TIDMOOA
Octopus AIM VCT plc
Final Results
Octopus AIM VCT plc today announces the final results for the
year ended 28 February 2023.
Octopus AIM VCT plc (the 'Company') is a venture capital trust
(VCT) which aims to provide shareholders with attractive tax-free
dividends and long-term capital growth by investing in a diverse
portfolio of predominantly AIM-traded companies. The Company is
managed by Octopus Investments Limited ('Octopus' or the
'Investment Manager').
Financial Summary
Year to 28 February 2023 Year to 28 February 2022
-------------------------- ------------------------ ------------------------
Net assets (GBP'000) 141,222 168,169
(Loss) after tax (GBP'000) (33,414) (19,459)
Net asset value (NAV) per
share (p) 78.5 104.8
Dividends per share paid
in year (p) 5.5 8.5
Total return (%)(1) (19.8) (9.1)
Final dividend proposed
(p)(2) 2.5 3.0
Ongoing charges (%)(3) 2.1 1.9
-------------------------- ------------------------ ------------------------
(1) Total return is an alternative performance measure
calculated as movement in NAV per share in the period plus
dividends paid in the period, divided by the NAV per share at the
beginning of the period.
(2) The proposed final dividend will be paid on 10 August 2023
to shareholders on the register on 28 July 2023.
(3) Ongoing charges is an alternative performance measure
calculated using the AIC recommended methodology.
Chair's statement
Introduction
Firstly, I would like to welcome all new shareholders who have
joined us in the past year, and to assure you that the Company's
performance this year has not been typical for us. As explained
further below, market turbulence this year has been particularly
harsh on smaller companies in some of the key sectors in which we
invest, and this has led to a material reduction in the Company's
Net Asset Value.
The year to 28 February 2023 turned out to be another
challenging period for stock markets in general and for smaller
companies in particular. It started as Russia had just launched its
invasion of Ukraine, causing an immediate shock to the global
economy, and in particular a surge in European energy and food
prices driving up inflation, which was already on the rise as
economies emerged from the covid pandemic of 2021. By the
half-year, inflation was nearing 10%, the Bank of England had
raised its base rate from 0.5% in February to 1.75% and the
Company's net asset value (NAV) had fallen by 14.6% on a total
return basis as investors withdrew from smaller companies, which
are generally perceived to be riskier assets. The second half was
overshadowed by domestic political turmoil and an autumn budget
that caused further financial instability as expectations for peak
interest rates rose above 6% at one stage before falling back
towards the end of the year as some semblance of stability
returned. Interest rates ended the period at 4% and are now
expected to peak in the first half of the current year. Against
this background the NAV gave up further ground and finished the
year 19.8% down on a total return basis.
In the context of this backdrop, the AIM market raised GBP2.1
billion of new capital in the year under review for both new and
existing AIM companies, a substantial decrease on the GBP8.3
billion raised in the previous year. After the previous year, when
the number of new issues had been buoyant coming out of covid, the
majority of fundraisings in the year under review were for existing
AIM companies seeking further capital. It was not surprising,
therefore, that your Investment Manager made fewer qualifying
investments, investing a total of GBP4.9 million in the period,
well down from the record GBP21.6 million invested in the previous
year. The Investment Manager and your Board were both clear that
the relative shortage of investment opportunities should not be
used as an excuse to lower the rigorous investment criteria that
are applied when making new investments.
Performance
The NAV on 28 February 2023 was 78.5p per share, a significant
decrease on the NAV of 104.8p per share reported at 28 February
2022. Adding back the 5.5p of dividends paid in the year gives a
total negative return of 19.8%. In the same year, the FTSE AIM
All-Share Index fell by 16.1%, the FTSE SmallCap (excluding
investment companies) Index fell by 5.8% and the FTSE All-Share
Index rose by 7.3%, all on a total return basis. AIM was the worst
performing UK Index, with the FTSE All-Share's positive return
narrowly based and reliant on a few very large companies in the
energy and pharmaceutical sectors. AIM trailed the FTSE SmallCap
(excluding investment companies) Index because of the poor
performance of AIM's larger constituents which suffered the
greatest de-ratings.
Once again stock specific factors had a significant impact on
our performance, both positive and negative, and these are covered
in more detail in the Investment Manager's review. As fears about
high inflation and the extent of likely interest rate rises
increased, so did stock market volatility, causing growth stocks to
devalue further as the year progressed. In addition, the
deterioration in appetite for risk which had been apparent since
the end of 2021 intensified, resulting in some significant falls in
the share prices of earlier stage companies exposed to the new
economy. In some cases raising further capital proved difficult
except at a deep discount and resulted in companies having to
accept much lower valuations. The purpose of a VCT is to provide
capital for small growing companies and as a result those companies
exposed to the new economy in the software, technology and
healthcare sectors make up a significant proportion of our
investment portfolio. This worked against us in the period.
Dividends
In January 2023 an interim dividend for the year to 28 February
2023 of 2.5p was paid to all shareholders. This was in addition to
the 3.0p final dividend that had been paid in August 2022 and which
related to the previous financial year ended 28 February 2022. The
Board has considered the level of dividend in the context of the
NAV fall during the period and on this occasion is recommending a
final dividend of 2.5p, which brings the total dividends for the
year to 28 February 2023 to 5.0p which is a 6.7% yield based on the
share price of 74.5p on 28 February 2023. It remains the Board's
target to pay an annual dividend of 5.0p or 5% of the year end
share price, whichever is greater at the time.
Cancellation of share premium account
At the last Annual General Meeting, shareholders voted to cancel
share premium to increase the pool of distributable reserves to the
amount of GBP25.6 million. This is a regular occurrence, and common
practice, to enable the continued payment of dividends and buyback
of shares. A further resolution to cancel share premium is being
proposed at this year's Annual General Meeting.
Dividend reinvestment scheme
In common with many other VCTs in the industry, the Company has
established a Dividend Reinvestment Scheme (DRIS). Many
shareholders have already taken advantage of this opportunity. For
investors who do not require income, but value the additional tax
relief on their reinvested dividends, this is an attractive scheme
and I hope more shareholders will find it useful. In the course of
the year 2,122,937 new shares have been issued under this scheme,
returning GBP1.8 million to the Company. The final dividend
referred to above will be eligible for the DRIS.
Share buybacks
During the year to 28 February 2023 the Company continued to buy
back shares in the market from selling shareholders and purchased
4,312,810 ordinary shares for a total consideration of GBP3.6
million. We have maintained a discount of approximately 4.5% to NAV
(equating to up to a 5.0% discount to the selling shareholder after
costs), which the Board monitors and intends to retain as a policy
which fairly balances the interests of both remaining and selling
shareholders. Buybacks remain an essential practice for VCTs, as
providing a means of selling is an important part of the initial
investment decision and has enabled the Company to grow. As such, I
hope you will all support the appropriate resolution at the
AGM.
Share issues
On 22 September 2022, a prospectus offer was launched alongside
Octopus AIM VCT 2 plc to raise a combined total of up to GBP20
million, with a GBP10 million over-allotment facility. This
prospectus closed to further applications on 13 October 2022. There
was strong appetite for the share issue, and it closed fully
subscribed on 13 October 2022. The Company issued 21,311,806 shares
under the offer, raising GBP17.3 million after costs.
VCT status
Shoosmiths LLP were engaged throughout the year to provide the
Board and Investment Manager with advice concerning continuing
compliance with HMRC regulations for VCTs. The Board has been
advised that the Company is in compliance with the conditions laid
down by HMRC for maintaining approval as a VCT. A key requirement
is to maintain at least an 80% qualifying investment level. As at
28 February 2023, 88.6% of the Company's portfolio was in VCT
qualifying investments.
