Annual Report • Nov 30, 2010
Annual Report
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| 1 | Shareholder Information and Contact details |
|---|---|
| 3 | About Octopus Second AIM VCT plc |
| 4 | Financial Summary |
| 5 | Chairman's Statement |
| 7 | Investment Manager's Review |
| 16 | Details of Directors |
| 17 | The Investment Manager |
| 18 | Directors' Report |
| 25 | Corporate Governance |
| 30 | Directors' Remuneration Report |
| 33 | Statement of Directors' Responsibilities |
| 34 | Report of the Independent Auditor |
| 36 | Income Statement |
| 38 | Balance Sheet |
| 39 | Reconciliation of Movements in Shareholders' Funds |
| 40 | Cash Flow Statement |
| 42 | Notes to the Financial Statements |
| 57 | Directors and Advisers |
| 58 | Notice of Annual General Meeting |
| 61 | Proxy form |
The Company's financial calendar is as follows:
Dividends will be paid by the Registrar on behalf of the Company. Shareholders who wish to have dividends paid directly into their bank account rather than by cheque sent to their registered address can complete a mandate form for this purpose. Queries relating to dividends, shareholdings and requests for mandate forms should be directed to the Company's Registrar, Capita Registrars, by calling 0871 664 0300 (calls cost 10p per minute plus network extras. Lines are open Monday–Friday 8.30am–5.30pm), or by writing to them at:
Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
The table opposite shows the Net Asset Value ('NAV') per share and lists the dividends that have been paid since the launch of Octopus Second AIM VCT plc, including all historic share classes. Before the merger there were two separate companies, Octopus Second AIM VCT and Octopus IHT AIM VCT. Upon the merger, Octopus IHT AIM VCT acquired the net
assets of Octopus Second AIM VCT. At which point Octopus Second AIM VCT was renamed Octopus Third AIM VCT and Octopus IHT AIM VCT was renamed Octopus Second AIM VCT:
Investors originally investing into:
| Octopus | ||||
|---|---|---|---|---|
| Third AIM | Octopus | |||
| VCT | Third AIM | |||
| Ordinary | VCT | |||
| shares | 'C' and 'D' | |||
| (formerly | shares | |||
| Octopus | Octopus | (formerly | ||
| Second AIM | Octopus | Second | Octopus | |
| VCT (post | IHT AIM | AIM VCT) | Second | |
| Year | August | VCT 'A' (pre August | AIM VCT | |
| ending | 2010) | Shares | 2010)* | plc)* |
| 2003 | – | – | 1.6 | – |
| 2004 | – | – | – | – |
| 2005 | – | – | – | – |
| 2006 | – | 1.4 | 1.0 | – |
| 2007 | – | 2.0 | 7.0 | 0.8 |
| 2008 | – | 2.0 | 11.0 | 2.2 |
| 2009 | – | 2.0 | 2.0 | 2.0 |
| 2010 | 1.5 | 2.5 | 2.2 | 5.4 |
| Cumulative | ||||
| dividends | ||||
| paid (p) | 1.5 | 9.9 | 24.8 | 10.4 |
| NAV at 30 | ||||
| November | ||||
| 2010 (p) | 67.9 | 67.9 | 32.8 | 79.8 |
| NAV plus | ||||
| total | ||||
| dividends (p) | n/a | 77.8 | 57.6 | 90.2 |
* Following the merger of Octopus Third AIM VCT and Octopus Second AIM VCT and various share re-organisations, there is now only one share class, Ordinary shares. For Octopus Third AIM VCT Ordinary shares and 'C' & 'D' shares, the figures above represent a notionally adjusted NAV per share in accordance with the relevant conversion factors.
The Company's share price is published daily in the Financial Times and its FTSE classification is 'Investment Companies' 'VCTs'. It can also be found on various financial websites with the following TIDM/EPIC code:
| Ordinary shares | |
|---|---|
| TIDM/EPIC code | OSEC |
| Latest share price | |
| (11 March 2011) | 65.0p per share |
The Company's Ordinary shares can be bought and sold in the same way as any other company quoted on the London Stock Exchange via a stockbroker. There may be tax implications in respect of selling all or part of your holdings, so shareholders should contact their independent financial adviser if they have any queries.
The Company operates a policy of buying its own shares for cancellation as they become available. The Company is, however, unable to buy back shares directly from shareholders. If you are considering selling your shares or trading in the secondary market, you may wish to contact Matrix Corporate Capital ('Matrix');
Chris Lloyd 0203 206 7176 [email protected]
0203 206 7177 [email protected]
Communications with shareholders are mailed to the registered address held on the share register. In the event of a change of address or other amendment this should be notified to the Company's Registrar, Capita Registrars, under the signature of the registered holder. Their contact details are provided on page 57.
Previously published Annual Reports and Half-yearly Reports are available for viewing on the Investment Manager's website at www.octopusinvestments.com by navigating to Services, Investor Services, Venture Capital Trusts, Octopus Second AIM VCT. All other statutory information will also be found there.
The VCT is aware that some shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based "brokers" who target UK shareholders offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. They can be very persistent and extremely persuasive. Shareholders are therefore advised to be very wary of any unsolicited advice, offer to buy shares at a discount or offer for free company reports. Please note that it is very unlikely that either Octopus Investments Limited ('Octopus') or the Company's Registrar would make unsolicited telephone calls to shareholders. In any event such calls would relate only to official documentation already circulated to shareholders and would never be in respect of investment "advice". If you are in any doubt about the veracity of an unsolicited phone call, please call either Octopus, or the Registrar, at the numbers provided at the back of this report.
Octopus Second AIM VCT plc (the "Company" or "Fund" or "Second AIM") is a venture capital trust ("VCT") which aims to provide shareholders with attractive tax-free dividends and longterm capital growth.
The Investment Manager is Octopus Investments Limited ("Octopus" or "Manager"). The Company was launched as Close IHT AIM VCT PLC in March 2006 and raised £25 million through an offer for subscription. On 12 August 2010 the Company acquired the assets and liabilities of Octopus Third AIM VCT plc (formerly Octopus Second AIM VCT plc) ("the merger") and changed its name from Octopus IHT AIM VCT plc to Octopus Second AIM VCT plc. Shareholders of Octopus Third AIM VCT will have received 0.48356191 Ordinary shares in the Company for each Ordinary share they had prior to the merger.
On 9 July 2010 the VCT issued a prospectus, proposing to raise a further £10 million by way of a top-up into the existing share class. Full details of the offer can be found in the prospectus sent to shareholders.
On 31 August 2010 the Company changed its Registered Office from 8 Angel Court, London, EC2R 7HP to 20 Old Bailey, London EC4M 7AN.
VCTs were introduced in the Finance Act 1995 to provide a means for private individuals to invest in unlisted companies in the UK. Subsequent Finance Acts have introduced changes to VCT legislation. The tax benefits currently available to eligible new investors in VCTs include:
The Company has been approved as a VCT by HM Revenue & Customs. In order to maintain its approval the Company must comply with certain requirements on a continuing basis. Above all, the Company is required at all times to hold at least 70% of its investments (as defined in the legislation) in VCT qualifying holdings, of which at least 30% must comprise eligible Ordinary shares. For this purpose a 'VCT qualifying holding' consists of up to £1 million invested in any one year in new shares or securities of a UK unquoted company (which may be quoted on AIM) which is carrying on a qualifying trade, and whose gross assets at the time of investment do not exceed a prescribed limit. The definition of 'qualifying trade' excludes certain activities such as property investment and development, financial services and asset leasing. The Company will continue to ensure its compliance with these qualification requirements.
| Year to | Year to | |
|---|---|---|
| 30 November 2010 | 30 November 2009 | |
| Net assets (£'000s)* | 24,774 | 10,783 |
| Net profit after tax (£'000s) | 1,281 | 1,484 |
| Net asset value per share | 67.9p | 69.5p |
| Dividend per share – paid in year | 2.50p** | 2.00p |
| Dividend proposed | 1.65p | 1.00p |
* The significant increase in net assets of the current year is largely due to the merger and subsequent incorporation of the net assets of Octopus Third AIM VCT plc.
** 1.00p of this was paid pre-merger.
This is my first opportunity to welcome all the new shareholders following the merger of Octopus IHT AIM VCT with Octopus Third AIM VCT in August 2010. The resultant company used the corporate structure of IHT AIM VCT, but adopted the name of Second AIM VCT. Thus, former shareholders of IHT AIM VCT will have seen no change in the number of shares they hold, but holders of Octopus Third AIM VCT will have 0.48356191 new shares for each Ordinary share they had prior to the merger. These accounts cover the year to 30 November 2010, which is the usual year end for the former IHT AIM VCT. I appreciate that the new shareholders have not received a set of accounts for some time, as the year end of Third AIM VCT was extended by two months to the end of April 2010, requiring accounts to be released by the end of August 2010, by which time the merger was complete. I hope that all shareholders will find the contents interesting and useful and I hope that I will be able to meet as many of you as possible at the Annual General Meeting in May.
In addition to the merger, your Company has also announced a fundraising, so that shareholders and others can subscribe for new Ordinary shares. I will comment on this later. Meanwhile, the stock market has recovered strongly, as has the UK economy. While small companies in general lagged the broader market, your Company's NAV plus cumulative dividends has also risen, albeit modestly, and I believe can continue to do so in 2011.
As part of the merger process your Board reconsidered its dividend policy and concluded, in discussion with the Manager, that setting a target annual yield of 5% was both realistic and achievable. Therefore, as you may have read in the merger prospectus, your Board has adopted this new dividend policy. An interim dividend of 1.5 pence was paid in October 2010 in respect of the six months period to May 2010 and, based on a share price of
approximately 60 pence, was equivalent to a 5% annual yield. It was paid to all shareholders, since both IHT and Third AIM VCT had paid similar dividends per share and Third AIM VCT investors were due a final dividend in respect of the year to February 2010. Your Board has declared another dividend of 1.65 pence, subject to shareholders' and Her Majesty's Revenue & Customs ("HMRC") approval. As the NAV and share price change, so it would be your Board's intention to maintain the 5% target.
Your Company has continued to buy back shares, partly as a means of keeping the discount to an acceptable level. Reflecting the movement in NAV in the six months to 30 November 2010, the average share price paid has been approximately 60 pence.
As the merger process required a prospectus to be produced, it seemed sensible to take the additional power to raise new capital using the same document, at a time when the Manager was seeing an increased number of investment opportunities. Although the new capital will have to be invested under the latest VCT regulations, which are different from the regulations governing the capital at the time of the merger, the Board set the limit at £10 million so as not to endanger the VCT qualifying nature of the Company. At present, the Manager is confident of raising the full £10 million.
As the Manager's Review will show, your Company has made some new investments this year and indeed made several in December immediately after the year end. As a provider of essential equity capital for small companies, which are capable of being British success stories in years to come, we believe your Company continues to fulfill the objectives of both investors and the government in permitting tax relief to investors. AIM VCTs continue to act as an effective channel by which investors can support small growing companies and it is to be hoped that the government will continue to support them in their endeavours.
The merger of Octopus IHT AIM VCT and Octopus Third AIM VCT has gone smoothly. There have been no major portfolio issues to resolve since there was a very high overlap between the investments of the two VCTs. The costs came in below budget and all the shares held in Treasury by either VCT were cancelled at the time of the merger.
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice concerning ongoing compliance with HMRC rules and regulations concerning VCTs. The Board has been advised that Second AIM is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is to maintain at least the 70% qualifying investment level. As at 30 November 2010, 83.0% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments.
At the end of November 2010 the Net Asset Value ('NAV') was 67.9 pence per share, which compares with 69.5p at 30 November 2009 for Octopus IHT AIM VCT. Shareholders in Octopus Third AIM VCT converted their shares at the ratio of 1 to 0.48356191 shares in the new Second AIM VCT, so to make a comparison these NAV per share figures need to be adjusted by that conversion ratio. The merger meant that the number of shares held was adjusted to reflect the higher NAV per share of Octopus IHT AIM VCT, so the value of your investment at the merger date remained the same (ignoring the merger costs).
This NAV per share is after paying total dividends in the year of 2.5p (1.5p having been paid post merger), and after bearing the merger costs, which were equivalent to 0.6p per share. Adding back these payments, which were made from the capital of the Company, means that the adjusted NAV was 71.0p per share. Comparing this with the 69.5p of November 2009 implies a rise in the NAV of 2.2%. By way of comparison the AIM index rose by 11.2% and
the FTSE Small-cap ex investment trusts index by 4.9%. Given the very substantial representation of the resources sector in these indices, which your Company cannot invest in, your Board regards this as a creditable performance, which should continue to improve as smaller companies return to favour.
