Eclipse VCT 3 plc
Preliminary results for the period ended 31 August 2006
Financial Summary
for the period ended 31 August 2006
31 August 2006
* Net assets �28,247,000
* Net asset value per share 95.7p
* Revenue return after tax �218,000
* Revenue return per share* 1.1p
* Total return per share* 1.0p
* Proposed dividend per share 0.7p
* Based on a weighted average of 18,516,747 shares in issue during
the period.
Eclipse VCT 3 plc ('Eclipse 3' or 'Fund') is a Venture Capital Trust
('VCT'). The investments are managed by Octopus Investments Limited
(formerly named Octopus Asset Management Limited) ('Octopus' or
'Manager'). Eclipse 3 was launched in August 2005 and raised over
�29.1 million (�28.1 million net of expenses) through an offer for
subscription which closed on 5 April 2006. It invests primarily in
unquoted and AIM-quoted companies and aims to deliver absolute
returns on its investments.
Chairman's Statement
I am pleased to present the first annual report to shareholders in
Eclipse VCT 3 plc and am delighted to report on the progress made by
the fund manager, Octopus Investments, in building the portfolio.
Fundraising
First of all I would like to thank all of our shareholders for
investing in Eclipse 3. The Fund raised �29.1 million by its close on
5 April 2006 and, in conjunction with Eclipse VCT 4 plc, the twin
fund, was the largest VCT fundraising in the 2005/06 tax year.
Eclipse 3 will co-invest with the three other Eclipse funds which are
all managed by the same investment team at Octopus. This means they
will not only be able to invest in a wider range of opportunities but
also in larger and more developed companies than are typically
available to a single VCT.
Net Asset Value ('NAV')
The net assets of the Fund were �28.2 million at the end of the
period under review, equivalent to 95.7p per share. At 31 August
2006, Eclipse 3 had made 15 investments totalling �3.1 million,
representing approximately 11% of the Fund (by net assets). All of
the unquoted investments were made alongside the other Eclipse funds,
on a pro-rata basis to fund size at the time of investment approval.
In the case of investments in AIM-quoted companies, the investments
were made alongside a number of other funds managed by Octopus.
Of the 15 investments made to date, nine are AIM investments and six
are in unquoted companies. When fully invested, we expect the
portfolio to be spread across 30 to 40 investments and the total
amount invested into any one sector and any one company will, for
diversification purposes, be limited to a maximum of 20% and 10% of
the Fund, respectively. Further information on the portfolio of
investments can be found in the 'Investment Manager's Review'.
The unquoted companies have been valued in accordance with
International Private Equity and Venture Capital ('IPEVC') guidelines
and are all held at cost as this is deemed to be the fair value of
the investments, with the exception of one investment which has
decreased in value (Red-M). As set out in the IPEVC guidelines,
valuations of unquoted investments are usually not changed for at
least twelve months from the date of investment unless the investee
company has performed significantly behind plan (in which case the
investment is written down in value), or we have participated in a
follow-on fundraising for the company. In the case of Red-M we
consider it prudent to make a modest provision following
disappointing results in one part of their business.
The value of AIM investments was �1,420,000, representing an increase
of approximately 22% compared with a cost of �1,166,000. Since the
period end the value has further increased to �1,765,000 representing
an increase of over 50%.
In accordance with the low risk approach adopted by Octopus, the
balance of the Fund's assets remain invested in money market
securities.
Dividend
In line with our commitment to maximise tax-free dividends to
shareholders, the Directors propose a dividend of 0.7p per share to
be paid on 8 December 2006 to shareholders on the register on 10
November 2006.
The Fund is at an early stage of its investment cycle and dividends
are largely derived from the income earned from money market
securities. In the medium-term, Octopus aims to produce a regular
tax-free income stream for shareholders and, as such, will realise
profits for distribution on holdings where we can maximise value.
Share Price and Buy-Back Facility
Eclipse 3 has a share buy-back facility, proposing to buy-back shares
at no more than a 10% discount to the prevailing NAV. This should
assist the marketability of the shares and help prevent the shares
from trading at a wide discount to NAV.
