TIDMOVC2
Octopus VCT 2 plc
Final Results
28 March 2013
Octopus VCT 2 plc, managed by Octopus Investments Limited ("Octopus"), today
announces the final results for the year ended 31 December 2012.
These results were approved by the Board of Directors on 28 March 2013.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com.
Financial Summary & Key Dates
As at As at
31 December 2012 31 December 2011
=------------------------------------------------------------------------------
Net assets ( GBP'000s) 1 18,180 18,048
Return on ordinary activities after tax 2 132 (192)
( GBP'000s)
Net asset value (NAV) per share 3 94.2p 93.5p
1. This is the value of the Company, when adding up all of its assets, and
taking away its liabilities
2. This is the profit or loss the Company has made in the year
3. You can multiply this figure by the number of shares you own to give you the
value of your investment at the date above
Key Dates
Annual General Meeting Wednesday, 12 June
2013 at 11.30 a.m.
At 20 Old Bailey, London, EC4M 7AN
Half Yearly Results to 30 June 2013 Announced August
2013
Chairman's Statement
I am pleased to present the annual report of Octopus VCT 2 plc (the 'Company')
for the year ended 31 December 2012.
Performance
During the period the Net Asset Value (NAV) of the Company has increased
slightly from 93.5 pence per share at 31 December 2011 to 94.2 pence per share
as at 31 December 2012, a positive return of 0.7%. This increase is as a result
of loan interest generated by the Company now exceeding its running costs.
Investment Portfolio
The Company made eight new investments in the period to 31 December 2012 and two
follow on investments, totalling GBP6,450,000. The Company expanded its portfolio
in the renewable energy sector by investing in three solar companies and two
companies operating ground source heat pumps. The Company also diversified its
investment holdings with three investments in the media sector and an investment
in a consumer finance business. These investments are discussed in detail in the
investment manager's report on page - to -.
The loans made to Helaku Power and Shakti Power, both solar companies, were
partially repaid in the year, returning GBP638,000 in cash back to the Company.
All investments remain held at cost as this is considered to be their fair value
at the balance sheet date.
Investment Policy and Objective
Over 96% of the Company has been invested into its portfolio and therefore the
emphasis of the Manager has shifted to managing the existing portfolio. However,
the Company will continue to seek and invest in a portfolio of predominantly
unquoted companies in a variety of sectors and technologies if opportunities
arise. Investments will only be made where the Octopus team is confident that
investments can be structured with a higher level of capital security with the
objective of building a portfolio of investments that focus on capital
preservation.
Whilst the Company has the ability to invest in a variety of sectors and
technologies, the focus is to maintain a portfolio of investments in the
renewable energy sector.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
concerning ongoing compliance with HMRC rules and regulations concerning VCTs.
The Board has been advised that the Company is compliant with the conditions
laid down by HMRC for maintaining provisional approval as a VCT.
A key requirement is to achieve a 70% qualifying investment level prior to 31
December 2013. It is pleasing to report that as at 31 December 2012, 83.1% 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 maintained by the required date, that
being 31 December 2013.
Annual General Meeting
The Company's Annual General Meeting will take place on Wednesday, 12 June 2013
at 11.30 a.m. I look forward to meeting as many shareholders as possible at the
meeting to be held at the offices of Octopus Investments Limited, 20 Old Bailey,
London, EC4M 7AN. Directions to their offices can be found on their website:
www.octopusinvestments.com.
Outlook
We still face difficult economic circumstances. Official growth forecasts have
been cut for this year and the recovery remains slow posing a challenge to many
small businesses. Our interests remain focused on boosting growth and
profitability in the underlying portfolio and it is encouraging that, despite a
tough macroeconomic climate, the Company has established a strong portfolio of
holdings and made some appropriate new investments during the year that are in
line with the mandate of this Company.
Your Board and Investment Manager strongly believe that we can continue to build
on the foundations of the Company and see the NAV continue to make progress.
Ian Pearson
Chairman
28 March 2013
Investment Manager's Review
Personal Service
At Octopus we have a dual focus, on managing your investments and keeping you
informed throughout the investment process. We are committed to providing our
investors with regular and open communication. Our updates are designed to keep
you informed about the progress of your investment. During this time of economic
upheaval, we consider it particularly important to be in contact with our
investors. We are working hard to manage your money in the current climate.
The Company is managed by the Specialist Finance team at Octopus. Octopus is an
award winning investment manager that has over GBP2.8 billion under management. It
manages more VCT funds than any other provider in the industry, and is an expert
in investing in UK smaller companies across a range of funds, tax structures and
risk/return mandates.
Octopus has more than 200 staff, including over 50 investment professionals, and
has twice been voted as one of the 'Top 100 Small and Medium-Sized Companies to
Work For' in the Sunday Times survey. Financial advisers have voted Octopus Best
VCT Provider of the Year at the Professional Adviser awards four years in a row.
Octopus is one of only two investment managers to have ever received an AAA
rating for customer service from Citywire, and currently holds a 5 Star rating
for customer service from Financial Adviser magazine.
Portfolio Performance
As at 31 December 2012, the NAV stood at 94.2 pence per share, up 0.7% from the
93.5 pence per share NAV as at 31 December 2011. This is due to loan interest
received on debt investments now exceeding the running costs of the Company. As
this continues and investments mature, the Company's NAV is expected to further
improve.
