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OTV5: Octopus Titan VCT 5 PLC : Final Results

Octopus Titan VCT 5 PLC

25 Jan 2013 16:00:49

Octopus Titan VCT 5

Octopus Titan VCT 5 PLC : Final Results

Octopus Titan VCT 5 plc

Final Results

25 January 2013

Octopus Titan VCT 5 plc, managed by Octopus Investments Limited ("Octopus"), today announces the final results for the year ended 31 October 2012.

These results were approved by the Board of Directors on 25 January 2013.

You may, in due course, view the Annual Report in full at www.octopusinvestments.com

Octopus Titan VCT 5 plc

Registered Number: 07406399

Financial Summary

As at
31 October 2012
As at
31 October 2011
Net assets (£'000s) 13,142 12,660
Return on ordinary activities after tax (£'000s) (643) (267)
Net asset value (NAV) per share 88.2p 92.6p

Chairman's Statement

Introduction
I am pleased to present the Annual Report of Octopus Titan VCT 5 plc (the Company) for the year ended 31 October 2012.

Performance
During the period, the Net Asset Value (NAV) of the Company has declined from 92.6 pence per share at inception to 88.2 pence per share, a negative return of 4.8%. This decline is due to the small decrease in fair value of the portfolio together with the standard running costs that outweigh any income or capital gains. 

As is highlighted in the Investment Manager's review, it is not uncommon when building a portfolio of early stage investments that a number of businesses will suffer decreases in fair value, and these will typically occur prior to increases in valuations from other members of the portfolio. Over the longer term, as the underlying portfolio of investments is created, the Company's NAV will be linked increasingly to the value of the investments in the portfolio companies.

Investment Portfolio

The Company made 10 new investments in the year to 31 October 2012 totalling £3,634,000, and made one realisation. The new investments are discussed in more detail in the Investment Manager's Review on pages X to X. The portfolio made an overall unrealised loss in fair value of £353,000 during the year, attributable to Michelson Diagnostics and Aframe. The other investments were all held at cost.

Evi Technologies (formally True knowledge) was invested into and fully disposed during the year which resulted in a small realised loss of £4,000.

By value, 22.5% of the Company's net assets are in unquoted investments, 28.7% in Octopus Open Ended Investment Companies (OEICs) and 48.8% is currently in cash or cash equivalents and debtors and creditors. The current surplus cash of the Company is invested in a range of Money Market Funds and bank deposits to fit with the Board's policy of preserving the capital of the Company before its deployment into Qualifying Investments.

 

The focus for the Company is to continue to invest in a broad range of unquoted smaller UK companies with the potential for high growth in order to generate capital growth over the long-term, and to achieve the VCT requirement of having a 70% qualifying investment level prior to 31 October 2013. The Investment Manager is seeing a good level of deal flow that will allow the portfolio to continue to grow into a diverse range of sectors.

Open Ended Investment Companies (OEICs)

The Company has held its investments in the three OEICs during the year which cumulatively saw an uplift in fair value of £164,000. The best performance was seen by the Octopus UK Micro Cap Growth Fund which increased in value by 9.2% in the year.

The Board believes it is in the best interests to continue to hold investments in OEICs for the foreseeable future, as set out in the original prospectus.  Further details of the OEICs may be found at www.octopusinvestments.com where monthly factsheets are available.

Investment Strategy

The investment policy of the Company is designed to provide investors with exposure to a range of UK smaller companies with the aim of generating a substantial level of returns over the medium to long term. In order to achieve this, the Company will focus on providing early stage, development and expansion funding to unquoted companies with the Company making a typical deal size of £0.1 million to £0.5 million.

We intend that the remainder of our cash reserves will continue to be invested in Octopus managed OEICs and Money Market Funds that are readily realisable investments, with a focus on capital preservation.

Top-up and buybacks
As mentioned in the interim report, the Company successfully raised £1,190,000 net of costs during the year which saw the Top-up offer fully subscribed. The majority of these funds raised are being used to support existing portfolio companies where the Investment Manager sees the opportunity for business growth.

Following the success of the 2012 'top-up', the Board has announced its intention to launch a further offer for new shares in conjunction with the four other Octopus Titan VCTs. For further details, including a copy of the full brochure when it is available, please contact Octopus using the details provided on page X of this report.

During the period, the company repurchased 70,330 shares which represents 0.5% of the shares at the prior period end. Further details can be found in Note 13 of the accounts.

 

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 October 2013.  As at 31 October 2012, 32.8% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments. In view of the current investment activity, the Board continues to be confident that the 70% target will be met by the required date.

Annual General Meeting

I look forward to meeting as many shareholders as possible at our Annual General Meeting on 14 March 2013 to be held at the offices of Octopus Investments Limited, 20 Old Bailey, London, EC4M 7AN. The AGM will start at 11.00 a.m.

Outlook
The timing of the economic recovery remains uncertain with continued turmoil for many businesses. This results in tough trading conditions especially for small companies with increased pressure on working capital requirements. The Board and Investment Manager conduct the investment activities with these factors in mind and are confident that the Company will see a rise in value over the mid-term.

Despite this, there are opportunities for small companies who are quick to respond to the market conditions. We strive to invest in a range of early stage businesses whose primary interests are in growth and profitability which have the potential to make significant returns for shareholders over the medium term. We endeavour to establish a well balanced diverse portfolio in the coming year.

