Octopus AIM VCT 2 plc : Final Results
Octopus AIM VCT 2 plc
Final Results
31 March 2014
Octopus AIM VCT 2 plc, managed by Octopus Investments Limited, today announces the final results for the year ended 30 November 2013.
These results were approved by the Board of Directors on 31 March 2014.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com by navigating Investor, Venture Capital Trusts, Octopus AIM VCT 2 plc. All other statutory information will also be found there.
Financial Summary
| 30 November 2013 | 30 November 2012 | |
| Net assets (£'000s) | 39,818 | 28,712 |
| Profit/(Loss) on ordinary activities for the year after tax (£'000s) | 9,713 | 2,862 |
| Net asset value ("NAV") per share | 84.4p | 66.3p |
| Dividends per share - paid in year | 3.5p | 3.2p |
| Final Dividend proposed * | 2.0p | 1.7p |
* The proposed final dividend of 2.0p will, if approved by shareholders, be paid on 22 May 2014 to shareholders on the register on 25 April 2014.
Chairman's Statement
First, I would like to welcome the new shareholders who have become members of the Company since my statement in last year's accounts, and hope that you enjoy the returns that this VCT produces in the years to come. If you are able to join us all at the AGM, I look forward to meeting you then.
I should also comment to long standing shareholders on the change of name of the Company in January to Octopus AIM VCT 2 PLC. Your Board believes that the new style of name is more in line with usual practice in the industry and that, with a new Offer for Subscription for shares, it was an appropriate moment at which to make the change.
This is the first time that my annual statement has been produced under the recently introduced UK 'narrative reporting' framework. This incorporates a separate Strategic Report which has to include certain prescribed content as set out by the Companies Act 2006. Some of the content previously contained in my statement is now included in the Strategic Report.
The year to November 2013 saw a growing confidence in the recovery in the UK's economic fortunes. Growth expectations for 2014 have steadily increased as the year progressed. That confidence was characterised by such things as renewed interest in smaller companies amongst investors generally seeking growth, rising smaller company share prices supported by continuing good results, improving NAVs, and an increasing number of flotations.
Performance
A year ago I remarked that as the wider investment community comes to appreciate the growth attractions of the companies in your portfolio, I would expect the NAV of your Company to rise. That has been the case. At 30 November 2013, the NAV stood at 84.4p, compared to 66.3p a year earlier. That rise is after the payment of 3.5p of dividends and which, with the dividends added back, represents a return of 32.4%. Many shareholders will see that as justly deserved after the disappointments of the last several years.
It is worth recalling that from a level of 66.3p at the end of November 2012, the NAV had climbed to 74.3p by the interim report as at the end of May 2013. To have reached 84.4p, before any adjustment for dividend payments at the year end, is both good progress but importantly, a continuation of a trend As this trend has become more publicly appreciated it has been accompanied by a rising number of new AIM flotations, some of which have enjoyed sharply higher opening prices.
In the year to 30 November 2013, the FT All Share Index rose by 15.8% and the FTSE Small Cap Index (excluding Investment Companies) rose by 43.4%. The FTSE AIM All Share Index rose by 19.4% in the period, but it has been estimated that this rise would have been around 40% without the drag caused by the large (about 30%) weighting of resource stocks in the AIM index, helped in part by the advent of AIM shares being made ISA qualifying. The rise in your Company's NAV has continued since the end of November and was 94.4p as at 24 March 2014.
It was also very good to see that companies were choosing to float on AIM as a means of raising additional capital. Over the last three or so years your Company has invested in many existing AIM companies raising new capital, often in substitution for bank debt. The year to November 2013 was marked by a growing number of new entrants to the market. Not all of these companies have qualified for VCT investment, but many have and your Company has been in a position to support them. The Investment Manager's review deals with portfolio activity and new investments in detail.
Dividends
In a period when the NAV has been rising, your Board's strategy of having a dividend policy yielding 5% has proved its worth. As the NAV has risen it has taken the share price along with it and has thus increased the amount of each dividend. A final dividend of 1.7p was declared in the November 2012 accounts and paid on 24 May 2013. An interim dividend of 1.8p per share was paid on 18 October 2013. Your Board has pleasure in recommending a final dividend for this year of 2.0p per share, which if approved at the AGM will be paid on 22 May 2014.
Share Buy backs
Your Company has continued to buy back shares which are offered for sale in the market and during the year to 30 November 2013 has bought back 1,227,225 Ordinary shares. These shares have been cancelled. Your Board would recommend that any shareholder wanting to sell shares should consider doing so through the Company's broker, since our understanding is that you will receive the best possible price matching the Company's buy back policy. Shareholders should remember though that selling shares prior to five years elapsing since their purchase will result in HMRC clawing back income tax relief with interest. Shareholders may also be aware that new HMRC rules now prevent enhanced buy backs. They will also, from 5 April 2014, disallow income tax relief on any purchase of a VCT's shares that takes place within six months of a sale of shares in the same VCT. However, shareholders remain able to sell shares in the market, and your Company will continue to buy back shares, endeavouring to do so at a 5% discount to the prevailing NAV.
Share Issues
Your Company issued a prospectus dated 1 February 2013 and the offer closed on 17 January 2014 with a total of £5.9m raised. During the year to 30 November 2013, 5,456,453 new shares were issued, raising £4.3m in total. You will have also received an Offer Document for a new Offer of shares to raise additional capital of up to €5m (£4.1 million) which has since filled, raising the full amount. This is so that the Investment Managers have adequate resources with which to finance the interesting opportunities they believe will materialise over the next few months.
For the first time this Offer was combined with Octopus AIM VCT plc which Octopus manages and your Board hopes that this structure, together with the change of name, will improve further the success of future fundraisings.
Alternative Investments Fund Managers Directive ("AIFMD")
AIFMD was introduced under EU Legislation to bring consistency of reporting across all fund types. In accordance with this legislation, the Company has applied to the Financial Conduct Authority to register as its own Alternative Investment Fund Manager. I expect this authority to be granted by 22 July 2014 after which the Company will be required to make an annual report, which will include investments made, principal exposures, liquidity and risk management.
VCT Status
PricewaterhouseCoopers LLP provides your Board and Investment Manager with advice concerning continuing compliance with HMRC regulations for VCTs. Your Board has been advised that Octopus AIM VCT 2 plc 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 30 November 2013 some 83.9% of the portfolio, as measured by HMRC rules, was invested in qualifying investments.
Annual General Meeting ("AGM")
The AGM will be held at 20 Old Bailey, London EC4M 7AN on Thursday, 15 May 2014. My fellow directors and I very much hope that you will be able to attend and will answer any questions you may have. Following the meeting, our Investment Managers will make a short presentation.
At the AGM, a Resolution will be proposed to extend the life of your Company until 2020 in order to preserve the ability of the Company to make share offers in the future and to ensure the recently issued shares have at least a five year life as required by HMRC rules.
