TIDMOEC4
Octopus Eclipse VCT 4 plc
Final Results
01 November 2010
Originally published on 1(st) November 2010 at 5.56 p.m. UK time but technical
difficulties between providers delayed visibility of this Statement
Octopus Eclipse VCT 4 plc (the "Company"), managed by Octopus Investments
Limited, today announces the final results for the year ended 31 July 2010.
These results were approved by the Board of Directors on 1 November 2010.
You may view the Annual Report in full at www.octopusinvestments.com by
navigating to VCT Meetings & Reports under the 'Services' section
About Octopus Eclipse VCT 4 plc
Octopus Eclipse VCT 4 plc ('Eclipse 4 or 'Company') is a venture capital trust
(VCT) which aims to provide shareholders with attractive tax-free dividends and
long-term capital growth, by investing in a diverse portfolio of unquoted and
AIM-quoted companies. The Company is managed by Octopus Investments Limited
('Octopus' or 'Manager').
Eclipse 4 was launched in August 2005 and raised approximately GBP29.1 million
( GBP28.7 million net of expenses) through an offer for subscription. The Company
co-invests with other funds managed by Octopus. This allows Eclipse 4 to invest
in a wider range of opportunities and in larger and more developed companies
than are typically available to a single VCT.
On 31 August 2010 the Company changed its Registered Office from 8 Angel Court,
London, EC2R 7HP to 20 Old Bailey, London, EC4M 7AN.
Venture Capital Trusts (VCTs)
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:
* upfront income tax relief of 30%
* exemption from income tax on dividends paid; and
* exemption from capital gains tax on disposals of shares in VCTs
The Company has been approved as a VCT by HM Revenue & Customs. In order to
maintain its approval the Company must comply with certain requirements on a
continuing basis. Above all, the Company is required at all times to hold at
least 70% of its investments (as defined in the legislation) in VCT qualifying
holdings, of which at least 30% must comprise eligible Ordinary shares. For
this purpose a 'VCT qualifying holding' consists of up to GBP1 million invested in
any one year in new shares or securities of a UK unquoted company (which may be
quoted on AIM) which is carrying on a qualifying trade, and whose gross assets
at the time of investment do not exceed a prescribed limit. The definition of
'qualifying trade' excludes certain activities such as property investment and
development, financial services and asset leasing. The Company will continue to
ensure its compliance with these qualification requirements.
Financial Summary
11 month period ended 31
Year ended 31 July 2010 July 2009
=-------------------------------------------------------------------------------
Net assets ( GBP'000s) 19,265 18,539
Net return after tax ( GBP'000s) 2,112 (3,275)
Net asset value per share
("NAV") 69.4p 64.5p
Dividends paid and proposed
relating to the period 3.0p 2.5p
Cumulative dividends since
launch - paid and proposed 10.2p 7.2p
Chairman's Statement
I am pleased to present the annual results for the year ended 31 July 2010.
During the year the change in Net Asset Value ('NAV') plus cumulative dividends
paid has generated a positive return of 12.2%. This was calculated from a NAV
increase of 4.9p to 69.4p plus dividends paid of 3.0p. It is pleasing to report
that following a negative total return in the previous financial year, several
of the investee companies have seen an uplift in their values, which has lead to
this positive return in 2010.
The Fund is invested in 15 unquoted and 12 AIM-quoted companies. The focus
continues to remain on the existing portfolio, which is being supported where
appropriate. Limited new additions to the portfolio are envisaged in the near
future. By value 80.9% of the Company's net assets are in unquoted investments,
4.6% in AIM quoted investments, 15.1% of the Company's net assets are currently
in cash or cash equivalents and the small adjustment to get to 100% is in
debtors and creditors.
The Board's strategy is to maintain an appropriate level of liquidity in the
balance sheet to achieve four aims:
* to support further investment in existing portfolio companies if required;
* to take advantage of new investment opportunities as they arise;
* to assist liquidity in the shares through the buy back facility; and
* to support a consistent dividend flow.
Dividend and Dividend Policy
It is your Board's policy to strive to maintain a regular dividend flow where
possible and this primarily relies on the level of profitable realisations and
available cash reserves. Taking these factors into account, the Board has
decided to maintain the dividend at the level paid last year, by proposing a
final dividend of 1.5p per share, given that realisations to date have created a
pool that enables us to do this. However, shareholders should be aware that the
maintenance of a dividend at this level in the medium to long term will require
further realisations which cannot be guaranteed.
Subject to shareholder approval at the Annual General Meeting, this dividend
will be paid on 10 January 2011 to those
shareholders on the register on 10 December 2010. This will take dividends for
the period ended 31 July 2010 to 3.0p per share.
Investment Portfolio
The last year has been challenging for many businesses, though 2010 has seen
some modest improvement in the overall economic environment. Sentiment has
become cautiously more positive with general relief that the financial system
has not imploded and the risk of a double dip appears to be reducing. However
the tone of the economy remains cautious and there is clear recognition that
there will be no rapid move out of the downturn.
One company, RedM, was put into administration during the year. This business
had performed poorly since investment in 2005 and Octopus did not support a
further funding round in 2008, when the fund's investment valuation was reduced
to nil. A fall in fair value also occurred in Perfect Pizza, Sweet Cred and
Lilestone Holdings. However this was more than offset by a significant uplift in
fair value related to CSL DualCom, which has continued to grow strongly. There
was also a strong uplift in the Brandspace and minor uplifts to seven other
investments.
As noted in the half year report we received further proceeds from the exit from
James Harvard, which occurred in 2007. This was based on an earn out
calculation, which was confirmed in March by the purchaser, Hays. I am pleased
to report that in April we received GBP376,000 from this earn out, bringing the
total return to over four times cost.
On the quoted side the results of companies have been mixed. One of the two
realisations, Invocas, generated a loss, however the disposal of Healthcare
Locums resulted in a profit of GBP278,000. Similarly we realised profits in the
part disposals of Brulines Holdings and Pressure Technologies. After accounting
for these realisations, the quoted portfolio showed a decrease in value for the
year, largely due to the reduction in value down to nil of Hexagon Human
Capital.
Further details about the portfolio, including further investments and
realisations, can be found in the Investment Manager's Review on pages ? to ?.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
on the ongoing compliance with HM Revenue & Customs (HMRC) rules and regulations
concerning VCTs. The Board has been advised that Eclipse 4 is in compliance with
the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is for 70% of the portfolio to be invested in qualifying
investments by the end of the third accounting period following that in which
new share capital was subscribed. As at 31 July 2010, over 80.4% of the
portfolio (as measured by HMRC rules) was invested in VCT qualifying
investments. There is an ongoing requirement to maintain the level of qualifying
investments above the 70% threshold which will be supported by the continuing
deal flow from the Investment Manager.
VAT on Management Fees
The Government announced several years ago that VCTs were to be exempt from
paying VAT on investment management fees with effect from 1 October 2008. This
followed a European Court of Justice Judgement against the Government in a case
relating to VAT payable by investment trusts. I am pleased to announce that a
refund of GBP178,000 has been received. This is lower than the GBP200,000 originally
accrued, however we are actively seeking a further refund.
Outlook
Economic recovery is still in a very early phase and the environment in which
portfolio companies are operating remains fragile. Ongoing uncertainty,
exacerbated by the change in Government and the associated spending review,
contributed to businesses delaying some decisions and reacting cautiously to the
unpredictable change in growth prospects.
