Final Results

Octopus AIM VCT plc

Final Results

Octopus AIM VCT plc today announces the final results for the year ended 28 February 2023.

Octopus AIM VCT plc (the ‘Company’) is a venture capital trust (VCT) which aims to provide shareholders with attractive tax-free dividends and long-term capital growth by investing in a diverse portfolio of predominantly AIM-traded companies. The Company is managed by Octopus Investments Limited (‘Octopus’ or the ‘Investment Manager’).

Financial Summary

	Year to 28 February 2023	Year to 28 February 2022
Net assets (£’000)	141,222	168,169
(Loss) after tax (£’000)	(33,414)	(19,459)
Net asset value (NAV) per share (p)	78.5	104.8
Dividends per share paid in year (p)	5.5	8.5
Total return (%)1	(19.8)	(9.1)
Final dividend proposed (p)2	2.5	3.0
Ongoing charges (%)3	2.1	1.9

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.
²The proposed final dividend will be paid on 10 August 2023 to shareholders on the register on 28 July 2023.
³Ongoing charges is an alternative performance measure calculated using the AIC recommended methodology.

Chair’s statement

Introduction
Firstly, I would like to welcome all new shareholders who have joined us in the past year, and to assure you that the Company’s performance this year has not been typical for us. As explained further below, market turbulence this year has been particularly harsh on smaller companies in some of the key sectors in which we invest, and this has led to a material reduction in the Company’s Net Asset Value.

The year to 28 February 2023 turned out to be another challenging period for stock markets in general and for smaller companies in particular. It started as Russia had just launched its invasion of Ukraine, causing an immediate shock to the global economy, and in particular a surge in European energy and food prices driving up inflation, which was already on the rise as economies emerged from the covid pandemic of 2021. By the half-year, Inflation was nearing 10%, the Bank of England had raised its base rate from 0.5% in February to 1.75% and the Company’s net asset value (NAV) had fallen by 14.6% on a total return basis as investors withdrew from smaller companies, which are generally perceived to be riskier assets. The second half was overshadowed by domestic political turmoil and an autumn budget that caused further financial instability as expectations for peak interest rates rose above 6% at one stage before falling back towards the end of the year as some semblance of stability returned. Interest rates ended the period at 4% and are now expected to peak in the first half of the current year. Against this background the NAV gave up further ground and finished the year 19.8% down on a total return basis.

In the context of this backdrop, the AIM market raised £2.1 billion of new capital in the year under review for both new and existing AIM companies, a substantial decrease on the £8.3 billion raised in the previous year. After the previous year, when the number of new issues had been buoyant coming out of covid, the majority of fundraisings in the year under review were for existing AIM companies seeking further capital. It was not surprising, therefore, that your Investment Manager made fewer qualifying investments, investing a total of £4.9 million in the period, well down from the record £21.6 million invested in the previous year. The Investment Manager and your Board were both clear that the relative shortage of investment opportunities should not be used as an excuse to lower the rigorous investment criteria that are applied when making new investments.

Performance
The NAV on 28 February 2023 was 78.5p per share, a significant decrease on the NAV of 104.8p per share reported at 28 February 2022. Adding back the 5.5p of dividends paid in the year gives a total negative return of 19.8%. In the same year, the FTSE AIM All-Share Index fell by 16.1%, the FTSE SmallCap (excluding investment companies) Index fell by 5.8% and the FTSE All-Share Index rose by 7.3%, all on a total return basis. AIM was the worst performing UK Index, with the FTSE All-Share’s positive return narrowly based and reliant on a few very large companies in the energy and pharmaceutical sectors. AIM trailed the FTSE SmallCap (excluding investment companies) Index because of the poor performance of AIM’s larger constituents which suffered the greatest de-ratings.

Once again stock specific factors had a significant impact on our performance, both positive and negative, and these are covered in more detail in the Investment Manager’s review. As fears about high inflation and the extent of likely interest rate rises increased, so did stock market volatility, causing growth stocks to devalue further as the year progressed. In addition, the deterioration in appetite for risk which had been apparent since the end of 2021 intensified, resulting in some significant falls in the share prices of earlier stage companies exposed to the new economy. In some cases raising further capital proved difficult except at a deep discount and resulted in companies having to accept much lower valuations. The purpose of a VCT is to provide capital for small growing companies and as a result those companies exposed to the new economy in the software, technology and healthcare sectors make up a significant proportion of our investment portfolio. This worked against us in the period.

Dividends
In January 2023 an interim dividend for the year to 28 February 2023 of 2.5p was paid to all shareholders. This was in addition to the 3.0p final dividend that had been paid in August 2022 and which related to the previous financial year ended 28 February 2022. The Board has considered the level of dividend in the context of the NAV fall during the period and on this occasion is recommending a final dividend of 2.5p, which brings the total dividends for the year to 28 February 2023 to 5.0p which is a 6.7% yield based on the share price of 74.5p on 28 February 2023. It remains the Board’s target to pay an annual dividend of 5.0p or 5% of the year end share price, whichever is greater at the time.

Cancellation of share premium account
At the last Annual General Meeting, shareholders voted to cancel share premium to increase the pool of distributable reserves to the amount of £25.6 million. This is a regular occurrence, and common practice, to enable the continued payment of dividends and buyback of shares. A further resolution to cancel share premium is being proposed at this year’s Annual General Meeting.

Dividend reinvestment scheme
In common with many other VCTs in the industry, the Company has established a Dividend Reinvestment Scheme (DRIS). Many shareholders have already taken advantage of this opportunity. For investors who do not require income, but value the additional tax relief on their reinvested dividends, this is an attractive scheme and I hope more shareholders will find it useful. In the course of the year 2,122,937 new shares have been issued under this scheme, returning £1.8 million to the Company. The final dividend referred to above will be eligible for the DRIS.

Share buybacks
During the year to 28 February 2023 the Company continued to buy back shares in the market from selling shareholders and purchased 4,312,810 ordinary shares for a total consideration of £3.6 million. We have maintained a discount of approximately 4.5% to NAV (equating to up to a 5.0% discount to the selling shareholder after costs), which the Board monitors and intends to retain as a policy which fairly balances the interests of both remaining and selling shareholders. Buybacks remain an essential practice for VCTs, as providing a means of selling is an important part of the initial investment decision and has enabled the Company to grow. As such, I hope you will all support the appropriate resolution at the AGM.

