16 July 2020
Octopus AIM VCT 2 plc, managed by Octopus Investments Limited, today announces the half-yearly results for the six months ended 31 May 2020.
These results were approved by the Board of Directors on 16 July 2020.
You may shortly view the half-yearly report in full by visiting https://octopusinvestments.com/our-products/venture-capital-trusts/octopus-aim-vcts/. All other statutory information will also be found there.
|Six months to |
31 May 2020
|Six months to |
31 May 2019
|Year to |
30 November 2019
|Net assets (£’000)||83,227||86,841||80,040|
|Loss after tax (£’000)||(2,036)||(255)||(476)|
|Net asset value (‘NAV’) per share (p)||68.7||78.6||72.4|
|NAV total return (%)*||(2.2)||(0.1)||(0.4)|
|Dividends paid in the period (p)||2.1||2.1||8.1|
|Interim dividend (p)**||2.1||2.1||2.1|
*Total Return is an alternative performance measure calculated as movement in NAV per share in the period plus dividends paid in the period, divided by the NAV per share at the beginning of the period.
**The interim dividend will be paid on 5 November 2020 to shareholders on the register on 16 October 2020.
I am pleased to present the half-yearly results for the Octopus AIM VCT 2 plc. The six months to 31 May 2020 has been a period of considerable volatility for stock markets, with investor sentiment swinging from initial concern around Brexit uncertainty, to optimism after the decisive General Election result in December before the Coronavirus began to make its way across the world in March. The lockdown of the UK and most other western economies led to all stockmarket indices suffering severe falls in February and March before recovering sharply in April and May in response to the unprecedented fiscal measures adopted by our Government and others around the world to offset the damage caused to companies and economies. Although there have been some mixed individual share price movements the portfolio has shown resilience, benefiting from its high exposure to the technology and healthcare sectors and the NAV per share fell by only 2.2% in the six months if the dividend paid in May 2020 is added back.
The Board has declared an interim dividend of 2.1p which will be paid on 5 November 2020 to shareholders on the register on 16 October 2020.
The Investment Manager has made eleven qualifying investments in the six month period and these are explained further in their report. The pipeline of potential VCT qualifying investments increased sharply in response to the Coronavirus pandemic as existing AIM companies sought to secure sufficient capital to carry out their business plans. Reassuringly, AIM has fulfilled its function with many placings oversubscribed and more than £1.9 billion raised for companies in this difficult period.
16 July 2020
Interim Management Report
The six months to 31 May 2020 has been an extremely volatile period for stockmarkets. In the first two months the UK stockmarket was buoyed by a decisive election result and smaller companies and those with domestic exposure did well as appetite for risk returned. By the middle of February, it had become apparent that the spread of Coronavirus was an emerging global issue. The NAV fell by 8.8% in February, giving up its earlier gains and setting the tone for the increase in volatility we have seen since as the seriousness of the situation revealed itself. Most companies in the portfolio have responded well to a very challenging situation, publishing detailed trading statements including banking relationships and balance sheet headroom, and in many cases concluding successful fundraisings. The Company has deployed existing cash throughout the period as well as raising £9.3 million net of costs for future investments.
New issues have continued to be impacted by market conditions as all eyes are on the Coronavirus pandemic and the impact of global lockdowns on companies as we start to emerge from the crisis. However, this change has presented us with demand for additional capital from existing companies and has already created opportunities to invest into some exciting businesses we have been tracking.
Adding back the 2.1p paid out in dividends in the period, the NAV fell by 2.2% in the six months to 31 May 2020. This compares with a 4.7% fall in the AIM Index, an 18.3% fall in the Smaller Companies Index (ex Investment Trusts) and a 16% fall in the FTSE All Share Index, all on a total return basis. This resilient performance can be partially attributed to the VCT’s relatively high exposure to the healthcare and technology sectors and correspondingly smaller exposure to the high street and energy companies which have been adversely affected by recent events. Although all companies have found the past six months challenging, some in the healthcare space have benefitted from a renewed interest from investors in the research and development of drugs, vaccines and testing, particularly in relation to the Coronavirus. This has allowed many to raise money in oversubscribed placings putting them on a much sounder financial footing and increasing their chances of future success. Similarly, the importance of innovative software and IT capability has been highlighted by the lockdown with many companies in this sector still expected to be able to demonstrate growth. However, most companies exposed to the high street or leisure activities have had to furlough a high proportion of their staff and their path to recovery is still uncertain.
