OCTOPUS AIM VCT PLC

Earnings Release • Oct 15, 2018

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*Half-yearly Results*

15 October 2018

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

These results were approved by the Board of Directors on 15 October 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 August 2018	Six months to 31 August 2017	Year to 28 February 2018
Net assets (£’000s)	134,748	115,856	127,070
Profit on ordinary activities after tax (£’000s)	11,699	6,355	6,476
Net asset value (‘NAV’) per share	123.9p	118.4p	116.1p
NAV Total Return*	9.3%	6.1%	6.3%
Ordinary Dividends paid in the period	3.0p	3.0p	5.5p
Ordinary dividend declared**	2.5p	2.5p	3.0p

*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 of 2.5p will be paid on 18 January 2019 to those shareholders on the register on 21 December 2018.

Chairman’s Statement

I am pleased to report the half-yearly results for Octopus AIM VCT plc. The six months to 31st August 2018 have been a volatile period for stock market indices but the overall direction has been positive, and against this background the Net Asset Value has risen, reflecting good progress made by many of the portfolio companies.

The Board has declared a dividend of 2.5p a share which will be paid on 18 January 2019 to those shareholders on the register on 21 December 2018.

The Managers have made a number of new investments in the six month period and these are explained in more detail within the Interim Management Report.

Shareholders will be aware that the Board launched a new public offer of shares in August and the first allotment took place on 21st September. 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 more prone to bouts of uncertainty as March 2019 Brexit deadline approaches.

Roger Smith

Chairman

15 October 2018

Interim Management Report

Overview

The six months to 31 August 2018 has seen UK stock market indices rise, even though doubts prompted by the challenges of achieving an orderly Brexit, domestic politics, and fears of an international trade war contributed to increased volatility and some individual months of negative returns. Against this less certain background, the long term trend of smaller companies outperforming larger companies was less pronounced, and the Smaller Companies Index trailed the FTSE All Share Index even though AIM continued its recent relative strength, and was the best performing UK index in the period.

Fundraisings on AIM continued to be strong, with substantial sums raised for existing AIM companies demonstrating the level of support available for its existing members. With this in mind, we launched a new fundraising for the Company in August as we believe that the recent healthy flow of qualifying opportunities can continue now that market participants have become more familiar with the latest changes to the VCT rules.

Performance

Adding back the 3.0p paid out in dividends in the period, the Net Asset Value increased by 9.3% in the six months to 31 August 2018. This compares with a 3.0% rise in the Smaller Companies Index (ex Investment Trusts), a 5.6% increase in the FTSE All Share Index and a 7.0% rise in AIM, all on a total return basis. Performance remained stock specific and heavily influenced by the news flow announced by portfolio companies.

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. The largest positive contributor to performance in the period was 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. Learning Technologies was another strong performer, continuing to trade well, demonstrating that it had integrated the 2017 acquisition of NetDimensions as well as the 2018 acquisition of PeopleFluent. The latter is 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 budgets of companies. LoopUp was another strong performer with upgrades to forecasts enhanced by the acquisition of Meetingzone which has given the business further significant scale. Other significant contributors to performance in the period were Craneware, which continued to win business for its new software platform from the US hospital sector, Quixant, FairFX and EKF Diagnostics Holdings. The latter 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.

The market remains 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. Share prices in these types of companies are very vulnerable to setbacks as well as a lack of news flow from the companies and Faron Pharmaceuticals, Haydale Graphene, Fusion Antibodies, Futura Medical and appScatter are all examples that have impacted negatively on performance in the period. The portfolio benefitted from a number of takeovers in the period, with Escher, Freeagent, Sinclair Pharma and CityFibre all being the subject of bids.

Some of the more mature profitable businesses such as Breedon and RWS paused for breath in the period, despite both making significant acquisitions which open up new markets for growth, and Yu Group saw its shares give up some of its former very strong gains. A major underperformer in the period was Animalcare which issued a profit warning. 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 merger benefits will take much longer to come through than first expected. This has depressed the shares as the markets are awaiting proof that things have improved as a result of management changes that have now been made.

Portfolio Activity

In the period under review, the Company made twelve qualifying investments into eleven companies at a total cost of £8.1 million, considerably ahead of the £5.3 million invested in the corresponding period last year and almost equalling the £8.4 million that we invested in the whole year to February 2018. Five of these investments, VR Education, KRM 22, Maestrano, Immotion, and Trackwise were in companies floating on AIM with a further three, Diurnal, Ixico, and Creo Medical new investments for the fund into existing AIM companies. The remaining four were follow-on investments; one further investment into the medical device company Creo Medical after it had received confirmation of Knowledge Intensive status from HMRC; a further investment into Access Intelligence to expand the scope of its corporate communications and reputation management software platform; a follow-on round of funding for Microsaic and a new round of funding for Osirium to enable it to continue to develop partners to sell its security software for managing privileged access accounts. We have continued to see a wide range of new investment opportunities, and of the new investments made in the period two have been in software platforms, two have been in the emerging area of content for use on virtual reality devices, one has been in the area of technology hardware and three have been in the healthcare sector.

