TIDMOSEC
Octopus AIM VCT 2 plc
Final Results
Octopus AIM VCT 2 plc today announces the final results for the
year ended 30 November 2022.
Octopus AIM VCT 2 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
30 November 2022 30 November 2021
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Net assets (GBP'000) 101,794 134,854
(Loss)/profit after tax (GBP'000) (36,695) 18,088
Net asset value (NAV) per share (p) 61.6 90.8
Dividends per share paid in year (p) 4.2 5.9
Total return (%)(1) (27.5) 16.6
Final dividend proposed (p)(2) 2.3 2.1
Ongoing Charges (%)(3) 2.2 1.8
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(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) Subject to shareholder approval at the Annual General
Meeting, the proposed final dividend will be paid on 25 May 2023 to
shareholders on the register on 5 May 2023.
(3) Ongoing Charges is an alternative performance measure
calculated using the AIC recommended methodology, refer to the
Annual Report for commentary on the movement.
Chair's statement
Introduction
Firstly, I would like to welcome all new shareholders who have
joined us in the past year.
The year to 30 November 2022 has been an extremely challenging
period for stock markets in general, and smaller companies in
particular, with the AIM Index recording its worst performance
since the financial crisis of 2008. Further, while the portfolio
benefited during the pandemic from its substantial exposure to
technology and healthcare stocks, the period under review saw a
significant reversal of these trends.
The year started nervously as the Omicron variant stalled the
opening up of the economy both here and abroad, intensifying
existing pressures on supply chains and the labour market which had
started to emerge in 2021. Inflation, already perceived as a
problem, was stoked by the dramatic increase in European energy
prices as a result of the Russian invasion of Ukraine in February.
Interest rates, which started the period at 0.1%, had risen to 3%
by the end of November. Political upheaval which resulted in two
changes of Prime Minister did not help, with the autumn mini-budget
pushing the market to new lows in October before it started to
recover towards the end of 2022. Against this background, the net
asset value (NAV), which had already fallen by 20.0% on a total
return basis in the first half of the year, declined further,
ending the year 27.5% behind on a total return basis, in line with
the AIM Index.
In the year under review AIM raised GBP2.3 billion of new
capital, a substantial decrease on the GBP8.7 billion raised in the
previous year, reflecting volatile market conditions. After the
previous year, when the number of new issues had recovered very
strongly, the majority of fundraisings in 2022 were for existing
AIM companies seeking further capital. Your Investment Manager made
GBP6.3 million of new qualifying investments, down from a record
GBP11.5 million the previous year. Although both economic and
geopolitical risks remain, market sentiment has improved more
recently, with market commentators and economists taking a more
optimistic stance on inflation and interest rates. Your Investment
Manager reports a pipeline of potential new issues expected to come
to the market in 2023.
Performance
The NAV on 30 November 2022 was 61.6p per share, a sharp decline
from the NAV of 90.8p per share reported at 30 November 2021.
Adding back the 4.2p of dividends paid in the year, to adjust the
year-end NAV to 65.8p, gives a total return decrease of 27.5%. In
the same year, the FTSE AIM All-Share Index fell by 27.5%, the FTSE
SmallCap (excluding investment companies) Index fell by 13.5% and
the FTSE All-Share Index rose by 6.5%, all on a total return
basis.
Once again stock-specific factors had a significant impact on
performance, and these are covered in more detail in the Investment
Manager's Review. In addition, as inflation and interest rates
rose, stock market volatility increased with a marked rotation away
from more highly rated growth stocks. This favoured larger
companies with the FTSE All-Share Index helped to a positive return
by its concentration of large energy stocks and pharmaceutical
companies at the top of the index. Appetite for risk waned still
further with the result that some of the earlier stage companies
exposed to the new economy (emerging, high-growth industries
expected to boost economic growth and productivity), saw their
share prices collapse regardless of any positive news flow. The
purpose of a VCT is to provide capital for small growth companies
and those companies exposed to the new economy make up a
significant proportion of our investment portfolio and so these
trends worked against us in the year under review.
Dividends
In November 2022 an interim dividend of 2.1p was paid to all
shareholders. The Board is recommending a final dividend in respect
of the year to 30 November 2022 of 2.3p per share, totalling 4.4p
in respect of the year, which is a 5% yield on the prior year
closing share price of 88.0p, all paid from special distributable
reserves. Subject to the approval of shareholders at the AGM, the
dividend will be paid on 25 May 2023 to shareholders on the
register on 5 May 2023. It remains the Board's intention to
maintain a minimum annual dividend payment of 3.6p per share or a
5% yield based on the prior year-end share price, whichever is
greater. This will usually be paid in two instalments during each
year.
Shareholders are encouraged to ensure that the details held for
them by the registrar remain accurate and to check whether they
have received all dividends payable to them. This is particularly
important for those who move house or change their bank account or
email address. We are aware that some dividends remain unclaimed by
shareholders, so if you believe you are impacted by this, please
contact our registrar, Computershare, at the details provided in
the Annual Report.
Cancellation of share premium account
At the last Annual General Meeting, shareholders voted to cancel
share premium to increase the pool of distributable reserves by the
amount of GBP54.6 million. This is a regular occurrence to enable
the continued payment of dividends and buyback of shares.
