TIDMOAP4
Octopus Apollo VCT 4 plc
(Formerly Octopus Protected VCT 2 plc)
Final Results
17 May 2011
Octopus Apollo VCT 4 plc, managed by Octopus Investments Limited, today
announces the final results for the year ended 31 January 2011.
These results were approved by the Board of Directors on 16 May 2011.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com by navigating to Services, Investor Services, Venture
Capital Trusts, Octopus Apollo VCT 4 plc. All other statutory information can
also be found there.
About Octopus Apollo VCT 4 plc
Octopus Apollo VCT 4 plc ('Apollo 4,' 'Company' or 'Fund') is a venture capital
trust ('VCT') which aims to provide shareholders with attractive tax-free
dividends and absolute returns on its investments, by investing in a diverse
portfolio of predominantly unquoted companies. The VCT is managed by Octopus
Investments Limited ('Octopus' or 'Manager').
The Fund was launched in June 2008 and raised over GBP11.5 million ( GBP11.0 million
net of expenses) through an offer for subscription by the time it closed on 30
June 2009.
Further details of the Fund's progress are discussed in the Chairman's Statement
and Investment Manager's Review on pages x to x.
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:
* up-front income tax relief of up to 30%;
· exemption from income tax on dividends paid; and
· exemption from capital gains tax on disposals of shares in
VCTs.
The Company has been provisionally 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. By the end of the Company's third
accounting period at least 70% of the Company's investments must comprise
'qualifying holdings' of which at least 30% must be in eligible Ordinary
shares. A 'qualifying holding' consists of up to GBP1 million invested in any one
year in new shares or securities in an unquoted company (including companies
listed on AIM) which is carrying on a qualifying trade and whose gross assets do
not exceed GBP7 million at the time of investment, and whose total number of
employees is less than 50, also at the time of investment. The Company will
continue to ensure its compliance with these qualification requirements.
Financial Summary
+-----------------------+
Ordinary shares |Year to 31 January 2011|Year to 31 January 2010
| |
| |
| |
Net assets ( GBP'000s) | 10,644| 10,591
| |
Return after tax ( GBP'000s) | 64| (334)
| |
Net asset value per share (NAV)| 91.5p| 90.9p
=------------------------------+-----------------------+-----------------------
Chairman's Statement
Introduction
I am delighted to present the third Annual Report of Octopus Apollo VCT 4 plc
for the year ended 31 January 2011.
Performance
It is pleasing to report a good performance for the year, one that has been in
line with the investment mandate of this VCT. As the initial funds become
invested, the net asset value ('NAV') of your Company has levelled, providing a
stable return on your investment. At the year end the total return, being the
change in NAV in the year, was 0.5%, with the NAV now standing at 91.5 pence per
share.
Trading results of investee companies on the whole have been positive which has
lead to uplifts being recognised in Bluebell Telecom, Clifford Thames and CSL
DualCom. Overall, an increase of GBP271,000 has been recognised in the year.
Investment Portfolio
A full list of the Company's investment portfolio is set out on page x. The
funds held by Vulcan Services II, a company set up to seek qualifying
investments, have been successful in acquiring Bluebell Telecom Limited, a
company providing landline, mobile and data solutions to businesses.
Investment was made into Resilient Corporate Services, a company seeking VCT
qualifying investments, and a small non-qualifying investment was made into
Carebase (Col), a company used to purchase land in order to build the care home
that fellow investee company Salus Services is funding.
All of the investments are discussed further in the Investment Manager's Review
on pages x to x.
The Fund is progressing towards being sufficiently invested in order to meet all
the requirements for it to fully qualify as a VCT by the required date of 31
January 2012. It will continue to make further low risk investments which will
hopefully gently accelerate the Net Asset Value of the Fund over the next couple
of years.
Investment Strategy
As was set out in the prospectus, the aim of the Fund is to make investments on
the basis of taking less risk than a typical VCT. To date the Investment Manager
has been successful in achieving this aim, as can be witnessed by the absence of
any falls in portfolio valuations.
Typically the structure of the investments is weighted more heavily towards loan
based instruments rather than equity. This is considered to be of a lower risk
nature as returns are fixed and payments are generally ranked above most other
creditors, allowing for future visibility and security. This strategy also
reduces the downward risk that is part and parcel of an equity investment.
The Fund has also been able to take strong advantage of the reduced liquidity in
the traditional lending market, which has led to good opportunities to invest
into well managed and profitable businesses with strong recurring cash-flows.
Dividend
It is your Boards long term intention to take advantage of the tax free income a
VCT can provide. However given the infancy of both your VCTs life and the
investments it has made, your Board did not feel it appropriate to pay a
dividend at this stage.
The Budget
It is encouraging that, subject to EU approval, with effect from 6 April 2012
the gross asset limit for investee companies for VCTs is to be raised from GBP7m
to GBP15m, and the number of employees is to be raised from 50 to 250. Should
approval be obtained, this will open a wider area of investment opportunities
that we are looking forward to being able to explore.
Change of Name
As I mentioned in my last annual statement, your VCT invests in line with three
other VCTs managed by Octopus. It was therefore proposed, and subsequently
approved, that the name of your VCT be changed to be in line with the other VCTs
in which it co-invests. The name was therefore changed to Octopus Apollo VCT 4
plc. I would like to stress that this will not affect the way in which your
Company is managed.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
concerning ongoing compliance with Her Majesty's Revenue & Customs ('HMRC')
rules and regulations concerning VCTs. The Board has been advised that Octopus
Apollo VCT 4 plc is in compliance with the conditions laid down by HMRC for
obtaining approval as a VCT.
A key requirement now is to achieve the 70% qualifying investment level prior to
31 January 2012. As at 31 January 2011, over 65% of the portfolio, as measured
by HMRC rules, was invested in VCT qualifying investments. In view of the
current investment activity, the Board continues to be confident that the 70%
target will be met by the required date.
Outlook
Concerns about the macro-economic climate remain in the form of the
sustainability of the economic recovery, inflationary pressures and the fragile
condition of public finances within the UK. These factors, combined with the
recent increases in oil prices, provide an uncertain environment for many
businesses.
However the majority of investments in your Company's portfolio have continued
to report good trading results and the persistent reluctance of banks to lend to
small companies continues to provide relevant investment opportunities into
financially strong businesses.