We also invested a further £450,000 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 resulting in cash proceeds of £5.2 million and a net gain of £1.1m since acquisition. These were a mixture of profits being taken on existing holdings such as GB Group and Quixant, and outright sales as in the case of TLA and Faron. The latter was sold at a loss after the company’s lead compound failed to demonstrate efficacy in its phase III drugs trial. Three companies, Escher, FreeAgent, and City Fibre were also the subject of takeover bids.

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 31 August 2018, the Company bought back 1,219,468 Ordinary shares for total consideration of £1,396,000. It is evident from the conversations which the Managers have that this facility remains an important consideration to investors. The Company remains committed to maintaining its policy of buying back shares at a 5% discount to NAV.

Share Issues and Fundraising

On 13 April 2018 119,802 new shares were issued in connection with the 2017/2018 prospectus offer which closed fully subscribed.

A new offer of subscription launched on 3 August 2018 alongside Octopus AIM VCT 2 plc to raise an aggregate of £30million.

In addition 406,702 new ordinary shares were issued in July 2018 to shareholders who participated in the dividend reinvestment scheme (DRIS). Further details can be seen in Note 6 to the financial statements.

Dividend

On 22 June 2018, the Company paid a dividend of 3p per share, being the final dividend for the year ended 28 February 2018.

For the period to 31 August 2018, the Board has declared an interim dividend of 2.5p. This will be paid on 18 January 2019 to shareholders on the register on 21 December 2018.

It is the Board’s intention 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 5p per annum or a 5% yield, whichever is the greater at the time.

Risks and Uncertainties

The Company’s principal risks and uncertainties are set out in Note 7 to the unaudited financial statements.

Outlook

The newspapers are still dominated by negative stories about international trade tensions, domestic politics, and the problem of how we will extricate ourselves from the European Union. Poor weather in the first quarter of the year meant that the economy slowed, although it bounced back in the next quarter paving the way to an interest rate rise of 0.25% to 0.75% in August. Against this increasingly uncertain background stock markets have suffered bouts of volatility which is something that will probably recur as March 2019 draws closer. However, it is encouraging that the Net Asset Value has continued to make progress in 2018, recently helped by some positive trading updates from portfolio companies, some of which have had profit expectations increased several times already in 2018.

We are currently in the middle of the reporting season, and this progress appears to have continued for the majority of the holdings that we have heard from, as management teams persevere with their efforts to grow their companies despite political issues. The portfolio now contains 77 holdings across a range of sectors with the balance still weighted towards profitable companies that 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. With the VCT 92.2% invested in qualifying companies for HMRC purposes the Manager will continue to be selective about new investments.

The AIM Team

Octopus Investments

15 October 2018

Directors’ Responsibility 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 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.

•    the half-yearly financial statements have not been audited or reviewed by the auditors.

On behalf of the Board

Roger Smith

Chairman

15 October 2018

Income Statement

	Unaudited			Unaudited			Audited
	Six months to 31 August 2018			Six months to 31 August 2017			Year to 28 February 2018
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
Gain/(loss) on disposal of fixed asset investments	–	105	105	–	(25)	(25)	–	477	477
Gain on valuation of fixed asset investment	–	11,576	11,576	–	6,472	6,472	–	6,943	6,943
Gain on valuation of current asset investment	–	894	894	–	581	581	–	541	541
Investment income	421	–	421	442	–	442	843	–	843
Investment management fees	(258)	(773)	(1,031)	(192)	(575)	(767)	(432)	(1,296)	(1,728)
Other expenses	(266)	–	(266)	(348)	–	(348)	(600)	–	(600)
Profit/(loss) on ordinary activities before tax	(103)	11,802	11,699	(98)	6,453	6,355	(189)	6,665	6,476
Taxation on profit/(loss) on ordinary activities	–	–	–	–	–	–	–	–	–
Profit/(loss) on ordinary activities after tax	(103)	11,802	11,699	(98)	6,453	6,355	(189)	6,665	6,476
Earnings per share – basic and diluted	(0.1)p	13.4p	13.3p	(0.1)p	7.0p	6.9p	(0.2p)	6.7p	6.5p

•    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.