Portfolio Review
In line with the Company's mandate, GBP3.05 million of investments were made in
the renewable energy sector during the year. This includes GBP1.05 million into
three companies that have constructed and operate solar parks. This brings the
total number of solar investments made by this Company to 20. Please see our
special section on page - where further detail of the type of solar investments
made can be found.
GBP2 million has also been invested into two companies that operate in a different
kind of renewable energy, that being ground source heat pumps.
Partial repayments of the loans made to solar companies Helaku Power and Shakti
Power were also received during the year, returning GBP638,000 in cash back to the
Company.
Three investments totalling GBP2.4 million were made into 5AM Music, Atlantic
Screen International and Game Development and Management. These are companies
that operate in the media sector with the former two companies specialising in
the commission and copyright ownership of music scores for films and television
projects and the latter company involved in the production of video games for
video game publishers.
Finally, GBP1 million was invested into Borro, an online consumer finance
business. The Company's debt investment is secured against valued assets,
minimising the risk exposure and providing a good return for the Company.
There have been no changes in the valuation of investments. At this stage, we do
not see any reasons that indicate there should be any changes to their fair
value at the balance sheet date.
Outlook
With continued economic uncertainty, many smaller businesses are being subjected
to the pressures of tough trading conditions and tight working capital. Despite
this, there remain opportunities for entrepreneurs and small companies that can
plan and act quickly according to the macroeconomic environment in comparison to
slower moving large corporate entities. The investments in the Company's
portfolio have been structured in a way that minimise many of the risks
associated with a volatile macroeconomic environment and we remain cautiously
confident that your Company's NAV will continue to make progress.
If you have any questions on any aspect of your investment, please call one of
the team on 0800 316 2349.
Benjamin Davis
Octopus Investments Limited
28 March 2013
Investment Portfolio
Investments Sector Investment Movement in Fair Value as at 31 Movement % %
cost as at fair value December 2012 ( GBP'000) in year equity equity
31 to 31 (' GBP000) held by held by
December December Octopus all
2012 2012( GBP'000) VCT 2 funds
( GBP'000) plc managed
by
Octopus
=---------------------------------------------------------------------------------------------
Helaku Power Solar 1,460 - 1,460 - 25.0% 100.0%
Limited
Sula Power Solar 1,000 - 1,000 - 32.0% 100.0%
Limited
Borro Loan 2 Consumer 1,000 - 1,000 - 0.0% 0.0%
Limited* Finance
Caspian Heat Ground 1,000 - 1,000 - 49.9% 100.0%
Limited Source
Heat
Superior Heat Ground 1,000 - 1,000 - 49.9% 100.0%
Limited Source
Heat
5AM Music Media 1,000 - 1,000 - 49.9% 100.0%
Limited
Game Media 1,000 - 1,000 - 49.9% 100.0%
Development &
Management
Limited
Howbery Power Solar 600 - 600 - 31.6% 100.0%
Limited
Acquire Your Business 578 - 578 - 32.0% 100.0%
Business Services
Limited
Aashman Power Solar 500 - 500 - 17.0% 100.0%
Limited
Donoma Power Solar 500 - 500 - 18.4% 100.0%
Limited
Gnowee Power Solar 500 - 500 - 25.0% 100.0%
Limited
Kala Power Solar 500 - 500 - 18.5% 100.0%
Limited
Nima Power Solar 500 - 500 - 25.0% 100.0%
Limited
Palk Power Solar 500 - 500 - 25.0% 100.0%
Limited
Tonatiuh Solar 500 - 500 - 20.7% 100.0%
Trading 1
Limited
Tuwale Power Solar 500 - 500 - 25.0% 100.0%
Limited
Meri Power Solar 500 - 500 - 17.0% 100.0%
Limited
Cyrah Power Solar 500 - 500 - 49.9% 100.0%
Limited
Evaki Power Solar 500 - 500 - 49.9% 100.0%
Limited
Grian Power Solar 500 - 500 - 25.0% 100.0%
Limited
Intina Power Solar 500 - 500 - 25.0% 100.0%
Limited
Teruko Power Solar 500 - 500 - 49.9% 100.0%
Limited
Tonatiuh Solar 500 - 500 - 49.9% 100.0%
Trading 2
Limited
Yata Power Solar 500 - 500 - 49.9% 100.0%
Limited
Shakti Power Solar 427 - 427 - 0.0% 100.0%
Limited*
Atlantic Media 400 - 400 - 20.0% 100.0%
Screen
International
Limited
=---------------------------------------------------------------------------------------------
Total fixed 17,465 - 17,465 -
asset
investments
=---------------------------------------------------------------------------------------------
Cash at bank
687
Debtors less
creditors 28
=---------------------------------------------------------------------------------------------
Total net 18,180
assets
* this is a
100% debt
investment
*these are 100% debt investments
Valuation Methodology
Initial measurement
Financial assets are measured at fair value. The initial best estimate of fair
value of a financial asset that is either quoted or not quoted in an active
market is the transaction price (i.e. cost).
Subsequent measurement
Further funding rounds are a good indicator of fair value and this measure is
used where appropriate. Subsequent adjustment to the fair value of unquoted
investments can be made using sector multiples based on information as at
relevant reporting dates, where applicable. In some cases the multiples can be
compared to equivalent companies, especially where a particular sector multiple
does not appear appropriate. It is currently industry norm to discount the
quoted earnings multiple to reflect the lack of liquidity in the investment,
there being no ready market for our holding. Typically the discount is 30% but
this can be increased where the relevant multiple appears too high. A lower
discount would also be possible if an investment was close to an exit event.
