Octopus Titan VCT 3 PLC : Octopus Titan VCT 3 PLC : Final Results Octopus Titan VCT 3 plc Final Results 23 January 2013 Octopus Titan VCT 3 plc ("Titan"), 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 23 January 2013. You may, in due course, view the Annual Report in full at www.octopusinvestments.com Octopus Titan VCT 3 plc Registered Number: 06523078 Financial Summary As at As at 31 October 2012 31 October 2011 Net assets (£'000s) 25,034 18,811 Return on ordinary activities after tax 5,264 (780) (£'000s) Net asset value (NAV) per share 116.4p 92.9p Cumulative dividends paid since launch 1.0p - NAV plus cumulative dividends paid to 31 117.4p 92.9p October 2012 Special Dividend proposed 20.0p - Chairman's Statement I am pleased to present the annual results for Octopus Titan VCT 3 plc (the 'Company' or the 'Fund') for the year ended 31 October 2012. Performance During the year the Total Return of the Company, being the Net Asset Value (NAV) plus cumulative dividends paid, has increased significantly from 92.9 pence per share to 117.4 pence per share, representing an increase of 24.5 pence per share or a 26.4% growth in value. This appreciation reflects the overall performance of the investment portfolio, and particularly the strong performance from four companies in the portfolio. As the portfolio starts to mature, it is encouraging to see strong performance from a handful of companies and the impact they have had on increasing the NAV. As the Fund develops and matures further, we anticipate further growth in the portfolio value delivered by other companies which are currently at an earlier stage in their development. By value, 84.3% of the Company's net assets were in unquoted investments, 2.1% in AIM-quoted investments and 13.6% in Octopus Open Ended Investment Companies (OEICs), money market funds, cash and debtors, less creditors. The Fund's holding in Nature Delivered was realised after the year end on 30 November 2012. This yielded £5,884,000 for the Fund of which £3,764,000 was paid in cash and £2,120,000 was reinvested. The overall exit price represents a return of a significant multiple on the cost of the Fund's investment in Nature Delivered. Dividend and Dividend Policy It remains your Board's objective to maintain a regular dividend whilst retaining the appropriate level of liquidity in the Company. As a result of realisations, notably that of Nature Delivered, and the overall performance of the investment portfolio during the year, your Board has declared a special dividend of 20.0 pence per share. Therefore, total dividends paid in the year will be 21.0 pence per share. The special dividend will be paid on 28 March 2013 to those shareholders who are on the register on 11 January 2013. The payment date has been amended from the original date of payment in order to give shareholders more time to apply to reinvest their special dividend. Given the size of the special dividend, the Board is hoping to offer shareholders the facility to re-invest their cash dividend in to new shares of the Company. Further details of this will be sent to you shortly. Investment Portfolio Over the year, the portfolio has seen an overall increase in fair value of £6,356,000 which is largely attributable to substantial increases in fair value in Nature Delivered, Secret Escapes, Zoopla, Calastone and TouchType totalling £7,441,000. However, elsewhere in the portfolio there have been decreases in fair value. Diverse Energy, Elonics and AQS Holdings have been written down to nil value representing a reduction in fair value of £487,000 during the year. In addition, Vega-Chi, Michelson Diagnostics and Applied Superconductor having suffered a combined decrease in fair value of £886,000 in the year. Given that the Fund's portfolio had been largely formed by the start of the year, the Investment Manager's focus has been to develop and nurture the existing portfolio. This included making 13 follow-on investments amounting to £2,786,000, of which the largest investments were made in to Secret Escapes, Certivox and Semafone totalling £1,452,000. During the year the Fund disposed of 31.4% of its holding in Zoopla, receiving proceeds of £361,000 on an investment cost of £210,500 and therefore realising a gain of £150,000. The Company also disposed of its entire holding in Evi Technologies which incurred a small loss of £16,000. Top-up and Buybacks As I mentioned in my interim report, the Company successfully raised £1,215,000, net of costs, through a 'top-up' offer which was fully subscribed. The majority of these funds are being used to support existing portfolio companies where the Investment Manager sees the opportunity for building further value. 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 48,975 shares which reduced the share capital by £5,000. Further details can be found in Note 14 of the accounts. In common with many other VCTs, and as recently announced, your Board has decided to reduce the discount to NAV at which it will repurchase shares from 10% to 5%. Open Ended Investment Companies (OEICs) The Fund has maintained a holding in the Micro Cap Growth Fund which has also continued to perform well, ending the year £854,000 above its original cost. The strategy of investing in OEICs has helped compensate for the low return received on uninvested cash which was particularly important during the early life of the Company. Your Board believes that it remains a sensible strategy to maintain part of the Fund's non-qualifying portfolio in OEICs given their potential to achieve greater returns as compared to cash deposits. Further details of the Micro Cap Growth Fund may be found at www.octopusinvestments.com where monthly factsheets are published. Investment Strategy The investment strategy in respect of the non-qualifying portfolio will continue to be monitored by your Board. As was envisaged in the Company's prospectus, between 15% and 25% of the Company's assets will be retained as non-qualifying to provide liquidity for follow-on investments in the existing portfolio. Some of the portfolio companies will require further rounds of investment where the investments may not be qualifying for VCT purposes. However, your Board believes that there will be circumstances where it will be in our shareholders' interests to continue to invest, not least to avoid dilution and to protect shareholder value. 