Half-Yearly Results
10/08/2023 16:20
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Octopus AIM VCT 2 plc
Half-Yearly Results
Octopus AIM VCT 2 plc (the ‘Company’) 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 predominantly
AIM-traded companies. The Company is managed by Octopus Investments Limited
(‘Octopus’ or the ‘Investment Manager’).
Today the Company announces the half-yearly results for the six months ended
31 May 2023.
Financial Summary
Six months to 31 May 202 3 Six months to 31 May 202 2 Year to 30 November 202 2
Net assets (£’000) 88,237 103,831 101,794
Loss after tax (£’000) (9,038) (26,909) (36,695)
Net asset value (NAV) per share (p) 53.9 70.5 61.6
Total return (%) (1) ( 8.8 ) (20.0) (27.5)
Dividends paid in the period (p) 2. 3 2.1 4.2
Interim dividend (p) (2) 1 .8 2.1 2.3
(1)Total Return is an alternative performance measure calculated as movement
in NAV per share in the period plus dividends paid in the period, divided by
the NAV per share at the beginning of the period.
(2)The interim dividend will be paid on 9 November 2023 to shareholders on the
register on 13 October 2023.
Chair’s statement
The six months to 31 May 2023 have seen a continuation of the challenging
conditions for smaller company investments that we outlined in our last annual
report. Inflation has remained stubbornly high with the result that
expectations for peak interest rates have risen and are now anticipated to
remain higher into 2024. As explained further below, the market turbulence
resulting from this has been particularly harsh on smaller companies in some
of the key sectors in which we invest. Against this background it is
disappointing to report the net asset value (NAV) of the Company fell by 8.8%
in the period after adding back the 2.3p dividend paid in May 2023 and
underperformed the AIM index.
At the time of the full-year results we reported that the flow of
fundraisings, particularly new listings, had been weak in the second half of
the year. Volatile market conditions have meant that new listings planned for
the first half of 2023 have also been delayed although many existing AIM
companies have still been able to access funding on lower valuations.
Furthermore, market conditions have led to significant numbers of shares now
being priced well below their recent peaks despite many individual companies
in the portfolio continuing to report encouraging trading momentum.
Against this backdrop of challenge and some opportunity, in accordance with
our stated objectives of maintaining predictable levels of returns for
investors the Board has declared an interim dividend of 1.8p which will be
paid on 9 November 2023 to shareholders on the register on 13 October 2023.
Keith Mullins
Chair
Investment Manager’s review
Overview
The six months to 31 May 2023 has been a frustrating period for smaller
company investors. Good growth companies trading robustly have seen their
share prices and ratings fall as investors have shied away from taking risks.
This has partly been the result of persistently high inflation which has led
to interest rates being raised to 5%, further than had been anticipated, with
any change of direction now not expected until next year. This nervousness has
resulted in many valuations falling to levels not seen since the Financial
Crisis nearly 15 years ago and has left the wider equity market trading at a
discount of over 25% to its longer-term average. The Company has been
particularly badly affected by these market conditions over the past two years
as it invests in early stage companies which rely on supportive market
conditions for capital until they reach profitability. However, on a more
positive note the economy has remained more robust than expected and many
companies in the portfolio are still managing significant progress and growth.
Valuations are at an attractive level and we see scope to deploy cash
profitably once the market becomes comfortable that interest rates have
peaked.
Performance
Adding back the 2.3p paid out in dividends in the period, the NAV fell by 8.8%
in the six months to 31 May 2023. This compares with a 7.1% fall in the AIM
Index, a 1.6% rise in the FTSE Small Cap Index (ex Investment Trusts) and a
0.2% rise in the FTSE All Share Index, all on a total return basis. The
Company’s relatively high exposure to the healthcare and technology sectors
(which had been a reason for good returns in the past) was once again
detrimental to performance in a world where risk averse investors have little
appetite for earlier stage growth stocks. Companies yet to reach profitability
were particularly affected with those needing to raise money now rather than
wait for more favourable market conditions suffering some steep falls in their
valuations. The VCT rules require investment to be made at this early stage
and the benefits of doing so have been clear in past periods.
AIM itself was once again the worst performing index, affected in part by the
same factors and the FTSE All Share Index performed noticeably better
reflecting a higher weighting in larger companies. The FTSE Small Cap Index
(ex Investment Trusts) did better but has a much narrower membership than AIM
and its members were not as affected by the conditions described above.