Despite some positive economic figures recently being released, it is
anticipated that the first half of the next financial year will be fairly muted
in terms of further growth. We do not expect interest rates to change
significantly over the next six months, and this low interest rate environment
is good for small companies. However banks remain reluctant to lend and this may
have an impact on some companies as they start to grow again. It is also
possible that the price of goods imported from China and the Far East may rise,
which could affect supplies and budgets for UK companies.
There are opportunities in this environment for companies to progress through
making good value acquisitions. We will be working to ensure that portfolio
companies can make the most of these as they arise, as well as continuing to
make new investments when the opportunity allows.
Alex Hambro
Chairman
1 November 2010
Investment Manager's Review
Personal service
At Octopus we focus on both managing your investments and keeping you informed
throughout the investment process. We are committed to providing our investors
with regular and open communication. Our updates are designed to keep you
informed about the progress of your investment. During this time of economic
upheaval we consider it particularly important to be in regular contact with our
investors and are working hard to manage your money in the current climate.
Octopus Investments Limited was established in 2000 and has a strong commitment
to both smaller companies and to VCTs. We currently manage 15 VCTs, including
this Company, and manage over GBP300 million in the VCT sector. Octopus has over
165 employees and has been voted as 'Best VCT Provider of the Year' by the
financial adviser community for the last four years.
Investment Policy
The focus of Eclipse 4 is on generating long-term capital growth and attractive
tax-free dividends. In order to achieve this goal the Fund will focus on
providing development and expansion funding to unquoted companies with a typical
investment size of GBP0.25 million to GBP1 million. Additionally, up to 20% of the
Fund may be invested in AIM-quoted companies.
Investment Strategy
Having reached the level of invested funds required by HMRC, our focus shifted
to managing the portfolio and helping the investee companies through a difficult
economic period. As a result, no investments in new companies have been made in
the period and liquidity has been maintained in the Fund to ensure that adequate
resources are available to support further portfolio funding needs as they
arise. The environment has remained challenging for smaller companies, which
have felt the effects of the credit squeeze combined with the economic slowdown.
As well as seeing reductions in banking facilities, small companies also find
themselves under pressure from suppliers who want paying earlier, customers who
delay payments and weaker trading conditions. The resulting pressure on cash
will remain, even as the economy recovers, due to increasing working capital
requirements. We are therefore monitoring carefully all the portfolio companies
to ensure that they not only control costs but also take advantage of some of
the opportunities that occur in these circumstances. We have sought to further
support those companies that we believe have strong growth potential but need
some financial support to realise it. Each company that we target is expected to
have unique selling points and be capable of growing to a size that will make it
attractive for acquisition by a larger company or will enable it to float on the
stock market.
Portfolio review
During the year the portfolio has stabilised and in many cases the companies are
now trading a little ahead of expectations. The low interest rate environment
combined with HMRC's willingness to allow deferral of VAT and other payments has
helped many businesses weather the initial economic storm and the majority of
the portfolio is now up to date with these payments. However, more recently HMRC
has been less accommodating in allowing payment deferral and there is an
increasing risk that interest rates will start to rise in the medium term. We
are therefore taking a cautious view about the prospects for companies in 2011.
Unquoted investments
During the year the most significant uplift in fair value related to CSL
DualCom. There was also a strong uplift in Brandspace and minor uplifts to four
other investments. However this was partly offset by a fall in the fair value of
Perfect Pizza, Sweet Cred and Lilestone Holdings. These movements have
predominantly been based on calculations by reference to reported earnings and
discounted market multiples in accordance with the valuation guidelines, as
detailed in the report. The overall impact has been an increase in the unquoted
portfolio valuation of GBP2,345,000, adding 8.4p to the NAV.
The Fund made no new investments in the year but made follow-on investments into
The History Press, Perfect Pizza, Sweet Cred Holdings, Blanc Brasseries, T4
Holdings, Bruce Dunlop and Lilestone Holdings totalling GBP868,000. Whilst
conditions are still tough across many business sectors we are pleased with the
general performance across the unquoted portfolio. A number of companies are
showing strength in their niche markets with improvements in sales and earnings
which has been reflected in the uplift in NAV. However the general economic
environment still requires caution and we have been active in strengthening
balance sheets and credit facilities where the opportunity arises. In
particular Lilestone Holdings and Sweet Cred, which were in funding negotiations
at the time of the last report, have now concluded those discussions. Lilestone
Holdings has secured further equity investment, primarily from an existing
shareholder, and is now looking to strengthen its management team. Sweet Cred
has obtained working capital and trade finance facilities, which should allow it
to build sales volumes in the UK and overseas on the back of interest shown in
its products.
%
Movement equity
in Fair held by
Cost of valuation value Change in % all
investment as at 31 as at valuation equity funds
as at 31 July 31 July in held by managed
Unquoted July 2010 2010 2010 year Eclipse by
investments Sector ( GBP'000) ( GBP'000) ( GBP'000) ( GBP'000) 4 Octopus
=--------------------------------------------------------------------------------------
CSL DualCom
Ltd 944 2,230 3,174 1,460 10.8% 43.2%
Technology &
telecommunications
Brandspace
Ltd Media & marketing 1,843 505 2,348 505 13.1% 40.5%
The History
Press Ltd Publishing 2,247 - 2,247 - 15.2% 60.0%
Hydrobolt
Ltd Engineering 1,396 233 1,629 232 16.3% 48.1%
Sweet Cred
Holdings
Ltd Consumer products 2,315 (1,038) 1,277 (13) 14.7% 45.0%
Tristar
Worldwide
Ltd Transport services 1,000 - 1,000 103 10.0% 35.0%
Vulcan
Services
Ltd Engineering 1,000 - 1,000 - 24.5% 49.0%
Bruce
Dunlop &
Associates
Ltd Media & marketing 1,523 (600) 923 3 12.5% 35.3%
Audio
Visual
Machines
Ltd 711 172 883 172 10.1% 40.4%
Technology &
telecommunications
T4 Holdings
Ltd Media & marketing 1,141 (582) 559 2 13.7% 51.2%
Perfect
Pizza Ltd Leisure & hotels 504 (228) 276 (44) 9.6% 65.0%
Convivial
London Pubs
Ltd Leisure & hotels 200 (51) 149 5 1.1% 7.8%
Blanc
Brasseries
Holdings
plc Leisure & hotels 92 2 94 44 0.7% 3.0%
Lilestone
Holdings
Ltd Consumer products 441 (405) 36 (124) 2.8% 24.0%
Red-M Group
Ltd 241 (241) - - 3.6% 9.3%
Technology &
telecommunications
=--------------------------------------------------------------------------------------
Total
unquoted
investments 15,598 (3) 15,595 2,345
AIM-quoted investments
The performance of the AIM holdings has been mixed during the period. Despite
Healthcare Locums having its profit forecast downgraded in March following a
change to the accounting treatment of their long term international
contracts, we still realised a profit of GBP278,000 on disposal. The holding in
Invocas was also sold, disappointingly for a loss of GBP37,000, as the management
team made moves to take the company private. The holding in Pressure
Technologies was further reduced for a small net profit. The combined disposals
over the year realised a net profit of GBP255,000.
As 2010 has progressed, the remaining holdings in the portfolio have continued
to suffer from poor market sentiment for smaller companies which has seen an
overall reduction in the AIM portfolio valuation of GBP375,000, reducing NAV by
1.3p. However, we continue to have confidence in the underlying performance of
these companies and expect to see a long overdue re-rating of quoted smaller
companies once the macro economic outlook becomes clearer.