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 now is to maintain the 70% qualifying investment level. As at 31 October 2012, 91.37% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments. Annual General Meeting The VCT's Annual General Meeting will take place on 14 March 2013 at 3.30 p.m. I look forward to welcoming you to the meeting which will be held at the offices of Octopus Investments Limited, at 20 Old Bailey, London, EC4M 7AN. Outlook The economic climate remains uncertain with little visibility on when the UK economy will return to reasonable growth. Inevitably, there have been continuing challenges for small companies exposed to the UK marketplace not least because of the increased pressure on working capital. While several companies have not achieved their expectations, in part due to the weak markets, others have exceeded their original business plans and some of these are starting to deliver significant value. The Investment Manager strives to improve the performance of the weaker performing companies through the introduction of new management and, where appropriate, follow-on funding. However, priority will be given to those companies that are performing well and have the prospect of delivering the most value to the portfolio. Some of that strong performance has been demonstrated in the significant uplift in NAV over the last year, and more is expected as the portfolio continues to mature. Mark Hawkesworth Chairman 23 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 upheaval, we consider it particularly important to be in regular contact with our investors and are working hard to manage your money in the current climate. Octopus 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 Summary 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 the Company making a typical initial deal size of £0.5 million to £1 million and will continue to comprise 20-25 unquoted companies, predominantly focussed within the following sectors: oEnvironment oTechnology oMedia oTelecoms oConsumer lifestyle and well-being sectors. 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 has 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 are able to be innovative in mature markets. We have created a balanced investment portfolio spanning multiple industries and business sectors. Having reached the level of invested funds required by HMRC, our focus has now shifted to managing the portfolio and developing capital growth. The current portfolio of holdings built by the Company now encompasses investments in 24 unquoted companies and one AIM-quoted company in a range of sectors. As Investment Manager, we have typically purchased a significant minority equity stake in these qualifying companies, providing financial capital to each business to build and grow its operations and then usually to sell to an acquirer at some point in the future. These entrepreneurial early stage businesses frequently face challenges as they seek to establish themselves in their market, often developing new products and services. 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 these businesses will typically be reduced in value prior to our making a further investment where we still believe that there is a promising opportunity, and to allow them to progress forward and prove their business model. 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. We maintain liquidity in the Company to ensure adequate resources are available to support further portfolio funding needs as they arise. This situation should be further aided following the Top-up as described in the Chairman's Statement and it is an important feature of our model in delivering returns to shareholders. Portfolio Review As at 31 October 2012, the Total Return (being the net asset value plus the cumulative dividends) of the Company was 117.4p per share compared to 92.9p per share at 31 October 2011. This represents a considerable gain of 26.4%. The performance of the portfolio was excellent during the year with a number of notable uplifts in fair value contributing to this large appreciation in the value of the fund. The Company now holds 91.37% of its assets in qualifying holdings from an HMRC perspective and we continue to work with each portfolio business as they develop capital growth in their respective markets. As Investment Manager, it is our continued intention to invest more into those businesses in which we first invested a small amount of money as they meet or exceed the initial milestone objectives we agreed with them. This approach can be demonstrated through 13 follow on investments being made totalling £2.8m. There were no new investments during the year as the focus has been to develop the established diverse portfolio. Investment highlights As mentioned above, the portfolio has excelled during the year with significant uplifts in fair value in a number of companies. The top performing portfolio businesses are from a range of sectors and experienced notable growth as shown in the below table. Company Industry Cost, £'000 Uplift in year, Effect of uplift £'000 on NAV, p Nature Consumer lifestyle 4,180 Delivered & wellbeing 798 19.44 Limited Secret Consumer lifestyle 1,288 Escapes & wellbeing 1,265 5.99 Limited Zoopla Media 1,335 Limited 459 6.21 Calastone Technology Limited 1,265 260 1.21 7,063 3,787 32.85 We continue to have one quoted investment, e-therapeutics, which has performed well in the year with an increase in fair value of £114,000 giving rise to an increase in NAV of 0.5p per share. Realisations in the year The fund successfully disposed of 31.4% of its holding in Zoopla during the year, realising a gain of £150,000 on an investment cost of £210,500, rendering the investment a success. The Company also fully disposed of Evi Technologies recognising a small loss of £16,000. Post year end Since the balance sheet date, although no new investments have been made, the Company has continued to support investee companies by investing a further £242,000 into Calastone, £109,000 into Bowman Power and £74,000 into Vega-Chi. In addition, the Company disposed of its holding in Nature Delivered Limited for £5,884,000 of which £3,764,000 was paid in cash and £2,120,000 was reinvested. 