Among the larger and more profitable companies the de-rating of shares was
also reflected. The largest single detractor from performance was Ergomed,
which gave up some of its former gains as investor sentiment cooled towards
the pharmaceutical sector. It produced final results ahead of expectations and
has since reported robust trading at its AGM. Learning Technologies also
produced good results and robust trading statements but its shares have been
de-rated. Craneware was another negative performer after analysts adjusted
their forecasts for higher interest rates and more measured growth
expectations in a slow US hospital market. SDI and EKF diagnostics were both
punished for profit expectations post-Covid-19 still being set too high. Of
the top ten detractors, half were companies still on the pathway to
profitability. Lunglife and Maxcyte both suffered (as did other smaller
holdings) from being in the healthcare sector and lossmaking despite each
reporting encouraging progress and Maxcyte being particularly well funded.
Engage XR, which has a virtual reality platform and some very high profile
clients successfully raised money in the period and is growing strongly
although profitability remains some distance in the future. Popsa, a private
company, scaled back its marketing spend to preserve cash and has set its
growth expectations at a more modest rate. This, and a review of peer group
valuations, caused us to cut the valuation from the previous year-end level.
There were several positive contributors to performance including Equipmake,
which has made some encouraging announcements since its successful fundraise,
Netcall, which has had upgrades to forecasts as a result of good demand for
its Lo-Code software and Hasgrove, another private company, which is still
seeing strong demand for its intranet software. In the retail sector both
Sosandar and Vertu motors are still trading well and Breedon announced a move
to the full list. It will remain a qualifying holding for two years following
this. Other smaller contributors include Judges Scientific, Feedback and
Spectral MD.
Portfolio activity
In the period under review, the Company made two qualifying investments
totalling £1.2 million, a decrease on the £4.6 million we invested in the
corresponding period last year, reflecting some caution on the part of
companies and brokers about raising new capital against a background of
volatile markets. One of these was a small follow-on investment into an
existing holding in Equipmake of £0.1 million. Equipmake is an electric
drivetrain specialist focusing on retrofitting carbon-intensive vehicles and
aeroplanes, most notably diesel buses. The company made its stock market debut
in July 2022 and successfully raised a further £6.2 million in January 2023,
expanding its shareholder base. We opted to make a small further investment
given the exciting progress the team are making.
We invested £1.1 million in Itaconix, an existing AIM company. It is a
leading producer of plant-based additives for a range of consumer products,
from detergents to shampoos. Itaconix’s natural polymers help to decarbonise
products, whilst providing improved performance, safety and sustainability.
The company raised a total of £10.5 million in a heavily over-subscribed
share placing, which will be used to support a range of growth initiatives,
including the development of new products and applications for its technology.
A number of disposals in the period resulted in a small net overall loss of
£0.3 million over book cost. We sold the entire holdings of Adept Telecom and
TP Group which were both the subject of cash takeover bids. We also disposed
of Itsarm (formerly In The Style). Its business had been very badly affected
by a squeeze between the consumer’s dwindling appetite for on-line purchases
and cost and logistics challenges exacerbated by inflation and the management
sold the business for cash. We made partial disposals of Genedrive,
Intelligent Ultrasound, Judges Scientific and Nexteq (formerly Quixant).
In the period we also invested £1.5 million of the cash balances into the FP
Octopus UK Micro Cap Growth Fund, FP Octopus UK Multi Cap Income Fund and FP
Octopus Future Generations Fund at reduced prices. The strategy is to reduce
other individually held non-qualifying holdings and replace them with liquid
collective funds. Although the funds have had a small negative impact on
returns in this period, we expect them to provide a positive return on our
cash awaiting investment once stock markets return to a more settled state and
equity valuations recover.
Unquoted investments
As stated in the investment policy, the Company is able to make investments in
unquoted companies intending to float. At 31 May 2023 8.0% (31 May 2022: 7.7%
and 30 November 2022: 7.9%) of the Company’s net assets were invested in
unquoted companies. This is after reducing the valuation of the holding in
Popsa on the basis of peer group comparisons and slightly increasing the
valuation of Hasgrove, which continues to grow strongly.
Transactions with the Investment Manager
Details of amounts paid to the Investment Manager are disclosed in Note 8.
