Final Results
07/06/2023 07:00
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Octopus AIM VCT plc
Final Results
Octopus AIM VCT plc today announces the final results for the year ended 28
February 2023.
Octopus AIM VCT 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
Year to 28 February 202 3 Year to 28 February 202 2
Net assets (£’000) 141,222 168,169
(Loss) after tax (£’000) (33,414) (19,459)
Net asset value (NAV) per share (p) 78.5 104.8
Dividends per share paid in year (p) 5.5 8.5
Total return (%) (1) (19.8) (9.1)
Final dividend proposed (p) (2) 2.5 3.0
Ongoing charges (%) (3) 2. 1 1.9
(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 proposed final dividend will be paid on 10 August 2023 to shareholders
on the register on 28 July 2023.
(3)Ongoing charges is an alternative performance measure calculated using the
AIC recommended methodology.
Chair’s statement
Introduction
Firstly, I would like to welcome all new shareholders who have joined us in
the past year, and to assure you that the Company’s performance this year
has not been typical for us. As explained further below, market turbulence
this year has been particularly harsh on smaller companies in some of the key
sectors in which we invest, and this has led to a material reduction in the
Company’s Net Asset Value.
The year to 28 February 2023 turned out to be another challenging period for
stock markets in general and for smaller companies in particular. It started
as Russia had just launched its invasion of Ukraine, causing an immediate
shock to the global economy, and in particular a surge in European energy and
food prices driving up inflation, which was already on the rise as economies
emerged from the covid pandemic of 2021. By the half-year, inflation was
nearing 10%, the Bank of England had raised its base rate from 0.5% in
February to 1.75% and the Company’s net asset value (NAV) had fallen by
14.6% on a total return basis as investors withdrew from smaller companies,
which are generally perceived to be riskier assets. The second half was
overshadowed by domestic political turmoil and an autumn budget that caused
further financial instability as expectations for peak interest rates rose
above 6% at one stage before falling back towards the end of the year as some
semblance of stability returned. Interest rates ended the period at 4% and are
now expected to peak in the first half of the current year. Against this
background the NAV gave up further ground and finished the year 19.8% down on
a total return basis.
In the context of this backdrop, the AIM market raised £2.1 billion of new
capital in the year under review for both new and existing AIM companies, a
substantial decrease on the £8.3 billion raised in the previous year. After
the previous year, when the number of new issues had been buoyant coming out
of covid, the majority of fundraisings in the year under review were for
existing AIM companies seeking further capital. It was not surprising,
therefore, that your Investment Manager made fewer qualifying investments,
investing a total of £4.9 million in the period, well down from the record
£21.6 million invested in the previous year. The Investment Manager and your
Board were both clear that the relative shortage of investment opportunities
should not be used as an excuse to lower the rigorous investment criteria that
are applied when making new investments.
Performance
The NAV on 28 February 2023 was 78.5p per share, a significant decrease on the
NAV of 104.8p per share reported at 28 February 2022. Adding back the 5.5p of
dividends paid in the year gives a total negative return of 19.8%. In the same
year, the FTSE AIM All-Share Index fell by 16.1%, the FTSE SmallCap (excluding
investment companies) Index fell by 5.8% and the FTSE All-Share Index rose by
7.3%, all on a total return basis. AIM was the worst performing UK Index, with
the FTSE All-Share’s positive return narrowly based and reliant on a few
very large companies in the energy and pharmaceutical sectors. AIM trailed the
FTSE SmallCap (excluding investment companies) Index because of the poor
performance of AIM’s larger constituents which suffered the greatest
de-ratings.
Once again stock specific factors had a significant impact on our performance,
both positive and negative, and these are covered in more detail in the
Investment Manager’s review. As fears about high inflation and the extent of
likely interest rate rises increased, so did stock market volatility, causing
growth stocks to devalue further as the year progressed. In addition, the
deterioration in appetite for risk which had been apparent since the end of
2021 intensified, resulting in some significant falls in the share prices of
earlier stage companies exposed to the new economy. In some cases raising
further capital proved difficult except at a deep discount and resulted in
companies having to accept much lower valuations. The purpose of a VCT is to
provide capital for small growing companies and as a result those companies
exposed to the new economy in the software, technology and healthcare sectors
make up a significant proportion of our investment portfolio. This worked
against us in the period.
Dividends
In January 2023 an interim dividend for the year to 28 February 2023 of 2.5p
was paid to all shareholders. This was in addition to the 3.0p final dividend
that had been paid in August 2022 and which related to the previous financial
year ended 28 February 2022. The Board has considered the level of dividend in
the context of the NAV fall during the period and on this occasion is
recommending a final dividend of 2.5p, which brings the total dividends for
the year to 28 February 2023 to 5.0p which is a 6.7% yield based on the share
price of 74.5p on 28 February 2023. It remains the Board’s target to pay an
annual dividend of 5.0p or 5% of the year end share price, whichever is
greater at the time.
Cancellation of share premium account
At the last Annual General Meeting, shareholders voted to cancel share premium
to increase the pool of distributable reserves to the amount of £25.6
million. This is a regular occurrence, and common practice, to enable the
continued payment of dividends and buyback of shares. A further resolution to
cancel share premium is being proposed at this year’s Annual General
Meeting.
Dividend reinvestment scheme
In common with many other VCTs in the industry, the Company has established a
Dividend Reinvestment Scheme (DRIS). Many shareholders have already taken
advantage of this opportunity. For investors who do not require income, but
value the additional tax relief on their reinvested dividends, this is an
attractive scheme and I hope more shareholders will find it useful. In the
course of the year 2,122,937 new shares have been issued under this scheme,
returning £1.8 million to the Company. The final dividend referred to above
will be eligible for the DRIS.
Share buybacks
During the year to 28 February 2023 the Company continued to buy back shares
in the market from selling shareholders and purchased 4,312,810 ordinary
shares for a total consideration of £3.6 million. We have maintained a
discount of approximately 4.5% to NAV (equating to up to a 5.0% discount to
the selling shareholder after costs), which the Board monitors and intends to
retain as a policy which fairly balances the interests of both remaining and
selling shareholders. Buybacks remain an essential practice for VCTs, as
providing a means of selling is an important part of the initial investment
decision and has enabled the Company to grow. As such, I hope you will all
support the appropriate resolution at the AGM.
Share issues
On 22 September 2022, a prospectus offer was launched alongside Octopus AIM
VCT 2 plc to raise a combined total of up to £20 million, with a £10 million
over-allotment facility. This prospectus closed to further applications on 13
October 2022. There was strong appetite for the share issue, and it closed
fully subscribed on 13 October 2022. The Company issued 21,311,806 shares
under the offer, raising £17.3 million after costs.
