Annual Report • Nov 30, 2011
Annual Report
Open in ViewerOpens in native device viewer
The Company is managed by Octopus Investments Limited.
| 1 | Financial Summary and Key Dates |
|---|---|
| 2 | Shareholder Information and Contact details |
| 5 | Chairman's Statement |
| 7 | Investment Manager's Review |
| 16 | The Investment Manager |
| 17 | Details of Directors |
| 18 | Directors' Report |
| 30 | Directors' Remuneration Report |
| 33 | Directors' Responsibilities Statement |
| 34 | Independent Auditor's Report |
| 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 |
| As at | As at | |
|---|---|---|
| 30 November 2011 | 30 November 2010 | |
| Net assets (£'000s) | 26,590 | 24,774 |
| (Loss)/Return on ordinary activities after tax (£'000s) | (1,208) | 1,281 |
| Net asset value (NAV) per share | 62.4p | 67.9p |
| Dividend per share – paid in year | 3.25p | 2.50p* |
| Dividends proposed | 1.60p | 1.65p |
* 1.00p of this was paid pre-merger.
Annual General Meeting 16 May 2012 (11.00 a.m. at 20 Old Bailey, London EC4M 7AN) 2011 final dividend paid 8 June 2012 Half yearly results to 31 May 2012 announced July 2012
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 plc received 0.48356191 Ordinary shares in the Company for each Ordinary share they had prior to the merger.
The offer for subscription in the prospectus dated 9 July 2010 relating to the issue of new shares in connection with the merger with Octopus Third AIM VCT plc, which was extended by a supplemental prospectus, closed on 8 July 2011 raising £5.8 million. As mentioned in the Chairman's statement, your Board are seeking to raise up to £3.0 million of new capital through a Top-up offer.
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 HMRC. In order to maintain its approval the Company must comply with certain requirements on a continuing basis:
*A 'qualifying holding' consists of up to £1 million invested in any one year in new shares or securities in an unquoted UK company (or company listed on AIM) which is carrying on a qualifying trade and whose gross assets do not exceed a prescribed limit at the time of investment. The definition of a 'qualifying trade' excludes certain activities such as property investment and development, financial services and asset leasing.
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 below shows the net asset value per share (NAV) and lists the dividends that have been paid since the launch of the Company:
| Octopus | ||||
|---|---|---|---|---|
| Third AIM | Octopus | |||
| VCT | Third AIM | |||
| Ordinary | VCT | |||
| Octopus | shares | 'C' and 'D' | ||
| Second | (formerly | shares | ||
| Octopus | AIM | Octopus | (formerly | |
| Second AIM | VCT | Second | Octopus | |
| VCT (post | (pre | AIM VCT) | Second | |
| Year | August | August (pre August | AIM VCT | |
| ending | 2010) | 2010) | 2010)* | plc)* |
| 2003 | – | – | 1.60 | – |
| 2004 | – | – | – | – |
| 2005 | – | – | – | – |
| 2006 | – | 1.40 | 1.00 | – |
| 2007 | – | 2.00 | 7.00 | 0.75 |
| 2008 | – | 2.00 | 11.00 | 2.21 |
| 2009 | – | 2.00 | 2.00 | 2.00 |
| 2010 | 1.50 | 2.50 | 2.23 | 5.41 |
| 2011 | 3.25 | 3.30 | 1.60 | 3.80 |
| Cumulative | ||||
| dividends | ||||
| paid (p) | 4.75 | 13.20 | 26.43 | 14.17 |
| NAV at 30 | ||||
| November | ||||
| 2011 (p) | 62.40 | 62.40 | 30.17 | 73.36 |
| NAV plus | ||||
| total | ||||
| dividends (p) 67.15 | 75.60 | 56.60 | 87.53 |
* Following the merger with Octopus Third AIM VCT plc 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 proposed final dividend of 1.6p will, if approved by shareholders, be paid on 8 June 2012 to shareholders on the register on 11 May 2012.
The Company's share price can be found on various financial websites including
www.londonstockexchange.com, with the following TIDM/EPIC code:
| Ordinary shares | |
|---|---|
| TIDM/EPIC code | OSEC |
| Latest share price | |
| (22 March 2012) | 59.5 pence 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, and envisages that purchases will be made at a 10% discount to the prevailing NAV. 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, please contact the Company's corporate broker, Matrix Corporate Capital ('Matrix').
Matrix is able to provide details of close periods (when the Company is prohibited from buying in shares) and details of the price at which the Company has bought in shares. Matrix can be contacted as follows:
Chris Lloyd 0203 206 7176 [email protected]
Paul Nolan 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 2.
Previously published Annual Reports and Half-yearly Reports are available for viewing on the Investment Manager's website at www.octopusinvestments.com. 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 the Company or Octopus would make unsolicited telephone calls to shareholders and that any 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 authenticity of an unsolicited phone call, please call Octopus at the number provided at the back of this report.
I would like to start this statement by welcoming the new shareholders who subscribed for shares in the open offer either at the end of the last tax year or the beginning of this one. I know you will have received the interim report in the interval, but I hope you will enjoy reading all the information in these accounts. Equally, I hope you will be able to attend the Annual General Meeting, details of which can be found at the back of these accounts. By the time you receive this document, you will have become aware of your Board's intention to seek to raise up to £3.0 million of new capital. I will be able to report on the fundraising progress at the AGM.
The last year has been a difficult one for any number of people in all sorts of respects and has not been an ideal background for investors in smaller companies. Perhaps the year to the end of November 2011 can best be described as testing and frustrating for smaller companies investors. As the end of my statement points out, the manager is indeed optimistic that prospects for many of the holdings are encouraging and it is no surprise to some that the first three months of the new financial year have seen a remarkably positive change in investor sentiment. That has seen the NAV rise encouragingly.
As the Income Statement on page 36 shows, dividend income has increased this year and not just as a result of the merger. Many companies in the portfolio have increased their own dividend payments and this, as well as prior year realised gains, have allowed your Board to pay an interim dividend of 1.6p per share in early October and now to declare a final dividend of 1.6p per share again. This will be payable, if approved at the AGM, on 8 June 2012. These payments are a little better than the 5% yield policy established by the Board at the time of the merger and reflect historical profits as well as the recent trend of rising NAV.
Your Company has continued to buy back shares in the last year partly as a means of keeping the discount at an acceptable level but also to provide liquidity in the marketplace. This activity will have helped to stabilise the NAV and in total 2,193,803 shares have been bought back.
I mentioned earlier that the year under review had been testing and frustrating. It has been particularly frustrating for investors in small capitalisation companies, which have continued to trade well, improve their cash flows and profitability and to increase their dividends, as generally these companies have not seen their progress reflected in a higher share price, until just the last few months. Your managers have been equally frustrated.
The sentiment of investors and the stock market in general, for the year to November 2011, has been against smaller companies, seeing them as a risky asset class. Over the period the AIM index fell by 18.3% in the year to November 2011 and the SmallCap index (excluding investment trusts) by 10.8%. Against this background the NAV of your portfolio has moved from 67.9p to 62.4p per share. After adding back the capital dividends of 3.25p paid in the year, the adjusted NAV fall is 3.3%. Though this is disappointing, it nevertheless compares reasonably with the market generally. The manager's report goes into performance in more detail on pages 7 to 15 .
The merger, to which I referred earlier, necessitated a full prospectus and the decision was taken to incorporate a fund raising within it. Such a fund raising can be open for a year and in that time your Company raised approximately £6.8 million gross of new capital. It seems sensible to your Board to try to raise the balance of the original target in a Top-up offer this tax year. As a result you will already be aware that the manager, Octopus Investments, has launched a Top-up, which can issue up to £3 million.
The Manager's report will go into new investments in detail, but it will show that there have been investments made which qualify for what are known
as both 'old' and 'new' rules. That means that your Company has invested some of both its new capital, raised in the last year, as well as its older original capital, in new VCT qualifying holdings.
PricewaterhouseCoopers LLP provides your Board and Investment Manager with advice concerning continuing compliance with HMRC regulations for VCTs. Your Board has been advised that Octopus Second AIM VCT is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is to maintain at least a 70% qualifying investment level. As at 30 November 2011, some 83% of the portfolio, as measured by HMRC rules, was invested in qualifying investments.
