Half-Yearly Results
23/03/2023 10:00
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Octopus Future Generations VCT plc
Half-Yearly Results
Octopus Future Generations VCT plc (‘Future Generations VCT’ or ‘the
Company’) is backing businesses that aim to address society’s biggest
challenges, providing an opportunity for investors to share in the growth of
ambitious, purpose‑driven companies.
The Company is managed by Octopus AIFM Management Limited (the ‘Manager’),
who has delegated investment management to Octopus Investments Limited
(‘Octopus’ or ‘Portfolio Manager’).
The Company announces the half-yearly results for the six months to 31
December 2022.
Interim Management Report
Chair’s statement
Highlights
* £39.1m in total net assets
* 95.1p Net Asset Value (‘NAV’) per share
* £40.6m raised in 2022
I am pleased to present the unaudited half-yearly report and accounts for
Octopus Future Generations VCT for the six months to 31 December 2022.
I would firstly like to welcome new shareholders to the Company. Octopus
Future Generations VCT invests in exciting early-stage companies which we
believe may also have a positive impact on society. The NAV per share at 31
December 2022 was 95.1p, and in the reporting period the Company made 12
investments. A further seven have completed since the period end, bringing the
total number in the portfolio to 21. Each investee company has the ambition to
address current societal issues, ranging from improving healthcare to
positively impacting climate change. More information on some of these
businesses can be found in the Portfolio Manager’s Review.
In the period to 31 December 2022, we utilised £11.2 million of our cash
resources, including £10.5 million which was invested into new investee
companies. The cash balance of £26.8 million as at 31 December 2022
represents 69% of net assets at that date. The loss made in the period to 31
December 2022 was £0.4 million, which is expected at this early stage due to
the running costs of the Company exceeding returns from investments. We look
forward to deploying significant further capital into new investment
opportunities over the coming months, and we ultimately intend the profile of
the Company to comprise 80% to 90% in VCT qualifying investments and 10% to
20% in permitted non-VCT qualifying investments or cash.
Fundraise
Given the active investment landscape and successful launch of the Company on
31 January 2022, a new offer was launched in January 2023 seeking to raise
£30 million, with an over-allotment facility for a further £10 million. The
offer will close for new applications on 18 January 2024, or earlier if fully
subscribed.
As investors will be aware, the intention is to invest in businesses which
meet one of three key themes, and which we believe demonstrate excellent
investment prospects as well as having the potential to make a positive
societal impact.
VCT qualification
I am pleased to report that Future Generations VCT has met the 30% investment
rule, the first milestone for a new VCT to achieve. This rule states that at
least 30% of all new funds raised in an accounting period need to be invested
in VCT qualifying businesses within 12 months of the end of that accounting
period. The Company had until June 2023 to do this, but has achieved it well
ahead of time, in December 2022.
Principal risks and uncertainties
The Board continues to review the risk environment in which the Company
operates on a regular basis. There have been no significant changes to the key
risks as described in the annual report for the period ended 30 June 2022. The
Board does not anticipate there will be significant changes to these risks in
the remaining six months of the financial year.
Outlook
We have had an exciting six-month period, with the Company closing its initial
fundraise, announcing the intention to raise further funds and making 12
investments spanning its three investment themes. This has been achieved
despite the challenging macroeconomic headwinds we have faced with the
cost-of-living crisis, rising inflation, the continuation of the Ukraine
conflict and uncertainty in the political landscape. Looking ahead, it is
unclear what 2023 will bring in this regard, but we hope for greater
stability, and I am encouraged by the pipeline of investment opportunities
when considering the outlook for the Company. The ingenuity, energy and
passion of the entrepreneurs, the technological advancements they are
developing and the issues that the businesses are addressing, when combined,
could make a meaningful difference to the world, as well as creating
profitable investment opportunities for the Company.
