Final Results
Eclipse VCT plc
Final Results
30 September 2008
Eclipse VCT plc, managed by Octopus Investments Limited, today
announces the Final Results for the year ended 31 May 2008.
These results were approved by the Board of Directors on 30 September
2008.
You may view the Annual Report and Accounts in full at
www.octopusinvestments.com and navigating to the VCT Annual and
Interim Reports under the 'Learn More' section, or at the Company's
registered office 8 Angel Court, London, EC2R 7HP where copies are
available to the public.
About Eclipse VCT plc
Eclipse VCT plc ("Eclipse" 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 was launched in April 2004 and raised over �30.7 million
(�29.7 million net of expenses) through an offer for subscription.
The Company co-invests with other funds managed by Octopus. This
allows Eclipse to invest in a wider range of opportunities and in
larger and more developed companies than are typically available to a
single VCT.
Financial Highlights
+-------------------------------------------------------------------+
| | Year to 31 May | Year to 31 May |
| | 2008 | 2007 |
|---------------------------------+----------------+----------------|
| | | |
|---------------------------------+----------------+----------------|
| Net assets (�'000s) | 32,715 | 39,135 |
|---------------------------------+----------------+----------------|
| Net return after tax (�'000s) | (4,666) | 10,731 |
|---------------------------------+----------------+----------------|
| Net asset value per share | | |
| ("NAV") | 104.8p | 126.1p |
|---------------------------------+----------------+----------------|
| Dividends paid and proposed | | |
| relating to the year | 10.0p | 8.0p |
|---------------------------------+----------------+----------------|
| Cumulative dividends since | | |
| launch - paid and proposed | 20.7p | 10.7p |
+-------------------------------------------------------------------+
The table below shows the movement in NAV per share and lists the
dividends that have been paid since the launch of Eclipse:
+-------------------------------------------------------------------+
| | | Dividends paid | Total return (NAV + |
| Period Ended | NAV | in period | cumulative dividends) |
|--------------+--------+----------------+--------------------------|
| 30 November | 96.0p | - | 96.0p |
| 2004 | | | |
|--------------+--------+----------------+--------------------------|
| 31 May 2005 | 96.8p | - | 96.8p |
|--------------+--------+----------------+--------------------------|
| 30 November | 94.2p | 1.45p | 95.7p |
| 2005 | | | |
|--------------+--------+----------------+--------------------------|
| 31 May 2006 | 96.8p | - | 98.3p |
|--------------+--------+----------------+--------------------------|
| 30 November | 113.5p | 1.25p | 116.2p |
| 2006 | | | |
|--------------+--------+----------------+--------------------------|
| 31 May 2007 | 126.1p | 4.00p | 132.8p |
|--------------+--------+----------------+--------------------------|
| 30 November | 118.9p | 4.00p | 129.6p |
| 2007 | | | |
|--------------+--------+----------------+--------------------------|
| 31 May 2008 | 104.8p | 3.00p | 118.5p |
+-------------------------------------------------------------------+
Chairman's Statement
I am pleased to present to you the annual report for Eclipse VCT plc
for the year ended 31 May 2008.
Results Review
In the year to 31 May 2008, the total return (being the NAV plus
dividends paid out to shareholders) decreased 8.6% from 129.6p to
118.5p. In an increasingly volatile economic environment, there was
a risk of a larger decline in asset values. However, the Investment
Manager was successful in crystallising gains of nearly �6.5 million
during the year from the disposal, either wholly or partially, of a
number of investments. This has meant that at the year end cash or
cash equivalent securities accounted for over 30% of the net asset
value. Further details are included within the Investment Manager's
Review including a review of the performance of the investments.
The Board's strategy is to maintain an appropriate level of liquidity
in the balance sheet to achieve four aims:
* to take advantage of new investment opportunities as they arise;
* to support further investment in existing portfolio companies if
required;
* to assist liquidity in the shares through the buy back facility,
and
* to support a maintainable dividend flow.
Consequently, the Board has proposed a final dividend of 7.0p per
share to be paid on 28 November 2008 to shareholders on the register
on 7 November 2008. This will take cumulative dividends to 20.7p per
share since the Fund's launch and 10.0p for the year. The total
return to shareholders is 18.5%, before taking into account the 40%
upfront income tax relief received by initial subscribers.
Investment Portfolio
During the year, twelve new investments were made and five
investments fully disposed of. New investments totalled �6.2 million
in six unquoted and six AIM-quoted companies. There were also a
number of follow-on investments.
Disposals across both the unquoted and AIM-quoted portfolios allowed
for successful crystallisation of profits, although unfortunately two
companies were disposed of at a loss.
Further details about the portfolio, including new investments and
realisations may be found in the Investment Manager's Review.
VAT on Management Fees
The Government has recently announced that VCTs will be exempt from
paying VAT on investment management fees with effect from 1 October
2008. This follows a European Court of Justice judgement against the
Government in a case relating to VAT payable by investment trusts.
It is not yet clear to what degree it will be possible to obtain a
repayment of VAT paid on management fees prior to the new measure
taking effect, and we will follow developments with the help of our
advisers. However, the saving in VAT for the 2008/2009 year should
amount to around �115,000.
Share Price and Buy-backs
At the date of publication, the Company's mid market share price
stood at 90p compared to the previously published NAV of 113.6p and
the current NAV of 104.8p. We hope that as our Fund demonstrates its
ability to deliver sustained growth and regular dividends in the
future, its discount to NAV will narrow longer term. Details of
shares issued and bought back in the year can be found in the
Directors' Report commencing on page 20.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager
with advice on the ongoing compliance with Her Majesty's Revenue &
Customs ("HMRC") rules and regulations concerning VCTs. The Board
has been advised that Eclipse VCT plc is in compliance with the
conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement now is to maintain the required 70% qualifying
investment level, particularly at a time when we are successfully
realising some of our investments and new deal flow is not as great
as it has been over the last few years. As at 31 May 2008 over 93%
of the portfolio (as measured by HMRC rules) was invested in VCT
qualifying investments.
Outlook
The Board's focus is to continue to generate capital growth in the
investee companies in order to pay out a tax-free dividend stream to
shareholders. Whilst short term valuations are indicative of the
tough market conditions, it is important to maintain some
perspective. The Investment Manager has, in line with VCT
requirements, invested in relatively small companies with growth
potential, either through new products or increased market share.
These fundamentals have not changed and most of our unquoted
investments have continued to grow organically and through
acquisition. Difficult market conditions can often present
opportunities for acquisitions or exits. This and the diversified
nature of the portfolio should assist the Manager in achieving its
objective of realising gains in the coming years to support the
continuation of an attractive tax-free dividend profile.
Nevertheless, the Board's visibility on the twelve months ahead is
clearly restricted as a result of the scale of the current world
financial crisis which will have a significant negative impact on
small as well as large businesses unless credit conditions are
improved markedly in the coming months.