At the time of writing, sentiment in financial markets has turned much more positive and, although there remain major issues to resolve internationally, it seems at last that there is some recognition of the commercial progress that many holdings have been making and the de-rating that many smaller
companies' shares have suffered. In the last year, many of the good companies in the portfolio have managed to improve profits and to increase their dividend payments. That has been achieved against a consistently poor background, representing a challenge to which many management teams have risen impressively.
It would therefore, I believe, be quite wrong to be downhearted about the prospects for your portfolio in the coming year. Even a small change in sentiment would have a dramatic effect upon the share prices of some of the strongly growing companies which your Company holds. The current year has started encouragingly and I look forward to talking to you further at the AGM.
Keith Richard Mullins Chairman 22 March 2012
A year ago we wrote that we believed that the NAV could rise in the following year based on our view that share prices could increase, since they were undervalued and relatively unappreciated by investors. Unfortunately, the belief that the NAV could rise in the year to November was confounded by a number of major economic and political concerns, particularly in Europe, which impacted market sentiment to the detriment of share prices.
It remains the case that many companies are trading well and have managed to do so throughout the last year. The consequence of that was a general de-rating of smaller company shares, and despite some signs that sentiment is changing for the better in 2012, we still perceive current valuations as reflecting an overly pessimistic view of the future.
AIM was criticised last year as a disappointing market, because the number of companies traded on it fell and because it did not raise as much new capital for its
constituents as the previous year (£5.3 billion versus £6.5 billion). In fact, the number of companies traded fell from 1,196 in November 2010 to 1,150 last November. A net decrease of 46 does not seem to warrant the level of criticism and it is worth noting that approximately two new companies per week joined AIM and that is hardly the mark of a poor market.
The sum raised is shown by month in the graph below and the total compares well with any year, except for the peak years of 2005 to 2007, which we know now suffered from excessive credit and misplaced enthusiasm from investors. The fact that it was lower than the previous year is more a reflection of the mood of markets in general, and we would hope that the number and size of fundraisings will increase now that sentiment has started to improve.
AIM is now a much more stable market than it probably has been for a number of years, although it remains relatively out of favour with very many investors, who regard it as too risky. That view is overly simplistic in our opinion and ignores the trading
performance of many holdings in the portfolio and AIM in general. It has been a subdued year for AIM, which must be a reflection, to some degree, of wider economic concerns. However, it seems totally incorrect to regard AIM as an historic anomaly. It clearly continues to meet a need and with around 80% of the funds raised being for existing companies it is quite apparent that shareholders are backing their investments. The market would thus appear to be working: companies, whose investors believe that their investments deserve additional funds, are achieving their capital raising objectives.
The year under review was a difficult one for funds investing in smaller companies, as a succession of shocks to the economies and banks of Europe coupled with a lack of political direction made stockmarkets extremely nervous, which is never a good background for the performance of smaller company shares. In the twelve months to 30 November the AIM Index fell by 18.3% and the Smaller Companies Index Ex Investment Trusts by 10.8%. As always, the performance of AIM was heavily influenced by resource stocks which were affected by fears of declining demand in the face of a double dip recession. Against this background the VCT was relatively robust, seeing its NAV decline by 3.3% if the total dividends of 3.25p paid out in the year are added back.
Despite a performance that was better than the small cap market in general, we were still disappointed not to be able to show a positive return in a year which the NAV had initially got off to a good start and in which many holdings in the portfolio made good progress. The period was dominated by global concerns rather than the trading performance of smaller UK companies leading to remarkable volatility in stock market prices. It was a frustrating time to be an investor and we sympathise with all shareholders who wonder where any sense of market pricing efficiency went. We remain convinced that this can change, and the fact that we continue to see bid activity in the portfolio supports the view that current share prices reflect good value.
Several of your investments also showed good progress over the year. Among the larger holdings, Idox showed that it has successfully diversified its business away from a dependence on the public sector, although business with local authorities is now improving. Advanced Computer Software has demonstrated that it is generating significant amounts of cash as well as achieving steady organic growth, and a disposal of a non core business will eliminate gearing by the year end. EKF, which started life as a cash shell and has yet to make a profit, has now established itself in Europe and the US with acquisitions, and we expect profitability to follow as it opens up new markets for its point of care diagnostics. Breedon Aggregates is now profitable and trading ahead of initial projections. Tasty has also seen significant upgrades to profit forecasts and now has the critical mass to grow its restaurant business organically. Brooks Macdonald has also demonstrated strong growth despite facing more challenging markets. In the current year we expect a profit from the merged Sinclair IS Pharma, and some progress from Vertu Motors once retail conditions start to improve.
There is no denying that the wider economic concerns have made new flotations fewer in number in 2010/11 and those that we have invested in have mainly materialised in the second half of the year. However, the flow of fundraisings for existing businesses has been more evenly spread over the year and reflects the need for companies to use equity rather than debt to finance growth in the current banking environment. Thus, despite what has seemed like a quiet year, we have found several interesting investment opportunities which we expect to develop profitably over the next few years. Because the portfolio remains well above its 70% investment limit in qualifying holdings, we can afford to be patient when making new investments and wait for attractive opportunities at realistic prices.
The interim report referred to the new investments in Corac, Woodspeen and Brady, all of which were made in the first half of the year under review. In the second
half your company invested in In-Deed Online, Enteq Upstream, Escher, Mycelx Technologies, GB Group and TLA Worldwide. In-Deed is an early stage, newly established online conveyancing business, with links to a number of property portals, in to which we have invested a small sum reflecting the near start-up nature of the company. Enteq is a management team with an established record in the oil services industry, seeking to acquire a group of international companies in the sector again. Escher is a profitable and established company, providing software to national postal services internationally, enabling them to provide financial and other non-postal services. Mycelx owns a proprietary technology for removing pollutant particles from water in environmentally sensitive areas and, at present, is concentrating its sales effort on oil well operators. GB Group provides identity verification services for a variety of customers with a growing international flavour. Finally TLA manages sports personalities, particularly baseball players in America. In total, for the year under review as a whole, £4.56 million was invested into new qualifying holdings at cost. The cash invested was a mix of the newly raised funds, as a result of last year's prospectus and of your company's previously existing capital.
In addition we also invested into non-qualifying shares, establishing holdings in Goals Soccer Centres, SQS, Staffline Recruitment, Hamworthy and Gooch and Housego. In all we invested £1.3 million in non-qualifying shares as part of our strategy of keeping around 10% of the portfolio invested in situations which are expected to provide a higher return than cash in a low interest rate environment. Since the year end, Hamworthy has been the subject
of a successful takeover, demonstrating the attractiveness of UK companies with winning technologies to overseas trade buyers.
The year under review also included a number of disposals, which are listed in the table below. Many of the disposals were as a result of bids, although sadly these did not result in an overall net profit for the fund. Clarity was an example of an opportunistically timed bid from private equity, of which we will no doubt see more, but where a longer term view by more shareholders might have been rewarded in time and CBG was taken over for cash. Both of these bids were at significant premiums to the then prevailing share prices. Individual Restaurant Group was taken over by a private company, and the structure of the deal meant that it would no longer be a VCT qualifying holding, so we elected to take cash.We also sold out of the holding in Managed Support Services when it disposed of its trading business and ceased to qualify. It had suffered from too much debt at the wrong time in the economic cycle.
We took profits from a number of holdings, such as Lombard Medical, IS Pharma (at the time of its merger with Sinclair Pharma), Craneware and Animalcare. Since the period end we have taken some further profits in Chime and Advanced Computer Software as well as selling out of Optare and Colliers, both of which were suffering from too much debt. This has reduced the number of holdings in the portfolio, particularly where the prospects of significant recovery was remote.
