Half-Yearly Results
06/08/2024 15:45
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Octopus AIM VCT 2 plc
Half-Yearly Results
Octopus AIM VCT 2 plc announces its unaudited half-yearly results for the six
months ended 31 May 2024.
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’).
Financial summary
Six months to 31 May 2024 Six months to 31 May 2023 Year to 30 November 2023
Net assets (£’000) 83,409 88,237 84,690
Profit/(loss) after tax (£’000) 5,464 (9,038) (15,709)
Net asset value (NAV) per share (p) 45.5 53.9 47.9
Total return (%) (1) 6.3 (8.8) (15.6)
Dividends (p) (2) 5.4 2.3 4.1
Dividend declared (p) (3) 1.8 1.8 1.8
(1) Total Return is an alternative performance measure calculated as movement
in NAV per share in the period plus dividends in the period, divided by the
NAV per share at the beginning of the period.
(2) The 2023 year end final dividend of 1.8p and special dividend of 3.6p per
share was paid on 27 June 2024 to shareholders on the register on 31 May 2024.
(3 )The interim dividend will be paid on 28 November 2024 to shareholders on
the register on 31 October 2024.
Chair’s statement
The six months to 31 May 2024 heralded the start of a change in market
sentiment, albeit at a slow pace. The main drivers of the turnaround include
better than expected UK GDP figures, a tempering of investor outflows and
ongoing corporate activity. Additionally, inflation continued to reduce and in
June (post period end) reached the Bank of England target level of 2%. With
the earlier than expected announcement of the UK Elections in June (and a new
Labour Government now in place), this created further confidence in the
possibility of an interest rate cut in the Summer and subsequent cuts this
financial year. Furthermore, the more stable macroeconomic outlook has
provided a much-needed boost to UK capital markets and has been a catalyst for
increased IPO activity and secondary fundraisings after two years of depressed
activity.
Despite more stable macroeconomic and market conditions, appetite for risk
remains low, with growth stocks largely remaining out of favour. As a result,
although the Net Asset Value (NAV) of the Company grew by 6.3% after adding
back the final dividend of 1.8p and special dividend of 3.6p, it lagged the
AIM index, which grew 13.8%.
It is however encouraging to see the Company return to growth following
successive periods of negative performance. Furthermore, we anticipate that
more recent positive macroeconomic indicators, coupled with improving market
sentiment, should hopefully lead to increasing risk appetite and interest in
the growth companies which your portfolio predominantly invests in.
Encouragingly, market commentators believe the market is showing long-awaited
signs of recovery from the lows of the last years.
Against this backdrop of challenge and some opportunity, in accordance with
our dividend policy and 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 28 November 2024 to shareholders on the register on 31
October 2024.
Keith Mullins
Chair
6 August 2024
Investment Manager’s review
Overview
After a protracted period of market uncertainty, particularly for smaller
companies, the six-month period to 31 May 2024 began on a more positive note.
Improved investor sentiment buoyed by positive UK macroeconomic data
reinforced the belief by market commentators that inflation was firmly on a
downward trend and interest rates had peaked. Encouragingly, this has
continued to materialise throughout the interim period and the inflation
outlook in the UK (and other major global economies like the US and Europe)
remains more optimistic than it has been for a while, providing further
conviction that interest rates cuts are now firmly in the near-term horizon.
Although the quantum of interest cuts this calendar year is still not clear,
what has been clear is the impact of growing macroeconomic stability to
provide the much-needed catalyst and driver for improved capital market
performance.