We are still seeing good momentum in the UK early‑stage market. Even in
challenging times, great businesses continue to be founded as there is often a
willingness to adopt new technologies or seek new approaches. The Octopus
Ventures team, headquartered in London, have scaled their investment and
operational team further to support this activity. They have also opened an
office in Manchester, to better foster links with university spin-out
companies in the North of the country and ensure increased market coverage.
To remind shareholders, as the Company is at the beginning of its investment
journey, it will take time to deploy the funds raised into portfolio companies
that the investment team consider to be good investment opportunities. While
we are in this early investment phase, the portfolio will naturally be more
concentrated in fewer companies. This means that performance will be more
sensitive to the success and/or failure of these investments than if the
portfolio was larger.
As such, over the next couple of years, there may well be a decline in overall
value as the Company invests in new businesses, some of which are at the start
of their growth journey and will need to build their technology, prove their
market, win new contracts, and grow their teams. Their value will take time to
grow, and inevitably some of these will ultimately fail.
The long-term intention is to pay an annual dividend of 5% of the NAV.
However, given the expected holding period of target portfolio companies and
restrictions imposed on VCTs, the Company does not intend to pay dividends
before 1 July 2025 at the earliest. During this time, any growth in value will
increase the value of the Company. Dividends, when payable, are likely to be
generated from successful exits, so the Company is unlikely to pay significant
dividends until portfolio companies have time to mature and/or be acquired.
I would like to conclude by thanking both my Board colleagues and the Octopus
team on behalf of all shareholders for their hard work. I would also like to
thank shareholders for their continued support. I am excited to see what the
coming year brings for your Company.
Helen Sinclair
Chair
Portfolio Manager’s review
Focus on Future Generations VCT’s performance
The NAV per share at 31 December 2022 was 95.1p. The Company invests in three
key areas that we believe demonstrate excellent investment prospects and have
potential to transform outdated industries for the better. Below is a
breakdown of the 14 investments held as at 31 December 2022, showing the
proportion and value of the portfolio in each investment theme:
Proportion by number of portfolio companies in each theme
Revitalising healthcare: 50%
Empowering people: 36%
Building a sustainable planet: 14%
Value of the portfolio in each theme
Revitalising healthcare: £5.9m
Empowering people: £4.9m
Building a sustainable planet: £1.5m
The Company completed 12 new investments in the reporting period (comprising a
total of £10.5 million) and seven further investments after 31 December 2022
(totalling £9.5 million of investment). More information on three of these
businesses, which span our three investment themes, can be found below:
A selection of our completed investments
Building a sustainable planet
Kita
To prevent the worst impacts of climate change, we must remove gigatons of
carbon dioxide from the atmosphere annually for the remainder of the 21st
century. Kita’s first product is Carbon Purchase Protection Insurance. It
protects buyers of carbon removal credits against the risk that the carbon
isn’t delivered. If the carbon removal credits underperform, Kita cover the
loss (via a reinsurance facility).
Empowering people
Cobee
Cobee is a fully digital solution that simplifies employee benefits
management. Using the app and Cobee Visa card, employees have access to a
range of benefits such as health insurance, childcare, mental health, food,
transport and much more. They’re able to create a completely flexible
compensation package, and the platform allows complete control over all
employee benefits in a single place, with no intermediaries or external
suppliers required to be involved in the purchasing decision.
Revitalising healthcare
Infinitopes
Infinitopes is on a mission to cure cancer using their immunopeptidomics
platform and novel vectors to develop cancer vaccines. As a Cancer Research UK
(CRUK) supported team of expert doctors and scientists spinning out of Oxford
University, Infinitopes is pushing the boundaries of science and medicine to
identify hidden tumour targets and create high efficiency vaccines to be
affordable to healthcare systems and patients, and aspire to save many lives
in the future.