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) |
| CBG Group plc | November 2008 | 637 | 170 | (467) |
| Individual Restaurant Company plc | November 2006 | 160 | 25 | (135) |
| Clarity Commerce Solutions plc | October 2009 | 651 | 437 | (214) |
| Managed Support Services plc | February 2009 | 828 | 120 | (708) |
| Book cost | Movement | % equity | |||||
|---|---|---|---|---|---|---|---|
| as at | Cumulative | Fair value at | in year to | % equity | held by | ||
| 30 November | change in 30 November 30 November | held by | all funds | ||||
| 2011 | fair value | 2011 | 2011 | Second | managed by | ||
| Fixed asset investments | Sector | (£'000) | (£'000) | (£'000) | (£'000) | AIM VCT plc | Octopus |
| Advanced Computer Software plc | Software & Computer Services | 916 | 654 | 1,570 | 410 | 1.0% | 2.4% |
| Animalcare Group plc | Food Producers & Processors | 869 | 682 | 1,551 | 441 | 4.7% | 8.3% |
| EKF Diagnostics plc | Health | 870 | 202 | 1,072 | 89 | 1.8% | 6.3% |
| Idox plc | Software & Computer Services | 381 | 682 | 1,063 | 470 | 1.2% | 4.4% |
| Craneware plc | Software & Computer Services | 479 | 435 | 914 | (74) | 0.6% | 1.2% |
| Breedon Aggregates Limited | Construction & Building | 601 | 250 | 851 | 150 | 0.9% | 2.2% |
| Enteq Upstream plc | Oil Services | 687 | 137 | 824 | 137 | 4.6% | 14.0% |
| Sinclair IS Pharma plc | Pharmaceuticals & Biotech | 921 | (172) | 749 | (350) | 0.9% | 1.9% |
| Brooks MacDonald Group plc | Specialty & Other Finance | 609 | 136 | 745 | 40 | 0.7% | 2.4% |
| Escher Group Holdings plc | Software & Computer Services | 750 | (66) | 684 | (66) | 2.6% | 8.1% |
| Brady plc | Software & Computer Services | 515 | 157 | 672 | 157 | 1.6% | 3.9% |
| MyCelx Technologies plc | Oil Services | 600 | 57 | 657 | 57 | 2.2% | 7.6% |
| Chime Communications plc | Media & Entertainment | 750 | (100) | 650 | (123) | 0.4% | 0.6% |
| Brulines (Holdings) plc | Support Services | 867 | (307) | 560 | (215) | 2.6% | 6.7% |
| TLA Worldwide plc | Equity Investment Instruments | 538 | – | 538 | – | 4.2% | 15.7% |
| Tasty plc | Leisure & Hotels | 334 | 189 | 523 | 223 | 2.3% | 4.9% |
| Omega Diagnostics Group plc | Health | 553 | (46) | 507 | (25) | 4.8% | 13.1% |
| Hargreaves Services plc | Support Services | 314 | 188 | 502 | 197 | 0.2% | 3.9% |
| Vertu Motors plc | General Retailers | 777 | (290) | 487 | (56) | 0.9% | 5.9% |
| Plastics Capital plc | Engineering & Machinery | 485 | (8) | 477 | 43 | 2.6% | 17.9% |
| Matchtech Group plc | Support Services | 442 | 35 | 477 | (16) | 1.0% | 11.4% |
| Hamworthy plc | Engineering & Machinery | 326 | 136 | 462 | 136 | 0.1% | 3.5% |
| Netcall plc Marwyn Management plc |
Telecommunication Services Investment Companies |
421 670 |
14 (304) |
435 366 |
102 (392) |
2.1% 1.2% |
5.1% 1.9% |
| RWS Holdings plc | Support Services | 249 | 113 | 362 | 130 | 0.2% | 4.3% |
| Active Risk Group plc | Software & Computer Services | 535 | (190) | 345 | (199) | 3.3% | 11.0% |
| Woodspeen plc | Support Services | 250 | 28 | 278 | 28 | 3.9% | 11.4% |
| Staffline Recruitment Group plc | Support Services | 225 | 31 | 256 | 31 | 0.5% | 13.5% |
| Immunodiagnostic Systems plc | Health | 454 | (206) | 248 | (232) | 0.2% | 3.1% |
| Access Intelligence plc | Software & Computer Services | 544 | (299) | 245 | (299) | 4.8% | 10.2% |
| GB Group plc | Software & Computer Services | 220 | 19 | 239 | 19 | 0.5% | 2.2% |
| Corac plc | Engineering & Machinery | 252 | (34) | 218 | (34) | 0.7% | 2.3% |
| Lombard Medical Technologies plc | Health | 589 | (372) | 217 | (163) | 1.8% | 1.8% |
| In-Deed Online plc | General Retailers | 201 | (3) | 198 | (3) | 2.3% | 5.8% |
| Snacktime plc | Food Retailers | 367 | (190) | 177 | (134) | 1.5% | 8.9% |
| Hasgrove plc | Media & Entertainment | 436 | (267) | 169 | (97) | 2.0% | 13.2% |
| Bond International Software plc | Software & Computer Services | 303 | (138) | 165 | (41) | 1.1% | 3.4% |
| Gooch & Housego plc | Electronic & Electrical | 165 | (9) | 156 | (9) | 0.2% | 1.1% |
| SQS Software plc | Software & Computer Services | 206 | (57) | 149 | (59) | 0.3% | 5.6% |
| Goals Soccer Centres plc | Leisure & Hotels | 147 | (14) | 133 | (13) | 0.3% | 3.5% |
| Adept Telecom plc | Telecommunication Services | 501 | (376) | 125 | 43 | 1.7% | 4.1% |
| Atlantic Global plc | Software & Computer Services | 119 | (22) | 97 | - | 3.3% | 3.3% |
| Mattioli Woods plc | Specialty & Other Finance | 96 | (2) | 94 | (36) | 0.3% | 3.5% |
| Mears Group plc | Support Services | 93 | (15) | 78 | (23) | 0.0% | 0.3% |
| Jelf Group plc | Specialty & Other Finance | 122 | (44) | 78 | 13 | 0.1% | 0.9% |
| Work Group plc | Support Services | 473 | (397) | 76 | (3) | 2.1% | 6.1% |
| Altitude Group plc | Media & Entertainment | 24 | 47 | 71 | 21 | 0.7% | 4.6% |
| Zetar plc | Food Producers & Processors | 68 | (2) | 66 | - | 0.2% | 3.8% |
| Optare plc | Engineering & Machinery | 656 | (599) | 57 | (77) | 0.5% | 1.4% |
| Cello Group plc | Media & Entertainment | 54 | (6) | 48 | (16) | 0.2% | 8.5% |
| Daisy Group plc | Telecommunication Services | 20 | 4 | 24 | 2 | 0.0% | 0.1% |
| Datong plc | Electronic & Electrical | 29 | (10) | 19 | (19) | 0.6% | 3.4% |
| Colliers International UK plc | Real Estate | 153 | (139) | 14 | (89) | 0.5% | 3.0% |
| Twenty plc | Media & Marketing | 565 | (561) | 4 | (141) | 7.8% | 12.2% |
| Media Square plc | Media & Marketing | 7 | (7) | – | (3) | 0.2% | 1.0% |
| Total fixed asset investments | 22,798 | (1,056) | 21,742 | (68) | |||
| Current asset investments | 3,901 | 3,901 | |||||
| Total fixed investments and money market funds | 25,643 | ||||||
| Cash at bank Debtors less creditors |
636 311 |
||||||
| Total net assets | 26,590 |
Listed below are the ten largest investments by value as at 30 November 2011:
| Advanced Computer Software plc | ||
|---|---|---|
| Advanced Computer Software plc provides software to the Healthcare Sector and other commercial markets. | ||
| Initial investment date: Cost: Valuation: Equity held: Last audited accounts: Revenue: Profit before tax: |
July 2008 £916,000 £1,570,000 1.0% February 2011 £95.4 million £3.1 million £84.6 million |
Further information can be found at www.advcomputersoftware.co.uk |
| Net assets: | ||
| Animalcare Group plc Animalcare Group plc manufactures and distributes veterinary medicines for pets and livestock. |
||
| Initial investment date: Cost: Valuation: Equity held: Last audited accounts: Revenue: Profit before tax: Net assets: |
December 2007 £869,000 £1,551,000 4.7% June 2011 £11.8 million £2.9 million £15.8 million |
Further information can be found at www.animalcaregroup.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: Cost: Valuation: Equity held: Last audited accounts: Revenue: Profit before tax: |
July 2010 £870,000 £1,072,000 1.8% December 2010 £6.5 million £2.1 million |
Further information can be found at |
|---|---|---|
| Net assets: | £23.5 million | www.ekf-diagnostic.com |
Craneware is a leading provider of software solutions that improve the financial performance of US hospital and healthcare organisations. Idox plc is a leading software and information management solutions provider, predominately to the public and engineering sectors.