%
Movement equity
in Fair held by
Cost of valuation value Change in % all
investment as at 31 as at valuation equity funds
as at 31 July 31 July in held by managed
AIM-quoted July 2010 2010 2010 year Eclipse by
investments Sector ( GBP'000) ( GBP'000) ( GBP'000) ( GBP'000) 4 Octopus
Plastics
Capital plc Engineering 500 (325) 175 50 1.8% 16.5%
Hasgrove plc Media & marketing 400 (233) 167 (67) 1.4% 11.6%
Vertu Motors
plc General retailers 250 (140) 110 (56) 0.2% 3.4%
CBG Group
plc Financial services 383 (291) 92 (62) 1.7% 16.8%
Brulines
(Holdings)
plc Support services 94 (3) 91 18 0.3% 4.7%
Pressure
Technologies
plc Engineering 98 (14) 84 (10) 0.6% 5.9%
Cohort plc Engineering 69 (23) 46 (48) 0.1% 4.2%
Tanfield
Group plc Engineering 143 (102) 41 (42) 0.2% 2.5%
Northern
Bear plc Construction 299 (260) 39 (58) 1.1% 6.6%
Autoclenz
Holdings plc Support services 125 (87) 38 8 1.0% 11.6%
Cantono plc Telecommunications 420 (420) - - 0.0% 0.0%
Hexagon
Human
Capital plc Recruitment 677 (677) - (108) 2.2% 13.7%
=---------------------------------------------------------------------------------------
Total AIM-
quoted
investments 3,458 (2,575) 883 (375)
=---------------------------------------------------------------------------------------
Money market
funds 2,921 (254) 2,667 32
=---------------------------------------------------------------------------------------
Total
investments 21,977 (2,832) 19,145 2,002
=---------------------------------------------------------------------------------------
Net current
assets 120
Total net
assets 19,265
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of fair
value of a financial asset that is either quoted or not quoted in an active
market is the transaction price (i.e. cost).
Subsequent measurement
Subsequent adjustment to the fair value of unquoted investments has been made
using sector multiples based on information as at 31 July 2010, where
applicable. In some cases the multiples have been compared to equivalent
companies, especially where a particular sector multiple does not appear
appropriate. It is currently industry norm to discount the quoted earnings
multiple to reflect the lack of liquidity in the investment, there being no
ready market for our holding. Typically the discount is 30% but in some cases we
have increased the discount, where the relevant multiple appears too high. A
lower discount would also be possible if an investment was close to an exit
event.
In accordance with the International Private Equity and Venture Capital (IPEVC)
valuation guidelines investments made within 12 months are usually kept at cost
unless performance indicates that fair value has changed.
Quoted investments are valued at market bid price. No discounts are applied.
If you would like to find out more regarding the IPEVC valuation guidelines,
please visit their website at: www.privateequityvaluation.com.
Movement in Fair
Investment fair value value at
cost at 31 at 31 July 31 July Number of % of net
July 2010 2010 2010 investments assets
Sector ( GBP'000) ( GBP'000) ( GBP'000) in sector by value
=-------------------------------------------------------------------------------
Unquoted
Technology &
telecommunications 1,896 2,161 4,057 3 21.1%
Media & marketing 4,507 (677) 3,830 3 19.9%
Engineering 2,396 233 2,629 2 13.6%
Publishing 2,247 - 2,247 1 11.7%
Consumer products 2,756 (1,443) 1,313 2 6.8%
Transport services 1,000 - 1,000 1 5.2%
Leisure & hotels 796 (277) 519 3 2.7%
=-------------------------------------------------------------------------------
Unquoted total 15,598 (3) 15,595 15 80.9%
=-------------------------------------------------------------------------------
AIM-quoted
Engineering 810 (464) 346 4 1.8%
Media & marketing 400 (233) 167 1 0.9%
Support services 219 (90) 129 2 0.7%
General retailers 250 (140) 110 1 0.6%
Financial services 383 (291) 92 1 0.5%
Construction 299 (260) 39 1 0.2%
Telecommunications 420 (420) - 1 0.0%
Recruitment 677 (677) - 1 0.0%
=-------------------------------------------------------------------------------
AIM-quoted total 3,458 (2,575) 883 12 4.6%
Review of Investments
At 31 July 2010 the Eclipse 4 qualifying portfolio comprised investments in 15
unquoted and 12 AIM-quoted companies. The unquoted investments are in Ordinary
shares with full voting rights as well as loan note securities. The AIM-quoted
investments are in Ordinary shares, also with full voting rights.
Quoted and unquoted investments are valued in accordance with the accounting
policy set out on page ?, which takes
account of current industry guidelines for the valuation of venture capital
portfolios and is compliant with International Private Equity and Venture
Capital Valuations guidelines and current financial reporting standards. The
valuations listed are a reflection of the total investment i.e. both the equity
and loan note elements.
CSL DualCom Limited
CSL DualCom is the UK's leading supplier of dual path signalling devices, which
link burglar alarms to the police or a private security firm. The devices
communicate using a telephone line or broadband connection and a wireless link
from Vodafone, which has been a partner since 2000. CSL DualCom has developed a
number of new products for the sector, which have enabled the business to
steadily grow its market share of new connections and its profitability since
the initial investment. There has been a further uplift in the carrying value of
this investment, in recognition of the continuation of this strong progress.
Further information can be found at the company's website www.csldual.com.
Initial investment date: June 2006
Cost: GBP944,000
Valuation: GBP3,174,000 (earnings multiple)
Equity held: 10.8%
31 July 2010 31 July 2009
Last audited accounts: 31 March 2010 31 March 2009
Revenues ( GBP'000): 8,236 7,243
Profit before interest & tax ( GBP'000): 1,220 750
Net assets ( GBP'000): 1,239 724
Brandspace Limited (formerly Promotion Space Limited)
Brandspace provides promotional space management for property owners, brands,
agencies and retailers. It exclusively represents some of the UK's most exciting
venues for sponsorship, events, promotions, sampling campaigns, customer
acquisition drives and tactical retail opportunities. Since our initial
investment the business has more than trebled in size through organic and
acquisition-led growth. The company has recently won contracts to provide
promotions in a number of large UK airports, thereby extending their range of
venues. Further information can be found at the company's website
www.brandspace.com.
Initial investment date: April 2007
Cost: GBP1,843,000
Valuation: GBP2,348,000 (earnings multiple)
Equity held: 13.1%
31 July 2010 31 July 2009
Last audited accounts: 31 March 2010 31 March 2009
Billings ( GBP'000): 18,705 17,092
Profit before interest & tax ( GBP'000): 10 (557)
Net assets ( GBP'000): 2,905 3,618
The History Press Limited
The History Press is the UK market leading publisher of distinctive "local
interest" history books. It also has operations in France, Germany, Ireland,
Belgium and the US. The Group houses four main imprints: Pitkin, Phillimore,
Spellmount and The History Press. The retail environment continues to be
challenging into 2010, although the niche that The History Press operates within
is less affected than trade books. The UK has had a satisfactory year, with the
impact of cost savings resulting in a stronger business that is now benefitting
from the reshaping of the publishing list completed in the last 18 months.
France and Germany have had a more difficult year, with their own markets
suffering more than that in the UK. The US is performing well and continues to
show high growth. With a stronger sustained performance in the Group, the
management team is able to explore opportunities for further growth in the next
twelve months. Further information can be found at the company's website
www.thehistorypress.co.uk.
