Octopus Apollo VCT 3 plc : Final Results
Octopus Apollo VCT 3 plc (formerly Octopus Protected VCT plc)
Final Results
25 May 2011
Octopus Apollo VCT 3 plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2012.
These results were approved by the Board of Directors on 24 May 2012.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com.
About Octopus Apollo VCT 3 plc
Octopus Apollo VCT 3 plc ('Apollo 3' or 'Fund') is a venture capital trust ('VCT') which aims to provide shareholders with attractive tax-free dividends and long-term capital growth, by investing in a diverse portfolio of predominantly unquoted companies. The VCT is managed by Octopus Investments Limited ('Octopus' or 'Manager').
The Fund was launched in July 2006 and raised over £27.1 million (£25.9 million net of expenses) through an offer for subscription by the time it closed on 5 April 2007. The objective of the Fund is to invest in a diversified portfolio of UK smaller companies in order to generate income and capital growth over the long-term.
Further details of the Fund's progress are discussed in the Chairman's Statement and Investment Manager's Review on pages -to -.
Venture Capital Trusts (VCTs)
VCTs were introduced in the Finance Act 1995 to provide a means for private individuals to invest in unquoted companies in the UK. Subsequent Finance Acts have introduced changes to VCT legislation. The tax benefits currently available to eligible new investors in VCTs include:
- up to 30% up-front income tax relief;
· exemption from income tax on dividends paid; and
· exemption from capital gains tax on disposals of shares in VCTs.
The Company has been approved as a VCT by HMRC. In order to maintain its approval the Company must comply with certain requirements on a continuing basis:
- at least 70% of the Company's investments must comprise 'qualifying holdings'* (as defined in the legislation);
- at least 30% of the 70% of qualifying holdings must be invested into Ordinary shares with no preferential rights (from April 2011 this will change to 70% for new investments);
- no single investment made can exceed 15% of the total Company value; and
- a minimum of 10% of each Qualifying Investment must be in Ordinary shares with no preferential rights.
*A 'qualifying holding' consists of up to £1 million invested in any one year in new shares or securities in an unquoted UK Company (or companies listed on AIM) which is carrying on a qualifying trade and whose gross assets do not exceed a prescribed limit at the time of investment. The definition of a 'qualifying trade' excludes certain activities such as property investment and development, financial services and asset leasing.
Financial Summary
| Ordinary shares | Year to 31 January 2012 | Year to 31 January 2011 |
| Net assets (£'000s) | 24,337 | 24,332 |
| Net return after tax (£'000s) | 1,260 | 677 |
| Net asset value per share (NAV) | 90.9p | 89.6p |
| Cumulative dividends paid since launch | 12.5p | 9.0p |
| Proposed dividend per share | 3.0p | 1.5p |
Chairman's Statement
Introduction
I am pleased to present the sixth Annual Report of Octopus Apollo VCT 3 plc for the year ended 31 January 2012.
Performance
The performance of the Company for the year has been good and has kept in line with the investment mandate of this VCT. The net asset value ('NAV") has risen from 89.6 pence per share to 90.9 pence per share, which when adding back the 3.5 pence per share of dividends paid during the year amounts to a 5.4% increase.
Cumulative dividends paid to date have been 12.5 pence per share, therefore the NAV plus cumulative dividends is 103.4 pence per share. This has increased from 98.6 pence as at 31 January 2011.
The strong performance of the VCT is partly due to the disposal of Autologic Diagnostic Holdings, which resulted in a realised gain of £1,200,000. In addition, interest income from loan investments outweighs the running costs of the Fund, resulting in a revenue return, before tax, of £951,000 for the year.
Strong trading results of the investee companies led to upward remeasurements in Tristar and Hydrobolt. However, these were offset by a prudent downwards remeasurement in the value of Bruce Dunlop. As a result, an overall downward remeasurement of £445,000 has been recognised in these financial statements.
Dividend and Dividend Policy
It is your Board's policy to maintain a regular dividend flow where possible in order to take advantage of the tax free distributions a VCT is able to provide.
Given the performance of your Company, your Board has proposed a final dividend of 3.0 pence per share (payable from revenue reserves) in respect of the year ended 31 January 2012. This dividend, if approved by shareholders at the AGM, will be paid on 9 August 2012 to shareholders on the register on 13 July 2012. Alongside the 2.0 pence per share interim dividend paid in November 2011, this will take dividends in relation to the year ended 31 January 2012 to 5.0 pence per share (2011: 3.0 pence per share).
Investment Portfolio
During the year, the Fund invested a total of £4,714,000, of which, £2,795,000 was invested into four solar companies: Shakti Power, Aashman Power, Tonatiuh Trading and Kala Power. These are companies that constructed and now operate solar renewable energy sites benefiting from the Government's feed-in-tariffs. A non qualifying investment of £200,000 was made in Borro - an online pawn broker.
Follow on investments totalling £1,719,000 were made in Clifford Thames, CSL Dualcom and Carebase (Col). The Fund realised a gain of £1,200,000 as a result of its disposal in Ticketing Services 1 & 2 and Autologic Diagnostics.
A full list of the Company's investment portfolio is set out on page X. All of the investments are discussed further in the Investment Managers Review on pages X to X.
The Fund has now invested sufficiently in order to meet all the requirements for it to fully qualify as a VCT. It now has the opportunity to make a limited number of further investments with the aim of accelerating the NAV of the Fund over the foreseeable future.
Investment Strategy
As set out in the prospectus, the aim of the Fund is to make investments that focus on capital preservation than a typical VCT. To date the Investment Manager has been successful in achieving this aim, as evidenced by the positive return on ordinary activities.
Typically the structure of the investments is weighted more heavily towards loan based instruments as opposed to equity. This is considered to be of a lower risk nature as returns are fixed and payments are generally ranked above most other creditors, allowing for future visibility and security. This strategy also reduces the downward risk that is part and parcel of an equity investment.
The Fund has been able to take strong advantage of the reduced liquidity in the traditional lending market, which has led to good opportunities to invest into well managed and profitable businesses with strong recurring cash-flows.
Now that the Fund has passed its five year qualifying period, it is the intention of the Board for the Company to remain as a VCT and continue to invest in accordance with the original investment mandate.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice concerning ongoing compliance with Her Majesty's Revenue & Customs ('HMRC') rules and regulations concerning VCTs. The Board has been advised that Octopus Apollo VCT 3 plc is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is now to maintain the 70% qualifying investment level. As at 31 January 2012, 85.5% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments.