At present, the prospect of economic growth returning to the UK appears
realistic and this should provide a promising background against which your
Company can continue to align its performance with its original objectives.
Murray Steele
Chairman
16 May 2011
Investment Manager's Review
Personal Service
At Octopus, we focus on both managing your investments and keeping you informed
throughout the investment process. We are committed to providing our investors
with regular and open communication. Our updates are designed to keep you
informed about the progress of your investment. During this time of economic
uncertainty, we consider it particularly important to be in regular contact with
our investors and are working hard to manage your money in the current climate.
Octopus Investments Limited was established in 2000 and has a strong commitment
to both smaller companies and to VCTs. We currently manage 17 VCTs, including
this Company, and manage nearly GBP320 million in the VCT sector. Octopus has over
180 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 investment approach of Apollo 4 is to seek lower risk investments. The
majority of companies in which Apollo 4 invests operate in sectors where there
is a high degree of predictability. Ideally, we seek companies that have
contractual revenues from financially sound customers and will provide an exit
for shareholders within three to five years.
Performance
As at 31 January 2011 the NAV stood at 91.5p, compared to 90.9p at 31 January
2010. This represents a levelled total return of 0.5%.
The valuation uplifts in Clifford Thames, CSL DualCom and Bluebell Telecom have
resulted from us valuing a proportion of the redemption premiums that have been
negotiated and are due to be paid on the repayment of the loans issued to the
companies.
It is encouraging to announce there have been no decreases in fair value. This
is an example of how the structure of the investments we make in this VCT are
heavily sheltered from the downside risk of investing into small companies.
The majority of investments are loan based on which a steady flow of interest is
received into the Fund. We hope to soon reach the level whereby interest
receipts offset the running costs of the Fund. This income versus expenditure
parity will then allow for any profits on realisations and loan note redemption
premiums to be paid out directly to shareholders, or recognised as an uplift to
the value of your investment.
Portfolio Review
We review many businesses each year and carefully assess which would be suitable
for your Company in order to successfully meet the low risk mandate of this VCT.
It is a long process that we go through and involves thorough scenario planning
that ultimately results in us having to turn down the majority of business cases
that we see.
That said we have been successful during the year in deploying the funds
previously held by Vulcan Services II into Bluebell Telecom, and have also made
a small, non-qualifying investment into Carebase (Col). We believe both
investments follow the investment mandate of this VCT; Bluebell has strong
recurring cash flows and a good management team and Carebase (Col) is asset
backed.
Further to this, since the year end we have used the funds previously held in
GreenCo Services to further our investment into CSL DualCom, and the funds of
PubCo Services to acquire Salus Services, injecting further capital into the
company to enable the business to build another care home. GreenCo services and
PubCo services were initially intending to invest into the environmental sector
and the restaurant and bar sector respectively. However at the time, no suitable
opportunities were found in these sectors.
All the investments that have been made post year end have been into businesses
that we have already invested in, and therefore we know them well and are
confident of their continued success. With regards to CSL DualCom, in addition
to investing more funds, we have significantly increased the return on our
investment. We believe we have done so without taking significantly more risk.
Outlook
We remain cautious about the year ahead and continue to be on the lookout for
potential difficulties in the portfolio to enable ourselves to be prepared and
plan appropriately. However, in general, we are confident that the investee
companies are well positioned to weather the uncertain times ahead and we remain
optimistic that your Company's NAV will be able to make progress, despite the
economic environment in which we find ourselves.
If you have any questions on any aspect of your investment, please call one of
the team on 0800 316 2295.
Stuart Nicol
Investment Director
Octopus Investments
16 May 2011
Investment Portfolio
Fair %
Investment value equity %
at cost at Movement at 31 held equity
31 January in January Movement by managed
Qualifying 2011 valuation 2011 in year Apollo by
investments Sector ( GBP'000) ( GBP'000) ( GBP'000) ( GBP'000) 4 Octopus
=----------------------------------------------------------------------------------
Clifford
Thames
Group
Limited Automotive 1,336 210 1,546 210 2.0% 8.0%
GreenCo
Services
Limited Environmental 1,000 - 1,000 - 16.3% 57.4%
PubCo
Services
Limited Restaurants & bars 1,000 - 1,000 - 15.1% 56.9%
Resilient
Corporate
Services
Limited Business services 1,000 - 1,000 - 24.5% 49.0%
Salus
Services 1
Limited Care homes 881 - 881 - 20.0% 100.0%
BusinessCo
Services 2
Limited Business services 600 - 600 - 14.5% 49.0%
Bluebell
Telecom
Group
Limited Telecommunications 500 55 555 55 12.3% 49.0%
Diagnos
Limited Automotive 350 - 350 - 0.0%* 0.0%*
CSL Dualcom
Limited Security devices 250 6 256 6 0.0%* 0.0%*
=----------------------------------------------------------------------------------
Total
qualifying
investments 6,917 271 7,188 271
Non-
qualifying
investments 170 - 170 -
Money
market
funds 1,430 - 1,430 -
=----------------------------------------------------------------------------------
Total
investments 8,517 271 8,788 271
Cash at
bank 1,852
Debtors
less
creditors 4
=----------------------------------------------------------------------------------
Total net
assets 10,644
*Debt based investment
Valuation Methodology
The investments held by Apollo 4 are all unquoted and as such there is no
trading platform from which prices can be easily obtained. As a result, the
methodology used in fair valuing the investments is the transaction price of the
recent investment round. Subsequent adjustment to the fair value has then been
made according to any significant under or over performance of the business.
If you would like to find out more regarding The International Private Equity
and Venture Capital ('IPEVC') Valuation Guidelines, please visit their website
at: www.privateequityvaluation.com.
Investments are valued in accordance with the accounting policy set out on page
x, 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.
Investment Portfolio
Clifford Thames Group Limited
Clifford Thames is a market leading provider of consultancy and business
outsourcing services for the automotive industry, and is a key partner of most
of the world's leading car manufacturers. With offices in eight countries,
Clifford Thames has a well-established and impressive client list including
Ford, GM Europe, Jaguar Land Rover, Mazda and Fiat. Further information can be
found at the company's websitewww.clifford-thames.com.
