Final Results
Octopus AIM VCT 2 plc
Final Results
Octopus AIM VCT 2 plc today announces the final results for the year ended 30 November 2023.
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’).
Financial Summary
| 30 November 2023 | 30 November 2022 | |
| Net assets (£’000) | 84,690 | 101,794 |
| Loss after tax (£’000) | (15,709) | (36,695) |
| Net asset value (NAV) per share (p) | 47.9 | 61.6 |
| Dividends per share paid in year (p) | 4.1 | 4.2 |
| Total return (%)1 | (15.6) | (27.5) |
| Final dividend proposed (p)2 | 1.8 | 2.3 |
| Special dividend proposed (p)2 | 3.6 | - |
| Ongoing charges (%)3 | 2.2 | 2.2 |
1 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.
2 Subject to shareholder approval at the Annual General Meeting, the proposed final and special dividends will be paid on 27 June 2024 to shareholders on the register on 31 May 2024.
3 Ongoing charges is an alternative performance measure calculated using the AIC recommended methodology.
Chair’s statement
Introduction
Firstly, I would like to welcome all new shareholders who have joined us in the past year.
The year to 30 November 2023 has been another extremely challenging period for stock markets in general, and smaller companies in particular, with the Alternative Investment Market ('AIM') Index once again the worst performer in 2023. The very real issue of inflation and the need to tighten monetary policy by raising interest rates further than had been anticipated when I wrote this statement a year ago has prolonged the pain for the share prices of companies exposed to growth sectors. It has also posed a particular challenge to the early stage companies in the portfolio which have yet to attain profitability. Against this background, the net asset value (NAV), which had already fallen by 8.8% on a total return basis in the first half of the year, declined further, ending the year 15.6% behind on a total return basis, in line with the AIM Index.
In the year under review AIM raised £1.6 billion of new capital, for new and existing companies, a decrease on the £3.0 billion raised in the previous year and a substantial fall from the high of £8.7 billion in 2021, reflecting continuing volatile market conditions. For the second year running new issues were very subdued and the majority of fundraisings in 2023 were for existing AIM companies seeking further capital. The Investment Manager made £3.9 million of new qualifying investments, down from £6.1 million the previous year. Although significant geo-political risks remain, market sentiment has improved more recently, with market commentators and economists taking a more optimistic stance on inflation and interest rates in 2024. The Investment Manager expects the pipeline of potential new issues to strengthen later this year, supplementing existing companies seeking further finance.
Performance
The NAV on 30 November 2023 was 47.9p per share, a sharp decline from the NAV of 61.6p per share reported at 30 November 2022. Adding back the 4.1p of dividends paid in the year, to adjust the year-end NAV to 52.0p, gives a total return decrease of 15.6%. In the same year, the FTSE AIM All-Share Index fell by 14.2%, the FTSE SmallCap (excluding investment trusts) Index increased by 2.7% and the FTSE All-Share Index rose by 1.8%, all on a total return basis.
As always, it was stock-specific factors that had the most significant impact on performance, and these are covered in more detail in the Investment Manager’s Review. As interest rates rose during the year investors became less willing to take risks and this had the greatest impact on the earlier stage companies exposed to the new economy (emerging, high growth industries expected to boost economic growth and productivity) which make up a significant proportion of our investment portfolio. The purpose of a VCT is to provide capital for small, growth companies at an early stage and the benefits of doing so have been clear in past periods. However, in the year under review it was the smallest AIM companies which were the worst performers. Additionally, AIM as a whole trailed the other UK indices because of its concentration of growth stocks and the larger and more profitable holdings in the portfolio saw valuations retreat to levels last seen at the time of the financial crisis. The FTSE Small Cap Index (excluding Investment Trusts) fared much better, helped by a strong recovery in November. It has a much narrower membership and its constituents were less affected by the conditions described above.
Dividends
In November 2023 an interim dividend of 1.8p was paid to all shareholders. The Board is recommending a final dividend in respect of the year to 30 November 2023 of 1.8p per share totalling 3.6p in respect of the year, which is a 6.2% yield on the prior year closing share price of 58.0p, all paid from special distributable reserves. In addition, as a result of taking exceptional profits in a number of long-term holdings during the year, most notably the full disposal of Ergomed, the Board is proposing a special dividend of 3.6p which will be paid at the same time as the final dividend. Including the special dividend, the total dividend in respect of the year is 7.2p which is a 12.4% yield on the prior year closing share price. Subject to the approval of shareholders at the Annual General Meeting ('AGM'), both dividends will be paid on 27 June 2024 to shareholders on the register on 31 May 2024. 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 closing share price, whichever is greater. This will usually be paid in two instalments during each year.
Shareholders are encouraged to ensure that the details held for them by the registrar remain accurate and to check whether they have received all dividends payable to them. This is particularly important for those who move house or change their bank account or email address. We are aware that some dividends remain unclaimed by shareholders, so if you believe you are impacted by this, please contact our registrar, Computershare, at the details provided in the Annual Report.
Cancellation of share premium account
At the last AGM, shareholders voted to cancel share premium to increase the pool of distributable reserves by the amount of £13.6 million. This is a regular occurrence to enable the continued payment of dividends and buyback of shares.
Board changes
There have been no board changes during the year although Elizabeth Kennedy has announced her intention to step down at the AGM in May. We thank her for her years of service to the Board, and wish her well in retirement. The Board have undertaken a recruitment process and were delighted to announce the appointment of Virginia Bull as a Director from 1 January 2024.
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. Over the course of the year 2,557,239 new shares have been issued under this scheme, returning £1.3 million to the Company. The final and special dividends referred to above will be eligible for the DRIS.
Share buybacks
During the year to 30 November 2023 the Company continued to buy back shares in the market from selling shareholders and purchased 6,011,097 Ordinary shares for a total consideration of £3.1 million. We have maintained a discount of approximately 4.5% to NAV (equating to up to a 5% discount to the selling shareholder after costs), which the Board monitors and intends to retain as a policy which fairly balances the interests of both remaining and selling shareholders. Buybacks remain an essential practice for VCTs, as providing a means of selling is an important part of the initial investment decision and has enabled the Company to grow. As such, I hope you will all support the appropriate resolution at the AGM.
Share issues
On 14 September 2023, a prospectus offer was launched alongside Octopus AIM VCT plc to raise a combined total of up to £20 million, with a £10 million over-allotment facility. The offer closed fully subscribed on 21 December 2023 with £11.4 million being raised for the Company, £7.0 million of which was raised in the year to 30 November 2023. A total of 17,713,658 shares were issued during the year, raising £8.4 million after costs for the Company.