Share issues
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. This prospectus closed to further applications on 13 October 2022. There was strong appetite for the share issue, and it closed fully subscribed on 13 October 2022. The Company issued 21,311,806 shares under the offer, raising £17.3 million after costs.

VCT status
Shoosmiths LLP were engaged throughout the year to provide the Board and Investment Manager with advice concerning continuing compliance with HMRC regulations for VCTs. The Board has been advised that the Company is in compliance with the conditions laid down by HMRC for maintaining approval as a VCT. A key requirement is to maintain at least an 80% qualifying investment level. As at 28 February 2023, 88.6% of the Company’s portfolio was in VCT qualifying investments.

In 2015 the government introduced a VCT sunset clause in order to comply with EU State Aid requirements. This clause provides that income tax relief will no longer be given to new VCT subscriptions made on or after 6 April 2025, unless the relevant legislation is renewed by an HM Treasury order. The VCT community has been campaigning to get this clause revoked, and in September 2022 the Chancellor of the Exchequer announced that the sunset clause would be extended beyond 2025. While there has been no further update or announcement from the government since September, the VCT community remains confident that the sunset clause will be revoked, enabling VCTs to continue to fulfil the important role that they play in the funding of small UK growth companies.

Annual General Meeting (AGM)  
The AGM will take place on 20 July 2023 at 10.30am. We will also be hosting a virtual shareholder event prior to the AGM, on 13 July 2023 at 11.00am. This will enable shareholders to receive an update from the Investment Manager and provide an opportunity for questions to the Board and the Investment Manager. There will not be a presentation from the Investment Manager at the AGM itself. Formal notices will be sent to shareholders by their preferred method (email or post) and shareholders are encouraged to submit their votes by proxy. We always welcome questions from our shareholders at the AGM. Please send any questions via email to aimagm@octopusinvestments.com by 5.00pm on 14 July 2023.

Outlook
2023 started with a degree of cautious optimism and a noticeable improvement in investor appetite. However, the collapse of Silicon Valley Bank and the enforced takeover of Credit Suisse in March, demonstrated the continued fragility of investor confidence despite banks generally being in a much better shape than they were at the time of the 2007/8 financial crisis. Inflation remains high although it is expected to fall from current levels which should enable interest rates to peak in the next few months. It now seems as if the UK may have avoided the prospect of a formal recession as GDP projections have been adjusted upwards, with any trough now expected to be shallow.

Company statements have been robust in the first results season of the year and forecasts are mostly conservatively set at this stage. Valuations have not yet recovered from last year’s falls, leaving many of the larger and faster growing shares in the portfolio on ratings well below their long-term averages. The Investment Manager’s assessment is that the underlying businesses of these companies are generally robust, giving good prospects for uplifts in valuations as overall market sentiment improves.

The portfolio contains 88 holdings across a range of sectors with exposure to some exciting new technologies in the environmental and healthcare sectors in particular. Many of these companies remain well funded, although the challenge of raising further capital in the current market environment cannot be dismissed. The balance of the portfolio towards profitable companies remains, and the Investment Manager remains confident that there will continue to be sufficient opportunities to invest our funds in good companies seeking more growth capital at attractive valuations.

Neal Ransome
Chair

Investment Manager’s review

Introduction
The 12 months under review was an extremely challenging time for investors who had to contend with the Russian invasion of Ukraine, rapidly rising inflation and interest rates, and a squeeze on consumer incomes combined with a constant threat of recession. This resulted in volatile stock markets with investors seeking safety in less highly rated sectors such as banks and energy. It caused the retreat of AIM growth stocks, which was a key factor in the fall in the net asset value (NAV) which ended the year with a negative total return of 19.8%, slightly behind AIM itself. In addition, as appetite for risk diminished, some of the earlier stage investments in the portfolio suffered de-ratings. Solid January trading updates caused a brief recovery in optimism although this proved transitory in the face of the collapse of Silicon Valley Bank and the enforced takeover of Credit Suisse just after the year end. Fragile investor confidence has left AIM shares valued at levels previously visited around the time of the 2007/8 financial crisis despite a mostly encouraging results season post the year end.

Against this background AIM fundraisings slowed dramatically as the year unfolded as companies looking to float paused in response to lower valuation expectations for their businesses. However, AIM still successfully raised capital for its existing members, enabling them to fund the next stage of their development.

The Alternative Investment Market
Following a strong year for the financial markets in 2021, 2022 proved to be a rather turbulent year in many ways. In addition to global headwinds, the UK market suffered from continued concerns about inflation, increasing interest rates, and the looming threat of a long recession. This directly impacted fundraising levels and the number of new IPOs across all UK indices, both large and small. However, smaller company indices were particularly impacted by the equity market de-rating as sentiment moved sharply away from growth and momentum driven stocks and investors sought out a narrow group of pharmaceutical and energy stocks in the FTSE 100. AIM’s high exposure to growth stocks in the software, technology, new economy and healthcare sectors counted against it over the period and it was the worst performing index, with its largest constituents faring particularly badly. Conversely, the FTSE SmallCap Index (ex investment companies) fared better as it did not have exposure to the larger companies that held back AIM. In the 12 months to 28 February 2023 the AIM Index fell 16.1% compared with a fall of 5.8% for the FTSE SmallCap index (excluding investment companies) and an increase of 7.3% for the FTSE All-Share Index on a total return basis. Although VCTs have additional constraints on what they can invest in, the AIM index is considered to be the most appropriate broad equity market index for comparative purposes, given the nature of the underlying investments. The FTSE SmallCap and All-Share indices provide wider market context.

The market for fundraising and new IPOs remained quiet throughout the year. Disappointingly, in the year to 28 February 2023, AIM raised £2.0 billion of new capital for existing companies which compares to a figure of £8.3 billion the previous year. Not surprisingly, there were only 13 new IPOs compared to 88 in the previous year. AIM raised £0.1 billion for new listings, a significant decrease on the figure of £1.9 billion in the previous year.

We are still hearing about potential new issues from brokers and we hope that the current more volatile market conditions do not affect this. VCTs play a significant part in the funding process and we identify the companies we have invested in during the year, which include many that are developing technologies to help solve the climate and healthcare problems that face us.

