Half-Yearly Results

Octopus AIM VCT 2 plc

Half-Yearly Results

Octopus AIM VCT 2 plc (the “Company”) is a venture capital trust (“VCT”) which aims to provide shareholders with attractive tax-free dividends and long-term capital growth by investing in a diverse portfolio of predominantly AIM-traded companies. The Company is managed by Octopus Investments Limited (“Octopus” or the “Investment Manager”).

Today the Company announces the half-yearly results for the six months ended 31 May 2022.

Financial Summary

  Six months to 31 May 2022 Six months to 31 May 2021 Year to 30 November 2021
Net assets (£’000) 103,831 132,553 134,854
(Loss)/profit after tax (£’000) (26,909) 24,701 18,088
Net asset value (‘NAV’) per share (p) 70.5 99.2 90.8
Total return (%)* (20.0) 22.2 16.6
Dividends paid in the period (p) 2.1 2.1 5.9
Interim dividend (p)** 2.1 2.1 2.1
Special dividend (p)** - 1.7 -

*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.

**The interim dividend will be paid on 10 November 2022 to shareholders on the register on 14 October 2022.

Chair’s Statement

The six months to 31 May 2022 was a challenging period for stock markets. It followed a weaker second half of the previous financial year when markets had begun to fall in response to inflation caused by shortages of labour and supplies as economies began to bounce back after covid lockdowns, which was then exacerbated by the Omicron wave that shut down large parts of China again. The situation intensified as the terrible events in the Ukraine unfolded in the spring, with sharply rising energy prices adding to the upward pressure on prices, putting the prospect of higher interest rates firmly on the agenda. Against this background, growth stocks fell rapidly out of favour and as a consequence the Net Asset Value (NAV) of the VCT fell by 20% after adding back the 2.1p dividend paid in May.

The flow of VCT qualifying investment opportunities has continued although it has slowed more recently in response to less certain market conditions. Your Investment Manager has made seven qualifying investments in the six month period which are explained further in their report. Reassuringly, AIM has fulfilled its function to raise capital for existing members throughout the pandemic and as a result many of our earlier stage companies are facing a less forgiving investment environment with strong cash positions which should enable them to make further progress. Furthermore, while the volatility in the market has resulted in many shares now being priced well below their recent peaks, many of the individual companies in the portfolio have continued to report encouraging trading momentum, despite the uncertain mid-term economic prospects.

Against this backdrop of challenge and some opportunity, in accordance with our stated objectives of maintaining predictable levels of return for investors the Board has declared an interim dividend of 2.1p which will be paid on 10 November 2022 to shareholders on the register on 14 October 2022.

Keith Mullins Chair 22 July 2022

Investment Manager’s Review

Overview The six months to 31 May 2022 has been a period of declining investor confidence accompanied by extreme bouts of share price volatility, with the chilling events in the Ukraine having an immediate impact on appetite for risk. Economists have struggled to measure the impact of war, Russian sanctions and the already present problem of inflation, interest rises and energy price spikes on economic growth. After a long period when the stock market had been driven by growth and momentum, investors rapidly adopted a much more cautious stance and have been rotating into less highly rated defensive sectors as protection against rising inflation and 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 and of your portfolio after a very strong two years. Despite all of the gloom, trading updates from companies not exposed to supply problems have been robust and existing cautious forecasts have more often been upgraded by analysts rather than downgraded in the year to date. There has also been a return of takeover bids as companies have sought to invest cash accumulated on their balance sheets. New issues in the pipeline have mostly managed to get away and companies have still managed to raise capital for growth although not always at high prices. The Company has deployed existing cash throughout the period and anticipates further good opportunities to do so at attractive valuations.