Viscount Cobham
Chairman
30 September 2008
Investment Manager's Review
Personal Service
At Octopus, we pride ourselves not only on our team's track record
but also on our personalised customer service. We believe in open
communication and our regular updates are designed to keep you
involved and informed.
If you have any questions about this review, or if it would help to
speak to one of the fund managers, please do not hesitate to contact
us on 0800 316 2347.
Portfolio Review
The performance of the Fund over the last year has been mixed. In
the strong Mergers and Acquisitions market, which pertained up until
March 2008, the Fund was able to capitalise on two very successful
full realisations, Covion Limited and Gyro International Limited and
the partial realisation on float of Plastics Capital. However the
overall performance of the portfolio has been affected by the widely
reported weakness in the stock market and by the performance of some
of the portfolio companies in adverse economic conditions.
Despite the diversity of the unquoted portfolio across sectors, some
companies have been impacted by the slowing economy. �5.5 million of
profit was crystallised during the year from successful unquoted
disposals; however we have written down in value a number of the
companies. In particular it is disappointing to report the full loss
of the investment in Adrenalin Design, which has been placed into
administration. This company operated in the mid market consumer
sector and experienced severely declining sales levels. In the
circumstances it was not considered appropriate to support the
business further. Valuation write downs have been made on several of
investments where performance is significantly behind plan. The
approach taken to portfolio valuations may be viewed as prudent, and
we have been cautious in the current environment about writing up
investment values, even where demonstrable progress has been made by
the investee company. Octopus actively works with all investee
companies to ensure value will be added in due course.
The AIM portfolio, whilst only accounting for around 22% of the
investment portfolio by value, has reduced in value to impact the NAV
negatively by around 9p per share. However, profits of �970,000 were
successfully crystallised during the period from the AIM portfolio.
Price falls in quoted smaller companies have been severe, and the
illiquidity of some of the stocks has compounded the problem. Price
falls largely reflect market de-ratings rather than stock specific
issues. Whilst the economic outlook remains of concern, a large
number of the companies in the AIM portfolio are established,
profitable companies which should not need to rely on access to
further funding. Furthermore, many of the AIM investments are
engaged in business activities that have demonstrated robust pricing
power and will not be reliant on the ebb and flow of the wider
economy. With this in mind, we remain confident about the longer
term prospects of the underlying AIM holdings within the portfolio.
Disappointingly, however, Myhome International plc went into
administration on 3 September 2008 and this effectively values our
holding at �nil (31 May 2008: �96,000). The underlying businesses
that the franchisees contract with are not subject to insolvency
proceedings and shall continue to operate whilst the administrators
explore the strategic options for the group.
A summary of all disposals, new investments and existing portfolio
revaluations is set out below.
Investment Portfolio
+----------------------------------------------------------------------------------------------------------------+
| | | | | | |Carrying| | | | |
| | | | | | |value at| | | | |
|Unquoted | |Investment| | Unrealised| | 31 May| |% equity| | |
|Qualifying | | at cost| |profit/(loss)| | 2008| | held by| | % equity held by all|
|Investments |Sector | (�'000)| | (�'000)| | (�'000)| | Eclipse| | funds managed by Octopus|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|The History | | | | | | | | | | |
|Press Limited |Publishing | 1,703| | -| | 1,703| | 15.4%| | 60.0%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|TDX Group | | | | | | | | | | |
|Limited |Financial Services| 400| | 1,301| | 1,701| | 5.5%| | 5.5%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Lilestone | | | | | | | | | | |
|Holdings Limited|Consumer Products | 1,268| | -| | 1,268| | 11.3%| | 18.0%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Luther Pendragon|Media & Marketing | | | | | | | | | |
|Limited |Services | 1,000| | 234| | 1,234| | 17.5%| | 35.0%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|CSL DualCom |Technology & | | | | | | | | | |
|Limited |Telecommunications| 983| | 194| | 1,177| | 13.1%| | 45.8%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|The Kendal Group| | | | | | | | | | |
|Limited |Consumer Products | 1,024| | -| | 1,024| | 10.2%| | 5.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Reading Room | | | | | | | | | | |
|Limited |Publishing | 1,000| | 22| | 1,022| | 26.7%| | 26.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Perfect Pizza | | | | | | | | | | |
|Limited |Leisure & Hotels | 1,000| | -| | 1,000| | 13.2%| | 34.3%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Audio Visual |Technology & | | | | | | | | | |
|Machines Limited|Telecommunications| 751| | 229| | 980| | 11.4%| | 43.1%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Sweet Cred | | | | | | | | | | |
|Holdings Limited|Consumer Products | 914| | -| | 914| | 4.2%| | 24.5%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Promotion Space |Media & Marketing | | | | | | | | | |
|Limited |Services | 799| | -| | 799| | 5.8%| | 38.0%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|First Sports | | | | | | | | | | |
|Group Limited |General Retailers | 1,150| | (600)| | 550| | 20.0%| | 40.0%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|T4 Holdings |Media & Marketing | | | | | | | | | |
|Limited |Services | 804| | (279)| | 525| | 9.0%| | 41.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|The Capital Pub | | | | | | | | | | |
|Company 2 plc |Leisure & Hotels | 600| | (133)| | 467| | 2.5%| | 8.2%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Hydrobolt | | | | | | | | | | |
|Limited |Engineering | 397| | -| | 397| | 4.6%| | 48.1%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|The Grill Group | | | | | | | | | | |
|Limited |Leisure & Hotels | 1,042| | (647)| | 345| | 8.0%| | 51.6%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Tristar | | | | | | | | | | |
|Worldwide | | | | | | | | | | |
|Limited |Transport Services| 331| | -| | 331| | 3.3%| | 35.0%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|BDA | | | | | | | | | | |
|International |Media & Marketing | | | | | | | | | |
|Limited |Services | 286| | -| | 286| | 5.6%| | 33.4%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Blanc Brasseries| | | | | | | | | | |
|Holdings plc |Leisure & Hotels | 103| | (52)| | 51| | 1.2%| | 3.3%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Adrenalin Design| | | | | | | | | | |
|Limited |Consumer Products | 952| | (952)| | -| | 11.0%| | 42.9%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Red-M Group |Technology & | | | | | | | | | |
|Limited |Telecommunications| 500| | (500)| | -| | 3.6%| | 9.3%|
|-----------------------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Total unquoted qualifying | | | | | | | | | |
