Octopus AIM VCT PLC : Half-yearly report

Octopus AIM VCT plc

Half-Yearly Results  

 

13 October 2014

Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces its half-yearly results for the six months ended 31 August 2014.

The results were approved by the Board of Directors on 13 October 2014.

 

Octopus AIM VCT plc is a venture capital trust which aims to provide shareholders with attractive tax-free dividends and long-term capital growth by investing in a diverse portfolio of predominately AIM-quoted companies. The Company's investments are managed by Octopus Investments Limited.

The Company's Objective
The objective of the Company is to invest in a broad range of predominantly AIM-quoted companies in order to generate income and long-term capital growth. Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value. Start-up companies will usually be avoided.

The Company offers investors exposure to the AIM market through a mature portfolio which takes a long term view. This enables investors to benefit from the tax advantages of investing in a VCT.

The investment portfolio
The Company's funds are managed by Octopus Investments Limited within a VCT-qualifying structure and the objective is to invest in a diversified portfolio of smaller companies principally listed on AIM. Investments are selected for their growth potential, dividend prospects and quality management teams which have a clear business plan to create growth. VCT regulation prevents material investment into asset backed companies, such as resource stocks and as a result, typically the focus is on companies in the consumer, services and computer and software sectors.

Although the investment philosophy takes a long term view, the Company operates a buy back policy so that shareholders can exit their investment if they wish to. Shares are repurchased at a 5% discount to NAV and cancelled.

Tax benefits
Shareholders who buy shares in a new offer by the Company receive up to 30% up-front income tax relief on investments up to £200,000 per tax year providing the shares are held for five years.  Dividends are tax free irrespective of whether they purchased their shares in the secondary market or through a new share offer. It is your Board's intention to continue to pay a minimum dividend of 2.5p each half year. At the year-end our intention is to adjust the final dividend so that on an annual basis, and based on the year-end share price, shareholders receive either 5p per annum or a 5% yield, whichever is greater at the time. This will enable dividends to progress with a rising NAV, whilst maintaining the minimum historic level. 
  
Shareholders can sell shares through the Company-operated buy back policy and all disposals are free of Capital Gains Tax.

The Manager
The Octopus Investments Limited Smaller Companies Team is one of the most experienced AIM fund managers in the market. Octopus is a fast growing fund management company and currently manages £4.7 billion in funds making it the UK's biggest VCT provider.

Financial Summary

	Six months to 31 August 2014	Six months to 31 August 2013	Year to 28 February 2014
Net assets (£'000s)	64,726	53,590	69,730
Net (loss)/profit after tax (£'000s)	(5,515)	6,630	19,148
Net asset value per share ("NAV")	112.5p	104.4p	125.2

An interim dividend of 2.5p will be paid on 15 January 2015 to shareholders on the register on 19 December 2014.

Chairman's Statement
After a sustained period of rising share prices, the stockmarket peaked in March and a more cautious mood has prevailed throughout the summer, causing the smaller company indices to give back some of the gains of the previous year. The initial catalyst for the change in sentiment was commentary from the various authorities around the world indicating that the direction of quantitative easing would need to change as signs of economic recovery in the US and the UK gathered momentum.  This was compounded by geopolitical worries about the situation in the Ukraine and the Middle East and a looming general election in the UK.  These uncertainties have reduced appetite for risk, eliminating the premium to larger company shares that smaller companies had briefly enjoyed at the beginning of 2014 and punishing any poor trading news from individual companies with sharp falls in share prices.

The New Issues market has seen pricing similarly affected although AIM remains firmly open for business.  After a very strong end to 2013 for new admissions to AIM, the market seemed to get carried away with its own success with the result that there was a flood of companies looking to float in the first quarter of 2014 at ever increasingly optimistic valuations. At first, this seemed to present few problems but more recently sense has prevailed with the result that some of the headier valuations were cut to get new issues away.  Your Company has been able to monitor these investment opportunities without having to make investments at the wrong price as it is already well past its 70% investment threshold for HMRC purposes.  More recently prices have started to settle back at more realistic levels and it is encouraging to note that there has been no slowing in the rate of companies looking to float. We are seeing a strong pipeline of potential opportunities for the rest of the year and so are looking forward to having new funds from the current linked offer with Octopus AIM2 VCT to invest.  The offer opened at the beginning of September and has already raised £10.2 million.

