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Octopus AIM VCT 2 plc (OSEC)

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Wednesday 21 July, 2021

Octopus AIM VCT 2 plc

Half-Year Report

Half-Year Report

Half-yearly Results

21 July 20 2 1

Octopus AIM VCT 2 plc, managed by Octopus Investments Limited, today announces the half-yearly results for the six months ended 31 May 2021.

These results were approved by the Board of Directors on 21 July 2021.

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

Financial Summary

  Six months to

31 May 20 2 1
Six months to

31 May 20 20
Year to

30 November 20 20
       
Net assets (£’000) 132,553 83,227 104,146
Loss after tax (£’000) 24,701 (2,036) 17,762
Net asset value (‘NAV’) per share (p) 99.2 68.7 82.9
NAV total return (%)* 22.2 (2.2) 20.3
Dividends paid in the period (p) 2.1 2.1 4.2
Interim dividend (p)** 2.1 2.1 2.1
Special dividend (p)** 1.7 - -

*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.

**The interim and special dividend will be paid on 12 November 2021 to shareholders on the register on 15 October 2021.

Chairman’s Statement

I am pleased to present the half-yearly results for the Octopus AIM VCT 2 plc. In the six months to 31 May 2021 the VCT has seen another period of rising share prices despite being faced with unpredictable situations around the easing of lockdown in December, when rapidly rising cases prompted a return of restrictions in January. What has been apparent in the latest period is that although the pandemic has continued to affect lives and our healthcare system, the impact of the November and then January lockdowns was less severe in general economic terms than the initial lockdown in March 2020. This has left scope for analysts to upgrade previously cautious forecasts for 2021 as the year has progressed. The portfolio has continued to show resilience, still benefiting from its high exposure to the technology and healthcare sectors and the NAV per share rose by 22.2% in the six months if the 2.1p dividend paid in May 2021 is added back.

The Board has declared an interim dividend of 2.1p and a special dividend of 1.7p which will be paid on 12 November 2021 to shareholders on the register on 15 October 2021.

The flow of VCT qualifying investment opportunities has continued and your Investment Manager has made twelve qualifying investments in the six month period which are explained further in their report. Reassuringly, AIM has fulfilled its function to raise capital for existing members throughout the pandemic and as companies look beyond the crisis we are also seeing the return of new issues as companies plan their next phase of growth.

Keith Mullins

Chairman

21 July 2021

Interim Management Report

Overview
The six months to 31 May 2021 has been another volatile period for stockmarkets. December was an exceptionally strong month for share price performances as the November lockdown eased, optimism about the approval of three vaccines registered and a trade agreement in the wake of Brexit was agreed at the eleventh hour. A return to lockdown between January and March was more sobering, but the UK market took comfort from a well managed vaccine rollout and evidence that businesses were coping better with lockdowns and consequently the economic damage was less severe than in the early summer of 2020. In addition. trading updates from companies were generally better than had been hoped for with existing cautious forecasts most often being upgraded by analysts rather than the other way around. There has also been a return of takeover bids as companies have sought to invest cash accumulated on their balance sheets.

After the usual January lull, the flow of capital raised by companies has built on the strength of 2020, supplemented by the return of new flotations. Stock market liquidity has been good and we have taken some profits from holdings that have done particularly well. The Company has deployed existing cash throughout the period as well as raising £9.4 million net of costs for future investments.

Performance
Adding back the 2.1p paid out in dividends in the period, the NAV rose by 22.2% in the six months to 31 May 2021. This compares with a 20.0% rise in the AIM Index, a 35.9% rise in the Smaller Companies Index (ex Investment Trusts) and a 15.2% rise in the FTSE All Share Index, all on a total return basis. This resilient performance can still be partially attributed to the VCT’s relatively high exposure to the healthcare and technology sectors, particularly where companies have announced stronger than expected trading or strong technological progress. However, there was also a recovery in some of the stocks that had previously been badly affected in the pandemic and this was a strong period for some of the smaller consumer facing holdings such as Vertu Motors and Escape Hunt as well as Breedon group among the larger holdings. These are all expected to benefit from a surge in consumer demand as the economy opens up.