The mid market share price of the Fund currently stands at 100p
compared to the NAV of 95.7p. In the period under review, Eclipse 3
repurchased 3,060 shares at a price of 95p. Shareholders should note
that if they sell their shares within three years of the original
purchase they forfeit any income tax relief obtained.
If you need to sell your shares, please contact Octopus on 020 7710
2800.
VCT Qualifying Status
As you may be aware, Eclipse 3 must be 70% invested in qualifying
companies by 31 August 2008 in order to comply with VCT regulations.
At 31 August 2006, Eclipse 3 was approximately 11% invested (by net
assets) in qualifying holdings, which is in line with our
expectations at this early stage in the Fund's life. This has
increased to approximately 18% following further investment activity.
The Directors will continue to monitor the progress of the Fund in
meeting HM Revenue and Customs conditions for VCT approval and have
retained PricewaterhouseCoopers LLP, one of the UK's leading firms of
accountants, to advise in this area. In light of the current deal
flow, the Directors expect Eclipse 3 to meet the relevant conditions
by its deadline of 31 August 2008.
Outlook
The challenge for all venture capital funds is to attract a strong
flow of attractive investment opportunities. The specific challenge
for Eclipse 3 is to ensure that it has invested 70% of the funds
raised in VCT qualifying companies by August 2008. I am pleased to
say that the size of the investment team at Octopus has increased
significantly, from four to ten managers, over the period and the
Fund expects to be closer to 80% invested by this date.
R Gregory Melgaard
Chairman
26 October 2006
Investment Manager's Review
Personal Service
At Octopus, we pride ourselves not only on our team's track record
but also on our personalised customer service. We believe in open
communication and our regular updates are designed to keep you
involved and informed.
If you have any questions about this review, or if it would help to
speak to one of the fund managers, please do not hesitate to contact
us on 020 7710 2800.
Review of Investments
We are pleased with the progress made by the Fund since launch. Since
the Fund launch, 15 investments have been made, totalling �3.1
million.
Of the 15 investments held by the Fund at 31 August 2006, nine were
in AIM quoted companies and six were in unquoted companies. We
expect that approximately 20% of the Fund will be invested in AIM
quoted companies once fully invested.
Once we have made an investment, we take an active approach in
monitoring its performance. This includes regular meetings with
management teams and, in the case of most unquoted investments,
attending board meetings of the portfolio companies.
In keeping with our patient and low risk approach, the remainder of
the Fund is invested in money market securities.
AIM investments are valued at the quoted bid price and we are pleased
that the portfolio value has risen by approximately 22%. As mentioned
in the Chairman's statement unquoted investments are valued in
accordance with the IPEVC guidelines and are generally held at cost
at the period end as this is deemed to be the fair value of the
investments, with the exception of one investment which has decreased
in value (Red-M). As set out in the IPEVC guidelines, valuations of
unquoted investments are usually not changed for at least twelve
months from the date of investment unless the investee company
has performed significantly behind plan (in which case the investment
is written down in value), or we have participated in a follow-on
fundraising for the company. Overall we are pleased with the
performance of our unquoted investments, however, in the case of
Red-M we consider it prudent to take a modest provision, following
disappointing results in one part of their business.
Qualifying Status
VCTs have three years to invest 70% of their money into qualifying
companies. At 31 August 2006, Eclipse 3 had invested approximately
11% of the Fund. This is in line with our expectations at this stage
of the Fund's life.
Portfolio Activity
In the period to 31 August 2006 the Fund had made 15 investments, all
of which are detailed below.
Portfolio of Investments
Investment Unrealised
at Cost appreciation/ Carrying Value
(depreciation)
Unquoted �'000 �'000 �'000
investments
CSL Dualcom
Limited 805 - 805
Perfect Pizza
Limited 372 - 372
James Harvard
International
Limited 245 - 245
Red-M Group
Limited 241 (58) 183
Capital Pub
Company 2 plc 200 - 200
Blanc Brasseries
Holdings plc 55 - 55
1,918 (58) 1,860
AIM investments
Worthington
Nicholls Group 610
plc 500 110
Tanfield Group 229
plc 150 79
Healthcare 115
Locums plc 100 15
Autoclenz 107
Holdings plc 125 (18)
Cohort plc 82
68 14
BBI Holdings plc 78
64 14
Abcam plc 72
44 28
Ovum plc 65
75 (10)
Invocas plc 62
40 22
1,166 254 1,420
3,084 196 3,280
Ten Largest Holdings as at 31 August 2006
CSL Dualcom Limited
In June 2006, Eclipse 3 invested �805,000 in the management buy out
of CSL Dualcom, alongside the other Eclipse funds. 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 and a mobile phone network
provided by Vodafone, which has been a partner of CSL Dualcom for the
last six years. The Company is poised to grow rapidly on the back of
a recent new product launch and by extending the Company's products
to the fire sector, where recent legislation has created a large
market opportunity.
