | ||
| £'000 | £'000 | |||
| (Loss)/profit on ordinary activities before tax | (768) | 6,056 | ||
| (Increase)/decrease in debtors | 13 | (37) | 8 | |
| (Decrease)/increase in creditors | 14 | (178) | 46 | |
| Loss/(gain) on disposal of fixed asset investments | 11 | 93 | (2,611) | |
| Loss/(gain) on valuation of fixed asset investments | 11 | 136 | (4,045) | |
| Outflow from operating activities | (754) | (546) | ||
| Reconciliation of Net Cash Flow to Movement in Net Funds | |||
| Year to 29 February 2012 | Year to 28 February 2011 | ||
| £'000 | £'000 | ||
| Increase in cash at bank | 193 | 322 | |
| Movement in cash equivalent securities | (2,046) | 3,923 | |
| Opening net funds | 11,130 | 6,885 | |
| Net funds at 29 February 2012 | 9,277 | 11,130 | |
Net Funds at 29 February comprised:
| As at 29 February 2012 | As at 28 February 2011 | |
| £'000 | £'000 | |
| Cash at Bank | 668 | 475 |
| Money market cash funds | 8,609 | 10,655 |
| Net funds at 29 February | 9,277 | 11,130 |
The accompanying notes are an integral part of the financial statements.
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 comparative results include the transfer of the assets and liabilities of Octopus Phoenix 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.
The principal accounting policies have remained unchanged from those set out in the Company's 2011 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. 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 are held for trading and are therefore automatically classified as fair value through profit or loss.
AIM and PLUS 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. In the case of unquoted investments, fair value is established by using measures of value such as the price of recent transactions, earnings multiple and net assets. This is consistent with International Private Equity and Venture Capital 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 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 deposits 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 appropriate capital reserve.
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 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) 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
FRS 29 'Financial Instruments: Disclosures' comprises disclosures relating to financial instruments. 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
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Interest receivable on money market securities and bank balances | 86 | 46 |
| Dividends received (fixed asset investments) | 380 | 246 |
| Loan interest received | 9 | 9 |
| 475 | 301 |
3. Investment management fees
| 29 February 2012 | 28 February 2011 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 197 | 590 | 787 | 139 | 418 | 557 |
| 197 | 590 | 787 | 139 | 418 | 557 | |
For the purposes of the revenue and capital columns in the Income Statement, the management fee 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.
4. Other expenses
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Directors' remuneration | 69 | 60 |
| Fees payable to the Company's auditor for the audit of the financial statements | 23 | 25 |
| Other expenses | 135 | 125 |
| 227 | 210 |
The total expense ratio for the Company for the year to 29 February 2012 was 2.5 per cent (2011: 2.6 per cent).
5. Directors' remuneration
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Directors' emoluments | ||
| Michael Reeve | 24 | 24 |
| Marion Sears | 9 | - |
| Roger Smith | 18 | 18 |
| Stephen Hazell-Smith | 18 | 18 |
| 69 | 60 |
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 four (2011: three).
6. Merger costs
In the prior year, Octopus AIM VCT plc merged with Octopus Phoenix VCT plc. The prospectus estimated that total costs to combine the Company with Octopus Phoenix VCT plc would be £199,000. The actual costs were £208,000. £52,000 of this was borne by Octopus Phoenix VCT plc, while £156,000 was borne by the Company due to the relatively higher total net assets of the Company. The total stamp duty on the issue of shares was £29,000 (£7,000 of this was borne by Octopus Phoenix VCT when determining its assets and liabilities at the date of the merger). The cash payment of the total £29,000 was borne by the Company. £134,000 is disclosed as merger costs in the Income Statement as the stamp duty went to the share premium account.
7. Tax on ordinary activities
The corporation tax charge for the year was £nil (2011: £nil).
Factors affecting the tax charge for the current year:
The current tax charge for the year differs from the effective small company rate of corporation tax in the UK of 20.08% (2011: 21%). The differences are explained below.
| Current tax reconciliation: | 29 February 2012 | 28 February 2011 £'000 |
| £'000 | ||
| (Loss)/profit on ordinary activities before tax | (768) | 6,056 |
| Current tax at 20.08% (2011: 21%) | (154) | 1,272 |
| Income not liable to tax Expenses not deductible for tax purposes Losses not deductible for tax Excess management expenses carried forward | (78) - 46 186 | (50) 37 (1,401) 142 |
| Total current tax charge | - | - |
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 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. In addition, a deferred tax asset has not been recognised on carried forward losses.