The strongest theme driving performance in the period was upgrades to forecasts which had generally been set at a low level reflecting pandemic caution in 2020, and this extended across different sectors and included a large proportion of portfolio companies. Those companies exceeding expectations included SDI Group which makes scientific and technology products for multiple specialist markets, PCI-Pal, Netcall, and Gamma in network communications, Next Fifteen in media communications and the Panoply in digital change consulting. Gear4music has continued to exceed expectations although forecasts for 2021 reflect caution as high street business are able to compete again, leaving plenty of scope for upgrades if current trends continue.

Among the healthcare stocks, Ergomed, EKF Diagnostics and Maxcyte have all enjoyed multiple upgrades to forecasts in the period. Cell based medicine specialist Maxcyte completed an oversubscribed £40 million fundraise and announced its intention to dual-list on Nasdaq. Renalytix, which had already gone down this pathway, also performed well as shareholders focused on the potential for its KidneyIntelX test once it achieves regulatory approval. We have taken some profits in Ergomed and Renalytix shares in the period.

The largest detractor from performance in the period was Ixico which unfortunately lost a multi-million pound contract when a Phase 3 trial in Huntington’s disease was terminated early. The company has since announced further clinical trial wins but it will take some time for the shares to recover the lost ground.

Portfolio Activity
In the period under review, the Company made twelve qualifying investments totalling £5.3 million, ahead of the £3.9 million we invested in the corresponding period last year, reflecting the part that AIM has continued to play in providing finance to its constituents through the Coronavirus pandemic. Two of these were follow-on investments into existing holdings in The British Honey Company plc (BHC) and Cloudcall Group plc (Cloudcall) totalling £0.7 million. BHC raised money to install new machinery into its production line alongside the acquisition of another complementary distillery business. Cloudcall suffered during the pandemic with its principal customer group being the recruitment sector. They anticipate this will now make a swift recovery and the money raised will put them back on a growth track.

Of the ten new investments totalling £4.6 million Abingdon, In The Style, Parsley Box and Glantus were all new entrants to the AIM market and Oberon Group was admitted to the AQSE Growth market, having reversed into a fully listed cash shell. Abingdon has built a lateral flow testing centre in the North East of England after winning an initial Government contract for Covid antibody testing. It intends to use its facility to develop tests for those wanting supply from the UK and is in discussions with other potential customers abroad. In The Style Group is a fast growing on-line fashion retailer which uses social media ‘influencers’ to design and promote ranges of clothes. Parsley Box is an on-line retailer of ready meals particularly targeting older people. Glantus has developed a platform for automating the reconciliation of supplier invoices which is particularly aimed at large clients operating multiple ERP computer systems which struggle to communicate with each other. Oberon Group is a small and growing financial boutique providing services in investment management, wealth planning and corporate advisory and broking.

We made three new qualifying investments in existing AIM companies where we had been watching their progress for some time. Evgen Pharma has a funded trial for ARDS (acute respiratory distress syndrome) and some more compelling data for its sulphoraphane based compounds, Polarean is a specialist lung imaging company and Crimson Tide has software which audits that health and safety measures such as cleaning has been done for large organisations. We also made two new private company investments each of £0.2 million in The Food Marketplace, an on-line market place for specialist food distribution and Eluceda, a company with detection technology used to protect brands from counterfeit.

In the period we also invested £1.7 million of the cash balances into the FP Octopus UK Multi-Cap Income Fund and £0.7 million into Octopus UK Micro Cap Growth fund, with the objective of obtaining a better return on our cash awaiting investment.

