Octopus AIM VCT 2 plc
Final Results
22 February 2022
Octopus AIM VCT 2 plc, managed by Octopus Investments Limited, today announces the final results for the year ended 30 November 2021.
These results were approved by the Board of Directors on 21 February 2022.
You may view the Annual Report in full at www.octopusinvestments.com in due course. All other statutory information will also be found there.
| Financial Summary | 30 November 2021 | 30 November 2020 |
| Net assets (£’000) | 134,854 | 104,146 |
| Profit after tax (£’000) | 18,088 | 17,762 |
| Net asset value (“NAV”) per share (p) | 90.8 | 82.9 |
| Dividends per share paid in year (p) | 5.9 | 4.2 |
| Total return (%)* | 16.6 | 20.3 |
| Final dividend proposed (p)** | 2.1 | 2.1 |
| Total ongoing charges (%)*** | 1.8 | 1.9 |
*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.
**Subject to shareholder approval at the Annual General Meeting, the proposed final dividend will be paid on 27 May 2022 to shareholders on the register on 6 May 2022.
***Total ongoing charges is an alternative performance measure calculated using the AIC recommended methodology.
Chairman’s Statement
Introduction
I am pleased to present the Annual Report of Octopus AIM VCT 2 plc for the year ended 30 November 2021. I would like to welcome all new shareholders who have joined in the year.
It has been another challenging year when the pandemic and its consequences have continued to have an impact on stock market sentiment and movements as well as on peoples’ lives, jobs and the wider economy.
The year started strongly with the country emerging from lockdown in December 2020, at the same time as the first three covid vaccines were approved for emergency use and a trade agreement was finally reached with Europe, a year after Brexit. Share prices were buoyed by optimism and by the half year end, at the end of May, the Net Asset Value (NAV) had risen by 22.2% on a total return basis. The second half of the year was more challenging as the economy had to contend with supply chain and labour constraints as well as uncertainty resulting from the threat of further lockdowns towards the end of the year. Growth has generally exceeded expectations as businesses have become smarter at minimising the disruption from further covid waves but inflation has also risen faster and to higher levels than central banks first predicted with the result that further interest rate rises are now firmly on the cards in 2022. Against this background the NAV gave up some of its first half gains, finishing the year 16.6% ahead on a total return basis.
In the year under review AIM raised £8.7 billion of new capital, a substantial increase on the £5.5 billion raised in the previous year. It was really encouraging to see existing AIM companies successfully raising funds to see them through the crisis and to put them on a growth track on the other side, emphasising the advantages of a public market listing. This was also the year when the number of new issues recovered very strongly, and our Investment Manager reports a good pipeline of companies looking to float in the next six months.
Coronavirus
I am pleased to say that in the second year of the crisis, Board meetings and other Company business continued seamlessly on the usual schedule using the by now well established medium of remote communications.
Against this background I am pleased to report another strong year of investment performance as well as an increase in the amount invested into VCT qualifying investments to £11.5 million, well ahead of the £5.3 million of the previous year.
I am sorry that it was not possible to hold an open Annual General Meeting for the second year running in 2021 because of the on-going coronavirus situation. The Board takes its shareholder communications very seriously and I hope that any shareholder who had a question was able to submit it by email as advised. A summary of the answers to questions we received was posted on the Octopus website. There was also a presentation from the Investment Manager which I hope those who attended found informative. I look forward to welcoming you to our AGM on 28 April 2022.
Performance
The NAV on 30 November 2021 was 90.8p per share, an increase on the NAV of 82.9p per share reported at 30 November 2020. Adding back the 5.9p of dividends paid in the year, to adjust the year end NAV to 96.7p, gives a total return of 16.6%. In the same year, the FTSE AIM All Share Index rose by 14.0%, the FTSE SmallCap (excluding investment companies) Index rose by 32.3% and the FTSE All Share Index rose by 17.4%, all on a total return basis.
Once again stock specific factors had a significant impact on performance, both positive and negative, and these are covered in more detail in the Investment Manager’s Review. In addition, as the year progressed, fears about inflation and the extent of likely interest rate rises increased stock market volatility and caused some rotation away from more highly rated growth stocks. Appetite for risk waned with the result that some of the earlier stage companies exposed to the new economy saw their share prices fall from recent highs. 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 second half of the year.