Jane O'Riordan
Chairman
25 January 2013

Investment Manager's Review

Personal Service
At Octopus Investments Limited ("Octopus"), we focus on both managing your investments and keeping you informed throughout the investment process. We are committed to providing our investors with regular and open communication. Our updates are designed to keep you informed about the progress of your investment. During this time of economic uncertainty, we consider it particularly important to be in regular contact with our investors and are working hard to manage your money in the current climate.

Octopus was established in 2000 and has a strong commitment to both smaller companies and to VCTs. We currently manage 13 VCTs, including this VCT, and manage over £340 million in the VCT sector. Octopus has over 200 employees and was voted 'Best VCT Provider of the Year' by the financial adviser community in 2006 to 2010.

 

Investment Policy

The investment approach of the Company is not designed to deliver a return that is measured against a stock market index. Instead, the focus of the Company is on generating absolute returns over the medium-term. In order to achieve this, the Company focuses on providing early stage, development and expansion funding to unquoted companies with a typical initial deal size of £0.1 million to £0.5 million and aims to comprise of 15-20 unquoted companies, predominantly focussed within the following sectors:

  • Environment
  • Technology
  • Media
  • Telecoms
  • Consumer lifestyle and well-being

 

Investment Strategy

The investee companies are those that we believe have great potential but need some financial support to realise it. Each company that we target will have the potential to create a large business by taking a relatively modest market share. We are particularly interested in businesses that address current market trends and aim to create a balanced investment portfolio spanning multiple industries and business sectors.

It is envisaged that, at the end of the three year initial investment period, 75-85% of the proceeds of the Offer will be invested in a range of qualifying investments with 15-25% invested in a combination of cash, Open Ended Investment Companies (OEICs) and non qualifying assets managed by Octopus and money market funds managed by third party specialists.

As Investment Manager, we typically purchase a significant minority equity stake in qualifying companies, providing financial capital to a business to build and grow its operations and then to exit at some point in the future, usually by selling to an acquirer. These entrepreneurial early stage businesses frequently face challenges as they seek to establish themselves in their markets. The amount of capital we initially deploy is intended to be only the first investment that we will make into a business, prior to seeing if the company meets or exceeds its initial objectives.

If the business is unsuccessful in meeting these first objectives we strive to minimise the financial exposure the Company faces without committing further money to the investment. Other businesses which meet some of their objectives, but not necessarily all, will require more time to prove their concept and will usually need further funding to do this. In these cases, businesses will typically be reduced in value prior to our making a further investment to allow them to prove their business model and the market opportunity. Finally, there are those that meet and exceed the expectations originally set.

It is these businesses in which we wish to increase our investment exposure as they remain on course to create a large business.

Liquidity in the Company is maintained to ensure adequate resources are available to support further portfolio funding needs as they arise. This will be assisted by the Top-up as described in the Chairman's Statement and is an important feature of our model in delivering returns to shareholders.

Portfolio Review

As at 31 October 2012, the NAV stood at 88.2p, compared to the NAV of 92.6p at 1 November 2011. This decline in NAV is due to the standard running costs of the Company and a small decrease in the fair value of the portfolio. The OEIC holdings, however, went some way in offsetting this fall with an appreciation in value of £164,000 in the year.

There have been 10 new investments during the year into a range of different sectors. These additions are explained in more detail in the top 10 investments on pages X to X. The portfolio suffered an overall decrease in fair value of £353,000 attributable to Aframe and Michelson Diagnostics which have struggled to meet expectations during the year. The other companies remained at their cost value. Evi (formally True Knowledge) was invested into and fully disposed during the year realising a small loss of £4,000.

It is not uncommon to see a downward valuation at this stage of maturity in the Company. Over the longer term, the NAV will be increasingly linked to the value of the investments in the portfolio companies and we are confident with the current portfolio that the NAV will rise over the medium term.

Since the period end, no new investments or follow-on investments were made. The Company now holds 32.8% of its assets in qualifying holdings from an HMRC perspective. With the current level of deal flow we are seeing, we are confident that we will be able to add to the current portfolio of companies, investing into a diverse range of sectors as per the investment strategy of the Company. The focus of the Fund over the next year is to develop the portfolio, by making a mixture of approximately 7 new and follow-on investments, in order to meet the 70% qualifying investment requirement level by 31 October 2013.

Outlook

The continued uncertainty in the current economy remains a concern for small companies. There are still fierce challenges for these companies, with many being subjected to the pressure of tough trading conditions and tight working capital. It remains unclear when the economic downturn will revert and until it does, cash requirements will remain a concern for small companies. 

Despite this, there remain opportunities for entrepreneurs and small companies as shown in this portfolio. They can execute business plans quickly to meet and enhance customer experiences and needs in comparison to slower moving large corporate businesses. A number of businesses in this portfolio have already shown these characteristics and continue to grow aggressively, despite the volatile economic environment.

If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2349.