Annual General Meeting
The Company's Annual General Meeting will take place on Thursday 26 July 2012 at 3.00 p.m. I look forward to welcoming you to the meeting which will be held at the offices of Octopus Investments Limited at 20 Old Bailey, London, EC4M 7AN.
Electronic Communications
Based on feedback from shareholders, and in order to reduce the cost of printing and the consequential impact on the environment, we now offer shareholders the opportunity to forgo their printed report and account documents, in favour of receiving email or letter notification with details of how to view the documents online. If you would like to change the format in which you receive this report, please contact Octopus using the contact details provided on page X of this report.
Outlook
In light of the proposed changes to the VCT investment limits (as expected to be introduced by the Finance Bill 2012) and so as to achieve, amongst other things, cost savings and administrative efficiency, the Board, together with the boards of Octopus Apollo VCT 1 plc (Apollo 1), Octopus Apollo VCT 2 plc (Apollo 2) and Octopus Apollo VCT 4 plc (Apollo 4), has agreed in principle for a merger of the four companies. The merger will create a significantly enlarged VCT and is expected to provide benefits for all shareholders.
The intention is that the proposed merger will be completed pursuant to schemes of reconstruction under section 110 of the Insolvency Act 1986 whereby Apollo 1, Apollo 2 and Apollo 4 will each transfer their assets and liabilities to Apollo 3 in consideration for new Shares being issued to Apollo 1, Apollo 2 and Apollo 4 shareholders. Each acquisition will require the approval of the shareholders of the relevant Apollo VCTs, will be completed on a relative net asset value basis and will not be conditional on the other acquisitions proceeding. A merger on this basis will be outside the provisions of The City Code on Takeovers and Mergers.
The Boards will be writing to their respective shareholders detailing the full terms of the proposed merger.
It is also intended to offer existing Apollo VCT shareholders the opportunity to increase their investment, and for new investors to participate, in the new enlarged VCT via a top-up offer, as well as providing shareholders with the opportunity to participate in an enhanced buyback facility. Again details of these proposals will be provided to shareholders in due course.
Tony Morgan
Chairman
24 May 2012
Investment Manager's Review
Personal Service
At Octopus, we focus on both 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 informed about the progress of your investment. During this time of economic uncertainty, we consider it particularly important to be in regular contact with our investors and are working hard to manage your money in the current climate.
Octopus Investments Limited was established in 2000 and has a strong commitment to both smaller companies and to VCTs. We currently manage 19 VCTs, including this Company, and manage nearly £340 million in the VCT sector. Octopus has over 230 employees and has previously been voted as 'Best VCT Provider of the Year' by the financial adviser industry.
Investment Policy
The investment approach of Octopus Apollo VCT 3 plc is to seek investments that focus on capital preservation. The majority of companies in which Apollo 3 invests operate in sectors where there is a high degree of predictability. Ideally, we seek companies that have contractual revenues from financially sound customers and will ideally provide an exit to shareholders within three to five years.
Performance
The Fund made a net return of 5.4% between 31 January 2011 and 31 January 2012. The NAV increased from 89.6p to 90.9p. 3.5p of dividends were paid over the period bringing cumulative dividends paid to 12.5p and the total return (NAV plus cumulative dividends) to 103.4 pence per share.
The disposal of Autologic Diagnostics, in addition to the disposal of Ticketing Services 1 & 2 (via the payment of rolled up interest) allowed the Fund to realise an overall gain of £1,200,000 during the year.
Fair value uplifts were recognised on Tristar and Hydrobolt, both of whom have had strong trading performances. However, these uplifts were offset by a decrease in the fair value of Bruce Dunlop. Whilst we remain confident in the management of the Company, the media industry in which it operates is still in recession and the Company continues to suffer from clients delaying projects. As a result, it seemed prudent to write off 100% of the equity element and write down the debt element by 50%. This has led to an overall decrease in fair value of the portfolio of £445,000.
The majority of investments are loan based on which a steady flow of interest is received into the Fund. This is now at the level whereby interest receipts more than offset the running costs of the Fund. These returns will allow for any gains on realisations and loan note redemption premiums to be paid out directly to shareholders, or recognised as an uplift to the value of your investment.
Portfolio Review
VCT Qualifying investments totalling £2,795,000 have been made in renewable energy companies (Shakti Power, Aashman Power, Kala Power and Tonatiuh Trading). These companies construct and operate solar sites that benefit from the Government's feed-in-tariffs. Whilst the Government has reduced its feed-in-tariff rates in the last year, the Company's portfolio of investments will still have exposure to the higher rates that were originally on offer, due to the dates at which these investments were completed.
In December 2011, an acquisition of CSL Dualcom by a private equity house allowed the Fund to restructure its previous debt/equity investment into a majority debt investment, providing better yields than under the original structure. We still retain a small equity holding, which we hope will let us recognise uplifts in the future, especially given the strong performance of CSL.
During the year, £200,000 was invested to finance the loan book of Borro - an online pawn broker. Borro provides relatively short fixed term loans on high value assets. Our debt is secured against these assets, which means the investment carries minimal risk for the strong returns available. Whilst this investment is non-qualifying for VCT purposes we see this and similar investments as being a good way to improve the running yield of the Fund whilst investing in line with our mandate.
A debt investment of £1,000,000 was made into Clifford Thames and £129,000 was invested into Carebase (Col), a Company that constructed and operates an elderly carehome in Colchester.
Post year end, £750,000 has been invested in Total Software Consultants, a Company that sells industrial crack detectors principally to the oil and gas pipeline market. Additionally, the loan element of the fund's investment in Tristar Worldwide Limited was also realised returning proceeds of £700,000.
Outlook
Whilst the UK and Western economies are in the doldrums we see a number of areas where we can successfully invest the Fund in line with our mandate.
- There are numerous stable, profitable companies whose owners wish to partially sell their business now but wait several years for the marketplace to recover in order to realise a full exit.
- Banks continue to frustrate SMEs and many prefer to use our more flexible debt to grow their businesses.
