TIDMOOA
Octopus AIM VCT plc
Final Results
27 May 2021
Octopus AIM VCT plc, managed by Octopus Investments Limited, today
announces the final results for the year ended 28 February 2021.
These results were approved by the Board of Directors on 27 May 2021.
You may view the Annual Report in full at
https://www.globenewswire.com/Tracker?data=9Cw1vvL8UmQC1ndOMXNYWyPP7-qVC0K5sSnWBAIPRGLPUfDgusVkHiI7z7yz7ltyex9sp2or3bTDX6cEzgAiXWh8r2y_yvSAS7erNHYgvrcyViszl6qe_LAefHTiQI9w
www.octopusinvestments.com in due course. All other statutory
information will also be found there.
Financial Summary
28 February 2021 29 February 2020
-------------------------------------- ---------------- ----------------
Net assets (GBP'000) 182,156 115,110
Profit after tax (GBP'000) 50,850 992
Net asset value ("NAV") per share (p) 124.7 93.3
Dividends per share paid in year (p) 5.5 9.0
Total return (%) * 39.5 1.3
Final dividend proposed (p)** 3.5 3.0
Special dividend proposed (p)** 2.5 -
Total ongoing charges (%)*** 1.7 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 and special dividend will be paid on 13 August 2021 to
shareholders on the register on 9 July 2021.
***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 the Octopus AIM VCT for the
year ended 28th February 2021. I would like to welcome all new
shareholders who have joined in the year.
It has been an extraordinary year, beginning just as serious concerns
about a new strain of coronavirus, which had emerged from China and was
spreading in Europe were gathering pace. Subsequent events have had an
impact on peoples' lives, jobs and the wider economy as well as on stock
market sentiment both here and around the world.
A total lockdown of our economy in March to protect the National Health
Service and to save lives was accompanied by a sharp fall in stockmarket
indices which only started to stabilise once our government, in common
with others around the world indicated that they were prepared to
intervene in any way necessary to contain the financial impact of the
pandemic. This was a signal for share prices to start to recover and
although there remained volatile months, indices continued to rise
despite the Government being forced to lock down again when further
waves of the disease hit in November and January.
In the year under review AIM has raised GBP6.2 billion of further and
new capital for companies, a sharp increase on the GBP3.7 billion raised
in the previous year. It was really encouraging to see existing AIM
companies successfully raising funds to see them through the crisis,
emphasising the advantages of a public market listing. Unsurprisingly
the number of new issues remained below average although our investment
manager has reported a significant uptick since the start of 2021 with
more new companies looking to come to public markets in the next six
months. Against this background Octopus AIM VCT made GBP9.6 million of
VCT qualifying investments in the period.
In the year under review, the Company raised GBP27.8 million net of
costs through the issue of new shares and continued to buy back shares
from shareholders wishing to sell.
Performance
Adding back the 5.5p of dividends paid out in the year, the NAV per
share total return was a pleasing +39.5%. To provide context in the same
twelve months the FTSE AIM All-Share Index rose by 39.3%, the FTSE
SmallCap (excluding investment companies) Index rose by 21.5% and the
FTSE All-Share Index rose by 3.5%, 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 Manager's review. The need for businesses to adhere to
lockdown rules has meant that individual company performances have been
even more polarised than usual, although the portfolio's relatively high
exposure to the software, environmental and healthcare sectors has
provided a significant boost to returns. The purpose of a VCT is to
provide capital for small growth companies and 2020 has seen strong
performance from those exposed to the new economy which make up a
significant proportion of our investment portfolio.
Further details of performance are contained in the Investment Manager's
Review.
Dividends
In January 2021 an interim dividend of 2.5p was paid to all shareholders
in addition to the 3.0p final dividend for the prior year that had been
paid in August 2020. The Board has considered the level of dividend in
the context of recent share price movements and on this occasion has
chosen to raise the final dividend to 3.5p. In addition, as a result of
a number of partial and full disposals of holdings at a profit during
the year the board is proposing a special dividend of 2.5p which will be
paid at the same time as the final dividend, giving a total payment for
the year of 8.5p. This represents a 7.1% yield based on the share price
of 119.5p on 28 February 2021. The Board hopes to be able to continue to
pay a minimum of 2.5p each half year and to adjust the final dividend
annually, based on the year end share price, so that shareholders
receive either 5p per annum or a 5% yield, whichever is the greater at
the time.