Dividend Reinvestment Scheme
The Company is proposing to adopt a DRIS, under which Shareholders will be given the opportunity to reinvest automatically future dividend payments by subscribing for new Ordinary Shares. This will allow participating Shareholders to reinvest the growth in their shareholdings and, subject to personal circumstances, benefit from additional income tax reliefs.
Outlook
After what has been a much better year to November 2013 than many had previously anticipated, it would be easy to think that the UK is now in calm waters, with the stock market set fair on an upward trajectory as more good news follows. Of course that is not the case. There remain many intractable global problems, from the current situation in the Ukraine, civil war and poverty to excess debt, inflation and lacklustre growth.
Without in any way belittling those issues, it does remain true that the UK is slowly recovering economically and it seems logical to think that the recovery will broaden out during the course of this year. Historically, smaller company shares have performed well against a background of accelerating GDP growth, and your Board believes that that is possible again in 2014.
I look forward to seeing you at the AGM.
Keith Mullins
Chairman
31 March 2014
Investment Manager's Review
Introduction
In the year to November 2012 the Company built on the progress made in the portfolio in the previous twelve months to produce a strong rise in the NAV. This was partly as a result of continuing good trading news from portfolio companies as well as being the product of much more optimistic market sentiment which enabled smaller companies to close the discount to larger companies at which they had been trading at for many years. A revival in new issues helped this process and many of the newer holdings in the portfolio performed exceptionally well as a result. There was an additional boost to AIM's standing as AIM shares became eligible for inclusion in ISAs and trading volumes in AIM shares have benefitted since.
There has been a reasonable amount of change in the portfolio over the past eighteen months. Although the age of investments means that the majority of the fund is still invested in profitable companies, a stronger equity market has helped us to take profits in some of the larger holdings and we have continued to invest new money raised by the Company in earlier stage companies which we would expect to drive future growth. We view this as an on-going process with several more new investments already made in the current year.
Encouragingly, after a year of strong performance, the early signs indicate that this can continue in 2014. Estimates for the economic growth rate in 2013 have improved as they have been revised and economic growth forecasts now point to the recovery gathering pace in 2014. This should help small domestic companies to accelerate their growth rates, thus justifying the upwards re-rating that share prices benefitted from in 2013. Within the portfolio, there have already been some upgrades to forecasts in 2014. Interestingly, takeover activity in the stock market was close to an all time low last year and we expect this to change as sentiment continues to improve and companies think about how to deploy the cash which has been building on balance sheets.
The Alternative Investment Market
In striking contrast to the previous year to November 2012, the twelve months to 30 November 2013 saw a strong rise in the FTSE AIM All Share Index, particularly during the second half of the year. That reflects both the greater acceptance of the UK's economic recovery, and of companies' trading results and also the impact of AIM shares being includable within ISAs. That last point alone is believed to account for a 20% increase in AIM share trading volumes compared to a year earlier.
Noticeably the rise in the AIM index has again been subdued by the effect of the large resources sector within the market. Although not quite for the same period, Professors Marsh and Dimson, in compiling the Numis Smaller Companies Index, have calculated that AIM resources companies fell in the calendar year by 16.4% and that without this influence the AIM index would have risen by 39.6%.
It also provides a more sympathetic background against which to understand the increasing number of flotations and money raising as the year progressed. Again in the calendar year, rather than the twelve months to 30 November 2013, AIM is reported to have raised more capital for new companies than any year since 2007. The market has certainly been open and a growing number of advisers and executives have appreciated that. It is also interesting that there has been a marked change in the type of companies raising money on AIM in 2013. Less than a quarter of the cash raised on AIM last year went to oil and gas and basic materials companies combined and technology companies accounted for 18% of the cash raised against 6.6% in 2012. Thus, for a VCT there were more opportunities for investment in 2013.
December was also a busy month for fundraising on AIM. We are not expecting a decline in the fundraising rate as this year proceeds. Against a background of continuing economic growth it should be possible for an increasing number of companies to come to AIM.
Performance
2013 as a whole was one of the best years for the performance of smaller company shares since the Numis Smaller Companies index started in 1986 and this had a very beneficial impact on NAV, which rose by 32.4% over the period if the dividends of 3.5p paid out in the year are added back. AIM rose by 19.4% and the FTSE Smaller Companies Index ex Investment Trusts by 43.4%. The fact that the AIM Index lagged can be explained once again by the underperformance of the Resource sector which is still a relatively large constituent of the Index.
Once again it was largely individual company newsflow which pushed share prices higher, with performance in the portfolio being driven by holdings in a diverse range of sectors. There were some notable successes among the more recent investments of the last two years including the software company WANdisco which has a technology enabling simultaneous access, use and editing of the same computer code as well as a 'big data' product which ensures that networks cannot fail, Quixant, a supplier of hardware and software which sits inside gaming machines, Fusionex, another software company and Mycelx a supplier of equipment to clean hydrocarbons from water at high pressure which turned profitable in the period.
Among some of the more established holdings, Advanced Computer Software and Breedon Aggregates were both good contributors to performance, helped by acquisitions which led to upgraded profit forecasts. Tasty, the operator of Wildwood and Dim T restaurants had a successful fundraising allowing it to accelerate its roll out of restaurants and its shares reacted well. GB Group's shares performed well as awareness increased of the need for identity verification in an increasingly on-line world. It has been assembling the pieces to do this across borders in contrast to others that tend to have strengths in individual countries. Judges Scientific performed very well as profit expectations were upgraded.
There were some disappointments in the portfolio as well. IDOX suffered a series of downgrades over the year as a result of failing to land some significant orders in its engineering software division. However, the business has a profitable and cash generative core and with some changes to the sales force there should be improvements to trading in 2014. Brady, a company selling risk management software to commodity trading and energy businesses also suffered from timing on contracts. Enteq Upstream was also unable to execute its strategy of growing through acquisition in the oil services sector, and the business that it has is still too small for its central overhead. Investors are having to be patient. Indeed On Line finally had to give up its business plan to develop and dominate the on-line conveyancing market. It turned itself into a cash shell, and has since been reversed into by an on-line training business, Learning Technologies.
2013 also saw some of the more cyclical holdings recover strongly. Vertu Motors, Cello and Plastics Capital all had their shares re-rated as investors appreciated the potential for these businesses to grow against a more favourable economic backdrop. Among the non-qualifying holdings Matchtech, Staffline, SQS and Chime Communications all performed well.
Portfolio Activity
The year under review was a busy one for your fund reflecting the good supply of VCT qualifying fundraisings to be considered. These came in clusters during the year and there were several more investments which fell into December and January, just missing the year end. Companies are still using equity as a source of growth capital, which has meant that we have had no trouble investing the recent funds raised. As the fund remains well above its 70% HMRC investment limit in qualifying holdings, we continue to be patient when making new investments, looking for attractive opportunities at realistic prices.