In 2015 the government introduced a VCT sunset clause in order
to comply with EU State Aid requirements. This clause provides that
income tax relief will no longer be given to new VCT subscriptions
made on or after 6 April 2025, unless the relevant legislation is
renewed by an HM Treasury order. The VCT community has been
campaigning to get this clause revoked, and in September 2022 the
Chancellor of the Exchequer announced that the sunset clause would
be extended beyond 2025. While there has been no further update or
announcement from the government since September, the VCT community
remains confident that the sunset clause will be revoked, enabling
VCTs to continue to fulfil the important role that they play in the
funding of small UK growth companies.
Annual General Meeting (AGM)
The AGM will take place on 20 July 2023 at 10.30am. We will also
be hosting a virtual shareholder event prior to the AGM, on 13 July
2023 at 11.00am. This will enable shareholders to receive an update
from the Investment Manager and provide an opportunity for
questions to the Board and the Investment Manager. There will not
be a presentation from the Investment Manager at the AGM itself.
Formal notices will be sent to shareholders by their preferred
method (email or post) and shareholders are encouraged to submit
their votes by proxy. We always welcome questions from our
shareholders at the AGM. Please send any questions via email to
aimagm@octopusinvestments.com by 5.00pm on 14 July 2023.
Outlook
2023 started with a degree of cautious optimism and a noticeable
improvement in investor appetite. However, the collapse of Silicon
Valley Bank and the enforced takeover of Credit Suisse in March,
demonstrated the continued fragility of investor confidence despite
banks generally being in a much better shape than they were at the
time of the 2007/8 financial crisis. Inflation remains high
although it is expected to fall from current levels which should
enable interest rates to peak in the next few months. It now seems
as if the UK may have avoided the prospect of a formal recession as
GDP projections have been adjusted upwards, with any trough now
expected to be shallow.
Company statements have been robust in the first results season
of the year and forecasts are mostly conservatively set at this
stage. Valuations have not yet recovered from last year's falls,
leaving many of the larger and faster growing shares in the
portfolio on ratings well below their long-term averages. The
Investment Manager's assessment is that the underlying businesses
of these companies are generally robust, giving good prospects for
uplifts in valuations as overall market sentiment improves.
The portfolio contains 88 holdings across a range of sectors
with exposure to some exciting new technologies in the
environmental and healthcare sectors in particular. Many of these
companies remain well funded, although the challenge of raising
further capital in the current market environment cannot be
dismissed. The balance of the portfolio towards profitable
companies remains, and the Investment Manager remains confident
that there will continue to be sufficient opportunities to invest
our funds in good companies seeking more growth capital at
attractive valuations.
Neal Ransome
Chair
Investment Manager's review
Introduction
The 12 months under review was an extremely challenging time for
investors who had to contend with the Russian invasion of Ukraine,
rapidly rising inflation and interest rates, and a squeeze on
consumer incomes combined with a constant threat of recession. This
resulted in volatile stock markets with investors seeking safety in
less highly rated sectors such as banks and energy. It caused the
retreat of AIM growth stocks, which was a key factor in the fall in
the net asset value (NAV) which ended the year with a negative
total return of 19.8%, slightly behind AIM itself. In addition, as
appetite for risk diminished, some of the earlier stage investments
in the portfolio suffered de-ratings. Solid January trading updates
caused a brief recovery in optimism although this proved transitory
in the face of the collapse of Silicon Valley Bank and the enforced
takeover of Credit Suisse just after the year end. Fragile investor
confidence has left AIM shares valued at levels previously visited
around the time of the 2007/8 financial crisis despite a mostly
encouraging results season post the year end.
Against this background AIM fundraisings slowed dramatically as
the year unfolded as companies looking to float paused in response
to lower valuation expectations for their businesses. However, AIM
still successfully raised capital for its existing members,
enabling them to fund the next stage of their development.
The Alternative Investment Market
Following a strong year for the financial markets in 2021, 2022
proved to be a rather turbulent year in many ways. In addition to
global headwinds, the UK market suffered from continued concerns
about inflation, increasing interest rates, and the looming threat
of a long recession. This directly impacted fundraising levels and
the number of new IPOs across all UK indices, both large and small.
However, smaller company indices were particularly impacted by the
equity market de-rating as sentiment moved sharply away from growth
and momentum driven stocks and investors sought out a narrow group
of pharmaceutical and energy stocks in the FTSE 100. AIM's high
exposure to growth stocks in the software, technology, new economy
and healthcare sectors counted against it over the period and it
was the worst performing index, with its largest constituents
faring particularly badly. Conversely, the FTSE SmallCap Index (ex
investment companies) fared better as it did not have exposure to
the larger companies that held back AIM. In the 12 months to 28
February 2023 the AIM Index fell 16.1% compared with a fall of 5.8%
for the FTSE SmallCap index (excluding investment companies) and an
increase of 7.3% for the FTSE All-Share Index on a total return
basis. Although VCTs have additional constraints on what they can
invest in, the AIM index is considered to be the most appropriate
broad equity market index for comparative purposes, given the
nature of the underlying investments. The FTSE SmallCap and
All-Share indices provide wider market context.
The market for fundraising and new IPOs remained quiet
throughout the year. Disappointingly, in the year to 28 February
2023, AIM raised GBP2.0 billion of new capital for existing
companies which compares to a figure of GBP8.3 billion the previous
year. Not surprisingly, there were only 13 new IPOs compared to 88
in the previous year. AIM raised GBP0.1 billion for new listings, a
significant decrease on the figure of GBP1.9 billion in the
previous year.
We are still hearing about potential new issues from brokers and
we hope that the current more volatile market conditions do not
affect this. VCTs play a significant part in the funding process
and we identify the companies we have invested in during the year,
which include many that are developing technologies to help solve
the climate and healthcare problems that face us.
Performance
Adding back the 5.5p of dividends paid in the year, the NAV
total return fell by 19.8%. This compares with a fall in the FTSE
AIM All-Share Index of 16.1%, a fall in the FTSE SmallCap
(excluding investment companies) of 5.8% and a rise in the FTSE
All-Share Index of 7.3%, all on a total return basis. It was
another year characterised by individual months of significant
market volatility as investors reacted to unfolding events. The
year opened when Russia had just invaded Ukraine, which added a
steep rise in energy and food costs to existing price inflation
caused by a post-pandemic shortage of labour and supply chain
difficulties. As a result, consensus moved from inflation being
seen as transitory to a longer-term issue, and central banks
reacted by indicating that interest rates would have to rise
further and faster than had previously been expected. The situation
was unfortunately exacerbated in the second half by political
instability, with market reactions to the autumn budget causing
peak interest rate expectations to rise above 6%, much further than
had been anticipated, disrupting the gilt and property markets.
Faced with these conditions and uncertainties, investors continued
their previous moves away from smaller company investments and
concentrated their attention on a very narrow cohort of the largest
energy and pharmaceutical companies, causing AIM and smaller
companies to lag significantly in contrast to the well-established
long-term trend.This impacted both the larger growth stocks in the
portfolio, which were de-rated even when the tone of their outlook
statements continued to be positive, as well as early-stage
technology companies needing cash to fulfil their growth ambitions
and contributed to the underperformance of the NAV compared with
the FTSE AIM All-Share.