Commentators and newspapers continue to reiterate their concerns about the major issues facing the world, and about the difficulty politicians will have in finding and implementing solutions. These remain substantially as they have been over the past year – the sustainability of recovery, inflationary pressures, the fragile condition of public finances in many countries, and the long-term effects of some of the measures being taken. These difficulties have been complicated more recently by a sharply higher oil price, itself reflecting political turmoil in the Middle East and North Africa.
However, the majority of small companies themselves have continued to report good trading results, despite the persistent reluctance of banks to lend to them as a group. It seems likely that this will have two effects. First, it will present investment opportunities for your Company. Secondly, it will begin to reinforce distinctions between better and poorly managed companies and to the extent that they are listed companies held in the portfolio, there will be a beneficial impact on the NAV. At present, the UK economy does seem set to grow again this year and this should again provide a good background against which your Company's NAV can make progress.
Keith Richard Mullins Chairman 23 March 2011
Despite the good trading results that many AIM and other smaller companies reported in March 2010, it was not until much later in the year that prices in general started to rise. In the case of AIM, the Index then powered ahead fuelled by renewed enthusiasm for resource stocks which continue to have a disproportionate impact on the index. The small-cap index ex investment trusts showed a much more modest gain of 4.9% over the period under review, with nearly all of this being achieved towards the end. Your Company benefitted to a small degree from this recovery in share prices, which has continued into the present year. However, the start of 2009/10 was marked by the continuing aftermath of the financial crisis, the impending General Election and grave concerns about the capacity of both the global and the UK economies to recover. Even so, in the last accounts we remarked that we believed "it would be wrong to be too pessimistic", that "we have seen the beginnings of bid activity around the portfolio which is a sure sign of value" and that "recent trading statements have indicated that trading is in line with expectations or better". That was the correct investment stance a year ago and we believe that it remains so now. However, a general appreciation of the benefits for smaller company share prices had to wait until September, with the micro-cap sector that your portfolio has the greatest exposure to, inevitably the last to react.
AIM received poor press for most of the year, which was not merited by the trading performance of many companies. However, as sentiment improved progressively, so flotations and other fund raisings increased in value and in frequency. It would be overstating the position to say that by the end of November 2010, AIM had returned to normal, but at least it displayed a sense of purpose and of positive direction. AIM was attracting both new UK and overseas companies. In the twelve months to 30 November 2010, AIM raised £6.5 billion of new capital, nearly £1 billion more than in the year previously.
In the year to 30 November 2010, the AIM index rose by 30.3%. Significant contributions to this movement came from the resources sector, which produced a total return of 72% (source: Dimson and Marsh, RBS HGSC Index 2011) and together with the oil sector, these two accounted for 40% of AIM's value at the period end and therefore had a significant influence on the index's movement. Since VCTs are substantially precluded from investing in these sectors, comparisons are not really relevant. We continue to regard the FTSE Small-cap ex investment trusts index as more meaningful as a comparison, despite the fact that a VCT can not invest in any of that index's constituents. In the year to 30 November 2010 this index rose by 4.9% and in the same period the NAV of your company fell from 69.5p to 67.9p per share. However, during the year total dividends of 2.5p were paid to shareholders. This should be added back to give a year end NAV of 70.4p and a resultant performance showing a small increase in the NAV. The holders of Third AIM VCT will have had a different performance. The performance since inception of these old classes of shares is included in the table on page 1 so that shareholders can see what the NAV returns would have been as well as details of dividends paid.
This is not as good as we had hoped that it would be at the start of the year for three main reasons. First, a few holdings performed below expectations including Hasgrove, CBG Group, and Bond International Software. We believe that the managements of these companies are working to improve the present situation and that their share prices will recover in time. Second, there is still a substantial element of the portfolio where an appreciation in the share price
depends on the company management completing deals to drive the value in the investment. In cases such as Managed Support Services and Praesepe progress has been slower than first hoped, although both companies now have made acquisitions of a size to enable the businesses to progress and build value for shareholders. However, the biggest factor in the disappointing performance was the number of holdings where the newsflow was good, but the share prices did not react positively. Examples of this would be Vertu Motors, where the share price still sits at around half of net asset value despite a constant round of forecast upgrades, and Chime Communications which still sits at a discount to its peers although its shares have had a strong run since the period end.
Good performance was seen in the share price rises of Brooks Macdonald, EKF, Craneware, IS Pharma, Praesepe, Idox, Plastics Capital, Breedon Aggregates and Animalcare as well as in companies which were the subject of takeover bids.
Your portfolio is set out on page 10 of the accounts and includes holdings in Octopus Third AIM VCT at an adjusted book cost on the merger date, 12 August 2010.
We remarked a year ago that early signs of take-over activity had been seen and this was a recurring theme throughout the year. As a result we sold Research Now, Melorio, Win, Clapham House, Innovision and Mount Engineering to acquiring companies. The aggregate profit on these sales was £879,000 which can be distributed in capital dividends in the future. We also accepted part shares part cash for
Telephonetics, and we increased the resultant holding in Netcall, the acquirer. The only entire holding sold in the market, rather than to an acquirer, was Pressure Technologies, for a profit of £20,000. Clerkenwell also wound itself up and returned cash to shareholders after it failed to find a qualifying trade. We made a small loss on this investment. Since the period end, IS Pharma has announced that it is in merger talks with Sinclair Pharma. At this stage, take-over activity shows no sign of slackening.
We have added to the number of non-qualifying holdings during the second half of the year, with aggregate purchases of £1.3 million, which included more RWS, but also new holdings in Hargreaves Services, Matchtech and Immunodiagnostic Systems. The objective is to supplement the paltry returns currently on offer from cash balances.
In the interim report for Octopus IHT AIM VCT investors, it was reported that three new investments had been made, Snacktime and Access Intelligence (both qualifying holdings) and RWS (a non-qualifying holding). In the second half of the year, we have invested an aggregate £1.58 million into 3 new qualifying holdings, which were EKF Diagnostics, Netcall and Marwyn Materials, which has been renamed Breedon Aggregates. These new investments were made by both of the constituent VCTs, but the £1.58 million cost is the total for the two VCTs together.
The momentum of VCT qualifying investments has continued since the year end, and the fund has invested a further £760,000 in three more qualifying investments, Corac, Brady and Woodspeen.
The table below shows the investee companies that were disposed of in total during the year:
| Proceeds | ||||
|---|---|---|---|---|
| First | Cost of | of | Total | |
| investment | investment | investment | gain/(loss) | |
| Realisation | date | (£'000) | (£'000) | (£'000) |
| Telephonetics plc | July 2006 | 305 | 128 | (177) |
| Pressure Technologies plc | May 2007 | 381 | 401 | 20 |
| Mount Engineering plc | June 2007 | 602 | 818 | 216 |
| Clerkenwell Ventures plc | August 2007 | 63 | 43 | (20) |
| Melorio plc | October 2007 | 410 | 754 | 344 |
| Fishworks plc** | November 2007 | 184 | – | (184) |
| Research Now plc | December 2007 | 461 | 661 | 200 |
| Innovision plc | July 2009 | 120 | 234 | 114 |
| WIN plc* | August 2010 | 61 | 65 | 4 |
| Clapham House plc* | August 2010 | 33 | 34 | 1 |
*These were investments inherited from the merger with Octopus Third AIM VCT plc. The date of first investment made by Octopus Third AIM VCT plc was September 2004 for WIN plc and November 2003 for Clapham House plc.
**Fishworks plc was dissolved in the year but had already been written down to nil in previous accounts.
| Book cost | % equity | ||||||
|---|---|---|---|---|---|---|---|
| as at | Cumulative | Fair value at | % equity | held by | |||
| 30 November | change in 30 November | Movement | held by | all funds | |||
| 2010 | fair value | 2010 | in year | Second | managed by | ||
| Qualifying investments | Sector | (£'000) | (£'000) | (£'000) | (£'000) | AIM VCT | Octopus |
| IS Pharma plc | Healthcare equipment | 1,112 | 212 | 1,324 | 123 | 3.0% | 4.8% |
| Animalcare Group plc | Food producers | 924 | 313 | 1,237 | 153 | 5.3% | 9.0% |
| Craneware plc | Software | 530 | 642 | 1,172 | 457 | 0.8% | 1.5% |
| Advanced Computer Software plc | Software | 915 | 244 | 1,159 | (17) | 1.0% | 2.3% |
| EKF Diagnostics plc | Healthcare equipment | 869 | 113 | 982 | 113 | 2.7% | 8.9% |
| Brulines (Holdings) plc | Support services | 866 | (92) | 774 | (122) | 2.6% | 4.6% |
| Chime Communications plc | Media & marketing | 750 | 23 | 773 | 90 | 0.5% | 0.7% |
| Praesepe plc | Travel & leisure | 670 | 87 | 757 | 161 | 2.4% | 4.5% |
| Managed Support Services plc | Support services | 828 | (110) | 718 | (76) | 5.7% | 9.8% |
| Breedon Aggregates Limited | Construction | 601 | 100 | 701 | 100 | 0.9% | 2.3% |
| Brooks MacDonald Group plc | General financial | 600 | 97 | 697 | 97 | 0.7% | 2.8% |
| Clarity Commerce Solutions plc | Software | 651 | (21) | 630 | 18 | 4.3% | 8.3% |
| Idox plc | Software | 381 | 212 | 593 | 138 | 1.2% | 2.6% |
| Access Intelligence plc | Support services | 544 | – | 544 | – | 4.2% | 9.1% |
| Vertu Motors plc | General retailers | 777 | (233) | 544 | (41) | 0.9% | 3.6% |
| Matchtech Group plc | Support services | 442 | 50 | 492 | 50 | 1.0% | 10.4% |
| Immunodiagnostic Systems plc | Healthcare equipment | 454 | 26 | 480 | 25 | 0.2% | 2.8% |
| Plastics Capital plc | Chemicals | 485 | (52) | 433 | 159 | 2.6% | 16.5% |
| Lombard Medical Technologies plc | Healthcare equipment | 599 | (215) | 384 | 3 | 1.9% | 1.9% |
| Netcall plc | Telecommunications | 421 | (88) | 333 | (17) | 2.1% | 5.0% |
| Snacktime plc | Food & drug retailers | 367 | (55) | 312 | (55) | 1.5% | 7.3% |
| Tasty plc | Travel & leisure | 334 | (33) | 301 | (11) | 2.9% | 7.3% |
| Hargreaves Services plc | Support services | 282 | (8) | 274 | (8) | 0.1% | 2.9% |
| Hasgrove plc | Media | 436 | (170) | 266 | 58 | 2.0% | 12.0% |
| RWS Holdings plc | Support services | 249 | (17) | 232 | (17) | 0.2% | 4.1% |
| Bond International Software plc | Software | 303 | (97) | 206 | (99) | 1.1% | 3.4% |
| Omega Diagnostics Group plc | Healthcare equipment | 203 | (20) | 183 | (92) | 1.3% | 4.3% |
| Twenty plc | Media | 566 | (420) | 145 | 38 | 7.8% | 14.7% |
| Optare plc | Industrial engineering | 657 | (521) | 135 | (67) | 1.0% | 1.5% |
| Colliers International UK plc | Real estate | 196 | (63) | 132 | (63) | 0.7% | 3.1% |
| Mattioli Woods plc | General financial | 96 | 34 | 130 | 34 | 0.3% | 2.6% |
| CBG Group plc | Non-life insurance | 637 | (520) | 117 | (150) | 3.3% | 17.2% |
| Mears Group plc | Support services | 93 | 8 | 101 | 8 | 0.0% | 0.3% |
| Atlantic Global plc | Software | 119 | (23) | 97 | (22) | 3.2% | 3.2% |
| Adept Telecom plc | Telecommunications | 501 | (420) | 82 | 4 | 1.7% | 4.4% |
| Work Group plc | Support services | 473 | (395) | 79 | 15 | 2.1% | 6.2% |
| Zetar plc | Food producers | 68 | (2) | 66 | (2) | 0.2% | 3.6% |
| Jelf Group plc | General financial | 122 | (57) | 65 | 19 | 0.1% | 0.5% |
| Cello Group plc | Media | 54 | 10 | 64 | 10 | 0.2% | 9.6% |
| Strategic Thought Group plc | Software | 46 | 10 | 56 | 10 | 0.5% | 7.0% |
| Altitude Group plc | Media | 24 | 26 | 50 | 26 | 0.7% | 5.1% |
| Datong plc | Electronic equipment | 29 | 9 | 38 | 9 | 0.4% | 3.4% |
| Individual Restaurant Company plc | Travel & leisure | 160 | (132) | 28 | (4) | 0.5% | 1.1% |
| Daisy Group plc | Telecommunications | 20 | 1 | 21 | 1 | 0.0% | 0.1% |
| Media Square plc | Media | 8 | (5) | 3 | (4) | 0.2% | 1.0% |
| Total fixed asset investments | 19,462 | (1,552) | 17,910 | 1,052 | |||
| Money market funds | 6,587 | – | 6,587 | ||||
| Total fixed investments and money market funds | 24,497 | ||||||
| Cash at bank | 126 | ||||||
| Debtors less creditors | 151 | ||||||
| Total net assets | 24,774 |
Listed below are the ten largest investments by value as at 30 November 2010
IS Pharma plc is an international pharmaceutical company involved in the development and commercialisation of niche healthcare products, with a specialisation in cancer care.