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 the pressure of tough trading conditions and tight working capital. It remains unclear when the timing of 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 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 23 January 2013 Investment Portfolio Movement % Movement in % equity in Fair valuation voting held by Investment valuation value in year rights all cost as at to 31 at 31 to 31 held funds 31 October October October October by managed Fixed asset 2012 2012 2012 2012 Titan by investments Sector (£'000) (£'000) (£'000) (£'000) 3 Octopus Nature Delivered Consumer lifestyle Limited & wellbeing 798 5,086 5,884 4,180 7.53 32.02 Secret Escapes Consumer lifestyle Limited & wellbeing 1,265 1,374 2,639 1,288 7.93 17.44 Zoopla Limited Media 459 2,044 2,503 1,335 0.85 5.15 Calastone Limited Technology 1,265 521 1,786 260 10.81 34.1 Certivox Limited Technology 950 22 972 6 12.64 33.08 TouchType Limited Telecommunications 384 544 928 379 4.20 20.07 Semafone Limited Telecommunications 826 72 898 72 7.24 46.64 Mi Pay Limited Telecommunications 848 (99) 749 160 8.49 28.3 Executive Channel Europe Limited Media 640 61 701 - 7.29 36.12 Surrey Nanosystems Limited Technology 621 43 664 43 6.18 24.55 Metrasens Consumer lifestyle Limited & wellbeing 465 171 636 127 6.68 28.01 GetOptics Consumer lifestyle Limited & wellbeing 507 73 580 163 5.75 21.88 e-Therapeutics Consumer lifestyle plc & wellbeing 402 120 522 114 1.1 8.23 Ultrasoc Technologies Limited Technology 492 - 492 - 10.69 65.21 Amplience Limited Technology 700 (261) 439 - 12.12 63.13 Vega-Chi Limited Technology 641 (296) 345 (296) 6.94 20.92 Bowman Power Limited Environmental 312 (42) 270 (70) 2.69 15.55 Michelson Diagnostics Consumer lifestyle Limited & wellbeing 442 (221) 221 (221) 5.62 42.87 Phase Vision Limited Technology 475 (330) 145 (164) 10.09 42.96 PrismaStar Inc. Media 425 (301) 124 (150) 4.95 33.02 Applied Superconductor Limited Environmental 493 (370) 123 (370) 7.96 24.22 Phasor Solutions Limited Technology 50 (37) 13 (13) 0.62 23.5 AQS Holdings Limited Environmental 660 (660) - (364) 14.2 50.7 Diverse Energy Limited Environmental 414 (414) - (47) 5.47 29.76 Elonics Limited Technology 306 (306) - (76) 3.11 19.54 Total fixed asset investments 14,840 6,794 21,634 6,356 Money market funds 603 - 603 - Open ended investment companies 1,268 853 2,121 178 Cash at bank 34 - 34 - Total investments 16,745 7,647 24,392 6,534 Debtors less creditors 642 Total net assets 25,034 Valuation Methodology Initial measurement Financial assets are measured at fair value. The initial best estimate of the 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 31 October 2012, 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. Quoted investments are valued at market bid price. No discounts are applied. If you would like to find out more regarding the IPEVC valuation guidelines, please visit their website at: www.privateequityvaluation.com. Review of Investments During the year, the Company made thirteen follow-on investments amounting to £2,786,000. The AIM-quoted and unquoted investments are in Ordinary shares with full voting rights as well as loan note securities. Quoted and unquoted investments are valued in accordance with the accounting policy set out in note 1 to the financial statements, 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. The valuations listed are a reflection of the total investment i.e. both the equity and loan note elements. Listed below are details of the Company's 10 largest investments by value. Nature Delivered Limited Graze.com delivers tasty nutritious snacks to grazers up and down the country. All boxes are hand picked from over 100 delicious snacks and delivered in the post. Founded in 2007 and launched in 2009, graze.com was created to solve office snacking for the better. Delivered directly to customers' desks or home anywhere in the UK through Royal Mail, each graze box is packed with four snacks, from flavoured nuts, traditional rice crackers and exotic dried fruits to freshly baked bread, marinated olives and dips. Grazers choose the foods they like then graze.com hand picks the perfect box and sends it to them for just £3.49, including delivery using Royal Mail.The boxes fit perfectly through the letter box and arrive with the rest of your post, they are being delivered everywhere in the UK, from the Channel Islands to the Shetland Islands. Initial investment date: June 2009 Cost: £798,000 Valuation: £5,884,000 Voting rights held by Fund: 7.53% Equity held by all funds managed by Octopus: 32.02% Last submitted audited accounts: 28 February 2012 Turnover £20,929,775 Profit before tax: £3,335,215 Net assets: £5,758,161 Secret Escapes Limited Launched in February 2011, Secret Escapes is an online travel club that offers its members exclusive discounts of up to 70 per cent on luxury hotels and holidays. Offers are usually available for between three and seven days. The founders are aiming for Secret Escapes to become the leading luxury holiday deal provider in the UK. Initial investment date: April 2011 Cost: £1,265,000 Valuation: £2,639,000 Voting rights held by Fund: 7.93% Equity held by all funds managed by Octopus: 17.44% Last submitted audited accounts: 31 December 2011 Turnover : £2,035,803 Loss before tax: (£1,235,506) Net assets: £2,126,845 Zoopla Property Group Limited Zoopla Property Group Ltd owns and operates some of the UK's leading online property brands including Zoopla.co.uk and Primelocation.com. Over 16,000 estate agent and lettings agent branches across the UK advertise on the company's websites each month, in addition to all the leading new homes developers, attracting over 28 million visitors a month and generating over 2 million enquiries per month for the member estate/letting agents and property developers. In addition to operating its own websites, Zoopla Property Group Ltd exclusively powers the property search facility on a number of the UK's biggest websites including The Times, The Telegraph, Independent, Evening Standard, The Daily Mail, Homes & Property, AOL, MSN, Globrix, Homes24 and many more. Zoopla Property Group Ltd launched in 2008 and has since acquired and integrated a number of brands. Zoopla Property Group Ltd is a privately held company whose shareholders