Board changes
During the year we welcomed Brad Ormsby to the Board and said
goodbye to Alastair Ritchie. We thank him for his years of service
to the Board, and wish him well in his retirement.
Dividend reinvestment scheme
In common with a number of other VCTs, the Company has
established a dividend reinvestment scheme (DRIS) following
approval at the AGM in 2014. Some shareholders have already taken
advantage of this opportunity. For investors who do not need
income, but value the additional tax relief on their reinvested
dividends, this is an attractive scheme and I hope that more
shareholders will find it useful. Over the course of the year
1,829,150 new shares have been issued under this scheme, returning
GBP1.2 million to the Company. The final dividend referred to above
will be eligible for the DRIS.
Share buybacks
During the year to 30 November 2022 the Company continued to buy
back shares in the market from selling shareholders and purchased
4,494,597 Ordinary shares for a total consideration of GBP3.1
million. We have maintained a discount of approximately 4.5% to NAV
(equating to up to a 5% 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
During the year the remaining balance of the fundraise launched
in September 2021 was allotted in April 2022 for a post tax year
end allotment when a further 106,610 shares were issued, raising
GBP0.1 million after costs.
On 22 September 2022, a prospectus offer was launched alongside
Octopus AIM VCT 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.
19,104,227 shares were issued under that fundraise, raising GBP11.6
million after costs. During the current year a total of 21,086,872
shares were issued, raising GBP12.9 million after costs.
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 29.6% of the Company's net assets were
held in cash or collective investment funds, providing short-term
liquidity, 63.1% in individual quoted shares and 7.9% was held in
unquoted single company investments. Shareholders should be aware
that a proportion of the quoted securities may have limited
liquidity owing to the size of the portfolio company and the
overall proportion held by the Company.
VCT status
Shoosmiths LLP 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. From 1 December 2020 a key requirement is to maintain at least
an 80% qualifying investment level, up from the previous level of
70%. As at 30 November 2022, 87.3% of the Company's portfolio was
in qualifying investments.
Annual General Meeting and shareholder event
The Annual General Meeting ('AGM') will take place on 26 April
2023 at 12.00pm. Further information can be found in the Notice of
Annual General Meeting. We will also be hosting a virtual
shareholder event prior to the AGM, on 19 April 2023 at 1.00pm.
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 these via
email to AIMVCT2AGM@octopusinvestments.com by 5.00pm on 21 April
2023. At the AGM a resolution will be proposed to extend the life
of the Company.
If your shares are held through a nominee account, formal
notices will be sent to your nominee. However, further details on
any shareholder event, including how to register can be found at
www.octopusinvestments.com.
Outlook
There has been a noticeable shift in investor risk appetite as
we have moved into 2023 and share prices are now reacting more
positively to encouraging news flow. Recession fears have eased,
with most economists suggesting a shorter and shallower downturn
than was being predicted three months ago. The labour market
remains relatively tight, but corporate earnings continue to hold
up better than many analysts were predicting, reinforcing the
Investment Manager's belief that any further impact on corporate
earnings is largely reflected in current depressed share prices.
Central to the recovery in share prices is the expectation that the
interest rate cycle will peak during the first half of 2023, with
two further increases likely before the summer.
The portfolio contains 87 holdings across a range of sectors
with exposure to some exciting new technologies in the
environmental and healthcare sectors. Many of these are still 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 expects to find good opportunities to invest newly raised
cash at attractive valuations.
Keith Mullins
Chair
10 March 2023
Investment Manager's review
Introduction
The increased stock market volatility that we had begun to see
this time last year intensified as the year under review
progressed. After a long period when markets had been driven by
growth and momentum, this was the year that investors rotated into
less highly rated sectors such as banks and energy as protection
against rising inflation and the prospect of rather higher interest
rates and energy costs. This caused the retreat of AIM growth
stocks which was a key factor in the underperformance against the
wider stock market both of the AIM Index and the Company's net
asset value (NAV) after a very positive two years during the
pandemic. In addition, as appetite for risk faded, some of the
earlier stage investments in the VCTs suffered de-ratings. By the
end of the period AIM shares were valued at levels previously
visited around the time of the financial crisis. Since the period
end some confidence has been restored, helped by some encouraging
January trading updates.
Against this background, AIM fundraisings slowed from previously
high levels as companies looking to float paused in response to
lower valuation expectations for their businesses. However, AIM
continued to raise capital for its existing members which enabled
many early-stage companies to fund the next stage of their
development.
The Alternative Investment Market
AIM was by far the worst performing UK index in 2022. In the 12
months to November 2022 the AIM Index fell by 27.5% compared with a
decrease of 13.5% for the FTSE SmallCap index (excluding investment
companies) and a rise of 6.5% for the FTSE All-Share Index all on a
total return basis. Part of the reason for this was the very small
number of stocks that contributed to the positive performance of
the larger company indices -- without the top ten holdings in the
market by size the return of the rest of the market would have been
a 10.4% fall and those ten holdings were mostly large
pharmaceutical companies and energy stocks. AIM has no natural
exposure to those types of stocks but it does have a high exposure
to growth stocks in the software, technology and healthcare
sectors. This counted against it as sentiment moved against highly
rated growth stocks as inflationary pressures intensified. The
effect was more pronounced at the larger end of AIM where a narrow
band of around 12 large and established growth stocks suffered
savage de-ratings. 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 indexes provide wider market context. There were some
quite sharp movements away from growth and momentum-driven shares
as investors sought value in more traditional sectors.
