Octopus Future Generations VCT plc Half-Yearly Results

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Octopus Future Generations Vct Plc	LSE:OFG	London	Ordinary Share	GB00BNGFHX14	ORD 0.1P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	0.00	0.00%	91.00	88.00	94.00	91.00	91.00	91.00	0.00	01:00:00

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Unit Inv Tr, Closed-end Mgmt	418k	-778k	-0.0155	-58.71	45.65M

Octopus Future Generatio... (LSE:OFG)
Historical Stock Chart

From May 2022 to May 2024

Click Here for more Octopus Future Generatio... Charts.

 
TIDMOFG

Octopus Future Generations VCT plc

Half-Yearly Results

Octopus Future Generations VCT plc ('Future Generations VCT' or 'the Company') is backing businesses that aim to address society's biggest challenges, providing an opportunity for investors to share in the growth of ambitious, purpose--driven companies.

The Company is managed by Octopus AIFM Management Limited (the 'Manager'), who has delegated investment management to Octopus Investments Limited ('Octopus' or 'Portfolio Manager').

The Company announces the half-yearly results for the six months to 31 December 2022.

Interim Management Report

Chair's statement

Highlights

   -- GBP39.1m in total net assets 
 
   -- 95.1p Net Asset Value ('NAV') per share 
 
   -- GBP40.6m raised in 2022

I am pleased to present the unaudited half-yearly report and accounts for Octopus Future Generations VCT for the six months to 31 December 2022.

I would firstly like to welcome new shareholders to the Company. Octopus Future Generations VCT invests in exciting early-stage companies which we believe may also have a positive impact on society. The NAV per share at 31 December 2022 was 95.1p, and in the reporting period the Company made 12 investments. A further seven have completed since the period end, bringing the total number in the portfolio to 21. Each investee company has the ambition to address current societal issues, ranging from improving healthcare to positively impacting climate change. More information on some of these businesses can be found in the Portfolio Manager's Review.

In the period to 31 December 2022, we utilised GBP11.2 million of our cash resources, including GBP10.5 million which was invested into new investee companies. The cash balance of GBP26.8 million as at 31 December 2022 represents 69% of net assets at that date. The loss made in the period to 31 December 2022 was GBP0.4 million, which is expected at this early stage due to the running costs of the Company exceeding returns from investments. We look forward to deploying significant further capital into new investment opportunities over the coming months, and we ultimately intend the profile of the Company to comprise 80% to 90% in VCT qualifying investments and 10% to 20% in permitted non-VCT qualifying investments or cash.

Fundraise

Given the active investment landscape and successful launch of the Company on 31 January 2022, a new offer was launched in January 2023 seeking to raise GBP30 million, with an over-allotment facility for a further GBP10 million. The offer will close for new applications on 18 January 2024, or earlier if fully subscribed.

As investors will be aware, the intention is to invest in businesses which meet one of three key themes, and which we believe demonstrate excellent investment prospects as well as having the potential to make a positive societal impact.

VCT qualification

I am pleased to report that Future Generations VCT has met the 30% investment rule, the first milestone for a new VCT to achieve. This rule states that at least 30% of all new funds raised in an accounting period need to be invested in VCT qualifying businesses within 12 months of the end of that accounting period. The Company had until June 2023 to do this, but has achieved it well ahead of time, in December 2022.

Principal risks and uncertainties

The Board continues to review the risk environment in which the Company operates on a regular basis. There have been no significant changes to the key risks as described in the annual report for the period ended 30 June 2022. The Board does not anticipate there will be significant changes to these risks in the remaining six months of the financial year.

Outlook

We have had an exciting six-month period, with the Company closing its initial fundraise, announcing the intention to raise further funds and making 12 investments spanning its three investment themes. This has been achieved despite the challenging macroeconomic headwinds we have faced with the cost-of-living crisis, rising inflation, the continuation of the Ukraine conflict and uncertainty in the political landscape. Looking ahead, it is unclear what 2023 will bring in this regard, but we hope for greater stability, and I am encouraged by the pipeline of investment opportunities when considering the outlook for the Company. The ingenuity, energy and passion of the entrepreneurs, the technological advancements they are developing and the issues that the businesses are addressing, when combined, could make a meaningful difference to the world, as well as creating profitable investment opportunities for the Company.

We are still seeing good momentum in the UK early--stage market. Even in challenging times, great businesses continue to be founded as there is often a willingness to adopt new technologies or seek new approaches. The Octopus Ventures team, headquartered in London, have scaled their investment and operational team further to support this activity. They have also opened an office in Manchester, to better foster links with university spin-out companies in the North of the country and ensure increased market coverage.