Further information can be found at the Company's website
www.csl-communications.com.
Investment date June 2006
Equity held 10%
Cost (�'000) - equity investment and loan notes 805
Valuation(�'000) 805
Valuation basis Cost
Dividends/interest received during the period (�'000) -
Audited financial information March 2006
�'000
Turnover 4,730
Profit before taxation 86
Retained profit 86
Net liabilities (317)
Worthington Nicholls Group plc
Worthington Nicholls Group plc is the leading UK installer of air
conditioning units in the hotel, retail and leisure markets. The
Company, which supplies over 50% (by number of rooms) of the 3* plus
UK hotel market, is expected to achieve a profit before tax of �3.6
million on turnover of �25 million for the year ending September
2006.
Further information can be found at the Company's website
www.worthington-nicholls.co.uk.
Investment date June 2006
Equity held 1.54%
Cost (�'000) 500
Valuation(�'000) 610
Valuation basis Bid price
Dividends/interest received during the period (�'000) -
Audited financial information September 2005
�'000
Turnover 10,120
Loss before taxation (753)
Retained loss (675)
Net assets 722
Perfect Pizza Limited
In February 2006, Eclipse 3 invested in Perfect Pizza, by
participating in a �7 million Management Buy-In. Perfect Pizza is the
third largest pizza delivery business in the UK with 114 franchise
stores throughout the country. The home delivery pizza market is
expected to continue to be a growth area as a result of the long-term
trend away from home cooking.
Further information can be found at the Company's website
www.perfectpizza.co.uk
Investment date February 2006
Equity held 4.8%
Cost (�'000) - equity investment and loan notes 372
Valuation(�'000) 372
Valuation basis Cost
Dividends/interest received during the period (�'000) -
First audited financial information will be available for the period
to March 2006.
James Harvard International Limited
James Harvard is one of the leading recruitment agencies in the
growing, but fragmented, European clinical trials market. The funds
raised were used to acquire EXCO, thereby extending the range of
functional areas covered by James Harvard as well as providing access
to a broader range of clients.
Further information can be found at the Company's website
www.jamesharvard.com.
Investment date November 2005
Equity held 2.5%
Cost (�'000) - equity investment and loan notes 245
Valuation(�'000) 245
Valuation basis Cost
Dividends/interest received during the period (�'000) -
First audited financial information will be available for the period
to December 2005.
Red- M Group Limited
Red-M provides software products and services for the wireless market
and designs, deploys and manages wireless networks across the
spectrum of commercially used radio frequencies for blue chip
clients. The company was formed in April 2005 by the merger of
Cellular Design Services, a wireless consulting services provider,
and Red-M Communications, a vendor of wireless security probes and
monitoring software.
Further information can be found at the Company's website,
www.red-m.com.
Investment date December 2005
Equity held 2.0%
Cost (�'000) - equity investment 241
Valuation(�'000) 183
Valuation basis Cost
Dividends/interest received during the period (�'000) -
First audited financial information will be available for period to
December 2005
Tanfield Group plc
Tanfield Group plc is a supplier of electric vehicles, aerial access
platforms and assembly and technical engineering services. The
Company recently completed the acquisition of Upright Inc, a
manufacturer and distributor of powered platform equipment, which are
sold globally via a distribution network.
Further information can be found at the Company's website
www.tanfieldgroup.com.
