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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Octopus Aim Vct 2 Plc | LSE:OSEC | London | Ordinary Share | GB00B0JQZZ80 | ORD 0.01P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 47.00 | 46.00 | 48.00 | 47.00 | 47.00 | 47.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | -34.19M | -36.7M | -0.2062 | -2.28 | 83.64M |
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Octopus AIM VCT 2 plc
Final Results
22 February 2021
Octopus AIM VCT 2 plc, managed by Octopus Investments Limited, today
announces the final results for the year ended 30 November 2020.
These results were approved by the Board of Directors on 22 February
2021.
You may view the Annual Report in full at
https://www.globenewswire.com/Tracker?data=mxnT-ykFf3acVam5JpBKdv827E06EVfUHVIYzz2KxxKR-FHGYwMm092u-M5qsL49Xn3vhkwl37j-bpGfeVesK__5DTvmUzb-Zfi0Th0LvMKd128rxTcD6yTL-Pz5-HAl
www.octopusinvestments.com in due course. All other statutory
information will also be found there.
Financial Summary
30 November 2020 30 November 2019
-------------------------------------- ---------------- ----------------
Net assets (GBP'000) 104,146 80,040
Profit/(loss) after tax (GBP'000) 17,762 (476)
Net asset value ("NAV") per share (p) 82.9 72.4
Dividends per share paid in year (p) 4.2 8.1
Total return (%)* 20.3 (0.4)
Final dividend proposed (p)** 2.1 2.1
Total ongoing charges (%)*** 1.9 2.0
-------------------------------------- ---------------- ----------------
*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 21 May 2021 to shareholders on
the register on 30 April 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 AIM VCT 2 for the year
ended 30 November 2020. I would like to welcome all new shareholders who
have joined in the year.
It has been an extraordinary year and events have had an impact on stock
market sentiment and movements as well as on peoples' lives, jobs and
the wider economy both here and around the world.
A strong start fuelled by initial stock market euphoria at the decisive
general election result in December 2019 gave way to concern as news of
a new strain of coronavirus emerged from China in early 2020. By March,
the seriousness of the situation had become apparent and businesses and
schools were forced to close and our economy was effectively shut down
in order to protect the National Health Service and to save lives.
Since then, attempts to relax restrictions and open up the economy have
been constrained by further outbreaks of the virus which caused
restrictions to be increased again in November 2020. Rules have been
further tightened with schools and shops once again closed and hospital
cases still high. While all this was happening the Brexit clock
continued to advance with fears that the United Kingdom would leave
without a deal.
In the year under review AIM raised GBP5.5 billion of new capital, a
sharp increase on the GBP3.6 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
low although our investment manager reports an uptick in companies
looking to float in the next six months.
Coronavirus
The Board's initial concern was that your Company could function in this
new virtual world with the next being for the health of the underlying
portfolio companies. I am pleased to say that all Octopus and all our
other service providers successfully adapted to the 'new normal' and
that Board meetings and other VCT business continued seamlessly on the
usual schedule using remote communications. Board meetings were
supplemented by regular portfolio updates from the Investment Management
team at Octopus in what turned out to be a rapidly changing situation.
There is more in the Investment Manager's Review about how the team kept
up to date with portfolio companies during the pandemic.
Against this background I am pleased to report a very strong year of
investment performance as well as an increase in the amount invested
into VCT qualifying investments to GBP5.3 million, up from GBP4.3
million in the previous year.
I am sorry that it was not possible to hold an open Annual General
Meeting last year because of the restrictions on public meetings. 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. Octopus also gave an opportunity for
shareholders to hear a presentation from the Investment Manager later on
in the year which I hope those who attended found informative. I look
forward to welcoming you to an AGM in person again once regulations
permit.
Performance
The NAV on 30 November 2020 was 82.9p per share, an increase on the NAV
of 72.4p per share reported at 30 November 2019. Adding back the 4.2p of
dividends paid in the year, to adjust the year end NAV to 87.1p, gives a
total return of 20.3%. In the same year, the FTSE AIM All Share Index
rose by 14.9%, the FTSE SmallCap (excluding investment companies) Index
rose by 2.8% and the FTSE All Share Index fell by 10.3%, 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. The need for companies to
adhere to lockdown rules has meant that 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 companies exposed to the new economy which make
up a significant proportion of our investment portfolio.