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, 37.5% of the Company’s net assets were held in cash or collective investment funds including funds managed by the team at Octopus and money market funds, providing short-term liquidity, 54.3% in individual quoted shares and 8.6% was held in unquoted single company investments. Shareholders should be aware that a proportion of the quoted securities may have limited liquidity owing to the size of the portfolio company and the overall proportion held by the Company.
VCT status
Shoosmiths LLP provide 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. A key requirement is to maintain at least an 80% qualifying investment level. As at 30 November 2023, the level was 85.4%.
Annual General Meeting
The AGM will take place on 16 May 2024 at 12.00pm. Further information can be found in the Notice of Annual General Meeting. The Investment Manager will provide an update on the Company's activities and future plans at the AGM.
Formal notices will be sent to shareholders by their preferred method (email or post) and shareholders are encouraged to submit their votes by proxy. We always welcome questions from our shareholders at the AGM. Please send these via email to AIMVCT2AGM@octopusinvestments.com by 5.00pm on 13 May 2024 if you are unable to attend the AGM in person.
If your shares are held through a nominee account, formal notices will be sent to your nominee.
Outlook
Although significant geo-political and economic risks remain, the positive stock market reaction to lower inflation figures in November demonstrated how quickly share prices can turn when commentators start to believe that interest rates will start to fall in response to a more positive macro-economic environment. Strategists are now aligned on interest rate cuts later in 2024 which will be supportive of a recovery in equity markets following a very challenging period. Meanwhile GDP and corporate earnings continue to hold up better than many analysts were predicting, reinforcing the Investment Manager’s belief that any further impact on corporate earnings is already reflected in share prices at current valuations.
The portfolio contains 83 holdings across a range of sectors with exposure to some exciting new technologies in the environmental and healthcare sectors. Although the current market environment remains challenging for those companies in need of further funding, this can provide the Investment Manager with good opportunities to invest newly raised cash at attractive valuations. The balance of the portfolio towards profitable companies remains, with the majority of these now trading at a significant valuation discount to their long term averages.
We are also pleased that the sunset clause in place for April 2025, regarding eligibility of VCT’s for tax relief, has been extended to April 2035 and seems likely to be removed all together in due course.
Keith Mullins
Chair
Investment Manager’s review
Introduction
Many of the equity market and economic trends seen in 2022 flowed through into 2023. Concerns about rising inflation, continued interest rate hikes, the possibility of a protracted recession and a consumer credit crunch affected sentiment for most of the year. Moreover, geo-political conflict continues unabated, from Russia’s war with Ukraine to violence in the Middle East. This dampened investor sentiment and, in its wake, fuelled equity market volatility for most of the year. However, we ended the year with inflation data confirming that UK inflation had begun to ebb and that the widely anticipated recession might not appear. Furthermore, this led to a growing consensus amongst strategists and economists, that the UK (and other major global economies) will see a fall in interest rates in the coming year. This should provide much needed and long-awaited support for equity markets, particularly small growth companies, following a very challenging period. In 2024, the debate amongst market strategists and economists is focused on whether inflation will stay on its downward path, interest rates will be cut aggressively, and if upcoming elections will bring in any impactful changes.
Against a challenging macro-economic and stock market environment, AIM continued to retreat over the period signalling that small, growth companies remained out of favour. Despite this, AIM raised further capital for existing listed companies and the AIM Initial Public Offering ('IPO') market (albeit slower), was still active in the second half of the year. With the appetite for risk still to rebound, small, growth companies in the UK remain undervalued and well below their long-term valuation range, which in turn creates a strong opportunity for potential revaluation when stock markets recover. Since the period end some confidence has been restored, helped by encouraging January and February trading updates.
The Alternative Investment Market
The performance of AIM over the last year was disappointing, with the appetite for small growth companies impacted more by macro-headwinds compared to its larger peers. In the 12 months to November 2023 the AIM Index fell by 14.2% compared with an increase of 2.7% for the FTSE SmallCap index (excluding investment companies) and a rise of 1.8% for the FTSE All-Share Index, all on a total return basis.
AIM has a high exposure to growth stocks in the software, technology and healthcare sectors, which counted against it as sentiment moved against highly rated growth stocks as inflationary and recessionary pressures intensified. Although VCTs have additional constraints on what they can invest in, the AIM Index is considered to be the most appropriate broad equity market index for comparative purposes, given the nature of the underlying investments. The FTSE SmallCap and All-Share indices provide wider market context. The continued movement away from growth and momentum-driven shares and subsequent weak performance of AIM versus its market peers, highlighted that investors sought value in more traditional sectors which has been the case for the last two years.
The rate of IPOs on AIM remained slow, while the number of companies leaving the market throughout 2023 picked up pace. There was a total of 14 IPOs on AIM over the year, compared to 31 the previous financial year. AIM ended the year with 760 companies, which was down 7% on the previous year. We still believe in the importance of functioning equity markets as a driver of growth in the UK, particularly at the smaller, growth company end, where the Company invests. Although the pipeline for new issues remains active in the new financial year, the significance of VCTs as a critical funding platform for smaller companies remains which is evident by the flow of further fundraisings on AIM over the year and since the year end albeit at a slower speed than previous years. In the year to 30 November 2023 AIM raised £1.5 billion of new capital for existing companies, which compares to a figure of £2.7 billion the previous year. Furthermore, we were encouraged by the government’s decision to address pension policy reform, in the Mansion House Reforms in the Treasury’s Autumn Budget statement.
