OCTOPUS AIM VCT 2 PLC Half-yearly Results
These results were approved by the Board of Directors on
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 | Six months to | Year to | |
| Net assets (£’000) | 83,227 | 86,841 | 80,040 |
| Loss after tax (£’000) | (2,036) | (255) | (476) |
| Net asset value (‘NAV’) per share (p) | 68.7 | 78.6 | 72.4 |
| NAV total return (%)* | (2.2) | (0.1) | (0.4) |
| Dividends paid in the period (p) | 2.1 | 2.1 | 8.1 |
| Interim dividend (p)** | 2.1 | 2.1 | 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.
**The interim dividend will be paid on
Chairman’s Statement
I am pleased to present the half-yearly results for the
The Board has declared an interim dividend of 2.1p which will be paid on
The Investment Manager has made eleven qualifying investments in the six month period and these are explained further in their report. The pipeline of potential VCT qualifying investments increased sharply in response to the Coronavirus pandemic as existing AIM companies sought to secure sufficient capital to carry out their business plans. Reassuringly, AIM has fulfilled its function with many placings oversubscribed and more than £1.9 billion raised for companies in this difficult period.
Chairman
Interim Management Report
Overview
The six months to
New issues have continued to be impacted by market conditions as all eyes are on the Coronavirus pandemic and the impact of global lockdowns on companies as we start to emerge from the crisis. However, this change has presented us with demand for additional capital from existing companies and has already created opportunities to invest into some exciting businesses we have been tracking.
Performance
Adding back the 2.1p paid out in dividends in the period, the NAV fell by 2.2% in the six months to
The majority of the smaller healthcare holdings performed well in the period. Omega Diagnostics, EKF Diagnostics,
Elsewhere, PCI Pal has performed well and VR Education has developed virtual reality conferencing software to add to its Engage educational platform. Idox has also recovered from its lows as a new management team seek to exploit its very strong position as a provider of software to local authorities and resume growth. Learning Technologies is benefiting from acquisitions which have brought significant amounts of recurring software revenues, insulating it from the crisis. It successfully raised funds to finance further acquisitions as opportunities arise. Breedon, the building materials supplier, started the period with a share price depressed by Brexit concerns. It was a significant contributor to performance despite the business being in almost total lockdown for the month of April and some of May. We expect it to emerge strongly because of all the capital building projects in the pipeline.
Other good performers include Loop-up, which has seen strong demand for its conference calling software, DP Poland which has benefitted from a demand for takeaway pizzas in
However, there have been several detractors from performance in the period which have included some smaller holdings exposed to the consumer such as Tasty and Escape Hunt. Among the larger ones, Sosandar’s shares have been extremely volatile as investors have swung between excitement at the success of the on-line clothing brand and its continuing growth and concern about how soon it can reach profitability. It was initially affected by lack of demand for smart fashion in lockdown but reacted fast and increased the efficiency of its marketing spend, keeping sales growing and demonstrating the resilience of an on-line model. It has benefitted from having access to the cash raised earlier in the year although the share price performance reflects general fear about retailers. The other significant drag on performance was Quixant where its largest customer lost market share to competitors in 2019 and where the uncertainty caused by Coronavirus is still an issue. However, the company has net cash on its balance sheet and some exciting new products aimed at the broadcasting sector which should help sales to recover in 2021.
Craneware saw its shares fall from a high after reporting a slower than expected uptake for its new Trisus platform. The company retains its strong positioning as a supplier to the US hospital market and stands out as a cash generative software company with growing annual recurring revenues although a slowdown in planned operations in US hospitals will impact sales growth this year. Elsewhere, Creo Medical’s shares drifted downwards on a lack of news, Equals shares were hit by a lack of travel and demand for currency and
Portfolio Activity
In the period under review, the Company made eleven qualifying investments totalling £3.9 million, well ahead the £969,000 we invested in the corresponding period last year, reflecting the part that AIM has played in providing finance to its constituents through the Coronavirus pandemic. Six of these were follow-on investments into existing holdings in Sosandar, Trackwise, PCI-Pal, Fusion Antibodies, Genedrive and
Of the five new investments DXS and the
In the period we also invested £388,000 of the cash balances into the
A number of disposals and provisions were made in the half year. The result has been a net loss of £80,000. We sold the entire holdings of Staffline at a loss after a series of downgrades to expectations and further uncertainty as a result of Brexit delays caused the financial position to deteriorate. More recently we sold the holding in Omega Diagnostics at a profit after a strong run in the share price. Nasstar and Brady were both acquired for cash and we took some profits in the Ixico, Learning Technologies, GB Group, Synairgen and Loop-up holdings after they performed very well. Since the period end we have taken profits in VR Education after a strong share price performance.