Dividends
In November 2020 an interim dividend of 2.1p was paid to all
shareholders. The Board is recommending a final dividend in respect of
the year to 30 November 2020 of 2.1p per share, making 4.2p in total
paid in respect of the year. Subject to the approval of shareholders at
the AGM the dividend will be paid on 21 May 2021 to shareholders on the
register on 30 April 2021. There is no special dividend to be declared
in respect of the year to 30 November 2020 as there have been no large
sales of holdings from the portfolio in the year. It remains the Board's
intention to maintain a minimum annual dividend payment of 3.6p per
share or a 5% yield based on the prior year end share price, whichever
is greater. This will usually be paid in two instalments during each
year.
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
GBP23.4 million. This is a regular occurrence for share premium created
more than three years ago 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 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 1,281,159 new shares have been issued under
this scheme, returning GBP925,000 to the Company. The final dividend
referred to above will be eligible for the DRIS.
Share Buybacks
During the year to 30 November 2020 the Company continued to buy back
shares in the market from selling shareholders and purchased 3,788,659
ordinary shares for a total consideration of GBP2,710,000. 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
During the year 12,140,295 shares were issued under the fundraise that
launched on 29 November 2019 and closed on 27 February 2020 raising
GBP8.8m after costs.
On 20 August 2020, a prospectus offer was launched alongside Octopus
AIM VCT plc to raise a combined total of up to GBP20 million with a
GBP10 million over allotment facility. This prospectus closed to further
applications on 30 November 2020. 5,502,829 shares were issued in the
current period, raising GBP4.4 million after costs. The remaining
balance of the fundraise for the 2020/2021 tax year was completed in
December 2020 post the period end when a further 10,527,955 shares were
issued, raising GBP8.8 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 27% of the Company's portfolio was held in cash or
collective investment funds providing short-term liquidity, 68% in
individual quoted shares and 5% of the Company's assets were 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 2019 a key requirement is to maintain at least an 80%
qualifying investment level, up from the previous level of 70%. As at
30 November 2020, 93.5% (as measured by HMRC rules) of the Company's
portfolio were in qualifying investments.
Annual General Meeting ("AGM")
The AGM will take place on 29 April 2021 at 11:00 a.m. 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. There will not be a facility to lodge
votes at the virtual shareholder event following the AGM. If you have a
question you wish to submit to the virtual shareholder event then please
send these via email to
https://www.globenewswire.com/Tracker?data=CFirukvz1C3UClmpSdh0opebx55v0wxdg5JH06W9brDknUhUHDJFDoxXm09jLkgRh_-fAYMJA83MxmMa0yDYkBXSxWDvYBMqgMmtTtUKt_eH9AizhYkqyJr7GlAfOwy-8Tn4HlKUb0Ri1weoWen9iw==
AIMVCT2AGM@octopusinvestments.com by 5.00pm on 26 April 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 2026 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 wobbles given the seriousness of the pandemic and
the added worries about Brexit. With a deal on Brexit now achieved some
of the uncertainty which overshadowed the UK market has gone leaving
shares looking relatively undervalued compared with their international
competitors. Investors are now looking through the current coronavirus
pandemic, encouraged by the approval of three vaccines for use which
should provide hope that the economy can open up again and start the
process of recovery.
The net asset value has continued to rise since year end. The latest
announced NAV as at 15 February 2021 is 94.7p.
The portfolio now contains 82 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 find good
opportunities to invest the cash as a recovery in confidence feeds
through to an increased demand from companies for more growth capital.
Keith Mullins
Chairman
22 February 2021
Investment Manager's Review
Introduction
It has been a roller coaster year. In our interim review we highlighted
a strong start on hopes of a Brexit settlement post the December General
Election result swiftly followed by a sharp fall in UK stockmarket as
the severity of the Coronavirus pandemic became apparent in February and
March. 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 put in place to alleviate the
worst of the short term social and economic damage wreaked by the virus.