VCT status
Shoosmiths LLP were engaged throughout the year to provide the Board and
Investment Manager with advice concerning continuing compliance with HMRC
regulations for VCTs. The Board has been advised that the Company is in
compliance with the conditions laid down by HMRC for maintaining approval as a
VCT. A key requirement is to maintain at least an 80% qualifying investment
level. As at 28 February 2023, 88.6% of the Company’s portfolio was in VCT
qualifying investments.
In 2015 the government introduced a VCT sunset clause in order to comply with
EU State Aid requirements. This clause provides that income tax relief will no
longer be given to new VCT subscriptions made on or after 6 April 2025, unless
the relevant legislation is renewed by an HM Treasury order. The VCT community
has been campaigning to get this clause revoked, and in September 2022 the
Chancellor of the Exchequer announced that the sunset clause would be extended
beyond 2025. While there has been no further update or announcement from the
government since September, the VCT community remains confident that the
sunset clause will be revoked, enabling VCTs to continue to fulfil the
important role that they play in the funding of small UK growth companies.
Annual General Meeting (AGM)
The AGM will take place on 20 July 2023 at 10.30am. We will also be hosting a
virtual shareholder event prior to the AGM, on 13 July 2023 at 11.00am. This
will enable shareholders to receive an update from the Investment Manager and
provide an opportunity for questions to the Board and the Investment Manager.
There will not be a presentation from the Investment Manager at the AGM
itself. Formal notices will be sent to shareholders by their preferred method
(email or post) and shareholders are encouraged to submit their votes by
proxy. We always welcome questions from our shareholders at the AGM. Please
send any questions via email to aimagm@octopusinvestments.com by 5.00pm on 14
July 2023.
Outlook
2023 started with a degree of cautious optimism and a noticeable improvement
in investor appetite. However, the collapse of Silicon Valley Bank and the
enforced takeover of Credit Suisse in March, demonstrated the continued
fragility of investor confidence despite banks generally being in a much
better shape than they were at the time of the 2007/8 financial crisis.
Inflation remains high although it is expected to fall from current levels
which should enable interest rates to peak in the next few months. It now
seems as if the UK may have avoided the prospect of a formal recession as GDP
projections have been adjusted upwards, with any trough now expected to be
shallow.
Company statements have been robust in the first results season of the year
and forecasts are mostly conservatively set at this stage. Valuations have not
yet recovered from last year’s falls, leaving many of the larger and faster
growing shares in the portfolio on ratings well below their long-term
averages. The Investment Manager’s assessment is that the underlying
businesses of these companies are generally robust, giving good prospects for
uplifts in valuations as overall market sentiment improves.
The portfolio contains 88 holdings across a range of sectors with exposure to
some exciting new technologies in the environmental and healthcare sectors in
particular. Many of these companies remain well funded, although the challenge
of raising further capital in the current market environment cannot be
dismissed. The balance of the portfolio towards profitable companies remains,
and the Investment Manager remains confident that there will continue to be
sufficient opportunities to invest our funds in good companies seeking more
growth capital at attractive valuations.
Neal Ransome
Chair
Investment Manager’s review
Introduction
The 12 months under review was an extremely challenging time for investors who
had to contend with the Russian invasion of Ukraine, rapidly rising inflation
and interest rates, and a squeeze on consumer incomes combined with a constant
threat of recession. This resulted in volatile stock markets with investors
seeking safety in less highly rated sectors such as banks and energy. It
caused the retreat of AIM growth stocks, which was a key factor in the fall in
the net asset value (NAV) which ended the year with a negative total return of
19.8%, slightly behind AIM itself. In addition, as appetite for risk
diminished, some of the earlier stage investments in the portfolio suffered
de-ratings. Solid January trading updates caused a brief recovery in optimism
although this proved transitory in the face of the collapse of Silicon Valley
Bank and the enforced takeover of Credit Suisse just after the year end.
Fragile investor confidence has left AIM shares valued at levels previously
visited around the time of the 2007/8 financial crisis despite a mostly
encouraging results season post the year end.
Against this background AIM fundraisings slowed dramatically as the year
unfolded as companies looking to float paused in response to lower valuation
expectations for their businesses. However, AIM still successfully raised
capital for its existing members, enabling them to fund the next stage of
their development.
The Alternative Investment Market
Following a strong year for the financial markets in 2021, 2022 proved to be a
rather turbulent year in many ways. In addition to global headwinds, the UK
market suffered from continued concerns about inflation, increasing interest
rates, and the looming threat of a long recession. This directly impacted
fundraising levels and the number of new IPOs across all UK indices, both
large and small. However, smaller company indices were particularly impacted
by the equity market de-rating as sentiment moved sharply away from growth and
momentum driven stocks and investors sought out a narrow group of
pharmaceutical and energy stocks in the FTSE 100. AIM’s high exposure to
growth stocks in the software, technology, new economy and healthcare sectors
counted against it over the period and it was the worst performing index, with
its largest constituents faring particularly badly. Conversely, the FTSE
SmallCap Index (ex investment companies) fared better as it did not have
exposure to the larger companies that held back AIM. In the 12 months to 28
February 2023 the AIM Index fell 16.1% compared with a fall of 5.8% for the
FTSE SmallCap index (excluding investment companies) and an increase of 7.3%
for the FTSE All-Share Index on a total return basis. Although VCTs have
additional constraints on what they can invest in, the AIM index is considered
to be the most appropriate broad equity market index for comparative purposes,
given the nature of the underlying investments. The FTSE SmallCap and
All-Share indices provide wider market context.
The market for fundraising and new IPOs remained quiet throughout the year.
Disappointingly, in the year to 28 February 2023, AIM raised £2.0 billion of
new capital for existing companies which compares to a figure of £8.3 billion
the previous year. Not surprisingly, there were only 13 new IPOs compared to
88 in the previous year. AIM raised £0.1 billion for new listings, a
significant decrease on the figure of £1.9 billion in the previous year.
We are still hearing about potential new issues from brokers and we hope that
the current more volatile market conditions do not affect this. VCTs play a
significant part in the funding process and we identify the companies we have
invested in during the year, which include many that are developing
technologies to help solve the climate and healthcare problems that face us.
Performance
Adding back the 5.5p of dividends paid in the year, the NAV total return fell
by 19.8%. This compares with a fall in the FTSE AIM All-Share Index of 16.1%,
a fall in the FTSE SmallCap (excluding investment companies) of 5.8% and a
rise in the FTSE All-Share Index of 7.3%, all on a total return basis. It was
another year characterised by individual months of significant market
volatility as investors reacted to unfolding events. The year opened when
Russia had just invaded Ukraine, which added a steep rise in energy and food
costs to existing price inflation caused by a post-pandemic shortage of labour
and supply chain difficulties. As a result, consensus moved from inflation
being seen as transitory to a longer-term issue, and central banks reacted by
indicating that interest rates would have to rise further and faster than had
previously been expected. The situation was unfortunately exacerbated in the
second half by political instability, with market reactions to the autumn
budget causing peak interest rate expectations to rise above 6%, much further
than had been anticipated, disrupting the gilt and property markets. Faced
with these conditions and uncertainties, investors continued their previous
moves away from smaller company investments and concentrated their attention
on a very narrow cohort of the largest energy and pharmaceutical companies,
causing AIM and smaller companies to lag significantly in contrast to the
well-established long-term trend.This impacted both the larger growth stocks
in the portfolio, which were de-rated even when the tone of their outlook
statements continued to be positive, as well as early-stage technology
companies needing cash to fulfil their growth ambitions and contributed to the
underperformance of the NAV compared with the FTSE AIM All-Share.