include A&N Media (a division of the Daily Mail and General Trust) as well as the Octopus Investments managed funds, and has a highly-experienced management team, led by Founder & CEO, Alex Chesterman. Initial investment date: January 2009 Cost: £459,000 Valuation: £2,503,000 Voting rights held by Fund: 0.85% Equity held by all funds managed by Octopus: 5.15% Last submitted audited accounts: 31 December 2011 Turnover £13,816,236 Loss before tax: (£890,030) Net assets: £2,811,549 Calastone Limited Calastone is the UK's only independent transaction service for the mutual fund industry. It enables buyers and sellers of mutual funds on different platforms to communicate orders electronically, by providing a universal message communication and 'translation' service - the "Calastone Transaction Network" (CTN). This is being welcomed in an industry which has not previously been able to invest in the real-time exchange of information between participants. Orders are commonly communicated by fax or telephone with a high level of manual re-keying and manual error correction. Calastone's 'translation' service means that neither the transmitter nor receiver need to purchase additional technology or change their existing systems. Initial investment date: October 2008 Cost: £1,265,000 Valuation: £1,786,000 Voting rights held by Fund: 10.81% Equity held by all funds managed by Octopus: 34.10% Last submitted audited accounts: 30 September 2011 Turnover £3,324,658 Loss before tax: (£435,182) Net assets: £1,051,426 CertiVox Limited CertiVox was founded in 2009 based on the simple belief that everyone deserves the right to secure their online information exchanges simply and easily. Its leading-edge technology enables industries around the world - including defence, government, legal and financial services - to protect and control their information exchanges, whether through PCs, smart devices or the cloud. By combining state-of-the-art crypto technology with its unique on-demand encryption key management service, CertiVox is the only company in the global market today that can arm businesses and individuals with frictionless end-to-end encryption, key management and identity management services for the web 2.0 world. Initial investment date: March 2011 Cost: £950,000 Valuation: £972,000 Equity held: 12.64% Equity held by all funds managed by Octopus: 33.08% Last submitted audited accounts: 30 June 2011 Turnover : NA Net assets: £1,720,269 TouchType Limited TouchType is a leader in the development of artificial intelligence and machine learning technologies, encapsulated in its Fluency prediction engine, a patent pending set of software algorithms. Its first product, SwiftKey(TM), a text prediction technology designed to significantly boost the accuracy, fluency and speed of text entry on mobile and computing devices, resulting in users having to make less than half the number of keystrokes compared to a standard QWERTY keyboard. SwiftKey(TM) has enjoyed tremendous success as both an Android App, with over 10 million downloads to date, and as the installed text prediction technology on a increasing range of smartphones and tablets. It has won several high profile industry awards, including a prestigious Global Mobile Award for the "Most Innovative App" and the Guardian Digital Innovation Award for the "Best Startup Business". Initial investment date: August 2010 Cost: £384,000 Valuation: £928,000 Voting rights held by Fund: 4.20% Equity held by all funds managed by Octopus: 20.07% Last submitted group accounts: 31 December 2011 Turnover : £654,623 Loss before tax: (£1,285,798) Net assets: £1,005,210 Semafone Limited 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: June 2010 Cost: £826,000 Valuation: £898,000 Voting rights held by Fund: 7.24% 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) Mi-Pay Limited Mi-Pay was founded in 2004 with its objective to establish itself as a leading processor of payments for the fast-emerging mobile money sector. The service enables customers to 'top-up' their pre-paid mobile phone directly online, or via their mobile phone, rather than using indirect brand channels such as PayPoint or bank ATMs. Benefits of the direct service include cost reductions for mobile network operators and a more personal engagement with customers, removing the anonymity of customer relationships and allowing for substantial improvements in customer retention. Mi-Pay continues to make progress in a very dynamic and fast moving market, most recently agreeing terms with several tier one European, Middle Eastern and African mobile operators to provide its direct top up service. Initial investment date: February 2010 Cost: £848,000 Valuation: £749,000 Voting rights held by Fund: 8.49% Equity held by all funds managed by Octopus: 28.3% Last submitted group accounts: 31 December 2011 Turnover £2,401,949 Loss before tax: (£2,781,342) Net assets: £1,069,602 Executive Channel Europe Limited Executive Channel installs digital display screens in office buildings which it uses to display advertising, up-to-date news and information, via the internet. These screens are usually located in the elevator lobby to engage an exclusive audience with high spending power in an uncluttered environment. Executive Channel is leveraging the industry move in the media market from static billboards to interactive digital formats. Initial investment date: September 2010 Cost: £640,000 Valuation: £701,000 Voting rights held by Fund: 7.29% Equity held by all funds managed by Octopus: 36.12% Last submitted group accounts: 30 June 2011 Turnover 293,292 Loss before tax: (£900,612) Net assets: £1,746,998 Surrey NanoSystems Limited Surrey NanoSystems has developed a leading technology portfolio addressing the needs of the global nanoelectronics sector. Its proven technologies deliver precise, ordered nano-material structures for advanced manufacturing processes, meeting the scaling challenges of the semiconductor industry. Surrey NanoSystems works with its partners to deliver practical nano-materials and technologies to the semiconductor, renewable-energy and clean technology industries. This partnering approach facilitates the migration of materials and processes developed on Surrey NanoSystems bespoke research platforms to production-ready