Half-year report

Half-yearly Results

22 October 2019

Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces the half-yearly results for the six months ended 31 August 2019.

These results were approved by the Board of Directors on 22 October 2019.

You may shortly view the half-yearly report in full by visiting https://www.octopusinvestments.com/investor/our-products/venture-capital-trusts/octopus-aim-vcts. All other statutory information will also be found there.

Financial Summary

	Six months to 31 August 2019	Six months to 31 August 2018	Year to 28 February 2019
Net assets (£’000s)	118,961	134,748	122,504
Profit on ordinary activities after tax (£’000s)	1,043	11,699	(13,097)
Net asset value (“NAV”) per share (p)	98.9	123.9	101.0
Total return* (%)	0.9	9.3	(8.3)
Ordinary dividends paid in the period (p)	3.0	3.0	5.5
Ordinary dividend declared** (p)	2.5	2.5	3.0
Special dividend declared** (p)	3.5	–	–

^*Total Return is calculated as the (movement in NAV + Dividends paid in the period) divided by the NAV at the beginning of the period.

^**The interim dividend of 2.5p, and the special dividend of 3.5p, will be paid on 17 January 2020 to those shareholders on the register on 20 December 2019.

Chairman’s Statement

I am pleased to report the half-yearly results for Octopus AIM VCT plc. The six months to 31 August 2019 has been a volatile period for stock market indices, with smaller companies underperforming in an environment of domestic political uncertainty and international trade tensions. Against this background the Net Asset Value has struggled to make progress although it has risen 0.9% on a total return basis after adding back the dividend paid in the period.

The Board has declared an interim ordinary dividend of 2.5p a share which will be paid on 17 January 2020 to those shareholders on the register on 20 December 2019.

The Managers have made a number of new investments in the six month period and these are explained in more detail within the Interim Management Report. They have also taken significant profits in some of the longer term holdings and as a result the Board intends to pay out a significant proportion of the proceeds and is declaring a special dividend of 3.5p which will be paid at the same time as the interim dividend of 2.5p on 17 January 2020.

The Board has recently announced the intention to launch a new public offer of shares. On the basis of current evidence, the Manager believes there will be good investment opportunities for new funds, despite the fact that the market has proved prone to bouts of uncertainty as a result of continuing Brexit uncertainty.

Roger Smith
Chairman
22 October 2019

Interim Management Report

Overview

The six months to 31 August 2019 has seen the divergence in performance between larger and smaller UK companies that we talked about in the last annual report intensify, with the FTSE All Share Index rising in the period and the Smaller Companies Index and AIM producing negative returns. The as yet unresolved challenge of achieving an orderly Brexit, a domestic political impasse, and fears of an international trade war have all contributed to increased volatility and individual months of negative returns.  All of this has resulted in investors seeking the relative safety of liquid assets and overseas earnings and left smaller companies trading at a discount to the rest of the stockmarket.

Fundraisings on AIM remained subdued in the period, with the majority of funds raised for existing AIM companies rather than new entrants to the market.  However, AIM continued to do its job and £1.7 billion was raised for existing AIM companies in the period.

Performance

Adding back the 3.0p paid out in dividends in the period, the Net Asset Value increased by 0.9% in the six months to 31 August 2019. This compares with a 2.4% fall in the Smaller Companies Index (ex Investment Trusts) and a 3.4% fall in AIM, both on a total return basis.  In contrast, the FTSE All Share Index rose by 4.3% on the same basis, reflecting its larger representation of companies with overseas earnings and the outperformance of larger companies. Performance remained stock specific and heavily influenced by the newsflow from portfolio companies, with the market very unforgiving of any disappointments. The market also remains wary of early stage companies not yet making a profit, particularly where they are perceived as being potentially in need of further funding.  More recently the portfolio has benefitted from a recovery in the share prices of some of the more mature holdings after a period of underperformance towards the end of 2018 and we have taken some profits from the legacy non-qualifying holdings in this half year.

