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Octopus AIM VCT 2 plc  -  OSEC   

Octopus AIM VCT 2 plc : Half-year Report

Released 16:21 18-Jul-2018

Octopus AIM VCT 2 plc : Half-year Report

Half-yearly Results

18 July 2018

Octopus AIM VCT 2 plc, managed by Octopus Investments Limited, today announces the half-yearly results for the six months ended 31 May 2018.

These results were approved by the Board of Directors on 18 July 2018.

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

Financial Summary

  Six months to
31 May 2018
Six months to
31 May 2017
Year to
30 November 2017
       
Net assets (£'000s) 90,480 75,653 86,911
Profit on ordinary activities after
tax (£'000s)
5,981 10,523 8,192
Net asset value ('NAV') per share 91.0p 91.8p 87.1p
NAV Total Return* 6.9% 16.4% 13.2%
Ordinary Dividends paid in the
period
2.1p 2.0p 4.1p
Interim dividend** 2.1p 2.1p 2.1p

*NAV Total Return is calculated as (movement in NAV + dividends paid in the period) divided by the NAV at the beginning of the period.
**The interim dividend will be paid on 18 October 2018 to shareholders on the register on 28 September 2018.

Chairman's Statement

I am pleased to present the half-yearly results for the Octopus AIM VCT 2 plc.  The six months to 31 May 2018 has been a volatile period for stock market indices but the overall direction has been positive and against this background the portfolio has made good progress.

The Board has declared a dividend of 2.1p which will be paid on 18 October 2018.

The Managers have made a number of new investments in the six months period and these are more fully explained in the Interim Management Report.  The recent strength in the pipeline of potential new investments has continued, so at this stage it is probable that there will be more new holdings made in the second half of the year.

The Board has announced the intention to launch a new public offer of shares, with further details to be made available in due course.  On the basis of current evidence the Manager believes there will be good investment opportunities for new funds, despite the fact that the market is likely to be prone to further bouts of Brexit related uncertainty as March 2019 approaches.

Keith Mullins
Chairman
18 July 2018

Interim Management Report

Overview
The six months to 31 May 2018 has seen the stock market continue to make good progress even though bouts of uncertainty have contributed to increased volatility and some individual months of negative returns. Against this less certain background, larger companies marginally outperformed smaller companies, a departure from the long term trend.

Despite this, fundraisings on AIM continued to be strong with the exception of a seasonally slower January. Once again, further fundraisings for existing AIM companies exceeded those for new issues, demonstrating that AIM continues to support its existing members. With this in mind, we have announced an intention to raise further funds as we believe that the flow of opportunities will continue to pick up now that market participants have become more familiar with the recent changes to the VCT rules.

Performance
Adding back the 2.1p paid out in dividends in the period, the Net Asset Value has increased by 6.9% in the six months to 31 May 2018. This compares with a 4.2% rise in the Smaller Companies Index (ex Investment Trusts), a 6.7% increase in the FTSE All Share Index and a 6.2% rise in AIM, all on a total return basis. Larger company Indices performed very slightly better in the period reflecting a more cautious attitude to risk. Performance remained stock specific and heavily influenced by the announcement of news with the market remaining wary of the majority of early stage companies not yet making a profit, of which we hold a number in the portfolio, particularly in the pharmaceutical, medical device and technology sectors. The portfolio benefitted from a number of takeovers in the period, with Escher, SQS, City Fibre and Freeagent all the subject of bids.

Of the good performers in the portfolio, quite a few saw their share prices react positively to corporate developments, either internally generated or as a result of acquisitions. Learning Technologies continued to trade well, demonstrating that it had integrated the 2017 acquisition of NetDimensions. It also announced the takeover of PeopleFluent, a mostly US based business specialising in talent management within organisations. Analysts have upgraded their forecasts on the back of the deal which expands the geographical reach of the business as well as enabling the company to address other parts of the human resource budget. Loopup was another very good performer with upgrades to forecasts enhanced by the recent earnings enhancing acquisition of Meetingzone which gives the business further significant scale. Netcall shares also performed well as it was re-evaluated by the stockmarket following the acquisition of low-code software provider MatsSoft. Other significant contributors to performance in the period were GB Group where the market is now starting to grasp the scale of its opportunity to become a global supplier of verification and identification services, Craneware, which continued to win business for its new software platform from the US hospital sector and EKF Group which has turned its business around, restored profitability and begun to demonstrate growth in its point of care diagnostics business. VR Education, a new investment in the period also had a very strong debut on AIM.