Initial investment date: September 2007 Cost: £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 Initial investment date: August 2008 Cost: £381,000 Valuation: £1,063,000 Equity held: 1.2% Last audited accounts: October 2011 Revenue: £38.6 million Profit before tax: £5.6 million Further information can be found at
Net assets: £34.4 million www.idoxgroup.com
Craneware is a leading provider of software solutions that improve the financial performance of US hospital and healthcare organisations.
Initial investment date: September 2007 Cost: £479,000 Valuation: £914,000 Equity held: 0.6% Last audited accounts: June 2011 Revenue: \$35.5 million
Profit before tax: \$8.9 million Further information can be found at Net assets: \$32.4 million www.craneware.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.
Initial investment date: August 2010 Cost: £601,000 Valuation: £851,000 Equity held: 0.9% Last audited accounts: December 2010 Revenue: £42.7 million
Loss before tax: £1.8 million Further information can be found at Net assets: £56.8 million www.breedonaggregates.com
Enteq Upstream PLC is an investment vehicle, focused on acquiring and consolidating companies providing specialist products and technologies to the upstream oil and gas services market.
Initial investment date: June 2011 Cost: £687,000 Valuation: £824,000 Equity held: 4.6% Last audited accounts: March 2012 Revenue: N/A Profit before tax: N/A Further information can be found at Net assets: N/A www.enteq.com
Sinclair IS Pharma plc is an international pharmaceutical company involved in the development and commercialisation of niche healthcare products.
| Initial investment date: | March 2008 | |
|---|---|---|
| Cost: | £921,000 | |
| Valuation: | £749,000 | |
| Equity held: | 0.9% | |
| Last audited accounts: | June 2011 | |
| Revenue: | £32.9 million | |
| Loss before tax: | £11.7 million | Further information can be found at |
| Net assets: | £123.9 million | www.sinclairispharma.com |
Brooks Macdonald Group plc is a wealth management group.
| Initial investment date: Cost: Valuation: Equity held: |
August 2008 £609,000 £745,000 0.7% |
|
|---|---|---|
| Last audited accounts: Revenue: Profit before tax: Net assets: |
June 2011 £52.2 million £7.3 million £19.1 million |
Further information can be found at www.brooksmacdonald.com |
Escher Group Holdings plc provides software, particularly for over the counter and financial services, to national Post Office organisations worldwide.
| Initial investment date: | August 2011 | |
|---|---|---|
| Cost: | £750,000 | |
| Valuation: | £684,000 | |
| Equity held: | 2.6% | |
| Last audited accounts: | December 2010 | |
| Revenue: | \$14.0 million | |
| Loss before tax: | \$2.2 million | Further information can be found at |
| Net assets: | \$3.7 million | www.eschergroup.com |
The graph below shows the sectors the Fund is invested in by value as at 30 November 2011:
We believe that smaller companies in general have been de-rated in the last year, despite the commercial progress which many companies have reported. That also applies to your company's portfolio where share prices have failed to rise in line with forecast upgrades. There are signs now that appetite for risk is returning, and the AIM and Smaller Companies Indices have started 2012 strongly. The NAV of the VCT has also been rising as news of company progress has started to be reflected in share prices.
We do not deny the seriousness of the issues that still have to be resolved, nor of potential ones, such as any inflationary pressures resulting from quantitative easing. However, the portfolio is predominantly not
exposed to the retail sector or to the consumer directly so to that extent it is defensive. It is though exposed to growth companies, which we believe is the correct stance to have because it is such companies which will continue to develop and make progress, even in challenging circumstances, and which will be re-rated as the economic clouds lift. We are therefore confident that in time the portfolio will produce a rising NAV.
Octopus Investments Limited 22 March 2012
At Octopus Investments Limited, 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 Investments Limited also acts as Investment Manager of 18 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 Investments Limited 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 Investments Limited 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 Investments Limited to head up the AIM team in 2004. He is involved in the management of AIM portfolios, AIM VCTs and the CF Octopus Investments Limited UK Microcap Growth Fund.
Edward is a portfolio manager at Octopus Investments Limited involved particularly in the management of AIM portfolios for private individuals. He joined Octopus Investments Limited in 2004 having previously worked at Schroder's and State Street.
Paul joined Octopus Investments Limited in 2005 as a member of the AIM investment team and has been involved in the management of AIM portfolios since then.
Stephen joined Octopus in 2008 as a member of the operations team. Having helped in the Multi Manager team, he joined the AIM investment team in 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 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, resigning in January 2012. Prior to joining RSM Tenon, he spent almost 20 years with BDO Stoy Hayward – East Midlands, where he established the corporate finance department and held overall responsibility for business development, before becoming managing partner. Andy became a Director of the Company on 14 September 2005.
A qualified solicitor, Elizabeth has worked for 30 years in corporate finance and corporate broking, 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 which on 1 February 2012 became part of Nplus1 Brewin and is a non executive director of F & C Private Equity Trust plc and F&C Private Equity Zeros plc. Elizabeth became a director of Octopus Second Aim VCT plc in February 2001 which became Octopus Third AIM VCT plc on the merger and was subsequently dissolved in October 2011. She became 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 non executive director of John Swan Trustee Limited. He has considerable experience in small companies, both private and public, and has served as chairman of several companies. Alastair became a director of Octopus Second Aim VCT plc in February 2001, which became Octopus Third AIM VCT plc on the merger, and was subsequently dissolved in October 2011. He became a Director of the Company on 12 August 2010.
The Directors present their report and the audited financial statements for the year ended 30 November 2011.
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.
The Directors have managed the affairs of the Company with the intention of maintaining its status as a Venture Capital Trust.
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 (this changed to 70% for new investments from funds raised since April 2011).
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 section 417 of the Companies Act 2006, to include a business review in their report to shareholders. The business review is set out in the Chairman's Statement on pages 5 and 6, and the Investment Manager's Review on pages 7 and 15 and is included in this Directors' Report by reference.
The purpose of the review is to provide shareholders with a snapshot summary setting out the business objectives of the Company, the Board's strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators used to measure performance.
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 quoted 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 2011 was 2.9% based upon net assets at 30 November 2011 (2010: 3.4% based on average net assets during the year due to the merger). Total running costs are capped at 3.5% of net assets.
| Year ended | Year ended | |
|---|---|---|
| 30 November 2011 30 November 2010 | ||
| £'000 | £'000 | |
| Net (loss)/profit attributable to shareholders |
1,208 | 1,281 |
| Appropriations: Final dividend proposed 1.6p per Ordinary (2010 – 1.6p) per |
||
| Ordinary share | 673 | 610 |
The proposed final dividend will, if approved by shareholders, be paid on 8 June 2012 to shareholders on the register on 11 May 2012.
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 Company's assets will be not less than 80% 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 is 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 Investments
Limited 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.
Compliance with required rules and regulations is considered when all investment decisions are made. The Company is further monitored on a continual basis to ensure compliance. The main criteria to which the Company must adhere include:
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 which 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 Investment 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 Investment Manager on a regular basis.
Financial risk: as a VCT, the Company is exposed to market price risk, credit risk, liquidity risk, fair value and cash flow interest rate risks. The majority of the Company's income and expenditure is denominated in sterling and hence the Company has limited 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.
The Company has cash deposits which are held on the balance sheet of HSBC Bank plc and in cash funds managed by BlackRock. The risk of loss to this cash is deemed to be low due to the historical credit ratings and a current Standard & Poor's rating of AA for HSBC and AAA for BlackRock. Inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to mis-posting or breaches of regulations.
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.
Reputational risk: inadequate or failed controls might result in breaches of regulation or loss of shareholder trust.
Internal control risk: the Board reviews annually the system of internal controls, both financial and nonfinancial, operated by the Company and the Investment 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 Investment Manager's key staff are continuously monitored by the Investment Manager.
Price risk: the risk that the value of a security or portfolio of securities will decline in the future is mitigated by holding a diversified portfolio, across a broad range of sectors.
Cash flow risk: the risk that the Company's available cash will not be sufficient to meet its financial obligations is managed by frequent budgeting and close monitoring of available cash resources.
Due to the nature of the Company, social and employee issues do not apply and therefore no disclosures in respect of these have been included in the Directors' Report.
The Board seeks to mitigate the internal risks by setting policy, regularly reviewing performance, enforcing contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously 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.
Further details of the Company's risk management policies are provided in note 17 to the financial statements.