Alex Macpherson
Octopus Investments Limited
25 January 2013

Investment Portfolio

Qualifying investmentsSectorInvestment cost as at 31 October 2012 (£'000)Movement in fair value to 31 October 2012 (£'000)Fair value as at 31 October 2012 (£'000)Movement in fair value in period to 31 October 2012 (£'000)% voting rights held by the Company% equity held by all funds managed by Octopus
Rangespan Limited Consumer lifestyle and well being 736 - 736 - 5.14  25.71
Iovox Limited Telecommunications 500 - 500 - 6.23  24.94
Semafone Limited Telecommunications 397 - 397 - 2.84  46.64
Amplience Limited Technology 383 - 383 - 10.56 63.13
Lifebook Limited Consumer lifestyle and well being 370 - 370 - 7.56 32.64
Artesian Solutions Limited Technology 350 - 350 - 4.23 24.17
Aframe Media Group Limited Media 400 (200) 200 (200) 5.51 20.65
Michelson Diagnostics Limited Consumer lifestyle and well being 306 (153) 153 (153) 3.88 42.87
The Faction Collective SA Consumer lifestyle and well being 139 - 139 - 4.40 11.00
Leanworks Limited (Yplan) Consumer lifestyle and well being 125 - 125 - 4.30 14.63
Total qualifying investments3,706(353)3,353(353)
Money market funds 4,275                            - 4,275  -
Open ended investment companies 3,600 171 3,771 164
Cash at bank 1,459                            - 1,459  -
Total investments13,040(182)12,858(189)
Net current assets 284
Total net assets13,142

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 quoted multiples of equivalent companies to reflect the lack of liquidity in the investment, there being no ready market for our holding. Typically the discount is between 20 -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
During the period, the Company made 10 new investments amounting to £3,634,000. The unquoted investments are in ordinary shares with full voting rights as well as loan note securities.

Unquoted investments are valued in accordance with the accounting policy set out in accounting note 1, 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. 

Rangespan Limited
Launched in 2011 by a team of ex-Amazon.com senior executives and engineers, Rangespan is a technology company with an automated supply chain service. The team has extensive experience in e-commerce best practice and scalable software development, as well as a fanatical focus on customer experience. The Rangespan service enables retailers to list tens of thousands of new products online without a lengthy technology integration project, ongoing product data management, upfront costs, or assuming additional inventory risk.

Initial investment date:                                                        November 2011
Cost:                                                                                      £736,000
Valuation:                                                                              £736,000
Equity held:                                                                           5.14%
Equity held by all funds managed by Octopus:              25.71%
Last submitted audited accounts:                                    31 March 2012
Turnover                                                                                                £558,232
Loss before tax:                                                                   (£863,025)
Net assets:                                                                            £1,617,100

Iovox Limited
The Iovox platform gives real-time visibility into all aspects of telephone traffic, enabling customers to clearly identify the source and result of each call, creating a proven record of all leads generated through real-time reports. Offline lead tracking is complimented by other functionality such as call whispers (automated pre-connection notifications, notifying both the caller and receiver of the lead-generator in each case), recording and time-based calling.

Initial investment date:                                                        August 2012
Cost:                                                                                      £500,000
Valuation:                                                                              £500,000
Equity held:                                                                           6.23%
Equity held by all funds managed by Octopus:              24.94%
Last submitted audited accounts:                                    31 December 2011 (abbreviated)
Turnover                                                                                                Not disclosed
Profit before tax:                                                                  Not disclosed
Net liabilities:                                                                        (£237,727)

Semafone Limtied
Based in London, Semafone was founded in 2009 by a consortium of call centre professionals, who were instrumental in the development of its fraud prevention software for use in call centres. It aims to secure sensitive data passed over the phone, including bank details, personal identification data and credit/debit card transactions. Without interrupting caller and agent dialogue, customers input their card details via the telephone keypad, eliminating the need to read out the card number and three digit security number to the phone operator therefore removing the risk of operator fraud. Semafone has secured valued customers such as BSkyB, the John Lewis Partnership, Argos, Specsavers and the Manchester Airports Group.

Initial investment date:                                                        March 2012
Cost:                                                                                      £397,000
Valuation:                                                                              £397,000
Equity held:                                                                           2.84%
Equity held by all funds managed by Octopus:              46.64%
Last submitted group accounts:                                       31 December 2011
Turnover                                                                                                £2,025,528
Loss before tax:                                                                   (£1,114,892)
Net liabilities:                                                                        (£312,180)

Amplience Limited
Amplience is a leading Commerce Content Management platform for global brands and retailers. The platform enables retailers to deliver engaging retail experiences across multi-digital channels, including smartphones and tablets. It makes it quicker and cheaper for retailers to update content on websites, while also demonstrably increasing the amount their customers spend. 

Initial investment date:                                                        January 2012
Cost:                                                                                      £383,000
Valuation:                                                                              £383,000
Equity held:                                                                           10.56%
Equity held by all funds managed by Octopus:              63.13%
Last submitted audited accounts:                                    31 December 2011
Turnover                                                                                                £405,602
Loss before tax:                                                                   (£1,580,674)
Net liabilities:                                                                        (£682,547)

Lifebook Limited
LifeBook offers an opportunity to share the life experiences of an individual with their loved ones in the form of an autobiography. Though the content is that of the Author, LifeBook provides many professional human touch points during the process. It is not just about the book, but the whole experience of telling their story. With an ageing population in many parts of the developed world, the number of potential authors aged 50 and above is substantial. For example, in the UK, there are over 20m people aged 50 or more, nearly a third of the entire population, and many have a high level of disposable income.

