TIDMOEC3
Octopus Eclipse VCT 3 plc
Final Results
4 November 2011
Octopus Eclipse VCT 3 plc, managed by Octopus Investments Limited, today
announces the final results for the year ended 31 July 2011.
These results were approved by the Board of Directors on 4 November 2011.
You may shortly view the Annual Report in full at www.octopusinvestments.com by
navigating to Services, Investor Services, Venture Capital Trusts, Octopus
Eclipse VCT 3. All other statutory information will also be found there.
About Octopus Eclipse VCT 3 plc
Octopus Eclipse VCT 3 plc ('Eclipse 3', 'Company' or 'VCT') is a venture capital
trust (VCT) which aims to provide shareholders with attractive tax-free
dividends and long-term capital growth, by investing in a diverse portfolio of
unquoted and AIM-quoted companies. The VCT is managed by Octopus Investments
Limited ('Octopus' or 'Investment Manager').
Eclipse 3 was launched in August 2005 and raised approximately GBP29.1 million
( GBP28.7 million net of expenses) through an Offer for Subscription. Eclipse 3 co-
invests with other funds managed by Octopus. This allows the VCT to invest in a
wider range of opportunities and in larger and more developed companies than are
typically available to a single VCT.
Further details of the VCT's progress are discussed in the Chairman's Statement
and Investment Manager's Review on pages X to X.
Venture Capital Trusts (VCTs)
VCTs were introduced in the Finance Act 1995 to provide a means for private
individuals to invest in unquoted companies in the UK. Subsequent Finance Acts
have introduced changes to VCT legislation. The tax benefits currently available
to eligible new investors in VCTs include:
* up to 30% up-front income tax relief;
* exemption from income tax on dividends paid; and
* exemption from capital gains tax on disposals of shares in VCTs.
Eclipse 3 has been approved as a VCT by HM Revenue & Customs (HMRC). In order to
maintain its approval, the VCT must comply with certain requirements on a
continuing basis. Above all, Eclipse 3 is required at all times to hold at least
70% of its investments (as defined in the legislation) in VCT 'qualifying
holdings', of which at least 30% must comprise eligible Ordinary shares. A
'qualifying holding' consists of up to GBP1 million invested in any one year in
new shares or securities in an unquoted UK company (or companies quoted on AIM)
which is carrying on a qualifying trade, and whose gross assets do not exceed a
prescribed limit at the time of investment. The definition of a 'qualifying
trade' excludes certain activities such as property investment and development,
financial services and asset leasing. The VCT will continue to ensure its
compliance with these qualification requirements.
Financial Headlines
+--------------------+--------------------
|Year to 31 July 2011|Year to 31 July 2010
=-------------------------------------+--------------------+--------------------
| |
| |
Net assets ( GBP'000s) | 15,702| 19,265
| |
Return on ordinary activities after| |
tax ( GBP'000s) | (1,993)| 2,112
| |
Net asset value per share (NAV) | 59.3p| 69.4p
| |
Dividends paid and proposed relating| |
to the year | 3.5p| 3.0p
| |
Cumulative dividends since launch -| |
paid and proposed | 13.7p| 10.2p
=-------------------------------------+--------------------+--------------------
Chairman's Statement
Please find below the results for the year ended 31 July 2011 for Octopus
Eclipse VCT 3 plc.
This has proved to be an even more challenging year than had been expected at
the time of the half-yearly report. The green shoots seen in 2010 have withered
as economic growth rates have disappointed and high debt levels across the globe
weigh heavily on governments, companies, the banking market and individuals
alike. Against this backdrop, the Investment Manager's time has continued to be
spent protecting and nurturing the portfolio.
In the year to 31 July 2011 Eclipse 3 reported a negative total return (being
the change in net asset value (NAV) plus cumulative dividends paid) of 9.1%.
After adding back the dividends paid in the year of 3.0p, the NAV per share
decreased by 7.1p which was largely attributable to a decrease in the fair value
of the unquoted portfolio. Given the current economic climate and the relative
vulnerability of small companies, the portfolio has not developed as well as had
previously been expected. By comparison, the FTSE Small Cap total return was
14.9% which was propelled by a high weighting in stocks rebounding from their
lows, in which VCTs are unable to invest.
Eclipse 3 is invested in 13 unquoted and 11 AIM-quoted companies. By value,
77.6% of the Company's net assets are in unquoted investments, 6.8% in AIM
quoted investments and the remaining 15.6% of the Company's net assets are
currently in cash or cash equivalents. The focus continues to remain on the
existing portfolio, which is being supported where appropriate. Limited new
additions to the portfolio are envisaged in the near future as there have been
no significant realisations in the year due to current market conditions
limiting the range of exit opportunities.
The Board's strategy continues to be to maintain an appropriate level of
liquidity in the balance sheet to continue to achieve four aims:
· to support further investment in existing portfolio companies if required;
· to take advantage of new investment opportunities as they arise;
· to assist liquidity in the shares through the buy-back facility; and
· to support a consistent dividend flow.
Dividend and Dividend Policy
It is your Board's policy to strive to maintain a regular dividend flow where
possible and this primarily relies on the level of profitable realisations and
available cash reserves. Taking these factors into account, the Board is pleased
to propose a final dividend of 2.0p per share.
Subject to shareholder approval at the Annual General Meeting, this dividend
will be paid on 16 December 2011 to those shareholders on the register on 18
November 2011. This will take dividends for the year ended 31 July 2011 to 3.5p
per share.
Investment Portfolio
The last year has continued to challenge many businesses and it is still
uncertain as to when, and to what degree, an improvement in the economic
environment may commence. The tone of the media remains cautious and, as
mentioned in last year's report, there is clear recognition that there will be
no rapid move out of the downturn.
Two companies, Sweet Cred and Perfect Pizza, have been put into administration
this year as they struggled against challenging market conditions and lack of
liquidity. These businesses had been suffering for some time and the low levels
of cash meant they were unable to continue trading. A fall in fair value also
occurred in History Press, Brandspace and T4 Holdings. The impact of these
downward movements has been reduced by uplifts in a number of companies in the
portfolio that have performed particularly well in these tough times. Hydrobolt
and Tristar have both had positive years, the latter trading ahead of budget. In
addition to these companies, AVM has continued to perform well with a further
uplift in its fair value in the year.
As noted in the half-year report, we received proceeds of GBP706,000 from CSL
during the year in respect of the redemption of 50% of Eclipse 3's loan notes
along with a redemption premium and accrued interest. This company has continued
to grow well throughout the downturn. Also, Vulcan Services was liquidated
resulting in proceeds of GBP949,000, realising a small loss of GBP51,000.
On the quoted side the overall position has improved. We fully disposed of our
holding in Pressure Technologies realising a small gain in the year and the
quoted portfolio valuation increased by GBP271,000 in the year. This uplift was
largely due to Plastics Capital continuing to recover its value seeing an
increase of GBP260,000 during the year. Since the year end a further small
realisation has been made following the takeover of CBG, realising a small
premium to book value.
Further details about the portfolio, including further investments and
realisations, can be found in the Investment Manager's Review on pages X to X.
VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
on the ongoing compliance with HM Revenue & Customs (HMRC) rules and regulations
concerning VCTs. The Board has been advised that Eclipse 3 is in compliance with
the conditions laid down by HMRC for maintaining approval as a VCT.
A key requirement is for 70% of the portfolio to remain invested in qualifying
investments. As at 31 July 2011, over 81% of the portfolio (as measured by HMRC
rules) was invested in VCT qualifying investments. The requirement to maintain
the level of qualifying investments above the 70% threshold will be supported by
the continuing deal flow from the Investment Manager.
Outlook
Current market conditions, particularly the weak consumer demand and lack of
bank liquidity, give reason to remain cautious about how the economic climate
will develop over the coming months. This uncertainty and lack of confidence in
the future continues to challenge our portfolio of investee companies as it has
had a significant effect on many small companies. Despite this, the general
signs from most of our investee companies remain positive and the Investment
Manager continues to work closely with the businesses that are struggling to
overcome the challenges that the current environment presents. In light of the
continuing difficult economic conditions that are affecting both the UK economy
and global stock markets, as well as the performance of the VCT, your Board has
held discussions with the Investment Manager so that together we may maximise
the value of the VCT over the long term, whilst delivering returns to
shareholders through a tax free dividend stream.