+---------------------+---+------------+---+------------+
| Asset class | | Cost | | Valuation |
+---------------------+---+------------+---+------------+
| A Ordinary shares | | GBP305,000 | | GBP305,000 |
+---------------------+---+------------+---+------------+
| B preference shares | | GBP3,000 | | GBP3,000 |
+---------------------+---+------------+---+------------+
| Loan stock | | GBP1,028,000 | | GBP1,238,000 |
+---------------------+---+------------+---+------------+
| Total | | GBP1,336,000 | | GBP1,546,000 |
+---------------------+---+------------+---+------------+
Investment date: January 2010
Equity held: 2.0%
Last audited accounts: 31 March 2010
Revenues: GBP31.6
million
Profit before interest & tax: GBP2.7 million
Net assets: GBP10.1
million
Income receivable recognised in year: GBP86,000
Valuation basis: Earnings multiple
GreenCo Limited ('GreenCo')
GreenCo was set up to acquire VCT qualifying trades. Since the year end the
funds have been used to invest further into CSL DualCom due to the company's
positive financial performance since initial investment.
+-------------------+---+------------+---+------------+
| Asset class | | Cost | | Valuation |
+-------------------+---+------------+---+------------+
| A Ordinary shares | | GBP301,000 | | GBP301,000 |
+-------------------+---+------------+---+------------+
| Loan stock | | GBP699,000 | | GBP699,000 |
+-------------------+---+------------+---+------------+
| Total | | GBP1,000,000 | | GBP1,000,000 |
+-------------------+---+------------+---+------------+
Investment date: April 2009
Equity held: 16.3%
Last audited accounts: N/A
Revenues: GBP0.0 million
Profit before interest & tax: GBP0.0 million
Net assets: GBP1.0
million
Income receivable recognised in year: GBP3,000
Valuation basis: Earnings multiple
PubCo Services Limited ('PubCo')
PubCo was set up to acquire VCT qualifying trades. Since the year end, the funds
have been used successfully to acquire the net assets of Salus Services 1
Limited, enabling the company to fund the construction of a second care home.
+-------------------+---+------------+---+------------+
| Asset class | | Cost | | Valuation |
+-------------------+---+------------+---+------------+
| A Ordinary shares | | GBP301,000 | | GBP301,000 |
+-------------------+---+------------+---+------------+
| Loan stock | | GBP699,000 | | GBP699,000 |
+-------------------+---+------------+---+------------+
| Total | | GBP1,000,000 | | GBP1,000,000 |
+-------------------+---+------------+---+------------+
Investment date: April 2009
Equity held: 15.1%
Last audited accounts: N/A
Revenues: GBP0.0 million
Profit before interest & tax: GBP0.0 million
Net assets: GBP1.0
million
Income receivable recognised in year: GBP3,000
Valuation basis: Earnings multiple
Resilient Corporate Services Limited ('Resilient')
Resilient has been set up to investigate and seek the acquisition of companies
engaged in the provision of business support services.
+-------------------+---+------------+---+------------+
| Asset class | | Cost | | Valuation |
+-------------------+---+------------+---+------------+
| A Ordinary shares | | GBP300,000 | | GBP300,000 |
+-------------------+---+------------+---+------------+
| Loan stock | | GBP700,000 | | GBP700,000 |
+-------------------+---+------------+---+------------+
| Total | | GBP1,000,000 | | GBP1,000,000 |
+-------------------+---+------------+---+------------+
Investment date: March 2010
Equity held: 24.5%
Last audited accounts: N/A
Revenues: GBP0.0 million
Profit before interest & tax: GBP0.0 million
Net assets: GBP1.0
million
Income receivable recognised in year: GBP3,000
Valuation basis: Earnings multiple
Salus Services 1 Limited ('Salus')
Salus is funding the construction of a care home based in Colchester.
+-------------------+---+----------+---+-----------+
| Asset class | | Cost | | Valuation |
+-------------------+---+----------+---+-----------+
| A Ordinary shares | | GBP881,000 | | GBP881,000 |
+-------------------+---+----------+---+-----------+
| Loan stock | | - | | - |
+-------------------+---+----------+---+-----------+
| Total | | GBP881,000 | | GBP881,000 |
+-------------------+---+----------+---+-----------+
Investment date: January 2010
Equity held: 20.0%
Last audited accounts: 31 December 2009
Revenues: GBP0.0
million
Loss before interest & tax: GBP(0.0) million
Net assets: GBP0.6
million
Income receivable recognised in year: GBP46,000
Valuation basis: Cost
Businessco Services 2 Limited
Businessco Services 2 Limited has been set up to investigate and seek the
acquisition of companies engaged in the provision of business support services.
+-------------------+---+----------+---+-----------+
| Asset class | | Cost | | Valuation |
+-------------------+---+----------+---+-----------+
| A Ordinary shares | | GBP180,000 | | GBP180,000 |
+-------------------+---+----------+---+-----------+
| Loan stock | | GBP420,000 | | GBP420,000 |
+-------------------+---+----------+---+-----------+
| Total | | GBP600,000 | | GBP600,000 |
+-------------------+---+----------+---+-----------+
Investment date: November 2008
Equity held: 14.5%
Last audited accounts: N/A
Revenues: GBP0.0 million
Profit before interest & tax: GBP0.0 million
Net assets: GBP0.6
million
Income receivable recognised in year: GBP2,000
Valuation basis: Earnings multiple
Bluebell Telecom Services Limited ('Bluebell') (formerly Vulcan Services II
Limited)
Bluebell provides landline, mobile and data solutions to businesses, helping to
cut costs and improve efficiency through simple rationalisation and more
effective deployment of voice and data services. Further information can be
found at the company's websitewww.bluebelltelecom.com.
+-------------------+---+----------+---+-----------+
| Asset class | | Cost | | Valuation |
+-------------------+---+----------+---+-----------+
| A Ordinary shares | | GBP54,000 | | GBP54,000 |
+-------------------+---+----------+---+-----------+
| Loan stock | | GBP446,000 | | GBP501,000 |
+-------------------+---+----------+---+-----------+
| Total | | GBP500,000 | | GBP555,000 |
+-------------------+---+----------+---+-----------+
Investment date: September 2010
Equity held: 12.3%
Last audited accounts: N/A*
Revenues: N/A*
Profit before interest & tax: N/A*
Net assets: N/A*
Income receivable recognised in year: GBP20,000
Valuation basis: Cost
*The first years statutory accounts are yet to be produced
Diagnos Limited
Diagnos develops and sells sophisticated automotive diagnostic software and
hardware that enables independent mechanics, dealerships and garages to service
and repair vehicles. Mechanics require a diagnostic tool to communicate with the
in-car computer in order to measure, monitor and, where necessary, fix the
electronic process or system. Further information can be found at the company's
websitewww.autologic-diagnos.co.uk.