Among the larger, profitable holdings in the portfolio, several were caught by
the dramatic de-rating of larger AIM growth stocks in the period caused by
poor market sentiment in the face of sharp rises in interest rates and
inflation. GB Group (GBG) and Learning Technologies Group were in the top ten
fallers, and others such as RWS, Advanced Medical Solutions and Next Fifteen
were also affected although the impact on the performance of the fund was less
for these and other smaller holdings.
One of the biggest contributors to the negative return in the year was GBG, a
leading global player in identity verification. GBG has been a long-term
successful investment where we have taken profits in the past and continue to
believe it will deliver growth and positive returns for the Company in the
future. Its share price was impacted partly by slower than hoped for growth as
some of the froth came off the digital economy as the effect of covid
lockdowns waned and partly in reaction to the acquisition of USbased Acuant,
an expensive acquisition albeit with good longterm strategic benefits. It
ended the period on a valuation multiple well below its historic average and
at a level not seen since the 2007/8 financial crisis. Fears that Learning
Technologies would see its customers cut back on spending on employees in the
event of a recession weighed on its share price. It produced upgrades to 2022
forecasts as the year progressed, leaving the shares trading at the bottom end
of the longer-term valuation range. EKF Diagnostics and Animalcare were also
significant contributors to negative returns in the year. EKF’s profits have
shrunk back to pre-covid levels after a period of significant revenues and
profits from covid test kits, but it remains a profitable provider of point of
care tests and we expect its shares to recover as profits start to grow again.
Animalcare has found the development and launch of new animal drugs less easy
during lockdowns but remains focused on invigorating its growth.
TPX Impact and Trackwise Designs were two very disappointing performers in the
year. TPX Impact had been growing strongly as a result of demand from various
government departments for its digital transformation expertise and the
efficiencies to be gained from it. However, it was caught by a shortage of
skilled technical labour which delayed contract delivery and eroded margins as
it had to fill the gap with outside contractors. A new chief executive is now
in charge and some of the labour pressures have eased, giving us confidence
that the business can recover. Demand from customers remains good and the
business is well funded. The situation at Trackwise Designs was more serious.
The company built a new factory to fulfill a very large contract from electric
vehicle manufacturer Arrival. Disappointingly, the order was revised downwards
at the end of last year which impacted the funding allocated to the factory
build and forced the company to raise money at a moment when stock sentiment
towards early stage businesses was very poor. This resulted in significant
dilution for us as existing shareholders although it does now give the company
the chance to win other customer business for its new facility.
The portfolio has very little exposure to the consumer, but where it does this
has tended to hurt performance in the year. Gear4Music had enjoyed a very
strong period of trading during the pandemic when demand for musical
instruments soared and high street competitors were closed. This masked some
of the underlying challenges posed by Brexit and supply problems in China,
which impacted profits and margins that the management has spent the past two
years working through. It should be able to show some of the benefits of this
process in 2023. Sosandar, another consumer-focused company, has continued to
achieve successive profitable months in 2023 as well as significant growth in
its sales through Next, M&S and John Lewis and most recently Sainsbury’s.
Although the shares were not a significant drag on performance in the year,
they still don’t reflect the scale of the progress made by the business.
It has been another very tough period for early-stage businesses yet to reach
profitability, with the priority to make sure they have enough funding to
develop their technologies and get them tor a self-supporting stage. Share
prices have come under pressure even where funding is not an immediate problem
and progress has remained on track, such as in the cases of LungLife,
GENinCode, Velocys and Maxcyte. There have been some dramatic reactions where
early-stage companies have disappointed investors, such as with CPH2 which has
been slower than expected to develop a working model of its membrane-free
electrolyser. Two other big fallers were Libertine, which had gone to a large
premium to its IPO price before falling back as investors appreciated how
early stage its innovative drive train is, despite having some serious
partners, and Ilika where its Stereax solid state battery has seen slower
scale-up demand than originally expected. We had taken profits in Ilika at
higher levels the previous year.
Investing for a VCT involves backing companies when they are small and still
at an early stage of development and share price progress depends on them
being noticed by a wider circle of investors as they produce results and
develop their businesses over time. This quite often takes longer than
expected and these companies remain potentially vulnerable until they achieve
profitability- something we experienced with Creo Medical this year, which was
forced to raise money on a much lower valuation as VCTs were no longer able to
finance it. The relatively good news is that it is now funded to develop its
innovative endoscopic instruments.
There have been some instances of more resilient performance despite the
market conditions outlined above. The share price of Ergomed has been volatile
over the year but it has broadly held its value as profits have been upgraded.
We have taken some profits to manage the size of the holding although we still
see plenty of scope for organic growth to continue and build further value for
shareholders, particularly as the shares have fallen back since the year end.
Equipmake made a strong debut on AIM and has been a strong contributor to
performance and Netcall, Quixant and Judges Scientific have all maintained
good momentum in their businesses and been rewarded with higher share prices.
In our private company holdings, Hasgrove had its valuation increased over the
year as it grew its recurring revenues and cash despite a fall in the
valuation metrics used. By contrast, the quoted peer group for Popsa was
devalued in the second half and as a result we wrote down its valuation in the
year. The business continues to grow well and cash spending is well under
control.
Portfolio Activity
Having made four qualifying investments at a total cost of £2.4 million in
the first half of the year, we added a further four qualifying investments
totalling £2.5 million in the second half. This made a total investment of
£4.9 million in qualifying investments for the year, a decrease on last
year’s £21.6 million. However, it should be pointed out that FY2022 had
represented a record year for deployment, with a large selection of existing
and new companies turning to public markets to strengthen their balance sheets
as we came out of the covid pandemic.
In the first half of the year we made four qualifying investments; three were
follow-ons into Oberon Investments Group plc, The British Honey Company and
Verici Dx plc, and one was a new investment, Equipmake Holdings plc. In the
second half, we invested in two new companies and two existing investments. We
invested £0.4 million into Northcoders Group plc, a Manchester-based provider
of training programmes for software coding. The funds raised will be used to
expand the list of courses offered to individuals, to include Cyber Security
and Platform Engineering, among others. The company has an exciting
opportunity to form a meaningful part of the upskilling agenda across the UK.