Among the larger, profitable holdings in the portfolio, several
were caught by the dramatic de-rating of larger AIM growth stocks
in the period caused by poor market sentiment in the face of sharp
rises in interest rates and inflation. GB Group (GBG) and Learning
Technologies Group were in the top ten fallers, and others such as
RWS, Advanced Medical Solutions and Next Fifteen were also affected
although the impact on the performance of the fund was less for
these and other smaller holdings.
One of the biggest contributors to the negative return in the
year was GBG, a leading global player in identity verification. GBG
has been a long-term successful investment where we have taken
profits in the past and continue to believe it will deliver growth
and positive returns for the Company in the future. Its share price
was impacted partly by slower than hoped for growth as some of the
froth came off the digital economy as the effect of covid lockdowns
waned and partly in reaction to the acquisition of USbased Acuant,
an expensive acquisition albeit with good longterm strategic
benefits. It ended the period on a valuation multiple well below
its historic average and at a level not seen since the 2007/8
financial crisis. Fears that Learning Technologies would see its
customers cut back on spending on employees in the event of a
recession weighed on its share price. It produced upgrades to 2022
forecasts as the year progressed, leaving the shares trading at the
bottom end of the longer-term valuation range. EKF Diagnostics and
Animalcare were also significant contributors to negative returns
in the year. EKF's profits have shrunk back to pre-covid levels
after a period of significant revenues and profits from covid test
kits, but it remains a profitable provider of point of care tests
and we expect its shares to recover as profits start to grow again.
Animalcare has found the development and launch of new animal drugs
less easy during lockdowns but remains focused on invigorating its
growth.
TPX Impact and Trackwise Designs were two very disappointing
performers in the year. TPX Impact had been growing strongly as a
result of demand from various government departments for its
digital transformation expertise and the efficiencies to be gained
from it. However, it was caught by a shortage of skilled technical
labour which delayed contract delivery and eroded margins as it had
to fill the gap with outside contractors. A new chief executive is
now in charge and some of the labour pressures have eased, giving
us confidence that the business can recover. Demand from customers
remains good and the business is well funded. The situation at
Trackwise Designs was more serious. The company built a new factory
to fulfill a very large contract from electric vehicle manufacturer
Arrival. Disappointingly, the order was revised downwards at the
end of last year which impacted the funding allocated to the
factory build and forced the company to raise money at a moment
when stock sentiment towards early stage businesses was very poor.
This resulted in significant dilution for us as existing
shareholders although it does now give the company the chance to
win other customer business for its new facility.
The portfolio has very little exposure to the consumer, but
where it does this has tended to hurt performance in the year.
Gear4Music had enjoyed a very strong period of trading during the
pandemic when demand for musical instruments soared and high street
competitors were closed. This masked some of the underlying
challenges posed by Brexit and supply problems in China, which
impacted profits and margins that the management has spent the past
two years working through. It should be able to show some of the
benefits of this process in 2023. Sosandar, another
consumer-focused company, has continued to achieve successive
profitable months in 2023 as well as significant growth in its
sales through Next, M&S and John Lewis and most recently
Sainsbury's. Although the shares were not a significant drag on
performance in the year, they still don't reflect the scale of the
progress made by the business.
It has been another very tough period for early-stage businesses
yet to reach profitability, with the priority to make sure they
have enough funding to develop their technologies and get them tor
a self-supporting stage. Share prices have come under pressure even
where funding is not an immediate problem and progress has remained
on track, such as in the cases of LungLife, GENinCode, Velocys and
Maxcyte. There have been some dramatic reactions where early-stage
companies have disappointed investors, such as with CPH2 which has
been slower than expected to develop a working model of its
membrane-free electrolyser. Two other big fallers were Libertine,
which had gone to a large premium to its IPO price before falling
back as investors appreciated how early stage its innovative drive
train is, despite having some serious partners, and Ilika where its
Stereax solid state battery has seen slower scale-up demand than
originally expected. We had taken profits in Ilika at higher levels
the previous year.
Investing for a VCT involves backing companies when they are
small and still at an early stage of development and share price
progress depends on them being noticed by a wider circle of
investors as they produce results and develop their businesses over
time. This quite often takes longer than expected and these
companies remain potentially vulnerable until they achieve
profitability- something we experienced with Creo Medical this
year, which was forced to raise money on a much lower valuation as
VCTs were no longer able to finance it. The relatively good news is
that it is now funded to develop its innovative endoscopic
instruments.
There have been some instances of more resilient performance
despite the market conditions outlined above. The share price of
Ergomed has been volatile over the year but it has broadly held its
value as profits have been upgraded. We have taken some profits to
manage the size of the holding although we still see plenty of
scope for organic growth to continue and build further value for
shareholders, particularly as the shares have fallen back since the
year end. Equipmake made a strong debut on AIM and has been a
strong contributor to performance and Netcall, Quixant and Judges
Scientific have all maintained good momentum in their businesses
and been rewarded with higher share prices. In our private company
holdings, Hasgrove had its valuation increased over the year as it
grew its recurring revenues and cash despite a fall in the
valuation metrics used. By contrast, the quoted peer group for
Popsa was devalued in the second half and as a result we wrote down
its valuation in the year. The business continues to grow well and
cash spending is well under control.
Portfolio Activity
Having made four qualifying investments at a total cost of
GBP2.4 million in the first half of the year, we added a further
four qualifying investments totalling GBP2.5 million in the second
half. This made a total investment of GBP4.9 million in qualifying
investments for the year, a decrease on last year's GBP21.6
million. However, it should be pointed out that FY2022 had
represented a record year for deployment, with a large selection of
existing and new companies turning to public markets to strengthen
their balance sheets as we came out of the covid pandemic.
In the first half of the year we made four qualifying
investments; three were follow-ons into Oberon Investments Group
plc, The British Honey Company and Verici Dx plc, and one was a new
investment, Equipmake Holdings plc. In the second half, we invested
in two new companies and two existing investments. We invested
GBP0.4 million into Northcoders Group plc, a Manchester-based
provider of training programmes for software coding. The funds
raised will be used to expand the list of courses offered to
individuals, to include Cyber Security and Platform Engineering,
among others. The company has an exciting opportunity to form a
meaningful part of the upskilling agenda across the UK. We invested
GBP1.6 million into Itaconix plc, which is a leading producer of
plant-based additives for a range of consumer products, from
detergents to shampoos. Itaconix's natural polymers help to
decarbonise products, whilst providing improved performance, safety
and sustainability. The company raised a total of GBP10.5 million
in a heavily over-subscribed share placing, which will be used to
support a range of growth initiatives, including the development of
new products and applications for its technology. We invested a
further GBP0.3 million into Intelligent Ultrasound Group plc, the
'classroom-to-clinic' provider of training and AI-enabled medical
simulation products. The company raised GBP5.2 million, which will
support the ongoing development of several tech-enabled products
which assist ultrasound practitioners and vastly improve the
efficiency of the scanning process. We invested a further GBP0.2
million into Equipmake, the electric drivetrain specialists
focusing on retrofitting carbon-intensive vehicles and aeroplanes,
most notably diesel buses. The company had its IPO in July 2022,
and successfully raised a further GBP6.2 million in January 2023,
expanding its shareholder base. We opted to make a small further
investment given the exciting progress the team are making.
During the year we took profits in several holdings. We sold
part of our holdings in Advanced Medical Solutions, Next 15 Group
and WANdisco. Two holdings, Clinigen Group and TP Group, were
subject to successful cash takeover bids, Clinigen at a profit
though frustratingly TP Group was at a substantial loss. We also
fully exited from investments in Diurnal, Merit Group, Synairgen
and Midatech, and sold our non-qualifying position in Tasty. In
all, disposals made a GBP0.5 million loss over original cost and
generated GBP2.5 million of cash proceeds.