Dividends
In November 2021 an interim dividend of 2.1p and special dividend of 1.7p was paid to all shareholders. The Board is recommending a final dividend in respect of the year to 30 November 2021 of 2.1p per share, totalling 5.9p in respect of the year, all paid from special distributable reserves. Subject to the approval of shareholders at the AGM the dividend will be paid on 27 May 2022 to shareholders on the register on 6 May 2022. It remains the Board’s intention to maintain a minimum annual dividend payment of 3.6p per share or a 5.0% yield based on the prior year end share price, whichever is greater. This will usually be paid in two instalments during each year. The total dividend for the year is 5.9p which is a 7.1% yield.
Cancellation of Share Premium Account
At the last Annual General Meeting, shareholders voted to cancel share premium to create a pool of distributable reserves to the amount of £9.2million. This is a regular occurrence to enable the continued payment of dividends and buyback of shares.
Board Changes
I should like to welcome Brad Ormsby who joined the Board in January this year and whose election is due to be ratified by shareholders at the forthcoming AGM. Alastair Ritchie has informed the Board of his intention to retire and so will not be seeking re-election at the AGM. Alastair has been a member of this Board since the merger in 2010 and I would like to extend our thanks to him on behalf of the Board, shareholders and the Manager for all his many years working on our behalf. We 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. In the course of the year 1,716,026 new shares have been issued under this scheme, returning £1.6 million to the Company. The final dividend referred to above will be eligible for the DRIS.
Share Buybacks
During the year to 30 November 2021 the Company continued to buy back shares in the market from selling shareholders and purchased 5,472,527 ordinary shares for a total consideration of £4,973,000. We have maintained a discount of approximately 4.5% to NAV (equating 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 20 August 2020, a prospectus offer was launched alongside Octopus AIM VCT plc to raise a combined total of up to £20 million with a £10 million over allotment facility. This prospectus closed to further applications on 30 November 2020. 10,527,955 shares were issued in the current period, raising £8.8 million after costs. During the current year 16,064,510 shares were issued under the fundraise that launched on 19 August 2021 and closed on 13 September 2021 raising £15.5 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 26.1% of the Company’s net assets were held in cash or collective investment funds providing short- term liquidity, 68.9% in individual quoted shares and 5.0% 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 investee company and the overall proportion held by the Company.
VCT Status
PricewaterhouseCoopers LLP provides 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 1st 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 2021, 93.8% of the Company’s portfolio was in VCT qualifying investments.
Annual General Meeting (“AGM”)
The AGM will take place on 28 April 2022 at 11.00 a.m. Further information can be found in the Directors’ report and Notice of Annual General Meeting respectively.
We will also be hosting a virtual shareholder event prior to the AGM, on 20 April 2022 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 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 (e-mail 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 25 April 2022. At the AGM a resolution will be proposed to extend the life of the Company until 2027.
Outlook
Concerns about how long the current inflationary environment will remain and how far interest rates will have to rise have unsettled the stock market despite some encouraging trading updates from companies. Analyst forecasts for growth in 2022 look quite modest, reflecting some caution about the challenges companies still face dealing with a strong bounce back in demand and well documented supply chain issues. This should leave scope for them to be upgraded as the year progresses.
The portfolio now contains 94 holdings across a range of sectors with exposure to some exciting new technologies in the environmental and healthcare sectors. Many of these have been able to raise funds for growth in the past two years leaving them well positioned to achieve their ambitions. The balance of the portfolio towards profitable companies remains, and the manager expects to find good opportunities to invest the cash as the high economic growth we are currently experiencing feeds through to an increased demand from companies for more growth capital.
Keith Mullins
Chairman
21 February 2022
Investment Manager’s Review
Introduction
It has been another volatile year as the country negotiated the disruption of a further lockdown followed by growing optimism based on the successful roll out of vaccines. The economy bounced back very strongly in 2021 although this fuelled inflationary pressures caused by constraints on supply chains and the availability of labour. This has tempered investors’ appetite for risk and has led to a weakness in some of the more highly rated shares in the portfolio despite an on-going trend to upgrade forecasts and resulted in the NAV giving up some of its earlier gains in the second half of the year. More encouragingly, despite the year under review ending with a further rise in coronavirus cases as the Omicron variant emerged, it is apparent that businesses are becoming better at coping with disruption and so the impact of each wave has been less than the original shutdown of March 2020.