Performance Adding back the 2.1p paid out in dividends in the period, the NAV fell by 20.0% in the six months to 31 May 2022. This compares with a 17.4% fall in the AIM Index, a 3.9% fall in the Smaller Companies Index (ex Investment Trusts) and a 6.2% fall in the FTSE All Share Index, all on a total return basis. The VCT’s relatively high exposure to the healthcare and technology sectors which had been a reason for good returns in previous periods was detrimental to performance in a world where risk averse investors have less appetite for earlier stage growth stocks. The VCT rules require investment to be made at this early stage and the benefits of doing so have been clear in past periods. AIM itself was affected by the same factors and the FTSE All Share Index performed noticeably better reflecting its higher weightings in banks, resource and oil stocks all of which are perceived beneficiaries of current market conditions.

There were a number of themes behind the largest detractors from performance in the period, the most dominant of which was a de-rating of established growth stocks as investors sought safe havens such as the oil and resource sectors. The largest detractor was Craneware which supplies software to US hospitals to increase their efficiency and keep costs low. It was previously very highly rated due to its strong long-term record of delivering profitable growth in recurring revenues. It has a strong strategic position in its market supporting our long-term holding of the shares. Learning Technologies and Breedon Group are both established, profitable companies whose shares have been de-rated despite meeting or exceeding forecasts. Likewise, GBG is a supplier of identity, location and fraud services to businesses and in a long-term growth space. EKF Diagnostics and Gear4Music have both suffered from a re-calibration of profit forecasts after exceptional profits were made during the pandemic. However, underlying growth remains good and is not reflected in the current valuation. Ilika and Maxcyte have seen their share prices fall as investors have sought to avoid early-stage companies. Both are well financed and exposed to exciting growth sectors, one in efficient battery technology and the other in cell based medicine. The only top ten detractor to have disappointed was Trackwise which suffered delays to the start of a large contract.

The positive contributors to performance were mostly from private investments in the portfolio, whose calculated valuations are not exposed to the very short-term movements of publicly quoted stocks. Nonetheless, their valuations continue to be presented conservatively having regard to prevailing sentiment, and Popsa and Hasgrove are both continuing to grow fast, which has led to upgrades in their valuations.

Libertine performed very well in its initial post float period reflecting its sensible pricing on market debut, it was a positive contributor in the six months even though the shares have fallen from their post flotation high. Judges was another outperformer as it exceeded forecasts although there were plenty of other holdings in the portfolio whose businesses demonstrated similar resilience but where the shares didn’t react positively.

Portfolio ActivityIn the period under review, the Company made seven qualifying investments totalling £4.6 million, a decrease on the £5.3 million we invested in the corresponding period last year, reflecting some caution on the part of companies and brokers about raising new capital against a background of volatile markets. Three of these were follow-on investments into existing holdings in Verici Dx plc, The British Honey Company plc and Oberon Investments Group plc totalling £0.4 million. British Honey Company raised money to invest in its nascent whiskey business following some management changes. Oberon completed a small qualifying raise to invest in its broking business alongside its fund management operation and Verici Dx raised further funding for trials for its range of tests for those undergoing kidney transplants.

Of the four new investments totalling £4.2 million, three: Libertine Holdings plc, Strip Tinning Holdings plc and Clean Power Hydrogen plc (CPH2) were all new entrants to the AIM market and all four are addressing green energy solutions. We invested £2.0 million in Libertine, which has developed a powertrain solution for use with a variety of different fuels. It is designed to be easily adaptable for trucks so that fleet operators can reduce their carbon footprint in an affordable and practical way. It is still at a prototype stage. We invested £1.2 million into Clean Power Hydrogen which has developed a membrane free technology which can be used to produce hydrogen from renewable power. The absence of a membrane should make the equipment more durable and cheaper to run. We also invested £0.3 million into Strip Tinning, a supplier of smart connectors to the automotive industry.

We made a £0.7m qualifying investment in Velocys, an existing AIM company whose progress we had been watching for some time. It is developing and commercialising a technology to produce low carbon aviation fuel.