Balance Sheet

	Unaudited		Unaudited		Audited
	As at 31 August 2018		As at 31 August 2017		As at 28 February 2018
	£’000	£’000	£’000	£’000	£’000	£’000
Fixed asset investments		105,777		90,232		91,247
Current assets:
Current asset investments	26,303		18,399		24,959
Money market securities	1,310		4,295		4,300
Debtors	104		87		52
Cash at bank	1,929		5,280		7,234
Applications cash	10,059		4,899		241
	39,705		32,960		36,786
Creditors: amounts falling due within one year	(10,734)		(7,336)		(963)
Net current assets		28,971		25,624		35,823
Net assets		134,748		115,856		127,070
Called up equity share capital		1,087		978		1,094
Share premium		63,727		48,650		63,098
Capital redemption reserve		73		54		61
Special distributable reserve		41,828		49,961		46,483
Capital reserve realised		(28,912)		(28,858)		(29,277)
Capital reserve unrealised		56,804		44,736		45,367
Revenue reserve		141		335		244
Total equity shareholders' funds		134,748		115,856		127,070
Net asset value per share		123.9p		118.4p		116.1p

The accompanying notes form an integral part of the financial statements.

The statements were approved by the Directors and authorised for issue on 15 October 2018 and are signed on their behalf by:

Roger Smith

Chairman

Company No: 03477519

Statement of Changes in Equity

	Share Capital £’000	Share Premium £’000	Capital redemption reserve £’000	Special distributable reserves £’000	Capital reserve realised £’000	Capital reserve unrealised £’000	Revenue reserve £’000	Total £’000
As at 1 March 2018	1,094	63,098	61	46,483	(29,277)	45,367	244	127,070
Total comprehensive income for the period	–	–	–	–	(668)	12,470	(103)	11,699
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(12)	–	12	(1,396)	–	–	–	(1,396)
Issue of shares	5	637	–	–	–	–	–	642
Share issue costs	–	(8)	–	–	–	–	–	(8)
Dividends paid	–	–	–	(3,259)	–	–	–	(3,259)
Total contributions by and distributions to owners	(7)	629	12	(4,655)	–	–	–	(4,021)
Prior years’ holding gains now realised	–	–	–	–	1,033	(1,033)	–	–
Total other movements	–	–	–	–	1,033	(1,033)	–	–
As at 31 August 2018	1,087	63,727	73	41,828	(28,912)	56,804	141	134,748
As at 1 March 2017	873	35,422	45	53,717	(28,020)	37,445	433	99,915
Total comprehensive income for the period	–	–	–	–	(600)	7,053	(98)	6,355
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(9)	–	9	(1,047)	–	–	–	(1,047)
Issue of shares	114	14,037	–	–	–	–	–	14,151
Share issue costs	–	(809)	–	–	–	–	–	(809)
Dividends paid	–	–	–	(2,709)	–	–	–	(2,709)
Total contributions by and distributions to owners	105	13,228	9	(3,756)	–	–	–	9,586
Prior years’ holding losses now realised	–	–	–	–	–	–	–	–
Total other movements	–	–	–	–	(238)	238	–	–
As at 31 August 2017	978	48,650	54	49,961	(28,858)	44,736	335	115,856

	Share Capital £’000	Share Premium £’000	Capital redemption reserve £’000	Special distributable reserves £’000	Capital reserve realised £’000	Capital reserve unrealised £’000	Revenue reserve £’000	Total £’000
As at 1 March 2017	873	35,422	45	53,717	(28,020)	37,445	433	99,915
Total comprehensive income for the period	–	–	–	–	(819)	7,484	(189)	6,476
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(16)	–	16	(1,792)	–	–	–	(1,792)
Issue of shares	237	29,399	–	–	–	–	–	29,636
Share issue costs	–	(1,723)	–	–	–	–	–	(1,723)
Dividends paid	–	–	–	(5,442)	–	–	–	(5,442)
Total contributions by and distributions to owners	221	27,676	16	(7,234)	–	–	–	20,679
Prior years’ holding losses now realised	–	–	–	–	(438)	438	–	–
Total other movements	–	–	–	–	(438)	438	–	–
As at 28 February 2018	1,094	63,098	61	46,483	(29,277)	45,367	244	127,070