Investment date December 2005
Equity held 0.4%
Cost (�'000) 150
Valuation(�'000) 229
Valuation basis Bid price
Dividends/interest received during the period (�'000) -
Audited financial information December 2005
�'000
Turnover 22,431
Profit before taxation 2,000
Retained profit 1,694
Net assets 23,926
The Capital Pub Company 2 plc
The Capital Pub Company 2 plc is the latest pub investment vehicle
set up by David Bruce, who has a long and successful track record in
the brewing and leisure industry. Bruce has set up and sold a number
of similar companies, including the Firkin and the Slug and Lettuce
chains of pubs.
In total, more than �16 million has been raised for the Company which
is developing a portfolio of freehold pubs in the Greater London
area. These are unbranded, un-themed and have no tie to a particular
brewery. To date, ten sites have been acquired and more are in the
pipeline.
Further information can be found at the Company's website
www.capitalpubcompany2.com.
Investment date December 2005
Equity held 1.2%
Cost (�'000) 200
Valuation(�'000) 200
Valuation basis Cost
Dividends/interest received during the period (�'000) -
Audited financial information September 2005
�'000
Turnover 1,518
Profit before taxation 68
Retained profit 45
Net assets 10,500
Healthcare Locums plc
Healthcare Locums is one of the UK's largest and fastest growing
specialist healthcare recruitment companies. The Company specialises
in higher margin recruitment areas such as doctors, social workers
and allied health professionals.
Further information can be found at the Company's web site
www.healthcarelocums.com.
Investment date November 2005
Equity held 0.3%
Cost (�'000) 100
Valuation(�'000) 115
Valuation basis Bid price
Dividends/interest received during the period (�'000) -
Audited financial information December 2005
�'000
Turnover 43,859
Profit before taxation 1,628
Retained profit 1,142
Net assets 25,098
Autoclenz Holdings Plc
Autoclenz, founded in 1990, is the UK's leading provider of valeting
services to automotive retailers, auction houses, rental companies
and car supermarkets. The Company has recently floated on AIM having
previously been a subsidiary of Yule Catto, the chemical company. The
fastest growing division of Autoclenz is REACT, a Home Office
approved specialist cleaning and decontaminating service. REACT
carries out work on behalf of the emergency services, prison service
and local authorities.
Further information can be found at the Company's web site
www.autoclenz.co.uk.
Investment date December 2005
Equity held 0.9%
Cost (�'000) 125
Valuation(�'000) 107
Valuation basis Bid price
Dividends/interest received during the period (�'000) -
First audited financial information will be available for the period
to December 2006
Cohort plc
Cohort was incorporated to acquire Systems Consultants Services
(SCS), a UK based company providing training support and equipment
trials to the defence sector. The company's strategy is to acquire
complementary technical services companies and position them side by
side with the fast-growing SCS business. The company floated on AIM
in February 2006 having raised �5 million.
Further information can be found at the Company's web site
www.cohort.com.
Investment date March 2006
Equity held 0.2%
Cost (�'000) 68
Valuation(�'000) 82
Valuation basis Bid price
Dividends/interest received during the period (�'000) -
Audited financial information April 2006
�'000
Turnover 18,000
Profit before taxation 1,359
Retained profit 919
Net assets 8,924
There were five further investments made in the period details of
which are shown below:
BBI Holdings plc
BBI develops and manufactures diagnostic tests for the point of care
market. The company derives income from the manufacture and supply of
gold colloids, bespoke product development for third parties and the
manufacture of diagnostic tests for industry partners. In April 2006,
the Company acquired Alchemy Laboratories Ltd, a Dundee-based company
with operations in similar fields to BBI.
Abcam plc
Abcam is an internet based company focused on the development and
distribution of research-grade antibodies, to universities, research
institutes and pharmaceutical companies. The company floated on AIM
during November 2005 raising �10 million in order to expand its
product range and fund acquisitions.
Ovum plc
Ovum is a leading information, communication and technology research
consultancy. The Company acts as a source of industry data, knowledge
and expertise on the commercial impact of technology, regulatory and
market changes. The data is packaged into detailed research documents
and distributed through a range of bespoke and tailored products. The
company floated on AIM in March 2006 having raised �7 million to fund
product development and acquisitions.