Even though there were individual volatile months in the second half of
the year, the market recovered from its March lows once the economy
demonstrated its potential to bounce back as restrictions were eased
over the summer. Although we were back in lockdown by November, the
market 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. Added to this there was the constant hope of a
Brexit resolution, potentially removing the uncertainty which had held
back the valuation of UK assets. Against this turbulent background we
were pleased with the total positive return for the Net Asset Value of
20.3% for the year. Since the period end we have had a resolution to the
Brexit negotiations and the successful approval of three vaccines,
providing hope for better times to come in 2021.
In the year to 30 November 2020 AIM 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 were understandably still subdued but there are now
signs that these are returning in 2021.
The Alternative Investment Market
AIM was the best performing UK index in 2020, reflecting a higher
exposure to growth stocks in the software, technology and healthcare
sectors than the wider market. In the 12 months to November 2020 the AIM
Index returned 14.9% exceeding a more muted 2.8% for the FTSE SmallCap
(excluding investment companies) Index. This compared with significant
negative returns for both the FTSE 100 and the Mid 250 indices which are
exposed to 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 2020
onwards we saw a steady procession of companies of all sizes
successfully raising money to help with pandemic costs and for growth.
There was a brief lull in fundraisings in August and September and then
another strong month in November. This was reflected in the figures for
the year to 30 November 2020, when AIM raised a further GBP5.1 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
GBP0.4 billion for new listings, the same as the previous year.
Anecdotally we are now hearing about a healthy pipeline of new issues
from brokers and we hope that the current buoyant state of the market
helps to restore the flow of new entrants. VCTs play a significant part
in the funding process and we identify below the companies we have
invested in during the year.
Performance
Adding back the 4.2p of dividends paid in the year, the NAV total return
was 20.3%. This compares with a rise in the FTSE AIM All Share Index of
14.9%, the FTSE SmallCap (excluding investment companies) Index of 2.8%
and a fall in the FTSE All Share Index of 10.3%. It was a year
characterised by individual months of significant market volatility as
investors reacted to unfolding events. At the end of February and March
2020 all share prices fell across the board as the seriousness of the
pandemic became apparent and people and companies focused on the
immediate priorities of keeping themselves and their employees safe.
Once the dust had settled, investors quickly focused 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 has meant that performance was more than ever dominated
by stock specific factors.
Among the holdings in the pharmaceutical and healthcare sectors Ergomed
had another 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 in the pandemic. 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.
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 needed fewer point of care diagnostic
consumables. However, this was more than made up for by orders for
Primestore MTM, a Coronavirus sample collection device which has been in
strong demand and has generated profits and cash for the Group. In the
same sector Ixico continued its strong share price run as it added new
brain imaging contracts for clinical trials into neurological diseases
resulting in further forecast increases. 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.
Some of the smaller stocks in the healthcare sector also did very well,
helped by a much warmer attitude of investors to companies needing
funding which has left many of them far better equipped for potential
success than previous years. Two of the newer holdings C4X Discovery
that helps to design better drug molecules and Synairgen which is
conducting clinical trials for an inhaled treatment for Coronavirus are
both performing very well post successful fundraises. Intelligent
Ultrasound successfully raised further cash and although its sales of
training simulators were affected by the pandemic its software is now
being designed in to 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 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 for much of a year of strong demand for
instruments, The Panoply Holdings which specialises in helping the
public sector to embrace efficient ways of working in a digital world
and Hasgrove who saw 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.
Individual companies suffered from pandemic related headwinds which
resulted in poor share price performance. Quixant is still being held
back by the loss of market share of its largest customer and the closure
of its customer base in lockdown. It has some exciting new products
aimed at the broadcasting sector which have yet to establish themselves
but it has a strong balance sheet and trading has found a base. Equals
Group suffered from a loss of currency trades from tourists going
through its platform. We sold the shares at a loss. Velocity Composites
and Myclex 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 although it has been
allowed to operate in the subsequent lockdowns and we expect demand to
be strong 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 quite swiftly to an on-line
world and was helped in recent lockdowns by being able to keep its
workshops open to all customers. However, this was not possible for
Escape Hunt or Tasty which can only trade once conditions permit again.