Some of the more mature profitable businesses such as Breedon and RWS paused for breath in the period despite both of them making significant acquisitions which open up new markets for growth, but the big drags on performance were Animalcare and Idox, both of which had profit warnings and exposed significant internal problems in the period which are currently in the process of being resolved. The task of integrating the Animalcare business with the much larger European Ecuphar business has had an impact on short term profitability and it is now apparent that any benefits will take much longer than first expected to come through. In the case of Idox, it has been through a painful process of downgrades to forecasts, a temporary Chief Executive and the recently announced appointment of a new Chief Executive. In both cases this has depressed shares as the market awaits proof that things have improved.

Portfolio Activity
In the period under review, the Company made ten qualifying investments totalling £4.5 million, considerably ahead of the £1.8 million we invested in the corresponding period last year and just exceeding the total qualifying amount invested in the year to November 2017. Four of these, Fusion Antibodies, VR Education, KRM22 and Maestrano, were in companies floating on AIM with a further three, PCI-Pal, Diurnal and Ixico into existing AIM companies and one investment, Popsa into a private company. The remaining two were follow-on investments into Access Intelligence to expand the scope of its corporate communications management and reputation management software platform, and Osirium to continue to develop partners to sell its security software for managing privileged access accounts. Since the period end, we have made one further follow-on investment into Microsaic totalling £200,000, and in addition a new holding into Immotion Group plc, for total consideration £250,000.

In the period we also invested a further £300,000 of the cash balances into the FP Octopus UK Micro Cap Fund, with the objective of obtaining a better return on our cash awaiting investment.

A number of disposals were made in the period. The result has been a net gain of £951,000 since acquisition, with profits being taken on shares held in Learning Technologies, Gooch and Housego and Quixant; the profitable disposals of the entire holdings in SQS, Escher, Freeagent and Tyratech as a result of takeovers and corporate actions. These profitable disposals were offset by the disposal of our entire holding in Faron at a loss after the company's lead compound failed to work in its phase III drugs trial.

Transactions with Manager
Details of amounts paid to the Manager are disclosed in note 8 to the half yearly report and accounts.

Share Buybacks
In the six months to May 2018, the Company bought back 882,288 Ordinary shares for total consideration of £743,000 as disclosed in note 6 to the half yearly report and accounts. It is evident from the conversations which the Managers have that this facility remains an important consideration to investors. The Board remains committed to maintaining its policy of buying back shares at a 5% discount to NAV.

Share Issues and Fundraising
On 13 April 2018 106,782 new shares were issued in connection with the 2017/8 prospectus offer which closed fully subscribed. The Board has announced the intention to launch a new prospectus offer in combination with the Octopus AIM VCT plc. Further details will be available in due course.

In addition 354,224 new ordinary shares were issued in May 2018 to shareholders who participated in the dividend reinvestment scheme (DRIS). Further details can be seen in note 6 to the half yearly report and accounts.

Dividend
On 20 April 2018, the Company paid a dividend of 2.1p per share, being the final dividend for the year ended 30 November 2017. For the period to 31 May 2018, the Board has declared an interim dividend of 2.1p. This will be paid on 18 October 2018 to shareholders on the register on 28 September 2018.

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 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.

Outlook
International trade politics and the problem of how we will extricate ourselves from the European Union continue to dominate headlines, and against this increasingly uncertain background stock markets have suffered bouts of volatility which is something that will probably recur. However, it is encouraging that the Net Asset Value has continued to make progress in 2018, helped by some positive trading updates from portfolio companies.

We would expect that positive news trend to continue with the interim results season in September, as management teams persevere with their efforts to grow their companies, despite political issues.

The portfolio now contains 75 holdings across a range of sectors with the balance still weighted towards profitable companies which are continuing to pursue growth. There has been a good flow of VCT qualifying opportunities and we see no signs of this drying up as entrepreneurs continue to seek growth and success for their companies. As at 31 May 2018, the VCT is 90.4% invested in qualifying companies and the proposed fundraising will make cash available for new investments, potentially giving the VCT the chance to take advantage of any lowering of valuations in the new issue market that may result from any market uncertainty.