|investments | 16,957| | (1,183)| | 15,774| | | | |
|-----------------------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
| | | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|AIM-quoted | | | | | | | | | | |
|Qualifying | | | | | | | | | | |
|Investments | | | | | | | | | | |
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Plastics Capital| | | | | | | | | | |
|plc |Engineering | 1,334| | (107)| | 1,227| | 5.0%| | 12.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Hexagon Human | | | | | | | | | | |
|Capital plc |Recruitment | 715| | (65)| | 650| | 2.8%| | 11.2%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Tanfield Group | | | | | | | | | | |
|plc |Engineering | 180| | 468| | 648| | 0.3%| | 2.8%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|CBG Group plc |Financial Services| 381| | 100| | 481| | 1.9%| | 13.8%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Zetar plc |Food Producers | 237| | 202| | 439| | 1.0%| | 2.1%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|InterQuest plc |Recruitment | 341| | 93| | 434| | 2.1%| | 5.9%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
| |Media & Marketing | | | | | | | | | |
|Hasgrove plc |Services | 376| | 31| | 407| | 1.5%| | 7.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
| |Media & Marketing | | | | | | | | | |
|Cello Group plc |Services | 360| | 36| | 396| | 0.8%| | 8.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Healthcare | | | | | | | | | | |
|Locums plc |Recruitment | 135| | 141| | 276| | 0.2%| | 1.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Pressure | | | | | | | | | | |
|Technologies plc|Engineering | 165| | 99| | 264| | 1.0%| | 5.3%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Fountains plc |Support Services | 240| | 10| | 250| | 1.3%| | 10.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Augean plc |Support Services | 500| | (267)| | 233| | 0.4%| | 4.7%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Northern Bear |Construction & | | | | | | | | | |
|plc |Materials | 299| | (80)| | 219| | 1.1%| | 7.6%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Vertu Motors plc|General Retailers | 250| | (71)| | 179| | 0.5%| | 3.2%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Brulines | | | | | | | | | | |
|(Holdings) plc |Support Services | 148| | 14| | 162| | 0.5%| | 2.6%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Cohort plc |Engineering | 101| | 55| | 156| | 0.2%| | 2.5%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Concateno plc |Support Services | 85| | 67| | 152| | 0.1%| | 0.5%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Cantono plc |Engineering | 420| | (269)| | 151| | 1.5%| | 9.9%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Autoclenz | | | | | | | | | | |
|Holdings plc |Support Services | 338| | (210)| | 128| | 2.6%| | 12.8%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|MyHome | | | | | | | | | | |
|International | | | | | | | | | | |
|plc |Support Services | 300| | (204)| | 96| | 0.7%| | 6.3%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
| |Media & Marketing | | | | | | | | | |
|Optimisa plc |Services | 143| | (64)| | 79| | 0.7%| | 5.3%|
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Invocas plc |Financial Services| 60| | (34)| | 26| | 0.2%| | 1.3%|
|-----------------------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Total AIM-quoted qualifying | | | | | | | | | |
|investments | 7,108| | (55)| | 7,053| | | | |
|-----------------------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Non-qualifying AIM-quoted | | | | | | | | | |
|investments | 53| | (4)| | 49| | | | |
|-----------------------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Non-qualifying unquoted investments| 1| | -| | 1| | | | |
|-----------------------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Total non-qualifying investments | 54| | (4)| | 50| | | | |
|-----------------------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Fixed income | | | | | | | | | | |
|securities | | 9,473| | (16)| | 9,457| | | | |
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Total | | | | | | | | | | |
|investments | | 33,592| | (1,258)| | 32,334| | | | |
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Net current | | | | | | | | | | |
|assets | | -| | -| | 381| | | | |
|----------------+------------------+----------+-+-------------+-+--------+-+--------+-+-------------------------|
|Total net assets| | | | | | 32,715| | | | |
+----------------------------------------------------------------------------------------------------------------+
Please refer to notes 10 & 11 in the Notes to the Financial
Statements to provide clarity on the unrealised gain carried forward
Review of Investments
At 31 May 2008, the Eclipse qualifying portfolio comprised
investments in 21 unquoted and 22 AIM-quoted companies. The unquoted
investments are in ordinary shares with full voting rights as well as
loan notes and other 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 43, which takes account of current
industry guidelines for the valuation of venture capital portfolios.
Provision against cost is made where an unlisted investment is
under-performing significantly, and unlisted investments are not
normally revalued upwards within 12 months of acquisition.
Disposals
As mentioned above in the portfolio review, realisations in both the
AIM-quoted and unquoted portfolios led to the crystallisation of
nearly �6.5 million of profit. From the AIM portfolio, profits of
�560,400 were taken in Tanfield Group plc, although Eclipse still
owns a stake in this company at the year end. Other full disposals,
securing over �408,000 of profit, included Worthington Nicholls plc,
BBI Holdings plc, Cello Group plc, Hasgrove plc and Tissue Science
Laboratories plc. However, the latter resulted in a loss of �63,500
since a cash bid received was below our original purchase price in
March 2005.
The unquoted portfolio crystallised profits of over �5.5 million.
Two successful realisations were made from the sale of Covion Limited
and Gyro International Limited, generating returns of 301% and 163%
respectively. Plastics Capital Limited successfully floated on the
AIM market in December 2007, through which the Fund's investment in
loan notes was redeemed. The flotation crystallised a profit for the
Fund of over �1.1 million, representing a return of 76%. Other
Octopus funds also invested at the time of the flotation. On AIM we
expect this company to continue its acquisition strategy, which we
believe will generate long-term growth in value of the company and
therefore the Fund's remaining equity investment.
As previously disclosed in the Interim Accounts, NPI Media Limited
was disposed of at a loss to a new vehicle, The History Press
Limited, in December 2007. Eclipse invested �1.7 million, as part of
a �6.1 million investment by Octopus funds, into the new vehicle, set
up to acquire NPI through a restructuring process. NPI had performed
poorly since the initial investment and had been particularly
impacted by its printing operations. Through the restructuring
process, initiated by Octopus, The History Press only acquired the
publishing assets from NPI and we believe that this will make a more
robust and exciting investment for the future. Through the new
investment, Eclipse realised just under half its original investment
in NPI, the balance being written off.
