Half-Yearly Results
07/11/2023 18:20
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Octopus AIM VCT plc
Half-Yearly Results
Octopus AIM VCT plc announces its unaudited half-yearly results for the six
months ended 31 August 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
Six months to 31 August 2023 Six months to 31 August 2022 Year to 28 February 2023
Net assets (£’000) 120,131 138,489 141,222
Loss after tax (£’000) (15,972) (24,508) (33,414)
Net asset value (NAV) per share (p) 67.2 86.5 78.5
Total return (%) (1) (11.2) (14.6) (19.8)
Dividends per share paid in the period (p) 2.5 3.0 5.5
Dividend declared (p) (2) 2.5 2.5 2.5
(1)Total return is an alternative performance measure calculated as movement
in NAV per share in the period plus dividends paid in the period, divided by
the NAV per share at the beginning of the period.
(2)The interim dividend of 2.5p will be paid on 12 January 2024 to those
shareholders on the register on 22 December 2023.
Chair’s statement
The six months to 31 August 2023 have seen a continuation of the challenging
conditions for smaller company investments that were outlined in the last
annual report, and which have persisted for several reporting periods.
Inflation has been slow to fall with the result that expectations for peak
interest rates have risen and interest rates are now expected to remain high
into 2024. The market turbulence resulting from this has been particularly
harsh on smaller companies in some of the key sectors in which we invest.
Against this background it is disappointing to report the VCT’s Net Asset
Value (NAV) per share fell by 11.2% during the six month period after adding
back the 2.5p dividend paid in August. This reduction is marginally less than
the reduction in the FTSE AIM All-Share index, which fell by 12.8% over the
same period.
The flow of VCT qualifying investment opportunities was still weak at the
start of the year and any recovery in the new issues market was delayed in
response to less certain market conditions after the collapse of Silicon
Valley Bank in March. Consequently, the level of investment in the period has
been low at £0.5 million. More encouragingly, there has been a pick-up in
activity towards the end of the period, led by existing AIM companies many of
which have been able to access funding on lower valuations. We have made
several new investments since the period end.
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 August 2023, the Company bought back 2,221,434
Ordinary shares for a total consideration of £1,564,000. It is evident from
the conversations which your Investment Manager has that this facility remains
an important consideration for investors. The Company 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% discount to the selling shareholder after
costs).
Share issues
In this period 1,301,464 new shares were issued, 1,260,682 of these being
issued through the Dividend Reinvestment Scheme (DRIS).
New share offer
Since the period end the Company has launched a new combined offer for
subscription alongside Octopus AIM VCT 2 plc to raise up to £20 million with
an over allotment of up to a further £10 million.
Dividends
On 10 August 2023, the Company paid a dividend of 2.5p per share, being the
final dividend for the year ended 28 February 2023. For the period to 31
August 2023, the Company has declared an interim dividend of 2.5p which will
be paid on 12 January 2024 to shareholders on the register on 22 December
2023. It remains the Company’s target to pay an annual dividend of 5.0p or
5% of the year-end share price, whichever is greater at the time.
Principal risks and uncertainties
The principal risks and uncertainties faced by the VCT are set out in Note 7
to the financial statements.
Outlook
The twin challenges of high interest rates and strong inflation, combined with
unsettled geopolitical circumstances including the recent tragic events in the
Middle East have led to significant numbers of shares now being priced well
below their recent peaks and on valuations not seen since the last financial
crisis. Your VCT has the resilience of being invested in a widely diversified
portfolio of companies, and the recently announced fundraising means that our
Investment Manager is in a strong position to invest in new opportunities as
they arise.
Neal Ransome
Chair
7 November 2023
Investment Manager’s review
Overview
The six months to 31 August 2023 has been a frustrating period for smaller
company investors. Good growth companies trading robustly have seen their
share prices and ratings fall as investors have shied away from taking risks.