We invested £1.6 million into Itaconix plc, which 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. We invested a
further £0.3 million into Intelligent Ultrasound Group plc, the
‘classroom-to-clinic’ provider of training and AI-enabled medical
simulation products. The company raised £5.2 million, which will support the
ongoing development of several tech-enabled products which assist ultrasound
practitioners and vastly improve the efficiency of the scanning process. We
invested a further £0.2 million into Equipmake, the electric drivetrain
specialists focusing on retrofitting carbon-intensive vehicles and aeroplanes,
most notably diesel buses. The company had its IPO 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.
During the year we took profits in several holdings. We sold part of our
holdings in Advanced Medical Solutions, Next 15 Group and WANdisco. Two
holdings, Clinigen Group and TP Group, were subject to successful cash
takeover bids, Clinigen at a profit though frustratingly TP Group was at a
substantial loss. We also fully exited from investments in Diurnal, Merit
Group, Synairgen and Midatech, and sold our non-qualifying position in Tasty.
In all, disposals made a £0.5 million loss over original cost and generated
£2.5 million of cash proceeds.
Non-qualifying investments are used to manage liquidity while awaiting new
qualifying investment opportunities. Although we still hold some existing
non-qualifying AIM holdings where we seep the opportunity for further share
price progress, we continued to reduce some of these holdings in the year
under review. In the year under review £0.8 million was invested into the FP
Octopus Micro Cap Growth Fund, £0.7 million into the FP Octopus Multi Cap
Income Fund and £0.4 million into the FP Octopus Future Generation Fund at
lower share prices than our previous investments. Recent adverse market
conditions meant that these funds had a negative impact on returns in the year
although we believe they are well positioned to have a positive impact once
the investment environment improves. The balance of the cash is now held in
two money market funds to earn a better return as VCTs are not permitted to
earn significant amounts of interest on bank deposits.
Liquidity
The issue of liquidity within investment funds has remained a topic of
discussion this year. Shareholders may be interested to know that at the year
end 66.6% of the Company’s net assets were held in individual quoted shares,
6.1% were held in unquoted single company investments and 27.7% were held in
cash or collective investment funds providing short-term liquidity.
Shareholders should be aware that a proportion of the quoted holdings may have
limited liquidity owing to the size of the investee company and the overall
proportion held by the Company.
VCT Regulations
There have been no further changes to the VCT regulations since the
publication of the previous set of audited accounts. The key requirements are
that 30% of funds raised should be invested in qualifying holdings within 12
months of the end of the accounting period in which the shares were issued,
and the Company has to maintain a minimum of 80% of the portfolio (at cost)
invested in qualifying holdings. We are determined to maintain a threshold of
quality and to invest where we see the potential for returns from growth. Over
time there has been a gradual change to the profile of the portfolio towards
earlier-stage companies, although we continue to hold the larger market
capitalisation companies, in which we invested several years ago as qualifying
companies, or which we bought in the market prior to the rule changes, where
we see the potential for them to continue to grow.
In order to qualify, companies must:
• have fewer than 250 full-time equivalent employees;
• have less than £15 million of gross assets at the time of investment and
no more than £16 million immediately post investment;
• be less than seven years old from the date of their first commercial sale
(or ten years if a knowledge intensive company) if raising State Aided (i.e.
VCT) funds for the first time;
• have raised no more than £5 million of State Aided funds in the previous
12 months and less than the lifetime limit of £12 million (or £10 million in
12 months and a £20 million lifetime limit if a knowledge intensive company);
and
• produce a business plan to show that the funds are being raised for growth
and development.
Outlook and future prospects
Sentiment is slowly recovering after the latest market setback as prompted by
the collapse of Silicon Valley Bank although nervousness around the financial
health of some US banks remains. On the positive side, banking risk ratios are
much more exacting than at the time of the 2007/8 financial crisis and there
are signs that the very rapid rise in interest rates which precipitated the
current stress may be reaching their peak. However, inflation, which is still
widely expected to fall rapidly from here, remains an issue with no immediate
prospect of achieving the Government’s 2% target, which might hold back the
scale of any cuts in rates from the peak, still predicted to be later this
year. Energy costs remain high but the worst fears of winter power shortages
were not realised.
More than half the companies in the portfolio have updated us on trading since
the period end, with many of these reassuring. Meanwhile we are starting to
see companies considering floating on AIM in the medium term as well as VCT
qualifying opportunities to invest in existing AIM companies. We believe the
current cautious market conditions will provide opportunities to invest the
VCT’s cash at attractive valuations.
The portfolio contains 88 holdings with investments across a range of sectors
including both domestic and international exposure and the balance towards
profitable companies remains.
The Octopus Quoted Companies team
Viability statement
In accordance with provision 4.31 of the UK Corporate Governance Code 2018,
the Directors have assessed the prospects of the Company over a longer period
than the 12 months required by the ‘going concern’ provision. The Board
conducted this review for a period of five years, which was considered to be a
reasonable time horizon given that the Company has raised funds under an offer
for subscription which closed to new applications on 13 October 2022 and,
under VCT rules, subscribing investors are required to hold their investment
for a five-year period in order to benefit from the associated tax reliefs.
The Board regularly considers the Company’s strategy, including investor
demand for the Company’s shares, and a five-year period is considered to be
a reasonable time horizon for this.
The Board carried out a robust assessment of the emerging and principal risks
facing the Company and its current position.This includes the impact of the
cost of living crisis, the unstable economic environment and any other risks
which may adversely impact its business model, future performance, solvency or
liquidity. Particular consideration was given to the Company’s reliance on,
and close working relationship with, the Investment Manager. The principal
risks faced by the Company and the procedures in place to monitor and mitigate
them are set out below.
The Board has also considered the liquidity of the underlying investments and
the Company’s cash flow projections considering the material inflows and
outflows of the Company including investment activity, buybacks, dividends and
fees and found these to be realistic and reasonable. The Company’s cash flow
includes cash equivalents which are short-term, highly liquid investments.
Based on the above assessment the Board confirms that it has a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the five-year period to 28 February
2028.
Principal risks, risk management and regulatory environment
In accordance with the Listing Rules under which the Company operates, the
Board is required to comment on the potential risks and uncertainties which
could have a material impact on the Company’s performance.
The Board carries out a review of the risk environment in which the Company
operates. The main areas of risk identified by the Board are as follows:
Risk Mitigation
I nvestment performance: The focus of the Company’s investments is into VCT qualifying companies quoted on AIM and the AQSE, which by their nature entail a higher level of risk and lower liquidity than investments in larger quoted companies. The Investment Manager has significant experience and a strong track record of investing in AIM and AQSE companies, and appropriate due diligence is undertaken on every new investment. The overall risk in the portfolio is mitigated by maintaining a wide
spread of holdings in terms of financing stage, age, industry sector and business models. The Board reviews the investment portfolio with the Investment Manager on a regular basis.