In the half yearly report we highlighted the success of AIM in
raising new capital for its existing members while highlighting a
more recent drop in activity, particularly new flotations, as a
result of market volatility. The bar chart shows this lull did not
improve in the second half of the year. In the year to 30 November
2022 AIM raised GBP2.7 billion of new capital for existing
companies, which compares to a figure of GBP6.8 billion the
previous year.
It was disappointing to see AIM raise only GBP0.3 billion for
new listings, a significant decrease from the figure of GBP1.9
billion in the previous year. Anecdotally we are still hearing
about a healthy pipeline of new issues from brokers and we hope
that the current more settled feel to the market gives them
confidence to float. VCTs play a significant part in the funding
process and we identify below 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 4.2p of dividends paid in the year, the NAV
total return decreased by 27.5%. This compares with a fall in the
FTSE AIM All-Share Index of 27.5%, a fall in the FTSE SmallCap
(excluding investment companies) of 13.5% and a rise in the FTSE
All-Share Index of 6.5% 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
started with investors having to confront rising inflationary and
interest rate expectations as global economies responded to
unprecedented growth in demand with all the resulting pressures on
supply chains and labour markets. The invasion of Ukraine by Russia
in February added a steep rise in energy costs with the result that
consensus moved from inflation being transitory to a longer-term
issue. As a consequence, interest rate expectations rose more
rapidly than had previously been anticipated, culminating in a
further spike in rate predictions to levels above 6%, exacerbated
by the political turmoil resulting from the autumn mini-budget.
Against this background, performance in the FTSE All-Share Index
was confined mainly to a very narrow cohort of the largest energy
and pharmaceutical stocks with smaller companies lagging
significantly in contrast to the well-established long-term trend.
This goes some way to explain the extent of the fall in the NAV in
the year as some of the higher-rated growth shares in the portfolio
came under pressure even though the tone of statements continued to
be positive. The earlier stage and very small companies were also
affected by a general reduction in the risk appetite of
investors.
Among the larger, profitable holdings in the portfolio several
were caught by the very savage 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),
Breedon and Learning Technologies Group were all affected, as were
others such as RWS, Craneware and Next Fifteen although the impact
on the performance of the fund was less for these and other
similarly affected smaller holdings.
The biggest contributor 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 VCT 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 Covid effect of lockdowns
waned and partly in reaction to the acquisition of US-based Acuant,
an expensive acquisition albeit with good long-term strategic
benefits. It ended the period on a valuation multiple well below
its historic average and at a level not seen since the financial
crisis. Breedon suffered from worries about the cost of energy for
its cement works and some concerns about the depth of a recession
on its revenues. Fears that Learning Technologies would see its
customers cut back on spending on employees in the event of a
recession also weighed on its share price. Both of the latter
companies produced upgrades to 2022 forecasts as the year
progressed, leaving their 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 are shrinking 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.
The portfolio has very little exposure to the consumer, but
where it does this has 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 has continued to achieve successive
profitable months in 2023 as well as significant growth in its
sales through Next, M&S and John Lewis. None of this progress
was reflected in the share price performance.
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. It had built a new factory to
fulfil a very large contract from electric vehicle manufacturer
Arrival. There were delays to the contract which now is unlikely to
be drawn down in a meaningful way in the foreseeable future. This
has affected the funding of the factory and forced the company to
raise money at a moment when stock market 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
facility.
As appetite for risk diminished during the year, the early-stage
companies in the portfolio tended to see their share prices suffer,
regardless of any progress made with technology or
commercialisation. We recognise that many of them will take time to
demonstrate progress and will only be rewarded by share price gains
when they do so. The majority are still well funded and so will
have the chance to develop their technologies, many of which aim to
solve climate and healthcare challenges. Two big fallers in the
year were Ilika, which is in the early stages of commercialising
its efficient solid state battery technology, and Renalytix, which
is awaiting FDA approval for its KidneyIntelX AI test and which has
already received breakthrough device designation from the FDA.
There are others in diagnostics such as Verici Dx, GENinCode,
Lunglife AI; Creo Medical in medical instruments; and Maxcyte in
cell therapy.
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 they remain
potentially vulnerable until they achieve profitability.
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. 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 both Popsa and
Hasgrove had their valuations increased over the year; Popsa was
valued upwards during the period due to the removal of a liquidity
discount which had been applied in the prior year. This discount
was removed following third party validation of this price, with
money raised at this level in the current period. Hasgrove as it
has added to its recurring revenues and increased the amount of
cash on its balance sheet which outweighed the fall in comparables.
This, coupled with general market weakness that impacted quoted
company share price performance, resulted in an increased
proportion of unquoted investments in the portfolio. The bases of
valuation of unquoted holdings and movements subsequent to the year
end is set out in note 10 to the financial statements.