Top ten investments
Portfolio company Cost Valuation at 31 December 2022 Investment Theme
1. Cobee £1.9m £2.0m Empowering people
2. Infinitopes £1.6m £1.6m Revitalising healthcare
3. Apheris £1.2m £1.3m Revitalising healthcare
4. Inflow £1.0m £1.0m Revitalising healthcare
5. Skin + Me £1.0m £1.0m Revitalising healthcare
6. Intrinsic Semiconductor £0.9m £0.9m Empowering people
7. Living Optics £0.9m £0.9m Empowering people
8. Neat £0.8m £0.8m Building a sustainable planet
9. Kita £0.7m £0.7m Building a sustainable planet
10. Bloom £0.6m £0.6m Empowering people
Portfolio engagement
As part of our strategy, we require portfolio companies to put in place a
Diversity and Inclusion policy (D&I) and an Anti-Harassment policy. We also
engage with each company to help them understand their greenhouse gas
emissions and support them to take action to minimise them.
D&I policy status
Policy in place: 13
In progress: 1
Engaged on monitoring greenhouse gas emissions
Signed up: 6
Introduced: 6
In progress: 2
Outlook
Following the launch of the Company at the start of 2022, the economy
immediately encountered headwinds with the war in Ukraine, energy supply
issues and a cost‑of‑living crisis. However, when we look back over the
past 12 months, we are pleased with the Company’s progress despite these
significant challenges. We have:
• completed 14 new investments across all three investment themes in 2022;
• raised £40 million into the Company; and
• in light of continued attractive opportunities to invest, launched a new
fundraise in 2023.
Within the Octopus Ventures team, we saw the headcount in the investment and
operations team grow by 31% in 2022 to support the activity we are seeing in
the early-stage market.
Looking ahead in 2023, it is unclear when the difficult conditions will start
to ease, and the International Monetary Fund (IMF) has stated it expects the
UK economy to contract by 0.6%(1) this year. In mid-March, we unfortunately
saw the largest failure of a US bank since 2008, with the collapse of Silicon
Valley Bank (SVB) in the US, and the risk that the UK arm would also fail. SVB
has been a major specialised lender and banking provider in the tech industry,
and as such some of the Future Generations VCT portfolio bank with them. The
Octopus Ventures team reacted quickly to the news and undertook a full risk
assessment on the portfolio, then worked to support those companies affected
wherever possible to try to ensure assets would be secure and that they would
have access to banking facilities. While around half the portfolio had some
kind of exposure to SVB (mostly SVB UK), the number of companies which would
have been impacted acutely was very limited.
We were very pleased when it was announced that HSBC would purchase the UK arm
of SVB, meaning funds have been secured and are not at risk. Early-stage
markets, within which the Company operates, will inevitably be impacted by the
financial outlook, but history has shown us that great businesses are and will
continue to be founded at times of economic turmoil. The entrepreneurs we meet
are intent on solving some of society’s biggest problems and on building
successful companies which could have a material and positive impact on
people’s lives as well as delivering good returns to shareholders in the
future.
We have further expanded our dedicated in-house people and talent team to
support the portfolio companies on their growth journeys, which is
particularly important during more challenging times. They offer a range of
services, including recruitment support, coaching, establishing company
policies and best practice frameworks, pairing the portfolio company
management teams with consultants who can offer the best support, and running
targeted events to offer tangible and actionable advice, such as webinars on
employee equity grants at different stages of growth and interview training
for leadership teams.
We believe that Octopus is very well placed to source and secure some of the
best investment opportunities,
generated by our extensive network and reputation in the early-stage market.
We continue to be extremely excited by the opportunities presented to the
Company and support its ambition to make the world a better place, and to
deliver attractive returns to shareholders.
(1.) Latest data as at 1 February 2023.
Directors’ responsibilities statement
The Directors confirm that to the best of their knowledge:
* the half-yearly financial statements have been prepared in accordance with
‘Financial Reporting Standard 104: Interim Financial Reporting’ issued by
the Financial Reporting Council;
* the half-yearly financial statements give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company;
* the half-yearly report includes a fair review of the information required by
the Financial Conduct Authority Disclosure Guidance and Transparency Rules,
being:
* we have disclosed an indication of the important events that have
occurred during the first six months of the financial year and their impact on
the condensed set of financial statements;
* we have disclosed a description of the principal risks and uncertainties for
the remaining six months of the year; and
* we have disclosed a description of related party transactions that have
taken place in the first six months of the current financial year, that may
have materially affected the financial position or performance of the Company
during that period and any changes in the related party transactions described
in the last annual report that could do so.