+-------------------+---+----------+---+-----------+
| Asset class | | Cost | | Valuation |
+-------------------+---+----------+---+-----------+
| B Ordinary shares | | GBP18,000 | | GBP18,000 |
+-------------------+---+----------+---+-----------+
| C Ordinary shares | | GBP18,000 | | GBP18,000 |
+-------------------+---+----------+---+-----------+
| Loan stock | | GBP314,000 | | GBP314,000 |
+-------------------+---+----------+---+-----------+
| Total | | GBP350,000 | | GBP350,000 |
+-------------------+---+----------+---+-----------+
Investment date: February 2009
Equity held: 0.0%
Last audited accounts: 31 December 2009
Revenues: GBP6.2 million
Profit before interest & tax: GBP1.8 million
Net assets: GBP2.6
million
Income receivable recognised in year: GBP13,000
Valuation basis: Earnings multiple
CSL DualCom Limited ('DualCom')
DualCom is the UK's leading supplier of dual path signalling devices, which link
burglar alarms to the police or a private security firm. The devices communicate
using a telephone line or broadband connection and a wireless link from
Vodafone, which has been a partner since 2000. DualCom has developed a number of
new products for the sector, which have enabled the business to steadily grow
its market share of new connections and its profitability since the initial
investment. Further information can be found at the company's
websitewww.csldual.com.
+-------------------+---+----------+---+-----------+
| Asset class | | Cost | | Valuation |
+-------------------+---+----------+---+-----------+
| C Ordinary shares | | GBP25,000 | | GBP25,000 |
+-------------------+---+----------+---+-----------+
| Loan stock | | GBP225,000 | | GBP231,000 |
+-------------------+---+----------+---+-----------+
| Total | | GBP250,000 | | GBP256,000 |
+-------------------+---+----------+---+-----------+
Investment date: February 2009
Equity held: 0.0%
Last audited accounts: 31 March 2010
Revenues: GBP8.2 million
Profit before interest & tax: GBP1.2 million
Net assets: GBP1.2
million
Income receivable recognised in year: GBP11,000
Valuation basis: Steady state cashflow
multiple
Directors' Responsibility Statement
The Directors are responsible for preparing the Directors' Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable laws).
Under company law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
and profit or loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgments and accounting estimates that are reasonable and
prudent;
· state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
· prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
In so far as each of the Directors is aware:
· there is no relevant audit information of which the Company's
auditor 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.
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
To the best of my knowledge:
· the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
· the management report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that they face.
On behalf of the Board
Murray Steele
Chairman
16 May 2011
Income Statement
+-----------------------+
|Year to 31 January 2011|
| |
| Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
| |
| |
| |
Loss on disposal of fixed asset investments 9 | - (12) (12)|
| |
| |
| |
Fixed asset investment holding gain 9 | - 271 271|
| |
| |
| |
Investment income 2 | 215 - 215|
| |
| |
| |
Investment management fees 3 | (53) (158) (211)|
| |
| |
| |
Other expenses 4 | (199) - (199)|
| |
| |
| |
Return on ordinary activities before tax | (37) 101 64|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
| |
Return on ordinary activities after tax | (37) 101 64|
| |
Earnings per share - basic and diluted 7 | (0.3)p 0.9p 0.6p|
+-----------------------+
* The 'Total' column of this statement is the profit and loss account of the
Company; the supplementary revenue return and capital return columns have
been prepared under guidance published by the Association of Investment
Companies.
* All revenue and capital items in the above statement derive from continuing
operations.
* The Company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds.
* The Company is not required and has not included the effects of fair value
accounting when considering historical cost, profits and losses.
The Company has no recognised gains or losses other than the results for the
year as set out above.
The accompanying notes are an integral part of the financial statements.
Income Statement
+--------------------------------+
| Year to 31 January 2010 |
| |
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
| |
| |
| |
Investment income 2 | 64 - 64|
| |
| |
| |
Investment management fees 3 | (45) (136) (181)|
| |
| |
| |
Other expenses 4 | (217) - (217)|
| |
| |
| |
Loss on ordinary activities before tax | (198) (136) (334)|
| |
| |
| |
Taxation on loss on ordinary activities 6 | - - -|
| |
| |
| |
Loss on ordinary activities after tax | (198) (136) (334)|
| |
Earnings per share - basic and diluted 7 | (2.0)p (1.4)p (3.4)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 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 is not required and has not included the effects of fair value
accounting when considering historical cost, profits and losses.
The Company has no recognised gains or losses other than the results for the
year as set out above.
The accompanying notes are an integral part of the financial statements.
Reconciliation of Movements in Shareholders' Funds
+-----------------+
| Year to | Year to
| 31 January 2011 | 31 January 2010
| |
Shareholders' funds at start of year | 10,591 | 2,087
| |
Return on ordinary activities after tax | 64 | (334)
| |
Issue of equity (net of expenses) | - | 8,838
| |
Shares bought back for cancellation | (11) | -
| |
Shareholders' funds at end of year | 10,644 | 10,591
The accompanying notes are an integral part of the financial statements.
Balance Sheet
+--------------------+
| As at 31 January | As at 31 January
| 2011| 2010
| |
Notes| GBP'000 GBP'000| GBP'000 GBP'000
| |
| |
| |
Fixed asset investments* 9 | 7,358| 6,417
| |
Current assets: | |
| |
Debtors 10 | 43 | 86
| |
Investments* 11 |1,430 |4,091
| |
Cash at bank |1,852 | 85
| |
|3,325 |4,262
| |
Creditors: amounts falling due | |
within one year 12 | (39) | (88)
| |
Net current assets | 3,286| 4,174
| |
Total assets less current | |
liabilities | 10,644| 10,591
| |
| |
| |
Called up equity share capital 13 |1,164 |1,165
| |
Special distributable reserve 14 |9,833 |9,844
| |
Capital redemption reserve 14 | 1 | -
| |
Capital reserve gains and losses | |
on disposal 14 |(313) |(143)
| |
Capital reserve holding gains | |
and losses 14 | 271 |
| |
Revenue reserve 14 |(312) |(275)
| |
Total shareholders' funds | 10,644| 10,591
| |
Net asset value per share 8 | 91.5p| 90.9p
+--------------------+
* Held at fair value through profit and loss
The accompanying notes are an integral part of the financial statements.