Performance
Adding back the 4.1p of dividends paid in the year, the NAV total return was a loss of 15.6%. This compares with a fall in the FTSE AIM All-Share Index of 14.2%, a rise in the FTSE SmallCap (excluding investment companies) of 2.7% and a small rise in the FTSE All-Share Index of 1.8% all on a total return basis. The last year was again characterised by months of significant market volatility in response to both global and local economic uncertainty. Rising inflationary and interest rate expectations were the dominant theme and seeped their way into weaker consumer confidence and the reality of a credit crunch affected many in the UK. This was not helped as the impact of variable rates extended to those ending fixed rate arrangements. As a result, the soft landing of lower energy and food prices in the latter part of the year was barely felt. Despite the squeeze on consumer spending, interest rate expectations continued to rise more steeply than had previously been anticipated. Between December 2021 and August 2023, the Bank of England raised interest rates a total of 14 times from a low of 0.1% to the current level of 5.25%. Against this background, performance in the FTSE AIM All-Share Index was affected by the momentum away from smaller, growth companies and the move towards lower risk appetite drove the investment in traditional sectors and larger well-established companies. This largely explains the fall in the NAV in the year under review. The portfolio’s relatively high exposure to higher rated growth companies (particularly healthcare and technology sectors) was detrimental to performance in a market environment where risk averse investors have little appetite for earlier stage growth stocks. Predictably, volatile market dynamics led to greater investor focus not just on product/service offering, but on healthy balance sheets and the ability to access financing. The VCT rules require investment to be made at this early stage and the benefits of doing so have been clear in many past periods.
Some of the larger, profitable holdings in the portfolio were affected by the poor market sentiment towards AIM growth stocks, which included GB Group, IDOX plc and Craneware. Learning Technologies was the biggest detractor to the performance of the portfolio over the year. The company’s trading performance was affected by the challenging macro environment which impacted both transaction and project-based work. However, this has prompted a much needed refocus on profitability and technology redevelopment. Furthermore, the company recently embarked on a plan to accelerate its support of higher growth areas of the business that are more aligned with its core proposition of digital learning and talent management, through the sale of non-core assets which will enable it to fund future value-enhancing acquisitions. Libertine Holdings had a very challenging year. Despite this the company continuing to support the integration of its HEXAGEN™ technology platform with Hyliion Holdings Corp. and develop its intelliGEN™ technology platform through grant funded operations with the Department for Business, Energy and Industrial Strategy, alongside a number of other commercial projects. Furthermore, the company has completed work on performance validation prototypes for both the intelliGEN™ and HEXAGEN™ platforms and is currently working on performance and durability enhancements, which it is confident will meet the requirements of Original Equipment Manufacturer product development programmes expected to commence in 2024. However, the need for further raising to enable the development of its technology weighs down on the share price performance. SDI Group disappointed a couple of times over the year due to the end of a contract with Atik cameras, which had been lucrative over the Covid period. However, we are encouraged by the recent change in the management team and the new CEO comes with a wealth of operational experience in the sector. Later in the year, Sosandar announced its decision to open own-branded retail outlets in the UK and the move away from being a pure play retail online business came as a surprise to the market, affecting its rating. Though the decision will likely increase the costs of the business in the short term, the instore retail offering allows the company to capitalise on the growth of its brand visibility and popularity in existing major UK retail stores (both instore and online) which include Sainsbury’s Tu, NEXT and Marks & Spencer. Encouragingly, and despite slowing down its discount strategy, the company had a strong calendar year end trading period and has returned to quarterly profitability. ENGAGE XR, the spatial computing and metaverse technology company, had a mixed trading year. Although the company continues to expand its reach globally, including securing contracts with global banks, the slippage of a few sizeable contracts over the year has led to a recent downgrade. However, we are encouraged by the progress the company is achieving across the US.
On the positive side, we have seen many companies in the portfolio report solid trading performances over the period which was reflected in their share prices and contributed positively to the portfolio performance. This included Breedon, who continued to benefit from its dynamic pricing strategy and focus on operational excellence throughout the year, putting them in a strong position despite macro-economic and industry headwinds. As a result, the company had a series of revenue and profit upgrades during the year. Equipmake, the provider of electric drivetrain solutions for heavy vehicles and aerospace, made progress over the year and now has working buses in York and secured contracts within the global aerospace industry. Although a positive contributor to the portfolio over the year, Vertu Motor’s trading performance has been affected by tough conditions in the used car market. Wholesale values in the used market reduced significantly at the latter end of the year as a result of the higher supply of new cars. This coupled with weak consumer demand impacted sales volumes. Having had a fairly volatile share price performance the previous year, Ergomed had a solid trading performance throughout the year, recording strong revenue and profit growth. However, the company was approached by Premia, a private equity firm and the bid was duly accepted. Other exits in the portfolio over the year and since the period end include Adept Telecom, TP Group, Glantus and Falanx.
In our private company holdings, Hasgrove had its valuation increased over the year due to a growing recurring revenue base and a strong balance sheet. General market weakness that impacted quoted company share price performance resulted in the proportion of the portfolio represented by unquoted investments increasing.
Portfolio activity
Having made two qualifying investments at a total cost of £1.2 million in the first half of the year, we added two new qualifying investments totalling £1.4 million as well as two follow-on investments totalling £1.3 million in the second half of the year. This made a total investment of £3.9 million in qualifying investments for the year, a decrease on last year’s £6.3 million, reflecting a slower AIM market for both fundraisings and new issues. Post the year end, we have invested a further £2.1 million in 5 qualifying investments.
Of the two first half investments, one was a follow-on investment in Equipmake Holdings plc and one was a new entrant to AIM, Itaconix plc.
We invested in two new issues in the second half of the year, Tan Delta Systems plc and Eden Research plc, and made follow on investments into Haydale Graphene Industries plc and Rosslyn Data Technologies plc. In August, we made a £0.3 million investment in Tan Delta Systems plc, a global manufacturer of real-time oil quality monitoring sensors and systems and a new entrant to AIM. In September, we invested approximately £0.5 million in Rosslyn Data Technologies plc, a United Kingdom-based provider of a cloud-based enterprise data analytics platform and an existing AIM-listed company. In November, we made two investments, a follow-on investment in Haydale Graphene Industries plc (£0.8 million), a supplier of production quantities of functionalized graphene nanomaterials for innovative materials development and a new investment in Eden Research plc (£1.1 million), a company that develops and supplies biopesticide products and natural microencapsulation technologies.
During the year we sold partial holdings in eight companies, six of these where we took profits into rising share prices, Judges Scientific, Cirata, EKF Diagnostics, Equipmake, Nexteq and Intelligent Ultrasound. We also had full disposals of six holdings being Adept Telecom plc, Ergomed, Osirium Technologies, TP Group, Itsarm and Glantus Holdings. Total disposals made a £3.8 million gain over original cost and generated £9.2 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. During the year we increased our holdings in the FP Octopus Micro Cap Fund, FP Octopus Multi Cap Income Fund and the FP Octopus Future Generation Fund, investing a total of £2.0 million over the period and disposed of part of our holding in FP Octopus UK Multi Cap Income Fund for £1.5 million.