Performance
It is disappointing to have to report a fall in the Net Asset Value in the six month period after a particularly strong performance in the year to February 2014. Against the background of a much more cautious UK market, the NAV of the fund fell in the first six months of the financial year, by 7.7% if the 3.0p dividend paid to shareholders in July is added back. At the end of the period the fair value of the Company's investments was 73% more than the book cost. The FTSE Smaller Companies Index (ex Investment Trusts) fell by 6.4% in the six month period and the AIM Index fell by 12.6%, the latter reflecting some sharp share price moves in some highly rated stocks which disappointed such as ASOS.

As the tone of the market became more cautious we saw some of the more expensively rated shares in the portfolio give back some of their previous outperformance.  This was regardless of good results and news about initial contracts for the new GIANT big data product in the case of Fusionex or more announcements about partnerships from Proxama and WANDisco both of which are early stage and lossmaking but which have pioneering technologies with the potential for mass market application.  Other negative contributors to performance in the six months were Mycelx, EKF Diagnostics, Synectics and Judges Scientific, all of which suffered downgrades to forecasts and saw their share prices suffer as a consequence.  All of these were impacted to a degree by the headwind of stronger sterling and we sold the holding in Synectics at a small profit over book cost.  Mycelx's revenues will be flat this year.  It is suffering from being a very small company with large customers and a lumpy order book still struggling to achieve sufficient recurring revenues.  We are prepared to be patient as we believe that their clean water technology has broad applications and still expect growth to come through strongly.  EKF's shares suffered a setback as a result of a recent acquisition losing a reimbursement code for one of its laboratory tests in the US. The current valuation does not reflect the potential of its emerging molecular diagnostics business.

It was hard to find too many shares which made a significant positive contribution to the NAV in the period.  Staffline made a substantial and earnings enhancing addition to its training business and Breedon Aggregate's share price continued to appreciate as signs of economic recovery strengthened. We took some profits in Breedon in the period, although it remains one of the Fund's larger positions. Other established holdings which did well for the Fund include Netcall, GB Group, IDOX, Bond International Software, TLA Worldwide and Brady although there were also good trading updates and figures from Brooks MacDonald, Advanced Computer Software, Mattioli Woods, Quixant and Craneware among others which did not result in any increase in  share prices.  

Portfolio Activity
£2.6 million was invested in the period of which £1.4 million was in two qualifying holdings. The first was a small investment into an existing holding which had disposed of its business and turned itself into a cash shell.  The new management team reversed an on-line provider of training, Epic into the company and has since made acquisitions to grow what was already a profitable business. The other investment of £1.2 million was into Ergomed, a provider of drugs trials and post market drug monitoring services to the pharmaceutical industry.  It is profitable and growing and has the potential to earn milestones and royalties from a portfolio of four drugs where it has a carried interest earned in return for work done.

Your managers have continued to use non-qualifying investments with the objective of enhancing performance.  In the period they added a new holding in Skyepharma, in the wake of its restructuring of its previously debt encumbered balance sheet, so that it is now in a position to develop is drug portfolio more effectively without having to consider debt and interest payments.  The holdings in Brady and GB Group were also added to.

£1.3 million was received from disposals in the period. The holding in Synectics was disposed of in its entirety as was the holding in EMIS after it had performed well.   Profits were taken in Breedon Aggregates, Proxama and Plus 500 after the shares performed well.

At the end of the period 83.9% of the portfolio was invested in qualifying holdings, comfortably above the HM Revenue and Customs requirement of 70% and your Company had liquid funds of £7.8 million.

Risks and Uncertainties
The principle risks and uncertainties are set out in Note 6 to the Half Yearly Report on page X.

Dividend and Dividend Reinvestment Scheme
Your Board is very conscious of the importance of dividends to shareholders. It aims to maintain a dividend of at least 2.5p per share each half year and to adjust on an annual basis, based on the year-end share price, the final dividend so that shareholders receive either 5p per annum or a 5% yield, whichever is the greater. A dividend of 3.0p per share was paid to shareholders in July.

Your Board has approved the payment of an interim dividend of 2.5p per share which will be paid to shareholders on 15 January 2015 who are on the register on 19 December 2014. It is the Board's intention that, at the year end, the dividend will be calculated in such a way that the total dividends paid in the year produce a 5% yield or a minimum of 5.0p per annum, whichever is greater at the time.

Following approval from shareholders at the Annual General Meeting, shareholders can now elect to reinvest their dividends in new VCT qualifying shares if they wish, with their associated tax breaks.  Forms were incorporated in the recent circular to shareholders and can be found on Octopus's website.

Shares issued and purchased
During the period, in furtherance of the Board's policy to maintain the discount at which the Company's shares stand in the market of not more than 5%, 292,803 shares were purchased. 3,142,052 shares were issued in connection with the Top Up Offer which had been launched in January and closed in March, fully subscribed.