On behalf of the Board
Helen Sinclair
Chair
Income Statement
Unaudited six months to 31 December 2022 Audited period to 30 June 2022
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Net gain on valuation of fixed asset investments — 97 97 — 9 9
Investment management fee (95) (285) (380) (39) (118) (157)
Investment income 56 — 56 — — —
Foreign exchange translation 27 — 27 — — —
Other expenses (225) — (225) (165) — (165)
Loss before tax (237) (188) (425) (204) (109) (313)
Tax — — — — — —
Loss after tax (237) (188) (425) (204) (109) (313)
Loss per share – basic and diluted ( 0.6)p ( 0.5)p ( 1.1)p (1.6)p (0.8)p (2.4)p
* The ‘Total’ column of this statement is the profit and loss account of
Future Generations VCT; the supplementary revenue return and capital return
columns have been prepared under guidance published by the Association of
Investment Companies (AIC).
* All revenue and capital items in the above statement derive from continuing
operations.
* Future Generations VCT has only one class of business and derives its income
from investments made in shares and securities and from bank and money market
funds.
Future Generations VCT has no other comprehensive income for the period.
The accompanying notes form an integral part of the financial statements.
Balance sheet
Unaudited Audited
As at 3 1 December 2022 As at 30 June 2022
£’000 £’000 £’000 £’000
Fixed asset investments 12,287 1,663
Current assets:
Debtors 86 54
Applications cash (1) 100 1,915
Cash at bank 9,432 29,826
Money market funds 17,411 —
27,029 31,795
Creditors: amounts falling due within one year (222) (2,166)
Net current assets 26,807 29,629
Net assets 39,094 31,292
Share capital 41 33
Share premium 39,792 31,572
Capital reserve realised (403) (118)
Capital reserve unrealised 106 9
Revenue reserve (442) (204)
Total equity shareholders’ funds 39,094 31,292
NAV per share 9 5 . 1 p 96.1p
1. Cash received from shareholders but not yet allotted.
The accompanying notes form an integral part of the financial statements.
Statement of changes in equity
Share capital £’000 Share premium £’000 Capital reserve realised (1) £’000 Capital reserve unrealised £’000 Revenue reserve (1 )£’000 Total £’000
As at 1 July 202 2 33 31,527 (118) 9 (204) 31,292
Comprehensive income for the period:
Management fees allocated as capital expenditure — — (285) — — (285)
Net gain on fair value of fixed asset investments — — — 97 — 97
Loss after tax — — — — (265) (265)
Total comprehensive loss for the period — — ( 285) 97 (265) (453)
Contributions by and distributions to owners:
Shares issued 8 8,421 — — — 8,429
Share issue costs — (201) — — — (201)
Total contributions by and distributions to owners 8 8 , 220 — — — 8,228
Other movements:
Foreign exchange translation — — — — 27 27
Total other movements — — — — 27 27
Balance as at 31 December 2022 41 39,792 (403) 106 (442) 39,094
1. Reserves available for distribution.
The accompanying notes form an integral part of the financial statements.
Share capital £’000 Share premium £’000 Capital r eserve realised (1) £’000 Capital reserve unrealised £’000 Revenue reserve (1 )£’000 Total £’000
As at 1 7 November 202 1 (2) — — — — — —
Comprehensive income for the period:
Management fees allocated as capital expenditure — — (118) — — (118)
Net gain on fair value of fixed asset investments — — — 9 — 9
Loss after tax — — — — (204) (204)
Total comprehensive loss for the period — — (118) 9 (204) (313)
Contributions by and distributions to owners:
Shares issued 33 32,111 — — — 32,144
Share issue costs — (539) — — — (539)
Total contributions by and distributions to owners 33 31,572 — — — 31,605
Balance as at 3 0 June 2022 33 31,572 (118) 9 (204) 31,292
(1. Reserves available for distribution.)