Invocas plc
Invocas is the leading provider of personal insolvency solutions in
Scotland with a 16% share of the Protected Trust Deed market. The
company has been profitable and cash generative for the past seven
years. Demand in Scotland for Protected Trust Deeds, which help
individuals who are having difficulty servicing their debt, grew by
14% in 2005 and is expected to grow by 20% in 2006.
Blanc Brasseries Holdings plc
Blanc Brasseries owns Le Petit Blanc chain of quality restaurants.
The business was acquired from Loch Fyne Restaurants ('LFR') and will
continue to be managed by the LFR management team, which successfully
built up the chain to around 30 restaurants.
Recent Transactions
Since 31 August 2006 Eclipse 3 completed 2 further investments.
Golddigga
Eclipse 3 invested alongside the other Eclipse funds to finance the
�18.5 million management buy-out of the Golddigga fashion brand.
Golddigga, launched in 1995, is a fast growing fashion brand
targeting girls between 15 and 25. Turnover has grown strongly from
�4.5 million in 2004 to �10 million in 2006.
Audio Visual Machines Limited ('AVM')
Eclipse 3 invested alongside the other Eclipse funds in AVM in early
October 2006.The business is a leading audio visual systems
integrator and service provider. AVM works with some of the UK's
leading businesses including BP, PricewaterhouseCoopers and LloydsTSB
as well as public sector bodies such as Surrey Police, Transport for
London and Westminster City Council.
Summary of investments made by other funds managed by Octopus
Investments Limited
It is a requirement that Octopus discloses the full extent of its
interest across all of its funds in any companies in which Eclipse 3
holds an investment. Details of these are shown below.
.
% equity held by % equity held by other
Eclipse VCT 3 funds managed by Octopus
Abcam plc 0.1% 0.5%
Autoclenz Holdings plc 0.9% 11.9%
BBI Holdings plc 0.3% 4.2%
Blanc Brasseries Holding
plc 0.7% 2.3%
Capital Pub Company 2 plc 1.2% 10%
Cohort plc 0.2% 1.7%
CSL Dualcom Limited 10.0% 30.0%
Healthcare Locums plc 0.3% 1.6%
Invocas plc 0.1% 1.1%
James Harvard
International Limited 2.5% 24.8%
Ovum plc 0.3% 2.9%
Perfect Pizza Limited 4.8% 34.3%
Red-M Group limited 2.0% 10.2%
Tanfield Group plc 0.3% 5.4%
Worthington Nichols Group
plc 1.5% 6.8%
If you have any questions on any aspect of your investment, please
call one of the team on 020 7710 2800.
Simon Rogerson
Chief Executive
Income Statement
Period to 31 August 2006
Revenue Capital Total
�'000 �'000 �'000
Unrealised gains on
investments - 196 196
Income 600 - 600
Investment management fees (93) (282) (375)
Other expenses (238) - (238)
Return on ordinary
activities before tax 269 (86) 183
Tax (51) 51 -
Return on ordinary
activities after tax 218 (35) 183
Basic and diluted return
per share 1.1p (0.1)p 1.0p
* The total column of this statement is the profit and
loss account of the Company.
* 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 securities.
Reconciliation of movements in shareholders' funds 31 August 2006
�'000
Total gains and losses recognised in period 183
Shares purchased for cancellation (3)
Issue of redeemable non-voting preference shares (50)
Redemption of redeemable non-voting preference 50
shares
Net proceeds of share issue 28,067
Shareholders' funds at 31 August 2006 28,247
Balance Sheet
As at 31 August 2006
�'000 �'000
Fixed asset investments 3,280
Current assets
Investments 25,045
Debtors 15
Cash at bank 11
25,071
Creditors: amounts falling due within one
year (104)
Net current assets 24,967
Net assets 28,247
Called up equity share capital 2,953
Share premium 25,114
Capital reserve realised (231)
Capital reserve unrealised 196
Revenue reserve 215
Total equity shareholders' funds 28,247
Net asset value per share 95.7p
Cash flow statement
Period to 31 August 2006
�'000 �'000
Net cash inflow from operating
activities 76
Financial investment :
Purchase of investments (3,084)
Net cash outflow from financial
investment (3,084)
Management of liquid resources :
Increase in cash funds (25,045)
Financing :
Issue of own shares 29,131
Share issue expenses (1,064)
Repurchase of own shares (3)
Total financing 28,064
Increase in cash resources 11
The accompanying notes are an integral part of the financial
statements.