New Combined Share Offer
On 29 August your fund launched a new combined prospectus with Octopus AIM 2 VCT to raise up to £12 million for this Company with the potential to raise a further £6 million if that is achieved before the closing date on 10^th August 2015.  The prospectus and brochure can be found on the Octopus website. £10.2 million has been raised to date.

Outlook
The last few months have seen a market largely unable to make its mind up about what it wants to do and certainly at the smallcap end of the scale, there is the thrust of some good trading news and performances countered by the sentiment of conflict, slower growth in China, deflation in Europe and unfavourable exchange rates for exporters. Though the statistics show that the UK economy is growing, there seems to be a wariness amongst both investors and managements.  The good news is that this has not slowed the supply of new issues coming to AIM and your managers are optimistic that a more cautious market will result in opportunities to invest the substantial funds we will have available at reasonable prices.

Michael Reeve
13 October 2014

Responsibility Statement of the Directors in respect of the Half-Yearly Report

We confirm that to the best of our knowledge:

• the half-yearly financial statements have been prepared in accordance with the statement "Half-Yearly Financial Reports" issued by the UK Accounting Standards Board;

• the half-yearly report includes a fair review of the information required by the Financial Services Authority Disclosure and Transparency Rules, being:

• 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.
• a description of the principal risks and uncertainties for the remaining six months of the year; and
• 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

Michael Reeve
Chairman
13 October 2014

Income Statement
	Six months to 31 August 2014			Six months to 31 August 2013			Year to 28 February 2014
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Realised (loss)/gain on disposal of fixed asset investments	-	(120)	(120)	-	181	181	-	882	882
Unrealised (loss)/gain on valuation of fixed asset investment	-	(4,940)	(4,940)	-	6,718	6,718	-	18,919	18,919
Income	363	-	363	300	-	300	584	-	584
Investment management fees	(149)	(447)	(596)	(109)	(328)	(437)	(243)	(730)	(973)
Other expenses	(222)	-	(222)	(132)	-	(132)	(264)	-	(264)
(Loss)/profit on ordinary activities before tax	(8)	(5,507)	(5,515)	59	6,571	6,630	77	19,071	19,148
Taxation on (loss)/profit on ordinary activities			-	-	-	-	-	-	-
(Loss)/profit on ordinary activities after tax	(8)	(5,507)	(5,515)	59	6,571	6,630	77	19,071	19,148
Earnings per share - basic and diluted	-	(9.6p)	(9.6p)	0.1p	13.2p	13.3p	0.1p	36.8p	36.9p

• The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies.
• All revenue and capital items in the above statement derive from continuing operations.
• The accompanying notes are an integral part of the half-yearly report.
• The Company has no recognised gains or losses other than those disclosed in the income statement.

Reconciliation of movements in Shareholders' funds
	Six months ended 31 August 2014	Six months ended 31 August 2013	Year to 29 February 2014
	£'000	£'000	£'000
Shareholders' funds at start of period	69,730	44,123	44,123
(Loss)/profit on ordinary activities after tax	(5,515)	6,630	19,148
Shares purchased and cancelled	(332)	(799)	(1,203)
Issue of equity	2,573	4,898	9,371
Increase/(decrease) in shares to be issued	-	-	925
Shares to be issued	-	-	-
Dividends paid	(1,730)	(1,262)	(2,634)
Shareholders' funds at end of period	64,726	53,590	69,730

Balance Sheet
	As at 31 August 2014		As at 31 August 2013		As at 28 February 2014
	£'000	£'000	£'000	£'000	£'000	£'000
Fixed asset investments*		56,925		45,203		60,568
Current assets:
Money market securities*	453		451		453
Debtors	64		47		254
Cash at bank	7,466		9,357		8,629
	7,983		9,855		9,336
Creditors: amounts falling due within one year	(182)		(1,468)		(174)
Net current assets		7,801		8,387		9,162
Net assets		64,726		53,590		69,730
Called up equity share capital		575		513		547
Shares to be issued		-		-		1,327
Share premium account		4,742		17,184		873
Capital redemption reserve		5		130		2
Special distributable reserve		64,123		44,383		64,455
Capital reserve realised		(29,082)		(25,728)		(27,338)
Capital reserve unrealised		24,019		16,774		29,512
Revenue reserve		344		334		352
Total equity shareholders' funds		64,726		53,590		69,730
Net asset value per share		112.5p		104.4p		125.2p

*Held at fair value through profit & loss

The accompanying notes form an integral part of the financial statements.