(2. Incorporation date).
The accompanying notes form an integral part of the financial statements.
Cash flow statement
Unaudited s ix months to 3 1 December 2022 £’000 Audited period to 30 June 2022 £’000
Cash flows from operating activities:
Loss before tax (425) (313)
Increase in debtors (32) (54)
(Decrease)/ increase in creditors (129) 251
Gain on valuation of fixed asset investments (97) (9)
Outflow from operating activities (683) (125)
Cash flows from investing activities :
Purchase of fixed asset investments (10,528) (1,654)
Outflow from investing activities (10,528) (1,654)
Cash flows from financing activities :
Applications account inflow 6,614 34,059
Applications account outflow (8,429) (32,144)
Proceeds from share issues 8,429 32,144
Share issue costs (201) (539)
I nflow from financing activities 6 , 413 33,520
(Decrease)/increase in cash and cash equivalents (4,798) 31,741
Opening cash and cash equivalents 31,741 —
Closing cash and cash equivalents 26,943 31,741
Cash and cash equivalents comprise :
Applications cash 100 1,915
Cash at bank 9,432 29,826
Money market funds 17,411 —
Closing cash and cash equivalents 26,943 31,741
The accompanying notes form an integral part of the financial statements.
Condensed notes to the half-yearly report
1. Basis of preparation
The unaudited half-yearly results which cover the six months to 31 December
2022 have been prepared in accordance with the Financial Reporting Council’s
(FRC) Financial Reporting Standard 104 Interim Financial Reporting (January
2022) and the Statement of Recommended Practice (SORP) for Investment
Companies, re-issued by the Association of Investment Companies in July 2022.
The Directors consider it appropriate to adopt the going concern basis of
accounting. The Directors have not identified any material uncertainties to
Future Generations VCT’s ability to continue to adopt the going concern
basis over a period of at least 12 months from the date of approval of the
financial statements. In reaching this conclusion, the Directors have taken
into account the potential impact of the economy including inflation and the
recession.
The principal accounting policies have remained unchanged from those set out
in Future Generations VCT’s 2022 annual report and accounts.
2. Publication of non-statutory accounts
The unaudited half-yearly results for the six months ended 31 December 2022 do
not constitute statutory accounts within the meaning of Section 415 of the
Companies Act 2006 and have not been delivered to the Registrar of Companies.
The comparative figures for the period ended 30 June 2022 have been extracted
from the audited financial statements for that period, which have been
delivered to the Registrar of Companies. The independent auditor’s report on
those financial statements, in accordance with chapter 3, part 16 of the
Companies Act 2006, was unqualified. This half-yearly report has not been
reviewed by the Company’s auditor.
3. Earnings per share
The loss per share is based on 37,304,813 Ordinary shares (30 June 2022:
13,205,218), being the weighted average number of shares in issue during the
period. There are no potentially dilutive capital instruments in issue and so
no diluted returns per share figures are relevant. The basic and diluted
earnings per share are therefore identical.
4. Net asset value per share
3 1 December 2022 30 June 2022
Net assets (£) 39,094,495 31,291,144
Shares in issue 41,127,110 32,569,178
NAV per share 9 5 . 1 p 96.1p
5. Allotments
During the six months to 31 December 2022, 8,557,932 shares were issued at a
weighted average price of 99.1p per share (period ended 30 June 2022:
32,569,178 shares at a weighted average price of 100.0p per share).
6. Transactions with the Manager and Portfolio Manager
Future Generations VCT is classified as a full-scope Alternative Investment
Fund under the Alternative Investment Fund Management Directive (the ‘AIFM
Directive’). Future Generations VCT has appointed the Manager to provide the
services of an AIFM of a full-scope AIF. In accordance with its power to do so
under AIFMD, the Manager has delegated investment management to Octopus,
whilst retaining the obligations of a risk manager.