Non-qualifying investments are used to manage liquidity while
awaiting new qualifying investment opportunities. Although we still
hold some existing non-qualifying AIM holdings where we seep the
opportunity for further share price progress, we continued to
reduce some of these holdings in the year under review. In the year
under review GBP0.8 million was invested into the FP Octopus Micro
Cap Growth Fund, GBP0.7 million into the FP Octopus Multi Cap
Income Fund and GBP0.4 million into the FP Octopus Future
Generation Fund at lower share prices than our previous
investments. Recent adverse market conditions meant that these
funds had a negative impact on returns in the year although we
believe they are well positioned to have a positive impact once the
investment environment improves. The balance of the cash is now
held in two money market funds to earn a better return as VCTs are
not permitted to earn significant amounts of interest on bank
deposits.
Liquidity
The issue of liquidity within investment funds has remained a
topic of discussion this year. Shareholders may be interested to
know that at the year end 66.6% of the Company's net assets were
held in individual quoted shares, 6.1% were held in unquoted single
company investments and 27.7% were held in cash or collective
investment funds providing short-term liquidity. Shareholders
should be aware that a proportion of the quoted holdings may have
limited liquidity owing to the size of the investee company and the
overall proportion held by the Company.
VCT Regulations
There have been no further changes to the VCT regulations since
the publication of the previous set of audited accounts. The key
requirements are that 30% of funds raised should be invested in
qualifying holdings within 12 months of the end of the accounting
period in which the shares were issued, and the Company has to
maintain a minimum of 80% of the portfolio (at cost) invested in
qualifying holdings. We are determined to maintain a threshold of
quality and to invest where we see the potential for returns from
growth. Over time there has been a gradual change to the profile of
the portfolio towards earlier-stage companies, although we continue
to hold the larger market capitalisation companies, in which we
invested several years ago as qualifying companies, or which we
bought in the market prior to the rule changes, where we see the
potential for them to continue to grow.
In order to qualify, companies must:
-- have fewer than 250 full-time equivalent employees;
-- have less than GBP15 million of gross assets at the time of
investment and no more than GBP16 million immediately post
investment;
-- be less than seven years old from the date of their first
commercial sale (or ten years if a knowledge intensive company) if
raising State Aided (i.e. VCT) funds for the first time;
-- have raised no more than GBP5 million of State Aided funds in
the previous 12 months and less than the lifetime limit of GBP12
million (or GBP10 million in 12 months and a GBP20 million lifetime
limit if a knowledge intensive company); and
-- produce a business plan to show that the funds are being
raised for growth and development.
Outlook and future prospects
Sentiment is slowly recovering after the latest market setback
as prompted by the collapse of Silicon Valley Bank although
nervousness around the financial health of some US banks remains.
On the positive side, banking risk ratios are much more exacting
than at the time of the 2007/8 financial crisis and there are signs
that the very rapid rise in interest rates which precipitated the
current stress may be reaching their peak. However, inflation,
which is still widely expected to fall rapidly from here, remains
an issue with no immediate prospect of achieving the Government's
2% target, which might hold back the scale of any cuts in rates
from the peak, still predicted to be later this year. Energy costs
remain high but the worst fears of winter power shortages were not
realised.
More than half the companies in the portfolio have updated us on
trading since the period end, with many of these reassuring.
Meanwhile we are starting to see companies considering floating on
AIM in the medium term as well as VCT qualifying opportunities to
invest in existing AIM companies. We believe the current cautious
market conditions will provide opportunities to invest the VCT's
cash at attractive valuations.
The portfolio contains 88 holdings with investments across a
range of sectors including both domestic and international exposure
and the balance towards profitable companies remains.
The Octopus Quoted Companies team
Viability statement
In accordance with provision 4.31 of the UK Corporate Governance
Code 2018, the Directors have assessed the prospects of the Company
over a longer period than the 12 months required by the 'going
concern' provision. The Board conducted this review for a period of
five years, which was considered to be a reasonable time horizon
given that the Company has raised funds under an offer for
subscription which closed to new applications on 13 October 2022
and, under VCT rules, subscribing investors are required to hold
their investment for a five-year period in order to benefit from
the associated tax reliefs. The Board regularly considers the
Company's strategy, including investor demand for the Company's
shares, and a five-year period is considered to be a reasonable
time horizon for this.
The Board carried out a robust assessment of the emerging and
principal risks facing the Company and its current position.This
includes the impact of the cost of living crisis, the unstable
economic environment and any other risks which may adversely impact
its business model, future performance, solvency or liquidity.
Particular consideration was given to the Company's reliance on,
and close working relationship with, the Investment Manager. The
principal risks faced by the Company and the procedures in place to
monitor and mitigate them are set out below.
The Board has also considered the liquidity of the underlying
investments and the Company's cash flow projections considering the
material inflows and outflows of the Company including investment
activity, buybacks, dividends and fees and found these to be
realistic and reasonable. The Company's cash flow includes cash
equivalents which are short-term, highly liquid investments.
Based on the above assessment the Board confirms that it has a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
five-year period to 28 February 2028.
Principal risks, risk management and regulatory environment
In accordance with the Listing Rules under which the Company
operates, the Board is required to comment on the potential risks
and uncertainties which could have a material impact on the
Company's performance.
The Board carries out a review of the risk environment in which
the Company operates. The main areas of risk identified by the
Board are as follows:
Risk Mitigation
------------------------------------------------------------- -------------------------------------------------------------
Investment performance: The focus of the Company's The Investment Manager has significant experience
investments is into VCT qualifying companies quoted and a strong track record of investing in AIM and
on AIM and the AQSE, which by their nature entail AQSE companies, and appropriate due diligence is undertaken
a higher level of risk and lower liquidity than investments on every new investment. The overall risk in the portfolio
in larger quoted companies. is mitigated by maintaining a wide spread of holdings
in terms of financing stage, age, industry sector
and business models. The Board reviews the investment
portfolio with the Investment Manager on a regular
basis.
------------------------------------------------------------- -------------------------------------------------------------
VCT qualifying status risk: The Company is required Prior to investment, the Investment Manager seeks
at all times to observe the conditions for the maintenance assurance from the Company's VCT status adviser that
of HMRC approved VCT status. The loss of such approval the investment will meet the legislative requirements
could lead to the Company and its investors losing for VCT investments.
access to the tax benefits associated with VCT status On an ongoing basis, the Investment Manager monitors
and, in certain circumstances, to investors being the Company's compliance with VCT regulations on a
required to repay the initial income tax relief on current and forecast basis to ensure ongoing compliance
their investment. with VCT legislation. Regular updates are provided
to the Board throughout the year.
The VCT status adviser formally reviews the Company's
compliance with VCT regulations on a bi-annual basis
and reports their results to the Board.
------------------------------------------------------------- -------------------------------------------------------------
Operational risk (reliance on Octopus): The Board The Board reviews the system of internal control,
is reliant on the Investment Manager to manage investments both financial and non-financial, operated by the
effectively, and manage the services of a number of Investment Manager (to the extent the latter are relevant
third parties, in particular the registrar and tax to the Company's internal controls). These include
advisers. A failure of the systems or controls at controls that are designed to ensure that the Company's
the Investment Manager or third-party providers could assets are safeguarded, that proper accounting records
lead to an inability to provide accurate reporting are maintained, and that regulatory reporting requirements
and to ensure adherence to VCT and other regulatory are met. Feedback on other third parties is reported
rules. to the Board on at least an annual basis, including
adherence to Service Level Agreements where relevant.