The VCT does not have a high exposure to direct consumer facing
businesses.
Craneware shares are still being held back by the slower than hoped
uptake of its new Trisus platform at a time when its US hospital
customer base has been focusing its attention on managing the
Coronavirus crisis. It retains its strong positioning in the US hospital
market and stands out as a cash generative software company with growing
annual recurring revenues. Likewise, Clinigen has seen demand for
Proleukin, its cancer treatment drug disrupted by the pandemic in the
short term and Creo Medical has been unable to roll out the training
programme on its portfolio of approved devices.
A wide range of portfolio companies found it harder to sell to customers
in the pandemic. Adept Telecom's share price suffered from lacklustre
figures held back by lack of demand for on premise telephony solutions
and the continued decline of its voice and lines business. We expect
growth to accelerate now that this side of the business is less
significant. Restore was also affected by lockdown as offices were left
empty and recycling services not needed. 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 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. 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 in 2020 and even those companies which have faced more
difficult trading conditions should emerge with stronger balance sheets.
This quite often takes longer than expected and they remain potentially
vulnerable until they achieve profitability.
Although the earlier stage companies in the portfolio represent a
relatively small proportion by value we expect them to contribute to
future performance when they start to demonstrate growth in their
businesses. In the year under review there were some examples of
companies that demonstrated that they had started to achieve that in the
period and whose shares outperformed including Ixico, SDI Group,
Sosandar, Diaceutics, and Renalytix AI. The latter 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.
Portfolio Activity
Having made eleven qualifying investments at a total cost of GBP3.9
million in the first half of the year, we added two new qualifying
investments of GBP0.2 million and GBP0.28 million into Feedback plc and
Verici Dx plc as well as two further investments of GBP0.8 million and
GBP0.14 million into ReNeuron Group plc and Popsa in the second half.
This made a total investment of GBP5.3 million in qualifying investments
for the year, an increase on last year's GBP4.3 million, reflecting a
busy AIM market for fundraisings.
Feedback plc is a specialist medical imaging company providing software
and messaging systems to NHS hospitals. Its Bleepa app is approved as a
class 1 medical device. It is able to message medical images and records
securely between healthcare professionals and is the only medical
imaging product on the NHSX National Communications Framework. It raised
money for growth, targeting NHS hospital trusts as new customers. Verici
Dx was another spin-out from EKF Diagnostics following the success of
Renalytix AI which is now dual listed on the Nasdaq exchange. 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.
The small follow-on investment into Popsa was 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. We made a larger follow-on investment into Reneuron
which has now stopped spending money on its costly stroke programme to
concentrate on getting approval for its treatment for Retanosis
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.
During the year we took profits into rising share prices and sold part
of the holdings in Gamma, Learning Technologies, GB Group, LoopUp, Ixico,
Synairgen, C4X Discovery, VR Education and Trackwise Designs. We also
sold the entire holdings in Staffline and Equals Group at a loss after a
series of profit warnings and Omega Diagnostics at a profit after its
shares bounced strongly on the news that it was developing a Coronavirus
test. Brady, Nasstar and Cello Health were all sold following successful
cash takeover bids. In all disposals made a GBP1.5 million profit over
original cost and generated GBP5.2 million of cash proceeds.
Non-qualifying investments are used to manage liquidity while awaiting
new qualifying investment opportunities. Although we still hold some
existing non-qualifying AIM holdings where we see the opportunity for
further share price progress we continued to reduce some of these
holdings in the year under review. More recently we have reduced the
size of our holdings in the Octopus Managed Portfolios as we have made
qualifying investments and increased our holdings in the FP Octopus
Micro-Cap and the FP Octopus Multi-Cap Income Fund. This strategy is
designed to obtain a better return on funds awaiting investment than the
very low rates available on cash. In the period under review GBP1.6
million was invested into the FP Octopus Multi-Cap Income Fund and
GBP0.8 million was invested into FP Octopus Micro-Cap. A net divestment
of GBP4.8 million was made in each of the Octopus Portfolio Manager
("OPM") funds; OPM 3 and OPM 4.