| Initial investment date: | March 2008 | |
|---|---|---|
| Cost: | £1,112,000 | |
| Valuation: | £1,324,000 | |
| Equity held: | 3.0% | |
| Last audited accounts: | March 2010 | |
| Profit before tax: | £2.6 million | Further information can be found at |
| Net assets: | £30.3 million | www.ispharma.co.uk |
Animalcare Group plc manufactures and distributes veterinary medicines for pets and livestock.
| Initial investment date: | December 2007 | |
|---|---|---|
| Cost: | £924,000 | |
| Valuation: | £1,237,000 | |
| Equity held: | 5.3% | |
| Last audited accounts: | June 2010 | |
| Loss before tax: | (£0.6) million | Further information can be found at |
| Net assets: | £14.1 million | www.animalcaregroup.co.uk |
Craneware is a leading provider of software solutions that improve the financial performance of US hospital and healthcare organisations.
| Initial investment date: Cost: |
September 2007 £530,000 |
|
|---|---|---|
| Valuation: | £1,172,000 | |
| Equity held: | 0.8% | |
| Last audited accounts: | June 2010 | |
| Profit before tax: | \$7.3 million | Further information can be found at |
| Net assets: | \$22.1 million | www.craneware.com |
Advanced Computer Software plc provides software to the Healthcare Sector and other commercial markets.
Initial investment date: July 2008 Cost: £915,000 Valuation: £1,159,000 Equity held: 1.0% Last audited accounts: February 2010
Profit before tax: £4.2 million Further information can be found at Net assets: £78.5 million www.advcomputersoftware.co.uk
EKF designs, develops, manufactures and distributes diagnostic instruments and reagents focussed on the diabetes anaemia and chronic kidney disease markets. It has operations in Germany, Poland and Russia.
Initial investment date: July 2010 Cost: £869,000 Valuation: £982,000 Equity held: 2.7% Last audited accounts: December 2009
Loss before tax: (£0.3) million Further information can be found at Net assets: £5.6 million www.ekf-diagnostic.com
Brulines (Holdings) plc designs and sells fluid monitoring systems to pubs and bars. The company is the market leader in its field and manages information from over 22,000 licensed premises, over one in three pubs in the UK. The system allows the landlord to reconcile the amount of beer being dispensed against what is being delivered. It also sells monitoring systems for petrol forecourts and vending machines.
| Initial investment date: Cost: Valuation: Equity held: Last audited accounts: |
October 2006 £866,000 £774,000 2.6% |
|
|---|---|---|
| March 2010 Profit before tax: £4.0 million Net assets: £21.0 million |
Further information can be found at www.brulines.co.uk |
Chime Communications plc provides public relations, advertising, market research and direct marketing, design, event management and sports marketing for a range of clients.
| Initial investment date: | April 2008 | ||
|---|---|---|---|
| Cost: | £750,000 | ||
| Valuation: | £773,000 | ||
| Equity held: | 0.5% | ||
| Last audited accounts: | December 2009 | ||
| Profit before interest & tax: | £18.6 million | Further information can be found at | |
| Net assets: | £116.8 million | www.chime.plc.uk | |
Praesepe plc is an operator of low stake, high volume adult gaming and bingo centres in the UK.
| Initial investment date: | February 2009 |
|---|---|
| Cost: | £670,000 |
| Valuation: | £757,000 |
| Equity held: | 2.4% |
| Last audited accounts: | December 2009 |
Loss before tax: (£1.4) million Further information can be found at Net assets: £29.4 million www.praesepeplc.com
Managed Support Services plc maintains and services all types of commercial buildings on behalf of private and public sector organisations.
| Initial investment date: | February 2009 |
|---|---|
| Cost: | £828,000 |
| Valuation: | £718,000 |
| Equity held: | 5.7% |
| Last audited accounts: | March 2010 |
Loss before tax: (£4.9) million Further information can be found at Net assets: £7.6 million www.managedsupportservicesplc.com
Breedon Aggregates supplies a diverse range of products to the construction and building sectors from a number of quarries and other sites in the Midlands and Scotland, having been acquired by Marwyn Materials in September 2010.
| Initial investment date: Cost: |
August 2010 £601,000 |
||
|---|---|---|---|
| Valuation: | £701,000 | ||
| Equity held: | 0.9% | ||
| Last audited accounts: | December 2009 | ||
| Loss before tax: | (£0.8) million | Further information can be found at | |
| Net assets: | £11.9 million | www.breedonaggregates.com |
The graph below shows the sectors the Fund is invested in by value as at 30 November 2010:
The recent news of the earthquake and Tsunami in Japan added to fears of political instability in the Middle East that have resulted, in the short term, in a more volatile stock market environment. This has inevitably had an impact on share prices as the possibilities for international growth are contemplated. However, the balance of the news from your portfolio companies has continued to be positive since the year end, and the NAV has started to respond and now stands at 70.0 pence as at 14 March 2011. There were a number of opportunities to invest our cash balances in new qualifying holdings in the final quarter of 2010, and we are optimistic that these conditions will continue in 2011. There are no immediate signs that the banks want to increase their lending to small companies, and the balance seems to have swung in favour of equity fundraisings, many of which have turned out surprisingly successful in terms of the sums raised.
Our prime source of information about the direction, health and prospects of the economy derives, as you might expect, from conversations with the management teams of the companies making up your portfolio, as well as other companies in which we are invested. That provides our knowledge of the state of both corporate and personal demand, the raw material price pressures and all the other evidence we have about labour availability and wage rates, for example. We are well aware of the tendency of managements to remain optimistic for too long and to fail to recognise turning points in economic trends. However, when they are themselves part of the evidence of a turning point, the message can be very powerful: as it was this time last year. There have been recent reminders of the difficulties companies and the
UK economy face – for example, the initial GDP growth rate for the fourth quarter of 2010 being negative. However, both an elongated break over Christmas and the snow disruption have probably yet to be fully understood and early conversations with managements since January suggest that economic progress remains the order of the day.
We are not complacent about the severity of many problems ahead, nor of their magnitude. However, we are also well aware of the momentum in the economy, of the confidence of many of the managements we meet, particularly those with long term contracts from corporate customers and those with interesting product virtues.
So while we remain on the lookout for signs of increasing economic difficulty, whether that is international oil prices and political instability or domestic inflation and unemployment, as it affects individual companies in your portfolio, our fundamental belief is that smaller company shares remain undervalued and relatively unappreciated by investors. It is also true that many of the holdings in your portfolio are beginning to mature as businesses, and this is why we feel that the NAV can rise this year, despite the set back caused to share prices by the Japanese earthquake.
If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2347.
Octopus Investments Limited 23 March 2011
The Board comprises four Directors all of whom are independent of the Investment Manager. The Directors operate in a non-executive capacity and are responsible for overseeing the investment strategy of the Company. The Board has wide experience of investment in both smaller growing companies and larger quoted companies.
Keith Mullins joined SG Warburg's investment management division in 1978. The division later developed into Mercury Asset Management and subsequently became Merrill Lynch Investment Managers upon its acquisition by Merrill Lynch in 1998. He therefore has many years experience as a specialist UK equity fund manager: during this time he was responsible for establishing and managing the team specialising in small and medium sized pension fund portfolios, and from 2000 he was head of pension fund asset allocation. He left as a managing director of Merrill Lynch Investment Managers in 2001. Keith Mullins became a Director of the Company on 14 September 2005.
Andy Raynor joined RSM Tenon Group PLC ("RSM Tenon") in 2001 after its acquisition of the independent partnership formerly known as BDO Stoy Hayward – East Midlands. Following the acquisition of this business by RSM Tenon, he became finance director and, in a subsequent board reorganisation, chief executive in 2003. Prior to joining RSM Tenon, he spent almost 20 years with BDO Stoy Hayward – East Midlands, where he established the corporate finance department and held overall responsibility for business development, before becoming managing partner. Andy Raynor became a Director of the Company on 14 September 2005.
A qualified solicitor, Elizabeth has worked for nearly 30 years in corporate finance, principally in IPO, secondary issue, takeover code, UKLA sponsor and AIM nominated adviser work. She has been a member of the London Stock Exchange's AIM Advisory Group since 1995, was its chairman between 1999 and 2002 and is a member of the AIM Disciplinary Committee. Elizabeth is a divisional director in the corporate broking department of Brewin Dolphin Limited and a non executive director of F & C Private Equity Trust plc and Clean Future VCT No. 1 plc. Elizabeth Kennedy became a director of Octopus Third AIM VCT plc in February 2001 and a Director of the Company on 12 August 2010.
Alastair Ritchie is chairman of John Swan & Sons plc, which is quoted on AIM, and a director of Aberforth Geared Capital & Income Trust plc. He has considerable experience in small companies, both private and public, and has served as chairman of several companies. Alastair Ritchie became a director of Octopus Third AIM VCT plc in February 2001 and a Director of the Company on 12 August 2010.
At Octopus, we have a dual focus on managing your investments and keeping you informed throughout the investment process. We are committed to providing our investors with regular and open communication. Our updates are designed to keep you involved about the progress of your investment.
We are working hard to manage your money in the current climate. We share your goal to make money from your investment, as our money is invested alongside yours. If you have any questions about this report, or if it would help to speak to one of the fund managers, please do not hesitate to contact us on 0800 316 2347.
Octopus Investments Limited was established in 2000 and has a strong commitment to both smaller companies and to VCTs. Octopus also acts as Manager of 17 other listed investment companies and has a total of approximately £2 billion of funds under management.
The AIM investment team of Octopus Investments Limited comprises:
Andrew originally joined Barclays Bank in 1973 to manage investment portfolios. After gaining an MBA from London Business School, he spent time with Mercury Asset Management and Hoare Govett, before joining Rutherford Asset Management in 1993. He established Beacon Investment Trust in 1994, the first fund to specialise in investment in AIM. He joined Close Brothers when it purchased Rutherford and left to join Octopus in 2008. He has been involved in the management of this Company since its launch in 2006 as well as other AIM VCT portfolios.
Kate has had an extensive career which has included periods as an investment analyst with Sheppards and Chase and Panmure Gordon and then as an Investment Manager specialising in ethical and smaller companies with the Co-operative Bank and Colonial First State Investments. She joined the AIM team at Close Brothers in 2000 where she was involved in the management of this Company since its launch in 2006 as well as other AIM VCTs and IHT portfolios. She joined Octopus in 2008.
Richard started his career at Duncan Lawrie, where he managed a successful small companies fund. He subsequently joined Close Brothers to manage a smaller companies investment trust before moving to Octopus to head up the AIM team in 2004. He is involved in the management of AIM portfolios, AIM VCTs and the CF Octopus UK Microcap Growth Fund.
Edward is a portfolio manager at Octopus involved particularly in the management of AIM portfolios for private individuals. He joined Octopus in 2004 having previously worked at Schroder's and State Street.
Paul joined Octopus in 2005 as a member of the AIM investment team and has been involved in the management of AIM portfolios since then.
The Directors present their report and the audited financial statements for the year ended 30 November 2010.
The Company's independent auditor is required by law to report on whether the information given in the Directors' Report (including the Business Review) is consistent with the financial statements.The auditor's opinion is included in their report on pages 34 and 35.
The Company is a VCT and its principal activity is to invest in a diversified portfolio of AIM-listed companies in order to generate capital growth over the long-term as well as an attractive tax-free dividend stream.The Company has been granted full approval as a VCT by HMRC. In order to maintain approved status, the Company must comply on a continuing basis with the provisions of s280A of the Income Tax Act 2007; in particular, the Company is required at all times to hold at least 70% of its investments (as defined in the legislation) in VCT qualifying holdings, of which at least 30% must comprise eligible Ordinary shares. For this purpose, a "VCT qualifying holding" consists of up to £1 million invested in any one year in new shares or securities of a UK unquoted company (which may be quoted on AIM) that is carrying on a qualifying trade, and whose gross assets at the time of investment do not exceed a prescribed limit.The definition of "qualifying trade" excludes certain activities such as property investment and development, financial services and asset leasing.
