Half-Yearly Results

Octopus AIM VCT plc

Half-Yearly Results

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').

The Company today announces its unaudited half-yearly results for the six months ended 31 August 2022.

Financial Summary

	Six months to 31 August 2022	Six months to 31 August 2021	Year to 28 February 2022
Net assets (£’000)	138,489	190,132	168,169
(Loss)/Profit after tax (£’000)	(24,508)	18,928	(19,459)
Net asset value (‘NAV’) per share (p)	86.5	131.9	104.8
Total return (%)*	(14.6)	10.6	(9.1)
Dividends per share paid in the period (p)	3.0	6.0	8.5
Dividend declared (p)**	2.5	2.5	3.0

*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 of 2.5p will be paid on 12 January 2023 to those shareholders on the register on 9 December 2022.

Chair’s Statement

The six months to 31 August 2022 was a hugely challenging period for stock markets. It followed a weak second half of the previous financial year when markets fell in response to inflation caused by shortages of labour and supplies as economies recovered after covid lockdowns, which was then exacerbated by the Omicron wave that shut down large parts of China again. The situation intensified as the terrible events in the Ukraine unfolded in the spring, with sharply rising energy prices adding to the upward pressure on prices, putting the prospect of higher interest rates firmly on the cards. Against this backdrop, growth stocks fell further out of favour and, as a consequence the VCT’s Net Asset Value (NAV) per share fell by 14.6% during the six month period after adding back the 3.0p dividend paid in August.

The flow of VCT qualifying investment opportunities was still strong at the start of the year but rapidly slowed in response to less certain market conditions. Consequently, the level of investment in the period has been low at £2.4 million. Your Investment Manager has rightly been cautious about investing in a highly volatile market with rapidly fluctuating valuations. The four qualifying investments which the Investment Manager has made in the six month period are described in their report. Reassuringly, the fact that AIM fulfilled its function of raising capital for existing members throughout the pandemic has left many of our earlier stage companies facing a less forgiving investment environment with strong cash positions which should enable them to make further progress without the need to raise short-term funding. Furthermore, while the volatility in the market has resulted in many shares now being priced well below their recent peaks, many of the individual companies in the portfolio have continued to report encouraging trading momentum, despite increasingly uncertain economic prospects.

Transactions with the Investment Manager

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

Share Buybacks

In the six months to 31 August 2022, the Company bought back 1,615,245 Ordinary shares for a total consideration of £1,489,000. It is evident from the conversations which your Managers have 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 4.5% to NAV (equating to a 5% discount to the selling shareholder after costs).

Share Issues

In this period 1,199,166 new shares were issued, 999,538 of these being issued through the dividend reinvestment scheme (DRIS).

New Share Offer

Since the period end the Company 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. It has already closed fully subscribed having raised £18 million gross for the Company and £12 million gross for Octopus AIM VCT 2 plc.

Dividends

On 12 August 2022, the Company paid a dividend of 3.0p per share, being the final dividend for the year ended 28 February 2022. For the period to 31 August 2022, the Board has declared an interim dividend of 2.5p which will be paid on 12 January 2023 to shareholders on the register on 9 December 2022.

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 5.0p per annum or a 5% yield based on share price, whichever is the greater at the time.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the VCT are set out in Note 7.

Outlook

Having weathered the storm of the Covid pandemic, we now face a period of continued political, economic and market volatility. The twin challenges of rising interest rates and strong inflation will continue to test many of the companies in our portfolio. Some will undoubtedly have setbacks, but others continue to show strong trading momentum. Your VCT has the resilience of being invested in a widely diversified portfolio of companies, while the success of the recent fundraising means that our Investment Manager is well-placed to invest in new opportunities as they arise.