Portfolio activity
Having made seven qualifying investments at a total cost of
GBP4.6 million in the first half of the year, we added two new
qualifying investments totalling GBP1.5 million as well as one
follow-on investment totalling GBP0.2 million in the second half of
the year. This made a total investment of GBP6.3 million in
qualifying investments for the year, a decrease on last year's
GBP11.5 million, reflecting a slower AIM market for both
fundraisings and new issues. Post the year end, we have invested a
further GBP1.2 million in two qualifying investments.
Of the seven first half investments, three were follow-on
investments in The British Honey Company, Verici Dx and Oberon
Investments Group and three were new entrants to AIM, Libertine
Holdings, Strip Tinning Holdings and Clean Power Hydrogen. In
addition, we made a new qualifying investment in Velocys, which is
an existing AIM company whose progress we have been watching for
some time.
We invested in two new issues in the second half of the year. In
July, we made a GBP1.2 million investment in Equipmake Holdings,
the electrification specialists focusing on retrofitting diesel
buses with electric drivetrains and a new entrant to AIM. In
November, we invested GBP0.3 million in Northcoders Group, a
market-leading provider of training programmes for software coding
and an existing AIM-listed company. Additionally, we made one
further issue in the second half of the year, which was a GBP0.2
million investment in Intelligent Ultrasound Group.
During the year we took profits into rising share prices,
selling part of our holdings in Advanced Medical Solutions Group
and Next Fifteen Communications. We also sold our entire holdings
in Diurnal Group, Midatech Pharma, Synairgen and Trellus Health. As
a result of takeover bids, we sold our holdings in both Clinigen
Group and Cloudcall Group in the first half of the year. All
disposals made a GBP0.1 million profit over original cost and
generated GBP2.2 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 see the
opportunity for further share price progress, we continued to
reduce some of these holdings in the year under review. During the
year we increased our holdings in the FP Octopus Micro-Cap Fund and
the FP Octopus Future Generation Fund, investing a total of GBP0.3
million over the period.
VCT regulations
There have been no further changes to the VCT regulations since
publication of the previous set of audited accounts. As a reminder,
the current requirements are that 30% of any 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. At present there has been only gradual change
to the profile of the portfolio, as 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; and
-- have less than GBP15 million of gross assets at the time of investment
and no more than GBP16 million immediately post investment; and
-- be less than seven years old from the date of its first commercial sale
(or ten years if a knowledge intensive company) if raising state aided
(i.e. VCT) funds for the first time; and
-- 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
since 6 April 2018 GBP10 million in 12 months, 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 has improved since the November year end, helped by a
restoration of political stability, a re-assessment of the level of
peak interest rates and early signs that inflation is going to fall
from here, although it remains well above the long-term 2% target.
Energy costs remain high but the worst fears of power shortages
have not been 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 short to 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 now contains 87 holdings with investments across a
range of sectors including both domestic and international
exposure. The balance towards profitable companies remains and many
of these are still trading well and are valued towards the bottom
of their long-term average therefore we still see good growth
potential when the market recovers.
The Octopus Quoted Companies team
Octopus Investments Limited
10 March 2023
Viability statement
As part of their continuing programme of monitoring risk 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 22 September 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 such as 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 in the
Annual Report.
The Board has also considered the liquidity of the underlying
investments and the Company's cash flow projections 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 30 November 2027.
Principal risks, risk management and regulatory environment
The Board carries out a regular review of the risk environment
in which the Company operates. The Board seeks to mitigate risks by
setting policy, reviewing 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. Detailed below are what the Board
deems to be the principal risks of the Company and the mitigating
actions in relation to those risks.
Risk Mitigation
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Investment risk: The focus of the Company's investments The Investment Manager has significant experience
is into VCT qualifying companies quoted on AIM and and a strong track record of investing in AIM and
the AQSE exchange, which by their nature entail a AQSE companies, and appropriate due diligence is undertaken
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.
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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 its results to the Board.
-------------------------------------------------------------- -------------------------------------------------------------
Operational risk: The Board is reliant on the Investment The Board reviews the system of internal control,
Manager to manage investments effectively, and manage both financial and non-financial, operated by the
the services of a number of third parties, in particular Investment Manager (to the extent the latter are relevant
the registrar and tax advisors. A failure of the systems to the Company's internal controls). These include
or controls at the Investment Manager or third-party controls that are designed to ensure that the Company's
providers could lead to an inability to provide accurate assets are safeguarded and that proper accounting
reporting and to ensure adherence to VCT and other records are maintained, as well as any regulatory
regulatory rules. reporting. Feedback on other third parties is reported
to the Board on at least an annual basis, including
adherence to service level agreements where relevant.
-------------------------------------------------------------- -------------------------------------------------------------
Information security: A loss of key data could result 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: Events such as an economic recession, movement The Company invests in a diverse portfolio of companies
in interest rates, inflation, political instability across a range of sectors, which helps to mitigate
and rising living costs could cause volatility in against the impact of performance in any one sector.
the market, adversely impacting the valuation of investments. The Company also maintains adequate liquidity to ensure
This could result in a reduction in the value of the that it can continue to provide follow-on investment
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.