Initial investment date: December 2007
Cost: GBP2,247,000
Valuation: GBP2,247,000 (earnings multiple)
Equity held: 15.2%
31 July 2010 31 July 2009
Last audited accounts: 31 December 2009 31 December 2008
Revenues ( GBP'000): 11,747 12,794
Loss before interest & tax ( GBP'000): (648) (1,063)
Net liabilities ( GBP'000): (2.569) (1,161)
Hydrobolt Group Holdings Limited
Hydrobolt is a manufacturer and supplier of special fasteners and petro-chemical
grade studbolts. It differentiates itself by its quality of service,
flexibility and full traceability of its products, which are often a small but
critical part of a large machine or assembly in the oil and gas market. Trading
in 2009 was difficult with performance linked to the oil price. 2010 is
demonstrating an improvement. The business has also implemented a new ERP
system which we anticipate providing an ongoing improvement to the business's
operational effectiveness and ability to increase in scale.
Initial investment date: February 2008
Cost: GBP1,396,000
Valuation: GBP1,629,000 (earnings multiple)
Equity held: 16.3%
31 July 2010
Last audited accounts: 31 March 2009
Revenues ( GBP'000): 17,450
Profit before interest & tax ( GBP'000): 2,573
Net assets ( GBP'000): 1,846
Sweet Cred Holdings Limited
Sweet Cred sells a wide range of products which combine sweets with toys that
are themed around the five cartoon characters in the Sweet Cred gang. The range
is sold through distribution partners in Europe, the US and the Middle East. In
the UK, distribution is through the main wholesalers and the major multiple
retailers, motorway service stations and leading toyshop chains. Trading
suffered last year from the weakness of sterling and the lack of sufficient
working capital facilities during the credit crunch. The Eclipse Funds have made
further investments during this period to help fund the working capital
requirement. The business has now secured bank funding and has a substantial
order book, particularly overseas. It has also increased its UK customer base in
high street retail, such as launching a co-branded product with WHSmiths and
rolling out throughout the Co-Op estate. Further information can be found at
the company's website www.sweetcred.com.
Initial investment date: March 2007
Cost: GBP2,315,000
Valuation: GBP1,277,000 (earnings multiple)
Equity held: 14.7%
31 July 2010 31 July 2009
Last audited accounts: 31 December 2008 31 December 2007
Revenues ( GBP'000): 5,813 2,448
Profit/(loss) before interest & tax ( GBP'000): 63 (1,689)*
Net liabilities ( GBP'000): (3,403) (1,930)
*Prior year adjustment for intangibles
Tristar Worldwide Limited
Tristar is one of the world's leading chauffeur companies, carrying over
500,000 passengers for 400 clients in the last year alone. The business operates
in 70 countries with its own vehicles in the UK and the US and a rapidly
expanding operation in Hong Kong. It has a blue chip customer base which
includes Virgin, Emirates, BP, Goldman Sachs and Bank of America - Merrill
Lynch. The market for chauffeur services was significantly affected by the
economic downturn, but we believe it has now stabilised and Tristar has achieved
a good performance in the circumstances where many of its competitors are
suffering to a greater extent. The company's focus on a joined-up international
service is proving to be an important selling feature for clients, and the focus
is now on extending that international reach. Further information can be found
at the company's websitewww.tristarworldwide.com.
Initial investment date: January 2008
Cost: GBP1,000,000
Valuation: GBP1,000,000 (fair value being cost)
Equity held: 10.0%
31 July 2010 31 July 2009
Last audited accounts: 31 May 2010 31 May 2009
Revenues ( GBP'000): 32,608 35,118
Profit before interest & tax ( GBP'000): 779 694
Net liabilities ( GBP'000): 1,951 1,994
Vulcan Services Limited
Eclipse 4 invested in an acquisition vehicle formed with an experienced manager
to jointly seek strategic acquisitions in the fast growing oil and gas services
sector. This was a sector in which Octopus had identified a number of highly
profitable, fast growing, niche manufacturing businesses. Despite identifying a
number of potential investments over the last two years, these have not come to
fruitition for a variety of reasons. The decision has now been taken to
liquidate the Company, allowing more flexibility in investing the funds going
forward.
Initial investment date: August 2008
Cost: GBP1,000,000
Valuation: GBP1,000,000 (fair value being cost)
Equity held: 24.5%
Bruce Dunlop & Associates Limited
Bruce Dunlop & Associates International Limited ('BDA') provides promotion and
design services to broadcasters and advertisers worldwide and also creates brand
films and internal communications for leading UK corporations. Customers
include Hallmark, Barclays, The Discovery Channel and Sony. After a tough period
in 2009 the business has stabilised its trading and started to make good
progress. In the year to June 2009 results were slightly ahead of budget and
there has been an encouraging start to the new financial year. Further
information can be found at the company's websitewww.bdacreative.com.
Initial investment date: December 2007
Cost: GBP1,523,000
Valuation: GBP923,000 (earnings multiple)
Equity held: 12.5%
31 July 2010 31 July 2009
Last audited accounts: 30 June 2009 6 months to 30 June 2008
Revenues ( GBP'000): 8,909 4,152
Loss before interest & tax ( GBP'000): (1,217) (206)
Net Assets ( GBP'000): 854 1,688
Audio Visual Machines Limited
AVM carries out the full design, installation and support of complex Video
Conferencing and Audio Visual systems and is the UK's leading VC & AV
maintenance and support provider. The company employs over 250 people and has
sales offices throughout the UK. Since our initial investment in 2006, AVM has
made three acquisitions, including the acquisition of Matrix Display Systems
Ltd, which principally operates in the education sector. With this acquisition,
the combined AVM Group is now the largest audio visual systems integrator in the
UK, with turnover of c. GBP35m. Revenues dropped in the year partly through the
reduction in public sector work as well as pressure on pricing. The company was
however able to improve profitability through maintaining higher margin work and
reducing overheads. Further information can be found at the company's website
www.avmachines.com.
Initial investment date: September 2006
Cost: GBP711,000
Valuation: GBP883,000 (earnings multiple)
Equity held: 10.1%
31 July 2010 31 July 2009
Last audited accounts: 30 June 2010 30 June 2009
Revenues ( GBP'000): 34,785 39,078
Profit before interest & tax ( GBP'000): 930 325
Net assets ( GBP'000): 63 40
T4 Holdings Limited
T4 provides opportunities for advertisers to directly interact with audiences in
an accountable manner through unavoidable media. The company has the rights to
advertising on train station ticket gates, car park barriers, petrol pump
nozzles and doors of petrol forecourts. As with many companies in this sector,
trading conditions have been particularly tough as market wide advertising spend
has been reduced. During the year T4 acquired Alvern, a petrol forecourt media
business, which has given the overall company greater scale. Further
information can be found onwww.t4media.com or www.alvernmedia.co.uk.
Initial investment date: July 2007
Cost: GBP1,141,000
Valuation: GBP559,000 (earnings multiple)
Equity held: 13.7%
31 July 2010 31 July 2009
Last audited accounts: 31 December 2009 31 December 2008
Revenues ( GBP'000): 2,853 3,884
Profit/(loss) before interest & tax ( GBP'000): (331) 262
Net assets ( GBP'000): 1,575 595
If you have any questions on any aspect of your investment, please call one of
the team on 0800 316 2347.