Cancellation of Share Premium Account
At the last General Meeting, shareholders voted to cancel share premium
to create a pool of distributable reserves to the amount of GBP35.4
million. This is a regular occurrence to enable the continued payment of
dividends and buyback of shares. A further resolution to cancel share
premium is being proposed at this year's Annual General Meeting.
Dividend Reinvestment Scheme
In common with many other VCTs in the industry, the Company has
established a Dividend Reinvestment Scheme ("DRIS"). Some shareholders
have already taken advantage of this opportunity. For investors who do
not require income, but value the additional tax relief on their
reinvested dividends, this is an attractive scheme and I hope more
shareholders will find it useful. In the course of the year 1,328,650
new shares have been issued under this scheme, returning GBP1.4 million
to the Company. The final dividend referred to above will be eligible
for the DRIS.
Share Buybacks
During the year to 28 February 2021 the Company continued to buy back
and cancel shares in the market from selling shareholders and purchased
3,867,733 Ordinary shares for a total consideration of GBP3.9 million.
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.
Board Changes
At the time of the interim results I welcomed Andrew Boteler who joined
the board in March 2020 and whose election was ratified by shareholders
at the Annual General Meeting in July. I should now like to announce
that after serving on this board since the company was launched in 1998
and as Chairman since 2016 it is now time for me to retire, and I shall
not be offering myself for reelection at the forthcoming AGM. I am very
pleased to announce that Neal Ransome, who has been a board member since
2016 is to take over as Chairman and Andrew Boteler will chair the audit
committee.
Share Issues
During the year 9,686,020 shares were issued under the fundraise that
launched on 29 November 2019 and closed on 27 February 2020 raising GBP9
million after costs.
On 20 August 2020, a prospectus offer was launched alongside Octopus AIM
VCT 2 plc to raise a combined total of up to GBP20 million with a GBP10
million over allotment facility. This prospectus closed to further
applications on 30 November 2020. 15,501,587 shares were issued in the
current period, raising GBP17.2 million after costs.
VCT Status
PricewaterhouseCoopers LLP ("PwC") provides the Board and Investment
Manager with advice concerning continuing compliance with HMRC
regulations for VCTs. The Board has been advised that Octopus AIM VCT
remains in compliance with conditions laid down by HMRC for maintaining
approval as a VCT. From 1 March 2020 a key requirement is to maintain at
least an 80% qualifying investment level, up from the previous level of
70%. As at 28 February 2021 91.8% of the portfolio as measured by HMRC
rules was invested in qualifying investments.
Annual General Meeting ("AGM")
The AGM will take place on 22 July 2021 at 11:45am. In light of the UK
government's public health guidelines on the Coronavirus pandemic and
the interests of the safety and wellbeing of our shareholders, this
year's AGM will be run as a closed meeting and shareholders will not be
able to attend in person. However, we intend to host a virtual
shareholder event on the same day as the AGM so that shareholders
receive an update from the Investment Manager and can ask the Board and
the Investment Manager questions. We would encourage all shareholders to
submit their votes for the closed AGM via proxy as there will be no
opportunity to vote in person. If you have a question you wish to submit
to the virtual shareholder event then please send these via email to
AimAGM@octopusinvestments.com by 5.00pm on 17 July 2021.
Further information can be found in the Directors' Report and Notice of
Annual General Meeting.
Formal notices will be sent to shareholders by their preferred method
(e-mail or post).
At the AGM a resolution will be proposed to extend the life of the
Company until 2027 in order to preserve its VCT status for the benefit
of both existing shareholders and new investors who are participating in
the latest offer.
Outlook
The recovery in share prices from their lows in March 2020 has continued
with remarkably few setbacks given the seriousness of the pandemic and
the need for further lockdowns. The conclusion of a Brexit deal removed
some of the uncertainty which had overshadowed the UK market for some
time and left shares looking relatively undervalued compared with their
international competitors. A much quicker than anticipated roll out of
vaccines in the UK has further buoyed share prices as investors are now
looking through the pandemic as the economy starts to open up again,
although there is a note of caution about whether this will lead to
inflation.
The portfolio now contains 86 holdings across a range of sectors with
exposure to some exciting new technologies in the software,
environmental and healthcare sectors. Many of these have been able to
raise funds for growth in the past year leaving them well positioned to
achieve their ambitions. The balance of the portfolio towards profitable
companies remains, and the investment Manager expects to continue to
find good opportunities to invest the cash as a recovery in confidence
sustains the current increased demand from companies for more growth
capital.