Performance
Adding back the 5.5p of dividends paid in the year, the NAV total return fell by 19.8%. This compares with a fall in the FTSE AIM All-Share Index of 16.1%, a fall in the FTSE SmallCap (excluding investment companies) of 5.8% and a rise in the FTSE All-Share Index of 7.3%, all on a total return basis. It was another year characterised by individual months of significant market volatility as investors reacted to unfolding events. The year opened when Russia had just invaded Ukraine, which added a steep rise in energy and food costs to existing price inflation caused by a post-pandemic shortage of labour and supply chain difficulties. As a result, consensus moved from inflation being seen as transitory to a longer-term issue, and central banks reacted by indicating that interest rates would have to rise further and faster than had previously been expected. The situation was unfortunately exacerbated in the second half by political instability, with market reactions to the autumn budget causing peak interest rate expectations to rise above 6%, much further than had been anticipated, disrupting the gilt and property markets. Faced with these conditions and uncertainties, investors continued their previous moves away from smaller company investments and concentrated their attention on a very narrow cohort of the largest energy and pharmaceutical companies, causing AIM and smaller companies to lag significantly in contrast to the well-established long-term trend.This impacted both the larger growth stocks in the portfolio, which were de-rated even when the tone of their outlook statements continued to be positive, as well as early-stage technology companies needing cash to fulfil their growth ambitions and contributed to the underperformance of the NAV compared with the FTSE AIM All-Share.

Among the larger, profitable holdings in the portfolio, several were caught by the dramatic de-rating of larger AIM growth stocks in the period caused by poor market sentiment in the face of sharp rises in interest rates and inflation. GB Group (GBG) and Learning Technologies Group were in the top ten fallers, and others such as RWS, Advanced Medical Solutions and Next Fifteen were also affected although the impact on the performance of the fund was less for these and other smaller holdings.

One of the biggest contributors to the negative return in the year was GBG, a leading global player in identity verification. GBG has been a long-term successful investment where we have taken profits in the past and continue to believe it will deliver growth and positive returns for the Company in the future. Its share price was impacted partly by slower than hoped for growth as some of the froth came off the digital economy as the effect of covid lockdowns waned and partly in reaction to the acquisition of USbased Acuant, an expensive acquisition albeit with good longterm strategic benefits. It ended the period on a valuation multiple well below its historic average and at a level not seen since the 2007/8 financial crisis. Fears that Learning Technologies would see its customers cut back on spending on employees in the event of a recession weighed on its share price. It produced upgrades to 2022 forecasts as the year progressed, leaving the shares trading at the bottom end of the longer-term valuation range. EKF Diagnostics and Animalcare were also significant contributors to negative returns in the year. EKF’s profits have shrunk back to pre-covid levels after a period of significant revenues and profits from covid test kits, but it remains a profitable provider of point of care tests and we expect its shares to recover as profits start to grow again. Animalcare has found the development and launch of new animal drugs less easy during lockdowns but remains focused on invigorating its growth.

TPX Impact and Trackwise Designs were two very disappointing performers in the year. TPX Impact had been growing strongly as a result of demand from various government departments for its digital transformation expertise and the efficiencies to be gained from it. However, it was caught by a shortage of skilled technical labour which delayed contract delivery and eroded margins as it had to fill the gap with outside contractors. A new chief executive is now in charge and some of the labour pressures have eased, giving us confidence that the business can recover. Demand from customers remains good and the business is well funded. The situation at Trackwise Designs was more serious. The company built a new factory to fulfill a very large contract from electric vehicle manufacturer Arrival. Disappointingly, the order was revised downwards at the end of last year which impacted the funding allocated to the factory build and forced the company to raise money at a moment when stock sentiment towards early stage businesses was very poor. This resulted in significant dilution for us as existing shareholders although it does now give the company the chance to win other customer business for its new facility.

The portfolio has very little exposure to the consumer, but where it does this has tended to hurt performance in the year. Gear4Music had enjoyed a very strong period of trading during the pandemic when demand for musical instruments soared and high street competitors were closed. This masked some of the underlying challenges posed by Brexit and supply problems in China, which impacted profits and margins that the management has spent the past two years working through. It should be able to show some of the benefits of this process in 2023. Sosandar, another consumer-focused company, has continued to achieve successive profitable months in 2023 as well as significant growth in its sales through Next, M&S and John Lewis and most recently Sainsbury’s. Although the shares were not a significant drag on performance in the year, they still don’t reflect the scale of the progress made by the business.

It has been another very tough period for early-stage businesses yet to reach profitability, with the priority to make sure they have enough funding to develop their technologies and get them tor a self-supporting stage. Share prices have come under pressure even where funding is not an immediate problem and progress has remained on track, such as in the cases of LungLife, GENinCode, Velocys and Maxcyte. There have been some dramatic reactions where early-stage companies have disappointed investors, such as with CPH2 which has been slower than expected to develop a working model of its membrane-free electrolyser. Two other big fallers were Libertine, which had gone to a large premium to its IPO price before falling back as investors appreciated how early stage its innovative drive train is, despite having some serious partners, and Ilika where its Stereax solid state battery has seen slower scale-up demand than originally expected. We had taken profits in Ilika at higher levels the previous year.

Investing for a VCT involves backing companies when they are small and still at an early stage of development and share price progress depends on them being noticed by a wider circle of investors as they produce results and develop their businesses over time. This quite often takes longer than expected and these companies remain potentially vulnerable until they achieve profitability- something we experienced with Creo Medical this year, which was forced to raise money on a much lower valuation as VCTs were no longer able to finance it. The relatively good news is that it is now funded to develop its innovative endoscopic instruments.

There have been some instances of more resilient performance despite the market conditions outlined above. The share price of Ergomed has been volatile over the year but it has broadly held its value as profits have been upgraded. We have taken some profits to manage the size of the holding although we still see plenty of scope for organic growth to continue and build further value for shareholders, particularly as the shares have fallen back since the year end. Equipmake made a strong debut on AIM and has been a strong contributor to performance and Netcall, Quixant and Judges Scientific have all maintained good momentum in their businesses and been rewarded with higher share prices. In our private company holdings, Hasgrove had its valuation increased over the year as it grew its recurring revenues and cash despite a fall in the valuation metrics used. By contrast, the quoted peer group for Popsa was devalued in the second half and as a result we wrote down its valuation in the year. The business continues to grow well and cash spending is well under control.