This has partly been the result of persistently high inflation, which has led
to interest rates being raised four times in the half-year to 5.25%, further
than had been anticipated a year ago, with any meaningful fall now not
expected until next year. This nervousness has resulted in many valuations
falling to levels not seen since the Financial Crisis nearly 15 years ago and
has left the wider equity market trading at a discount of over 25% to its
longer-term average. The Company has been particularly adversely affected by
these market conditions over the past two years as it invests in early-stage
companies, which rely on supportive market conditions for capital until they
reach profitability. However, on a more positive note the economy has remained
more robust than expected and many companies in the portfolio are still
managing significant progress and growth. Valuations are at an attractive
level for buyers and we see scope to deploy cash profitably once the market
becomes comfortable that interest rates have peaked.
Performance
Adding back the 2.5p paid out in dividends in the period, the NAV fell by
11.2% in the six months to 31 August 2023. This compares with a 12.8% fall in
the FTSE AIM All-Share Index, a 3.3% fall in the Small Cap Index
(ex-Investment Trusts) and a 3.2% fall in the FTSE All Share Index, all on a
total return basis. The Company’s relatively high exposures to the
healthcare and technology sectors (which had been a reason for good returns in
the past) were once again detrimental to performance in a world where risk
averse investors have little appetite for early-stage growth stocks. Companies
yet to reach profitability were particularly affected with those needing to
raise money now rather than wait for more favourable market conditions
suffering some steep falls in their valuations. The VCT rules require
investment to be made at an early stage and the benefits of doing so have been
clear in past periods. The FTSE All Share Index performed noticeably better
than the AIM Index, reflecting a higher weighting in larger companies,
although it also continues to be valued at a discount to indices in other
major geographies. The FTSE Small Cap Index (excluding Investment Trusts) did
better than the AIM Index but has a much narrower membership and its
constituents were less affected by the conditions described above.
There were two main themes behind the largest detractors from performance in
the period, the most dominant of which was the on-going de-rating of growth
stocks as investors sought safe havens such as the oil and resource sectors.
Of the top ten detractors, seven companies (Learning Technologies Group, SDI
Group, Next 15 Group, GB Group, Nexteq, Ergomed and Netcall) are established
and profitable companies held for long-term growth potential. The worst impact
on the NAV was from Learning Technologies Group, which saw its shares almost
halve despite producing robust trading statements and demonstrating the
ability of the business to generate cash from its recurring revenue base. Next
15 Group and Ergomed’s shares suffered a similar de-rating although the
latter has since been subject to a takeover bid from a private equity house at
a 28% premium to the then prevailing share price, demonstrating the value to
be found in the portfolio. Others such as SDI and GB Group did have their 2023
forecasts cut although the longer-term investment cases remain robust. The
other main theme was early-stage companies (such as Libertine and Feedback)
either making slower progress than expected or perceived as not having a long
enough cash runway to achieve profitability.
There were several positive contributors to performance including some
early-stage companies which did demonstrate progress or where share prices
recovered from previous lows when they achieved funding. Among these were
Equipmake which has made several encouraging announcements since its latest
funding round, Spectral MD which announced a reverse takeover by a US special
acquisitions company (SPAC) which will enable it to tap US investors, and
Intelligent Ultrasound which is making good progress with the
commercialisation of its AI-based ultrasound software. In the retail sector
Vertu Motors is trading well and its shares have been buoyed by takeover bids
for quoted competitors.
Portfolio activity
In the period under review, the Company made one qualifying investment
totalling £0.5 million into a new AIM flotation, a marked decrease on the
£2.4 million we invested in the corresponding period last year, reflecting
caution on the part of companies and brokers about raising new capital against
a background of volatile markets.
The new investment was in Tan Delta Systems plc, a UK-based manufacturer of
equipment which can accurately monitor the condition of oil to reduce
maintenance costs and unnecessary oil usage. The systems are sold to operators
of heavy equipment, supplying customers globally.