With the UK economy returning to growth this year mainly on the back of
improved performance of various sectors (more noticeably services and
manufacturing), UK consumer confidence on the rise and a healthy employment
market, this has provided a stronger backdrop for market recovery. Over the
period under review, the AIM Index rose by 13.8%. This compares to a 19.6%
increase of the FTSE Small Cap Index (ex-Investment Trusts) and a 13.6% rise
in the FTSE All Share Index, all on a total return basis. The FTSE All Share
Index and FTSE Small Cap Index (ex-Investment Trusts) performed noticeably
better reflecting a higher weighting in larger companies (particularly tech
companies) that have already started to see a re-rating. However, we still
believe that UK equities remain significantly undervalued despite the signs of
market recovery. This is evident in the opportunistic corporate activity,
particularly on AIM. Furthermore, the rise in IPOs and further fundraisings
across the UK capital market over the last few months, has planted a seed for
renewed interest and investment in the UK equity market.
Performance
On the back of improved macroeconomic conditions and market momentum, the NAV
total return grew by 6.3% in the six months to 31 May 2024. As positive market
momentum continues to slowly but surely seep back in, we expect to see the
re-rating of smaller company shares (including those on AIM), albeit at a
slower pace than its larger market peers, which has historically been the
case. The VCT rules require investment to be made at this early stage and the
benefits of doing so have been clear in past periods.
There were several positive contributors to performance including Craneware,
which has had a series of encouraging announcements over the period under
review including a significant increase in sales and customer retention.
Furthermore, it continues to strengthen its partner program and remains well
placed to benefit from positive market and industry dynamics. Beeks Financial
has now secured contracts with three major global stock exchanges for its
Exchange Cloud product. More recently, the company has secured a Proximity
Cloud contract win as well as preferred cloud computing and connectivity
vendor status for one of the world’s largest banking groups. Judges
Scientific continued to trade in line with market expectations over the
period. Post-period end the company acquired Rockwash Geodata, a rock cuttings
and chippings digitalisations specialist to bolt on to Geotek (acquired in
2022) which is the group’s largest subsidiary. Diaceutics reported a strong
trading performance for the full year to December, and now boasts a record
order book of £26.5 million (up 57% year on year) and 52% recurring revenues
which continue to grow. Encouragingly, Animalcare Group disposed of one of its
non-core businesses, Identicare for £24.9 million, allowing the company the
flexibility to make a transformational acquisition, in line with its strategic
focus.
Among the detractors from performance over the period was Equipmake Holdings,
which reported disappointing full year results. The reduced revenue and profit
expectations, despite the commercialisation progress made over the last year,
have impacted the company’s share price. Despite this, over the last few
months the company has recruited a new COO and CFO and, therefore now has in
place a stronger management team with much needed experience in the global EV
market which validates the commercial opportunity. This, coupled with the
fundraising earlier in this year to strengthen its balance sheet, will be
crucial to the delivery of its medium-term growth plan. Management changes
were also a theme at SDI Group, which appointed an experienced new CEO in a
planned succession. This was welcomed by the market, after a long period of
uncertainty. With a refocus on both organic and acquisitive growth, we expect
to see a return to consistent positive news flow. In its full-year trading
statement to the end of December, Sosandar reported strong third-party sales
and the launch of its first international platforms (in Canada and Australia).
The delay of the opening of its first instore retail offering has continued to
affect the share price performance. However, its first store is now expected
to open this autumn with further openings expected this calendar year.
Portfolio activity
In the period under review the Company made seven qualifying investments at a
total cost of £2.5 million, an increase on the £1.2 million invested in the
corresponding period last year. Five of the investments made in the period
were follow-on investments into existing holdings and two were new
investments.
One of these new investments was £0.6 million into Strip Tinning Holdings
plc, an existing AIM company which are a manufacturer of flexible electrical
connectors used in the automotive industry. The other new investment was £0.2
million into Alusid Limited, a private company which transform waste materials
into low environmental impact tiles.
