Octopus AIM VCT 2 plc Annual report 2023 1 Octopus AIM VCT 2 plc ## Annual report and ## accounts for the ## year ended ## 30 November 2023 ## Company number: 05528235 For UK investors only Call us on 0800 316 2295 ## Octopus AIM VCT 2 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'). ## Contents Financial summary and key dates 1 Strategic report • Chair's statement 2 • Investment Manager's review 4 • The Investment Manager 17 • Section 172(1) statement 19 • Business review 21 • Risk and risk management 25 Details of Directors 29 Directors' report 30 Corporate governance report 34 Audit Committee report 38 Directors' remuneration report 40 Directors' responsibility statement 43 Independent auditor's report 44 Income statement 50 Balance sheet 51 Statement of changes in equity 52 Cash flow statement 53 Notes to the financial statements 54 Information and contact details 70 Glossary of terms 74 Directors and advisers 75 Notice of Annual General Meeting 76 Octopus AIM VCT 2 plc Annual report 2023 1 ## Financial summary | | 30 November 2023 | | | 30 November 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | Net assets (£'000) | | 84,690 | | | 101,794 | | | Loss after tax (£'000) | | (15,709) | | | (36,695) | | | Net asset value (NAV) per share (p) | | | 47.9 | | | 61.6 | | Dividends per share paid in year (p) | | | 4.1 | | | 4.2 | 1 Total return (%) (15.6) (27.5) 2 Final dividend proposed (p) 1.8 2.3 2 Special dividend proposed (p) 3.6 – 3 Ongoing Charges (%) 2.2 2.2 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. 2 Subject to shareholder approval at the Annual General Meeting, the proposed final and special dividends will be paid on 27 June 2024 to shareholders on the register on 31 May 2024. 3 Ongoing Charges is an alternative performance measure calculated using the AIC recommended methodology, refer to page 24 for commentary on the movement. Definitions of key terms and alternative performance measures shown above and throughout this report are shown in the Glossary of Terms on page 74. ## Key dates Annual General Meeting 16 May 2024 Final dividend payment date 27 June 2024 Half-yearly results to 31 May 2024 announced August 2024 Annual results to 30 November 2024 announced March 2025 Call us on 0800 316 2295 2 Octopus AIM VCT 2 plc Annual report 2023 # Chair's statement ## Introduction Firstly, I would like to welcome all new shareholders who have joined us in the past year. The year to 30 November 2023 has been another extremely challenging period for stock markets in general, and smaller companies in particular, with the Alternative Investment Market ('AIM') Index once again the worst performer in 2023. The very real issue of inflation and the need to tighten monetary policy by raising interest rates further than had been anticipated when I wrote this statement a year ago has prolonged the pain for the share prices of companies exposed to growth sectors. It has also posed a particular challenge to the early stage companies in the portfolio which have yet to attain profitability. Against this background, the net asset value (NAV), which had already fallen by 8.8% on a total return basis in the first half of the year, declined further, ending the year 15.6% behind on a total return basis, in line with the AIM Index. In the year under review AIM raised £1.6 billion of new capital, for new and existing companies, a decrease on the £3.0 billion raised in the previous year and a substantial fall from the high of £8.7 billion in 2021, reflecting continuing volatile market conditions. For the second year running new issues were very subdued and the majority of fundraisings in 2023 were for existing AIM companies seeking further capital. The Investment Manager made £3.9 million of new qualifying investments, down from £6.1 million the previous year. Although significant geo-political risks remain, market sentiment has improved more recently, with market commentators and economists taking a more optimistic stance on inflation and interest rates in 2024. The Investment Manager expects the pipeline of potential new issues to strengthen later this year, supplementing existing companies seeking further finance. ## Performance The NAV on 30 November 2023 was 47.9p per share, a sharp decline from the NAV of 61.6p per share reported at 30 November 2022. Adding back the 4.1p of dividends paid in the year, to adjust the year-end NAV to 52.0p, gives a total return decrease of 15.6%. In the same year, the FTSE AIM All-Share Index fell by 14.2%, the FTSE SmallCap (excluding investment trusts) Index increased by 2.7% and the FTSE All-Share Index rose by 1.8%, all on a total return basis. As always, it was stock-specific factors that had the most significant impact on performance, and these are covered in more detail in the Investment Manager's Review. As interest rates rose during the year investors became less willing to take risks and this had the greatest impact on the earlier stage companies exposed to the new economy (emerging, high growth industries expected to boost economic growth and productivity) which make up a significant proportion of our investment portfolio. The purpose of a VCT is to provide capital for small, growth companies at an early stage and the benefits of doing so have been clear in past periods. However, in the year under review it was the smallest AIM companies which were the worst performers. Additionally, AIM as a whole trailed the other UK indices because of its concentration of growth stocks and the larger and more profitable holdings in the portfolio saw valuations retreat to levels last seen at the time of the financial crisis. The FTSE Small Cap Index (excluding Investment Trusts) fared much better, helped by a strong recovery in November. It has a much narrower membership and its constituents were less affected by the conditions described above. ## Dividends In November 2023 an interim dividend of 1.8p was paid to all shareholders. The Board is recommending a final dividend in respect of the year to 30 November 2023 of 1.8p per share totalling 3.6p in respect of the year, which is a 6.2% yield on the prior year closing share price of 58.0p, all paid from special distributable reserves. In addition, as a result of taking exceptional profits in a number of long-term holdings during the year, most notably the full disposal of Ergomed, the Board is proposing a special dividend of 3.6p which will be paid at the same time as the final dividend. Including the special dividend, the total dividend in respect of the year is 7.2p which is a 12.4% yield on the prior year closing share price. Subject to the approval of shareholders at the Annual General Meeting ('AGM'), both dividends will be paid on 27 June 2024 to shareholders on the register on 31 May 2024. It remains the Board's intention to maintain a minimum annual dividend payment of 3.6p per share or a 5% yield based on the prior year closing share price, whichever is greater. This will usually be paid in two instalments during each year. Shareholders are encouraged to ensure that the details held for them by the registrar remain accurate and to check whether they have received all dividends payable to them. This is particularly important for those who move house or change their bank account or email address. We are aware that some dividends remain unclaimed by shareholders, so if you believe you are impacted by this, please contact our registrar, Computershare, at the details provided on page 75. ## Cancellation of share premium account At the last AGM, shareholders voted to cancel share premium to increase the pool of distributable reserves by the amount of £13.6 million. This is a regular occurrence to enable the continued payment of dividends and buyback of shares. ## Board changes There have been no board changes during the year although Elizabeth Kennedy has announced her intention to step down at the AGM in May. We thank her for her years of service to the Board, and wish her well in retirement. The Board have undertaken a recruitment process and were delighted to announce the appointment of Virginia Bull as a Director from 1 January 2024. ## Dividend reinvestment scheme In common with a number of other VCTs, the Company has established a dividend reinvestment scheme (DRIS) following approval at the AGM in 2014. Some shareholders have already taken advantage of this opportunity. For investors who do Octopus AIM VCT 2 plc Annual report 2023 3 not need income, but value the additional tax relief on their reinvested dividends, this is an attractive scheme and I hope that more shareholders will find it useful. Over the course of the year 2,557,239 new shares have been issued under this scheme, returning £1.3 million to the Company. The final and special dividends referred to above will be eligible for the DRIS. ### Share buybacks During the year to 30 November 2023 the Company continued to buy back shares in the market from selling shareholders and purchased 6,011,097 Ordinary shares for a total consideration of £3.1 million. We have maintained a discount of approximately 4.5% to NAV (equating to up to a 5% 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 14 September 2023, a prospectus offer was launched alongside Octopus AIM VCT plc to raise a combined total of up to £20 million, with a £10 million over-allotment facility. The offer closed fully subscribed on 21 December 2023 with £11.4 million being raised for the Company, £7.0 million of which was raised in the year to 30 November 2023. A total of 17,713,658 shares were issued during the year, raising £8.4 million after costs for the Company. ### 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, 37.5% of the Company's net assets were held in cash or collective investment funds including funds managed by the team at Octopus and money market funds, providing short-term liquidity, 54.3% in individual quoted shares and 8.6% was held in unquoted single company investments. Shareholders should be aware that a proportion of the quoted securities may have limited liquidity owing to the size of the portfolio company and the overall proportion held by the Company. ### VCT status Shoosmiths LLP 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 30 November 2023, the level was 85.4%. ### Annual General Meeting The AGM will take place on 16 May 2024 at 12.00pm. Further information can be found in the Notice of Annual General Meeting on pages 76 to 79. The Investment Manager will provide an update on the Company's activities and future plans at the AGM. 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 these via email to AIMVCT2AGM@octopusinvestments.com by 5.00pm on 13 May 2024 if you are unable to attend the AGM in person. If your shares are held through a nominee account, formal notices will be sent to your nominee. ### Outlook Although significant geo-political and economic risks remain, the positive stock market reaction to lower inflation figures in November demonstrated how quickly share prices can turn when commentators start to believe that interest rates will start to fall in response to a more positive macro-economic environment. Strategists are now aligned on interest rate cuts later in 2024 which will be supportive of a recovery in equity markets following a very challenging period. Meanwhile GDP and corporate earnings continue to hold up better than many analysts were predicting, reinforcing the Investment Manager's belief that any further impact on corporate earnings is already reflected in share prices at current valuations. The portfolio contains 83 holdings across a range of sectors with exposure to some exciting new technologies in the environmental and healthcare sectors. Although the current market environment remains challenging for those companies in need of further funding, this can provide the Investment Manager with good opportunities to invest newly raised cash at attractive valuations. The balance of the portfolio towards profitable companies remains, with the majority of these now trading at a significant valuation discount to their long term averages. We are also pleased that the sunset clause in place for April 2025, regarding eligibility of VCTs for tax relief, has been extended to April 2035 and seems likely to be removed all together in due course. Keith Mullins Chair 7 March 2024 Call us on 0800 316 2295 4 Octopus AIM VCT 2 plc Annual report 2023 # Investment Manager's review ## Introduction Many of the equity market and economic trends seen in 2022 flowed through into 2023. Concerns about rising inflation, continued interest rate hikes, the possibility of a protracted recession and a consumer credit crunch affected sentiment for most of the year. Moreover, geo-political conflict continues unabated, from Russia's war with Ukraine to violence in the Middle East. This dampened investor sentiment and, in its wake, fuelled equity market volatility for most of the year. However, we ended the year with inflation data confirming that UK inflation had begun to ebb and that the widely anticipated recession might not appear. Furthermore, this led to a growing consensus amongst strategists and economists, that the UK (and other major global economies) will see a fall in interest rates in the coming year. This should provide much needed and long-awaited support for equity markets, particularly small growth companies, following a very challenging period. In 2024, the debate amongst market strategists and economists is focused on whether inflation will stay on its downward path, interest rates will be cut aggressively, and if upcoming elections will bring in any impactful changes. Against a challenging macro-economic and stock market environment, AIM continued to retreat over the period signalling that small, growth companies remained out of favour. Despite this, AIM raised further capital for existing listed companies and the AIM Initial Public Offering (IPO) market (albeit slower), was still active in the second half of the year. With the appetite for risk still to rebound, small, growth companies in the UK remain undervalued and well below their long-term valuation range, which in turn creates a strong opportunity for potential revaluation when stock markets recover. Since the period end some confidence has been restored, helped by encouraging January and February trading updates. ## The Alternative Investment Market The performance of AIM over the last year was disappointing, with the appetite for small growth companies impacted more by macro-headwinds compared to its larger peers. In the 12 months to November 2023 the AIM Index fell by 14.2% compared with an increase of 2.7% for the FTSE SmallCap index (excluding investment companies) and a rise of 1.8% for the FTSE All-Share Index, all on a total return basis. The graph below shows total fundraising by AIM companies each month throughout the year to 30 November 2023. ![img-0.jpeg](img-0.jpeg) Source: London Stock Exchange. Octopus AIM VCT 2 plc Annual report 2023 5 AIM has a high exposure to growth stocks in the software, technology and healthcare sectors, which counted against it as sentiment moved against highly rated growth stocks as inflationary and recessionary pressures intensified. 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 continued movement away from growth and momentum-driven shares and subsequent weak performance of AIM versus its market peers, highlighted that investors sought value in more traditional sectors which has been the case for the last two years. The rate of IPOs on AIM remained slow, while the number of companies leaving the market throughout 2023 picked up pace. There was a total of 14 IPOs on AIM over the year, compared to 31 the previous financial year. AIM ended the year with 760 companies, which was down 7% on the previous year. We still believe in the importance of functioning equity markets as a driver of growth in the UK, particularly at the smaller, growth company end, where the Company invests. Although the pipeline for new issues remains active in the new financial year, the significance of VCTs as a critical funding platform for smaller companies remains which is evident by the flow of further fundraisings on AIM over the year and since the year end albeit at a slower speed than previous years. In the year to 30 November 2023 AIM raised £1.5 billion of new capital for existing companies, which compares to a figure of £2.7 billion the previous year. Furthermore, we were encouraged by the government's decision to address pension policy reform, in the Mansion House Reforms in the Treasury's Autumn Budget statement. ## Performance Adding back the 4.1p of dividends paid in the year, the NAV total return was a loss of 15.6%. This compares with a fall in the FTSE AIM All-Share Index of 14.2%, a rise in the FTSE SmallCap (excluding investment companies) of 2.7% and a small rise in the FTSE All-Share Index of 1.8% all on a total return basis. The last year was again characterised by months of significant market volatility in response to both global and local economic uncertainty. Rising inflationary and interest rate expectations were the dominant theme and seeped their way into weaker consumer confidence and the reality of a credit crunch affected many in the UK. This was not helped as the impact of variable rates extended to those ending fixed rate arrangements. As a result, the soft landing of lower energy and food prices in the latter part of the year was barely felt. Despite the squeeze on consumer spending, interest rate expectations continued to rise more steeply than had previously been anticipated. Between December 2021 and August 2023, the Bank of England raised interest rates a total of 14 times from a low of 0.1% to the current level of 5.25%. Against this background, performance in the FTSE AIM All-Share Index was affected by the momentum away from smaller, growth companies and the move towards lower risk appetite drove the investment in traditional sectors and larger well-established companies. This largely explains the fall in the NAV in the year under review. The portfolio's relatively high exposure to higher rated growth companies (particularly healthcare and technology sectors) was detrimental to performance in a market environment where risk averse investors have little appetite for earlier stage growth stocks. Predictably, volatile market dynamics led to greater investor focus not just on product/service offering, but on healthy balance sheets and the ability to access financing. The VCT rules require investment to be made at this early stage and the benefits of doing so have been clear in many past periods. Some of the larger, profitable holdings in the portfolio were affected by the poor market sentiment towards AIM growth stocks, which included GB Group, IDOX plc and Craneware. Learning Technologies was the biggest detractor to the performance of the portfolio over the year. The company's trading performance was affected by the challenging macro environment which impacted both transaction and project-based work. However, this has prompted a much needed refocus on profitability and technology redevelopment. Furthermore, the company recently embarked on a plan to accelerate its support of higher growth areas of the business that are more aligned with its core proposition of digital learning and talent management, through the sale of non-core assets which will enable it to fund future value-enhancing acquisitions. Libertine Holdings had a very challenging year. Despite this the company continuing to support the integration of its HEXAGEN™ technology platform with Hyllion Holdings Corp. and develop its INTELIGEN™ technology platform through grant funded operations with the Department for Business, Energy and Industrial Strategy, alongside a number of other commercial projects. Furthermore, the company has completed work on performance validation prototypes for both the INTELIGEN™ and HEXAGEN™ platforms and is currently working on performance and durability enhancements, which it is confident will meet the requirements of Original Equipment Manufacturer product development programmes expected to commence in 2024. However, the need for further raising to enable the development of its technology weighs down on the share price performance. SDI Group disappointed a couple of times over the year due to the end of a contract with Atik cameras, which had been lucrative over the Covid period. However, we are encouraged by the recent change in the management team and the new CEO comes with a wealth of operational experience in the sector. Later in the year, Sosandar announced its decision to open own-branded retail outlets in the UK and the move away from being a pure play retail online business came as a surprise to the market, affecting its rating. Though the decision will likely increase the costs of the business in the short term, the instore retail offering allows the company to capitalise on the growth of its brand visibility and popularity in existing major UK retail stores (both instore and online) which include Sainsbury's Tu, NEXT and Marks & Spencer. Encouragingly, and despite slowing down its Call us on 0800 316 2295 6 Octopus AIM VCT 2 plc Annual report 2023 ## Investment Manager's review continued discount strategy, the company had a strong calendar year end trading period and has returned to quarterly profitability. ENGAGE XR, the spatial computing and metaverse technology company, had a mixed trading year. Although the company continues to expand its reach globally, including securing contracts with global banks, the slippage of a few sizeable contracts over the year has led to a recent