A summary of these realisations is shown below:
+--------------------------------------------------------------------+
| | | Cost of| | |
| | Initial| investment|Proceeds of| Total|
| | investment| realised| investment|gain/(loss)|
|Realisations | date| (�'000)| (�'000)| (�'000)|
|---------------+------------+---------------+-----------+-----------|
|Covion Limited | May 2005| 844| 3,381| 2,537|
|---------------+------------+---------------+-----------+-----------|
|Plastics | November| | | |
|Capital Limited| 2005| 1,492| 2,625| 1,133|
|---------------+------------+---------------+-----------+-----------|
|Tanfield Group | | | | |
|plc | May 2005| 70| 630| 560|
|---------------+------------+---------------+-----------+-----------|
|Gyro | | | | |
|International | | | | |
|Limited |October 2006| 1,748| 4,598| 2,850|
|---------------+------------+---------------+-----------+-----------|
|Worthington | | | | |
|Nicholls plc | June 2006| 283| 638| 355|
|---------------+------------+---------------+-----------+-----------|
|BBI Holdings | | | | |
|plc | May 2006| 67| 131| 64|
|---------------+------------+---------------+-----------+-----------|
|NPI Media Group| | | | |
|Limited |January 2007| 1,933| 929| (1,004)|
|---------------+------------+---------------+-----------+-----------|
|Tissue Science | | | | |
|Laboratories | | | | |
|plc | March 2005| 161| 97| (64)|
|---------------+------------+---------------+-----------+-----------|
| | November| | | |
|Hasgrove plc | 2006| 24| 25| 1|
|---------------+------------+---------------+-----------+-----------|
| | November| | | |
|Cello Group plc| 2004| 390| 442| 52|
|---------------+------------+---------------+-----------+-----------|
| | | 7,012| 13,496| 6,484|
+--------------------------------------------------------------------+
New Investments
During the first half of the year a number of opportunities available
in both the unquoted and AIM-quoted markets led to Eclipse making
twelve new investments and seven follow on investments. Details of
these new investments are set-out below:
Unquoted investments
T4 Holdings Limited
Investment date: August 2007
Cost: �804,390 (ordinary shares and loan
notes)
Valuation: �525,000
T4 is based in London and, through subsidiaries Ad Barriers and Ad
Gates, is the leading provider of advertising solutions on railway
station gates and car park ticket equipment. It has benefited from
the expansion in the number of railway station gates in recent years
and increasing passenger numbers. T4 provides solutions to a broad
range of brands including Visa, Scottish & Southern Energy, Swift
Cover and Vodafone. In a weaker outdoor market, T4 has seen 6%
year on year sales growth in the year to May 2008 but as this level
was substantially below expectations, an impairment has been made to
the valuation. Further details of the company may be found at
www.t4media.com
The Grill Group Limited
Investment date: September 2007
Cost: �991,750 (ordinary shares and loan
notes)
Valuation: �345,000
The Grill Group has three restaurant brands: Smollensky's, with nine
Bar & Grill and Burgershack sites in London, and the Le Frog Bistros
and Pastiche with eight restaurants in the North West and Midlands.
In September 2007, Octopus committed �6 million to fund the
acquisition of the Smollensky's chain of restaurants by The Shire
Group which owned the Le Frog Bistros and Pastiche chains. The
investment strategy includes the operational turnaround of
Smollensky's, followed by the roll-out of the brand. Whilst
considerable progress has been made since investment, performance is
well behind plan and the business is feeling the impact of the
consumer downturn. We have therefore taken an impairment to the
value. Further details of the company may be found at
www.smollenskys.com
The History Press Limited
Investment date: December 2007
Cost: �1,702,685 (ordinary shares and loan
notes)
Valuation: �1,702,685
The History Press was incorporated in order to buy the assets of NPI
Media Limited which had been placed into administration. It is the UK
market leading publisher of distinctive 'local interest' history
books. The company is based in Stroud with subsidiary operations in
France, Germany, Ireland and the US. Further details of the company
may be found at www.historypress.co.uk
BDA International Limited
Investment date: December 2007
Cost: �286,023 (ordinary shares and loan
notes)
Valuation: �286,023
BDA provides promotion and design services to broadcasters and
advertisers worldwide and also creates brand films and internal
communications for leading UK corporations, including Hallmark,
Barclays, Discovery and Sony. The company operates from offices in
London, Munich, Dubai, Singapore and Sydney. Revenues have grown
against prior year and the management team has been strengthened by
the appointment of a new Chairman, introduced by Octopus. The
company has recently made a small acquisition of Jago Design Limited.
Jago has a strong international reputation for set design,
particularly in news sets and there is the potential for cross
marketing BDA/Jago services to the respective broadcaster client
basis. Further details of the company may be found at
www.brucedunlop.com
Tristar Worldwide Limited
Investment date: January 2008
Cost: �330,596 (ordinary shares and loan
notes)
Valuation: �330,596
Tristar is one of the world's leading chauffeur companies, carrying
over 400,000 passengers for 400 clients in 2007 alone. The business
operates in 44 countries with its own vehicles in the UK and a
rapidly expanding service in the US. It has a blue chip customer base
which includes Virgin, Emirates, BP, Shell and Unilever. In the year
to May 2008, the business achieved earnings before interest, tax and
amortisation before deal costs of �2.2m, 36% up on prior year.
Further details of the company may be found at
www.tristarworldwide.com
Hydrobolt Limited
Investment date: April 2008
Cost: �396,738 (ordinary shares and loan
notes)
Valuation: �396,738
Eclipse invested in the management buy-out of Hydrobolt Limited in
April 2008 as part of �3.5 million investment across all the Eclipse
funds. Hydrobolt is a specialist manufacturer of high integrity
fasteners for the oil & gas and energy sectors. The business has
progressed well since investment, with sales year to date over 20%
ahead of prior year. Further details of the company may be found at
www.hydrobolt.co.uk
In addition to the new investments noted above, the Company has made
follow-on investments in another seven of the unquoted portfolio
companies as follows:
* Sweet Cred Holdings Limited - In January 2008 Eclipse invested an
additional �386,866 to fund continued working capital growth.
This amount was part of a further �2 million funding from Octopus
Funds agreed at the time of the original investment and triggered
by achievement of certain profit targets.
* Promotion Space Limited - In April 2008 Eclipse invested �522,638
as part of a �2.75 million round from Octopus managed funds, to
finance the acquisition of BrandSpace Limited. Together with the
acquisition of Fitting Exposure in 2007, Promotion Space has now
become the UK's leading arranger of promotional activities in UK
shopping centres.
* NPI Media Group Limited - During 2007 Eclipse made a series of
further investments in NPI totalling �414,196, prior to the sale
of the business to The History Press in December 2007.
* Plastics Capital Limited - In August 2007 Eclipse invested a
further �492,244 to help finance the acquisition of Channel
Matrix plc, a major competitor to one of the company's
subsidiaries, Trimplex, a manufacturer of creasing matrix.
Plastics Capital subsequently floated on AIM in December 2007.
Further small follow on investments were also made during the year in
Lilestone Holdings Limited, Adrenalin Design Limited and First Sports
Group Limited, in each case to support the working capital needs of
the company.
AIM-quoted investments
CBG Group plc
Investment date: June 2007
Cost: �380,700
Valuation: �480,600
Based in Manchester, CBG Group is a corporate general insurance, risk
management and financial services intermediary. The company offers a
range of services principally in the area of Commercial Insurance,
Business Risk Management, Healthcare and Employee Benefits. We
expect the company to continue to acquire further businesses in the
North-West of England. Further details of the company may be found
at www.cbg-group.co.uk
Pressure Technologies plc
Investment date: July 2007
Cost: �165,000
Valuation: �264,000
Pressure Technologies is the holding company of Chesterfield Special
Cylinders ("CSC"). CSC designs, manufactures and offers testing and
refurbishment services for a range of speciality high pressure,
seamless steel gas cylinders for global energy and defence markets.
