Octopus Titan VCT 4 PLC : Octopus Titan VCT 4 PLC : Final Results Octopus Titan VCT 4 plc Final Results 25 January 2013 Octopus Titan VCT 4 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 4 plc Registered Number: 07035434 Financial Summary As at As at 31 October 2012 31 October 2011 Net assets (£'000s) 21,023 20,086 Return on ordinary activities after tax (296) (1,085) (£'000s) Net asset value (NAV) per share 87.7p 89.0p Chairman's Statement Introduction I am pleased to present the Annual Report of Octopus Titan VCT 4 plc (the "Company") for the year ended 31 October 2012. Performance During the year the Net Asset Value (NAV) of the Company has declined from 89.0 pence per share to 87.7 pence per share, a reduction of 1.5%. This decline is partly attributable to the unquoted investee company portfolio, where we have adopted a prudent approach to valuations, and also to the standard running costs of the Company that exceeded the income generated. The focus during the year was for the Company to continue to invest in a broad range of unquoted smaller UK companies with the potential to generate significant capital growth. This is discussed in the portfolio review. The requirement under the VCT rules to have 70% of the Company's assets represented by qualifying holdings by 31 October 2012 was achieved in good time. Such qualifying investments amounted to over 75.64%, as measured by HMRC rules, at the year end. Having now achieved this important milestone, the focus of the Company will be to develop the existing portfolio by making follow-on investments where investment companies have met their targets and exceeded expectations. The Company, however, has sufficient liquidity to invest into new companies should the right opportunity arise. Investment Portfolio The VCT made eight new investments during the year totalling £4.5 million in addition to making nine follow on investments amounting to £3.8 million in existing portfolio companies. The Investment Manager's Review on pages X to X discusses this activity in more detail. At 31 October 2012, the net assets of the Company were 63.8% in unquoted investments, 16.2% in Octopus Open Ended Investment Companies (OEICs) and 20.0% in cash or cash equivalents and debtors and creditors. Cash is invested in a range of money market funds that focus on capital preservation to fit with the Board's policy of preserving capital pending its deployment in Qualifying Investments. Secret Escapes and TouchType have seen significant increases in fair value of £1,288,000 and £379,000 respectively. There were, however, a number of companies which did not meet their targets or budgets and suffered decreases in fair value in keeping with our prudent approach to valuations. The overall uplifts in fair value exceeded the write downs resulting in a gain of £91,000 in the portfolio. 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. However, as the portfolio is developed and investments mature, a number of strong companies are expected to come through that will allow the NAV to grow in years to come. The earlier funds raised in the Titan portfolio have followed this pattern. Top-up and buybacks As mentioned in the interim report, the Company successfully raised £1,242,000 net of costs during the year which saw the Top-up offer fully subscribed. Following the success of the 2012 Top-up, the Board are in discussions to make a further offer of new shares alongside the other four Octopus Titan VCT's. We expect to write to you with further details in the near future. During the period, the company repurchased 11,125 shares. Further details can be found in Note 13 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 Company fully disposed of both the Absolute Return Fund and the Absolute European Fund during the year, realising gains of £129,000 and £6,000 respectively. Our remaining holdings are in Octopus UK Micro Cap Growth Fund, which saw an uplift in fair value of £183,000, and in the Foundation Fund which experienced an £11,000 decrease in fair value. The Board continues to monitor these funds and believes it remains a sensible strategy to maintain part of our non-qualifying portfolio in these OEICs due to their liquid status and potential to achieve greater returns compared with cash deposits. Further details of these OEICs may be found at www.octopusinvestments.com where monthly factsheets are available. Investment Strategy Your Board will continue to review the investment strategy in respect of the non-qualifying portfolio and investment of our cash resources). As envisaged in the Company's prospectus, between 15% and 25% of the assets of the Company will be retained for liquidity and follow-on investments. As our existing portfolio of unquoted companies starts to mature, many are likely to require further rounds of investment and, although some of these investments may be non-qualifying for VCT purposes, there will be circumstances in which it will be in our shareholders' interests to continue to invest, subject always to maintenance of the qualifying level of 70%. 