Of the good performers in the portfolio, quite a few saw their share prices react positively to corporate developments, either internally generated or as a result of acquisitions. The largest positive contributor to performance in the period was Learning Technologies, where the shares recovered from short term lows in February as the Group continued to benefit from currency exposure and the integration of earlier acquisitions.  In pharmaceutical services both Ergomed and Ixico were strong performers as gathering business momentum resulted in upgrades to forecasts. GB Group continued its recent growth and now has a significant global position in the identity and fraud market.  There were a number of other positive contributors to performance as businesses demonstrated progress including Brooks Macdonald, Judges Scientific, Trackwise, and RWS. Diaceutics made a strong debut on AIM and Fusion Antibodies, Renalytix and Intelligent Ultrasound all performed well in that sector. 

There were some individual setbacks in the portfolio which had a significant impact on performance.  The largest detractor in the period was Staffline, which has been a longstanding holding and which we wrote about in the last annual report and accounts. It had been unable to publish its final results as expected at the end of January due to a last minute allegation over payment practices in its staffing division.  This proved slow to resolve and impacted trading while the company awaited the publication of its audited accounts, accompanied by a fundraising at the end of June.  The share price is likely to remain depressed until the company can rebuild confidence. Mycelx was another significant underperformer which was disappointing as it had returned to profitability and exceeded expectations in 2018 only to have its largest customer reduce demand in 2019 which has led to downgrades to this year’s forecasts. Craneware also suffered from slower growth as a result of introducing its new Trisus platform which requires a different sales approach.  The shares were very highly rated and so proved vulnerable to the revision in expectations.  However, this remains a profitable business with a strong position in the US hospital software market.  The final significant setback was at Loop-up where the underlying business started to slow unexpectedly at the same time as the Group has been digesting a large acquisition. This had a significant impact on the share price. Additionally the market remains wary of early stage companies not yet making a profit, of which we hold a number in the portfolio and Creo Medical, Cambridge Cognition, VR Education and Osirium have all underperformed in the period.

Portfolio Activity

In the period under review, the Company made four qualifying investments at a total cost of £3.9 million.  This was well behind the record £8.1 million invested in the corresponding period last year and more in line with previous periods. Only one of these investments, Diaceutics, was in a new AIM float and two, Sosandar and Intelligent Ultrasound new investments for the fund into existing AIM companies.  Diaceutics is a pharmaceutical services company which employs data analytics to increase the effectiveness of diagnostic tests which are being used alongside the prescription of many new generation drugs.  Sosandar is a rapidly growing on-line clothing company which has outperformed expectations since it appeared on AIM in 2017.  Intelligent Ultrasound has developed simulators to train radiographers and their functionality is now being incorporated into original equipment made by large manufacturers. The remaining investment was a small follow-on into Popsa, one of our unquoted investments which is growing its sales of photobooks strongly both in the UK and on the Continent.  We invested alongside several other institutions in this round and have increased the valuation of the company in line with the latest round. 

We also invested a further £0.4 million into the FP Octopus UK Multi-Cap Income Fund, with the objective of obtaining a better return on our cash awaiting investment. A number of disposals were made in the period resulting in cash proceeds of £4.5 million and a net gain of £2.6 million since acquisition. These were a mixture of profits being taken on existing holdings such as RWS, Gamma Communications, Next 15, Clinigen, Restore, VR Education, Loop-up, Advanced Medical solutions  and outright sales as in the case of Iomart, Abcam and Immotion. The latter was sold at a loss when it became apparent that the path to profitability would be much longer and require much more investment than we had originally thought.

Transactions with Manager

Details of amounts paid to the Manager are disclosed in Note 8 to the Financial Statements.

Share Buybacks

In the six months to 31 August 2019, the Company bought back 1,762,007 Ordinary shares for total consideration of £1,717,000. It is evident from the conversations which the Managers have that this facility remains an important consideration to investors. The Company remains committed to maintaining its policy of buying back shares at a 5% discount to NAV.