Neal Ransome
Chair        
26 October 2022

Investment Manager’s Review

Overview

The six months to 31 August 2022 has been a further period of declining investor confidence accompanied by extreme bouts of share price volatility, with the chilling events in the Ukraine having an impact on appetite for risk from the outset. Economists struggled to measure the impact of war, Russian sanctions and the already present problem of inflation, interest rate rises and energy price spikes on economic growth with the result that expectations have been steadily eroded. After a long period when the stock market had been driven by growth and momentum, investors adopted a much more cautious stance, rotating into less highly rated defensive sectors as protection against rising inflation and interest rates. This caused the retreat of some of the more highly rated shares on AIM and contributed to the underperformance of the AIM Index and of the Company. Despite all of the gloom, trading updates from companies not exposed to supply problems have been robust and existing cautious forecasts have more often been maintained or upgraded by analysts rather than downgraded in the year to date. There has also been a return of takeover bids as companies have sought to invest cash accumulated on their balance sheets. Some new issues in the pipeline managed to get away and companies were still able to raise capital for growth although not always at the high prices they enjoyed a year ago. The Company has continued to deploy existing cash in the period. The current offer of new shares will add to funds available for deployment and we anticipate finding good opportunities to invest them at attractive valuations.

Performance

Adding back the 3.0p paid out in dividends in the period, the NAV fell by 14.6% in the six months to 31 August 2022. This compares with a 14.6% fall in the AIM Index, a 10.6% fall in the Smaller Companies Index (ex Investment Trusts) and a 1.3% fall in the FTSE All Share Index, all on a total return basis. The headwinds we wrote about in the 2022 Annual Report and Accounts strengthened and the Company’s relatively high exposure to the healthcare and technology sectors, which had been a reason for good returns in previous years, held back performance in a world where risk averse investors have less appetite for growth stocks. The VCT rules require investment to be made at an early stage and the benefits of doing so have been clear in past periods. AIM itself was affected by the same factors and the FTSE All Share Index performed noticeably better reflecting its higher weightings in banks, resource and oil stocks all of which are perceived beneficiaries of current market conditions.

There were several themes behind the largest detractors from performance in the period, the most dominant of which was a de-rating of growth stocks as investors sought safe havens such as the oil and resource sectors. This affected some of our largest holdings including Learning Technologies, Breedon Group, GB Group and Next Fifteen. All are established, profitable and growing companies whose shares have been de-rated despite meeting or exceeding forecasts. All bar Breedon are benefitting from a strong dollar and Breedon is positively exposed to the Government’s investment in infrastructure. Gear4Music’s shares fell after it warned that its profits would be lower than expected in a much tougher retail environment. Many earlier stage companies saw their share prices decline in the period with Libertine giving up its post float premium despite the absence of any negative news.

Equipmake performed well in its initial post float period reflecting its sensible pricing on market debut. Netcall, Quixant and Judges were other outperformers as they exceeded forecasts although there were plenty of other holdings in the portfolio whose businesses demonstrated similar resilience but where the shares didn’t react positively.

The positive contributors to performance included private investments in the portfolio whose calculated valuations are not exposed to the very short-term movements of publicly quoted stocks. Nonetheless, their valuations continue to be presented prudently having regard to prevailing sentiment, and Popsa and Hasgrove are both continuing to grow fast, which has led to upgrades in their valuations.

Portfolio Activity

In the period under review, the Company made four qualifying investments totalling £2.4 million, a marked decrease on the £12.6 million we invested in the corresponding period last year, reflecting caution on the part of companies and brokers about raising new capital against a background of volatile markets. Three of these were follow-on investments into existing holdings in Verici Dx plc, The British Honey Company plc and Oberon Investments Group plc totalling £0.6 million. British Honey Company raised money to invest in its nascent whiskey business following some management changes. Oberon completed a small qualifying raise to invest in its broking business alongside its fund management operation and Verici Dx raised further funding for trials for its range of tests for those undergoing kidney transplants.

There was one new investment of £1.8 million into Equipmake Holding plc, a company with established expertise in electric drive trains which will use the funds raised to support bidding for and fulfilling some substantial retrofit contracts for buses in the UK and elsewhere in the world. It is currently running a pilot in York with First Group. It made its AIM debut in July 2022.

A number of disposals in the period resulted in a small loss of £0.1 million over book cost but a positive total return for the period. We sold the entire holding of Clinigen Group plc at a profit as the result of a cash takeover, and reduced the size of the non-qualifying holdings in Next Fifteen Communications Group plc and Advanced Medical Solutions plc in line with our strategy of selling them over time to concentrate non-qualifying holdings on more liquid OEICS. We also disposed of the balance of the holdings in Diurnal Group plc and Synairgen as well as selling the holdings in Merit Group, Midatech Pharma and Trellus Health.