Simon Rogerson
Chief Executive
Octopus Investments Limited
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company for that period. Under that
law the Directors have elected to prepare financial statements in accordance
with United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
In so far as each of the Directors are aware:
* there is no relevant audit information of which the Company's auditor is
unaware; and
* the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditor is aware of that information.
To the best of my knowledge:
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
* the management report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The financial statements are published at www.octopusinvestments.co.uk, a
website maintained by Octopus Investments. The maintenance and integrity of the
website is, so far as it relates to the Company, the responsibility of Octopus
Investments. The work carried out by the editor does not involve considerations
of the maintenance and integrity of the website and, accordingly, the editor
accepts no responsibility for any changes that have occurred to the accounts
since they were originally presented on the website. Visitors to the website
need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the accounts differ from legislation in other
jurisdictions.
On Behalf of the Board
Alex Hambro
Chairman
1 November 2010
Income Statement
Year to 31 July 2010
=-------------------------------------------------------------------------------
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
Realised gain on disposal of fixed asset investments 10 - 411 411
Investment holding gains - fixed asset investments 10 - 1,970 1,970
Investment holding gains - current asset investments 11 - 32 32
Other income 2 364 - 364
Investment management fees 3 (95) (284) (379)
Other expenses 4 (286) - (286)
=-------------------------------------------------------------------------------
Return on ordinary activities before tax (17) 2,129 2,112
Taxation on return on ordinary activities 6 - - -
Return on ordinary activities after tax (17) 2,129 2,112
Return per share - basic and diluted 8 (0.1) 7.4 7.3
* The 'Total' column of this statement is the profit and loss account of the
Company; the supplementary revenue return and capital return columns have
been prepared under guidance published by the Association of Investment
Companies.
* All revenue and capital items in the above statement derive from continuing
operations.
* The accompanying notes are an integral part of the financial statements.
* The company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds.
The Company has no recognised gains or losses other than the results for the
period as set out above.
Income Statement
11-month period ended 31 July
2009
=-------------------------------------------------------------------------------
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
Realised loss on disposal of fixed asset
investments 10 - (24) (24)
Realised gain on disposal of current asset
investments 11 - 17 17
Investment holding losses - fixed asset
investments 10 - (3,228) (3,228)
Investment holding losses - current asset
investments 11 - (286) (286)
Other income 2 743 - 743
Investment management fees 3 (110) (329) (439)
VAT rebate on management fees 3 50 150 200
Other expenses 4 (261) - (261)
=-------------------------------------------------------------------------------
Return on ordinary activities before tax 422 (3,700) (3,278)
Taxation on return on ordinary activities 6 (119) 122 3
=-------------------------------------------------------------------------------
Return on ordinary activities after tax 303 (3,578) (3,275)
=-------------------------------------------------------------------------------
Earnings per share - basic and diluted 8 1.5p (12.7)p (11.2)p
* The 'Total' column of this statement is the profit and loss account of the
Company; the supplementary revenue return and capital return columns have
been prepared under guidance published by the Association of Investment
Companies.
* All revenue and capital items in the above statement derive from continuing
operations.
* The accompanying notes are an integral part of the financial statements.
* The Company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds.
The Company has no recognised gains or losses other than the results for the
period as set out above.
Reconciliation of Movements in Shareholders' Funds
Year ended 11-month period ended
31 July 2010 31 July 2009
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Shareholders' funds at start of period 18,539 23,002
Return on ordinary activities after tax 2,112 (3,275)
Cancellation of own shares (535) (455)
Dividends paid (851) (733)
=-------------------------------------------------------------------------------
Balance as at end of period 19,265 18,539
=-------------------------------------------------------------------------------
The accompanying notes form an integral part of the financial statements.
Balance Sheet
As at 31 July As at 31 July
2010 2009
Notes GBP'000 GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
Fixed asset investments* 10 16,478 14,137
Current assets:
Money market securities and other
deposits* 11 2,667 4,188
Debtors 12 11 329
Cash at bank 243 74
2,921 4,591
Creditors: amounts falling due within
one year 13 (134) (189)
=-------------------------------------------------------------------------------
Net current assets 2,787 4,402
=-------------------------------------------------------------------------------
Net assets 19,265 18,539
=-------------------------------------------------------------------------------
Called up equity share capital 14 2,775 2,870
Special distributable reserve 15 23,488 24,023
Capital redemption reserve 15 177 82
Capital reserve - losses on disposal 15 (4,472) (4,323)
- holding
losses 15 (2,794) (4,577)
Revenue reserve 15 91 464
=-------------------------------------------------------------------------------
Total equity shareholders' funds 19,265 18,539
=-------------------------------------------------------------------------------
Net asset value per share 9 69.4p 64.5p
* Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 1
November 2010 and are signed on their behalf by:
Alex Hambro
Chairman
Company number: 05487724
The accompanying notes form an integral part of the financial statements.
Cash Flow Statement
Year ended 11-month period ended 31
31 July 2010 July 2009
Notes GBP'000 GBP'000
=-------------------------------------------------------------------------------
Cash (outflow)/inflow from
operating activities (38) 182
Financial investment:
Purchase of fixed asset investments 10 (871) (1,184)
Sale of fixed asset investments 10 911 441
Management of liquid resources:
Purchase of cash equivalent
investments 11 (1,485) (3,039)
Sale of cash equivalent investments 11 3,038 4,804
Dividends paid 7 (851) (733)
Taxation - 3
Financing:
Repurchase of own shares 14 (535) (455)
=-------------------------------------------------------------------------------
Increase in cash at bank 169 19
=-------------------------------------------------------------------------------
The accompanying notes form an integral part of the financial statements.
Reconciliation of Profit before Taxation to Cash Flow from Operating Activities
Year ended 11-month period ended
31 July 2010 31 July 2009
Notes GBP'000 GBP'000
Return on ordinary activities before
tax 2,112 (3,278)
Loss on valuation of fixed asset 10
investments (1,970) 3,228
Loss on valuation of current asset 11
investments (32) 286
Realised loss/(gain) on fixed asset 10
investments (411) 24
Realised gain on current asset 11
investments - (17)
(Increase)/decrease in debtors 318 (123)
Increase in creditors (55) 62
Cash inflow/(outflow) from operating
activities (38) 182
Reconciliation of Net Cash Flow to Movement in Net Funds
Year ended 11-month period ended
31 July 2010 31 July 2009
Notes GBP'000 GBP'000
Increase in cash at bank 169 19
Movement in cash equivalent 11
securities (1,521) (2,034)
Opening net funds 4,262 6,277
Net Funds at end of period 2,910 4,262
Net funds at the period end comprised:
Year ended
31 July 2010 11-month period ended 31 July 2009
GBP'000 GBP'000
Cash at Bank 243 74
Bonds - -
Money Market Funds 2,667 4,188
Net funds at the period end 2,910 4,262
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of accounting
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of certain financial
instruments, and in accordance with UK Generally Accepted Accounting Practice
(UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial
Statements of Investment Trust Companies' (revised 2009).
The principal accounting policies have remained unchanged from those set out in
the Company's 2009 Annual Report and financial statements. A summary of the
principal accounting policies is set out below.
The Company presents its income statement in a three column format to give
shareholders additional detail of the performance of the Company, split between
items of a revenue or capital nature.
The preparation of the financial statements requires Management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions
mainly relate to the fair valuation of the fixed asset investments particularly
unquoted investments. Estimates are based on historical experience and other
assumptions that are considered reasonable under the circumstances. The
estimates and the assumptions are under continuous review with particular
attention paid to the carrying value of the investments.