------------------------------------------------------------- -------------------------------------------------------------
Information security: A loss of key data could result Annual due diligence is conducted on third parties
in a data breach and fines. The Board is reliant on which includes a review of their controls for information
the Investment Manager and third parties to take appropriate security. The Investment Manager has a dedicated information
measures to prevent a loss of confidential customer security team and a third party is engaged to provide
information. continual protection in this area. A security framework
is in place to help prevent malicious events. The
Investment Manager reports to the Board on an annual
basis to update them on relevant information security
arrangements. Significant and relevant information
security breaches are escalated to the Board when
they occur.
------------------------------------------------------------- -------------------------------------------------------------
Economic and price risk: Events such as an economic The Company invests in a diverse portfolio of companies
recession, movement in interest rates, inflation, across a range of sectors, which helps to mitigate
political instability and rising living costs could against the impact of performance in any one sector.
cause volatility in the market, adversely impacting The Company also maintains adequate liquidity to make
the valuation of investments. This could result in sure it can continue to provide follow-on investment
a reduction in the value of the Company's assets. to those portfolio companies which require it and
which is supported by the individual investment case.
The Investment Manager monitors the impact of macroeconomic
conditions on an ongoing basis and provides updates
to the Board at least quarterly.
------------------------------------------------------------- -------------------------------------------------------------
Regulatory and reputational risk/legislative: A change The Investment Manager engages with HM Treasury and
to the VCT regulations could adversely impact the industry bodies to demonstrate the positive benefits
Company by restricting the companies the Company can of VCTs in terms of growing UK companies, creating
invest in under its current strategy. Similarly, changes jobs and increasing tax revenue, and to help shape
to VCT tax reliefs for investors could make VCTs less any change to VCT legislation.
attractive and impact the Company's ability to raise The Investment Manager employs individuals with expertise
further funds. across the legislation and regulation relevant to
Failure to adhere with other relevant legislation the Company. Individuals receive ongoing training
and regulation could result in reputational damage and external experts are engaged where required.
and/or fines.
------------------------------------------------------------- -------------------------------------------------------------
Liquidity/cash flow risk: The risk that the Company's The Investment Manager prepares cash flow forecasts
available cash will not be sufficient to meet its to make sure cash levels are maintained in accordance
financial obligations. The Company invests into smaller with policies agreed with the Board. The Company's
companies, which are inherently less liquid than stocks overall liquidity levels are monitored on a quarterly
on the main market. Therefore, these may be difficult basis by the Board, with close monitoring of available
to realise for their fair market value at short notice. cash resources. The Company maintains sufficient cash
and readily realisable securities, including money
market funds and OEICs, which can be accessed at short
notice. As at 28 February 2023, 16.2% of net assets
were held in cash and cash equivalents and 11.5% in
OEICs, realisable in four business days.
------------------------------------------------------------- -------------------------------------------------------------
Valuation risk: For smaller companies or illiquid Investments in companies traded on AIM and AQSE are
shares, establishing a fair value can be difficult valued by the Investment Manager using closing bid
due to the lack of readily available market data for prices as reported on Bloomberg. Where investments
similar shares, resulting in a limited number of external are in unquoted companies or where there are indicators
reference points. bid price is not appropriate, alternative valuation
techniques are used in accordance with the International
Private Equity and Venture Capital (IPEV) guidelines.
Valuations of unquoted portfolio companies are performed
by appropriately experienced staff, with detailed
knowledge of both the portfolio company and the market
in which it operates. These valuations are then subject
to review and approval by the Octopus Valuations Committee,
comprised of staff who are independent of the Investment
team and with relevant knowledge of unquoted company
valuations. The Board reviews valuations after they
have been agreed by the Octopus Valuations Committee.
Investment in FP Octopus UK Micro Cap Growth Fund,
FP Octopus UK Multi Cap Income Fund and FP Octopus
UK Future Generations Fund are all valued with reference
to the daily prices which are published by Fund Partners,
the Authorised Corporate Director.
------------------------------------------------------------- -------------------------------------------------------------
Emerging risks
The Board has considered emerging risks. The Board seeks to
mitigate emerging risks and those noted below by setting policy,
regular review of performance and monitoring progress and
compliance. In the mitigation and management of these risks, the
Board applies the principles detailed in the Financial Reporting
Council's Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting.
The following are some of the potential emerging risks that the
Board and the Investment Manager are currently monitoring:
-- Adverse changes in global macroeconomic environment.
-- Rising cost of living.
-- Geo-political protectionism.
-- Climate change.
Directors' responsibilities statement
The Directors are responsible for preparing the Annual Report
and Accounts in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the financial statements and have elected
to prepare the Company's Financial Statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law) including FRS 102
-- 'The Financial Reporting Standard applicable in the UK and
Republic of Ireland'. Under company law the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss for the Company for that
period.
In preparing these Financial Statements, the Directors are
required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and accounting estimates that are reasonable
and prudent;
-- state whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
-- prepare a strategic report, a Director's report and
Director's remuneration report which comply with the requirements
of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for ensuring that the annual
report and accounts, taken as a whole, are fair, balanced,
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
Website publication
The Directors are responsible for ensuring the annual report and
the accounts are made available on a website. Financial statements
are published on the Investment Manager's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Directors.
The Directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Directors' responsibilities pursuant to Disclosure Guidance and
Transparency Rule 4 (DTR4)
Neal Ransome (Chair), Andrew Boteler, Stephen Hazell-Smith and
Joanne Parfrey, the Directors, confirm to the best of their
knowledge that:
-- the financial statements have been prepared in accordance
with the Financial Reporting Standard applicable in the United
Kingdom and Republic of Ireland ('FRS 102') and give a true and
fair view of the assets, liabilities, financial position and profit
and loss of the Company; and
-- the annual report includes a fair review of the development
and performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
By Order of the Board
Neal Ransome
Chair
Income Statement
Year to 28 February 2023 Year to 28 February 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- -------- -------- -------- -------- --------
Gain on disposal
of fixed asset
investments - 207 207 - 1,001 1,001
Loss on disposal
of current
asset
investments - - - - (2) (2)
Loss on
valuation of
fixed asset
investments - (29,192) (29,192) - (17,203) (17,203)
Loss on
valuation of
current asset
investments - (2,233) (2,233) - (313) (313)
Investment
Income 1,068 24 1,092 760 134 894
Investment
management
fees (650) (1,949) (2,599) (765) (2,296) (3,061)
Other expenses (689) - (689) (775) - (775)
------------------ -------- -------- -------- -------- -------- --------
Loss before tax (271) (33,143) (33,414) (780) (18,679) (19,459)
Tax - - - - - -
------------------ -------- -------- -------- -------- -------- --------
Total
comprehensive
income loss
after tax (271) (33,143) (33,414) (780) (18,679) (19,459)
------------------ -------- -------- -------- -------- -------- --------
Earnings per
share -- basic
and diluted (0.2)p (20.0)p (20.2)p (0.5)p (12.4)p (12.9)p
-- The 'Total' column of this statement represents the statutory
income statement of the Company; the supplementary revenue return
and capital return columns have been prepared in accordance with
the AIC Statement of Recommended Practice.
-- All revenue and capital items in the above statement derive
from continuing operations.
-- The Company has only one class of business and derives its
income from investments made in shares and securities and from bank
and money market funds, as well as OEIC funds.