In the period we invested £0.1 million into the FP Octopus Future Generations Fund at lower prices. The strategy is to reduce other individually held non-qualifying holdings and replace them with liquid collective funds. Although the funds have had a negative impact on returns in this period, we expect them to provide a return on our cash awaiting investment once stock markets return to a more settled state.

Unquoted Investments

The Company is able to make investments in unquoted companies intending to float. Currently 7.3% (31 August 2021: 2.7% and 28 February 2022: 5.5%) of the Company’s net assets are invested in unquoted companies. The rise in the percentage of the portfolio is due to the continued strong performance of Hasgrove in particular, which has resulted in an increase in its value despite current adverse market conditions.

Outlook

The very real issue of inflation and the need to tighten monetary policy by raising interest rates after a prolonged period of very cheap money has caused a reassessment of stock market valuations that has disproportionately impacted the share price of companies exposed to growth sectors. This is most dangerous for companies lacking sufficient funding to prove their business models. Although the Company has exposure to companies yet to generate sufficient cash to meet operating costs the majority of them are well funded at present and able to continue with their business plans. Additionally, for many of the already established companies in the portfolio a background of marginal economic growth is helpful to meeting forecasts which appear to have been set conservatively, particularly for those able to pass on increased costs. The volatility we have already seen in the market in 2022 has resulted in many shares now being priced well below their recent peaks. The ability of companies to raise growth capital during the pandemic has supported the case for public markets and the strong flow of AIM fundraisings in 2021 has left most balance sheets looking healthy.

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 91 holdings (31 August 2021: 92 holdings and 28 February 2022: 94 holdings) across a range of sectors with exposure to some exciting new technologies in the environmental and healthcare sectors. Many of these have been able to raise funds for growth in the past two years leaving them with sufficient cash to achieve their growth ambitions. The Company currently has funds available for new investments as well as supporting those who are still on this journey to profitability. These are difficult macroeconomic and geopolitical times, but the balance of the portfolio towards profitable companies remains, and the 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.

The Octopus Quoted Companies team
26 October 2022

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; and
  • we 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.

On behalf of the Board

Neal Ransome
Chair
26 October 2022

Income Statement

	Unaudited Six months to 31 August 2022 Revenue        Capital        Total £’000        £’000        £’000			Unaudited        Audited Six months to 31 August 2021        Year to 28 February 2022 Revenue        Capital        Total        Revenue        Capital        Total £’000        £’000        £’000        £’000        £’000        £’000
Gain on disposal of fixed asset investments	–	15	15	–	618	618	–	1,001	1,001
Loss on disposal of current asset investments	–	–	–	–	(3)	(3)	–	(2)	(2)
(Loss)/gain on valuation of fixed asset investments	–	(21,159)	(21,159)	–	17,114	17,114	–	(17,203)	(17,203)
(Loss)/gain on valuation of current asset investments	–	(2,137)	(2,137)	–	2,516	2,516	–	(313)	(313)
Investment income	448	23	471	380	136	516	760	134	894
Investment management fees	(359)	(1,078)	(1,437)	(363)	(1,088)	(1,451)	(765)	(2,296)	(3,061)
Other expenses	(261)	–	(261)	(382)	–	(382)	(775)	–	(775)
(Loss)/Profit before tax	(172)	(24,336)	(24,508)	(365)	19,293	18,928	(780)	(18,679)	(19,459)
Tax	_	_	_	_	_	_	_	_	_
(Loss)/profit after tax	(172)	(24,336)	(24,508)	(365)	19,293	18,928	(780)	(18,679)	(19,459)
Earnings per share – basic and diluted	(0.1)p	(15.2)p	(15.3)p	(0.3)p	13.3p	13.0p	(0.5)p	(12.4)p	(12.9)p

• 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.

The accompanying notes form an integral part of the half-yearly report.