-------------------------------------------------------------- -------------------------------------------------------------
Legislative: A change to the VCT regulations could The Investment Manager engages with HM Treasury and
adversely impact the Company by restricting the companies industry bodies to demonstrate the positive benefits
the Company can invest in under its current strategy. of VCTs in terms of growing UK companies, creating
Similarly, changes to VCT tax reliefs for investors jobs and increasing tax revenue, and to help shape
could make VCTs less attractive and impact the Company's any change to VCT legislation.
ability to raise further funds. Failure to adhere The Investment Manager employs individuals with expertise
with other relevant legislation and regulation could across the legislation and regulation relevant to
result in reputational damage and/or fines. the Company. Individuals receive ongoing training
and external experts are engaged where required.
-------------------------------------------------------------- -------------------------------------------------------------
Liquidity: The risk that the Company's available cash The Investment Manager prepares cash flow forecasts
will not be sufficient to meet its financial obligations. to ensure cash levels are maintained in accordance
The Company invests into smaller companies, which with policies agreed with the Board. The Company's
are inherently less liquid than stocks on the main overall liquidity levels are monitored on a quarterly
market. Therefore, these may be difficult to realise basis by the Board, with close monitoring of available
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. At 30 November 2022, 20.4% of net assets was
held in cash and cash equivalents, realisable within
one business day, and 9.2% in OEICs, realisable in
four business days.
-------------------------------------------------------------- -------------------------------------------------------------
Valuation: For smaller companies or illiquid shares, Investments in companies traded on AIM and AQSE exchange
establishing a fair value can be difficult due to are valued by the Investment Manager using closing
the lack of readily available market data for similar bid prices as reported on Bloomberg. Where investments
shares, resulting in limited number of external reference are in unquoted companies or where there are indicators
points. the bid price is not appropriate, alternative valuation
techniques are used in accordance with the 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.
-------------------------------------------------------------- -------------------------------------------------------------
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.
The following are some of the potential emerging risks
management and the Board are currently monitoring:
-- Adverse changes in global macroeconomic environment
-- Rising cost of living
-- Geo-political protectionism
-- Climate change
Directors' responsibility statement
The Directors are responsible for preparing the Strategic
Report, the Directors' Report, the Directors' Remuneration Report
and the financial statements in accordance with applicable law and
regulations. They are also responsible for ensuring that the annual
report and accounts include information required by the Listing
Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
United Kingdom 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), (United Kingdom accounting standards and
applicable law). 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 and profit or loss of
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 Directors' Report and Directors'
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, to disclose with reasonable accuracy at any time the
financial position of the Company and to 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 and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
In so far as each of the Directors is aware:
-- there is no relevant audit information of which the Company's auditor is
unaware; and
-- the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that
the auditor is aware of that information.
The Directors are responsible for preparing the annual report
and accounts in accordance with applicable law and regulations.
Having taken advice from the Audit Committee, the Directors are of
the opinion that this report as a whole provides the necessary
information to assess the Company's performance, business model and
strategy and is fair, balanced and understandable.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors confirm that, to the best of their knowledge:
-- the financial statements, prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, including FRS 102, give a true
and fair view of the assets, liabilities, financial position and profit
or loss of the Company; and
-- the annual report and accounts (including the Strategic Report), give a
fair review of the development and performance of the business and the
position of the Company, together with a description of the principal
risks and uncertainties that it faces.
On behalf of the Board
Keith Mullins
Chair
10 March 2023
Income statement
Year to 30 November 2022 Year to 30 November 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------- -------- -------- ------- ------- ----------
(Loss)/gain on
disposal of
fixed asset
investments - (32) (32) - 2,123 2,123
Gain on
disposal of
current asset
investments - - - - 33 33
(Loss)/gain on
valuation of
fixed asset
investments - (31,821) (31,821) - 15,662 15,662
(Loss)/gain on
valuation of
current asset
investments - (2,946) (2,946) - 2,304 2,304
Investment
Income 589 19 608 481 109 590
Investment
management
fees (481) (1,443) (1,924) (493) (1,478) (1,971)
Other expenses (580) - (580) (653) - (653)
---------------- ------- -------- -------- ------- ------- ----------
(Loss)/profit
before tax (472) (36,223) (36,695) (665) 18,753 18,088
Tax - - - - - -
---------------- ------- -------- -------- ------- ------- ----------
Total
comprehensive
(loss)/income
after tax (472) (36,223) (36,695) (665) 18,753 18,088
---------------- ------- -------- -------- ------- ------- ----------
Earnings per
share --
basic and
diluted (0.3p) (24.5p) (24.8p) (0.5p) 13.8p 13.3p
---------------- ------- -------- -------- ------- ------- ----------
-- 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.