Initial investment date:                                                        September 2012
Cost:                                                                                      £370,000
Valuation:                                                                              £370,000
Equity held:                                                                           7.56%
Equity held by all funds managed by Octopus:              32.64%
Last submitted audited accounts:                                    NA

Artesian Solutions Limited
Artesian helps its business to business customers accelerate revenue by building stronger and deeper customerrelationships. It provides a sales productivity application that automates the process of looking for sales and market intelligence from the web and in social media. The service is 100% cloud-based and helps sales and marketing teams achieve better results by acting on key insights from customer-based information.

The company has developed technology that allows it to interpret and analyse millions of web pages. Through a combination of natural-language-processing and a unique heuristic ranking approach, the company is able to deliver accurate contextual insight about its clients' customers and the relevant things they are doing, enabling its clients to drive better customer engagement.

Initial investment date:                                       December 2011
Cost:                                                                      £350,000
Valuation:                                                                              £350,000
Equity held:                                                                           4.23%
Equity held by all funds managed by Octopus:              24.17%
Last submitted audited accounts:                                    29 February 2012
Turnover                                                                                                £2,131,354
Loss before tax:                                                                   (£556,780)
Net assets:                                                                            £1,797,495

Aframe Media Group Limited
Aframe Media Services Limited is the first Software as a Service (SaaS) offering that eliminates many of the issues associated with traditional video production methods. Aframe is a video storage and end-to-end production platform that allows its users to collaborate on productions with colleagues based anywhere in the world. It enables them to organise and share footage, edit that footage in a professional system of their choice and then use Aframe for delivering it. It offers its service on a monthly basis, with a range of packages to suit different user types. Its customers include the BBC, BT and CPL.

Initial investment date:                                                        March 2012
Cost:                                                                                      £400,000
Valuation:                                                                              £200,000
Equity held:                                                                           5.51%
Equity held by all funds managed by Octopus:              20.65%
Last submitted audited accounts:                                    NA

Michelson Diagnostics Limited
Michelson Diagnostics is the medical equipment and scanner specialist, whose unique laser scanning technology can image skin and other surface tissue at a much higher resolution than ever before. The Company's first product based on its patented technology, the VivoSight scanner, may revolutionise the market for the non-invasive diagnosis and treatment of non-melanoma skin cancer (NMSC). The VivoSight scanner is certified by the CE & Food and Drug Administration (FDA) regulatory clearance for clinical use in Europe and the USA. The VivoSight scanner will, for the first time, enable clinicians to 'see' under the skin surface in real time, to help them decide whether to treat a lesion, what treatment to use, and to show them how far a tumour has spread, so that surgery is required only once and conserves healthy tissue. The company has gained acceptance with several leading Key Opinion Leaders and has now placed its first machines with dermatologists in order to prove the business model.

Initial investment date:                                                        October 2011                         
Cost:                                                                                      £306,000
Valuation:                                                                              £153,000
Voting rights held by Fund:                                                               3.88%
Equity held by all funds managed by Octopus:              42.87%
Last submitted audited group accounts:                         31 March 2012
Turnover                                                                                                £400,972
Loss before tax:                                                                   (£1,621,689)
Net assets:                                                                            £3,164,514

The Faction Collective SA
The Faction Collective is a product-driven winter sports brand focusing on the fast-growing freeride, freestyle and ski touring markets which are not well served by the major brands, but which now account for 40% of skis sold. The company designs and sells innovative, high performance, award-winning skis and equipment, which are made in the EU and endorsed by recognised athletes. Faction is based in London and Switzerland and is present in all the major winter sports markets through a network of distributors and direct sales representatives.

Initial investment date:                                                        September 2012
Cost:                                                                                      £139,000
Valuation:                                                                              £139,000
Equity held:                                                                           4.40%
Equity held by all funds managed by Octopus:              11.0%
Last submitted audited accounts:                                    30 June 2011
Turnover                                                                                                £384, 736
Loss before tax:                                                                   Not disclosed
Net liabilities:                                                                        (£831,805)

Leanworks Limited (YPlan)
Leanworks is an early-stage business that develops YPlan, a mobile and online ticketing platform. It allows users to discover and purchase tickets for events that are taking place in the vicinity, from the convenience of their smartphone.

Initial investment date:                                                        July 2012
Cost:                                                                                      £125,000
Valuation:                                                                              £125,000
Equity held:                                                                           4.30%
Equity held by all funds managed by Octopus:              14.63%
Last submitted audited accounts:                                    NA

How Octopus creates and delivers value for the shareholders of the Company
The Company focuses on providing early stage, development and expansion funding to predominantly unquoted companies with a typical deal size of £0.5 million to £2.0 million, in aggregate from the five Titan VCTs managed by Octopus.  The focus is on establishing a portfolio of qualifying investments in companies that have the potential to achieve a high level of profitability through the combination of:-

· Scalability: The potential to deliver services to significant numbers of new customers at very low incremental cost and to generate repeat sales from customers.

· Scope: The ability to expand into complimentary areas by leveraging customer and/or distributor relationships, new product development or brand positioning.

· Pricing power: An ability to charge high and defensible prices for its products or services as a result of having intellectual property rights, a strong brand and/or a dominant position in a market niche.