8. Dividends
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for the year | ||
| Previous year's final dividend | 1,145 | - |
| Current year's interim dividend | 1,142 | 1,933 |
| 2,287 | 1,933 |
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Paid and proposed in respect of the year | ||
| Interim dividend - 2.5p per share (2011: 5.0p per share) | 1,142 | 1,933 |
| Final dividend proposed: 2.5p per share (2011: 2.5p share) | 1,183 | 1,145 |
| 2,325 | 3,078 |
9. Return per share - basic and diluted
The return per share is based on loss after tax of £768,000 (2011: profit after tax of £6,056,000), and 45,406,494 Ordinary shares (2011: 35,243,827), 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.
10. Net asset value per share - basic and diluted
The calculation of net asset value per share as at 29 February 2012 is based on net assets of £39,689,000 (2011: £38,940,000) divided by 45,671,549 (2011: 41,247,611), being the sum of 45,422,653 Ordinary shares in issue at that date and 248,896 shares to be issued at the same date.
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted net asset value per share are identical.
11. Fixed asset investments
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 or Plus 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 holds 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.
There have been no transfers between these classifications in the period (2011: none). The change in fair value for the current and previous year is recognised through the Income Statement.
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 29 February 2012 are summarised below and in note 12.
| Level 1: Quoted prices | Level 3: Unquoted loan investments | Total investments | |
| £'000 | £'000 | £'000 | |
| Valuation and net book amount: | |||
| Book cost at 1 March 2011 | 27,464 | 300 | 27,764 |
| Opening unrealised loss at 1 March 2011 | 285 | - | 285 |
| Valuation at 1 March 2011 | 27,749 | 300 | 28,049 |
| Movement in the year: | |||
| Purchases at cost | 5,570 | - | 5,570 |
| Proceeds from the sale of investments | (2,654) | (300) | (2,954) |
| Loss on realisation of investments | (93) | - | (93) |
| Change in fair value in year | (136) | - | (136) |
| Closing fair value at 29 February 2012 | 30,136 | - | 30,436 |
| Closing cost at 29 February 2012 | 27,369 | - | 27,369 |
| Closing unrealised gain at 29 February 2012 | 3,067 | - | 3,067 |
| Valuation at 29 February 2012 | 30,436 | - | 30,436 |
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.
Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect impairment of financial assets held at the price of recent investment, or to adjust earnings multiples.
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 29 February 2012 the following transactions were commitments in respect of investments approved by the manager but not yet completed (2011: none):
- 1,255,814 shares in Corero Network Security plc for £540,000
- 58,000 shares in Augean plc for £17,540
Transaction costs on purchases and disposals for the year were £17,000 and £9,000 respectively.
12. Current asset investments at fair value through profit and loss
Current asset investments represent level 1 investments as described in note 11 above. All current asset investments relate to money market funds*.
| 29 February 2012 | 28 February 2011 | ||||||||||||
| £'000 | £'000 | ||||||||||||
| Valuation and net book amount: | |||||||||||||
| Book cost as at 1 March | 10,655 | 6,732 | |||||||||||
| Revaluation to 1 March | - | - | |||||||||||
| Valuation as at 1 March | 10,655 | 6,732 | |||||||||||
| Movement in year: | |||||||||||||
| Purchases at cost | 14,185 | 27,479 | |||||||||||
| Disposal proceeds | (16,231) | (23,556) | |||||||||||
| Closing valuation as at 29 February 2012 / 28 February 2011 | 8,609 | 10,655 | |||||||||||
| Book cost as at 29 February 2012 / 28 February 2011 | 8,609 | 10,655 | |||||||||||
| Revaluation to 29 February 2012 / 28 February 2011 | - | - | |||||||||||
| Closing valuation as at 29 February 2012 / 28 February 2011 | 8,609 | 10,655 | |||||||||||
*Money market funds represent money held pending investment and can be accessed with 1 working day notice.