The Company has no recognised gains or losses other than the
results for the period as set out above. Accordingly a statement of
comprehensive income is not required.
The accompanying notes are an integral part of the Financial
Statements.
Balance Sheet
As at 28 February 2023 As at 28 February 2022
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- ----------- ----------- -----------
Fixed asset investments 102,667 129,226
Current assets:
Investments 16,188 16,543
Money market funds 21,433 1,326
Debtors 354 329
Applications cash(1) 3 246
Cash at bank 1,437 21,910
-------------------------- ----------- ----------- ----------- -----------
39,415 40,354
Creditors: amounts
falling due within one
year (860) (1,411)
-------------------------- ----------- ----------- ----------- -----------
Net current assets 38,555 38,943
-------------------------- ----------- ----------- ----------- -----------
Total assets less
current liabilities 141,222 168,169
-------------------------- ----------- ----------- ----------- -----------
Called up equity share
capital 1,798 1,605
Share premium 18,924 25,450
Capital redemption
reserve 279 236
Special distributable
reserve 118,015 105,258
Capital reserve realised (23,143) (20,762)
Capital reserve
unrealised 27,545 58,307
Revenue reserve (2,196) (1,925)
-------------------------- ----------- ----------- ----------- -----------
Total equity
shareholders' funds 141,222 168,169
-------------------------- ----------- ----------- ----------- -----------
NAV per share -- basic 78.5p 104.8p
and diluted
(1) Cash held but not yet allotted
The statements were approved by the Directors and authorised for
issue on 6 June 2023 and are signed on their behalf by:
Neal Ransome
Chair
Company number: 03477519
The accompanying notes are an integral part of the Financial
Statements.
Statement of changes in equity
Capital Special Capital Capital
Share Share redemption distributable reserve reserve Revenue
capital premium reserve reserves(1) realised(1) unrealised reserve(1) Total
----------------------------------- ------- -------- ---------- ------------- ----------- ---------- ---------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 period gain on disposal - - - - 207 - - 207
Current period loss on revaluation
of investments - - - - - (31,425) - (31,425)
Capital investment income - - - - 24 - - 24
Loss after tax - - - - - - (271) (271)
----------------------------------- ------- -------- ---------- ------------- ----------- ---------- ---------- --------
Total comprehensive loss for the
year - - - - (1,718) (31,425) (271) (33,414)
Contributions by and distributions
to owners:
Repurchase and cancellation of own
shares (43) - 43 (3,567) - - - (3,567)
Issue of shares 236 19,742 - - - - - 19,978
Share issue costs - (668) - - - - - (668)
Dividends paid - - - (9,276) - - - (9,276)
----------------------------------- ------- -------- ---------- ------------- ----------- ---------- ---------- --------
Total contributions by and
distributions to owners: 193 19,074 43 (12,843) - - - 6,467
Other movements
Cancellation of share premium - (25,600) - 25,600 - - - -
Prior years' holding gains now
realised - - - - (663) 663 - -
----------------------------------- ------- -------- ---------- ------------- ----------- ---------- ---------- --------
Total other movements - (25,600) - 25,600 (663) 663 - -
----------------------------------- ------- -------- ---------- ------------- ----------- ---------- ---------- --------
Balance as at 28 February 2023 1,798 18,924 279 118,015 (23,143) 27,545 (2,196) 141,222
----------------------------------- ------- -------- ---------- ------------- ----------- ---------- ---------- --------
As at 1 March
2021 1,461 57,966 173 67,477 (21,945) 78,169 (1,145) 182,156
-------------- ----- -------- --- -------- -------- -------- ------- --------
Comprehensive
income for
the year:
Management fee
allocated as
capital
expenditure - - - - (2,296) - - (2,296)
Current period
gain on
disposal - - - - 999 - - 999
Current period
loss on
revaluation
of
investments - - - - - (17,516) - (17,516)
Capital
investment
income - - - - 134 - - 134
Loss after tax - - - - - - (780) (780)
-------------- ----- -------- --- -------- -------- -------- ------- --------
Total
comprehensive
loss for the
year - - - - (1,163) (17,516) (780) (19,459)
Contributions
by and
distributions
to owners:
Repurchase and
cancellation
of own
shares (63) - 63 (7,522) - - - (7,522)
Issue of
shares 207 27,030 - - - - - 27,237
Share issue
costs - (1,580) - - - - - (1,580)
Dividends paid - - - (12,663) - - - (12,663)
-------------- ----- -------- --- -------- -------- -------- ------- --------
Total
contributions
by and
distributions
to owners: 144 25,450 63 (20,185) - - - 5,472
Other
movements:
Cancellation
of share
premium - (57,966) - 57,966 - - - -
Prior years'
holding gains
now realised - - - - 2,346 (2,346) - -
-------------- ----- -------- --- -------- -------- -------- ------- --------
Total other
movements - (57,966) - 57,966 2,346 (2,346) - -
-------------- ----- -------- --- -------- -------- -------- ------- --------
Balance as at
28 February
2022 1,605 25,450 236 105,258 (20,762) 58,307 (1,925) 168,169
-------------- ----- -------- --- -------- -------- -------- ------- --------
(1) Included in these reserves is an amount of GBP92,676,000
(2022: GBP82,571,000) which is considered distributable to
shareholders.
Cash flow statement
Year to 28 February Year to 28 February
2023 2022
GBP'000 GBP'000
------------------------------------- ------------------- -------------------
Cash flows from operating activities
Loss before tax (33,414) (19,459)
Adjustments for:
Increase in debtors (25) (136)
(Decrease)/increase in creditors (794) 470
Gain on disposal of fixed asset
investments (207) (1,001)
Loss on disposal of current asset
investments -- 2
Loss on valuation of fixed asset
investments 29,192 17,203
Loss on valuation of current asset
investments 2,233 313
Non-cash distributions (24) (134)
------------------------------------- ------------------- -------------------
Cash utilised in operations (3,039) (2,742)
Income taxes paid - -
------------------------------------- ------------------- -------------------
Net cash utilised in operating
activities (3,039) (2,742)
------------------------------------- ------------------- -------------------
Cash flows from investing activities
Purchase of fixed asset investments (4,880) (21,639)
Proceeds from sale of fixed asset
investments 2,478 7,932
Purchase of current asset investments (1,878) (2,250)
Proceeds from sale of current asset
investments -- 1,604
------------------------------------- ------------------- -------------------
Net cash flows utilised in investing
activities (4,280) (14,353)
------------------------------------- ------------------- -------------------
Cash flows from financing activities
Movement in applications account 243 (106)
Purchase of own shares (3,567) (7,522)
Proceeds from share issues 18,217 25,657
Share issue costs (668) (2,342)
Dividends paid (net of DRIS) (7,515) (10,321)
------------------------------------- ------------------- -------------------
Net cash flows from financing
activities 6,710 (5,366)
------------------------------------- ------------------- -------------------
Decrease in cash and cash equivalents (609) (11,730)
------------------------------------- ------------------- -------------------
Opening cash and cash equivalents 23,482 35,212
------------------------------------- ------------------- -------------------
Closing cash and cash equivalents 22,873 23,482
------------------------------------- ------------------- -------------------
Cash and cash equivalents is
represented by:
Cash at bank 1,437 21,910
Applications cash 3 246
Money market funds 21,433 1,326
------------------------------------- ------------------- -------------------
Total cash and cash equivalents 22,873 23,482
------------------------------------- ------------------- -------------------
The accompanying notes are an integral part of the Financial
Statements.