The Investment Manager looks to identify opportunities where the people involved - the entrepreneur, management team, investors, advisers and any other significant stakeholders - have a proven record of success.  Although the Fund has the ability to invest across a wide range of industries, the focus will be on several principal sectors:-

· environment
· technology
· media
· telecoms
· consumer lifestyle and wellbeing

The key differentiator, and competitive advantage, of the Company is the Octopus Investor Group. This is made up of more than 100 highly successful entrepreneurs and business people, including ex-FTSE Chairmen and Chief Executives, who provide support and guidance to the portfolio companies and co-invest their own money alongside the Octopus Titan VCTs.

Directors' Responsibilities Statement

The Directors are responsible for preparing the Directors' Report, the Remuneration report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company for that period. In preparing these financial statements, the Directors are required to:

·            select suitable accounting policies and then apply them consistently;
·            make judgements and accounting estimates that are reasonable and prudent;
·            state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
·            prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In so far as each of the Directors is aware:

·            there is no relevant audit information of which the Company's auditor is unaware; and
·            the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.


The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

To the best of my knowledge:

·            the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Standards and applicable laws), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
·            the Investment managers and Directors' reports include fair reviews 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.

On behalf of the Board

Jane O'Riordan
Chairman
25 January 2013

Income Statement

Year to 31 October 2012
RevenueCapitalTotal
Notes£'000£'000£'000
Loss on disposal of fixed asset investments 9-(4)(4)
Fixed asset investment holding losses 9-(353)(353)
Current asset investment holding gains -164164
Other income 243-43
Investment management fees 3(61)(184)(245)
Other expenses 4(248)-(248)
Return on ordinary activities before tax(266)(377)(643)
Taxation on return on ordinary activities 6---
Return on ordinary activities after tax(266)(377)(643)
Loss per share - basic and diluted7(1.9)p(2.6)p(4.5)p
  • The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies
  • All revenue and capital items in the above statement derive from continuing operations
  • The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds

The Company has no recognised gains or losses other than the results for the year as set out above.

The accompanying notes form an integral part of the financial statements.

Income Statement

Period from 13 October 2010 to 31 October 2011
RevenueCapitalTotal
Notes£'000£'000£'000
Current asset investment holding gains -77
Other income 226-26
Investment management fees 3(32)(97)(129)
Other expenses 4(171)-(171)
Return on ordinary activities before tax(177)(90)(267)
Taxation on return on ordinary activities 6---
Return on ordinary activities after tax(177)(90)(267)
Loss per share - basic and diluted7(2.7)p(1.4)p(4.1)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 had 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 31 October 2012Period from
13 October2010
to 31 October 2011
£'000£'000
Shareholders' funds at start of year 12,660 -
Return on ordinary activities after tax (643) (267)
Issue of equity (net of expenses) 1,190 12,977
Purchase of own shares (65) (50)
Shareholders' funds at end of year 13,142 12,660

The accompanying notes form an integral part of the financial statements.

Balance Sheet

As at 31 October 2012As at 31 October 2011
Notes£'000£'000£'000£'000
Fixed asset investments* 93,353 305
Current assets:
Debtors 10326 35
Money market funds and other deposits* 118,046 9,514
Cash at bank 1,459 2,936
9,831 12,485
Creditors: amounts falling due within one year 12(42) (130)
Net current assets 9,789 12,355
Net assets13,142 12,660
Called up equity share capital 131,490 1,368
Share premium 141,062 11,559
Special distributable reserve 1411,493 -
Capital redemption reserve 147 -
Capital reserve - losses on disposals 14(285) (97)
                         -  holding gains 14(182) 7
Revenue reserve 14(443) (177)
Total shareholders' funds13,142 12,660
Net asset value per share888.2p 92.6p

*Held at fair value through profit or loss

The statements were approved by the Directors and authorised for issue on 25 January 2013 and are signed on their behalf by:

Jane O'Riordan
Chairman
Company No: 07406399

The accompanying notes form an integral part of the financial statements.

Cash Flow Statement

Year to 31 October 2012Period from 13 October 2010 to 31 October 2011
£'000£'000
Net cash outflow from operating activities(600) (179)
Financial investment:
Purchase of fixed asset investments 9(3,634) (305)
Sale of fixed asset investments - -
Management of liquid resources:
Purchase of current asset investments (2,632) (12,012)
Sale of current asset investments 4,264 2,505
Taxation- -
Dividends paid- -
Financing:
Issue of shares 131,190 12,977
Purchase of own shares 13(65) (50)
Increase in cash resources at bank(1,477) 2,936

The accompanying notes form an integral part of the financial statements.