VCT regulations
There have been no further changes to the VCT regulations since publication of the previous set of audited accounts, however the sunset clause was extended to 2035 in the recent Autumn statement. As a reminder, the current requirements are that 30% of any funds raised should be invested in qualifying holdings within 12 months of the end of the accounting period in which the shares were issued, and the Company has to maintain a minimum of 80% of the portfolio (at HMRC value) invested in qualifying holdings. We are determined to maintain a threshold of quality and to invest where we see the potential for returns from growth. At present there has been only gradual change to the profile of the portfolio, as we continue to hold the larger market capitalisation companies, in which we invested several years ago as qualifying companies, or which we bought in the market prior to the rule changes where we see the potential for them to continue to grow.
In order to qualify, companies must:
- have fewer than 250 full time equivalent employees; and
- have less than £15 million of gross assets at the time of investment and no more than £16 million immediately post investment; and
- be less than seven years old from the date of its first commercial sale (or ten years if a knowledge intensive company) if raising state aided (i.e. VCT) funds for the first time; and
- have raised no more than £5 million of state aided funds in the previous 12 months and less than the lifetime limit of £12 million (or since 6 April 2018 £10 million in 12 months, £20 million lifetime limit if a knowledge intensive company); and
- produce a business plan to show that the funds are being raised for growth and development.
Outlook and future prospects
Against a backdrop of economic, geopolitical and market uncertainty, risk appetite, particularly for smaller companies, remains low leaving UK equities materially undervalued relative to other developed markets. The macro dynamics continue to be a key area of focus with a particular attention on the direction of inflation and timing of interest rate cuts which appear to be the main lever driving market sentiment. Consensus among economists still indicates that interest rates have peaked, with cuts on the way this year expected by the end of the third quarter. The news that the UK is in a recession following the economy’s contraction for two consecutive quarters in 2023 has dampened some of the market momentum seen at the end of 2023. However, we have been encouraged by the number of positive trading statements and general news flow from many holdings in the portfolio since the period end. We believe that smaller, growth companies, in particular, offer exceptional value, reflected by many holdings within the portfolio trading at historically low valuation multiples not seen since the Financial Crisis. Reassuringly, the VCT qualifying pipeline remains active and the current market conditions provide opportunities to invest at attractive valuations.
The Octopus Quoted Companies team
Octopus Investments Limited
Viability statement
As part of their continuing programme of monitoring risk the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the ‘going concern’ provision. The Board conducted this review for a period of five years, which was considered to be a reasonable time horizon given that the Company has raised funds under an offer for subscription which closed to new applications on 21 December 2023 and, under VCT rules, subscribing investors are required to hold their investment for a five year period in order to benefit from the associated tax reliefs. The Board regularly considers the Company’s strategy, including investor demand for the Company’s shares, and a five-year period is considered to be a reasonable time horizon for this.
The Board carried out a robust assessment of the emerging and principal risks facing the Company and its current position. This includes the impact of the cost of living crisis, the unstable economic environment and any other risks which may adversely impact its business model such as future performance, solvency or liquidity. Particular consideration was given to the Company’s reliance on, and close working relationship with, the Investment Manager. The principal risks faced by the Company and the procedures in place to monitor and mitigate them are set out below.
The Board has also considered the liquidity of the underlying investments and the Company’s cash flow projections and found these to be realistic and reasonable. The Company’s cash flow includes cash equivalents which are short-term, highly liquid investments.
Based on the above assessment the Board confirms that it has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period to 30 November 2028.
Principal risks, risk management and regulatory environment
The Board carries out a regular review of the risk environment in which the Company operates. The Board seeks to mitigate risks by setting policy, reviewing performance and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business reporting. Detailed below are what the Board deems to be the principal risks of the Company and the mitigating actions in relation to those risks.
| Risk | Mitigation |
| Investment risk: The focus of the Company’s investments is into VCT qualifying companies quoted on AIM and the AQSE exchange, which by their nature entail a higher level of risk and lower liquidity than investments in larger quoted companies. | The Investment Manager has significant experience and a strong track record of investing in AIM and AQSE companies, and appropriate due diligence is undertaken on every new investment. The overall risk in the portfolio is mitigated by maintaining a wide spread of holdings in terms of financing stage, age, industry sector and business models. The Board reviews the investment portfolio with the Investment Manager on a regular basis. |
| VCT qualifying status risk: The Company is required at all times to observe the conditions for the maintenance of HMRC approved VCT status. The loss of such approval could lead to the Company and its investors losing access to the tax benefits associated with VCT status and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment. | Prior to investment, the Investment Manager seeks assurance that the investment will meet the legislative requirements for VCT investments. On an ongoing basis, the Investment Manager monitors the Company’s compliance with VCT regulations on a current and forecast basis to ensure ongoing compliance with VCT legislation. Regular updates are provided to the Board throughout the year. The VCT status adviser formally reviews the Company’s compliance with VCT regulations on a bi-annual basis and reports its results to the Board. |
| Operational risk: The Board is reliant on the Investment Manager to manage investments effectively, and manage the services of a number of third parties, in particular the registrar and tax advisors. A failure of the systems or controls at the Investment Manager or third-party providers could lead to an inability to provide accurate reporting and to ensure adherence to VCT and other regulatory rules. | The Board reviews the system of internal control, both financial and non-financial, operated by the Investment Manager (to the extent the latter are relevant to the Company’s internal controls). These include controls that are designed to ensure that the Company’s assets are safeguarded and that proper accounting records are maintained, as well as any regulatory reporting. Feedback on other third parties is reported to the Board on at least an annual basis, including adherence to service level agreements where relevant. |
| Information security: A loss of key data could result in a data breach and fines. The Board is reliant on the Investment Manager and third parties to take appropriate measures to prevent a loss of confidential customer information. | Annual due diligence is conducted on third parties which includes a review of their controls for information security. The Investment Manager has a dedicated information security team and a third party is engaged to provide continual protection in this area. A security framework is in place to help prevent malicious events. The Investment Manager reports to the Board on an annual basis to update them on relevant information security arrangements. Significant and relevant information security breaches are escalated to the Board when they occur. |