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 2011 |
|
| Keith Richard | |
| Mullins 104,548 |
50,000 |
| Andrew Paul | |
| Raynor 20,700 |
20,700 |
| Alastair James | |
| Ritchie 31,809 |
31,809 |
| Elizabeth Anita | |
| Kennedy 37,380 |
37,380 |
All of the Directors' shares were held beneficially. There have been no changes in the Directors' share interests between 30 November 2011 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.
Andy Raynor retires in accordance with the Articles of Association, and being eligible, offers himself for re-election. The Board has considered provision B.7.2 of the of the UK Corporate Governance Code and following a formal performance evaluation, believes that Andy Raynor continues to be effective and demonstrates commitment to his role, the Board and the Company. The Board, therefore, recommend his re-election at the forthcoming Annual General Meeting.
Brief biographical notes on the Directors are given on page 17.
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.
The Board has considered the arrangements implemented by the Investment Manager in accordance with The UK Corporate Governance Code's recommendations, to encourage staff of the Investment Manager or Company Secretary of the Company to raise concerns, in confidence, within their organisation about possible improprieties in matters of financial reporting or other matters. It is satisfied that adequate arrangements are in place to allow an independent investigation, and follow on action where necessary, to take place within the organisation.
Octopus Investments Limited ('the Investment Manager') acts as Investment Manager to the Company. The principal terms of the Company's management agreement with the Investment Manager are set out in note 3 to the financial statements. The Investment Manager also provides secretarial, administrative and custodian services to the Company. The Investment Manager is not entitled to any performance fee.
The Company has in place an agreement with Octopus Investments Limited to act as Investment Manager which is central to the ability of the Company to continue in business. There are no other contracts which are deemed to be essential to the business of the Company.
As required by the Listing Rules, the Directors confirm that, in their opinion, the continuing appointment of Octopus Investments Limited 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 ability of the Investment Manager to produce satisfactory investment performance in the future. No Director has an interest in any contract to which the Company is a party.
It should be noted that there is no formal Management Engagement Committee as matters of this nature are dealt with by the independent Non-Executive Directors.
The Company's ordinary share capital as at 30 November 2011 comprised 42,586,289 Ordinary shares of 0.01p each.
The voting rights of the Ordinary shares on a show of hands is one vote for each member present or represented, the voting rights on a poll are one vote for each share held. There are no restrictions on the transfer of the Ordinary shares and there are no shares that carry special rights with regards to the control of the Company.
During the year 8,535,804 (2010:951,343) Ordinary shares were issued through the offer which was extended by a supplemental prospectus to, and closed on, 8 July 2011. On 6 February 2012 the Company launched a Top-up offer for subscription for Ordinary Shares of 0.01p each to raise up to £3,000,000.
During the year, the Company purchased 2,193,803 shares for cancellation at a weighted average price of 62p per share (2010: 705,334 shares for a weighted average price of 59p per share) for a total consideration of £1,362,000 (2010: £416,454). These 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.
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:
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. 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 (principally the Companies Act 2006).
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 authority proposed under Resolution 6 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 6 renews the Directors' authority to allot up to 8,513,626 Ordinary shares (representing approximately 20% of the Company's issued share capital at 15 March 2012 – 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 7 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 6 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 8 is required so that the Directors may make purchases of up to approximately 10% of the Company's issued share capital and Resolution 8 seeks renewal of such authority until the next Annual General Meeting (or the expiry of 15 months, if earlier). 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. 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 either be cancelled or held in Treasury for future re-sale in appropriate market conditions.
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.
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).
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 2011 there were no trade creditors (2010: £nil).
The Company always makes full effort to conduct its business in a manner that is responsible to the environment. This responsibility is maintained in investment decisions where possible.
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 5 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.
PKF (UK) LLP offers 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 Board of the Company 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 UK Corporate Governance 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 UK Corporate Governance 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 UK Corporate Governance Code with the exceptions set out in the Compliance Statement on page 29.
In accordance with The UK Corporate Governance Code, a performance evaluation was conducted by the Directors completing a questionnaire which was returned to the Chairman who provided a summary of the findings to the Board at the following meeting. The performance of the Chairman was evaluated by the other Directors.
A person may be appointed as a Director of the Company by the shareholders at 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 is recommended by the Directors or, not less than seven nor more than 21 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 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 appointment. At each Annual General Meeting of the Company one-third 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.
Subject to the provisions of the Companies Act, the Memorandum and Articles of Association of the Company and any directions given by shareholders by Special Resolution, the Articles of Association specify that the business of the Company is to be managed by the Directors, who may exercise all the powers of the Company, whether relating to the management of the business or not. In particular the Directors may exercise on behalf of the Company its powers to purchase its own shares to the extent permitted by shareholders. Authority was given at the Company's 2011 Annual General Meeting to make market purchases of up to 10% of the issued Ordinary share capital at any time up to the 2012 Annual General Meeting and otherwise on the terms set out in the relevant resolution, and renewed authority is being sought at the 2012 Annual General Meeting as set out in the notice of meeting.
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.
| Full | Audit | Audit | ||
|---|---|---|---|---|
| Board | No. of Committee | Committee | ||
| meetings | meetings | meetings | meetings | |
| held | attended | held | attended | |
| Keith | ||||
| Mullins | 4 | 4 | 2 | 2 |
| Elizabeth | ||||
| Kennedy | 4 | 4 | 2 | 2 |
| Andy | ||||
| Raynor | 4 | 4 | 2 | 2 |
| Alastair | ||||
| Ritchie | 4 | 4 | 2 | 2 |
Additional meetings were held as required to address specific issues including considering recommendations from the Investment Manager; approval of allotments and documentation to shareholders.
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.
| Date of | ||
|---|---|---|
| Original | Due date | |
| Appointment | for Re-election | |
| Keith Mullins | 14/09/2005 | AGM 2013 |
| Elizabeth Kennedy | 12/08/2010 | AGM 2014 |
| Andy Raynor | 14/09/2005 | AGM 2012 |
| Alastair Ritchie | 12/08/2010 | AGM 2014 |
The Board has appointed one committee to make recommendations to the Board in a specific area:
Andy Raynor Elizabeth Kennedy Keith Mullins Alastair Ritchie
The Audit Committee, chaired by Andy Raynor, consists of the four independent Directors. The Audit Committee believes Andy Raynor possesses appropriate and relevant financial experience as per the requirements of The UK Corporate Governance 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 which were discharged during the year ended 30 November 2011:
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. Non-audit services are not provided by the external auditor and therefore the Audit Committee does not believe there are any influences on their independence or objectivity. When considering whether to recommend the reappointment of the external auditor, the Committee take into account the tenure of the current auditor in addition to comparing the fees charged to similar sized audit firms.
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.
Once the Committee has made a recommendation to the Board, in relation to the appointment of the external auditor, this is then ratified at the AGM through an Ordinary Resolution.
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 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 Manager.
The Board delegates the identification of appropriate opportunities and the investment of funds to Octopus Investments Limited. The Board regularly review reports upon the investments made and on the status of existing investments.
Octopus Investments Limited 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.
Internal control systems include the production and review of monthly bank reconciliations and management accounts. All outflows made from the VCT's accounts require the authority of two signatories from Octopus Investments Limited. The VCT is subject to a full annual audit and the auditor is the same auditor for another VCT managed by the Investment Manager. Further to this, the Audit Partner has open access to the Directors of the VCT and the Investment Manager is subject to regular review by the Octopus Investments Limited Compliance Department.
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 a shareholder 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 Investments Limited is happy to answer any questions you may have and can be contacted on 0800 316 2295.
The Listing Rules require the Board to report on compliance throughout the accounting period with all relevant provisions set out in The UK Corporate Governance Code. The preamble to The UK Corporate Governance Code does, however, acknowledge that some provisions may have less relevance for investment companies adding that the AIC Code and AIC Guide can assist in meeting the obligations under The UK Corporate Governance Code. With the exception of the limited items outlined below, the Company has complied throughout the accounting year to 30 November 2011 with the provisions set out in The UK Corporate Governance Code. The section references to The UK Corporate Governance Code are shown in brackets.
By order of the Board
Celia L Whitten FCIS Company Secretary 22 March 2012
This report is submitted in accordance with Chapter 6 of Part 15 of the Companies Act 2006, in respect of the year ended 30 November 2011. An Ordinary Resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting. The Company's auditor, PKF (UK) LLP, is required to give their opinion on certain information included in this report; comprising 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 a period of three years, at least. 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. Reelection will be recommended by the Board but is dependent upon shareholder votes.