Share buybacks
In the six months to 31 May 2023, the Company bought back 2,675,889 Ordinary
shares for a total consideration of £1,507,000. It is evident from the
conversations that the Investment Manager has that this facility remains an
important consideration for investors. The Board remains committed to
maintaining its policy of buying back shares at a discount of approximately
4.5% to NAV (equating to up to a 5.0% discount to the selling shareholder
after costs).
Share issues
In this period 1,340,242 new shares were issued, through the dividend
reinvestment scheme (DRIS).
Dividend
On 25 May 2023, the Company paid a dividend of 2.3p per share, being the final
dividend for the year ended 30 November 2022. For the period to 31 May 2023,
the Board has declared an interim dividend of 1.8p. This will be paid on 9
November 2023 to shareholders on the register on 13 October 2023. It remains
the Board’s intention to maintain a minimum annual dividend payment of 3.6p
per share or a 5% yield based on the prior year-end share price, whichever is
the greater. This will usually be paid in two instalments during each year.
Principal risks and uncertainties
The principal risks and uncertainties are set out in Note 7.
Outlook
The very real issue of inflation and the need to tighten monetary policy by
raising interest rates further than had been anticipated six months ago has
prolonged the pain for the share prices of companies exposed to growth
sectors. This has impacted the NAV and left some of the more mature companies
in the portfolio held for their long-term growth potential valued well below
their long-term averages despite profit forecasts showing resilience. It has
also had a dampening effect on the new issue pipeline although there are
recent signs that this is becoming more active again. Short-term attention is
fixed on the monthly inflation figures with the most recent figure showing a
larger than expected fall giving hope that interest rates may be nearing their
peak. If confirmed it will have a huge impact on investor confidence.
The portfolio’s strength is that it is well diversified both in terms of
sector exposure and of individual company concentration. At the period end it
contained 85 holdings (31 May 2022: 92 holdings and 30 November 2022: 87
holdings) across a range of sectors with exposure to some exciting new
technologies in the environmental and healthcare sectors. The Company
currently has funds available for new investments as well as supporting those
who are still on their journey to profitability. These are difficult
macroeconomic and geopolitical times, but the balance of the portfolio towards
profitable companies remains, and the Investment Manager is confident that
there will continue to be sufficient opportunities to invest our funds in good
companies seeking more growth capital at attractive valuations which we expect
will result in improved future returns.
The Octopus Quoted Companies team
Directors’ responsibilities statement
We confirm that to the best of our knowledge:
* the half-yearly financial statements have been prepared in accordance with
Financial Reporting Standard 104 ‘Interim Financial Reporting’ issued by
the Financial Reporting Council;
* the half-yearly financial statements give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company;
* the half-yearly report includes a fair review of the information required by
the Financial Conduct Authority Disclosure and Transparency Rules, being: * we
have disclosed an indication of the important events that have occurred during
the first six months of the financial year and their impact on the condensed
set of financial statements;
* we have disclosed a description of the principal risks and uncertainties for
the remaining six months of the year; and
* we have disclosed a description of related party transactions that have
taken place in the first six months of the current financial year, that may
have materially affected the financial position or performance of the Company
during that period and any changes in the related party transactions described
in the last annual report that could do so.
On behalf of the Board
Keith Mullins
Chair
Income statement
Unaudited Six months to 31 May 202 3 Unaudited Six months to 31 May 2022 Audited Year to 30 November 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Gain/(loss) on disposal of fixed asset investments – 402 402 – 78 78 – (32) (32)
Loss on valuation of fixed asset investments – ( 8 , 417 ) ( 8 , 417 ) – (24,037) (24,037) – (31,821) (31,821)
Loss on valuation of current asset investments – (3 97 ) (3 97 ) – (1,733) (1,733) – (2,946) (2,946)
Investment income 496 - 496 182 – 182 589 19 608
Investment management fees (2 1 1) ( 633 ) ( 844 ) (271) (814) (1,085) (481) (1,443) (1,924)
Other expenses ( 278 ) - ( 278 ) (314) – (314) (580) – (580)
Profit /(loss) before tax 7 ( 9 , 04 5) ( 9 ,0 38 ) (403) (26,506) (26,909) (472) (36,223) (36,695)
Tax – – – – – – – – –
Profit /(loss) after tax 7 ( 9 , 04 5) ( 9 ,0 38 ) (403) (26,506) (26,909) (472) (36,223) (36,695)
Earnings per share – basic and diluted (0. 0p ) ( 5 . 5p ) ( 5 . 5p ) (0.3p) (17.9p) (18.2p) (0.3p) (24.5p) (24.8p)
There is no other comprehensive income for the period.