downgrade. However, we are encouraged by the progress the company is achieving across the US. On the positive side, we have seen many companies in the portfolio report solid trading performances over the period which was reflected in their share prices and contributed positively to the portfolio performance. This included Breedon, who continued to benefit from its dynamic pricing strategy and focus on operational excellence throughout the year, putting them in a strong position despite macro-economic and industry headwinds. As a result, the company had a series of revenue and profit upgrades during the year. Equipmake, the provider of electric drivetrain solutions for heavy vehicles and aerospace, made progress over the year and now has working buses in York and secured contracts within the global aerospace industry. Although a positive contributor to the portfolio over the year, Vertu Motor's trading performance has been affected by tough conditions in the used car market. Wholesale values in the used market reduced significantly at the latter end of the year as a result of the higher supply of new cars. This coupled with weak consumer demand impacted sales volumes. Having had a fairly volatile share price performance the previous year, Ergomed had a solid trading performance throughout the year, recording strong revenue and profit growth. However, the company was approached by Premia, a private equity firm and the bid was duly accepted. Other exits in the portfolio over the year and since the period end include Adept Telecom, TP Group, Glantus and Falanx. In our private company holdings, Hasgrove had its valuation increased over the year due to a growing recurring revenue base and a strong balance sheet. General market weakness that impacted quoted company share price performance resulted in the proportion of the portfolio represented by unquoted investments increasing. The bases of valuation of unquoted holdings is set out in note 10 to the financial statements. ### Portfolio activity Having made two qualifying investments at a total cost of £1.2 million in the first half of the year, we added two new qualifying investments totalling £1.4 million as well as two follow-on investments totalling £1.3 million in the second half of the year. This made a total investment of £3.9 million in qualifying investments for the year, a decrease on last year's £6.3 million, reflecting a slower AIM market for both fundraisings and new issues. Post the year end, we have invested a further £2.1 million in 5 qualifying investments. Of the two first half investments, one was a follow-on investment in Equipmake Holdings plc and one was a new entrant to AIM, Itaconix plc. We invested in two new issues in the second half of the year, Tan Delta Systems plc and Eden Research plc, and made follow on investments into Haydale Graphene Industries plc and Rosslyn Data Technologies plc. In August, we made a £0.3 million investment in Tan Delta Systems plc, a global manufacturer of real-time oil quality monitoring sensors and systems and a new entrant to AIM. In September, we invested approximately £0.5 million in Rosslyn Data Technologies plc, a United Kingdom-based provider of a cloud-based enterprise data analytics platform and an existing AIM-listed company. In November, we made two investments, a follow-on investment in Haydale Graphene Industries plc (£0.8 million), a supplier of production quantities of functionalized graphene nanomaterials for innovative materials development and a new investment in Eden Research plc (£1.1 million), a company that develops and supplies biopesticide products and natural microencapsulation technologies. During the year we sold partial holdings in eight companies, six of these where we took profits into rising share prices, Judges Scientific, Cirata, EKF Diagnostics, Equipmake, Nexteq and Intelligent Ultrasound. We also had full disposals of six holdings being Adept Telecom plc, Ergomed, Osirium Technologies, TP Group, Itsarm and Glantus Holdings. Total disposals made a £3.8 million gain over original cost and generated £9.2 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 see the opportunity for further share price progress, we continued to reduce some of these holdings in the year under review. During the year we increased our holdings in the FP Octopus Micro Cap Fund, FP Octopus Multi Cap Income Fund and the FP Octopus Future Generation Fund, investing a total of £2.0 million over the period and disposed of part of our holding in FP Octopus UK Multi Cap Income Fund for £1.5 million. Octopus AIM VCT 2 plc Annual report 2023 7 VCT regulations Outlook and future prospects There have been no further changes to the VCT regulations since Against a backdrop of economic, geopolitical and market publication of the previous set of audited accounts, however uncertainty, risk appetite, particularly for smaller companies, the sunset clause was extended to 2035 in the recent Autumn remains low leaving UK equities materially undervalued relative statement. As a reminder, the current requirements are that to other developed markets. The macro dynamics continue to be 30% of any funds raised should be invested in qualifying holdings a key area of focus with a particular attention on the direction within 12 months of the end of the accounting period in which of inflation and timing of interest rate cuts which appear to be the shares were issued, and the Company has to maintain a the main lever driving market sentiment. Consensus among minimum of 80% of the portfolio (at HMRC value) invested in economists still indicates that interest rates have peaked, with qualifying holdings. We are determined to maintain a threshold cuts on the way this year expected by the end of the third of quality and to invest where we see the potential for returns quarter. The news that the UK is in a recession following the from growth. At present there has been only gradual change economy's contraction for two consecutive quarters in 2023 has to the profile of the portfolio, as we continue to hold the larger dampened some of the market momentum seen at the end market capitalisation companies, in which we invested several of 2023. However, we have been encouraged by the number of years ago as qualifying companies, or which we bought in the positive trading statements and general news flow from many market prior to the rule changes where we see the potential for holdings in the portfolio since the period end. We believe that them to continue to grow. smaller, growth companies, in particular, oer exceptional value, reflected by many holdings within the portfolio trading at In order to qualify, companies must: historically low valuation multiples not seen since the Financial Crisis. Reassuringly, the VCT qualifying pipeline remains active • have fewer than 250 full time equivalent employees; and and the current market conditions provide opportunities to invest • have less than £15 million of gross assets at the time of at attractive valuations. investment and no more than £16 million immediately post investment; and The Octopus Quoted Companies team Octopus Investments Limited • be less than seven years old from the date of its first 7 March 2024 commercial sale (or ten years if a knowledge intensive company) if raising state aided (i.e. VCT) funds for the first time; and • 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 since 6 April 2018 £10 million in 12 months, £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. Call us on 0800 316 2295 8 Octopus AIM VCT 2 plc Annual report 2023 ## Investment Manager's review continued Investment portfolio | | | Book cost | | | | | Fair value | | | | | % equity | Fair value as | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | as at | Cumulative | | | | as at | | | % equity | held by | | a % of | | | 30 November | | | change in | | 30 November | | | Movement | | held by | all funds | | Octopus | | | | | 2023 | fair value | | | | 2023 | | in year | Octopus | managed | AIM VCT 2 | | | Portfolio company Sector | | | £'000 | | £'000 | | | £'000 | | £'000 | AIM VCT 2 | by Octopus | | NAV | Quoted investments Breedon Group plc Construction & Materials 573 2,731 3,304 415 0.28% 0.70% 3.90% Judges Scientific plc Electronic & Electrical 188 2,535 2,723 363 0.46% 1.14% 3.22% Equipment Equipmake Holdings plc Software & Computer 1,285 1,405 2,690 777 3.14% 7.93% 3.18% Services Craneware plc Health Care Providers 479 2,054 2,533 (750) 0.44% 3.63% 2.99% IDOX plc Software & Computer 356 2,013 2,369 (82) 0.82% 7.0 0% 2.80% Services Learning Technologies Software & Computer 701 1,537 2,238 (1,786) 0.39% 7.83% 2.64% Group plc Services Vertu Motors plc Retailers 777 816 1,593 710 0.55% 1.79% 1.88% Netcall plc Software & Computer 356 1,222 1,578 (216) 1.34% 3.39% 1.86% Services SDI Group plc Electronic & Electrical 119 1,429 1,548 (967) 1.43% 3.57% 1.83% Equipment Animalcare Group plc Pharmaceuticals & 824 682 1,506 (376) 1.46% 2.37% 1.78% Biotechnology | Brooks Macdonald Group | Investment Banking & | 610 801 1,411 (110) 0.45% 15.57% 1.67% | | --- | --- | --- | | plc | Brokerage Services | | | GB Group plc Software & Computer | | 337 934 1,271 (510) 0.22% 6.46% 1.50% | Services Maxcyte Inc Pharmaceuticals & 689 529 1,218 (329) 0.32% 1.32% 1.44% Biotechnology Intelligent Ultrasound Medical Equipment & 1,437 (254) 1,183 (54) 4.39% 10.97% 1.40% Group plc Services Sosandar plc Retailers 1,235 (108) 1,127 (523) 3.24% 11.37% 1.33% Next 15 Group plc Media 302 777 1,079 (438) 0.15% 11.92% 1.27% | EKF Diagnostics Holdings | Medical Equipment & | 737 257 994 (533) 0.80% 2.31% 1.17% | | --- | --- | --- | | plc | Services | | | PCI-Pal plc Software & Computer | | 732 139 871 (162) 3.09% 7.74% 1.03% | Services Diaceutics plc Health Care Providers 620 122 742 130 0.97% 2.67% 0.88% Nexteq plc Technology Hardware 339 395 734 (492) 1.10% 2.76% 0.87% Eden Research plc Chemicals 1,080 (349) 731 (349) 3.12% 7.79% 0.86% Haydale Graphene Industrial Materials 1,238 (515) 723 (121) 9.35% 23.37% 0.85% Industries plc Access Intelligence plc Software & Computer 501 133 634 (351) 0.89% 2.13% 0.75% Services LungLife AI Inc Pharmaceuticals & 1,386 (756) 630 (197) 3.09% 7.72% 0.74% Biotechnology llika plc Electronic & Electrical 706 (87) 619 197 0.88% 2.21% 0.73% Equipment Beeks Financial Cloud Software & Computer 302 301 603 (241) 0.92% 3.01% 0.71% Group plc Services Itaconix plc Industrial 1,059 (499) 560 (498) 3.08% 10.73% 0.66% Spectral AI Inc Health Care Providers 1,410 (898) 512 (205) 1.43% 5.91% 0.60% | Gamma Communications | Telecommunications | 183 320 503 (19) 0.05% 6.95% 0.59% | | --- | --- | --- | | plc | Service Providers | | | Feedback plc Medical Equipment & | | 1,000 (530) 470 (81) 5.04% 12.75% 0.55% | Services RWS Holdings plc Industrial Support Services 99 310 409 (149) 0.05% 5.14% 0.48% Octopus AIM VCT 2 plc Annual report 2023 9 Investment portfolio continued | | | | Book cost | | | | | Fair value | | | | | % equity | Fair value as | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | as at | Cumulative | | | | as at | | | % equity | held by | | a % of | | | | 30 November | | | change in | | 30 November | | | Movement | | held by | all funds | | Octopus | | | | | | 2023 | fair value | | | | 2023 | | in year | Octopus | managed | AIM VCT 2 | | | Portfolio company Sector | | | | £'000 | | £'000 | | | £'000 | | £'000 | AIM VCT 2 | by Octopus | | NAV | | Oberon Investments Group | Investment Banking & | | | 576 (208) 368 (74) 2.02% 8.48% 0.43% | | | | | | | | | | | | | plc | Brokerage Services | | | | | | | | | | | | | | | Gear4music Holdings plc Leisure Goods 352 11 363 114 1.21% 3.02% 0.43% Ixico plc Pharmaceuticals & 697 (336) 361 (336) 5.15% 12.87% 0.43% Biotechnology Gooch & Housego plc Technology Hardware & 281 67 348 34 0.27% 11.82% 0.41% Equipment TPXimpact Holdings plc Software & Computer 653 (318) 335 (44) 0.96% 2.39% 0.40% Services DP Poland plc Travel & Leisure 677 (346) 331 69 0.44% 1.11% 0.39% Clean Power Hydrogen plc Alternative Energy 1,137 (821) 316 (493) 0.94% 2.36% 0.37% Cambridge Cognition Health Care Providers 400 (97) 303 (366) 1.64% 4.09% 0.36% Holdings plc Mattioli Woods plc Investment Banking & 101 187 288 (5) 0.09% 13.71% 0.34% Brokerage Services Restore plc Industrial Support Services 171 113 284 (143) 0.09% 12.70% 0.34% MyCelx Technologies Oil, Gas & Coal 980 (698) 282 142 2.36% 24.07% 0.33% Corporation Tan Delta Systems plc Oil Services 302 (35) 267 (35) 1.59% 3.97% 0.32% Creo Medical Group plc Medical Equipment & 981 (730) 251 (47) 0.22% 1.57% 0.30% Services Libertine Holdings plc Industrial Engineering 2,000 (1,750) 250 (1,250) 7.18% 18.14% 0.30% Advanced Medical Medical Equipment & 190 46 236 (82) 0.05% 12.65% 0.28% Solutions Group plc Services Velocity Composites plc Aerospace & Defense 533 (301) 232 75 1.17% 2.93% 0.27% ENGAGE XR Holdings Software & Computer 1,253 (1,027) 226 (1,059) 1.96% 10.61% 0.27% Services | Rosslyn Data Technologies | Software & Computer | 646 (444) 202 (209) 8.80% 22.01% 0.24% | | --- | --- | --- | | plc | Services | | | Crimson Tide plc Software & Computer | | 378 (195) 183 (81) 1.92% 4.79% 0.22% | Services Verici Dx plc Pharmaceuticals & 444 (295) 149 (75) 1.10% 2.78% 0.18% Biotechnology KRM22 plc Closed End Investments 453 (312) 141 (68) 1.27% 3.18% 0.17% Evgen Pharma plc Pharmaceuticals & 700 (560) 140 (446) 3.18% 7.96% 0.17% Biotechnology Gelion plc Electronic & Electrical 760 (632) 128 (139) 0.39% 0.96% 0.15% Equipment GENinCode plc Medical Equipment & 800 (691) 109 (91) 1.90% 4.74% 0.13% Services Northcoders Group plc Software & Computer 253 (152) 101 (152) 1.05% 2.63% 0.12% Services Cordel Group plc Software & Computer 296 (201) 95 (43) 0.99% 2.47% 0.11% Services Strip Tinning Holdings plc Electronic & Electrical 337 (264) 73 (46) 1.18% 2.95% 0.09% Equipment Enteq Upstream plc Oil, Gas and Coal 687 (615) 72 3 0.97% 2.43% 0.09% XP Factory PLC Travel & Leisure 659 (593) 66 (17) 0.28% 0.70% 0.08% DXS International plc Software & Computer 200 (137) 63 (50) 3.90% 9.76% 0.07% Services Mears Group plc Industrial Support Services 51 – 51 16 0.02% 0.44% 0.06% ReNeuron Group plc Pharmaceuticals & 990 (944) 46 (220) 2.02% 5.06% 0.05% Biotechnology Call us on 0800 316 2295 10 Octopus AIM VCT 2 plc Annual report 2023 ## Investment Manager's review continued Investment portfolio continued | | | Book cost | | | | | Fair value | | | | | % equity | Fair value as | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | as at | Cumulative | | | | as at | | | % equity | held by | | a % of | | | 30 November | | | change in | | 30 November | | | Movement | | held by | all funds | | Octopus | | | | | 2023 | fair value | | | | 2023 | | in year | Octopus | managed | AIM VCT 2 | | | Portfolio company Sector | | | £'000 | | £'000 | | | £'000 | | £'000 | AIM VCT 2 | by Octopus | | NAV | | Polarean Imaging plc Medical Equipment & | | | 458 (418) 40 (380) 0.35% 0.88% 0.05% | | | | | | | | | | | | Services Fusion Antibodies plc Health Care Providers 497 (458) 39 (217) 1.00% 2.50% 0.05% Renalytix plc Health Care Providers 228 (194) 34 (101) 0.19% 0.54% 0.04% Abingdon Health plc Medical Equipment & 347 (313) 34 19 0.30% 0.74% 0.04% Services 1Spatial plc Software & Computer 200 (170) 30 1 0.06% 3.71% 0.03% Services Velocys plc Alternative Energy 664 (645) 19 (346) 0.50% 1.26% 0.02% Cirata plc Software & Computer 52 (35) 17 (175) 0.03% 0.07% 0.02% Services Cloudified Holdings Ltd Industrial Support Services 600 (587) 13 (107) 3.80% 9.50% 0.01% Genedrive Plc Pharmaceuticals & 145 (134) 11 (5) 0.15% 0.38% 0.01% Biotechnology Tasty plc Travel & Leisure 336 (325) 11 (22) 0.76% 1.61% 0.01% LoopUp Group plc Software & Computer 197 (193) 4 (6) 0.10% 0.24% 0.00% Services Microsaic Systems plc Electronic & Electrical 922 (921) 1 (6) 0.27% 0.68% 0.00% Equipment Trackwise Designs plc Technology Hardware & 1,289 (1,289) – (217) 0.28% 0.70% 0.00% Equipment Location Sciences Group plc Software & Computer 509 (509) – (1) 0.01% 0.02% 0.00% Services The British Honey Company General Retailers 880 (880) – (277) 4.74% 11.86% 0.00% plc Total quoted investments 47,922 (1,903) 46,019 (13,905) 54.34% Unquoted equity investments Hasgrove Limited 153 4,948 5,101 1,465 2.54% 12.81% 6.02% Popsa Holdings Limited 1,060 921 1,981 (1,604) 4.30% 10.74% 2.34% The Food Marketplace Ltd 200 (145) 55 (105) 4.40% 10.99% 0.06% Eluceda Limited 200 (189) 11 (162) 1.60% 4.01% 0.01% Rated People Limited 236 (235) 1 (22) 0.07% 0.32% 0.00% Airnow Limited 838 (838) – – 0.28% 0.73% 0.00% Total unquoted equity investments 2,687 4,462 7,149 (428) 8.43% Loan notes | Rosslyn Data Technologies | Software & Computer | 120 – 120 – n/a n/a 0.14% | | | | --- | --- | --- | --- | --- | | plc (Loan) | Services | | | | | Total loan notes 120 – 120 – | | | n/a n/a | 0.14% | Octopus AIM VCT 2 plc Annual report 2023 11 Investment portfolio continued | | | Book cost | | | | | Fair value | | | | | % equity | Fair value as | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | as at | Cumulative | | | | as at | | | % equity | held by | | a % of | | | 30 November | | | change in | | 30 November | | | Movement | | held by | all funds | | Octopus | | | | | 2023 | fair value | | | | 2023 | | in year | Octopus | managed | AIM VCT 2 | | | Portfolio company Sector | | | £'000 | | £'000 | | | £'000 | | £'000 | AIM VCT 2 | by Octopus | | NAV | Current asset investments FP Octopus UK Micro Cap 5,012 138 5,150 (878) n/a n/a 6.08% Growth Fund FP Octopus UK Multi Cap 2,888 37 2,925 (124) n/a n/a 3.45% Income Fund FP Octopus UK Future 860 (139) 721 (45) n/a n/a 0.85% Generations Fund Total current asset investments 8,760 36 8,796 (1,047) 10.38% Total fixed and current asset investments 62,084 Money market funds 21,893 Cash at bank 1,045 Debtors less creditors (332) Total net assets 84,690 Call us on 0800 316 2295 12 Octopus AIM VCT 2 plc Annual report 2023 ## Investment Manager's review continued Top ten holdings Listed below are the ten largest investments by value, comprised of eight quoted level 1 investments which are valued at bid price and two level 3 investments which are valued in accordance with International Private Equity and Venture Capital Valuation (IPEV) guidelines and approach set out in note 10 on pages 60 to 62, as at 30 November 2023: Hasgrove Limited (unquoted) Hasgrove is the holding company for Interact, a SaaS business which provides an intranet product which focuses on the communication and collaboration requirements of large organisations. Initial investment date: November 2008 Cost: £153,000 Valuation – see note 10 to the financial | statements: | £5,101,000 | | --- | --- | | Equity held by Octopus AIM VCT 2 plc: | 2.54% | | Fair value as a % of NAV: | 6.02% | | Last audited accounts: | 31 December 2022 | | Revenue: | £29.4 million | | Profit before tax: | £8.1 million | | Net assets: | £13.1 million | | Dividends received in year: | £nil | Breedon Group plc Breedon Group is a leading construction materials group operating in Great Britain and Ireland. | Initial investment date: | August 2010 | | --- | --- | | Cost: | £573,000 | | Valuation at bid price: | £3,304,000 | | Equity held by Octopus AIM VCT 2 plc: | 0.28% | | Fair value as a % of NAV: | 3.90% | | Last audited accounts: | 31 December 2022 | | Revenue: | £1,396.3 million | | Profit before tax: | £132.3 million | | Net assets: | £1,043.5 million | | Dividends received in year: | £0.11 million | Judges Scientific plc Judges Scientific is a UK-based company focused on acquiring and developing companies within the scientific instrument sector. Its companies are primarily United Kingdom-based with products sold worldwide to a diverse range of markets, including higher education institutions, the scientific communities, manufacturers and regulatory authorities. | Initial investment date: | May 2012 | | --- | --- | | Cost: | £188,000 | | Valuation at bid price: | £2,723,000 | | Equity held by Octopus AIM VCT 2 plc: | 0.46% | | Fair value as a % of NAV: | 3.22% | | Last audited accounts: | 31 December 2022 | | Revenue: | £113.2 million | | Profit before tax: | £16.0 million | | Net assets: | £54.5 million | | Dividends received in year: | £0.03 million | Octopus AIM VCT 2 plc Annual report 2023 13 Top ten holdings continued Equipmake Holdings plc Equipmake Holdings operates as a UK based provider of electric powertrain solutions, focussing on automotive, aerospace, and marine markets. Specialising in the design, engineering, and manufacturing of turnkey electrification systems | Initial investment date: | July 2022 | | --- | --- | | Cost: | £1,285,000 | | Valuation at bid price: | £2,690,000 | | Equity held by Octopus AIM VCT 2 plc: | 3.14% | | Fair value as a % of NAV: | 3.18% | | Last audited accounts: | 31 May 2023 | | Revenue: | £5.1 million | | Loss before tax: | £5.0 million | | Net assets: | £13.8 million | | Dividends received in year: | £nil | Craneware plc Craneware is the leading provider of software and support services for the US healthcare industry. Its services and solutions include patient engagement, charge capture and pricing, claims analysis, revenue recovery and retention, and cost analytics. | Initial investment date: | September 2007 | | --- | --- | | Cost: | £479,000 | | Valuation at bid price: | £2,533,000 | | Equity held by Octopus AIM VCT 2 plc: | 0.44% | | Fair value as a % of NAV: | 2.99% | | Last audited accounts: | 30 June 2023 | | Revenue: | $174.0 million | | Profit before tax: | $13.1 million | | Net assets: | $327.8 million | | Dividends received in year: | £0.04 million | IDOX plc IDOX specialises in the development and supply of information and knowledge management products and services. It operates through Public Sector