A number of disposals in the period resulted in a loss of £0.5 million over
book cost. Adept Telecom was the subject of a cash takeover bid by a private
equity bidder at a profit. We also disposed of ITSarm (formerly In The Style),
realising a loss. Its business had been very badly affected by a squeeze
between the consumer’s dwindling appetite for online purchases and cost and
logistics challenges exacerbated by inflation, and the management sold the
business for cash. We made partial disposals at an overall profit of
Genedrive, Intelligent Ultrasound, Judges Scientific, Nexteq (formerly
Quixant), EKF Diagnostics Holdings, Glantus Holdings and Equipmake Holdings.
In the period we invested £1.2 million into the FP Octopus Micro Cap Growth
Fund and £0.1 million into the FP Octopus Future Generations Fund and sold
£0.7 million of the FP Octopus Multi Cap Income Fund. The strategy is to
reduce other individually held non-qualifying holdings and replace them with
liquid collective funds. Although the funds have had a negative impact on
returns in this period, we believe valuations are currently at an attractive
level and expect them to provide a return on our cash awaiting investment once
stock markets return to a more settled state.
Unquoted investments
The Company is able to make investments in unquoted companies intending to
float. Currently 7.1% (31 August 2022: 7.3% and 28 February 2023: 6.1%) of the
Company’s net assets are invested in unquoted companies. In the period there
was a reduction in the valuation of the holding in Popsa on the basis of peer
group comparisons and a slight increase in the valuation of Hasgrove, which
continues to grow strongly.
Outlook
The very real issue of inflation and the need to tighten monetary policy by
raising interest rates further than had been anticipated six months ago has
prolonged the pain for the share prices of companies exposed to growth
sectors. This has impacted the NAV and left some of the more mature companies
in the portfolio held for their long-term growth potential valued well below
their long-term averages despite profit forecasts showing resilience. It has
also had a dampening effect on the new issue pipeline although there are
recent signs that this is becoming more active again. Short-term attention
remains fixed on the monthly inflation figures with the most recent monthly
figures showing a larger than expected fall, giving hope that interest rates
may be at or close to their peak. If confirmed it will have a huge impact on
investor confidence which should also be bolstered by recent economic growth
revisions, which no longer show the UK trailing other major economies over the
past three years.
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 87 holdings (31 August 2022: 91 holdings and 28 February 2023: 88
holdings) across a range of businesses with exposure to some exciting new
technologies in the environmental and healthcare sectors. The Company
currently has funds available for new investments as well as supporting those
which are still on their journey to profitability. These are uncertain
macroeconomic and geopolitical times, but the balance of the portfolio towards
profitable companies remains, and the Investment Manager is confident that
there will continue to be sufficient opportunities to invest our funds in good
companies seeking more growth capital at attractive valuations, which we
expect will result in improved future returns.
The Octopus Quoted Companies team
Octopus Investments
7 November 2023
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’s 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
Neal Ransome
Chair
7 November 2023
Income statement
Unaudited Six months to 31 August 2023 Revenue Capital Total £’000 £’000 £’000 Unaudited Audited Six months to 31 August 2022 Year to 28 February 2023 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000
Gain on disposal of fixed asset investments – 139 139 – 15 15 – 207 207
Loss on disposal of current asset investments – (52) (52) – – – – – –
Loss on valuation of fixed asset investments – (13,719) (13,719) – (21,159) (21,159) – (29,192) (29,192)
Loss on valuation of current asset investments – (1,794) (1,794) – (2,137) (2,137) – (2,233) (2,233)
Investment income 920 – 920 448 23 471 1,068 24 1,092
Investment management fees (304) (912) (1,216) (359) (1,078) (1,437) (650) (1,949) (2,599)
Other expenses (250) – (250) (261) – (261) (689) – (689)
(Loss)/profit before tax 366 (16,338) (15,972) (172) (24,336) (24,508) (271) (33,143) (33,414)
Tax _ _ _ _ _ _ _ _ _
(Loss)/profit after tax 366 (16,338) (15,972) (172) (24,336) (24,508) (271) (33,143) (33,414)
Earnings per share – basic and diluted 0.2p (9.1p) (8.9p) (0.1p) (15.2p) (15.3p) (0.2p) (20.0p) (20.2p)
* 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 no recognised gains or losses other than those disclosed in
the Income Statement.