Balance sheet
As at 30 November 2022 As at 30 November 2021
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- ----------- ----------- -----------
Fixed asset investments 72,249 100,036
Current assets:
Investments 9,399 11,993
Money market funds 3,515 3,487
Debtors 205 185
Cash at bank 17,217 19,915
-------------------------- ----------- ----------- ----------- -----------
30,336 35,580
Creditors: amounts
falling due within one
year (791) (762)
-------------------------- ----------- ----------- ----------- -----------
Net current assets 29,545 34,818
-------------------------- ----------- ----------- ----------- -----------
Total assets less
current liabilities 101,794 134,854
-------------------------- ----------- ----------- ----------- -----------
Called up equity share
capital 17 15
Share premium 12,904 54,600
Capital redemption
reserve 3 2
Special distributable
reserve 76,154 30,826
Capital reserve realised (5,843) (4,533)
Capital reserve
unrealised 21,190 56,103
Revenue reserve (2,631) (2,159)
-------------------------- ----------- ----------- ----------- -----------
Total equity
shareholders' funds 101,794 134,854
-------------------------- ----------- ----------- ----------- -----------
NAV per share -- basic 61.6p 90.8p
and diluted
The statements were approved by the Directors and authorised for
issue on 10 March 2023 and are signed on their behalf by:
Keith Mullins
Chair
Company No: 05528235
Statement of changes in equity
Share capital Share premium Capital redemption reserve Special distributable reserves* Capital reserve -- realised* Capital reserve -- unrealised Revenue reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
As at 1 December 2021 15 54,600 2 30,826 (4,533) 56,103 (2,159) 134,854
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Comprehensive income for the year:
Management fee allocated as capital
expenditure - - - - (1,443) - - (1,443)
Current year loss on disposal - - - - (32) - - (32)
Current year loss on fair value of
investments - - - - - (34,767) - (34,767)
Capital investment income - - - - 19 - - 19
Loss after tax - - - - - - (472) (472)
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total comprehensive loss for the
year - - - - (1,456) (34,767) (472) (36,695)
Contributions by and distributions
to owners: - - - - - - - -
Repurchase and cancellation of own
shares (1) - 1 (3,117) - - - (3,117)
Issue of shares 3 13,698 - - - - - 13,701
Share issue costs - (794) - - - - - (794)
Dividends paid - - - (6,155) - - - (6,155)
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total contributions by and
distributions to owners 2 12,904 1 (9,272) - - - 3,635
Other movements:
Cancellation of share premium - (54,600) - 54,600 - - - -
Prior years' holding gains now
realised - - - - 146 (146) - -
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total other movements - (54,600) - 54,600 146 (146) - -
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Balance as at 30 November 2022 17 12,904 3 76,154 (5,843) 21,190 (2,631) 101,794
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Share capital Share premium Capital redemption reserve Special distributable reserves* Capital reserve -- realised* Capital reserve -- unrealised Revenue reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
As at 1
December
2020 13 37,758 1 35,051 (7,492) 40,309 (1,494) 104,146
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- ----------
Comprehensive
income for the
year:
Management fee
allocated as
capital
expenditure - - - - (1,478) - - (1,478)
Current year
gains on
disposal - - - - 2,156 - - 2,156
Current year
gains on fair
value of
investments - - - - - 17,966 - 17,966
Capital
investment
income - - - - 109 - - 109
Loss after tax - - - - - - (665) (665)
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- ----------
Total
comprehensive
income for
the year - - - - 787 17,966 (665) 18,088
Contributions
by and
distributions
to owners:
Repurchase and
cancellation
of own
shares (1) - 1 (4,973) - - - (4,973)
Issue of
shares 3 27,725 - - - - - 27,728
Share issue
costs - (1,683) - - - - - (1,683)
Dividends paid - - - (8,452) - - - (8,452)
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- ----------
Total
contributions
by and
distributions
to owners 2 26,042 1 (13,425) - - - 12,620
Other
movements:
Cancellation
of share
premium - (9,200) - 9,200 - - - -
Prior years'
holding gains
now realised - - - - 2,172 (2,172) - -
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- ----------
Total other
movements - (9,200) - 9,200 2,172 (2,172) - -
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- ----------
Balance as at
30 November
2021 15 54,600 2 30,826 (4,533) 56,103 (2,159) 134,854
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- ----------
*Included within these reserves is an amount of GBP67,680,000
(2021: GBP24,134,000) which is considered distributable to
shareholders.
Cash flow statement
Year to 30 November Year to 30 November
2022 2021
GBP'000 GBP'000
------------------------------------- ------------------- -------------------
Cash flows from operating activities
Profit/(loss) on ordinary activities
before tax (36,695) 18,088
Adjustments for:
(Increase) in debtors (20) (65)
(Decrease)/increase in creditors (196) 173
Loss/(gain) on disposal of fixed
assets 32 (2,123)
(Gain) on disposal of current asset
investments -- (33)
Loss/(gain) on valuation of fixed
asset investments 31,821 (15,662)
Loss/(gain) on valuation of current
asset investments 2,946 (2,304)
Non-cash distributions (19) (109)
------------------------------------- ------------------- -------------------
Cash used in operations (2,131) (2,035)
Income taxes paid -- --
------------------------------------- ------------------- -------------------
Net cash used in operating activities (2,131) (2,035)
Cash flows from investing activities
Purchase of fixed asset investments (6,071) (12,332)
Proceeds from sale of fixed asset
investments 2,249 6,085
Purchase of current asset investments (352) (2,620)
Proceeds from sale of current asset
investments - 3,360
------------------------------------- ------------------- -------------------
Total cash flows used in investing
activities (4,174) (5,507)
Cash flows from financing activities
Purchase of own shares (3,117) (4,973)
Share issues 12,502 26,086
Share issue costs (794) (1,683)
Dividends paid net of DRIS (4,956) (6,810)
------------------------------------- ------------------- -------------------
Total cash flows from financing
activities 3,635 12,620
------------------------------------- ------------------- -------------------
(Decrease)/increase in cash and cash
equivalents (2,670) 5,078
------------------------------------- ------------------- -------------------
Opening cash and cash equivalents 23,402 18,324
------------------------------------- ------------------- -------------------
Closing cash and cash equivalents 20,732 23,402
------------------------------------- ------------------- -------------------
Closing cash and cash equivalents is
represented by:
Cash at bank 17,217 19,915
Money market funds 3,515 3,487
------------------------------------- ------------------- -------------------
Total cash and cash equivalents 20,732 23,402
------------------------------------- ------------------- -------------------
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 6th Floor, 33
Holborn, London, EC1N 2HT.