Portfolio Activity
Having made four qualifying investments at a total cost of £2.4 million in the first half of the year, we added a further four qualifying investments totalling £2.5 million in the second half. This made a total investment of £4.9 million in qualifying investments for the year, a decrease on last year’s £21.6 million. However, it should be pointed out that FY2022 had represented a record year for deployment, with a large selection of existing and new companies turning to public markets to strengthen their balance sheets as we came out of the covid pandemic.

In the first half of the year we made four qualifying investments; three were follow-ons into Oberon Investments Group plc, The British Honey Company and Verici Dx plc, and one was a new investment, Equipmake Holdings plc. In the second half, we invested in two new companies and two existing investments. We invested £0.4 million into Northcoders Group plc, a Manchester-based provider of training programmes for software coding. The funds raised will be used to expand the list of courses offered to individuals, to include Cyber Security and Platform Engineering, among others. The company has an exciting opportunity to form a meaningful part of the upskilling agenda across the UK. We invested £1.6 million into Itaconix plc, which is a leading producer of plant-based additives for a range of consumer products, from detergents to shampoos. Itaconix’s natural polymers help to decarbonise products, whilst providing improved performance, safety and sustainability. The company raised a total of £10.5 million in a heavily over-subscribed share placing, which will be used to support a range of growth initiatives, including the development of new products and applications for its technology. We invested a further £0.3 million into Intelligent Ultrasound Group plc, the ‘classroom-to-clinic’ provider of training and AI-enabled medical simulation products. The company raised £5.2 million, which will support the ongoing development of several tech-enabled products which assist ultrasound practitioners and vastly improve the efficiency of the scanning process. We invested a further £0.2 million into Equipmake, the electric drivetrain specialists focusing on retrofitting carbon-intensive vehicles and aeroplanes, most notably diesel buses. The company had its IPO in July 2022, and successfully raised a further £6.2 million in January 2023, expanding its shareholder base. We opted to make a small further investment given the exciting progress the team are making.

During the year we took profits in several holdings. We sold part of our holdings in Advanced Medical Solutions, Next 15 Group and WANdisco. Two holdings, Clinigen Group and TP Group, were subject to successful cash takeover bids, Clinigen at a profit though frustratingly TP Group was at a substantial loss. We also fully exited from investments in Diurnal, Merit Group, Synairgen and Midatech, and sold our non-qualifying position in Tasty. In all, disposals made a £0.5 million loss over original cost and generated £2.5 million of cash proceeds.

Non-qualifying investments are used to manage liquidity while awaiting new qualifying investment opportunities. Although we still hold some existing non-qualifying AIM holdings where we seep the opportunity for further share price progress, we continued to reduce some of these holdings in the year under review. In the year under review £0.8 million was invested into the FP Octopus Micro Cap Growth Fund, £0.7 million into the FP Octopus Multi Cap Income Fund and £0.4 million into the FP Octopus Future Generation Fund at lower share prices than our previous investments. Recent adverse market conditions meant that these funds had a negative impact on returns in the year although we believe they are well positioned to have a positive impact once the investment environment improves. The balance of the cash is now held in two money market funds to earn a better return as VCTs are not permitted to earn significant amounts of interest on bank deposits.

Liquidity
The issue of liquidity within investment funds has remained a topic of discussion this year. Shareholders may be interested to know that at the year end 66.6% of the Company’s net assets were held in individual quoted shares, 6.1% were held in unquoted single company investments and 27.7% were held in cash or collective investment funds providing short-term liquidity. Shareholders should be aware that a proportion of the quoted holdings may have limited liquidity owing to the size of the investee company and the overall proportion held by the Company.

VCT Regulations
There have been no further changes to the VCT regulations since the publication of the previous set of audited accounts. The key requirements are that 30% of funds raised should be invested in qualifying holdings within 12 months of the end of the accounting period in which the shares were issued, and the Company has to maintain a minimum of 80% of the portfolio (at cost) invested in qualifying holdings. We are determined to maintain a threshold of quality and to invest where we see the potential for returns from growth. Over time there has been a gradual change to the profile of the portfolio towards earlier-stage companies, although we continue to hold the larger market capitalisation companies, in which we invested several years ago as qualifying companies, or which we bought in the market prior to the rule changes, where we see the potential for them to continue to grow.

In order to qualify, companies must:
• have fewer than 250 full-time equivalent employees;
• have less than £15 million of gross assets at the time of investment and no more than £16 million immediately post investment;
• be less than seven years old from the date of their first commercial sale (or ten years if a knowledge intensive company) if raising State Aided (i.e. VCT) funds for the first time;
• have raised no more than £5 million of State Aided funds in the previous 12 months and less than the lifetime limit of £12 million (or £10 million in 12 months and a £20 million lifetime limit if a knowledge intensive company); and
• produce a business plan to show that the funds are being raised for growth and development.

Outlook and future prospects
Sentiment is slowly recovering after the latest market setback as prompted by the collapse of Silicon Valley Bank although nervousness around the financial health of some US banks remains. On the positive side, banking risk ratios are much more exacting than at the time of the 2007/8 financial crisis and there are signs that the very rapid rise in interest rates which precipitated the current stress may be reaching their peak. However, inflation, which is still widely expected to fall rapidly from here, remains an issue with no immediate prospect of achieving the Government’s 2% target, which might hold back the scale of any cuts in rates from the peak, still predicted to be later this year. Energy costs remain high but the worst fears of winter power shortages were not realised.

More than half the companies in the portfolio have updated us on trading since the period end, with many of these reassuring. Meanwhile we are starting to see companies considering floating on AIM in the medium term as well as VCT qualifying opportunities to invest in existing AIM companies. We believe the current cautious market conditions will provide opportunities to invest the VCT’s cash at attractive valuations.

The portfolio contains 88 holdings with investments across a range of sectors including both domestic and international exposure and the balance towards profitable companies remains.

The Octopus Quoted Companies team

Viability statement
In accordance with provision 4.31 of the UK Corporate Governance Code 2018, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the ‘going concern’ provision. The Board conducted this review for a period of five years, which was considered to be a reasonable time horizon given that the Company has raised funds under an offer for subscription which closed to new applications on 13 October 2022 and, under VCT rules, subscribing investors are required to hold their investment for a five-year period in order to benefit from the associated tax reliefs. The Board regularly considers the Company’s strategy, including investor demand for the Company’s shares, and a five-year period is considered to be a reasonable time horizon for this.