To remind shareholders, as the Company is at the beginning of its investment journey, it will take time to deploy the funds raised into portfolio companies that the investment team consider to be good investment opportunities. While we are in this early investment phase, the portfolio will naturally be more concentrated in fewer companies. This means that performance will be more sensitive to the success and/or failure of these investments than if the portfolio was larger.

As such, over the next couple of years, there may well be a decline in overall value as the Company invests in new businesses, some of which are at the start of their growth journey and will need to build their technology, prove their market, win new contracts, and grow their teams. Their value will take time to grow, and inevitably some of these will ultimately fail.

The long-term intention is to pay an annual dividend of 5% of the NAV. However, given the expected holding period of target portfolio companies and restrictions imposed on VCTs, the Company does not intend to pay dividends before 1 July 2025 at the earliest. During this time, any growth in value will increase the value of the Company. Dividends, when payable, are likely to be generated from successful exits, so the Company is unlikely to pay significant dividends until portfolio companies have time to mature and/or be acquired.

I would like to conclude by thanking both my Board colleagues and the Octopus team on behalf of all shareholders for their hard work. I would also like to thank shareholders for their continued support. I am excited to see what the coming year brings for your Company.

Helen Sinclair

Chair

Portfolio Manager's review

Focus on Future Generations VCT's performance

The NAV per share at 31 December 2022 was 95.1p. The Company invests in three key areas that we believe demonstrate excellent investment prospects and have potential to transform outdated industries for the better. Below is a breakdown of the 14 investments held as at 31 December 2022, showing the proportion and value of the portfolio in each investment theme:

Proportion by number of portfolio companies in each theme

Revitalising healthcare: 50%

Empowering people: 36%

Building a sustainable planet: 14%

Value of the portfolio in each theme

Revitalising healthcare: GBP5.9m

Empowering people: GBP4.9m

Building a sustainable planet: GBP1.5m

The Company completed 12 new investments in the reporting period (comprising a total of GBP10.5 million) and seven further investments after 31 December 2022 (totalling GBP9.5 million of investment). More information on three of these businesses, which span our three investment themes, can be found below:

A selection of our completed investments

Building a sustainable planet

Kita

To prevent the worst impacts of climate change, we must remove gigatons of carbon dioxide from the atmosphere annually for the remainder of the 21st century. Kita's first product is Carbon Purchase Protection Insurance. It protects buyers of carbon removal credits against the risk that the carbon isn't delivered. If the carbon removal credits underperform, Kita cover the loss (via a reinsurance facility).

Empowering people

Cobee

Cobee is a fully digital solution that simplifies employee benefits management. Using the app and Cobee Visa card, employees have access to a range of benefits such as health insurance, childcare, mental health, food, transport and much more. They're able to create a completely flexible compensation package, and the platform allows complete control over all employee benefits in a single place, with no intermediaries or external suppliers required to be involved in the purchasing decision.

Revitalising healthcare

Infinitopes

Infinitopes is on a mission to cure cancer using their immunopeptidomics platform and novel vectors to develop cancer vaccines. As a Cancer Research UK (CRUK) supported team of expert doctors and scientists spinning out of Oxford University, Infinitopes is pushing the boundaries of science and medicine to identify hidden tumour targets and create high efficiency vaccines to be affordable to healthcare systems and patients, and aspire to save many lives in the future.

Top ten investments

 
Portfolio company          Cost     Valuation at       Investment Theme 
                                     31 December 2022 
1. Cobee                   GBP1.9m  GBP2.0m            Empowering people 
2. Infinitopes             GBP1.6m  GBP1.6m            Revitalising healthcare 
3. Apheris                 GBP1.2m  GBP1.3m            Revitalising healthcare 
4. Inflow                  GBP1.0m  GBP1.0m            Revitalising healthcare 
5. Skin + Me               GBP1.0m  GBP1.0m            Revitalising healthcare 
6. Intrinsic               GBP0.9m  GBP0.9m            Empowering people 
Semiconductor 
7. Living Optics           GBP0.9m  GBP0.9m            Empowering people 
8. Neat                    GBP0.8m  GBP0.8m            Building a sustainable 
                                                        planet 
9. Kita                    GBP0.7m  GBP0.7m            Building a sustainable 
                                                        planet 
10. Bloom                  GBP0.6m  GBP0.6m            Empowering people

Portfolio engagement

As part of our strategy, we require portfolio companies to put in place a Diversity and Inclusion policy (D&I) and an Anti-Harassment policy. We also engage with each company to help them understand their greenhouse gas emissions and support them to take action to minimise them.