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 approval as a VCT. Annual General Meeting I look forward to meeting shareholders at the 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 10.00 p.m. Regulation Proposal The Manager, on behalf of the Board, has been consulting with the Association of Investment Companies ('AIC') which has been leading discussions with the FSA on issues arising from their Consultation Paper CP12/19, which seeks to treat all VCTs as Unregulated Collective Investment Schemes (UCIS). It is widely understood that the FSA's current proposal wouldincludeVCTs under the promotion restrictions to ordinary retail investors. The VCT industry believes that VCTs should remain a viable source of funding for UK small businesses supported by ordinary retail investors. We believe they should be treated in the same way as Investment Trusts, which are excluded from the proposal, on the grounds that VCTs are also independent, listed companies governed by independent boards of directors. The Manager is working alongside the AIC to urge the FSA to ensure VCTs are excluded from the policy statement, which is expected in the second quarter 2013. Outlook There remains uncertainty surrounding the economic climate. As a result of the flat economy, there are ongoing challenges for small companies especially in relation to pressure on working capital. Having said this, many of our portfolio companies have continued to grow and have demonstrated an ability to adapt to a difficult economic environment. We continue to align our interests with those of the entrepreneurs in whose companies we have invested, with potential for revenue growth and profitability being our primary focus. We are confident that your Company has invested in the equity of a diverse range of early stage companies which have the potential of making significant returns for shareholders over the medium term. Gregor Michie 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 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 20-30 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 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. Having now reached the level of invested funds required by HMRC, our focus will now shift to managing the portfolio and developing capital growth. The current portfolio of holdings built by the Company now encompasses investments in 21 unquoted companies in a range of sectors. As Investment Manager, we typically purchase a significant minority equity stake in qualifying companies, providing financial capital to each business to build and grow its operations and then 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 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 these businesses will typically be reduced in value prior to our making an additional investment to fund their further progress. 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 of the Company was 87.7p per share compared to 89.0p per share at 31 October 2011, a reduction of 1.5%. This reduction was due to the standard running costs of the fund exceeding the uplift in fair values of the current portfolio and the OEICs. The Company now holds 75.6% of its assets in qualifying holdings from an HMRC perspective and we continue to work with each portfolio business as they develop their proposition in their respective markets. As Investment Manager, it is our continued intention to take those businesses in which we have invested a small amount of money as a first investment, and invest further as they meet or exceed the initial milestone objectives we agreed with them. This approach can be demonstrated through eight follow on investments being made, totalling £4,500,000. There were nine new investments during the year in order to diversify the portfolio amounting to £3,800,000. Investment highlights As mentioned above, the portfolio has experienced an overall uplift of £91,000 in the year. This is largely due to increases in valuation for Secret Escapes and Touchtype which have performed particularly well. Uplift in Cost, value in Effect of uplift Company Industry £'000 year, p on NAV,p Secret Escapes Consumer lifestyle and well Limited being 1,467 1,288 5.37 TouchType Limited Telecommunications 384 379 1.58 1,851 1,667 6.95 A number of companies, however, struggled to meet expectations and as a result experienced downward revaluations in fair value. Vega-Chi, Michelson Diagnostics, Applied Superconductor and Aframe endured the largest write downs, with a combined decrease in fair value of £1,239,000 during the year. Realisations in the year The Company fully disposed of Evi Technologies during the year recognising a small loss of £11,000. 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 £109,000 into Bowman Power and £74,000 into Vega-Chi. 