Share Issues and Fundraising

On 11 April 2019 101,392 new shares were issued in connection with the 2018/2019 prospectus offer which closed fully subscribed.

The Company intends to launch a new combined offer for subscription alongside Octopus AIM VCT 2 to raise funds in the near future. It is anticipated that an Offer document containing further details will be issued in due course.

In addition 584,446 new ordinary shares were issued in August 2019 to shareholders who participated in the dividend reinvestment scheme (DRIS), and 41,980 new ordinary shares were issued in June 2019 as a result of reduced adviser charges, and reduced annual management fee for Octopus employees. Further details can be seen in Note 6 to the Financial Statements.

Dividend

On 2 August 2019, the Company paid a dividend of 3p per share, being the final dividend for the year ended 28 February 2019.

For the period to 31 August 2019, the Board has declared an interim dividend of 2.5p. This will be paid on 17 January 2020 to shareholders on the register on 20 December 2019. In addition following some significant profitable disposals of holdings over the summer the Board is declaring a special dividend of 3.5p which will be paid at the same time as the interim dividend. 

It is the Company’s objective to continue to pay a minimum of 2.5p each half year and to adjust the final dividend annually, based on the year-end share price, so that the shareholders receive either 5p per annum or a 5% yield, whichever is the greater at the time.

Risks and Uncertainties

The Company’s principal risks and uncertainties are set out in Note 7 to the unaudited financial statements.

Outlook

There has been little change to the themes that have driven investor sentiment for a sustained period of time now, although it feels as though some of the domestic political factors have intensified as we are approaching the second deadline for the UK leaving the European Union.  Added to this, the international trade tensions between China and the USA are showing no immediate signs of resolving themselves, potentially threatening the current global economic background of slow growth.  All of this makes further bouts of market volatility and share price weakness likely although the underperformance of smaller companies in the year to date has left them valued at a significant discount reflecting many of these risks and leaving the potential for future recovery. In the meantime we are encouraged by the fact that many of the companies in the portfolio have demonstrated good progress in the current reporting season.  The flow of VCT qualifying issues has been slower in the short term but we expect it to recover once the issue of Brexit is resolved.  The portfolio now contains 77 holdings across a range of sectors with the balance still weighted towards profitable companies that are pursuing growth strategies.

The AIM Team
Octopus Investments
22 October 2019

Directors’ Responsibility Statement

We confirm that to the best of our knowledge:

• the half-yearly financial statements have been prepared in accordance with Financial Reporting Standard 104 “Interim Financial Reporting” issued by the Financial Reporting Council;
• the half-yearly financial statements give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Company;
• the half-yearly report includes a fair review of the information required by the Financial Conduct Authority’s 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.
  • the half-yearly financial statements have not been audited or reviewed by the auditors.

On behalf of the Board

Roger Smith
Chairman
22 October 2019

Income Statement

	Unaudited			Unaudited			Audited
	Six months to 31 August 2019			Six months to 31 August 2018			Year to 28 February 2019
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
Gain/(loss) on disposal of fixed asset investments	–	490	490	–	105	105	–	(3,796)	(3,796)
(Loss)/gain on valuation of fixed asset investments	–	(90)	(90)	–	11,576	11,576	–	(7,701)	(7,701)
Gain on valuation of current asset investments	–	1,563	1,563	–	894	894	–	53	53
Investment income	350	–	350	421	–	421	794	307	1,101
Investment management fees	(246)	(739)	(985)	(258)	(773)	(1,031)	(545)	(1,635)	(2,180)
Other expenses	(285)	–	(285)	(266)	–	(266)	(574)	–	(574)
Profit/(loss) on ordinary activities before tax	(181)	1,224	1,043	(103)	11,802	11,699	(325)	(12,772)	(13,097)
Taxation on profit/(loss) on ordinary activities	–	–	–	–	–	–	–	–	–
Profit/(loss) on ordinary activities after tax	(181)	1,224	1,043	(103)	11,802	11,699	(325)	(12,772)	(13,097)
Earnings per share – basic and diluted	(0.1p)	1.0p	0.9p	(0.1p)	13.4p	13.3p	(0.3p)	(11.2p)	(11.5p)

• 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 no recognised gains or losses other than those disclosed in the income statement.
• 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.