Unquoted Investments
As stated in the investment policy on page 1, the Company is able to make investments in unquoted companies intending to float. Currently 3.1% (
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
Share Issues
In this period 12,140,295 shares were issued in connection with the 2019/20 prospectus offer which closed fully subscribed.
In this period 698,494 new shares were issued through the dividend reinvestment scheme (DRIS).
Dividend
On
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 period 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.
Outlook
Although the
The portfolio’s strength is that it is well diversified both in terms of sector exposure and in terms of individual company concentration. At the period end it contained 78 holdings (
There are a number of newer holdings that we were expecting to demonstrate progress over the coming twelve months and this is now likely to prove more challenging. However, the VCT currently has funds available for new investments which should allow us to take advantage of any dip in valuations should sentiment weaken again and to support existing portfolio companies where we can. The investment rate has accelerated in the past three months and as a result the VCT is 93.8% invested in qualifying companies allowing us to be selective when viewing new investment opportunities.
The AIM Team
Octopus Investments
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
Chairman
Income Statement
| Unaudited Six months to | Unaudited Six months to | Audited Year to | |||||||
| Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | Revenue £’000 | Capital £’000 | Total £’000 | |
| (Loss)/gain on disposal of fixed asset investments | – | (378) | (378) | – | (71) | (71) | – | 315 | 315 |
| (Loss)/gain on disposal of current asset investments | – | (42) | (42) | – | – | – | – | 61 | 61 |
| Loss on valuation of fixed asset investments | – | (601) | (601) | – | (234) | (234) | – | (900) | (900) |
| (Loss)/gain on valuation of current asset investments | – | (225) | (225) | – | 819 | 819 | – | 1,390 | 1,390 |
| Investment income | 108 | – | 108 | 183 | – | 183 | 539 | – | 539 |
| Investment management fees | (162) | (485) | (647) | (182) | (547) | (729) | (353) | (1,058) | (1,411) |
| Other expenses | (251) | – | (251) | (223) | – | (223) | (470) | – | (470) |
| Loss before tax | (305) | (1,731) | (2,036) | (222) | (33) | (255) | (284) | (192) | (476) |
| Tax | – | – | – | – | – | – | – | – | – |
| Loss after tax | (305) | (1,731) | (2,036) | (222) | (33) | (255) | (284) | (192) | (476) |
| Earnings per share – basic and diluted | (0.3)p | (1.5)p | (1.8)p | (0.2)p | 0.0p | (0.2)p | (0.3)p | (0.1)p | (0.4)p |
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 | Unaudited As at | Audited As at | ||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Fixed asset investments | 58,867 | 58,510 | 58,246 | |||
| Current assets: | ||||||
| Investments | 15,580 | 20,712 | 16,458 | |||
| Money market funds | 3,485 | 3,462 | 3,474 | |||
| Debtors | 1,055 | 69 | 134 | |||
| Cash at bank | 4,806 | 4,542 | 1,881 | |||
| 24,926 | 28,785 | 21,947 | ||||
| Creditors: amounts falling due within one year | (566) | (454) | (153) | |||
| Net current assets | 24,360 | 28,331 | 21,794 | |||
| Total assets less current liabilities | 83,227 | 86,841 | 80,040 | |||
| Called up equity share capital | 12 | 11 | 11 | |||
| Share premium | 56,320 | 57,490 | 47,044 | |||
| Special distributable reserve | 15,369 | 15,557 | 19,423 | |||
| Capital reserve realised | (9,168) | (10,236) | (8,641) | |||
| Capital reserve unrealised | 21,942 | 24,900 | 23,146 | |||
| Capital redemption reserve | 1 | 1 | 1 | |||
| Revenue reserve | (1,249) | (882) | (944) | |||
| Total equity shareholders’ funds | 83,227 | 86,841 | 80,040 | |||
| NAV per share – basic and diluted | 68.7p | 78.6p | 72.4p | |||
The statements were approved by the Directors and authorised for issue on