Software and Engineering Information products. | Initial investment date: | May 2008 | | --- | --- | | Cost: | £356,000 | | Valuation at bid price: | £2,369,000 | | Equity held by Octopus AIM VCT 2 plc: | 0.82% | | Fair value as a % of NAV: | 2.80% | | Last published accounts: | 31 October 2023 | | Revenue: | £73.3 million | | Profit before tax: | £7.8 million | | Net assets: | £73.3 million | | Dividends received in year: | £0.02 million | Call us on 0800 316 2295 14 Octopus AIM VCT 2 plc Annual report 2023 ## Investment Manager's review continued Top ten holdings continued Learning Technologies Group plc Learning Technologies provide a comprehensive and integrated range of e-learning services and technologies to corporate and government clients. | Initial investment date: | June 2011 | | --- | --- | | Cost: | £701,000 | | Valuation at bid price: | £2,238,000 | | Equity held by Octopus AIM VCT 2 plc: | 0.39% | | Fair value as a % of NAV: | 2.64% | | Last audited accounts: | 31 December 2022 | | Revenue: | £596.9 million | | Profit before tax: | £40.5 million | | Net assets: | £426.3 million | | Dividends received in year: | £0.05 million | Popsa Holdings Ltd (unquoted) Popsa is a software technology company enabling consumers to create photo books on mobile devices from various sources. Initial investment date: February 2018 Cost: £1,060,000 Valuation – see note 10 to the financial | statements: | £1,981,000 | | --- | --- | | Equity held by Octopus AIM VCT 2 plc: | 4.30% | | Fair value as a % of NAV: | 2.34% | | Last audited accounts: | 31 December 2022 | | Revenue: | £26.7 million | | Loss before tax: | £2.1 million | | Net assets: | £11.3 million | | Dividends received in year: | £nil | Vertu Motors plc Vertu Motors engages in the distribution and retail trade of automobiles. Its automotive dealership operates under a number of brands. | Initial investment date: | December 2006 | | --- | --- | | Cost: | £777,000 | | Valuation at bid price: | £1,593,000 | | Equity held by Octopus AIM VCT 2 plc: | 0.55% | | Fair value as a % of NAV: | 1.88% | | Last audited accounts: | 28 February 2023 | | Revenue: | £4,015 million | | Profit before tax: | £32.5 million | | Net assets: | £341.4 million | | Dividends received in year: | £0.04 million | Octopus AIM VCT 2 plc Annual report 2023 15 Top ten holdings continued Netcall plc Netcall designs, develops and markets communications, workforce management and business process management software and services to the healthcare, public and private sectors in the United Kingdom and internationally. | Initial investment date: | July 2010 | | --- | --- | | Cost: | £356,000 | | Valuation at bid price: | £1,578,000 | | Equity held by Octopus AIM VCT 2 plc: | 1.34% | | Fair value as a % of NAV: | 1.86% | | Last audited accounts: | 30 June 2023 | | Revenue: | £36.0 million | | Profit before tax: | £4.0 million | | Net assets: | £35.4 million | | Dividends received in year: | £0.01 million | Call us on 0800 316 2295 16 Octopus AIM VCT 2 plc Annual report 2023 ## Investment Manager's review continued Sector analysis The graph below shows the top ten sectors the equity portfolio was invested in by value as at 30 November 2023. It also shows the sectors of the AIM market as a whole as at 30 November 2023: 25% 15% 10% 5% 0% Media Other Retailers Services Materials and Services Software and Electronic and Pharmaceutical Construction and Industrial Support Computer Services Medical Equipment Brokerage Services and Biotechnology Electrical Equipment Health Care Providers Investment Banking and The graph below shows the top ten sectors the equity portfolio was invested in by value as at 30 November 2022. It also shows the sectors of the AIM market as a whole as at 30 November 2022: | 50% 50% | 25% | | --- | --- | | 45% 45% | | | 40% 40% | 15% | | 35% 35% | 10% | | 30% 30% | 5% | 0% * 20% 20% Other Services Retailers Materials and Services Software and Electronic and and Equipment Pharmaceuticals Construction and Industrial Support Brokerage Services Computer Services and Biotechnology Medical Equipment Electrical Equipment Health Care Providers Technology Hardware Investment Banking and 1 Other sectors include Industrial Engineering, Media, Alternative Energy, Telecommunications Service Providers, Travel & Leisure, General Retailers, Leisure Goods, Aerospace & Defence, Oil, Gas & Coal, Closed End Investments, and Industrial Materials. AIM market AIM market AIM VCT 2 plc AIM VCT 2 plc Octopus AIM VCT 2 plc Annual report 2023 17 # The Investment Manager ## Personal service Octopus was established in 2000 and has a strong commitment to both smaller companies and to VCTs. Octopus also acts as Investment Manager to four other listed investment companies and has a total of over £12.4 billion of funds under management across all products. If you have any questions about this report, or if it would help to speak to one of the fund managers, please do not hesitate to contact us on **0800 316 2295**. The Quoted Companies team of Octopus comprises: ### Kate Tidbury Kate is the lead manager of the Octopus AIM VCTs and has over 35 years' experience within the UK quoted smaller companies' market. Kate started her City career in 1986 as a research analyst with Sheppards and Chase followed by Panmure Gordon. From 1993 she was an Investment Manager responsible for managing ethical and smaller companies' funds with the Co-operative Bank and Colonial First State Investments. In 2000 she joined Close Brothers Group and was involved in the management of multiple AIM portfolios including the AIM VCTs. In 2008 she joined Octopus Investments and is focused primarily on the management of the AIM VCT portfolios. Kate provides investment management support across all the Quoted Companies team products. ### Mark Symington Mark is a Fund Manager on the Octopus Quoted Companies team, focusing predominantly on the Octopus AIM VCTs. Mark joined Octopus Investments in 2012 having worked previously at asset manager Warwick Wealth in South Africa. He graduated from the University of Cape Town in 2010 with a Bcom in Economics and Finance. In addition, Mark provides analytical and investment management support across all the Quoted Companies team products. ### Dominic Weller Dominic is a Fund Manager on the Octopus Quoted Companies team. Dominic joined Octopus in 2015. Providing analytical and investment support across all the Quoted Companies team portfolios. He is lead manager on the FP Octopus UK Future Generations Fund, and co-manager on the FP Octopus UK Micro Cap Growth Fund, FP Octopus UK Multi Cap Income Fund and the Octopus AIM VCTs. He is a member of the Octopus Investments Responsible Investment Committee and leads the team's stewardship efforts. He is a CFA charter holder. ### Freda Isingoma Freda is a Fund Manager on the Octopus Quoted Companies team, focussing predominantly on the AIM VCTs. Freda started her career as an investment analyst at Charterhouse CCF before joining Close Brothers in 2001 focused on managing the AIM VCT, inheritance tax and smaller companies portfolios. In 2008 she moved to South Africa to join Investec Asset Management, where she co-managed the Africa Fund (a listed equity portfolio investing across Africa). In 2010 she ventured into entrepreneurship launching a beauty service brand in South Africa, and more recently a UK based art investment business specialising in providing ecosystem impact solutions for the African art market. She joined Octopus in January 2022 and is focused primarily on the AIM VCT portfolios and provides investment management support across all the Quoted Companies team products. ### Richard Power With overall responsibility for the Quoted Companies team at Octopus, Richard has over 25 years' experience of smaller company investing. He is lead manager of the FP Octopus UK Micro Cap Growth Fund, also oversees the investment process of the team which include the AIM IHT portfolios, and AIM VCTs. Richard is also a co-manager on the FP Octopus UK Multi Cap Income and FP Octopus UK Future Generation Funds. Richard started his career in 1995 at Duncan Lawrie, where he managed a small companies fund. He subsequently joined Close Brothers to manage a smaller companies investment trust before moving to Octopus Investments Limited to head up the Quoted Companies team in 2004. Richard was awarded Trustnet FE fundinfo Alpha Manager status in 2022 acknowledging his proven track record. ### Chris McVey Chris is a Senior Fund Manager within the Octopus Quoted Companies team. He works across all desk portfolios and is lead manager on the FP Octopus UK Multi Cap Income Fund, and a co-manager on the FP Octopus UK Micro Cap Growth and FP Octopus UK Future Generation Funds. He has been a specialist within the quoted UK Smaller Company market for over 20 years. In 2016 he joined Octopus from Citigroup where he led the UK Small and Mid-Cap Equity research team focusing across a variety of sectors. Prior to this he spent almost seven years on the Smaller Companies team at Gartmore Investment Management as an analyst and investment manager. Chris was awarded Trustnet FE fundinfo Alpha Manager status in 2023. ### Edward Griffiths Edward is an experienced portfolio manager, with a City career spanning over 21 years. Having previously worked at Schroders Investment Management Pension Funds and State Street, he joined Octopus investments in 2004 to launch the company's AIM Inheritance Tax Service. Edward is involved primarily in the management of the AIM Inheritance Tax Service portfolios for private individuals and provides investment management and trading support across all the Quoted Companies team products. ### Charles Lucas Charles joined Octopus in 2011 from LV= Asset Management, having previously worked in the Personal Pensions and SIPP space for GE Life and LV=. Charles initially joined Octopus as a member of the operations team, later working as a Project Manager for MIFID II. He joined the Quoted Companies team in 2018 as a Product Development Analyst and is focused on strengthening the team's trading capabilities and performance analytics. ### Jessica Sweeney Jessica joined Octopus in 2014 having graduated from the University of Liverpool the same year, where she studied International Business. She worked in multiple operations functions across Octopus Investments, before moving to the Quoted Companies team in 2018 to co-manage the AIM Inheritance Tax portfolios. Jessica also provides investment and trading support across all the Quoted Companies team mandates. Call us on **0800 316 2295** 18 Octopus AIM VCT 2 plc Annual report 2023 ## The Investment Manager continued Ross MacSween • Mycelx – provider of clean water technology equipment and Ross is a Junior Investment Analyst on the Octopus Quoted related services to the oil and gas, power, marine, and heavy Companies team, primarily providing analytical and investment manufacturing sectors. management support across the OEIC oerings as well as • Learning Technologies – a market leader in the fast-growing assisting on all wider team mandates. He is an Accounting and workplace digital learning and talent management market. Finance graduate from Edinburgh University and initially joined • Diaceutics – provider of end-to-end solutions for the launch Octopus in 2022 on a sales and operations rotation programme. of precision medicine diagnostics. Ben Tyson Materiality of risks to investments Ben is a Product Analyst on the Octopus Quoted Companies team As part of the investment process, the Investment Manager and is focused on strengthening the team’s trading capabilities, incorporates a material risk review of sustainability issues. These performance analytics and operational eciencies. Ben joined risks include: Octopus Investments in 2017, as a member of the operations team. He joined from PwC’s Investment Management Tax team • Environmental: emissions, energy management, waste, and previously worked within the Share Dealing and Share Plans ecological impact; businesses at Capita. He joined the Quoted Companies team in • Social: privacy, security, product quality, selling practices; December 2023 having moved from the Investment Operations team where he was a Settlements Subject Matter Expert (‘SME’). • Human: labour, health and safety, diversity; • Business model: product design, supply chain, material Martin Jager sourcing; Martin is an Investment Analyst on the Octopus Quoted • Leadership: ethics, competitive behaviour, regulatory, critical Companies team, primarily providing analytical and investment incidents, and risk management. management support across the AIM VCTs as well as assisting on all wider team mandates. He initially joined Octopus in 2021 as The Investment Manager considers the exposure to these risks and a member of the Finance team and is a Chartered Accountant how well portfolio companies are managing them. Disclosures and graduate from The University of Manchester with a degree relating to climate risks are set out in ‘climate-related matters’ in International Management with American Business Studies. on page 28. Responsibility ### The Investment Manager and Responsible As part of the investment management approach, the ### Investment Investment Manager’s team discuss the portfolio companies’ Octopus is an accredited B Corp and signatory to the strategy, financial performance, data disclosures, capital internationally recognised Principles for Responsible Investment, structure and corporate governance with their management demonstrating Octopus’ commitment to responsible investment teams. Existing governance structures may not be mature and to creating a more sustainable financial system. The (given the small size of portfolio companies), so the team assess Investment Manager believes that in the future, some of the whether weaknesses exist and if the company management can most successful companies will be a force for good, and that address these weaknesses. The team take part in consultations in today’s hyperconnected transparent world, how a company on remuneration and challenge non-executive directors to align behaves is just as important as what it does. with company objectives, aiming to influence by giving feedback to corporate advisers and meeting with non-executive directors Mission and voting on resolutions at general meetings. While the Company doesn’t target specific sustainability goals or objectives, the Investment Manager looks for companies which When it comes to voting, all holdings are covered by Institutional will play an integral role in our future. The purpose of a VCT is to Shareholder Services (ISS), a leading global advisory firm. The provide capital for small growth companies. Companies exposed team consider the independent research ISS provides and discuss to the new economy and technologies make up a significant votes as a team to create long-term shareholder value. proportion of the portfolio, which includes those focused on building a sustainable planet, revitalising healthcare, and empowering people. Examples of this include: • Gelion – global energy storage innovator specialising in the next generation of safe stationary storage technology to maximise reliable energy storage solutions to stand alone power systems. Octopus AIM VCT 2 plc Annual report 2023 19 # Section 172(1) statement ## Introduction The purpose of the report is to provide shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their legal duty to act in good faith and to promote the success of the Company in accordance with Section 172 of the Companies Act 2006 for the benefit of shareholders as a whole, as set out in the strategic report. KPIs on performance are on pages 23 and 24. The Directors of a company are required to act in the way they consider will most likely promote the success of the company for the benefit of its members as a whole. In doing this, Section 172(1) requires a director to have regard, amongst other matters, to the: - likely consequences of any decisions in the long term; - need to act fairly as between members of the company; - need to foster the company's business relationships with suppliers, customers and others; - impact of the company's operations on the community and environment; - desirability of the company maintaining a reputation for high standards of business conduct; and - interests of the company's employees. In discharging the Board's Section 172 duties regard has been given to the above factors. The Board also has regard to other factors where relevant. By considering the Company's purpose and objectives together with its strategic priorities and having a process in place for decision-making, the Board aims to ensure that decision making is consistent and predictable. As a Venture Capital Trust, Octopus AIM VCT 2 plc has no employees. However, the Directors also assessed the impact of the Company's activities on other stakeholders. The Company considers its shareholders, the Investment Manager, portfolio companies and other service providers to be its key stakeholders. ## Shareholder engagement Shareholder engagement is given high priority by the Board. The Company engages with its shareholders via various media including, but not limited to, the AGM, the Investment Manager shareholder presentation provided at the AGM, the annual report and accounts and market announcements. The AGM gives shareholders the opportunity to exercise their right to vote on resolutions and engage with the Board and the Investment Manager. Last year, an 19 April 2023 the Company held an online shareholder event that was well attended by over 25 shareholders. The event gave shareholders the opportunity to hear directly from the Investment Manager and the Board, prior to the AGM which was held on 26 April 2023 at the Company's registered office. The voting results from all General Meetings are published on the Company's website. The Board regularly disseminates information to shareholders, including a weekly NAV and through RNS releases on the London Stock Exchange. Shareholders receive the annual report and accounts which aims to provide a full understanding of the Company's activities and results. This information, together with the half yearly reports, prospectus and other shareholder information, is published via the London Stock Exchange and on the Octopus website at www.octopusinvestments.com. The Board always welcome questions from our shareholders at the AGM. To ensure we are able to respond to any questions you may have, for either the Investment Manager or the Board, we would request that you please send these via email to AIMVCT2AGM@octopusinvestments.com by 5.00pm on 13 May 2024. Provision 4 of the 2018 UK Corporate Governance Code requires a company which has received 20% or more of votes cast against a resolution to explain, when announcing the voting results, what actions it intends to take to consult shareholders in order to understand the reasons behind the result. The Company continues to monitor the 20% threshold for votes cast against Board recommendations for a resolution, but has not yet been required to take any actions in this regard. ## Engagement with the Investment Manager It is normal practice for Venture Capital Trusts to delegate authority for day-to-day management of the Company to an Investment Manager and then to engage with the Investment Manager in setting, approving and overseeing the execution of the business strategy and related policies and all administration and control functions. The Investment Manager attends the scheduled quarterly Board meetings, and other ad-hoc meetings as appropriate, of the Company, ensuring an open dialogue. At every Board meeting a review of financial and operational performance, as well as legal and regulatory compliance, is undertaken. The Board also reviews other areas over the course of the financial year, including: the Company's business strategy; key risks; stakeholder-related matters; diversity and inclusivity; environmental matters; corporate responsibility and governance. The Board formally reviews the performance of the Investment Manager on an annual basis. All Board members complete a questionnaire and discuss the findings before concluding on an outcome. ## Engagement with portfolio companies The Company's performance is directly linked to the performance of its underlying portfolio companies. The Board has delegated the monitoring of its portfolio companies to the Investment Manager which engages with portfolio companies through a programme of regular company meetings as part of its investment process. The Board has also given the Investment Manager discretionary authority to vote on portfolio company resolutions on its behalf as part of its approach to corporate governance. Call us on 0800 316 2295 20 Octopus AIM VCT 2 plc Annual report 2023 ## Section 172(1) statement continued Engagement with other key stakeholders Key decisions made during the year Some of the key decisions made by the Company during the year and environment that required the Board to take into consideration Section 172(1) The Investment Manager is a key business partner with factors include: responsibility for the provision of investment management, administration, custody and company secretarial services. • In line with the Company’s objectives, on 14 September 2023, the Board issued an oer for subscription of shares. This was During the period the Board received sucient information to discussed with the Investment Manager, and allowed new assist in understanding the interests and views of the Company’s and existing shareholders to invest in the Company. key stakeholders, investors, portfolio companies and