tooling. Initial investment date: July 2009 Cost: £621,000 Valuation: £664,000 Voting rights held by Fund: 6.18% Equity held by all funds managed by Octopus: 24.55% Last submitted group accounts: 30 June 2011 Turnover not disclosed Loss before tax: not disclosed Net assets: £941,229 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 £0.25 million to £1 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 Company 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 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 Standard 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 Mark Hawkesworth Chairman 23 January 2013 Income Statement Year to 31 October 2012 Revenue Capital Total Notes £'000 £'000 £'000 Gain on disposal of fixed asset investments 10 - 154 154 Loss on disposal of current asset investments - 81 81 Fixed asset investment holding losses 10 - 6,356 6,356 Current asset investment holding gains - 178 178 Other income 2 99 - 99 Investment management fees 3 (94) (282) (376) Performance fee incentive 19 - (937) (937) Other expenses 4 (291) - (291) Return on ordinary activities before tax (286) 5,550 5,264 Taxation on return on ordinary activities 6 - - - Return on ordinary activities after tax (286) 5,550 5,264 Earnings per share - basic and diluted 8 (1.4)p 26.5p 25.1p oThe '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. oAll revenue and capital items in the above statement derive from continuing operations. oThe 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 Year to 31 October 2011 Revenue Capital Total Notes £'000 £'000 £'000 Loss on disposal of current asset investments - (2) (2) Fixed asset investment holding losses - (597) (597) Current asset investment holding gains - 373 373 Other income 2 101 - 101 Investment management fees 3 (98) (294) (392) Other expenses 4 (263) - (263) Return on ordinary activities before tax (260) (520) (780) Taxation on return on ordinary activities 6 - - - Return on ordinary activities after tax (260) (520) (780) Loss per share - basic and diluted 8 (1.3)p (2.6)p (3.9)p oThe '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. oAll revenue and capital items in the above statement derive from continuing operations. oThe 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 year 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 October 2012 31 October 2011 £'000 £'000 Shareholders' funds at start of year 18,811 19,607 Return on ordinary activities after tax 5,264 (780) Net proceeds of share issue 1,215 - Purchase of own shares (41) (16) Dividends paid (215) - Shareholders' funds at end of year 25,034 18,811 The accompanying notes form an integral part of the financial statements. Balance Sheet As at 31 October As at 31 October 2012 2011 Notes £'000 £'000 £'000 £'000 Fixed asset investments* 10 21,634 14,129 Current assets: Debtors 11 1,629 123 Money market funds and other deposits* 12 2,724 4,493 Cash at bank 34 115 4,387 4,731 Creditors: amounts falling due within one year 13 (987) (49) Net current assets 3,400 4,682 Net assets 25,034 18,811 Called up equity share capital 14 2,150 2,025 Share premium 15 1,085 - Special distributable reserve 15 16,883 17,139 Capital reserve - losses on disposals 15 (1,642) (534) - holding gains 15 7,648 990 Capital redemption reserve 15 7 2 Revenue reserve 15 (1,097) (811) Total equity shareholders' funds 25,034 18,811 NAV per share 9 116.4p 92.9p * Held at fair value through profit or loss The statements were approved by the Directors and authorised for issue on 23 January 2013 and are signed on their behalf by: Mark Hawkesworth Chairman Company No: 06523078 The accompanying notes form an integral part of the financial statements. Cash Flow Statement Year to Year to 31 October 2012 31 October 2011 Notes £'000 £'000 Net cash outflow from operating activities (662) (650) Capital expenditure and financial investment: Purchase of fixed asset investments 10 (2,786) (6,990) Sale of fixed asset investments 10 380 225 Management of liquid resources: Purchase of current asset investments (1,696) (4,965) Disposal of current asset investments 3,724 12,352 Taxation - - Dividends paid 7 (215) - Financing: Issue of own shares 14 1,215 - Purchase of own shares 14 (41) (16) Decrease in cash resources at bank (81) (44) 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 Year to 31 2012 October 2011 £'000 £'000 Return on ordinary activities before tax 5,264 (780) (Gain) on disposal of fixed asset investments (154) - (Gain)/loss on disposal of current asset investments (81) 2 (Gain)/loss on valuation of fixed asset investments (6,356) 597 Gain on valuation of current asset investments (178) (373) Increase in debtors (91) (64) Increase/(decrease) in creditors 938 (32) Outflow from operating activities (662) (650) Reconciliation of Net Cash Flow to Movement in Net Funds Year to Year to 31 October 2012 31 October 2011 £'000 £'000 Decrease in cash resources at bank (81) (44) Movement in cash equivalents (1,769) (7,016) Opening net funds 4,608 11,668 Net funds at 31 October 2,758 4,608 Net funds at 31 October comprised: Year to Year to 31 October 2012 31 October 2011 £'000 £'000 Cash at bank 34 115 OEICs 2,121 3,362 Money market funds 603 1,131 Net funds at 31 October 2,758 4,608 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). 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 16 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 (11% 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 principal accounting policies have remained unchanged from those set out in the Company's 2011 Annual Report and financial statements. A summary of the principal accounting policies is set out below. The Company presents its income statement in a three column format to give shareholders additional detail of the performance of the Company, split between items of a revenue or capital nature. The preparation of the financial statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments particularly 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 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 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 estimates 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 revaluation of investments at the year 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 and 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 