Octopus Apollo VCT plc : Annual Financial Report

Octopus Apollo VCT plc  

Final Results

9 May 2018

Octopus Apollo VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2018.
These results were approved by the Board of Directors on 9 May 2018.
You may, in due course, view the Annual Report in full at www.octopusinvestments.com. All other statutory information can also be found there.

Financial Summary

	Year to 31 January 2018	Year to 31 January 2017
Net assets (£'000)	130,377	141,799
Return on ordinary activities after tax (£'000)	3,699	5,172
Net asset value (NAV) per share (p)	50.6	63.2
Cumulative dividends paid since launch (p)	68.0	54.0
NAV plus cumulative dividends paid (p)	118.6	117.2
Total return %*	2.2%	2.9
Ordinary dividends paid in the year (p)	3.3	5.0
Special dividends paid in the year	10.7	16.5
Proposed final dividend (p)**	1.6	1.7

^*Total Return is calculated as (movement in NAV + dividends paid in the period) divided by the NAV at the beginning of the period.

^**The final proposed dividend of 1.6p per Ordinary share for the year ended 31 January 2018 will, subject to shareholder approval at the Annual General Meeting, be paid on 27 July 2018 to all Ordinary shareholders on the register on 29 June 2018.

Key Dates

Annual General Meeting                                                                  12 July 2018
                                                                                                           4.00 p.m. at 33 Holborn, London, EC1N 2HT

Ordinary share final dividend payment date                                    27 July 2018

Half-yearly results to 31 July 2018 published                                   September 2018

Annual results to 31 January 2019 announced                                April 2019

Annual Report and Accounts published                                           May 2019

Chairman's Statement

Introduction
I am pleased to present the Annual Report of Apollo for the year ended 31 January 2018 and I would like to welcome all new shareholders following the fund raising which closed during the last financial year.

New VCT Regulations and Qualifying Status
PwC provides both the Board and Manager with advice concerning ongoing compliance with HMRC's rules and regulations concerning VCTs. The Board has been advised that the Company 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, which was at 87% as at 31 January 2018.

The Autumn Budget announced in November 2017 introduced further changes to VCT legislation. The most notable of these is that from 6 April 2019, the requirement for a 70% qualifying investment level increased to 80%. Additionally, from 6 April 2018 VCTs must now invest 30% of funds raised into qualifying investments within 12 months.

Typically the structure of the Company's investments has been weighted more heavily towards loan based instruments as opposed to equity. Such investments provide fixed returns and payments generally rank ahead of other creditors in a liquidation scenario, allowing for visibility over future returns and security.

Recent changes to VCT legislation mean that new investments are likely to be more heavily weighted towards equity than loan instruments. The new VCT rules will not affect the existing investment portfolio and will only impact future investments.

The investment team continues to build a pipeline of new investment opportunities which will meet the new VCT investment rules. Since 31 January 2018 the Company has completed two new investments (totalling £7.2 million), and further investment activity is expected during the year to 31 January 2019.

Further information on VCT regulation is detailed in the Directors' Report.

Performance
On a total return basis, after adding back the 3.3p of ordinary dividends paid in the year as well as the 10.7p special dividend paid, the NAV has risen 2.2%. The NAV plus cumulative dividends has risen from 117.2p per share as at 31 January 2017 to 118.6p per share as at 31 January 2018.

Investment Activity
In the year under review the Company invested £2.1 million into eight companies, providing follow-on capital to existing investee companies to continue their growth plans. There were seven exits of portfolio companies during the year generating total proceeds to the Company of £39.2 million. Notable disposals were Clifford Thames (£24.0 million), Vista Retail Support (£9.9 million) and Aquaso/Technical Software Consultants (TSC) (£3.9 million).

Fund Raising
During the year £16.1 million was raised, after costs, under the Offer for Subscription which was launched 4 November 2016 to raise up to £20 million with an overallotment facility of £10 million. This offer closed in March 2017 fully subscribed.