Reconciliation of Return before Taxation to Cash Flow from Operating Activities
Year to 31 October 2012 Period from 13 October 2010 to 31 October 2011
£'000£'000
Return on ordinary activities before tax (643) (267)
Loss on disposal of fixed asset investments 4 -
Loss on valuation of fixed asset investments 353 -
Gain on valuation of current asset investments (164) (7)
Increase in debtors (62) (35)
(Decrease)/increase in creditors (88) 130
Outflow from operating activities(600) (179)

Reconciliation of Net Cash Flow to Movement in Net Funds
Year to 31 October 2012 Period from 13 October 2010 to 31 October 2011
£'000 £'000
(Decrease)/increase in cash resources at bank (1,477) 2,936
Movement in cash equivalents (1,468) 9,514
Opening net funds 12,450 -
Net funds at 31 October9,505 12,450

Net Funds at 31 October comprised:

Year to 31 October 2012 Period from 13 October 2010 to 31 October 2011
£'000 £'000
Cash at bank 1,459 2,936
Money market funds 4,275 3,607
OEIC's 3,771 5,907
Net Funds at 31 October9,505 12,450

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 and Venture Capital Trusts' (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 X to X. Further details on the management of financial risk may be found in note 15 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, Money Market Funds and OEIC Investments, which are readily realisable (72.3% 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 those that are 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 investment gains and losses are attributable to assets designated as being at fair value through profit or loss. 

Current asset investments comprising money market funds and OEICs 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.

Fixed Asset Investments
Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date) at cost.

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 is provided internally on that basis to the Board. Accordingly, as permitted by FRS 26, the investments are 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 a 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 the 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
Current asset investments comprise money market funds and OEICs are classified as held for trading carried at FVTPL. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - 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 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 is 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, as well as OEICs.

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 13. 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 X 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.

2.         Other income

Year ended 31 October 2012Period ended
31 October 2011
£'000 £'000
Interest on bank balances and dividends receivable on money market funds 43 26

3.         Investment Management Fees

Year ended 31 October 2012Period ended 31 October 2011
RevenueCapitalTotalRevenueCapitalTotal
£'000£'000£'000£'000£'000£'000
Investment management fee 61184245 32 97 129

For the purposes of the revenue and capital columns in the income statement, the management fee has been allocated 25% to revenue and 75% to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio.

Octopus provides investment management and accounting and administration services to the Company under a management agreement which runs for a period of five accounting periods with effect from 1 November 2010 and may be terminated at any time thereafter by not less than 12 months' notice given by either party.  No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given.  The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given.  The basis upon which the management fee is calculated is disclosed within note 18 to the financial statements.

4.         Other expenses

Year to 31 October 2012Period ended
31 October 2011
£'000£'000
Directors' remuneration 50 33
Fees payable to the Company's auditor for the audit of the financial statements 12 6
Fees payable to the Company's auditor for other services - tax compliance 2 1
Accounting and administration services 38 19
UK Listing Fees 19 36
Trail commission 60 24
Other expenses 67 52
248 171

Total annual running costs are capped at 3.2% of net assets (excluding irrecoverable VAT).  For the period to 31 October 2012 the running costs, as defined in the prospectus, were 3.27% (2011: 2.2%) of net assets. The overspend was reimbursed by Octopus Investments Limited post year end.

5.         Directors' remuneration

Year to
31 October 2012
Period ended
31 October 2011
£'000£'000
Directors' emoluments
Jane O'Riordan (Chairman)20 13
Stefan Cassar 15 10
Jo Oliver (paid to Octopus) 12 -
Chris Hulatt (paid to Octopus) 3 10
50 33

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 (2011: three).

6.         Tax on ordinary activities
The corporation tax charge for the period was £nil (2011: £nil).

The current tax charge for the period differs from the standard rate of corporation tax in the UK of 24.83% (2011: 26.83%).  The differences are explained below.

Current tax reconciliation: 31 October 201231 October 2011
£'000£'000
Loss on ordinary activities before tax (643) (267)
Capital losses/(gains) 193 (7)
(450) (274)
Current tax at 24.83% (2011: 26.83%) (112) (74)
Unrelieved tax losses - 78
Expenses not deductible/income not taxable for tax purposes 112 (4)
Total current tax charge - -

The company has excess management charges of approximately £750,000 (2011: £300,000) to carry forward to offset against future taxable profits subject to agreement with HMRC. The Company has not recognised the deferred tax asset of £185,000 (2011: £81,000) in respect of these excess management charges.

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.

7.         Earnings per Share
The total earnings per share is based on total loss after tax of £643,000 (2011: 267,000) and 14,368,376 ordinary shares (2011: 6,507,511), being the weighted average number of ordinary shares in issue during the period.

The revenue earnings per share is based on the revenue loss after tax of £266,000 (2011: 177,000) and 14,368,376 ordinary shares (2011: 6,507,511), being the weighted average number of ordinary shares in issue during the period.

The capital earnings per share is based on the capital loss after tax of £377,000 (2011: 90,000) and 14,368,376 ordinary shares (2011: 6,507,511), 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.

8.        Net asset value per share
The calculation of net asset value per share as at 31 October 2012 is based on net assets of £13,142,000 and 14,899,391 ordinary shares (2011: £12,660,000 and 13,678,528) in issue at that date.

9.         Fixed asset investments
Where financial instruments are measured in the balance sheet at fair value; FRS 29 requires disclosure of the fair value measurements by level based on the following fair vale investment 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-quoted investments classified as held at fair value through profit or loss. The Company held no such investments 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 investments 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 (2011: none). 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 October 2012 are summarised below and in note 11.

