Octopus Apollo VCT plc : Final Results Octopus A

Octopus Apollo VCT plc  

Final Results

11 April 2017

Octopus Apollo VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 31 January 2017.

These results were approved by the Board of Directors on 11 April 2017.

You may, in due course, view the Annual Report in full at  www.octopusinvestments.com . All other statutory information can also be found there.

Financial Summary

* Comparative figures include the combined Ordinary and D Ordinary share classes ** Comparative figures are for the Ordinary Share class only Note that all comparative figures relate only to the Company, prior to the merger with Octopus Eclipse VCT plc, and are therefore not a true comparison to the period under review.

The final proposed dividend of 1.7p per Ordinary share for the year ended 31 January 2017 will, subject to shareholder approval at the Annual General Meeting, be paid on 28 July 2017 to all Ordinary shareholders on the register on 30 June 2017.

Chairman's Statement

Introduction

I am pleased to present the Annual Report of Apollo for the year ended 31 January 2017 and I should like to welcome all new shareholders following the recent fund raising and acquisition of the assets and liabilities of Octopus Eclipse VCT plc ("Eclipse").

Performance

On a total return basis, after adding back the 5p of ordinary dividends paid in the year as well as the 16.5p special dividend paid, the NAV has risen 2.9%. The NAV plus cumulative dividends has risen from 114.8p per share as at 31 January 2016 to 117.2p per share as at 31 January 2017. However as the special dividend was partly funded by the repayment of loans to companies, the NAV of the Ordinary share class has fallen from 82.3p per share as at 31 January 2016 to 63.2p per share as at 31 January 2017.

Fund Raising

During the year £31.4 million was raised under the Offer for Subscription which was launched in November 2015, to raise up to £30 million with an overallotment facility of £10 million. This offer closed in September 2016, fully subscribed having raised approximately £40.9 million.

A new Offer for Subscription was launched in November 2016 to raise up to £20 million. Up to 31 January 2017, £4.5 million had been raised under the Offer. The Offer was fully subscribed and closed in March 2017, eight months ahead of schedule.

Further details can be found in the Directors' report and in note 16 of the full Annual Report and Accounts.

Conversion of D Ordinary Shares and D Ordinary Share Dividend

In August 2016, the Company completed the Octopus VCT 2 plc ("OVCT 2") merger by converting the D Ordinary shares into Ordinary shares and by paying a dividend of 92.3p to those D Ordinary shareholders who elected to exit. Those shareholders who converted their D Ordinary shares did so at a conversion ratio of 1.11205, resulting in a total of 3,850,093 Ordinary shares being issued. 15,620,519 D Ordinary shareholders elected to receive the D share dividend, resulting in a total cash dividend of £14.4 million.

Merger with Eclipse

On 19 December 2016 the Company acquired the assets and liabilities of Eclipse, increasing the net assets of the Company by £21.6 million. Eclipse was established in 2004 as an evergreen VCT seeking to deliver absolute returns on its investments primarily in unquoted and AIM listed companies.

Board

Following the acquisition of Eclipse's assets and liabilities ("the transaction") I am delighted to welcome Alex Hambro, the former Chairman of Eclipse, to the Board. Alex brings with him a wealth of knowledge of VCT investing and smaller companies in general. I am also pleased that Christopher Powles and James Otter have continued as Directors of the Company, retaining their considerable experience. I should also like to take this opportunity to thank Ian Pearson, who resigned following the transaction, for his contribution to the Company. Resolutions to appoint Alex Hambro and to re-elect James Otter will be proposed at the forthcoming AGM.

Dividend and Dividend Policy

It is your Board's policy to maintain a regular dividend flow where possible in order to take advantage of the tax free distributions a VCT is able to provide.

Given the performance of the Ordinary share portfolio your Board has proposed a final dividend of 1.7p per Ordinary share in respect of the year ended 31 January 2017. This is in addition to the 2.5p interim dividend and the 16.5p special dividend, both paid in December 2016, and will bring the total dividends declared on the Ordinary share class to 20.7p for the year. Excluding the special dividend, this represents a similar return of capital in previous years of 5.1%. The dividend will be payable on 28 July 2017 to Ordinary shareholders on the register at 30 June 2017.

Dividend Reinvestment Scheme (DRIS)

In common with a number of VCTs, the Company has a dividend reinvestment scheme which was introduced in November 2014. This is an attractive scheme for investors who do not need income, but would prefer to benefit from additional income tax relief on their re-invested dividend. I hope that shareholders will find this scheme beneficial.

During the year to 31 January 2017 8,288,612 shares were issued under the DRIS, returning £5.2 million to the Company.

Share Buybacks

Your Company has continued to buy back shares as required. Subject to shareholder approval of resolution 10 at the forthcoming annual general meeting this facility will remain in place to provide liquidity to investors who may wish to sell their shares. Details of the share buybacks undertaken during the year can be found in the Directors' Report in the full Annual Report and Accounts.

Investment Portfolio 

The transaction with Eclipse on 19 December 2016 resulted in the Company acquiring its £21.6 million investment portfolio which had been invested under a similar mandate to Apollo's current investment strategy.