| Economic: Events such as an economic recession, movement in interest rates, inflation, political instability and rising living costs could cause volatility in the market, adversely impacting the valuation of investments. This could result in a reduction in the value of the Company’s assets. | The Company invests in a diverse portfolio of companies across a range of sectors, which helps to mitigate against the impact of poor performance in any one sector. The Company also maintains adequate liquidity to ensure that it can continue to provide follow-on investment to those portfolio companies which require it and which is supported by the individual investment case. The Investment Manager monitors the impact of macroeconomic conditions on an ongoing basis and provides updates to the Board at least quarterly. |
| Legislative: A change to the VCT regulations could adversely impact the Company by restricting the companies the Company can invest in under its current strategy. Similarly, changes to VCT tax reliefs for investors could make VCTs less attractive and impact the Company’s ability to raise further funds. Failure to adhere with other relevant legislation and regulation could result in reputational damage and/or fines. | The Investment Manager engages with HM Treasury and industry bodies to demonstrate the positive benefits of VCTs in terms of growing UK companies, creating jobs and increasing tax revenue, and to help shape any change to VCT legislation. The Investment Manager employs individuals with expertise across the legislation and regulation relevant to the Company. Individuals receive ongoing training and external experts are engaged where required. |
| Liquidity: The risk that the Company’s available cash will not be sufficient to meet its financial obligations. The Company invests into smaller companies, which are inherently less liquid than stocks on the main market. Therefore, these may be difficult to realise for their fair market value at short notice. | The Investment Manager prepares cash flow forecasts to ensure cash levels are maintained in accordance with policies agreed with the Board. The Company’s overall liquidity levels are monitored on a quarterly basis by the Board, with close monitoring of available cash resources. The Company maintains sufficient cash and readily realisable securities, including money market funds and OEICs, which can be accessed at short notice. At 30 November 2023, 27.1% of net assets was held in cash and cash equivalents, realisable within one business day, and 10.4% in OEICs, realisable in seven business days. |
| Valuation: For smaller companies or illiquid shares, establishing a fair value can be difficult due to the lack of readily available market data for similar shares, resulting in a limited number of external reference points. | Investments in companies traded on AIM and AQSE exchange are valued by the Investment Manager using closing bid prices as reported on Bloomberg. Where investments are in unquoted companies or where there are indicators the bid price is not appropriate, alternative valuation techniques are used in accordance with the IPEV guidelines. Valuations of unquoted portfolio companies are performed by appropriately experienced staff, with detailed knowledge of both the portfolio company and the market in which it operates. These valuations are then subject to review and approval by the Octopus Valuations Committee, comprised of staff who are independent of the Investment team and with relevant knowledge of unquoted company valuations. The Board reviews valuations after they have been agreed by the Octopus Valuations Committee. |
Emerging risks
The Board has considered emerging risks. The Board seeks to mitigate emerging risks and those noted below by setting policy, regular review of performance and monitoring progress and compliance.
The following are some of the potential emerging risks management and the Board are currently monitoring:
- Adverse changes in global macroeconomic environment
- Geo-political tensions
- Climate change
Directors' responsibilities statement
The Directors are responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable laws and regulations. They are also responsible for ensuring that the annual report and accounts include information required by the Listing Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (GAAP), including Financial Reporting Standard 102 – ‘The Financial Reporting Standard Applicable in the United Kingdom and Republic of Ireland’ (FRS 102), (United Kingdom accounting standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
• prepare a Strategic Report, a Director’s Report and Director’s Remuneration Report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.
In so far as each of the Directors is aware:
• there is no relevant audit information of which the Company’s auditor is unaware; and
• the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.
The Directors are responsible for preparing the annual report and accounts in accordance with applicable laws and regulations. Having taken advice from the Audit Committee, the Directors are of the opinion that this report as a whole provides the necessary information to assess the Company’s performance, business model and strategy and is fair, balanced and understandable.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that, to the best of their knowledge:
• the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
• the annual report and accounts (including the Strategic Report), give a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
On behalf of the Board
Keith Mullins
Chair
Income statement
| Year to 30 November 2023 | Year to 30 November 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £’000 | £’000 | £'000 | £’000 | £’000 | |
| Gain/(loss) on disposal of fixed asset investments | - | 668 | 668 | - | (32) | (32) |
| Loss on disposal of current asset investments | - | (91) | (91) | - | - | - |
| Loss on valuation of fixed asset investments | - | (14,333) | (14,333) | - | (31,821) | (31,821) |
| Loss on valuation of current asset investments | - | (1,047) | (1,047) | - | (2,946) | (2,946) |
| Investment income | 1,194 | - | 1,194 | 589 | 19 | 608 |
| Investment management fees | (393) | (1,179) | (1,572) | (481) | (1,443) | (1,924) |
| Other expenses | (528) | - | (528) | (580) | - | (580) |
| Profit/(loss) before tax | 273 | (15,982) | (15,709) | (472) | (36,223) | (36,695) |
| Tax | - | - | - | - | - | - |
| Total comprehensive Income/(loss) after tax | 273 | (15,982) | (15,709) | (472) | (36,223) | (36,695) |
| Earnings per share – basic and diluted | 0.2p | (9.8p) | (9.6p) | (0.3p) | (24.5p) | (24.8p) |
• The ‘Total’ column of this statement represents the statutory income statement of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice.
• All revenue and capital items in the above statement derive from continuing operations.
• The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds, as well as OEIC funds.
The Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of comprehensive income is not required.
The accompanying notes are an integral part of the Financial Statements.
Balance sheet
| As at 30 November 2023 | As at 30 November 2022 | |||
| £’000 | £’000 | £’000 | £’000 | |
| Fixed asset investments | 53,288 | 72,249 | ||
| Current assets: | ||||
| Investments | 8,796 | 9,399 | ||
| Money market funds | 21,893 | 3,515 | ||
| Debtors | 152 | 205 | ||
| Cash at bank | 1,045 | 17,217 | ||
| 31,886 | 30,336 | |||
| Creditors: amounts falling due within one year | (484) | (791) | ||
| Net current assets | 31,402 | 29,545 | ||
| Total assets less current liabilities | 84,690 | 101,794 | ||
| Called up equity share capital | 18 | 17 | ||
| Share premium | 7,619 | 12,904 | ||
| Capital redemption reserve | 3 | 3 | ||
| Special distributable reserve | 80,043 | 76,154 | ||
| Capital reserve realised | (5,400) | (5,843) | ||
| Capital reserve unrealised | 4,765 | 21,190 | ||
| Revenue reserve | (2,358) | (2,631) | ||
| Total equity shareholders’ funds | 84,690 | 101,794 | ||
| NAV per share – basic and diluted | 47.9p | 61.6p | ||
The statements were approved by the Directors and authorised for issue on 7 March 2024 and are signed on their behalf by:
Keith Mullins
Chair
Company No: 05528235
The accompanying notes are an integral part of the Financial Statements.