In accordance with the International Private Equity and Venture Capital (IPEVC)
valuation guidelines investments made within 12 months are usually kept at cost
unless performance indicates that fair value has changed.
If you would like to find out more regarding the IPEVC valuation guidelines,
please visit their website at: www.privateequityvaluation.com.
Review of Investments
Unquoted investments are valued in accordance with the accounting policy set out
on page -, which takes account of current industry guidelines for the valuation
of venture capital portfolios and is compliant with IPEVC valuation guidelines
and current financial reporting standards.
Listed below are the ten largest investments as at 31 December 2012:
Top Ten Holdings
Helaku Power Limited
Helaku Power Limited constructed and operates a solar renewable energy site at a
carefully selected location in Trevemper, Cornwall.
Initial investment date: March
2011
Cost:
GBP1,460,000
Valuation:
GBP1,460,000
Voting rights held by Fund:
25.0%
Equity held by all funds managed by Octopus: 100.0%
Last submitted audited accounts: 31 December
2011
Turnover GBP17,000
Loss before tax: GBP155,000
Net assets:
GBP1,765,000
Sula Power Limited
Sula Power Limited constructed and operates a solar renewable energy site at a
carefully selected location in Beccles, Suffolk.
Initial investment date: March
2011
Cost:
GBP1,000,000
Valuation:
GBP1,000,000
Voting rights held by Fund:
32.0%
Equity held by all funds managed by Octopus: 100.0%
Last submitted audited accounts: 31 December
2011
Turnover GBP154,000
Loss before tax: GBP109,000
Net assets:
GBP1,811,000
Borro Loan 2 Limited
Borro Loan 2 Limited is a consumer finance company which provides short term
loans secured against high value assets.
Initial investment date: March
2011
Cost:
GBP1,000,000
Valuation:
GBP1,000,000
Voting rights held by Fund:
0.0%*
Equity held by all funds managed by Octopus: 0.0%*
Last submitted audited accounts: 31 December
2011
Turnover GBPnil*
Loss before tax: GBPnil*
Net assets:
GBP1*
*Borro Loan 2 Limited is the loan book Company and 100% subsidiary of 'Borro
Limited', a company registered in England and whose results are publically
available from Companies House. Accordingly, Borro Loan 2 Limited has nil
revenues and nominal net assets.
Caspian Heat Limited
Caspian Heat Limited is a company seeking a suitable site in which to construct
and then operate a ground source heat pump.
Initial investment date: April
2012
Cost:
GBP1,000,000
Valuation:
GBP1,000,000
Voting rights held by Fund:
50.0%
Equity held by all funds managed by Octopus: 100.0%
Last submitted audited accounts: N/A
Turnover N/A
Profit/(loss) before tax: N/A
Net assets:
N/A
*The Company first set of annual accounts are due on 28 February 2013. Therefore
no annual results were available to publish at the date of this report.
Superior Heat Limited
Superior Heat Limited is a company which has constructed and operates ground
source heat pumps in two selected locations in Carlisle and East Kilbride,
Scotland.
Initial investment date: April
2012
Cost:
GBP1,000,000
Valuation:
GBP1,000,000
Voting rights held by Fund:
50.0%
Equity held by all funds managed by Octopus: 100.0%
Last submitted audited accounts: N/A
Turnover N/A
Profit/(loss) before tax: N/A
Net assets:
N/A
*The Company first set of annual accounts are due on 28 February 2013. Therefore
no annual results were available to publish at the date of this report.
5AM Music Limited
5AM Music Limited is managed by the Cutting Edge Group and commissions and owns
copyrights to music scores for films and television projects.
Initial investment date: April
2012
Cost:
GBP1,000,000
Valuation:
GBP1,000,000
Voting rights held by Fund:
50%
Equity held by all funds managed by Octopus: 100.0%
Last submitted unaudited accounts:
30 June 2012
Turnover
GBPnil
Loss before tax: GBP133,000
Net assets:
GBP1,865,000
Game Development and Management Limited
Game Development and Management Limited produces video games for video game
publishers.
Initial investment date: April
2012
Cost:
GBP1,000,000
Valuation:
GBP1,000,000
Voting rights held by Fund:
50%
Equity held by all funds managed by Octopus: 100.0%
Last submitted unaudited accounts: N/A
Turnover N/A
Profit/(loss) before tax: N/A
Net assets:
N/A
*The Company first set of annual accounts are due on 31 March 2013. Therefore no
annual results were available to publish at the date of this report
Howbery Solar Park Limited
Howbery Limited constructed and operates a solar renewable energy site at a
carefully selected location in Wallingford, Oxfordshire.
Initial investment date: April
2011
Cost:
GBP600,000
Valuation:
GBP600,000
Voting rights held by Fund:
31.6%
Equity held by all funds managed by Octopus: 100.0%
Last submitted audited accounts: 31 December
2011
Turnover GBP132,000
Loss before tax: GBP31,000
Net assets:
GBP1,869,000
Acquire Your Business Limited
Acquire Your Business Limited is a company that acquires existing Independent
Financial Advisers' client bases.
Initial investment date:
December 2011
Cost:
GBP578,000
Valuation:
GBP578,000
Voting rights held by Fund:
32.0%
Equity held by all funds managed by Octopus: 100.0%
Last submitted audited accounts: 31 March
2012
Turnover GBP64,000
Loss before tax: GBP144,000
Net assets:
GBP1,570,000
Aashman Power Limited
Aashman Power Limited constructed and operates a solar renewable energy site at
a carefully selected location in Wilburton, Cambridgeshire.