Further details of the company may be found at
www.pressuretechnologies.com
Northern Bear plc
Investment date: August 2007
Cost: �299,425
Valuation: �218,890
Northern Bear is a building services group based in North East
England. It provides central strategic and financial functions for a
group of otherwise autonomous companies, each of which provides
products and/or services to the construction industry and house
builders. We expect the company to complete further acquisitions
over the next twelve months. Further details of the company may be
found at www.northern-bear.com
Cantono plc
Investment date: August 2007
Cost: �420,000
Valuation: �151,200
Cantono is a provider of Managed IT Services and hosting solutions
for small to medium sized organisations. Its typical client has from
100 -1,000 users. Cantono provides a range of services from
individual applications to fully managed IT environments. Cantono's
services are backed by robust service level agreements, expert
technicians, and a high level of customer service. Further details
of the company may be found at www.cantono.com
Optimisa plc
Investment date: October 2007
Cost: �143,000
Valuation: �79,200
Optimisa plc provides market research and consultancy services.
Recently Optimisa completed the earnings enhancing acquisition of EQ
Group, a business operating in a similar sector. Historically
Optimisa and EQ have competed for contracts and we expect the larger
and more diversified group to exploit a number of synergies and cross
selling opportunities. Further details of the company may be found
at www.optimisaplc.com
Myhome International plc
Investment date: November 2007
Cost: �299,992
Valuation: �95,831
Myhome is an acquisitive national franchise group. The company has
become a market leader in the growing sector of residential cleaning
under the brand of Myhome, and has extended its offering by rolling
out other franchises including electrical, plumbing and cleaning
services. In June 2006 the company acquired Ovenclean, the UK's
leading domestic oven cleaning franchise with a ten year growth
history and over 165 franchisees. More recently Myhome completed the
acquisition of ChipsAway, a mobile service delivered to customers'
homes and offices, repairing scratches, chips and other minor damage
to car paintwork using proprietary technology. Further details of
the company may be found at www.myhome.com
Ten Largest Holdings
Listed below are the ten largest investments by value as at 31 May
2008:
The History Press Limited
The History Press was incorporated in order to buy the assets of NPI
Media Limited which had been placed in administration. It is the UK
market leading publisher of distinctive 'local interest' history
books. In December 2007 Eclipse invested �1.7 million, as part of a
�6.15 million investment by Octopus funds, into a new vehicle, The
History Press Limited, set up to acquire NPI through a restructuring
process. NPI had performed poorly since the initial investment and
had been particularly impacted by its printing operations. Through
the restructuring process, initiated by Octopus, The History Press
only acquired the publishing assets from NPI and we believe that this
will make a more robust and exciting investment for the future. We
have been pleased with the progress made by THP since its inception.
A considerable amount of time has been put into the investment by
Octopus, including strengthening the management team. The company
has been through a number of reorganisation exercises, including the
outsourcing of the warehouse and distribution facility. Despite
challenging market conditions, the company is now in a much stronger
position going forward.
Initial investment date: December 2007
Cost: �1,702,685
Valuation: �1,702,685
Valuation basis: Cost
Equity held: 15.4%
Last audited accounts: N/A
TDX Group Limited
TDX is a business which acts as an intermediary to provide debt sale,
recovery management and support services to banks, credit card
companies and utility companies. TDX works with its customers to
improve the yield/net returns on their non performing consumer debt -
their objective is to increase returns by 15% plus. The business has
developed a proprietary technology platform and has a highly
sophisticated analytical and research driven approach. TDX combines
this 'cerebral' approach with solid and extensive operational
experience. In 2006, TDX developed "The Insolvency Exchange", which
processes Individual Voluntary Arrangement "IVA" proposals on behalf
of creditors, analytically decides which proposals to accept, and
optimises the return. This has revolutionalised the IVA industry and
now covers 80% of the market.
Initial investment date: August 2005
Cost: �400,000
Valuation: �1,701,000
Valuation basis: Earnings
Equity held: 5.5%
Last audited accounts: 31 August 2007
Profit before interest & tax: �3.7 million
Net assets: �3.5 million
Lilestone Holdings Limited
Eclipse initially invested in Lilestone Holdings (the owner of the
Myla brand of lingerie) in September 2005 and provided funding as
part of a second round of investment in July 2006. The business has
progressed well, increasing distribution through several new outlets,
and to a significantly increased number of wholesale customers. The
business remains in the investment phase and has ambitious plans for
international growth. A new round of funding was completed in April
2007 which saw the introduction of a new trade related investor, who
has brought benefits to the sourcing side of the business. In 2008 a
�3.5m funding round has been completed, including an additional
investment of �265,000 (�171,000 prior to the year end) from the Fund
and �908,000 from other Funds managed by Octopus. Myla has opened a
new store in Canary Wharf and will be opening a further outlet in the
new Westfield shopping centre in West London before Christmas. In
addition the Company has plans to extend space in some of the
existing concessions and has launched a new internet offering in the
US. The latest round was raised at a price of �2 per share, a modest
premium over earlier rounds. As the company remains loss making
during its growth phase we have retained the investment at cost.
Initial investment date: September 2005
Cost: �1,267,911
Valuation: �1,267,911
Valuation basis: Cost
Equity held: 11.3%
Last audited accounts: 30 September 2007
Loss before interest & tax: �(2.5) million
Net assets: �0.7 million
Plastics Capital plc
Plastics Capital was set up to build a group of niche plastics
manufacturing companies, each with a strong market position and good
cash generation characteristics. The group currently comprises three
separate businesses with factories located in Knaresborough,
Leicester, Dartford and Poole with an aggregate turnover in excess of
�15 million. Plastics Capital, which is currently valued at �24.2
million, is expected to achieve a profit before tax of �4.3 million
for the year ending March 2009.
Initial investment date: December 2007 (rollover of unquoted
equity investment at time of
flotation)
Cost: �1,334,201
Valuation: �1,227,465
Valuation basis: Bid-price
Equity held: 5.0%
Last audited accounts: 31 March 2008
Profit before interest & tax: �2.6 million
Net assets: �17.2 million
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 and a
Vodafone wireless link. Vodafone has been a partner of CSL DualCom
since 2000. The business has traded well in the last twelve months,
launching 2 new GPRS products and supplementing its senior sales team
with the result that monthly unit sales are at record levels and the
business is continuing to drive market share gains. Although the
reported PBIT has decreased in the year to March 2008 this is due to
a change in the depreciation policy. There has been a small uplift
in the carrying value of this investment in recognition of the
progress the business has made since the initial investment.