option of the Company. The current asset investments are actively managed and the performance is evaluated in accordance with a documented investment strategy. Information about them has to be provided internally on that basis to the Board. Other income Investment income includes interest earned on bank balances and money market funds and includes income tax withheld at source. Dividend income is shown net of any related tax credit. Dividends receivable are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Fixed returns on debt and money market funds are recognised so as to reflect the effective interest rate; provided there is no reasonable doubt that payment will be received in due course. Expenses All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue with the exception of the investment management fee, which 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, and the performance fee which has been charged 100% to capital, as the fees relate to the gains made on fixed asset investments. The transaction costs incurred when purchasing or selling assets are written off to the Income Statement in the year that they occur. The performance, however, has been attributed fully to capital since it has arisen through capital growth of companies. Revenue and capital The revenue column of the income statement includes all income and revenue expenses of the Company. The capital column includes gains and losses on disposal and gains and losses arising from the revaluation of investments at the period end. 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 can be deducted. Cash and liquid resources Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), government securities, investment grade bonds and investments in money market funds, as well as OEICs. Loans and receivables The Company's loans and receivables are initially recognised at fair value which is normally transaction cost and subsequently measured at amortised cost using the effective interest method. Financing strategy and capital structure FRS 29 'Financial Instruments: Disclosures' comprise disclosures relating to financial instruments. We define capital as shareholders' funds and our financial strategy in the medium term is to manage a level of cash that balances the risks of the business with optimising the return on equity. The Company currently has no borrowings nor does it anticipate that it will drawdown any borrowing facilities in the future to fund the acquisition of investments. The Company does not have any externally imposed capital requirements. The value of the managed capital is indicated in note 14. 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 declared by the Board, and for final dividends when they are approved by the shareholders. 2. Other Income Year to Year to 31 October 2012 31 October 2011 £'000 £'000 Money market funds and OEICs 5 28 Loan note interest 94 73 99 101 3. Investment Management Fees Year to 31 October 2012 Year to 31 October 2011 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 94 282 376 98 294 392 For the purposes of the revenue and capital columns in the income statement, the management fee has been allocated 25% to revenue and 75% to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio. Octopus Investments provides investment management and accounting and administration services to the Company under a management agreement which runs for a period of five accounting periods with effect from 21 July 2008 and may be terminated at any time thereafter by not less than 12 months' notice given by either party. No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The basis upon which the management fee is calculated is disclosed within note 19 to the financial statements. 4. Other Expenses Year to Year to 31 October 2012 31 October 2011 £'000 £'000 Directors' remuneration 50 50 Fees payable to the Company's auditor for the 12 9 audit of the financial statements Fees payable to the Company's auditor for 2 2 other services - tax compliance Legal and professional expenses 1 3 Accounting and administration services 56 59 Trail Commission 83 62 Other expenses 87 78 291 263 Total annual running costs are capped at 3.2% of net assets (excluding irrecoverable VAT). For the year to 31 October 2012 the running costs, as defined in the prospectus, were 2.81% of net assets (2011: 3.1%). 5. Directors' Remuneration Year to Year to 31 October 2012 31 October 2011 £'000 £'000 Directors' emoluments Mark Hawkesworth (Chairman) 20 20 Tim Lebus 15 15 David Bundred 12 - Chris Hulatt (paid to Octopus Investments Limited) 3 15 50 50 None of the Directors received any other remuneration or benefit from the Company during the year. The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was three (2011: three). 6. Tax on Ordinary Activities The corporation tax charge for the year was £nil (2011: £nil) Factors affecting the tax charge for the current year: 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: Year to Year to 31 October 2012 31 October 2011 £'000 £'000 (Loss)/gain on ordinary activities before tax 5,264 (780) Capital gains not taxable (6,534) - (1,270) (780) Current tax at 24.83% (2011: 26.83%) (315) (209) Income not taxable for tax purposes - - Expenses not deductible for tax purposes - 69 Unrelieved tax losses 315 140 Total current tax charge - - Excess management charges of £2,292,000 (2011: £1,779,000) have been carried forward at 31 October 2012 and are available for offset against future taxable income subject to agreement with HMRC. The Company has not recognised the deferred tax asset of £536,000 (2011: £477,000) 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 maintain its approval as a VCT, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments. 7. Dividends Year to Year to 31 October 2012 31 October 2011 £'000 £'000 Recognised as distributions in the financial statements for the period Previous year's final dividend - - Current period's interim dividend 215 - 215 - Paid and proposed in respect of the period Interim dividend paid - 1.0p per share (2011: nil) 215 - Proposed Special dividend - 20.0p per share (2011: nil) 4,300 - 4,515 - The special dividend of 20.0p will be paid on 28 March 2013 to shareholders on the register on 11 January 2013. 