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 new funds raised 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 ending 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; and
-- have less than GBP15 million of gross assets at the time of investment
and no more than GBP16 million immediately post investment; and
-- be less than seven years old from the date of its first commercial sale
(or 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 GBP5 million of State Aided funds in the
previous 12 months and less than the lifetime limit of
GBP12 million (or since 6th April 2018 GBP10 million in 12 months
GBP20 million lifetime limit if a knowledge intensive company); and
-- produce a business plan to show that the funds are being raised for
growth and development.
The most recent changes were to encourage VCTs to keep their investment
rate up after raising money. However, allowing knowledge intensive
companies to raise up to GBP10 million of the GBP20 million lifetime
limit in a twelve month period rather than the existing GBP5 million has
given the VCT more flexibility. In addition, the rules around the amount
of time allowed for re-investment of cash from sales of qualifying
holdings have increased from six to twelve months which has further
created some head room.
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-Smaller-Companies-Engagement-Policy.pdf)
Coronavirus
For the past ten months the team has been mainly working from home,
absorbing the continuous flow of information from companies and
communicating with each other. The team continue to operate business as
usual, holding meetings with companies and reporting back to your Board
on developments.
We were initially concerned about balance sheet strength for more mature
companies as well as funding for those that had not yet reached the
point of profitability and were likely to be unable to get there on
existing resources as a result of delays to business caused by the
pandemic.
In the first category, the majority of the more established companies in
the portfolio were quick to publish fairly detailed trading statements
including banking relationships and balance sheet headroom. We were very
impressed by how efficiently many companies handled the situation,
sometimes having to react twice in the space of a week to changing
conditions and regulations. It is also interesting to note that the AIM
market fulfilled its function to fund companies and there have been many
examples of this in action over the past months both within and outside
the portfolio. The priority for many of them was to come out of the
crisis on the front foot and in a position to take advantage of any
opportunities that presented themselves.
In the second category there were examples like Trackwise Designs,
PCI-Pal and Sosandar that had already raised money before the pandemic
took hold. This has helped them to move their businesses towards being
self-supporting and able to grow. Although there are some companies such
as Tasty or Escape Hunt in the portfolio which have gone through a
particularly difficult period given their direct consumer businesses,
the portfolio is balanced with exposure to many different sectors some
of which have benefitted from events. Gear4 Music is one direct example
and Ergomed, EKF Diagnostics, Diaceutics, Maxcyte and Fusion Antibodies
are all operating in areas which will receive increased attention and
funding in the future and others such as GB Group will benefit from the
general move by companies to operate remotely.
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
companies to concentrate in 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 as visibility has
improved, supporting share prices.
Outlook and Future Prospects
This time last year we wrote about the continuing need for a Brexit
resolution, the uncertainty to come in a US Election year and the
emerging Coronavirus pandemic. Today we have left the EU with a deal,
the US Election has produced a result which ought to provide a more
stable environment for global trade and there is finally hope with
vaccines being rolled out 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 remain
upbeat about the future. A combination of the policy support from
Governments around the world, easing global trade tensions, the growing
strength of corporate balance sheets over the last year 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 a return of confidence following the conclusion of
Brexit talks will have a positive impact on equity markets as asset
allocators deploy money back into the UK. There are signs that new
issues will be stronger in 2021 to supplement the secondary fundraising
market which remained suprisingly healthy throughout the volatile months
of 2020. Encouragingly, as a result of successful fundraises in 2020
most of the unprofitable companies in the portfolio are now much better
financed to execute on their growth ambitions. The portfolio now
contains 82 holdings with investments across a range of sectors
including both domestic and international exposure. The balance of the
portfolio towards profitable companies remains.
The AIM Team
Octopus Investments Limited
22 February 2021
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the
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 have elected to
prepare the financial statements in accordance with the Financial
Reporting Standard applicable in the United Kingdom and Republic of
Ireland ("FRS 102"). 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 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.