* 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 accompanying notes form an integral part of the financial statements.
Balance sheet
Unaudited As at 31 August 2023 Unaudited As at 31 August 2023 Audited As at 28 February 2023
£’000 £’000 £’000 £’000 £’000 £’000
Fixed asset investments 87,322 108,474 102,667
Current assets:
Investments 14,873 14,505 16,188
Money market funds 16,485 1,331 21,433
Debtors 282 345 354
Cash at bank 1,921 14,710 1,437
Applications cash (1) 4 3 3
33,565 30,894 39,415
Creditors: amounts falling due within one year (756) (879) (860)
Net current assets 32,809 30,015 38,555
Total assets less current liabilities 120,131 138,489 141,222
Called up equity share capital 1,789 1,601 1,798
Share premium 19,807 1,080 18,924
Capital redemption reserve 301 252 279
Special distributable reserve 112,000 124,444 118,015
Capital reserve realised (24,586) (21,993) (23,143)
Capital reserve unrealised 12,650 35,202 27,545
Revenue reserve (1,830) (2,097) (2,196)
Total equity shareholders’ funds 120,131 138,489 141,222
NAV per share - basic and diluted 67.2p 86.5p 78.5p
(1)Cash held but not yet allotted
The statements were approved by the Directors and authorised for issue on 7
November 2023 and are signed on their behalf by:
Neal Ransome
Chair
Company No: 03477519
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 28 February 2023 1,798 18,924 279 118,015 (23,143) 27,545 (2,196) 141,222
Total comprehensive loss for the period – – – – (825) (15,513) 366 (15,972)
Contributions by and distributions to owners:
Repurchase and cancellation of own shares (22) – 22 (1,564) – – – (1,564)
Issue of shares 13 883 – – – – – 896
Share issue costs – – – – – – – –
Dividends – – – (4,451) – – – (4,451)
Total contributions by and distributions to owners (9) 883 22 (6,015) – – – (5,119)
Other movements:
Cancellation of share premium – – – – – – – –
Prior years’ holding losses now realised – – – – (618) 618 – –
Total other movements – – – – (618) 618 – –
As at 31 August 2023 1,789 19,807 301 112,000 (24,586) 12,650 (1,830) 120,131
(1)The sum of these reserves is an amount of £85,584,000 (31 August 2022:
£100,354,000 and 28 February 2023: £92,676,000) which is considered
distributable to shareholders.
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 2022 1,605 25,450 236 105,258 (20,762) 58,307 (1,925) 168,169
Total comprehensive income for the period – – – – (1,040) (23,296) (172) (24,508)
Contributions by and distributions to owners:
Repurchase and cancellation of own shares (16) – 16 (1,489) – – – (1,489)
Issue of shares 12 1,090 – – – – – 1,102
Share issue costs – (9) – – – – – (9)
Dividends paid – – – (4,776) – – – (4,776)
Total contributions by and distributions to owners (4) 1,081 16 (6,265) – – – (5,172)
Other movements:
Cancellation of share premium – (25,451) * 25,451 – – – –
Prior years’ holding gains now realised – – – – (191) 191 – –
Total other movements – (25,451) – 25,451 (191) (191) – –
As at 31 August 2022 1,601 1,080 252 124,444 (21,993) 35,202 (2,097) 138,489
(1)The sum of these reserves is an amount of £85,584,000 (31 August 2022:
£100,354,000 and 28 February 2023: £92,676,000) which is considered
distributable to shareholders.
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 2022 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 year gains on disposal – – – – 207 – – 207
Current period gains on fair value 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 2023 1,798 18,924 279 118,015 (23,143) 27,545 (2,196) 141,222
(1) The sum of these reserves is an amount of £85,584,000 (31 August 2022:
£100,354,000 and 28 February 2023: £92,676,000) which is considered
distributable to shareholders.