Future Generations VCT paid the Manager £380,000 in the period as a
management fee. The annual management charge (AMC) is based on 2% of Future
Generations VCT’s NAV. The AMC is payable quarterly in advance and
calculated using the latest published NAV of Future Generations VCT and the
number of shares in issue at each quarter end. Once the quarter has ended, an
adjustment will be made if the NAV at the end of the current quarter is
calculated and which differs from the NAV as at the end of the previous
quarter.
Future Generations VCT also has a Non-Investment Services Agreement (NISA)
with Octopus, with fees payable quarterly in advance. The fee is 0.3% of
Future Generations VCT’s NAV, calculated at quarterly intervals. The NISA
fee is calculated using the latest published NAV of Future Generations VCT and
the number of shares in issue at each quarter end. As with the AMC, an
adjustment will be made once the quarter has ended if the NAV at the end of
the current quarter is calculated and which differs from the NAV as at the end
of the previous quarter. During the period £57,000 was paid to Octopus under
the NISA.
In addition, Octopus is entitled to performance-related incentive fees,
subject to Future Generations VCT’s total return at year end exceeding the
total return at the previous year end when an incentive fee was paid, or 97p
if the first incentive fee has not yet been paid (the ‘Excess’), equal to
20% of the Excess. No performance fee will be paid prior to the financial year
ending on 30 June 2025, dividends (paid or declared) being equal to or greater
than 10p per Ordinary share and the total return exceeding 120p.
The cap relating to Future Generations VCT’s total expense ratio, that is
the regular, recurring costs of Future Generations VCT expressed as a
percentage of its NAV, above which Octopus has agreed to pay, is 3.0%, and is
calculated in accordance with the AIC guidelines.
7. Related party transactions
Several members of the Octopus investment team hold non-executive
directorships as part of their monitoring roles in Future Generations VCT’s
portfolio companies, but they have no controlling interests in those
companies.
Emma Davies, a Non-Executive Director of the Company, is also Managing
Director of Octopus Ventures and owns shares in Octopus Group Holdings Ltd. No
dividends have been paid to the Directors of the Company.
Dividends paid in period Period to 31 December 2022 £ Period to 30 June 2022 £
Helen Sinclair — —
Joanna Santinon — —
Emma Davies — —
8. Voting rights and equity management
The following table shows the percentage voting rights held by Future
Generations VCT in each of the top ten investments, on a fully diluted basis.
Future Generations VCT has no other substantial interests that require
separate disclosure.
I nvestments % voting rights held by Future Generations VCT
Perk Finance t/a Cobee 2.5%
Infinitopes Limited 4.9%
Apheris AI GmbH 3.2%
Inflow Holdings Inc. 1.9%
Mr & Mrs Oliver Limited t/a Skin + Me 0.6%
Intrinsic Semiconductor Technologies Limited 5.1%
Living Optics Limited 3.8%
Neat SAS 3.2%
Kita Earth Limited 3.5%
Bloom App Limited 1.9%
9. Post balance sheet events
The following events occurred between the balance sheet date and the signing
of this half‑yearly report:
* Seven new investments completed totalling £9.5 million.
* On 19 January 2023, Future Generations VCT announced a new Offer for
Subscription for Ordinary shares of 0.1p each, to raise up to £30 million in
aggregate with an over‑allotment facility of up to a further £10 million.
* 3.4 million shares were allotted at a price of 98.1p per share on 10 March
2023.
10. Half-Yearly Report
The unaudited half-yearly report for the six months ended 31 December 2022
will shortly be available to view at
https://octopusinvestments.com/our-products/venture-capital-trusts/octopus-future-generations-vct/
For further information please contact:
Rachel Peat
Octopus Company Secretarial Services Limited
Tel: +44 (0)80 0316 2067
LEI: 213800AL71Z7N2O58N66