The interim report referred to new investments in Fusionex, Cambridge Cognition and Quixant. In the second half of the year your Company made three further qualifying investments in Nektan, Clean Air Power and Enables IT making a total of £1.99 million invested in qualifying companies in the year. Clean Air Power and Enables IT are investments in existing AIM companies. Clean Air Power has a technology which can switch heavy trucks between LPG and diesel to produce significant cost savings for operators as well as enabling them to conform to tightening emission standards. It has a product for the latest generation of trucks which is expected to start to sell in numbers in 2014. Enables IT is a very small company offering its customers outsourced desktop computer services in the Cloud. It has the ability to serve multiple clients on one server so reducing the cost of IT for small and medium sized businesses. It has a datacentre in North America as well as a help desk in South Africa. We expect future acquisitions to add customers to this infrastructure. Nektan is the Company's first investment into a private company. It has the technology and expertise to create mobile casino and lottery games for gaming operators. We are expecting it to float on AIM at some point in 2014.
In addition we added £1.1 million in investments to the non-qualifying portion of the portfolio. We added to the holdings in Cello, Mycelx and GB Group in order to make them more meaningful in size. We also added to the Brady holding after its shares fell to a level which we did not feel reflected the strength of its market opportunity. New holdings were taken in Restore, a document storage business, Plus 500, a derivatives trader with a high yield at float and EMIS, a patient record provider to doctors' surgeries. We have already halved the holding in Plus 500 at a profit.
As share prices and holding sizes have risen we have taken some profits over the year, notably in Advanced Computer Software which remains in the top two holdings, WANdisco, Mears, Quixant, IDOX and Plus 500. We reduced the holdings in Omega as well as Hasgrove, the latter because we accepted a tender offer for the majority of our shares before it de-listed from AIM. We still hold shares in the private entity. The holding in Marwyn Management was sold after it ceased to qualify. We lost our holdings in Active Risk Group and Datong to cash bids at premiums to the then share prices although these were not profitable investments for your fund. Smaller holdings such as Daisy, Jelf and Correro were also disposed of as were non-qualifying holdings in Augean and Hargreaves. The latter two were replaced by holdings in EMIS and Restore.
Since the end of November we have made five further investments totalling £1.3 million in qualifying holdings. One was to take up our rights in a further share issue by Nektan. We added one further private investment in Rated People, a revenue generating web portal enabling householders to find rated tradesmen to bid for their building jobs. It is using the money it has raised now to spend on advertising to accelerate its growth rate ahead of an expected float on AIM later this year. The other three investments were all into existing AIM companies. Nasstar is another provider of Cloud Computing which raised money to acquire another profitable company in the sector. Corac and Proxama are both much earlier stage. Corac is an engineering technology business with the potential to tie up significant licencing deals for its oil-less compressor technology and Proxama, a technology company which can operate payments and rewards from a mobile phone.
Outlook
The past year has finally seen smaller companies close the valuation gap to trade on a similar multiple to the rest of the market. A renewed interest in equity markets as returns have dwindled elsewhere and an increased appetite for risk and search for growth have all helped this process. Encouragingly, the domestic economic background of slow but accelerating growth still favours smaller companies making the re-rating that these shares have enjoyed sustainable. Larger multinational companies will find growth harder with international growth rates still under pressure and it is likely that they will resort to acquisitions to address this, further boosting the performance of smaller company shares.
We continue to see opportunities to invest new money raised in interesting growth companies in a variety of different sectors. Many of the more mature holdings have seen upgrades to profit forecasts which justify some quite substantial increases in share prices. We would expect to carry on taking profits in some of the more mature holdings and re-investing the money raised into earlier stage companies to provide future growth. The current balance of the portfolio is that it is more than 80% invested in companies forecast to make a profit in the current year and more than 60% invested in dividend paying companies. This profile has hardly changed over the past year and seems to provide a good balance of risk and reward for investors for the future.
The AIM Team
Octopus Investments Limited
31 March 2014
Investment Portfolio
| Investments | Sector | Book cost as at 30 November 2013 (£'000) | Cumulative change in fair value (£'000) | Fair Value at 30 November 2013 (£'000) | Movement in year ('£000) | % equity held by Second AIM VCT plc | % equity held by all funds managed by Octopus | |
| Advanced Computer Software plc | Software & Computer Services | 681 | 1,331 | 2,012 | 569 | 0.4% | 3.1% | |
| Breedon Aggregates Limited | Construction & Materials | 602 | 1,215 | 1,817 | 777 | 0.5% | 1.2% | |
| Animalcare Group plc | Pharmaceuticals & Biotech | 870 | 855 | 1,725 | 527 | 4.6% | 8.0% | |
| EKF Diagnostics plc | Healthcare Equipment | 870 | 582 | 1,452 | 201 | 1.6% | 5.9% | |
| MyCelx Technologies plc | Oil Equipment | 580 | 801 | 1,381 | 721 | 2.1% | 7.2% | |
| Tasty plc | Travel & Leisure | 336 | 981 | 1,317 | 736 | 2.0% | 5.1% | |
| WANdisco plc | Software & Computer Services | 160 | 1,142 | 1,302 | 927 | 0.4% | 2.2% | |
| Idox plc | Software & Computer Services | 356 | 899 | 1,255 | (451) | 1.1% | 4.3% | |
| Matchtech Group plc | Support Services | 442 | 773 | 1,215 | 698 | 0.9% | 11.2% | |
| Quixant plc | Technology Hardware | 468 | 732 | 1,200 | 732 | 1.6% | 6.2% | |
| Netcall plc | Software & Computer Services | 421 | 769 | 1,190 | 461 | 2.1% | 5.0% | |