Cash flow statement
Unaudited six months to 31 August 2023 £’000 Unaudited six months to 31 August 2022 £’000 Audited year to 28 February 2023 £’000
Cash flows from operating activities
Loss before tax (15,972) (24,508) (33,414)
Adjustments for:
(Increase)/decrease in debtors 72 (16) (25)
Decrease in creditors (105) (289) (794)
Gain on disposal of fixed assets (139) (15) (207)
Loss on disposal of current assets 52 – –
Loss on valuation of fixed asset investments 13,719 21,159 29,192
Loss on valuation of current asset investments 1,794 2,137 2,233
Non-cash distributions – (23) (24)
Net cash used in operating activities (579) (1,555) (3,039)
Cash flows from investing activities
Purchase of fixed asset investments (453) (2,425) (4,880)
Purchase of current asset investments (1,259) (99) (1,878)
Proceeds from sale of fixed asset investments 2,218 2,056 2,478
Proceeds from sale of current asset investments 728 – –
Net cash used in investing activities 1,234 (468) (4,280)
Cash flows from financing activities
Movement in applications account 1 (243) 243
Purchase of own shares (1,564) (1,489) (3,567)
Share issues 28 209 18,217
Share issues costs – (9) (668)
Dividends paid (3,583) (3,883) (7,515)
Net cash used in financing activities (5,118) (5,415) 6,710
Decrease in cash and cash equivalents (4,463) (7,438) (609)
Opening cash and cash equivalents 22,873 23,482 23,482
Closing cash and cash equivalents 18,410 16,044 22,873
Cash and cash equivalents comprise
Cash at bank 1,921 14,710 1,437
Applications cash 4 3 3
Money market funds 16,485 1,331 21,433
Total cash and cash equivalents 18,410 16,044 22,873
Notes to the financial statements
1. Basis of preparation
The unaudited financial statements which covers the six months to 31 August
2023 has been prepared in accordance with the Financial Reporting Council’s
(FRC) Financial Reporting Standard 104 ‘Interim Financial Reporting’
(March 2018) and the Statement of Recommended Practice (SORP) for Investment
Companies re-issued by the Association of Investment Companies in July 2022.
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 financial statements for the six months ended 31 August 2023
does not constitute statutory accounts within the meaning of Section 415 of
the Companies Act 2006 and has not been delivered to the Registrar of
Companies. The comparative figures for the year ended 28 February 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 financial statements have not
been reviewed by the Company’s auditor.
3. Earnings per share
The earnings per share is calculated on the basis of 178,768,443 Ordinary
shares (31 August 2022: 159,856,324 and 28 February 2023: 165,688,082), being
the weighted average number of shares in issue during the period.
There are no potentially dilutive capital instruments in issue and, therefore,
no diluted return per share figures are relevant. The basic and diluted
earnings per share are therefore identical.
4. Net asset value per share
The net asset value per share is based on net assets as at 31 August 2023
divided by 178,882,114 shares in issue at that date (31 August 2022:
160,064,444 and 28 February 2023: 179,802,084).
31 August 2023 31 August 2022 28 February 2023
Net assets (£’000) 120,131 138,489 141,222
Shares in Issue 178,882,114 160,064,444 179,802,084
Net asset value per share 67.2p 86.5p 78.5p
5. Dividends
The interim dividend declared of 2.5p per Ordinary share will be paid on 12
January 2024 to those shareholders on the register on 22 December 2023.
6. Buybacks and share issues
During the six months ended 31 August 2023 the Company repurchased the
following shares.
Date No. of shares Price (p) Cost (£)
16 March 2023 459,683 72.5 333,000
20 April 2023 558,866 72.5 405,000
18 May 2023 290,881 71.9 209,000
15 June 2023 221,943 70.4 156,000
13 July 2023 247,764 68.2 169,000
17 August 2023 442,297 66.2 292,000
Total 2,221,434 1,564,000
The weighted average price of all buybacks during the period was 70.4p per
share.