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 pressures 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 2347. Alex Macpherson Octopus Investments Limited 25 January 2013 Investment Portfolio Movement % Movement Fair in fair % equity in fair value value in voting held by Investment value to as at year to rights all cost as at 31 31 31 held funds 31 October October October October by managed Fixed asset 2012 2012 2012 2012 Titan by investments Sector (£'000) (£'000) (£'000) (£'000) 4 Octopus Secret Escapes Consumer lifestyle Limited and well being 1,467 1,373 2,840 1,288 8.54 17.44 Certivox Limited Technology 1,613 21 1,634 6 16.34 33.08 Rangespan Consumer lifestyle Limited and well being 1,125 - 1,125 - 6.43 25.71 Ultrasoc Technologies Limited Technology 954 - 954 - 20.73 65.21 TouchType Limited Telecommunications 384 544 928 379 4.20 20.07 Amplience Limited Technology 1,174 (259) 915 - 13.50 63.13 Semafone Limited Telecommunications 755 - 755 - 3.56 46.64 Iovox Limited Telecommunications 750 - 750 - 9.35 24.94 Executive Channel Europe Limited Media 640 61 701 - 7.29 36.12 Lifebook Consumer lifestyle Limited and well being 555 - 555 - 11.34 32.64 Artesian Solutions Limited Technology 500 - 500 - 6.04 24.17 Vega-Chi Limited Technology 640 (294) 346 (295) 6.94 20.92 Michelson Diagnostics Consumer lifestyle Limited and well being 650 (326) 324 (324) 8.26 42.87 Bowman Power Limited Environmental 312 (42) 270 (69) 2.69 15.55 Aframe Limited Media 500 (251) 249 (250) 6.88 20.65 The Faction Consumer lifestyle Collective SA and well being 167 - 167 - 5.53 11 Y-Plan (Leanworks) Consumer lifestyle Limited and well being 151 - 151 - 5.16 14.63 PrismaStar Inc. Media 425 (300) 125 (151) 4.95 33.02 Applied Superconductor Limited Environmental 493 (370) 123 (370) 7.96 24.22 Diverse Energy Limited Environmental 414 (414) - (46) 5.47 29.76 Elonics Limited Technology 306 (306) - (77) 3.11 19.54 Total fixed asset investments 13,975 (563) 13,412 91 Money market funds 3,396 - 3,396 - Open ended investment companies 2,790 614 3,404 172 Cash at bank 91 - 91 - Total investments 20,252 51 20,303 263 Debtors less creditors 720 Total net assets 21,023 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 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. Typically the discount is 30% but this can be increased where the relevant multiple appears too high. A lower discount would also be possible if an investment was close to an exit event. In accordance with the International Private Equity and Venture Capital (IPEVC) valuation guidelines investments made within 12 months are usually kept at cost unless performance indicates that fair value has changed. If you would like to find out more regarding the IPEVC valuation guidelines, please visit their website at: www.privateequityvaluation.com. Review of Investments During the year, the Company made eight new investments and nine follow on investments amounting to £8,298,000. 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. Listed below are details of the Company's 10 largest investments by value. 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: £1,467,000 Valuation: £2,840,000 Equity held: 8.54% Equity held by all funds managed by Octopus: 17.44% Last submitted audited accounts: 31 December 2011 Turnover : £2,035,803 Loss before tax: (£1,235,508) Net assets: £2,126,845 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: £1,613,000 Valuation: £1,634,000 Equity held: 16.34% Equity held by all funds managed by Octopus: 33.08% Last submitted audited accounts: 30 June 2011 Turnover : n/a Net assets: £1,720,269 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: £1,125,000 Valuation: £1,125,000 Equity held: 6.43% 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 UltraSoC Technologies Limited UltraSoC Technologies Ltd develops advanced debugging technology for the embedded electronic systems used in products, from cars to mobile phones. UltraSoC Technologies is developing next-generation, silicon Intellectual Property (IP) that addresses the challenges of debugging the application software which provides the functionality and performance in modern electronic products. Initial investment date: September 2011 Cost: £954,000 Valuation: £954,000 Equity held: 20.73% Equity held by all funds managed by Octopus: 65.21% Last submitted audited accounts: 31 December 2011 Turnover n/a Loss before tax: (£956,662) Net assets: £856,760 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 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: December 2010 Cost: £1,174,000 Valuation: £915,000 Equity held: 13.50% 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) 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: £755,000 Valuation: £755,000 Voting rights held by Fund: 3.56% 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) 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: £750,000 Valuation: £750,000 Equity held: 9.35% Equity held by all funds managed by Octopus: 24.94% Last submitted audited accounts: 31 December 2011 (abbreviated) Turnover Not disclosed Loss before tax: Not disclosed Net liabilities: (£237,727) 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 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: £555,000 Valuation: £555,000 Equity held: 11.34% Equity held by all funds managed by Octopus: 32.64% Last submitted audited accounts: n/a 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 £0.2 million to £2 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 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 Gregor Michie Chairman 25 January 2013 Income Statement Year to 31 October 2012 Revenue Capital Total Notes £'000 £'000 £'000 Loss on disposal of fixed asset investments 9 - (1) (1) Gain on disposal of current asset investments - 110 110 Fixed asset investment holding gains 9 - 91 91 Current asset investment holding gains - 172 172 