In the year to 30 November 2021 AIM once again excelled itself in successfully raising capital for its constituents across the market capitalisation range. For portfolio companies this has left many well financed for future growth plans and has particularly helped many in the healthcare and technology sectors to raise money to develop new treatments and products. New issues have also returned with the pandemic highlighting the attractiveness of a public market listing for accessing growth capital.
The Alternative Investment Market
AIM trailed the other major UK indices in 2021, a reversal of the situation in 2020 when its performance had outshone the wider market. Its higher exposure to growth stocks in the software, technology and healthcare sectors counted against it as sentiment moved against highly rated growth stocks as inflationary pressures intensified, particularly in the second half. In the 12 months to November 2021 the AIM Index returned 14.0% compared with 32.3% for the FTSE Smaller Companies index (excluding investment companies) and 17.4% 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 Smaller Companies 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 interim report we highlighted the success of AIM in raising new capital for its existing members and a resurgence in the number of companies looking to float on the market. The monthly figures were stronger than the previous year in every case. In the year to 30 November 2021 AIM raised £6.8 billion of new capital for existing companies which compares to a figure of £5.1 billion the previous year.
It was really encouraging to see AIM raise a further £1.9 billion for new listings, a huge advance on the figure of £0.4 billion in each of the previous two years. Anecdotally we are still hearing about a healthy pipeline of new issues from brokers and we hope that the current buoyant state of the market continues despite some more volatile market conditions. 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 5.9p of dividends paid in the year, the NAV total return increased by 16.6%. This compares with a rise in the FTSE AIM All Share Index of 14.0%, the FTSE SmallCap (excluding investment companies) of 32.3% and in the FTSE All Share Index of 17.4% on a total return basis. It was a year characterised by individual months of significant market volatility as investors reacted to unfolding events. The first half was generally positive as bounce-back growth in the economy exceeded expectations and was generally accompanied by upgrades to what were very conservatively set forecasts against the background of another lockdown at the beginning of the period. The second half of the year was much more difficult as investors confronted rising inflationary and interest rate expectations as global economies responded to unprecedented growth in demand with all the resulting pressures on supply chains. The consensus moved from inflation being transitory to a longer term issue particularly as a steep rise in energy costs emerged as an additional factor. There was a growing acceptance that interest rates would have to rise sooner and faster than had been expected earlier in the year. This resulted in a fall in the NAV in the second half of the year as some of the higher rated shares in the portfolio came under pressure, even though the tone of statements has continued to be positive helped by a background of rapid economic growth.
Among the holdings in the pharmaceutical and healthcare sectors Ergomed had another outstanding year with analysts upgrading profits several times. It has a range of services it can offer large pharmaceutical companies including the monitoring of drugs for regulatory purposes and the conducting of drugs trials for very rare diseases. We expect the strong organic growth to continue in the current year although we did take some profits in the shares into rising prices in order to manage the overall size of the holding. EKF Diagnostics continued on its recent upgrade cycle having started 2021 with very modest forecasts in place. Other healthcare stocks had a more mixed performance as
investors tempered their previous enthusiasm for the sector and became more risk averse. Renalytix and Maxcyte which had both successfully raised money on Nasdaq and seen their shares reach new highs earlier in the year suffered in the second half as a result of the de-rating of US healthcare stocks. We had taken some profits in the holding in Renalytix and both made positive contributions to performance for the year as a whole. Animalcare also performed well with the recent improvements to the business made by management enhanced by a strong demand for veterinary products.
The biggest driver of performance continued to be companies exceeding expectations resulting in upgrades to forecasts. SDI Group benefitted from repeated orders of PCR DNA amplifiers used in testing for Covid-19 and other similar diseases and its shares reached new highs in the year. Also in scientific instruments, Judges Scientific performed very well as customer ordering resumed. In on-line consumer facing businesses Sosandar and Popsa (an unquoted investment) outstripped growth expectations and Popsa closed a new round of funding at a significantly increased valuation around the year end. On- line clothing retailer Sosandar’s tie-ups with M&S, John Lewis and Next have been going well, advancing the point of profitability. Gear4Music had started the year well but disappointed at the end of the period as a result of disruption to its supply chain. Among more traditional businesses Breedon and Vertu Motors were examples of companies whose businesses bounced back very strongly as the economy opened up with cautious forecasts significantly upgraded as a result.