The majority of the smaller healthcare holdings performed well in the period. Omega Diagnostics, EKF Diagnostics, Intelligent Ultrasound, Fusion Antibodies, Synairgen and Genedrive all made positive contributions to performance, helped in the short term by their various involvements in the development of treatments or tests for Covid-19. EKF Diagnostics is already profitable and cash generative and each of the others took the opportunity to raise new funds to advance the development of existing programmes. Maxcyte’s growth rate is now accelerating with new partners adopting its cell engineering enabling technology for cell and gene editing. Renalytix have issued a series of positive announcements about reimbursement for its kidney Intelx test which is on a pathway to full US regulatory approval.
Elsewhere, PCI Pal has performed well and VR Education has developed virtual reality conferencing software to add to its Engage educational platform. Idox has also recovered from its lows as a new management team seek to exploit its very strong position as a provider of software to local authorities and resume growth. Learning Technologies is benefiting from acquisitions which have brought significant amounts of recurring software revenues, insulating it from the crisis. It successfully raised funds to finance further acquisitions as opportunities arise. Breedon, the building materials supplier, started the period with a share price depressed by Brexit concerns. It was a significant contributor to performance despite the business being in almost total lockdown for the month of April and some of May. We expect it to emerge strongly because of all the capital building projects in the pipeline.
Other good performers include Loop-up, which has seen strong demand for its conference calling software, DP Poland which has benefitted from a demand for takeaway pizzas in Poland and Gear 4 Music which has now increased its margins, sorted out its distribution costs and is finding increased demand as high street competitors were forced to close their doors during lockdown.
However, there have been several detractors from performance in the period which have included some smaller holdings exposed to the consumer such as Tasty and Escape Hunt. Among the larger ones, Sosandar’s shares have been extremely volatile as investors have swung between excitement at the success of the on-line clothing brand and its continuing growth and concern about how soon it can reach profitability. It was initially affected by lack of demand for smart fashion in lockdown but reacted fast and increased the efficiency of its marketing spend, keeping sales growing and demonstrating the resilience of an on-line model. It has benefitted from having access to the cash raised earlier in the year although the share price performance reflects general fear about retailers. The other significant drag on performance was Quixant where its largest customer lost market share to competitors in 2019 and where the uncertainty caused by Coronavirus is still an issue. However, the company has net cash on its balance sheet and some exciting new products aimed at the broadcasting sector which should help sales to recover in 2021.
Craneware saw its shares fall from a high after reporting a slower than expected uptake for its new Trisus platform. The company retains its strong positioning as a supplier to the US hospital market and stands out as a cash generative software company with growing annual recurring revenues although a slowdown in planned operations in US hospitals will impact sales growth this year. Elsewhere, Creo Medical’s shares drifted downwards on a lack of news, Equals shares were hit by a lack of travel and demand for currency and Brooks Macdonald fell because its revenues are exposed to stockmarket movements.
In the period under review, the Company made eleven qualifying investments totalling £3.9 million, well ahead the £969,000 we invested in the corresponding period last year, reflecting the part that AIM has played in providing finance to its constituents through the Coronavirus pandemic. Six of these were follow-on investments into existing holdings in Sosandar, Trackwise, PCI-Pal, Fusion Antibodies, Genedrive and Intelligent Ultrasound totalling £2.5 million. The first three raised money to develop their existing businesses and to progress towards being self-supporting and the latter three all had new opportunities in either diagnostics or treatment arising from the Coronavirus pandemic as well as their existing original programmes.
Of the five new investments DXS and the British Honey Company were both new issues on the AQSE Growth Market (formerly known as NEX Exchange). DXS supplies clinical decision support software to the NHS and the British Honey Company is developing specialist branded honey products including flavoured spirits. Both are small holdings adding up to £0.6m and we expect to be able to support these companies as they grow. The three new investments totalling £1.0 million into existing AIM companies were into Rosslyn Data Technologies, a software company providing procurement and master data management solutions, Synairgen which is currently contributing towards testing of Covid-19 and Ilika, a pioneer in solid state battery technology.
In the period we also invested £388,000 of the cash balances into the FP Octopus UK MultiCap Income Fund, with the objective of obtaining a better return on our cash awaiting investment.