Further details can be found in the Directors' report and in note 14 of the financial statements.

Dividend and Dividend Policy
It is the 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 the portfolio, the Board has proposed a final dividend of 1.6p per share in respect of the year ended 31 January 2018. This is in addition to the 10.7p special dividend paid in November 2017 and the 1.6p interim dividend paid in December 2017, and will bring the total dividends declared to 13.9p for the year. Excluding the special dividend, this represents a similar return of capital in previous years of 5.1%. The dividend will be payable on 27 July 2018 to shareholders on the register at 29 June 2018.

Dividend Reinvestment Scheme (DRIS)
In common with a number of VCTs, the Company has a dividend reinvestment scheme which was introduced in November 2014. During the year to 31 January 2018 10,335,362 shares were issued under the DRIS, returning £5.4 million to the Company.

This is an attractive scheme for investors who do not need income, but would prefer to benefit from additional income tax relief on their re-invested dividend. The final dividend referred to above will be eligible for the DRIS.

Share Buybacks
The Company has continued to buy back shares as required, and subject to shareholder approval of resolution 10 at the forthcoming annual general meeting this facility will remain in place. Buybacks remain an essential practice for VCTs, providing liquidity to investors who may wish to sell their shares. Details of the share buybacks undertaken during the year can be found in the Directors' Report.

Annual General Meeting
The Company's Annual General Meeting will take place on
12 July 2018 at 4 p.m. I look forward to welcoming you to the meeting which will be held at the offices of Octopus Investments Limited at 33 Holborn, London, EC1N 2HT.
Directions to their office can be found by visiting their website at: www.octopusinvestments.com.

Outlook and future prospects
Since launch the Company's returns to shareholders have shown low year-on-year volatility. The existing portfolio is well positioned for continued steady performance, and the Manager will continue to adopt a thorough investment approach, identifying investments which meet the new legislative requirements and existing Company mandate.

Murray Steele
Chairman
9 May 2018

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.

Octopus was established in 2000 and has a strong commitment to both smaller companies and to VCTs. We currently manage six VCTs, including this one, and over £700 million in the VCT sector.

How Octopus creates and delivers value for the shareholders of Octopus Apollo VCT plc
The Company focuses on providing development and expansion funding to predominantly unquoted companies with a typical investment per company of £1 million to £5 million. Typically the Company will receive its return from interest paid on secured loan notes as well as an exposure to the value of the shares of a company. The investment strategy is to derive sufficient return from the secured loan notes to achieve the Company's investment aims and to use the equity exposure to boost returns. As portfolio companies are unquoted the Company will receive a return from an equity holding when an investee company is sold.

Investment Policy
The majority of companies in which Apollo 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 that will provide an opportunity for the Company to realise its investment within three to five years.

Investment Process
The Manager follows a multi-stage process prior to making Qualifying Investments in unquoted companies.

Initial Screening
If the initial review of the business plan is positive, a meeting is held with the management team of the business in order to assess the team in terms of its ability to achieve the objectives set out in the business plan. The proposition is then discussed and reviewed with the other members of the Octopus team and a decision is taken as to whether to continue discussions with the company with a view to making an investment.

Due Diligence
Prior to making an investment, due diligence is carried out on the potential investee company. The due diligence process includes a review of the investee company's products and services, discussions with customers and suppliers, competitive analysis, assessment of the capabilities of the management team and financial analysis. In addition, with the potential investee company's permission, the input of existing relevant Octopus industry contacts is often sought.

Additionally, Octopus also draws on professional input from lawyers, accountants and other specialists as required in order to conduct the due diligence and draw up the required legal documentation in order to complete an investment.

Post-Investment Monitoring
Octopus will either appoint a Director or a formal observer to the board of each investee company. The majority of the investments are expected to be held for approximately five years. There may, however, be opportunities to exit profitably on shorter timescales. The Manager will conduct a regular review of the portfolio, during which each investee company will be assessed in terms of its commercial and financial progress, its strategic positioning, requirement for further capital, progress towards an eventual exit and its current and prospective valuation.