D&I policy status

Policy in place: 13

In progress: 1

Engaged on monitoring greenhouse gas emissions

Signed up: 6

Introduced: 6

In progress: 2

Outlook

Following the launch of the Company at the start of 2022, the economy immediately encountered headwinds with the war in Ukraine, energy supply issues and a cost--of--living crisis. However, when we look back over the past 12 months, we are pleased with the Company's progress despite these significant challenges. We have:

-- completed 14 new investments across all three investment themes in 2022;

-- raised GBP40 million into the Company; and

-- in light of continued attractive opportunities to invest, launched a new fundraise in 2023.

Within the Octopus Ventures team, we saw the headcount in the investment and operations team grow by 31% in 2022 to support the activity we are seeing in the early-stage market.

Looking ahead in 2023, it is unclear when the difficult conditions will start to ease, and the International Monetary Fund (IMF) has stated it expects the UK economy to contract by 0.6%(1) this year. In mid-March, we unfortunately saw the largest failure of a US bank since 2008, with the collapse of Silicon Valley Bank (SVB) in the US, and the risk that the UK arm would also fail. SVB has been a major specialised lender and banking provider in the tech industry, and as such some of the Future Generations VCT portfolio bank with them. The Octopus Ventures team reacted quickly to the news and undertook a full risk assessment on the portfolio, then worked to support those companies affected wherever possible to try to ensure assets would be secure and that they would have access to banking facilities. While around half the portfolio had some kind of exposure to SVB (mostly SVB UK), the number of companies which would have been impacted acutely was very limited.

We were very pleased when it was announced that HSBC would purchase the UK arm of SVB, meaning funds have been secured and are not at risk. Early-stage markets, within which the Company operates, will inevitably be impacted by the financial outlook, but history has shown us that great businesses are and will continue to be founded at times of economic turmoil. The entrepreneurs we meet are intent on solving some of society's biggest problems and on building successful companies which could have a material and positive impact on people's lives as well as delivering good returns to shareholders in the future.

We have further expanded our dedicated in-house people and talent team to support the portfolio companies on their growth journeys, which is particularly important during more challenging times. They offer a range of services, including recruitment support, coaching, establishing company policies and best practice frameworks, pairing the portfolio company management teams with consultants who can offer the best support, and running targeted events to offer tangible and actionable advice, such as webinars on employee equity grants at different stages of growth and interview training for leadership teams.

We believe that Octopus is very well placed to source and secure some of the best investment opportunities,

generated by our extensive network and reputation in the early-stage market. We continue to be extremely excited by the opportunities presented to the Company and support its ambition to make the world a better place, and to deliver attractive returns to shareholders.

(1.) Latest data as at 1 February 2023.

Directors' responsibilities statement

The Directors confirm that to the best of their 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 Guidance 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 Board

Helen Sinclair

Chair

Income Statement

 
                                Unaudited six months to 31    Audited period to 30 June 
                                       December 2022           2022 
                              ------------------------------  ----------------------------------------- 
                               Revenue    Capital    Total     Revenue        Capital         Total 
                               GBP'000    GBP'000    GBP'000   GBP'000        GBP'000         GBP'000 
                              ---------  ---------  --------  --------  -------------------  -------- 
Net gain on valuation 
 of fixed asset investments          --         97        97        --                    9         9 
Investment management 
 fee                               (95)      (285)     (380)      (39)                (118)     (157) 
Investment income                    56         --        56        --                   --        -- 
Foreign exchange 
 translation                         27         --        27        --                   --        -- 
Other expenses                    (225)         --     (225)     (165)                   --     (165) 
----------------------------  ---------  ---------  --------  --------  -------------------  -------- 
Loss before tax                   (237)      (188)     (425)     (204)                (109)     (313) 
----------------------------  ---------  ---------  --------  --------  -------------------  -------- 
Tax                                  --         --        --        --                   --        -- 
----------------------------  ---------  ---------  --------  --------  -------------------  -------- 
Loss after tax                    (237)      (188)     (425)     (204)                (109)     (313) 
----------------------------  ---------  ---------  --------  --------  -------------------  -------- 
Loss per share -- 
 basic and diluted               (0.6)p     (0.5)p    (1.1)p    (1.6)p               (0.8)p    (2.4)p 
----------------------------  ---------  ---------  --------  --------  -------------------  -------- 
 
   -- The 'Total' column of this statement is the profit and loss account of 
      Future Generations VCT; the supplementary revenue return and capital 
      return columns have been prepared under guidance published by the 
      Association of Investment Companies (AIC). 
 
   -- All revenue and capital items in the above statement derive from 
      continuing operations. 
 
   -- Future Generations VCT has only one class of business and derives its 
      income from investments made in shares and securities and from bank and 
      money market funds.

Future Generations VCT has no other comprehensive income for the period.