The Company has been approved by HMRC as a VCT in accordance with Part 6 of the Income Tax Act 2007. In the opinion of the Directors, the Company has conducted its affairs so as to enable it to continue to obtain such approval. Approval for the year ended 30 November 2010 is subject to review should there be any subsequent enquiry under corporation tax self assessment.
Under current tax legislation, shares in the Company provide tax free capital growth and income distribution, in addition to the income tax relief some investors would have obtained when they invested at the time of the initial fundraising.
To allow the Company to distribute realised capital gains and purchase its own shares, following the creation of the Special distributable reserve on cancellation of the Company's share premium account, Investment company status was revoked on 16 July 2008.The Directors are required by the Articles of Association to propose an Ordinary Resolution at the Company's Annual General Meeting in 2011 that the Company should continue as a VCT for a further five year period and at each fifth subsequent Annual General Meeting thereafter. If any such Resolution is not passed, the Directors shall within four months convene a general meeting to consider the proposals for the reorganisation or winding-up of the Company.
The Directors are required by s417 of the Companies Act 2006 to include a Business Review to shareholders.The Business Review is set out below but also includes the Chairman's Statement on pages 5 to 6 and the Investment Manager's Review on pages 7 to 15.
The purpose of this Review is to provide information about the main trends and factors likely to affect the future development, performance and position of the Company.
In August 2010, shareholders of the Company and Octopus Third AIM VCT plc ("Third AIM") were sent proposals outlining a merger of the two Octopus VCTs to be implemented by Third AIM being placed into members' voluntary liquidation and its assets and liabilities being purchased by the Company.
The merger was approved by shareholders of both companies at extraordinary general meetings held on 4 August 2010. The merger was effected by issuing Ordinary shares of the Company to the then shareholders of Third AIM at a ratio of 0.48356191. This meant that for every share held by shareholders of Third AIM, they received 0.48356191 shares in Second AIM. Any fraction of shares arising from the calculations was rounded down to the nearest whole share.
Upon the merger, Octopus Second AIM VCT was renamed Octopus Third AIM VCT and Octopus IHT AIM VCT was renamed Octopus Second AIM VCT.
As a VCT, the Company's objective is to provide shareholders with an attractive income and capital return by investing its funds in a broad spread of unquoted UK companies which meet the relevant criteria for VCTs.The Board has a number of performance measures to assess the Company's success in meeting its objectives. Performance, measured by the change in NAV per share and total return per share, is also measured against the FTSE Small-Cap Index and the FTSE All-Share Index.This is shown in the graphs on page 31 of the Directors' Remuneration Report.These indices have been adopted as an informal benchmark. Investment performance, cash returned to shareholders and share price are also measured against the Company's peer group of the other AIM VCTs.The Chairman's Statement, on pages 5 to 6 includes a review of the Company's activities and future prospects; further details are also provided within the Investment Manager's Review on pages 7 to 15. Further details of the Company's risk management policies are provided in note 17 to the financial statements.The total expense ratio for the Company for the year to 30 November 2010 was 3.4% based upon average net assets throughout the year (2009: 3.0%).Total running costs are capped at 3.5% of net assets.
| Year ended | Year ended | |
|---|---|---|
| 30 November 2010 30 November 2009 | ||
| £'000 | £'000 | |
| Net profit attributable to shareholders |
1,281 | 1,484 |
| Appropriations: Final dividend proposed 1.65p per Ordinary |
||
| (2009 – 1p) per Ordinary share |
610 | 154 |
The objective of the Company is to invest in a broad range of AIM or PLUS quoted companies in order to generate income and long-term capital growth. Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value. Start-up companies will usually be avoided.
The Company's investment policy has been designed to enable it to comply with the VCT qualifying conditions. The Board intends that the long-term disposition of the Company's assets will be not less than 80 per cent in a portfolio of qualifying AIM, PLUS quoted investments or unquoted companies where the management view an initial public offering ('IPO') on AIM or PLUS a short to medium term objective. Once its qualifying target has been reached, the Company intends that approximately 20% of its funds will be invested in non-qualifying investments generally comprising gilts, floating rate securities and short term money market deposits with, or issued, by major companies and institutions with a minimum Moody's long term debt rating of 'A'. A proportion of the 20% could be invested in an authorised UK smaller company fund managed by Octopus or direct in equities and bonds. This 20% could provide a reserve of liquidity which should maximise the Company's flexibility as to the timing of investment acquisitions and disposals, dividend payments and share buy-backs.
Risk is spread by investing in a number of different businesses across a range of industry sectors using a mixture of securities. In order to qualify as an investment in a VCT qualifying holding, at no time during the year must the Company's holdings in any one company (other than another VCT) exceed 15% by value of its investments.The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale. However, shareholders should be aware that the Company's qualifying investments are held with a view to longterm capital growth as well as income and will often have limited marketability; as a result it is possible that individual holdings may grow in value to the point where they represent a significantly higher proportion of total assets prior to a realisation opportunity being available. Investments will normally be made using the Company's equity shareholders' funds and it is not intended that the Company will take on any long-term borrowings.
The Company's Articles permit borrowings of amounts up to 10% of the sum equal to the aggregate of the amount paid up on the allotted or issued share capital of the Company and the amount standing to the credit of the capital and revenue reserves of the Company (whether or not distributable) after adding thereto or deducting there from any balance to the credit or debit of the profit and loss account.
No material changes may be made to the Company's investment policy described above without the prior approval of shareholders by the passing of an Ordinary Resolution.The Directors will continually monitor the investment process and ensure compliance with the investment policy.
The Board carries out a regular review of the risk environment in which the Company operates.The main areas of risk identified by the Board are as follows:
VCT qualifying status risk: the Company is required at all times to observe the conditions laid down in the Income Tax Act 2007 for the maintenance of approved VCT status.The loss of such approval could lead to the Company losing its exemption from corporation tax on capital gains, to investors being liable to pay income tax on dividends received from the Company and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment.The Investment Manager keeps the Company's VCT qualifying status under continual review and reports to the Board regularly throughout the year.The Board has also retained PricewaterhouseCoopers LLP to undertake an independent VCT status monitoring role.
Investment risk: the majority of the Company's investments are in AIM or PLUS companies that are VCT qualifying holdings, which by their nature entail a higher level of risk and lower liquidity than investments in large quoted companies.The Directors and the Manager aim to limit the risk attached to the portfolio as a whole by careful selection and timely realisation of investments, by carrying out rigorous due diligence procedures and by maintaining a wide spread of holdings in terms of financing stage, industry sector and geographical location.The Board reviews the investment portfolio with the Manager on a regular basis.
Financial risk: By its nature, as a VCT, the Company is exposed to market price risk, credit risk, liquidity risk, fair value and cash flow interest rate risks. All of the Company's income and expenditure is denominated in sterling and hence the Company has no foreign currency risk. The Company is financed through equity and does not have any borrowings. The Company does not use derivative financial instruments.
Credit risk: Credit risk is the risk that the 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.
Regulatory risk: the Company is required to comply with the Companies Act, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
Internal control risk: the Board reviews annually the system of internal controls, both financial and nonfinancial, operated by the Company and the Manager. These include controls designed to ensure that the Company's assets are safeguarded and that proper accounting records are maintained.
Competitive Risk: retention of key personnel is vital to the success of the Company. Incentives to the Manager's key staff are continuously monitored by the Investment Manager.
Due to the nature of the Company, environmental, social and employee issues do not apply and therefore no disclosures in respect of these have been included in the Directors' Report.
Further details of the Company's risk management policies are provided in note 17 to the financial statements.
The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies appropriately the principles detailed in the 'Turnbull' guidance. Details of the Company's internal controls are contained in the Corporate Governance section on pages 25 to 29.
Elizabeth Kennedy and Alastair Ritchie were appointed on 12 August 2010 following the completion of the merger with Third AIM. On the same date Christopher Holdsworth Hunt resigned as a Director.
The Directors of the Company during the year and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued Ordinary shares of 0.01p are shown in the table below:
| Ordinary shares | Ordinary shares | |
|---|---|---|
| of 0.01p each | of 0.01p each | |
| 30 November 2010 | 30 November 2009 | |
| Keith Richard | ||
| Mullins | 50,000 | 50,000 |
| Andrew Paul | ||
| Raynor | 20,700 | 20,700 |
| Alastair James | ||
| Ritchie | 31,809 | – |
| Elizabeth Anita | ||
| Kennedy | 37,380 | – |
| Christopher | ||
| Holdsworth Hunt | – | 51,500 |
All of the Directors' shares were held beneficially. There have been no changes in the Directors' share interests between 30 November 2010 and the date of this report.
In addition to the shares held in the VCT, Keith Mullins also holds shares in Adept Telecom plc and Vertu Motors both investee Companies of the VCT.
Elizabeth Kennedy and Alastair Ritchie retire in accordance with the Articles of Association, and being eligible, offer themselves for re-election.The Board has considered provision A.7.2 of the Combined Code 2008 and believes that they continue to be effective and demonstrate commitment to their roles.They, therefore, recommend their re-election at the forthcoming Annual General Meeting.
Brief biographical notes on the Directors are given on page 16.
The Company has, as permitted by s236 of the Companies Act 2006, maintained insurance cover on behalf of the Directors and Secretary indemnifying them against certain liabilities which may be incurred by them in relation to the Company.
Octopus Investments Limited ('the Manager') acts as Investment Manager to the Company.The principal terms of the Company's management agreement with Octopus are set out in note 3 to the financial statements.The Manager also provides secretarial, administrative and custodian services to the Company. The Managers are not entitled to any performance fee.
As required by the Listing Rules, the Directors confirm that, in their opinion, the continuing appointment of Octopus as Investment Manager is in the best interest of the shareholders as a whole. In reaching this conclusion the Directors have taken into account the performance of the investment portfolio and the efficient and effective service provided by Octopus to the Company.
During the year 20,489,637 (2009: 8,984,075 A) Ordinary shares were issued as a result of the merger at a deemed issue price of 63.20p per share (2009: B Ordinary shareholders converting their B Ordinary shares into A Ordinary shares on a 1 for 1 basis). A further 951,343 shares were issued through the offer. At the date of this report, the Company was open for offers.
During the year, the Company purchased 705,334 shares for a weighted average price of 59p per share (2009: 659,644 shares for a weighted average price of 60p per share) for total consideration of £416,454 (2009: £397,760). These shares were cancelled. They were repurchased in accordance with the Company's share buy-back facility in an attempt to assist the marketability of the shares and prevent the shares
trading at a wide discount to the NAV. During the year, 840,019 Ordinary shares, previously held in Treasury, were cancelled. (2009: 17,680,650 B Ordinary shares).
A person may be appointed as a Director of the Company by the shareholders in a general meeting by Ordinary Resolution (requiring a simple majority of the persons voting on the relevant Resolution) or by the Directors: no person, other than a Director retiring by rotation or otherwise, shall be appointed or reappointed a Director at any general meeting unless he or she is recommended by the Directors or, not less than seven nor more than 42 clear days before the date appointed for the meeting, notice is given to the Company of the intention to propose that person for appointment or re-appointment in the form and manner set out in the Company's Articles of Association. Each Director who is appointed by the Directors (and who has not been elected as a Director of the Company by the members at a general meeting held in the interval since his or her appointment as a Director of the Company) is to be subject to election as a Director of the Company by the members at the first Annual General Meeting of the Company following his or her appointment. At each Annual General Meeting of the Company onethird of the Directors for the time being, or if their number is not three or an integral multiple of three the number nearest to but not exceeding one-third, are to be subject to re-election.The Companies Act allows shareholders in a general meeting by Ordinary Resolution (requiring a simple majority of the persons voting on the relevant Resolution) to remove any Director before the expiration of his or her period of office, but without prejudice to any claim for damages which the Director may have for breach of any contract of service between him or her and the Company. A person also ceases to be a Director if he or she resigns in writing, ceases to be a Director by virtue of any provision of the Companies Act, becomes prohibited by law from being a Director,
becomes bankrupt or is the subject of a relevant insolvency procedure, or becomes of unsound mind, or if the Board so decides following at least six months' absence without leave or if he or she becomes subject to relevant procedures under the mental health laws, as set out in the Company's Articles of Association.
As the Company is not part of a group it is not mandatory for it to comply with International Financial Reporting Standards.The Company does not anticipate that it will voluntarily adopt International Financial Reporting Standards in the short term. However, in accordance with the "Future of UK GAAP" project, as a publicly accountable entity, the Company will be required to report under full IFRS when this is implemented. This is not expected to have a significant impact upon the balances included in the financial statements, but will give rise to significant changes in presentational information and disclosures.