- Similarly larger venture capital/ private equity firms are using our more expensive funds in preference to bank debt as we offer a faster, more partnership orientated, intelligent form of co-investment. These companies find our approach less risky and our funds are well suited to this type of transaction, providing opportunities for ongoing investment in UK.
However, whilst we are optimistic regarding our market opportunity we will continue to invest cautiously. We will do our best to ensure that our portfolio companies can withstand a worsening of the current harsh economic climate.
If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2347.
Stuart Nicol
Investment Director
Octopus Investments
24 May 2012
Investment Portfolio
| Fixed asset investments | Sector | Investment at cost 31 January 2012 (£'000) | Movement in valuation (£'000) | Fair value at 31 January 2012 (£'000) | Movement in fair value in year (£'000) | % equity held by Apollo 3 | % equity managed by Octopus |
| Salus Services Holdings 1 Limited | Care homes | 4,000 | - | 4,000 | - | 15.7% | 100.0% |
| CSL DualCom Limited* | Security devices | 3,382 | - | 3,382 | (24) | 1.0% | 3.4% |
| Clifford Thames Group Limited | Automotive | 3,000 | 314 | 3,314 | - | 2.8% | 8.0% |
| Bluebell Telecom Services Limited | Telecommunications | 2,000 | 220 | 2,220 | - | 4.4% | 6.5% |
| Tristar Worldwide Limited | Chauffeur services | 1,000 | 131 | 1,131 | 131 | 1.3% | 35.0% |
| Resilient Corporate Services Limited | Business services | 1,000 | - | 1,000 | - | 24.5% | 49.0% |
| Shakti Power Limited | Solar | 1,000 | - | 1,000 | - | 26.0% | 100.0% |
| Aashman Power Limited | Solar | 950 | - | 950 | - | 32.0% | 100.0% |
| Hydrobolt Limited | Manufacturing | 606 | 144 | 750 | 64 | 2.8% | 43.3% |
| Carebase (Col) Limited* | Care homes | 479 | - | 479 | - | 0.0% | 0.0% |
| Kala Power Limited | Solar | 425 | - | 425 | - | 16.0% | 100.0% |
| Tonatiuh Trading Limited | Solar | 420 | - | 420 | - | 17.0% | 100.0% |
| Bruce Dunlop & Associates International Limited | Media | 1,018 | (668) | 350 | (620) | 1.7% | 30.0% |
| Borro Loan 2 Limited* | Pawn brokers | 200 | - | 200 | - | 0.0% | 0.0% |
| British Country Inns plc | Restaurants & bars | 100 | (50) | 50 | (20) | 1.3% | 1.3% |
| Total fixed asset investments | 19,580 | 91 | 19,671 | (469) | |||
| Money market funds | 3,059 | - | 3,059 | ||||
| Cash at bank | 1,447 | - | 1,447 | ||||
| Total investments | 24,086 | 91 | 24,177 | ||||
| Debtors less creditors | 160 | ||||||
| Total net assets | 24,337 | ||||||
*These are 100% debt investments
Valuation Methodology
The investments held by Apollo 3 are all unquoted and as such there is no trading platform from which prices can be easily obtained. As a result, the methodology used in fair valuing the investments is the transaction price of the recent investment round. Subsequent adjustment to the fair value of unquoted investments has been made using sector multiples based on information as at 31 January 2012, where applicable and adjustment to the fair value has also been made according to any significant under or over performance of the business.
If you would like to find out more regarding the International Private Equity and Venture Capital ('IPEVC') Valuation Guidelines, please visit the following website: www.privateequityvaluation.com
Investment Portfolio - Ten Largest Holdings
Listed below are the ten largest investments by value as at 31 January 2012:
Salus Services Holdings 1 Limited ('Salus')
Salus is funding the construction of a care home based in Colchester.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £4,000,000 | £4,000,000 | ||
| Loan stock | - | - | ||
| Total | £4,000,000 | £4,000,000 |
Investment date: January 2010
Equity held: 15.7%
Last unaudited accounts: 31 March 2011
Revenues: £0.0 million
Profit before interest & tax: £0.0 million
Net assets: £9.6 million
Income receivable recognised in year: £nil
Valuation basis: Held at cost
CSL DualCom Limited ('DualCom')
DualCom is the UK's leading supplier of dual path signalling devices, which link burglar alarms to the police or a private security firm. The devices communicate using a telephone line or broadband connection and a wireless link from Vodafone, which has been a partner since 2000. DualCom has developed a number of new products for the sector, which have enabled the business to steadily grow its market share of new connections and its profitability since the initial investment. Further information can be found at the Company's website www.csldual.com.