Next Fifteen and TPX Impact Group have been buoyed by the need for companies and government institutions to embrace change and new ways of doing things in the light of covid challenges and Learning Technologies successfully raised money to acquire GP Strategies. The shares performed well in the year although investors have not yet factored in the potential for upgrades following the deal.
The biggest detractor from performance in the year was Ixico which we wrote about in the interim statement. It unfortunately lost a multi-million pound contract when a Phase 3 drugs trial in Huntingdon’s disease was stopped. It will take time for it to re-build its credibility. The other large detractor was Trackwise Designs which had risen to new highs on the back of a large contract from an electric bus manufacturer. The shares fell on the news that production was delayed and this meant that it had to call on investors for further funding to cover the costs of the delay. We had taken some profits but it was still one of the larger holdings when the news broke.
In the Style, an influencer led on-line fashion retailer had a disappointing profits warning towards the end of the year as it was caught up in difficulties sourcing stock in an expensive and delayed supply chain. The founder has now passed the operating reins to a new chief executive with sector experience and a more recent Christmas trading update was in line with expectations. Two other recent investments, Spectral MD and Glantus have performed in line with expectations at the time of float but their shares have been languishing in the aftermarket.
GB Group was another detractor from performance after many years of positive contributions to the movement in the NAV. It made the strategically important acquisition of US based Acuant, adding to its ability to detect identity fraud, raising £305 million in equity as well as debt to pay for it. The equity was raised at a discount and investor caution about highly rated shares has meant that they have struggled to perform since. We expect the situation to change given time and results showing the benefit of the acquisition.
Among the smaller and earlier stage companies many of them gave up earlier strong gains as the year progressed and appetite for risk waned. We had taken profits in some of these when we had considered that the share price had run too far in the short term but 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 well funded and so will have the chance to develop their technologies, many of which aim to solve climate and healthcare challenges.
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.
Our fear two years ago was that the pandemic would make raising enough finance to achieve this much harder. To the credit of AIM investors this has not turned out to be the case and even those companies that faced more difficult trading conditions have had the chance to strengthen their balance sheets.
Portfolio Activity
Having made twelve qualifying investments at a total cost of £5.3 million in the first half of the year, we added four new qualifying investments totalling £4.4 million as well as four further investments totalling £1.8 million in the second half. This made a record total investment of £11.5 million in qualifying investments for the year, a significant increase on last year’s £5.3 million, reflecting a busy AIM market for fundraisings and the resumption of new issues. Post the year end we have invested a further £4.2 million in four new qualifying companies, three of which were new issues.
Of the twelve first half investments, two were follow-ons into Cloudcall Group and The British Honey Company and four; Abingdon, In The Style, Parsley Box and Glantus, were new entrants to the AIM market. Oberon Group was admitted to the AQSE Growth market, having reversed into a fully listed cash shell. In addition we made three new qualifying investments into Evgen Pharma, Polarean and Crimson Tide, all existing AIM companies whose progress we had been watching for some time.
We invested in four new issues in the second half of the year. We invested £1.4 million into LungLife AI, a diagnostic company focused on the early detection of lung cancer from a simple blood draw enhanced by artificial intelligence. The Company has completed a pilot study to evaluate LungLB® and is now gearing up to proceed to a larger multi-center validation study ahead of seeking FDA approval for the test using the funds raised. In the same sector, we also invested £0.8 million in GENinCode. It has a portfolio of genetic tests for heart conditions which it has commercialised in Europe and is looking to take to America. The tests use artificial intelligence to predict the risk of apparently healthy individuals developing serious cardiac disease, something which is not currently available and would potentially save lives as well as healthcare costs. The third investment in that sector into a new issue was of £1.4 million into SpectralMD, a healthcare business which has developed a proprietary machine which allows practitioners to accurately determine within minutes whether a wound is likely to heal on its own, or whether treatment such as a skin graft is required. The current standard of care is often simply a visual judgement made by the practitioner. The funds raised at IPO will be deployed on a second application in diabetic foot ulcers.