Roger Smith
Chairman
27 May 2021
Investment Manager's Review
Introduction
It feels extraordinary to be reporting such a very strong appreciation
in the NAV total return in what was a very turbulent year to 28 February
2021. The year started with the stockmarket already in freefall as the
severity of the coronavirus pandemic was becoming apparent. This forced
our government in common with others around the world to shut down
economic activity to protect healthcare systems and save lives. More
encouragingly, policies were then put in place to alleviate the worst of
the short term social and economic damage wreaked by the virus. Even
though individual volatile months followed, the market steadily
recovered from its March lows once the economy demonstrated its
potential to bounce back as restrictions were eased over the summer.
Although we were locked down again in November amid rising cases, the
share prices had started to look through the disastrous economic
performance in the second quarter of 2020 and hope for better conditions
with fewer restrictions to follow. The approval of the first vaccines
and a rapid start to rolling them out as well as a Brexit deal achieved
at the final deadline all helped sentiment as investors focused on the
relative under-valuation of UK assets rather than renewed lockdown
measures introduced in January.
In the year to 28 February 2021 AIM excelled itself by successfully
raising new 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. The Company has deployed existing cash
throughout the year as well as raising GBP27.8 million net of costs for
future investments.
Changes to the Board of Directors
You will see from the Chairman's statement that Roger Smith, chairman
since 2016 and audit chair before that is not seeking re-election at the
AGM. Roger has been a member of the board of the VCT since its inception
in 1998 and we as managers would like to extend our thanks to him on
behalf of the board and shareholders for all his many years working on
our behalf. We have particularly valued his experience and advice and
welcomed his robust challenges over the years. We wish him well in his
retirement.
The Alternative Investment Market
AIM was the best performing UK index in the period, reflecting a higher
exposure to growth stocks in the software, technology and healthcare
sectors than the wider market. In the twelve months to February 2021 the
AIM Index returned 39.3%, well ahead of the Smaller Companies Index
(ex-Investment Trusts) which returned a positive 21.5%. The FTSE
All-Share Index only achieved a much more modest positive return of 3.5%
over the same period, reflecting a much higher weighting in some of the
more traditional sectors of the economy including banks, traditional
retailers and manufacturing companies.
In the interim report we highlighted the success of AIM in raising new
capital for its existing members. In the four months from April onwards
we saw a steady procession of companies of all sizes successfully
raising money to help with pandemic costs and for growth. You can see on
the bar chart below that there was a brief lull in fundraisings in
August and September and then a stronger finish to the year. In the
twelve months to 28 February 2021 AIM raised a further GBP5.7 billion of
new capital for existing companies which compares to a figure of GBP3.2
billion the previous year.
Given the background it was not really surprising that AIM raised only
GBP0.5 billion for new companies floating on the market, the same as the
previous year which had been overshadowed by Brexit uncertainty. More
recent trends have been stronger and anecdotally we are hearing about a
healthy pipeline of prospective new entrants from brokers which should
be underpinned by a more buoyant market. VCTs play a significant part in
the funding process and we identify below the companies we have invested
in during the second half of the year.
Performance
Adding back the 5.5p of dividends paid during the year to show the total
return, the NAV increased by 39.5% in the year (2020: 1.3% increase).
This compares with a total return for the for the FTSE AIM All-Share
Index of +39.3%, the FTSE SmallCap Index ex-Investment Trusts of +21.5%,
both of which were well ahead of the FTSE All-Share Index which returned
a more modest +3.5%. It was a year characterised by individual periods
of significant market volatility as investors reacted to unfolding
events. Initially share prices fell across the board as the seriousness
of the pandemic became apparent and people and companies concentrated on
the immediate priorities of keeping themselves and their employees safe.
Once the dust had settled, investors quickly focused their attention on
those companies showing resilience and balance sheet strength as well as
those with an opportunity to capitalise on new opportunities thrown up
by the pandemic. This meant that performance was more than ever
dominated by stock specific factors.
Among the holdings in the pharmaceutical and healthcare sectors Ergomed
had an outstanding year. Profit expectations were upgraded several times
as it managed to replace some delayed cancer trials with some trials for
Covid-19 drugs fairly early on in the pandemic. It has a range of
services it can offer large pharmaceutical companies including the
monitoring of drugs for adverse events and conducting drugs trials for
very rare diseases. We expect the strong organic growth to continue in
the current year.