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 | 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 to 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 | 12 | 56,320 | 15,369 | (9,168) | 21,942 | 1 | (1,249) | 83,227 |
| *The sum of these reserves is an amount of £4,952,000 ( . | ||||||||
| As at | 11 | 57,045 | 19,536 | (9,898) | 24,595 | 1 | (660) | 90,630 |
| Total comprehensive income for the period | – | – | – | (618) | 585 | – | (222) | (255) |
| Contributions by and distributions owners: | ||||||||
| Repurchase and cancellation of own shares | – | – | (1,653) | – | – | – | – | (1,653) |
| Issue of shares | – | 448 | – | – | – | – | – | 448 |
| Share issue costs | – | (3) | – | – | – | – | – | (3) |
| Dividends paid | – | – | (2,326) | – | – | – | (2,326) | |
| Total contributions by and distributions to owners | – | 445 | (3,979) | – | – | – | – | (3,534) |
| Other movements: | ||||||||
| Prior years’ holding gains now realised | – | – | – | 280 | (280) | – | – | – |
| Total other movements | – | – | – | 280 | (280) | – | – | – |
| Balance as at | 11 | 57,490 | 15,557 | (10,236) | 24,900 | 1 | (882) | 86,841 |
| As at | 11 | 57,045 | 19,536 | (9,898) | 24,595 | 1 | (660) | 90,630 |
| Total comprehensive income for the period | – | – | – | (682) | 490 | – | (284) | (476) |
| Contributions by and distributions to owners: | ||||||||
| Repurchase and cancellation of own shares | – | – | (2,782) | – | – | – | – | (2,782) |
| Issue of shares | – | 1,576 | – | – | – | – | – | 1,576 |
| Share issue costs | – | (2) | – | – | – | – | – | (2) |
| Dividends paid | – | – | (8,906) | – | – | – | – | (8,906) |
| Total contributions by and distributions to owners | – | 1,574 | (11,688) | – | – | – | – | (10,114) |
| Other movements: | ||||||||
| Cancellation of share premium | – | (11,575) | 11,575 | – | – | – | – | – |
| Prior years’ holding gains now realised | – | – | – | 1,939 | (1,939) | – | – | – |
| Total other movements | – | (11,575) | 11,575 | 1,939 | (1,939) | – | – | – |
| Balance as at | 11 | 47,044 | 19,423 | (8,641) | 23,146 | 1 | (944) | 80,040 |
Cash Flow Statement
| Unaudited Six months to £’000 | Unaudited Six months to £’000 | Audited Year to £’000 | |
| Cash flows from operating activities | |||
| Loss before tax | (2,036) | (255) | (476) |
| Adjustments for: | |||
| Increase in debtors | (921) | (4) | (69) |
| Increase/(decrease) in creditors | 413 | (738) | (386) |
| Loss/(gain) on disposal of fixed assets investments | 378 | 71 | (315) |
| Loss/(gain) on disposal of current assets investments | 42 | – | (61) |
| Loss on valuation of fixed asset investments | 601 | 234 | 900 |
| Loss/(gain) on valuation of current asset investments | 225 | (819) | (1,390) |
| Cash from operations | (1,298) | (1,511) | (1,797) |
| Income taxes paid | – | – | – |
| Net cash generated from operating activities | (1,298) | (1,511) | (1,797) |
| Cash flows from investing activities | |||
| Purchase of fixed asset investments | (3,898) | (968) | (4,959) |
| Sale of fixed asset investments | 2,298 | 2,024 | 5,346 |
| Purchase of current asset investments | (389) | (3,002) | (3,116) |
| Sale of current asset investments | 1,000 | – | 5,000 |
| Net cash flows from investing activities | (989) | (1,946) | 2,271 |
| Cash flows from financing activities | |||
| Purchase of own shares | (1,521) | (1,653) | (2,782) |
| Share issues (net of costs) | 8,808 | 62 | 90 |
| Dividends paid | (2,064) | (1,943) | (7,422) |
| Net cash flows from financing activities | 5,223 | (3,534) | (10,114) |
| Increase/(decrease) in cash and cash equivalents | 2,936 | (6,991) | (9,640) |
| Opening cash and cash equivalents | 5,355 | 14,995 | 14,995 |
| Closing cash and cash equivalents | 8,291 | 8,004 | 5,355 |
| Cash and cash equivalents comprise | |||
| Cash at bank | 4,806 | 4,542 | 1,881 |
| Money Market Funds | 3,485 | 3,462 | 3,474 |
| 8,291 | 8,004 | 5,355 |
Notes to the Half-Yearly Report
1. Basis of preparation
The unaudited half-yearly report which covers the six months to
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 2019 Annual Report and Accounts.