Our interests remain aligned with those of the entrepreneurs' companies we have
invested into, being that of boosting growth and profitability. Although the
concerns about the major issues facing the world have not changed significantly
since I last wrote to you, we are cautiously optimistic about the future. We
continue to expect that interest rates will remain low for the next six months,
which is positive for small companies, and there are opportunities in this
environment for companies to progress through making good value acquisitions. We
will be working to ensure that portfolio companies can make the most of these as
they arise, as well as continuing to look for new investments when the
opportunity allows.
In the short term there remains a risk of setbacks from some of the more
vulnerable portfolio companies, although the Investment Manager has done much to
strengthen the teams and support the businesses which are believed to have
exciting and positive long term potential. Many of the investee companies are
now showing improved trading results, illustrating the underlying strength of
their management teams, so we anticipate, once market conditions settle, that
the overall portfolio performance will improve and that Eclipse 3 will be
presented with opportunities to exit from some of the more mature investee
companies. The timing of recovery in the economy is uncertain and shareholders
are again asked to be patient whilst the global financial upheaval unfolds and
hopefully leads to calmer waters in due course.
I would like to take this opportunity to thank our shareholders for their
continued support.
Greg Melgaard
Chairman
4 November 2011
Investment Manager's Review
Personal Service
At 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, which is of particular
importance during this time of economic upheaval, and we are working hard to
manage your money in the current climate.
Octopus Investments Limited was established in 2000 and has a strong commitment
to both smaller companies and to VCTs. We currently manage 17 VCTs, including
this VCT, and manage over GBP340m in the VCT sector. Octopus has over 200
employees and has been voted as 'Best VCT Provider of the Year' by the financial
adviser community for the last four years.
Investment Policy
The focus of Eclipse 3 is on generating long-term capital growth and attractive
tax-free dividends for its investors. In order to achieve this goal, the VCT
focusses on providing development and expansion funding to unquoted companies
with a typical investment size of GBP0.25 million to GBP1 million. Additionally, up
to 20% of the VCT may be invested in AIM-quoted companies.
Investment Strategy
Having reached the level of invested funds required by HMRC, our focus shifted
to managing the portfolio and helping the companies through a difficult economic
period. As a result, no investments in new companies have been made during the
period and sufficient liquidity has been maintained in the VCT to ensure that
adequate resources are available to support further portfolio funding needs as
they arise. The environment has remained challenging for smaller companies,
which have felt the effects of the credit squeeze combined with the economic
slowdown. As well as seeing reductions in banking facilities, small companies
also find themselves under pressure from suppliers who want to be paid earlier,
customers who delay payments and weaker trading conditions. The resulting
pressure on cash remains due to increasing working capital requirements and we
are monitoring all of our investee companies to ensure that they control costs
but also take advantage of some of the opportunities that occur in these
circumstances.
We have sought to support further those companies that we believe have strong
growth potential but need some financial assistance to realise it. Each company
that we target is expected to have unique selling points and be capable of
growing to a size that will make it attractive for acquisition by a larger
company or will enable it to float on the stock market.
Portfolio review
This time last year it seemed that confidence was returning to the economy and
we anticipated reviewing more new investment opportunities but, as discussed
below, the ecomonic climate has remained fragile, with uncertain times ahead of
us, so there has been a lack of suitable new investments available. We have
however, made small follow-on investments into History Press, Brandspace and
Lilestone Holdings.
Unquoted investments
The performance of the unquoted portfolio has continued to be mixed since the
half-year results were announced in March. Although there have been uplifts in
fair value in a number of portfolio companies, these uplifts have been offset by
decreases in fair value in other companies resulting in an overall decrease of
GBP2,209,000 in value in the unquoted portfolio for the year.
The most significant uplifts in fair value during the year related to Hydrobolt
and Tristar. Hydrobolt has performed well during the downturn and the management
team has done particularly well at increasing the level of export sales. Tristar
has also increased in fair value in the year, trading ahead of budget, with
operational changes within the company and international expansion making a
positive contribution to achieving targets. Audio Visual Machines (AVM) has also
seen an increase in value as it has continued to have a positive year, managing
to control overheads in order to increase profitability and the management team
has demonstrated an ability to successfully integrate acquisitions.
Perfect Pizza's trading activity continued to worsen in a very challenging
market. We instigated numerous changes and a small further investment was made
into the company, but the competition and pricing pressures meant the business
continued to struggle and it has now been sold through an administration
process, resulting in a full write off for the VCT. The other disappointment in
the portfolio is Sweet Cred which was unable to recover from its lack of
liquidity and, despite expectations in the last annual report, has now ceased
trading and gone into administration. After a small uplift in value at 31
January due to good recovery being made in 2010, a drop in fair value has been
taken against T4 at 31 July, due to a difficult start to 2011, largely due to
the reduction of government spending. In addition to this, Brandspace continued
to see its profits impacted by weak results in the poster media business
resulting in a lower fair value at the year end. The movements in value across
the portfolio have predominately been based on calculations by reference to
reported earnings and discounted market multiples in accordance with the
valuation guidelines, as detailed in the report.
On a more positive note, as mentioned in the half-year report, CSL Dualcom
redeemed 50% of the Eclipse 3 loan notes in the period, as well as paying a
redemption premium and accrued interest, which realised an overall gain of
GBP381,000.
Conditions are still tough across many business sectors and there remain
domestic and international pulls which result in continued uncertainty in the
future. However, a number of the portfolio companies are showing strength in
their markets and we remain cautiously optimistic that these companies will take
advantage of the economic environment and provide the VCT with exit and future
investment opportunities.
AIM-quoted investments
The AIM-quoted element of the portfolio has seen an overall increase in fair
value of GBP271,000 in the year to 31 July 2011. This uplift is primarily due to
the holding in Plastics Capital which has continued to trade well. The remaining
companies in Eclipse 3's portfolio have performed consistently in the reporting
period with slight uplifts in fair value in the holdings in Hasgrove and
Tanfield. The only disposal in the year was of the holding in Pressure
Technologies as mentioned in the half-year report which realised a small profit.
Since the year end the holding in CBG has been subject to a cash bid for the
company by a competitor at 32p per share which has recovered a small premium to
the book value for this stock. Although there has been limited activity in this
side of the portfolio in the last year, we continue to regularly review the
position of the investee companies to ensure that further investments and exits
are made at the appropriate time.
As discussed in the half-year report, we remain confident that the AIM companies
in the portfolio are valued at low ratings so anticipate that there will be
further appreciation in the coming year. For this reason, we intend to retain
the majority of the holdings.
If you have any questions on any aspect of your investment, please do not
hesitate to call one of the team on 0800 316 2295.
Chris Allner
Octopus Investments Limited
4 November 2011
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
Subsequent adjustment to the fair value of unquoted investments has been made
using sector multiples based on information as at 31 July 2011, where
applicable. In some cases the multiples have been compared to equivalent
companies, particularly where a sector multiple does not appear appropriate. It
is currently the industry norm to discount the quoted earnings multiple applied
to private companies to reflect the lack of liquidity in the investment, with
there being no ready market for our holdings. Typically the discount is 30% but
in some cases we have increased the discount, 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.