VCT qualifying status risk: The Company is required at all times to observe the conditions for the maintenance of HMRC approved VCT status. The loss of such approval could lead to the Company and its investors losing access to the tax benefits associated with VCT status and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment. Prior to investment, the Investment Manager seeks assurance from the Company’s VCT status adviser that the investment will meet the legislative requirements for VCT investments. On an ongoing basis, the Investment Manager monitors the Company’s compliance
with VCT regulations on a current and forecast basis to ensure ongoing compliance with VCT legislation. Regular updates are provided to the Board throughout the year. The VCT status adviser formally reviews the Company’s compliance with VCT regulations on
a bi-annual basis and reports their results to the Board.
Operational risk (reliance on Octopus): The Board is reliant on the Investment Manager to manage investments effectively, and manage the services of a number of third parties, in particular the registrar and tax advisers. A failure of the systems or controls at the Investment Manager or third-party providers could lead to an inability to provide accurate reporting and to ensure adherence to VCT and other regulatory rules. The Board reviews the system of internal control, both financial and non-financial, operated by the Investment Manager (to the extent the latter are relevant to the Company’s internal controls). These include controls that are designed to ensure that the
Company’s assets are safeguarded, that proper accounting records are maintained, and that regulatory reporting requirements are met. Feedback on other third parties is reported to the Board on at least an annual basis, including adherence to Service Level
Agreements where relevant.
Information security: A loss of key data could result in a data breach and fines. The Board is reliant on the Investment Manager and third parties to take appropriate measures to prevent a loss of confidential customer information. Annual due diligence is conducted on third parties which includes a review of their controls for information security. The Investment Manager has a dedicated information security team and a third party is engaged to provide continual protection in this
area. A security framework is in place to help prevent malicious events. The Investment Manager reports to the Board on an annual basis to update them on relevant information security arrangements. Significant and relevant information security breaches are
escalated to the Board when they occur.
Economic and p rice risk: Events such as an economic recession, movement in interest rates, inflation, political instability and rising living costs could cause volatility in the market, adversely impacting the valuation of investments. This could result in a reduction in the value of the Company’s assets. The Company invests in a diverse portfolio of companies across a range of sectors, which helps to mitigate against the impact of performance in any one sector. The Company also maintains adequate liquidity to make sure it can continue to provide follow-on
investment to those portfolio companies which require it and which is supported by the individual investment case. The Investment Manager monitors the impact of macroeconomic conditions on an ongoing basis and provides updates to the Board at least
quarterly.
Regulatory and reputational risk/legislative: A change to the VCT regulations could adversely impact the Company by restricting the companies the Company can invest in under its current strategy. Similarly, changes to VCT tax reliefs for investors could make VCTs less attractive and impact the Company’s ability to raise further funds. Failure to adhere with other relevant legislation and regulation could result in reputational damage and/or fines. The Investment Manager engages with HM Treasury and industry bodies to demonstrate the positive benefits of VCTs in terms of growing UK companies, creating jobs and increasing tax revenue, and to help shape any change to VCT legislation. The Investment
Manager employs individuals with expertise across the legislation and regulation relevant to the Company. Individuals receive ongoing training and external experts are engaged where required.
Liquidity/cash flow risk: The risk that the Company’s available cash will not be sufficient to meet its financial obligations. The Company invests into smaller companies, which are inherently less liquid than stocks on the main market. Therefore, these may be difficult to realise for their fair market value at short notice. The Investment Manager prepares cash flow forecasts to make sure cash levels are maintained in accordance with policies agreed with the Board. The Company’s overall liquidity levels are monitored on a quarterly basis by the Board, with close monitoring of
available cash resources. The Company maintains sufficient cash and readily realisable securities, including money market funds and OEICs, which can be accessed at short notice. As at 28 February 2023, 16.2% of net assets were held in cash and cash
equivalents and 11.5% in OEICs, realisable in four business days.
Valuation risk: For smaller companies or illiquid shares, establishing a fair value can be difficult due to the lack of readily available market data for similar shares, resulting in a limited number of external reference points. Investments in companies traded on AIM and AQSE are valued by the Investment Manager using closing bid prices as reported on Bloomberg. Where investments are in unquoted companies or where there are indicators bid price is not appropriate, alternative
valuation techniques are used in accordance with the International Private Equity and Venture Capital (IPEV) guidelines. Valuations of unquoted portfolio companies are performed by appropriately experienced staff, with detailed knowledge of both the
portfolio company and the market in which it operates. These valuations are then subject to review and approval by the Octopus Valuations Committee, comprised of staff who are independent of the Investment team and with relevant knowledge of unquoted
company valuations. The Board reviews valuations after they have been agreed by the Octopus Valuations Committee. Investment in FP Octopus UK Micro Cap Growth Fund, FP Octopus UK Multi Cap Income Fund and FP Octopus UK Future Generations Fund are all
valued with reference to the daily prices which are published by Fund Partners, the Authorised Corporate Director.
Emerging risks
The Board has considered emerging risks. The Board seeks to mitigate emerging
risks and those noted below by setting policy, regular review of performance
and monitoring progress and compliance. In the mitigation and management of
these risks, the Board applies the principles detailed in the Financial
Reporting Council’s Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting.
The following are some of the potential emerging risks that the Board and the
Investment Manager are currently monitoring:
• Adverse changes in global macroeconomic environment.
• Rising cost of living.
• Geo-political protectionism.
• Climate change.
Directors' responsibilities statement
The Directors are responsible for preparing the Annual Report and Accounts in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
financial statements and have elected to prepare the Company’s Financial
Statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law) including
FRS 102 – ‘The Financial Reporting Standard applicable in the UK and
Republic of Ireland’. Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or loss for the
Company for that period.
In preparing these Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
• prepare a strategic report, a Director’s report and Director’s
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for ensuring that the annual report and
accounts, taken as a whole, are fair, balanced, understandable and provide the
information necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the annual report and the accounts
are made available on a website. Financial statements are published on the
Investment Manager’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements,
which may vary from legislation in other jurisdictions. The maintenance and
integrity of the Company’s website is the responsibility of the Directors.