Transaction costs on purchases and disposals for the year were £nil (2011: £nil).
13. Debtors
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Prepayments and accrued income | 36 | 19 |
| Other debtors | 20 | - |
| 56 | 19 |
14. Creditors: amounts falling due within one year
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Accruals | 44 | 210 |
| Other creditors | 36 | 48 |
| 80 | 258 |
15. Share capital
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Allotted and fully paid up: | ||
| 45,422,653 Ordinary shares of 1.0p (2011: 41,247,611 shares of 1.0p) |
The value of shares to be issued at 29 February 2012 amounted to £279,000 (2011: £352,000).
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.
During the year the Company repurchased the following shares to be cancelled:
| Date | Number of shares | Price per share | Total value of shares |
4 March 2011 | 53,224 | 84.3p | 44,868 |
24 March 2011 | 53,189 | 81.8p | 43,509 |
21 April 2011 | 90,277 | 82.0p | 74,027 |
3 June 2011 | 91,615 | 84.1p | 77,048 |
17 June 2011 | 86,412 | 84.8p | 73,277 |
27 July 2011 | 6,000 | 84.0p | 5,040 |
29 July 2011 | 154,595 | 84.0p | 129,860 |
30 September 2011 | 30,769 | 79.0p | 24,308 |
4 October 2011 | 17,238 | 79.0p | 13,618 |
21 October 2011 | 19,642 | 78.8p | 15,478 |
11 November 2011 | 32,787 | 77.5p | 25,410 |
9 December 2011 | 75,698 | 74.3p | 56,244 |
20 January 2012 | 82,805 | 74.0p | 61,276 |
24 February 2012 | 48,132 | 77.5p | 37,302 |
| Totals | 842,383 | 681,264 |
The total nominal value of the shares repurchased for cancellation was £8,423 representing 1.9% of the issued share capital.
The Company issued the following shares during the year to 29 February 2012:
- 22 March 2011: 1,921,283 Ordinary shares at a price of 96.2p
- 30 March 2011: 1,114,877 Ordinary shares at a price of 96.5p
- 5 April 2011: 1,924,332 Ordinary shares at a price of 95.9p
- 19 April 2011: 56,933 Ordinary shares at a price of 96.6p
At the date of issue of this report there were 47,299,972 Ordinary shares of 1p each in issue, with a further 248,896 shares waiting to be issued.
16. Reserves
| Share capital | Share premium | Special distributable reserve* | Capital redemption reserve | Capital reserve realised* | Capital reserve unrealised | Revenue reserve* | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 March 2011 | 412 | 11,317 | 25,194 | 15,710 | (14,465) | 285 | 135 |
| Repurchase of own shares | (8) | - | (681) | 8 | - | - | - |
| Shares issued | 50 | 4,513 | (5) | - | - | - | - |
| Cancellation of share premium | - | (15,830) | 31,546 | (15,716) | - | - | - |
| Profit on ordinary activities after tax | - | - | - | - | - | - | 51 |
| Management fees allocated as capital expenditure | - | - | - | - | (590) | - | - |
| Current year losses on disposal | - | - | - | - | (93) | - | - |
| Prior period holding (losses)/gains now crystallised | - | - | - | - | (2,918) | 2,918 | - |
| Current period losses on fair value of investments | - | - | - | - | - | (136) | - |
| Dividends paid | - | - | - | - | (2,287) | - | - |
| Balance as at 29 February 2012 | 454 | - | 56,054 | 2 | (20,353) | 3,067 | 186 |
* Included within these reserves is an amount of £35,887,000 (2011: £10,864,000) which is considered distributable to shareholders.
When the Company revalues its investments during the period, any gains or losses arising are credited/charged to the Income Statement. Changes in fair value of investments held are then transferred to capital reserves 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.
A court order obtained on 23 November 2011, permitted the cancellation of the share premium account and the capital redemption reserve. As a result, £31,546,000 was transferred to special distributable reserve. 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. Financial instruments and risk management
The Company's financial instruments comprise equity investments, cash balances, investments in money market funds and 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-listed and PLUS-listed securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity.