8. Earnings per Share The total earnings per share are based on a total gain of £5,264,000 (2011: loss of £780,000) and 20,960,151 (2011: 20,255,857) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. The revenue earnings per share are based on a revenue loss of £286,000 (2011: loss of £260,000) and 20,960,151 (2011: 20,255,857) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. The capital earnings per share are based on a capital profit of £5,550,000 (2011: loss of £520,000) and 20,960,151 (2011: 20,255,857) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. There are no potentially dilutive capital instruments in issue and, therefore no diluted return per share figures are relevant. The basic and diluted earnings per share are therefore identical. 9. Net Asset Value per Share The calculation of NAV per share as at 31 October 2012 is based on net assets of £25,034,000 (2011: £18,811,000) and 21,497,993 (31 October 2011: 20,250,554) Ordinary shares in issue at that date. 10. 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. 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 or prior year. Level 3: the fair value of financial instruments that are not traded in an active market (for example investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. There have been no transfers between these classifications in the year (2011: nil). The change in fair value for the current and previous year is recognised through the income statement. All items held at fair value through profit or loss were designated as such upon initial recognition. Movements in investments at fair value through profit or loss during the year to 31 October 2012 are summarised below. Level 1: Level 3: AIM-quoted Unquoted investments investments Total investments 31 October 2012 31 October 2012 31 October 2012 £'000 £'000 £'000 Valuation and net book amount: Book cost as at 1 November 2011 402 13,938 14,340 Cumulative revaluation 7 (218) (211) Valuation at 1 November 2011 409 13,720 14,129 Movement in the year: Purchases at cost - 2,786 2,786 Disposal proceeds - (1,791) (1,791) Profit on realisation of investments - 154 154 Revaluation in year 113 6,243 6,356 Valuation at 31 October 2012 522 21,112 21,634 Book cost at 31 October 14,438 2012: 402 14,840 Revaluation to 31 October 6,674 2012: 120 6,794 Valuation at 31 October 2012 522 21,112 21,634 The investment portfolio is managed with capital growth as the primary focus. The loan and equity investments are considered as one instrument for valuation purposes due to the legal binding within the investment agreement and therefore they are combined in the table shown above. Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect fair value of financial assets held at the price of recent investment, or, in the case of unquoted investments, to adjust earnings multiples. Further details in respect of the methods and assumptions applied in determining the fair value of the investments are described in the Investment Manager's Review and within the principal accounting policies in note 1. The costs incurred in the disposals amount to £15,000. At 31 October 2012 and 31 October 2011 there were no commitments in respect of investments approved by the manager but not yet completed. 11. Debtors 31 October 2012 31 October 2011 £'000 £'000 Prepayments 126 123 Disposal proceeds 1,503 - 1,629 123 Disposal proceeds of £186,000 are due in more than one year. 12. Current Asset Investments Current asset investments at 31 October 2012 comprised money market funds and OEIC's. 31 October 2012 31 October 2011 £'000 £'000 Money Market funds 603 1,131 OEIC's 2,121 3,362 2,724 4,493 All current asset investments held at the year end sit within the level 1 hierarchy for the purposes of FRS29. 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 £2,724,000 (2011: £4,493,000). 13. Creditors: Amounts Falling Due Within One Year 31 October 2012 31 October 2011 £'000 £'000 Accruals 987 49 987 49 14. Share Capital 31 October 2012 31 October 2011 £'000 £'000 Authorised: 50,000,000 Ordinary shares of 10p 5,000 5,000 Allotted: 21,497,993 (2011: 20,250,554) Ordinary shares 2,150 2,025 of 10p (fully paid) 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 1,296,414 shares at a price of 99.1p during the year (2011: No shares were issued during the year). The Company repurchased the following Ordinary shares for cancellation (2011: 17,595 shares): 33,500 at a price of 83.5p per · 2 March 2012: share 15,475 at a price of 84.2p per · 30 April 2012 share 15. Reserves Share Capital Capital Capital Premium Special reserve reserve redemption distributable gains/(losses) holding reserve Revenue reserve on disposal gains/(losses) reserve £'000 £'000 £'000 £'000 £'000 £'000 As at 1 - 17,139* 2 (811)* November 2011 (534)* 990 Purchase of - (41) 5 - own shares - - Issue of 1,085 - - - Equity - - Return on - - - (286) ordinary activities after tax - - Management - - - fees allocated as capital expenditure - (1,219) - Current - - - - year gains on disposal - fixed assets 154 - Current - - - - year gains on disposal - current assets 81 - Holding - - - - gains on disposal (124) 124 Current - - - - year fair value gain - Fixed asstets - 6,356 Current - - - - year gain fair value gain - Current assets - 178 Dividends - (215) - - paid - - Balance as 1,085 16,883* 7 (1,097)* at 31 October 2012 (1,642)* 7,648 *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. Distributable Reserves: £'000 As at 1 November 2011 15,794 Movement in year (1,650) As at 31 October 2012 14,144 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 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 capital reserve gains/(losses) on disposal do not have sufficient funds to pay dividends, these will be paid from the special distributable reserve. 16. Financial Instruments and Risk Management The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying unquoted 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 2012 31 October 2011 £000 £000 Assets at fair value through profit or loss Fixed asset investments 21,634 14,129 Current asset investments 2,724 4,493 Total 24,358 18,622 Loans and receivables Cash at bank 34 115 Disposal proceeds 1,503 - Total 1,537 115 Liabilities at amortised cost Accruals 987 49 Total 987 49 Fixed asset investments (see note 10) 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. 