As each company matures, the exit considerations become more specific, with a view to establishing a definitive action plan in order to achieve a successful sale of the investment. Throughout the cycle of an investment the Manager will remain proactive in determining the appropriate time and route to exit. It is expected that the majority of exits will be by means of trade sale.

Performance
The Company made a total return per share of 2.2% in the year to 31 January 2018. Whilst the NAV per share decreased from 63.2p to 50.6p, 14p of dividends were paid over the period, bringing cumulative dividends paid to date to 68p and the total value (NAV plus cumulative dividends) to 118.6p per share.

Investment Activity
During the 12 months to 31 January 2018, Apollo made the following disposals:

	Initial Cost £	Sale Proceeds £	Gain/(loss) on Sale £
Clifford Thames	13,318,000	24,014,000	10,696,000
Vista Retail Support	6,758,000	9,922,000	3,164,000
Aquaso (Technical Software Consultants)	3,500,000	3,906,000	406,000
The History Press	754,000	858,000	104,000
Quickfire 2	180,000	196,000	16,000
Quickfire	157,000	167,000	10,000
PTB Films	222,000	100,000	(122,000)
	24,889,000	39,163,000	14,274,000

During the year, the Company disposed of seven investments for total sale proceeds of £39.2 million, representing a gain of £14.3 million on the total cost of £24.9 million. Aquaso, which held the Company's restructured investment in Technical Software Consultants, was sold to Eddyfi Technologies in May 2017 resulting in a recovery of value that had been written down and an overall net gain on the investment relative to the original cost. In addition to the above full disposals in the year, there was also a partial disposal of shares held in the AIM-listed company
Tanfield plc, generating sale proceeds of £26,000.

During the year, the Company invested £2.1 million into eight companies, all of which were existing portfolio companies seeking follow-on capital to continue their growth plans.

Portfolio Review
The fund is comprised of 50 portfolio companies with a total valuation of £71.3 million. The portfolio includes 12 quoted AIM investments representing 6% of net assets, 12 Titan VCT co-investments (7% of net assets), with the balance (42% of net assets) being more typical Apollo investments in private companies.

As part of liquidity management during the year the Company invested £72 million in the Octopus Portfolio Manager ("OPM") funds. During the year £19 million was withdrawn to fund the special dividend, taking total holdings at 31 January 2018 to £53.5 million, at year end valuations. Octopus has waived its management fees in relation to OPM to ensure it is not taking fees twice on the same funds under management.

The Company's investment portfolio is set out on page 10 of the Annual Report and Accounts. It continues to hold appropriate investments to meet VCT requirements. The Manager now has the opportunity to make a number of further investments with the aim of building the Company NAV.

Outlook and Future Prospects
We remain optimistic about the Company's future investment prospects and its current diverse portfolio.

As a result of a significant emphasis on origination activities the investment team has an increasing pipeline of new investment opportunities and expects to be able to increase new investment activity in 2018.

Although the VCT investment rules have changed again in March 2018, we believe that these latest changes will not have a significant impact on new investment activity, and that the investment team will continue to generate suitable investment opportunities under these new rules.

If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2295.

Grant Paul-Florence
Octopus Investments Limited
9 May 2018

Directors' Responsibilities Statement

The Directors are responsible for preparing the Strategic Report, Directors' Report, Directors' Remuneration 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) including FRS 102 - "The Financial Reporting Standard applicable in the UK and Republic of Ireland". 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;

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

·      prepare a Strategic Report, a Directors' Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

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 and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that:

·      so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

·      the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for preparing the annual report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the annual report and the financial statements, taken as a whole, provide the information necessary to assess the Company's position performance, business model and strategy and is fair, balanced and understandable.

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 our knowledge:

·      the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws), including Financial Reporting Standard 102 - "The Financial Reporting Standard applicable in the UK and Republic of Ireland", give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

·      the annual report, including the Strategic 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.