Post Balance Sheet Events
The following events occurred between the balance sheet date and
the signing of these financial statements.
-- A follow-on investment totalling GBP600,000 completed in FP
Octopus UK Micro Cap Growth Fund.
-- A partial disposal of 5,040 shares in Judges Scientific plc
for total consideration of GBP439,000.
-- A partial disposal of 172,200 shares in Quixant plc for total
consideration of GBP301,000.
-- A partial disposal of 180,000 shares in Genedrive plc for
total consideration of GBP53,000.
-- A full disposal of 500,000 shares in Itsarm plc (formerly In
The Style Group plc) for total consideration of GBP2,000.
-- A full disposal of 428,811 shares in AdEPT Technology Group
plc for total consideration of GBP862,000.
-- A partial disposal of 120,000 shares in Intelligent
Ultrasound Group plc for total consideration of GBP19,000.
-- A partial disposal of 152,066 shares in FP Octopus UK Multi
Cap Income for total consideration of GBP180,000.
The following shares have been bought back since the year
end:
-- 16 March 2023: 459,683 shares at a price of 72.5p per
share.
-- 20 April 2023: 558,866 shares at a price of 72.5p per
share.
-- 18 May 2023: 290,881 shares at a price of 71.9p per
share.
Notes to the financial statements
1. Principal accounting policies
The Company is a Public Limited Company (plc) incorporated in
England and Wales and its registered office is 33 Holborn, London
EC1N 2HT.
The Company's principal activity is to invest in a diverse
portfolio of predominately AIM-traded companies with the aim of
providing shareholders with attractive tax-free dividends and
long-term capital growth.
Basis of preparation
The financial statements have been prepared under the historical
cost convention, except for the measurement at fair value of
certain financial instruments, and in accordance with UK Generally
Accepted Accounting Practice (GAAP), including Financial Reporting
Standard 102 -- The Financial Reporting Standard applicable in the
United Kingdom and Republic of Ireland' ('FRS 102'), and with the
Companies Act 2006 and the Statement of Recommended Practice (SORP)
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts (issued 2014 and updated in October 2019 with
consequential amendments)'.
The principal accounting policies have remained unchanged from
those set out in the Company's 2022 annual report and accounts.
2. Income
Accounting policy
Investment income includes interest earned on money market
securities is shown net of income tax withheld at source. Dividend
income is shown net of any related tax credit. Dividends are
allocated to revenue or capital depending on whether the dividend
is of a revenue or capital nature.
Dividends receivable are brought into account when the Company's
right to receive payment is established and it is probable that
payment will be received. Fixed returns on debt and money market
securities are recognised on a time apportionment basis so as to
reflect the effective yield, provided there is no reasonable doubt
that payment will be received in due course.
Disclosure
28 28
February February
2023 2022
GBP'000 GBP'000
-------------------------------------------------- --------- ---------
Dividends receivable from fixed asset investments 834 715
In-specie dividend(1) 24 134
Loan note interest receivable 45 45
Income receivable on money market securities 189 -
-------------------------------------------------- --------- ---------
1,092 894
-------------------------------------------------- --------- ---------
(1) The Company received shares in Verici Dx PLC as a result of
an in-specie dividend from EKF Diagnostics Holdings plc. In the
prior period the Company received shares in Trellus Health plc as a
result of an in-specie dividend from EKF Diagnostics Holdings PLC.
These have been treated as capital income.
3. Investment management fees
28 February 2023 28 February 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------- ------- ------- ------- ------- -------
Investment management
fee 650 1,949 2,599 765 2,296 3,061
------------------------ ------- ------- ------- ------- ------- -------
Octopus provides investment management and accounting and
administration services to the Company under a management agreement
which initially ran with Close Investment Limited from 3 February
1998 and was then novated to Octopus for a period of five years
with effect from 29 July 2008 and may be terminated at any time
thereafter by not less than 12 months' notice given by either
party. No compensation is payable in the event of terminating the
agreement by either party, if the required notice period is given.
The fee payable, should insufficient notice be given, will be equal
to the fee that would have been paid should continuous service be
provided, or the required notice period was given. The management
fee is an annual charge set at 2% of the Company's net assets, less
deductions outlined below calculated on a quarterly basis.
During the year Octopus charged gross management fees of
GBP3,067,000 (2022: GBP3,723,000). When the various allowances
detailed below are included, the net management fees for the year
are GBP2,599,000 (2022: GBP3,061,000). At the year end there was
GBP580,000 payable to Octopus (2022: GBP834,000). Octopus received
GBP282,000 as a result of upfront fees charged on allotments of
Ordinary shares (2022: GBP515,000).
The Company now pays ongoing adviser charges to independent
financial advisers (IFA's). Ongoing adviser charges are an ongoing
fee of up to 0.5% per annum for a maximum of nine years paid to
advisers who are on an advised and ongoing fee structure. The
Company is rebated for this cost by way of a reduction in the
annual management fee. For the year to 28 February 2023 the rebate
received was GBP183,000 (2022: GBP290,000).
The Company also facilitates upfront fees to IFAs where an
investor has invested through a financial adviser and has received
upfront advice. Where an investor agrees to an upfront fee only,
the Company can facilitate a payment of an initial adviser charge
of up to 4.5% of the investment amount. If the investor chooses to
pay their intermediary/adviser less than the maximum initial
adviser charge, the remaining amount will be used for the issue and
allotment of additional new shares for the investor. In these
circumstances the Company does not facilitate ongoing annual
payments. To make sure that the Company is not financially
disadvantaged by such payment, a notional ongoing adviser charge
equivalent to 0.5% per annum will be deemed to have been paid by
the Company for a period of nine years. The Company is rebated for
this cost, also by way of a reduction in the annual management fee.
For the year to 28 February 2023 the rebate received was GBP202,000
(2022: GBP272,000).
The Company also receives a reduction in the management fee for
the investments into other Octopus managed funds, being the Multi
Cap, Micro Cap and Future Generations products, to ensure the
Company is not double charged on these products. This amounted to
GBP83,000 for the year to 28 February 2023 (2022: GBP100,000).
The management fee has been allocated 25% to revenue and 75% to
capital, in line with the Board's expected long-term return
in the form of income and capital gains respectively from the
Company's investment portfolio.
4. Other expenses
Accounting Policy
All expenses are accounted for on an accruals basis.
The transaction costs incurred when purchasing or selling assets
are written off to the income statement in the period that they
occur.
Disclosure
28 28
February February
2023 2022
GBP'000 GBP'000
--------------------------------------------- --------- ----------
IFA charges 183 290
Directors' remuneration 98 102
Registrars' fees 65 55
Audit fees 43 36
Printing and postage 23 18
VCT monitoring fees 13 21
Directors' and officers' liability insurance 50 19
Broker's fees 6 6
Other administration expenses 208 228
--------------------------------------------- --------- ----------
689 775
--------------------------------------------- --------- ----------
The fees payable to the Company's auditor are stated net of VAT
and the VAT is included within other administration expenses.
The ongoing charges of the Company were 2.1% of average net
assets during the year to 28 February 2023 (2022: 1.9%). Ongoing
charges are calculated using the AIC methodology and exclude
exceptional costs and trail commission.
5. Tax
Accounting Policy
Corporation tax payable is applied to profits chargeable to
corporation tax, if any, at the current rate. The tax effect of
different items of income/gain and expenditure/loss is allocated
between capital and revenue return on the 'marginal' basis as
recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect
of all timing differences that have originated but not reversed at
the balance sheet date, except as otherwise indicated.