The Company's payment policy for the forthcoming financial year is to agree terms of payment before business is transacted and to settle accounts in accordance with those terms.The Company does not follow any code or standard with regard to creditor payment practice. At 30 November 2010 there were no trade creditors (2009: £nil).
The Company's business activities and the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and Investment Manager's Review on pages 7 to 15. Further details on the management of financial risk may be found in note 17 to the Financial Statements.
The Board receives regular reports from the Investment Manager and the Directors have a reasonable expectation that the VCT has adequate resources to continue in operational existence for the foreseeable future. Thus, as no material uncertainties leading to significant doubt about going concern have
been identified, it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
As at the date of this report, no disclosures of major shareholdings had been made to the Company under Disclosure and Transparency Rule 5 (Vote Holder and Issuer Notification Rules).
Notice convening the 2011 Annual General Meeting of the Company and a form of proxy in relation to the meeting can each be found at the end of this document. In addition to the ordinary business and the re-appointment of the auditors, the following special business will also be proposed. Resolutions proposed as ordinary resolutions will require more than 50% of the votes cast at the meeting being in favour and resolutions proposed as special resolutions will require at least 75% of the votes cast being in favour.
PKF (UK) LLP offer themselves for re-appointment as auditor. A resolution to re-appoint PKF (UK) LLP as auditor and to authorise the Directors to fix their remuneration will be proposed at the forthcoming Annual General Meeting.
So far as each of the Directors at the time the report is approved are aware:
The authority proposed under Resolution 7 is required so that the Directors may issue shares in connection with the current offer or other offers if the Directors believe this to be in the best interests of
the Company and the Shareholders as a whole. Any issue proceeds will be available for investment in line with the Company's investment policy and may be used, in whole or part, to purchase Ordinary shares in the market. Resolution 7 renews the Directors' authority to allot up to 17,198,488 Ordinary shares (representing approximately 45% of the Company's issued share capital at 17 March 2011 – the latest practicable date before publication of this document). The authority conferred by this resolution will expire on the earlier of the next Annual General Meeting and the date falling 15 months after the date of the passing of the resolution.
Resolution 8 renews and extends the Directors' authority to allot equity securities for cash without pre-emption rights applying for the allotment of shares authorised pursuant to Resolution 7 and for the same reasons. The authority conferred by this resolution will expire on the earlier of the next Annual General Meeting and the date falling 15 months after the date of the passing of the resolution.
The authority proposed under Resolution 9 is required so that the Directors may make purchases of up to approximately 10% of the Company's expected issued share capital following closure of the current offer and Resolution 9 seeks renewal of such authority. The price paid for shares will not be less
than the nominal value nor more than the maximum amount permitted to be paid in accordance with the rules of the UK Listing Authority in force as at the date of purchase and the Buyback and Stabilisation Regulations 2003. This power will be exercised only if, in the opinion of the Directors, a repurchase would be in the best interests of shareholders as a whole. Any shares repurchased under this authority will be cancelled. The authority conferred by this resolution will expire on the earlier of the next Annual General Meeting and the date falling 15 months after the date of the passing of the resolution.
The Board propose to put a resolution to shareholders annually to continue as a VCT for the following six-year period. This period is designed to accommodate Shareholders who invest in new shares for whom income tax relief requires a five year holding period.
By order of the Board
Celia L Whitten FCIS Company Secretary 23 March 2011
The Board of Octopus Second AIM VCT plc has considered the principles and recommendations of the Association of Investment Companies Code of Corporate Governance (AIC Code) by reference to the Association of Investment Companies Corporate Governance Guide for Investment Companies (AIC Guide).The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the 2008 Combined Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.The Board considers that reporting against principles and recommendations of the AIC Code, by reference to the AIC Guide (which incorporates the Combined Code), will provide better information to shareholders.
The Company is committed to maintaining high standards in corporate governance. The Directors consider that the Company has, throughout the year under review, complied with the provisions set out in the 2008 Combined Code on Corporate Governance with the exceptions set out in the Compliance Statement on page 29.
There are no restrictions on the transfer of securities or on voting rights known to the Company.
The Company's issued share capital as at 30 November 2010 was £3,624 divided into 36,244,288 shares of 0.01p each. There were no shares held in Treasury. Subject to any suspension or abrogation of rights pursuant to relevant law or the Company's Articles of Association, the Ordinary shares confer on their holders (other than the Company in respect of any Treasury shares) the following principal rights:
The holders of the Ordinary shares shall be entitled to receive profits resolved to be distributed and paid as dividend out of the
income derived from the assets attributable to the Ordinary shares net of the expenses and liabilities attributed to such assets in accordance with Article 3.9. In the case of a final dividend in an amount not exceeding the amount recommended by the Board as approved by shareholders in a general meeting or in the case of an interim dividend in an amount determined by the Board. All dividends unclaimed for a period of 12 years after having become due for payment are forfeited automatically and cease to remain owing by the Company;
The holders of the Ordinary shares shall be entitled to the surplus assets attributable to the Ordinary shares after payment of such proportion of the Company's liabilities, including the fees and expenses of a liquidation or other return of capital, as the Directors or liquidator shall reasonably attribute to the assets attributable to the Ordinary shares.
All Ordinary shares shall rank pari passu with each other as to rights to receive notice of, to attend and to vote at any general meeting of the Company.The holders of the Ordinary shares shall be entitled to notice of any general meeting at which such a Resolution or special Resolution is to be proposed. On a show of hands, every eligible member present or represented and voting has one vote and, on a poll, every member present or represented and voting has one vote for every share of which that member is the holder; the appointment of a proxy must be received not less than 48 hours before the time of the holding of the relevant meeting or adjourned meeting or, in the case of a poll taken otherwise than at or on the same day as the relevant meeting or adjourned meeting, be received after the poll has been demanded and not less than 24 hours before the time
appointed for the taking of the poll. These rights can be suspended. If a member, or any other person appearing to be interested in shares held by that member, has failed to comply within the time limits specified in the Company's Articles of Association with a notice pursuant to s793 of the Companies Act 2006 (notice by the Company requiring information about interests in its shares), the Company can until the default ceases suspend the right to attend and speak and vote at a general meeting and if the shares represent at least 0.25% of their class the Company can also withhold any dividend or other money payable in respect of the shares (without any obligation to pay interest) and refuse to accept certain transfers of the relevant shares. Shareholders, either alone or with other shareholders, have other rights as set out in the Company's Articles of Association and in company law.
A member may choose whether his shares are evidenced by share certificates (certificated shares) or held in electronic (uncertificated) form in CREST (the UK electronic settlement system). Any member may transfer all or any of his shares, subject in the case of certificated shares to the rules set out in the Company's Articles of Association or in the case of uncertificated shares to the regulations governing the operation of CREST (which allow the Directors to refuse to register a transfer as therein set out); the transferor remains the holder of the shares until the name of the transferee is entered in the Register of Members. The Directors may refuse to register a transfer of certificated shares in favour of more than four persons jointly or where there is no adequate evidence of ownership or the transfer is not duly stamped (if so required).The Directors may also refuse to register an Ordinary share transfer if it is in respect of a certificated share which is not fully paid up or on which the Company has a lien provided that, where the share transfer is in respect of any share
admitted to the Official List maintained by the UK Listing Authority, any such discretion may not be exercised so as to prevent dealings taking place on an open and proper basis, or if, in the opinion of the Directors (and with the concurrence of the UK Listing Authority), exceptional circumstances so warrant, provided that the exercise of such power will not disturb the market in those shares.Whilst there are no squeeze-out and sell-out rules relating to the shares in the Company's Articles of Association, shareholders are subject to the compulsory acquisition provisions in s974 to s991 of the Companies Act 2006.
The Company has a Board of four non-executive Directors, all of whom are considered to be independent.The Board meets regularly on a quarterly basis, and on other occasions as required, to review the investment performance and monitor compliance with the investment policy laid down by the Board. The Board has a formal schedule of matters specifically reserved for its decision which include:
The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives. The Chairman is responsible for organising the business of the Board, ensuring its effectiveness and
setting its agenda and has no involvement in the day to day business of the Company. He facilitates the effective contribution of the Directors and ensures that they receive accurate, timely and clear information and that they communicate effectively with shareholders.
The Company Secretary is responsible for advising the Board through the Chairman on all governance matters. All of the Directors have access to the advice and services of the Company Secretary, who has administrative responsibility for the meetings of the Board and its committees. Directors may also take independent professional advice at the Company's expense where necessary in the performance of their duties. As all of the Directors are non-executive, it is not considered appropriate to identify a member of the Board as the senior non-executive Director of the Company.
The Company's Articles of Association and the schedule of matters reserved to the Board for decision provide that the appointment and removal of the Company Secretary is a matter for the full Board.
During the year the following were held:
| Four full Board meetings | Two Audit Committee meetings |
|---|---|
| All members attended | All members attended |
| with the exception of | with the exception of |
| Andy Raynor who was | Christopher Holdsworth |
| unable to attend two of | Hunt who was unable to |
| the meetings. | attend one of the |
| meetings. |
Additional meetings were held as required to address specific issues including considering recommendations from the Investment Manager and approval of documentation to shareholders. A brief biographical summary of each Director is given on page 16.
The Company's Articles of Association require that one third of Directors should retire by rotation each year and seek re-election at the Annual General Meeting and that Directors appointed by the Board should seek re-appointment at the next Annual
General Meeting. All Directors are required to submit themselves for re-election at least every three years. This practice was followed during the year under review.
The Board has appointed one committee to make recommendations to the Board in a specific area:
The Audit Committee, chaired by Andrew Raynor, consists of the four independent Directors. The Audit Committee believes Andrew Raynor possesses appropriate and relevant financial experience as per the requirements of the Combined Code.The Board considers that the members of the Committee are independent and have collectively the skills and experience required to discharge their duties effectively.
The Audit Committee's terms of reference include the following roles and responsibilities:
The Committee reviews its terms of reference and its effectiveness annually and recommends to the Board any changes required as a result of the review.The terms of reference are available on request from the Company Secretary.The Committee meets twice per year and has direct access to PKF (UK) LLP, the Company's external auditor.
The Company does not have an independent internal audit function as it is not deemed appropriate given the size of the Company and the nature of the Company's business. However, the Committee considers annually whether there is a need for such a function and if so would recommend this to the Board.
During the year ended 30 November 2010, the Audit Committee discharged its responsibilities by:
reviewing Octopus' statement of internal controls and compliance procedures in relation to the Company's business and assessing the effectiveness of those controls in minimising the impact of key risks;
reviewing periodic reports on the effectiveness of Octopus's compliance procedures;
The Directors have overall responsibility for keeping under review the effectiveness of the Company's systems of internal controls. The purpose of these controls is to ensure that proper accounting records are maintained, the Company's assets are safeguarded and the financial information used within the business and for publication is accurate and reliable; such a system can only provide reasonable and not absolute assurance against material misstatement or loss. The system of internal controls, under Turnbull guidance is designed to manage rather than eliminate the risk of failure to achieve the business objectives.The Board regularly reviews financial results and investment performance with its Investment Managers.
The Board delegates the identification of appropriate opportunities and the investment of funds to Octopus. The Board regularly reviews reports upon the investments made and on the status of existing investments.
Octopus is engaged to carry out the accounting function and all quoted investments are held in CREST.
The Directors confirm that they have established a continuing process throughout the year and up to the date of this report for identifying; evaluating and managing the significant potential risks faced by the Company and have reviewed the effectiveness of the internal control systems. As part of this process an annual review of the internal control systems is carried out in accordance with the Financial Reporting Council guidelines for internal control. The Board does not consider it necessary to maintain a separate internal audit function.
The Company is exposed to the risks arising from its operational and investment activities. Further details can be found in note 17 to the financial statements.
Shareholders have the opportunity to meet the Board at the Annual General Meeting. In addition to the formal business of the Annual General Meeting, the Board is available to answer any questions shareholders may have.
The Board is also happy to respond to any written queries made by shareholders during the course of the year and can be contacted at 20 Old Bailey, London EC4M 7AN. Alternatively, the team at Octopus is happy to answer any questions you may have and can be contacted on 0800 316 2347.
The Listing Rules require the Board to report on compliance with the 48 Combined Code provisions throughout the accounting year. The preamble to the Combined Code does, however, acknowledge that some provisions may have less relevance for investment companies.With the exception of the limited items outlined below, the Company has complied throughout the accounting year to 30 November 2010 with the provisions set out in the 2008 Combined Code.
By order of the Board
Celia L Whitten FCIS Company Secretary 23 March 2011
This report is submitted in accordance with s421 of the Companies Act 2006, in respect of the year ended 30 November 2010. An Ordinary Resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting.