Initial investment date: March
2011
Cost:
GBP500,000
Valuation:
GBP500,000
Voting rights held by Fund:
17.0%
Equity held by all funds managed by Octopus: 100.0%
Last submitted audited accounts: 31 December
2011
Turnover GBP774,000
Loss before tax: GBP554,000
Net assets:
GBP2,268,000
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare financial statements for each
financial year which they must not approve unless they are satisfied that they
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company for that period. Under that law the Directors have
elected to prepare financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards and
applicable laws).
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.
To the best of my knowledge:
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
* the management report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
The financial statements are published at www.octopusinvestments.com, a website
maintained by Octopus. The maintenance and integrity of the website is, so far
as it relates to the Company, the responsibility of Octopus. The work carried
out by the auditor does not involve considerations of the maintenance and
integrity of the website and, accordingly, the auditor accepts no responsibility
for any changes that have occurred to the accounts since they were originally
presented on the website. Visitors to the website need to be aware that
legislation in the United Kingdom governing the preparation and dissemination of
the accounts differ from legislation in other jurisdictions.
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.
On Behalf of the Board
Ian Pearson
Chairman
28 March2013
Income Statement
+---------------------+
| Year to 31 December |
| 2012 |
=-----------------------------------------------+---------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=-----------------------------------------------+---------------------+
| |
| |
Fixed asset investment holding gain | - - -|
| |
| |
| |
Income 2 | 365 - 365|
| |
| |
| |
| |
| |
Expenses 3 | (246) - (246)|
| |
| |
=-----------------------------------------------+---------------------+
Return on ordinary activities before tax | 119 - 119|
| |
| |
| |
Taxation on return on ordinary activities 5 | 13 - 13|
| |
| |
=-----------------------------------------------+---------------------+
Return on ordinary activities after tax | 132 - 132|
=-----------------------------------------------+---------------------+
Earnings per share - basic and diluted 6 | 0.7p - 0.7p|
+---------------------+
* The 'Total' column of this statement is the profit or 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 has no recognised gains or losses other than the results for the
period as set out above.
The accompanying notes form an integral part of the financial statements.
Income Statement
+----------------------+
| Year to 31 December |
| 2011 |
=-----------------------------------------------+----------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=-----------------------------------------------+----------------------+
| |
| |
Income 2 | 87 - 87|
| |
| |
| |
| |
| |
Expenses 3 | (279) - (279)|
| |
| |
=-----------------------------------------------+----------------------+
Return on ordinary activities before tax | (192) - (192)|
| |
| |
| |
Taxation on return on ordinary activities 5 | - - -|
| |
| |
=-----------------------------------------------+----------------------+
Return on ordinary activities after tax | (192) - (192)|
=-----------------------------------------------+----------------------+
Earnings per share - basic and diluted 6 |(1.3p)p - (1.3)p|
+----------------------+
* The 'Total' column of this statement is the profit or 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 has no recognised gains or losses other than the results for the
period as set out above.
The accompanying notes form an integral part of the financial statements.
Reconciliation of Movements in Shareholders' Funds
+----------------+----------------+
| Year to| Year to|
|31 December 2012|31 December 2011|
+----------------+----------------+
Shareholders' funds at start of period | 18,048| -|
=---------------------------------------+----------------+----------------+
Return on ordinary activities after tax| 132| (192)|
| | |
Issue of equity (net of expenses) | -| 18,240|
=---------------------------------------+----------------+----------------+
Shareholders' funds at end of period | 18,180| 18,048|
=---------------------------------------+----------------+----------------+
The accompanying notes form an integral part of the financial statements.
Balance Sheet
+---------------------+---------------------+
| As at 31 December | As at 31 December |
| 2012| 2011|
| | |
Notes| GBP'000 GBP'000| GBP'000 GBP'000|
=----------------------------------+---------------------+---------------------+
| | |
| | |
Fixed asset investments* 8 | 17,465| 11,653|
| | |
Current assets: | | |
| | |
Debtors 9 | 95 | 53 |
| | |
Cash at bank | 687 |6,693 |
=----------------------------------+---------------------+---------------------+
| 782 |6,746 |
| | |
Creditors: amounts falling | | |
due within one year 11 | (67) |(351) |
=----------------------------------+---------------------+---------------------+
Net current assets | 715| 6,395|
=----------------------------------+---------------------+---------------------+
Total assets less current | | |
liabilities | 18,180| 18,048|
=----------------------------------+---------------------+---------------------+
| | |
| | |
Called up equity share | | |
capital 12 | 193| 193|
| | |
Special distributable | | |
reserve 13 | 18,047| 18,047|
| | |
Revenue reserve 13 | (60)| (192)|
=----------------------------------+---------------------+---------------------+
Total shareholders' funds | 18,180| 18,048|
=----------------------------------+---------------------+---------------------+
Net asset value per share 7 | 94.2p| 93.5p|
+---------------------+---------------------+
*Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 28
March 2013 and are signed on their behalf by:
Ian Pearson
Chairman
Company No: 07484406
The accompanying notes form an integral part of the financial statements.