| Brooks MacDonald Group plc | General Financial | 609 | 467 | 1,076 | 140 | 0.6% | 3.1% | |
| Escher Group Holdings plc | Software & Computer Services | 753 | 309 | 1,062 | 199 | 2.4% | 5.5% | |
| Vertu Motors plc | General Retailers | 777 | 282 | 1,059 | 375 | 0.6% | 6.2% | |
| Sinclair Pharma plc | Pharmaceuticals & Biotech | 921 | 131 | 1,052 | 134 | 0.8% | 1.2% | |
| GB Group plc | Software & Computer Services | 329 | 623 | 952 | 319 | 0.6% | 2.4% | |
| TLA Worldwide plc | Media | 538 | 390 | 928 | 309 | 3.1% | 11.4% | |
| Plastics Capital plc | Chemicals | 485 | 317 | 802 | 296 | 2.4% | 15.5% | |
| Craneware plc | Software & Computer Services | 479 | 224 | 703 | (8) | 0.6% | 1.5% | |
| Staffline Recruitment Group plc | Support Services | 225 | 459 | 684 | 369 | 0.5% | 10.7% | |
| Chime Communications plc | Media | 458 | 216 | 674 | 196 | 0.2% | 0.3% | |
| RWS Holdings plc | Support Services | 249 | 406 | 655 | 157 | 0.2% | 3.9% | |
| Judges Scientific plc | Electronic & Electrical | 200 | 398 | 598 | 289 | 0.6% | 1.4% | |
| Brady plc | Software & Computer Services | 492 | 101 | 593 | (173) | 1.0% | 2.5% | |
| Omega Diagnostics Group plc | Healthcare Equipment | 439 | 111 | 550 | 94 | 3.2% | 7.1% | |
| Gooch & Housego plc | Electronic & Electrical | 326 | 214 | 540 | 182 | 0.3% | 4.0% | |
| Vianet Group plc | Support Services | 867 | (350) | 517 | (194) | 2.6% | 4.6% | |
| SQS Software plc | Software & Computer Services | 207 | 273 | 480 | 265 | 0.3% | 8.0% | |
| Adept Telecom plc | Telecommunications | 501 | (29) | 472 | 286 | 1.6% | 3.9% | |
| DP Poland plc | Travel & Leisure | 364 | 67 | 431 | (30) | 2.5% | 6.4% | |
| Nektan Limited | Software & Computer Services | 400 | - | 400 | - | 2.0% | 10.4% | |
| Fusionex International plc | Software & Computer Services | 186 | 195 | 381 | 196 | 0.3% | 1.4% | |
| Bond International Software plc | Software & Computer Services | 303 | 76 | 379 | 173 | 1.1% | 3.4% | |
| Lombard Medical Technologies plc | Healthcare Equipment | 589 | (211) | 378 | 57 | 0.4% | 0.5% | |
| Futura Medical plc | Pharmaceuticals & Biotech | 408 | (43) | 365 | (29) | 0.9% | 4.2% | |
| Clean Air Power Limited | Industrial Engineering | 323 | 38 | 361 | 38 | 1.5% | 11.3% | |
| Tangent Communications plc | Support Services | 385 | (29) | 356 | 58 | 1.4% | 5.4% | |
| Restore plc | Support Services | 311 | 40 | 351 | 40 | 0.3% | 3.0% | |
| Cambridge Cognition Holdings plc | Healthcare Equipment | 400 | (63) | 337 | (63) | 3.4% | 18.1% | |
| Enteq Upstream plc | Oil Equipment | 686 | (351) | 335 | (323) | 1.2% | 3.8% | |
| Cello Group plc | Media | 205 | 119 | 324 | 117 | 0.5% | 6.9% | |
| Access Intelligence plc | Software & Computer Services | 544 | (272) | 272 | (54) | 4.6% | 9.7% | |
| Immunodiagnostic Systems plc | Healthcare Equipment | 454 | (194) | 260 | 104 | 0.2% | 2.7% | |
| Goals Soccer Centres plc | Travel & Leisure | 148 | 93 | 241 | 66 | 0.3% | 2.2% | |
| Enables IT Group plc | Software & Computer Services | 200 | 39 | 239 | 39 | 2.1% | 11.7% | |
| Plus 500 Limited | General Financial | 98 | 125 | 223 | 125 | 0.1% | 0.3% | |
| Emis Group plc | Software & Computer Services | 213 | (4) | 209 | (4) | 0.1% | 1.1% | |
| Corac plc | Industrial Engineering | 252 | (67) | 185 | (8) | 0.4% | 1.3% | |
| Mattioli Woods plc | General Financial | 96 | 80 | 176 | 87 | 0.2% | 3.2% | |
| Woodspeen plc | Support Services | 250 | (167) | 83 | - | 3.9% | 11.3% | |
| Mears Group plc | Support Services | 51 | 31 | 82 | 18 | 0.02% | 0.1% | |
| Hasgrove plc | Media | 153 | (77) | 76 | (15) | 1.7% | 10.2% | |
| Learning Technologies Group | General Retailers | 201 | (143) | 58 | (105) | 0.2% | 0.4% | |
| Snacktime plc | Food & Drug Retailers | 367 | (332) | 35 | 4 | 1.5% | 3.6% | |
| Altitude Group plc | Support Services | 24 | 9 | 33 | (13) | 0.6% | 4.6% | |
| Work Group plc | Support Services | 473 | (444) | 29 | (12) | 2.1% | 6.3% | |
| Total investments | 22,725 | 13,137 | 35,862 | 9,596 | ||||
| Money market funds | 586 | 586 | ||||||
| Total fixed investments and money market funds | 36,448 | |||||||
| Cash at bank | 3,363 | |||||||
| Debtors less creditors | 7 | |||||||
| Total net assets | 39,818 | |||||||
Top 10 Holdings
Listed below are the ten largest investments by value as at 30 November 2013:
Advanced Computer Software plc
Advanced Computer Software plc provides software to the Healthcare Sector and other commercial markets.
Initial investment date: July 2008
Cost: £681,000
Valuation: £2,012,000
Equity held: 0.4%
Last audited accounts: February 2013
Revenue: £120.9 million
Profit before tax: £9.2 million
Net assets: £139.1 million
Breedon Aggregates Limited
Breedon Aggregates supplies a diverse range of products to the construction and building sectors from a number of quarries and other sites in the Midlands and Scotland.
Initial investment date: August 2010
Cost: £602,000
Valuation: £1,817,000
Equity held: 0.5%
Last audited accounts: December 2012
Revenue: £173.5 million
Profit before tax: £5.6 million
Net assets: £79.3 million
Animalcare Group plc
Animalcare Group plc manufactures and distributes veterinary medicines for pets and livestock.
Initial investment date: December 2007
Cost: £870,000
Valuation: £1,725,000
Equity held: 4.6%
Last audited accounts: June 2013
Revenue: £12.1 million
Profit before tax: £2.7 million
Net assets: £18.0 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: £870,000
Valuation: £1,452,000
Equity held: 1.6%
Last audited accounts: December 2012
Revenue: £26.1 million
Loss before tax: £0.2 million
Net assets: £55.7 million
MyCelx Technologies plc
MyCelx Technologies plc manufactures a proprietary system to clean hydrocarbons from water, particularly in environmentally sensitive areas.
Initial investment date: April 2013
Cost: £580,000
Valuation: £1,382,000
Equity held: 2.1%
Last audited accounts: 31 December 2012
Revenue: $12.3 million
Profit before tax: $0.3 million
Net assets: $17.5 million
Tasty plc
Tasty plc is the operator of Wildwood and Dim T restaurants.
Initial investment date: October 2013
Cost: £336,000
Valuation: £1,316,000
Equity held: 2.0%
Last audited accounts: 30 December 2012
Revenue: £19.3 million
Profit before tax: £1.6 million
Net assets: £3.5 million
WANdisco plc
WANdisco plc owns and develops software enabling simultaneous access, use and editing of the same computer code, ensuring always on networks and big data analysis and management.