service providers to the Company, including the auditor, lawyers and • The Company continued to buy back shares, providing registrar. liquidity to shareholders who wished to sell their shares. The Board maintained a discount of approximately 4.5% to NAV, The Board recognises the importance of ESG (environmental, therefore balancing the interests of both remaining and social and governance matters) and the Octopus Group, of selling shareholders. which the Investment Manager forms a part, was certified as a B • The Board looks to create shareholder value. During the Corp in February 2021. B Corp certification is a designation that year, following targets agreed with the Investment Manager, a business is meeting high standards of verified performance, dividends totalling 4.1p were paid to shareholders (comprising accountability and transparency on factors from employee a final dividend of 2.3p, in respect of the previous financial benefits and charitable giving to supply chain practices and year, and an interim dividend of 1.8p). input materials. Certified B Corps are recognised as leaders in the global movement for an inclusive, equitable and regenerative economy. The Investment Manager is continuing to develop processes and practices that deliver on ESG principles. This includes the development and implementation of internal processes and checks in line with the UN Principles of Responsible Investing and working towards meeting the requirements of the UK Stewardship Code managed by the Financial Reporting Council. The Investment Manager will continue to monitor the ESG practices of existing portfolio companies and over the coming year we will review our portfolio to confirm our compliance with these expectations. An example of this is the ongoing assessment of the carbon emission levels of companies within the portfolio, and their progression towards furthering sustainability and environmental goals regarding net zero ambition and decarbonisation. Octopus AIM VCT 2 plc Annual report 2023 21 ## Business review The Company’s objective The Company’s Articles permit borrowings of amounts up to The objective of the Company is to invest in a broad range of 10% of the adjusted share capital and reserves (as defined in Alternative Investment Market (AIM) or Aquis Stock Exchange the Company’s Articles). However, investments will normally be (AQSE) traded companies in order to provide shareholders with made using the Company’s equity shareholders’ funds and it is attractive tax-free dividends and long-term capital growth. not intended that the Company will take on any borrowings. Investments are made selectively across a range of sectors No material changes may be made to the Company’s in companies that have the potential to grow and enhance investment policy described above without the prior approval their value. of shareholders by the passing of an Ordinary Resolution. The The Company has been approved as a Venture Capital Trust by Directors will continually monitor the investment process and HMRC under Section 259 of the Income Taxes Act 2007. The shares ensure compliance with the investment policy. of the Company were first admitted to the Ocial List of the UK Listing Authority and trading on the London Stock Exchange Future prospects on 25 January 2006 and can be found under the TIDM code The Company’s longer-term stewardship of assets has allowed the ‘OSEC’. The Company is main market premium listed. Company to maintain the dividend payments to shareholders in line with the dividend policy set out on page 2. The Board believes Investment policy the Company’s business model will enable it to continue to deliver The Company’s investment policy has been designed to enable the targeted regular tax-free annual dividends referred to in the it to comply with the VCT qualifying conditions. The Board Chair’s Statement. The Company has a strong cash position intends that the long-term disposition of the Company’s assets which enables investment in new companies and support for will be not less than 85% in a portfolio of qualifying AIM, AQSE existing companies. The outlook statements in both the Chair’s exchange traded investments or unquoted companies where in Statement and the Investment Manager’s Review, on pages 3 the short to medium term, the management is planning an initial and 7 respectively, provide further details on the more immediate public oering (IPO) on AIM or AQSE. Investments in unquoted prospects of the Company. companies are not expected to exceed 10% of the Company’s invested portfolio. Performance The Board is responsible for the Company’s investment strategy The non-qualifying balance will be invested in permitted and performance, although the management of the Company’s investments held for short-term liquidity, generally comprising investment portfolio is delegated to Octopus through the short-term cash or money market deposits with a minimum investment management agreement, as referred to in the Moody’s long-term debt rating of ‘A’, authorised funds, including Directors’ Report. those managed by Octopus, or directly in equity investments and bonds. This provides a reserve of liquidity which should maximise The graph on page 22 compares the total return of the Company the Company’s flexibility as to the timing of investments, over the period from 1 March 2006 to 30 November 2023 with the disposals, dividend payments and share buybacks. total return from notional investments in the FTSE AIM All-Share Index, FTSE All-Share index, and the FTSE SmallCap (ex-investment Risk is spread by investing in a number of dierent businesses companies) Index over the same period. The FTSE AIM All-Share across a range of industry sectors. The maximum amount Index is a stock market index consisting of all companies quoted invested in any one company is limited to the amount permitted on the Alternative Investment Market and the FTSE SmallCap pursuant to VCT legislation in a fiscal year and no more than 15% Index is an index of small market capitalisation companies. The of the value of its investment at the time of investment. The value Directors consider these to be the most appropriate in helping of an individual investment is expected to increase over time as a shareholders benchmark returns from the Company but would result of trading progress and a continuous assessment is made remind investors that approximately 16.6% of the FTSE AIM All- of its suitability for sale. However, shareholders should be aware Share Index is attributable to resources, mining, investment that the Company’s qualifying investments are held with a view companies and property stocks which VCTs cannot invest in. to long-term capital growth as well as income and will often VCTs are also limited to investing into companies with certain have limited marketability; as a result it is possible that individual size and age restrictions. The inclusion of the FTSE All-Share Index holdings may grow in value to the point where they represent a is to provide a wider stock market context. Investors should be significantly higher proportion of total assets prior to a realisation reminded that shares in VCTs generally continue to trade at a opportunity being available. discount to the NAV of the company. Call us on 0800 316 2295 22 Octopus AIM VCT 2 plc Annual report 2023 ## Business review continued Comparative portfolio performance 290 270 250 230 210 190 170 150 130 110 90 70 50 | 30 | – | – | – | – | – | – | – | – | – | – | – | – | – | – | – | – | – | – | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Nov 10 | Nov 11 | Nov 12 | Nov 13 | Nov 14 | Nov 15 | Nov 16 | Nov 17 | Nov 18 | Nov 19 | | Nov 21 | Nov 22 | | | | Nov 06 | Nov 07 | Nov 08 | Nov 09 | | | | | | | | | | | Nov 20 | | | | FTSE All-Share total return, based on £100 notional investment on 1 March 2006 and the reinvestment 310 of all income FTSE SmallCap ex investment trusts total return, based on £100 notional investment on 1 March 2006 and the reinvestment of all income FTSE AIM All-Share total return, based on £100 notional investment on 1 March 2006 and the reinvestment of all income NAV return plus reinvestment of all dividends (excluding up-front tax relief), based on notional investment of Results and dividends | | | Year ended | | | | Year ended | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 30 November 2023 | | | | 30 November 2022 | | | | | | | | £’000 | | | £’000 | | Loss attributable to shareholders | | | (15,709) | | | (36,695) | | Value of £100 investment (£) Distributions: | Interim dividend paid 1.8p (2022 – 2.1p) | 2,927 | 3,075 | | | --- | --- | --- | --- | | Special dividend proposed 3.6p (2022 – nil) | 6,639 | | – | | Final dividend proposed 1.8p (2022 – 2.3p) | 3,328 | 3,773 | | The proposed final dividend of 1.8p for the year ended 30 November 2023 and the proposed special dividend of 3.6p will be paid on 27 June 2024 to shareholders on the register on 31 May 2024 subject to approval at the AGM being held on 16 May 2024. Nov 23 £100 on 1 March 2006 Octopus AIM VCT 2 plc Annual report 2023 23 ## Key performance indicators (KPIs) As a VCT, the Company's objective is to provide shareholders with attractive dividends and capital return by investing its funds in a broad spread of predominantly quoted UK companies which meet the relevant criteria for VCTs. The Board has identified five key performance measures to assess the Company's success in meeting these objectives. Some of these are classified as alternative performance measures (APMs) in line with Financial Reporting Council (FRC) guidance. The Glossary of terms on page 74 has further details: 1. NAV per share¹; 2. Total return per share²; 3. Dividends per share paid in the year; 4. Total ongoing charges³; and 5. Qualifying % under VCT rules. ### 1. NAV per share The NAV per share of the Company is the sum of the underlying assets less the liabilities of the Company divided by the total number of shares in issue. | Current year (pence per share) | Prior year (pence per share) | Reason for movement | | --- | --- | --- | | 47.9 | 61.6 | The NAV per share has decreased from last year's value of 61.6p to 47.9p. This decrease of 22.2% is largely the result of a market-driven fall in valuations. | ### 2. Total return per share¹ Total return is 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. Total return on the NAV per share enables shareholders to evaluate more clearly the performance of the Company, as it reflects the underlying value of the portfolio at the reporting date. This is the most widely used measure of performance in the VCT sector. | Current year % | Prior year % | Reason for movement | | --- | --- | --- | | (15.6) | (27.5) | As previously considered, the NAV per share has decreased from last year's value of 61.6p to 47.9p. This gave a total return of -15.6% or a loss of 9.6p per share, after adding back dividends of 4.1p paid in the year. | The Board notes that for the year under review this was in line with the FTSE AIM All-Share Index total return figure of -14.2%. The Board remains confident about achieving the long-term objective of the Company. Performance is also measured against the FTSE SmallCap Index and the FTSE All-Share Index, with the latter being provided for wider stock market context. This is also shown on the graph on the previous page. In the year under review the FTSE SmallCap Index increased by 2.7% and the FTSE All-Share Index rose by 1.8%, all on a total return basis. These indices have been adopted as comparative indices. Further details on performance can be found within the Investment Manager's Review on pages 4 to 7. ### 3. Dividends per share paid in the year The Company has a target of paying an annual dividend of 3.6p per share or a 5% yield based on the prior year-end share price, whichever is greater at the time. | Current year (pence per share) | Prior year (pence per share) | Reason for movement | | --- | --- | --- | | 4.1 | 4.2 | The slight reduction in dividend this year is due to the fall in NAV, whilst still maintaining at least a 5% dividend yield. | ¹These KPIs are defined as alternative performance measures (APMs) and are defined in more detail on the Glossary of terms on page 74. Call us on 0800 316 2295 24 Octopus AIM VCT 2 plc Annual report 2023 ## Business review continued The 4.1p of dividends paid in the year maintains the minimum of 5% dividend yield target. The proposed final dividend of 1.8p and gives a total dividend in respect of the year of 3.6p, which is a yield of 6.2% based on the share price of 58.0p at the prior year end, in line with the Board's policy of paying the higher of a 5% yield or 3.6p of dividends in the year. Including the proposed special dividend of 3.6p gives a total dividend of 7.2p in respect of the year, which is a yield of 12.4%. Dividends are paid semi-annually. It remains the intention of the Board to continue this policy, subject to available cash and distributable reserves. However, this is not a guarantee, and no projection or forecast is expressed or implied. A full list of dividends paid can be found in the table on page 71. ### 4. Ongoing charges$^{1}$ The ongoing charges ratio has been calculated using the AIC recommended methodology and excludes exceptional costs and trail commission. | Current year % | Prior year % | Reason for movement | | --- | --- | --- | | 2.2 | 2.2 | The ongoing charges ratio has remained the same year on year. | There are a number of costs involved in operating a VCT, these expenses are outlined in note 4 on page 57. The Company has an expense cap of 3.5%. The ongoing charges have been lower than the expense cap for the current and prior year, which is in line with the Board's expectations. ### 5. Qualifying % under VCT rules The Company must comply with VCT legislation laid down by HMRC. A key requirement is to maintain at least an 80% qualifying investment level. This percentage is calculated using a formula based on HMRC rules. | Current year % | Prior year % | Reason for movement | | --- | --- | --- | | 85.4 | 87.3 | 85.4% (as measured by HMRC rules) by value of the Company's investments has been represented throughout the period by shares or securities comprised in qualifying holdings of the Company. The qualification level has decreased by 1.9% due to lower deployment and disposals made in the current year, so fewer investments are contributing to the 80% qualifying investment level. Further details on VCT regulations can be found within the Investment Manager's Review on page 7. | The Company has continued to meet the 80% qualification investment level. There continues to be sufficient investment opportunities to enable the Investment Manager to comply with these ratios. The Chair's Statement, on pages 2 and 3, includes a review of the Company's activities and future prospects; further details are also provided within the Investment Manager's Review on pages 4 to 16. ### Viability statement As part of their continuing programme of monitoring risk 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 21 December 2023 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 such as 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 on the following pages. The Board has also considered the liquidity of the underlying investments and the Company's cash flow projections 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 30 November 2028. $^{1}$These KPIs are defined as alternative performance measures (APMs) and are defined in more detail on the Glossary of terms on page 74. Octopus AIM VCT 2 plc Annual report 2023 25 ## Risk and risk management Principal risks, risk management and regulatory environment The Board carries out a regular review of the risk environment in which the Company operates. The Board seeks to mitigate risks by setting policy, reviewing 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. Detailed below are what the Board deems to be the principal risks of the Company and the mitigating actions in relation to those risks. Risk Mitigation Investment risk: The focus of the Company’s The Investment Manager has significant experience and a strong track record investments is into VCT qualifying companies of investing in AIM and AQSE companies, and appropriate due diligence is quoted on AIM and the AQSE exchange, which undertaken on every new investment. The overall risk in the portfolio is mitigated by their nature entail a higher level of risk and by maintaining a wide spread of holdings in terms of financing stage, age, lower liquidity than investments in larger quoted industry sector and business models. The Board reviews the investment portfolio companies. with the Investment Manager on a regular basis. VCT qualifying status risk: The Company is Prior to investment, the Investment Manager seeks assurance that the investment required at all times to observe the conditions will meet the legislative requirements for VCT investments. for the maintenance of HMRC approved VCT On an ongoing basis, the Investment Manager monitors the Company’s status. The loss of such approval could lead to the compliance with VCT regulations on a current and forecast basis to ensure Company and its investors losing access to the tax ongoing compliance with VCT legislation. Regular updates are provided to the benefits associated with VCT status and, in certain Board throughout the year. circumstances, to investors being required to repay the initial income tax relief on their investment. The VCT status adviser formally reviews the Company’s compliance with VCT regulations on a bi-annual basis and reports its results to the Board. Operational risk: The Board is reliant on the The Board reviews the system of internal control, both financial and non-financial, Investment Manager to manage investments operated by the Investment Manager (to the extent the latter are relevant to the eectively, and manage the services of a number Company’s internal controls). These include controls that are designed to ensure of third parties, in particular the registrar and tax that the Company’s assets are safeguarded and that proper accounting records advisors. A failure of the systems or controls at are maintained, as well as any regulatory reporting. Feedback on other third the Investment Manager or third-party providers parties is reported to the Board on at least an annual basis, including adherence could lead to an inability to provide accurate to service level agreements where relevant. reporting and to ensure adherence to VCT and other regulatory rules. Information security: A loss of key data could Annual due diligence is conducted on third parties which includes a review of result in a data breach and fines. The Board is their controls for information security. The Investment Manager has a dedicated reliant on the Investment Manager and third information security team and a third party is engaged to provide continual parties to take appropriate measures to prevent a protection in this area. A security framework is in place to help prevent malicious loss of confidential customer information. 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: Events such as an economic recession, The Company invests in a diverse portfolio of companies across a range of movement in interest rates, inflation, political sectors, which helps to mitigate against the impact of poor performance in any instability and rising living costs could cause one sector. The Company also maintains adequate liquidity to ensure that it can volatility in the market, adversely impacting the continue to provide follow-on investment to those portfolio companies which valuation of investments. This could result in a require it and which is supported by the individual investment case. reduction in the value of the Company’s assets. The Investment Manager monitors the impact of macroeconomic conditions on an ongoing basis and provides updates to the Board at least quarterly. Call us on 0800 316 2295 26 Octopus AIM VCT 2 plc Annual report 2023 ## Risk and risk management continued Legislative: A change to the VCT regulations could The Investment Manager engages with HM Treasury and industry bodies to adversely impact the Company by restricting the demonstrate the positive benefits of VCTs in terms of growing UK companies, companies the Company can invest in under creating jobs and increasing tax revenue, and to help shape any change to VCT its current strategy. Similarly, changes to VCT legislation. tax reliefs for investors could make VCTs less The Investment Manager employs individuals with expertise across the legislation attractive and impact the Company’s ability to and regulation relevant to the Company. Individuals receive ongoing training and raise further funds. Failure to adhere with other external experts are engaged where required. relevant legislation and regulation could result in reputational damage and/or fines. Liquidity: The risk that the Company’s available The Investment Manager prepares cash flow forecasts to ensure cash levels are cash will not be sucient to meet its financial maintained in accordance with policies agreed with the Board. The Company’s obligations. The Company invests into smaller overall liquidity levels are monitored on a quarterly basis by the Board, with close companies, which are inherently less liquid than monitoring of available cash resources. The Company maintains sucient cash stocks on the main market. Therefore, these may and readily realisable securities, including money market funds and OEICs, which be dicult to realise for their fair market value at can be accessed at short notice. At 30 November 2023, 27.1% of net assets was short notice. held in cash and cash equivalents, realisable within one business day, and 10.4% in OEICs, realisable in seven business days. Valuation: For smaller companies or illiquid shares, Investments in companies traded on AIM and AQSE exchange are valued by the establishing a fair value can be dicult due to the Investment Manager using closing bid prices as reported on Bloomberg. Where lack of readily available market data for similar investments are in unquoted companies or where there are indicators the bid shares, resulting in a limited number of external price is not appropriate, alternative valuation techniques are used in accordance reference points. with the IPEV guidelines. Valuations of unquoted portfolio companies are performed by appropriately experienced sta, 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 sta 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. 