Cash Flow Statement
+-----+--------------------+-------------------+
| | Year to 31 December|Year to 31 December|
|Notes| 2012| 2011|
| | | |
| | GBP'000| GBP'000|
=-------------------------------+-----+--------------------+-------------------+
| | | |
| | | |
Net cash (outflow)/inflow from | | | |
operating activities | | (194)| 106|
| | | |
| | | |
| | | |
Financial investment | | | |
| | | |
Purchase of fixed asset | | | |
investments | 8 | (6,450)| (11,795)|
| | | |
Sale of fixed asset investments| 8 | 638| 142|
| | | |
| | | |
| | | |
Management of liquid resources | | | |
| | | |
Purchase of current asset | | | |
investments | 10 | -| (3,000)|
| | | |
Sale of current asset | | | |
investments | 10 | -| 3,000|
| | | |
| | | |
| | | |
Financing: | | | |
| | | |
Issue of shares | | -| 19,350|
| | | |
Cost of share issue | | -| (1,060)|
| | | |
Redemption of shares | | -| (50)|
=-------------------------------+-----+--------------------+-------------------+
(Decrease)/Increase in cash | | | |
resources at bank | | (6,006)| 6,693|
=-------------------------------+-----+--------------------+-------------------+
The accompanying notes form an integral part of the financial statements.
Reconciliation of return after Taxation to Cash Flow from Operating Activities
+----------------------+---------------------+
| Year to 31 December| Year to 31 December|
| 2012| 2011|
| | |
| GBP'000| GBP'000|
=---------------------------------+----------------------+---------------------+
Return on ordinary activities | 132| (192)|
after tax | | |
| | |
Increase in debtors | (42)| (53)|
| | |
(Decrease)/increase in creditors | (284)| 351|
=---------------------------------+----------------------+---------------------+
(Outflow)/Inflow from operating | (194)| 106|
activities | | |
+----------------------+---------------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+----------------------+---------------------+
| Year to 31 December| Year to 31 December|
| 2012| 2011|
| | |
| GBP'000| GBP'000|
=---------------------------------+----------------------+---------------------+
(Decrease)/increase in cash at | (6,006)| 6,693|
bank | | |
| | |
Opening net funds | 6,693| -|
=---------------------------------+----------------------+---------------------+
Net funds at 31 December | 687| 6,693|
+----------------------+---------------------+
Net Funds at 31 December comprised:
+------------------------+------------------------+
|Year to 31 December 2012|Year to 31 December 2011|
| | |
| GBP'000| GBP'000|
=------------------------+------------------------+------------------------+
Cash at bank | 687| 6,693|
=------------------------+------------------------+------------------------+
Net funds at 31 December| 687| 6,693|
+------------------------+------------------------+
The accompanying notes form an integral part of the financial statements.
Notes to the Financial Statements
1. Principal accounting policies
Basis of accounting
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of certain financial
instruments, and in accordance with UK Generally Accepted Accounting Practice
(UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial
Statements of Investment Trust Companies' (revised 2009). A summary of the
principal accounting policies is set out below.
The Company's business activities and the factors likely to affect its future
development, performance and position are set out in the Chairman's Statement
and Investment Manager's Review on pages - to -. Further details on the
management of financial risk may be found in note 14 to the Financial
Statements.
The Board receives regular reports from the Investment Manager and the Directors
have a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. The assets of the
company consist of cash, which are readily realisable (3.8% of net assets) and
accordingly, the company has adequate financial resources to continue in
operational existence for the foreseeable future. Thus, as no material
uncertainties leading to significant doubt about going concern have been
identified, it is appropriate to continue to adopt the going concern basis in
preparing the financial statements.
The Company presents its income statement in a three column format to give
shareholders additional detail of the performance of the Company, split between
items of a revenue or capital nature.
The preparation of the financial statements requires management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions
mainly relate to the fair valuation of the fixed asset investments, particularly
unquoted investments. Estimates are based on historical experience and other
assumptions that are considered reasonable under the circumstances. The
estimates and the assumptions are under continuous review with particular
attention paid to the carrying value of the investments.
Capital valuation policies are those that are most important to the depiction of
the Company's financial position and that require the application of subjective
and complex judgements, often as a result of the need to make estimates about
the effects of matters that are inherently uncertain and may change in
subsequent periods. The critical accounting policies that are declared will not
necessarily result in material changes to the financial statements in any given
period but rather contain a potential for material change. The main accounting
and valuation policies used by the Company are disclosed below. Whilst not all
of the significant accounting policies require subjective or complex judgements;
the Company considers that the following accounting policies should be
considered critical.
The Company has designated all fixed asset investments as being held at fair
value through profit or loss; therefore all gains and losses arising from
investments held are attributable to financial assets held at fair value through
profit or loss. Accordingly, all interest income, fee income, expenses and
impairment losses are attributable to assets designated as being at fair value
through profit or loss.
Current asset investments comprising money market funds and deposits are held at
fair value through profit or loss. Cash and short term deposits are held at
amortised cost.
Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Quoted investments are valued in accordance with the bid-
price on the relevant date, unquoted investments are valued in accordance with
current 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.
Although the Company believes that the assumptions concerning the business
environment and estimate of future cash flows are appropriate, changes in
estimates and assumptions could require changes in the stated values. This could
lead to additional changes in fair value in the future.
Investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly, as permitted by FRS 26, the investments will be designated as fair
value through profit 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 the documented investment strategy. The Company's investments
are measured at subsequent reporting dates at fair value, with the holding gains
and losses recorded in the income statement each year. In accordance with the
investment strategy, the investments are held with a view to long-term capital
growth and it is therefore possible that individual holdings may increase in
value to a point where they represent a significantly higher proportion of total
assets than the original cost.