The statements were approved by the Directors and authorised for issue on 13 October 2014 and are signed on their behalf by:

Michael Reeve
Chairman
Company No: 03477519

Cash Flow Statement
	Six months to 31 August 2014	Six months to 31 August 2013	Year to 28 February 2014
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating activities	(257)	1,144	(844)
Financial investment :
Purchase of fixed asset investments	(2,363)	(2,904)	(6,728)
Disposal of fixed asset investments	946	2,090	3,474
Management of cash equivalent resources:
Purchase of current asset investment	-	(5,911)	(5,914)
Disposal of current asset investment	-	11,260	11,260
Net cash (outflow)/inflow from investing activities	(1,674)	5,679	1,248
Dividends paid	(1,730)	(1,262)	(2,359)
Financing:
Shares to be issued	-	-	925
Issue of equity	2,573	4,898	9,371
Shares re-purchased	(332)	(799)	(1,122)
	511	2,837	6,815
(Decrease)/increase in cash at bank	(1,163)	8,516	8,063

Reconciliation of Net Cash Flow to Movement in Net Funds
	Six months to 31 August 2014	Six months to 31 August 2013	Year to 28 February 2014
	£'000	£'000	£'000
(Decrease)/increase in cash at bank	(1,163)	8,516	7,788
(Decrease)/increase in cash equivalents	-	(5,348)	(5,346)
Opening net liquid resources	9,082	6,640	6,640
Net cash resources at end of period	7,919	9,808	9,082

Reconciliation of Profit before Taxation to Cash Flow from Operating Activities
	Six months to 31 August 2014	Six months to 31 August 2013	Year to 29 February 2014
	£'000	£'000	£'000
(Loss)/profit on ordinary activities before tax	(5,515)	6,630	19,148
Loss/(gain) on realisation of investments	120	(181)	(882)
Loss/(gain) on valuation of investments	4,940	(6,718)	(18,919)
Decrease/(increase) in debtors	190	24	(183)
Increase/(decrease) in creditors	8	1,389	(8)
Net cash outflow from operating activities	(257)	1,144	(844)

Notes to the Half-Yearly Report

1.         Basis of preparation
The unaudited interim results which cover the six months to 31 August 2014 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the year ended 28 February 2014.

2.         Publication of non-statutory accounts
The unaudited interim results for the six months ended 31 August 2014 do not constitute statutory accounts within the meaning of s.415 of the Companies Act 2006 and have not been delivered to the Registrar of Companies.  The comparative figures for the year ended 28 February 2014 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies.  The independent auditor's report on those financial statements, in accordance with chapter 3 of part 16 of the Companies Act 2006, was unqualified. This half-yearly report has not been reviewed by the Company's auditor.

3.         Earnings per share
The earnings per share at 31 August 2014 is calculated on the basis of 57,199,373 (28 February 2014: 51,839,668 and 31 August 2013: 49,940,509) shares, being the weighted average number of shares in issue during the period.

There are no potentially dilutive capital instruments in issue and, therefore, no diluted return per share figures are relevant. The basic and diluted earnings per share are therefore identical.

4.         Net asset value per share
The calculation of net asset value per share is based on the net assets at 31 August 2014 and on 57,544,424 (28 February 2014: 55,697,499 (shares in issue plus shares to be issued) and 31 August 2013: 51,324,649) shares being the number of shares in issue, excluding shares held in Treasury, at the same date.

5.         Dividends
The interim dividend declared of 2.5 pence per Ordinary share will be paid on 15 January 2015 to those shareholders on the register on 19 December 2014.

6          Risks and uncertainties
The Company's assets consist of equity and fixed-rate interest investments, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by the Company include economic, loss of approval as a VCT, investment and strategic, regulatory, reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail in the Company's Annual Report and Accounts for the year ended 28 February 2014. The Company's principal risks and uncertainties have not changed materially since the date of that report.

7.         Related Party Transactions
Octopus acts as the investment manager of the Company. Under the management agreement, Octopus receives a fee of 2.0 per cent per annum of the net assets of the Company for the investment management services. During the period, the Company incurred management fees of £596,000 (28 February 2014: £973,000 and 31 August 2013: £437,000) payable to Octopus. At the period end there was £Nil (28 February 2014: £Nil and 31 August 2013: £Nil) outstanding to Octopus. 

8.         Other Information
This statement will be made available to all shareholders. Copies are also available from the registered office of the Company at 20 Old Bailey, London, EC4M 7AN, and will also be available to view on the Octopus website at www.octopusinvestments.com.

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Octopus AIM VCT PLC via Globenewswire

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