Initial investment date: September 2013
Cost: £160,000
Valuation: £1,302,000
Equity held: 0.4%
Last audited accounts: 31 December 2012
Revenue: $6.0 million
Loss before tax: $8.0 million
Net assets: $12.2 million
Idox plc
Idox plc is a leading software and information management solutions provider, predominately to the public and engineering sectors.
Initial investment date: August 2008
Cost: £356,000
Valuation: £1,255,000
Equity held: 1.1%
Last audited accounts: 31 October 2013
Revenue: £57.3 million
Profit before tax: £7.5 million
Net assets: £44.9 million
Matchtech Group plc
Matchtech Group plc specialises in the provision of contract and permanent technical staff worldwide.
Initial investment date: August 2009
Cost: £442,000
Valuation: £1,215,000
Equity held: 0.9%
Last audited accounts: 31 July 2013
Revenue: £408.9 million
Profit before tax: £9.9 million
Net assets: £32.3 million
Quixant plc
Quixant plc is a manufacturer of hardware and software which sits inside gaming machines.
Initial investment date: September 2013
Cost: £468,000
Valuation: £1,199,000
Equity held: 1.6%
Last audited accounts: 31 December 2012
Revenue: $21.6 million
Profit before tax: $5.0 million
Net assets: $5.9 million
The Investment Manager
Personal Service
At Octopus, we have a dual focus on managing your investments and keeping you informed throughout the investment process. We are committed to providing our investors with regular and open communication. Our updates are designed to keep you involved about the progress of your investment.
We are working hard to manage your money in the current climate. We share your goal to make money from your investment, as our money is invested alongside yours. If you have any questions about this report, or if it would help to speak to one of the fund managers, please do not hesitate to contact us on 0800 316 2295.
Octopus was established in 2000 and has a strong commitment to both smaller companies and to VCTs. Octopus Investments Limited also acts as Investment Manager of 12 other listed investment companies and has a total of approximately £3.4 billion of funds under management.
The AIM investment team of Octopus comprises:
Andrew Buchanan
Andrew originally joined Barclays Bank in 1973 to manage investment portfolios. After gaining an MBA from London Business School, he spent time with Mercury Asset Management and Hoare Govett, before joining Rutherford Asset Management in 1993. He established Beacon Investment Trust in 1994, the first fund to specialise in investment in AIM. He joined Close Brothers when it purchased Rutherford and left to join Octopus Investments Limited in 2008. He has been involved in the management of this Company's investments since its launch in 2006 as well as other AIM VCT portfolios.
Kate Tidbury
Kate has had an extensive career which has included periods as an investment analyst with Sheppards and Chase and Panmure Gordon and then as an Investment Manager specialising in ethical and smaller companies with the Co-operative Bank and Colonial First State Investments. She joined the AIM team at Close Brothers in 2000 where she was involved in the management of this Company's investments since its launch in 2006 as well as other AIM VCTs and IHT portfolios. She joined Octopus Investments Limited in 2008.
Richard Power
Richard started his career at Duncan Lawrie, where he managed a successful small companies fund. He subsequently joined Close Brothers to manage a smaller companies investment trust before moving to Octopus Investments Limited to head up the AIM team in 2004. He is involved in the management of AIM portfolios, AIM VCTs and the CFIC Octopus UK Micro Cap Growth Fund.
Edward Griffiths
Edward is a portfolio manager at Octopus Investments Limited involved particularly in the management of AIM portfolios for private individuals. He joined Octopus Investments Limited in 2004 having previously worked at Schroder's and State Street.
Paul Stevens
Paul joined Octopus Investments Limited in 2005 as a member of the AIM investment team and has been involved in the management of AIM portfolios since then.
Stephen Henderson
Stephen joined Octopus Investments Limited in 2008 as a member of the operations team. Having helped in the Multi Manager team, he joined the AIM investment team in 2011.
Details of Directors
The Board comprises four Directors all of whom are independent of the Investment Manager. The Directors operate in a non-executive capacity and are responsible for overseeing the investment strategy of the Company. The Board has wide experience of investment in both smaller growing companies and larger quoted companies.
Keith Mullins (Chairman)
Keith Mullins joined SG Warburg's investment management division in 1978. The division later developed into Mercury Asset Management and subsequently became Merrill Lynch Investment Managers upon its acquisition by Merrill Lynch in 1998. He therefore has many years experience as a specialist UK equity fund manager. During this time he was responsible for establishing and managing the team specialising in small and medium sized pension fund portfolios, and from 2000 he was head of pension fund asset allocation. He left as a managing director of Merrill Lynch Investment Managers in 2001. Keith became a Director of the Company on 14 September 2005.
Andrew Raynor FCA
Andy Raynor joined RSM Tenon Group PLC ("RSM Tenon") in 2001 after its acquisition of the independent partnership formerly known as BDO Stoy Hayward - East Midlands. Following the acquisition of this business by RSM Tenon, he became finance director and, in a subsequent board reorganisation, chief executive in 2003. leading the company to win National Firm of the Year 2011 in the British Accountancy Awards. Andy then resigned in January 2012. Prior to joining RSM Tenon, he spent almost 20 years with BDO Stoy Hayward - East Midlands, where he established the corporate finance department and held overall responsibility for business development, before becoming managing partner. Andy is currently Commercial Director of Shakespeares Legal LLP, an expanding Midlands law firm, and Non-Executive at HW Fisher & Co, the London accountants. Andy became a Director of the Company on 14 September 2005.
Elizabeth Kennedy LLB (Hons) FCIS FCSI
Elizabeth Kennedy worked for 30 years in corporate finance, principally with Brewin Dolphin Limited, specialising in IPO, secondary issue, takeover code, UKLA sponsor and AIM nominated adviser work. She has been a member of the London Stock Exchange's AIM Advisory Group since 1995. She is currently a partner of Kergan Stewart LLP, Solicitors and is a non-executive director of F&C Private Equity Trust plc, Sofant Technologies Limited and Taragenyx Limited. Elizabeth became a director of Octopus Second AIM VCT plc in February 2001 which became Octopus Third AIM VCT plc on the merger and was subsequently dissolved in October 2011. Elizabeth became a Director of the Company on 12 August 2010 when the Companies merged.
Alastair Ritchie BA (Econ)
Alastair Ritchie is chairman of John Swan & Sons plc, which is quoted on AIM, and a non-executive director of John Swan Trustee Limited. He has considerable experience in small companies, both private and public, and has served as chairman of several companies. Alastair became a director of Octopus Second AIM VCT plc in February 2001, which became Octopus Third AIM VCT plc on the merger, and was subsequently dissolved in October 2011. Alastair became a Director of the Company on 12 August 2010 when the Companies merged.