Balance Sheet

		Unaudited As at 31 August 2022		Unaudited As at 31 August 2021		Audited As at 28 February 2022
	£’000		£’000	£’000	£’000	£’000	£’000
Fixed asset investments			108, 474		157,318		129,226
Current assets:
Investments		14,505		18,772		16,543
Money market funds		1,331		1,326		1,326
Debtors		345		214		329
Cash at bank		14,710		13,955		21,910
Applications cash*		3		10,470		246
		30,894		44,737		40,354
Creditors: amounts falling due within one year		(879)		(11,293)		(1,411)
Net current assets			30,015		32,814		38,943
Total assets less current liabilities			138,489		190,132		168,169
Called up equity share capital			1,601		1,441		1,605
Share premium			1,080		59,673		25,450
Capital redemption reserve			252		205		236
Special distributable reserve			124,444		54,806		105,258
Capital reserve realised			(21,993)		(20,714)		(20,762)
Capital reserve unrealised			35,202		96,180		58,307
Revenue reserve			(2,097)		(1,459)		(1,925)
Total equity shareholders’ funds			138,489		190,132		168,169
NAV per share - basic and diluted			86.5p		131.9p		104.8p

*Cash held but not yet allotted

The statements were approved by the Directors and authorised for issue on 26 October 2022 and are signed on their behalf by:

Neal Ransome
Chair
Company No: 03477519

Statement of Changes in Equity

	Share Capital	Share Premium	Capital redemption reserve	Special distributable reserves *	Capital reserve realised *	Capital reserve unrealised	Revenue reserve *	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 28 February 2022	1,605	25,450	236	105,258	(20,762)	58,307	(1,925)	168,169
Total comprehensive income for the period	–	–	–	–	(1,040)	(23,296)	(172)	(24,508)
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(16)	–	16	(1,489)	–	–	–	(1,489)
Issue of shares	12	1,090	–	–	–	–	–	1,102
Share issue costs	–	(9)	–	–	–	–	–	(9)
Dividends	–	–	–	(4,776)	–	–	–	(4,776)
Total contributions by and distributions to owners	(4)	1,081	16	(6,265)	–	–	–	(5,172)
Other movements:
Cancellation of share premium	–	(25,451)	–	25,451	–	–	–	–
Prior years’ holding losses now realised	–	–	–	–	(191)	191	–	–
Total other movements	–	(25,451)	–	25,451	(191)	191	–	–
As at 31 August 2022	1,601	1,080	252	124,444	(21,993)	35,202	(2,097)	138,489

*The sum of these reserves is an amount of £100,354,000 (31 August 2021: £32,632,000 and 28 February 2022: £82,571,000) which is considered distributable to shareholders.

	Share Capital	Share Premium	Capital redemption reserve	Special distributable reserves *	Capital reserve realised *	Capital reserve unrealised	Revenue reserve *	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 March 2021	1,461	57,966	172	67,478	(21,996)	78,169	(1,094)	182,156
Total comprehensive income for the period	–	–	–	–	(337)	19,630	(365)	18,928
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(33)	–	33	(4,039)	–	–	–	(4,039)
Issue of shares	13	1,713	–	–	–	–	–	1,726
Share issue costs	–	(6)	–	–	–	–	–	(6)
Dividends paid	–	–	–	(8,633)	–	–	–	(8,633)
Total contributions by and distributions to owners	(20)	1,707	33	(12,672)	–	–	–	(10,952)
Other movements:
Prior years’ holding gains now realised	–	–	–	–	1,619	(1,619)	–	–
Total other movements	–	–	–	–	1,619	(1,619)	–	–
As at 31 August 2021	1,441	59,673	205	54,806	(20,714)	96,180	(1,459)	190,132