Another healthcare stock, EKF Diagnostics also performed extremely well,
achieving a series of upgrades to forecasts. Like Ergomed, some of its
business was negatively impacted by Coronavirus related delays to orders
as doctors saw fewer patients and conducted fewer point of care
diagnostic tests. However, this was more than made up for orders for
Primestore MTM, a Coronavirus sample collection device which has been in
strong demand and has generated profits and cash for the Group. Maxcyte,
which has developed an instrument which can produce cells safely in
large volumes for cell therapy, again saw increased demand for its
instruments which have now moved decisively out of the research lab and
are being used to develop treatments in the clinic. Forecasts have been
upgraded several times and the shares have performed exceptionally well
for the VCT. It has announced an intention to seek a dual listing on
Nasdaq.
Some of the smaller stocks in the healthcare sector also did very well,
helped by much warmer investor attitude towards those needing funding.
This has left many of them with cash on the balance sheet and therefore
far better equipped for potential success than previous years.
Intelligent Ultrasound successfully raised further funds and although
its sales of training simulators dipped as a result of the pandemic its
software has now been designed into a GE ultrasound machine. It also
developed a lung module for use in the Coronavirus pandemic. Verici Dx
followed Renalytix AI as a spin-out from EKF Diagnostics, raising
finance on AIM. Both shares have done well in the year.
Other portfolio companies benefitted from their exposure to the new
economy. The best performing of these was Trackwise Designs which signed
a substantial contract with an electric vehicle manufacturer to use its
improved harness technology which can also be designed into medical
equipment and aircraft to save weight and space. Ilika, which is
developing and starting to supply solid state batteries also performed
well and both companies successfully raised funds in 2020.
Events forced many companies and individuals to change the way that they
operate. In different ways Gear4Music whose high street competition was
unable to open their shops in a year when demand for musical instruments
was strong, Panoply Holdings which specialises in helping the public
sector to embrace efficient ways of working in a digital world and
Hasgrove which saw a strong demand for its intranet solution for
internal communications were all beneficiaries. GB Group was another
strong performer and remains one of the largest holdings in the
portfolio even after taking significant profits in the year. Where a
company is established and has grown in size we will continue to hold
the shares if we still believe it has the capacity to grow further on a
medium term time horizon. This helps to balance the portfolio as newly
raised cash is invested in earlier stage companies which could take some
time to achieve profitability.
A few portfolio companies suffered from pandemic related headwinds which
resulted in poor share price performances. Quixant, held back in 2019 by
the loss of market share of its largest customer was further impacted in
2020 by the closure of its customer base during lockdown. Sales in this
division are now stable and it has some exciting new products for the
broadcasting sector and a strong balance sheet. Equals Group suffered
from a loss of currency trades from tourists using its platform to
exchange money. We sold the shares at a loss. Velocity Composites and
Mycelx have customers in sectors badly impacted by the pandemic and its
economic consequences and so have faced a challenging year. Breedon
Group had to cease trade completely in March 2020 although it was
allowed to operate in the subsequent lockdowns and we expect demand to
rebound strongly in 2021 as the government looks to increase capital
spending on building projects. Its shares have therefore already
recovered well.
Those consumer facing companies forced to shut faced significant
challenges. Vertu Motors was able to adapt relatively swiftly to an
on-line world and was helped by being able to keep its workshops open in
recent lockdowns. This was not possible for Escape Hunt or Tasty which
have only recently been able to start trading again. The VCT does not
have a high exposure to consumer facing businesses.
Several portfolio companies found it harder to sell to customers during
the pandemic. Adept Telecom's share price suffered from lacklustre
figures held back by a decline in demand for on premise telephony
solutions adding to the longer term decline of its voice and lines
business. However, other areas did well, particularly its connectivity
services to London schools. We expect growth to accelerate now that this
is no longer a significant part of the business. Restore was also
impacted by lockdown which left offices empty and recycling services
demand lower. Mattioli Woods and Brooks Macdonald had their revenues
impacted by lower market valuations on which revenue is calculated and
the difficulty of winning new clients while the country was in lockdown.
Among the smaller software holdings Osirium, Falanx and DXS all reported
similar problems accessing customers and closing deals.
Investing for a VCT involves backing companies when they are still at a
very early stage of development and share price progress depends on them
being noticed by a wider pool of investors as they grow over time. This
quite often takes longer than first expected and they remain potentially
vulnerable until they become profitable and self-financing. Our fear in
April 2020 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 which have faced more
difficult trading conditions have in many cases emerged with stronger
balance sheets in 2021.