In the case of investments quoted on a recognised stock exchange, fair value is
established by reference to the closing bid price on the relevant date or the
last traded price, depending upon convention of the exchange on which the
investment is quoted. This is consistent with the IPEVC valuation guidelines.
In the case of unquoted investments, fair value is established by using measures
of value such as the price of recent transactions, earnings multiple and net
assets. This is consistent with IPEVC valuation guidelines.
Gains or losses arising from the changes in fair value of investments at the
period end are recognised as part of the capital return within the income
statement and allocated to the capital reserve - investment holding
gains/(losses).
In the preparation of the valuations of assets the Directors are required to
make judgements and estimates that are reasonable and incorporate their
knowledge of the performance of the investee companies.
Current asset investments
Gains and losses arising from changes in fair value of current asset investments
are recognised as part of the capital return within the Income Statement and
allocated to the capital reserve - investment gains/(losses) on disposal.
The current asset investments are all invested with the Company's cash manager
and are readily convertible into cash at the choice of the Company. The current
asset investments are held for trading, are actively managed and the performance
is evaluated on a fair value basis in accordance with a documented investment
strategy. Information about them has to be provided internally on that basis to
the Board.
Other income
Investment income includes interest earned on bank balances and money market
funds and includes income tax withheld at source.
Fixed returns on debt and money market funds are recognised on a time
apportionment basis so as to reflect the effective yield; provided there is no
reasonable doubt that payment will be received in due course.
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, if
payable, is to be charged 25% to the revenue account and 75% to the capital
reserve to reflect, in the Directors' opinion, the expected long-term split of
returns in the form of income and capital gains respectively from the investment
portfolio.
The transaction costs incurred when purchasing or selling assets are written off
to the income statement in the period that they occur.
Revenue and capital
The revenue column of the income statement includes all income and revenue
expenses of the Company. The capital column includes gains and losses on
disposal of investments and on holding investments. Gains and losses arising
from changes in fair value of investments are recognised as part of the capital
return within the income statement.
Taxation
Corporation tax payable is applied to profits chargeable to corporation tax, if
any, at the current rate. The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue return on the
'marginal' basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing
differences that have originated but not reversed at the balance sheet date or
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. This is with the exception
that deferred tax assets are recognised only to the extent that the Directors
consider that it is more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying timing differences can
be deducted.
Cash and liquid resources
Cash, for the purposes of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand. Liquid
resources are current asset investments which are disposable without curtailing
or disrupting the business and are either readily convertible into known amounts
of cash at or close to their carrying values or traded in an active market.
Liquid resources comprise term deposits of less than one year (other than cash),
government securities, investment grade bonds and investments in money market
managed funds.
Loans and receivables
The Company's loans and receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective interest method.
Financing strategy and capital structure
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 12. 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
Company.
Capital management is monitored and controlled using the internal control
procedures set out on page - of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
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.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are paid, and for final
dividends when they are approved by the shareholders. For the avoidance of
doubt, no dividend has been proposed for the period ended 31 December 2012.
2. Income
Year to 31 December 2012 Year to 31 December 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Interest receivable on bank 12 38
balances
Interest receivable on 353 49
investments
=------------------------------------------------------------------------------
365 87
=------------------------------------------------------------------------------
3. Expenses
Year to 31 December Year to 31 December
2012 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Directors' remuneration 50 40
Fees payable to the Company's
auditor for the audit of the
financial statements 8 8
Fees payable to the Company's
auditor for other services -
tax compliance 2 2
Accounting and administration
services 54 41
Trail commission 81 74
UK Listing fees 6 47
Other expenses 45 67
=------------------------------------------------------------------------------
246 279
=------------------------------------------------------------------------------
Total annual running costs are capped at 1.2% of net assets (excluding
irrecoverable VAT, rolled up management fees and IFA trail commission). For the
period to 31 December 2012 the running costs, as defined in the prospectus, were
0.8% of net assets (1.1% for the period to 31 December 2011).
4. Directors' remuneration
Year to 31 December 2012 Year to 31 December 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Directors' emoluments
Ian Pearson (Chairman) 20 16
Richard Hodgson 15 12
Chris Hulatt (paid to
Octopus Investments Limited) - 10
Martijn Kleibergen (paid to
Octopus Investments Limited) 15 2
=------------------------------------------------------------------------------
50 40
=------------------------------------------------------------------------------
None of the Directors received any other remuneration or benefit from the
Company during the period. The Company has no employees other than non-
executive Directors. The average number of non-executive Directors in the
period was three.
5. Tax on ordinary activities
The corporation tax credit for the period was GBP13,000 (2011: GBPnil).
The current rate of tax is the small companies' rate of corporation tax at 20%
(2011: 20.25%)
Current tax reconciliation: Year ended 31 December Year ended 31 December
2012 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Return on ordinary activities 119 (192)
before tax
Current tax at 20% (24) (39)
Utilisation of tax losses 24 39
Deferred tax asset 13 -
=------------------------------------------------------------------------------
Total current tax credit 13 -
=------------------------------------------------------------------------------
The Company has brought forward tax losses of approximately GBP66,000 (2011:
GBP185,000). As the VCT is expected to make revenue profits in the future, a
deferred tax asset of GBP13,000 (calculated at a rate of 20%) has been recognised
against these carried forward losses for the period ended 31 December 2012
(2011: GBPnil).
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so as
to achieve approval as a VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.
6. Earnings per Share
The total, revenue and capital earnings per share is based on 19,300,111 (2011:
14,677,386) Ordinary shares, being the weighted average number of Ordinary
shares in issue during the period.