2. Publication of non-statutory accounts
The unaudited half-yearly reports for the six months ended
3. Earnings per share
The earnings per share at
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
5. Dividends
The Directors have declared a dividend of
6. Buybacks and share issues
During the six months ended
| Date | No. of shares | Price (p) | Cost (£) |
| 321,283 | 70.8 | 227,000 | |
| 684,729 | 73.3 | 502,000 | |
| 538,063 | 73.2 | 394,000 | |
| 237,186 | 58.2 | 138,000 | |
| 251,844 | 64.0 | 161,000 | |
| 152,800 | 64.6 | 99,000 | |
| Total | 2,185,905 | 1,521,000 |
The weighted average price of all buybacks during the period was
During the six months ended
| Date | No. of shares | Price (p) | Net proceeds (£) |
| 3,572,789 | 81.5 | 2,727,000 | |
| 8,317,435 | 76.2 | 5,915,000 | |
| 250,071 | 70.2 | 166,000 | |
| 698,494 | 67.1 | 468,000 | |
| Total | 12,838,789 | 9,276,000 |
The weighted average allotment price of all shares issued during the period net of costs was
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
8. Related party transactions
The Company has employed
The Company receives a reduction in the management fee for the investments in other Octopus managed funds, being the Octopus Portfolio Manager,
9. Post balance sheet events
The following events occurred between the balance sheet date and the signing of these financial statements:
• Disposal of £3.2 million in Octopus Portfolio Manager - Conservative Capital Growth;
• Disposal of £3.2 million in Octopus Portfolio Manager - Defensive Capital Growth;
• An investment of £160,000 into the
• An investment of £200,000 into Feedback plc; and
• Partial disposal of VR Education Holdings plc for a consideration of £70,488.
• On
• On
• A final order to cancel Share Premium amounting to £23.4 million was granted on
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 one reclassification from Level 1 to Level 3 in the period as
Disclosure
| Level 1: AIM-traded equity investments £’000 | Level 3: Unquoted investments £’000 | Total £’000 | |
| Cost as at | 34,058 | 2,785 | 36,843 |
| Opening unrealised gain/(loss) at | 20,945 | 458 | 21,403 |
| Valuation at | 55,003 | 3,243 | 58,246 |
| Purchases at cost | 3,898 | – | 3,898 |
| Disposal proceeds | (2,298) | – | (2,298) |
| Profit/(loss) on realisation of investments | 172 | (550) | (378) |
| Reclassification between levels | (13) | 13 | – |
| Change in fair value in year | (884) | 283 | (601) |
| Closing valuation at | 55,878 | 2,989 | 58,867 |
| Cost at | 35,906 | 2,455 | 38,361 |
| Closing unrealised gain at | 19,972 | 534 | 20,506 |
| Valuation at | 55,878 | 2,989 | 58,867 |
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 3 investments are valued in accordance with IPEV guidelines. Hasgrove is valued at the most recent transaction price, whilst Rated People is valued at the latest fundraise price.
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
11. Additional information
Copies of this report are available from the registered office of the Company at 33
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