Other income 2 40 - 40 Investment management fees 3 (101) (303) (404) Other expenses 4 (304) - (304) Return on ordinary activities before tax (365) 69 (296) Taxation on return on ordinary activities 6 - - - Return on ordinary activities after tax (365) 69 (296) (Loss)/earnings per share - basic and diluted 7 (1.6)p 0.3p (1.3)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 has no recognised gains or losses other than the results for the period as set out above. The accompanying notes form an integral part of the financial statements. Income Statement Year to 31 October 2011 Revenue Capital Total Notes £'000 £'000 £'000 Fixed asset investment holding losses - (663) (663) Current asset investment holding gains - 228 228 Other income 2 60 - 60 Investment management fees 3 (106) (318) (424) Other expenses 4 (286) - (286) Return on ordinary activities before tax (332) (753) (1,085) Taxation on return on ordinary activities 6 - - - Return on ordinary activities after tax (332) (753) (1,085) Earnings/(loss) per share - basic and diluted 7 (1.5)p (3.3)p (4.8)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 31 October Year to 31 October 2012 2011 £'000 £'000 Shareholders' funds at start of 20,086 21,171 year Return on ordinary activities (296) (1,085) after tax Purchase of own shares (9) - Issue of equity (net of expenses) 1,242 - Shareholders' funds at end of year 21,023 20,086 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* 9 13,412 5,671 Current assets: Debtors 10 780 13 Money market funds and other deposits* 11 6,800 14,363 Cash at bank 91 107 7,671 14,483 Creditors: amounts falling due within one year 12 (60) (68) Net current assets 7,611 14,415 Net assets 21,023 20,086 Called up equity share capital 13 2,398 2,258 Share premium 14 1,101 - Special distributable reserve 14 19,083 19,092 Capital redemption reserve 14 9 8 Capital reserve - losses on disposals 14 (672) (494) - holding gains/(losses) 14 51 (196) Revenue reserve 14 (947) (582) Total shareholders' funds 21,023 20,086 Net asset value per share 8 87.7p 89.0p *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: Gregor Michie Chairman Company No: 07035434 The accompanying notes form an integral part of the financial statements. Cash Flow Statement Year to 31 October Year to 31 October 2012 2011 £'000 £'000 Net cash inflow/(outflow) from operating activities (796) (675) Financial investment: Purchase of fixed asset investments 9 (8,298) (4,492) Sale of fixed asset investment 9 - - Management of liquid resources: Purchase of current asset investments (3,750) (13,264) Sale of current asset investments 11,595 18,426 Taxation 6 - - Dividends paid - - Financing: Issue of shares 13 1,242 - Purchase of own shares 13 (9) - Decrease in cash resources at bank (16) (5) 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 October 2012 2011 £'000 £'000 Return on ordinary activities before tax (296) (1,085) Loss on disposal of fixed assets 1 - Gain on disposal of current assets (110) - (Gain)/loss on valuation of fixed asset investments (91) 663 Gain on valuation of current asset investments (172) (228) (Increase)/decrease in debtors (120) 2 Decrease in creditors (8) (27) Outflow from operating activities (796) (675) Reconciliation of Net Cash Flow to Movement in Net Funds Year to 31 October Year to 31 October 2012 2011 £'000 £'000 Decrease in cash resources at bank (16) (5) Movement in cash equivalents (7,563) (4,934) Opening net funds 14,470 19,409 Net funds at 31 October 6,891 14,470 Net Funds at 31 October comprised: Year to 31 October 2012 Year to 31 October 2011 £'000 £'000 Cash at bank 91 107 Money market funds 3,396 8,316 OEICs 3,404 6,047 Net Funds at 31 October 6,891 14,470 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 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 (32.8% of net assets) and accordingly, the company has adequate financial resources to continue in operational existence for the foreseeable future. Thus, as no material uncertainties leading to significant doubt about going concern have been identified, it is appropriate to continue to adopt the going concern basis in preparing the financial statements. The Company presents its income statement in a three column format to give shareholders additional detail of the performance of the Company, split between items of a revenue or capital nature. The preparation of the financial statements requires Management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments particularly 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 and loss. Accordingly, all interest income, fee income, expenses and impairment losses are attributable to assets designated as being at fair value through profit or loss. Current asset investments comprising money market funds and 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 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 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 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 (open ended investment companies) 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 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. 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. 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 VCT. 