During the 12 months to 31 January 2017, Apollo made the following disposals:

*SCM world proceeds and gain on sale have increased since interim report by £297,000, relating to additional proceeds due under an earn-out arrangement that was agreed when the business was sold. **Callstream proceeds have decreased since the interim period due to a reduction in the expected deferred consideration.

SCM World was acquired by Gartner Inc, a US quoted company with strategic overlap in the supply chain advisory sector. The majority shareholders of the business took the decision to sell, based on the valuation offered. The overall annualised return to Apollo, including loan interest and dividends was 22%. The other disposals related to investments that had been in the portfolio for several years. In the case of Callstream, Tristar and CSL Dualcom the annualised returns received over the lifetime of the investments were 19%, 17% and 12% respectively.

In March 2016 the Company invested £9 million into eight companies seeking to develop solar farms in Sardinia. The transaction is attractive to Apollo given the element of contracted revenue streams and the underlying demand of the macroeconomic environment. Nine sites have been identified (one company will own two sites) and detailed due diligence has been conducted on the first two sites. No material concerns arose and construction work is due to start in April with revenue generation expected at the end of 2017.

In July 2016, Apollo completed its £5 million investment in ISG Technology, a specialist service provider to multi-site organisations such as supermarkets, which installs and maintains WiFi and related connectivity systems. This investment was made through the investment company Coupra Limited.

Another investment completed in July was into Spectra Care Group, a manufacturer and distributor of medical equipment for elderly or obese patients being cared for in their homes. Apollo invested £2.5 million alongside £2.2 million from Eclipse and so, following the VCT merger, Apollo now has a £4.7 million investment in the business. Both Apollo and Eclipse made these investments through the investment company Dyscova Limited.

More recently, Apollo has also made a number of small follow-on investments into assets previously held as part of the Eclipse portfolio. Between the merger on 19 December 2016 and 31 January 2017, Apollo invested £360,000 into Artesian, CurrencyFair, MIRACL and Ecrebo.

Investment Strategy

As set out in the prospectus, the aim of the Company is to make investments to achieve an appropriate balance of income and capital growth, having regard for venture capital legislation. To date the Manager has been successful in achieving this aim, as evidenced by the positive return on ordinary activities.

Typically the structure of the investments is weighted more heavily towards loan based instruments as opposed to equity. Such investments provide fixed returns and payments are generally ranked above most other creditors, allowing for future visibility and security. This strategy also reduces the downward risk that is an intrinsic element of an equity investment.

VCT Qualifying Status

PricewaterhouseCoopers LLP provides the Board and Manager with advice concerning ongoing compliance with Her Majesty's Revenue & Customs ('HMRC') rules and regulations concerning VCTs. The Board has been advised that the Company is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.

A key requirement is now to maintain the 70% qualifying investment level. As at 31 January 2017, over 85% of the portfolio, as measured by HMRC rules, was invested in VCT qualifying investments. Further information on VCT regulation is detailed in the Directors' Report within the full Annual Report and Accounts.

Annual General Meeting

The Company's Annual General Meeting will take place on 12 July 2017 at 4.00 p.m. I look forward to welcoming you to the meeting which will be held at the offices of Octopus Investments Limited at 33 Holborn, London, EC1N 2HT. Directions to their office can be found by visiting their website at: www.octopusinvestments.com .

Electronic Communications

Based on feedback from shareholders, and in order to reduce the cost of printing and the consequential impact on the environment, we now offer shareholders the opportunity to forgo their printed report and account documents in favour of receiving electronic or mail notification with details of how to view the documents online. If you would like to change the format in which you receive this report, please contact Octopus or Computershare using the contact details provided in the annual report and accounts.

Outlook and future prospects

Since the Company's launch the returns to shareholders have shown low volatility year on year, which is testament to the prudent investment approach adopted by the Manager.  The portfolio has generally been performing well and your Board and Manager believe we can continue to find suitable investments to support the Company's mandate

Murray Steele Chairman          11 April 2017

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.

Octopus was established in 2000 and has a strong commitment to both smaller companies and to VCTs.  We currently manage six VCTs, including this one, and manage over £600 million in the VCT sector.

Investment Policy

The majority of companies in which Apollo invests operate in sectors where there is a high degree of predictability.  Ideally, we seek companies that have contractual revenues from financially sound customers and that will provide an opportunity for the Company to realise its investment within three to five years.

Performance

The Company made a total return per Ordinary share of 2.9% between 31 January 2016 and 31 January 2017. Whilst the NAV per Ordinary share decreased from 82.3p to 63.2p, 21.5p of dividends were paid over the period, bringing cumulative dividends paid to date to 54p and the total value (NAV plus cumulative dividends) to 117.2p per share.

Portfolio Review

The fund is comprised of 59 portfolio companies with a total valuation of £112.9 million. The £21.6 million portfolio of assets of Eclipse VCT acquired in December 2016 was made up 32 of investments in unquoted and AIM listed companies. This includes 10 quoted AIM investments representing c. 22% of NAV, 14 Titan VCT coinvestments (31% of NAV), with the balance (46% of NAV) being more typical Eclipse/Apollo investments. 