During the six months ended 31 August 2023 the Company issued the following
shares.
Date No. of shares Price (p) Gross proceeds (£)
10 August 2023 (DRIS) 1,260,682 68.8 868,000
10 August 2023 (1) 40,782 68.8 28,000
Total 1,301,464 896,000
(1) Shares issued as a result of reduced adviser charges, and reduced annual
management fee for Octopus people.
The weighted average allotment price of all shares issued during the period
was 68.8p per share.
7. Principal risks and uncertainties
The Company’s principal risks are investment performance, VCT qualifying
status risk, operational risk, information security, economic and price risk,
regulatory and reputational/legislative risk, liquidity/cash flow risk and
valuation 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 28 February 2023. 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 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 £1,216,000 by Octopus as a management fee in the period to 31 August
2023 (31 August 2022: £1,437,000 and 28 February 2023 £2,599,000). The
management fee is payable quarterly and is based on 2% of net assets at
six-month intervals.
The Company has invested a further £1.3 million into Octopus managed funds
(31 August 2022: £0.1 million and 28 February 2023 £1.9 million), being the
Multi Cap Income Fund, Micro Cap Growth Fund and Future Generations Fund. The
Company has partially disposed its holding in Multi Cap Income Fund for total
consideration of £0.7 million (31 August 2022: nil and 28 February 2023: nil)
and has made a loss of £0.02 million over book cost (31 August 2022: nil and
28 February 2023: nil). To make sure the Company is not double charged
management fees on these products, the Company receives a reduction in the
management fee as a percentage of the value of these investments. This
amounted to £43,000 in the period to 31 August 2023 (31 August 2022: £43,000
and 28 February 2023: £83,000). For further details please refer to the
Company’s Annual Report and Accounts for the year ended 28 February 2023.
In the period, Octopus Investments Nominees Limited (OINL) purchased shares in
the Company from shareholders to correct administrative issues, on the
understanding that shares will be sold back to the Company in subsequent share
buybacks at the prevailing market price. As at 31 August 2023, OINL held nil
shares (31 August 2022: 4,540 shares and 28 February 2023: 7,598 shares) in
the Company as beneficial owner, with a nil book cost (31 August 2022: £4,000
and 28 February 2023: £7,000). Throughout the period to 31 August 2023 OINL
purchased 2,657 shares (31 August 2022: 6,253 shares and 28 February 2023:
9,875 shares) at a cost of £2,372 (31 August 2022: £5,930 and 28 February
2023: £9,000) and sold 10,255 shares (31 August 2022: 2,602 shares and 28
February 2023: 3,166 shares) for proceeds of £7,383 (31 August 2022: £2,328
and 28 February 2023: £3,000). This is classed as a related party transaction
as Octopus, the Investment Manager and OINL are part of the same group of
companies. Any such future transactions, where OINL takes over the legal and
beneficial ownership of Company shares, will be announced to the market and
disclosed in annual and financial statements.
9. 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 on the basis that they qualify as a
group of assets managed, and whose performance is evaluated, on a fair value
basis in accordance with a documented investment strategy. The Company’s
investments are measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value
is established by reference to the closing bid price on the relevant date or
the last traded price, depending upon convention of the exchange on which the
investment is quoted. This is consistent with the International Private Equity
and Venture Capital Valuation (IPEV) guidelines.
Gains and losses arising from changes in fair value of investments are
recognised as part of the capital return within the Income Statement and
allocated to the capital reserve – unrealised. The Managers review changes
in fair value of investments for any permanent reductions in value and will
give consideration to whether these losses should be transferred to the
Capital reserve – realised.
In the preparation of the valuations of assets the Directors are required to
make judgements and estimates that are reasonable and incorporate their
knowledge of the performance of the investee companies.