The Directors’ responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Directors’ responsibilities pursuant to Disclosure Guidance and Transparency
Rule 4 (DTR4)
Neal Ransome (Chair), Andrew Boteler, Stephen Hazell-Smith and Joanne Parfrey,
the Directors, confirm to the best of their knowledge that:
• the financial statements have been prepared in accordance with the
Financial Reporting Standard applicable in the United Kingdom and Republic of
Ireland (‘FRS 102’) and give a true and fair view of the assets,
liabilities, financial position and profit and loss of the Company; and
• the annual report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
By Order of the Board
Neal Ransome
Chair
Income Statement
Year to 28 February 202 3 Year to 28 February 2022
Revenue Capital Total Revenue Capital Total
£'000 £’000 £’000 £'000 £’000 £’000
Gain on disposal of fixed asset investments - 207 207 - 1,001 1,001
Loss on disposal of current asset investments - - - - (2) (2)
Loss on valuation of fixed asset investments - (29,192) (29,192) - (17,203) (17,203)
Loss on valuation of current asset investments - (2,233) (2,233) - (313) (313)
Investment Income 1,068 24 1,092 760 134 894
Investment management fees (650) (1,949) ( 2,599 ) (765) (2,296) (3,061)
Other expenses (689) - ( 689 ) (775) - (775)
Loss before tax (271) (33,143) ( 33,414) (780) (18,679) (19,459)
Tax - - - - - -
Total comprehensive income loss after tax (271) (33,143) ( 33,414) (780) (18,679) (19,459)
Earnings per share – basic and diluted (0.2)p (20.0)p (20.2)p (0.5)p (12.4)p (12.9)p
• The ‘Total’ column of this statement represents the statutory income
statement 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 OEIC funds.
The Company has no recognised gains or losses other than the results for the
period as set out above. Accordingly a statement of comprehensive income is
not required.
The accompanying notes are an integral part of the Financial Statements.
Balance Sheet
As at 28 February 202 3 As at 28 February 2022
£’000 £’000 £’000 £’000
Fixed asset investments 102,667 129,226
Current assets:
Investments 16,188 16,543
Money market funds 21,433 1,326
Debtors 3 54 329
Applications cash (1) 3 246
Cash at bank 1,437 21,910
39,415 40,354
Creditors: amounts falling due within one year (860) (1,411)
Net current assets 38,555 38,943
Total assets less current liabilities 141,222 168,169
Called up equity share capital 1,798 1,605
Share premium 18,924 25,450
Capital redemption reserve 279 236
Special distributable reserve 118,015 105,258
Capital reserve realised (23,143) (20,762)
Capital reserve unrealised 27,545 58,307
Revenue reserve (2,196) (1,925)
Total equity shareholders’ funds 141,222 168,169
NAV per share – basic and diluted 78.5p 104.8p
(1)Cash held but not yet allotted
The statements were approved by the Directors and authorised for issue on 6
June 2023 and are signed on their behalf by:
Neal Ransome
Chair
Company number: 03477519
The accompanying notes are an integral part of the Financial Statements.
Statement of changes in equity
Share capital Share premium Capital redemption reserve Special distributable reserves (1) Capital reserve realised (1) Capital reserve unrealised Revenue reserve (1) Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
As at 1 March 202 2 1,605 25,450 236 105,258 (20,762) 58,307 (1,925) 168,169
Comprehensive income for the year:
Management fee allocated as capital expenditure - - - - (1,949) - - (1,949)
Current period gain on disposal - - - - 207 - - 207
Current period loss on revaluation of investments - - - - - (31,425) - (31,425)
Capital investment income - - - - 24 - - 24
Loss after tax - - - - - - (271) (271)
Total comprehensive loss for the year - - - - (1,718) (31,425) (271) (33,414)
Contributions by and distributions to owners:
Repurchase and cancellation of own shares (43) - 43 (3,567) - - - (3,567)
Issue of shares 236 19,742 - - - - - 19,978
Share issue costs - (668) - - - - - (668)
Dividends paid - - - (9,276) - - - (9,276)
Total contributions by and distributions to owners : 193 19,074 43 (12,843) - - - 6,467
Other movements
Cancellation of share premium - (25,600) - 25,600 - - - -
Prior years’ holding gains now realised - - - - (663) 663 - -
Total other movements - (25,600) - 25,600 (663) 663 - -
Balance as at 28 February 202 3 1,798 18,924 279 118,015 (23,143) 27,545 ( 2,196) 141,222
As at 1 March 202 1 1,461 57,966 173 67,477 (21, 945 ) 78,169 (1,145) 182,156
Comprehensive income for the year:
Management fee allocated as capital expenditure - - - - (2,296) - - (2,296)
Current period gain on disposal - - - - 999 - - 999
Current period loss on revaluation of investments - - - - - (17,516) - (17,516)
Capital investment income - - - - 134 - - 134
Loss after tax - - - - - - (780) (780)
Total comprehensive loss for the year - - - - (1,163) (17,516) (780) (19,459)
Contributions by and distributions to owners:
Repurchase and cancellation of own shares (63) - 63 (7,522) - - - (7,522)
Issue of shares 207 27,030 - - - - - 27,237
Share issue costs - (1,580) - - - - - (1,580)
Dividends paid - - - (12,663) - - - (12,663)
Total contributions by and distributions to owners : 144 25,450 63 (20,185) - - - 5,472
Other m ovements:
Cancellation of share premium - (57,966) - 57,966 - - - -
Prior years’ holding gains now realised - - - - 2,346 (2,346) - -
Total other movements - (57,966) - 57,966 2,346 (2,346) - -
Balance as at 2 8 February 202 2 1,605 25,450 236 105,258 (20,762) 58,307 ( 1,925) 168,169
(1)Included in these reserves is an amount of £92,676,000 (2022:
£82,571,000) which is considered distributable to shareholders.
Cash flow statement
Year to 2 8 February 20 2 3 Year to 28 February 2022
£'000 £'000
Cash flows from operating activities
Loss before tax (33,414) (19,459)
Adjustments for:
Increase in debtors (25) (136)
(Decrease)/increase in creditors ( 794 ) 470
Gain on disposal of fixed asset investments ( 207) (1,001)
Loss on disposal of current asset investments – 2
Loss on valuation of fixed asset investments 29,192 17,203
Loss on valuation of current asset investments 2,233 313
Non-cash distributions ( 2 4) (134)
Cash utilised in operations (3,039) (2,742)
Income taxes paid - -
Net cash utilised in operating activities (3,039) (2,742)
Cash flows from investing activities
Purchase of fixed asset investments ( 4,880) (21,639)
Proceeds from sale of fixed asset investments 2,478 7,932
Purchase of current asset investments ( 1,878) (2,250)
Proceeds from sale of current asset investments – 1,604
Net cash flows utilised in investing activities ( 4,280) (14,353)
Cash flows from financing activities
Movement in applications account 243 (106)
Purchase of own shares (3,567) (7,522)
Proceeds from share issues 18,217 25,657
Share issue costs (668) (2,342)
Dividends paid (net of DRIS) (7,515) (10,321)
Net cash flows from financing activities 6,710 (5,366)
Decrease in cash and cash equivalents (609) (11,730)
Opening cash and cash equivalents 23,482 35,212
Closing cash and cash equivalents 22,873 23,482
Cash and cash equivalents is represented by:
Cash at bank 1,437 21,910
Applications cash 3 246
Money market funds 21,433 1,326
Total cash and cash equivalents 22,873 23,482
The accompanying notes are an integral part of the Financial Statements.