Capital valuation policies are those that are most important to the depiction of
the Company's financial position and that require the application of subjective
and complex judgements, often as a result of the need to make estimates about
the effects of matters that are inherently uncertain and may change in
subsequent periods. The critical accounting policies that are declared will not
necessarily result in material changes to the financial statements in any given
period but rather contain a potential for material change. The main accounting
and valuation policies used by the Company are disclosed below. Whilst not all
of the significant accounting policies require subjective or complex judgements,
the Company considers that the following accounting policies should be
considered critical.
The 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.
Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Quoted investments are valued in accordance with the bid-
price on the relevant date, unquoted investments are valued in accordance with
current IPEVC valuation guidelines, although this does rely on subjective
estimates such as appropriate sector earnings multiples, forecast results of
investee companies, asset values of subsidiary companies and liquidity or
marketability of the investments held.
Although the Company believes that the assumptions concerning the business
environment and estimate of future cash flows are appropriate, changes in
estimates and assumptions could require changes in the stated values. This could
lead to additional changes in fair value in the future.
Investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly, as permitted by FRS 26, the investments will be designated as fair
value through profit and loss (FVTPL) on the basis that they qualify as a group
of assets managed, and whose performance is evaluated, on a fair value basis in
accordance with a documented investment strategy. The Company's investments are
measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is
established by reference to the closing bid price on the relevant date or the
last traded price, depending upon convention of the exchange on which the
investment is quoted. This is consistent with the IPEVC valuation guidelines.
In the case of unquoted investments, fair value is established by using measures
of value such as the price of recent transactions, earnings multiple and net
assets. This is consistent with 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 - holding gains/(losses).
In the preparation of the valuations of assets the Directors are required to
make judgements and estimates that are reasonable and incorporate their
knowledge of the performance of the investee companies.
Current asset investments
Current asset investments comprise money market funds, bonds and OEICs and are
designated as FVTPL. Gains and losses arising from changes in fair value of
investments are recognised as part of the capital return within the Income
Statement and allocated to the capital reserve - gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager
and are readily convertible into cash at the choice of the Company. The current
asset investments are held for trading, are actively managed and the performance
is evaluated on a fair value basis in accordance with a documented investment
strategy. Information about them has to be provided internally on that basis to
the Board.
Income
Investment income includes interest earned on bank balances and money market
funds and includes income tax withheld at source. Dividend income is shown net
of any related tax credit.
Dividends receivable are brought into account when the Company's right to
receive payment is established and there is no reasonable doubt that payment
will be received. Fixed returns on debt and money market funds are recognised
on a time apportionment basis so as to reflect the effective interest rate;
provided there is no reasonable doubt that payment will be received in due
course.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
wholly to revenue with the exception of the investment management fee, which has
been charged 25% to the revenue account and 75% to the capital reserve to
reflect, in the Directors' opinion, the expected long-term split of returns in
the form of income and capital gains respectively from the investment portfolio.
The transaction costs incurred when purchasing or selling assets are written off
to the Income Statement in the period that they occur.
Revenue and capital
The revenue column of the income statement includes all income and revenue
expenses of the Company. The capital column includes gains and losses on
disposal and holding gains and losses on investments. Gains and losses arising
from changes in fair value of investments are recognised as part of the capital
return within the income statement.
Taxation
Corporation tax payable is applied to profits chargeable to corporation tax, if
any, at the current rate. The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue return on the
"marginal" basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing
differences that have originated but not reversed at the balance sheet date.
Where transactions or events have occurred at that date that will result in an
obligation to pay more, or a right to pay less tax, with the exception that
deferred tax assets are recognised only to the extent that the Directors
consider that it is more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying timing can be deducted.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand. Liquid
resources are current asset investments which are disposable without curtailing
or disrupting the business and are either readily convertible into known amounts
of cash at or close to their carrying values or traded in an active market.
Liquid resources comprise term deposits of less than one year (other than cash),
government securities, investment grade bonds and investments in money market
funds, as well as OEICs.
Loans and receivables
The Company's loans and receivables are initially recognised at cost and
subsequently measured at amortised cost using the effective interest method.
Financing strategy and capital structure
FRS 29 'Financial Instruments: Disclosures' comprises disclosures' relating to
financial instruments.
We define capital as shareholders' funds and our financial strategy in the
medium term is to manage a level of cash that balances the risks of the business
with optimising the return on equity. The Company currently has no borrowings
nor does it anticipate that it will drawdown any borrowing facilities in the
future to fund the acquisition of investments.
The company does not have any externally imposed capital requirements.
Financial instruments
During the course of the year, the Company held non-current asset investments,
shares in OEIC's (open ended investment companies), money market funds and cash
deposits. The Company holds financial assets that comprise investments in
unlisted companies, qualifying loans, and companies raising new share capital on
the Alternative Investments Market. The carrying value for all financial assets
and liabilities is fair value.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are declared by the
Board, and for final dividends when they are approved by the shareholders.
2. Income
Year ended 31 July 2010 11-month period ended 31
July 2009
GBP'000 GBP'000
Income on money market 43 360
securities and bank balances
Dividends received 19 24
Loan note interest 302 359
364 743
3. Investment Management Fees
Year ended 31 July 11-month period ended 31 July
2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 95 284 379 108 321 429
Irrecoverable VAT thereon - - - 2 8 10
Total fees 95 284 379 110 329 439
VAT rebate - - - (50) (150) (200)
For the purposes of the revenue and capital columns in the income statement, the
management fee (including VAT) has been allocated 25% to revenue and 75% to
capital, in line with the Board's expected long term return in the form of
income and capital gains respectively from the Company's investment portfolio.
Octopus provides investment management and accounting & administration services
to the Company under a management agreement which runs for a period of five
years with effect from 18 March 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 basis upon which the management fee is calculated is disclosed within note
19 to the financial statements.
4. Other Expenses
Year ended 31 July 2010 11-month period ended
31 July 2009
GBP'000 GBP'000
Accounting and administration 56 71
services
Directors' remuneration 27 25
Fees payable to the Company's 14 13
auditor for the audit of the
financial statements
Fees payable to the Company's 3 3
auditor for other services - tax
compliance
Legal and professional expenses 2 9
Other expenses 184 140
286 261
Total annual running costs are capped at 3.5% of net assets. For the year ended
31 July 2010 the running costs were 3.0% of net assets (2009: 2.8%)
5. Directors' Remuneration
Year ended 31 July 2010 11-month period ended 31
July 2009
GBP'000 GBP'000
Directors' emoluments
Mr M Cooper 8 7
The Hon A Hambro (Chairman) 8 7
Mr R G Melgaard (Former 11 11
Chairman)
27 25
None of the Directors received any other remuneration or benefit from the
Company during the period. The Company has no employees other than non-
executive Directors. The average number of non-executive Directors in the
period was three (2009: three).
6. Tax on Ordinary Activities
Analysis of tax charge in the year:
Factors affecting the tax credit for the current period:
The current tax credit for the period differs from the standard rate of
corporation tax in the UK of 28% (2009: 28%). The differences are explained
below.