* 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 in accordance with the AIC Statement of Recommended Practice.
* 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, as well as Open Ended Investment Company (OEIC) funds.
Balance sheet
Unaudited As at 31 May 202 3 Unaudited As at 31 May 2022 Audited As at 30 November 2022
£’000 £’000 £’000 £’000 £’000 £’000
Fixed asset investments 63,851 78,551 72,249
Current assets:
Investments 10,4 62 10,484 9,399
Money market funds 13,455 3,490 3,515
Debtors 1 84 199 205
Cash at bank 903 11,674 17,217
25, 004 25,847 30,336
Creditors: amounts falling due within one year (6 18 ) (567) (791)
Net current assets 24,386 25,280 29,545
Total assets less current liabilities 88,237 103,831 101,794
Called up equity share capital 1 7 15 17
Share premium 13,637 55,284 12,904
Special distributable reserve 70,902 26,028 76,154
Capital reserve realised (6,777) (4,786) (5,843)
Capital reserve unrealised 13,079 29,850 21,190
Capital redemption reserve 3 2 3
Revenue reserve (2,624) (2,562) (2,631)
Total equity shareholders’ funds 88,237 103,831 101,794
NAV per share – basic and diluted 53.9p 70.5p 61.6p
The statements were approved by the Directors and authorised for issue on 10
August 2023 and are signed on their behalf by:
Keith Mullins
Chair
Company Number: 05528235
Statement of changes in equity
Share c apital Share p remium Special distributable reserves (1) Capital reserve realised (1) Capital reserve unrealised Capital redemption reserve Revenue reserve (1) Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
As at 1 Dece mber 202 2 1 7 12 , 9 0 4 76,154 (5,843) 21,190 3 (2, 63 1) 101,794
Total comprehensive income for the period – – – (231) (8,814) – 7 (9,038)
Contributions by and distribution s to owners :
Repurchase and cancellation of own shares – – (1,507) – – – – (1,507)
Issue of shares – 733 – – – – – 733
Share issue costs – – – – – – – –
Dividends paid – – (3,745) – – – – (3,745)
Total contributions by and distribution s to owners – 733 (5,252) – – – – (4,519)
Other movements:
Prior years’ holding losses now realised – – – (703) 703 – – –
Total other movements – – – (703) 703 – – –
Balance as at 31 May 202 3 1 7 13,637 70,902 (6,777) 13,079 3 (2,62 4 ) 88,237
(1)The sum of these reserves is an amount of £61,501,000 (31 May 2022:
£18,680,000 and 30 November 2022: £67,680,000) which is considered
distributable to shareholders.
Share c apital Share p remium Special distributable reserves (1) Capital reserve r eali s ed (1) Capital reserve unrealised Capital redemption reserve Revenue reserve (1) Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
As at 1 December 202 1 1 5 54,600 30,826 (4,533) 56,103 2 (2,159) 134,854
Total comprehensive income for the period – – – (736) (25,770) – (403) (26,909)
Contributions by and distribution s to owners
Repurchase and cancellation of own shares – – (1,719) – – – – (1,719)
Issue of shares – 689 – – – – – 689
Share issue costs – (5) – – – – – (5)
Dividends paid – – (3,079) – – – – (3,079)
Total contributions by and distribution s to owners – 684 (4,798) – – – – (4,114)
Other movements:
Prior years’ holding gains now realised – – – 483 (483) – – –
Total other movements – – – 483 (483) – – –
Balance as at 31 May 202 2 1 5 55,284 26,028 (4, 7 8 6 ) 29,850 2 (2,562) 103,831
(1)The sum of these reserves is an amount of £61,501,000 (31 May 2022:
£18,680,000 and 30 November 2022: £67,680,000) which is considered
distributable to shareholders.