Statement of changes in equity
| Share capital £’000 | Share premium £’000 | Capital redemption reserve £’000 | Special distributable reserves1 £’000 | Capital reserve realised1 £’000 | Capital reserve unrealised £’000 | Revenue reserve1 £’000 | Total £’000 | |
| As at 1 December 2022 | 17 | 12,904 | 3 | 76,154 | (5,843) | 21,190 | (2,631) | 101,794 |
| Comprehensive income/(loss) for the year: | ||||||||
| Management fee allocated as capital expenditure | - | - | - | - | (1,179) | - | - | (1,179) |
| Current year net gain on disposal | - | - | - | - | 577 | - | - | 577 |
| Current year loss on fair value of investments | - | - | - | - | - | (15,380) | - | (15,380) |
| Profit after tax | - | - | - | - | - | - | 273 | 273 |
| Total comprehensive loss for the year | - | - | - | - | (602) | (15,380) | 273 | (15,709) |
| Contributions by and distributions to owners: | ||||||||
| Repurchase and cancellation of own shares | - | - | - | (3,076) | - | - | - | (3,076) |
| Issue of shares | 1 | 8,821 | - | - | - | - | - | 8,822 |
| Share issue costs | - | (468) | - | - | - | - | - | (468) |
| Dividends paid | - | - | - | (6,673) | - | - | - | (6,673) |
| Total contributions by and distributions to owners | 1 | 8,353 | - | (9,749) | - | - | - | (1,395) |
| Other movements: | ||||||||
| Cancellation of share premium | - | (13,638) | - | 13,638 | - | - | - | - |
| Prior years’ holding gains now realised | - | - | - | - | 3,215 | (3,215) | - | - |
| Transfer between reserves | - | - | - | - | (2,170) | 2,170 | - | - |
| Total other movements | - | (13,638) | - | 13,638 | 1,045 | (1,045) | - | - |
| Balance as at 30 November 2023 | 18 | 7,619 | 3 | 80,043 | (5,400) | 4,765 | (2,358) | 84,690 |
| Share capital £’000 | Share premium £’000 | Capital redemption reserve £’000 | Special distributable reserves1 £’000 | Capital reserve realised1 £’000 | Capital reserve unrealised £’000 | Revenue reserve1 £’000 | Total £’000 | |
| As at 1 December 2021 | 15 | 54,600 | 2 | 30,826 | (4,533) | 56,103 | (2,159) | 134,854 |
| Comprehensive income/(loss) for the year: | ||||||||
| Management fee allocated as capital expenditure | - | - | - | - | (1,443) | - | - | (1,443) |
| Current year loss on disposal | - | - | - | - | (32) | - | - | (32) |
| Current year loss on fair value of investments | - | - | - | - | - | (34,767) | - | (34,767) |
| Capital investment income | - | - | - | - | 19 | - | - | 19 |
| Loss after tax | - | - | - | - | - | - | (472) | (472) |
| Total comprehensive loss for the year | - | - | - | - | (1,456) | (34,767) | (472) | (36,695) |
| Contributions by and distributions to owners: | ||||||||
| Repurchase and cancellation of own shares | (1) | - | 1 | (3,117) | - | - | - | (3,117) |
| Issue of shares | 3 | 13,698 | - | - | - | - | - | 13,701 |
| Share issue costs | - | (794) | - | - | - | - | - | (794) |
| Dividends paid | - | - | - | (6,155) | - | - | - | (6,155) |
| Total contributions by and distributions to owners | 2 | 12,904 | 1 | (9,272) | - | - | - | 3,635 |
| Other movements: | ||||||||
| Cancellation of share premium | - | (54,600) | - | 54,600 | - | - | - | - |
| Prior years’ holding gains now realised | - | - | - | - | 146 | (146) | - | - |
| Total other movements | - | (54,600) | - | 54,600 | 146 | (146) | - | - |
| Balance as at 30 November 2022 | 17 | 12,904 | 3 | 76,154 | (5,843) | 21,190 | (2,631) | 101,794 |
1Included within these reserves is an amount of £72,285,000 (2022: £67,680,000) which is considered distributable to shareholders under Companies Act rules.
The accompanying notes are an integral part of the Financial Statements.
Cash flow statement
| Year to 30 November 2023 | Year to 30 November 2022 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Loss on ordinary activities before tax | (15,709) | (36,695) |
| Adjustments for: | ||
| Decrease/(increase) in debtors | 53 | (20) |
| Decrease in creditors | (82) | (196) |
| (Gain)/loss on disposal of fixed assets | (668) | 32 |
| Loss on disposal of current asset investments | 91 | – |
| Loss on valuation of fixed asset investments | 14,333 | 31,821 |
| Loss on valuation of current asset investments | 1,047 | 2,946 |
| Non-cash distributions | – | (19) |
| Net cash utilised in operating activities | (935) | (2,131) |
| Cash flows from investing activities | ||
| Purchase of fixed asset investments | (4,086) | (6,071) |
| Proceeds from sale of fixed asset investments | 9,157 | 2,249 |
| Purchase of current asset investments | (2,040) | (352) |
| Proceeds from sale of current asset investments | 1,505 | - |
| Total cash flows generated from/(utilised in) investing activities | 4,536 | (4,174) |
| Cash flows from financing activities | ||
| Purchase of own shares | (3,076) | (3,117) |
| Share issues net of DRIS | 7,519 | 12,502 |
| Share issue costs net of DRIS | (468) | (794) |
| Dividends paid net of DRIS | (5,370) | (4,956) |
| Total cash flows (utilised in)/generated from financing activities | (1,395) | 3,635 |
| Increase/(decrease) in cash and cash equivalents | 2,206 | (2,670) |
| Opening cash and cash equivalents | 20,732 | 23,402 |
| Closing cash and cash equivalents | 22,938 | 20,732 |
| Closing cash and cash equivalents is represented by: | ||
| Cash at bank | 1,045 | 17,217 |
| Money market funds | 21,893 | 3,515 |
| Total cash and cash equivalents | 22,938 | 20,732 |
The accompanying notes are an integral part of the Financial Statements.
Events after the end of the reporting period
The following events occurred between the balance sheet date and the signing of these financial statements.