A number of disposals were made in the half year, following some exceptional share price performances. The result has been a net gain of £2.8 million over book cost. We sold the entire holding of C4X Discovery after a strong performance in the shares and took profits in Ergomed, GB Group, Ilika, Trackwise Designs, Renalytix, Intelligent Ultrasound, Access Intelligence and PCI-Pal to manage the size of the holdings. We responded to a bid to sell our entire holding in Fusionex at a small profit. It took itself private several years ago and it has no immediate intention of returning to public markets and part disposed of our holding in Maestrano.

Unquoted Investments
As stated in the investment policy on page 8 of the half-yearly report, the Company is able to make investments in unquoted companies intending to float. Currently 3.2% (31 May 2020: 3.1% and 30 November 2020: 4.7%) of the Company’s net assets are invested in unquoted companies.

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 May 2021, the Company bought back 3,194,979 Ordinary shares for a total consideration of £2,874,919. It is evident from the conversations which your Managers have that this facility remains an important consideration for investors. Your Board remains committed to maintaining its policy of buying back shares at a discount of up to 4.5% to NAV.

Share Issues
In this period 10,573,503 shares were issued in connection with the 2020/21 prospectus offer which closed fully subscribed.

In this period 538,519 new shares were issued through the dividend reinvestment scheme (DRIS).

Dividend
On 21 May 2021, the Company paid a dividend of 2.1p per share, being the final dividend for the year ended 30 November 2020. For the period to 31 May 2021, the Board has declared an interim dividend of 2.1p. This will be paid on 12 November 2021 to shareholders on the register on 15 October 2021. The Board is also pleased to declare a special dividend of 1.7p which will be paid at the same time as the interim dividend. This represents a proportion of the gains realised from profit taking in the period after some very strong share price performances in the portfolio.

It remains the Board’s intention to maintain a minimum annual dividend payment of 3.6p per share or a 5% yield based on the prior year end share price, whichever is the greater. This will usually be paid in two instalments during each year.

Risks, Uncertainties
The principal risks and uncertainties are set out in Note 7 to the half yearly report and accounts on page 24 of the half-yearly report.

Outlook
Investors have anticipated the final easing of lockdown based on the success of the vaccination programme with many of the shares formerly most affected by restrictions now well off their lows as they have found new supporters in 2021. However, for the most part those that have been able to keep the momentum in their business going throughout the pandemic are still being rewarded for upgrades to cautiously set forecasts for 2021 and 2022 and their share prices have continued to react positively. Economic consensus is that a record contraction to the economy in 2020 will be matched by very strong growth in 2021 as a proportion of the corporate and household savings during the pandemic are spent. We have already seen a rise in takeover bids which supports higher valuations for equities. There are two notes of caution; the first about whether the very strong recovery will lead to more than the temporary rise in inflation which is currently expected towards the end of 2021 and the second is the extent to which comparatively modest technology valuations in the UK would suffer were those in the US to fall. The portfolio’s strength is that it is well diversified both in terms of sector exposure and of individual company concentration. At the period end it contained 89 holdings (31 May 2020: 78 holdings and 30 November 2020: 80 holdings) across a range of sectors including healthcare and technology with the balance still weighted towards profitable companies which are continuing to pursue growth.

There are a number of newer holdings that still need to demonstrate progress over the coming months in order to reach profitability. The VCT currently has funds available for new investments as well as supporting those who are still on this journey to profitability. The investment rate has accelerated in the past six months and as a result the VCT is 88.3% invested in qualifying companies allowing us to be selective when viewing new investment opportunities.