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 to X. 84.3% (2011: 72.9%) 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 £1,056,000 (2011: £686,000). An equivalent change in the opposite direction would have reduced net assets and the total return for the period by the same amount. 10.9% (2011: 23.9%) 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 year by £136,000 (2011: £226,000). An equivalent change in the opposite direction would have reduced net assets and the total return for the year 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. 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 2012 As at 31 October 2011 Weighted Total fixed Weighted Total average rate Weighted average time fixed rate Weighted time for portfolio average for which rate portfolio average which rate by value interest is fixed in by value interest is fixed £'000 rate % years £'000 rate % in years Fixed-rate investments in unquoted companies 1,268 10% 2.8 297 12% 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% (2011: 0.5%) at 31 October 2012. The amounts held in floating rate investments at the balance sheet date were as follows: 31 October 2012 31 October 2011 £'000 £'000 Floating-rate investments in unquoted companies - 495 Cash on deposit & money market funds 603 1,247 603 1,742 A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £6,000 (2011: £17,000). Credit risk There were no significant concentrations of credit risk to counterparties at 31 October 2012. By cost, no individual investment exceeded 7.9% (2011: 9.1%) of the Company's net assets at 31 October 2012. Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date. At 31 October 2012 the Company's financial assets exposed to credit risk comprised the following: 31 October 2012 31 October 2011 £'000 £'000 Fixed-rate investments in unquoted companies 1,268 297 Floating-rate investments in unquoted companies - 495 Cash on deposit & money market funds 603 1,247 1,871 2,039 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 and BlackRock Inc. 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. They may also include investments in AIM-quoted companies, which by their nature; involve a higher degree of risk than investments on the main market. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. 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 £2,758,000 (2011: £4,608,000). 17. Post Balance Sheet Events The following events occurred between the balance sheet date and the signing of these financial statements: oOn 12 November 2012 a further £244,000 was invested into Calastone Limited. oOn 15 November 2012 a further £109,000 was invested into Bowman Power Limited. oOn 30 November 2012 Titan disposed of its holding in Nature Delivered Limited for £5,884,000 of which £3,764,000 was paid in cash and £2,120,000 was reinvested. oOn 9 January 2013 a further £74,000 was invested into Vega-Chi Limited. 18. 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 £83,000 was paid during the year (2011: £62,000) and there was £21,000 (2011: £21,000) outstanding at the year end. There were no further contingencies, guarantees or financial commitments as at 31 October 2012. 19. Transactions with manager Octopus Titan VCT 3 plc has paid Octopus Investments £474,000 (2011: £392,000) in the year as a management fee and there is £98,000 (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 Investments Limited also provides accounting, administrative and company secretarial 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 year £71,000 (2011: £59,000) was paid to Octopus Investments and there is £15,000 (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 £15,000 per annum. During the year there was £2,500 (2011: £nil) in prepayments at the balance sheet date. In addition, Octopus Investments 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. Included within accruals is a provision of £937,000 relating to a performance fee payable to the investment manager on achieving a Total Return of 130p and declaring dividends of 40p per share. At the year end, prior to recognising the performance fee, the Total Return is 120.8p per share and dividends declared amounted to 1p per share. The Board has decided to recognise a provision for the performance fee to reflect the cost of the fee in the period in which the fees were earned. The provision has been made on the basis that fund has a constructive obligation to shareholders to accrue the dividend once the Total Return is reached based on the dividends declared in comparable VCTs. In recognising this provision the Board has made a material estimate as to the probability of the fees becoming payable. The Board has considered the success of other VCTs managed by Octopus Investments Limited with a similar portfolio of investments. It is the Board's view that the performance of these more developed funds is evidence that the Total Return and dividend hurdles will be reached and therefore it has taken the decision to accrue the performance fee earned to date on a Total Return of 120.8 pence per share. If, on a subsequent financial year end, the Performance Value of Octopus the Company falls short of the Performance Value on the previous financial year end, no incentive fee will arise. If, on a subsequent financial period end, the performance exceeds the previous best Performance Value of Octopus the Company, the Investment Manager will be entitled to 20% of such excess in aggregate. 20. Related Party Transactions Chris Hulatt, a non-executive Director of Octopus Titan VCT 3 plc during the course of the year prior to his resignation, is a Director of Octopus Investments Limited. During the year, Tim Lebus became an observer on behalf of Octopus Investments Limited, the Investment Manager, to a number of Octopus Ventures investee companies. The Directors received the following dividends from the Company: 31 October 2012 31 October 2011 Mark Hawkesworth (Chairman) £106 £nil Tim Lebus £106 £nil David Bundred £nil £nil ------------------------------------------------------------------------------ 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 Titan VCT 3 PLC via Thomson Reuters ONE HUG#1672405
Octopus Titan VCT 3 PLC : Octopus Titan VCT 3 PLC : Final Results
Press spacebar to pause and continue. Press esc to stop.