Share c apital Share p remium Special distributable reserves (1) Capital reserve realised (1) Capital reserve unrealised Capital redemption reserve Revenue reserve (1) Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
As at 1 December 202 1 1 5 54,600 30,826 (4,533) 56,103 2 (2,159) 134,854
Total comprehensive income for the period – – – (1,456) (34,767) – (472) (36,695)
Contributions by and distribution to owners
Repurchase and cancellation of own shares (1) – (3,117) – – 1 – (3,117)
Issue of shares 3 13,698 – – – – – 13,701
Share issue costs – (794) – – – – – (794)
Dividends paid – – (6,155) – – – – (6,155)
Total contributions by and distribution s to owners 2 12,904 (9,272) – – 1 – 3,635
Other movements:
Cancellation of share premium – (54,600) 54,600 – – – – –
Prior years’ holding gains now realised – – – 146 (146) – – –
Total other movements – (54,600) 54,600 146 (146) – – –
Balance as at 30 November 202 2 1 7 12,904 76,154 (5,843) 21,190 3 (2, 631 ) 101,794
(1)The sum of these reserves is an amount of £61,501,000 (31 May 2022:
£18,680,000 and 30 November 2022: £67,680,000) which is considered
distributable to shareholders.
Cash flow statement
Unaudited Six months to 31 May 202 3 £’000 Unaudited Six months to 31 May 2022 £’000 Audited Year to 30 November 2022 £’000
Cash flows from operating activities
Loss before tax (9,038) (26,909) (36,695)
Adjustments for:
(Increase)/decrease in debtors 2 1 (14) (20)
Decrease in creditors (1 73 ) (195) (196)
(Gain)/loss on disposal of fixed assets investments ( 402 ) (78) 32
Loss on valuation of fixed asset investments 8 , 417 24,037 31,821
Loss on valuation of current asset investments 3 97 1,733 2,946
Non-cash distributions - - (19)
Cash from operations ( 778 ) (1,426) (2,131)
Net cash used in operating activities ( 778 ) (1,426) (2,131)
Cash flows from investing activities
Purchase of fixed asset investments (1,159) (4,618) (6,071)
Proceeds from sale of fixed asset investments 1,542 2,144 2,249
Purchase of current asset investments (1,460) (223) (352)
Net cash flows used in investing activities (1,077) (2,697) (4,174)
Cash flows from financing activities
Purchase of own shares (1,507) (1,719) (3,117)
Share issues – 89 12,502
Share issue costs – (5) (794)
Dividends paid (net of DRIS) (3,012) (2,480) (4,956)
Net cash flows from financing activities (4,519) (4,115) 3,635
De crease in cash and cash equivalents (6,374) (8,238) (2,670)
Opening cash and cash equivalents 20,732 23,402 23,402
Closing cash and cash equivalents 14,358 15,164 20,732
Closing cash and cash equivalents is represented by:
Cash at bank 903 11,674 17,217
Money market funds 13,455 3,490 3,515
Total cash and cash equivalents 14,358 15,164 20,732
Notes to the half-yearly report
1. Basis of preparation
The unaudited half-yearly report which covers the six months to 31 May 2023
has been prepared in accordance with the Financial Reporting Council’s (FRC)
Financial Reporting Standard (FRS) 104 Interim Financial Reporting (March
2018) and the Statement of Recommended Practice (SORP) for Investment
Companies issued by the Association of Investment Companies in 2014 (updated
in July 2022).
The Directors consider it appropriate to adopt the going concern basis of
accounting. The Directors have not identified any material uncertainties to
the Company’s ability to continue to adopt the going concern basis over a
period of at least 12 months from the date of approval of the financial
statements. In reaching this conclusion the Directors have had regard to the
potential impact on the economy and the Company of the current economic
conditions including inflation, the possibility of recession and the war in
Ukraine.
The principal accounting policies have remained unchanged from those set out
in the Company’s 2022 Annual Report and Accounts.
2. Publication of non-statutory accounts
The unaudited half-yearly report for the six months ended 31 May 2023 does not
constitute statutory accounts within the meaning of Section 415 of the
Companies Act 2006. The comparative figures for the year ended 30 November
2022 have been extracted from the audited financial statements for that year,
which have been delivered to the Registrar of Companies. The independent
auditor’s report on those financial statements, in accordance with chapter
3, part 16 of the Companies Act 2006, was unqualified. This half-yearly report
has not been reviewed by the Company’s auditor.
3. Earnings per share
The earnings per share at 31 May 2023 are calculated on the basis of
163,971,209 shares (31 May 2022: 147,560,275 and 30 November 2022:
147,948,350), being the weighted average number of shares in issue during the
period.
There are no potentially dilutive capital instruments in issue and, so no
diluted returns per share figures are relevant.