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. The following are some of the potential emerging risks management and the Board are currently monitoring: • Adverse changes in global macroeconomic environment • Geo-political tensions • Climate change Octopus AIM VCT 2 plc Annual report 2023 27 Gender and diversity The Board of Directors currently comprises two female and three male Non-Executive Directors with considerable experience of the VCT industry and a broad range of skills and backgrounds. All appointments to the Board are made on the basis of ability and knowledge. The composition of the Board, including gender and diversity, is reviewed on an annual basis. As per Listing Rule 9.8.6R (9)(a) 25% of individuals on the Company’s Board were women as at 30 November 2023. As the Company is externally managed the roles of CEO or CFO do not exist. No senior Board positions are held by a woman in the Company. Furthermore, no individual on the Board is from a minority ethnic background. Following the period end the Company has met the criteria of Listing Rule 9.8.6R (9)(a) as 40% of individuals on the Board are women. Please see the tables below which report on gender identity/sex and ethnic background for completeness as at 30 November 2023. Gender identity or sex Number of senior positions on the Number of Percentage of Board (CEO, CFO, Board members the Board SID and Chair) 1 Men 3 75% Not applicable Women 1 25% Not specified/prefer not to say – – 1 This column is not applicable as the Company is externally managed and does not have executive management functions, specifically it does not have a CEO or CFO. The Company considers that the role of Chair and Chair of the Audit Committee are senior positions. Of these two senior positions, both are performed by men. Ethnic background Number of senior positions on the Number of Percentage of Board (CEO, CFO, Board members the Board SID and Chair) 2 White British or other White 4 100% Not applicable (including minority white groups) Mixed/Multiple Ethnic Groups – – Asian/Asian British – – Black/African/Caribbean/Black British – – Other ethnic group, including Arab – – Not specified/prefer not to say – – 2 This column is not applicable as the Company is externally managed and does not have executive management functions, specifically it does not have a CEO or CFO. The Company considers that the role of Chair and Chair of the Audit Committee are senior positions. Of these two senior positions, both are performed by those from a White British background. Employee, human rights, social and community issues, environment policy and greenhouse gas emissions The Board’s policy on employee, human rights, social and community issues, environment policy and greenhouse gas emissions is discussed in the Directors’ Report on page 31. Call us on 0800 316 2295 28 Octopus AIM VCT 2 plc Annual report 2023 ## Climate-related matters Whilst not a requirement, the Board has chosen to continue evolving its disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures ('TCFD') and has given some initial disclosure under the main headings below, which will continue to evolve over future periods. - **Governance:** Day-to-day management of the portfolio, and oversight of investment decisions, sits within the Investment Manager's governance structures. - **Strategy:** The Company makes investments into a range of sectors but the companies receiving funding are small companies primarily listed on AIM. Exposure to climate-related risks is assessed on a deal-by-deal basis by the Investment Manager. The analysis considers transition risks and the physical risks and impacts of climate change for industries and sectors where this has been identified as a material issue. The Investment Manager is also focused on identifying investment opportunities in companies that are well positioned to benefit from the transition to a lower carbon economy. - **Risk management:** The investment team use guidance from the Sustainability Accounting Standards Board ('SASB') to identify climate-related risks. Where potential material climate-related risks have been identified, the Investment Manager assesses how well the risk is managed by the company through further due diligence. This is raised at the Investment Manager's committee meeting, where appropriate, as part of the investment process and is continually monitored. - **Metrics:** Where relevant for the industry and sector, the team review metrics reported by the company to understand material exposures, how they are being managed and company performance. This includes areas such as energy management, energy use, carbon footprint disclosures and commitments to appropriate carbon reduction pathways for the sector and industry. On an aggregated level, the Company's most material climate risk relates to carbon emission; this is due to the underlying portfolio companies having to adapt their business models to successfully transition to a lower/zero carbon footprint. As such, the Investment Manager has taken steps to measure Scope 1 and 2 greenhouse gas emissions. Scope 1 emissions are those directly from company-owned and controlled resources. Scope 2 emissions are indirect emissions from the generation of purchased energy, from a utility provider. Scope 3 emissions are all indirect emissions, not included in Scope 2. While the ultimate goal is to reduce portfolio emissions to minimise these risks, the immediate goal is to increase data coverage to 100% within the next year. The data coverage is currently 74% (2022: 44%). Given the intricate modelling, lack of data and calculations involved, we regard the analysis as indicative. Current greenhouse gas (GHG) emissions: ### Metrics for equity holdings | | Octopus AIM VCT 2 plc 30/11/2023 | AIM All Share 30/11/2023 | Variance to index 30/11/2023 | | --- | --- | --- | --- | | Scope 1 & 2 emissions (tCO2e) | 6,128 | 6,455 | (5%) | | Scope 3 emissions (tCO2e) | 34,723 | 68,103 | (49%) | | Scope 1 & 2 footprint (tCO2e/mGBP invested) | 72 | 76 | (5%) | | Scope 1 & 2 weighted average carbon intensity (tCO2e/mGBP revenue) | 7,437 | 24,776 | (70%) | | Percentage of issuer emission data coverage (including estimates) | 74% | 45% | 65% | ## Consumer Duty The Directors are aware of the Investment Manager's obligations to comply with the FCA's Consumer Duty rules and principles which came into force in 2023. Firms subject to Consumer Duty must ensure they are acting to deliver good outcomes for consumers and that this is reflected in their strategies, governance, leadership, and policies. The Investment Manager undertook a review of its practices to identify and uplift areas of its operations in order to comply with the Consumer Duty principles which concluded ahead of the Consumer Duty principles coming into force. The Company is not directly captured by Consumer Duty, however the Directors will receive updates from the Investment Manager in order to monitor how the Investment Manager is meeting its obligations. The Strategic Report was approved on behalf of the Board by: Keith Mullins Chair 7 March 2024 Octopus AIM VCT 2 plc Annual report 2023 29 # Details of Directors The Board comprises five Directors, all of whom are independent of the Investment Manager. The Directors operate in a non-executive capacity and are responsible for overseeing the investment strategy of the Company. The Board has wide experience of investment in both smaller growing companies and larger quoted companies. All Directors are members of the Audit Committee. ## Keith Mullins (Chair) Keith Mullins joined SG Warburg's investment management division in 1978. The division later developed into Mercury Asset Management and subsequently became Merrill Lynch Investment Managers upon its acquisition by Merrill Lynch in 1998. He therefore has many years' experience as a specialist UK equity fund manager. During this time he was responsible for establishing and managing the team specialising in small and medium-sized pension fund portfolios, and from 2000 he was head of pension fund asset allocation. He left as a managing director of Merrill Lynch Investment Managers in 2001. Keith became a Director of the Company on 14 September 2005. ## Andy Raynor FCA Andy is the non-executive Chair of Potter Clarkson LLP, a leading full-service intellectual property law firm based in the UK and Europe. Andy retired from the position of Chief Executive of Shakespeare Martineau LLP in January 2019, an expanding Midlands and London law firm that he led from 2015 through a period of significant growth in turnover and profits. In addition to Potter Clarkson he also has a portfolio of senior advisory roles in the professional and financial services sector and has held other corporate non-executive roles over many years. Andy joined RSM Tenon Group PLC ('RSM Tenon') in 2001 after its acquisition of the independent partnership formerly known as BDO Stoy Hayward – East Midlands. Andy led the company to win National Firm of the Year 2011 in the British Accountancy Awards. Prior to joining RSM Tenon, he spent almost 20 years with BDO Stoy Hayward – East Midlands, where he was managing partner. Andy became a Director of the Company on 14 September 2005. ## Elizabeth Kennedy LLB (Hons) Elizabeth Kennedy worked for 30 years in corporate finance, principally with Brewin Dolphin Limited, specialising in IPO, secondary issue, takeover code, FCA sponsor and AIM nominated adviser work. She has been a member of the London Stock Exchange's AIM Advisory Group since 1995. She is currently a non-executive Director of a number of companies and a charity including CT Private Equity Trust plc and is a consultant with Davidson Chalmers Stewart LLP. Elizabeth became a Director of the Company on 12 August 2010 when Octopus AIM 2 merged with Octopus Second AIM VCT plc. Elizabeth will be retiring from the Board from the conclusion of the AGM on 16 May 2024. ## Brad Ormsby CA Brad Ormsby has been Group Finance Director at Judges Scientific plc, the AIM-listed buy and build scientific instruments group, since 2015. He is a Chartered Accountant with significant senior financial and operational experience acquired during his time at PwC and Eurovestech plc, a technology venture capital fund. Prior to joining Judges he was CFO at Kalibrate Technologies plc where he led the company's IPO onto AIM. Brad became a Director of the Company on 1 January 2022. ## Virginia (Connelly) Bull Virginia has almost 20 years of PLC Advisory and Corporate Broking experience working with AIM and Main Market companies. Virginia is a nominated adviser to AIM companies. Currently, Virginia is a Director in the Investec Bank plc Corporate Broking team, focused on partnering with Tech and Media companies along their growth journey. Virginia became a Director of the Company on 1 January 2024. Call us on 0800 316 2295 30 Octopus AIM VCT 2 plc Annual report 2023 # Directors' report The Directors present their report and the audited financial statements for the year ended 30 November 2023. The Corporate Governance Report on pages 34 to 37 and the Audit Committee Report on pages 38 and 39 form part of this Directors' Report. The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy. ## Directors Brief biographical notes on the Directors are given on page 29. In accordance with the Articles of Association of the Company, Andy Raynor will retire as Director at the AGM and, being eligible, offer himself for re-election. Virginia (Connelly) Bull, who was appointed on 1 January 2024, offers herself for election and, as announced previously, Elizabeth Kennedy will be retiring from the Board on the conclusion of the business of the 2024 AGM. Following a formal performance evaluation as part of the Board evaluation, the Board believes that all the Directors continue to be effective non-executive Directors, providing considerable experience and continuity to the Company and demonstrating commitment to their roles. In addition the Board has discussed succession planning, and further details of both of these matters can be found on page 35. ## Directors' and officers' liability insurance The Company has, as permitted by s236 of the Companies Act 2006, maintained insurance cover on behalf of the Directors and Secretary indemnifying them against certain liabilities which may be incurred by them in relation to the Company. ## VCT regulations Compliance with required rules and regulations is considered when all investment decisions are made. The Company is further monitored on a continual basis to ensure compliance. The main criteria which the Company must adhere to are outlined below: The Company is required at all times to hold at least 80% of its investments (as defined in the legislation) in VCT qualifying holdings, of which at least 70% must comprise eligible Ordinary shares. For this purpose, a 'VCT qualifying holding' consists of up to £5 million invested in any one year in new shares or securities of a UK AIM traded company or an unquoted company which is carrying on a qualifying trade, and whose gross assets and number of employees at the time of investment do not exceed prescribed limits. The definition of 'qualifying trade' excludes certain activities such as property investment and development, some financial services and asset leasing. The Finance Act 2014 amended the VCT rules in respect of VCT shares issued on or after 6 April 2014, such that VCT status will be withdrawn if a dividend is paid (or other forms of distribution or payments are made to investors) from the capital received by the VCT from that issue within three years of the end of the accounting period in which shares were issued to investors. This may reduce the amount of distributable reserves available to the Company to fund dividends and share buybacks. However, with share premium cancellations when necessary, the Company currently has sufficient distributable reserves to allow dividends to continue to be paid at a level in line with the Company's current dividend policy. The Finance Act 2016 introduced a number of changes to VCT rules to bring the legislation into line with EU State Aid Risk Finance Guidelines. The legislation introduced new criteria which stipulate a lifetime cap on the total amount of State Aid investment a company can receive, the age of companies which are eligible for investment and specific requirements relating to the use of the funds raised. See page 7 of the Investment Managers Review for a summary of the requirements. The Finance Act 2018 made further changes to VCT rules. As referred to earlier on page 7, the Company is required to hold at least 80% of its investments in VCT qualifying holdings as of the last accounting period. The legislation also introduced a new deadline by which the Company must invest at least 30% of the money raised from the issue of shares in qualifying holdings within 12 months of the accounting period in which the shares were issued. The Company has maintained compliance with VCT legislation for the year under review and intends to continue to do so for future periods ## Going concern The Company's business activities and the factors likely to affect its future development, performance and position are set out in the Chair's Statement and Investment Manager's Review on pages 2 and 3 and pages 4 to 16. Further details on the management of financial risk may be found in the Business Review on page 21 and in note 17 to the financial statements. The Board receives regular reports from the Investment Manager and the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period at least 12 months from the date of approval of the financial statements. As discussed in the Viability Statement on page 24, the Directors have considered the Company's cash flow projections in a range of scenarios, including both continuation of normal levels of fundraising as well as potential 'no fundraise' scenarios. In all scenarios the Board is confident in the ability of the Company to maintain its VCT status and meet its liabilities as they fall due. Some of the ways in which the Board could manage the operations of the Company include adjusting investment strategy and careful consideration of non-committed cash outflows, including dividends and buybacks. They are satisfied that no material uncertainties leading to significant doubt about going concern have been identified. It is appropriate to continue to adopt the going concern basis in preparing the financial statements. Octopus AIM VCT 2 plc Annual report 2023 31 The assets of the Company include securities, a large proportion of which are readily realisable and, accordingly, the Company has adequate financial resources to continue to satisfy the expenses of commitments under share buybacks and to remain in operational existence for a period of at least 12 months. A resolution will be put to the Company's AGM, details on page 76, to approve the Company continuing as a Venture Capital Trust. A continuation vote has been approved by shareholders annually since 2009. ### Dividend The proposed final dividend of 1.8p for the year ended 30 November 2023 and special dividend of 3.6p will be paid on 27 June 2024 to shareholders on the register on 31 May 2024 subject to approval at the AGM being held on 16 May 2024, as set out in the Strategic Report. ### Management The Company has in place an agreement with Octopus to act as Investment Manager which is central to the ability of the Company to continue in business. The principal terms of the Company's management agreement with Octopus are set out in note 3 to the financial statements. The Investment Manager also provides secretarial, administrative and custodian services to the Company. There are no other contracts which are deemed to be essential to the business of the Company. As required by the Listing Rules, the Directors confirm that, in their opinion, the continuing appointment of Octopus as Investment Manager is in the best interest of the shareholders as a whole. In reaching this conclusion the Directors have taken into account the performance of the investment portfolio and the ability of the Investment Manager to produce satisfactory investment performance in the future. No Director has an interest in any contract to which the Company is a party. The Board has delegated the routine management decisions such as the payment of standard running costs to Octopus. Investment decisions are discussed with the Board. ### Whistleblowing The Board has considered the arrangements implemented by the Investment Manager to encourage staff of the Investment Manager or Company Secretary of the Company to raise concerns, in confidence, within their organisation about possible improprieties in matters of financial reporting or other matters. It is satisfied that adequate arrangements are in place to allow an independent investigation, and follow-on action where necessary, to take place within the organisation. ### Employee, human rights, social and community issues The Board seeks to conduct the Company's affairs responsibly. The Company is required by company law to provide details of employee, human rights, social and community issues, including information about any policies it has in relation to these matters and the effectiveness of such policies. As an externally managed investment company with no employees the Company does not maintain specific policies in relation to these matters. ### Environment policy and greenhouse gas emissions The Board has no specific environmental policy; however, the Company recognises the need to conduct its business, including investment decisions, in a manner that is environmentally responsible wherever possible. The Company does not produce any reportable emissions as the fund management is outsourced to the Investment Manager with no physical assets or property held by the Company. As the Company has no employees or operations, it is not responsible for any direct emissions, and as it uses less than 40,000 kWh of energy during the reporting year it is exempt from Streamlined Energy and Carbon Reporting ('SECR') requirements. ### Financial risk management The most significant financial risks arising from the Company's financial instruments are market risk, interest rate risk, credit risk and liquidity risk. The policies for managing these risks are regularly reviewed by the Board and full details can be found in note 17 to the financial statements. ### Bribery Act Octopus have an Anti-Bribery Policy which includes robust procedures to ensure full compliance with the Bribery Act 2010 and to ensure that the highest standards of professional ethical conduct are maintained. All Octopus employees and those working for, or on behalf of, the Investment Manager are aware of their legal obligations when conducting Company