- an investment of £600,000 into Verici Dx plc
- an investment of £534,204 into GENinCode plc
- an investment of £129,600 into Equipmake Holdings plc
- an investment of £199,998 into Alusid Limited
- a loan note of £600,000 into Strip Tinnings Holdings plc
- an investment of £120,000 into FP Octopus UK Future Generations Fund
- a partial disposal of 141,437 shares in FP Octopus UK Multi Cap Income Fund for total consideration of £200,000
- a partial disposal of 762,912 shares in Polarean Imaging plc for total consideration of £45,682
- a partial disposal of 2,800 shares in Judges Scientific plc for total consideration of £293,411
- a full disposal of 8,298,059 shares in Velocys plc for total consideration of £20,745
- a full disposal of 2,526,666 shares in Clean Power Hydrogen plc for total consideration of £213,038
- a full disposal of 108,404 shares in Renalytix plc for total consideration of £98,254
The following shares have been allotted since the year end:
- 14 December 2023: 5,635,893 Ordinary shares at a price of 50.5p per share
- 11 January 2024: 3,555,668 Ordinary shares at a price of 51.4p per share
The following shares have been bought back since the year end:
- 14 December 2023: 791,619 shares at a price of 45.9p per share
- 18 January 2024: 408,110 shares at a price of 46.6p per share
- 22 February 2024: 448,271 shares at a price of 46.8p per share
Notes to the financial statements
1. Principal accounting policies
The Company is a Public Limited Company (“plc”) incorporated in England and Wales and its registered office is 6th Floor, 33 Holborn, London, EC1N 2HT.
The Company’s principal activity is to invest in a diverse portfolio of predominantly AIM-traded companies with the objective of providing shareholders with attractive tax-free dividends and long-term capital growth.
Basis of preparation
The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (GAAP), including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (FRS 102), and with the Companies Act 2006 and the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts (issued 2014 and updated in July 2022 with consequential amendments).’
The principal accounting policies have remained unchanged since those set out in the Company’s 2022 annual report and accounts.
2. Income
Accounting policy
Investment income includes interest earned on money market securities and shown net of income tax withheld at source. Dividend income is shown net of any related tax credit. Dividends are allocated to revenue or capital depending on whether the dividend is of a revenue or capital nature.
Dividends receivable are recognised when the Company’s right to receive payment is established and it is probable that payment will be received. Fixed returns on debt and money market securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course.
Disclosure
| 30 November | 30 November | |
| 2023 | 2022 | |
| £’000 | £’000 | |
| Dividends receivable from fixed asset investments | 563 | 522 |
| In-specie dividend1 | - | 19 |
| Loan note interest receivable | 20 | 30 |
| Income receivable on money market securities and bank balances | 611 | 37 |
| 1,194 | 608 |
1There was no in-specie dividend for the year ended 30 November 2023. In the prior period, the Company received shares in Verici Dx plc as a result of an in-specie dividend from EKF Diagnostics Holdings plc. These have been treated as capital income.
3. Investment management fees
| 30 November 2023 | 30 November 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Investment management fees | 393 | 1,179 | 1,572 | 481 | 1,443 | 1,924 |
Octopus provide investment management and accounting and administration services to the Company under a management agreement which initially ran for a period of five years with effect from 6 October 2005 and may be terminated at any time thereafter by not less than 12 months’ notice given by either party. No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The management fee is an annual charge and is set at 2% of the Company’s net assets. The Investment Manager is not entitled to any annual performance incentive scheme.
During the year Octopus charged gross management fees of £1,860,000 (2022: £2,266,000). When the various allowances detailed below are included, the net management fee for the year is £1,572,000 (2022: £1,924,000). At the year end £356,000 was payable to Octopus (2022: £395,000). Octopus received £154,000 as a result of upfront fees charged on allotments of Ordinary shares (2022: £186,000). The decrease in upfront fees this year has proportionately decreased in line with the value of allotments in the year.
The Company pays ongoing adviser charges to independent financial advisers (IFAs). Ongoing adviser charges are an ongoing fee of up to 0.5% per annum of the amount invested for a maximum of nine years paid to Advisers who are on an advised and ongoing fee structure. The Company is rebated for this cost by way of a reduction in the annual management fee. For the year to 30 November 2023 the rebate received was £105,000 (2022: £133,000).
The Company also facilitates upfront fees to IFAs where an investor has invested through a financial adviser and has received upfront advice. Where an investor agrees to an upfront fee only, the Company can facilitate a payment of an initial adviser charge of up to 4.5% of the investment amount. If the investor chooses to pay their intermediary/adviser less than the maximum initial adviser charge, the remaining amount will be used for the issue and allotment of additional new shares for the investor. In these circumstances the Company does not facilitate ongoing annual payments. To ensure that the Company is not financially disadvantaged by such payment, a notional ongoing adviser charge equivalent to 0.5% per annum of the amount invested will be deemed to have been paid by the Company for a period of nine years. The Company is rebated for this cost, also by way of a reduction in the annual management fee. For the year to 30 November 2023 the rebate received was £127,000 (2022: £152,000).
The Company also receives a reduction in the management fee for the investments in other Octopus managed funds, being the Multi Cap, Micro Cap Growth and Future Generations products, to ensure the Company is not double charged on these products. This amounted to £56,000 for the year to 30 November 2023 (2022: £57,000).
The management fee has been allocated 25% to revenue and 75% to capital, in line with the Board’s expected long-term return in the form of income and capital gains respectively from the Company’s investment portfolio.
4. Other expenses
Accounting policy
All expenses are accounted for on an accruals basis and are charged wholly to revenue, apart from management fees which are charged 25% to revenue and 75% to capital.
The transaction costs incurred when purchasing or selling assets are written off to the income statement in the period that they occur.
Disclosure
| 30 November 2023 | 30 November 2022 | |
| £’000 | £’000 | |
| Other administration expenses | 145 | 204 |
| IFA charges | 105 | 133 |
| Directors’ remuneration | 103 | 106 |
| Audit fees | 51 | 42 |
| Registrar fees | 49 | 47 |
| Printing and postage | 22 | 10 |
| VCT monitoring fees | 20 | 3 |
| Legal and professional fees | 14 | 16 |
| Directors’ and officers’ liability insurance | 13 | 12 |
| Brokers’ fees | 6 | 7 |
| 528 | 580 |
The fees payable to the Company’s auditor above are stated net of VAT and the VAT is included within other administration expenses. No non-audit services were provided by the Company’s auditor.