There are no potentially dilutive capital instruments in issue and, therefore no
diluted return per share figures are relevant. The basic and diluted earnings
per share are therefore identical.
7. Net asset value per share
The calculation of net asset value per share as at 31 December 2012 is based on
net assets of GBP18,180,000 (2011: GBP18,048,000) and 19,300,111 (2011: 19,300,111)
Ordinary shares in issue at that date.
8. Fixed asset investments
The Company has adopted the amendment to FRS 29 regarding financial instruments
that are measured in the balance sheet at fair value; this requires disclosure
of fair value measurements by level of the following fair value measurement
hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities.
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. A market is regarded as active
if quoted prices are readily and regularly available, and those prices represent
actual and regularly occurring market transactions on an arm's length basis. The
quoted market price used for financial assets held is the current bid price.
These instruments are included in level 1 and comprise AIM-listed investments
classified as held at fair value through profit or loss. The Company held no
such investment in the current period.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using valuation techniques. These valuation
techniques maximise the use of observable data where it is available and rely as
little as possible on entity-specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included
in level 2. The Company held no such investment in the current period.
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. The
change in fair value for the current period is recognised through the income
statement.
All items held at fair value through profit or loss were designated as such upon
initial recognition. Movements in investments at fair value through profit or
loss during the period to 31 December 2012 are summarised below and in note 10.
Level 3: Unquoted Level 3: Unquoted Total unquoted
equity investments loan investments investments
GBP'000 GBP'000 GBP'000
=------------------------------------------------------------------------------
Valuation and net
book amount:
Book cost at 1 9,678 11,653
January 2012 1,975
=------------------------------------------------------------------------------
Valuation at 1 9,678 11,653
January 2012 1,975
Movement in the
year:
Purchases at cost 4,000 2,450 6,450
Proceeds from the - (638)
sale of investments (638)
=------------------------------------------------------------------------------
Closing fair value 13,678 17,465
at 31 December 2012 3,787
Closing cost at 31 13,678 17,465
December 2012 3,787
=------------------------------------------------------------------------------
Closing valuation 13,678 17,465
at 31 December 2012 3,787
=------------------------------------------------------------------------------
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. Further details
in respect of the methods and assumptions applied in determining the fair value
of the investments are disclosed in the Investment Manager's Review and within
the principal accounting policies in note 1.
The loan and equity investments are considered to be one instrument due to the
legal binding within the investment agreement.
At 31 December 2012, there were no commitments in respect of investments not yet
completed.
9. Debtors
As at 31 December 2012 As at 31 December 2011
GBP'000 GBP'000
=------------------------------------------------------------------
Prepayments 3 4
Accrued income 79 49
Other debtors 13 -
=------------------------------------------------------------------
95 53
=------------------------------------------------------------------
10. Current Asset Investments
Current asset investments comprise of fixed term deposits and sit with the level
1 hierarchy for the purposes of FRS 29. No such investments were held at 31
December 2012 (2011: GBPnil)
Level 1 money market funds: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
valuation of money market funds at 31 December 2012 was GBPnil (2011: GBPnil).
At 31 December 2012 and 31 December 2011 there were no commitments in respect of
investments approved by the Manager but not yet completed.
11. Creditors: amounts falling due within one year
As at 31 December 2012 As at 31 December 2011
GBP'000 GBP'000
=-------------------------------------------------------------------
Accruals 67 121
Other creditors - 230
=-------------------------------------------------------------------
67 351
=-------------------------------------------------------------------
12. Share capital
As at 31 December 2012 As at 31 December 2011
GBP'000 GBP'000
=------------------------------------------------------------------------------
Allotted and fully paid up:
19,300,111 Ordinary shares of 193 193
1.00p (2011: 19,300,111)
=------------------------------------------------------------------------------
The capital of the Company is managed in accordance with its investment policy
with a view to the achievement of its investment objective as set on page -.
The Company is not subject to any externally imposed capital requirements.
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 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 8 in order to maintain
sufficient liquidity in the Company.
Capital management is monitored and controlled using the internal control
procedures set out on page - of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
During the year the Company did not issue any shares (2011: 19,300,111).
The Company did not repurchase any Ordinary shares for cancellation during the
period (2011: nil).
13. Reserves
Special distributable
Share capital reserves Revenue reserves Total
GBP'000 GBP'000 GBP'000 GBP'000
=------------------------------------------------------------------------------
As at 1 January 193 18,047 (192) 18,048
2012
Return on ordinary - - 132 132
activities after
tax
=------------------------------------------------------------------------------
Balance as at 31 193 18,047* (60)* 18,180
December 2012
=------------------------------------------------------------------------------
*Reserves considered when calculating potential distribution by way of a
dividend.
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.
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 unrealised.
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 December 2012 there were no commitments (2011: nil) in respect of
investments approved by the Investment Manager but not yet completed.
14. Financial instruments and risk management
The Company's financial instruments comprise equity and fixed interest
investments and cash balances and liquid resources including debtors and
creditors. The Company intends to hold 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.
Classification of financial instruments
The Company held the following categories of financial instruments, all of which
are included in the balance sheet at fair value, at 31 December 2012.