On 14 May 2012 it was announced that the PLUS markets plc intends to close in the next few months and all Companies listed there would seek an AIM listing or become private companies. As a result the Company will continue to invest in a portfolio of VCT qualifying unquoted and AIM-listed securities.
Fixed and current asset investments (see note 11 and 12) are valued at fair value. For quoted investments this is bid price. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the year end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date.
Market risk
The Company's strategy for managing investment risk is determined with regard to the Company's investment objective. 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 in the investment managers review.
77.3% (28 February 2011: 72.0%) by value of the Company's net assets comprises equity securities listed on the London Stock Exchange or quoted on AIM. A 10% increase in the bid price of these securities as at 29 February 2012 would have increased net assets and the total return for the year by £3,043,600 (2011: £2,804,900); 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 29 February 2012 (2011: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 29 February 2012 £'000 | 28 February 2011 £'000 | |
| Current asset investments | 8,609 | 10,655 |
| Cash at bank | 668 | 475 |
| 9,277 | 11,130 |
A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £92,770 (2011: £111,300).
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 29 February 2012 the Company's financial assets exposed to credit risk comprised the following:
| 29 February 2012 | 28 February 2011 | |
| £'000 | £'000 | |
| Current investments | 8,609 | 10,655 |
| Cash at bank | 668 | 475 |
| Accrued dividends and interest receivable | 13 | 14 |
| 9,290 | 11,144 |
Credit risk relating to listed money market securities is mitigated by investing, where possible, 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. 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 has cash deposits which are held on the balance sheet of HSBC Bank plc, The Royal Bank of Scotland plc, the Co-operative Bank and in cash investment funds managed by BlackRock.
Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 29 February 2012 or 28 February 2011.
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 29 February 2012 these investments were valued at £9,277,000, (28 February 2011: £11,130,000).
18. Post balance sheet events
The following events occurred between the balance sheet date and the signing of these financial statements:
Shares bought back for cancellation:
- 16 March 2012: 108,029 Ordinary shares at a price of 79.50p
- 30 March 2012: 63,094 Ordinary shares at a price of 79.50p
- 11 May 2012: 83,230 Ordinary shares at a price of 81.25p
- 31 May 2012: 17,309 Ordinary shares at a price of 77.50p
Investments bought/sold
- 2 March 2012: 1,255,814 shares in Corero were bought for £540,000
- 2 March 2012: 58,000 shares in Augean were bought for £17,540
- 15 March 2012: 124,500 shares in Augean were bought for £37,650
- 22 March 2012: 38,200 shares in Augean were bought for £11,553
- 30 March 2012: 31,039 shares in Gooch and Housego were bought for £124,578
- 30 March 2012: 59,000 shares in Brady were disposed for £54,170
- 5 April 2012: 60,000 shares in Augean were bought for £19,355
- 13 April 2012: 150,000 shares in Augean were bought for £48,386
- 24 April 2012: 475,000 shares in Autoclenz were disposed for £127,928
- 25 April 2012: 21,148 shares in Gooch and Housego were bought for £85,270
- 4 May 2012: 7,813 shares in Gooch and Housego were bought for £31,503
- 16 May 2012: 49,500 shares in Judge Scientific were bought for £297,000
Shares issued
- 5 April 2012: 2,148,981 Ordinary shares at a price of 94.4p.
19. Contingencies, guarantees and financial commitments
At 29 February 2012 the following transactions were commitments in respect of investments approved by the manager but not yet completed (2011: none):
- 1,255,814 shares were bought in Corero Network Security plc for £540,000
- 58,000 shares were bought in Augean plc for £17,540
20. Related party transactions
Octopus Investments has been employed as Investment Manager throughout the year. Octopus AIM VCT plc has paid Octopus Investments £787,000 (2011: £557,000) in management fees during the year, an increase due to the larger fund evolved post merger. At 29 February 2012, £nil was outstanding (2011: £155,000). The management fee is payable quarterly in arrears and is based on 2.0% of the NAV calculated at bi-annual intervals as at 28 February or 31 August as the case may be.
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 AIM VCT PLC via Thomson Reuters ONE
Latest directors dealings
- 1 day ago Mattioli Woods
- 1 day ago Morgan Advanced Materials
- 1 day ago Capita
- 1 day ago Judges Scientific
- 1 day ago Me Group International