The table below shows a summary of the Eclipse 3 investment portfolio:
+------------------------------------------------------------------------------------+
| %|
| equity|
| held by|
| Carrying Change in % all|
| Investment Holding value at valuation equity funds|
| at cost gain/ 31 July in the held by managed|
|Unquoted 31 July (loss) 2011 year Eclipse by|
|Investments Sector 2011 GBP'000 GBP'000 GBP'000 GBP'000 3 Octopus|
+------------------------------+-----------------------------------------------------+
|CSL DualCom Technology & | 620 1,909 2,529 (57) 11.5% 45.8%|
|Limited Telecommunications| |
| | |
|The History | |
|Press Publishing | 2,315 (109) 2,206 (108) 15.2% 60.0%|
|Limited | |
| | |
|Hydrobolt Engineering & | 1,396 690 2,086 458 16.3% 43.5%|
|Limited Machinery | |
| | |
|Tristar | |
|Worldwide Transport Services| 1,000 448 1,448 448 10.0% 30.0%|
|Limited | |
| | |
|Brandspace Media & Marketing | 2,112 (809) 1,303 (1,314) 13.1% 40.5%|
|Limited Services | |
| | |
|Audio | |
|Visual Technology & | 711 436 1,147 264 10.1% 40.4%|
|Machines Telecommunications| |
|Limited | |
| | |
|Bruce | |
|Dunlop & Media & Marketing | 1,524 (600) 924 - 12.4% 31.9%|
|Associates Services | |
|Limited | |
| | |
|T4 Holdings Media & Marketing | 1,141 (891) 250 (310) 14.2% 53.3%|
|Limited Services | |
| | |
|Convivial | |
|London Pubs Leisure & Hotels | 200 (48) 152 4 1.1% 7.8%|
|plc | |
| | |
|Blanc | |
|Brasseries Leisure & Hotels | 92 16 108 14 0.7% 2.95%|
|Holdings | |
|plc | |
| | |
|Lilestone | |
|Holdings General Retail | 448 (412) 36 (6) 2.0% 18.8%|
|Limited | |
| | |
|Perfect | |
|Pizza Leisure & Hotels | 553 (553) - (325) 9.6% 65.0%|
|Limited * | |
| | |
|Sweet Cred | |
|Holdings Consumer Products | 2,315 (2,315) - (1,277) n/a n/a|
|Limited * | |
+------------------------------+-----------------------------------------------------+
|Total |
|unquoted 14,427 (2,238) 12,189 (2,209) |
|investments |
+------------------------------+-----------------------------------------------------+
|AIM-quoted | |
|Investments | |
| | |
|Plastics Engineering & | 500 (65) 435 260 1.8% 16.5%|
|Capital plc Machinery | |
| | |
|Hasgrove Media & Marketing | 400 (207) 193 27 1.4% 13.3%|
|plc Services | |
| | |
|Vertu General Retail | 250 (133) 117 6 0.2% 5.0%|
|Motors plc | |
| | |
|Brulines Support Services | 95 (19) 76 (17) 0.3% 4.6%|
|Group plc | |
| | |
|CBG Group Financial Services| 383 (310) 73 (19) 1.7% 17.2%|
|plc | |
| | |
|Tanfield Engineering & | 142 (85) 57 17 0.1% 1.9%|
|Group plc Machinery | |
| | |
|Cohort plc Engineering & | 69 (19) 50 4 0.1% 4.3%|
| Machinery | |
| | |
|Autoclenz | |
|Holdings Support Services | 125 (86) 39 1 1.0% 11.6%|
|plc | |
| | |
|Northern Construction & | 299 (268) 31 (8) 1.2% 6.0%|
|Bear plc Materials | |
| | |
|Cantono plc Technology & | 420 (420) - n/a n/a|
|* Telecommunications| - |
| | |
|Hexagon | |
|Human Support Services | 677 (677) - - n/a n/a|
|Capital plc | |
|* | |
+------------------------------+-----------------------------------------------------+
|Total AIM- |
|quoted 3,360 (2,289) 1,071 271 |
|investments |
+------------------------------------------------------------------------------------+
|Total 17,787 (4,527) 13,260 (1,938) |
|investments |
| |
|Money |
|market 2,475 - 2,475 |
|securities |
| |
|Cash at 136 - 136 |
|bank |
+------------------------------------------------------------------------------------+
|Total investments and cash at 20,398 (4,527) 15,871 |
|bank |
| |
|Debtors less (169) |
|creditors |
+------------------------------------------------------------------------------------+
|Total net 15,702 |
|assets |
+------------------------------------------------------------------------------------+
* in administration
The table below shows the split between the sectors in the unquoted and AIM-
quoted investments.
Fair value
at Number of % of net
Investment at 31 July investments in assets by
Unquoted Investments cost ( GBP'000) 2011 ( GBP'000) sector value
Technology &
Telecommunications 1,331 3,676 2 23.4%
Media & Marketing
Services 4,777 2,477 3 15.8%
Publishing 2,315 2,206 1 14.0%
Engineering & Machinery 1,396 2,086 1 13.3%
Transport Services 1,000 1,448 1 9.2%
Leisure & Hotels 845 260 3 1.7%
General Retail 448 36 1 0.2%
Consumer Products 2,315 - 1 0.0%
=-------------------------------------------------------------------------------
Total unquoted
investments 14,427 12,189 13 77.6%
=-------------------------------------------------------------------------------
AIM-quoted Investments
Engineering & Machinery 711 542 3 3.5%
Media & Marketing
Services 400 193 1 1.2%
General Retail 250 117 1 0.7%
Support Services 897 115 3 0.7%
Financial Services 383 73 1 0.5%
Construction &
Materials 299 31 1 0.2%
Technology &
Telecommunications 420 - 1 0.0%
=-------------------------------------------------------------------------------
Total AIM-quoted
investments 3,360 1,071 11 6.8%
=-------------------------------------------------------------------------------
Review of Investments
At 31 July 2011 the Eclipse 3 portfolio comprised investments in 13 unquoted and
11 AIM-quoted companies. The unquoted investments are in Ordinary shares with
full voting rights as well as loan note securities. The AIM-quoted investments
are in Ordinary shares, also with full voting rights.
Quoted and unquoted investments are valued in accordance with the accounting
policy set out on page X, which takes
account of current industry guidelines for the valuation of venture capital
portfolios and is compliant with International Private Equity and Venture
Capital Valuations 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.
Ten Largest Holdings
Listed below are the ten largest investments by value as at 31 July 2011:
CSL DualCom Limited
CSL DualCom is the UK's leading supplier of dual path signalling devices which
link burglar alarms to the police or a private security firm. The devices
communicate using a telephone line or broadband connection and a wireless link
from Vodafone, which has been a partner since 2000. CSL DualCom has developed a
number of new products which have enabled the business to steadily grow its
market share and profitability, most recently by expanding into Ireland.
Following the success in Ireland the Company is now exploring other
international markets. The return on the investment has increased during the
year with proceeds of GBP706,000 being received, realising an overall gain of
GBP381,000. Further information can be found at the company's website
www.csldual.com.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 620 | 90 | 530 |
+-----------+-------+-----------------+------------+
| Valuation | 2,529 | 1,762 | 767 |
+-----------+-------+-----------------+------------+
Initial investment date: June 2006
Equity held: 11.5%
Valuation basis: Steady state cashflow multiple
Income recognised for the year: GBP58,364
Last audited accounts: 31 March 2010 31 March 2009
Revenues ( GBP'000): 8,236 7,243
Profit before interest & tax ( GBP'000): 1,220 750
Net assets ( GBP'000): 1,239
724
The History Press Limited
The History Press ('THP') is the UK market leading publisher of distinctive
'local interest' history books. It has operations in France, Germany, Ireland,
Belgium and the US. The Group houses four main imprints: Pitkin, Phillimore,
Spellmount and The History Press. Despite a continuing challenging retail
environment, THP had a successful year to December 2010, achieving a full year
operating profit. The performance was mixed across the Group with the UK
successfully demonstrating a turnaround in profitability of GBP500k. France had a
more difficult year, with the market particularly tough, but a restructuring has
resulted in a stronger start to 2011. Germany saw some title slippage but has
made a small move into the Austrian market. The US continues to perform well and
shows high growth, making its first annual profit and expanding into the
Midwest. With a stronger sustained performance in the Group, the management team
are able to explore opportunities for further growth in the next twelve months.