31 December 2012 31 December 2011
GBP000 GBP000
Assets at fair value through profit or loss
Fixed asset Investments 17,465 11,653
=-----------------------------------------------------------------------------
Total 17,465 11,653
Loans and receivables
Cash at bank 687 6,693
Other Debtors 16 4
Accrued income 79 49
=-----------------------------------------------------------------------------
Total 782 6,746
Liabilities at amortised cost
Accruals and other creditors (67) (351)
=-----------------------------------------------------------------------------
Total 18,180 18,048
Fixed asset investments (see note 8) are carried at fair value. Unquoted
investments are carried at fair value as determined by the directors in
accordance with current venture capital industry guidelines. The fair value of
all other financial assets and liabilities is represented by their carrying
value in the balance sheet. The Directors believe that the fair value of the
assets held at the period end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various
types of risk associated with the financial instruments and markets in which it
invests. The most significant types of financial risk facing the Company are
price risk, interest rate risk, credit risk and liquidity risk. The Company's
approach to managing these risks is set out below together with a description of
the nature and amount of the financial instruments held at the balance sheet
date.
Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page -. The management of
market risk is part of the investment management process and is a central
feature of venture capital investment. The Company's portfolio is managed 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 - and -. An analysis of investments is given in note 8.
96.1% (2011: 64.6%) by value of the Company's net assets comprises investments
in unquoted companies held at fair value. A 10% overall increase in the
valuation of the unquoted investments at 31 December 2012 would have increased
net assets and the total return for the period by GBP1,746,500. An equivalent
change in the opposite direction would have reduced net assets and the total
return for the period by the same amount.
Interest rate risk
Some of the Company's financial assets are interest-bearing, 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 December 2012. The
amounts held in floating rate investments at the balance sheet date were as
follows:
31 December 2012 31 December 2011
GBP'000 GBP'000
=-------------------------------------------------------
Cash on deposit 687 6,693
=-------------------------------------------------------
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the period by GBP6,870 (2011: GBP66,930).
Credit risk
There were no significant concentrations of credit risk to counterparties at 31
December 2012. By cost, no individual investment exceeded 8.0% of the Company's
net assets at 31 December 2012.
Credit risk is the risk that 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 December 2012 the Company's financial assets exposed to credit risk
comprised the following:
31 December 2012 31 December 2011
GBP000 GBP000
=---------------------------------------------------------------------------
Cash on deposit 687 6,693
Investments in fixed rate investments 3,787 1,975
Accrued dividends and interest receivable 79 49
=---------------------------------------------------------------------------
4,553 8,717
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 (The Co-operative bank in
the case of fixed term deposits and Capita Financial in the case of quoted
equity securities). Bankruptcy or insolvency of a custodian could cause the
Company's rights with respect to securities held by the custodian to be delayed
or limited.
Credit risk arising on the sale of investments is considered to be small due to
the short settlement and the contracted agreements in place with the settlement
lawyers.
The Company's interest-bearing deposit and current accounts are maintained with
HSBC Bank plc and The Co-operative bank.
Liquidity risk
The Company's fixed term deposits 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 December 2012
these investments were valued at GBP687,000 (2011: GBP6,693,000).
15. Post balance sheet events
No significant events occurred between the balance sheet date and the signing of
these financial statements.
16. Contingencies, guarantees and financial commitments
Provided that an intermediary continues to act for a shareholder and the
shareholder continues to be the beneficial owner of the shares, intermediaries
will be paid an annual trail commission of 0.5% of the initial net asset value.
Trail commission of GBP81,000 was paid during the period (2011: GBP74,000 accrued)
and there was GBPnil outstanding at the period end (2011: GBPnil).
Octopus is entitled to an annual management fee of 2.0% of net assets. In order
to ensure the alignment of interests between Octopus and Shareholders, the
annual management fee will be rolled up (without interest) and will only be paid
to Octopus once shareholders have received dividends during the life of the Fund
and distributions totaling or exceeding 105p per share. As at 31 December 2012,
the contingent liability for the annual management fee is GBP363,000. Further
details of this are provided below.
There were no contingencies, guarantees or financial commitments as at 31
December 2012 (2011: nil).
17. Related party transactions
Octopus provides investment management and administration & accounting services
to the Company under a management agreement which runs for a period of five
years with effect from 6 January 2011 and may be terminated at any time
thereafter by not less than twelve 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 administration and accounting fee is payable quarterly in arrears for a fee
of 0.3% of the NAV calculated at annual intervals as at 31 December. During the
year GBP54,000 (2011: GBP41,000) was paid to Octopus and there was GBPnil outstanding
at the balance sheet date, for the accounting and administrative services.
In addition, Octopus also provides secretarial services for an additional fee of
GBP15,000 per annum. During the year GBP15,000 (2011: GBP12,000) was due to Octopus
and there was GBPnil outstanding at the balance sheet date.
Octopus is entitled to an annual management fee of 2.0% of net assets. In order
to ensure the alignment of interests between Octopus and Shareholders, the
annual management fee will be rolled up (without interest) and will only be paid
to Octopus once shareholders have received dividends during the life of the Fund
and distributions totaling or exceeding 105p per share. Octopus will only be
entitled to receive an annual management fee for the period from the date on
which shares are first allotted under the Offer until the date on which the
general meeting is held (expected to be in August 2016) at which shareholders
will be asked to approve a notion regarding the future of the Company.
In view of the early stage of the investment process, the Directors do not
currently believe there is sufficient certainty that any management fee will be
paid, and have therefore made no accrual in respect of any fee potentially
payable. In relation to management fees, there was a contingent liability of
GBP363,000 as at 31 December 2012.
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 VCT 2 PLC via Thomson Reuters ONE
[HUG#1688929]
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