Post Balance Sheet Events
The following events occurred between the balance sheet date and the signing
of these financial statements.
• A follow-on investment totalling £600,000 completed in FP Octopus UK
Micro Cap Growth Fund.
• A partial disposal of 5,040 shares in Judges Scientific plc for total
consideration of £439,000.
• A partial disposal of 172,200 shares in Quixant plc for total
consideration of £301,000.
• A partial disposal of 180,000 shares in Genedrive plc for total
consideration of £53,000.
• A full disposal of 500,000 shares in Itsarm plc (formerly In The Style
Group plc) for total consideration of £2,000.
• A full disposal of 428,811 shares in AdEPT Technology Group plc for total
consideration of £862,000.
• A partial disposal of 120,000 shares in Intelligent Ultrasound Group plc
for total consideration of £19,000.
• A partial disposal of 152,066 shares in FP Octopus UK Multi Cap Income for
total consideration of £180,000.
The following shares have been bought back since the year end:
• 16 March 2023: 459,683 shares at a price of 72.5p per share.
• 20 April 2023: 558,866 shares at a price of 72.5p per share.
• 18 May 2023: 290,881 shares at a price of 71.9p per share.
Notes to the financial statements
1. Principal accounting policies
The Company is a Public Limited Company (plc) incorporated in England and
Wales and its registered office is 33 Holborn, London EC1N 2HT.
The Company’s principal activity is to invest in a diverse portfolio of
predominately AIM-traded companies with the aim of providing shareholders with
attractive tax-free dividends and long-term capital growth.
Basis of preparation
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of certain financial
instruments, and in accordance with UK Generally Accepted Accounting Practice
(GAAP), including Financial Reporting Standard 102 – The Financial Reporting
Standard applicable in the United Kingdom and Republic of Ireland’ (‘FRS
102’), and with the Companies Act 2006 and the Statement of Recommended
Practice (SORP) ‘Financial Statements of Investment Trust Companies and
Venture Capital Trusts (issued 2014 and updated in October 2019 with
consequential amendments)’.
The principal accounting policies have remained unchanged from those set out
in the Company’s 2022 annual report and accounts.
2. Income
Accounting policy
Investment income includes interest earned on money market securities is shown
net of income tax withheld at source. Dividend income is shown net of any
related tax credit. Dividends are allocated to revenue or capital depending on
whether the dividend is of a revenue or capital nature.
Dividends receivable are brought into account when the Company’s right to
receive payment is established and it is probable that payment will be
received. 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.
Disclosure
28 February 28 February
202 3 2022
£’000 £’000
Dividends receivable from fixed asset investments 834 715
In-specie dividend (1) 2 4 134
Loan note interest receivable 45 45
Income receivable on money market securities 189 -
1,092 894
(1)The Company received shares in Verici Dx PLC as a result of an in-specie
dividend from EKF Diagnostics Holdings plc. In the prior period the Company
received shares in Trellus Health plc as a result of an in-specie dividend
from EKF Diagnostics Holdings PLC. These have been treated as capital income.
3. Investment management fees
28 February 202 3 28 February 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 65 0 1,94 9 2,599 765 2,296 3,061
Octopus provides investment management and accounting and administration
services to the Company under a management agreement which initially ran with
Close Investment Limited from 3 February 1998 and was then novated to Octopus
for a period of five years with effect from 29 July 2008 and may be terminated
at any time thereafter by not less than 12 months’ notice given by either
party. No compensation is payable in the event of terminating the agreement by
either party, if the required notice period is given. The fee payable, should
insufficient notice be given, will be equal to the fee that would have been
paid should continuous service be provided, or the required notice period was
given. The management fee is an annual charge set at 2% of the Company’s net
assets, less deductions outlined below calculated on a quarterly basis.
During the year Octopus charged gross management fees of £3,067,000 (2022:
£3,723,000). When the various allowances detailed below are included, the net
management fees for the year are £2,599,000 (2022: £3,061,000). At the year
end there was £580,000 payable to Octopus (2022: £834,000). Octopus received
£282,000 as a result of upfront fees charged on allotments of Ordinary shares
(2022: £515,000).
The Company now pays ongoing adviser charges to independent financial advisers
(IFA’s). Ongoing adviser charges are an ongoing fee of up to 0.5% per annum
for a maximum of nine years paid to advisers who are on an advised and ongoing
fee structure. The Company is rebated for this cost by way of a reduction in
the annual management fee. For the year to 28 February 2023 the rebate
received was £183,000 (2022: £290,000).
The Company also facilitates upfront fees to IFAs where an investor has
invested through a financial adviser and has received upfront advice. Where an
investor agrees to an upfront fee only, the Company can facilitate a payment
of an initial adviser charge of up to 4.5% of the investment amount. If the
investor chooses to pay their intermediary/adviser less than the maximum
initial adviser charge, the remaining amount will be used for the issue and
allotment of additional new shares for the investor. In these circumstances
the Company does not facilitate ongoing annual payments. To make sure that the
Company is not financially disadvantaged by such payment, a notional ongoing
adviser charge equivalent to 0.5% per annum will be deemed to have been paid
by the Company for a period of nine years. The Company is rebated for this
cost, also by way of a reduction in the annual management fee. For the year to
28 February 2023 the rebate received was £202,000 (2022: £272,000).
The Company also receives a reduction in the management fee for the
investments into other Octopus managed funds, being the Multi Cap, Micro Cap
and Future Generations products, to ensure the Company is not double charged
on these products. This amounted to £83,000 for the year to 28 February 2023
(2022: £100,000).
The management fee has been allocated 25% to revenue and 75% to capital, in
line with the Board’s expected long-term return
in the form of income and capital gains respectively from the Company’s
investment portfolio.
4. Other expenses
Accounting Policy
All expenses are accounted for on an accruals basis.
The transaction costs incurred when purchasing or selling assets are written
off to the income statement in the period that they occur.
Disclosure
28 February 28 February
202 3 2022
£’000 £’000
IFA charges 183 290
Directors’ remuneration 98 102
Registrars’ fees 65 55
Audit fees 43 36
Printing and postage 23 18
VCT monitoring fees 13 21
Directors’ and officers’ liability insurance 50 19
Broker’s fees 6 6
Other administration expenses 208 228
689 775
The fees payable to the Company’s auditor are stated net of VAT and the VAT
is included within other administration expenses.
The ongoing charges of the Company were 2.1% of average net assets during the
year to 28 February 2023 (2022: 1.9%). Ongoing charges are calculated using
the AIC methodology and exclude exceptional costs and trail commission.
5. Tax
Accounting Policy
Corporation tax payable is applied to profits chargeable to corporation tax,
if any, at the current rate. The tax effect of different items of income/gain
and expenditure/loss is allocated between capital and revenue return on the
‘marginal’ basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing
differences that have originated but not reversed at the balance sheet date,
except as otherwise indicated.