The Board carried out a robust assessment of the emerging and principal risks facing the Company and its current position.This includes the impact of the cost of living crisis, the unstable economic environment and any other risks which may adversely impact its business model, future performance, solvency or liquidity. Particular consideration was given to the Company’s reliance on, and close working relationship with, the Investment Manager. The principal risks faced by the Company and the procedures in place to monitor and mitigate them are set out below.

The Board has also considered the liquidity of the underlying investments and the Company’s cash flow projections considering the material inflows and outflows of the Company including investment activity, buybacks, dividends and fees and found these to be realistic and reasonable. The Company’s cash flow includes cash equivalents which are short-term, highly liquid investments.

Based on the above assessment the Board confirms that it has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period to 28 February 2028.

Principal risks, risk management and regulatory environment
In accordance with the Listing Rules under which the Company operates, the Board is required to comment on the potential risks and uncertainties which could have a material impact on the Company’s performance.

The Board carries out a review of the risk environment in which the Company operates. The main areas of risk identified by the Board are as follows:

Risk	Mitigation
Investment performance: The focus of the Company’s investments is into VCT qualifying companies quoted on AIM and the AQSE, which by their nature entail a higher level of risk and lower liquidity than investments in larger quoted companies.	The Investment Manager has significant experience and a strong track record of investing in AIM and AQSE companies, and appropriate due diligence is undertaken on every new investment. The overall risk in the portfolio is mitigated by maintaining a wide spread of holdings in terms of financing stage, age, industry sector and business models. The Board reviews the investment portfolio with the Investment Manager on a regular basis.
VCT qualifying status risk: The Company is required at all times to observe the conditions for the maintenance of HMRC approved VCT status. The loss of such approval could lead to the Company and its investors losing access to the tax benefits associated with VCT status and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment.	Prior to investment, the Investment Manager seeks assurance from the Company’s VCT status adviser that the investment will meet the legislative requirements for VCT investments. On an ongoing basis, the Investment Manager monitors the Company’s compliance with VCT regulations on a current and forecast basis to ensure ongoing compliance with VCT legislation. Regular updates are provided to the Board throughout the year. The VCT status adviser formally reviews the Company’s compliance with VCT regulations on a bi-annual basis and reports their results to the Board.
Operational risk (reliance on Octopus): The Board is reliant on the Investment Manager to manage investments effectively, and manage the services of a number of third parties, in particular the registrar and tax advisers. A failure of the systems or controls at the Investment Manager or third-party providers could lead to an inability to provide accurate reporting and to ensure adherence to VCT and other regulatory rules.	The Board reviews the system of internal control, both financial and non-financial, operated by the Investment Manager (to the extent the latter are relevant to the Company’s internal controls). These include controls that are designed to ensure that the Company’s assets are safeguarded, that proper accounting records are maintained, and that regulatory reporting requirements are met. Feedback on other third parties is reported to the Board on at least an annual basis, including adherence to Service Level Agreements where relevant.
Information security: A loss of key data could result in a data breach and fines. The Board is reliant on the Investment Manager and third parties to take appropriate measures to prevent a loss of confidential customer information.	Annual due diligence is conducted on third parties which includes a review of their controls for information security. The Investment Manager has a dedicated information security team and a third party is engaged to provide continual protection in this area. A security framework is in place to help prevent malicious events. The Investment Manager reports to the Board on an annual basis to update them on relevant information security arrangements. Significant and relevant information security breaches are escalated to the Board when they occur.
Economic and price risk: Events such as an economic recession, movement in interest rates, inflation, political instability and rising living costs could cause volatility in the market, adversely impacting the valuation of investments. This could result in a reduction in the value of the Company’s assets.	The Company invests in a diverse portfolio of companies across a range of sectors, which helps to mitigate against the impact of performance in any one sector. The Company also maintains adequate liquidity to make sure it can continue to provide follow-on investment to those portfolio companies which require it and which is supported by the individual investment case. The Investment Manager monitors the impact of macroeconomic conditions on an ongoing basis and provides updates to the Board at least quarterly.
Regulatory and reputational risk/legislative: A change to the VCT regulations could adversely impact the Company by restricting the companies the Company can invest in under its current strategy. Similarly, changes to VCT tax reliefs for investors could make VCTs less attractive and impact the Company’s ability to raise further funds. Failure to adhere with other relevant legislation and regulation could result in reputational damage and/or fines.	The Investment Manager engages with HM Treasury and industry bodies to demonstrate the positive benefits of VCTs in terms of growing UK companies, creating jobs and increasing tax revenue, and to help shape any change to VCT legislation. The Investment Manager employs individuals with expertise across the legislation and regulation relevant to the Company. Individuals receive ongoing training and external experts are engaged where required.
Liquidity/cash flow risk: The risk that the Company’s available cash will not be sufficient to meet its financial obligations. The Company invests into smaller companies, which are inherently less liquid than stocks on the main market. Therefore, these may be difficult to realise for their fair market value at short notice.	The Investment Manager prepares cash flow forecasts to make sure cash levels are maintained in accordance with policies agreed with the Board. The Company’s overall liquidity levels are monitored on a quarterly basis by the Board, with close monitoring of available cash resources. The Company maintains sufficient cash and readily realisable securities, including money market funds and OEICs, which can be accessed at short notice. As at 28 February 2023, 16.2% of net assets were held in cash and cash equivalents and 11.5% in OEICs, realisable in four business days.
Valuation risk: For smaller companies or illiquid shares, establishing a fair value can be difficult due to the lack of readily available market data for similar shares, resulting in a limited number of external reference points.	Investments in companies traded on AIM and AQSE are valued by the Investment Manager using closing bid prices as reported on Bloomberg. Where investments are in unquoted companies or where there are indicators bid price is not appropriate, alternative valuation techniques are used in accordance with the International Private Equity and Venture Capital (IPEV) guidelines. Valuations of unquoted portfolio companies are performed by appropriately experienced staff, with detailed knowledge of both the portfolio company and the market in which it operates. These valuations are then subject to review and approval by the Octopus Valuations Committee, comprised of staff who are independent of the Investment team and with relevant knowledge of unquoted company valuations. The Board reviews valuations after they have been agreed by the Octopus Valuations Committee. Investment in FP Octopus UK Micro Cap Growth Fund, FP Octopus UK Multi Cap Income Fund and FP Octopus UK Future Generations Fund are all valued with reference to the daily prices which are published by Fund Partners, the Authorised Corporate Director.