In 2011 the UK has been hit by the lack of sales at Waterstones, although this
was somewhat mitigated by Royal Wedding activity. Given the continued evidence
of poor trading on the high street and in retail in general, it has been deemed
prudent to make a small adjustment to the valuation in this period. Further
information can be found at the company's websitewww.thehistorypress.co.uk.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 2,315 | 109 | 2,206* |
+-----------+-------+-----------------+------------+
| Valuation | 2,206 | - | 2,206* |
+-----------+-------+-----------------+------------+
* includes cash guarantee of GBP547,000
Initial investment date: December 2007
Equity held: 15.2%
Valuation basis: Revenue multiple
Income recognised for the year: GBPnil
Last audited accounts: 31 December 2010 31
December 2009
Revenues ( GBP'000): 11,402
11,747
Profit/(loss) before interest & tax ( GBP'000): 7
(426)
Net liabilities ( GBP'000): (3,822)
(2,569)
Hydrobolt Limited
Hydrobolt is a manufacturer and supplier of special fasteners and petro-chemical
grade studbolts. It differentiates itself by its quality of service, flexibility
and full traceability of its products, which are often a small but critical part
of a large machine or assembly in the oil and gas market. After a difficult
period over 2009-2010 and reflected in the results to March 2011, the current
year has seen a marked improvement, most notably with the order book increasing
by over 100% since the low point. This has given rise to a valuation uplift in
the period. We are particularly pleased to see the rapid development of
international sales, which has more than made up for sluggish performance in the
UK. Further information can be found at the company's website
www.hydrobolt.co.uk.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 1,396 | 143 | 1,253 |
+-----------+-------+-----------------+------------+
| Valuation | 2,086 | 707 | 1,379 |
+-----------+-------+-----------------+------------+
Initial investment date: February 2008
Equity held: 16.3%
Valuation basis: Earnings multiple
Income recognised for the year: GBP99,400
Last audited accounts: 31 March 2011 31 March 2010
Revenues ( GBP'000): 15,384 14,464
Profit before interest & tax ( GBP'000): 1,460 1,473
Net assets ( GBP'000): 2,004 1,920
Tristar Worldwide Limited
Tristar is one of the world's leading chauffeur companies, carrying over
500,000 passengers for 400 clients in the last year alone. The business operates
in 70 countries with its own vehicles in the UK and the US and has a newly
opened and rapidly expanding service in Hong Kong. It has a blue chip customer
base which includes Virgin, Emirates, BP, Goldman Sachs and many other leading
multinationals. Having seen a slowdown in the aftermath of the credit crunch,
the business staged a recovery during the course of 2011 in the UK and is seeing
good trading in the US and Asia, both of which are ahead of plan. As a result of
this performance, the value of the investment has been increased. Further
information can be found at the company's websitewww.tristarworldwide.com.
+-----------+-------+-----------------+-------------------+------------+
| | Total | Ordinary shares | B Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+-------------------+------------+
| Cost | 1,000 | 79 | 23 | 898 |
+-----------+-------+-----------------+-------------------+------------+
| Valuation | 1,448 | 527 | 23 | 898 |
+-----------+-------+-----------------+-------------------+------------+
Initial investment date: January 2008
Equity held: 10.0%
Valuation basis: Earnings multiple
Income recognised for the year: GBP50,126
Last audited accounts: 31 May 2010 31 May 2009
Revenues ( GBP'000): 32,608 35,118
Profit before interest & tax ( GBP'000): 779 694
Net assets ( GBP'000): 1,951 1,994
Brandspace Limited (formerly Promotion Space Limited)
Brandspace provides promotional space management for property owners, brands,
agencies and retailers. It exclusively represents some of the UK's most exciting
venues for sponsorship, events, promotions, sampling campaigns, customer
acquisition drives and tactical retail opportunities. Since our initial
investment the business has more than trebled in size through organic and
acquisition-led growth. The second half of 2010 was challenging for Brandspace
with the advertising market slowing and margins coming under pressure. Following
a financial review of the company it was decided that a change of leadership was
required and a new CEO was appointed and a number of other management changes
were made. To reflect the shortfall in expectations, and the transition of the
business between management teams, a provision has been made against the
Ordinary shares and the loan notes. However, we are confident that the actions
taken will improve the prospects for the company going forward. Further
information can be found at the company's websitewww.brandspace.com.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 2,112 | 237 | 1,875 |
+-----------+-------+-----------------+------------+
| Valuation | 1,303 | - | 1,303 |
+-----------+-------+-----------------+------------+
Initial investment date: April 2007
Equity held: 13.1%
Valuation basis: Provision, Earnings multiple
Income recognised for the year: GBP253,756 (includes GBP181,487
interest capitalised into a new loan note in January 2011)
Last audited accounts: 31 March 2010 31 March 2009
Revenues ( GBP'000): 18,705 17,092
Profit before interest & tax ( GBP'000): 736 141
Net assets ( GBP'000): 2,906
3,618
Audio Visual Machines Limited
Audio Visual Machines ('AVM') carries out the full design, installation and
support of complex Video Conferencing and Audio Visual systems and is the UK's
leading VC & AV maintenance and support provider. The company employs over 190
people and has sales offices throughout the UK. Since our initial investment in
2006 AVM has made four acquisitions, including the acquisition of Matrix Display
Systems Limited, which principally operates in the education sector. A small
acquisition was completed earlier in the year of VC-Net. VC-Net is a provider of
managed video services and increases AVM's offering in this area. Despite a
continued difficult trading environment, AVM grew its profits in the year to
June 2011 by 10%. Further information can be found at the company's website
www.avmachines.com.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 711 | 73 | 638 |
+-----------+-------+-----------------+------------+
| Valuation | 1,147 | 450 | 697 |
+-----------+-------+-----------------+------------+
Initial investment date: September 2006
Equity held: 10.1%
Valuation basis: Earnings multiple
Income recognised for the year: GBP51,714
Last audited accounts: 30 June 2011 30
June 2010
Revenues ( GBP'000): 35,535
34,785
Profit before interest & tax ( GBP'000): 1,023
930
Net assets ( GBP'000): 201
63
Bruce Dunlop & Associates Limited
Bruce Dunlop & Associates International Limited (BDA) provides promotion and
design services to broadcasters and advertisers worldwide and also creates brand
films and internal communications for leading UK corporations. Customers include
Hallmark, Barclays, The Discovery Channel and Sony. After a tough period in
2009 and 2010 the business has stabilised its trading and started to make some
progress. There have been several significant customer wins including CCTV, the
largest TV channel in the world based in China. Further information can be found
at the company's websitewww.bdacreative.com.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 1,524 | 341 | 1,183 |
+-----------+-------+-----------------+------------+
| Valuation | 924 | - | 924 |
+-----------+-------+-----------------+------------+
Initial investment date: December 2007
Equity held: 12.4%
Valuation basis: Provision, Earnings multiple
Income recognised for the year: GBPnil
Last audited accounts: 30 June 2010 30 June 2009
Revenues ( GBP'000): 8,624
8,909
Loss before interest & tax ( GBP'000): (602) (1,217)
Net (liabilities)/assets ( GBP'000): (32)
854
Plastics Capital plc
AIM-quoted Plastics Capital plc is a specialist manufacturer of plastic
components, often with specific applications, with customers worldwide and in a
wide range of industries. The company suffered from adverse currency movements
and a decline in orders during the downturn. However, sales momentum has
recovered strongly over the last year and the company is now expected to achieve
a profit of GBP4.4 million for the year ending 31 March 2012, an increase of 22%
compared to the year to 31 March 2011. Further information can be found at the
company's website www.plasticscapital.com.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 500 | 500 | - |
+-----------+-------+-----------------+------------+
| Valuation | 435 | 435 | - |
+-----------+-------+-----------------+------------+
Initial investment date: December 2007
Equity held: 1.8%
Valuation: Bid price
Income recognised for the year: GBPnil
31 March 2011 31 March 2010
Last audited accounts:
Revenues ( GBP'000): 33,509 26,688
Profit before interest & tax ( GBP'000): 3,597 1,792
Net assets ( GBP'000): 17,798 14,657
T4 Holdings Limited
T4 provides opportunities for advertisers to interact with audiences in an
accountable manner through clearly available media. The company has the rights
to advertise on train station ticket gates, car park barriers, petrol pump
nozzles and doors of petrol forecourts. Trading conditions continue to be tough,
exacerbated by cuts in spend by Public Sector bodies, in particular campaigns
relating to road safety. The business saw a recovery in 2010, but so far 2011
has been challenging which has hit trading performance. There has been a
reduction in the carrying value of the investment as a result. Further
information can be found atwww.t4media.com or www.alvernmedia.co.uk
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 1,141 | 592 | 549 |
+-----------+-------+-----------------+------------+
| Valuation | 250 | - | 250 |
+-----------+-------+-----------------+------------+
Initial investment date: July 2007
Equity held: 14.2%
Valuation basis: Earnings multiple
Income recognised for the year: GBPnil
Last audited accounts: 31 December 2010 31
December 2009
Revenues ( GBP'000): 4,964
2,664
Profit/(loss) before interest & tax ( GBP'000): 185
(331)
Net assets ( GBP'000): 1,498
1,575
Hasgrove plc
AIM-quoted Hasgrove plc is a Digital and Communication Services company. The
company has four subsidiaries; Amaze, Interact Intranet, the Chase and Landmarks
which offer a range of digitally focused marketing and technology services such
as digital strategy, infrastructure build and intranet solutions. The company is
expected to achieve a profit of GBP3.0 million on turnover of GBP29.0 million for
the year ending December 2011. Further information can be found at the company's
website www.hasgrove.com.