The AIM Team

Octopus Investments

21 July 2021

Director’s Responsibilities 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 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

Keith Mullins

Chairman

21 July 2021

Income Statemen t

  Unaudited
Six months to 31 May 2021
Unaudited
Six months to 31 May 2020
Audited
Year to 30 November 2020
  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 - 1,552 1,552 - (378) (378) - 433 433
Gain/(loss) on disposal of current asset investments - 33 33 - (42) (42) - (158) (158)
Gain/(loss) on valuation of fixed asset investments - 21,415 21,415 - (601) (601) - 17,871 17,871
Gain/(loss) on valuation of current asset investments - 2,680 2,680 - (225) (225) - 1,126 1,126
Investment income 126 109 235 108 - 108 290 41 331
Investment management fees (218) (655) (873) (162) (485) (647) (334) (1,001) (1,335)
Other expenses (341) - (341) (251) - (251) (506) - (506)
Profit/(loss) before tax (433) 25,134 24,701 (305) (1,731) (2,036) (550) 18,312 17,762
Tax - - - - - - - - -
Profit/(loss) after tax (433) 25,134 24,701 (305) (1,731) (2,036) (550) 18,312 17,762
Earnings per share – basic and diluted (0.3)p 18.7p 18.4p (0.3)p (1.5)p (1.8)p (0.5)p 15.5p 15.0p

There is no other comprehensive income for the period.

  • 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 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.

Balance Sheet

  Unaudited

As at 31 May 2021
Unaudited

As at 31 May 2020
Audited

As at 30 November 2020
  £’000 £’000 £’000 £’000 £’000 £’000
Fixed asset investments   100,903   58,867   76,695
Current assets:            
Investments 12,130   15,580   10,396  
Money market funds 3,486   3,485   3,486  
Debtors 58   1,055   120  
Cash at bank 16,583   4,806   14,838  
  32,257   24,926   28,840  
Creditors: amounts falling due within one year (607)   (566)   (1,389)  
Net current assets   31,650   24,360   27,451
Total assets less current liabilities   132,553   83,227   104,146
Called up equity share capital   13   12   13
Share premium   47,142   56,320   37,758
Special distributable reserve   29,372   15,369   35,051
Capital reserve realised   (4,851)   (9,168)   (7,492)
Capital reserve unrealised   62,802   21,942   40,309
Capital redemption reserve   2   1   1
Revenue reserve   (1,927)   (1,249)   (1,494)
Total equity shareholders’ funds   132,553   83,227   104,146
NAV per share – basic and diluted   99.2p   68.7p   82.9p

The statements were approved by the Directors and authorised for issue on 21 July 2021 and are signed on their behalf by:

Keith Mullins

Chairman

Company Number: 05528235

Statement of Changes in Equity

  Share Capital
£’000
Share Premium
£’000
Special distributable reserves*
£’000
Capital reserve realised*
£’000
Capital reserve unrealised
£’000
Capital
redemption
reserve
£’000
Revenue reserve*
£’000
Total
£’000
As at 1 December 2020 13 37,758 35,051 (7,492) 40,309 1 (1,494) 104,146
Total comprehensive income for the period - - - 1,039 24,095 - (433) 24,701
Contributions by and distributions to owners:                
Repurchase and cancellation of own shares (1) - (2,875) - - 1 - (2,875)
Issue of shares 1 10,027 - - - - - 10,028
Share issue costs - (643) - - - - - (643)
Dividends paid - - (2,804) - - - - (2,804)
Total contributions by and distributions to owners - 9,384 (5,679) - - 1 - 3,706
Other movements:                
Prior years’ holding gains now realised - - - 1,602 (1,602) - - -
Total other movements - - - 1,602 (1,602) - - -
Balance as at 31 May 2021 13 47,142 29,372 (4,851) 62,802 2 (1,927) 132,553
                 
*The sum of these reserves is an amount of £22,594,000 (31 May 2020: £4,952,000 and 30 November 2020: £26,065,000) which is considered distributable to shareholders.