business. ### Share capital The Company's Ordinary share capital as at 30 November 2023 comprised 176,875,405 Ordinary shares of 0.01p each. The voting rights of the Ordinary shares on a show of hands are one vote for each member present or represented, the voting rights on a poll are one vote for each share held. There are no restrictions on the transfer of the Ordinary shares and there are no shares that carry special rights with regard to the control of the Company. Call us on 0800 316 2295 32 Octopus AIM VCT 2 plc Annual report 2023 # Directors' report continued ## Share issues On 14 September 2023, a prospectus offer was launched alongside Octopus AIM VCT 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 21 December 2023 being fully subscribed. In the year, 17,713,658 shares were issued, raising £8.4 million after costs. This was allocated as follows: During the year 15,118,182 shares were issued under the fundraise that launched on 14 September 2023, raising £7.0 million after costs. During the year 2,557,239 shares were issued to those shareholders who elected to receive shares under the Dividend Reinvestment Scheme as an alternative to dividends. This raised £1.3 million. An additional 38,237 shares were issued to shareholders as a result of reduced adviser charges, and to Octopus employee shareholders as a result of a rebate of part of the annual management fee. These shares were issued to those investors who, in accordance with the adviser charging terms contained in each fundraising document offered to the public and published since 31 December 2012 following the introduction of the retail distribution, had chosen to pay their adviser less than the 0.5% ongoing adviser charge; and to employees, who have been rebated the annual management charge. ## Share buybacks and redemptions During the year, the Company purchased 6,011,097 Ordinary shares with a nominal value of 0.01p for cancellation at a weighted average price of 51.2p per share (2022: 4,494,597 shares at a weighted average price of 69.4p per share) for a total consideration of £3.1 million (2022: £3.1 million). This represents 3.4% of the closing share capital. These were repurchased in accordance with the Company's share buyback facility in an attempt to assist the marketability of the shares and prevent the shares trading at a wide discount to the NAV. ## Post balance sheet events A full list of post balance sheet events since 30 November 2023 can be found in note 18 to the financial statements on page 68. ## Rights attaching to the shares and restrictions on voting and transfer Subject to any suspension or abrogation of rights pursuant to relevant law or the Company's Articles of Association, the Ordinary shares confer on their holders (other than the Company in respect of any Treasury shares) the following principal rights: - (a) the right to receive profits available for distribution, such dividends as may be agreed to be paid (in the case of a final dividend in an amount not exceeding the amount recommended by the Board as approved by shareholders in a general meeting or in the case of an interim dividend in an amount determined by the Board). All dividends unclaimed for a period of 12 years after having become due for payment are forfeited automatically and cease to remain owing by the Company; - (b) the right, on a return of assets on a liquidation, reduction of capital or otherwise, to share in the surplus assets of the Company remaining after payment of its liabilities pari passu with the other holders of Ordinary shares; and - (c) the right to receive notice of and to attend and speak and vote in person or by proxy at any general meeting of the Company. On a show of hands, every member present or represented and voting has one vote, and on a poll, every member present or represented and voting has one vote for every share of which that member is the holder. The appointment of a proxy must be received not less than 48 hours before the time of the holding of the relevant meeting or adjourned meeting or, in the case of a poll taken otherwise than at or on the same day as the relevant meeting or adjourned meeting, be received after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll. These rights can be suspended. If a member, or any other person appearing to be interested in shares held by that member, has failed to comply within the time limits specified in the Company's Articles of Association with a notice pursuant to s793 of the Companies Act 2006 (notice by the Company requiring information about interests in its shares), the Company can, until the default ceases, suspend the right to attend and speak and vote at a general meeting. If the shares represent at least 0.25% of their class the Company can also withhold any dividend or other money payable in respect of the shares (without any obligation to pay interest) and refuse to accept certain transfers of the relevant shares. Shareholders, either alone or with other shareholders, have other rights as set out in the Company's Articles of Association and in company law (principally the Companies Act 2006). A member may choose whether their shares are evidenced by share certificates (certificated shares) or held in electronic (uncertificated) form in CREST (the UK electronic settlement system). Any member may transfer all or any of their shares, subject in the case of certificated shares to the rules set out in the Company's Articles of Association or in the case of uncertificated shares to the regulations governing the operation of CREST (which allow the Directors to refuse to register a transfer as therein set out); the transferor remains the holder of the shares until the name of the transferee is entered in the Register of Members. The Directors may refuse to register a transfer of certificated shares in favour of more than four persons jointly or where there is no adequate evidence of ownership or the transfer is not duly stamped (if so required). The Directors may also refuse to register an Ordinary share transfer if it is in respect of a certificated share which is not fully paid up or on which the Company has a lien provided that, where the share transfer is in respect of any share admitted to the Official List maintained by the UK Listing Authority, any such discretion may not be exercised so as to Octopus AIM VCT 2 plc Annual report 2023 33 prevent dealings taking place on an open and proper basis, or if, in the opinion of the Directors (and with the concurrence of the UK Listing Authority), exceptional circumstances so warrant, provided that the exercise of such power will not disturb the market in those shares. Whilst there are no squeeze-out and sell-out rules relating to the shares in the Company's Articles of Association, shareholders are subject to the compulsory acquisition provisions in s974 to s991 of the Companies Act 2006. ### Independent auditor and disclosure of information to auditor BDO LLP is the appointed auditor of the Company and offer themselves for re-appointment. A resolution to re-appoint BDO LLP as auditor and authorise the Directors to determine their remuneration will be proposed at the forthcoming AGM. As far as the Directors are aware, there is no relevant audit information of which the auditor is unaware and the Directors have taken all the steps they ought to have taken as Directors in order to make them aware of any relevant audit information and to establish that the Company's auditor is aware of that information. ### Resolutions being put to shareholders in 2024 #### Directors' authority to allot shares, to disapply pre-emption rights The authority proposed under Resolution 8 is required so that the Directors may issue shares in connection with offers, if the Directors believe this to be in the best interests of the Company and the shareholders as a whole. Any issue proceeds will be available for investment in line with the Company's investment policy and may be used, in whole or part, to purchase Ordinary shares in the market. Resolution 8 renews the Directors' authority to allot Ordinary shares (representing approximately 20% of the Company's issued share capital at the date of the Notice of AGM). The authority conferred by this Resolution will expire on the date falling 15 months after the date of the passing of the Resolution or, if earlier, at the conclusion of the next AGM of the Company. Any shares allotted under this authority would be issued at prices at or above NAV. Resolution 9 authorises the Directors to allot Ordinary shares in connection with the Dividend Re-investment Scheme ('DRIS'), up to 3% of the Company's issued share capital at the date of the Notice of AGM. Such authority will expire 15 months after the passing of the Resolution or, if earlier, the conclusion of the next AGM of the Company. Resolutions 10 and 11 renew and extend the Directors' authority to allot equity securities for cash without pre-emption rights applying in certain circumstances. The Resolutions will authorise the Directors, until the date falling 15 months after the date of the passing of the Resolutions or, if earlier, the conclusion of the next AGM of the Company, to issue Ordinary shares for cash without pre-emption rights applying by way of an offer to existing shareholders. These powers will be exercised only if, in the opinion of the Directors, it would be in the interests of shareholders as a whole. Any shares allotted under this authority would be issued at prices at or above NAV. ### Directors' authority to make market purchases of its own shares The authority proposed under Resolution 12 is required so that the Directors may make purchases of up to 27,644,406 Ordinary shares (representing approximately 14.99% of the Company's issued share capital at the date of the Notice of AGM) and the Resolution seeks renewal of such authority until the next AGM (or the expiry of 15 months, if earlier). Any shares bought back under this authority will be at a price determined by the Board, (subject to a minimum of 0.01p (being the nominal value of such shares) and a maximum of 5% above the average mid-market quotation for such shares on the London Stock Exchange and the applicable regulations thereunder). This power will be exercised only if, in the opinion of the Directors, a repurchase would be in the best interests of shareholders as a whole. Any shares repurchased under this authority will either be cancelled or held in Treasury for future re-sale in appropriate market conditions. ### Cancellation of share premium account The Board considers it appropriate to obtain shareholders' approval for the cancellation of the remaining amount standing to the share premium account of the Company to create (subject to Court approval) a pool of distributable reserves. A Special Resolution to this effect is being proposed at Resolution 13. ### Substantial shareholdings As at the date of this report, no disclosures of major shareholdings had been made to the Company under Disclosure Guidance and Transparency Rule 5 (Vote Holder and Issuer Notification Rules). On behalf of the Board Keith Mullins Chair 7 March 2024 Call us on 0800 316 2295 34 Octopus AIM VCT 2 plc Annual report 2023 ## Corporate governance ## report The Board of the Company has considered the principles and Virginia (Connelly) Bull joined the Board on 1 January 2024. Trust recommendations of the Association of Investment Companies Associates Limited, who are independent of the Company, were Code of Corporate Governance (‘AIC Code’). The AIC Code engaged for the recruitment. addresses the Principles and Provisions set out in the UK Corporate Governance Code (‘UK Code’), as well as setting out Elizabeth Kennedy will be retiring from the Board following the additional Provisions on issues that are of specific relevance to conclusion of the business of the 2024 AGM. the Company. The Board has a formal schedule of matters specifically reserved The Board considers that reporting against the principles and for its decision which include: provisions of the AIC Code, which has been endorsed by the • the consideration and approval of future developments or Financial Reporting Council, provides more relevant information changes to the investment policy, including risk and asset to shareholders. allocation; Corporate governance within the closed-ended investment • consideration of corporate strategy; company industry diers from that of other companies. In • approval of the appropriate dividend to be paid to the addition, VCTs dier from most other investment companies in shareholders; that they have, developed over many years, a complex range of • the appointment, evaluation, removal and remuneration of additional legal, tax and regulatory requirements. the Investment Manager; Octopus AIM VCT 2 plc, as a VCT and closed-ended investment • the performance of the Company, including monitoring of company, has particular factors which have an impact on its the discount of the NAV to the share price; and governance arrangements. The Company: • monitoring shareholder profiles and considering shareholder communications. • outsources all day-to-day activities (such as portfolio management, administration, accounting, custody and The Chair leads the Board in the determination of its strategy and company secretarial). This means that it is governed in the achievement of its objectives. The Chair is responsible for entirely by a Board of non-executive Directors. In these organising the business of the Board, ensuring its eectiveness circumstances, the proper oversight of these relationships is and setting its agenda, and has no involvement in the day-to-day the key aspect of achieving good corporate governance; business of the Company. He facilitates the eective contribution • does not have executive directors or employees. As a of the Directors and make sure that they receive accurate, timely consequence, the only ‘corporate memory’ is that of the and clear information and that they communicate eectively non-executive Directors; and with shareholders. • does not have customers, only shareholders. The Company Secretarial function is discharged by Octopus The AIC Code deals with matters such as the relationship with Company Secretarial Services Limited which is responsible the Investment Manager and other service providers. In practice, for advising the Board, through the Chair, on all governance most of the time spent by the Board of a well-functioning matters. All of the Directors have access to the advice and investment company should be spent on matters of general services of the Company Secretary, which has administrative corporate governance (e.g. the investment strategy, policy and responsibility for the meetings of the Board and its committees. performance) which is what we do. Directors may also take independent professional advice at the Company’s expense where necessary in the performance of The Company is committed to maintaining high standards in their duties. corporate governance. The Directors consider that the Company has, throughout the year under review, complied with the As all of the Directors are non-executive, it is not considered provisions set out in the AIC Code with the exceptions set out in necessary to identify a member of the Board as the senior the Compliance Statement on page 37. independent director of the Company. The Company’s Articles of Association and the schedule of Board of Directors matters reserved for the Board for decision provide that the The Company has a Board of five non-executive Directors, all appointment and removal of the Company Secretary is a matter of whom are considered by the Board to be independent. The for the full Board. Board meets at least four times a year, and on other occasions as required, to review the investment performance and monitor compliance with the investment policy laid down by the Board. 1 Please see the AIC Code at www.theaic.co.uk. Octopus AIM VCT 2 plc Annual report 2023 35 During the year the following meetings were held as part of the regular programme of meetings: | | Full Board meetings held | No. of meetings attended | Audit Committee meetings held | Audit Committee meetings attended | | --- | --- | --- | --- | --- | | Keith Mullins | 6 | 6 | 3 | 3 | | Elizabeth Kennedy | 6 | 6 | 3 | 3 | | Andy Raynor | 6 | 5 | 3 | 2 | | Brad Ormsby | 6 | 6 | 3 | 3 | Virginia (Connelly) Bull was appointed as a non-executive Director on 1 January 2024 and as such is not included in the meeting attendance table above. Additional meetings were held as required to address specific issues, including approval of the Company's annual report and accounts and half yearly results. ### Performance evaluation and independence of Directors Each year a formal performance evaluation is undertaken of the Board, its Committees and the Directors in the form of a questionnaire completed by each Director. The Chair provides a summary of the findings to the Board, which is discussed and an action plan agreed. During the year no issues were identified requiring an action plan. The performance of the Chair is evaluated by the other Directors. Brad Ormsby is the Group Finance Director and a shareholder of Judges Scientific plc, in which the Company has an investment, and so absents himself from any Board decisions relating to that investment. Judges Scientific plc are a client of Investec Bank plc and consequently Virginia (Connelly) Bull as a Director of the Investec Bank plc Corporate Braking team was known to Brad Ormsby before her appointment to the Board. As part of the recruitment process the Board were satisfied this does not present a conflict. We believe that, in line with the AIC Code, all members of the Board are independent in character and judgement with respect to their duties to the shareholders. Keith Mullins, Chair of the Company, has served on the Board for 18 years since his initial appointment. He is still considered to be independent in the absence of a connection with the Investment Manager or any of the Company's advisers. Andy Raynor, who was appointed in 2005, is also considered independent. ### Length of service | | Date of original appointment | Date of last election/re-election | | --- | --- | --- | | Keith Mullins | 14 September 2005 | AGM 2022 | | Elizabeth Kennedy | 12 August 2010 | AGM 2023 | | Andy Raynor | 14 September 2005 | AGM 2021 | | Brad Ormsby | 1 January 2022 | AGM 2022 | | Virginia (Connelly) Bull | 1 January 2024 | n/a | Length of service of the Chair and other Directors is one of a number of factors taken into account when considering the contribution and ongoing independence of the Board, both individually and in terms of overall composition, and when considering succession planning. The Board considers the experience, range of skills, knowledge of the Company and its operating environment and diversity of the Directors. Accordingly, the Board's policy on tenure is that the term the Chair and other Directors serve on the Board should not be restricted to a fixed time limit in order to ensure sufficient corporate memory and consistent adherence to strategy. ### Powers of the Directors Subject to the provisions of the Companies Act 2006, the Memorandum and Articles of Association of the Company and any directions given by shareholders by Special Resolution, the Articles of Association specify that the business of the Company is to be managed by the Directors, who may exercise all the powers of the Company, whether relating to the management of the business or not. In particular the Directors may exercise on behalf of the Company its powers to purchase its own shares to the extent permitted by shareholders. Authority was given at the Company's 2023 AGM to make market purchases of up to 14.99% of the issued Ordinary share capital at any time up to the 2024 AGM and otherwise on the terms set out in the relevant resolution and renewed authority is being sought at the 2024 AGM as set out in the notice of meeting. Call us on 0800 316 2295 36 Octopus AIM VCT 2 plc Annual report 2023 # Corporate governance report continued ## Board committees It should be noted that there is no formal Management Engagement Committee as matters of this nature are dealt with by the independent non-executive Directors. The Board does not have a separate Remuneration Committee as the Company has no employees or executive directors. Detailed information relating to the remuneration of Directors is given in the Directors' Remuneration Report on pages 40 to 42. The Board does not have a separate Nomination Committee as there has not been a requirement for a Committee. Whilst diversity considerations would normally be a function of a Nomination Committee, these are dealt with by the Board as a whole on an annual basis. The Board considers its composition to be appropriate with due regard for the benefits of diversity and gender. ## Audit committee Andy Raynor is Chair of the Audit Committee and all Directors are members of this Committee. The Board confirms that, in accordance with the recommendation of the AIC Code, at least one member of the Audit Committee has recent and relevant financial experience. Both Andy Raynor, as Chair, and Brad Ormsby are Chartered Accountants and have recent and relevant financial experience. The Board is confident that the Committee as a whole has competence relevant to the sector in which the Company operates. The Audit Committee Report is given on pages 38 and 39. ## Internal controls The purpose of these controls is to ensure that proper accounting records are maintained, the Company's assets are safeguarded and the financial information used within the business and for publication is accurate