The statements were approved by the Directors and authorised for issue on 16 May
2011 and are signed on their behalf by:
Murray Steele
Chairman
Company No: 06614754
Cash Flow Statement
+--------------------+
| Year to 31 | Year to 31 January
| January 2011| 2010
| |
Notes| GBP'000| GBP'000
| |
| |
| |
Net cash outflow from operating | |
activities | (201)| (485)
| |
| |
| |
Taxation | -| -
| |
| |
| |
Financial investment: | |
| |
Purchase of fixed asset | |
investments 9 | (1,170)| (6,417)
| |
Disposal of fixed asset | |
investments 9 | 488| -
| |
| |
| |
Dividends paid | -| -
| |
| |
| |
Management of liquid resources: | |
| |
Purchase of current asset | |
investments 11 | (6,477)| (6,063)
| |
Disposal of current asset | |
investments 11 | 9,138| 3,972
| |
| |
| |
Financing: | |
| |
Issue of own shares 13 | -| 9,307
| |
Share issue expenses 13 | -| (469)
| |
Purchase of own shares 13 | (11)| -
| |
| |
=-------------------------------------+--------------------+--------------------
Increase/(decrease) in cash | 1,767| (155)
The accompanying notes are an integral part of the financial statements.
Reconciliation of return/(loss) before Taxation to Cash Flow from Operating
Activities
+----------------------+
| Year to 31 January| Year to 31 January
| 2011| 2010
| |
| GBP'000| GBP'000
| |
Return/(loss) on ordinary | |
activities before tax | 64 | (334)
| |
Decrease/(increase) in debtors | 43| (85)
| |
Decrease in creditors | (49)| (66)
| |
Loss on disposal of fixed asset | |
investments | 12| -
| |
Holding gain on fixed asset | |
investments | (271)| -
| |
(Outflow)/inflow from operating | |
activities | (201)| (485)
+----------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+---------------------+
| Year to 31 January| Year to 31 January
| 2011| 2010
| |
| GBP'000| GBP'000
| |
Increase/(decrease) in cash at | |
bank | 1,767| (155)
| |
Movement in cash equivalent | |
securities | (2,661)| 2,091
| |
Opening net funds | 4,176| 2,240
| |
Net funds at 31 January | 3,282| 4,176
+---------------------+
Net Funds at 31 January comprised:
+-------------------------+
| Year to 31 January 2011 | Year to 31 January 2010
| |
| GBP'000 | GBP'000
| |
Cash at bank | 1,852 | 85
| |
Money market funds | 1,430 | 4,091
| |
Net Funds at 31 January | 3,282 | 4,176
=------------------------+-------------------------+
Notes to the Financial Statements
1. Principal accounting policies
The financial statements have been prepared under the historical cost
convention, except for the measurement at
fair value of certain financial instruments, and in accordance with UK Generally
Accepted Accounting Practice (UK
GAAP), and the Statement of Recommended Practice (SORP) 'Financial Statements of
Investment Trust
Companies' (revised 2009).
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
judgements and estimates that affect
the application of policies and reported amounts of assets, liabilities, income
and expenses. Estimates and
assumptions mainly relate to the fair valuation of the unquoted fixed asset
investments. Estimates are based on historical experience and other assumptions
that are considered reasonable under the circumstances. The estimates and the
assumptions are under continuous review with particular attention paid to the
carrying value of the investments.
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 such investments held are
attributable to financial assets held at fair value
through profit and loss. Accordingly, all interest income, fee income, expenses
and impairment losses are
attributable to assets designated as being at fair value through profit and
loss.
Current asset investments comprising money market funds and deposits are held at
amortised cost.
Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Unquoted investments are valued in accordance with current
International Private Equity and Venture Capital ('IPEVC') valuation guidelines,
although this does rely on subjective estimates such as appropriate sector
earnings multiples, forecast results of investee companies, asset values of
subsidiary companies and liquidity or marketability of the investments held. For
the avoidance of doubt, Octopus Apollo VCT 4 plc only invests in unquoted
investments.
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.
Fixed assets investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly as permitted by FRS 26, the investments are designated as being at
fair value through profit or loss ("FVTPL") on the basis that they qualify as a
group of assets managed, and whose performance is evaluated, on a fair value
basis in accordance with a documented investment strategy. The Company's
investments are measured at subsequent reporting dates at fair value.
In the case of unquoted investments, fair value is established by using measures
of value such as price of recent transaction, earnings multiple and net assets.
This is consistent with International Private Equity and Venture Capital
valuation guidelines.
Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the income statement and
allocated to the capital reserve - holding gains/(losses). Fixed returns on non-
equity shares and debt securities which are held at fair value are computed
using the effective interest rate, to distinguish between the interest income
receivable (which is disclosed as interest income within the revenue column of
the Income Statement) and other fair value movements arising on these
instruments (which are disclosed as holding gains within the capital column of
the Income Statement.)
In preparation of the valuations of assets the Directors are required to make
judgements and estimates that are reasonable and incorporate their knowledge of
the performance of the investee companies.
Current asset investments
Current asset investments comprise money market funds and are designated as
FVTPL. Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the Income Statement and
allocated to the capital reserve - gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager
and are readily convertible into cash at the option of the Company. The current
asset investments are held for trading, are actively managed and the performance
is evaluated in accordance with a documented investment strategy. Information
about them has to be provided internally on that basis to the Board.
Income
Fixed returns on non-equity shares and debt securities are recognised on a time
apportionment basis (including time amortisation of any premium or discount to
redemption) so as to reflect the effective interest rate, provided there is no
reasonable doubt that payment will be received in due course. Income from fixed
interest securities and deposit interest is included on an effective interest
rate basis.
Investment income includes interest earned on bank balances and money market
funds and includes income tax withheld at source. Dividend income is shown net
of any related tax credit.
Dividends receivable are brought into account when the Company's right to
receive payment is established and there is no reasonable doubt that payment
will be received. Fixed returns on debt and money market funds are recognised
on a time apportionment basis, provided there is no reasonable doubt that
payment will be received in due course.
Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
wholly to revenue with the exception of the investment management fee, which has
been charged 25% to the revenue account and 75% to the capital reserve to
reflect, in the Directors' opinion, the expected long term split of returns in
the form of income and capital gains respectively from the investment portfolio.