+-----------+-------+-----------------+------------+
| | Total | Ordinary shares | Loan stock |
| | GBP'000 | GBP'000 | GBP'000 |
+-----------+-------+-----------------+------------+
| Cost | 400 | 400 | - |
+-----------+-------+-----------------+------------+
| Valuation | 193 | 193 | - |
+-----------+-------+-----------------+------------+
Initial investment date: November 2006
Equity held: 1.4%
Valuation: Bid price
Income recognised for the year: GBP1,667
Last audited accounts: 31 December 2010 31 December 2009
Revenues ( GBP'000): 35,358 32,393
Profit before interest & tax ( GBP'000): 2,127 1,473
Net assets ( GBP'000): 27,649 26,813
Directors' Responsibility Statement
The Directors are responsible for preparing the Directors' 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 the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
the management report includes a fair review of the development and performance
of the business and the position of the Company, together with a description of
the principal risks and uncertainties that they face.
On behalf of the Board
Greg Melgaard
Chairman
4 November 2011
Income Statement
+-----------------------+
| Year to 31 July 2011 |
=------------------------------------------------------+-----------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=------------------------------------------------------+-----------------------+
| |
| |
Realised gain on disposal of fixed asset | |
investments 10 | - 84 84|
| |
Realised gain on disposal of current asset | |
investments 12 | - 2 2|
| |
| |
| |
Fixed asset investment holding gains 10 | - (1,938) (1,938)|
| |
Current asset investment holding gains 12 | - - -|
| |
| |
| |
Other income 2 | 549 - 549|
| |
| |
| |
Investment management fees 3 | (96) (289) (385)|
| |
| |
| |
Other expenses 4 | (305) - (305)|
| |
| |
=------------------------------------------------------+-----------------------+
Return on ordinary activities before tax | 148 (2,141) (1,993)|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
=------------------------------------------------------+-----------------------+
Return on ordinary activities after tax | 148 (2,141) (1,993)|
=------------------------------------------------------+-----------------------+
Earnings/(loss) per share - basic and diluted 8 | 0.5p (7.8)p (7.3)p|
=------------------------------------------------------+-----------------------+
| |
+-----------------------+
* The 'Total' column of this statement is the profit and loss account of the
Company; the supplementary revenue return and capital return columns have
been prepared under guidance published by the Association of Investment
Companies.
* All revenue and capital items in the above statement derive from continuing
operations.
* The Company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds.
The Company has no recognised gains or losses other than the results for the
year as set out above.
The accompanying notes are an integral part of the financial statements.
Income Statement
+---------------------+
|Year to 31 July 2010 |
=--------------------------------------------------------+---------------------+
|Revenue Capital Total|
| |
Notes| GBP'000 GBP'000 GBP'000|
=--------------------------------------------------------+---------------------+
| |
| |
Realised gain on disposal of fixed asset | |
investments | - 411 411|
| |
| |
| |
Fixed asset investment holding gains | - 1,970 1,970|
| |
Current asset investment holding gains | - 32 32|
| |
| |
| |
Other income 2 | 364 - 364|
| |
| |
| |
Investment management fees 3 | (95) (284) (379)|
| |
| |
| |
Other expenses 4 | (286) - (286)|
| |
| |
=--------------------------------------------------------+---------------------+
Return on ordinary activities before tax | (17) 2,129 2,112|
| |
| |
| |
Taxation on return on ordinary activities 6 | - - -|
| |
| |
=--------------------------------------------------------+---------------------+
Return on ordinary activities after tax | (17) 2,129 2,112|
=--------------------------------------------------------+---------------------+
Earnings/(loss) per share - basic and diluted 8 | (0.1)p 7.4p 7.3p|
+---------------------+
* The 'Total' column of this statement is the profit and loss account of the
Company; the supplementary revenue return and capital return columns have
been prepared under guidance published by the Association of Investment
Companies.
* All revenue and capital items in the above statement derive from continuing
operations.
* The Company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds.
The Company has no recognised gains or losses other than the results for the
year as set out above.
The accompanying notes are an integral part of the financial statements.
Reconciliation of Movements in Shareholders' Funds
+--------------+
| Year ended | Year ended
| 31 July 2011 | 31 July 2010
| |
| GBP'000 | GBP'000
=----------------------------------------+--------------+--------------
Shareholders' funds at start of year | 19,265 | 18,539
| |
Return on ordinary activities after tax | (1,993) | 2,112
| |
Purchase of own shares | (751) | (535)
| |
Dividends paid | (819) | (851)
=----------------------------------------+--------------+--------------
Shareholders' funds at end of year | 15,702 | 19,265
=----------------------------------------+--------------+--------------
The accompanying notes form an integral part of the financial statements.
Balance Sheet
+----------------+
| As at 31 July| As at 31 July
| 2011| 2010
| |
Notes| GBP'000 GBP'000| GBP'000 GBP'000
=---------------------------------------------+----------------+----------------
| |
| |
Fixed asset investments* 10 | 13,260| 16,478
| |
Current assets: | |
| |
Debtors 11 | 27 | 11
| |
Money market securities* and other | |
deposits 12 | 2,475 | 2,667
| |
Cash at bank | 136 | 243
=---------------------------------------------+----------------+----------------
| 2,638 | 2,921
| |
Creditors: amounts falling due within | |
one year 13 | (196) | (134)
=---------------------------------------------+----------------+----------------
Net current assets | 2,442| 2,787
=---------------------------------------------+----------------+----------------
| |
=---------------------------------------------+----------------+----------------
Net assets | 15,702| 19,265
=---------------------------------------------+----------------+----------------
| |
| |
Called up equity share capital 14 | 2,648 | 2,775
| |
Special distributable reserve 15 | 22,737 | 23,488
| |
Capital redemption reserve 15 | 304 | 177
| |
Capital reserve - losses on disposal 15 |(5,599) |(4,472)
| |
- investment holding losses 15 |(4,527) |(2,794)
| |
Revenue reserve 15 | 139 | 91
=---------------------------------------------+----------------+----------------
Total equity shareholders' funds | 15,702| 19,265
=---------------------------------------------+----------------+----------------
Net asset value per share 9 | 59.3p| 69.4p
+----------------+
* Held at fair value through profit or loss
The statements were approved by the Directors and authorised for issue on 4
November 2011 and are signed on their behalf by:
Greg Melgaard
Chairman
Company number: 05487724
The accompanying notes form an integral part of the financial statements.
Cash Flow Statement
+------------+
| Year ended| Year ended
|31 July 2011|31 July 2010
| |
Notes| GBP'000| GBP'000
=--------------------------------------------------+------------+------------
| |
| |
Net cash outflow from operating activities | (95)| (38)
| |
| |
| |
Financial investment | |
| |
Purchase of fixed asset investments 10 | (392)| (871)
| |
Sale of fixed asset investments 10 | 1,756| 911
| |
| |
| |
Management of liquid resources | |
| |
Purchase of current asset investments 12 | (5,520)| (1,485)
| |
Sale of current asset investments 12 | 5,714| 3,038
| |
| |
| |
Taxation | -| -
| |
| |
| |
Dividends paid 7 | (819)| (851)
| |
| |
| |
Financing | |
| |
Purchase of own shares 14 | (751)| (535)
=--------------------------------------------------+------------+------------
(Decrease)/increase in cash resources at bank | (107)| 169
+------------+
The accompanying notes form an integral part of the financial statements.