Although the earlier stage companies in the portfolio represent a
relatively small proportion by value we expect them to contribute to
future performance as their businesses gather momentum. In the year
under review there were some examples of companies that demonstrated
that they had started to achieve that resulting in share price
outperformance. Examples included Ixico, SDI Group, PCI Pal, Synairgen
and Renalytix AI. The last of these was spun out of the holding in EKF
Diagnostics since when it has made better than expected progress with
its commercialisation strategy for its kidneyintelx test in the US as
well as achieving a Nasdaq listing.
Portfolio Activity
Having made eleven qualifying investments at a total cost of GBP5.8
million in the first half of the year, we added seven further qualifying
holdings at a cost of GBP3.8 million in the second half. A total of
GBP9.6 million was well ahead of the GBP6.3 million invested in the
previous year, and the momentum has continued since the year end with a
further GBP5.7m of investments committed in a busy AIM market for
fundraisings.
In the second half we invested GBP1.4 million in three new issues, two
of which Verici Dx and Abingdon Health were on AIM and the third of
which Oberon Investments was listed on the AQSE Growth market. Verici Dx
was another spin out from EKF Diagnostics following the success of
Renalytix AI. It has two tests for use on kidney transplant patients.
The money has been raised to conduct clinical trials which are expected
to show that these tests improve the outcome for patients as well as
enabling a more precise prescription of anti-rejection drugs following
each transplant. Abingdon Health has built the capability to produce
lateral flow tests on a large scale, helped by an initial government
order for Covid-19 antibody tests. It expects to be able to develop a
domestic market for lateral flow test production as the pandemic exposed
the weakness of relying solely on offshore suppliers. Oberon Investments
is a small investment management company with ambitious growth plans.
The money raised from VCTs is being used to develop a corporate advisory
arm to the business.
We also made three follow-on investments in the second half with a total
value of GBP2.1 million. The investment in Popsa was modest to fund the
ongoing strong growth of its photo book business. Sales have exceeded
forecasts and the valuation has been written up with this round although
we still hold it at a 20% discount to the fundraise price to reflect the
fact that it is a private company. The investment into Reneuron was more
substantial. It has focused its resources on getting approval for its
treatment for Retinisis Pigmentosa, for which most sufferers cannot be
treated leaving them to eventually go blind. Some significant clinical
trial results are expected over the next twelve months, and the company
is now financed well into 2022. We also made a second investment into
the British Honey Company. It has recently acquired another distillery
with some established contracts and brands. Our investment is to
increase its canning capacity and set the business up for further
growth.
We made one further new investment of GBP0.3 million in a small private
company called The Food Marketplace. It operates a platform on which
specialist food vendors can market their products to customers. It has
been growing very rapidly and we believe the management team has
exciting plans to keep the momentum going as lockdown of the retail
economy eases.
The non-qualifying element of the equity portfolio comprises the funds
raised in share offers awaiting deployment into qualifying investments.
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. More recently we
have reduced the size of our holdings in the Octopus Managed Portfolios
(OPM) as we have made qualifying investments and increased our holdings
in the FP Octopus Micro-Cap and the FP Octopus Multi-Cap Income Fund
with the result that we now no longer have a position in the OPM funds.
This strategy is designed to obtain a better return on funds awaiting
investment than the very low rates available on cash and in the year we
have seen this to be the driver of positive value growth. In the period
under review GBP2.7 was invested in the FP Octopus Multi-Cap Income Fund
and GBP2.3m into the FP Octopus Micro-Cap. A net divestment of GBP17.4m
was made from the OPM funds.
During the year we took profits on rising share prices and sold part of
the holdings in Ergomed, Gamma, GB Group, LoopUp, Access Intelligence,
Ilika, Synairgen, Trackwise Designs and VR Education as well as
disposing of the entire C4X Discovery and Omega Diagnostic holdings, all
at a profit. Cello Health was sold as the result of a takeover bid and
the entire holding in Equals Group was sold at a loss after a series of
profit warnings. In all disposals raised GBP10.7 million in cash and
made an aggregated profit on original cost of GBP4.8 million. We will
continue to take profits in holdings when they become a large percentage
of the portfolio with the proceeds financing dividends.
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 any funds raised after 6 April 2019 should
be 30% invested in qualifying holdings within 12 months of the end of
the accounting period in which the shares were issued, and for financial
years beginning after 6 April 2019 the portfolio will also have to
maintain a minimum of 80% invested at cost in qualifying holdings. We
are determined to maintain a threshold of quality and to invest where we
see the potential for returns from growth. However, the emphasis of the
new regulations is definitely to encourage investment into earlier stage
companies and to that extent, it seems likely over a number of years,
that the portfolio will see a rise in the number of smaller companies
receiving our initial investment. We would expect to invest further in
those companies as they demonstrate their ability to grow.