The Company's auditors, PKF (UK) LLP, are required to give their opinion on certain information included in this report; this comprises the Directors' emoluments section below only. Their report on these and other matters is set out on pages 34 and 35.
The Board as a whole considers Directors' remuneration and has not appointed a separate committee in this respect. The Board has not sought advice or services from any person in respect of its consideration of Directors' remuneration during the year (although the Directors expect from time to time to review the fees against those paid to the boards of directors of other VCTs).
The Board consists entirely of non-executive Directors, who meet at least four times a year and on other occasions as necessary, to deal with the important aspects of the Company's affairs. Directors are appointed with the expectation that they will serve for, at least, a period of three years. All Directors retire at the first General Meeting after election and thereafter one third of all Directors are subject to retirement by rotation at subsequent Annual General Meetings. Re-election will be recommended by the Board but dependent upon shareholder vote.
Each Director received a letter of appointment. A Director may resign by notice in writing to the Board at any time. None of the Directors are entitled to compensation payable upon early termination of their contract other than in respect of any unexpired notice period.
The Company's policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors. They should be sufficient to attract candidates of high calibre to be recruited. The policy is for the Chairman of the Board to be paid higher fees than the other Directors in recognition of his more onerous role. The policy is to review these rates from time to time, although such review will not necessarily result in any changes.
The Company's policy is for the Directors to be remunerated in the form of fees, payable quarterly in arrears. The fees are not specifically related to the Directors' performance, either individually or collectively. There are no long-term incentive schemes, share option schemes or pension schemes in place. No other remuneration or compensation was paid or payable by the Company during the year to any of the current Directors.
The Board is responsible for the Company's investment strategy and performance, although the management of the Company's investment portfolio is delegated to the Investment Manager through the investment management agreement, as referred to in the Directors' Report on pages 18 to 24. The graph below compare the share price, NAV and total return (NAV assuming the re-investment of all dividends plus 40% upfront tax relief)) of the relevant company over the period from 1 March 2006 to 30 November 2010 with the total return from notional investments in the FTSE All-Share index and the FTSE Small-Cap over the same period. These indices are considered to be the most appropriate broad equity market indices for comparative purposes. However, the Directors wish to point out that VCTs are not able to make qualifying investments in companies quoted on the main market in their observance of the VCT rules.
Investors originally investing into Octopus Second AIM VCT 'C' & 'D' shares
The total expense ratio for the Company for the year to 30 November 2010 was 3.4% based upon average net assets throughout the year (2009: 2.8%). Total running costs are capped at 3.5% of net assets.
| Year ended | Year ended | |
|---|---|---|
| 30 November 2010 | 30 November 2009 | |
| Keith Richard Mullins | £16,000 | £16,000 |
| Christopher Holdsworth Hunt | £12,367 | £13,000 |
| Andrew Paul Raynor | £13,000 | £13,000 |
| Elizabeth Anita Kennedy | £3,950 | – |
| Alastair James Ritchie | £3,950 | – |
| Total | £49,267 | £42,000 |
Although the Directors' fees in total are greater in 2010 than in 2009, the merger has created overall savings across the two companies of circa £125,000. This compares favourably to the estimated cost savings of £120,000 as detailed in the prospectus.
The table below shows the cost savings in relation to the Directors fees on an annualised basis:
| Octopus | Octopus | Total annual | Octopus | ||
|---|---|---|---|---|---|
| Third AIM | Second AIM | directors costs | Second AIM Overall annual | ||
| pre-merger | pre-merger | pre-merger | post-merger | cost savings | |
| Keith Richard Mullins | – | £16,000 | £16,000 | £16,000 | – |
| Andrew Paul Raynor | – | £13,000 | £13,000 | £13,000 | – |
| Christopher Holdsworth Hunt | – | £13,000 | £13,000 | – | £13,000 |
| Elizabeth Anita Kennedy | £16,000 | – | £16,000 | £13,000 | £3,000 |
| Alastair James Ritchie | £13,000 | – | £13,000 | £13,000 | – |
| Aubrey Thomas Brocklebank | £13,000 | – | £13,000 | – | £13,000 |
| Total | £42,000 | £42,000 | £84,000 | £55,000 | £29,000 |
The Directors do not receive any other form of emoluments in addition to the Directors' fees.
By Order of the Board
Celia L Whitten FCIS Company Secretary 23 March 2011
The Directors are responsible for preparing the Directors' Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services Authority.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.
The Directors confirm, to the best of their knowledge, that:
The names and functions of all the Directors are stated on page 16.
On Behalf of the Board
Keith Richard Mullins Chairman 23 March 2011
We have audited the financial statements of Octopus Second AIM VCT plc for the year ended 30 November 2010 which comprise the Income Statement, the Balance Sheet, the Reconciliation of Movements in Shareholders' Funds, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
In our opinion the financial statements:
In our opinion:
We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
(Senior statutory auditor) for and on behalf of PKF (UK) LLP Statutory auditors London, UK 23 March 2011
| Year to 30 November 2010 | ||||
|---|---|---|---|---|
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Gain on disposal of fixed asset investments | 11 | – | 601 | 601 |
| Gain on disposal of current asset investments | 12 | – | 8 | 8 |
| Gain on valuation of fixed asset investments | 11 | – | 1,052 | 1,052 |
| Gain on valuation of current asset investments | 12 | – | – | – |
| Investment Income | 2 | 182 | – | 182 |
| Investment management fees | 3 | (71) | (213) | (284) |
| VAT management fee rebate | 3 | – | – | – |
| Merger costs | 6 | (68) | – | (68) |
| Other expenses | 4 | (210) | – | (210) |
| (Loss)/profit on ordinary activities before tax | (167) | 1,448 | 1,281 | |
| Taxation on (loss)/profit on ordinary activities | 7 | – | – | – |
| (Loss)/profit on ordinary activities after tax | (167) | 1,448 | 1,281 | |
| Earnings per share – basic and diluted | 9 | (0.8p) | 6.7p | 5.9p |
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of recognised gains and losses is not required.
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the profit as stated above and at historical cost.
| Year to 30 November 2009 | ||||
|---|---|---|---|---|
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Gain on disposal of fixed asset investments | – | 903 | 903 | |
| Gain on disposal of current asset investments | – | 68 | 68 | |
| Gain on valuation of fixed asset investments | – | 642 | 642 | |
| Gain on valuation of current asset investments | – | 111 | 111 | |
| Investment Income | 2 | 195 | – | 195 |
| Investment management fees | 3 | (65) | (196) | (261) |
| VAT management fee rebate | 3 | 12 | 37 | 49 |
| Other expenses | 4 | (218) | – | (218) |
| (Loss)/profit on ordinary activities before tax | (76) | 1,565 | 1,489 | |
| Taxation on (loss)/profit on ordinary activities | 7 | (5) | – | (5) |
| (Loss)/profit on ordinary activities after tax | (81) | 1,565 | 1,484 | |
| Earnings per share – basic and diluted | 9 | (0.4)p | 7.8p | 7.4p |
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of recognised gains and losses is not required.
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the profit as stated above and at historical cost.
| As at | As at | ||||
|---|---|---|---|---|---|
| 30 November 2010 | 30 November 2009 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 11 | 17,910 | 8,632 | ||
| Current assets: | |||||
| Investments* | 12 | 6,587 | 1,838 | ||
| Debtors | 13 | 211 | 249 | ||
| Cash at bank | 126 | 186 | |||
| 6,924 | 2,273 | ||||
| Creditors: amounts falling due within one year | 14 | (60) | (122) | ||
| Net current assets | 6,864 | 2,151 | |||
| Net assets | 24,774 | 10,783 | |||
| Called up equity share capital | 15 | 4 | 2 | ||
| Shares to be issued | 15 | 154 | – | ||
| Share premium | 16 | 13,658 | – | ||
| Special distributable reserve | 16 | 13,481 | 14,364 | ||
| Capital reserve realised | 16 | (807) | (305) | ||
| Capital reserve un-realised | 16 | (1,552) | (2,814) | ||
| Own shares held in Treasury | 16 | – | (467) | ||
| Revenue reserve | 16 | (164) | 3 | ||
| Total equity shareholders' funds | 24,774 | 10,783 | |||
| Net asset value per share – basic and diluted | 10 | 67.9p | 69.5p |
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 23 March 2011 and are signed on their behalf by:
Keith Richard Mullins Chairman
Company No: 05528235
| Notes | Year ended 30 November 2010 £'000 |
Year ended 30 November 2009 £'000 |
|
|---|---|---|---|
| Shareholders' funds at start of year | 10,783 | 16,049 | |
| Profit on ordinary activities after tax | 1,281 | 1,484 | |
| Distribution in Specie | 8 | – | (5,644) |
| Shares issued upon acquisition of assets and | |||
| liabilities from Octopus Third AIM VCT plc | 16 | 13,084 | – |
| Stamp duty on shares issued | 16 | (57) | – |
| Share capital bought back | (416) | (703) | |
| Issue of shares | 633 | – | |
| Shares to be issued | 154 | – | |
| Dividends paid | 8 | (688) | (403) |
| Shareholders' funds at end of year | 24,774 | 10,783 |
| Year to 30 November 2010 £'000 |
Year to 30 November 2009 £'000 |
|
|---|---|---|
| Net Cash outflow from operating activities | (404) | (125) |
| Taxation: UK Corporation tax paid | – | (9) |
| Financial investment | ||
| Purchase of investments | (2,917) | (2,865) |
| Disposal of investments | 3,551 | 1,846 |
| Management of liquid resources | ||
| Purchase of current asset investments | (13,238) | (2,340) |
| Sale of current asset investments | 8,497 | 4,607 |
| Net cash (outflow)/inflow from investing activities | (4,511) | 1,114 |
| Equity dividends paid | ||
| Distribution in Specie | – | (249) |
| Other dividends paid | (688) | (403) |
| Net cash (outflow)/inflow before financing | (5,199) | 462 |
| Financing | ||
| Cash received on acquisition of net assets of Octopus | ||
| Third AIM VCT plc | 4,825 | – |
| Stamp duty on shares issued to acquire net assets of Octopus | ||
| Third AIM VCT plc | (57) | – |
| Proceeds from issue of shares | 633 | – |
| Shares to be issued | 154 | – |
| Purchase of own shares | (416) | (703) |
| Net cash inflow/(outflow) from financing | 5,139 | (703) |
| Decrease in cash | (60) | (241) |
| Year to | Year to | ||
|---|---|---|---|
| 30 November 2010 | 30 November 2009 | ||
| Note | £'000 | £'000 | |
| Profit on ordinary activities before tax | 1,281 | 1,489 | |
| Gain on disposal of current asset investments | 12 | (8) | (68) |
| Gain on disposal of fixed asset investments | 11 | (601) | (903) |
| Gain on valuation of fixed asset investments | 11 | (1,052) | (111) |
| Gain on valuation of current asset investments | 12 | – | (642) |
| Decrease in debtors | 13 | 38 | 44 |
| (Decrease)/increase in creditors | 14 | (62) | 66 |
| (Outflow)/inflow from operating activities | (404) | (125) |
| Year to | Year to | ||
|---|---|---|---|
| 30 November 2010 | 30 November 2009 | ||
| Note | £'000 | £'000 | |
| Decrease in cash at bank | (60) | (241) | |
| Movement in cash equivalent securities | 12 | 4,749 | (3,211) |
| Opening net liquid resources | 2,024 | 5,476 | |
| Net liquid resources at 30 November | 6,713 | 2,024 |
| Year to | Year to | ||
|---|---|---|---|
| 30 November 2010 | 30 November 2009 | ||
| Note | £'000 | £'000 | |
| Cash at bank | 126 | 186 | |
| Money market cash funds | 12 | 6,587 | 10 |
| Floating rate notes | – | 1,828 | |
| Net liquid resources at 30 November | 6,713 | 2,024 |
The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (revised 2009).
The results for the year to 30 November 2010 reflect the activities of what were previously the 'A' Ordinary shares for the whole period. In addition, these results include the transfer of the assets and liabilities of Octopus Third AIM VCT plc to the Company, with effect from 12 August 2010. Results for the current year are reported for the one share class of the enlarged VCT now in issue, namely Ordinary shares. These were formerly the 'A' Ordinary shares of the Company, redesignated Ordinary shares on 12 August 2010.
The comparatives reported in these financial statements reflect the activities of what were previously the 'A' Ordinary shares of the Company and are therefore as previously reported.
The principal accounting policies have remained unchanged from those set out in the Company's 2009 Annual Report and financial statements. A summary of the principal accounting policies is set out below.