A number of disposals in the period resulted in a small net overall gain of £0.1 million over book cost. We sold the entire holding of Clinigen Group plc and Cloudcall Group plc as the result of cash takeover offers for the companies, we took profits and reduced the size of the non-qualifying holdings in Next Fifteen Communications Group plc and Advanced Medical Solutions plc in line with our strategy of selling them over time into share price strength. We also disposed of the balance of the holdings in Diurnal Group plc and Synairgen.

In the period we also invested £0.2 million of the cash balances into the FP Octopus Future Generations Fund at lower prices. The strategy is to reduce other individually held non-qualifying holdings and replace them with liquid collective funds. Although the funds have had a negative impact on returns in this period, we expect them to provide a return on our cash awaiting investment once stock markets return to a more settled state.

Unquoted Investments The Company is able to make investments in unquoted companies intending to float. Currently 7.7% (31 May 2021: 3.2% and 30 November 2021: 4.7%) of the Company’s net assets are invested in unquoted companies. The rise in the percentage of the portfolio is due to valuations not being exposed to the very short term movements of publicly quoted stocks, combined with good performance from Popsa and Hasgrove resulted in increases to their valuations.

Transactions with the Investment Manager Details of amounts paid to the Investment Manager are disclosed in Note 8 to the financial statements.

Share Buybacks In the six months to 31 May 2022, the Company bought back 2,191,635 Ordinary shares for a total consideration of £1,719,000. It is evident from the conversations which your Managers have that this facility remains an important consideration for investors. Your Board remains committed to maintaining its policy of buying back shares at a discount of approximately 4.5% to NAV (equating to a 5% count to the selling shareholder after costs).

Share Issues In this period 956,599 new shares were issued, 849,989 of these being issued through the dividend reinvestment scheme (DRIS).

Dividend On 27 May 2022, the Company paid a dividend of 2.1p per share, being the final dividend for the year ended 30 November 2021. For the period to 31 May 2022, the Board has declared an interim dividend of 2.1p. This will be paid on 10 November 2022 to shareholders on the register on 14 October 2022.

It remains the Board’s intention to maintain a minimum annual dividend payment of 3.6p per share or a 5% yield based on the prior year end share price, whichever is the greater. This will usually be paid in two instalments during each year.

Principal Risks and Uncertainties The principal risks and uncertainties are set out in Note 7 to the financial statements.

Outlook The very real issue of inflation and the need to tighten monetary policy by raising interest rates after a prolonged period of very cheap money has caused a reassessment of stock market valuations that has disproportionately impacted the share price of companies exposed to growth sectors. This is most dangerous for companies lacking sufficient funding to prove their business models. Although the VCT has exposure to companies yet to generate sufficient cash to meet operating costs the majority of them are well funded at present and able to get on with their business plans. Additionally, for many of the already established companies in the portfolio a background of marginal economic growth is helpful to meeting 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 in 2022 has resulted in many shares now being priced well below their recent peaks. 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 has left most balance sheets looking healthy. A more cautious market should provide opportunities to invest the Company’s cash at attractive valuations.

The portfolio’s strength is that it is well diversified both in terms of sector exposure and of individual company concentration. At the period end it contained 92 holdings (31 May 2021: 89 holdings and 30 November 2021: 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 with sufficient cash to achieve their growth ambitions. The VCT currently has funds available for new investments as well as supporting those who are still on this journey to profitability. These are difficult macroeconomic and geopolitical times, but the balance of the portfolio towards profitable companies remains, and the Manager is confident that there will continue to be sufficient opportunities to invest our funds in good companies seeking more growth capital at attractive valuations.