The transaction costs incurred when purchasing or selling assets are written off
to the income statement in the period that they occur.
Revenue and capital
The revenue column of the Income Statement includes all income and revenue
expenses of the Company. The capital column includes holding gains and losses
on investments, as well as gains and losses on disposal. Gains and losses
arising from changes in fair value of investments are recognised as part of the
capital return within the income statement.
Taxation
Corporation tax payable is applied to profits chargeable to corporation tax, if
any, at the current rate. The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue return on the
"marginal" basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing
differences that have originated but not reversed at the balance sheet date
where transactions or events have occurred at that date that will result in an
obligation to pay more, or a right to pay less tax, with the exception that
deferred tax assets are recognised only to the extent that the Directors
consider that it is more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying timing can be deducted.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand. Liquid
resources are current asset investments which are disposable without curtailing
or disrupting the business and are either readily convertible into known amounts
of cash at or close to their carrying values or traded in an active market.
Liquid resources comprise term deposits of less than one year (other than cash),
and investments in money market funds.
Loans and receivables
The Company's loans and receivables are initially recognised at fair value which
is usually transaction cost and subsequently measured at amortised cost using
the effective interest method.
Financing strategy and capital structure
FRS 29 'Financial Instruments: Disclosures' comprises disclosures relating to
financial instruments.
We define capital as shareholders' funds and our financial strategy in the
medium term is to manage a level of cash that balances the risks of the business
with optimising the return on equity. The Company currently has no borrowings
nor does it anticipate that it will drawdown any borrowing facilities in the
future to fund the acquisition of investments.
The Company does not have any externally imposed capital requirements.
The value of the managed capital is indicated in note 15. The Board considers
the distributable reserves and the total return for the year when recommending a
dividend. In addition, the Board is authorised to make market purchases up to a
maximum of 5% of the issued ordinary share capital of the Company in accordance
with Special Resolution 9 in order to maintain sufficient liquidity in the VCT.
Financial instruments
The Company's principal financial assets are its investments and the policies in
relation to those assets are set out above. Financial liabilities and equity
instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a
residual interest in the assets of the entity after deducting all of its
financial liabilities. Where the contractual terms of share capital do not have
any terms meeting the definition of a financial liability then this is classed
as an equity instrument. Dividends and distributions relating to equity
instruments are debited direct to equity.
Capital management is monitored and controlled using the internal control
procedures set out on page x of this
report. The capital being managed includes equity and fixed-interest
investments, cash balances and liquid
resources including debtors and creditors. The Company does not have any
externally imposed capital requirements.
Dividends
Dividends payable, when applicable, 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.
2. Income
31 January 2011 31 January 2010
GBP'000 GBP'000
Money market funds - dividend income 23 30
Loan note interest receivable 192 34
215 64
3. Investment management fees
31 January 2011 31 January 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 53 158 211 45 136 181
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 provides investment management and accounting and
administration services to the Company under a management agreement which runs
for a period of five accounting periods with effect from 21 July 2008 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 18 to the financial statements.
4. Other expenses
31 January 2011 31 January 2010
GBP'000 GBP'000
Directors' remuneration 50 50
Fees payable to the Company's auditor for the
audit of the financial statements 9 6
Fees payable to the Company's auditor for other
services - tax compliance 2 2
Accounting and administration services 29 31
Legal and professional expenses 4 8
Other expenses 105 120
199 217
The total expense ratio for the Company for the year to 31 January 2011 was 3.2
per cent (2010: 2.5 per cent). Total running costs are capped at 3.2 per cent.
5. Directors' remuneration
31 January National 31 January National
2011 Insurance 2010 Insurance
GBP'000 GBP'000 GBP'000 GBP'000
Directors'
emoluments
Murray Steele 20 - 20 -
(Chairman)
Chris Powles 15 1 15 1
Chris Hulatt (paid 15 - 15 -
to Octopus
Investments
Limited)
50 1 50 1
None of the Directors received any other remuneration or benefit from the
Company during the year. The Company has no employees other than Non-Executive
Directors. The average number of Non-Executive Directors in the year was three
(2010: three).
6. Tax on ordinary activities
The corporation tax charge for the year was GBPnil (2010: GBPnil).
The current tax charge for the year differs from the standard rate of
corporation tax in the UK of 28% (2009: 28%). The differences are explained
below.
Current tax reconciliation: 31 January 2011 31 January 2010
GBP'000 GBP'000
Return on ordinary activities 64 (334)
before tax
Non taxable gains/(losses) 259 -
Net loss on ordinary activities (195) (334)
Current tax at 28% (2010: 28%) (55) (94)
Utilisation of tax losses - 99
Expenses not deducted for tax - (5)
purposes
Total current tax charge - -
The Company has excess management charges of approximately GBP221,000 (2010:
GBP415,000) to carry forward to offset against future taxable profits.
Approved venture capital trusts are exempt from tax on capital gains within the
Company. Since the Directors intend that the Company will continue to conduct
its affairs so as to maintain its approval as a venture capital trust, no
current deferred tax has been provided in respect of any capital gains or losses
arising on the revaluation or disposal of investments.
7. Earnings/(loss) per share
The revenue earnings per share is based on 11,615,546 (31 January
2010: 9,913,612) shares, being the weighted average number of shares in issue
during the year, and a loss for the year totalling GBP(37,000) (31 January 2010:
loss of GBP198,000).
The capital earnings per share is based on 11,615,546 (31 January
2010: 9,913,612) shares, being the weighted average number of shares in issue
during the year, and a profit for the year totalling GBP101,000 (31 January 2010:
loss of GBP136,000).
The total earnings per share is based on 11,615,546 (31 January
2010: 9,913,612) shares, being the weighted average number of shares in issue
during the year, and a profit for the year totalling GBP64,000 (31 January 2010:
loss of GBP334,000).
There are no potentially dilutive capital instruments in issue and therefore no
diluted returns per share figures are relevant. The basic and diluted earnings
per share are therefore identical.
8. Net asset value per share
The calculation of net asset value per share as at 31 January 2011 is based on
net assets of GBP10,644,000 (31 January 2010: GBP10,591,000) and 11,637,267 (31
January 2010: 11,650,327) Ordinary shares in issue at that date.