.
As at 1 December 2019 11 47,044 19,423 (8,641) 23,146 1 (944) 80,040
Total comprehensive income for the period (905) (826) (305) (2,036)
Contributions by and distributions owners:                
Repurchase and cancellation of own shares - (1,521) (1,521)
Issue of shares 1 9,893 9,894
Share issue costs (617) (617)
Dividends paid (2,533) (2,533)
Total contributions by and distributions to owners 1 9,276 (4,054) 5,223
Other movements:                
Prior years’ holding gains now realised 378 (378)
Total other movements 378 (378)
Balance as at 31 May 2020 12 56,320 15,369 (9,168) 21,942 1 (1,249) 83,227
                 
                 
As at 1 December 2019 11 47,044 19,423 (8,641) 23,146 1 (944) 80,040
Total comprehensive income for the period (685) 18,997 (550) 17,762
Contributions by and distributions to owners:                
Repurchase and cancellation of own shares (2,710)   (2,710)
Issue of shares 2 15,027 15,029
Share issue costs (908) (908)
Dividends paid (5,067) (5,067)
Total contributions by and distributions to owners 2 14,119 (7,777) - - - - 6,344
Other movements:                
Cancellation of share premium - (23,405) 23,405 - - - - -
Prior years’ holding gains now realised 1,834 (1,834)
Total other movements (23,405) 23,405 1,834 (1,834) -
Balance as at 30 November 2020 13 37,758 35,051 (7,492) 40,309 1 (1,494) 104,146

Cash Flow Statement

  Unaudited
Six months to
31 May 2021
£’000
Unaudited
Six months to
31 May 2020
£’000
Audited
Year to
30 November 2020
£’000
Cash flows from operating activities      
Profit/(loss) before tax 24,701 (2,036) 17,762
Adjustments for:      
Decrease/(Increase) in debtors 62 (921) 14
(Decrease)/increase in creditors (782) 413 437
Gain/(loss) on disposal of fixed assets investments (1,552) 378 (433)
Gain/(loss) on disposal of current asset investments (33) 42 158
Gain/(loss) on valuation of fixed asset investments (21,415) 601 (17,871)
Gain/(loss) on valuation of current asset investments (2,680) 225 (1,126)
Non-cash distributions (109) - (41)
Cash from operations (1,808) (1,298) (1,100)
Income taxes paid - - -
Net cash generated from operating activities (1,808) (1,298) (1,100)
       
Cash flows from investing activities      
Purchase of fixed asset investments (5,296) (3,898) (4,518)
Proceeds from sale of fixed asset investments 4,164 2,298 5,214
Purchase of current asset investments (2,380) (389) (2,471)
Proceeds from sale of current asset investments 3,359 1,000 9,500
Net cash flows from investing activities (153) (989) 7,725
       
Cash flows from financing activities      
Purchase of own shares (2,875) (1,521) (2,710)
Share issues 9,502 9,425 14,104
Share issue costs (643) (617) (908)
Dividends paid (2,278) (2,064) (4,142)
Net cash flows from financing activities 3,706 5,223 6,344
Increase in cash and cash equivalents 1,745 2,936 12,969
Opening cash and cash equivalents 18,324 5,355 5,355
       
Closing cash and cash equivalents 20,069 8,291 18,324
Closing cash and cash equivalents is represented by:      
Cash at bank 16,583 4,806 14,838
Money market funds 3,486 3,485 3,486
Total cash and cash equivalents 20,069 8,291 18,324

Notes to the Half-Yearly Report

1.          Basis of preparation
        The unaudited half-yearly report which covers the six months to 31 May 2021 has been prepared in accordance with the Financial Reporting Council’s (FRC) Financial Reporting Standard (FRS) 104 Interim Financial Reporting (March 2018) and the Statement of Recommended Practice (SORP) for Investment Companies issued by the Association of Investment Companies in 2014 (updated in February 2018).

        The Directors consider it appropriate to adopt the going concern basis of accounting. The Directors have not identified any material uncertainties to the company’s ability to continue to adopt the going concern basis over a period of at least twelve months from the date of approval of the financial statements. In reaching this conclusion the Directors have had regard to the potential impact on the economy and the Company of the current Coronavirus pandemic.

        The principal accounting policies have remained unchanged from those set out in the Company’s 2020 Annual Report and Accounts.