The Octopus Quoted Companies team 22 July 2022

Director’s Responsibilities Statement

We confirm that to the best of our knowledge:

  • the half-yearly financial statements have been prepared in accordance with Financial Reporting Standard 104 ‘Interim Financial Reporting’ issued by the Financial Reporting Council;
  • the half-yearly financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
  • the half-yearly report includes a fair review of the information required by the Financial Conduct Authority Disclosure and Transparency Rules, being:
    • we have disclosed an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;
    • we have disclosed a description of the principal risks and uncertainties for the remaining six months of the year; and
    • we have disclosed a description of related party transactions that have taken place in the first six months of the current financial year, that may have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the BoardKeith Mullins Chair22 July 2022

Income Statement

  UnauditedSix months to 31 May 2022 UnauditedSix months to 31 May 2021 AuditedYear to 30 November 2021
  Revenue Capital Total Revenue Capital Total Revenue Capital Total
  £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Gain on disposal of fixed asset investments 78 78 1,552 1,552 2,123 2,123
Gain on disposal of current asset investments 33 33 33 33
(Loss)/gain on valuation of fixed asset investments (24,037) (24,037) 21,415 21,415 15,662 15,662
(Loss)/gain on valuation of current asset investments (1,733) (1,733) 2,680 2,680 2,304 2,304
Investment income 182 - 182 126 109 235 481 109 590
Investment management fees (271) (814) (1,085) (218) (655) (873) (493) (1,478) (1,971)
Other expenses (314) - (314) (341) (341) (653) (653)
(Loss)/profit before tax (403) (26,506) (26,909) (433) 25,134 24,701 (665) 18,753 18,088
Tax
(Loss)/profit after tax (403) (26,506) (26,909) (433) 25,134 24,701 (665) 18,753 18,088
Earnings per share basic and diluted (0.3)p (17.9)p (18.2)p (0.3)p 18.7p 18.4p (0.5)p 13.8p 13.3p

There is no other comprehensive income for the period.

  • The ‘Total’ column of this statement is the profit and loss account 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 Open Ended Investment Company (“OEIC”) funds.

Balance Sheet

  UnauditedAs at 31 May 2022 UnauditedAs at 31 May 2021 AuditedAs at 30 November 2021
  £’000 £’000         £’000 £’000         £’000 £’000
Fixed asset investments   78,551   100,903   100,036
Current assets:            
Investments 10,484   12,130   11,993  
Money market funds 3,490   3,486   3,487  
Debtors 199   58   185  
Cash at bank 11,674   16,583   19,915  
  25,847   32,257   35,580  
Creditors: amounts falling due within one year (567)   (607)   (762)  
Net current assets   25,280   31,650   34,818
Total assets less current liabilities   103,831   132,553   134,854
Called up equity share capital   15   13   15
Share premium   55,284   47,142   54,600
Special distributable reserve   26,028   29,372   30,826
Capital reserve realised   (4,786)   (4,851)   (4,533)
Capital reserve unrealised   29,850   62,802   56,103
Capital redemption reserve   2   2   2
Revenue reserve   (2,562)   (1,927)   (2,159)
Total equity shareholders’ funds   103,831   132,553   134,854
NAV per share basic and diluted   70.5p   99.2p   90.8p

The statements were approved by the Directors and authorised for issue on 22 July 2022 and are signed on their behalf by:

Keith Mullins Chair

Company Number: 05528235

Statement of Changes in Equity

  ShareCapital 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 30 November 2021 15 54,600 30,826 (4,533) 56,103 2 (2,159) 134,854
Total comprehensive income for the period (736) (25,770) (403) (26,909)
Contributions by and distribution to owners:                
Repurchase and cancellation of own shares (1,719) (1,719)
Issue of shares 689 689
Share issue costs (5) (5)
Dividends paid (3,079) (3,079)
Total contributions by and distribution to owners 684 (4,798) (4,114)
Other movements:                
Prior years’ holding gains now realised 483 (483)
Total other movements 483 (483)
Balance as at 31 May 2022 15 55,284 26,028 (4,786) 29,850 2 (2,562) 103,831

*The sum of these reserves is an amount of £18,680,000 (31 May 2021: £22,594,000 and 30 November 2021: £24,134,000) which is considered distributable to shareholders.