Balance Sheet

	Unaudited		Unaudited		Audited
	As at 31 August 2019		As at 31 August 2018		As at 28 February 2019
	£’000	£’000	£’000	£’000	£’000	£’000
Fixed asset investments		81,418		105,777		81,671
Current assets:
Investments	30,853		27,613		30,166
Money Market Funds	1,319
Debtors	57		104		71
Cash at bank	5,970		1,929		11,611
Applications cash	1		10,059
	38,200		39,705		41,848
Creditors: amounts falling due within one year	(657)		(10,734)		(1,015)
Net current assets		37,543		28,971		40,833
Net assets		118,961		134,748		122,504
Called up equity share capital		1,202		1,087		1,213
Share premium		82,098		63,727		81,368
Capital redemption reserve		112		73		94
Special distributable reserve		31,269		41,828		36,592
Capital reserve realised		(27,175)		(28,912)		(28,999)
Capital reserve unrealised		31,717		56,804		32,317
Revenue reserve		(262)		141		(81)
Total equity shareholders’ funds		118,961		134,748		122,504
Net asset value per share		98.9p		123.9p		101.0p

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

The statements were approved by the Directors and authorised for issue on 22 October 2019 and are signed on their behalf by:

Roger Smith
Chairman
Company No: 03477519

Statement of Changes in Equity

	Share Capital £’000	Share Premium £’000	Capital redemption reserve £’000	Special distributable reserves £’000	Capital reserve realised £’000	Capital reserve unrealised £’000	Revenue reserve £’000	Total £’000
Six months to 31 August 2019
As at 1 March 2019	1,213	81,368	94	36,592	(28,999)	32,317	(81)	122,504
Management fee allocated as capital expenditure	–	–	–	–	(739)	–	–	(739)
Current year gains on disposal	–	–	–	–	490	–	–	490
Current period gain on fair value of investments	–	–	–	–	–	1,473	–	1,473
Loss on ordinary activities after tax	–	–	–	–	–	–	(181)	(181)
Total comprehensive income for the period	–	–	–	–	(249)	1,473	(181)	1,043
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(18)	–	18	(1,717)	–	–	–	(1,717)
Issue of shares	7	736	–	–	–	–	–	743
Share issue costs	–	(6)	–	–	–	–	–	(6)
Dividends paid	–	–	–	(3,606)	–	–	–	(3,606)
Total contributions by and distributions to owners	(11)	730	18	(5,323)	–	–	–	(4,586)
Prior years’ holding gains now realised	–	–	–	–	2,073	(2,073)	–	–
Total other movements	–	–	–	–	2,073	(2,073)	–	–
As at 31 August 2019	1,202	82,098	112	31,269	(27,175)	31,717	(262)	118,961
	Share Capital £’000	Share Premium £’000	Capital redemption reserve £’000	Special distributable reserves £’000	Capital reserve realised £’000	Capital reserve unrealised £’000	Revenue reserve £’000	Total £’000
Six months to 31 August 2018
As at 1 March 2018	1,094	63,098	61	46,483	(29,277)	45,367	244	127,070
Management fee allocated as capital expenditure	–	–	–	–	(773)	–	–	(773)
Current year gains on disposal	–	–	–	–	105	–	–	105
Current period gain on fair value of investments	–	–	–	–	–	12,470	–	12,470
Loss on ordinary activities after tax	–	–	–	–	–	–	(103)	(103)
Total comprehensive income for the period	–	–	–	–	(668)	12,470	(103)	11,699
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(12)	–	12	(1,396)	–	–	–	(1,396)
Issue of shares	5	637	–	–	–	–	–	642
Share issue costs	–	(8)	–	–	–	–	–	(8)
Dividends paid	–	–	–	(3,259)	–	–	–	(3,259)
Total contributions by and distributions to owners	(7)	629	12	(4,655)	–	–	–	(4,021)
Prior years’ holding gains now realised	–	–	–	–	1,033	(1,033)	–	–
Total other movements	–	–	–	–	1,033	(1,033)	–	–
As at 31 August 2018	1,087	63,727	73	41,828	(28,912)	56,804	141	134,748