Emerging risks
The Board has considered emerging risks. The Board seeks to mitigate emerging risks and those noted below by setting policy, regular review of performance and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.

The following are some of the potential emerging risks that the Board and the Investment Manager are currently monitoring:
• Adverse changes in global macroeconomic environment.
• Rising cost of living.
• Geo-political protectionism.
• Climate change.

Directors' responsibilities statement
The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements and have elected to prepare the Company’s Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS 102 – ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.

In preparing these Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
• prepare a strategic report, a Director’s report and Director’s remuneration report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced, understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Website publication

The Directors are responsible for ensuring the annual report and the accounts are made available on a website. Financial statements are published on the Investment Manager’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors’ responsibilities pursuant to Disclosure Guidance and Transparency Rule 4 (DTR4)

Neal Ransome (Chair), Andrew Boteler, Stephen Hazell-Smith and Joanne Parfrey, the Directors, confirm to the best of their knowledge that:

• the financial statements have been prepared in accordance with the Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland (‘FRS 102’) and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company; and

• the annual report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that it faces.

By Order of the Board

Neal Ransome
Chair

Income Statement

	Year to 28 February 2023			Year to 28 February 2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£’000	£’000	£'000	£’000	£’000
Gain on disposal of fixed asset investments	-	207	207	-	1,001	1,001
Loss on disposal of current asset investments	-	-	-	-	(2)	(2)
Loss on valuation of fixed asset investments	-	(29,192)	(29,192)	-	(17,203)	(17,203)
Loss on valuation of current asset investments	-	(2,233)	(2,233)	-	(313)	(313)
Investment Income	1,068	24	1,092	760	134	894
Investment management fees	(650)	(1,949)	(2,599)	(765)	(2,296)	(3,061)
Other expenses	(689)	-	(689)	(775)	-	(775)
Loss before tax	(271)	(33,143)	(33,414)	(780)	(18,679)	(19,459)
Tax	-	-	-	-	-	-
Total comprehensive income loss after tax	(271)	(33,143)	(33,414)	(780)	(18,679)	(19,459)
Earnings per share – basic and diluted	(0.2)p	(20.0)p	(20.2)p	(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 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 Company has no recognised gains or losses other than the results for the period as set out above. Accordingly a statement of comprehensive income is not required.

The accompanying notes are an integral part of the Financial Statements.

Balance Sheet

	As at 28 February 2023		As at 28 February 2022
	£’000	£’000	£’000	£’000
Fixed asset investments		102,667		129,226
Current assets:
Investments	16,188		16,543
Money market funds	21,433		1,326
Debtors	354		329
Applications cash1	3		246
Cash at bank	1,437		21,910
	39,415		40,354
Creditors: amounts falling due within one year	(860)		(1,411)
Net current assets		38,555		38,943
Total assets less current liabilities		141,222		168,169
Called up equity share capital		1,798		1,605
Share premium		18,924		25,450
Capital redemption reserve		279		236
Special distributable reserve		118,015		105,258
Capital reserve realised		(23,143)		(20,762)
Capital reserve unrealised		27,545		58,307
Revenue reserve		(2,196)		(1,925)
Total equity shareholders’ funds		141,222		168,169
NAV per share – basic and diluted		78.5p		104.8p

¹Cash held but not yet allotted

The statements were approved by the Directors and authorised for issue on 6 June 2023 and are signed on their behalf by:

Neal Ransome
Chair
Company number: 03477519

The accompanying notes are an integral part of the Financial Statements.

Statement of changes in equity

	Share capital	Share premium	Capital redemption reserve	Special distributable reserves1	Capital reserve realised1	Capital reserve unrealised	Revenue reserve1	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
As at 1 March 2022	1,605	25,450	236	105,258	(20,762)	58,307	(1,925)	168,169
Comprehensive income for the year:
Management fee allocated as capital expenditure	-	-	-	-	(1,949)	-	-	(1,949)
Current period gain on disposal	-	-	-	-	207	-	-	207
Current period loss on revaluation of investments	-	-	-	-	-	(31,425)	-	(31,425)
Capital investment income	-	-	-	-	24	-	-	24
Loss after tax	-	-	-	-	-	-	(271)	(271)
Total comprehensive loss for the year	-	-	-	-	(1,718)	(31,425)	(271)	(33,414)
Contributions by and distributions to owners:
Repurchase and cancellation of own shares	(43)	-	43	(3,567)	-	-	-	(3,567)
Issue of shares	236	19,742	-	-	-	-	-	19,978
Share issue costs	-	(668)	-	-	-	-	-	(668)
Dividends paid	-	-	-	(9,276)	-	-	-	(9,276)
Total contributions by and distributions to owners:	193	19,074	43	(12,843)	-	-	-	6,467
Other movements
Cancellation of share premium	-	(25,600)	-	25,600	-	-	-	-
Prior years’ holding gains now realised	-	-	-	-	(663)	663	-	-
Total other movements	-	(25,600)	-	25,600	(663)	663	-	-
Balance as at 28 February 2023	1,798	18,924	279	118,015	(23,143)	27,545	(2,196)	141,222

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 period gain on disposal	-	-	-	-	999	-	-	999
Current period loss on revaluation 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

¹Included in these reserves is an amount of £92,676,000 (2022: £82,571,000) which is considered distributable to shareholders.

Cash flow statement

	Year to 28 February 2023	Year to 28 February 2022
	£'000	£'000
Cash flows from operating activities
Loss before tax	(33,414)	(19,459)
Adjustments for:
Increase in debtors	(25)	(136)
(Decrease)/increase in creditors	(794)	470
Gain on disposal of fixed asset investments	(207)	(1,001)
Loss on disposal of current asset investments	–	2
Loss on valuation of fixed asset investments	29,192	17,203
Loss on valuation of current asset investments	2,233	313
Non-cash distributions	(24)	(134)
Cash utilised in operations	(3,039)	(2,742)
Income taxes paid	-	-
Net cash utilised in operating activities	(3,039)	(2,742)
Cash flows from investing activities
Purchase of fixed asset investments	(4,880)	(21,639)
Proceeds from sale of fixed asset investments	2,478	7,932
Purchase of current asset investments	(1,878)	(2,250)
Proceeds from sale of current asset investments	–	1,604
Net cash flows utilised in investing activities	(4,280)	(14,353)
Cash flows from financing activities
Movement in applications account	243	(106)
Purchase of own shares	(3,567)	(7,522)
Proceeds from share issues	18,217	25,657
Share issue costs	(668)	(2,342)
Dividends paid (net of DRIS)	(7,515)	(10,321)
Net cash flows from financing activities	6,710	(5,366)
Decrease in cash and cash equivalents	(609)	(11,730)
Opening cash and cash equivalents	23,482	35,212
Closing cash and cash equivalents	22,873	23,482
Cash and cash equivalents is represented by:
Cash at bank	1,437	21,910
Applications cash	3	246
Money market funds	21,433	1,326
Total cash and cash equivalents	22,873	23,482

The accompanying notes are an integral part of the Financial Statements.