9. Fixed asset investments
Financial Reporting Standard 29 Financial Instruments: Disclosures regarding
financial instruments that are measured in the balance sheet at fair value
requires disclosure of fair value measurements by level in the following fair
value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities.
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. A market is regarded as active
if quoted prices are readily and regularly available, and those prices represent
actual and regularly occurring market transactions on an arm's length basis. The
quoted market price used for financial assets held is the current bid price.
These instruments are included in level 1 and comprise money market funds
classified as held for trading.
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 date where it is available and rely as
little as possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included
in level 2. The Company holds no such 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 profit and loss account.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in investments at fair value through profit or
loss during the year to 31 January 2011 are summarised below.
Fixed asset investments:
Level 3: Unquoted Level 3: Unquoted Total investments
equity investments loan investments
GBP'000 GBP'000 GBP'000
Valuation and net book
amount:
Cost as at 1 February 4,137 6,417
2010 2,280
Revaluation as at 1 - -
February 2010 -
Fair value at 1 4,137 6,417
February 2010 2,280
Movement in the year:
Purchases at cost 300 870 1,170
Disposal proceeds (54) (434) (488)
Loss on realisation of (1) (12)
investments in year (11)
Holding gains in year - 271 271
Closing fair value at 4,382 7,358
31 January 2011 2,976
Closing cost at 31 4,382 7,087
January 2011 2,705
Closing holding - 271
gains/(losses) at 31
January 2011 271
Fair value at 31 4,382 7,358
January 2011 2,976
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 15.
The loan and equity investments are considered to be one instrument due to them
being bound together. This is consistent with their investment policy.
Further details of the fixed asset investments held by the Company are shown
within the Investment Manager's Review on pages x to x.
10. Debtors
31 January 2011 31 January 2010
GBP'000 GBP'000
Prepayments and accrued income 43 86
11. Current Asset Investments
Current asset investments at 31 January 2011 comprised money market funds (31
January 2010: money market funds).
Level 1: money market funds
Total
GBP'000 GBP'000
Valuation and net book amount:
Book cost at 1 February 2010:
Money market funds 4,091
-----------
4,091
Revaluation to 1 February 2010:
Money market funds -
-----------
-
Valuation as at 1 February 2010 4,091
Movement in the year:
Purchases at cost:
Money market funds 6,477
-----------
6,477
Disposal proceeds:
Money market funds (9,138)
-----------
(9,138)
-----------
Valuation as at 31 January 2011 1,430
Cost at 31 January 2011:
Money market funds 1,430
-----------
1,430
Revaluation to 31 January 2011:
Money market funds -
-----------
-
Valuation as at 31 January 2011 1,430
All current asset investments held at the year end sit with the level 1
hierarchy for the purposes of FRS 29.
Level 1 money market funds: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities.
At 31 January 2011 and 31 January 2010 there were no commitments in respect of
investments approved by the Manager but not yet completed.
12. Creditors: amounts falling due within one year
31 January 2011 31 January 2010
GBP'000 GBP'000
Accruals 34 80
Other creditors 5 8
39 88
=----------------------------------------------------
13. Share capital
31 January 2011 31 January 2010
GBP'000 GBP'000
Authorised:
50,000,000 Ordinary shares of 10p 5,000 5,000
Allotted and fully paid up:
11,637,267 (2010: 11,650,327) Ordinary shares of 1,164 1,165
10p
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 x.
The Company is not subject to any externally imposed capital requirements.
The Company did not issue any Ordinary shares during the year (2010: 9,352,661).
During the year to 31 January 2011, the Company bought back for and cancelled
the following shares:
* 12 November 2010: 13,060 Ordinary shares at a price of 80.0 pence per share
The total nominal value of the shares re-purchased was GBP1,306, representing
0.01% of the issued share capital.
14. Reserves
Capital
Capital reserve
Special Capital reserve gains/ holding
Share distributable redemption (losses) on gains/ Revenue
capital reserve* reserve disposal* (losses) reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1
February
2010 1,165 9,844 - (143) - (275)
Repurchase
of own
shares (1) (11) 1 - - -
Return on
ordinary
activities
after tax - - - - - (37)
Management
fees
allocated
as capital
expenditure - - - (158) - -
Current
year losses
on disposal - - - (12) - -
Current
period
holding
gains on
fair value
of
investments - - - - 271 -
As at 31
January
2011 1,164 9,833 1 (313) 271 (312)
*Available for potential distribution by way of a dividend
All fixed asset investments are designated as fair value through profit or loss
at 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 holding gains or
losses.
When the Company revalues the investments still held during the period, any
gains or losses arising are credited/charged to the Capital reserve - holding
gains/(losses).
When an investment is sold any balance held on the Capital reserve - holding
gains/(losses) is transferred to the
Capital reserve - gains/(losses) on disposal as a movement in reserves.
At 31 January 2011 there were no commitments in respect of investments approved
by the Investment Manager but not yet completed.
Reserves available for potential distribution by way of a dividend are:
GBP'000
As at 1 February 2010 9,426
Movement in year 53
As at 31 January 2011 9,479
The purpose of the special distributable reserve was to create a reserve which
will be capable of being used by the Company to pay dividends and for the
purpose of making repurchases of its own shares in the market with a view to
narrowing the discount to net asset value at which the Company's ordinary shares
trade. In the event that the revenue reserve and capital reserve gains/(losses)
on disposal do not have sufficient funds to pay dividends, these will be paid
from the special distributable reserve.
15. Financial instruments and risk management
The Company's financial instruments comprise equity and fixed interest
investments, unquoted loans, cash balances and liquid resources including
debtors and creditors. The Company holds financial assets in accordance with its
investment policy of investing mainly in a portfolio of VCT-qualifying unquoted
securities whilst holding a proportion of its assets in cash or near-cash
investments in order to provide a reserve of liquidity.
31 January 2011 31 January 2010
GBP000 GBP000
Assets at fair value through profit or loss
Investments 7,358 6,417
Current asset investments 1,430 4,091
Total 8,788 10,508
Loans and receivables
Cash at bank 1,852 85
Accrued income 36 82
Total 1,888 167
Liabilities at amortised cost
Accruals and other creditors 39 88
Total 39 88
Fixed asset investments (see note 9) are valued at fair value. Unquoted
investments are carried at fair value as determined by the Directors in
accordance with current venture capital industry guidelines as detailed within
the Investment Manager's Review. 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 are 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.