At present there has been little 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;
-- have less than GBP15 million of gross assets at the time of
investment and no more than GBP16 million immediately post investment;
-- be less than seven years old from the date of their first commercial
sale (or 10 years if a knowledge intensive company) if raising State
Aided (ie VCT) funds for the first time;
-- have raised no more than GBP5 million of State Aided funds in the
previous 12 months and less than the lifetime limit of GBP12 million (or
from 6 April 2018 GBP10 million in 12 months and a GBP20 million
lifetime limit if a knowledge intensive company); and
-- produce a business plan to show that the funds are being raised for
growth and development.
Long-term responsible investing
The investment team has always 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 management 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 is taking its duty as a shareholder
seriously and acting 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-SmallerCompanies-Engagement-Policy.pdf)
Coronavirus
The team has continued to work from home for much of the year, operating
business as usual, holding meetings with companies and reporting back to
your Board on developments within the portfolio on a regular basis.
Reflecting on the underlying portfolio we have been struck by the
resilience shown by the companies during what has been a particularly
challenging year. The shock of the Coronavirus pandemic led many of them
to concentrate on increasing the efficiency of their operations and to
embrace new technology. Additionally the majority of our holdings are
business rather than directly consumer facing, and many have recurring
revenues and are exposed to sectors of the economy which are benefitting
from change. When the pandemic struck, forecasts were withdrawn in many
cases and then only cautiously reinstated. The result has been that
expectations have been upgraded as visibility has improved, supporting
rising share prices.
We wrote in last years accounts about our initial concerns about company
balance sheets and funding for those companies yet to reach
profitability. The willingness of investors to invest money during the
pandemic has meant that many companies are now more strongly positioned
than they were entering the pandemic and their longer term chances of
succeeding in their growth plans have therefore improved despite having
to endure difficult trading conditions in the short term.
Outlook and Future Prospects
A year ago we wrote that the uncertainty caused by the Coronavirus
pandemic made predictions of any sort almost impossible. In addition,
the US was in an election year and Brexit still needed to be settled.
Today we have left the EU with a deal, the US has produced a result
which ought to provide a more stable environment for global trade and an
ongoing roll out of vaccines brings hope that the Coronavirus pandemic
can be brought under control. The short term social and economic damage
caused by the virus is obvious to all, however, economists have reasons
to be more upbeat about the future. A combination of the policy support
from governments around the world, the easing of global trade tensions,
the growing strength of corporate balance sheets and the spike in the
consumer savings ratio could all contribute to a significant pick up in
spending and growth later in the year.
We believe that the recent market strength points to a return of
investor confidence in UK assets now that Brexit talks are concluded
which should be a trigger for the valuation discount to overseas markets
to continue to close. Companies, which had been understandably cautious
about the path out of lockdown have started to resume guidance on
forecasts, many of which have already been raised in 2021 with the
prospect of further upgrades to come as long as the recovery continues.
This, together with the re-appearance of takeover bids for companies
should provide support for share prices. This is despite the looming
threat from inflation and its potential impact on equity valuations, the
presence of which has started to be felt in particular by very highly
rated US technology stocks. More positively, the new issues market has
been stronger so far in 2021 supplementing the secondary fundraising
market which remained healthy throughout the volatile months of 2020.
The portfolio's strength is that it is well diversified both in terms of
sector exposure and in terms of individual company concentration. It now
contains 86 holdings with investments across a range of sectors
including healthcare and technology and the balance of the portfolio
towards profitable companies remains. Encouragingly, as a result of
successful fundraises in 2020 a high proportion of the unprofitable
companies in the portfolio are now well financed to execute on their
growth ambitions. The VCT currently has funds available for the many new
investment opportunities that are presenting themselves as well as
enabling us to support existing portfolio companies where we can. We
remain selective when viewing prospective new investments, and have so
far made seven qualifying investments in the new financial year.
The AIM Team
Octopus Investments Limited
27 May 2021
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and
Accounts in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors are required to
prepare the financial statements and have elected to prepare the
Company's Financial Statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law) including FRS 102 -- "The Financial
Reporting Standard applicable in the UK and Republic of Ireland". Under
company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss for the
Company for that period.
In preparing these Financial Statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and
prudent;
-- state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the
Financial Statements;
-- prepare the Financial Statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business;
and
-- prepare a Strategic Report, a Director's Report and Director's
Remuneration Report which comply with the requirements of the Companies
Act 2006.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions and
disclose with reasonable accuracy at any time the financial position of
the Company and enable them to ensure that the Financial Statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for ensuring that the annual report and
accounts, taken as a whole, are fair, balanced, understandable and
provide the information necessary for shareholders to assess the
Company's position and performance, business model and strategy.