Fair value hierarchy
Paragraph 34.22 of FRS 102 suggests following a hierarchy of fair value
measurements for financial instruments measured at fair value in the Balance
Sheet, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3). This methodology is adopted by the Company
and requires disclosure of financial instruments to be dependent on the lowest
significant applicable input, as laid out below:
Level 1: The unadjusted, fully accessible and current quoted price in an
active market for identical assets or liabilities that an entity can access at
the measurement date.
Level 2: Inputs for similar assets or liabilities other than the quoted prices
included in Level 1 that are directly or indirectly observable, which exist
for the duration of the period of investment.
Level 3: This is where inputs are unobservable, where no active market is
available and recent transactions for identical instruments do not provide a
good estimate of fair value for the asset or liability.
There have been no reclassifications between levels in the year. The change in
fair value for the current and previous year is recognised through the profit
and loss account.
Disclosure
Level 1: Quoted equity investments £’000 Level 3: Unquoted investments £’000 Total £’000
Cost as at 1 March 2023 72,846 4,488 77,334
Opening unrealised gain at 1 March 2023 21,207 4,126 25,333
Valuation at 1 March 2023 94,053 8,614 102,667
Purchases at cost 453 – 453
Disposal proceeds (2,218) – (2,218)
Gain on realisation of investments 139 – 139
Change in fair value in year (13,663) (56) (13,719)
Closing valuation at 31 August 2023 78,764 8,558 87,322
Cost at 31 August 2023 70,570 4,488 75,058
Closing unrealised gain at 31 August 2023 8,194 4,070 12,264
Valuation at 31 August 2023 78,764 8,558 87,332
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 Investment Manager’s review.
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 £600,000 (31 August 2022: £600,000 and 28
February 2023: £600,000) of convertible loan notes held at cost, which is
deemed to be current fair value. In addition to this the Company holds eight
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 cash
flows or net assets are used to determine a fair value for the investments.
All capital gains or losses on investments are classified at FVTPL (fair value
through profit or loss). 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 August 2023 there were no commitments in respect of investments approved
by the Investment Manager but not yet completed. The transaction costs
incurred when purchasing or selling assets are written off to the Income
Statement in the period that they occur.
10. 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 £210,000 completed in FP Octopus UK Future
Generations Fund.
* A follow-on investment totalling £180,000 (convertible loan note) completed
in Rosslyn Data Technologies Plc.
* A follow-on investment totalling £540,000 completed in Rosslyn Data
Technologies Plc.
* A new investment totalling £1,620,000 completed in Eden Research Plc.
* A follow-on investment totalling £1,259,000 completed in Haydale Graphene
Industries Plc.
* A partial disposal with proceeds totalling £39,000 completed in Equipmake
Holdings Limited.
* A partial disposal with proceeds totalling £967,000 completed in Ergomed
Plc.
* A partial disposal with proceeds totalling £38,000 completed in Clean Power
Hydrogen plc.
* A full disposal with proceeds totalling £364,000 completed in Glantus
Holdings plc.
* A full redemption of the Osirium Technologies plc Loan Notes with proceeds
totalling £766,000.
* A partial disposal with proceeds totalling £1,260,000 completed in FP
Octopus UK Multi Cap Income Fund.
* 284,846 shares were bought back on 21 September 2023 at a price of 64.6p per
share.
* 978,221 shares were bought back on 19 October 2023 at a price of 60.4p per
share.
* On 14 September 2023, 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. The Offer will close on 13 September 2024 or earlier
if fully subscribed.
* A final order to cancel share premium amounting to £19.8 million was
granted on 20 October 2023.
11. Half Yearly Report
The unaudited half-yearly report for the six months ended 31 August 2023 will
shortly be available to view on the Company’s website
http://www.octopusinvestments.com
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 enquiries, please contact:
Rachel Peat
Octopus Company Secretarial Services Limited
Tel: +44 (0)80 0316 2067
LEI: 213800C5JHJUQLAFP619