2.          Publication of non-statutory accounts
        The unaudited half-yearly report for the six months ended 31 May 2021 does not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006. The comparative figures for the year ended 30 November 2020 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, 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 May 2021 are calculated on the basis of 134,206,472 shares (31 May 2020: 115,920,374 and 30 November 2020: 118,842,639), 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 returns per share figures are relevant.

4.        Net asset value per share

        The net asset value per share is based on net assets as at 31 May 2020 divided by 133,577,697 shares in issue at that date (31 May 2020: 121,145,852 and 30 November 2020: 125,660,654).

5.          Dividends
        The Directors have declared an interim dividend of 2.1 pence per share and a special dividend of 1.7 pence per share, payable from the special distributable reserve. This dividend will be paid on 12 November 2021 to those shareholders on the register at 15 October 2021.

6.         Buybacks and share issues

        During the six months ended 31 May 2021 the Company repurchased the following shares.

Date No. of shares Price (p) Cost (£)
10 December 2020 557,881 81.1 453,000
21 January 2021 470,810 86.7 408,000
25 February 2021 456,958 90.8 415,000
18 March 2021 555,254 91.7 509,000
22 April 2021 682,938 95.2 650,000
20 May 2021 471,138 93.4 440,000
Total 3,194,979   2,875,000

The weighted average price of all buybacks during the period was 90.0 pence per share.

During the six months ended 31 May 2021 the Company issued the following shares:

Date No. of shares Price (p) Net proceeds (£)
09 December 2020 10,527,955 89.8 8,814,000
15 April 2021 45,548 104.0 45,000
21 May 2021 (DRIS) 538,519 97.7 526,000
Total 11,112,022   9,385,000

      The weighted average allotment price of all shares issued during the period net of costs was 84.4 pence per share.

        The total value of share issues, net of share issue costs, was £8,859,000 (excluding the value of shares issued under DRIS). This is shown in the cash flow statement.

7.         Principal risks and uncertainties

        The Company’s principal risks are VCT qualifying status risk, valuation risk, investment risk, finance risk, regulatory and reputational risk, economic and price risk and operational 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 30 November 2020. The Board has also considered emerging risks, including the Coronavirus pandemic, which the Board seeks to mitigate by setting policy and reviewing performance. Otherwise, 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 £873,000 by Octopus as a management fee in the period to 31 May 2021 (31 May 2020: £647,000 and 30 November 2020: £1,335,000). The management fee is payable quarterly and is based on 2% of net assets at quarterly intervals.

        The Company receives a reduction in the management fee for the investments in other Octopus managed funds, being the Octopus Portfolio Manager, Multi Cap and Micro Cap products, to ensure the Company is not double charged on these products. This amounted to £30,000 in the period to 31 May 2021 (31 May 2020: £31,000 and 30 November 2020: £54,000). For further details please refer to the Company’s Annual Report and Accounts for the year ended 30 November 2020. Details of amounts invested in Octopus managed funds can be found on page 13 of the half-yearly report.

9.         Post balance sheet events

        The following events occurred between the balance sheet date and the signing of these financial statements:

•        An investment of £600,000 into VR Education Holdings plc;

•         An investment of £1,410,199 into Spectral MD Holdings Ltd;

•         An investment of £1,386,000 into LungLife AI Inc;

•         An investment of £800,000 into GENInCode plc;

•        Partial disposal of Trackwise Designs plc for a consideration of £31,137.

•        Partial disposal of Intelligent Ultrasound plc for a consideration of £30,733.

•        Partial disposal of PCI Pal plc for a consideration of £135,596.

•        Partial disposal of Ergomed plc for a consideration of £31,137.

•        Partial disposal of Gear4music Holdings plc for a consideration of £131,583.

•        On 11 June 2021, the Company purchased for cancellation 305,750 Ordinary Shares at a price of 95.7p.