and reliable; such a system can only provide reasonable and not absolute assurance against material misstatement or loss. The system of internal controls is designed to manage rather than eliminate the risk of failure to achieve the business objectives. The Board regularly reviews financial results and investment performance with its Investment Manager. The Board delegates the identification of appropriate opportunities and the investment of funds to the Investment Manager. The Board regularly review reports upon the investments made and on the status of existing investments. The Investment Manager is also engaged to carry out the accounting and custodian functions of the Company. All quoted investments are held in CREST. Unquoted investments are held in certificated form. The Directors confirm that they have established a continuing process throughout the year and up to the date of this report for identifying, evaluating and managing the significant potential risks faced by the Company and have reviewed and were satisfied with the effectiveness of the internal control systems. As part of this process, an annual review of the internal control systems is carried out, by Octopus, in accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. As explained in the Audit Committee Report, the Board does not consider it necessary to maintain an internal audit function. Internal control systems include the production and review of monthly bank reconciliations and management accounts. All outflows made from the VCT's accounts require the authority of two signatories from Octopus. The Investment Manager is subject to ongoing review by the Octopus Compliance Department. ## Financial risk management objectives and policies The Company is exposed to the risks arising from its operational and investment activities. Further details can be found in note 17 to the financial statements. ## Statement of voting at the Annual General Meeting The most significant portion of the votes cast against a resolution at the 2023 AGM were for the resolutions relating to the approval of the Directors' Remuneration Report (7.2% of votes cast) and the approval of the Directors' Remuneration Policy (6.98% of votes cast). No communication was received from shareholders giving reasons for the votes against the resolutions. Shareholders' views are always welcomed and considered by the Board. The methods of contacting the Board are set out below. ## Relations with shareholders The Investment Manager will provide an update on the Company's activities and future plans at the AGM to be held on 16 May 2024. This will also provide an opportunity for shareholders to ask questions of the Board relating to the AGM resolutions and annual report and accounts. We always welcome questions from our shareholders at the AGM, which will take place on 16 May 2024 at 12.00pm. To ensure we are able to respond to any questions you may have for either the Investment Manager or AIM VCT 2 Board, please send these via email to AIMVCT2AGM@octopusinvestments.com by 5.00pm on 13 May 2024. Alternatively, please contact the team at Octopus to answer any queries. They can be contacted on 0800 316 2295. ## Corporate Governance Code The Board are aware of the revised UK Corporate Governance Code as published by the FRC on 22 January 2024, which will apply to accounting periods beginning on or after 1 January 2025, with the exception of a new provision (29) relating to risk management and internal controls, which will be applicable for accounting periods beginning on or after 1 January 2026. It is expected that the Association of Investment Companies will publish an update to the 2019 AIC Code of Corporate Governance which the Company reports against. The Board will ensure that all measures within the updated UK Code and AIC Code, once revised, are acted upon. Octopus AIM VCT 2 plc Annual report 2023 37 Compliance statement 4. The Company has no major shareholders therefore The Board recognises the importance of good governance. shareholders are not given the opportunity to meet any With the exception of the limited items outlined below, the non-executive Directors at a specific meeting other than the Board believes, for the year ended 30 November 2023, the AGM, but are welcome to contact the Board or Octopus at Company has complied with the principles and provisions of the any time. AIC Code: 5. The Directors are not subject to annual re-election. This is to ensure experience is retained on the Board. As 1. The Company does not have a senior independent director. highlighted earlier, the Board considers all the Directors to The Board does not consider this necessary for the size of be independent. the Company. 2. The Company does not have a separate Nomination By Order of the Board Committee due to the relatively small size and structure of the Company. Appointments are dealt with by the full Board as and when appropriate. 3. The Company does not have a Remuneration Committee Keith Mullins given the size of the Company and as it does not have any Chair executive directors. The whole Board deals with any matters 7 March 2024 pertaining to remuneration. Call us on 0800 316 2295 38 Octopus AIM VCT 2 plc Annual report 2023 ## Audit Committee report This report is submitted in accordance with The AIC Code in auditor was appointed in 2008 under the name of PKF (UK) LLP, respect of the year ended 30 November 2023 and describes the which subsequently merged with BDO LLP, and has held the work of the Audit Committee in discharging its responsibilities. position for sixteen years. In addition, during the year the previous audit partner Peter Smith rotated o the audit with Elizabeth The Committee’s key objective is the provision of eective Hooper joining. governance of the appropriateness of the Company’s financial reporting, the performance of the auditor and the management Independence and objectivity of the auditor of the internal control and business risks systems. The Directors Non-audit services were not provided by the external auditor forming the Audit Committee can be found on page 29. during the period and therefore the Audit Committee does not believe there are any influences on their independence Matters considered by the Audit Committee in or objectivity. the year When considering the eectiveness of the external audit, the The Audit Committee’s terms of reference include the following Board considered the quality and content of the Audit Plan responsibilities: and Report provided to the Committee by the auditor and the • reviewing and making recommendations to the Board in resultant reporting and discussions on topics raised. Further relation to the Company’s published financial statements consideration is also given as part of the annual Board evaluation. and other formal announcements relating to the Company’s financial performance; Auditor evaluation • reviewing and making recommendations to the Board in The eectiveness of the external audit is assessed as part of the relation to the Octopus internal controls (including internal Board evaluation conducted annually and by the quality and financial control) and risk management systems to the content of the Audit Plan and Report provided to the Committee extent they are relevant to the Company’s internal controls; by the auditor and the resultant discussions on topics raised. • periodically considering the need for an internal audit The Committee also engages with the auditor when present at function; a Committee meeting, if appropriate. The Audit Committee is satisfied that BDO LLP provided eective challenge in carrying • making recommendations to the Board in relation to the out its responsibilities. appointment, re-appointment and removal of the external auditor and approving the remuneration and terms of Once the Committee has made a recommendation to the Board, engagement of the external auditor; in relation to the appointment of the external auditor, this is then • reviewing and monitoring the external auditor’s independence ratified at the AGM through an Ordinary Resolution. and objectivity and the eectiveness of the audit process, taking into consideration relevant UK professional regulatory requirements; Internal audit The Company does not have an independent internal audit • monitoring the extent to which the external auditor is function as it is not deemed appropriate given the size of the engaged to supply non-audit services; and Company and the nature of the Company’s business. However, • ensuring that the Investment Manager has arrangements the Committee considers annually whether there is a need for such in place for the investigation and follow-up of any concerns a function and if so would recommend this to the Board. Octopus raised confidentially by sta in relation to propriety of has an internal audit team, which is supported as required by financial reporting or other matters. external consultants. The Octopus Compliance Department reports to the Board on the outcome of the internal audits that The Committee reviews its terms of reference and its eectiveness have taken place insofar as these relate to the Company and annually and recommends to the Board any changes required as confirms the absence of any issues relating to internal audit a result of the review. The terms of reference are available on of which the Board should be aware. Octopus undertakes to request from the Company Secretary. immediately raise to the Committee any significant issues arising from the Octopus internal audit that aect the Company. The Committee meets at least twice per year and has direct access to BDO LLP, the Company’s external auditor. The Committee will monitor the significant risks at each meeting and Octopus will work closely with the internal auditor to mitigate Auditor appointment the risks and the resultant impact. The Audit Committee undertook a competitive audit tender process in 2018 as required for all Public Interest Entities who have Significant risks had the same auditor for ten years, following which BDO LLP The Audit Committee is responsible for considering significant were re-appointed. When considering whether to recommend issues in relation to the financial statements. The Committee has the re-appointment of the external auditor, the Committee identified the most significant risks for the Company as: take into account the tenure of the current auditor in addition to comparing the fees charged to similar sized VCTs. The current Octopus AIM VCT 2 plc Annual report 2023 39 • Valuation and ownership of investments: The Committee These issues were discussed with Octopus and the auditor at the gives special audit consideration to the valuation of conclusion of the audit of the financial statements. investments and supporting data provided by Octopus. The impact of this risk would be a large gain or loss in the The Committee has considered the annual report and accounts Company’s results. The valuations are supported variously for the year ended 30 November 2023 and has reported to by stock market quotations, portfolio company audited the Board that it considers them to be fair, balanced and accounts and third party evidence (where relevant). These, understandable, providing the information necessary for together with reconciliations and independent confirmations shareholders to assess the Company’s position, performance, performed by the auditor give comfort to the Audit business model and strategy. Committee. The Audit Committee is also responsible for considering and • Management override of financial controls: The reporting on any significant issues that arise in relation to the Committee specifically review all significant accounting audit of the financial statements. The Audit Committee can estimates that form part of the financial statements and confirm that there were no significant issues to report to the consider any material judgements applied by management shareholders in respect of the audit of the financial statements during the completion of the financial statements. to 30 November 2023. • Recognition and categorisation of revenue from investments: Investment income is the Company’s main source of revenue. The revenue return is recognised when the Company’s right to the return is established in accordance with the Statement of Recommended Practice, as either revenue or capital income. Octopus confirms to the Audit Andy Raynor Committee that the revenues are recognised appropriately. Audit Committee Chair 7 March 2024 In addition to the above, the Committee has also considered the implications of inflation and higher interest rates. As at the date of issuing this Report, whilst the Committee anticipates further market volatility aecting the underlying investments, it does not consider that this will have an impact upon the long-term viability of the Company. This is discussed further in the Viability Statement on page 24. Call us on 0800 316 2295 40 Octopus AIM VCT 2 plc Annual report 2023 # Directors' remuneration report ## Introduction This report is submitted in accordance with Regulation 3 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 ('Regulations') in respect of the year ended 30 November 2023. The Company's auditor, BDO LLP, is required to give their opinion on certain information included in this report; comprising the Directors' emoluments section and the Directors' interest in shares below as set out on pages 41 and 42. ## Consideration by the Directors of matters relating to Directors' remuneration The Board as a whole considers Directors' remuneration and has not appointed a separate committee in this respect. The Board has not sought advice or services from any external person in respect of its consideration of Directors' remuneration during the year although the Directors expect from time to time to review the fees against those paid to the boards of directors of other VCTs. The Company does not have a chief executive officer, senior management or any employees. ## Directors' remuneration policy report The Board consists entirely of non-executive Directors, who meet at least quarterly and on other occasions as necessary, to deal with the important aspects of the Company's affairs. Directors are appointed with the expectation that they will serve for a period of at least three years. All Directors are subject to election at the first AGM after their appointment and one third of all Directors are subject to retirement by rotation at the AGMs. Re-election will be recommended by the Board but is dependent upon shareholder votes. Each Director receives a letter of appointment. A Director may resign by notice in writing to the Board at any time giving three months' notice. None of the Directors are entitled to compensation payable upon early termination of their contract other than in respect of any unexpired notice period. The Company's policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors. They should be sufficient to attract candidates of high calibre to be recruited. The policy is for the Chair of the Board and the Chair of the Audit Committee to be paid higher fees than the other Directors in recognition of their more onerous roles. The Remuneration policy is to review the Directors' fees from time to time, benchmarking the fees against other VCT boards, although such review will not necessarily result in any changes. Due to the nature of the Company, there are no employees other than the Directors and therefore no such issues to consider when determining the Directors' remuneration. The Company's policy is for the Directors to be remunerated in the form of fees, payable monthly in arrears. The fees are not specifically related to the Directors' performance, either individually or collectively. There are no long-term incentive schemes, share option schemes or pension schemes in place. The Board is also entitled to be repaid all reasonable travelling, subsistence and other expenses incurred by them respectively whilst conducting their duties as Directors. No other remuneration or compensation was paid or payable by the Company during the year to any of the current Directors. There will be no payment for loss of office unless approved by a separate shareholder resolution. An Ordinary Resolution to approve the remuneration policy of the Company was put to, and approved by, shareholders at the 2023 AGM and will remain in force for a three year period. The Board will review the remuneration of the Directors if thought appropriate and monitors competitors in the VCT industry on an annual basis. ## Annual remuneration report This section of the report is subject to approval by a simple majority of shareholders at the AGM on 16 May 2024, as in previous years. ## Statement of voting at the Annual General Meeting The 2022 Remuneration Report was presented to the AGM in April 2023 and received shareholder approval following voting by way of a poll. 92.8% of the votes cast were in favour of the Remuneration Report or at the Chair's discretion, 7.2% were against the resolution and 83,206 votes were withheld. The proxy forms returned to the Registrars contained no explanation for the votes against the resolution. Shareholders' views are always considered by the Board, and the methods of contacting the Board are set out on page 36. ## Company performance The Board is responsible for the Company's investment strategy and performance, although the management of the Company's investment portfolio is delegated to Octopus through the investment management agreement, as referred to in the Directors' Report. The performance graph on page 22 also shows the performance of the Company on a total return basis, compared to the performance of the FTSE AIM All Share Index, the FTSE SmallCap (excluding investment companies) Index and the FTSE All Share Index. Octopus AIM VCT 2 plc Annual report 2023 41 Directors’ emoluments (audited) The amount of each Director’s fees for the year were: | | | Year ended | | | | Year ended | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 30 November | | | | 30 November | | | | | 2023 | | 2022 | | 2021 | | | | | 2023 | | | | 2022 | | % Increase/ | | % Increase/ | | % Increase/ | | | | | | £’000 | | | | £’000 | | (Decrease) | | (Decrease) | | (Decrease) | | | Keith Mullins | | | | 29 | | | | 28 3.6 7.7 4.0 | | | | | | | | Andy Raynor | | | | 26 | | | | 25 4.0 4.2 4.3 | | | | | | | | Elizabeth Kennedy | | | | 24 | | | | 22 9.1 4.8 5.0 | | | | | | | | Alastair Ritchie | | | | n/a | | | | 10 n/a (52.4) 5.0 | | | | | | | | Brad Ormsby | | | | 24 | | | | 21 14.3 n/a n/a | | | | | | | | Total | | | | 103 | | | | 106 (2.8) 15.2 4.5 | | | | | | | 1 Retired from the Board on 28 April 2022. 