4. Net asset value per share
The net asset value per share is based on net assets as at 31 May 2023 divided
by 163,837,197 shares in issue at that date (31 May 2022: 147,345,533 and 30
November 2022: 165,172,844).
5. Dividends
The Directors have declared an interim dividend of 1.8 pence per share (2022:
2.1 pence per share) payable from the special distributable reserve. This
dividend will be paid on 9 November 2023 to those shareholders on the register
at 13 October 2023. On 25 May 2023 the prior year final dividend of 2.3 pence
per share was paid.
6. Buybacks and share issues
During the six months ended 31 May 2023 the Company repurchased the following
shares.
Date No. of shares Price (p) Cost (£)
15 December 2022 274,131 57.9 159,000
19 January 2023 436,267 57.7 252,000
16 February 2023 432,226 58.5 253,000
16 March 2023 731,856 55.6 407,000
20 April 2023 442,177 55.6 246,000
18 May 2023 359,232 53.1 190,000
Total 2,675,889 1,507,000
The weighted average price of all buybacks during the period was 56.3 pence
per share.
During the six months ended 31 May 2023 the Company issued the following
shares:
Date No. of shares Price (p) Net proceeds (£)
25 May 2023 (DRIS) 1,340,242 54.7 733,000
Total 1,340,242 733,000
The weighted average allotment price of all shares issued during the period
net of costs was 54.7 pence per share.
7. Principal risks and uncertainties
The Company’s principal risks are: VCT qualifying status risk; Operational
risk; Regulatory and reputational risk, Valuation risk, Investment risk,
Financial risk; and Economic and price risk. These risks, and the way in which
they are managed, are described in more detail in the Company’s Annual
Report and Accounts for the year ended 30 November 2022. The Board has also
considered emerging risks, including the conflict in Ukraine, the ongoing
inflationary pressure and the unstable economic environment, which the Board
seeks to mitigate by setting policy and reviewing performance. Otherwise, the
Company’s principal risks and uncertainties have not changed materially
since the date of that report.
8. Related party transactions
The Company has employed Octopus Investments Limited (‘Octopus’ or ‘the
Investment Manager’) throughout the period as Investment Manager. Octopus
has also been appointed as Custodian of the Company’s investments under a
Custodian Agreement. The Company has been charged £844,000 by Octopus as a
management fee in the period to 31 May 2023 (31 May 2022: £1,085,000 and 30
November 2022: £1,924,000). The management fee is payable quarterly and is
based on 2% of net assets measured at quarterly intervals.
The Company receives a reduction in the management fee for the investments in
other Octopus managed funds, being the Multi Cap Income Fund, Micro Cap Growth
Fund and Future Generations Fund, to ensure the Company is not double charged
on these products. This amounted to £29,000 in the period to 31 May 2023 (31
May 2022: £32,000 and 30 November 2022: £57,000). For further details please
refer to the Company’s Annual Report and Accounts for the year ended 30
November 2022.
As at 31 May 2023, Octopus Investments Nominees Limited (OINL) held nil shares
(2022: nil) in the Company as beneficial owner. Throughout the period to 31
May 2023 OINL purchased nil shares (2022: 3,632) at a cost of £nil (2022:
£3,000) and sold 4,284 shares (2022: 3,632) for proceeds of £2,000 (2022:
£3,000). This is classed as a related party transaction as Octopus, the
Investment Manager, and OINL are part of the same group of companies. Any such
future transactions, where OINL takes over the legal and beneficial ownership
of Company shares will be announced to the market and disclosed in annual and
half yearly reports.
9. Post-balance sheet events
The following events occurred between the balance sheet date and the signing
of these financial statements:
• Partial disposals of FP Octopus UK Multi Cap Income Fund for total
consideration of £360,000;
• A partial disposal of EKF Diagnostics Holdings plc for total consideration
of £250,000;
• Partial disposals of Glantus Holdings plc for total consideration of
£86,000;
• Investments totalling £360,000 into FP Octopus UK Micro Cap Growth Fund;
• An investment of £80,000 into FP Octopus UK Future Generations;
• On 15 June 2023, the Company purchased for cancellation 219,586 Ordinary
shares at a price of 52.0p;
• On 5 July 2023, the Company announced its intention to launch a new offer
for subscription later in the year;
• On 13 July 2023, the Company purchased for cancellation 320,586 Ordinary
shares at a price of 50.3p.