Notes to the preliminary announcement
1. Accounting policies
Basis of accounting
The Company is an investment company as defined in s266 of the
Companies Act 1985. The financial statements have been prepared
under the historical cost convention, modified to include the
revaluation of fixed asset investments, and in accordance with
applicable accounting standards in the UK and with the Statement of
Recommended Practice "Financial statements and investment trust
companies" issued in January 2003 and revised in December 2005.
Fixed asset investments
Investments in AIM-listed companies are stated at bid prices.
Unlisted investments are valued in accordance with the International
Private Equity and Venture Capital ("IPEVC") valuation guidelines.
The company's investments have been designated by the directors as
being stated at fair value through profit and loss ("FVTPL") for the
purposes of FRS 26. 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 (that is the balance sheet
date). In the case of unquoted investments, fair value is
established by using measurements of value such as price of recent
investment, earnings multiple and net assets; where no reliable fair
value can be estimated using such techniques, unquoted investments
are carried at cost subject to provision for impairment where
necessary.
Realised surpluses and deficits on the disposal of investments are
taken through the income statement to the realised capital reserve;
unrealised surpluses and deficits are taken through the income
statement to the unrealised capital reserve.
Current asset investments
Current asset investments comprise money market deposits and are
shown at amortised cost.
Income
Investment income comprises interest earned on bank balances and
money market securities and includes income tax withheld at source.
Dividend income is shown net of any related tax credit.
Dividends receivable are brought into account on the ex-dividend
date. Fixed returns on debt and money market securities are
recognised on a time apportionment basis so as to reflect the
effective yield, provided there is no reasonable doubt that payment
will be received in due course.
Expenses
All expenses are accounted for on an accruals basis. Expenses are
charged wholly to revenue with the exception of the investment
management fee, which has been charged 25% to the revenue account and
75% to the realised 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.
Taxation
Corporation tax payable is provided on taxable profits at the current
rate. The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue on the same
basis as the particular item to which it relates, using the Company's
effective rate of tax for the accounting period.
Deferred tax is recognised, without discounting, in respect of all
timing differences between the treatment of certain items for
taxation and accounting purposes which have arisen but not reversed
by the balance sheet date.
Capital reserve - realised
The following are accounted for in this reserve:
a) gains and losses on the realisation of investments;
b) realised exchange differences of a capital nature;
c) expenses and finance costs, together with the related
taxation effect, charged to this reserve in accordance with the above
policies;
d) realised gains and losses on transactions undertaken to
hedge an exposure of a capital nature.
Capital reserve - unrealised
The following are accounted for in this reserve:
a) increases and decreases in the valuation of investments
held at the year end;
b) unrealised exchange differences of a capital nature;
c) unrealised gains and losses on transactions undertaken
to hedge an exposure of a capital nature.
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 and investments in money market managed
funds.
2. Return per share
The revenue return per share is based on the revenue return from
ordinary activities after tax of �218,000 and on 18,516,747 shares,
being the weighted average number of shares in issue during the
period.
There are no potentially dilutive capital instruments in issue and,
therefore, no diluted return per share figures are relevant.
3. Reserves
Share Capital Capital Revenue
premium reserve reserve reserve
realised unrealised
�'000 �'000 �'000 �'000
Premium on issue of ordinary
shares 26,178 - - -
Share issue expenses (1,064) - - -
Share buy back - - - (3)
Management fee capitalised net of
associated taxation - (231) - -
Net increase in unrealised
appreciation - - 196 -
Return on activities after tax - - - 218
As at 31 August 2006 25,114 (231) 196 215
5. Net asset value per share
The calculation of net asset value per share as at 31 August 2006 is
based on net assets of �28,247,000 divided by the 29,531,147 ordinary
shares in issue at that date. There is no dilution in this
calculation as a result of the shares issued in the period.
6. Financial instruments
Management of risk
As a Venture Capital Trust, the Company's objective is to provide
shareholders with an attractive income and capital return by
investing in accordance with the Company's investment strategy.