Reconciliation of Return before Taxation to Cash Flow from Operating Activities
+------------+
| Year ended| Year ended
|31 July 2011|31 July 2010
| |
Notes| GBP'000| GBP'000
=-----------------------------------------------------+------------+------------
Return on ordinary activities before tax | (1,993)| 2,112
| |
Loss/(gain) on valuation of fixed asset 10 | |
investments | 1,938| (1,970)
| |
Loss/(gain) on valuation of current asset 12 | |
investments | -| (32)
| |
Gain on disposal on fixed asset investments 10 | (84)| (411)
| |
Gain on disposal on current asset investments 12 | (2)| -
| |
(Increase)/decrease in debtors | (16)| 318
| |
Increase/(decrease) in creditors | 62| (55)
=-----------------------------------------------------+------------+------------
Net cash outflow from operating activities | (95)| (38)
+------------+
Reconciliation of Net Cash Flow to Movement in Net Funds
+------------+
| Year ended| Year ended
|31 July 2011|31 July 2010
| |
Notes| GBP'000| GBP'000
=-----------------------------------------------------+------------+------------
(Decrease)/increase in cash at bank | (107)| 169
| |
Movement in cash equivalents 12 | (192)| (1,521)
| |
Opening net cash resources | 2,910| 4,262
=-----------------------------------------------------+------------+------------
Net funds at 31 July | 2,611| 2,910
+------------+
Net funds at 31 July comprised:
+--------------+
| Year ended | Year ended
| 31 July 2011 | 31 July 2010
| |
| GBP'000 | GBP'000
=-------------------------------------------+--------------+--------------
Cash at bank | 136 | 243
| |
Money market securities and other deposits | 2,475 | 2,667
=-------------------------------------------+--------------+--------------
Net funds at 31 July | 2,611 | 2,910
+--------------+
Notes to the Financial Statements
1. Principal accounting policies
Basis of accounting
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of certain financial
instruments, and in accordance with UK Generally Accepted Accounting Practice
(UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial
Statements of Investment Trust Companies' (revised 2009).
The principal accounting policies have remained unchanged from those set out in
the Company's 2010 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
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 and 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
investment gains and losses are attributable to assets designated as being at
fair value through profit and loss.
Current asset investments compromising money market funds are held at fair value
through the profit and 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.
Investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly, as permitted by FRS 26, the investments will be designated as fair
value through profit and loss (FVTPL) on the basis that they qualify as a group
of assets managed, and whose performance is evaluated, on a fair value basis in
accordance with the documented investment strategy. The Company's investments
are measured at subsequent reporting dates at fair value with the holding gains
and losses recorded in the income statement each year. In accordance with the
investment strategy, the investments are held with a view to long-term capital
growth and it is therefore possible that individual holdings may increase in
value to a point where they represent a significantly higher proportion of total
assets than the original cost.
In the case of investments quoted on a recognised stock exchange, fair value is
established by reference to the closing bid price on the relevant date or the
last traded price, depending upon convention of the exchange on which the
investment is quoted. This is consistent with the IPEVC valuation guidelines.
In the case of unquoted investments, fair value is established by using measures
of value such as the price of recent transactions, earnings multiple and net
assets. This is consistent with IPEVC valuation guidelines.
Profits 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, bonds and OEICs and are
designated as 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 held for trading, 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.
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 has been
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 year 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 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' comprises 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 15. The Board considers
the distributable reserves and the total return for the year when recommending a
dividend. In addition, the Board is authorised to make market purchases up to a
maximum of 5% of the issued Ordinary share capital of the Company in accordance
with Special Resolution 9 in order to maintain sufficient liquidity in the VCT.
Capital management is monitored and controlled using the internal control
procedures set out on page · of this report. The capital being managed includes
equity and fixed-interest investments, cash balances and liquid resources
including debtors and creditors.
Financial instruments
The Company's principal financial assets are its investments and the policies in
relation to those assets are set out above. Financial liabilities and equity
instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a
residual interest in the assets of the entity after deducting all of its
financial liabilities. Where the contractual terms of share capital do not have
any terms meeting the definition of a financial liability then this is classed
as an equity instrument. Dividends and distributions relating to equity
instruments are debited direct to equity.
Dividends
Dividends payable are recognised as distributions in the financial statements
when the Company's liability to make payment has been established. This
liability is established for interim dividends when they are declared by the
Board, and for final dividends when they are approved by the shareholders.
2. Income
Year ended Year ended
31 July 2011 31 July 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Money market securities and bank balances 17 43
Dividend income 15 19
Loan note interest receivable 517 302
=-------------------------------------------------------------------------------
549 364
=-------------------------------------------------------------------------------
3. Investment Management Fees
Year ended 31 July Year ended 31 July
2011 2010
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=--------------------------------------------------------------------
Investment management fee 96 289 385 95 284 379
=--------------------------------------------------------------------
For the purposes of the revenue and capital columns in the income statement, the
management fee has been allocated 25% to revenue and 75% to capital, in line
with the Board's expected long-term return in the form of income and capital
gains respectively from the Company's investment portfolio.
Octopus provides investment management and accounting and administration
services to the Company under a management agreement. This agreement ran for a
period of five years with effect from 4 October 2005 and may now be terminated
at any time with no 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 ended Year ended
31 July 2011 31 July 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Accounting and administration services 58 56
Directors' remuneration 44 27
Fees payable to the Company's auditor for the audit of 14 14
the financial statements
Fees payable to the Company's auditor for other 3 3
services - tax compliance
Legal and professional expenses 7 2
Other expenses 179 184
=-------------------------------------------------------------------------------
305 286
=-------------------------------------------------------------------------------
Total annual running costs are capped at 3.5% of net assets (excluding
irrecoverable VAT, trail commission and exceptional expenses). For the year to
31 July 2011 the running costs, as defined in the prospectus, were 3.2% of net
assets (2010: 3.0%).
5. Directors' Remuneration
Year to 31 July
2011 Year to 31 July 2010
Emoluments National Emoluments National Insurance
GBP'000 Insurance GBP'000 GBP'000
GBP'000
=------------------------------------------------------------------------------
Greg Melgaard 21 2 11 -
(Chairman)
Ruth McIntosh 14 - - -
Matt Cooper 8 - 8 -
Alex Hambro* 1 - 8 -
=------------------------------------------------------------------------------
44 2 27 -
=------------------------------------------------------------------------------
* resigned 20 September 2010
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
(2010: three). See the Directors' Remuneration Report for further details of the
Directors' remuneration policies.
6. Tax on Ordinary Activities
The corporation tax charge for the year was GBPnil (2010: GBPnil).
The current tax charge for the year differs from the standard rate of
corporation tax in the UK of 27.3% (2010: 28%).
The differences are explained below.
Current tax reconciliation: Year ended Year ended
31 July 2011 31 July 2010
GBP'000 GBP'000
=------------------------------------------------------------------------
Return on ordinary activities before tax (1,993) 2,112
Current tax at 27.3% (2010: 28%) (545) 591
Adjustment in respect of previous periods - (3)
Expenses not deductible for tax purposes 498 (691)
Unrelieved losses 47 100
=------------------------------------------------------------------------
Total current tax charge - (3)
=------------------------------------------------------------------------
Excess management charges of GBP763,000 (31 July 2010: GBP590,000) have been carried
forward at 31 July 2011 and are available for offset against future taxable
income subject to agreement with HMRC. The associated deferred tax asset of
GBP208,000 (31 July 2010: GBP165,000) has not been recognised.
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 ended Year ended
31 July 2011 31 July 2010
GBP'000 GBP'000
=-------------------------------------------------------------------------------
Recognised as distributions in the financial
statements for the year
Previous year's final dividend 416 430
Current year's interim dividend 403 421
=-------------------------------------------------------------------------------
819 851
=-------------------------------------------------------------------------------
Paid and proposed in respect of the year
Interim dividend paid - 1.5p per share (2010:
1.5p per share) 403 421
Proposed final dividend - 2.0p per share (2010:
1.5p per share) 530 416
=-------------------------------------------------------------------------------
933 837
=-------------------------------------------------------------------------------
The final dividend of 2.0p per share for the year to 31 July 2011, subject to
shareholder approval at the Annual General Meeting, will be paid on 16 December
2011 to those shareholders on the register on 18 November 2011.