Initial investment date: June 2006
Cost: �983,180
Valuation: �1,177,000
Valuation basis: Earnings
Equity held: 13.1%
Last audited accounts: 31 March 2008
Profit before interest & tax: �0.1 million
Net assets: �0.6 million
Luther Pendragon Limited
Luther Pendragon is a Public Relations agency focusing on issues and
crisis management. The company provides mission critical advice to a
wide range of public sector and blue chip private sector clients on
media relations, government relations and public affairs to help them
protect and enhance their reputation and business interests. Luther
Pendragon also provides stand-alone services such as media training,
crisis simulation exercises and presentation skills training. Since
our original investment, the company has performed well and has
repaid a significant proportion of the acquisition debt. The
Company is focussing on organic growth, as well as contemplating
acquisitions. Trading during the current year has been flat and the
valuation of the investment has been reduced to reflect lower
prevailing earnings multiples.
Initial investment date: November 2005
Cost: �1,000,000
Valuation: �1,234,000
Valuation basis: Earnings
Equity held: 17.5%
Last audited accounts: 31 December 2007
Profit before interest & tax: �1.1 million
Net assets: �1.8 million
Perfect Pizza Limited
Perfect Pizza is the UK's third largest home delivery pizza
franchisor. The business was purchased with 114 franchisee stores
across the UK. The Company generates revenue from selling food and
drink to the franchisees and it also earns a royalty commission based
on the overall level of sales. One off franchise fees / change of
hands fees are also generated when a new store opens or when an
existing franchisee sells its store to another franchisee. The
strategy is to turnaround the performance of the business as under
the previous owners (Papa Johns) it had experienced declining sales
and profitability over the last three years. The business has made
progress leading to a small up lift in valuation, based on a
discounted earnings multiple.
Initial investment date: March 2006
Cost: �1,000,000
Valuation: �1,000,000
Valuation basis: Earnings
Equity held: 13.2%
Last audited accounts: 28 February 2007
Profit before interest & tax: �0.4m
Net assets: �0.3m
The Kendal Group Limited
The Kendal Group is a branded consumer goods company, owning the
Zoggs and PureLime brands of swimwear, swim equipment and active
wear. The company designs the product, has it manufactured in Europe
and the Far East and sells to retail outlets, on-line, leisure
centres and through distribution agreements overseas. The company
has offices in the UK, Australia and Denmark. In the UK most sales
are made through leisure centres. The drive for 2007 was to increase
sales through retail outlets, and distribution agreements were set up
with Tesco, Early Learning Centre, Toys R Us and others. Sales have
continued to increase in 2008 and a new distributor has been
appointed in the USA.
Initial investment date: November 2005
Cost: �1,024,000
Valuation: �1,024,000
Valuation basis: Cost
Equity held: 10.2%
Last audited accounts: 31 December 2007
Loss before interest & tax: �(0.1) million
Net assets: �0.7 million
Reading Room Limited
Reading Room is a leading web design agency with offices in London,
Manchester and Sydney. It provides online brand strategy, web design,
content management system development and usability testing. The
business has targeted specific sectors including professional service
organisations, charities and the government. It is also increasing
the number of blue chip clients. Customers include The World Society
for the Protection of Animals, Cancer Research UK, the YHA and
Skoda. Reading Room is considered an industry leader in the fields
of accessibility and usability which are of particular importance to
its Governmental/professional clients. The CEO, Margaret Manning,
won Female Entrepreneur of the Year at the Fast Growth Business
Awards this year and Reading Room won three awards at the
international 2008 Interactive Media Awards. Flat sales in 2008 and
a lower sector multiple has led to a reduction in valuation as at 31
May 2008.
Initial investment date: April 2005
Cost: �1,000,000
Valuation: �1,022,000
Valuation basis: Earnings
Equity held: 26.7%
Last audited accounts: 31 March 2007
Profit before interest & tax: �0.5 million
Net assets: �1.5 million
Audio Visual Machines Limited
Audio Visual Machines is a leading audio visual systems integrator
and service provider with a blue chip client base. It generates
revenue from the installation of the AV system and from providing
ongoing maintenance and support to its customers. We backed an MBO
team in a buy and build strategy. The company has made three
acquisitions since our investment, resulting in a proforma turnover
for the year to June 2008 of �43 million. The latest acquisition
results in a diversification into the Education and Public Sector
markets, which we believe will be resilient in the current climate.
Initial investment date: September 2006
Cost: �751,455
Valuation: �980,000
Valuation basis: Earnings
Equity held: 11.4%
Last audited accounts: 30 June 2007
Profit before interest & tax: �0.6 million
Net assets: �0.6 million
Recent Transactions
In July 2008 Eclipse invested a further �94,000 in Lilestone Holdings
Limited as part of a �1.75m funding round supported by existing
shareholders and one significant new investor. An additional
investment �100,000 has also been made into The Grill Group Limited
by way of guarantee.
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
Directors' Responsibility Statement
The directors are responsible for preparing the annual 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 financial statements in accordance with United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting
Practice).
The financial statements are required by law to give a true and fair
view of the state of affairs of the Company and of the profit or loss
of the Company for that period. In preparing these financial
statements, the Directors are required to:
* select suitable accounting policies and then
apply them consistently;
* make judgements 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 financial statements on the going
concern basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors confirm that to the best of their knowledge the
financial statements for the year ended 31 May 2008 comply with the
requirements set out above and that suitable accounting policies,
consistently applied and supported by reasonable and prudent
judgement, have been used in their preparation. They also confirm
that the annual report includes a fair review of the development and
performance of the business together with a description of the
principal risks and uncertainties faced by the Company.
The Directors are responsible for keeping proper 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 1985. 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.
Under applicable law and regulations, the Directors are responsible
for preparing a Directors' Report (including Business Review),
Directors' Remuneration Report and Corporate Governance Statement
which comply with that law and those regulations.
In so far as 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.
The company's financial statements are published on the Octopus
Investments website. The investment manager is responsible for the
maintenance and integrity of the corporate and financial information
set out on their website, and not this is not the responsibility of
the company. The work carried out by Grant Thornton UK LLP as
independent auditor of the Company does not involve consideration of
the maintenance and integrity of the website and accordingly they
accept no responsibility for any changes that have occurred to the
financial statements since they were initially presented on the
website.
Legislation in the United Kingdom governing the preparation and
dissemination of the 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 provision of the Company,
together with a description of the principal risks and
uncertainties that it faces.