The Company's principal activity is to invest in a diverse
portfolio of predominantly AIM-traded companies with the objective
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 since
those set out in the Company's 2021 annual report and accounts. A
summary of the principal accounting policies is set out below.
2. Income
Accounting policy
Investment income includes interest earned on money market
securities and 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 recognised 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
30 30
November November
2022 2021
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Dividends receivable from fixed asset investments 522 451
In-specie dividend* 19 109
Loan note interest receivable 30 30
Income receivable on money market securities and bank
balances 37 -
------------------------------------------------------ --------- ---------
608 590
------------------------------------------------------ --------- ---------
*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
30 November 2022 30 November 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------- ------- ------- ------- ------- -------
Investment management
fees 481 1,443 1,924 493 1,478 1,971
------------------------ ------- ------- ------- ------- ------- -------
Octopus provide investment management and accounting and
administration services to the Company under a management agreement
which initially ran for a period of five years with effect from 6
October 2005 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 and is set at 2% of the Company's net assets.
During the year Octopus charged gross management fees of
GBP2,266,000 (2021: GBP2,494,000). When the various allowances
detailed below are included, the net management fee for the year is
GBP1,924,000 (2021: GBP1,971,000). At the year end there was
GBP395,000 payable to Octopus (2021: GBP560,000). Octopus received
GBP186,000 as a result of upfront fees charged on allotments of
Ordinary shares (2021: GBP419,000). The decrease in upfront fees
this year has proportionately decreased in line with the value of
allotments in the year.
The Company pays ongoing adviser charges to independent
financial advisers (IFAs). Ongoing adviser charges are an ongoing
fee of up to 0.5% per annum of the amount invested 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 30 November
2022 the rebate received was GBP133,000 (2021: GBP227,000).
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 ensure that the Company is not financially
disadvantaged by such payment, a notional ongoing adviser charge
equivalent to 0.5% per annum of the amount invested 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 30 November 2022 the rebate
received was GBP152,000 (2021: GBP233,000).
The Company also receives a reduction in the management fee for
the investments in other Octopus managed funds, being the Multi
Cap, Micro Cap Growth and Future Generations products, to ensure
the Company is not double charged on these products. This amounted
to GBP57,000 for the year to 30 November 2022 (2021:
GBP63,000).
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
30 30
November November
2022 2021
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
IFA charges 133 227
Directors' remuneration 106 92
Registrar fees 47 50
Audit fees 42 36
VCT monitoring fees 3 17
Printing and postage 10 21
Legal and professional fees 16 13
Directors' and officers' liability insurance 12 18
Broker's fees 7 7
Other administration expenses 204 172
--------------------------------------------- ---------- ----------
580 653
--------------------------------------------- ---------- ----------
The fees payable to the Company's auditor above are stated net
of VAT and the VAT is included within other administration
expenses.
The ongoing charges of the Company were 2.2% of average net
assets during the year to 30 November 2022 (2021: 1.8%).
5. Tax
Accounting policy
Current tax is recognised for the amount of income tax payable
in respect of the taxable profit/(loss) for the current or past
reporting periods using the current UK corporation tax 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.
Disclosure
The corporation tax charge for the year was GBPnil (2021:
GBPnil).
30 30
November November
2022 2021
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
(Loss)/profit before tax (36,695) 18,088
Current tax at 19.00% (2021:19.00%) (6,972) 3,437
Effects of
Non-taxable income (110) (106)
Non-taxbale capital gains 6,608 (3,823)
Non-deductible expenses 6 2
Excess management expenses on which deferred tax not
recognised 468 490
Total tax charge - -
----------------------------------------------------- --------- ---------
Approved VCTs are exempt from tax on capital gains within the
Company. Since the Board intends 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.
In March 2021, the UK Government announced that from 1 April
2023, the main rate of corporation tax will be increased to 25%.
Consequently, deferred tax has been calculated at the year end
using a tax rate of 25%. As at 30 November 2022, there is an
unrecognised deferred tax asset of GBP4,616,000 (2021:
GBP4,008,000) in respect of surplus management expenses, based on a
prospective tax rate of 25% (2021: 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
Accounting policy
Dividends payable are recognised as distributions in the
financial statements when the Company's liability to make a 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
30 30
November November
2022 2021
GBP'000 GBP'000
--------------------------------------------------------- --------- ---------
Dividends paid on Ordinary shares during the year
2021 Final dividend -- 2.1p per share paid 27 May
2022 (2021: 2.1p per share) 3,080 2,804
2022 Interim dividend -- 2.1p per share paid 10 November
2022 (2021: 2.1p per share) 3,075 3,121
2022 Special dividend -- Nil (2021: 1.7p per share) - 2,527
--------------------------------------------------------- --------- ---------
6,155 8,452
--------------------------------------------------------- --------- ---------
During the year GBP1,199,000 (2021: GBP1,642,000) of dividends
were reinvested under the DRIS.