The AIM Team
Octopus Investments
18 July 2018

Director's Responsibilities Statement

We confirm that to the best of our knowledge:

On behalf of the Board

Keith Mullins
Chairman
18 July 2018

Income Statement

  Unaudited
Six months to 31 May 2018
Unaudited
Six months to 31 May 2017
Audited
Year to 30 November 2017
  Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Gain on disposal of fixed asset investments - 262 262  - 134 134  - 223 223
Gain on valuation of fixed asset investments - 6,046 6,046  - 10,307 10,307  - 8,351 8,351
Gain on valuation of current asset investments - 364 364  - 575 575  - 672 672
Investment income 234 - 234 243  - 243 561  - 561
Investment management fees (179) (536) (715) (119) (357) (476) (282) (847) (1,129)
Other expenses (210) - (210) (260)  - (260) (486)  - (486)
Profit/(loss) on ordinary activities before tax (155) 6,136 5,981 (136) 10,659 10,523 (207) 8,399 8,192
Taxation on profit/(loss) on ordinary activities  -  -  -  -  -  -  -  -  -
Profit/(loss) on ordinary activities after tax (155) 6,136 5,981 (136) 10,659 10,523 (207) 8,399 8,192
Return per share - basic and diluted (0.2)p 6.2p 6.0p (0.2)p 13.3p 13.1p (0.3)p 10.0p 9.7p

·      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 2018
Unaudited
As at 31 May 2017
Audited
As at 30 November 2017
  £'000 £'000 £'000 £'000 £'000 £'000
Fixed asset investments   67,387   60,820   59,634
Current assets:            
Investments 21,848   13,475   21,176  
Debtors 46   22   98  
Cash at bank 1,779   1,690   6,507  
  23,673   15,187   27,781  
Creditors: amounts falling due within one year (580)   (354)   (504)  
Net current assets   23,093   14,833   27,277
Net assets   90,480   75,653   86,911
             
Called up equity share capital   10   8   10
Share premium   44,597   27,945   44,186
Special distributable reserve   22,621   28,098   25,444
Capital reserve  - realised   (10,656)   (9,947)   (11,071)
  - unrealised   34,411   29,826   28,690
Revenue reserve   (503)   (277)   (348)
Total equity shareholders' Funds   90,480   75,653   86,911
Net asset value per share   91.0p   91.8p   87.1p

The statements were approved by the Directors and authorised for issue on 18 July 2018 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
Revenue reserve
£'000
Total
£'000
As at 1 December 2017 10 44,186 25,444 (11,071) 28,690 (348) 86,911
Total comprehensive income for the period  -  -  - (274) 6,410 (155) 5,981
Contributions by and distributions to owners:              
Repurchase and cancellation of own shares  -  -  (743)  -  -  - (743)
Issue of shares - 416  -  -  -  - 416
Share issue costs  - (5)  -  -  -  - (5)
Dividends paid  -  - (2,080)    -  - (2,080)
Total contributions by and distributions to owners - 411 (2,823) - - - (2,412)
Prior years' holding gains now realised - - - 689 (689) - -
Total other movements - - - 689 (689) - -
Balance as at 31 May 2018 10 44,597 22,621 (10,656) 34,411 (503) 90,480
               
Included in these reserves is an amount of £11,462 (31 May 2017: £17,874 and 30 November: £14,025) which is considered distributable to shareholders.
               
As at 1 December 2016 8 23,405 30,513 (10,168) 19,388 (141) 63,005
Total comprehensive income for the period - - - (223) 10,882 (136) 10,523
Contributions by and distributions to owners:              
Repurchase and cancellation of own shares - - (767) - - - (767)
Issue of shares - 4,816 - - - - 4,816
Share issue costs - (276) - - - - (276)
Dividends paid - - (1,648) - - - (1,648)
Total contributions by and distributions to owners   4,540 (2,415) - - - 2,125
Other movements:              
Prior years' holding losses now realised - - - 444 (444) - -
Total other movements - - - 444 (444) - -
Balance as at 31 May 2017 8 27,945 28,098 (9,947) 29,826 (277) 75,653
               
               
As at 1 December 2016 8 23,405 30,513 (10,168) 19,388 (141) 63,005
Total comprehensive income for the period  -  -  - (624) 9023 (207) 8192
Contributions by and distributions to owners:              
Repurchase and cancellation of own shares  -  - (1527)  -  -  - (1527)
Issue of shares 2 22086  -  -  -  - 22088
Share issue costs  - (1305)  -  -  -  - (1305)
Dividends paid  -  - (3542) - -  - (3542)
Total contributions by and distributions to owners 2 20781 (5069) - - - 15714
Prior years' holding losses now realised - - - (279) 279 - -
Total other movements - - - (279) 279 - -
Balance as at 30 November 2017 10 44,186 25,444 (11,071) 28,690 (348) 86,911