	Share Capital £’000	Share Premium £’000	Capital redemption reserve £’000	Special distributable reserves £’000	Capital reserve realised £’000	Capital reserve unrealised £’000	Revenue reserve £’000	Total £’000
Year to 28 February 2019
As at 1 March 2018	1,094	63,098	61	46,483	(29,277)	45,367	244	127,070
Management fee allocated as capital expenditure	–	–	–	–	(1,635)	–	–	(1,635)
Current year gains on disposal	–	–	–	–	(3,796)	–	–	(3,796)
Current period gain on fair value of investments	–	–	–	–	–	(7,648)	–	(7,648)
Capital Investment income	–	–	–	–	307	–	–	307
Loss on ordinary activities after tax	–	–	–	–	–	–	(325)	(325)
Total comprehensive income for the period	–	–	–	–	(5,124)	(7,648)	(325)	(13,097)
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(33)	–	33	(3,597)	–	–	–	(3,597)
Issue of shares	152	19,392	–	–	–	–	–	19,544
Share issue costs	–	(1,122)	–	–	–	–	–	(1,122)
Dividends paid	–	–	–	(6,294)	–	–	–	(6,294)
Total contributions by and distributions to owners	119	18,270	33	(9,891)	–	–	–	8,531
Prior years’ holding gains now realised	–	–	–	–	5,402	(5,402)	–	–
Total other movements	–	–	–	–	5,402	(5,402)	–	–
As at 28 February 2019	1,213	81,368	94	36,592	(28,999)	32,317	(81)	122,504

Cash Flow Statement

	Unaudited Six months to 31 August 2019 £’000	Unaudited Six months to 31 August 2018 £’000	Audited Year to 28 February 2019 £’000
Cash flows from operating activities
Return on ordinary activities before tax	1,043	11,699	(13,097)
Adjustments for:
(Increase)/decrease in debtors	14	(52)	(19)
Increase/(decrease) in creditors	(358)	9,771	52
(Gain)/loss on disposal of fixed assets	(490)	(105)	3,796
Gain on valuation of fixed asset investments	90	(11,576)	7,701
Gain on valuation of current asset investments	(1,563)	(894)	(53)
Non-cash Distributions	–	–	(307)
Net cash generated from operating activities	(1,264)	8,843	(1,927)
Cash flows from investing activities
Purchase of fixed asset investments	(3,866)	(8,087)	(10,581)
Purchase of current asset investments	(438)	(450)	(3,840)
Sale of fixed asset investments	4,519	5,238	8,967
Net cash flows from investing activities	215	(3,299)	(5,454)
Cash flows from financing activities
Purchase of own shares	(1,717)	(1,396)	(3,597)
Share issues	148	139	17,438
Dividends paid	(3,017)	(2,764)	(5,310)
Net cash flows from financing activities	(4,586)	(4,021)	8,531
Increase/(decrease) in cash and cash equivalents	(5,635)	1,523	1,150
Opening cash and cash equivalents	12,925	11,775	11,775
Closing cash and cash equivalents	7,290	13,298	12,925
Cash and cash equivalents comprise
Cash at Bank	5,970	1,929	11,442
Applications cash	1	10,059	169
Money Market Funds	1,319	1,310	1,314
	7,290	13,298	12,925

Notes to the Half-Yearly Report

1.            Basis of preparation

                The unaudited half-yearly report which covers the six months to 31 August 2019 has been prepared in accordance with the Financial Reporting Council’s (FRC) Financial Reporting Standard 104 “Interim Financial Reporting” (March 2018) and the Statement of Recommended Practice (SORP) for Investment Companies re-issued by the Association of Investment Companies in February 2018.