A number of disposals and provisions were made in the half year. The result has been a net loss of £80,000. We sold the entire holdings of Staffline at a loss after a series of downgrades to expectations and further uncertainty as a result of Brexit delays caused the financial position to deteriorate. More recently we sold the holding in Omega Diagnostics at a profit after a strong run in the share price. Nasstar and Brady were both acquired for cash and we took some profits in the Ixico, Learning Technologies, GB Group, Synairgen and Loop-up holdings after they performed very well. Since the period end we have taken profits in VR Education after a strong share price performance. Nektan unfortunately called in the administrators after a failed fundraising attempt and we have written down the holding to £nil, realising a loss of £893,000, which is included in the net loss figure of £80,000 above.
As stated in the investment policy on page 1, the Company is able to make investments in unquoted companies intending to float. Currently 3.1% (31 May 2019: 1.5% and 30 November 2019: 3.1%) of the Company’s net assets are invested in unquoted companies.
Transactions with Manager
Details of amounts paid to the Manager are disclosed in note 8 to the Financial Statements.
In the six months to May 2020, the Company bought back 2,185,905 Ordinary shares for a total consideration of £1,521,000. It is evident from the conversations which your Managers have that this facility remains an important consideration for investors. Your Board remains committed to maintaining its policy of buying back shares at a discount of up to 4.5% to NAV.
In this period 12,140,295 shares were issued in connection with the 2019/20 prospectus offer which closed fully subscribed.
In this period 698,494 new shares were issued through the dividend reinvestment scheme (DRIS).
On 22 May 2020, the Company paid a dividend of 2.1p per share, being the final dividend for the year ended 30 November 2019. For the period to 31 May 2020, the Board has declared an interim dividend of 2.1p. This will be paid on 5 November 2020 to shareholders on the register on 16 October 2020.
It remains the Board’s intention to maintain a minimum annual dividend payment of 3.6p per share or a 5% yield based on the period end share price, whichever is the greater. This will usually be paid in two instalments during each year.
The principal risks and uncertainties are set out in Note 7 to the half yearly report and accounts on page 24.
Although the UK Government has begun to ease the lockdown there are still fears that there could be a second wave and it is not yet clear how quickly the UK economy can recover while social distancing and travel restrictions remain in place. Companies have put out detailed statements revealing their financial positions and stress testing for different scenarios and stock markets have seen a period of almost unprecedented information. Encouragingly, fiscal measures that have been put in place by governments around the globe have enabled capital markets to fulfil their function and raise much needed capital for companies to enable them to survive and grow in the future.
The portfolio’s strength is that it is well diversified both in terms of sector exposure and in terms of individual company concentration. At the period end it contained 78 holdings (31 May 2019: 76 holdings and 30 November 2019: 76 holdings) across a range of sectors including healthcare and technology with the balance still weighted towards profitable companies which are continuing to pursue growth.
There are a number of newer holdings that we were expecting to demonstrate progress over the coming twelve months and this is now likely to prove more challenging. However, the VCT currently has funds available for new investments which should allow us to take advantage of any dip in valuations should sentiment weaken again and to support existing portfolio companies where we can. The investment rate has accelerated in the past three months and as a result the VCT is 93.8% invested in qualifying companies allowing us to be selective when viewing new investment opportunities.
The AIM Team
16 July 2020
Director’s Responsibilities Statement
We confirm that to the best of our knowledge:
- the half-yearly financial statements have been prepared in accordance with Financial Reporting Standard 104 ‘Interim Financial Reporting’ issued by the Financial Reporting Council;
- the half-yearly financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
- the half-yearly report includes a fair review of the information required by the Financial Conduct Authority Disclosure and Transparency Rules, being:
- an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;
- a description of the principal risks and uncertainties for the remaining six months of the year; and
- a description of related party transactions that have taken place in the first six months of the current financial year, that may have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last annual report that could do so.
On behalf of the Board
16 July 2020
Six months to 31 May 2020
Six months to 31 May 2019
Year to 30 November 2019
|(Loss)/gain on disposal of fixed asset investments||–||(378)||(378)||–||(71)||(71)||–||315||315|
|(Loss)/gain on disposal of current asset investments||–||(42)||(42)||–||–||–||–||61||61|
|Loss on valuation of fixed asset investments||–||(601)||(601)||–||(234)||(234)||–||(900)||(900)|
|(Loss)/gain on valuation of current asset investments||–||(225)||(225)||–||819||819||–||1,390||1,390|
|Investment management fees||(162)||(485)||(647)||(182)||(547)||(729)||(353)||(1,058)||(1,411)|
|Loss before tax||(305)||(1,731)||(2,036)||(222)||(33)||(255)||(284)||(192)||(476)|
|Loss after tax||(305)||(1,731)||(2,036)||(222)||(33)||(255)||(284)||(192)||(476)|
|Earnings per share – basic and diluted||(0.3)p||(1.5)p||(1.8)p||(0.2)p||0.0p||(0.2)p||(0.3)p||(0.1)p||(0.4)p|
There is no other comprehensive income for the period.