Level 3:
Unquoted investments
Total investments
31 October 201231 October 2012
£'000£'000
Valuation and net book amount:
Book cost as at 1 November 2011 305 305
Cumulative revaluation - -
Valuation at 1 November 2011 305305
Movement in the year:
Purchases at cost 3,634 3,634
Disposal proceeds (net of expenses) (229) (229)
Loss on realisation of investments (4) (4)
Revaluation in year (353) (353)
Valuation at 31 October 20123,3533,353
Book cost at 31 October 2012: 3,706 3,706
Revaluation to 31 October 2012: (353) (353)
Valuation at 31 October 20123,3533,353

The investment portfolio is managed with capital growth as the primary focus.

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 costs incurred in the disposals amount to £4,000.

At 31 October 2012, there were no commitments in respect of investments not yet completed.

10.        Debtors

31 October 201231 October 2011
£'000£'000
  Other debtors 9 15
Prepayments 88 6
Accrued income - 14
Disposal proceeds 229 -
326 35

Disposal proceeds of £47,000 are due in more than one year.

11.        Current Asset Investments
Current asset investments at 31 October 2012 comprised money market funds and OEIC's.

31 October 201231 October 2011
£'000£'000
Money Market funds 4,275 5,907
OEIC's 3,771 3,607
8,046 9,514

All current asset investments held at the period end sit with the level 1 hierarchy for the purposes of FRS 29.

Level 1 money market funds and OEICs: Level 1 valuations are based on quoted prices (unadjusted) in active markets for identical assets or liabilities. The valuation of money market funds and OEIC's at 31 October 2012 was £8,046,000 (31 October 2011: £9,514,000).

12.        Creditors: amounts falling due within one year

31 October 201231 October 2011
£'000£'000
Accruals 42 116
Other creditors - 14
42 130

13.        Share capital

31 October 201231 October 2011
£'000£'000
Authorised:
50,000,000 ordinary shares of 10p 5,000 5,000
Allotted and fully paid up:
14,899,391 (2011: 13,678,528) ordinary shares of 10p 1,490 1,368

The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page X.  The Company is not subject to any externally imposed capital requirements.

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 X of this report. The capital being managed includes equity and fixed-interest investments, cash balances and liquid resources including debtors and creditors.

The Company issued 1,291,193 ordinary shares during the period at a price of 97.6p per share (2011: 13,678,528 at a price of 100p per share). The share premium arising on these shares totalled £1,061,085, and the company incurred total share issue costs of £70,000.

The Company repurchased the following Ordinary shares for cancellation (2011: nil shares):

             ·                    2 March 2012: 70,330 at a price of 92.5p per share

14.        Reserves

Share Premium
£'000
Special distributable reserve
 £'000
Capital reserve gains/ (losses) on disposal £'000Capital reserve holding gains/ (losses)
£'000
Capital redemption reserve
£'000
Revenue reserve
£'000
Balance as at 1 November 201111,559-(97)*7-(177)*
Return on ordinary activities after tax - - - - - (266)
Purchase of own shares - (65) - - 7 -
Issue of Equity 1,061
Management fees allocated as capital expenditure - - (184) - - -
Current year loss on disposal -  Fixed assets - - (4) - - -
Current period holding losses - Fixed assets - - - (353) - -
Current period holding gains - Current assets - - - 164 - -
Prior year gains on disposal - - - - - -
Transfer between reserves (11,558) 11,558 - - - -
Balance as at 31 October 20121,06211,493*(285)*(182)7(443)*

*Reserves considered when calculating potential distribution by way of a dividend.

When the Company revalues its investments during the period, any gains or losses arising are credited/ charged to the income statement.  Holding gains/losses are then transferred to the 'capital reserve - holding gains/(losses)'.  When an investment is sold, any balance held on the 'capital reserve - holding gains/(losses)' is transferred to the 'capital reserve - gains/(losses) on disposal' as a movement in reserves.

Due to the loss for the period, and the absence of capital gains on disposal at the balance sheet date, the company has no reserves which can be distributed by way of a dividend.

Reserves available for potential distribution by way of a dividend are:

 £'000
As at 1 November 2011 -
Movement in year 10,765
As at 31 October 201210,765

This is the minimum value of reserves available for potential distribution, which will be impacted by the future realisibility, into cash, of gains and losses included in the Capital Holding reserve.

The purpose of the special distributable reserve is 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.

The transfer between reserves relates to the court approved cancellation of share premium account on 23 November 2011.

15.        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 October 2012.

31 October 201231 October 2011
£'000£'000
Assets at fair value through profit or loss
Fixed asset investments 3,353 305
Current asset investments 8,046 9,514
Total11,3999,819
Cash and receivables
Cash at bank 1,459 2,936
Other debtors 9 15
Disposal proceeds 229 14
Total1,6972,965
Liabilities at amortised cost
Accruals 42 130
Total42130

Fixed asset investments (see note 9) 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 X. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed with regard to the possible effects of adverse price movements and, with the objective of maximising overall returns to shareholders. Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board.

Details of the Company's investment portfolio at the balance sheet date are set out on pages X and X.  An analysis of investments is given in note 9.

25.5% (2011: 2.4%) by value of the Company's net assets comprises investments in unquoted companies held at fair value.  The valuation methods used by the Company include the application of a price/earnings ratio derived from listed companies with similar characteristics, and consequently the value of the unquoted element of the portfolio can be indirectly affected by price movements on the London Stock Exchange. A 5% overall increase in the valuation of the unquoted investments at 31 October 2012 would have increased net assets and the total return for the period by £168,000 (2011: £15,000). An equivalent change in the opposite direction would have reduced net assets and the total return for the period by the same amount.  