Current tax reconciliation: Year ended 31 July 11-month period ended
2010 31 July 2009
GBP'000 GBP'000
Return on ordinary activities before 2,112 (3,278)
tax
Current tax at 28% (2009: 28%) 591 (918)
Adjustment in respect of previous (3) -
periods
Expenses not deductible for tax (691) 1,010
purposes
(Utilised)/unrelieved tax losses 100 (89)
Total current tax credit (3) 3
Excess management charges of GBP590,000 (2009: GBP142,000) have been carried forward
at 31 July 2010 and are available for offset against future taxable income
subject to agreement with HMRC.
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so as
to maintain its approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
7. Dividends
Year ended 31 July 2010 11-month period ended
31 July 2009
GBP'000 GBP'000
Recognised as distributions in
the financial statements for
the period
Previous year's final dividend 430 442
Current period's interim
dividend 421 291
851 733
Paid and proposed in respect of
the period
Interim dividend paid - 1.5p
per share (2009: 1p per share) 421 293
Proposed final dividend - 1.5p
per share (2009: 1.5p per
share) 416 431
837 724
The final dividend of 1.5p per share for the year to 31 July 2010, subject to
shareholder approval at the Annual General Meeting, will be paid on 10 January
2011 to those shareholders on the register on 10 December 2010.
8. Earnings per Share
The earnings per share is based on 28,668,324 (31 July 2009: 29,309,929) shares,
being the weighted average number of shares in issue during the period.
There are no potentially dilutive capital instruments in issue and, therefore,
no diluted return per share figures are relevant. The basic and diluted earnings
per share are therefore identical.
9. NAV per Share
The calculation of NAV per share as at 31 July 2010 is based on 27,774,104 (31
July 2009: 28,718,986) Ordinary shares in issue at that date.
10. Fixed asset investments at fair value through profit or loss
Effective from 1 August 2009, the Company adopted the amendment to FRS 29
regarding financial instruments that are measured in the balance sheet at fair
value; this requires disclosure of fair value measurements by level of the
following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities.
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. A market is regarded as active
if quoted prices are readily and regularly available, and those prices represent
actual and regularly occurring market transactions on an arm's length basis. The
quoted market price used for financial assets held is the current bid price.
These instruments are included in level 1 and comprise AIM-listed investments
classified as held at fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using valuation techniques. These valuation
techniques maximise the use of observable data where it is available and rely as
little as possible on entity-specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included
in level 2. The Company held no such investment in the current or prior year.
Level 3: the fair value of financial instruments that are not traded in an
active market (for example investments in unquoted companies) is determined by
using valuation techniques such as earnings multiples. If one or more of the
significant inputs is not based on observable market data, the instrument is
included in level 3.
There have been no transfers between these classifications in the period (2009:
none). The change in fair value for the current and previous year is recognised
through the income statement.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in investments at fair value through profit or
loss during the year to 31 July 2010 are summarised below and in note 12.
Level 1: AIM-
quoted Level 3: Unquoted Level 3: Unquoted Total
investments investments
equity equity investments loan
investments investments investments
GBP'000 GBP'000 GBP'000 GBP'000
Valuation and net
book amount:
Book cost as at 1 8,317
August 2009 3,719 6,429 18,465
Revaluation to 1 (1,376)
August 2009 (1,980) (972) (4,328)
Valuation at 1 6,941
August 2009 1,739 5,457 14,137
Movement in the
year:
Purchases at cost 3 177 691 871
Disposal proceeds (521) (3) (387) (911)
Profit/ (loss) on
realisation of
investments -
current year 37 - 374 411
Revaluation in -
year (375) 2,345 1,970
Valuation at 31 7,619
July 2010 883 7,976 16,478
Book cost at 31 8,995
July 2010: 3,458 6,603 19,056
Revaluation to 31 (1,376)
July 2010: (2,575) 1,373 (2,578)
Valuation at 31 7,619
July 2010 883 7,976 16,478
Level 3 valuations include assumptions based on non-observable market data, such
as discounts applied either to reflect impairment of financial assets held at
the price of recent investment, or to adjust earnings multiples. The sensitivity
of these valuations to a reasonable possible change in such assumptions is given
in note 16.
Further details of the fixed asset investments held by the Company are shown
within the Investment Manager's Review on pages ? to ?.
11. Current Asset Investments
Level 1: money market funds
GBP'000 GBP'000
Cost at 1 August 2009:
Money market funds 4,474
Revaluation to 1 August 2009:
Money market funds (286)
Valuation as at 1 August 2009 4,188
Movement in the year:
Purchases at cost: Money market
funds 1,485 1,485
Disposal proceeds:
Money market funds (3,038) (3,038)
Profit in year on realisation of investments:
Money market funds - -
Revaluation in year:
Money market funds 32 32
Valuation as at 31 July 2010 2,667
Cost at 31 July 2010:
Money market funds 2,921 2,921
Revaluation to 31 July 2010:
Money market funds (254) (254)
Valuation as at 31 July 2010 2,667
Level 1 money market funds: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
valuation of money market funds at 31 July 2010 was GBP2,677,000 (2009:
GBP4,188,000).
At 31 July 2010 and 31 July 2009 there were no commitments in respect of
investments approved by the Manager but not yet completed.
12. Debtors
31 July 2010 31 July 2009
GBP'000 GBP'000
Prepayments and accrued income 11 329
13. Creditors: Amounts Falling Due Within One Year
31 July 2010 31 July 2009
GBP'000 GBP'000
Accruals 45 45
Other creditors 89 144
134 189
14. Share Capital
31 July 2010 31 July 2009
GBP'000 GBP'000
Authorised:
50,000,000 Ordinary shares of 10p 5,000 5,000
Allotted and fully paid up:
27,774,104 Ordinary shares of 10p (2009: 28,718,986) 2,775 2,870
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 ?.
The Company is not subject to any externally imposed capital requirements.
The Company did not issue any shares in the year (2009: nil).
The Company has purchased for cancellation 944,882 Ordinary shares for
cancellation at a weighted average price of 56.61p per share.
The total nominal value of the shares repurchased was GBP94,488, representing
3.4% of the issued share capital.
15. Reserves
Capital
reserve - Capital
gains/ reserve -
Share Special Capital (losses) holding
Capital distributable redemption on gains Revenue
reserve reserve disposal /(losses) reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 August
2009 2,870 24,023 82 (4,323) (4,577) 464
Cancellation
of own shares (95) (535) 95 - - -
Return on
ordinary
activities
after tax - - - - (17)
Management
fees allocated
as capital
expenditure - - (284) - -
Prior period
gains/losses - - 219 (219) -
Current year
gains/losses
on disposal - - 411 - -
Current year
gains on fair
value of
investments - - - 2,002 -
Dividends paid - - (495) - (356)
Balance as at
31 July 2010 2,775 23,488 177 (4,472) (2,794) 91
When the Company revalues its investments during the period, any gains or losses
arising are credited/charged to the income statement. Unrealised gains/losses
are then transferred to the Capital reserve - holding gains/(losses). When an
investment is sold any balance held on the capital reserve - holding
gains/(losses) is transferred to the capital reserve - gains/(losses) on
disposal as a movement in reserves.
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.
Reserves available for potential distribution by way of a dividend are:
GBP'000
As at 1 August 2009 15,587
Movement in year 726
As at 31 July 2010 16,313
+-------------------------------------+
| (excl. capital redemption reserve). |
+-------------------------------------+
16. Financial Instruments and Risk Management
The Company's financial instruments comprise equity and fixed interest
investments, cash balances and liquid resources including debtors and creditors.