| Asset class | Cost | Valuation | ||
| Loan stock | £3,382,000 | £3,382,000 | ||
| Total | £3,382,000 | £3,382,000 |
Investment date: February 2009
Equity held: 1.0%
Last audited accounts: 31 March 2011
Revenues: £9.6 million
Profit before interest & tax: £2.0 million
Net assets: £2.9 million
Income receivable recognised in year: £288,000
Valuation basis: Held at cost
Clifford Thames Group Limited (Clifford Thames)
Clifford Thames is a market leading provider of consultancy and business outsourcing services for the automotive industry, and is a key partner of most of the world's leading car manufacturers. With offices in eight countries, Clifford Thames has a well-established and impressive client list including Ford, GM Europe, Jaguar Land Rover, Mazda and Fiat. Further information can be found at the Company's website www.clifford-thames.com.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £457,000 | £457,000 | ||
| B preference shares | £5,000 | £5,000 | ||
| Loan stock | £2,538,000 | £2,852,000 | ||
| Total | £3,000,000 | £3,314,000 |
Investment date: January 2010
Equity held: 2.8%
Last audited accounts: 31 March 2011
Revenues: £33.5 million
Profit before interest & tax: £2.5 million
Net assets: £11.7 million
Income receivable recognised in year: £266,000
Valuation basis: Held at cost
Bluebell Telecom Services Limited ('Bluebell')
Bluebell provides landline, mobile and data solutions to businesses, helping to cut costs and improve efficiency through simple rationalisation and more effective deployment of voice and data services. Further information can be found at the Company's website www.bluebelltelecom.com.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £214,000 | £214,000 | ||
| Loan stock | £1,786,000 | £2,006,000 | ||
| Total | £2,000,000 | £2,220,000 |
Investment date: September 2010
Equity held: 4.4%
Last audited accounts: 30 April 2011
Revenues: £7.0 million
Profit before interest & tax: £0.4 million
Net assets: £0.3 million
Income receivable recognised in year: £280,000
Valuation basis: Held at cost
Tristar Worldwide Limited ('Tristar')
Tristar is one of the world's leading chauffeur companies, carrying over 500,000 passengers for 400 clients in the last year alone. The business operates in 70 countries with its own vehicles in the UK and a rapidly expanding service in the US. It has a blue-chip customer base which includes Virgin, Emirates, BP, Goldman Sachs and Bank of America-Merrill Lynch. The market for chauffeur services has been heavily affected in the current economic environment but we believe has now stabilised. Tristar has achieved a good performance in the circumstances where many of its competitors are suffering to a greater extent. The Company's focus on a joined up international service is proving to be an important selling feature for clients; the Company has offices in the UK, US and Hong Kong as well as an affiliate network providing service in over 70 countries worldwide. Further information can be found at the Company's website www.tristarworldwide.com.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £20,000 | £151,000 | ||
| B Ordinary shares | £280,000 | £280,000 | ||
| Loan stock | £700,000 | £700,000 | ||
| Total | £1,000,000 | £1,131,000 |
Investment date: January 2008
Equity held: 1.3%
Last audited accounts: 31 May 2011
Revenues: £37.4 million
Profit before interest & tax: £1.0 million
Net assets: £2.2 million
Income receivable recognised in year: £148,000
Valuation basis: Earnings multiple
Resilient Corporate Services Limited ('Resilient')
Resilient is an acquisition vehicle, currently seeking a qualifying investment. Since the year end, the funds have been used to finance a solar renewable energy site investment.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £20,000 | £20,000 | ||
| B Ordinary shares | £280,000 | £280,000 | ||
| Loan stock | £700,000 | £700,000 | ||
| Total | £1,000,000 | £1,000,000 |
Investment date: March 2010
Equity held: 24.5%
Last unaudited accounts: 28 February 2011
Revenues: £0.0 million
Profit before interest & tax: £0.0 million
Net assets: £2.9 million
Income receivable recognised in year: £11,000
Valuation basis: Held at cost
Shakti Power Limited ('Shakti')
Shakti Power Limited constructed and operates a solar renewable energy site at a carefully selected location in Dunsfold, Surrey.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £1,000,000 | £1,000,000 | ||
| Loan stock | - | - | ||
| Total | £1,000,000 | £1,000,000 |
Investment date: December 2011
Equity held: 26.0%
Last unaudited accounts: 31 December 2011
Revenues: £0.0 million
Loss before interest & tax: £0.2 million
Net assets: £5.8 million
Income receivable recognised in year: £nil
Valuation basis: Held at cost
Aashman Power Limited ('Aashman')
Aashman Power Limited constructed and operates a solar renewable energy site at a carefully selected location in Wilburton, Cambridgeshire.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £950,000 | £950,000 | ||
| Loan stock | - | - | ||
| Total | £950,000 | £950,000 |
Investment date: December 2011
Equity held: 32.0 %
Last unaudited accounts: 31 December 2011
Revenues: £0.7 million
Loss before interest & tax: £0.6 million
Net assets: £15.0 million
Income receivable recognised in year: £nil
Valuation basis: Held at cost
Hydrobolt Limited ('Hydrobolt')
Hydrobolt is a specialist manufacturer of high integrity fasteners for the oil and gas and energy sectors.
| Asset class | Cost | Valuation | ||
| A Ordinary shares | £24,000 | £168,000 | ||
| B Ordinary shares | £158,000 | £158,000 | ||
| Loan stock | £424,000 | £424,000 | ||
| Total | £606,000 | £750,000 |
Investment date: April 2008
Equity held: 2.8%
Last audited accounts: 31 March 2011
Revenues: £15.4 million
Profit before interest & tax: £2.1 million
Net assets: £5.6 million
Income receivable recognised in year: £60,000
Valuation basis: Earnings multiple
Carebase (Colchester) Limited ('Carebase')
Carebase operates an elderly care home in Colchester, Essex.
| Asset class | Cost | Valuation | ||
| Ordinary shares | - | - | ||
| Loan stock | £479,000 | £479,000 | ||
| Total | £479,000 | £479,000 |
Investment date: March 2010
Equity held: 0.0%
Last unaudited accounts: 31 December 2010
Revenues: £0.0 million*
Loss before interest & tax: £0.0 million*
Net assets: £0.0 million*
Income receivable recognised in year: £nil*
Valuation basis: Held at cost
*These are first year statutory accounts during which the Company was dormant and not trading
Directors' Responsibilities Statement
The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.
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 laws). 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 and 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 and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In so far as each of the Directors is aware:
· there is no relevant audit information of which the Company's auditor are unaware; and
· the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor are aware of that information.
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 financial statements may differ from legislation in other jurisdictions.
To the best of my knowledge:
· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
· the management 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 financial statements are published at www.octopusinvestments.com, a website maintained by Octopus Investments. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of Octopus Investments. The work carried out by the auditor does not involve consideration of the maintenance and integrity of the website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the accounts since they were originally presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the accounts differ from legislation in other jurisdictions.
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 financial statements may differ from legislation in other jurisdictions.
On behalf of the board
Tony Morgan
Chairman
24 May 2012
Income Statement | ||||
| Year ended 31 January 2012 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Realised gain on disposal of fixed asset investments | 10 | - | 1,200 | 1,200 |
| Realised gain on disposal of current asset investments | 12 | - | 15 | 15 |
| Fixed asset investment holding gains | 10 | - | (445) | (445) |
| Investment income | 2 | 1,392 | - | 1,392 |
| Investment management fees | 3 | (121) | (365) | (486) |
| Other expenses | 4 | (320) | - | (320) |
| Return on ordinary activities before tax | 951 | 405 | 1,356 | |
| Taxation on return on ordinary activities | 6 | (96) | - | (96) |
| Return on ordinary activities after tax | 855 | 405 | 1,260 | |
| Earnings per share - basic and diluted | 8 | 3.2p | 1.5p | 4.7p |
- The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies
- 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 year as set out above.