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 £600,000 completed in FP Octopus UK Micro Cap Growth Fund.
• A partial disposal of 5,040 shares in Judges Scientific plc for total consideration of £439,000.
• A partial disposal of 172,200 shares in Quixant plc for total consideration of £301,000.
• A partial disposal of 180,000 shares in Genedrive plc for total consideration of £53,000.
• A full disposal of 500,000 shares in Itsarm plc (formerly In The Style Group plc) for total consideration of £2,000.
• A full disposal of 428,811 shares in AdEPT Technology Group plc for total consideration of £862,000.
• A partial disposal of 120,000 shares in Intelligent Ultrasound Group plc for total consideration of £19,000.
• A partial disposal of 152,066 shares in FP Octopus UK Multi Cap Income for total consideration of £180,000.

The following shares have been bought back since the year end:
• 16 March 2023: 459,683 shares at a price of 72.5p per share.
• 20 April 2023: 558,866 shares at a price of 72.5p per share.
• 18 May 2023: 290,881 shares at a price of 71.9p per share.

Notes to the financial statements

1. Principal accounting policies
The Company is a Public Limited Company (plc) incorporated in England and Wales and its registered office is 33 Holborn, London EC1N 2HT.

The Company’s principal activity is to invest in a diverse portfolio of predominately AIM-traded companies with the aim of providing shareholders with attractive tax-free dividends and long-term capital growth.

Basis of preparation
The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (GAAP), including Financial Reporting Standard 102 – The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (‘FRS 102’), and with the Companies Act 2006 and the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts (issued 2014 and updated in October 2019 with consequential amendments)’.

The principal accounting policies have remained unchanged from those set out in the Company’s 2022 annual report and accounts.

2. Income
Accounting policy
Investment income includes interest earned on money market securities is shown net of income tax withheld at source. Dividend income is shown net of any related tax credit. Dividends are allocated to revenue or capital depending on whether the dividend is of a revenue or capital nature.

Dividends receivable are brought into account when the Company’s right to receive payment is established and it is probable that payment will be received. Fixed returns on debt and money market securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course.

Disclosure

	28 February	28 February
	2023	2022
	£’000	£’000
Dividends receivable from fixed asset investments	834	715
In-specie dividend1	24	134
Loan note interest receivable	45	45
Income receivable on money market securities	189	-
	1,092	894

¹The Company received shares in Verici Dx PLC as a result of an in-specie dividend from EKF Diagnostics Holdings plc. In the prior period the Company received shares in Trellus Health plc as a result of an in-specie dividend from EKF Diagnostics Holdings PLC. These have been treated as capital income.

3. Investment management fees

	28 February 2023			28 February 2022
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Investment management fee	650	1,949	2,599	765	2,296	3,061

Octopus provides investment management and accounting and administration services to the Company under a management agreement which initially ran with Close Investment Limited from 3 February 1998 and was then novated to Octopus for a period of five years with effect from 29 July 2008 and may be terminated at any time thereafter by not less than 12 months’ notice given by either party. No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The management fee is an annual charge set at 2% of the Company’s net assets, less deductions outlined below calculated on a quarterly basis.

During the year Octopus charged gross management fees of £3,067,000 (2022: £3,723,000). When the various allowances detailed below are included, the net management fees for the year are £2,599,000 (2022: £3,061,000). At the year end there was £580,000 payable to Octopus (2022: £834,000). Octopus received £282,000 as a result of upfront fees charged on allotments of Ordinary shares (2022: £515,000).

The Company now pays ongoing adviser charges to independent financial advisers (IFA’s). Ongoing adviser charges are an ongoing fee of up to 0.5% per annum for a maximum of nine years paid to advisers who are on an advised and ongoing fee structure. The Company is rebated for this cost by way of a reduction in the annual management fee. For the year to 28 February 2023 the rebate received was £183,000 (2022: £290,000).

The Company also facilitates upfront fees to IFAs where an investor has invested through a financial adviser and has received upfront advice. Where an investor agrees to an upfront fee only, the Company can facilitate a payment of an initial adviser charge of up to 4.5% of the investment amount. If the investor chooses to pay their intermediary/adviser less than the maximum initial adviser charge, the remaining amount will be used for the issue and allotment of additional new shares for the investor. In these circumstances the Company does not facilitate ongoing annual payments. To make sure that the Company is not financially disadvantaged by such payment, a notional ongoing adviser charge equivalent to 0.5% per annum will be deemed to have been paid by the Company for a period of nine years. The Company is rebated for this cost, also by way of a reduction in the annual management fee. For the year to 28 February 2023 the rebate received was £202,000 (2022: £272,000).

The Company also receives a reduction in the management fee for the investments into other Octopus managed funds, being the Multi Cap, Micro Cap and Future Generations products, to ensure the Company is not double charged on these products. This amounted to £83,000 for the year to 28 February 2023 (2022: £100,000).

The management fee has been allocated 25% to revenue and 75% to capital, in line with the Board’s expected long-term return
in the form of income and capital gains respectively from the Company’s investment portfolio.

4. Other expenses
Accounting Policy
All expenses are accounted for on an accruals basis.

The transaction costs incurred when purchasing or selling assets are written off to the income statement in the period that they occur.

Disclosure

	28 February	28 February
	2023	2022
	£’000	£’000
IFA charges	183	290
Directors’ remuneration	98	102
Registrars’ fees	65	55
Audit fees	43	36
Printing and postage	23	18
VCT monitoring fees	13	21
Directors’ and officers’ liability insurance	50	19
Broker’s fees	6	6
Other administration expenses	208	228
	689	775

The fees payable to the Company’s auditor are stated net of VAT and the VAT is included within other administration expenses.