The final investment in a new issues was made into a company addressing green energy solutions. We invested £0.8 million into Gelion which has developed zinc bromide batteries that are cheaper, more robust and safer than lithium-ion batteries. They are initially being targeted as a replacement for diesel generators and for green energy storage although they have many potential uses. The company has also developed some performance additives which can improve the safety and longevity of lithium- ion batteries which if they can be commercially adopted will have widespread attraction as attention focuses on the shortage of raw materials for the anticipated demand as the world electrifies. We have also made smaller follow-on investments into Ilika, Engage XR, Popsa and a larger follow-on investment into Feedback totalling £1.8 million combined.
Post period end the Company has made three further qualifying investments in AIM new issues Libertine, Strip Tinning and CPH2 as well as an investment in Velocys, an existing AIM company totalling £4.2 million. During the year we took profits into rising share prices and sold part of the holdings in Ergomed, PCI Pal, Renalytix AI, Intelligent Ultrasound, GB Group, Access Intelligence and Trackwise Communications. We also sold the entire holding in Parsley Box at a loss after a series of profit warnings as well as the entire holding of C4X Discovery after a strong performance in the shares. Vectura was subject to a successful cash takeover bid. In all disposals made a £4.0 million profit over original cost and generated £6.1 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. In the year we increased our holdings in the FP Octopus Micro-Cap and the FP Octopus Multi-Cap Income Fund as well as adding a small new holding in the FP Octopus Future Generation Fund. This strategy is designed to obtain a better return on funds awaiting investment than the very low rates available on cash. In the year under review £1.7 million was invested into the FP Octopus Multi-Cap Income Fund, £0.7 million was invested into FP Octopus Micro-Cap Fund and £0.2 million into the FP Octopus Future Generation Fund.
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 key 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 £15 million of gross assets at the time of investment and no more than £16 million immediately post investment; and
- be less than seven years old from the date of its first commercial sale (or 10 years if a knowledge intensive company) if raising State Aided (i.e. VCT) funds for the first time; and
- have raised no more than £5 million of State Aided funds in the previous 12 months and less than the lifetime limit of £12 million (or since 6th April 2018 £10 million in 12 months £20 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.
Coronavirus
Although the pandemic and its consequences remained a very real problem for individuals, companies and the economy it was noticeable in 2021 that many of them had learned to live with the challenges posed by repeated lockdowns, and more latterly the stress of sudden bounceback in demand and we have been struck by the resilience shown by the companies during what has been a particularly challenging two years. The shock of the coronavirus pandemic led many companies to concentrate on increasing the efficiency of their operations and to embrace technology. Additionally the majority of investee companies are business rather than directly consumer facing, and many have recurring revenues. When the pandemic struck, forecasts were withdrawn in many cases and then only cautiously reinstated. The result has been that expectations have been upgraded significantly as visibility has improved, supporting share prices in 2021.
Long-term responsible investing
The investment team have always been invested as long- term responsible shareholders and supported businesses in the process of improving the corporate governance structure. As part of the investment process, the team is incorporating a material risk review depending on the exposure of the underlying business where appropriate. These risks span from environmental (emissions, energy management, waste, ecological impact), social (privacy, security, product quality, selling practices), human (labour, health and safety, diversity), business model (product design, supply chain, material sourcing) to leadership (ethics, competitive behaviour, regulatory, critical incidents and risk management). The team assess the exposure and how well the company is managing these material risks. The team believes that assessing these factors allows for informed investment analysis and it forms part of the investment strategy. The Investment Manager takes its duty as a shareholder seriously and acts as a steward of capital. This includes regular engagement with the independent non-executive members of boards. The team’s stewardship and engagement policy can be found here
(https://media.octopusinvestments.com/m/519bad6a06ce2d77/original/Octopus-Quoted-Smaller-Companies-Engagement-Policy.pdf).