The accompanying notes are an integral part of the financial statements
| Income Statement | ||||
| Year ended 31 January 2011 | ||||
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Realised loss on disposal of fixed asset investments | - | (25) | (25) | |
| Realised gain on disposal of current asset investments | - | 19 | 19 | |
| Fixed asset investment holding gains | - | 576 | 576 | |
| Current asset investment holding gains | - | 37 | 37 | |
| Investment income | 2 | 917 | - | 917 |
| Investment management fees | 3 | (127) | (379) | (506) |
| Other expenses | 4 | (341) | - | (341) |
| Return on ordinary activities before tax | 449 | 228 | 677 | |
| Taxation on return on ordinary activities | 6 | - | - | - |
| Return on ordinary activities after tax | 449 | 228 | 677 | |
| Earnings per share - basic and diluted | 8 | 1.7p | 0.8p | 2.5p |
- The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies
- 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 year as set out above.
The accompanying notes are an integral part of the financial statements
| Reconciliation of Movements in Shareholders' Funds | ||
| Year ended 31 January 2012 | Year ended 31 January 2011 | |
| £'000 | £'000 | |
| Shareholders' funds at start of year | 24,332 | 24,552 |
| Return on ordinary activities after tax | 1,260 | 677 |
| Purchase of own shares | (304) | (81) |
| Dividends paid | (951) | (816) |
| Shareholders' funds at end of year | 24,337 | 24,332 |
The Company has no recognised gains or losses other than the results for the year as set out above.
| Balance Sheet | |||||
| As at 31 January 2012 | As at 31 January 2011 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 10 | 19,671 | 19,634 | ||
| Current assets: | |||||
| Debtors | 11 | 374 | 274 | ||
| Investments - money market funds* | 12 | 3,059 | 4,274 | ||
| Cash at bank | 1,447 | 207 | |||
| 4,880 | 4,755 | ||||
| Creditors: amounts falling due within one year | 13 | (214) | (57) | ||
| Net current assets | 4,666 | 4,698 | |||
| Total assets less current liabilities | 24,337 | 24,332 | |||
| Called up equity share capital | 14 | 2,677 | 2,715 | ||
| Special distributable reserve | 15 | 21,443 | 21,747 | ||
| Capital redemption reserve | 15 | 61 | 23 | ||
| Capital reserve gains & losses on disposal | 15 | (343) | (1,165) | ||
| Capital reserve holding gains & losses | 15 | 91 | 508 | ||
| Revenue reserve | 15 | 408 | 504 | ||
| Total shareholders' funds | 24,337 | 24,332 | |||
| Net asset value per share | 9 | 90.9p | 89.6p | ||
*Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 24 May 2012 and are signed on their behalf by:
Tony Morgan
Chairman
The accompanying notes are an integral part of the financial statements.
| Cash Flow Statement | |||
| Year to 31 January 2012 | Year to 31 January 2011 | ||
| Notes | £'000 | £'000 | |
| Net cash inflow/(outflow) from operating activities | 643 | 18 | |
| Taxation | 6 | (96) | - |
| Financial investment: | |||
| Purchase of fixed asset investments | 10 | (4,714) | (1,735) |
| Sales of fixed asset investments | 10 | 5,432 | 360 |
| Dividends paid | 7 | (951) | (816) |
| Management of liquid resources: | |||
| Purchase of current asset investments | 12 | (9,957) | (9,068) |
| Sales of current asset investments | 12 | 11,187 | 11,155 |
| Financing | |||
| Purchase of own shares | 14 | (304) | (81) |
| Increase/(decrease) in cash | 1,240 | (167) | |
The accompanying notes are an integral part of the financial statements.
| Reconciliation of Return before Taxation to Cash Flow from Operating Activities | ||
| Year to 31 January 2012 | Year to 31 January 2011 | |
| £'000 | £'000 | |
| Return on ordinary activities before tax | 1,356 | 677 |
| Increase in debtors | (100) | (31) |
| Increase/(decrease) in creditors | 157 | (21) |
| (Gain)/loss on disposal of fixed assets | (1,200) | 25 |
| Gain on disposal of current assets | (15) | (19) |
| Holding loss/(gain) on fixed asset investments | 445 | (576) |
| Holding gain on current asset investments | - | (37) |
| Inflow from operating activities | 643 | 18 |
| Reconciliation of Net Cash Flow to Movement in Net Funds | |||
| Year to 31 January 2012 | Year to 31 January 2011 | ||
| £'000 | £'000 | ||
| Increase/(decrease) in cash at bank | 1,240 | (167) | |
| Movement in cash equivalent securities | (1,215) | (2,031) | |
| Opening net funds | 4,481 | 6,679 | |
| Net funds at 31 January | 4,506 | 4,481 | |
Net Funds at 31 January comprised:
| As at 31 January 2012 | As at 31 January 2011 | |
| £'000 | £'000 | |
| Cash at bank | 1,447 | 207 |
| Money market funds | 3,059 | 4,274 |
| Net Funds at 31 January | 4,506 | 4,481 |
Notes to the Financial Statements
1. Principal accounting policies
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 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 Company has designated all fixed asset investments as being held at fair value through profit or loss;
therefore all gains and losses arising from such investments held are attributable to financial assets held at fair value
through profit or loss. Accordingly, all interest income, fee income, expenses and impairment losses are
attributable to assets designated as being at fair value through profit and loss.
Capital valuation policies are those that are most important to the depiction of the Company's financial position
and that require the application of subjective and complex judgements, often as a result of the need to make
estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. The
critical accounting policies that are declared will not necessarily result in material changes to the financial
statements in any given period but rather contain a potential for material change. The main accounting and
valuation policies used by the Company are disclosed below. Whilst not all of the significant accounting policies
require subjective or complex judgements, the Company considers that the following accounting policies should
be considered critical.
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 unquoted fixed asset investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with particular attention paid to the carrying value of the investments.
Investments are regularly reviewed to ensure that the fair values are appropriately stated. Unquoted investments are valued in accordance with current International Private Equity and Venture Capital ('IPEVC') valuation guidelines, although this does rely on subjective estimates such as appropriate sector earnings multiples, forecast results of investee companies, asset values of subsidiary companies and liquidity or marketability of the investments held. For the avoidance of doubt, Octopus Apollo VCT 3 plc only invests in unquoted investments.
Although the Company believes that the assumptions concerning the business environment and estimates 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.