The Company presents its income statement in a three column format to give shareholders additional detail of the performance of the Company, split between items of a revenue or capital nature.
The preparation of the financial statements requires Management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments.
The Company has designated all fixed asset investments as being held at fair value through profit and loss; therefore all gains and losses arising from investments held are attributable to financial assets held at fair value through profit and loss. Accordingly, all interest income, fee income, expenses and investment gains and losses are attributable to assets designated as being at fair value through profit or loss.
Current asset investments comprising money market funds and deposits are held for trading and are therefore automatically classified as fair value through profit or loss.
Quoted investments are valued in accordance with the bid-price on the relevant date.
Although the Company believes that the assumptions concerning the business environment and estimate of future cash flows are appropriate, changes in estimates and assumptions could require changes in the stated values. This could lead to additional changes in fair value in the future.
Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board. Accordingly, as permitted by FRS 26, the investments will be designated as fair value through profit and loss (FVTPL) on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company's investments are measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. This is consistent with the International Private Equity and Venture Capital ('IPEVC') valuation guidelines.
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve – unrealised.
In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.
Current asset investments comprise money market funds and are designated as FVTPL. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve – realised.
The current asset investments are all invested with the Company's cash manager and are readily convertible into cash at the choice of the Company. The current asset investments are held for trading, are actively managed and the performance is evaluated on a fair value basis in accordance with a documented investment strategy. Information about them has to be provided internally on that basis to the Board.
Investment income includes interest earned on bank balances and money market securities and includes income tax withheld at source. Dividend income is shown net of any related tax credit.
Dividends receivable are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Fixed returns on debt and money market securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course.
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.
The revenue column of the Income Statement includes all income and revenue expenses of the Company. The capital column includes gains and losses on disposal and holding gains and losses on investments.
Upon disposal of investments, gains relating to the assets are transferred from the capital reserve – unrealised to the capital reserve – realised.
Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date. Where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less tax, with the exception that deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), government securities, investment grade bonds and investments in money market managed funds.
The Company's loans and receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.
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.
We define capital as shareholders' funds and our financial strategy in the medium term is to manage a level of cash that balances the risks of the business with optimising the return on equity. The Company currently has no borrowings nor does it anticipate that it will drawdown any borrowing facilities in the future to fund the acquisition of investments.
The Company does not have any externally imposed capital requirements.
Dividends payable are recognised as distributions in the financial statements when the Company's liability to make payment has been established. This liability is established for interim dividends when they are paid and for final dividends when they are approved by the shareholders.
| Year to | Year to | |
|---|---|---|
| 30 November 2010 | 30 November 2009 | |
| £'000 | £'000 | |
| Income on money market securities and bank balances | 30 | 87 |
| Dividends received (fixed asset investments) | 152 | 99 |
| Interest received relating to VAT rebate | – | 9 |
| 182 | 195 |
| Year to 30 November 2010 | Year to 30 November 2009 | |||||
|---|---|---|---|---|---|---|
| Revenue Capital |
Total | Revenue | Capital | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 71 | 213 | 284 | 65 | 196 | 261 |
| VAT rebate | – | – | – | (12) | (37) | (49) |
| 71 | 213 | 284 | 53 | 159 | 212 |
For the purposes of the revenue and capital columns in the Income Statement, the management fee (including VAT) has been allocated 25% to revenue and 75% to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio.
Octopus provides investment management and accounting and administration services to the Company under a management agreement which initially ran for a period of five years with effect from 6 October 2005 and may be terminated at any time thereafter by not less than 12 months' notice given by either party. No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The management fee is an annual charge and is set at 2% of the Company's net assets.
During the year Octopus charged management fees of £284,000 (2009: £261,000). At the year end there was £nil outstanding (2009: £nil). Octopus also received £17,000 (2009: £nil) as a result of upfront fees charged on the allotments of Ordinary Shares resulting from the offer.
| Year to | Year to | |
|---|---|---|
| 30 November 2010 | 30 November 2009 | |
| £'000 | £'000 | |
| Directors' remuneration | 49 | 42 |
| Fees payable to the Company's auditor for the audit | ||
| of the financial statements | 26 | 22 |
| Bank charges and safe custody fees | – | (3) |
| Legal and professional expenses | 69 | 69 |
| Other administration expenses | 66 | 88 |
| 210 | 218 |
The total expense ratio for the Company for the year to 30 November 2010 was 3.4 per cent based upon average net assets throughout the year (2009: 2.8 per cent). Total running costs are capped at 3.5 per cent.
| Year to | Year to | |
|---|---|---|
| 30 November 2010 | 30 November 2009 | |
| £'000 | £'000 | |
| Directors' emoluments | ||
| Keith Richard Mullins | 16 | 16 |
| Christopher Holdsworth Hunt | 12 | 13 |
| Andrew Paul Raynor | 13 | 13 |
| Elizabeth Anita Kennedy | 4 | – |
| Alastair James Ritchie | 4 | – |
| 49 | 42 |
None of the Directors received any other remuneration or benefit from the Company during the year. Mr Holdsworth Hunt resigned as Director on 12 August 2010. The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was three (2009: three).
At the time of the consolidation of Octopus Second AIM VCT plc and Octopus Third AIM VCT plc, the prospectus estimated that total costs to combine the Company with Octopus Third AIM VCT plc would be £238,000. The actual costs were £228,000. £136,000 of this was borne by Octopus Third AIM VCT plc, while £92,000 was borne by the Company due to the relatively lower total net assets of the Company. The total stamp duty on the issue of shares was £57,000; (£33,000 of this was borne by Octopus Third AIM when determining its assets and liabilities at the date of the merger). The cash payment of the total £57,000 was borne by the Company. £68,000 is disclosed as merger costs in the Income Statement as the stamp duty went to the share premium account. Further details of the merger can be found in note 18.
The corporation tax charge for the year was £nil (2009: £5,000).
Factors affecting the tax charge for the current year:
The current tax charge for the year differs from the standard rate of corporation tax in the UK of 21% (2009: 21%). The differences are explained below.
Current tax reconciliation:
| Year to | Year to | |
|---|---|---|
| 30 November 2010 | 30 November 2009 | |
| £'000 | £'000 | |
| Profit on ordinary activities before tax | 1,281 | 1,489 |
| Current tax at 21% (2009: 21%) | 269 | 312 |
| Income not liable to tax | (36) | (244) |
| Expenses not deductible for tax purposes | 19 | (68) |
| Losses not subject to tax | (348) | – |
| Excess management expenses carried forward | 96 | – |
| Adjustment in respect of prior years | – | 5 |
| Total current tax charge | – | 5 |
Approved VCTs are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a VCT, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
As at 30 November 2010, there is an unrecognised deferred tax asset of £154,000 (2009: £68,000) in respect of surplus management expenses.
| Year to | Year to | |
|---|---|---|
| 30 November 2010 | 30 November 2009 | |
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for | ||
| the year | ||
| Previous year's final dividend | 154 | 246 |
| Distribution in Specie | – | 5,644 |
| Current year's interim dividend | 534 | 157 |
| 688 | 6,047 | |
| Paid and proposed in respect of the year | ||
| Interim dividend paid – 1.5p per share (2009: 1p per share) | 534 | 157 |
| Distribution in specie | – | 5,644 |
| Final dividend proposed 1.65p (2009: 1p) per share | 610 | 154 |
| 1,144 | 5,955 |
The earnings per share is based on 21,644,414 (2009: 20,051,665 'A') Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical.
The calculation of NAV per share as at 30 November 2010 is based on 36,470,759 (2009: 15,508,642 'A') Ordinary shares, of which 226,471 were un-allotted, in issue at that date (excluding Treasury shares).
Effective from 1 January 2009 the Company adopted the amendment to FRS 29 regarding financial instruments that are measured in the balance sheet at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held is the current bid price. These instruments are included in level 1 and comprise AIM listed investments classified as held at fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The Company held no such investment in the current or prior year.
Level 3: the fair value of financial instruments that are not traded in an active market (for example investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The Company held no such investments in the current or prior year.
There have been no transfers between these classifications in the period (2009: none). The change in fair value for the current and previous year is recognised through the profit and loss account.
All items held at fair value through profit or loss were designated as such upon initial recognition. Movements in investments at fair value through profit or loss during the year to 30 November 2010 are summarised below and in note 12.
| Level 1: | ||
|---|---|---|
| AIM-quoted | Total | |
| investments | investments | |
| £'000 | £'000 | |
| Book cost as at 1 December 2009 | 11,446 | 11,446 |
| Revaluation to 1 December 2009 | (2,814) | (2,814) |
| Valuation at 1 December 2009 | 8,632 | 8,632 |
| Purchases at cost | 2,917 | 2,917 |
| Disposal proceeds | (3,551) | (3,551) |
| Profit on realisation of investments – current year | 601 | 601 |
| Assets acquired from Octopus Third AIM VCT plc | 8,259 | 8,259 |
| Revaluation in year | 1,052 | 1,052 |
| Closing valuation at 30 November 2010 | 17,910 | 17,910 |
| Book cost at 30 November 2010: | ||
| – Ordinary shares | 19,462 | 19,462 |
| Revaluation to 30 November 2010: | ||
| – Ordinary shares | (1,552) | (1,552) |
| Valuation at 30 November 2010 | 17,910 | 17,910 |
Level 1 valuations are valued in accordance with the bid-price on the relevant date. Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review.
All investments are designated as fair value through profit or loss from the time of acquisition, and all capital gains or losses on investments so designated. Given the nature of the Company's venture capital investments, the changes in fair value of such investments recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and accordingly these gains are treated as unrealised.
When the Company revalues the investments still held during the period, any gains or losses arising are credited/charged to the Capital reserve – unrealised.
When an investment is sold any balance held on the Capital reserve –unrealised is transferred to the Capital reserve – realised as a movement in reserves.
At 30 November 2010 and 30 November 2009 there were no commitments in respect of investments approved by the manager but not yet completed.
Transaction costs on purchases and disposals for the year were £9,000 and £11,000 respectively.
Current asset investments at 30 November 2010 and at 30 November 2009 comprised floating rate notes (FRNs*) and money market funds**.
| £'000 | £'000 | |
|---|---|---|
| Book cost at 1 December 2009: | ||
| FRNs | 1,832 | |
| Money market funds | 10 | |
| 1,842 | ||
| Revaluation to 1 December 2009: | ||
| FRNs | (4) | |
| Money market funds | – | |
| (4) | ||
| Valuation as at 1 December 2009 | 1,838 | |
| Purchases at cost: | ||
| Money market funds | 13,238 | |
| 13,238 | ||
| Disposal proceeds: | ||
| FRNs | (1,836) | |
| Money market funds | (6,661) | |
| (8,497) | ||
| Profit/(loss) in year on realisation of investments: | ||
| FRNs | 8 | |
| Money market funds | – | |
| 8 | ||
| Revaluation in year: | ||
| Money market funds | – | |
| – | ||
| Closing valuation as at 30 November 2010 | 6,587 | |
| Book cost at 30 November 2010: | ||
| Money market funds | 6,587 | |
| Revaluation to 30 November 2010: | ||
| Money market funds | – | |
| Closing valuation as at 30 November 2010 | 6,587 |
*FRNs represent money held pending investment and can be accessed with 5 working days notice.
**Money market funds represent money held pending investment and can be accessed with 1 working day notice.
| 30 November 2010 | 30 November 2009 | ||
|---|---|---|---|
| £'000 | £'000 | ||
| Other debtors | 145 | 199 | |
| Prepayments and accrued income | 66 | 50 | |
| 211 | 249 | ||
| 14. | Creditors: amounts falling due within one year | ||
| 30 November 2010 | 30 November 2009 | ||
| £'000 | £'000 | ||
| Accruals and other creditors | 60 | 122 | |
| 15. | Share Capital | ||
| 30 November 2010 | 30 November 2009 | ||
| £'000 | £'000 | ||
| Allotted and fully paid up: | |||
| 36,244,288 Ordinary shares of 0.01p (2009: 16,283,536 'A') | 3,624 | 1,628 | |
| Non-allotted and fully paid up: | |||
| 226,471 Ordinary shares of 0.01p (2009: nil) | 23 | – |
The value of shares to be issued at 30 November 2010 amounted to £154,000 (2009: £nil). This represented 213,030 Ordinary shares at 72.29p.
During the year 'A' Ordinary shares were re-designated as Ordinary shares.
The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page 19. The Company is not subject to any externally imposed capital requirements.
In the year to 30 November 2010, 20,489,637 Ordinary shares were issued to acquire the assets and liabilities of Octopus Third AIM VCT plc.