8. Earnings per Share
The total, revenue and capital earnings per share is based on 27,328,296 (31
July 2010: 28,668,324) Ordinary shares, being the weighted average number of
shares in issue during the year.
There are no potentially dilutive capital instruments in issue and, therefore,
no diluted return per share figures are relevant. The basic and diluted earnings
per share are therefore identical.
9. NAV per Share
The calculation of NAV per share as at 31 July 2011 is based on 26,479,092 (31
July 2010: 27,774,104) Ordinary shares in issue at that date.
10. Fixed Asset Investments
Effective from 1 August 2009, the Company adopted the amendment to FRS 29
regarding financial instruments
that are measured in the balance sheet at fair value; this requires disclosure
of fair value measurements by level
of the following fair value measurement hierarchy:
Level 1: quoted prices in active markets for identical assets and liabilities.
The fair value of financial instruments
traded in active markets is based on quoted market prices at the balance sheet
date. A market is regarded as
active if quoted prices are readily and regularly available, and those prices
represent actual and regularly
occurring market transactions on an arm's length basis. The quoted market price
used for financial assets held is
the current bid price. These instruments are included in level 1 and comprise
AIM-listed investments classified as
held at fair value through profit or loss.
Level 2: the fair value of financial instruments that are not traded in an
active market is determined by using
valuation techniques. These valuation techniques maximise the use of observable
data where it is available and
rely as little as possible on entity-specific estimates. If all significant
inputs required to fair value an instrument
are observable, the instrument is included in level 2. The Company held no such
investment in the current 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 (2010:
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 July
2011 are summarised below and in
note 12.
Level 1: Level 3:
AIM-quoted Unquoted
investments investments Total
GBP'000 GBP'000 GBP'000
=--------------------------------------------------------------------------
Valuation and net book amount:
Book cost as at 1 August 2010 3,458 15,598 19,056
Cumulative revaluation (2,575) (3) (2,578)
=--------------------------------------------------------------------------
Valuation at 1 August 2010 883 15,595 16,478
Movement in the year:
Purchases at cost - 392 392
Disposal proceeds (100) (1,656) (1,756)
Profit/(loss) on realisation of investments 17 67 84
Revaluation in year 271 (2,209) (1,938)
=--------------------------------------------------------------------------
Valuation at 31 July 2011 1,071 12,189 13,260
=--------------------------------------------------------------------------
Book cost at 31 July 2011: 3,360 14,427 17,787
Revaluation to 31 July 2011: (2,289) (2,238) (4,527)
=--------------------------------------------------------------------------
Valuation at 31 July 2011 1,071 12,189 13,260
=--------------------------------------------------------------------------
The investment portfolio is managed with capital growth as the primary focus.
The loan and equity investments are considered to be one instrument 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
disclosed in the Investment Manager's Review and within the principal accounting
policies in note 1. The sensitivity of these valuations to a reasonable possible
change in such assumptions is given in note 16.
At 31 July 2011 and 31 July 2010 there were no commitments in respect of
investments not yet completed.
11. Debtors
31 July 2011 31 July 2010
GBP'000 GBP'000
=-------------------------------------------------------------
Prepayments and accrued income 27 11
=-------------------------------------------------------------
12. Current Asset Investments
GBP'000 GBP'000
=------------------------------------------------------------------
Cost at 1 August 2010:
Money market funds 2,921
-----------
Revaluation to 1 August 2010:
Money market funds (254)
-----------
=------------------------------------------------------------------
Valuation as at 1 August 2010 2,667
=------------------------------------------------------------------
Movement in the year:
Purchases at cost:
Money market funds 5,520 5,520
-----------
Disposal proceeds:
Money market funds (5,714) (5,714)
-----------
Profit in year on realisation of investments:
Money market funds 2 2
-----------
Revaluation in year:
Money market funds - -
-----------
=------------------------------------------------------------------
Valuation as at 31 July 2011 2,475
=------------------------------------------------------------------
Cost at 31 July 2011:
Money market funds 2,475 2,475
-----------
Revaluation to 31 July 2011:
Money market funds - -
-----------
=------------------------------------------------------------------
Valuation as at 31 July 2011 2,475
=------------------------------------------------------------------
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: Level 1 valuations are based on quoted prices
(unadjusted) in active markets for identical assets or liabilities. The
valuation of money market funds at 31 July 2011 was GBP2,475,000 (2010:
GBP2,677,000).
13. Creditors: amounts falling due within one year
31 July 2011 31 July 2010
GBP'000 GBP'000
=----------------------------------------------
Accruals 70 45
Other creditors 126 89
=----------------------------------------------
196 134
=----------------------------------------------
14. Share Capital
31 July 2011 31 July 2010
GBP'000 GBP'000
=-----------------------------------------------------------------------------
Authorised:
50,000,000 Ordinary shares of 10p 5,000 5,000
=-----------------------------------------------------------------------------
Allotted and fully paid up:
26,479,092 Ordinary shares of 10p (2010: 27,774,104) 2,648 2,775
=-----------------------------------------------------------------------------
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 out on page X.
The Company is not subject to any externally imposed capital requirements.
The Company did not issue any shares in the year (2010: nil).
The Company repurchased the following Ordinary shares for cancellation (2010:
944,882 Ordinary shares at a weighted average price of 56.6p per share):
* 12 November 2010: 135,000 at a price of 61p per share
* 6 December 2010: 166,000 at a price of 60p per share
* 23 December 2010: 27,191 at a price of 60p per share
* 31 January 2011: 101,736 at a price of 60p per share
* 8 April 2011: 403,800 at a price of 58p per share
* 23 May 2011: 148,428 at a price of 56p per share
* 17 June 2011: 117,878 at a price of 55.9p per share
* 8 July 2011: 90,254 at a price of 55.4p per share
* 29 July 2011: 104,725 at a price of 55p per share
The total nominal value of the shares repurchased was GBP129,501 (2010: GBP94,488)
representing 4.9% (2010: 3.4%) of the issued share capital.
15. Reserves
Capital
reserve - Capital
gains/ reserve -
Special Capital (losses) holding
Share distributable redemption on gains Revenue
Capital reserve reserve disposal /(losses) reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=-------------------------------------------------------------------------------
As at 1 August 2,775 23,488 177 (4,472) (2,794) 91
2010
Purchase of own (127) (751) 127 - - -
shares
Return on
ordinary - - - - - 148
activities
after tax
Management fees
allocated as - - - (289) - -
capital
expenditure
Prior year
gains/(losses) - - - (205) 205 -
on disposal
Current year
gains on - - - 86 - -
disposal
Current year
losses on fair - - - - (1,938) -
value of
investments
Dividends paid - - - (719) - (100)
=-------------------------------------------------------------------------------
Balance as at 2,648 22,737* 304 (5,599)* (4,527)* 139*
31 July 2011
=-------------------------------------------------------------------------------
*Available for potential distribution by way of a dividend
When the Company revalues the investments during the year, any gains or losses
arising are credited/charged to the income statement. Unrealised 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:
GBP'000
=------------------------------
As at 1 August 2010 16,313
Movement in year (3,563)
=------------------------------
As at 31 July 2011 12,750
=------------------------------
The purpose of the special distributable reserve was to create a reserve which
will be capable of being used by the Company to pay dividends and for the
purpose of making repurchases of its own shares in the market with a view to
narrowing the discount to net asset value at which the Company's Ordinary shares
trade. In the event that the revenue reserve and capital reserve gains/(losses)
on disposal do not have sufficient funds to pay dividends, these will be paid
from the special distributable reserve.
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
Eclipse 3 held the following categories of financial instruments, all of which
are included in the balance sheet at fair value, at 31 July 2011.
31 July 2011 31 July 2010
GBP000 GBP000
Assets at fair value through profit or loss
Investments 13,260 16,478
Current asset investments 2,475 2,667
=--------------------------------------------------------------------------
Total 15,735 19,145
Loans and receivables
Cash at bank 136 243
=--------------------------------------------------------------------------
Total 136 243
Liabilities at amortised cost
Accruals and other creditors 196 134
=--------------------------------------------------------------------------
Total 196 134
Fixed asset investments (see note 10) are valued 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 year end is equal to their book value.