Income Statement
| Year to 30 November 2013 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Gain on disposal of fixed asset investments | 10 | - | 582 | 582 |
| Gain on valuation of fixed asset investments | 10 | - | 9,574 | 9,574 |
| Investment Income | 2 | 414 | - | 414 |
| Investment management fees | 3 | (160) | (479) | (639) |
| Other expenses | 4 | (218) | - | (218) |
| Profit on ordinary activities before tax | 36 | 9,677 | 9,713 | |
| Taxation on profit on ordinary activities | 6 | - | - | - |
| Profit on ordinary activities after tax | 36 | 9,677 | 9,713 | |
| Return per share - basic and diluted | 8 | 0.1p | 22.2p | 22.3p |
the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice
all revenue and capital items in the above statement derive from continuing operations
the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of recognised gains and losses is not required.
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the loss as stated above and at historical cost.
The accompanying notes form an integral part of the financial statements.
| Income Statement |
| Year to 30 November 2012 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Gain on disposal of fixed asset investments | - | 318 | 318 | |
| Gain on valuation of fixed asset investments | - | 2,920 | 2,920 | |
| Investment Income | 2 | 363 | - | 363 |
| Investment management fees | 3 | (138) | (412) | (550) |
| Other expenses | 4 | (189) | - | (189) |
| Profit on ordinary activities before tax | 36 | 2,826 | 2,862 | |
| Taxation on profit on ordinary activities | 6 | - | - | - |
| Profit on ordinary activities after tax | 36 | 2,826 | 2,862 | |
| Return per share - basic and diluted | 8 | 0.1p | 6.5p | 6.6p |
the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice
all revenue and capital items in the above statement derive from continuing operations
the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of recognised gains and losses is not required.
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the loss as stated above and at historical cost.
The accompanying notes form an integral part of the financial statements.
Balance Sheet
| As at 30 November 2013 | As at 30 November 2012 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 10 | 35,862 | 25,652 | ||
| Current assets: | |||||
| Investments* | 11 | 586 | 2,850 | ||
| Debtors | 12 | 56 | 274 | ||
| Cash at bank | 3,363 | 135 | |||
| 4,005 | 3,259 | ||||
| Creditors: amounts falling due within one year | 13 | (49) | (199) | ||
| Net current assets | 3,956 | 3,060 | |||
| Net assets | 39,818 | 28,712 | |||
| Called up equity share capital | 14 | 5 | 4 | ||
| Share premium | 15 | 5 | 1,756 | ||
| Shares to be issued | 122 | - | |||
| Special distributable reserve | 15 | 35,231 | 30,607 | ||
| Capital reserve realised | 15 | (8,550) | (6,363) | ||
| Capital reserve unrealised | 15 | 13,137 | 2,876 | ||
| Revenue reserve | 15 | (132) | (168) | ||
| Total equity shareholders' funds | 39,818 | 28,712 | |||
| Net asset value per share | 9 | 84.4p | 66.3p | ||
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 31 March 2014 and are signed on their behalf by:
Keith Mullins
Chairman
Company No: 05528235
The accompanying notes form an integral part of the financial statements.
| Reconciliation of Movements in Shareholders' Funds | ||
| Year ended 30 November 2013 | Year ended 30 November 2012 | |
| Notes | £'000 | £'000 |
| Shareholders' funds at start of year | 28,712 | 26,590 |
| Profit/(Loss) on ordinary activities after tax | 9,713 | 2,862 |
| Share capital bought back 14 | (8,280) | (1,074) |
| Issue of shares 14 | 11,154 | 1,736 |
| Shares to be issued | 122 | - |
| Dividends paid 7 | (1,603) | (1,402) |
| Shareholders' funds at end of year | 39,818 | 28,712 |
| Cash flow statement | Year to 30 November 2013 | Year to 30 November 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes | £'000 | £'000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net cash outflow from operating activities | (375) | (140) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxation: UK Corporation tax paid | 6 | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial investment: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of investments | 10 | (3,104) | (2,409) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Disposal of investments | 10 | 3,050 | 1,737 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net cash outflow from investing activities | (54) | (672) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity dividends paid | 7 | (1,603) | (1,402) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Management of liquid resources: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of current asset investments | 11 | (3,953) | (5,159) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of current asset investments | 11 | 6,217 | 6,210 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net cash inflow from management of liquid resources | 2,264 | 1,051 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net cash outflow before financing | 232 | (1,163) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financing | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from issue of shares | 15 | 3,720 | 1,736 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares to be issued | 122 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of own shares | 15 | (846) | (1,074) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net cash inflow from financing | 2,996 | 662 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase/(decrease) in cash | 3,228 | (501) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying notes form an integral part of the financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year to 30 November 2013 | Year to 30 November 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes | £'000 | £'000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase/(decrease) in cash at bank | 3,228 | (501) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Movement in cash equivalent securities | 11 | (2,264) | (1,051) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Opening net funds | 2,985 | 4,537 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net funds at 30 November | 3,949 | 2,985 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Analysis of changes in Net Funds
| As at 1 December 2012 | Cash flows | As at 30 November 2013 | |
| £'000 | £,000 | £'000 | |
| Cash at Bank | 135 | 3,228 | 3,363 |
| Money market cash funds 11 | 2,850 | (2,264) | 586 |
| Net funds at 30 November | 2,985 | 964 | 3,949 |
The accompanying notes form 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 principal accounting policies have remained unchanged from those set out in the Company's 2012 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 accounting 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 and deposits are held for trading and are therefore designated as fair value through profit or loss.
Quoted investments are valued in accordance with the bid-price on the relevant date.
Unquoted investments are valued in accordance with International Private Equity and Venture Capital (IPEVC) guidelines. If you would like to find out more regarding the IPEVC valuation guidelines, please visit their website at: www.privateequityvaluation.com.
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 of 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 capital reserve - unrealised.
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 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Income receivable on money market securities and bank balances | 19 | 37 |
| Dividends receivable from fixed asset investments | 395 | 326 |
| 414 | 363 |
3. Investment Management Fees
| 30 November 2013 | 30 November 2012 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 160 | 479 | 639 | 138 | 412 | 550 |
| 160 | 479 | 639 | 138 | 412 | 550 | |
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.
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 £639,000 (2012: £550,000). At the year end there was £nil outstanding (2012: £151,000). Octopus received £457,000 (2012: £48,000) as a result of upfront fees charged on the allotments of Ordinary Shares.
4. Other Expenses
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Directors' remuneration | 67 | 61 |
| Fees payable to the Company's auditor for the audit of the financial statements | 25 | 25 |
| Legal and professional expenses | 1 | 9 |
| Other administration expenses | 125 | 94 |
| 218 | 189 |
The ongoing charges of the Company for the year to 30 November 2013 were 2.5 per cent of average net assets during the year to 30 November 2013 (2012: 2.6 per cent).
