Octopus AIM VCT plc
Half-Yearly Results
Octopus AIM VCT plc announces its unaudited half-yearly results for the six months ended 31 August 2024.
Octopus AIM VCT plc (the 'Company') is a venture capital trust (VCT) which aims to provide shareholders with attractive tax-free dividends and long-term capital growth by investing in a diverse portfolio of predominantly AIM-traded companies. The Company is managed by Octopus Investments Limited ('Octopus' or the 'Investment Manager').
Financial summary
Six months to 31 August 2024Six months to 31 August 2023Year to 29 February 2024Net assets (£'000)117,750120,131129,109Profit/(Loss) after tax (£'000)2,521(15,972)(17,734)Net asset value (NAV) per share (p)57.267.263.3Total return (%)12.1(11.2)(13.0)Dividends per share paid in the period (p)7.42.55.0Special dividend declared (p) - -4.9Dividend declared (p)22.52.52.5 1Total 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.
2The interim dividend of 2.5p will be paid on 10 January 2025 to those shareholders on the register on 20 December 2024.
Chair's statement
The six months to 31 August 2024 marked the beginning of a positive shift in market sentiment, albeit a gradual one. Some of the key drivers of this shift included better than expected UK GDP figures, a tempering of investor outflows and ongoing corporate activity as private equity funds continued to seek opportunities on public markets taking advantage of lower valuations. Furthermore, lower inflation figures paved the way for an interest rate cut in August, with further cuts anticipated by the end of the year. In summary, the more stable macroeconomic outlook provided a much needed and expected boost to UK capital markets in late Spring and early Summer. The more recent volatility due to uncertainty related to potential measures in the Labour Government's first Budget, and more specifically possible adjustments to Business Property Relief, have dampened any momentum in positive UK market sentiment, particularly for the AIM market. As a result, by the end of the period under review, the market had given back some of the gains made earlier in the year.
The Net Asset Value (NAV) of the VCT grew by 2.1% during the six-month period, after adding back the final dividend of 2.5p and special dividend of 4.9p. This growth lagged the AIM index which grew by 5.8%. It is encouraging to see the Company return to growth following a lengthy period of negative performance. Furthermore, we anticipate that more recent positive macroeconomic indicators, coupled with the prospect of further interest rate reductions, should benefit the operational performance of companies within your portfolio. Encouragingly, market commentators generally believe that the early signs of recovery evident in the late Spring and early Summer will re-emerge once the fog of uncertainty surrounding the new Government's first Budget clears.
Encouragingly, the number of IPOs and follow on fundraisings on AIM continued at a steady pace over the period. As a result, the Company made four qualifying investments at a total cost of £2.1 million, an increase on the £0.5 million invested in the corresponding period last year. Three of the qualifying investments made in the period were follow-on investments into existing holdings (Abingdon Health, Cambridge Cognition and PCI Pal). One new investment was made into GETECH Group plc, a world-leading locator of subsurface resources including critical metals vital for the world's energy transition.
Transactions with the Investment Manager
Details of amounts paid to the Investment Manager are disclosed in Note 8 to the half-yearly report.
Share buybacks
In the six months to 31 August 2024, the Company bought back 2,761,321 Ordinary shares for a total consideration of £1,663,000. It is evident from the conversations that the Investment Manager has that this facility remains an important consideration for investors. The Board remains committed to maintaining its policy of buying back shares at a discount of approximately 5.0% to the selling shareholder after costs.
Share issues
In this period 4,779,938 new shares were issued, 4,742,400 of these being issued through the Dividend Reinvestment Scheme (DRIS).
New share offer
Since the period end the Company has launched a new combined offer for subscription alongside Octopus AIM VCT 2 plc to raise up to £20 million with an over allotment of up to a further £10 million.
Dividends
On 15 August 2024, the Company paid a dividend of 2.5p and 4.9p per share, being the final and special dividend for the year ended 29 February 2024. For the period to 31 August 2024, the Board has declared an interim dividend of 2.5p. This will be paid on 10 January 2025 to shareholders on the register on 20 December 2024. It remains the Board's intention to maintain a minimum annual dividend payment of 5.0p 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.