The Company's financial instruments may comprise:
- - shares and securities in UK companies
- - cash, liquid resources and short term debtors and creditors that
arise from the Company's operations.
The Company has no derivative financial instruments and has no
financial assets or liabilities for which hedge accounting has been
used. Fixed assets are valued at fair value as determined by the
Directors on the basis set out in the accounting policies. The fair
value of certain unlisted investments has been calculated by
reference to a multiples earning model which uses the price/earnings
ratio. In determining these valuations, the industry sector ratios
have been used, adjusted as necessary to take into account the
associated risks on an individual investment basis.
At 31 August 2006 the fair value of the financial assets designated
as fair value through profit and loss was �28,325,000. During the
course of the current period, there has been an unrealised
appreciation of �196,000 which has been credited to the unrealised
capital reserve. The designation of the financial assets as at fair
value through profit and loss is in accordance with the documented
strategy of the Company.
The main risks arising from the Company's financial instruments are
fluctuations in market price for quoted investments and fluctuations
in valuations, including the issue of going concern, for unquoted
investments.
Market price risk
Market price risk arises mainly from the uncertainty about future
prices of financial instruments used in the Company's operations. It
represents the potential loss the Company might suffer through
holding market positions by way of price movements. The potential
risk is continuously monitored by the investment manager and reported
on a regular basis to the board.
Liquidity risk
The funds raised since incorporation are currently used to fund the
Company's primary objective of investing in venture capital
opportunities which accord with its investment strategy. Some 11% of
these funds had been utilised in this investment process at 31 August
2006 and the remaining funds were primarily represented by cash and
liquid resources shown as current asset investments in the balance
sheet. As investment opportunities are identified, the money market
securities held within current assets will be converted into fixed
asset investments.
Interest rate risk
The Company finances its operations through share capital raised and
retained profits including both realised and unrealised capital
profits. At the period end and throughout the period, the Company
had no liabilities that were subject to interest rate risk and had no
borrowing facilities. The Company's financial assets are invested in
short term money market funds (typically of one to three months
duration) at fixed rates. The weighted average interest rate on such
funds was approximately 4.4% during the period.
Credit risk
The Company's principal financial asset is cash deposits. The credit
risk associated with these cash deposits is limited as the
counterparties have high credit ratings assigned by international
credit-rating agencies.
Fair values of financial assets and liabilities
There was no material difference between the fair values of financial
assets and liabilities and their book values at the balance sheet
date.
7. Related party transactions
Matt Cooper, a non-executive Director of Eclipse 3, is a Director of
Octopus. Eclipse 3 has employed Octopus throughout the period as
investment managers. Eclipse 3 has paid Octopus �375,000 in the
period as a management fee and there is �nil 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. The net asset
value is calculated on an annual basis at the balance sheet date.
Octopus also provides accounting and administrative services to the
Company, payable quarterly in advance for a fee of 0.3% of the net
asset value. The net asset value is calculated on an annual basis at
the balance sheet date. During the period �56,000 was paid to
Octopus and there is �nil outstanding at the balance sheet date, for
the accounting and administrative services.
In addition, Octopus is entitled to an annual performance related
incentive fee in the event that performance criteria in relation to
the increase in net assets, after adding back distributions, are
exceeded. No performance fee is payable until after August 2008.
8. The above summary of results for the period ended 31 August 2006
does not constitute statutory financial statements within the meaning
of Section 240 of the Companies Act 1985 and has not been delivered
to the Registrar of Companies
Statutory financial statements will be filed with the Registrar of
Companies in due course; the auditors' report on those financial
statements under S235 of the Companies Act 1985 is unqualified and
does not contain a statement under S237 (2) or (3) of the Companies
Act 1985.
9. The proposed final dividend for the period ended 31 August 2006 of
0.7p per share amounting to �207,000 in total, if approved by the
shareholders, will be paid on 8 December 2006 to shareholders on the
register at the close of business on 10 November 2006.
10. A copy of the full annual report and financial statements for the
period ended 31 August 2006 will be printed and posted to
shareholders. Copies will also be available to the public at the
registered office of 8 Angel Court, London EC2R 7HP.
This announcement was approved by the Board on 26 October 2006.
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Copyright � Hugin ASA 2006. All rights reserved.
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