Website Publication
The Directors are responsible for ensuring the Annual Report and
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)
Keith Mullins (Chairman), Andy Raynor, Elizabeth Kennedy and Alastair
Ritchie, the Directors confirm to the best of their knowledge:
-- the financial statements, prepared in accordance with the Financial
Reporting Standard applicable in the United Kingdom and Republic of
Ireland ("FRS 102"), 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 or the principal risks and uncertainties that
it faces.
On Behalf of the Board
Keith Mullins
Chairman
22 February 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 30 November 2020 or 30
November 2019 but is derived from those accounts. Statutory accounts for
the year ended 30 November 2019 have been delivered to the Registrar of
Companies and statutory accounts for the year ended 30 November 2020
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 2020 Year to 30 November 2019
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 - 433 433 - 315 315
(Loss)/gain on
disposal of
current asset
investments - (158) (158) - 61 61
Gain/(loss) on
valuation of
fixed asset
investments - 17,871 17,871 - (900) (900)
Gain on
valuation of
current asset
investments - 1,126 1,126 - 1,390 1,390
Investment
Income 290 41 331 539 - 539
Investment
management
fees (334) (1,001) (1,335) (353) (1,058) (1,411)
Other expenses (506) - (506) (470) - (470)
------------------ ------- ------- -------- -------- -------- --------
Profit/(loss)
before tax (550) 18,312 17,762 (284) (192) (476)
Tax - - - - - -
------------------ ------- ------- -------- -------- -------- --------
Total
comprehensive
income/(loss)
after tax (550) 18,312 17,762 (284) (192) (476)
------------------ ------- ------- -------- -------- -------- --------
Earnings per
share --
basic and
diluted (0.5)p 15.5p 15.0p (0.3)p (0.1)p (0.4)p
-- The 'Total' column of this statement represents the statutory income
statement of the Company; the supplementary revenue return and capital
return columns have been prepared in accordance with the AIC Statement of
Recommended Practice.
-- All revenue and capital items in the above statement derive from
continuing operations.
-- The Company has only one class of business and derives its income from
investments made in shares and securities and from bank and money market
funds, as well as OEIC funds.
The Company has no recognised gains or losses other than the results for
the period as set out above. Accordingly a Statement of Comprehensive
income is not required.
Balance Sheet
As at 30 November 2020 As at 30 November 2019
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----------- ----------- ----------- -----------
Fixed asset
investments 76,695 58,246
Current assets:
Investments 10,396 16,458
Money Market Funds 3,486 3,474
Debtors 120 134
Cash at bank 14,838 1,881
-------------------------- ----------- ----------- ----------- -----------
28,840 21,947
Creditors: amounts
falling due within
one year (1,389) (153)
-------------------------- ----------- ----------- ----------- -----------
Net current assets 27,451 21,794
-------------------------- ----------- ----------- ----------- -----------
Total assets less
current liabilities 104,146 80,040
-------------------------- ----------- ----------- ----------- -----------
Called up equity share
capital 13 11
Share premium 37,758 47,044
Capital redemption
reserve 1 1
Special distributable
reserve 35,051 19,423
Capital reserve
realised (7,492) (8,641)
Capital reserve
unrealised 40,309 23,146
Revenue reserve (1,494) (944)
-------------------------- ----------- ----------- ----------- -----------
Total equity
shareholders' funds 104,146 80,040
-------------------------- ----------- ----------- ----------- -----------
NAV per share -- basic 82.9p 72.4p
and diluted
The statements were approved by the Directors and authorised for issue
on 22 February 2021 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Contributions by and distributions
to owners:
Repurchase and cancellation of own
shares -- -- (2,710) -- -- -- -- (2,710)
Issue of shares 2 15,027 -- -- -- -- -- 15,029
Share issue costs -- (908) -- -- -- -- -- (908)
Dividends -- -- (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 GBP26,065,000 (2019:
GBP9,838,000) 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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- ------------------------------- ---------------------------- ----------------------------- -------------------------- ---------------- --------
As at 1 December 2018 11 57,045 19,536 (9,898) 24,595 1 (660) 90,630