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 Year ended 2012 31 October 2011 £'000 £'000 Interest on bank balances and dividends 40 receivable on money market funds 60 3. Investment Management Fees Year ended 31 October 2012 Year ended 31 October 2011 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 101 303 404 106 318 424 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 1 February 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 ended 31 October Year ended 2012 31 October 2011 £'000 £'000 Directors' remuneration 50 50 Fees payable to the Company's auditor 12 8 for the audit of the financial statements Fees payable to the Company's auditor 2 2 for other services - tax compliance Accounting and administration services 61 79 UK Listing Fees 19 6 Trail commission 98 89 Other expenses 62 52 304 286 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 2.9% of net assets (2011: 2.9%). 5. Directors' remuneration Year to 31 October 2012 Year ended 31 October 2011 £'000 £'000 Directors' emoluments Gregor Michie (Chairman) 20 20 Lars McBride 15 15 Alex Macpherson 13 - Chris Hulatt (paid to Octopus 2 15 Investments Limited) 50 50 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). 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%). Current tax reconciliation: 31 October 2012 31 October 2011 £'000 £'000 Loss on ordinary activities before tax (296) (1,085) Capital (gains)/losses not taxable (372) 435 (668) (650) Current tax at 24.83% (2011: 26.83%) (166) (174) Unrelieved tax losses - 65 Expenses not deductible/income not taxable for 166 109 tax purposes Total current tax charge - - The Company has losses arising from management charges of approximately £1,840,000 (2011: £1,130,000) to carry forward to offset against future taxable profits subject to agreement with HMRC. The Company has not recognised the deferred tax asset of £431,000 (2011: £300,000) 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. Earnings per Share The total earnings per share is based on a total loss of £296,000 (2011: £1,085,000) and 23,377,457 (2011: 22,578,706) ordinary shares, being the weighted average number of ordinary shares in issue during the period. The revenue earnings per share is based on a revenue loss of £365,000 (2011: £332,000) and 23,377,457 (2011: 22,578,706) ordinary shares, being the weighted average number of ordinary shares in issue during the period The capital earnings per share is based on a capital gain of £69,000 (2011: loss of £753,000) and 23,377,457 (2011: 22,578,706) ordinary shares, being the weighted average number of ordinary shares in issue during the period There are no potentially dilutive capital instruments in issue and, therefore no diluted return per share figures are relevant. The basic and diluted earnings per share are therefore identical. 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 £21,023,000 (2011: £20,086,000) and 23,982,316 (2011: 22,578,706) ordinary shares 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 or prior year. 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: none). 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 3: Unquoted investments Total investments 31 October 2012 31 October 2012 £'000 £'000 Valuation and net book amount: Book cost as at 1 November 2011 6,334 6,334 Cumulative revaluation (663) (663) Valuation at 1 November 2011 5,671 5,671 Movement in the year: Purchases at cost 8,298 8,298 Disposal proceeds (647) (647) Loss on realisation of investments (1) (1) Revaluation in year 91 91 Valuation at 31 October 2012 13,412 13,412 Book cost at 31 October 2012: 13,975 13,975 Revaluation to 31 October 2012: (563) (563) Valuation at 31 October 2012 13,412 13,412 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 and therefore they are combined in the table shown above. The costs incurred in the disposals amount to £11,000. 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 disclosed in the Investment Manager's Review and within the principal accounting policies in note 1. At 31 October 2012 and 31 October 2011, there were no commitments in respect of investments not yet completed. 10. Debtors 31 October 2012 31 October 2011 £'000 £'000 Prepayments 133 11 Disposal proceeds 647 2 780 13 Disposal proceeds of £132,000 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 2012 31 October 2011 £'000 £'000 Money Market funds 3,396 8,316 OEIC's 3,404 6,047 6,800 14,363 All current asset investments held at the year end sit with the level 1 hierarchy for the purposes of FRS 29. Level 1 money market funds 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 £6,800,000 (2011: £14,363,000). 12. Creditors: amounts falling due within one year 31 October 2012 31 October 2011 £'000 £'000 Accruals 60 58 Other creditors - 10 60 68 13. Share capital 31 October 2012 31 October 2011 £'000 £'000 Authorised: 50,000,000 ordinary shares of 10p 5,000 5,000 Allotted and fully paid up: 23,982,316 (2011: 22,578,706) ordinary shares 2,398 2,258 of 10p The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page X. The Company is not subject to any externally imposed capital requirements. 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 VCT. 