The Company holds financial assets in accordance with its investment policy of
investing mainly in a portfolio of VCT qualifying unquoted and AIM-quoted
securities whilst holding a proportion of its assets in cash or near-cash
investments in order to provide a reserve of liquidity.
Classification of financial instruments
The company held the following categories of financial instruments, all of which
are included in the balance sheet at fair value, at 31 July 2010.
31 July 2010 31 July 2009
GBP000 GBP000
Assets at fair value through profit or loss
Investments 16,478 14,137
Current asset investments 2,667 4,188
Cash at bank 243 74
Total 19,388 18,399
Loans and receivables
Prepayments and accrued income 11 329
Total 11 329
Liabilities at amortised cost
Accruals and other creditors 134 189
Total 134 189
Fixed asset investments (see note 10) 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. Unquoted
investments are carried at fair value as determined by the Directors in
accordance with current venture capital industry guidelines. The fair value of
all other financial assets and liabilities is represented by their carrying
value in the balance sheet. The Directors believe that the fair value of the
assets held at the period-end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various
types of risk associated with the financial instruments and markets in which it
invests. The most significant types of financial risk facing the Company are
price risk, interest rate risk, credit risk and liquidity risk. The Company's
approach to managing these risks is set out below together with a description of
the nature and amount of the financial instruments held at the balance sheet
date.
Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page ?. The management of
market risk is part of the investment management process and is a central
feature of venture capital investment. The Company's portfolio is managed in
accordance with the policies and procedures described in the Corporate
Governance statement on pages ? to ?, having regard to the possible effects of
adverse price movements, with the objective of maximising overall returns to
shareholders. Investments in unquoted companies, by their nature, usually
involve a higher degree of risk than investments in companies quoted on a
recognised stock exchange, though the risk can be mitigated to a certain extent
by diversifying the portfolio across business sectors and asset classes. The
overall disposition of the Company's assets is regularly monitored by the Board.
Details of the Company's investment portfolio at the balance sheet date are set
out on page ? to ?. An analysis of investments between debt and equity
instruments is given in note 10.
4.6% (31 July 2009: 9.4%) by value of the Company's net assets comprises equity
securities listed on the London Stock Exchange or quoted on AIM. Every 5%
increase in the bid price of these securities as at 31 July 2010 would have
increased net assets and the total return for the period by GBP44,000 (31 July
2009: GBP87,000); a corresponding fall would have reduced net assets and the total
return for the period by the same amount.
80.9% (31 July 2009: 66.4%) by value of the Company's net assets comprises
investments in unquoted companies held at fair value. The valuation methods
used by the Company include the application of a price/earnings ratio derived
from listed companies with similar characteristics, and consequently the value
of the unquoted element of the portfolio can be indirectly affected by price
movements on the London Stock Exchange. Every 5% overall increase in the
valuation of the unquoted investments at 31 July 2010 would have increased net
assets and the total return for the period by GBP780,000 (31 July 2009: GBP616,000);
an equivalent change in the opposite direction would have reduced net assets and
the total return for the period by the same amount.
Interest rate risk
Some of the Company's financial assets are interest-bearing, of which some are
at fixed rates and some variable. As a result, the Company is exposed to fair
value interest rate risk due to fluctuations in the prevailing levels of market
interest rates.
Fixed rate
The table below summarises weighted average effective interest rates for the
fixed interest-bearing financial instruments:
31 July 2010 31 July 2009
Weighted
Weighted average
average time for
Total fixed Weighted time for Total fixed Weighted which
rate average which rate rate average rate is
portfolio interest is fixed portfolio interest fixed in
GBP'000 rate % in years GBP'000 rate % years
Fixed rate
investments
in unquoted
companies 7,619 6.9 2.0 9,288 6.6 2.6
Due to the relatively short period to maturity of the fixed rate investments
held within the portfolio, it is considered that an increase or decrease of 25
basis points in interest rates as at the reporting date would not have had a
significant effect on the Company's net assets or total return for the period.
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing
deposit accounts and, where appropriate, within interest bearing money market
securities. The benchmark rate which determines the rate of interest receivable
on such investments is the bank base rate, which was 0.5% at 31 July 2010 (31
July 2009: 0.5%).
The amounts held in floating rate investments at the balance sheet date were as
follows:
31 July 2010 31 July 2009
GBP000 GBP000
Cash on deposit & money market funds 2,667 4,262
2,667 4,262
Every 1% increase in the base rate would increase income receivable from these
investments and the total return for the period by GBP26,600 (31 July 2009:
GBP43,000)
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Company. The Investment Manager and the Board carry out a regular review of
counterparty risk. The carrying values of financial assets represent the maximum
credit risk exposure at the balance sheet date.
At 31 July 2010, the Company's financial assets exposed to credit risk comprised
the following:
31 July 2010 31 July 2009
GBP000 GBP000
Investments in fixed interest instruments 7,619 9,288
Cash on deposit 2,667 4,262
Accrued dividends and interest receivable - 318
10,286 13,868
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.
Credit risk relating to loans to and Preference shares in unquoted companies is
considered to be part of market risk.
Those assets of the Company which are traded on recognised stock exchanges are
held on the Company's behalf by third party custodians (Goldman Sachs
International 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
Goldman Sachs International and HSBC Bank plc.
There were no significant concentrations of credit risk to counterparties at 31
July 2010 or 31 July 2009. By cost, no individual investment exceeded 12.0% of
the Company's net assets at 31 July 2010 (31 July 2009: 11.0%).
Liquidity risk
The Company's financial assets include investments in unquoted equity securities
which are not traded on a recognised stock exchange and which generally may be
illiquid. They also 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 a
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 31 July 2010 these
investments were valued at GBP2,910,000 (31 July 2009 GBP4,262,000).
17. Post-balance Sheet Events
The following events occurred between the balance sheet date and the signing of
these financial statements:
18. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at 31 July
2010 (2009: GBP200,000 relating to a claim for the repayment of VAT).
19. Related Party Transactions
Matt Cooper, a non-executive Director of Octopus Eclipse VCT 4 plc, is Chairman
of Octopus. Octopus Eclipse VCT 4 plc has employed Octopus throughout the
period as Investment Manager. Octopus Eclipse VCT 4 plc has paid Octopus
GBP379,000 (2009: GBP364,000) in the period as a management fee and there is GBPnil
outstanding at the balance sheet date. The management fee is payable quarterly
in advance and is based on 2.0% of the NAV calculated at annual intervals as at
31 July. Octopus also provides accounting and administrative services to the
Company, payable quarterly in advance for a fee of 0.3% of the NAV calculated at
annual intervals as at 31 July. During the period GBP56,000 (2009: GBP71,000) was
paid to Octopus and there is GBPnil outstanding at the balance sheet date, for the
accounting and administrative services.
In addition, Octopus is entitled to an annual performance related incentive fee
in the event that performance criteria in relation to the increase in net
assets, after adding back distributions, are exceeded. Commencing no earlier
than the close of the 2008/09 financial year and in the event that distributions
per share have reached 40p in aggregate, subsequently increased to 45p following
approval of the Coinvestment Agreement at the EGM in 2006, and the performance
value at that date exceeds 130p per share, then Octopus will be entitled to an
incentive fee equal to 20% of the excess of such performance value over 100p per
share. No performance fee was payable at 31 July 2010, on the basis that the
Directors do not believe that the necessary criteria will be met in the
foreseeable future.
[HUG#1458303]
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Octopus Eclipse VCT 4 plc via Thomson Reuters ONE
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