In the year under review the Company invested £9.0m into eight companies alongside £29.6 million of EIS funding to provide construction finance for solar power generation activities in Sardinia. It also used the investment company Dyscova Limited to invest £4.7 million in Spectra Care Group, a manufacturer and distributor of medical equipment for elderly or obese patients, and used the investment company Coupra Limited to invest £5 million in ISG Technology Limited, a specialist service provider to large organisations such as supermarkets, which installs and maintains Wi-Fi and related connectivity systems.

There were a number of exits of portfolio companies during the year, including the last of the longstanding investments in media assets. Other notable disposals were SCM World, Callstream, Tristar and CSL Dualcom. The annualised returns received over the lifetime of these investments were 22%, 19%, 17% and 12% respectively and, in the case of SCM World, further proceeds are expected during 2017 in relation to an earn-out arrangement agreed with the buyer of the business. To date, three of the eight Investment Companies have been invested: Aquaso (TSC), Coupra (ISG) and Dyscova (Spectra). Three of the remaining five companies (Byena, Emercor and Finnavor) were wound up in December 2016, returning £14.9 million in cash to Apollo.

Shortly after 31 January 2017, the Company invested £33 million in the Octopus Portfolio Manager ("OPM") funds, £4.5 million from each of the two remaining investment companies, Galvara Limited and Haravar Limited, and £24 million from Apollo's cash reserves, in order to keep the money in liquid investments rather than cash until new deals are completed. OPM offers 10 different investment categories (1-10), where at the lower-risk end of the scale, investment is in bonds, and at the high-risk end in equities. An investment of £9 million was made in OPM1, £10 million in OPM2 and £14 million in OPM3. The latest VCT rules permit cash to be invested for liquidity management purposes so long as it can be accessed within seven days, which is the case with the OPM funds. Octopus has waived its management fees in relation to OPM to ensure it is not taking fees twice on the same funds under management.

The Company's investment portfolio continues to hold appropriate investments to meet all the requirements for it to fully qualify as a VCT. The Manager now has the opportunity to make a number of further investments with the aim of accelerating the NAV of the Company over the foreseeable future.

Outlook and Future Prospects

Following another strong year of exits in 2016 we remain optimistic about the outlook for the portfolio and future investment prospects. The Company has a large and diverse portfolio, has weathered the difficult economic conditions of the past few years and has continued to grow. 

The investment team has been increasingly active in the search for new opportunities and has been focused on ensuring that its nationwide network of contacts understands the impact on strategy of the VCT investment rule changes introduced in November 2015.  We are now seeing the pipeline of potential deals steadily increase and we expect to complete some exciting new investments during 2017. The recent investments and exits during the last twelve months have further raised the profile of the investment team, resulting in more inbound opportunities.  

The strong take up in the fundraising and the recent exits provide significant financial capacity for new investments and, as one of the largest VCTs in the country, Apollo has the ability to pursue larger deals than most VCTs and provide significant follow-on investment, which is a strong competitive advantage. 

If you have any questions on any aspect of your investment, please call one of the team on 0800 316 2295.

Grant Paul-Florence Octopus Investments Limited 11 April 2017

Directors' Responsibilities Statement

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws) including FRS 102 - "The Financial Reporting Standard applicable in the UK and Republic of Ireland". 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 judgments 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;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
• prepare a Strategic Report, a Directors' Report and Directors' Remuneration Report which comply with the requirements of the Companies Act 2006.

              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 and the Directors' Remuneration Report 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.

The Directors confirm that:

• so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
• the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for preparing the annual report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the annual report and the financial statements, taken as a whole, provide the information necessary to assess the Company's position performance, business model and strategy and is fair, balanced and understandable.

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 our knowledge:

• the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws), including Financial Reporting Standard 102 - "The Financial Reporting Standard applicable in the UK and Republic of Ireland", give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
• the annual report, including the Strategic 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 it faces.

On behalf of the Board

Murray Steele

Income Statement

• The 'Total' column of this statement is the profit and loss account of the Company; the 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

Note that all comparative figures relate only to the Company, prior to the merger with Octopus Eclipse VCT plc, and are therefore not a true comparison to the period under review.

Comparative numbers reflect the 2016 audited statutory income statement which combined the Ordinary and Apollo D Ordinary share income statements.

The Company has no other comprehensive income for the period.

Balance Sheet

*Held at fair value through profit or loss

Note that all comparative figures relate only to the Company, prior to the merger with Octopus Eclipse VCT plc, and are therefore not a true comparison to the period under review.

Comparative numbers reflect the 2016 audited statutory balance sheet which combined the Ordinary and Apollo D balance sheets

The statements were approved by the Directors and authorised for issue on 11 April 2017 and are signed on their behalf by:

Murray Steele Chairman Company number: 05840377

Cash Flow Statement

Note that all comparative figures relate only to the Company, prior to the merger with Octopus Eclipse VCT plc, and are therefore not a true comparison to the period under review.