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 1,414,735 shares at a price of 92.6p during the year (2011: No shares were issued during the year). The Company repurchased the following Ordinary shares for cancellation (2011: nil shares): 11,125 at a price of 83.2p per · 2 March 2012: share 14. Reserves Share Capital Premium Capital reserve £'000 Special reserve holding Capital distributable gains/(losses) gains/ redemption Revenue reserve on disposal (losses) reserve reserve £'000 £'000 £'000 £'000 £'000 Balance as at - 19,092 (494) 8 1 November 2011 (196) (582) Return on - - - - - (365) ordinary activities after tax Purchase of - (9) - - 1 - own shares Issue of 1,101 - - - - - Equity Management - - (303) - - - fees allocated as capital expenditure Current year - - 109 - gains on disposal Current - - - 263 - - period gains on revaluation Prior year - - 16 (16) gains on disposal Balance as at 1,101 19,083* (672)* 9 31 October 2012 51 (947)* *Reserve 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. Reserves available for potential distribution by way of a dividend are: £'000 As at 1 November 2011 18,016 Movement in year (552) As at 31 October 2012 17,464 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. 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 2012 31 October 2011 £000 £000 Assets at fair value through profit or loss Fixed asset investments 13,412 5,671 Current asset investments 6,800 14,363 Total 20,212 20,034 Loans and receivables Cash at bank 91 107 Accrued Income - 2 Disposal proceeds 647 - Total 738 109 Liabilities at amortised cost Accruals 60 68 Total 60 68 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 to X. An analysis of investments is given in note 9. 63.8% (2011: 28.2%) 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 £671,000 (2011: £284,000). An equivalent change in the opposite direction would have reduced net assets and the total return for the period by the same amount. 32.3% (2011: 71.5%) 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 £340,000 (2011: £716,000). 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, 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 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 2,150 11% 5.0 124 12% 5.0 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 2012. The amounts held in floating rate investments at the balance sheet date were as follows: 31 October 2012 31 October 2011 £'000 £'000 Cash on deposit & money market funds 3,487 8,423 A 1% increase in the base rate would increase income receivable from these investments and the total return for the period by £34,870 (2011: £84,230). Credit risk There were no significant concentrations of credit risk to counterparties at 31 October 2012. By cost, no individual investment exceeded 7.7% of the Company's net assets at 31 October 2012. Credit risk is the risk that counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date. At 31 October 2012 the Company's financial assets exposed to credit risk comprised the following: 31 October 2012 31 October 2011 £'000 £'000 Cash on deposit & money market funds 3,487 8,423 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. 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. 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 £6,800,000. 16. Post balance sheet events The following events occurred between the balance sheet date and the signing of these financial statements: oOn 15 November 2012 a further £109,000 was invested into Bowman Power Limited. oOn 9 January 2013 a further £74,000 was invested into Vega-Chi Limited. 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 £104,000 (2011: £90,000) was paid during the year and there was £25,000 (2011: £nil) outstanding at the year end. There were no contingencies, guarantees or financial commitments as at 31 October 2012 (2011: none). 18. Transactions with manager Octopus Titan VCT 4 plc has employed Octopus Investments Limited throughout the year as the Investment Manager. Octopus Titan VCT 4 plc has paid Octopus £508,000 (2011: £424,000) in the year as a management fee which includes a prepayment of £104,000 (2011: £nil) as 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 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 £77,000 (2011: £64,000) was paid to Octopus Investments and there was £16,000 (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 £4,000 (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. Therefore, only if by the end of a financial year (commencing no earlier than close of the 2013 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 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. No performance fee has been recognised for the year 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 4 plc during the year to 31 October 2012 until his resignation on 12 December 2011, is a Director of Octopus Investments Limited. Alex Macpherson, an investment manager at Octopus Investments Limited was appointed as a non-executive director of Octopus Titan VCT 4 plc on 12 December 2011. ------------------------------------------------------------------------------ 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 4 PLC via Thomson Reuters ONE HUG#1673326
Octopus Titan VCT 4 PLC : Octopus Titan VCT 4 PLC : Final Results
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