The five follow on investments into existing holdings were GenInCode plc,
Verici Dx plc, Equipmake Holdings plc, PCI Pal plc and Cambridge Cognition
Holdings plc. We invested £0.6 million into GenInCode which engage in the
genetic risk assessment for cardiovascular disease, to support their US
strategy and broader expansion. We supported Verici with £0.6 million,
following their success in agreeing an exclusive global licensing deal with
Thermo Fisher for pre-transplant prognostic testing. We made a small
investment of £0.1 million into Equipmake Holdings, an electric drivetrain
specialist focusing on retrofitting carbon intensive vehicles and aeroplanes,
most notably diesel buses. This allowed them to further pursue the
opportunities that exist. We invested a further £0.1 million into PCI Pal, a
payments solutions and services business, to further support their expansion
in the US. We invested a further £0.3 million in Cambridge Cognition,
provider of digital solutions to assess brain health in order to support
further growth and development.
Investments disposed in the period were sold for a net overall loss of £3.1
million over book cost. We sold the entire holdings of Velocys plc which was
the subject of a cash takeover bid. We also disposed of our entire holding in
Clean Power Hydrogen plc, Polarean Imaging plc, Renalytix plc, LoopUp Group
plc, Cordel Group and Cirata plc as well as partially disposing of Judges
Scientific where we took significant profits and Spectral AI. Clean Power
Hydrogren had faced challenges in the development of their technology and
Cirata had largely been disposed of in prior periods.
In the period under review £0.2 million was invested into the FP Octopus
Future Generations Fund at lower share prices than our previous investments.
The funds have had a positive impact on returns in this period. We expect them
to continue 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 2024 9.44% (31 May 2023: 6.6%
and 30 November 2023: 7.6%) of the Company’s net assets were invested in
unquoted companies. This is as a result of increasing the valuations of
Hasgrove and Popsa Holdings to reflect the continued progress of both
businesses.
Transactions with the Investment Manager
Details of amounts paid to the Investment Manager are disclosed in Note 8 to
the financial statements.
Share buybacks
In the six months to 31 May 2024, the Company bought back 2,634,548 Ordinary
shares for a total consideration of £1,234,000. It is evident from the
conversations that the Investment Manager has had with investors and advisors
that this facility remains an important consideration. 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).
Dividend
On 27 June 2024, the Company paid a dividend of 1.8p and 3.6p per share, being
the final and special dividend for the year ended 30 November 2023. For the
period to 31 May 2024, the Board has declared an interim dividend of 1.8p.
This will be paid on 28 November 2024 to shareholders on the register on 31
October 2024. 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 to the financial
statements.
Outlook
While the market rally has not been consistent over the last six months, we
remain confident that UK markets are backed by improving macroeconomic
conditions both globally and locally, providing a stable foundation for
continued recovery. Furthermore, with the UK General Election now in our
rear-view mirror, more certainty regarding the UK’s political direction in
the short and medium term should return. However, the focus remains on the
timing of interest cuts and its expected boost to market certainty and
sentiment. With the increasing number of IPOs and further fundraisings
creating pockets of optimism across UK markets, coupled with monetary easing
expectations in the Autumn, we expect this to feed through to a market
re-rating and increased appetite for risk. This should directly impact the
performance of UK small growth company share prices, reflecting the positive
trading progress being made by many companies in the portfolio. 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 78 holdings (31 May 2023: 85 holdings and 30 November 2023: 83
holdings) across a range of sectors with exposure to some exciting new
technologies in the environmental and healthcare sectors.