  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
Total comprehensive income for the period 1,039 24,095 (433) 24,701
Contributions by and distribution to owners                
Repurchase and cancellation of own shares (1) (2,875) 1 (2,875)
Issue of shares 1 10,027 10,028
Share issue costs (643) (643)
Dividends paid (2,804) (2,804)
Total contributions by and distribution to owners 9,384 (5,679) 3,706
Other movements:                
Prior years’ holding gains now realised 1,602 (1,602)
Total other movements 1,602 (1,602)
Balance as at 31 May 2021 13 47,142 29,372 (4,851) 62,802 2 (1,927) 132,553
  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
Total comprehensive income for the period 787 17,966 (665) 18,088
Contributions by and distribution 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 distribution to owners 2 26,042 (13,425) 12,620
Other movements:                
Cancellation of share premium (9,200) 9,200
Prior years’ holding gains now realised 2,172 (2,172)
Total other movements (9,200) 9,200 2,172 (2,172)
Balance as at 30 November 2021 15 54,600 30,826 (4,533) 56,103 2 (2,159) 134,854

Cash Flow Statement

  Unaudited Six months to 31 May 2022£’000 Unaudited Six months to 31 May 2021£’000 Audited Year to30 November 2021£’000
Cash flows from operating activities        
(Loss)/profit before tax (26,909) 24,701 18,088  
Adjustments for:        
(Increase)/decrease in debtors (14) 62 (65)  
(Decrease)/increase in creditors (195) (782) 173  
Gain on disposal of fixed assets investments (78) (1,552) (2,123)  
Gain on disposal of current asset investments - (33) (33)  
Loss/(gain) on valuation of fixed asset investments 24,037 (21,415) (15,662)  
Loss/(gain) on valuation of current asset investments 1,733 (2,680) (2,304)  
Non-cash distributions - (109) (109)  
Cash from operations (1,426) (1,808) (2,035)  
Income taxes paid  
Net cash generated from operating activities (1,426) (1,808) (2,035)  
Cash flows from investing activities        
Purchase of fixed asset investments (4,618) (5,296) (12,332)  
Proceeds from sale of fixed asset investments 2,144 4,164 6,085  
Purchase of current asset investments (223) (2,380) (2,620)  
Proceeds from sale of current asset investments 3,359 3,360  
Net cash flows from investing activities (2,697) (153) (5,507)  
Cash flows from financing activities        
Purchase of own shares (1,719) (2,875) (4,973)  
Share issues 89 9,502 26,086  
Share issue costs (5) (643) (1,683)  
Dividends paid (2,480) (2,278) (6,810)  
Net cash flows from financing activities (4,115) 3,706 12,620  
Increase in cash and cash equivalents (8,238) 1,745 5,078  
Opening cash and cash equivalents 23,402 18,324 18,324  
Closing cash and cash equivalents 15,164 20,069 23,402  
Closing cash and cash equivalents is represented by:        
Cash at bank 11,674 16,583 19,915  
Money market funds 3,490 3,486 3,487  
Total cash and cash equivalents 15,164 20,069 23,402  

Notes to the Half-Yearly Report

1.   Basis of preparationThe unaudited half-yearly report which covers the six months to 31 May 2022 has been prepared in accordance with the Financial Reporting Council’s (FRC) Financial Reporting Standard (FRS) 104 Interim Financial Reporting (March 2018) and the Statement of Recommended Practice (SORP) for Investment Companies issued by the Association of Investment Companies in 2014 (updated in February 2018).

The Directors consider it appropriate to adopt the going concern basis of accounting. The Directors have not identified any material uncertainties to the company’s ability to continue to adopt the going concern basis over a period of at least twelve months from the date of approval of the financial statements. In reaching this conclusion the Directors have had regard to the potential impact on the economy and the Company of the ongoing Coronavirus pandemic, current economic conditions including inflation, the possibility of recession and war in Ukraine.

The principal accounting policies have remained unchanged from those set out in the Company’s 2021 Annual Report and Accounts.