----------------------------------- ------------- ------------- ------------------------------- ---------------------------- ----------------------------- -------------------------- ---------------- --------
Comprehensive income for the year:
Management fee allocated as capital
expenditure -- -- -- (1,058) -- -- -- (1,058)
Current year gains on disposal -- -- -- 376 -- -- -- 376
Current period gains on fair value
of investments -- -- -- -- 490 -- -- 490
Loss after tax -- -- -- -- -- -- (284) (284)
----------------------------------- ------------- ------------- ------------------------------- ---------------------------- ----------------------------- -------------------------- ---------------- --------
Total comprehensive income for the
year -- -- -- (682) 490 -- (284) (476)
Contributions by and distributions
to owners:
Repurchase and cancellation of own
shares -- -- (2,782) -- -- -- -- (2,782)
Issue of shares -- 1,576 -- -- -- -- -- 1,576
Share issue costs -- (2) -- -- -- -- -- (2)
Dividends -- -- (8,906) -- -- -- -- (8,906)
----------------------------------- ------------- ------------- ------------------------------- ---------------------------- ----------------------------- -------------------------- ---------------- --------
Total contributions by and
distributions to owners -- 1,574 (11,688) -- -- -- -- (10,114)
Other movements:
Cancellation of share premium -- (11,575) 11,575 -- -- -- -- --
Prior years' holding gains now
realised -- -- -- 1,939 (1,939) -- -- --
----------------------------------- ------------- ------------- ------------------------------- ---------------------------- ----------------------------- -------------------------- ---------------- --------
Total other movements -- (11,575) 11,575 1,939 (1,939) -- -- --
----------------------------------- ------------- ------------- ------------------------------- ---------------------------- ----------------------------- -------------------------- ---------------- --------
Balance as at 30 November 2019 11 47,044 19,423 (8,641) 23,146 1 (944) 80,040
----------------------------------- ------------- ------------- ------------------------------- ---------------------------- ----------------------------- -------------------------- ---------------- --------
*Included within these reserves is an amount of GBP26,065,000 (2019:
GBP9,838,000) which is considered distributable to shareholders.
Cash Flow Statement
Year to 30 November 2020 Year to 30 November 2019
GBP'000 GBP'000
-------------------- -------------------------------- ------------------------------------
Cash flows from
operating
activities
Profit/(loss) on
ordinary
activitites before
tax 17,762 (476)
Adjustments for:
Decrease/(increase)
in debtors 14 (69)
Increase/(decrease)
in creditors 437 (386) Gain on disposal of fixed assets (433) (315) Loss/(gain) on disposal of current asset investments 158 (61) (Gain)/loss on valuation of fixed asset investments (17,871) 900 Gain on valuation of current asset investments (1,126) (1,390) Non-cash distributions (41) - -------------------- -------------------------------- ------------------------------------ Cash from operations (1,100) (1,797) Income taxes paid -- - -------------------- -------------------------------- ------------------------------------ Net cash from operating activities (1,100) (1,797) Cash flows from investing activities Purchase of fixed asset investments (4,518) (4,959) Proceeds from sale of fixed asset investments 5,214 5,346 Purchase of current asset investments (2,471) (3,116) Proceeds from sale of current asset investments 9,500 5,000 -------------------- -------------------------------- ------------------------------------ Total cash flows from investing activities 7,725 2,271 Cash flows from financing activities Purchase of own shares (2,710) (2,782) Share issues 14,104 92 Share issue costs (908) (2) Dividends paid (4,142) (7,422) Total cash flows from financing activities 6,344 (10,114) -------------------- -------------------------------- ------------------------------------ Increase/(decrease) in cash and cash equivalents 12,969 (9,640) -------------------- -------------------------------- ------------------------------------ Opening cash and cash equivalents 5,355 14,995 Closing cash and cash equivalents 18,324 5,355 -------------------- Cash and cash equivalents comprise Cash at bank 14,838 1,881 Money market funds 3,486 3,474 -------------------- -------------------------------- ------------------------------------ Total cash and cash equivalents 18,324 5,355 -------------------- -------------------------------- ------------------------------------
(END) Dow Jones Newswires
February 22, 2021 11:09 ET (16:09 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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