5. Directors' Remuneration
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Directors' emoluments | ||
| Keith Mullins | 20 | 18 |
| Andrew Raynor | 17 | 15 |
| Elizabeth Kennedy | 15 | 14 |
| Alastair Ritchie | 15 | 14 |
| 67 | 61 |
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 (2012: four). The above table represents the gross remunerations received by the Directors and excludes Employer's National Insurance contributions, which amounted to £5,000 (2012: £4,300). The Directors received no pension contributions from the Company during the year (2012: £nil).
6. Tax on Ordinary Activities
The corporation tax charge for the year was £nil (2012: £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% (2012: 20%).
The differences are explained below:
| Current tax reconciliation: | 30 November 2013 | 30 November 2012 |
| £'000 | £'000 | |
| Profit/(loss) on ordinary activities before tax Current tax at 20% (2012: 20%) | 9,713 1,942 | 2,862 572 |
| Income not liable to tax Expenses not deductible for tax purposes (Gains)/Losses not subject to tax Excess management expenses carried forward | (79) - (2,031) 168 | (65) 2 (648) 139 |
| Total current tax charge | - | - |
Approved VCTs are exempt from tax on capital gains within the Company. Since the Board 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.
As at 30 November 2013, there is an unrecognised deferred tax asset of £600,000 (2012: £431,000) in respect of surplus management expenses.
7. Dividends
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for the year | ||
| Previous year's final dividend - 1.7p per share | 764 | 701 |
| Current year's interim dividend - 1.8p per share | 839 | 701 |
| 1,603 | 1,402 |
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Paid and proposed in respect of the year | ||
| Interim dividend paid - 1.8p per share (2012: 1.6p per share) | 839 | 701 |
| Final dividend proposed 2.0p per share (2012: 1.7p per share) | 962 | 719 |
| 1,801 | 1,420 |
8. Return Per Share - basic and diluted
The return per share is based on 44,662,072 (2012: 43,151,333) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year, and the profit on ordinary activities after tax for the year of £9,711,000 (2012: £2,862,000).
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical.
9. Net Asset Value Per Share - basic and diluted
The calculation of NAV per share as at 30 November 2013 is based on 47,063,665 (2012: 43,331,328) Ordinary shares in issue at that date plus 130,138 (2012: nil) Ordinary shares awaiting allotment at that date.
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted NAV per share are identical.
10. Fixed asset investments
FRS 29, regarding financial instruments that are measured in the balance sheet at fair value, 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 investments in Nektan Limited and also Hasgrove which has de-listed having previously been AIM listed.
There has been one transfer between these classifications in the period (2012: none). In the year, Hasgrove delisted from AIM and, as a result, has been transferred from level 1 to level 3.
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 2013 are summarised below and in note 11.
| Level 1: AIM-quoted equity investments | Level 3: Unquoted investments | Total | |
| £'000 | £'000 | £'000 | |
| Book cost as at 1 December 2012 | 23,349 | - | 23,349 |
| Opening unrealised loss at 1 December 2012 | 2,876 | - | 2,876 |
| Impairment in value of investments treated as realised losses | (573) | - | (573) |
| Valuation at 1 December 2012 | 25,652 | - | 25,652 |
| Purchases at cost | 2,704 | 400 | 3,104 |
| Disposal proceeds | (3,050) | - | (3,050) |
| Transfer of investments between level 1 and 3 at cost | (153) | 153 | - |
| Profit on realisation of investments | 582 | - | 582 |
| Transfer of unrealised losses between level 1 and 3 | 77 | (77) | - |
| Change in fair value in year | 9,574 | - | 9,574 |
| Closing valuation at 30 November 2013 | 35,386 | 476 | 35,862 |
| Book cost at 30 November 2013 | 22,172 | 553 | 22,725 |
| Closing unrealised gain/(loss) at 30 November 2013 | 13,214 | (77) | 13,137 |
| Valuation at 30 November 2013 | 35,386 | 476 | 35,862 |
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 investments are valued in accordance with IPEVC guidelines. Hasgrove is valued at the last available BID price, prior to delisting.
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 2013 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 £7,200 and £5,200 respectively.
11. Current Asset Investments
Current asset investments at 30 November 2013 and at 30 November 2012 comprised of money market funds*. These fall into level 1 of the fair value hierarchy as defined in note 10.
| 2013 | 2012 | |
| £'000 | £'000 | |
| Book cost at 1 December: | 2,850 | 3,901 |
| Revaluation to 1 December: | - | - |
| Valuation as at 1 December | 2,850 | 3,901 |
| Purchases at Cost: | 3,953 | 5,159 |
| Disposal proceeds: | (6,217) | (6,210) |
| Closing valuation as at 30 November | 586 | 2,850 |
| Book cost at 30 November: | 586 | 2,850 |
| Revaluation to 30 November: | - | - |
| Closing valuation as at 30 November | 586 | 2,850 |
*Money market funds represent money held pending investment and can be accessed within 1 working day's notice.
12. Debtors
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Other debtors | - | 223 |
| Prepayments and accrued income | 56 | 51 |
| 56 | 274 |
13. Creditors: Amounts Falling Due Within One Year
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Accruals and other creditors | 49 | 199 |
| 49 | 199 |
14. Share Capital
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Allotted and fully paid up: | ||
| 47,063,665 Ordinary shares of 0.01p (2012: 43,331,328) | 5 | 4 |
| 5 | 4 |
There were 130,138 shares to be issued at 30 November 2013. The value of these shares amounted to £122,000.
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.
The Company repurchased the following Ordinary shares during the year to be cancelled:
19 December 2012: 115,430 Ordinary shares at a price of 60.75p per share
10 January 2013: 68,510 shares at a price of 61.0p per share
28 February 2013: 30,000 shares at a price of 69.0p per share
1 March 2013: 300,885 shares at a price of 69.0p per share
25 March 2013: 157,108 shares at a price of 68.25p per share
15 May 2013: 75,567 shares at a price of 70.25p per share
26 June 2013: 74,664 shares at a price of 70.25p per share
31 July 2013: 238,785 shares at a price of 70.0p per share
29 August 2013: 72,792 shares at a price of 73.75p per share
26 September 2013: 33,435 shares at a price of 75.25p per share
13 November 2013: 60,049 shares at a price of 78.5p per share
The total cost of the shares repurchased was £846,000 (2012: £1,074,000).
The total nominal value of the shares repurchased was £123 (2012: £184) representing 2.6% (2012: 4.6%) of the issued share capital.
The Company issued the following shares during the year:
05 April 2013: 2,612,275 Ordinary shares at a price of 76.2p per share
3 May 2013: 301,305 Ordinary shares at a price of 77.0p per share
8 July 2013: 369,194 Ordinary shares at a price of 77.9p per share
9 September 2013: 1,612,074 Ordinary shares at a price of 82.7p per share
11 November 2013: 561,605 Ordinary shares at a price of 87.6p per share
The total proceeds from the shares issued were £4,293,000. Issue costs of 5.5% amounted to £227,000 on the issue of these shares.