Deferred tax assets are only recognised to the extent that it is probable that
they will be recovered against the reversal of deferred tax liabilities or
other future taxable profits.
The corporation tax charge for the year was £nil (2022: £nil).
Disclosure
28 February 28 February
202 3 2022
Tax reconcilation £’000 £’000
Loss before tax ( 33,414) (19,459)
Current tax at 19.0% (2022:19.0%) ( 6,349) (3,697)
Effects of
Non-taxable income (1 99 ) (161)
Non-taxbale capital gains 5,932 3,138
Non-deductible expenses ( 4 ) (3)
Excess management expenses on which deferred tax not recognised 6 2 0 723
Total tax charge - -
Approved VCTs are exempt from tax on capital gains within the Company. Since
the Directors intend that the Company will continue to conduct its affairs so
as to maintain its approval as a VCT, no deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal
of investments.
As at 28 February 2023 there is an unrecognised deferred tax asset of
£6,551,000 (2022: £5,758,000) in respect of accumulated surplus management
expenses of £26,204,000 (2022: £23,030,000), based on a prospective
corporation tax rate of 25% (2022:25%). This deferred tax asset could in
future be used against taxable profits.
Provided the Company continues to maintain its current investment profile, it
is unlikely that the expenses will be utilised and that the Company will
obtain any benefit from this asset.
6. Dividends
A Accounting Policy
Dividends payable are recognised as distributions in the financial statements
when the Company’s liability to make payment has been established. This
liability is established on the record date, the date on which those
shareholders on the share register are entitled to the dividend.
Disclosure
28 February 28 February
202 3 2022
£’000 £’000
Dividends paid on Ordinary shares during the year
Final dividend – 3.0p paid 12 August 2022 (2022: 3.5p) 4,775 5,035
Special dividend – Nil (2022: 2.5p) – 3,597
Interim dividend – 2.5p paid 12 January 2023 (2022: 2.5p) 4,501 4,031
9,276 12,663
During the year £1,761,000 (2022: £2,342,000) of dividends were reinvested under the DRIS.
28 February 28 February
202 3 2022
£’000 £’000
Dividends paid and proposed in respect of the year
Interim dividend – 2.5p paid 12 January 2023 (2022: 2.5p) 4, 501 4,031
Final dividend proposed : 2.5p payable 10 August 2023 (2022: 3.0p) 4, 462 4,795
8, 963 8,826
Under Section 32 of FRS 102 ‘Events After Balance Sheet Date’, dividends payable at year end are not recognised as a liability in the financial statements. The above proposed final dividend is based on the number of shares in issue at the date of this report. The actual dividend paid may differ from this number as the dividend payable will be based on the number of shares in issue on the record date and will reflect any changes in the share capital between the year end and the record date.
7. Earnings per share
28 February 202 3 28 February 2022
Revenue Capital Total Revenue Capital Total
Loss attributable to ordinary shareholders (£’000) ( 271 ) ( 33,143) ( 33,414) (780) (18,679) (19,459)
Earnings per ordinary share (p) (0. 2 )p (2 0 . 0 )p (2 0 . 2 )p (0.5)p (12.4)p (12.9)p
The earnings per share is based on 165,688,082 Ordinary shares (2022:
151,132,679), being the weighted average number of shares in issue during the
year, and the loss on ordinary activities after tax for the year of
£33,414,000 (2022: loss £19,459,000).
There are no potentially dilutive capital instruments in issue and, as such,
the basic and diluted earnings per share are identical.
8. Net asset value per share
28 February 28 February
202 3 2022
Net assets (£’000) 141,222 168,169
Shares in issue 179,802,084 160,480,523
NAV per share (p) 78.5 104.8
There are no potentially dilutive capital instruments in issue and, as such,
the basic and diluted NAV per share are identical.
9. Related Party Transactions
The Company has employed Octopus throughout the year as Investment Manager.
Octopus has also been appointed the custodian of the Company’s investments
under a custodian agreement.
The Company has paid Octopus £2,599,000 (2022: £3,061,000) in the year as a
management fee. The management fee is payable quarterly in arrears and is
based on 2.0% of net assets at six-month intervals.
The Company receives a reduction in the management fee for the investments in
other Octopus managed funds, being the Octopus Portfolio Manager, 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 £83,000 in
the year to 28 February 2023 (2022: £100,000).
Octopus received £nil (2022: £nil) transaction fees and directors’ fees
from portfolio companies.
The Company holds £3,000 (2022: £246,000) of cash on behalf of the Company
and AIM VCT 2 plc. Of this, £2,000 (2022: £161,000) is attributable to the
Company.
In the year, Octopus Investments Nominees Limited (OINL) purchased Company
shares from shareholders to protect their interests after delays or errors
with shareholder instructions and other similar administrative issues, on the
understanding that shares will be sold back to the Company in subsequent share
buybacks.
As at 28 February 2023, Octopus Investments Nominees Limited (OINL) held 7,598
shares (2022: 889) in the Company as beneficial owner, having purchased these
at a cost of £7,000 (2022: £nil). Throughout the period to 28 February 2023
OINL purchased 9,875 shares (2022: 889) at a cost of £9,000 (2022: £1,000)
and sold 3,166 shares (2022: nil) for proceeds of £3,000 (2022: £nil). 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.
10. 2023 financial information
The figures and financial information for the year ended 28 February 2023 are
extracted from the Company’s annual financial statements for the period and
do not constitute statutory accounts. The Company’s annual financial
statements for the year to 28 February 2023 have been audited but have not yet
been delivered to the Registrar of Companies. The Auditors’ report on the
2023 annual financial statements was unqualified, did not include a reference
to any matter to which the auditors drew attention without qualifying the
report, and did not contain any statements under Sections 498(2) or 498(3) of
the Companies Act 2006.
11. 2022 financial information
The figures and financial information for the period ended 28 February 2022
are compiled from an extract of the published financial statements for the
period and do not constitute statutory accounts. Those financial statements
have been delivered to the Registrar of Companies and included the Auditors’
report which was unqualified, did not include a reference to any matter to
which the auditors drew attention without qualifying the report, and did not
contain any statements under Sections 498(2) or 498(3) of the Companies Act
2006.
12. Annual Report and financial statements
The Annual Report and financial statements will be posted to shareholders in
June and will be available on the Company’s website. The Notice of Annual
General Meeting is contained within the Annual Report.
13. General information
Registered in England & Wales. Company No. 03477519
LEI: 213800C5JHJUQLAFP619
14. Directors
Neal Ransome (Chair),Stephen Hazell-Smith, Joanne Parfrey and Andrew Boteler
15. Secretary and registered office
Octopus Company Secretarial Services Limited
33 Holborn, London EC1N 2HT