- the ‘Total’ column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice.
- all revenue and capital items in the above statement derive from continuing operations.
- the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds, as well as OEIC funds.
As at 31 May 2020
As at 31 May 2019
As at 30 November 2019
|Fixed asset investments||58,867||58,510||58,246|
|Money market funds||3,485||3,462||3,474|
|Cash at bank||4,806||4,542||1,881|
|Creditors: amounts falling due within one year||(566)||(454)||(153)|
|Net current assets||24,360||28,331||21,794|
|Total assets less current liabilities||83,227||86,841||80,040|
|Called up equity share capital||12||11||11|
|Special distributable reserve||15,369||15,557||19,423|
|Capital reserve realised||(9,168)||(10,236)||(8,641)|
|Capital reserve unrealised||21,942||24,900||23,146|
|Capital redemption reserve||1||1||1|
|Total equity shareholders’ funds||83,227||86,841||80,040|
|NAV per share – basic and diluted||68.7p||78.6p||72.4p|
The statements were approved by the Directors and authorised for issue on 16 July 2020 and are signed on their behalf by:
Company Number: 05528235
Statement of Changes in Equity
|Share Capital |
|Share Premium |
|Special distributable reserves* |
|Capital reserve realised* |
|Capital reserve unrealised |
|Revenue reserve* |
|As at 1 December 2019||11||47,044||19,423||(8,641)||23,146||1||(944)||80,040|
|Total comprehensive income for the period||–||–||–||(905)||(826)||–||(305)||(2,036)|
|Contributions by and distributions to owners:|
|Repurchase and cancellation of own shares||–||–||(1,521)||–||–||–||–||(1,521)|
|Issue of shares||1||9,893||–||–||–||–||–||9,894|
|Share issue costs||–||(617)||–||–||–||–||–||(617)|
|Total contributions by and distributions to owners||1||9,276||(4,054)||–||–||–||–||5,223|
|Prior years’ holding gains now realised||–||–||–||378||(378)||–||–||–|
|Total other movements||–||–||–||378||(378)||–||–||–|
|Balance as at 31 May 2020||12||56,320||15,369||(9,168)||21,942||1||(1,249)||83,227|
|*The sum of these reserves is an amount of £4,952,000 (31 May 2019: £4,439,000 and 30 November 2019: £9,838,000) which is considered distributable to shareholders. |
|As at 1 December 2018||11||57,045||19,536||(9,898)||24,595||1||(660)||90,630|
|Total comprehensive income for the period||–||–||–||(618)||585||–||(222)||(255)|
|Contributions by and distributions owners:|
|Repurchase and cancellation of own shares||–||–||(1,653)||–||–||–||–||(1,653)|
|Issue of shares||–||448||–||–||–||–||–||448|
|Share issue costs||–||(3)||–||–||–||–||–||(3)|
|Total contributions by and distributions to owners||–||445||(3,979)||–||–||–||–||(3,534)|
|Prior years’ holding gains now realised||–||–||–||280||(280)||–||–||–|
|Total other movements||–||–||–||280||(280)||–||–||–|
|Balance as at 31 May 2019||11||57,490||15,557||(10,236)||24,900||1||(882)||86,841|
|As at 1 December 2018||11||57,045||19,536||(9,898)||24,595||1||(660)||90,630|
|Total comprehensive income for the period||–||–||–||(682)||490||–||(284)||(476)|
|Contributions by and distributions to owners:|
|Repurchase and cancellation of own shares||–||–||(2,782)||–||–||–||–||(2,782)|
|Issue of shares||–||1,576||–||–||–||–||–||1,576|
|Share issue costs||–||(2)||–||–||–||–||–||(2)|
|Total contributions by and distributions to owners||–||1,574||(11,688)||–||–||–||–||(10,114)|
|Cancellation of share premium||–||(11,575)||11,575||–||–||–||–||–|
|Prior years’ holding gains now realised||–||–||–||1,939||(1,939)||–||–||–|
|Total other movements||–||(11,575)||11,575||1,939||(1,939)||–||–||–|
|Balance as at 30 November 2019||11||47,044||19,423||(8,641)||23,146||1||(944)||80,040|
Cash Flow Statement
Six months to
31 May 2020
Six months to
31 May 2019
30 November 2019
|Cash flows from operating activities|
|Loss before tax||(2,036)||(255)||(476)|
|Increase in debtors||(921)||(4)||(69)|
|Increase/(decrease) in creditors||413||(738)||(386)|
|Loss/(gain) on disposal of fixed assets investments||378||71||(315)|