In carrying on its investment activities, the Company is exposed to various
types of risk associated with the financial instruments and markets in which it
invests. The most significant types of financial risk facing the Company are
price risk, interest rate risk, credit risk and liquidity risk. The Company's
approach to managing these risks is set out below together with a description of
the nature and amount of the financial instruments held at the balance sheet
date.
Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page 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 in
accordance with the policies and procedures described in the Corporate
Governance statement on pages X to X, having regard to the possible effects of
adverse price movements, with the objective of maximising overall returns to
shareholders. Investments in unquoted companies, by their nature, usually
involve a higher degree of risk than investments in companies quoted on a
recognised stock exchange, though the risk can be mitigated to a certain extent
by diversifying the portfolio across business sectors and asset classes. The
overall disposition of the Company's assets is regularly monitored by the Board.
Details of the Company's investment portfolio at the balance sheet date are set
out on page X.
6.8% (31 July 2010: 4.6%) by value of the Company's net assets comprises equity
securities listed on the London Stock Exchange or quoted on AIM. Every 5%
increase in the bid price of these securities as at 31 July 2011 would have
increased net assets and the total return for the year by GBP54,000 (31 July
2010: GBP44,000); a corresponding fall would have reduced net assets and the total
return for the year by the same amount.
77.6% (31 July 2010: 80.9%) 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 July 2011 would have increased net assets and the
total return for the year by GBP609,000 (31 July 2010: GBP780,000); 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 10% 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, of which some are
at fixed rates and some variable. As a result, the Company is exposed to fair
value interest rate risk due to fluctuations in the prevailing levels of market
interest rates.
Fixed rate
The table below summarises weighted average effective interest rates for the
fixed interest-bearing financial instruments:
As at 31 July 2011 As at 31 July 2010
=-------------------------------------------------------------------------------
Weighted
Weighted average
average time for
Total fixed Weighted time for Total fixed Weighted which
rate average which rate rate average rate is
portfolio interest is fixed portfolio interest fixed in
GBP'000 rate % in years GBP'000 rate % years
=-------------------------------------------------------------------------------
Fixed rate
investments
in unquoted
companies 9,387 7.9 1.0 7,619 6.9 2.0
=-------------------------------------------------------------------------------
Due to the expected period to maturity of the fixed rate investments held within
the portfolio, it is considered that an increase or decrease of 1% in interest
rates as at the reporting date would not have had a significant effect on the
Company's net assets or total return for the year.
The weighted average interest rate includes investments which have terms
allowing debt interest to be rolled up, payable in future years. This interest
is not recognised in the accounts until it is paid.
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 July 2011 (31 July
2010: 0.5%). The amounts held in floating rate investments at the balance sheet
date were as follows:
31 July 2011 31 July 2010
GBP000 GBP000
=-------------------------------------------------
Money market funds 2,475 2,667
Cash on deposit 136 243
=-------------------------------------------------
2,611 2,910
=-------------------------------------------------
A 1% increase in the base rate would increase income receivable from these
investments and the total return for the year by GBP26,110 (31 July 2010:
GBP29,100).
Credit risk
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 July 2011, the Company's financial assets exposed to credit risk comprised
the following:
31 July 2011 31 July 2010
GBP000 GBP000
=------------------------------------------------------------------------
Investments in fixed interest instruments 9,387 7,619
Cash on deposit & money market funds 2,611 2,910
Accrued dividends and interest receivable 12 -
=------------------------------------------------------------------------
12,010 10,529
=------------------------------------------------------------------------
Credit risk relating to listed money market funds (being investments in floating
rate instruments) is mitigated by investing in a portfolio of investment
instruments of high credit quality, comprising securities issued by the UK
Government and major UK companies and institutions. Credit risk relating to
loans to and preference shares in unquoted companies is considered to be part of
market risk.
Those assets of the Company which are traded on recognised stock exchanges are
held on the Company's behalf by third party custodians (Goldman Sachs and
BlackRock in the case of listed money market securities and Charles Stanley
Limited in the case of quoted equity securities). Bankruptcy or insolvency of a
custodian could cause the Company's rights with respect to securities held by
the custodian to be delayed or limited.
Credit risk arising on the sale of investments is considered to be small due to
the short settlement and the contracted agreements in place with the settlement
lawyers.
The Company's interest-bearing deposit and current accounts are maintained with
HSBC Bank plc. The Investment Manager has in place a monitoring procedure in
respect of counterparty risk which is reviewed on an ongoing basis. Should the
credit quality or the financial position of HSBC deteriorate significantly, the
Investment Manager will move the cash holdings to another bank.
There were no significant concentrations of credit risk to counterparties at 31
July 2011 or 31 July 2010. By cost, no individual investment exceeded 14.7% of
the Company's net assets at 31 July 2011 (31 July 2010: 12.0%).
Liquidity risk
The Company's financial assets include investments in unquoted equity securities
which are not traded on a recognised stock exchange and which generally may be
illiquid. They also include investments in AIM-quoted companies which, by their
nature, involve a higher degree of risk than investments on the main market. As
a result, the Company may not be able to realise some of its investments in
these instruments quickly at an amount close to their fair value in order to
meet its liquidity requirements, or to respond to specific events such as
deterioration in the creditworthiness of any particular issuer.
The Company's listed money market funds are considered to be readily realisable
as they are of high credit quality as outlined above.
The Company's liquidity risk is managed on a continuing basis by the Investment
Manager in accordance with policies and procedures laid down by the Board. The
Company's overall liquidity risks are monitored on a quarterly basis by the
Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 31 July 2011 these
investments were valued at GBP2,611,000 (31 July 2010: GBP2,910,000).
17. Post-Balance Sheet Events
The following events occurred between the balance sheet date and the signing of
these financial statements:
* Perfect Pizza Limited went into administration on 1 August 2011. The
conditions that resulted in the company going into administration were
evident at 31 July 2011 and therefore taken into account when assessing the
fair value of the investment at the year end.
* There was a part disposal of the holding in Northern Bear plc on 26 August
2011 realising a loss of GBP17,000.
* The holding in CBG Group plc was subject to a cash bid on 31 August 2011
realising a loss of GBP296,000.
* Blanc Brasseries Holdings plc was sold on 30 September 2011 realising a
profit of GBP18,000.
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 up to 0.5% of the initial net asset
value. Trail commission of GBP67,000 was paid during the year (2010: GBP69,000) and
there was GBPnil outstanding at the year end.
There were no other contingencies, guarantees or financial commitments as at 31
July 2011 (2010: none).
19. Related Party Transactions
Eclipse 3 has employed Octopus Investments Limited throughout the year as
Investment Manager.
Matt Cooper, a Non-Executive Director of Eclipse 3, is also Chairman of Octopus
Investments Limited. Eclipse 3 has paid Octopus Investments GBP385,000 (2010:
GBP379,000) in the year as a management fee and there is GBPnil (2010: GBPnil)
outstanding at the balance sheet date. The management fee is payable quarterly
in advance and is based on 2.0% of the net asset value calculated at annual
intervals as at 31 July.
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 July. During the year GBP58,000
(2010: GBP56,000) was paid to Octopus and there is GBPnil outstanding at the balance
sheet date, for the accounting and administrative services.
In addition, Octopus is entitled to annual performance related incentive fees in
the event that performance criteria in relation to the increase in net assets,
after adding back distributions, are exceeded. Commencing no earlier than the
close of the 2007/08 financial year and in the event that distributions per
share have reached 40p in aggregate, subsequently increased to 45p following
approval of the Coinvestment Agreement approved at the EGM in 2006, and the
performance value at that date exceeds 130p per share, then Octopus will be
entitled to an incentive fee equal to 20% of the excess of such performance
value over 100p per share. The Board considers 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.
The Directors received the following dividends from the Company:
31 July 2011 31 July 2010
Greg Melgaard (Chairman) GBP472 GBP472
Matt Cooper GBP158 GBP158
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 Eclipse VCT 3 plc via Thomson Reuters ONE
[HUG#1561113]
Octopus Ecl.3 (LSE:OEC3)
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