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. Due to the nature of the Company, there are no employees other than the Directors and therefore no such issues to consider when determining the Directors' remuneration.
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. The Board is also entitled to be repaid all reasonable travelling, subsistence and other expenses incurred by them respectively whilst conducting their duties as Directors; however 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.
The graph below compares the share price, NAV and total return (NAV assuming the re-investment of all dividends plus 40% upfront tax relief) of the Company over the period from 1 March 2006 to 30 November 2011 with the total return from notional investments in the FTSE All-Share index and the FTSE Small-Cap excluding Investment Trusts 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.
The total expense ratio for the Company for the year to 30 November 2011 was 2.9 per cent based upon net assets as at 30 November 2011 (2010: 3.4 per cent based upon average net assets during the year due to the merger).
| Directors' fees | Year ended | Year ended |
|---|---|---|
| 30 November 2011 | 30 November 2010 | |
| Keith Richard Mullins | £16,000 | £16,000 |
| Andrew Paul Raynor | £13,000 | £13,000 |
| Elizabeth Kennedy** | £13,000 | £3,950 |
| Alastair Ritchie** | £13,000 | £3,950 |
| Christopher Holdsworth Hunt* | – | £12,367 |
| Total | 55,000 | 49,267 |
* Mr Holdsworth Hunt resigned from the Company on 12 August 2010.
** Ms Kennedy and Mr Ritchie were appointed as Directors of the Company on 12 August 2010.
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 22 March 2012
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, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.
The Directors confirm, to the best of their knowledge:
The names and functions of all the Directors are stated on page 27.
On Behalf of the Board
Keith Richard Mullins Chairman 22 March 2012
We have audited the financial statements of Octopus Second AIM VCT plc for the year ended 30 November 2011 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 auditor's 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 Directors' Responsibilities Statement, 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 and express an opinion on 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 addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
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:
the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
certain disclosures of Directors' remuneration specified by law are not made; or
Under the Listing Rules we are required to review:
(Senior statutory auditor) for and on behalf of PKF (UK) LLP Statutory auditors London, UK 22 March 2012
| Year to 30 November 2011 | ||||
|---|---|---|---|---|
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Loss on disposal of fixed asset investments | 11 | – | (697) | (697) |
| Loss on valuation of fixed asset investments | 11 | – | (68) | (68) |
| Investment Income | 2 | 315 | – | 315 |
| Investment management fees | 3 | (135) | (403) | (538) |
| Other expenses | 4 | (220) | – | (220) |
| Loss on ordinary activities before tax | (40) | (1,168) | (1,208) | |
| Taxation on loss on ordinary activities | 7 | – | – | – |
| Loss on ordinary activities after tax | (40) | (1,168) | (1,208) | |
| Earnings per share – basic and diluted | 9 | (0.1)p | (2.9)p | (3.0)p |
● the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AITC Statement of Recommended Practice.
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of recognised gains and losses is not required.
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the loss as stated above and at historical cost.
| Year to 30 November 2010 | ||||
|---|---|---|---|---|
| Revenue | Capital | Total | ||
| Notes | £'000 | £'000 | £'000 | |
| Gain on disposal of fixed asset investments | – | 601 | 601 | |
| Gain on disposal of current asset investments | – | 8 | 8 | |
| Gain on valuation of fixed asset investments | – | 1,052 | 1,052 | |
| Investment Income | 2 | 182 | – | 182 |
| Investment management fees | 3 | (71) | (213) | (284) |
| 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.
| As at | As at | ||||
|---|---|---|---|---|---|
| 30 November 2011 | 30 November 2010 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
| Fixed asset investments* | 11 | 21,742 | 17,910 | ||
| Current assets: | |||||
| Investments* | 12 | 3,901 | 6,587 | ||
| Debtors | 13 | 506 | 211 | ||
| Cash at bank | 636 | 126 | |||
| 5,043 | 6,924 | ||||
| Creditors: amounts falling due within one year | 14 | (195) | (60) | ||
| Net current assets | 4,848 | 6,864 | |||
| Net assets | 26,590 | 24,774 | |||
| Called up equity share capital | 15 | 4 | 4 | ||
| Shares to be issued | 15 | – | 154 | ||
| Share premium | 16 | 20 | 13,658 | ||
| Special distributable reserve | 16 | 31,681 | 13,481 | ||
| Capital reserve realised | 16 | (3,855) | (807) | ||
| Capital reserve un-realised | 16 | (1,056) | (1,552) | ||
| Revenue reserve | 16 | (204) | (164) | ||
| Total equity shareholders' funds | 26,590 | 24,774 | |||
| Net asset value per share – basic and diluted | 10 | 62.4p | 67.9p |
*Held at fair value through profit and loss
The statements were approved by the Directors and authorised for issue on 22 March 2012 and are signed on their behalf by:
Keith Richard Mullins Chairman
Company No: 05528235
| Year ended | Year ended | ||
|---|---|---|---|
| 30 November 2011 | 30 November 2010 | ||
| Notes | £'000 | £'000 | |
| Shareholders' funds at start of year | 24,774 | 10,783 | |
| (Loss)/Profit on ordinary activities after tax | (1,208) | 1,281 | |
| Shares issued upon acquisition of assets and | |||
| liabilities from Octopus Third AIM VCT plc | – | 13,084 | |
| Stamp duty on shares issued | 6 | – | (57) |
| Share capital bought back | (1,362) | (416) | |
| Issue of shares | 5,770 | 633 | |
| Shares to be issued | – | 154 | |
| Dividends paid | 8 | (1,384) | (688) |
| Shareholders' funds at end of year | 26,590 | 24,774 |
| Year to | Year to | ||
|---|---|---|---|
| 30 November 2011 | 30 November 2010 | ||
| Note | £'000 | £'000 | |
| Net Cash outflow from operating activities | (603) | (404) | |
| Taxation: UK Corporation tax paid | 7 | – | – |
| Financial investment | |||
| Purchase of investments | 11 | (5,963) | (2,917) |
| Disposal of investments | 11 | 1,366 | 3,551 |
| Management of liquid resources | |||
| Purchase of current asset investments | 12 | (16,364) | (13,238) |
| Sale of current asset investments | 12 | 19,050 | 8,497 |
| Net cash outflow from investing activities | (2,514) | (4,511) | |
| Dividends paid | (1,384) | (688) | |
| Net cash outflow before financing | (3,898) | (5,199) | |
| 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 | 5,770 | 633 | |
| Shares to be issued | – | 154 | |
| Purchase of own shares | (1,362) | (416) | |
| Net cash inflow from financing | 4,408 | 5,139 | |
| Increase/(decrease) in cash | 510 | (60) |
| Year to | Year to | ||
|---|---|---|---|
| 30 November 2011 | 30 November 2010 | ||
| Note | £'000 | £'000 | |
| (Loss)/Profit on ordinary activities before tax | (1,208) | 1,281 | |
| Gain on disposal of current asset investments | 12 | – | (8) |
| Loss/(Gain) on disposal of fixed asset investments | 11 | 697 | (601) |
| Loss/(Gain) on valuation of fixed asset investments | 11 | 68 | (1,052) |
| (Increase)/Decrease in debtors | 13 | (295) | 38 |
| Increase/(Decrease) in creditors | 14 | 135 | (62) |
| Outflow from operating activities | (603) | (404) |
| Year to | Year to | ||
|---|---|---|---|
| 30 November 2011 | 30 November 2010 | ||
| Note | £'000 | £'000 | |
| Increase/(Decrease) in cash at bank | 510 | (60) | |
| Movement in cash equivalent securities | 12 | (2,686) | 4,749 |
| Opening net liquid resources | 6,713 | 2,024 | |
| Net liquid resources at 30 November | 4,537 | 6,713 |
| As at | As at | ||
|---|---|---|---|
| 30 November 2011 | 30 November 2010 | ||
| Note | £'000 | £'000 | |
| Cash at Bank | 636 | 126 | |
| Money market cash funds | 12 | 3,901 | 6,587 |
| Net liquid resources at 30 November | 4,537 | 6,713 |
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 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. 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 principal accounting policies have remained unchanged from those set out in the Company's 2010 Annual Report and financial statements. A summary of the principal accounting policies is set out below.