The ongoing charges of the Company were 2.2% of average net assets during the year to 30 November 2023 (2022: 2.2%).
5. Tax
Accounting policy
Current tax is recognised for the amount of income tax payable in respect of the taxable profit/(loss) for the current or past reporting periods using the current UK corporation tax rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the ‘marginal’ basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date, except as otherwise indicated.
Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.
Disclosure
The corporation tax charge for the year was £nil (2022: £nil).
| 30 November 2023 | 30 November 2022 | |
| £’000 | £’000 | |
| Loss before tax | (15,709) | (36,695) |
| Current tax at 23.01% (2022: 19.00%) | (3,615) | (6,972) |
| Effects of | ||
| Non-taxable income | (270) | (110) |
| Non-taxable capital gains | 3,406 | 6,608 |
| Non-deductible expenses | 3 | 6 |
| Excess management expenses on which deferred tax not recognised | 476 | 468 |
| Total tax charge | - | - |
Approved VCTs are exempt from tax on capital gains within the Company. Since the Board intends that the Company will continue to conduct its affairs so as to maintain its approval as a VCT, no deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.
In March 2021, the UK Government announced that from 1 April 2023, the main rate of corporation tax will be increased to 25%. Consequently, deferred tax has been calculated at the year end using a tax rate of 25%. As at 30 November 2023, there is an unrecognised deferred tax asset of £5,118,000 (2022: £4,616,000) in respect of surplus management expenses, based on a prospective tax rate of 25% (2022: 25%). This deferred tax asset could in future be used against taxable profits.
Provided the Company continues to maintain its current investment profile, it is unlikely that the expenses will be utilised and that the Company will obtain any benefit from this asset. Additionally, the tax rate used of 23% was calculated as an average of the tax rate during the year, being 19% from 1 December 2022 to 31 March 2023, and 25% from 1 April 2023 to 30 November 2023.
6. Dividends
Accounting Policy
Dividends payable are recognised as distributions in the financial statements when the Company’s liability to make a payment has been established. This liability is established on the record date, the date on which those shareholders on the share register are entitled to the dividend.
Disclosure
| 30 November 2023 | 30 November 2022 | |
| £’000 | £’000 | |
| Dividends paid on Ordinary shares during the year | ||
| 2022 Final dividend – 2.3p per share paid 25 May 2023 (2022: 2.1p per share) | 3,746 | 3,080 |
| 2023 Interim dividend – 1.8p per share paid 3 November 2023 (2022: 2.1p per share) | 2,927 | 3,075 |
| Total | 6,673 | 6,155 |
During the year £1,303,000 (2022: £1,199,000) of dividends were reinvested under the DRIS.
Under Section 32 of FRS 102 ‘Events After the end of the Reporting Period’, dividends payable at year end are not recognised as a liability. Details of these dividends and all other dividends declared in the year are set out below.
| 30 November 2023 | 30 November 2022 | |
| £’000 | £’000 | |
| Dividends paid and proposed | ||
| 2023 Interim dividend – 1.8p per share paid 3 November 2023 (2022: 2.1p per share) | 2,927 | 3,075 |
| 2023 Special dividend - 3.6p per share payable 27 June 2024 (2022: Nil) Final proposed dividend – 1.8p per share payable 27 June 2024 (2022: 2.3p share) | 6,639 3,328 | - 3,773 |
| 12,894 | 6,848 | |
| The above proposed final dividend is based on the number of shares in issue at the date of this report. The actual dividend paid may differ from this number as the dividend payable will be based on the number of shares in issue on the record date and will reflect any changes in the share capital between the year end and the record date. | ||
7. Earnings per share
| 30 November 2023 | 30 November 2022 | |||||
| Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
| Profit/(loss) attributable to Ordinary shareholders | 273 | (15,982) | (15,709) | (472) | (36,223) | (36,695) |
| Earnings per Ordinary share | 0.2p | (9.8p) | (9.6p) | (0.3p) | (24.5p) | (24.8p) |
The profit/(loss) per share is based on 164,257,336 (2022: 147,948,350) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year, and the loss on ordinary activities after tax for the year of £15,709,000 (2022: loss of £36,695,000).
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical.
8. Net asset value per share
| 30 November 2023 | 30 November 2022 | |
| Net assets (£’000) | 84,690 | 101,794 |
| Shares in issue | 176,875,405 | 165,172,844 |
| NAV per share (p) | 47.9 | 61.6 |
There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted NAV per share are identical.
9. Related Party Transactions
As at 30 November 2023, Octopus Investments Nominees Limited (OINL) held nil shares (2022: 4,284) in the Company as beneficial owner, having purchased these at a cost of £nil (2022: £3,000) from shareholders to protect their interests after delays or errors with shareholder instructions and other similar administrative tasks. Throughout the period to 30 November 2023 OINL purchased nil shares (2022: 7,916) at a cost of £nil (2022: £6,000) and sold 4,284 shares (2022: 3,632) for proceeds of £2,000 (2022: £3,000). In accordance with the listing rules, this is classed as a related party transaction as Octopus, the Investment Manager, and OINL are part of the same group of companies. Any such future transactions, where OINL takes over the legal and beneficial ownership of Company shares will be announced to the market and disclosed in annual and half yearly reports.
10. 2023 financial information
The figures and financial information for the year ended 30 November 2023 are extracted from the Company’s annual financial statements for the period and do not constitute statutory accounts. The Company’s annual financial statements for the year to 30 November 2023 have been audited but have not yet been delivered to the Registrar of Companies. The Auditors’ report on the 2023 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006.
11. 2022 financial information
The figures and financial information for the period ended 30 November 2022 are compiled from an extract of the published financial statements for the period and do not constitute statutory accounts. Those financial statements have been delivered to the Registrar of Companies and included the Auditors’ report which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006.
12. Annual Report and financial statements
The Annual Report and financial statements will be posted to shareholders in March and will be available on the Company’s website. The Notice of Annual General Meeting is contained within the Annual Report.
13. General information
Registered in England & Wales. Company No. 05528235
LEI: 213800BW27BKJCI35L17
14. Directors
Keith Mullins (Chair), Andrew Raynor, Elizabeth Kennedy, Brad Ormsby and Virginia (Connelly) Bull
15. Secretary and registered office
Octopus Company Secretarial Services Limited
33 Holborn, London EC1N 2HT
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