Board composition
As anticipated in my statement in the Annual Report and Accounts for the year ended 29 February 2024, Stephen Hazell-Smith, who had been a director of the Company since 1998, stepped down from the Board with effect from the Annual General Meeting held on 18 July 2024. I thank Stephen for his extensive contribution to the success of the Company since its inception. Louise Nash has joined the Board as a director with effect from 1 July 2024. Louise brings to the Board her deep experience as a former fund manager specialising in UK small and mid-cap companies.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Company are set out in Note 7 to the half-yearly report.
Outlook
The UK's improving macroeconomic conditions and rising investor confidence following the recent Autumn Budget should create a more stable market environment in the short to medium term. The focus is now on the timing of further interest rate cuts and their anticipated boost to market certainty and sentiment over the next six months. If this materialises, we expect a re-rating of UK smaller company valuations and an increased appetite for risk, positively impacting the performance of UK smaller growth company shares, including those in your portfolio. Additionally, your VCT is invested in a widely diversified portfolio of companies, and the recent fundraising announcement means our Investment Manager is well-positioned to invest in new opportunities as they arise.
Neal Ransome
Chair
Investment Manager's review
Overview
Following a prolonged period of market and economic uncertainty, investor sentiment in the six months to 31 August 2024 began on a more optimistic note. Improved UK macroeconomic data strengthened market commentators' belief that the threat of a recession had diminished, high inflation was less of a concern, and interest rates had reached their peak. With the UK economy returning to growth this year, driven primarily by improvements in the service and manufacturing sectors, rising consumer confidence, and a robust employment market, the backdrop for market recovery appeared stronger than it had been for a while. In August 2024, the Bank of England cut interest rates for the first time in four years and further boosted market confidence. More recently, since the end of the half year positive market sentiment has tempered. This was fuelled by uncertainty surrounding the future of Business Property Relief and its potential negative impact on AIM and UK capital markets, in the run-up to the new Labour Government's first Budget.
On a positive note, the growing stability of the UK macroeconomic environment has led to improved operational performance for many companies in your portfolio. Additionally, confidence in imminent further interest rate cuts has grown following the recent announcement that inflation is well below the Bank of England's target, now standing at 1.7%. However, the quantum of interest rate cuts this year remains unclear.
We continue to believe that UK equities remain significantly undervalued compared to global peers, despite the intermittent signs of market recovery this year. This is evident in the opportunistic corporate activity, particularly on AIM. Furthermore, the steady rise in IPOs and further fundraisings across UK capital markets this year had begun to renew interest and investment in UK equity markets that had not been seen for a while.
Performance
In the period under review, the NAV total return grew by 2.1% in the six months to 31 August 2024. This compares to a 5.8% rise in the AIM Index, a 19.4% increase of the FTSE Small Cap Index (ex-Investment Trusts) and a 12.6% rise in the FTSE All-Share Index, all on a total return basis. The FTSE All-Share and FTSE Small Cap Index (ex-Investment Trusts) outperformed, reflecting a higher weighting in larger companies (particularly tech companies) which are more liquid and began to see a re-rating this year due to the improved economic and market environment. Despite the improved performance of the larger indices during the period under review, there remains a relative lack of appetite for small growth stocks, which your portfolio is invested in. The UK market continues to experience outflows, with speculation over the Budget adding significant uncertainty to AIM. Potential investors were hesitant, awaiting the implications of the new Labour Government's planned tax changes. Now that this uncertainty has been resolved, we believe the attractive valuations of companies within our universe will gradually draw investors back, leading to a re-rating of smaller company shares over time.
There were several positive contributors to the Company's performance this half. Beeks Financial Cloud Group plc which has now secured contracts with three major global exchanges for its Exchange Cloud product and has a strong pipeline of opportunities with other significant exchanges. The company has also secured a Proximity Cloud contract win and was awarded preferred cloud computing and connectivity vendor status for one of the world's largest banking groups. Mattioli Woods plc was subject to a bid approach by Pollen Street Capital at a 34% premium to the last traded share price prior to the announcement. The bid was approved by shareholders and completed post the period end. This company contributed strongly over many years to the portfolio with this final price representing over six times the original book cost. We are always disappointed to see companies leave public markets, but this continued corporate activity is a clear demonstration of the wide discount that exists in UK equities, which corporates and private equity are taking advantage of. Breedon Group plc continued to perform strongly across its markets, with construction confidence indicators in the UK and Ireland on the rise. Excitingly, during the period, the company acquired US based BMC for $300 million establishing a footprint in the US, offering new markets particularly in the Mid-West. GENinCode plc announced a NICE recommendation for its ROCA ovarian cancer test, as the preferred test for surveillance of ovarian cancer in high-risk individuals not undertaking surgery. GB Group plc performed well over the period, finishing the year strongly with operating profit and cash exceeding market expectations.