Deferred tax assets are only recognised to the extent that it is
probable that they will be recovered against the reversal of
deferred tax liabilities or other future taxable profits.
The corporation tax charge for the year was GBPnil (2022:
GBPnil).
Disclosure
28 28
February February
2023 2022
Tax reconcilation GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Loss before tax (33,414) (19,459)
Current tax at 19.0% (2022:19.0%) (6,349) (3,697)
Effects of
Non-taxable income (199) (161)
Non-taxbale capital gains 5,932 3,138
Non-deductible expenses (4) (3)
Excess management expenses on which deferred tax not
recognised 620 723
Total tax charge - -
----------------------------------------------------- --------- ---------
Approved VCTs are exempt from tax on capital gains within the
Company. Since the Directors intend that the Company will continue
to conduct its affairs so as to maintain its approval as a VCT, no
deferred tax has been provided in respect of any capital gains or
losses arising on the revaluation or disposal of investments.
As at 28 February 2023 there is an unrecognised deferred tax
asset of GBP6,551,000 (2022: GBP5,758,000) in respect of
accumulated surplus management expenses of GBP26,204,000 (2022:
GBP23,030,000), based on a prospective corporation tax rate of 25%
(2022:25%). This deferred tax asset could in future be used against
taxable profits.
Provided the Company continues to maintain its current
investment profile, it is unlikely that the expenses will be
utilised and that the Company will obtain any benefit from this
asset.
6. Dividends
A Accounting Policy
Dividends payable are recognised as distributions in the
financial statements when the Company's liability to make payment
has been established. This liability is established on the record
date, the date on which those shareholders on the share register
are entitled to the dividend.
Disclosure
28 28
February February
2023 2022
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Dividends paid on Ordinary shares during the year
Final dividend -- 3.0p paid 12 August 2022 (2022:
3.5p) 4,775 5,035
Special dividend -- Nil (2022: 2.5p) -- 3,597
Interim dividend -- 2.5p paid 12 January 2023 (2022:
2.5p) 4,501 4,031
------------------------------------------------------ --------- ---------
9,276 12,663
------------------------------------------------------ --------- ---------
During the year GBP1,761,000 (2022: GBP2,342,000)
of dividends were reinvested under the DRIS.
28 28
February February
2023 2022
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Dividends paid and proposed in respect of the year
Interim dividend -- 2.5p paid 12 January 2023 (2022:
2.5p) 4,501 4,031
Final dividend proposed : 2.5p payable 10 August 2023
(2022: 3.0p) 4,462 4,795
8,963 8,826
------------------------------------------------------ --------- ---------
Under Section 32 of FRS 102 'Events After Balance
Sheet Date', dividends payable at year end are not
recognised as a liability in the financial statements.
The above proposed final dividend is based on the
number of shares in issue at the date of this report.
The actual dividend paid may differ from this number
as the dividend payable will be based on the number
of shares in issue on the record date and will reflect
any changes in the share capital between the year
end and the record date.
7. Earnings per share
28 February 2023 28 February 2022
Revenue Capital Total Revenue Capital Total
Loss attributable to
ordinary
shareholders
(GBP'000) (271) (33,143) (33,414) (780) (18,679) (19,459)
Earnings per
ordinary share (p) (0.2)p (20.0)p (20.2)p (0.5)p (12.4)p (12.9)p
-------------------- ------- -------- -------- ------- -------- --------
The earnings per share is based on 165,688,082 Ordinary shares
(2022: 151,132,679), being the weighted average number of shares in
issue during the year, and the loss on ordinary activities after
tax for the year of GBP33,414,000 (2022: loss GBP19,459,000).
There are no potentially dilutive capital instruments in issue
and, as such, the basic and diluted earnings per share are
identical.
8. Net asset value per share
28 28
February February
2023 2022
Net assets (GBP'000) 141,222 168,169
Shares in issue 179,802,084 160,480,523
--------------------- ----------- -----------
NAV per share (p) 78.5 104.8
--------------------- ----------- -----------
There are no potentially dilutive capital instruments in issue
and, as such, the basic and diluted NAV per share are
identical.
9. Related Party Transactions
The Company has employed Octopus throughout the year as
Investment Manager. Octopus has also been appointed the custodian
of the Company's investments under a custodian agreement.
The Company has paid Octopus GBP2,599,000 (2022: GBP3,061,000)
in the year as a management fee. The management fee is payable
quarterly in arrears and is based on 2.0% of net assets at
six-month intervals.
The Company receives a reduction in the management fee for the
investments in other Octopus managed funds, being the Octopus
Portfolio Manager, Multi Cap Income Fund, Micro Cap Growth Fund and
Future Generations Fund, to ensure the Company is not double
charged on these products. This amounted to GBP83,000 in the year
to 28 February 2023 (2022: GBP100,000).
Octopus received GBPnil (2022: GBPnil) transaction fees and
directors' fees from portfolio companies.
The Company holds GBP3,000 (2022: GBP246,000) of cash on behalf
of the Company and AIM VCT 2 plc. Of this, GBP2,000 (2022:
GBP161,000) is attributable to the Company.
In the year, Octopus Investments Nominees Limited (OINL)
purchased Company shares from shareholders to protect their
interests after delays or errors with shareholder instructions and
other similar administrative issues, on the understanding that
shares will be sold back to the Company in subsequent share
buybacks.
As at 28 February 2023, Octopus Investments Nominees Limited
(OINL) held 7,598 shares (2022: 889) in the Company as beneficial
owner, having purchased these at a cost of GBP7,000 (2022: GBPnil).
Throughout the period to 28 February 2023 OINL purchased 9,875
shares (2022: 889) at a cost of GBP9,000 (2022: GBP1,000) and sold
3,166 shares (2022: nil) for proceeds of GBP3,000 (2022: GBPnil).
This is classed as a related party transaction as Octopus, the
Investment Manager and OINL are part of the same group of
companies. Any such future transactions, where OINL takes over the
legal and beneficial ownership of Company shares, will be announced
to the market and disclosed in annual and half-yearly reports.
10. 2023 financial information
The figures and financial information for the year ended 28
February 2023 are extracted from the Company's annual financial
statements for the period and do not constitute statutory accounts.
The Company's annual financial statements for the year to 28
February 2023 have been audited but have not yet been delivered to
the Registrar of Companies. The Auditors' report on the 2023 annual
financial statements was unqualified, did not include a reference
to any matter to which the auditors drew attention without
qualifying the report, and did not contain any statements under
Sections 498(2) or 498(3) of the Companies Act 2006.
11. 2022 financial information
The figures and financial information for the period ended 28
February 2022 are compiled from an extract of the published
financial statements for the period and do not constitute statutory
accounts. Those financial statements have been delivered to the
Registrar of Companies and included the Auditors' report which was
unqualified, did not include a reference to any matter to which the
auditors drew attention without qualifying the report, and did not
contain any statements under Sections 498(2) or 498(3) of the
Companies Act 2006.
12. Annual Report and financial statements
The Annual Report and financial statements will be posted to
shareholders in June and will be available on the Company's
website. The Notice of Annual General Meeting is contained within
the Annual Report.
13. General information
Registered in England & Wales. Company No. 03477519
LEI: 213800C5JHJUQLAFP619
14. Directors
Neal Ransome (Chair),Stephen Hazell-Smith, Joanne Parfrey and
Andrew Boteler
15. Secretary and registered office
Octopus Company Secretarial Services Limited
33 Holborn, London EC1N 2HT
(END) Dow Jones Newswires
June 07, 2023 02:00 ET (06:00 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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