The Octopus Quoted Companies team
6 August 2024
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 Guidance 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
6 August 2024
Income statement
Unaudited Six months to 31 May 2024 Unaudited Six months to 31 May 2023 Audited Year to 30 November 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
(Loss)/gain on disposal of fixed asset investments – (178) (178) – 402 402 – 668 668
Gain/(loss) on disposal of current asset investments – 11 11 – – – – (91) (91)
Gain/(loss) on valuation of fixed asset investments – 4,055 4,055 – (8,417) (8,417) – (14,333) (14,333)
Gain/(loss) on valuation of current asset investments – 1,743 1,743 – (397) (397) – (1,047) (1,047)
Investment income 872 – 872 496 – 496 1,194 – 1,194
Investment management fees (178) (533) (711) (211) (633) (844) (393) (1,179) (1,572)
Other expenses (328) – (328) (278) – (278) (528) – (528)
Profit/(loss) before tax 366 5,098 5,464 7 (9,045) (9,038) 273 (15,982) (15,709)
Tax – – – – – – – – –
Profit/(loss) after tax 366 5,098 5,464 7 (9,045) (9,038) 273 (15,982) (15,709)
Earnings per share – basic and diluted 0.2p 2.8p 3.0p (0.0p) (5.5p) (5.5p) 0.2p (9.8p) (9.6p)
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 2024 Unaudited As at 31 May 2023 Audited As at 30 November 2023
£’000 £’000 £’000 £’000 £’000 £’000
Fixed asset investments 58,698 63,851 53,288
Current assets:
Investments 10,542 10,462 8,796
Money market funds 23,583 13,455 21,893
Debtors 268 184 152
Cash at bank 974 903 1,045
35,367 25,004 31,886
Creditors: amounts falling due within one year (10,656) (618) (484)
Net current assets 24,711 24,386 31,402
Total assets less current liabilities 83,409 88,237 84,690
Called up equity share capital 18 17 18
Share premium 12,015 13,637 7,619
Special distributable reserve 68,902 70,902 80,043
Capital reserve realised (9,037) (6,777) (5,400)
Capital reserve unrealised 13,500 13,079 4,765
Capital redemption reserve 3 3 3
Revenue reserve (1,992) (2,624) (2,358)
Total equity shareholders’ funds 83,409 88,237 84,690
NAV per share – basic and diluted 45.5p 53.9p 47.9p
The statements were approved by the Directors and authorised for issue on 6
August 2024 and are signed on their behalf by:
Keith Mullins
Chair
Company Number: 05528235
Statement of changes in equity
Share capital Share premium 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 2023 18 7,619 80,043 (5,400) 4,765 3 (2,358) 84,690
Total comprehensive income for the period – – – (700) 5,798 – 366 5,464
Contributions by and distributions to owners:
Repurchase and cancellation of own shares – – (1,234) – – – – (1,234)
Issue of shares – 4,694 – – – – – 4,694
Share issue costs – (298) – – – – – (298)
Dividends paid (2) – – (9,907) – – – – (9,907)
Total contributions by and distributions to owners – 4,396 (11,141) – – – – (6,745)
Other movements:
Prior years’ holding losses now realised – – – (2,937) 2,937 – – –
Total other movements – – – (2,937) 2,937 – – –
Balance as at 31 May 2024 18 12,015 68,902 (9,037) 13,500 3 (1,992) 83,409
(1) The sum of these reserves is an amount of £57,873,000 (31 May 2023:
£61,501,000 and 30 November 2023: £72,285,000) which is considered
distributable to shareholders.
(2) The 2023 year end final dividend of 1.8p and special dividend of 3.6p per
share was paid on 27 June 2024 to shareholders on the register on 31 May 2024.
Share capital Share premium 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 2022 17 12,904 76,154 (5,843) 21,190 3 (2,631) 101,794
Total comprehensive income for the period – – – (231) (8,814) – 7 (9,038)
Contributions by and distributions 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 distributions to owners – 733 (5,252) – – – – (4,519)
Other movements:
Prior years’ holding gains now realised – – – (703) 703 – – –
Total other movements – – – (703) 703 – – –
Balance as at 31 May 2023 17 13,637 70,902 (6,777) 13,079 3 (2,624) 88,237
(1) The sum of these reserves is an amount of £57,873,000 (31 May 2023:
£61,501,000 and 30 November 2023: £72,285,000) which is considered
distributable to shareholders.