Under Section 32 of FRS 102 'Events After the end of the
Reporting Period', dividends payable at year end are not recognised
as a liability. Details of these dividends and all other dividends
declared in the year are set out below.
30 30
November November
2022 2021
GBP'000 GBP'000
--------------------------------------------------------- --------- ---------
Dividends paid and proposed
2022 Interim dividend -- 2.1p per share paid 10 November
2022 (2021: 2.1p per share) 3,075 3,121
2022 Special dividend -- Nil (2021: 1.7p) - 2,527
Final proposed dividend -- 2.3p per share payable
25 May 2023 (2021: 2.1p share) 3,773 3,080
--------------------------------------------------------- --------- ---------
6,848 8,728
--------------------------------------------------------- --------- ---------
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
30 November 2022 30 November 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------- -------- -------- ------- ------- -------
Profit/(loss) attributable to
Ordinary shareholders (472) (36,223) (36,695) (665) 18,753 18,088
Earnings per Ordinary share (p) (0.3p) (24.5p) (24.8p) (0.5p) 13.8p 13.3p
--------------------------------- ------- -------- -------- ------- ------- -------
The profit/(loss) per share is based on 147,948,350 (2021:
135,902,032) Ordinary shares, being the weighted average number of
Ordinary shares in issue during the year, and the loss on ordinary
activities after tax for the year of GBP36,695,000 (2021: profit of
GBP18,088,000).
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
30 30
November November
2022 2021
Net assets (GBP'000) 101,794 134,854
Shares in issue 165,172,844 148,580,569
--------------------- ----------- -----------
NAV per share (p) 61.6 90.8
--------------------- ----------- -----------
There are no potentially dilutive capital instruments in issue
and, as such, the basic and diluted NAV per share are
identical.
9. Post balance sheet events
The following events occurred between the balance sheet date and
the signing of these financial statements:
-- an investment of GBP100,000 into Equipmake Holdings plc
-- an investment of GBP1,059,000 into Itaconix plc
-- an investment of GBP500,000 into FP Octopus UK Micro Cap Growth Fund
-- an investment of GBP500,000 into FP Octopus UK Multi Cap Income
-- an investment of GBP60,000 into FP Octopus UK Future Generations Fund
-- partial disposal of 24,000 shares in WANdisco plc for total consideration
of GBP196,000
-- full disposal of 3,679,810 shares in TP Group plc for total consideration
of GBP83,000
Subsequent to the year end and in accordance with the bases of
valuation, unquoted investments have been revalued resulting in a
reduction in NAV of 0.6 pence per share which has been reflected in
weekly disclosures of NAV from 9 January 2023.
The following shares have been bought back since the year
end:
-- 15 December 2022: 274,131 shares at a price of 57.9p per share
-- 19 January 2023: 436,267 shares at a price of 57.7p per share
-- 16 February 2023: 432,226 shares at a price of 58.5p per share
10. Related party transactions
The Company has employed Octopus Investments Limited ('Octopus'
or 'the Investment Manager') throughout the period as Investment
Manager. Octopus have also been appointed as Custodian of the
Company's investments under a Custodian Agreement. The Company has
been charged GBP1,924,000 by Octopus as a management fee in the
year to 30 November 2022 (2021: GBP1,971,000). The management fee
is payable quarterly and is based on 2% of net assets at quarterly
intervals.
The Company receives a reduction in the management fee for the
investments in other Octopus managed funds, being the 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 GBP57,000 in the year to 30 November 2022 (2021:
GBP63,000). For further details please refer to note 3. Details of
amounts invested in Octopus managed funds can be found in the
Annual Report.
As at 30 November 2022, Octopus Investments Nominees Limited
(OINL) held 4,284 shares (2021: nil) in the Company as beneficial
owner, having purchased these at a cost of GBP3,000 (2021: GBPnil)
from shareholders in order to correct errors. Throughout the period
to 30 November 2022 OINL purchased 7,916 shares (2021: nil) at a
cost of GBP6,000 (2021: GBPnil) and sold 3,632 shares (2021: nil)
for proceeds of GBP3,000 (2021: 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.
Details of the Directors and their remuneration can be found in
the Directors' Remuneration Report.
11. 2022 financial information
The figures and financial information for the year ended 30
November 2022 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 30
November 2022 have been audited but have not yet been delivered to
the Registrar of Companies. The Auditors' report on the 2022 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.
12. 2021 financial information
The figures and financial information for the period ended 30
November 2021 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.
13. Annual Report and financial statements
The Annual Report and financial statements will be posted to
shareholders in March and will be available on the Company's
website. The Notice of Annual General Meeting is contained within
the Annual Report.
14. General information
Registered in England & Wales. Company No. 05528235
LEI: 213800BW27BKJCI35L17
15. Directors
Keith Mullins (Chair), Andrew Raynor, Elizabeth Kennedy and Brad
Ormsby
16. Secretary and registered office
Octopus Company Secretarial Services Limited
33 Holborn, London EC1N 2HT
(END) Dow Jones Newswires
March 10, 2023 13:05 ET (18:05 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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