Eclipse VCT 4 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 4 plc ('Eclipse 4' 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 4 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 4 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 4. The Fund raised £29.1 million by its close on 5 April 2006 and, in conjunction with Eclipse VCT 3 plc, the twin fund, was the largest VCT fundraising in the 2005/06 tax year.
Eclipse 4 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 4 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 4 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 4 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 4 must be 70% invested in qualifying companies by 31 August 2008 in order to comply with VCT regulations. At 31 August 2006, Eclipse 4 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 4 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 4 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 4 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 4 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 4 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 4 completed 2 further investments.
Golddigga
Eclipse 4 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 4 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 4 holds an investment. Details of these are shown below. .
% equity held by % equity held by other Eclipse VCT 4 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
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 4, is a Director of Octopus. Eclipse 4 has employed Octopus throughout the period as investment managers. Eclipse 4 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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