On behalf of the Board
Viscount Cobham
Chairman
30 September 2008
Profit and Loss Account
Year to 31 May 2008
Revenue Capital Total
Notes �'000 �'000 �'000
Gain on disposal of fixed asset
investments - 1,213 1,213
Loss on disposal of current asset
investments - (29) (29)
Loss on valuation of fixed asset
investments - (5,490) (5,490)
Gain on valuation of current asset
investments - 4 4
Other income 946 - 946
Investment management fees (233) (697) (930)
Other expenses (380) - (380)
Profit/(loss) on ordinary activities
before tax 333 (4,999) (4,666)
Taxation on profit/(loss) on ordinary
activities - - -
Profit/(loss) on ordinary activities
after tax 333 (4,999) (4,666)
Earnings/(loss) per share - basic and
diluted 1.1p (16.0)p (14.9)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 year as set out above.
Profit and Loss Account
Year to 31 May 2007
Revenue Capital Total
Notes �'000 �'000 �'000
Gain on disposal of fixed
asset investments - 2,584 2,584
Loss on disposal of
current asset investments - (39) (39)
Gain on valuation of
fixed asset investments - 8,563 8,563
Loss on valuation of
current asset investments - (121) (121)
Other income 981 - 981
Investment management
fees (177) (530) (707)
Other expenses (530) - (530)
Profit on ordinary
activities before tax 274 10,457 10,731
Taxation on profit on
ordinary activities - - -
Profit on ordinary
activities after tax 274 10,457 10,731
Earnings per share -
basic and diluted 0.9p 33.6p 34.5p
* 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 year as set out above.
Note of Historical Cost Profits and Losses
Year ended Year ended
31 May 2008 31 May 2007
�'000 �'000
(Loss)/profit on ordinary activities before (4,666) 10,731
taxation
Unrealised loss/(gain) on fair value of 5,486 (8,442)
investments
Realisation of prior years' net unrealised 5,058 26
gains on investment
Historical cost profit on ordinary 5,878 2,315
activities before taxation
Historical cost profit on ordinary 5,878 2,315
activities after taxation
Reconciliation of Movements in Shareholders' Funds
Year ended Year ended
31 May 2008 31 May 2007
�'000 �'000
Shareholders' funds at start of year 39,135 30,165
(Loss)/profit on ordinary activities after (4,666)
tax 10,731
Cancellation of own shares (1,015) (130)
Capital dividend recognised in period - (1,241)
Issue of equity 1,472 -
Dividends paid (2,211) (390)
Balance as at end of year 32,715 39,135
Balance Sheet
As at 31 May 2008 As at 31 May 2007
Notes �'000 �'000 �'000 �'000
Fixed asset investments 10 22,877 30,648
Current assets:
Investments 11 9,457 7,773
Debtors 37 547
Cash at bank 537 409
10,031 8,729
Creditors: amounts falling
due within one year (193) (242)
Net current assets 9,838 8,487
Net assets 32,715 39,135
Called up equity share
capital 3,123 3,103
Share premium 1,351 -
Special distributable
reserve 24,130 25,145
Capital redemption reserve 128 27
Capital Reserve - Realised 4,651 9,292
- Unrealised (1,252) 1,316
Revenue Reserve 584 252
Total equity shareholders'
funds 32,715 39,135
Net asset value per share 104.8p 126.1p
Cash Flow Statement
Year to 31 May Year to 31
2008 May 2007
Notes �'000 �'000
Net cash inflow/(outflow) from
operating activities 99 (158)
Financial investment :
Purchase of investments 10 (10,016) (9,235)
Sale of investments 10 13,510 4,682
Management of liquid resources :
Purchase of cash equivalent
investments 11 (19,419) (6,367)
Sale of cash equivalent investments 11 17,710 12,091
Dividends paid (2,211) (1,631)
Financing :
Issue of own shares 1,534
Share issue expenses (62)
Repurchase of own shares (1,017) (130)
Increase/(decrease) in cash resources 128 (748)
Reconciliation of Net Cash Flow to Movement in Cash Resources
Year to 31 May Year to 31 May
2008 2007
Notes �'000 �'000
Increase/(decrease) in cash
resources 128 (748)
Movement in liquid resources 11 1,684 (5,884)
Opening net cash resources 8,182 14,814
Net cash at 31 May 9,994 8,182
Net cash at 31 May comprised:
Year to 31 May 2008 Year to 31 May 2007
�'000 �'000
Cash at Bank 537 411
Bonds 1,339 5,593
Money Market Funds 8,118 2,178
Net cash at 31 May 9,994 8,182
Reconciliation of Operating Profit before Taxation to Cash Flow from
Operating Activities
Year to 31 May Year to 31 May
2008 2007
Notes �'000 �'000
(Loss)/profit on ordinary
activities before tax (4,666) 10,731
Loss/(gains) on valuation of 10
fixed asset investments 5,490 (8,563)
(Gain)/loss on valuation of 11
current asset investments (4) 121
Realised gains on fixed asset 10
investments (1,213) (2,584)
Realised loss on current asset 11
investments 29 39
Decrease/(increase) in debtors 510 (99)
(Decrease)/increase in creditors (47) 197
Inflow/(outflow) from operating
activities 99 (158)
Notes to the Financial Statements
1. Principal Accounting policies
The financial statements have been prepared under the historical cost
convention, except for the revaluation of certain financial
instruments, and in accordance with UK Generally Accepted Accounting
Practice (UK GAAP). Where presentational guidance set out in the
Statement of Recommended Practice (SORP) "Financial Statements of
Investment Trust Companies", revised December 2005, is consistent
with the requirements of UK GAAP, the directors have sought to
prepare the financial statements on a consistent basis compliant with
the recommendations of the SORP.
The principal accounting policies have remained unchanged from those
set out in the Company's 2007 annual report and financial
statements. A summary of the principal accounting policies are set
out below.
The accounts have been drawn up to include a statutory profit and
loss account and a note of historical cost profits and losses in
accordance with Schedule 4 of the Companies Act 1985 and Financial
Reporting Standard 3 (Reporting Financial Performance). Investment
company status was revoked on 16 May 2007.
8. (Loss)/earnings per share
The (loss)/earnings per share is based on (loss)/profit after tax of
�(4,666,000) (2007: �10,731,000) and on 31,264,185 (2007: 31,095,648)
shares, being the weighted average number of shares in issue during
the year.
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. Net asset value per share
The calculation of net asset value per share as at 31 May 2008 is
based on net assets of �32,715,000 (2007: �39,135,000) divided by the
31,227,067 (2007: 31,024,872) ordinary shares in issue at that date.