The Company presents its income statement in a three column format to give shareholders additional detail of the performance of the Company, split between items of a revenue or capital nature.
The preparation of the financial statements requires Management to make accounting judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments.
The Company has designated all fixed asset investments as being held at fair value through profit and loss; therefore all gains and losses arising from investments held are attributable to financial assets held at fair value through profit and loss. Accordingly, all interest income, fee income, expenses and investment gains and losses are attributable to assets designated as being at fair value through profit or loss.
Current asset investments comprising money market funds and deposits are held for trading and are therefore 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 of money market funds and deposits and are designated as FVTPL. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve – 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.
| 30 November 2011 | 30 November 2010 | ||||||
|---|---|---|---|---|---|---|---|
| £'000 | £'000 | ||||||
| Income on money market securities and bank balances | 38 | 30 | |||||
| Dividends received (fixed asset investments) | 277 | 152 | |||||
| 315 | 182 | ||||||
| 3. | Investment Management Fees | ||||||
| 30 November 2011 | 30 November 2010 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Investment management fee | 135 | 403 | 538 | 71 | 213 | 284 | |
| 135 | 403 | 538 | 71 | 213 | 284 |
For the purposes of the revenue and capital columns in the Income Statement, the management fee has been allocated 25% to revenue and 75% to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio.
Octopus Investments Limited 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. Following the merger of funds in the prior year, the net assets of the resulting fund have grown. This has led to an increase in the investment management fee payable during the year.
During the year Octopus Investments Limited charged management fees of £538,000 (2010: £284,000). At the year end there was £nil outstanding (2010: £nil). Octopus Investments Limited received £25,000 (2010: £17,000) as a result of upfront fees charged on the allotments of Ordinary Shares.
| 30 November 2011 | 30 November 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Directors' remuneration | 55 | 49 |
| Fees payable to the Company's auditor for the audit | ||
| of the financial statements | 22 | 26 |
| Legal and professional expenses | 12 | 69 |
| Other administration expenses* | 131 | 66 |
| 220 | 210 |
*other administrative expenses have increased due to the merger of funds in the prior year and the resulting larger fund.
The total expense ratio for the Company for the year to 30 November 2011 was 2.9 per cent based upon net assets as at 30 November 2011, (2010: 3.4 per cent based upon average net assets throughout the year, due to the merger).
| 30 November 2010 | 30 November 2009 | |
|---|---|---|
| £'000 | £'000 | |
| Keith Richard Mullins | 16 | 16 |
| Christopher Holdsworth Hunt (resigned 12 August 2010) | – | 12 |
| Andrew Paul Raynor | 13 | 13 |
| Elizabeth Anita Kennedy (appointed 12 August 2010) | 13 | 4 |
| Alastair James Ritchie (appointed 12 August 2010) | 13 | 4 |
| 55 | 49 |
None of the Directors received any other remuneration or benefit from the Company during the year. The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was four (2010: three). The above table represents the gross remunerations received by the directors and excludes Employer's National Insurance contributions.
In the prior year, the Company merged with Octopus Third AIM VCT plc. 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 was disclosed as merger costs in the Income Statement as the stamp duty went to the share premium account.
The corporation tax charge for the year was £nil (2010: £nil).
Factors affecting the tax charge for the current year:
The current tax charge for the year differs from the effective small company rate of corporation tax in the UK of 20.33% (2010: 21%).
The differences are explained below:
Current tax reconciliation:
| 30 November 2011 | 30 November 2010 | |
|---|---|---|
| £'000 | £'000 | |
| (Loss)/Profit on ordinary activities before tax | (1,208) | 1,281 |
| Current tax at 20.33% (2010: 21%) | (246) | 269 |
| Income not liable to tax | (56) | (36) |
| Expenses not deductible for tax purposes | 2 | 19 |
| (Gains)/Losses not subject to tax | 155 | (348) |
| Excess management expenses carried forward | 145 | 96 |
| Total current tax charge | – | – |
Approved VCTs are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a venture capital trust, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
As at 30 November 2011, there is an unrecognised deferred tax asset of £292,000 (2010: £154,000) in respect of surplus management expenses.
| 30 November 2011 | 30 November 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Recognised as distributions in the financial statements for | ||
| the year | ||
| Previous year's final dividend | 697 | 154 |
| Current year's interim dividend | 687 | 534 |
| 1,384 | 688 | |
| Paid and proposed in respect of the year | ||
| Interim dividend paid – 1.6p per share (2010: 1.5p per share) | 687 | 534 |
| Final dividend 1.6p (2010: 1.65p) per share | 673 | 610 |
| 1,360 | 1,144 |
The earnings per share is based on 40,589,911 (2010: 21,644,414) 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 2011 is based on 42,586,289 (2010: 36,470,759) Ordinary shares in issue at that date.
FRS 29, regarding financial instruments that are measured in the balance sheet at fair value, requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held is the current bid price. These instruments are included in level 1 and comprise AIM listed investments classified as held at fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The Company held no such investment in the current or prior year.
Level 3: the fair value of financial instruments that are not traded in an active market (for example investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The Company held no such investments in the current or prior year.
There have been no transfers between these classifications in the period (2010: 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 2011 are summarised below and in note 12.
| Level 1: | ||||
|---|---|---|---|---|
| AIM-quoted | Total | |||
| investments | investments | |||
| £'000 | £'000 | |||
| Book cost as at 1 December 2010 | 19,462 | 19,462 | ||
| Revaluation to 1 December 2010 | (1,552) | (1,552) | ||
| Valuation at 1 December 2010 | 17,910 | 17,910 | ||
| Purchases at cost | 5,963 | 5,963 | ||
| Disposal proceeds | (1,366) | (1,366) | ||
| Loss on realisation of investments – current year | (697) | (697) | ||
| Revaluation in year | (68) | (68) | ||
| Closing valuation at 30 November 2011 | 21,742 | 21,742 | ||
| Book cost at 30 November 2011: | ||||
| – Ordinary shares | 22,798 | 22,798 | ||
| Revaluation to 30 November 2011: | ||||
| – Ordinary shares | (1,056) | (1,056) | ||
| Valuation at 30 November 2011 | 21,742 | 21,742 |
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 2011 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 £18,000 and £4,000 respectively.
Current asset investments at 30 November 2011 and at 30 November 2010 comprised of money market funds* and FRNs. These fall into level 1 of the fair value hierarchy as defined in note 11.
| 30 November 2011 | 30 November 2010 | |
|---|---|---|
| £'000 | £'000 | |
| Book cost at 1 December: Money market funds |
6,587 | 10 |
| FRNs | – | 1,832 |
| Revaluation to 1 December: Money market funds |
6,587 – |
1,842 – |
| FRNs | – | (4) |
| – | (4) | |
| Valuation as at 1 December | 6,587 | 1,838 |
| Purchases at cost: Money market funds |
16,364 | 13,238 |
| 16,364 | 13,238 | |
| Disposal proceeds: Money market funds FRNs |
(19,050) – |
(6,661) (1,836) |
| Profit/(loss) in year on realisation of investments: Money market funds FRNs |
(19,050) – – |
(8,497) – 8 |
| Revaluation in year: Money market funds |
– – |
8 – |
| – | – | |
| Closing valuation as at 30 November | 3,901 | 6,587 |
| Book cost at 30 November: Money market funds Revaluation to 30 November: Money market funds |
3,901 – |
6,587 – |
| Closing valuation as at 30 November | 3,901 | 6,587 |
*Money market funds represent money held pending investment and can be accessed with 1 working day notice.
| 30 November 2011 | 30 November 2010 | ||
|---|---|---|---|
| £'000 | £'000 | ||
| Other debtors | 458 | 145 | |
| Prepayments and accrued income | 48 | 66 | |
| 506 | 211 | ||
| 14. | Creditors: amounts falling due within one year | ||
| 30 November 2011 | 30 November 2010 | ||
| £'000 | £'000 | ||
| Accruals and other creditors | 195 | 60 | |
| 15. | Share Capital | ||
| 30 November 2011 | 30 November 2010 | ||
| £'000 | £'000 | ||
| Allotted and fully paid up: | |||
| 42,586,289 Ordinary shares of 0.01p (2010: 36,244,288) | 4 | 4 | |
| Non-allotted and fully paid up: | |||
| Nil Ordinary shares of 0.01p (2010: 226,471) | – | 154 |
The value of shares to be issued at 30 November 2011 amounted to £Nil (2010: £154,000).