Share capital Share premium 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 2022 17 12,904 76,154 (5,843) 21,190 3 (2,631) 101,794
Total comprehensive income for the period – – – (602) (15,380) – 273 (15,709)
Contributions by and distribution to owners:
Repurchase and cancellation of own shares – – (3,076) – – – – (3,076)
Issue of shares 1 8,821 – – – – – 8,822
Share issue costs – (468) – – – – – (468)
Dividends paid – – (6,673) – – – – (6,673)
Total contributions by and distributions to owners 1 8,353 (9,749) – – – – (1,395)
Other movements:
Cancellation of share premium – (13,638) 13,638 – – – – –
Prior years’ holding gains now realised – – – 3,215 (3,215) – – –
Transfer between reserves – – – (2,170) 2,170 – – –
Total other movements – (13,638) 13,638 1,045 (1,045) – – –
Balance as at 30 November 2023 18 7,619 80,043 (5,400) 4,765 3 (2,358) 84,690
(1) The sum of these reserves is an amount of £57,873,000 (31 May 2023:
£61,501,000 and 30 November 2023: £72,285,000) which is considered
distributable to shareholders.
Cash flow statement
Unaudited Six months to 31 May 2024 £’000 Unaudited Six months to 31 May 2023 £’000 Audited Year to 30 November 2023 £’000
Cash flows from operating activities
Profit/(loss) before tax 5,464 (9,038) (15,709)
Adjustments for:
(Increase)/decrease in debtors (116) 21 53
Increase/(decrease) in creditors (1) 265 (173) (82)
Loss/(gain) on disposal of fixed asset investments 178 (402) (668)
(Gain)/loss on disposal of current asset investments (11) – 91
(Gain)/loss on valuation of fixed asset investments (4,055) 8,417 14,333
(Gain)/loss on valuation of current asset investments (1,743) 397 1,047
Cash from operations (18) (778) (935)
Cash flows from investing activities
Purchase of fixed asset investments (2,511) (1,159) (4,086)
Proceeds from sale of fixed asset investments 978 1,542 9,157
Purchase of current asset investments (192) (1,460) (2,040)
Proceeds from sale of current asset investments 200 – 1,505
Net cash flows used in investing activities (1,525) (1,077) 4,536
Cash flows from financing activities
Purchase of own shares (1,234) (1,507) (3,076)
Share issues 4,694 – 7,519
Share issue costs (298) – (468)
Dividends paid (net of DRIS) – (3,012) (5,370)
Net cash flows used in financing activities 3,162 (4,519) (1,395)
Increase/(decrease) in cash and cash equivalents 1,619 (6,374) 2,206
Opening cash and cash equivalents 22,938 20,732 20,732
Closing cash and cash equivalents 24,557 14,358 22,938
Closing cash and cash equivalents is represented by:
Cash at bank 974 903 1,045
Money market funds 23,583 13,455 21,893
Total cash and cash equivalents 24,557 14,358 22,938
(1) Net of the 2023 year end final dividend of 1.8p and special dividend of
3.6p per share paid on 27 June 2024 to shareholders on the register on 31 May
2024.
Notes to the financial statements
1. Basis of preparation
The unaudited half-yearly report which covers the six months to 31 May 2024
has been prepared in accordance with the Financial Reporting Council’s (FRC)
Financial Reporting Standard (FRS) 104 Interim Financial Reporting (January
2022) 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 twelve 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 Company of the current economic and geopolitical
climate.
The principal accounting policies have remained unchanged from those set out
in the Company’s 2023 Annual Report and Accounts.
2. Publication of non-statutory accounts
The unaudited half-yearly report for the six months ended 31 May 2024 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
2023 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 2024 are calculated on the basis of
183,332,123 shares (31 May 2023: 163,971,209 and 30 November 2023:
164,257,336), 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 2024 divided
by 183,467,725 shares in issue at that date (31 May 2023: 163,971,209 and 30
November 2023: 176,875,405).