Fixed assets 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 are designated as being at fair value through profit or 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 unquoted investments, fair value is established by using measures of value such as price of recent transaction, earnings multiples 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 - holding gains/(losses). Fixed returns on non-equity shares and debt securities which are held at fair value are computed using the effective interest rate, to distinguish between the interest income receivable (which is disclosed as interest income within the revenue column of the Income Statement) and other fair value movements arising on these instruments (which are disclosed as holding gains within the capital column of the Income Statement.
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 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 - gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager and are readily convertible into cash at the option of the Company. The current asset investments are held for trading, are actively managed and the performance is evaluated in accordance with a documented investment strategy. Information about them has to be provided internally on that basis to the Board.
Income
Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis (including time amortisation of any premium or discount to redemption) so as to reflect the effective interest rate, provided there is no reasonable doubt that payment will be received in due course. Income from fixed interest securities and deposit interest is included on an effective interest rate basis.
Investment income includes interest earned on bank balances and money market funds 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 not be received. Fixed returns on debt and money market funds are recognised on a time apportionment basis, provided there is no reasonable doubt that payment will not 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 holding gains and losses on investments, as well as gains and losses on disposal. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the income statement.
Taxation
Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less tax, with the exception that deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing can be deducted.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), and investments in money market funds.
Loans and receivables
The Company's loans and receivables are initially recognised at fair value which is usually transaction cost and subsequently measured at amortised cost using the effective interest method.
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.
The value of the managed capital is indicated in note 15. The Board considers the distributable reserves and the total return for the year when recommending a dividend. In addition, the Board is authorised to make market purchases up to a maximum of 5% of the issued ordinary share capital of the Company in accordance with Special Resolution 8 in order to maintain sufficient liquidity in the VCT.
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.
Capital management is monitored and controlled using the internal control procedures set out on page X of this
report. The capital being managed includes equity and fixed-interest investments, cash balances and liquid
resources including debtors and creditors. 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 and final dividends when they are approved by the shareholders.
2. Income
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Interest receivable on bank balances and bonds | 2 | 14 |
| Money market securities - dividend income | 17 | 21 |
| Loan note interest receivable | 1,373 | 882 |
| 1,392 | 917 |
3. Investment management fees
| 31 January 2012 | 31 January 2011 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 121 | 365 | 486 | 127 | 379 | 506 |
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 runs for a period of five years with effect from 27 July 2006 and may be terminated at any time thereafter by not less than twelve months' notice given by either party. No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The basis upon which the management fee is calculated is disclosed within note 19 to the financial statements.
4. Other expenses
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Directors' remuneration | 53 | 53 |
| Fees payable to the Company's auditor for the audit of the financial statements | 12 | 12 |
| Fees payable to the Company's auditor for other services - tax compliance | 3 | 3 |
| Accounting and administration services | 73 | 74 |
| Legal and professional expenses | 1 | 2 |
| Other expenses | 178 | 197 |
| 320 | 341 |
The total expense ratio for the Company for the year to 31 January 2012 was 2.9 percent (2011: 2.9 per cent). Total annual running costs are capped at 3.3 per cent.
5. Directors' remuneration
| 31 January 2012 | 31 January 2011 | |||
| Emoluments | National Insurance | Emoluments | National Insurance | |
| £'000 | £'000 | £'000 | £'000 | |
| Directors' emoluments | ||||
| Tony Morgan (Chairman) | 21 | 2 | 21 | 2 |
| Rob Johnson | 16 | 1 | 11 | 1 |
| Matt Cooper | 16 | 1 | 16 | 1 |
| Neil Wilson (resigned 01/06/10) | - | - | 5 | - |
| 53 | 4 | 53 | 4 | |
None of the Directors received any other remuneration or benefit from the Company during the year. The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was three (2011: three).
6. Tax on ordinary activities
The corporation tax charge for the year was £96,000 (2011: £nil).
The current tax charge for the year differs from the standard rate of corporation tax in the UK of 26.32% (2011: 28%). The differences are explained below.
| Current tax reconciliation: | 31 January 2012 | 31 January 2011 |
| £'000 | £'000 | |
| Profit on ordinary activities before tax | 1,356 | 677 |
| Non taxable gains/(losses) | 770 | 570 |
| Net return on ordinary activities | 586 | 107 |
| Current tax at 26.32% (2011: 28%) | 357 | 30 |
| Income not liable to tax | (207) | (16) |
| Marginal relief | (17) | - |
| Utilisation of tax losses | (37) | (14) |
| Total current tax charge | 96 | - |
The Company has excess management charges of £nil (2011: £142,000) to carry forward to offset against future taxable profits.
Approved venture capital trusts are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a venture capital trust, no deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
7. Dividends
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for the year | ||
| Previous year's final dividend | 407 | 408 |
| Current year's interim dividend | 544 | |
| 951 | 816 |
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Paid and proposed in respect of the year | ||
| Interim dividend - 1.5p per share (2011: 1.5p per share) | 544 | 408 |
| Final dividend 3.0p per share (2011: 1.5p per share) | 803 | 407 |
| 1,347 | 815 |
The final dividend of 3.0p per share for the year ended 31 January 2012, subject to shareholder approval at the Annual General Meeting, will be paid on 15 July 2012 to shareholders on the register on 17 June 2012.
8. Earnings per share
The revenue earnings per share is based on 26,997,980 (2011: 27,215,442) shares, being the weighted average number of shares in issue during the year, and on a revenue return after tax of £855,000 (2011: £228,000).
The capital earnings per share is based on 26,997,980 (2011: 27,215,442) shares, being the weighted average number of shares in issue during the year, and on a capital return after tax of £405,000 (2011: £228,000).
The total earnings per share is based on 26,997,980 (2011: 27,215,442) shares, being the weighted average number of shares in issue during the year, and on a total return after tax of £1,260,000 (2011: £677,000).
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are therefore identical.
9. Net asset value per share
The calculation of net asset value per share as at 31 January 2012 is based on net assets of £24,337,000 (2011: £24,332,000) divided by the 26,771,709 (2011: 27,153,642) shares in issue at that date.
10. Fixed asset investments at fair value through profit or loss
Financial Reporting Standard 29 Financial Instruments: Disclosures 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 money market funds classified as held at fair value through profit or loss. See note 12.