	Share Capital	Share Premium	Capital redemption reserve	Special distributable reserves *	Capital reserve realised *	Capital reserve unrealised	Revenue reserve *	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 March 2021	1,461	57,966	173	67,477	(21,945)	78,169	(1,145)	182,156
Comprehensive income for the year
Management fee allocated as capital expenditure	–	–	–	–	(2,296)	–	–	(2,296)
Current year gains on disposal	–	–	–	–	999	–	–	999
Current period gains on fair value of investments	–	–	–	–	–	(17,516)	–	(17,516)
Capital investment income	–	–	–	–	134	–	–	134
Loss after tax	–	–	–	–	–	–	(780)	(780)
Total comprehensive loss for the year	–	–	–	–	(1,163)	(17,516)	(780)	(19,459)
Contributions by and distributions to owners :
Repurchase and cancellation of own shares	(63)	–	63	(7,522)	–	–	–	(7,522)
Issue of shares	207	27,030	–	–	–	–	–	27,237
Share issue costs	–	(1,580)	–	–	–	–	–	(1,580)
Dividends paid	–	–	–	(12,663)	–	–	–	(12,663)
Total contributions by and distributions to owners	144	25,450	63	(20,185)	–	–	–	5,472
Other movements:
Cancellation of share premium	–	(57,966)	–	57,966	–	–	–	–
Prior years’ holding gains now realised	–	–	–	–	2,346	(2,346)	–	–
Total other movements	–	(57,966)	–	57,966	2,346	(2,346)	–	–
Balance as at 28 February 2022	1,605	25,450	236	105,258	(20,762)	58,307	(1,925)	168,169

Cash Flow Statement

	Unaudited Six months to 31 August 2022 £’000	Unaudited Six months to 31 August 2021 £ ’000	Audited Year to 28 February 2022 £’000
Cash flows from operating activities
(Loss)/profit before tax	(24,508)	18,928	(19,459)
Adjustments for:
(Increase)/decrease in debtors	(16)	1,650	(136)
(Decrease)/increase in creditors	(289)	568	470
Gain on disposal of fixed assets	(15)	(618)	(1,001)
Loss on disposal of current assets	-	3	2
Loss/(gain) on valuation of fixed asset investments	21,159	(17,114)	17,203
Loss/(gain) on valuation of current asset investments	2,137	(2,516)	313
Non-cash distributions	(23)	(136)	(134)
Net cash used in operating activities	(1,555)	765	(2,742)
Cash flows from investing activities
Purchase of fixed asset investments	(2,425)	(12,577)	(21,639)
Purchase of current asset investments	(99)	(1,650)	7,932
Proceeds from sale of fixed asset investments	2,056	3,041	(2,250)
Proceeds from sale of current asset investments	-	1,604	1,604
Net cash used in investing activities	(468)	(9,582)	(14,353)
Cash flows from financing activities
Movement in applications account	(243)	10,308	(106)
Purchase of own shares	(1,489)	(4,039)	(7,522)
Share issues	209	150	25,657
Share issues costs	(9)	–	(2,342)
Dividends paid	(3,883)	(7,063)	(10,321)
Net cash used in financing activities	(5,415)	(644)	5,366
Decrease in cash and cash equivalents	(7,438)	(9,461)	(11,730)
Opening cash and cash equivalents	23,482	35,212	35,212
Closing cash and cash equivalents	16,044	25,751	23,482
Cash and cash equivalents comprise
Cash at bank	14,710	13,955	21,910
Applications cash	3	10,470	246
Money market funds	1,331	1,326	1,326
Total cash and cash equivalents	16,044	25,751	23,482

Notes to the Half-Yearly Report

1. Basis of preparation

The unaudited half-yearly report which covers the six months to 31 August 2022 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 July 2022.

The principal accounting policies have remained unchanged from those set out in the Company’s 2022 Annual Report and Accounts.

2. Publication of non-statutory accounts

The unaudited half-yearly report for the six months ended 31 August 2022 does not constitute statutory accounts within the meaning of Section 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 2022 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 is calculated on the basis of 159,856,324 Ordinary shares (31 August 2021: 144,559,555 and 28 February 2022: 151,132,679), being the weighted average number of shares in issue during the period.

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

4. Net asset value per share

The net asset value per share is based on net assets as at 31 August 2022 divided by 160,064,444 shares in issue at that date (31 August 2021: 144,191,668 and 28 February 2022: 160,480,523).

	31 August 2022	31 August 2021	28 February 2022
Net assets (£’000)	138,489	190,132	168,169
Shares in Issue	160,064,444	144,191,668	160,480,523
Net Asset Value per share	86.5p	131.9p	104.8p

5. Dividends

The interim dividend declared of 2.5 pence per Ordinary share will be paid on 12 January 2023 to those shareholders on the register on 9 December 2022.