2.            Publication of non-statutory accounts

                The unaudited half-yearly report for the six months ended 31 August 2019 does not constitute statutory accounts within the meaning of s.415 of the Companies Act 2006 and has not been delivered to the Registrar of Companies. The comparative figures for the year ended 28 February 2019 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 2019 is calculated on the basis of 120,542,288
(28 February 2019: 114,422,169 and 31 August 2018: 88,197,672) 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

	31 August 2019	31 August 2018	28 February 2019
Net assets (£’000)	118,961	134,748	122,504
Shares in Issue	120,244,697	108,722,268	121,278,886
Net Asset Value per share	98.9p	123.9p	101.0p

5.            Dividends

                The interim dividend declared of 2.5 pence per Ordinary share, and the special dividend declared of 3.5 pence per Ordinary share, will be paid on 17 January 2020 to those shareholders on the register on 20 December 2019.

6.            Buybacks and share issues

                During the six months ended 31 August 2019 the Company repurchased the following shares.

Date	No of shares	Price (p)	Cost (£’000)
21 March 2019	456,228	97.3	444
18 April 2019	296,780	98.9	293
23 May 2019	314,000	100.9	317
20 June 2019	145,650	99.1	144
25 July 2019	296,639	95.0	282
22 August 2019	252,710	93.6	237
Total	1,762,007		1,717

                The weighted average price of all buybacks during the period was 97.4 pence per share.

                During the six months ended 31 August 2019 the Company issued the following shares.

Date	No of shares	Price (p)	Gross proceeds (£’000)
11 April 2019	101,392	108.8	110
28 June 2019*	41,980	103.2	44
2 August 2019 (DRIS)	584,446	100.8	589
Total	727,818		743

                ^*Shares issued as a result of reduced adviser charges, and reduced annual management fee for Octopus Employees

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

7.            Principal risks and uncertainties

                The Company’s principal risks are VCT qualifying status risk, valuation risk, investment risk, financial risk, regulatory and reputational risk, operational risk and economic and price risk. These risks, and the way in which they are managed, are described in more detail in the Company’s Annual Report and Accounts for the year ended 28 February 2019. The Company’s principal risks and uncertainties have not changed materially since the date of that report.

8.            Related party transactions

                The Company has employed Octopus Investments Limited (“Octopus” or “the Manager”) throughout the period as Investment Manager. Octopus has also been appointed as Custodian of the Company’s investments under a Custodian Agreement. The Company has been charged £985,000 by Octopus as a management fee in the period to 31 August 2019 (31 August 2018: £1,031,000 and 28 February 2019 £2,180,000). The management fee is payable quarterly and is based on 2% of net assets at quarterly intervals.

                The Company has invested £0.44 million into Octopus managed funds (31 August 2018: £0.45 million and 28 February 2019 £3.8 million), being the Octopus Portfolio Manager and Micro Cap funds. To ensure the Company is not double charged management fees on these products, the Company receives a reduction in the management fee as a percentage of the value of these investments. This amounted to £53,000 in the period to 31 August 2019 (31 August 2018: £47,000 and 28 February 2019 £96,000). For further details please refer to the Company’s Annual Report and Accounts for the year ended
28 February 2019.

9.            Post balance sheet events

                The following events occurred between the Balance sheet date and the signing of these financial statements.

• Part disposal of Brady plc for total consideration of £13,000, a loss of £321,000 on investment cost.
• Investment of £570,000 into Cloudcall Group plc.
• The company repurchased 177,067 shares at a price of 94.1p per share.
• On 11 October 2019, Octopus Company Secretarial Services Limited was appointed by the Board as Company Secretary in place of Suzanna Waterhouse who resigned as Company Secretary on 11 October 2019.

10.          Additional information

                This report will be made available to all shareholders. Copies are also available from the registered office of the Company at 33 Holborn, London, EC1N 2HT, and will also be available to view on the Octopus website at www.octopusinvestments.com.