Cash Flow Statement

	Unaudited Six months to 31 August 2018 £’000	Unaudited Six months to 31 August 2017 £’000	Audited Year to 28 February 2018 £’000
Cash flows from operating activities
Return on ordinary activities before tax	11,699	6,355	6,476
Adjustments for:
(Increase)/decrease in debtors	(52)	245	280
Increase/(decrease) in creditors	9,771	(1,537)	(7,910)
(Gain)/loss on disposal of fixed assets	(105)	25	(477)
Gain on valuation of fixed asset investments	(11,576)	(6,472)	(6,943)
Gain on valuation of current asset investments	(894)	(581)	(541)
Net cash generated from operating activities	8,843	(1,965)	(9,115)
Cash flows from investing activities
Purchase of fixed asset investments	(8,087)	(5,807)	(8,947)
Purchase of current asset investments	(450)	(8,250)	(14,850)
Sale of fixed asset investments	5,238	1,941	5,039
Net cash flows from investing activities	(3,299)	(12,116)	(18,758)
Cash flows from financing activities
Purchase of own shares	(1,396)	(1,047)	(1,792)
Share issues	139	13,342	27,164
Dividends paid	(2,764)	(2,709)	(4,693)
Net cash flows from financing activities	(4,021)	9,586	20,679
Increase/(decrease) in cash and cash equivalents	1,523	(4,495)	(7,194)
Opening cash and cash equivalents	11,775	18,969	18,969
Closing cash and cash equivalents	13,298	14,474	11,775
Cash and cash equivalents comprise
Cash at Bank	1,929	5,280	7,234
Applications cash	10,059	4,899	241
Money Market Funds	1,310	4,295	4,300
	13,298	14,474	11,775

Notes to the Half-Yearly Report

1.  Basis of preparation

The unaudited half-yearly results which cover the six months to 31 August 2018 have 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 February 2018.

2.  Publication of non-statutory accounts

The unaudited half-yearly results for the six months ended 31 August 2018 do not constitute statutory accounts within the meaning of s.415 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The comparative figures for the year ended 28 February 2018 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 of 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 August 2018 is calculated on the basis of 88,197,672 (28 February 2018: 98,888,742 and 31 August 2017: 91,508,456) shares, 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

	31 August 2018	31 August 2017	28 February 2018
Net assets (£’000)	134,748	115,856	127,070
Shares in Issue	108,722,268	97,829,766	109,415,232
Net Asset Value per share	123.9p	118.4p	116.1p

5.  Dividends

The interim dividend declared of 2.5 pence per Ordinary share will be paid on 18 January 2019 to those shareholders on the register on 21 December 2018.

6.  Buybacks and share issues

During the six months ended 31 August 2018 the Company repurchased the following shares.

Date	No of shares	Price (p)	Cost (£’000)
1 March 2018	312,441	111.0	347
29 March 2018	73,937	109.8	81
27 April 2018	342,921	115.0	394
14 June 2018	176,364	119.0	210
27 July 2018	313,805	116.0	364
Total	1,219,468		1,396

The weighted average price of all buybacks during the period was 114.5 pence per share.

During the six months ended 31 August 2018 the Company issued the following shares.

Date	No of shares	Price (p)	Net proceeds (£’000)
13 April 2018	119,802	122.8	137
20 July 2018 (DRIS)	406,702	121.8	491
Total	526,504		628

The weighted average allotment price of all shares issued during the period was 122.0 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 economic and price 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 2018. 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 £1,031,000 by Octopus as a management fee in the period to 31 August 2018 (31 August 2017: £767,000 and 28 February 2018 £1,728,000. The management fee is payable quarterly and is based on 2% of net assets at quarterly intervals.

The Company has invested £0.45 million into Octopus managed funds (31 August 2017: £8.3 million and 28 February 2018 £14.9 million), being the Octopus Portfolio Manager and Micro Cap funds. 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 £47,000 in the period to 31 August 2018 (31 August 2017: £34,000 and 28 February 2018 £64,000). For further details please refer to the Company’s Annual Report and Accounts for the year ended 28 February 2018.

9. Post balance sheet events

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

•    Part disposal of GB Group plc for total consideration of £300,000, a gain of £271,000 on investment cost.

•    Part disposal of Gooch & Housego plc for total consideration of £209,000, a gain of £159,000 on investment cost.

•    Part disposal of Beeks Financial Cloud Group plc for total consideration of £293,000, a gain of £173,000 on investment cost.

•    Part disposal of Learning Technologies Group plc for total consideration of £422,000, a gain of £355,000 on investment cost.

•    Part disposal of Futura Medical plc for total consideration of £11,000, a loss of £40,000 on investment cost.

•    The company repurchased 487,406 shares at a price of 120.0p per share.

•    The company issued 10,179,467 shares at a price of 133.3p per share.

10. Additional information

This statement will be made available to all shareholders. Copies are also available from the registered office of the Company at 33 Holborn, London, EC1N 2HT, and will also be available to view on the Octopus website at www.octopusinvestments.com.