The ongoing charges of the Company were 2.1% of average net assets during the year to 28 February 2023 (2022: 1.9%). Ongoing charges are calculated using the AIC methodology and exclude exceptional costs and trail commission.

5. Tax
Accounting Policy
Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the ‘marginal’ basis as recommended in the SORP.

Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date, except as otherwise indicated.

Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

The corporation tax charge for the year was £nil (2022: £nil).

Disclosure

	28 February	28 February
	2023	2022
Tax reconcilation	£’000	£’000
Loss before tax	(33,414)	(19,459)
Current tax at 19.0% (2022:19.0%)	(6,349)	(3,697)
Effects of
Non-taxable income	(199)	(161)
Non-taxbale capital gains	5,932	3,138
Non-deductible expenses	(4)	(3)
Excess management expenses on which deferred tax not recognised	620	723
Total tax charge	-	-

Approved VCTs are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a VCT, no deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.

As at 28 February 2023 there is an unrecognised deferred tax asset of £6,551,000 (2022: £5,758,000) in respect of accumulated surplus management expenses of £26,204,000 (2022: £23,030,000), based on a prospective corporation tax rate of 25% (2022:25%). This deferred tax asset could in future be used against taxable profits.

Provided the Company continues to maintain its current investment profile, it is unlikely that the expenses will be utilised and that the Company will obtain any benefit from this asset.

6. Dividends
A        Accounting Policy

Dividends payable are recognised as distributions in the financial statements when the Company’s liability to make payment has been established. This liability is established on the record date, the date on which those shareholders on the share register are entitled to the dividend.

Disclosure

	28 February	28 February
	2023	2022
	£’000	£’000
Dividends paid on Ordinary shares during the year
Final dividend – 3.0p paid 12 August 2022 (2022: 3.5p)	4,775	5,035
Special dividend – Nil (2022: 2.5p)	–	3,597
Interim dividend – 2.5p paid 12 January 2023 (2022: 2.5p)	4,501	4,031
	9,276	12,663
During the year £1,761,000 (2022: £2,342,000) of dividends were reinvested under the DRIS.
	28 February	28 February
	2023	2022
	£’000	£’000
Dividends paid and proposed in respect of the year
Interim dividend – 2.5p paid 12 January 2023 (2022: 2.5p)	4,501	4,031
Final dividend proposed : 2.5p payable 10 August 2023 (2022: 3.0p)	4,462	4,795
	8,963	8,826
Under Section 32 of FRS 102 ‘Events After Balance Sheet Date’, dividends payable at year end are not recognised as a liability in the financial statements. The above proposed final dividend is based on the number of shares in issue at the date of this report. The actual dividend paid may differ from this number as the dividend payable will be based on the number of shares in issue on the record date and will reflect any changes in the share capital between the year end and the record date.

7. Earnings per share

	28 February 2023			28 February 2022
	Revenue	Capital	Total	Revenue	Capital	Total
Loss attributable to ordinary shareholders (£’000)	(271)	(33,143)	(33,414)	(780)	(18,679)	(19,459)
Earnings per ordinary share (p)	(0.2)p	(20.0)p	(20.2)p	(0.5)p	(12.4)p	(12.9)p

The earnings per share is based on 165,688,082 Ordinary shares (2022: 151,132,679), being the weighted average number of shares in issue during the year, and the loss on ordinary activities after tax for the year of £33,414,000 (2022: loss £19,459,000).

There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical.

8. Net asset value per share

	28 February	28 February
	2023	2022
Net assets (£’000)	141,222	168,169
Shares in issue	179,802,084	160,480,523
NAV per share (p)	78.5	104.8

There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted NAV per share are identical.

9. Related Party Transactions
The Company has employed Octopus throughout the year as Investment Manager. Octopus has also been appointed the custodian of the Company’s investments under a custodian agreement.

The Company has paid Octopus £2,599,000 (2022: £3,061,000) in the year as a management fee. The management fee is payable quarterly in arrears and is based on 2.0% of net assets at six-month 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 Income Fund, Micro Cap Growth Fund and Future Generations Fund, to ensure the Company is not double charged on these products. This amounted to £83,000 in the year to 28 February 2023 (2022: £100,000).

Octopus received £nil (2022: £nil) transaction fees and directors’ fees from portfolio companies.

The Company holds £3,000 (2022: £246,000) of cash on behalf of the Company and AIM VCT 2 plc. Of this, £2,000 (2022: £161,000) is attributable to the Company.

In the year, Octopus Investments Nominees Limited (OINL) purchased Company shares from shareholders to protect their interests after delays or errors with shareholder instructions and other similar administrative issues, on the understanding that shares will be sold back to the Company in subsequent share buybacks.

As at 28 February 2023, Octopus Investments Nominees Limited (OINL) held 7,598 shares (2022: 889) in the Company as beneficial owner, having purchased these at a cost of £7,000 (2022: £nil). Throughout the period to 28 February 2023 OINL purchased 9,875 shares (2022: 889) at a cost of £9,000 (2022: £1,000) and sold 3,166 shares (2022: nil) for proceeds of £3,000 (2022: £nil). This is classed as a related party transaction as Octopus, the Investment Manager and OINL are part of the same group of companies. Any such future transactions, where OINL takes over the legal and beneficial ownership of Company shares, will be announced to the market and disclosed in annual and half-yearly reports.

10. 2023 financial information
The figures and financial information for the year ended 28 February 2023 are extracted from the Company’s annual financial statements for the period and do not constitute statutory accounts. The Company’s annual financial statements for the year to 28 February 2023 have been audited but have not yet been delivered to the Registrar of Companies. The Auditors’ report on the 2023 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006.

11. 2022 financial information
The figures and financial information for the period ended 28 February 2022 are compiled from an extract of the published financial statements for the period and do not constitute statutory accounts. Those financial statements have been delivered to the Registrar of Companies and included the Auditors’ report which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006.

12. Annual Report and financial statements
The Annual Report and financial statements will be posted to shareholders in June and will be available on the Company’s website. The Notice of Annual General Meeting is contained within the Annual Report.

13. General information
Registered in England & Wales. Company No. 03477519
LEI: 213800C5JHJUQLAFP619

14. Directors
Neal Ransome (Chair),Stephen Hazell-Smith, Joanne Parfrey and Andrew Boteler

15. Secretary and registered office
Octopus Company Secretarial Services Limited
33 Holborn, London EC1N 2HT