Fair value methods and assumptions
Where investments are in quoted stocks, fair value is set as market price,
discounted if appropriate. Unquoted investments are valued in line with IPEVC
valuation guidelines.
Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page x. 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 with
regard to the possible effects of adverse price movements and, 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 pages x and x.
69.1% (2010: 61.3%) by value of the Company's net assets comprises investments
in unquoted companies held at fair value. The valuation methods used by the
Company include the application of a price/earnings ratio derived from listed
companies with similar characteristics, and consequently the value of the
unquoted element of the portfolio can be indirectly affected by price movements
on the London Stock Exchange. A 10% overall increase in the valuation of the
unquoted investments at 31 January 2011 would have increased net assets and the
total return for the period by GBP735,800 (2010: GBP641,700) an equivalent change in
the opposite direction would have reduced net assets and the total return for
the period by the same amount.
The Investment Manager considers that the majority of the investment valuations
are based on earnings multiples which are ascertained with reference to the
individual sector multiple or similarly listed entities. It is considered that
due to the diversity of the sectors, the 10% sensitivity discussed above
provides the most meaningful potential impact of average multiple changes across
the portfolio.
13.4% (2010: 38.6%) by value of the Company's net assets comprises of money
market funds held at fair value. A 1% overall increase in the valuation of the
money market funds at 31 January 2011 would have increased net assets and the
total return for the year by GBP14,300 (2010: GBP40,910) an equivalent change in the
opposite direction would have reduced net assets and the total return for the
year by the same amount.
Interest rate risk
At the year end, some of the Company's financial assets are interest-bearing,
some of which are at variable rates. As a result, the Company is exposed to
fair value interest rate risk due to fluctuations in the prevailing levels of
market interest rates.
Floating rate
The Company's floating rate investments comprise cash held on interest-bearing
deposit accounts and, where appropriate, within interest bearing money market
funds. The benchmark rate which determines the rate of interest receivable on
such investments is the bank base rate, which was 0.5% at 31 January 2010 (2010:
0.5%). The amounts held in floating rate investments at the balance sheet date
were as follows:
31 January 2011 31 January 2010
GBP000 GBP000
Cash on deposit & money market funds 3,282 4,176
A 1% increase in the base rate would increase income receivable from these
investments and the total return by GBP32,820 (2010: GBP41,700), on an annualised
basis.
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.
At 31 January 2011 the Company's financial assets exposed to credit risk
comprised the following:
31 January 2011 31 January 2010
GBP000 GBP000
Investments in floating rate instruments 1,430 4,091
Cash on deposit 1,852 85
Investments in fixed rate instruments 4,702 2,306
Accrued dividends and interest receivable 36 3
8,020 6,485
Credit risk relating to listed money market funds is mitigated by investing in a
portfolio of investment instruments of high credit quality, comprising
securities issued by the UK Government and major UK institutions. Credit risk
relating to loans to and preference shares in unquoted companies is considered
to be part of market risk.
Credit risk arising on the sale of investments is considered to be small due to
the short settlement and the contracted agreements in place with the settlement
lawyers.
The Company's interest-bearing deposit and current accounts are maintained with
the Co-operative Bank and HSBC. The Investment Manager has in place a monitoring
procedure in respect of counterparty risk which is reviewed on an ongoing basis.
Should the credit quality or the financial position of either entity deteriorate
significantly the Investment Manager will move the cash holdings to another
bank.
Other than cash or liquid money market funds, there were no significant
concentrations of credit risk to counterparties at 31 January 2011 or 31 January
2010.
Liquidity risk
The Company's financial assets include investments in unquoted equity securities
which are not traded on a recognised stock exchange and which generally may be
illiquid. As a result, the Company may not be able to realise some of its
investments in these instruments quickly at an amount close to their fair value
in order to meet its liquidity requirements, or to respond to specific events
such as deterioration in the creditworthiness of any particular issuer.
The Company's listed money market funds are considered to be readily realisable
as they are of high credit quality as outlined above.
The Company's liquidity risk is managed on a continuing basis by the Investment
Manager in accordance with policies and procedures laid down by the Board. The
Company's overall liquidity risks are monitored on a quarterly basis by the
Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 31 January 2011
these investments were valued at GBP3,282,000 (2010: GBP4,176,000).
16. Post balance sheet events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* on 23 March 2011 GreenCo Services Limited purchased shares in CSL DualCom
Limited; and
* on 23 March 2011 PubCo Services Limited purchased shares in Salus Services
1 Limited.
17. Contingencies, guarantees and financial commitments
There were no contingencies, guarantees or financial commitments as at 31
January 2011 (2010: GBPnil).
18. Related party transactions
Chris Hulatt, a non-executive Director of Octopus Apollo VCT 4 plc, is a
Director of Octopus Investments Limited. Octopus Apollo VCT 4 plc has employed
Octopus Investments throughout the period as Investment Manager. Octopus Apollo
VCT 4 plc has paid Octopus GBP211,000 (2010: GBP181,000) in the period as a
management fee and there was GBPnil outstanding at the balance sheet date (2010:
GBPnil).
The management fee is payable quarterly in advance and is based on 2.0% of the
net asset value calculated at annual intervals as at 31 January. Octopus
Investments Limited provides accounting and administrative services to the
Company, payable quarterly in advance for a fee of 0.3% of the net asset value
calculated at annual intervals as at 31 January.
In addition, Octopus Investments also provides secretarial services for an
additional fee of GBP10,000 per annum. During the year GBP10,000 (2010: GBP13,625)
was paid to Octopus Investments Limited and there is GBPnil outstanding at the
balance sheet date (2010: GBPnil).
No performance related incentive fee will be payable over the first five years.
Thereafter, Octopus Investments will be entitled to an annual performance
related incentive fee. This performance fee is equal to 20% of the amount by
which the NAV from the start of the sixth accounting and subsequent accounting
period exceeds simple interest of the HSBC Bank plc base rate for the same
period. The NAV at the start of the sixth accounting period must be at least
100p. Any distributions paid out by the Fund will be added back when calculating
this performance fee. The Board considers that the liability becomes due at the
point that the performance criteria are met; this has not been achieved and
therefore no liability has been recognised.
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 Apollo VCT 4 PLC via Thomson Reuters ONE
[HUG#1516458]
Octopus AP 4 (LSE:OAP4)
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Octopus AP 4 (LSE:OAP4)
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