Website Publication
The Directors are responsible for ensuring the Annual Report and the
Accounts are made available on a website. Financial statements are
published on the Company's website in accordance with legislation in the
United Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is the responsibility
of the Directors. The Directors' responsibility also extends to the
ongoing integrity of the Financial Statements contained therein.
Directors' responsibilities pursuant to Disclosure Guidance and
Transparency Rules 4 (DTR4)
Roger Smith (Chairman), Stephen Hazell-Smith, Joanne Parfrey Neal
Ransome and Andrew Boteler, the Directors, confirm to the best of their
knowledge that:
-- the financial statements have been prepared in accordance with the
Financial Reporting Standard applicable in the United Kingdom and
Republic of Ireland ("FRS 102") and give a true and fair view of the
assets, liabilities, financial position and profit and loss of the
Company; and
-- the Annual Report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties
that it faces. For and on behalf of the Board
Roger Smith
Chairman
27 May 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 28 February 2021 or 29
February 2020 but is derived from those accounts. Statutory accounts for
the year ended 29 February 2020 have been delivered to the Registrar of
Companies and statutory accounts for the year ended 28 February 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. The text of the Auditor's reports can be
found in the Company's full Annual Report and Accounts at
www.octopusinvestments.com
Income Statement
Year to 28 February 2021 Year to 29 February 2020 Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- -------- ------- ------- ----------
Gain on
disposal of
fixed asset
investments - 4,361 4,361 - 349 349
Gain on
disposal of
current asset
investments - 58 58 - 382 382
Gain on
valuation of
fixed asset
investments - 44,908 44,908 - 505 505
Gain on
valuation of
current asset
investments - 3,655 3,655 - 1,507 1,507
Investment
Income 472 51 523 776 36 812
Investment
management
fees (487) (1,461) (1,948) (482) (1,445) (1,927)
Other expenses (707) - (707) (636) - (636)
---------------- -------- -------- -------- ------- ------- ----------
Profit/(loss)
before tax (722) 51,572 50,850 (342) 1,334 992
Tax - - - - - -
---------------- -------- -------- -------- ------- ------- ----------
Total
comprehensive
income/(loss)
after tax (722) 51,572 50,850 (342) 1,334 992
---------------- -------- -------- -------- ------- ------- ----------
Earnings per
share --
basic and
diluted (0.5)p 37.9p 37.4p (0.3)p 1.1p 0.8p
-- 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 28 February 2021 As at 29 February 2020
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- ----------- ------------ ----------
Fixed asset investments 129,915 81,699
Current assets:
Investments 16,212 24,859
Money market funds 1,326 1,324
Debtors 1,864 78
Applications cash* 162 16,456
Cash at bank 33,724 7,911
-------------------------- ----------- ----------- ------------ ----------
53,288 50,628
Creditors: amounts
falling due within one
year (1,047) (17,217)
-------------------------- ----------- ----------- ------------ ----------
Net current assets 52,241 33,411
-------------------------- ----------- ----------- ------------ ----------
Total assets less
current liabilities 182,156 115,110
-------------------------- ----------- ----------- ------------ ----------
Called up equity share
capital 1,461 1,234
Share premium 57,966 65,883
Capital redemption
reserve 173 134
Special distributable
reserve 67,477 43,630
Capital reserve realised (21,945) (26,719)
Capital reserve
unrealised 78,169 31,371
Revenue reserve (1,145) (423)
-------------------------- ----------- ----------- ------------ ----------
Total equity
shareholders' funds 182,156 115,110
-------------------------- ----------- ----------- ------------ ----------
NAV per share -- basic 124.7p 93.3p
and diluted
*Cash held but not yet allotted
The statements were approved by the Directors and authorised for issue
on 27 May 2021 and are signed on their behalf by:
Roger Smith
Chairman
Company number: 03477519
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 March 2020 1,234 65,883 134 43,630 (26,719) 31,371 (423) 115,110
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Comprehensive income for the year:
Management fee allocated as capital
expenditure - - - - (1,461) - - (1,461)
Current year gains on disposal - - - - 4,419 - - 4,419
Current period gains on fair value
of investments - - - - - 48,563 - 48,563
Capital investment income - - - - 51 - - 51
Loss after tax - - - - - - (722) (722)
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total comprehensive income for the
year - - - - 3,009 48,563 (722) 50,850
Contributions by and distributions
to owners:
Repurchase and cancellation of own
shares (39) - 39 (3,940) - - - (3,940)