|Loss/(gain) on disposal of current assets investments||42||–||(61)|
|Loss on valuation of fixed asset investments||601||234||900|
|Loss/(gain) on valuation of current asset investments||225||(819)||(1,390)|
|Cash from operations||(1,298)||(1,511)||(1,797)|
|Income taxes paid||–||–||–|
|Net cash generated from operating activities||(1,298)||(1,511)||(1,797)|
|Cash flows from investing activities|
|Purchase of fixed asset investments||(3,898)||(968)||(4,959)|
|Sale of fixed asset investments||2,298||2,024||5,346|
|Purchase of current asset investments||(389)||(3,002)||(3,116)|
|Sale of current asset investments||1,000||–||5,000|
|Net cash flows from investing activities||(989)||(1,946)||2,271|
|Cash flows from financing activities|
|Purchase of own shares||(1,521)||(1,653)||(2,782)|
|Share issues (net of costs)||8,808||62||90|
|Net cash flows from financing activities||5,223||(3,534)||(10,114)|
|Increase/(decrease) in cash and cash equivalents||2,936||(6,991)||(9,640)|
|Opening cash and cash equivalents||5,355||14,995||14,995|
|Closing cash and cash equivalents||8,291||8,004||5,355|
|Cash and cash equivalents comprise|
|Cash at bank||4,806||4,542||1,881|
|Money Market Funds||3,485||3,462||3,474|
Notes to the Half-Yearly Report
1. Basis of preparation
The unaudited half-yearly report which covers the six months to 31 May 2020 has been prepared in accordance with the Financial Reporting Council’s (FRC) Financial Reporting Standard (FRS) 104 Interim Financial Reporting (March 2018) and the Statement of Recommended Practice (SORP) for Investment Companies issued by the Association of Investment Companies in 2014 (updated in February 2018).
The Directors consider it appropriate to adopt the going concern basis of accounting. The Directors have not identified any material uncertainties to the company’s ability to continue to adopt the going concern basis over a period of at least twelve months from the date of approval of the financial statements. In reaching this conclusion the Directors have had regard to the potential impact on the economy and the Company of the current Coronavirus pandemic.
The principal accounting policies have remained unchanged from those set out in the Company’s 2019 Annual Report and Accounts.
2. Publication of non-statutory accounts
The unaudited half-yearly reports for the six months ended 31 May 2020 does not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006. The comparative figures for the year ended 30 November 2019 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 2020 are calculated on the basis of 115,920,374 shares (31 May 2019: 111,279,985 and 30 November 2019: 110,696,797), 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 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 2020 divided by 121,145,736 shares in issue at that date (31 May 2019: 110,500,001 and 30 November 2019: 110,492,852).
The Directors have declared a dividend of 2.1 pence per share, payable from the special distributable reserve. This dividend will be paid on 5 November 2020 to those shareholders on the register at 16 October 2020.
6. Buybacks and share issues
During the six months ended 31 May 2020 the Company repurchased the following shares.
|Date||No. of shares||Price (p)||Cost (£)|
|19 December 2020||321,283||70.8||227,000|
|23 January 2020||684,729||73.3||502,000|
|20 February 2020||538,063||73.2||394,000|
|19 March 2020||237,186||58.2||138,000|
|23 April 2020||251,844||64.0||161,000|
|28 May 2020||152,800||64.6||99,000|
The weighted average price of all buybacks during the period was 69.6 pence per share.
During the six months ended 31 May 2020 the Company issued the following shares:
|Date||No. of shares||Price (p)||Net proceeds (£)|
|16 January 2020||3,572,789||81.5||2,727,000|
|6 March 2020||8,317,435||76.2||5,915,000|
|16 April 2020||250,071||70.2||166,000|
|26 May 2020 (DRIS)||698,494||67.1||468,000|
The weighted average allotment price of all shares issued during the period net of costs was 72.2 pence per share.