10. Fixed asset investments
Unquoted AIM-quoted Total
investments investments investments
31 May 2008 31 May 2008 31 May 2008
�'000 �'000 �'000
Valuation
and net
book
amount:
Book cost
as at 1
June 2007 16,019 5,108 21,127
Cumulative
revaluation 5,357 4,164 9,521
Valuation
at 1 June
2007 21,376 9,272 30,648
Movement in
the year:
Purchases
at cost 6,968 3,048 10,016
Disposal
proceeds (11,545) (1,965) (13,510)
Profit on
realisation
of
investments
- current
year 1,532 (319) 1,213
Revaluation
in year (2,556) (2,934) (5,490)
Valuation
at 31 May
2008 15,775 7,102 22,877
Book cost
at 31 May
2008:
- Ordinary
shares 4,408 7,160 11,568
- Loan
notes/other
securities 12,549 - 12,549
Revaluation
to 31 May
2008:
- Ordinary
shares 658 (58) 600
- Loan
notes/other
securities (1,840) - (1,840)
Valuation
at 31 May
2008 15,775 7,102 22,877
All 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 unrealised.
At 31 May 2008 there were commitments totalling �nil (2007: �nil) in
respect of investments approved by the manager but not yet completed.
Details of shareholdings in those companies where the company's
holding at 31 May 2008 represents (1) more than 20% of the allotted
equity share capital of any class, (2) more than 20% of the total
allotted share capital or (3) more than 20% of the assets of the
company itself, are given below. All of the companies named are
incorporated in Great Britain.
Class of shares
(nominal value Proportion of
Company shown) Number held class held
Reading Room Limited Ordinary (1p) 32,505 26.7%
First Sports Group
Limited Ordinary (1p) 2,497,700 20.0%
11. Current asset investments
Current asset investments at 31 May 2008 comprised bonds and money
market funds.
�'000 �'000
Money market securities at cost at 1 June 2007:
Bonds 5,826
Money Market Funds 2,175
8,001
Revaluation as at 1 June 2007:
Bonds (232)
Money Market Funds 4
(228)
Valuation as at 1 June 2007 7,773
Movement in the year:
Purchases at Cost: Bonds -
Money Market Funds 19,419
19,419
Disposal proceeds:
Bonds (4,220)
Money Market Funds (13,490)
(17,710)
Profit/(loss) in year on realisation of
investments:
Bonds (38)
Money Market Funds 9
(29)
Revaluation in year:
Bonds 4
Money Market Funds - 4
Valuation as at 31 May 2008 9,457
Cost at 31 May 2008:
Bonds 1,354
Money Market Funds 8,118
9,472
Revaluation to 31 May 2008:
Bonds (15)
Money Market Funds -
(15)
Valuation as at 31 May 2008 9,457
14. Share capital
31 May 2008 31 May 2007
�'000 �'000
Authorised:
Equity - 40,000,000 ordinary shares of 10p 4,000 4,000
Allotted and fully paid up
Equity - 31,227,067 ordinary shares of 10p 3,123 3,103
(2007: 31,024,872)
15. Reserves
Special Capital Capital Capital
Share distributable redemption reserve reserve Revenue
premium reserve reserve unrealised realised reserve
�'000 �'000 �'000 �'000 �'000 �'000
As at 31 May
2007 - 25,145 27 9,292 1,316 252
Cancellation
of own shares - (1,015) 101 - - -
Issue of
equity 1,351 - - - - -
Loss on
ordinary
activities
after tax - - - - - (4,666)
Capitalisation
of management
fees - - - - (697) 697
Prior period
gains/losses
on disposal - - - (5,058) 5,058 -
Current period
gains/losses
on disposal - - - - 1,185 (1,185)
Gains/losses
on revaluation - - - (5,486) - 5,486
Dividends paid - - - - (2,211) -
Balance as at
31 May 2008 1,351 24,130 128 (1,252) 4,651 584
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.
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 are held at the year end is equal to their book value.
In carrying on its investment activities, the Company is exposed to
various types of risk associated with the financial instruments and
markets in which it invests. The most significant types of financial
risk facing the Company are price risk, interest rate risk, credit
risk and liquidity risk. The Company's approach to managing these
risks is set out below together with a description of the nature and
amount of the financial instruments held at the balance sheet date.
Market risk
The Company's strategy for managing investment risk is determined
with regard to the Company's investment objective, as outlined on
page 21. 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 30 to 33, 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 7 and 8. An analysis of investments between
debt and equity instruments is given in note 10.
21.7% (31 May 2007: 23.7%) by value of the Company's net assets
comprises equity securities listed on the London Stock Exchange or
quoted on AIM. A 5% increase in the bid price of these securities as
at 31 May 2008 would have increased net assets and the total return
for the year by �355,000 (31 May 2007: �464,000); a corresponding
fall would have reduced net assets and the total return for the year
by the same amount.
48.2% (31 May 2007: 54.6%) 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 5% overall increase in the valuation of the
unquoted investments at 31 May 2008 would have increased net assets
and the total return for the year by �799,000 (31 May 2007:
�1,069,000); 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
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:
As at 31 May 2008 As at 31 May 2007
Total Weighted Total Weighted
fixed average fixed average
rate time for rate time for
portfolio Weighted which portfolio Weighted which
by average rate is by average rate is
value interest fixed in value interest fixed in
�'000 rate % years �'000 rate % years
Listed
fixed-interest
investments 681 4.9 0.3 4,884 6.9 9.4
Fixed-rate
investments in
unquoted
companies 10,709 10.6 3.4 5,496 7.0 4.0
11,390 10,380
Due to the relatively short period to maturity of the fixed rate
investments held within the portfolio, it is considered than 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 year.
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 5.0% at 31 May 2008 (31 May 2007: 5.5%).
The amounts held in floating rate investments at the balance sheet
date were as follows:
31 May 2008 31 May 2007
�000 �000
Floating rate notes 679 870
Cash on deposit & money market funds 8,660 2,588
9,339 3,458
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 May 2008 the Company's financial assets exposed to credit risk
comprised the following:
31 May 2008 31 May 2007
�000 �000
Investments in fixed interest instruments 11,390 10,380
Investments in floating rate instruments 679 870
Cash on deposit & money market funds 8,660 2,588
Accrued dividends and interest receivable 29 170
20,758 14,008
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 plc.
There were no significant concentrations of credit risk to
counterparties at 31 May 2008 or 31 May 2007. By cost, no individual
investment exceeded 5.2% of the Company's net assets at 31 May 2008
(31 May 2007: 2.6%).
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 May 2008 these investments were valued at �9,999,000 (31 May
2007 �8,182,000).
19. Related party transactions
Matt Cooper, a non-executive Director of Eclipse VCT plc, is a
Director of Octopus. Eclipse VCT plc has employed Octopus throughout
the year as investment manager. Eclipse VCT plc has paid Octopus
�930,000 (2007: �707,000) (including irrecoverable VAT at 17.5%) in
the year as a management fee and there is �nil outstanding at the
balance sheet date. 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 May. Octopus also 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 May. During the year �139,000 (2007: �106,000)
(including irrecoverable VAT at 17.5%) was paid to Octopus and there
is �nil 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 2007/08
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 approved 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 May 2008, on the basis that the Directors do
not believe that the necessary criteria will be met in the
foreseeable future.
---END OF MESSAGE---
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