6. Buybacks and share issues

During the six months ended 31 August 2022 the Company repurchased the following shares.

Date	No. of shares	Price (p)	Cost (£)
24 March 2022	513,628	99.2	509,000
21 April 2022	220,376	99.7	220,000
12 May 2022	48,702	91.3	44,000
23 June 2022	366,396	85.8	314,000
27 July 2022	317,753	86.1	274,000
18 August 2022	148,390	86.5	128,000
Total	1,615,245		1,489,000

The weighted average price of all buybacks during the period was 92.2 pence per share.

During the six months ended 31 August 2022 the Company issued the following shares.

Date	No. of shares	Price (p)	Gross proceeds (£)
14 April 2022	144,759	110.8	160,000
12 August 2022*	54,869	89.3	49,000
12 August 2022 (DRIS)	999,538	89.3	893,000
Total	1,199,166		1,102,000

*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 91.9 pence per share.

7. Principal risks and uncertainties  

The Company’s principal risks are VCT qualifying status risk, investment risk, liquidity risk, valuation risk, economic and price risk, regulatory and reputational risk, operational risk and emerging 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 2022. 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 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 £1,437,000 by Octopus as a management fee in the period to 31 August 2022 (31 August 2021: £1,451,000 and 28 February 2022 (£3,061,000). The management fee is payable quarterly and is based on 2% of net assets at 6 month intervals.

The Company has invested a further £0.1 million into Octopus managed funds (31 August 2021: £1.7 million and 28 February 2022 (£2.3 million), being the Multi Cap Income Fund, Micro Cap Growth Fund and Future Generations Fund. 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 £43,000 in the period to 31 August 2022 (31 August 2021: £49,000 and 28 February 2022 £100,000). For further details please refer to the Company’s Annual Report and Accounts for the year ended 28 February 2022.

9. Post balance sheet events

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

• A follow on investment totalling £6,000 completed in FP Octopus UK Micro Cap Growth Fund;
• A follow on investment totalling £180,000 completed in FP Octopus UK Future Generations Fund;
• 178,462 shares were bought back on 15 September 2022 at a price of 84.8p per share;
• On 22 September 2022, a prospectus offer was launched alongside Octopus AIM VCT 2 plc to raise a combined total of up to £20 million with a £10 million over allotment facility. The offer closed fully subscribed on 13 October 2022.

10. Fixed asset investments

A ccounting 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 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: Quoted equity investments £’000	Level 3: Unquoted investments £’000	Total £’000
Cost as at 1 March 2022	70,876	4,488	75,364
Opening unrealised gain at 1 March 2022	48,423	5,439	53,862
Valuation at 1 March 2022	119,299	9,927	129,226
Purchases at cost	2,425	–	2,425
Disposal proceeds	(2,056)	–	(2,056)
In Specie dividend	23	-	23
Gain on realisation of investments	15	–	15
Change in fair value in year	(21,284)	125	(21,159)
Closing valuation at 31 August 2022	98,422	10,052	108,474
Cost at 31 August 2022	71,090	4,488	75,578
Closing unrealised gain at 31 August 2022	27,333	5,564	32,896
Valuation at 31 August 2022	98,422	10,052	108,474

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 Interim Management Report.

Level 3 investments are valued in accordance with IPEV guidelines. Hasgrove plc is valued using a range of inputs including sales, annualised recurring revenues, and net debt/cash. Valuations for Popsa Holdings Ltd, The Food Marketplace Ltd, Rated People Ltd and Eluceda Ltd are based on the Price of Recent Investment. Level 3 investments include £600,000 (2021: £600,000) of convertible loan notes 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 August 2022 there were no commitments in respect of investments approved by the Investment Manager but not yet completed. The transaction costs incurred when purchasing or selling assets are written off to the Income Statement in the period that they occur.

11. Half Yearly Report

The unaudited half-yearly report for the six months ended 31 August 2022 will shortly be available to view on the Company’s website http://www.octopusinvestments.com

For further enquiries, please contact:

Rachel Peat
Octopus Company Secretarial Services Limited
Tel: [phone]

LEI: 213800C5JHJUQLAFP619