The Company repurchased the following 'A' Ordinary shares during the year to be held in Treasury:
● 10 February 2010: 65,125 'A' Ordinary shares at a price of 61.0p per share
The Company repurchased the following 'A' Ordinary shares during the year to be cancelled:
● 19 May 2010: 17,419 'A' Ordinary shares at a price of 59.5p per share
On 25 May 2010 840,019 'A' Ordinary shares previously held in Treasury were cancelled. At 30 November 2010 the Company held no shares in Treasury (2009: 774,894).
The Company repurchased the following Ordinary shares during the year to be cancelled:
The total nominal value of the shares repurchased was £148 (2009: £66) representing 0.41% (2009: 4.05%) of the issued share capital.
The Company issued the following shares during the year in connection with the offer for subscription announced on 9 July 2010:
| Special | Capital | Capital Own shares | ||||
|---|---|---|---|---|---|---|
| Share distributable | reserve | reserve | held in | Revenue | ||
| Premium | reserve* | realised* | unrealised* | treasury | reserve* | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 December 2009 | – | 14,364 | (305) | (2,814) | (467) | 3 |
| Shares issued to acquire the | ||||||
| assets and liabilities of | ||||||
| Octopus Third AIM VCT | 13,084 | – | – | – | – | – |
| Stamp duty on shares issued | ||||||
| to acquire net assets of | ||||||
| Octopus Third AIM VCT plc | (57) | – | – | – | – | – |
| Shares issued through offer | 631 | – | – | – | – | – |
| Repurchase of own shares | – | (416) | – | – | – | – |
| Profit on ordinary activities | ||||||
| after tax | – | – | – | – | – | (167) |
| Cancellation of treasury shares | – | (467) | – | – | 467 | – |
| Management fees allocated as | ||||||
| capital expenditure | – | – | (213) | – | – | – |
| Prior period gains/(losses) on | ||||||
| disposal | – | – | (210) | 210 | – | – |
| Current year gains/(losses) on | ||||||
| disposal | – | – | 609 | – | – | – |
| Gains/(losses) on revaluation | – | – | – | 1,052 | – | – |
| Dividends paid | – | – | (688) | – | – | – |
| Balance as at | ||||||
| 30 November 2010 | 13,658 | 13,481 | (807) | (1,552) | – | (164) |
**These reserves are considered distributable to shareholders.
When the Company revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement. Unrealised gains/losses are then transferred to the Capital reserve – unrealised. When an investment is sold, any balance held on the 'capital reserve – unrealised' is transferred to the 'capital reserve – realised' as a movement in reserves.
The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount to net asset value at which the Company's ordinary shares trade. In the event that the revenue reserve and capital reserve gains/(losses)-realised do not have sufficient funds to pay dividends, these will be paid from the special distributable reserve.
The Company's financial instruments comprise equity investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying AIM-quoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity.
Fixed and current asset investments (see notes 11 and 12) are valued at fair value. For quoted investments this is either bid price or the latest traded price, depending on the convention of the exchange on which the investment is quoted. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the year end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date.
The Company's strategy for managing investment risk is determined with regard to the Company's investment objective, as outlined on page 19. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed in accordance with the policies and procedures described in the Corporate Governance statement on pages 25 to 29, having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in smaller companies, by their nature, usually involve a higher degree of risk than investments in larger companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board.
Details of the Company's investment portfolio at the balance sheet date are set out on pages 10.
72.3% (30 November 2009: 80.0%) by value of the Company's net assets comprised equity securities listed on the London Stock Exchange or quoted on AIM. A 10% increase in the bid price of these securities as at 30 November 2010 would have increased net assets and the total return for the year by £1,791,000 (30 November 2009: £863,200); a corresponding fall would have reduced net assets and the total return for the year by the same amount.
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.
The Company's floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market securities. The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 0.5% at 30 November 2010 (30 November 2009: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 30 November 2010 | 30 November 2009 | |
|---|---|---|
| £000 | £000 | |
| Current investments | 6,587 | 1,838 |
| Cash at bank | 126 | 186 |
| 6,713 | 2,024 |
A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £67,130 (30 November 2009: £20,240).
There were no significant concentrations of credit risk to counterparties at 30 November 2010. By value, no individual investment exceeded 5.3% (2009: 7.2%) of the Company's net assets at 30 November 2010.
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date.
At 30 November 2010 the Company's financial assets exposed to credit risk comprised the following:
| 30 November 2010 | 30 November 2009 | |
|---|---|---|
| £000 | £000 | |
| Current investments | 6,587 | 1,838 |
| Cash at bank | 126 | 186 |
| Loans and receivables | ||
| Accrued dividends and interest receivable | 59 | 44 |
| 6,772 | 2,068 |
Credit risk relating to listed money market securities is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by the UK Government and major UK companies and institutions.
Those assets of the Company which are traded on recognised stock exchanges are held on the Company's behalf by third party sub-custodians (BlackRock in the case of listed money market securities and Charles Stanley Limited in the case of quoted equity securities). Bankruptcy or insolvency of a custodian could cause the Company's rights with respect to securities held by the custodian to be delayed or limited.
Credit risk arising on the sale of investments is considered to be small due to the short settlement and the contracted agreements in place with the settlement lawyers.
The Company's interest-bearing deposit and current accounts are maintained with HSBC.
Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 30 November 2010 or 30 November 2009.
The Company's financial assets include investments in AIM-quoted companies, which by their nature involve a higher degree of risk than investments on the main market. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.
The Company's listed money market securities are considered to be readily realisable as they are of high credit quality as outlined above.
The Company's liquidity risk is managed on a continuing basis by the Investment Manager in accordance with policies and procedures laid down by the Board. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.
The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 November 2010 these investments were valued at £6,713,000 (30 November: 2009 £2,024,000).
On 12 August 2010, following approval from shareholders at the Extraordinary General Meeting on 4 August 2010, shareholders of Third AIM had their shares converted into Second AIM Ordinary shares on a relative net asset value basis. 20,489,637 Second AIM Ordinary shares were issued from this process, at a total value of £13,084,000. Subsequently and on the same day, Third AIM was placed into members' voluntary liquidation pursuant to a scheme of reconstruction under section 110 of the Insolvency Act 1986.
The net asset values (NAV) of each Fund used for the purposes of conversion at the calculation date of 11 August 2010 were:
| Company | NAV per share (p) | Conversion ratio applied |
|---|---|---|
| Octopus Second AIM VCT plc | 63.20209575 | 1.00000000 |
| Octopus Third AIM VCT plc | 30.56212615 | 0.48356191 |
Since the year end, the Company has made the following investments:
| Company | Date | Number of shares | Cost (£) |
|---|---|---|---|
| Corac Group plc | 2 December 2010 | 1,679,810 | 251,972 |
| Woodspeen Training plc | 3 December 2010 | 1,388,750 | 249,975 |
| Goals Soccer Centres plc | 10 December 2010 | 125,000 | 125,940 |
| Omega plc | 14 December 2010 | 2,916,650 | 349,988 |
| Brady plc | 16 December 2010 | 873,300 | 257,624 |
| SQS Software plc | 20 December 2010 | 95,900 | 206,868 |
| EKF Diagnostics plc | 22 December 2010 | 1,000 | 296 |
| Goals Soccer Centres plc | 19 January 2011 | 18,000 | 21,763 |
Part disposals were made in Lombard medical technologies plc (12 January 2011), Animalcare plc (26 January 2011) and IS Pharma plc (15 February 2011), resulting in a combined profit of £129,119.
The following shares have been issued since the year end:
| 9 December 2010 | 631,316 shares issued at 72.30p |
|---|---|
| 7 January 2011 | 406,135 shares issued at 74.39p |
| 11 February 2011 | 604,920 shares issued at 76.19p |
The following shares have been bought back since the year end:
| 23 December 2010 | 108,653 shares bought back and cancelled at 61.72p |
|---|---|
| 28 January 2011 | 269,507 shares bought back and cancelled at 64.50p |
| 4 February 2011 | 71,799 shares bought back and cancelled at 64.50p |
| 16 February 2011 | 147,142 shares bought back and cancelled at 65.50p |
| 4 March 2011 | 154,036 shares bought back and cancelled at 64.75p |
A further allotment is due on 22 March 2011.
There were no contingencies, guarantees or financial commitments as at 30 November 2010 (2009: none).
Keith Richard Mullins (Chairman) Andrew Paul Raynor FCA Elizabeth Anita Kennedy Alastair James Ritchie
Celia L Whitten FCIS 20 Old Bailey London EC4M 7AN Registered in England No: 05528235
Octopus Investments Limited 20 Old Bailey London EC4M 7AN Tel: 0800 316 2349 www.octopusinvestments.com
Octopus Investments Limited 20 Old Bailey London EC4M 7AN
HSBC Bank plc 31 Holborn London EC1N 2HR
PKF (UK) LLP Farringdon Place 20 Farringdon Road London EC1M 3AP
PricewaterhouseCoopers UK 1 Embankment Place London WC2N 6RH
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH
Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0871 664 0300 (Calls cost 10p per minute plus network extras) www.capitaregistrars.com
Notice is hereby given that the Annual General Meeting of Octopus Second AIM VCT plc ("the Company") will be held at 20 Old Bailey, London, EC4M 7AN on Thursday, 19 May 2011 at 2.30 p.m. for the purposes of considering and, if thought fit, passing the following resolutions of which resolutions 1 to 7 and 10 will be proposed as ordinary resolutions and resolutions 8 and 9 will be proposed as special resolutions:
THAT the Directors be and hereby are generally and unconditionally authorised in accordance with s551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company up to a maximum nominal amount of £1,720, such authority to expire on the earlier of the conclusion of the Company's Annual General Meeting next following the passing of this Resolution and the expiry of 15 months from the passing of this Resolution (unless previously revoked, varied or extended by the Company in a general meeting), but so that such authority allows the Company to make offers or agreements before the expiry thereof, which would or might require shares to be allotted after the expiry of such authority).
That the Directors be and hereby are empowered, pursuant to s570 of the Companies Act 2006 to allot or make offers or agreements to allot equity securities (as defined in s560(1) of the said Act) for cash pursuant to the authority conferred in Resolution 7 as if s561(1) of the said Act did not apply to any such allotments and so that:
such power, unless previously varied, revoked or renewed, to expire on the earlier of the conclusion of the Company's Annual General Meeting next following the passing of this Resolution and the expiry of 15 months from the passing of this Resolution.
THAT the Company be and hereby is generally and unconditionally empowered to make market purchases (within the meaning of s693(4) of the Companies Act 2006) of Ordinary shares of 0.01p each in the Company ('Ordinary shares') provided that:
That the Company continue in being as a Venture Capital Trust until 2017.
By Order of the Board 20 Old Bailey
Celia L Whitten FCIS Company Secretary 23 March 2011
London EC4M 7AN
A resolution may properly be moved or a matter may properly be included in the business unless:
Such a request may be in hard copy form or in electronic form, and must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, must be received by the Company not later than six weeks before the meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request.
| I/We | |||
|---|---|---|---|
| (BLOCK CAPITALS PLEASE) | |||
| of | |||
| being a member of Octopus Second AIM VCT plc, hereby appoint the Chairman of the meeting or, | |||
| Name of Proxy Number of Shares |
|||
| as my/our proxy and vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 19 May 2011, notice of which was sent to shareholders with the Directors' Report and the accounts for the year ended 30 November 2010, and at any adjournment thereof. The proxy will vote as indicated below in respect of the Resolutions set out in the notice of meeting. |
|||
| Please indicate by ticking the box if this proxy appointment is one of multiple appointments being made. | |||
| For the appointment of one or more proxy, please refer to the explanatory note 4 below. | |||
| RESOLUTION NUMBER | FOR | AGAINST WITHHELD | |
| 1. | To receive, consider and adopt the financial statements for the year ended 30 November 2010 |
||
| 2. | To approve a final dividend | ||
| 3. | To approve the Directors' Remuneration Report | ||
| 4. | To re-elect Elizabeth Kennedy as a Director | ||
| 5. | To re-elect Alastair Ritchie as a Director | ||
| 6. | To re-appoint PKF UK LLP as auditor and authorise the Directors to agree their remuneration |
||
| 7. | To authorise the Directors to allot shares under s551 of the Companies Act 2006 (Ordinary Resolution) |
||
| 8. | To disapply s561 of the Companies Act 2006 and allot shares on a non-rights issue basis (Special Resolution) |
||
| 9. | To authorise the Directors to make market purchases of its own shares (Special Resolution) |
||
| To continue the Company as a Venture Capital Trust until 2017 |
If you are unable to attend the AGM and wish to pass on any comments to the Board, please use the box below (NB: Please provide a telephone contact number):
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