Cash Flow Statement

  Unaudited
Six months to
31 May 2018

£'000
Unaudited
Six months to
31 May 2017
£'000
Audited
Year to
30 November 2017
£'000
Cash flows from operating activities 5,981 10,523 8,192
Return on ordinary activities before tax      
Adjustments for:      
Decrease/(increase) in debtors 52 27 (49)
Increase/(decrease) in creditors 76 (5) 145
Gain on disposal of fixed assets (262) (134) (223)
Gain on valuation of fixed asset investments (6,046) (10,307) (8,351)
Gain on valuation of current asset investments (364) (575) (672)
Cash from operations (563) (471) (958)
Income taxes paid - - -
Net cash generated from operating activities (563) (471) (958)
       
Cash flows from investing activities      
Purchase of fixed asset investments (4,494) (2,089) (4,541)
Sale of fixed asset investments 3,049 1,447 3,218
Purchase of current asset investments (300) (2,300) (9,900)
Net cash flows from investing activities (1,745) (2,942) (11,223)
       
Cash flows from financing activities      
Purchase of own shares (743) (767) (1,527)
Share issues 93 4,540 20,299
Dividends paid (1,762) (1,648) (3,058)
Net cash flows from financing activities (2,412) 2,125 15,714
       
(Decrease)/increase in cash and cash equivalents (4,720) (1,288) 3,533
Opening cash and cash equivalents 10,937 7,404 7,404
       
Closing cash and cash equivalents 6,217 6,116 10,937
       
Cash and cash equivalents comprise      
Cash at bank 1,779 1,690 6,507
Money Market Funds 4,438 4,426 4,430
  6,217 6,116 10,937

Notes to the Half-Yearly Report

1.         Basis of preparation
The unaudited half-yearly results which cover the six months to 31 May 2018 have been prepared in accordance with the Financial Reporting Council's (FRC) Financial Reporting Standard 104 Interim Financial Reporting (March 2015) and the Statement of Recommended Practice (SORP) for Investment Companies issued by the Association of Investment Companies in 2014 (updated in February 2018).

2.         Publication of non-statutory accounts
The unaudited half-yearly results for the six months ended 31 May 2018 do not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006. The comparative figures for the year ended 30 November 2017 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 2018 are calculated on the basis of 99,400,679 shares (31 May 2017: 80,186,095 and 30 November 2017: 84,188,566), being the weighted average number of Ordinary 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 2018 divided by 99,391,431 Ordinary shares in issue at that date (31 May 2017: 82,429,702 and 30 November 2017: 99,812,713).

5.         Dividends
The Directors have declared a dividend of 2.1 pence per Ordinary share, payable from the special distributable reserve. This dividend will be paid on 18 October 2018 to those shareholders on the register at 28 September 2018.

6.         Buybacks and share issues
During the six months ended 31 May 2018 the Company repurchased the following shares.

Date No. of shares Price (p) Cost (£)
21 December 2017 103,758 83.0 86,000
25 January 2018 218,357 86.1 188,000
2 March 2018 263,296 84.0 221,000
29 March 2018 222,376 83.3 185,000
27 April 2018 74,501 84.5 63,000
Total 882,288   743,000

       The weighted average price of all buybacks during the period was 84.3 pence per share.

       During the six months ended 31 May 2018 the Company issued the following shares:

Date No. of shares Price (p) Net proceeds (£)
13 April 2018 106,782 93.0 93,000
18 May 2018 (DRIS) 354,224 90.0 318,000
Total 461,006   411,000

       The weighted average allotment price of all shares issued during the period was 90.7 pence per share.

7.         Principal risks and uncertainties
The Company's principal risks are VCT qualifying status risk, investment risk, valuation risk, regulatory and reputational risk, operational risk and financial risk; market price risk, credit risk, liquidity risk, fair value risk, cash flow risk and interest rate 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 2017. 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 £715,000 by Octopus as a management fee in the period to 31 May 2018 (31 May 2017: £476,000 and 30 November 2017: £1,129,000). 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 and Micro Cap products, to ensure the Company is not double charged on these products. This amounted to £31,000 in the period to 31 May 2018 (31 May 2017: £17,000 and 30 November 2017: £34,000). For further details please refer to the Company's Annual Report and Accounts for the year ended 30 November 2017.

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

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




This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Octopus AIM VCT 2 plc via Globenewswire


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Octopus AIM VCT 2 plc : Half-year Report - RNS