Issue of shares 266 29,347 - - - - - 29,613
Share issue costs - (1,842) - - - - - (1,842)
Dividends paid - - - (7,635) - - - (7,635)
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total contributions by and
distributions to owners 227 27,505 39 (11,575) - - - 16,196
Other movements:
Cancellation of share premium - (35,422) - 35,422 - - - -
Prior years' holding gains now
realised - - - - 1,765 (1,765) - -
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total other movements - (35,422) - 35,422 1,765 (1,765) - -
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Balance as at 28 February 2021 1,461 57,966 173 67,477 (21,945) 78,169 (1,145) 182,156
----------------------------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
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 March
2019 1,213 81,368 94 36,592 (28,999) 32,317 (81) 122,504
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Comprehensive
income for the
year:
Management fee
allocated as
capital
expenditure - - - - (1,445) - - (1,445)
Current year
gains on
disposal - - - - 731 - - 731
Current period
gains on fair
value of
investments - - - - - 2,012 - 2,012
Capital
investment
income - - - - 36 - - 36
Loss after tax - - - - - - (342) (342)
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total
comprehensive
income for
the year - - - - (678) 2,012 (342) 992
Contributions
by and
distributions
to owners:
Repurchase and
cancellation
of own
shares (40) - 40 (3,829) - - - (3,829)
Issue of
shares 61 6,454 - - - - - 6,515
Share issue
costs - (295) - - - - - (295)
Dividends paid - - - (10,777) - - - (10,777)
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total
contributions
by and
distributions
to owners 21 6,159 40 (14,606) - - - (8,386)
Other
Movements:
Cancellation
of share
premium - (21,644) - 21,644 - - - -
Prior years'
holding gains
now realised - - - - 2,958 (2,958) - -
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Total other
movements - (21,644) - 21,644 2,958 (2,958) - -
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
Balance as at
29 February
2020 1,234 65,883 134 43,630 (26,719) 31,371 (423) 115,110
-------------- ------------- ------------- -------------------------- ------------------------------- ---------------------------- ----------------------------- ---------------- --------
*Included in these reserves is an amount of GBP44,387,000 (2020:
GBP16,488,000) which is considered distributable to shareholders.
Cash Flow Statement
Year to 28 February Year to 29 February
2021 2020
GBP'000 GBP'000
------------------------------------- ------------------- -------------------
Cash flows from operating activities
Profit before tax 50,850 992
Adjustments for:
Increase in debtors (114) (7)
Increase/(decrease) in creditors 123 (84)
Gain on disposal of fixed asset
investments (4,361) (349)
Gain on disposal of current asset
investments (58) (382)
Gain on valuation of fixed asset
investments (44,908) (505)
Gain on valuation of current asset
investments (3,655) (1,507)
Non-cash distributions (51) -
------------------------------------- ------------------- -------------------
Cash from operations (2,174) (1,842)
Income taxes paid - -
------------------------------------- ------------------- -------------------
Net cash generated from operating
activities (2,174) (1,842)
------------------------------------- ------------------- -------------------
Cash flows from investing activities
Purchase of fixed asset investments (9,638) (6,236)
Proceeds from sale of fixed asset
investments 9,070 7,062
Purchase of current asset investments (5,040) (1,118)
Proceeds from sale of current asset
investments 17,400 7,000
------------------------------------- ------------------- -------------------
Net cash flows from investing
activities 11,792 6,708
------------------------------------- ------------------- -------------------
Cash flows from financing activities
Movement in applications account (16,293) 16,286
Purchase of own shares (3,940) (3,829)
Share issues 28,196 4,755
Share issue costs (1,842) (295)
Dividends paid (6,218) (9,017)
Net cash flows from financing
activities (97) 7,900
------------------------------------- ------------------- -------------------
Increase in cash and cash equivalents 9,521 12,766
Opening cash and cash equivalents 25,691 12,925
Closing cash and cash equivalents 35,212 25,691
-------------------------------------
Cash and cash equivalents comprise
Cash at bank 33,724 7,911
Applications cash 162 16,456
------------------------------------- ------------------- -------------------
Money market funds 1,326 1,324
------------------------------------- ------------------- -------------------
35,212 25,691
------------------------------------- ------------------- -------------------
(END) Dow Jones Newswires
May 27, 2021 10:20 ET (14:20 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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