Outlook and Future Prospects
The increased volatility that we had begun to see at the year end has continued. After a long period when the stock market was driven by growth and momentum, investors have started to rotate into less highly rated sectors such as banks and energy as protection against rising inflation and the prospect of rather higher interest rates. This has caused the retreat of some of the more highly rated shares on AIM and contributed to the recent underperformance of the AIM Index after a very strong two years. Some individual companies have been caught out by the challenge of managing stretched supply chains and staff shortages against the background of very strong growth as the global economy has bounced back from the pandemic. More recently rapidly rising energy costs have been an additional obstacle to manage. However, for many of the already established companies in your portfolio a background of economic growth is helpful to meeting and exceeding forecasts which appear to be set conservatively at this stage of the year, particularly for those able to pass on increased costs.
The volatility we have already seen in the market since the year end has resulted in many shares now being priced well below their recent peaks and valuations are further supported by the prospect of upgrades to come. The ability of companies to raise growth capital during the pandemic has supported the case for public markets and the strong flow of AIM fundraisings in 2021 looks as though it is continuing in 2022 despite the more challenging investment backdrop. A more cautious market should provide opportunities to invest the VCT’s cash at attractive valuations. The portfolio now contains 94 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
Octopus Investments Limited
21 February 2022
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 judgments 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
Chairman
21 February 2022
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 November 2021 or 30 November 2020 but is derived from those accounts. Statutory accounts for the year ended 30 November 2020 have been delivered to the Registrar of Companies and statutory accounts for the year ended 30 November 2021 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
Income Statement
| Year to 30 November 2021 | Year to 30 November 2020 | |||||
| Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
| Gain on disposal of fixed asset investments | – | 2,123 | 2,123 | – | 433 | 433 |
| Gain/(Loss) on disposal of current asset investments | – | 33 | 33 | – | (158) | (158) |
| Gain on valuation of fixed asset investments | – | 15,662 | 15,662 | – | 17,871 | 17,871 |
| Gain on valuation of current asset investments | – | 2,304 | 2,304 | – | 1,126 | 1,126 |
| Investment income | 481 | 109 | 590 | 290 | 41 | 331 |
| Investment management fees | (493) | (1,478) | (1,971) | (334) | (1,001) | (1,335) |
| Other expenses | (653) | – | (653) | (506) | – | (506) |
| Profit/(loss) before tax | (665) | 18,753 | 18,088 | (550) | 18,312 | 17,762 |
| Tax | – | – | – | – | – | – |
| Total comprehensive income/ (loss) after tax | (665) | 18,753 | 18,088 | (550) | 18,312 | 17,762 |
| Earnings per share – basic and diluted | (0.5)p | 13.8p | 13.3p | (0.5)p | 15.5p | 15.0p |
- 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 2021 | As at 30 November 2020 | ||||
| £’000 | £’000 | £’000 | £’000 | ||
| Fixed asset investments | 100,036 | 76,695 | |||
| Current assets: | |||||
| Investments | 11,993 | 10,396 | |||
| Money Market Funds | 3,487 | 3,486 | |||
| Debtors | 185 | 120 | |||
| Cash at bank | 19,915 | 14,838 | |||
| 35,580 | 28,840 | ||||
| Creditors: amounts falling due within one year | (762) | (1,389) | |||
| Net current assets | 34,818 | 27,451 | |||
| Total assets less current liabilities | 134,854 | 104,146 | |||
| Called up equity share capital | 15 | 13 | |||
| Share premium | 54,600 | 37,758 | |||
| Capital redemption reserve | 2 | 1 | |||
| Special distributable reserve | 30,826 | 35,051 | |||
| Capital reserve realised | (4,533) | (7,492) | |||
| Capital reserve unrealised | 56,103 | 40,309 | |||
| Revenue reserve | (2,159) | (1,494) | |||
| Total equity shareholders’ funds | 134,854 | 104,146 | |||
| NAV per share – basic and diluted | 90.8p | 82.9p | |||
The statements were approved by the Directors and authorised for issue on 21 February 2022 and are signed on their behalf by:
Keith Mullins
Chairman
Company No: 05528235
Statement of changes in Equity
| Share capital | Share premium | Special distributable reserves* | Capital reserve – realised* | Capital reserve – unrealised | Capital redemption reserve | Revenue reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 December 2020 | 13 | 37,758 | 35,051 | (7,492) | 40,309 | 1 | (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 period 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) | – | (4,973) | – | – | 1 | – | (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 | (13,425) | – | – | 1 | – | 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 | 30,826 | (4,533) | 56,103 | 2 | (2,159) | 134,854 |
| Share capital | Share premium | Special distributable reserves* | Capital reserve – realised* | Capital reserve – unrealised | Capital redemption reserve | Revenue reserve* | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| As at 1 December 2019 | 11 | 47,044 | 19,423 | (8,641) | 23,146 | 1 | (944) | 80,040 |
| Comprehensive income for the year: | ||||||||
| Management fee allocated as capital expenditure | – | – | – | (1,001) | – | – | – | (1,001) |
| Current year gains on disposal | – | – | – | 275 | – | – | – | 275 |
| Current period gains on fair value of investments | – | – | – | – | 18,997 | – | – | 18,997 |
| Capital investment income | – | – | – | 41 | – | – | – | 41 |
| Loss after tax | – | – | – | – | – | – | (550) | (550) |
| Total comprehensive income for the year | – | – | – | (685) | 18,997 | – | (550) | 17,762 |
| Repurchase and cancellation of own shares | – | – | (2,710) | – | – | – | – | (2,710) |
| Issue of shares | 2 | 15,027 | – | – | – | – | – | 15,029 |
| Share issue costs | – | (908) | – | – | – | – | – | (908) |
| Dividends paid | – | – | (5,067) | – | – | – | – | (5,067) |
| Total contributions by and distributions to owners | 2 | 14,119 | (7,777) | – | – | – | – | 6,344 |
| Other movements: | ||||||||
| Cancellation of share premium | – | (23,405) | 23,405 | – | – | – | – | – |
| Prior years’ holding gains now realised | – | – | – | 1,834 | (1,834) | – | – | – |
| Total other movements | – | (23,405) | 23,405 | 1,834 | (1,834) | – | – | – |
| Balance as at 30 November 2020 | 13 | 37,758 | 35,051 | (7,492) | 40,309 | 1 | (1,494) | 104,146 |
* Included within these reserves is an amount of £24,134,000 (2020: £26,065,000) which is considered distributable to shareholders.
Cash Flow Statement
| Year to 30 November 2021 £’000 | Year to 30 November 2020 £’000 | |
| Cash flows from operating activities | ||
| Profit/(loss) on ordinary activities before tax | 18,088 | 17,762 |
| Adjustments for: | ||
| (Increase)/decrease in debtors | (65) | 14 |
| Increase in creditors | 173 | 437 |
| Gain on disposal of fixed assets | (2,123) | (433) |
| (Gain)/loss on disposal of current asset investments | (33) | 158 |
| Gain on valuation of fixed asset investments | (15,662) | (17,871) |
| Gain on valuation of current asset investments | (2,304) | (1,126) |
| Non-cash distributions | (109) | (41) |
| Cash used in operations | (2,035) | (1,100) |
| Income taxes paid | – | – |
| Net cash used in operating activities | (2,035) | (1,100) |
| Cash flows from investing activities | ||
| Purchase of fixed asset investments | (12,332) | (4,518) |
| Proceeds from sale of fixed asset investments | 6,085 | 5,214 |
| Purchase of current asset investments | (2,620) | (2,471) |
| Proceeds from sale of current asset investments | 3,360 | 9,500 |
| Total cash flows (used in)/from investing activities | (5,507) | 7,725 |
| Cash flows from financing activities | ||
| Purchase of own shares | (4,973) | (2,710) |
| Share issues | 26,086 | 14,104 |
| Share issue costs | (1,683) | (908) |
| Dividends paid net of DRIS | (6,810) | (4,142) |
| Total cash flows from financing activities | 12,620 | 6,344 |
| Increase in cash and cash equivalents | 5,078 | 12,969 |
Opening cash and cash equivalents | 18,324 | 5,355 |
| Closing cash and cash equivalents | 23,402 | 18,324 |
Closing cash and cash equivalents is represented by: | ||
| Cash at bank | 19,915 | 14,838 |
| Money market funds | 3,487 | 3,486 |
| Total cash and cash equivalents | 23,402 | 18,324 |
For further information please contact:
Uloma Adighibe
Octopus Company Secretarial Services Limited
Tel: 44 (0) 20 3935 4186