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 investments 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 year (2011: none). The change in fair value for the current and previous year is recognised through the profit and loss account.
All items held at fair value through profit or loss were designated as such upon initial recognition. Movements in investments at fair value through profit or loss during the year to 31 January 2012 are summarised below.
Fixed asset investments:
| Level 3: Unquoted investments £'000 | Total unquoted investments £'000 | |
| Valuation and net book amount: | ||
| Book cost at 1 February 2011 | 19,074 | 19,074 |
| Cumulative revaluation | 560 | 560 |
| Opening fair value at 1 February 2011 | 19,634 | 19,634 |
| Movement in the year: | ||
| Purchases at cost | 4,714 | 4,714 |
| Proceeds from the sale of investments | (5,432) | (5,432) |
| Gain on disposal of investments - current year | 1,200 | 1,200 |
| Change in fair value in year | (445) | (445) |
| Closing fair value at 31 January 2012 | 19,671 | 19,671 |
| Closing cost at 31 January 2012: | 19,580 | 19,580 |
| Closing holding gain at 31 January 2012: | 91 | 91 |
| Valuation at 31 January 2012 | 19,671 | 19,671 |
Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect the fair value of financial assets held at the price of recent investment, or, in the case of unquoted investments, to adjust earnings multiples. The sensitivity of these valuations to a reasonable possible change in such assumptions is given in note 16.
The loan and equity investments are considered to be one instrument due to them being bound together when assessing portfolios returns to shareholders. This is consistent with their investment policy and results in certain loan notes achieving an upwards revaluation.
Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review on pages X to X.
11. Debtors
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Prepayments and accrued income | 374 | 274 |
| 374 | 274 |
12. Current Asset Investments
Current asset investments at 31 January 2012 comprised money market funds (31 January 2011: bonds and money market funds).
| Level 1: money market funds | ||
| Total | ||
| £'000 | £'000 | |
| Valuation and net book amount: Book cost at 1 February 2011: | ||
| Bonds | 1,983 | |
| Money market funds | 2,306 | |
| 4,289 | ||
| Revaluation to 1 February 2011: | ||
| Bonds | (15) | |
| Money market funds | - | |
| (15) | ||
| Valuation as at 1 February 2011 | 4,274 | |
| Movement in the year: | ||
| Purchases at cost: | ||
| Money market funds | 9,957 | |
| 9,957 | ||
| Disposal proceeds: | ||
| Money market funds | (11,187) | |
| (11,187) | ||
| Profit in year on realisation of investments: | ||
| Money market funds | 15 | |
| 15 | ||
| Revaluation in year: | ||
| Money market funds | - | |
| - | ||
| Valuation as at 31 January 2012 | 3,059 | |
| Cost at 31 January 2012: | ||
| Money market funds | 3,059 | |
| 3,059 | ||
| Revaluation to 31 January 2012: | ||
| Money market funds | - | |
| - | ||
| Valuation as at 31 January 2012 | 3,059 | |
All current asset investments held at the year end sit with the level 1 hierarchy for the purposes of FRS 29.
At 31 January 2012 and 31 January 2011 there were no commitments in respect of investments approved by the Manager but not yet completed.
13. Creditors: amounts falling due within one year
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Accruals | 56 | 54 |
| Other creditors | 62 | 3 |
| 118 | 57 |
14. Share capital
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Authorised: | ||
| 50,000,000 Ordinary shares of 10p | 5,000 | 5,000 |
| Allotted and fully paid up: | ||
| 26,771,709 Ordinary shares of 10p (2011: 27,153,642) | 2,677 | 2,715 |
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 out on page X. The Company is not subject to any externally imposed capital requirements.
The Company did not issue any shares in the year (2011: nil).
During the year the Company repurchased the following shares for cancellation:
- 3 June 2011: 26,658 Ordinary shares at a price of 78.9p
- 2 September 2011: 39,501 Ordinary shares at a price of 81.0p
- 20 October 2011: 56,460 Ordinary shares at a price of 79.2p
- 9 November 2011: 95,520 Ordinary shares at a price of 79.5p
- 23 December 2011: 89,835 Ordinary shares at a price of 79.5p
- 31 January 2012: 73,959 Ordinary shares at a price of 79.5p
The total nominal value of the shares repurchased was £38,193 representing 1.4% of the issued share capital.
15. Reserves
| Special distributable reserve* | Capital redemption reserve | Capital reserve gains/ (losses) on disposal* | Capital reserve holding gains/ (losses) | Revenue reserve* | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 February 2011 | 21,747 | 23 | (1,165) | 508 | 504 |
| Repurchase of own shares | (304) | 38 | - | - | - |
| Return on ordinary activities after tax | - | - | - | - | 855 |
| Management fees allocated as capital expenditure | - | - | (365) | - | - |
| Current year gains/losses on disposal | - | - | 1,215 | - | - |
| Prior period holding gains/losses now crystalised | - | - | 24 | (24) | - |
| Prior period holding gains/losses crystalised in a prior period | - | - | (52) | 52 | - |
| Current period holding gains on investments | - | - | - | (445) | - |
| Dividends paid | - | - | - | (951) | |
| As at 31 January 2012 | 21,443 | 61 | (343) | 91 | 408 |
*Distributable reserves
All investments are designated as fair value through profit or loss at the time of acquisition, and all capital gains or losses on such investments are so designated.
When the Company revalues the investments still held during the period, any gains or losses arising are credited/ charged to the Capital reserve - holding gains & losses.
When an investment is sold any balance held on the Capital reserve - holding gains & losses is transferred to the
Capital reserve - gains & losses on disposal as a movement in reserves.
At 31 January 2012 there were no commitments in respect of investments approved by the Manager but not yet completed.
Reserves available for potential distribution by way of a dividend are:
| £'000 | |
| As at 1 February 2011 | 21,086 |
| Movement in year | 422 |
| As at 31 January 2012 | 21,508 |
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) on disposal do not have sufficient funds to pay dividends, these will be paid from the special distributable reserve.
16. Financial instruments and risk management
The Company's financial instruments comprise equity, investments, unquoted loans, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying unquoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity.