7. Principal risks and uncertainties
The Company’s principal risks are VCT qualifying status risk, valuation risk, investment risk, finance risk, regulatory and reputational risk, economic and price risk and operational risk. These risks, and the way in which they are managed, are described in more detail in the Company’s Annual Report and Accounts for the year ended 30 November 2019. The Board has also considered emerging risks, including the Coronavirus pandemic, which the Board seeks to mitigate by setting policy and reviewing performance. Otherwise, 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 £647,000 by Octopus as a management fee in the period to 31 May 2020 (31 May 2019: £729,000 and 30 November 2019: £1,411,000). 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, Multi Cap 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 2020 (31 May 2019: £35,000 and 30 November 2019: £71,000). For further details please refer to the Company’s Annual Report and Accounts for the year ended 30 November 2019. Details of amounts invested in Octopus managed funds can be found on page 13.
9. Post balance sheet events
The following events occurred between the balance sheet date and the signing of these financial statements:
• Disposal of £3.2 million in Octopus Portfolio Manager - Conservative Capital Growth;
• Disposal of £3.2 million in Octopus Portfolio Manager - Defensive Capital Growth;
• An investment of £160,000 into the FP Octopus UK Multi Cap Income Fund;
• An investment of £200,000 into Feedback plc; and
• Partial disposal of VR Education Holdings plc for a consideration of £70,488.
• On 24 June 2020, the Company issued 32,178 Ordinary Shares at a price of 69.9p.
• On 25 June 2020, the Company purchased for cancellation 137,063 Ordinary Shares at a price of 67.0p.
• A final order to cancel Share Premium amounting to £23.4 million was granted on 07 July 2020.
10. Fixed asset investments
The Company’s principal financial assets are its investments and the policies in relation to those assets are set out below.
Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board. Accordingly, as permitted by FRS 102, the investments are measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company’s investments are measured at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. This is consistent with the International Private Equity and Venture Capital Valuation (IPEV) guidelines.
Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the Capital reserve – unrealised. The Managers review changes in fair value of investments for any permanent reductions in value and will give consideration to whether these losses should be transferred to the Capital reserve – realised.
In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.
Fair value hierarchy
Paragraph 34.22 of FRS102 suggests following a hierarchy of fair value measurements, for financial instruments measured at fair value in the Balance Sheet, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). This methodology is adopted by the Company and requires disclosure of financial instruments to be dependent on the lowest significant applicable input, as laid out below:
Level 1: The unadjusted, fully accessible and current quoted price in an active market for identical assets or liabilities that an entity can access at the measurement date.
Level 2: Inputs for similar assets or liabilities other than the quoted prices included in Level 1 that are directly or indirectly observable, which exist for the duration of the period of investment.
Level 3: This is where inputs are unobservable, where no active market is available and recent transactions for identical instruments do not provide a good estimate of fair value for the asset or liability.
There has been one reclassification from Level 1 to Level 3 in the period as Nektan Limited was de-listed. This holding is held at £nil. Other than this, 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.
| Level 1: |
AIM-traded equity investments
|Level 3: |
|Cost as at 1 December 2019||34,058||2,785||36,843|
|Opening unrealised gain/(loss) at 1 December 2019||20,945||458||21,403|
|Valuation at 1 December 2019||55,003||3,243||58,246|
|Purchases at cost||3,898||–||3,898|
|Profit/(loss) on realisation of investments||172||(550)||(378)|
|Reclassification between levels||(13)||13||–|
|Change in fair value in year||(884)||283||(601)|
|Closing valuation at 31 May 2020||55,878||2,989||58,867|
|Cost at 31 May 2020||35,906||2,455||38,361|
|Closing unrealised gain at 31 May 2020||19,972||534||20,506|
|Valuation at 31 May 2020||55,878||2,989||58,867|
Level 1 valuations are valued in accordance with the bid-price on the relevant date. Further details of the fixed asset investments held by the Company are shown within the Investment Manager’s Review.
Level 3 investments are valued in accordance with IPEV guidelines. Hasgrove is valued at the most recent transaction price, whilst Rated People is valued at the latest fundraise price. Fusionex is held at the latest traded price as a listed company before delisting. The one loan note is 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 May 2020 there were no commitments in respect of investments approved by the Investment Manager but not yet completed.
11. Additional information
Copies of this report are available from the registered office of the Company at 33 Holborn, London, EC1N 2HT.