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Half-Yearly Results

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

1Total 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.

2The 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 cash1

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

1Cash 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 reserves1

Capital reserve realised1

Capital reserve unrealised



Revenue reserve1





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

1The 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 reserves1

Capital reserve realised1

Capital reserve unrealised

Revenue reserve1



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

1The 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 reserves1



Capital reserve realised1



Capital reserve unrealised



Revenue reserve1





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 20231

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