Among the detractors from performance over the period was Equipmake Holdings plc which reported disappointing results. The company achieved its revenue forecast but incurred significantly higher costs than expected to deliver on its contracted pipeline of orders. This weighed heavily on its share price, particularly as it had reduced market expectations earlier in the year. Verici Dx plc's share price declined over the period despite ongoing operational progress, including achieving a significant commercial milestone through its partnership with Thermo Fisher. In its half-year trading update, Learning Technologies Group plc highlighted that reduced corporate spend and hiring activity continued to plague large US customers, further exacerbated by unfavourable foreign exchange rates. Despite these headwinds, profitability remains stable and its focus on improved margins should bear fruit once the current macro headwinds subside.
Portfolio activity
In the first half of the year the Company made four qualifying investments totalling £2.1 million, up from £0.5 million in the same period the year before. Three of these were follow-on investments in existing holdings: £1.1 million in Abingdon Health plc, a diagnostic tests business, to support the development of the company's lab capacity, £0.2 million in PCI-Pal plc, a payments solutions and services business, to bolster its US expansion, and £0.5 million in Cambridge Cognition Holdings plc, a provider of digital solutions to assess brain health, to support the growth of its commercial strategy. We made a new investment of £0.3 million in existing AIM company GETECH Group plc, a world-leading locator of subsurface resources, including critical metals for the world's energy transition. The new money raised by GETECH Group plc will be used to fund business development and R&D.
We also invested £4.0 million into non-qualifying, main list stocks to increase our UK equity market exposure. We invested £0.6 million into GSK plc a multinational pharmaceutical and biotechnology company; £0.6 million into Wise plc a global payments solutions business; £0.5 million into JTC plc a global professional services business, £0.5 million into Bytes Technology Group plc an IT solutions and services business, £0.6 million into Ricardo plc a global strategic, environmental and engineering consultancy group, £0.6 million into Cranswick plc a leading UK food producers and £0.6 million into Bloomsbury Publishing plc a leading independent publisher.
We made a number of disposals in the period which resulted in a net overall loss of £2.7 million over book cost. These included the disposals of our entire holdings in Renalytix plc, LoopUp Group plc, Cordel Group plc, Cirata plc, Spectral AI and Eluceda as well as a partial disposal of Beeks Financial Cloud Group plc where we took profits.
During the interim period, £0.4 million was invested in the FP Octopus Future Generations Fund. The investments in FP Octopus Microcap and FP Octopus Multi Cap have positively impacted performance in the period. We anticipate these funds will continue to generate positive returns once stock markets stabilise and equity valuations recover.
Unquoted investments
The Company is able to make investments in unquoted companies intending to float. At 31 August 2024 8.7% (31 August 2023: 7.1% and 29 February 2024: 7.6%) of the Company's net assets were invested in unquoted companies. This uplift reflects an increase in the valuation of Hasgrove Limited, which continues to trade strongly.
Outlook
The improving macroeconomic conditions in the UK, provide a stronger foundation for continued market recovery. The recent Autumn Budget announcement reaffirmed the new government's commitment to a growth agenda. According to the Office of Budget Responsibility, the UK economy is projected to grow by just over 1% this year, rising to 2% by 2025, before stabilising at 1.5% thereafter. With the uncertainty surrounding the Budget now behind us, there is greater clarity regarding the direction of the new government's tax agenda in the short and medium term, which will enhance investor confidence. Additionally, the Chancellor has expressed strong support of VCT legislation, highlighting the importance of VCTs as a vital funding source for small growth companies and raising awareness of their impact within UK capital markets. This, coupled with the anticipated continuation of monetary easing measures this year, is expected to lead to a more vibrant IPO and further fundraising environment, which had already sparked optimism in UK markets earlier this year.