The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page 19. The Company is not subject to any externally imposed capital requirements.
The Company repurchased the following Ordinary shares during the year to be cancelled:
The total nominal value of the shares repurchased was £219 (2010: £148) representing 0.01% (2010: 0.41%) 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 | |||
|---|---|---|---|---|---|
| Share distributable | reserve | reserve | Revenue | ||
| Premium | reserve* | realised* | unrealised* | reserve* | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 December 2010 | 13,658 | 13,481 | (807) | (1,552) | (164) |
| Cancellation of share premium | (19,562) | 19,562 | |||
| Shares issued through offer | 5,924 | – | – | – | – |
| Repurchase of own shares | – | (1,362) | – | – | – |
| Loss on ordinary activities after tax | – | – | – | – | (40) |
| Management fees allocated as capital | |||||
| expenditure | – | – | (403) | – | – |
| Current year gains/(losses) on disposal | – | – | (697) | – | – |
| Prior period gains/(losses) on disposal | – | – | (564) | 564 | – |
| (Losses) on revaluation | – | – | – | (68) | – |
| Dividends paid | – | – | (1,384) | – | – |
| Balance as at | |||||
| 30 November 2011 | 20 | 31,681 | (3,855) | (1,056) | (204) |
*Included within these reserves is an amount of £26,566,000 (2010: £10,958,000) which is 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.
A court order obtained on 11 November 2011, permitted the cancellation of the share premium account and the capital redemption reserve. As a result, £19,562,000 was transferred to special distributable reserve. The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount to net asset value at which the Company's ordinary shares trade. In the event that the revenue reserve and capital reserve gains/(losses)-realised do not have sufficient funds to pay dividends, these will be paid from the special distributable reserve.
The Company's financial instruments comprise equity investments, cash balances, investments in money market funds and debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying AIM-quoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity.
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 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.
81.7% (30 November 2010: 72.3%) by value of the Company's net assets comprised equity securities listed on the London Stock Exchange or quoted on AIM. A 10% increase in the bid price of these securities as at 30 November 2011 would have increased net assets and the total return for the year by £2,174,000 (30 November 2010: £1,791,000); 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 2011 (30 November 2010: 0.5%). The amounts held in floating rate investments at the balance sheet date were as follows:
| 30 November 2011 | 30 November 2010 | |
|---|---|---|
| £000 | £000 | |
| Current investments | 3,901 | 6,587 |
| Cash at bank | 636 | 126 |
| 4,537 | 6,713 |
A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £45,370 (30 November 2010: £67,130).
There were no significant concentrations of credit risk to counterparties at 30 November 2011. By value, no individual bank holding or fixed rate note investment exceeded 10.2% (2010: 14.2%) of the Company's net assets at 30 November 2011.
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 2011 the Company's financial assets exposed to credit risk comprised the following:
| 30 November 2011 | 30 November 2010 | |
|---|---|---|
| £000 | £000 | |
| Current investments | 3,901 | 6,587 |
| Loans and receivables | ||
| Accrued dividends and interest receivable | 37 | 59 |
| Cash at bank | 636 | 126 |
| 4,574 | 6,772 |
Credit risk relating to listed money market securities is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by the UK Government and major UK companies and institutions.
Those assets of the Company which are traded on recognised stock exchanges are held on the Company's behalf by third party sub-custodians (for example, BlackRock in the case of listed money market securities and Charles Stanley Limited in the case of quoted equity securities). Bankruptcy or insolvency of a custodian could cause the Company's rights with respect to securities held by the custodian to be delayed or limited.
Credit risk arising on the sale of investments is considered to be small due to the short settlement and the contracted agreements in place with the settlement lawyers.
The Company's interest-bearing deposit and current accounts are maintained with HSBC and The Co-operative Bank.
Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 30 November 2011 or 30 November 2010.
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 2011 these investments were valued at £4,537,000 (30 November 2010: £6,713,000).
Since the year end, the Company has made the following investments:
| Company | Date | Number of shares | Cost (£) |
|---|---|---|---|
| Advanced Computer Software plc | 29 December 2011 | 1,000 | 489 |
| Augean plc | 2 February 2012 | 240,000 | 73 |
| Animalcare Group plc | 16 February 2012 | 1,000 | 2 |
| Advanced Computer Software plc | 16 February 2012 | 5,000 | 3 |
| Breedon Aggregates plc | 16 February 2012 | 5,000 | 1 |
| Escher Group Holdings plc | 16 February 2012 | 500 | 1 |
| IDOX plc | 16 February 2012 | 5,000 | 1 |
| Tasty plc | 16 February 2012 | 1,000 | 1 |
| Escher Group Holdings plc | 21 February 2012 | 500 | 1 |
| Augean plc | 2 March 2012 | 42,340 | 13 |
| Corero Network Security plc | 2 March 2012 | 837,209 | 360 |
| Augean plc | 15 March 2012 | 83,000 | 25 |
A disposal was made in Optare plc (3 January 2012), resulting in a loss of £43,000. A part disposal was made in Chime Communications plc (10 February 2012), resulting in a profit of £43,000.
The following shares have been bought back since the year end:
| 9 December 2011 | 217,101 shares bought back and cancelled at 55.8p |
|---|---|
| 20 January 2012 | 78,095 shares bought back and cancelled at 55.0p |
| 24 February 2012 | 44,388 shares bought back and cancelled at 58.5p |
| 16 March 2012 | 176,601 shares bought back and cancelled at 60.5p |
On 6 February 2012, existing shareholders were notified of a Top-up offer aimed to raise a further £3 million of funds for this VCT.
There were no contingencies, guarantees or financial commitments as at 30 November 2011 (2010: 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
31 Holborn London EC1N 2HR
The Co-operative Bank 11 Market Road Chelmsford CM1 1XA
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 will be held at 20 Old Bailey, London EC4M 7AN on Wednesday, 16 May 2012 at 11.00 a.m. for the purposes of considering and if thought fit, passing the following resolutions of which Resolutions 1 to 6 and 9 will be proposed as Ordinary Resolutions and Resolutions 7 and 8 will be proposed as Special Resolutions:
To consider and if thought fit, pass Resolutions 6 and 9 as Ordinary Resolutions and Resolutions 7 and 8, as Special Resolutions:
THAT the Directors be and 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 £851.73 (representing approximately 20% of the Ordinary share capital in issue at 15 March 2012) such authority to expire at the later 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 the relevant 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 relevant securities to be allotted after the expiry of such authority).
TO empower the Directors pursuant to s571 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 referred to in Resolution 6 as if s561(1) of the said Act did not apply to any such allotments and so that:
And this power, unless previously varied, revoked or renewed, shall come to an end at the conclusion of the Annual General Meeting of the Company next following the passing of this Resolution or, if earlier, on the expiry of 15 months from the passing of this Resolution.
THAT the Company be and is hereby generally and unconditionally authorised to make market purchases (within the meaning of s693(4) of the Act) 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 2018.
By Order of the Board 20 Old Bailey
Celia L Whitten FCIS Company Secretary 22 March 2012
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 [address] | |||
| 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 to vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 16 May 2012, notice of which was sent to shareholders with the Directors' Report and the accounts for the year ended 30 November 2011, 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 2011 |
||
| 2. | To approve a final dividend | ||
| 3. | To approve the Directors' Remuneration Report | ||
| 4. | To re-elect Andy Raynor as a Director | ||
| 5. | To re-appoint PKF UK LLP as auditor and authorise the Directors to agree their remuneration |
||
| 6. | To authorise the Directors to allot shares under s551 of the Companies Act 2006 (Ordinary Resolution) |
||
| 7. | To disapply s561 of the Companies Act 2006 and allot shares on a non-rights issue basis (Special Resolution) |
||
| 8. | To authorise the Directors to make market purchases of its own shares |
(Special Resolution) 9. To continue the Company as a Venture Capital Trust until 2018 (Ordinary Resolution)
| Signed: | Dated: 2012 | ||
|---|---|---|---|
| --------- | ------------- | -- | -- |
✁
If you are unable to attend the AGM and wish to pass on any comments to the Board, please use the box below:
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.