10. Fixed asset investments
Accounting policy
The Company’s principal financial assets are its investments and the
policies in relation to those assets are set out below.
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 102, the investments are measured as
being fair value through profit or loss (FVTPL) on the basis that they qualify
as a group of assets managed, and whose performance is evaluated, on a fair
value basis in accordance with a documented investment strategy. The
Company’s investments are measured at subsequent reporting dates at fair
value.
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 International Private Equity
and Venture Capital Valuation (IPEV) guidelines.
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 – unrealised. The Managers review changes
in fair value of investments for any permanent reductions in value and will
give consideration to whether these losses should be transferred to the
Capital reserve – realised.
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.
Fair value hierarchy
Paragraph 34.22 of FRS 102 suggests following a hierarchy of fair value
measurements, for financial instruments measured at fair value in the balance
sheet, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3). This methodology is adopted by the Company
and requires disclosure of financial instruments to be dependent on the lowest
significant applicable input, as laid out below:
Level 1: The unadjusted, fully accessible and current quoted price in an
active market for identical assets or liabilities that an entity can access at
the measurement date.
Level 2: Inputs for similar assets or liabilities other than the quoted prices
included in Level 1 that are directly or indirectly observable, which exist
for the duration of the period of investment.
Level 3: This is where inputs are unobservable, where no active market is
available and recent transactions for identical instruments do not provide a
good estimate of fair value for the asset or liability.
There have been no reclassifications between levels in the period. The change
in fair value for the current and previous period is recognised through the
profit and loss account.
Disclosure
Level 1: Quoted equity Level 3: Unquoted equity
investments £’000 investments £’000 Total £’000
Cost as at 1 December 2022 49,113 3,087 52,200
Opening unrealised gain at 1 December 2022 15,159 4,890 20,049
Valuation at 1 December 202 2 64,272 7,977 72,249
Purchases at cost 1,159 – 1,159
Disposal proceeds (1,542) – (1,542)
Profit on realisation of investments 402 – 402
Change in fair value in year (7,883) (534) (8,417)
V aluation at 31 May 202 3 56,408 7,443 63,851
Cost at 31 May 2023 48,430 3,087 51,517
Closing unrealised gain at 31 May 2023 7,978 4,356 12,334
Valuation at 31 May 202 3 56,408 7,443 63,851
Level 1 valuations are valued in accordance with the bid-price on the relevant
date. Further details of the fixed asset investments held by the Company are
shown within the Interim Management Report.
Level 3 investments are reported at fair value in accordance with FRS 102
Sections 11 and 12, which is determined in accordance with the latest IPEV
guidelines. In estimating fair value, there is an element of judgement,
notably in deriving reasonable assumptions, and it is possible that, if
different assumptions were to be used, different valuations could have been
attributed to some of the Company’s investments.
Level 3 investments include £400,000 (31 May 2022: £400,000 and 30 November
2022: £400,000) of convertible loan notes held at cost, which is deemed to be
current fair value, in addition to this the Company holds six unquoted
investments which are classified as level 3 in terms of fair value hierarchy.
These are valued based on a range of valuation methodologies, determined on an
investment specific basis. The price of recent investment is used where a
transaction has occurred sufficiently close to the reporting date to make this
the most reliable indicator of fair value. Where recent investment is not
deemed to indicate the most reliable indicator of fair value i.e. the most
recent investment is too distant from the reporting date for this to be deemed
a reasonable indicator, other market based approaches including earnings
multiples, annualised recurring revenues, discounted cashflows or net assets
are used to determine a fair value for the investments.
All capital gains or losses on investments are classified at FVTPL. Given the
nature of the Company’s venture capital investments, the changes in fair
value of such investments recognised in these financial statements are not
considered to be readily convertible to cash in full at the balance sheet date
and accordingly these gains are treated as holding gains or losses.
At 31 May 2023 there were no commitments in respect of investments approved by
the Investment Manager but not yet completed. The transaction costs incurred
when purchasing or selling assets are written off to the Income Statement in
the period that they occur.
11. Half-Yearly Report
The unaudited half-yearly report for the six months ended 31 May 2023 will
shortly be available to view at
https://octopusinvestments.com/our-products/venture-capital-trusts/octopus-aim-vcts/
For further information please contact:
Octopus Company Secretarial Services Limited
Tel: 020 3935 3803
LEI: 213800BW27BKJCI35L17