Classification of financial instruments
Apollo 3 held the following categories of financial instruments, all of which are included in the balance sheet at fair value, at 31 January 2012:
| 31 January 2012 | 31 January 2011 | |
| £'000 | £'000 | |
| Assets at fair value through profit or loss | ||
| Investments | 19,671 | 19,634 |
| Current asset investments | 3,059 | 4,274 |
| Total | 22,730 | 23,908 |
| Loans and receivables | ||
| Cash at bank | 1,447 | 207 |
| Accrued income | 369 | 268 |
| Total | 1,816 | 475 |
| Liabilities at amortised cost | ||
| Accruals and other creditors | 118 | 57 |
| Total | 118 | 57 |
Fixed asset investments (see note 10) are valued at fair value. Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines as detailed within the Investment Managers Review. The fair value of all other financial assets and liabilities are represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the period-end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date.
Market risk
The Company's strategy for managing investment risk is determined with regard to the Company's investment objective, as outlined on page -. 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 Directors' Report on pages -to -, 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 page -.
80.5% (31 January 2011: 80.7%) by value of the Company's net assets comprises investments in unquoted companies held at fair value. The valuation methods used by the Company include the application of a price/earnings ratio derived from listed companies with similar characteristics, and consequently the value of the unquoted element of the portfolio can be indirectly affected by price movements on the London Stock Exchange. A 10% overall increase in the valuation of the unquoted investments at 31 January 2012 would have increased net assets and the total profit for the year by £1,967,000 (31 January 2011: £1,963,000) an equivalent change in the opposite direction would have reduced net assets and the total profit for the year by the same amount.
The Investment Manager considers that the majority of the investment valuations are based on earnings multiples which are ascertained with reference to the individual sector multiple or similarly listed entities. It is considered that due to the diversity of the sectors, the 10% sensitivity discussed above provides the most meaningful potential impact of average multiple changes across the portfolio.
12.5% (31 January 2011: 17.6%) by value of the Company's net assets comprises money market funds held at fair value. A 1% overall increase in the valuation of the money market funds at 31 January 2012 would have increased net assets and the total profit for the year by £30,590 (31 January 2011: £42,740) an equivalent change in the opposite direction would have reduced net assets and the total profit 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.
Fixed rate
The table below summarises weighted average effective interest rates for the fixed interest-bearing financial instruments:
| As at 31 January 2012 | As at 31 January 2011 | |||||
| Total fixed rate portfolio by value £'000 | Weighted average interest rate % | Weighted average time for which rate is fixed in years | Total fixed rate portfolio by value £'000 | Weighted average interest rate % | Weighted average time for which rate is fixed in years | |
| Unquoted fixed-interest investments | 9,729 | 12.30% | 2 | 7,901 | 13.20% | 3.0 |
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market funds. The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 0.5% at 31 January 2012 (31 January 2011: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 31 January 2012 | 31 January 2011 | |
| £000 | £000 | |
| Unquoted floating loan notes | 1,179 | 3,585 |
| Listed floating rate notes | - | - |
| Money market funds | 3,059 | 4,274 |
| Cash on deposit | 1,447 | 207 |
| 5,685 | 8,066 |
Every 1% increase or decrease in the base rate would increase or decrease income receivable from these investments and the total profit for the year by £56,850 (31 January 2011: £80,660)
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 31 January 2012 the Company's financial assets exposed to credit risk comprised the following:
| 31 January 2012 | 31 January 2011 | |
| £000 | £000 | |
| Investments in floating rate instruments | 1,179 | 3,585 |
| Cash on deposit | 1,447 | 207 |
| Investments in fixed rate instruments | 9,729 | 7,901 |
| Accrued dividends and interest receivable | 369 | 268 |
| 12,724 | 11,961 |
Credit risk relating to listed money market funds is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by the UK Government and major UK institutions. Credit risk relating to loans to and preference shares in unquoted companies is considered to be part of market risk.
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 Bank plc. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. Should the credit quality or the financial position of either entity deteriorate significantly the Investment Manager will move the cash holdings to another bank.
Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 31 January 2012 or 31 January 2011.
Liquidity risk
The Company's financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally may be illiquid. 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 funds 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 31 January 2012 these investments were valued at £4,506,000 (31 January 2011: £4,481,000).
17. Post balance sheet events
The following events occurred between the balance sheet date and the signing of these financial statements:
- 6 February 2012 - the Company disposed of the loan part of its investment in Project Tristar Limited for £700,000.
- 2 April 2012 - the Company invested £750,000 in Technical Software Consultants ('TSC')
18. Contingencies, guarantees and financial commitments
There were no contingencies, guarantees or financial commitments as at 31 January 2012 (2011: none).
19. Related party transactions
Matt Cooper, a non-executive Director of Apollo 3 is also Chairman of Octopus Investments Limited. Apollo 3 plc has employed Octopus Investments throughout the year as Investment Manager.
Apollo 3 has paid Octopus Investments £486,000 (2011: £506,000) in management fees. At 31 January 2012, £nil was outstanding (2011: £nil). The management fee is payable quarterly in advance and is based on 2.0% of the NAV calculated at annual intervals as at 31 January.
Octopus Investments also provides accounting and administrative services to the Company, payable quarterly in advance for a fee of 0.3% of the NAV calculated at annual intervals as at 31 January. During the year £72,998 (2011: £73,653) was paid to Octopus Investments and there is £nil outstanding at the balance sheet date, for the accounting and administrative services.
No performance related incentive fee will be payable over the first five years. Thereafter, Octopus Investments will be entitled to an annual performance related incentive fee. This performance fee is equal to 20% of the amount by which the NAV from the start of the sixth accounting and subsequent accounting period exceeds simple interest of the HSBC Bank plc base rate for the same period. The NAV at the start of the sixth accounting period must be at least 100p. Any distributions paid out by the Fund will be added back when calculating this performance fee.
The Board considers that the liability becomes due at the point that the performance criteria are met; this has not been achieved and therefore no liability has been recognised.
During the year to 31 January 2012, the Directors received the following dividends from the Company:
| Dividend received | |
| Tony Morgan (Chairman) | £175 |
| Matt Cooper | £350 |
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 Apollo VCT 3 plc via Thomson Reuters ONE
COMPANIES COVERED:
Latest directors dealings
- 2 days ago Gran Tierra Energy Inc. (CDI)
- 2 days ago Wheaton Precious Metals Corp.NPV (CDI)
- 2 days ago H&T Group
- 2 days ago Centrica
- 2 days ago Vistry Group