5. Dividends
The Directors have declared an interim dividend of 1.8p per share (2023: 1.8p
per share) payable from the special distributable reserve. This dividend will
be paid on 28 November 2024 to those shareholders on the register at 31
October 2024. The 2023 AGM approved final dividend of 1.8p and special
dividend of 3.6p per share was paid on 27 June 2024.
6. Buybacks and share issues
During the six months ended 31 May 2024 the Company repurchased the following
shares.
Date No. of shares Price (p) Cost (£)
14 December 2023 791,619 45.8 362,000
18 January 2024 408,110 46.6 190,000
22 February 2024 448,271 46.8 210,000
21 March 2024 280,039 48.0 134,000
25 April 2024 504,889 47.3 239,000
23 May 2024 201,620 48.9 99,000
Total 2,634,548 1,234,000
The weighted average price of all buybacks during the period was 46.8p per
share.
During the six months ended 31 May 2024 the Company issued the following
shares:
Date No. of shares Price (p) Net proceeds (£)
14 December 2023 5,635,893 47.2 2,661,000
11 January 2024 3,555,688 48.3 1,717,000
16 May 2024 35,287 50.2 18,000
Total 9,226,868 4,396,000
The weighted average allotment price of all shares issued during the period
net of costs was 47.7p per share.
7. Principal risks and uncertainties
The Company’s principal risks are: Investment risk; VCT qualifying status
risk; Operational risk; Information security risk; Valuation risk; Legislative
risk; Liquidity risk; and Economic 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 2023. The Board has also
considered emerging risks, including geo-political tensions, adverse changes
in the global macroeconomic environment and climate change, 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 £711,000 by Octopus as a
management fee in the period to 31 May 2024 (31 May 2023: £844,000 and 30
November 2023: £1,572,000). 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 £26,000 in the period to 31 May 2024 (31
May 2023: £29,000 and 30 November 2023: £56,000). For further details please
refer to the Company’s Annual Report and Accounts for the year ended 30
November 2023.
As at 31 May 2024, Octopus Investments Nominees Limited (OINL) held nil shares
(2022: nil) in the Company as beneficial owner. Throughout the period to 31
May 2024 OINL purchased nil shares (2023: nil) at a cost of £nil (2023:
£nil) and sold nil shares (2023: 4,284) for proceeds of £nil (2023:
£2,000). 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:
• Disposal of the entire investment in Spectral MD Holdings
Limited;
• Investments totalling £322,000 into GSK plc;
• Investments totalling £322,000 into Wise plc;
• Investments totalling £326,000 into Bytes Technology
Group plc;
• Investments totalling £165,000 into JTC plc;
• On 20 June 2024, the Company purchased for cancellation
439,789 Ordinary shares at a price of 42.42p.
• On 18 July 2024, the Company purchased for cancellation
253,990 Ordinary shares at a price of 42.82p.
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 Investment Manager
reviews 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 investments £’000 Level 3: Unquoted investments £’000 Total £’000
Cost at 1 December 2023 47,922 2,807 50,729
Opening unrealised gain at 1 December 2023 (1,903) 4,462 2,559
Valuation at 1 December 2023 46,019 7,269 53,288
Purchases at cost 1,711 800 2,511
Disposal proceeds (978) – (978)
Loss on realisation of investments (178) – (178)
Change in fair value in year 3,527 528 4,055
Valuation at 31 May 2024 50,101 8,597 58,698
Cost at 31 May 2024 45,538 3,607 49,145
Closing unrealised gain at 31 May 2024 4,563 4,990 9,553
Valuation at 31 May 2024 50,101 8,597 58,698
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 £720,000 (31 May 2023: £400,000 and 30 November
2023: £120,000) 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 2024 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 2024 will
shortly be available to view at
https://octopusinvestments.com/our-products/venture-capital-trusts/octopus-aim-vcts/
A copy of the half-yearly report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information please contact:
Rachel Peat
Octopus Company Secretarial Services Limited
Tel: +44 (0)80 0316 2067
LEI: 213800BW27BKJCI35L17