61.2% (2011: 75.2%) by value of the Company's net assets comprises of OEICs and money market funds held at fair value.  A 5% overall increase in the valuation of the OEICs and money market funds at 31 October 2012 would have increased net assets and the total return for the period by £402,000 (2011: £476,000). An equivalent change in the opposite direction would have reduced net assets and the total return for the period by the same amount. 

The Investment Manager considers that the majority of the investment valuations are based on earnings multiples which are ascertained with reference to the individual sector multiple or similarly listed entities. It is considered that due to the diversity of the sectors, the 5% sensitivity discussed above provides the most meaningful potential impact of average multiple changes across the portfolio.

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.

Fixed rate
The table below summarises weighted average effective interest rates for the fixed interest-bearing financial instruments:

As at 31 October 2012As at 31 October 2011
Total fixed rate
portfolio by value £'000
Weighted average
interest rate %
Weighted average time for which rate is fixed in yearsTotal fixed rate
portfolio by value £'000
Weighted average
interest rate %
Weighted average time for which rate is fixed in years
Fixed-rate investments in unquoted companies 542 0% 3.0 - - -

Due to the relatively short period to maturity of the fixed rate investments held within the portfolio, it is considered that an increase or decrease of 1% in the base rate 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 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 October 2010. The amounts held in floating rate investments at the balance sheet date were as follows:

31 October 2012
£'000
31 October 2011
£'000
Cash on deposit & money market funds 5,734 8,843

A 1% increase in the base rate would increase income receivable from these investments and the total return for the period by £57,340.

Credit risk
There were no significant concentrations of credit risk to counterparties at 31 October 2012.  By cost, no individual investment exceeded 5.6% of the Company's net assets at 31 October 2012 (2011: 2.4%).

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 October 2012 the Company's financial assets exposed to credit risk comprised the following:

31 October 201231 October 2011
£'000£'000
Cash on deposit & money market funds 5,734 8,843

Credit risk relating to listed money market funds is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by the UK Government and major UK companies and institutions. Credit risk relating to loans to and preference shares in unquoted companies is considered to be part of market risk. 

The investments in money market funds and OEICs are uncertified.

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. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. Should the credit quality or the financial position of HSBC deteriorate significantly, the Investment Manager will move the cash holdings to another bank.

Liquidity risk
The Company's financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally may be illiquid. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. 

The Company's listed money market funds are considered to be readily realisable as they are of high credit quality as outlined above. 

The Company's liquidity risk is managed on a continuing basis by the Investment Manager in accordance with policies and procedures laid down by the Board. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. 

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.  At 31 October 2012 these investments were valued at £9,505,000 (2011: £9,514,000).

16.        Post balance sheet events
There have been no material events between the balance sheet date and the signing of these financial statements.

17.        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 £60,000 (2011: £nil) was paid during the period and there was £15,000 (2011: £24,000) outstanding at the period end.

There were no contingencies, guarantees or financial commitments as at 31 October 2012 or 31 October 2011.

18.        Transactions with Manager
The Company has employed Octopus throughout the period as Investment Manager.  The Company has paid Octopus £310,000 (2011: £129,000) in the period as a management fee and there is £68,000 (2011: £nil) in prepayments 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 October.   

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 October.  During the period £48,000 (2011: £19,000) was paid to Octopus and there is £10,000 (2011: £nil) in prepayments at the balance sheet date for the accounting and administrative services. In addition, Octopus also provides secretarial services for a fee of £10,000 per annum.  During the year there was £4,000 (2011: £nil) in prepayments at the balance sheet date.

Octopus is entitled to performance related incentive fees. The incentive fees are designed to ensure that there are significant tax-free dividend payments made to Shareholders as well as strong performance in terms of capital and income growth, before any performance related incentive fee payment is made. Therefore, only if by the end of a financial year (commencing no earlier than close of the 2014 financial year), declared distributions per Share have reached 40p in aggregate and if the Performance Value at that date exceeds 130p per Share, a performance incentive fee equal to 20% of the excess of such Performance Value over 100p per Share will be payable to Octopus.

If, on a subsequent financial year end, the Performance Value of the Company falls short of the Performance Value on the previous financial year end, no incentive fee will arise. If, on a subsequent financial year end, the performance exceeds the previous best Performance Value of the Company, the Investment Manager will be entitled to 20% of such excess in aggregate.

No performance fee has been recognised for the period ended 31 October 2012 on the basis that the directors consider that the liability becomes due at the point that the performance criteria are met; this has not been achieved and therefore no liability has been recognised.

19.        Related Party Transactions
Chris Hulatt, a non-executive director of Octopus Titan VCT 5 plc during the period ended 31 October 2012 until his resignation on 9 January 2012 was also a Director of Octopus Investments Limited. Jo Oliver, a Director of Octopus Investments Limited, was appointed as a non-executive director of Octopus Titan VCT 5 plc on 9 January 2012. 

Stefan Cassar, a Director of the Company is also the Chairman of Amplience Limited, a company in which Titan 5 has invested.




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Source: Octopus Titan VCT 5 PLC via Thomson Reuters ONE

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