On 20 February 2013, as part of the Enhanced Buyback, in total 10,470,985 shares were sold back to the Company and 9,974,094 shares were reissued.
15. Reserves
| Share capital | Share premium | Capital Redemption Reserve | Special distributable reserve | Capital reserve - realised | Capital reserve - unrealised | Revenue reserve | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| 01 December 2012 | 4 | 1,756 | 0 | 30,607 | (6,363) | 2,876 | (168) |
| Repurchase of own shares | - | - | 1 | (847) | - | - | - |
| Issue of shares | 1 | 4,292 | - | - | - | - | - |
| Share issue costs | - | (573) | - | - | - | - | - |
| Enhanced buy back | - | 7,434 | - | (7,434) | |||
| Cancellation of share premium | - | (12,904) | - | 12,904 | - | - | - |
| Cancellation of Capital Redemption Reserve | - | - | (1) | 1 | - | - | - |
| Profit on ordinary activities after tax | - | - | - | - | - | - | 36 |
| Management fees allocated as capital expenditure | - | - | - | - | (479) | - | - |
| Current year gains/losses on disposal | - | - | - | - | 582 | - | - |
| Prior period holding gains/losses now crystalised | - | - | - | - | (687) | 687 | - |
Current period gains/losses on fair value of investments | - | - | - | - | - | 9,574 | - |
| Dividends paid | - | - | - | - | (1,603) | - | - |
| 30 November 2013 | 5 | 5 | - | 35,231 | (8,550) | 13,137 | (132) |
Included within these reserves is an amount of £26,549,000 (2012: £24,076,000) which is considered distributable to shareholders.
The cash flow statement shows a figure of £3,720,000 for proceeds from issue of shares which is made up of the £4,293,000 less the £573,000 above. The cash flow statement also shows a figure of £846,000 as per the above reserves note. The movements with regard to the enhanced buy back (£7,434,000) do not flow through the cash flow statement as the cash on this transaction did not physically change hands between the investors and Octopus AIM VCT 2.
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.
16. 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 AIM-quoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity.
The Company also holds two qualifying, unquoted investments; Nektan Limited which was purchased in the period and Hasgrove which delisted from AIM in the period.
Fixed and current asset investments (see notes 10 and 11) are valued at fair value. For quoted investments this is either bid price or the latest traded price, depending on the convention of the exchange on which the investment is quoted. The Directors believe that the fair value of the assets held at the year end is equal to their book value.
Unquoted investments are valued in accordance with International Private Equity and Venture Capital (IPEVC) guidelines. If you would like to find out more regarding the IPEVC valuation guidelines, please visit their website at: www.privateequityvaluation.com.
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.
89.1% (30 November 2012: 89.3%) 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 2013 would have increased net assets and the total return for the year by £3,546,000 (30 November 2012: £2,565,000); a corresponding fall would have reduced net assets and the total return for the year by the same amount.
Interest rate risk
Some of the Company's financial assets are interest-bearing. As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates.
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market securities. The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 0.5% at 30 November 2013 (30 November 2012: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 30 November 2013 | 30 November 2012 | |
| £'000 | £'000 | |
| Current investments | 586 | 2,850 |
| Cash at bank | 3,363 | 135 |
| 3,949 | 2,985 |
A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £39,490 (30 November 2012: £29,850).
Credit risk
Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 30 November 2013, or 30 November 2012. By value, no individual bank holding or fixed rate note investment exceeded 8.2% of the Company's net assets at 30 November 2013 (6.4% of the Company's net assets at 30 November 2012).
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. Where financial assets expose the Company to credit risk, the maximum exposure is represented by their carrying value.
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 (for example, 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.
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 2013 these investments were valued at £3,949,000 (30 November 2012: £2,985,000).
17. Post balance sheet events
Since the year end, the Company has made the following investments:
| Company | Date | Number of shares | Cost (£) |
| Proxama plc | 3 December 2013 | 17,800,000 | 445,000 |
| Corac plc | 16 December 2013 | 2,000,000 | 200,000 |
| Nasstar plc | 6 January 2014 | 6,400,000 | 320,000 |
| Rated People Limited | 15 January 2014 | 2,119 | 236,000 |
| Nektan Limited | 22 January 2014 | 57,147 | 83,000 |
| Proxama plc | 22 January 2014 | 4,000 | 201 |
| Breedon Aggregates Limited | 27 February 2014 | 400 | 160 |
| EKF Diagnostics plc | 27 February 2014 | 400 | 153 |
| Fusionex International plc | 27 February 2014 | 400 | 2,600 |
| Judges Scientific plc | 27 February 2014 | 400 | 9,306 |
| Mattioli Woods plc | 27 February 2014 | 400 | 1,769 |
| Proxama plc | 27 February 2014 | 400 | 29 |
| Advanced Computer Software plc | 28 February 2014 | 400 | 506 |
| Quixant plc | 28 February 2014 | 400 | 615 |
| TLA Worldwide plc | 28 February 2014 | 400 | 153 |
Since the year end, the Company has made the following disposals:
| Company | Date | Number of shares | Proceeds £'000 | Gain/(loss) £'000 |
| Quixant plc | 6 December 2013 | 3,158 | 4 | 3 |
| Omega Diagnostics plc | 13 December 2013 | 80,000 | 15 | (1) |
| Omega Diagnostics plc | 20 December 2013 | 100,000 | 18 | (2) |
| Quixant plc | 23 December 2013 | 4,570 | 6 | 4 |
| Omega Diagnostics plc | 10 January 2014 | 60,000 | 11 | (1) |
| Matchtech plc | 15 January 2014 | 58,000 | 349 | 235 |
| Proxama plc | 24 January 2014 | 1,800,000 | 73 | 28 |
| EKF Diagnostics plc | 30 January 2014 | 40,000 | 15 | 9 |
| Advanced Computer Software plc | 5 February 2014 | 121,300 | 139 | 102 |
| Snacktime plc | 14 February 2014 | 20,000 | 3 | (68) |
| Animalcare Group plc | 20 February 2014 | 83,767 | 129 | 82 |
| Snacktime plc | 27 February 2014 | 77,000 | 7 | (264) |
The following shares have been bought back since the year end:
| 20 December 2013 | 320,378 shares bought back and cancelled at 80.5p per share |
| 3 February 2014 | 235,785 shares bought back and cancelled at 84.0p per share |
| 28 February 2014 | 149,075 shares bought back and cancelled at 89.75p per share |
The following shares have been issued since the year end:
| 17 January 2014 | 1,719,960 Ordinary shares issued at a price of 93.8p per share |
| 28 March 2014 | 4,058,198 Ordinary shares issued at a price of 99.9p per share |
On 30 January 2014 the Company changed its name from Octopus Second AIM VCT plc to Octopus AIM VCT 2 plc.
18. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at 30 November 2013 (2012: none).
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Octopus AIM VCT 2 plc via Globenewswire
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