On behalf of the Board

Murray Steele
Chairman
9 May 2018

Income Statement

		Year ended 31 January 2018			Year ended 31 January 2017
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Realised gain on disposal of fixed asset investments		-	4,186	4,186	-	2,658	2,658
Change in fair value of fixed asset investments		-	1,063	1,063	-	4,525	4,525
Change in fair value of current asset investments		-	469	469
Investment income	2	3,627	-	3,627	4,128	-	4,128
Investment management fees	3	(724)	(2,858)	(3,582)	(647)	(2,844)	(3,491)
Other expenses	4	(2,068)	-	(2,068)	(2,654)	-	(2,654)
FX translation		-	4	4	-	6	6
Return on ordinary activities before tax		835	2,864	3,699	827	4,345	5,172
Taxation on return on ordinary activities	6	-	-	-	-	-	-
Return on ordinary activities after tax		835	2,864	3,699	827	4,345	5,172
Earnings per share - basic and diluted	8	0.3p	1.2p	1.5p	0.5p	2.5p	3.0p

·      The 'Total' column of this statement is the profit and loss account of the Company; the 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 other comprehensive income for the period.

The accompanying notes are an integral part of the Financial Statements.

Balance Sheet

		As at 31 January 2018		As at 31 January 2017
	Notes	£'000	£'000	£'000	£'000
Fixed asset investments	10		71,326		112,884
Current assets:
Investments	11	53,469		-
Debtors	12	2,074		4,077
Cash at bank		5,455		29,229
		60,998		33,306
Creditors: amounts falling due within one year	13	(1,947)		(4,391)
Net current assets			59,051		28,915
Net Assets			130,377		141,799
Share capital	14		25,748		22,603
Share premium			52,162		34,231
Special distributable reserve			40,489		76,144
Capital redemption reserve			3,125		2,832
Capital reserve realised			9,445		(1,537)
Capital reserve unrealised			(602)		7,520
Revenue reserve			-		-
Translation reserve			10		6
Total shareholders' funds	15		130,377		141,799
Net asset value per share - basic and diluted	9		50.6p		63.2p

The statements were approved by the Directors and authorised for issue on 9 May 2018 and are signed on their behalf by:

Murray Steele
Chairman
Company number: 05840377
The accompanying notes are an integral part of the Financial Statements.

Cash Flow Statement

	Notes	Year to 31 January 2018 £'000	Year to 31 January 2017 £'000
Cash from operating activities
Return on ordinary activities after tax		3,699	5,172
Adjustments for:
Decrease in debtors	12	2,003	1,228
Decrease in creditors	13	(2,444)	(76)
Debtors acquired in the transaction		-	848
Creditors acquired in the transaction		-	(157)
Gain on disposal of fixed assets		(4,186)	(2,658)
Gain on valuation of fixed asset investments		(1,063)	(4,525)
Gain on valuation of current asset investments		(469)	-
Cash from operations		(2,460)	(168)
Cash flows from investing activities
Purchase of fixed asset investments	10	(2,051)	(9,269)
Purchase of current asset investments	11	(53,000)
Proceeds on sale of fixed asset investments		48,858	40,531
Cash acquired in the transaction		-	622
Dividend paid to exiting D Shareholders		-	(14,418)
Net cash flows from investing activities		(6,193)	17,466
Cash flows from financing activities
Purchase of own shares	14	(1,639)	(1,955)
Share issues	14	21,525	41,152
Dividends paid	7	(35,007)	(37,541)
Net cash flows from financing activities		(15,121)	1,656
Increase/(decrease) in cash and cash equivalents		(23,774)	18,954
Opening cash and cash equivalents		29,229	10,275
Closing cash and cash equivalents		5,455	29,229

The accompanying notes are an integral part of the Financial Statements.

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The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Octopus Apollo VCT plc via Globenewswire