2.   Publication of non-statutory accountsThe unaudited half-yearly report for the six months ended 31 May 2022 does not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006. The comparative figures for the year ended 30 November 2021 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies. The independent auditor’s report on those financial statements, in accordance with chapter 3, part 16 of the Companies Act 2006, was unqualified. This half-yearly report has not been reviewed by the Company’s auditor.

3.   Earnings per shareThe earnings per share at 31 May 2022 are calculated on the basis of 147,560,275 shares (31 May 2021: 134,206,472 and 30 November 2021: 135,902,032), being the weighted average number of shares in issue during the period.

There are no potentially dilutive capital instruments in issue and, therefore, no diluted returns per share figures are relevant.

4.   Net asset value per shareThe net asset value per share is based on net assets as at 31 May 2022 divided by 147,345,533 shares in issue at that date (31 May 2021: 148,580,569 and 30 November 2021: 148,580,569).

5.   DividendsThe Directors have declared an interim dividend of 2.1 pence per share (2021: 2.1 pence per share plus a special dividend of 1.7 pence per share) payable from the special distributable reserve. This dividend will be paid on 10 November 2022 to those shareholders on the register at 14 October 2022. On 27 May 2022 the prior year final dividend of 2.1 pence per share was paid.

6.   Buybacks and share issuesDuring the six months ended 31 May 2022 the Company repurchased the following shares.

Date No. of shares Price (p) Cost (£)
23 December 2021 255,091 83.9 214,000
20 January 2022 401,488 85.8 344,000
24 February 2022 488,263 77.8 380,000
24 March 2021 428,914 75.5 324,000
21 April 2022 465,274 75.9 353,000
12 May 2022 152,605 67.7 104,000
Total 2,191,635   1,719,000

The weighted average price of all buybacks during the period was 78.4 pence per share.

During the six months ended 31 May 2022 the Company issued the following shares:

Date No. of shares Price (p) Net proceeds (£)
14 April 2022 106,610 84.2 84,000
27 May 2021 (DRIS) 849,989 70.6 600,000
Total 956,599   684,000

The weighted average allotment price of all shares issued during the period net of costs was 72.1 pence per share.

The total value of share issues, net of share issue costs of £5,000, was £84,000 (excluding the value of shares issued under DRIS). This is shown in the cash flow statement.

7.   Principal risks and uncertaintiesThe Company’s principal risks are: VCT qualifying status risk; Operational risk; Regulatory and reputational risk, Valuation risk, Investment risk, Financial risk; and Economic and price risk. These risks, and the way in which they are managed, are described in more detail in the Company’s Annual Report and Accounts for the year ended 30 November 2021. The Board has also considered emerging risks, including the war in Ukraine, inflation, interest rate rises and the ongoing Coronavirus pandemic, which the Board seeks to mitigate by setting policy and reviewing performance. Otherwise, the Company’s principal risks and uncertainties have not changed materially since the date of that report.

8.   Related party transactionsThe Company has employed Octopus Investments Limited (“Octopus” or “the Manager”) throughout the period as Investment Manager. Octopus has also been appointed as Custodian of the Company’s investments under a Custodian Agreement. The Company has been charged £1,085,000 by Octopus as a management fee in the period to 31 May 2022 (31 May 2021: £873,000 and 30 November 2021: £1,097,000). The management fee is payable quarterly and is based on 2% of net assets at quarterly intervals.

The Company receives a reduction in the management fee for the investments in other Octopus managed funds, being the Multi Cap Income Fund, Micro Cap Growth Fund and Future Generations Fund, to ensure the Company is not double charged on these products. This amounted to £32,000 in the period to 31 May 2022 (31 May 2021: £30,000 and 30 November 2021: £63,000). For further details please refer to the Company’s Annual Report and Accounts for the year ended 30 November 2021. Details of amounts invested in Octopus managed funds can be found on page 11.