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 85 holdings (31 August 2023: 87 holdings and 29 February 2024: 88 holdings) across a range of businesses with exposure to some exciting new technologies in the environmental and healthcare sectors. The Company currently has funds available for new investments as well as supporting those which are still on their journey to profitability. These are challenging times, but the balance of the portfolio towards profitable companies remains, and the Investment Manager is confident that there will continue to be sufficient opportunities to invest our funds in good companies seeking more growth capital at attractive valuations, which we expect will result in improved future returns.
The Octopus Quoted Companies team
Octopus Investments
Directors' 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's Disclosure Guidance and Transparency Rules, being: we have disclosed 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;we have disclosed a description of the principal risks and uncertainties for the remaining six months of the year; andwe have disclosed 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. By Order of the Board
Neal Ransome
Chair
Income statement
Unaudited
Six months to 31 August 2024Unaudited
Six months to 31 August 2023Audited
Year to 29 February 2024 Revenue
£'000Capital
£'000Total
£'000Revenue
£'000Capital
£'000Total
£'000Revenue
£'000Capital
£'000Total
£'000(Loss)/gain on disposal of fixed asset investments-(41)(41)-139139-813813Loss on disposal of current asset investments----(52)(52)-(246)(246)Gain/(loss) on valuation of fixed asset investments-713713-(13,719)(13,719)-(16,322)(16,322)Gain/(loss) on valuation of current asset investments-1,8511,851-(1,794)(1,794)-(1,137)(1,137)Investment income1,370-1,370920-9202,060-2,060Investment management fees(270)(810)(1,080)(304)(912)(1,216)(555)(1,666)(2,221)Other expenses(292)-(292)(250)-(250)(681)-(681)Profit/(loss) before tax8081,7132,521366(16,338)(15,972)824(18,558)(17,734)Tax_________Profit/(loss) after tax8081,7132,521366(16,338)(15,972)824(18,558)(17,734)Earnings per share - basic and diluted0.4p0.8p1.2p0.2p(9.1p)(8.9p)0.4p(10.0p)(9.6p) 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 no other comprehensive income for the period.The accompanying notes are an integral part of the half-year report.
Balance sheet
Unaudited
As at 31 August 2024Unaudited
As at 31 August 2023Audited
As at 29 February 2024 £'000£'000£'000£'000£'000£'000Fixed asset investments 86,354 87,322 80,350Current assets: Investments16,155 14,873 13,897 Money market funds13,267 16,485 33,641 Debtors266 282 666 Cash at bank2,389 1,921 1,276 Applications cash15 4 4 32,082 33,565 49,484 Creditors: amounts falling due within one year(686) (756) (725) Net current assets 31,396 32,809 48,759Total assets less current liabilities 117,750 120,131 129,109 Called-up equity share capital 2,058 1,789 2,038Share premium 20,707 19,807 18,041Capital redemption reserve 369 301 341Special distributable reserve 107,619 112,000 124,213Capital reserve realised (28,174) (24,586) (24,622)Capital reserve unrealised 15,735 12,650 10,470Revenue reserve (564) (1,830) (1,372)Total equity shareholders' funds 117,750 120,131 129,109NAV per share - basic and diluted 57.2p 67.2p 63.3p 1Cash held but not yet allotted
The statements were approved by the Directors and authorised for issue on 6 November 2024 and are signed on their behalf by:
Neal Ransome
Chair
Company No: 03477519
Statement of changes in equity
Share capitalShare premiumCapital redemption reserveSpecial distributable reserves1Capital reserve realised1Capital reserve unrealisedRevenue reserve1 Total£'000£'000£'000£'000£'000£'000£'000£'000As at 1 March 20242,03818,041341124,213(24,622)10,470(1,372)129,109Total comprehensive profit for the period----(851)2,5648082,521Contributions by and distributions to owners:Repurchase and cancellation of own shares(28)-28(1,663)---(1,663)Issue of shares482,666-----2,714Share issue costs--------Dividends paid---(14,931)---(14,931)Total contributions by and distributions to owners202,66628(16,594)---(13,880)Other movements: Read The Rest at :