•        On 30 June 2021, the Company issued 38,403 Ordinary Shares at a price of 98.1p.

10.        Fixed asset investments

        Accounting Policy
        The Company’s principal financial assets are its investments and the policies in relation to those assets are set out below.

        Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date).

        These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board. Accordingly, as permitted by FRS 102, the investments are measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company’s investments are measured at subsequent reporting dates at fair value.

        In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. This is consistent with the International Private Equity and Venture Capital Valuation (IPEV) guidelines.

        Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the Capital reserve – unrealised. The Managers review changes in fair value of investments for any permanent reductions in value and will give consideration to whether these losses should be transferred to the Capital reserve – realised.

        In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.

        Fair value hierarchy

        Paragraph 34.22 of FRS102 suggests following a hierarchy of fair value measurements, for financial instruments measured at fair value in the Balance Sheet, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). This methodology is adopted by the Company and requires disclosure of financial instruments to be dependent on the lowest significant applicable input, as laid out below:
        Level 1: The unadjusted, fully accessible and current quoted price in an active market for identical assets or liabilities that an entity can access at the measurement date.
        Level 2: Inputs for similar assets or liabilities other than the quoted prices included in Level 1 that are directly or indirectly observable, which exist for the duration of the period of investment.
        Level 3: This is where inputs are unobservable, where no active market is available and recent transactions for identical instruments do not provide a good estimate of fair value for the asset or liability.
        There has been two reclassifications from Level 2 to Level 1. These relate to Reneuron Group plc and DP Poland where these investments were not actively trading at previous year end but are trading in the period to May 2021. Other than this, there have been no reclassifications between levels in the year. The change in fair value for the current and previous year is recognised through the profit and loss account.        

Disclosure

  Level 1:
AIM-traded equity investments
£’000
Level 2: Quoted equity
investments
£’000
Level 3:
Unquoted investments
£’000
Total
£’000
Cost as at 1 December 2020 34,225 1,694 2,595 38,514
Opening unrealised gain/(loss) at 1 December 2020 36,899 (631) 1,913 38,181
Valuation at 1 December 2020 71,124 1,063 4,508 76,695
         
Purchases at cost 4,896 - 400 5,296
In-Specie dividend 109 - - 109
Disposal proceeds (3,966) - (198) (4,164)
Profit/(loss) on realisation of investments 1,433 - 119 1,552
Reclassification between levels 1,063 (1,063) - -
Change in fair value in year 21,410 - 5 21,415
Closing valuation at 31 May 2021 96,069 - 4,834 100,903
         
Cost at 31 May 2021 39,758 - 2,807 42,565
Closing unrealised gain at 31 May 2021 56,311 - 2,027 58,338
Valuation at 31 May 2021 96,069 - 4,834 100,903

        Level 1 valuations are valued in accordance with the bid-price on the relevant date. Further details of the fixed asset investments held by the Company are shown within the Investment Manager’s Review.

        Level 2 investments are valued using other observable inputs not included in Level 1. Reneuron Group plc was valued at previous year end partly at closing market bid price and partly at a fixed fundraise price. DP Poland was also valued at a closing price, the day before suspension took effect. Since year end these investments are actively trading.

        Level 3 investments are valued in accordance with IPEV guidelines. Hasgrove plc is valued using a range of inputs, including the most recent transaction price, whilst Rated People Ltd and Popsa Holdings Ltd is valued at the latest fundraise price. Fusionex International plc and Airnow Group plc are held at the latest available price. The loan notes are held at cost which is deemed to be current fair value.

        All capital gains or losses on investments are classified at FVTPL. Given the nature of the Company’s venture capital investments, the changes in fair value of such investments recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and accordingly these gains are treated as holding gains or losses.

        At 31 May 2021 there were no commitments in respect of investments approved by the Investment Manager but not yet completed.

11.        Additional information

        Copies of this report are available from the registered office of the Company at 33 Holborn, London, EC1N 2HT.



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