9.   Post balance sheet eventsThe following events occurred between the balance sheet date and the signing of these financial statements:

  • Partial disposal of Advanced Medical Solutions plc for a consideration of £83,000;
  • Partial disposal of Midatech Pharma plc for a consideration of £1,000;
  • An investment of £4,000 into FP Octopus UK Micro Cap Growth Fund P Class;
  • The Company received £19,000 of shares in Verici Dx plc as a result of an in-specie dividend from EKF Diagnostics Holdings plc;
  • On 23 June 2022, the Company purchased for cancellation 294,050 Ordinary Shares at a price of 63.4p.

10.  Fixed asset investments Accounting Policy

The Company’s principal financial assets are its investments and the policies in relation to those assets are set out below.

Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date).

These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board. Accordingly, as permitted by FRS 102, the investments are measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company’s investments are measured at subsequent reporting dates at fair value.

In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. This is consistent with the International Private Equity and Venture Capital Valuation (IPEV) guidelines.

Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve – unrealised. The Managers review changes in fair value of investments for any permanent reductions in value and will give consideration to whether these losses should be transferred to the Capital reserve – realised.

In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.

Fair value hierarchy

Paragraph 34.22 of FRS102 suggests following a hierarchy of fair value measurements, for financial instruments measured at fair value in the Balance Sheet, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). This methodology is adopted by the Company and requires disclosure of financial instruments to be dependent on the lowest significant applicable input, as laid out below:

Level 1: The unadjusted, fully accessible and current quoted price in an active market for identical assets or liabilities that an entity can access at the measurement date.

Level 2: Inputs for similar assets or liabilities other than the quoted prices included in Level 1 that are directly or indirectly observable, which exist for the duration of the period of investment.

Level 3: This is where inputs are unobservable, where no active market is available and recent transactions for identical instruments do not provide a good estimate of fair value for the asset or liability.

There have been no reclassifications between levels in the year. The change in fair value for the current and previous year is recognised through the profit and loss account.

Disclosure

     
Level 1: Quoted equity investments£’000 Level 3: Unquoted investments£’000 Total£’000
Cost as at 1 December 2021 44,933 3,087 48,020
Opening unrealised gain at 1 December 2021 48,393 3,623 52,016
Valuation at 1 December 2021 93,326 6,710 100,036
Purchases at cost 4,618 4,618
Disposal proceeds (2,144) (2,144)
Profit on realisation of investments 78 78
Change in fair value in year (25,315) 1,278 24,037
Closing valuation at 31 May 2022 70,563 7,988 78,551
Cost at 31 May 2022 47,968 3,087 51,055
Closing unrealised gain at 31 May 2022 22,595 4,901 27,496
Valuation at 31 May 2022 70,563 7,988 78,551

Level 1 valuations are valued in accordance with the bid-price on the relevant date. Further details of the fixed asset investments held by the Company are shown within the Interim Management Report.

Level 3 investments are valued in accordance with IPEV guidelines. Hasgrove plc is valued using a range of inputs including sales, annualised recurring revenues, and net debt/cash. Valuations for Popsa Holdings Ltd, The Food Marketplace Ltd, Rated People Ltd and Eluceda Ltd are based on the Price of Recent Investment. Level 3 investments include £400,000 (2021: £400,000) of convertible loan notes held at cost, which is deemed to be current fair value.

All capital gains or losses on investments are classified at FVTPL. Given the nature of the Company’s venture capital investments, the changes in fair value of such investments recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and accordingly these gains are treated as holding gains or losses.

At 31 May 2022 there were no commitments in respect of investments approved by the Investment Manager but not yet completed. The transaction costs incurred when purchasing or selling assets are written off to the Income Statement in the period that they occur.

11.  Half-Yearly Report The unaudited half-yearly report for the six months ended 31 May 2022 will shortly be available to view at https://octopusinvestments.com/our-products/venture-capital-trusts/octopus-aim-vcts/

For further information please contact:

Octopus Company Secretarial Services LimitedTel: 020 3935 3803

LEI: 213800BW27BKJCI35L17

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