2 Appointed to the Board on 1 January 2022 and received fees for 11 months of the year ended 30 November 2022. Virginia (Connelly) Bull was appointed as a non-executive Director on 1 January 2024 and as such is not included in the Directors’ emoluments table above. The Chair of the Company and Audit Committee Chair receive additional remuneration over the basic Directors’ fee in recognition of the additional responsibilities and time commitment, and additionally, to be fair and comparable to similar VCTs. Following a review, the Board agreed the following fee rates with eect from 1 May 2023 (previous fees shown in brackets): Chair of the Board £30,250 (£27,500); Chair of the Audit Committee £27,250 (£24,750) and all other Directors £24,750 (£22,500). The Directors do not receive any other form of emoluments in addition to the Directors’ fees, their total remuneration is not linked to the performance of the Company and no bonuses were or will be paid to the Directors. Relative importance of spend on pay The actual expenditure in the current year is as follows: | | | Year ended | | | | Year ended | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 30 November 2023 | | | | 30 November 2022 | | | | | | | £’000 | | | | £’000 | | Total dividends paid | | | 6,673 | | | | 6,155 | | Total buybacks | | | 3,076 | | | | 3,117 | | Total directors’ fees | | | | 103 | | | 106 | The Directors do not consider there to be any other significant distributions during the year relevant to understanding the relative importance of spend on pay. Call us on 0800 316 2295 42 Octopus AIM VCT 2 plc Annual report 2023 ## Directors’ remuneration report continued Directors’ interest in shares (audited) There are no guidelines or requirements for Directors to own shares in the Company. The interests of the Directors, and their connected persons, in shares of the Company during the year (in respect of which transactions are notifiable under Disclosure Guidance and Transparency Rule 3.1.2) in the issued Ordinary shares of 0.01p are shown in the table below: | | Ordinary shares of 0.01p each | | | Ordinary shares of 0.01p each | | | | --- | --- | --- | --- | --- | --- | --- | | | | 30 November 2023 | | | 30 November 2022 | | | Keith Mullins | | | 416,929 | | | 308,563 | | Andy Raynor | | | 21,080 | | | 21,080 | | Elizabeth Kennedy | | | 37,380 | | | 37,380 | Brad Ormsby – – Virginia (Connelly) Bull was appointed as a non-executive Director on 1 January 2024 and as such is not included in the Directors’ interests in shares table above. All of the shares held by the Directors, or their connected persons, were held beneficially, either in their own name or through a nominee company. There have been no changes in the Directors’ share interests between 30 November 2023 and the date of this report. Shareholders’ proxy voting information As required by Schedule 8:23 of the Regulations, the votes received for the AGM in 2023 were as follows: For (including discretionary) Against No. of Shares % No. of Shares % Approval of Directors’ 2,620,408 92.8 203,279 7.2 Remuneration Report By Order of the Board Keith Mullins Chair 7 March 2024 Octopus AIM VCT 2 plc Annual report 2023 43 ## Directors’ responsibility ## statement The Directors are responsible for preparing the Strategic Report, In so far as each of the Directors is aware: the Directors’ Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable laws and • there is no relevant audit information of which the Company’s regulations. They are also responsible for ensuring that the annual auditor is unaware; and report and accounts include information required by the Listing • the Directors have taken all steps that they ought to have Rules of the Financial Conduct Authority. taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of Company law requires the Directors to prepare financial that information. statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance The Directors are responsible for preparing the annual report and with United Kingdom Generally Accepted Accounting Practice accounts in accordance with applicable laws and regulations. (GAAP), including Financial Reporting Standard 102 – ‘The Having taken advice from the Audit Committee, the Directors are Financial Reporting Standard Applicable in the United Kingdom of the opinion that this report as a whole provides the necessary and Republic of Ireland’ (FRS 102), (United Kingdom accounting information to assess the Company’s performance, business standards and applicable law). Under company law the Directors model and strategy and is fair, balanced and understandable. must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of aairs The Directors are responsible for the maintenance and integrity and profit or loss of the Company for that period. In preparing of the corporate and financial information included on the these financial statements, the Directors are required to: Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may • select suitable accounting policies and then apply them dier from legislation in other jurisdictions. consistently; The Directors confirm that, to the best of their knowledge: • make judgements and accounting estimates that are reasonable and prudent; • the financial statements, prepared in accordance with United • state whether applicable UK accounting standards have Kingdom Generally Accepted Accounting Practice, including been followed, subject to any material departures disclosed FRS 102, give a true and fair view of the assets, liabilities, and explained in the financial statements; financial position and profit or loss of the Company; and • prepare the financial statements on the going concern basis • the annual report and accounts (including the Strategic unless it is inappropriate to presume that the Company will Report), give a fair review of the development and continue in business; and performance of the business and the position of the • prepare a Strategic Report, a Directors’ Report and Directors’ Company, together with a description of the principal risks Remuneration Report which comply with the requirements and uncertainties that it faces. of the Companies Act 2006. On behalf of the Board The Directors are responsible for keeping adequate accounting records that are sucient to show and explain the Company’s transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Keith Mullins Act 2006. They are also responsible for safeguarding the assets Chair of the Company and hence for taking reasonable steps for the 7 March 2024 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 and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. Call us on 0800 316 2295 44 Octopus AIM VCT 2 plc Annual report 2023 ## Independent auditor’s report ## to the members of Octopus ## AIM VCT 2 plc Opinion on the financial statements fulfilled our other ethical responsibilities in accordance with these In our opinion the financial statements: requirements. The non-audit services prohibited by that standard were not provided to the Company. • give a true and fair view of the state of the Company’s aairs as at 30 November 2023 and of its loss for the year then Conclusions relating to going concern ended; In auditing the financial statements, we have concluded that • have been properly prepared in accordance with United the Directors’ use of the going concern basis of accounting in Kingdom Generally Accepted Accounting Practice; and the preparation of the financial statements is appropriate. Our • have been prepared in accordance with the requirements of evaluation of the Directors’ assessment of the Company’s ability the Companies Act 2006. to continue to adopt the going concern basis of accounting included: We have audited the financial statements of Octopus AIM VCT 2 plc (the ‘Company’) for the year ended 30 November 2023 • Obtaining the VCT compliance reports during the year which comprise the Income Statement, the Balance Sheet, the and as at year end and reviewing their calculations to check Statement of Changes in Equity, the Cashflow Statement and that the Company was meeting its requirements to retain Notes to the Financial Statements, including a summary of VCT status; significant accounting policies. The financial reporting framework • Reviewing the forecasted cash flows that support the that has been applied in their preparation is applicable law and Directors’ assessment of going concern, challenging United Kingdom Accounting Standards, including Financial assumptions and judgements made in the forecasts, Reporting Standard 102 The Financial Reporting Standard and assessing them for reasonableness. In particular, we applicable in the UK and Republic of Ireland (United Kingdom considered the available cash resources relative to the Generally Accepted Accounting Practice). forecast expenditure which was assessed against the prior year for reasonableness; Basis for opinion • Evaluating the Director’s method of assessing going concern We conducted our audit in accordance with International in light of market volatility having regard to the liquidity of Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our the investment portfolio. responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements Based on the work we have performed, we have not identified section of our report. We believe that the audit evidence we have any material uncertainties relating to events or conditions that, obtained is sucient and appropriate to provide a basis for our individually or collectively, may cast significant doubt on the opinion. Our audit opinion is consistent with the additional report Company’s ability to continue as a going concern for a period of to the audit committee. at least twelve months from when the financial statements are authorised for issue. Independence Following the recommendation of the audit committee, we In relation to the Company’s reporting on how it has applied the were appointed by the Board of Directors to audit the financial UK Corporate Governance Code, we have nothing material to statements for the year ended 30 November 2008 and add or draw attention to in relation to the Directors’ statement in subsequent financial periods. The period of total uninterrupted the financial statements about whether the Directors considered engagement including retenders and reappointments is 16 years, it appropriate to adopt the going concern basis of accounting. covering the years ended 30 November 2008 to 30 November Our responsibilities and the responsibilities of the Directors with 2023. We remain independent of the Company in accordance respect to going concern are described in the relevant sections with the ethical requirements that are relevant to our audit of of this report. the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have Octopus AIM VCT 2 plc Annual report 2023 45 Overview 2023 2022 Key audit matters Valuation and existence of investments   Materiality £846,000 (2022: £1,017,000) based on 1% (2022: 1%) of Net assets. An overview of the scope of our audit Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest eect on: the overall audit strategy, the allocation of resources in the audit, and directing the eorts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How the scope of our audit addressed the key audit matter Valuation and ownership of investments In respect of 100% of quoted equity, we responded to this matter by testing (Notes 1 and 10 to the financial the valuation and ownership of the whole portfolio of quoted investments. We statements) performed the following procedures: The investment portfolio comprises of quoted • Confirmed the year-end bid price was used by agreeing to externally quoted and unquoted investments. prices; • Assessing if there were contra indicators, such as liquidity considerations, to The Investment Manager’s fee is based on the suggest bid price is not the most appropriate indication of fair value; value of the net assets of the fund, as shown • Recalculating the valuation by multiplying the number of shares held per the in note 3. statement obtained from the custodian by the valuation per share; As the Investment Manager is also responsible • Obtained direct confirmation from the custodian and agreed all investments for preparing the valuation of investments for held at the balance sheet date to CREST records. the financial statements, there is a potential risk of misstatement in the investment In respect of 99% of unquoted investments we have: valuations. • Challenged and corroborated the inputs to the valuation with reference There is a risk that the investment balance to management information of investee companies, market data and our includes investments which are no longer own understanding and assessed the impact of the estimation uncertainty owned by the Company or the holding % concerning these assumptions and the disclosure of these uncertainties in the may have changed or that the bid price used financial statements; to value the investment is incorrect. • Obtained share capital tables directly from the investee company to confirm ownership at year end and recalculated the value attributable to the There is a high level of estimation uncertainty Company; involved in determining the unquoted • Reviewed the historical financial statements and any recent management investment valuations. information available to support assumptions about maintainable revenues, There is an inherent risk of management earnings or cash flows used in the valuations; override arising from the unquoted investment • Considered the revenue or earnings multiples applied and the discounts valuations being prepared by the Investment applied by reference to observable listed company market data; and Manager, who is remunerated based on a percentage of the value of the net assets of the fund, as shown in note 3. Call us on 0800 316 2295 46 Octopus AIM VCT 2 plc Annual report 2023 ## Independent auditor’s report to the members of ## Octopus AIM VCT 2 plc continued Quoted Investments: £46 million (86%) of • Challenged the consistency and appropriateness of adjustments made to the Company’s investments held at fair such market data in establishing the revenue, cash flow or earnings multiple value through profit and loss are quoted applied in arriving at the valuations adopted by considering the individual investments. performance of investee companies against plan and relative to the peer group, the market and sector in which the investee company operates and Unquoted investments: £7 million (14%) of other factors as appropriate. the Company’s investments held at fair value through profit and loss are unquoted and Where appropriate, we performed a sensitivity analysis by developing our own are valued using more subjective techniques point estimate where we considered that alternative input assumptions could (level 3). reasonably have been applied and we considered the overall impact of such sensitivities on the portfolio of investments in determining whether the valuations For these reasons we considered the valuation as a whole are reasonable and free from bias. and existence of unquoted and quoted investments to be a key audit matter. Key observations: Based on our procedures performed we did not identify any matters to suggest the valuation or existence of investments was not appropriate and we are satisfied that the estimates and judgements made in the unquoted investment valuations are appropriate considering the level of estimation uncertainty. . Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the eect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their eect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Company Financial statements 2023 2022 | Materiality | | £846,000 £1,017,000 | | --- | --- | --- | | Basis for determining materiality | 1% of net assets. | | | Rationale for the benchmark applied | Net asset value is the primary measure used by the users in assessing the | | performance of the Company as an investment entity. In setting materiality, we have had regard to the nature and disposition of the investment portfolio. Given that the VCT’s portfolio is comprised primarily of quoted investments, we have applied a percentage of 1% of adjusted net assets value. Performance materiality £634,000 £762,000 Basis for determining performance materiality 75% of materiality The level of performance materiality applied was set after having considered a number of factors including the expected total value of known and likely misstatements and the level of transactions in the year. Lower Testing Threshold Whilst the majority of long-term returns are expected to arise from capital, we note that on-going costs and revenue returns are still important to users of the financial statements, despite being considerably smaller in magnitude. Thus, we have set a lower testing threshold for those items impacting revenue return of £209,000 which is based on 10% of gross expenditure. (2022: £284,000). Octopus AIM VCT 2 plc Annual report 2023 47 Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit dierences in excess of £42,000 (2022: £50,000). We also agreed to report dierences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Corporate governance statement The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit. Going concern and • The Directors’ statement with regards the appropriateness of adopting the going concern longer-term viability basis of accounting and any material uncertainties; and • The Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why they period is appropriate. Other Code provisions • Directors’ statement on fair, balanced and understandable; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks; • The section of the annual report that describes the review of eectiveness of risk management and internal control systems ; and • The section describing the work of the audit committee. Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and In our opinion, based on the work undertaken in the course of the audit: Directors’ report • the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. Call us on 0800 316 2295 48 Octopus AIM VCT 2 plc Annual report 2023 ## Independent auditor’s report to the members of ## Octopus AIM VCT 2 plc continued Directors’ remuneration In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. Corporate governance In our opinion, based on the work undertaken in the course of the audit the information about statement internal control and risk management systems in relation to financial reporting processes and about share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Guidance and Transparency Rules sourcebook made by the Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in this information. In our opinion, based on the work undertaken in the course of the audit information about the Company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules. We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the Company. Matters on which we We have nothing to report in respect of the following matters in relation to which the Companies are required to report by Act 2006 requires us to report to you if, in our opinion: exception • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Directors’ responsibility statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: Non-compliance with laws and regulations Based on: • Our understanding of the Company and the industry in which it operates; • Discussion with the Manager and those charged with governance; and Octopus AIM VCT 2 plc Annual report 2023 49 • Obtaining an understanding of the Company’s policies and • Obtaining evidence to support the existence of investments; procedures regarding compliance with laws and regulations. • Review of estimates and judgements applied by management in the financial statements to assess their We considered the significant laws and regulations to be the appropriateness and the existence of any systematic bias Companies Act 2006, the FCA listing and DTR rules, the principles • Review and consideration of the appropriateness of of the UK Corporate Governance Code, industry practice adjustments made in the preparation of the financial represented by the Statement of Recommended Practice: statements; and Financial Statements of Investment Trust Companies and Venture Capital Trusts (2022) (“the SORP”) and the applicable financial • Review of unadjusted audit dierences, if any, for indication reporting framework. We also considered the Company’s of bias or deliberate misstatement. qualification as a VCT under UK tax legislation. We also communicated relevant identified laws and regulations Our procedures in respect of the above included: and potential fraud risks to all engagement team members who were all deemed to have appropriate competence and • Obtaining an understanding of the control environment in capabilities and remained alert to any indications of fraud or monitoring compliance with laws and regulations non-compliance with laws and regulations throughout the audit. • Review of financial statement disclosures and agreeing to Our audit procedures were designed to respond to risks of supporting documentation; material misstatement in the financial statements, recognising • Enquiries of the Manager and those charged with governance that the risk of not detecting a material misstatement due relating to the existence of any non-compliance with laws to fraud is higher than the risk of not detecting one resulting and regulations; from error, as fraud may involve deliberate concealment by, for • Review of minutes of meeting of those charged with example, forgery, misrepresentations or through collusion. There governance for any instances of non-compliance with laws are inherent limitations in the audit procedures performed and and regulations; the further removed non-compliance with laws and regulations • Obtaining and reviewing independent reports prepared for is from the events and transactions reflected in the financial the Company on compliance with the relevant tests in order statements, the less likely we are to become aware of it. to maintain its qualifying status as a VCT. A further description of our responsibilities is available on the Fraud Financial Reporting Council’s website at: We assessed the susceptibility of the financial statements to www.frc.org.uk/auditorsresponsibilities material misstatement, including fraud. Our risk assessment procedures included: This description forms part of our auditor’s report. • Enquiry with management and those charged with governance regarding any known or suspected instances of Use of our report fraud; This report is made solely to the Company’s members, as a body, • Obtaining an understanding of the Company’s policies and in accordance with Chapter 3 of Part 16 of the Companies Act procedures relating to: 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required • Detecting and responding to the risks of fraud; and to state to them in an auditor’s report and for no other purpose. • Internal controls established to mitigate risks related to To the fullest extent permitted by law, we do not accept or fraud. assume responsibility to anyone other than the Company and • Review of minutes of meeting of those charged with the Company’s members as a body, for our audit work, for this governance for any known or suspected instances of fraud; report, or for the opinions we have formed. and • Discussion amongst the engagement team as to how and where fraud might occur in the financial statements. Based on our risk assessment, we considered the areas most Elizabeth Hooper (Senior Statutory Auditor) susceptible to fraud to be the valuation and existence of unquoted For and on behalf of BDO LLP, Statutory Auditor investments and management override of controls. London, UK 7 March 2024 Our procedures in respect of the above included, but were not limited to: BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). • The procedures set out in the Key Audit Matters section above; Call us on 0800 316 2295 50 Octopus AIM VCT 2 plc Annual report 2023 ## Income statement | | | | Year to 30 November 2023 | | | | | Year to 30 November 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Revenue | | | Capital | Total | Revenue | | | Capital | Total | | | Notes | | £’000 | | £’000 | £’000 | | £’000 | | £’000 | £’000 | | Gain/(loss) on disposal of fixed asset | 10 | | | – 668 668 | | | | | – (32) (32) | | | investments Loss on disposal of current asset – (91) (91) – – – investments Loss on valuation of fixed asset 10 – (14,333) (14,333) – (31,821) (31,821) investments Loss on valuation of current asset – (1,047) (1,047) – (2,946) (2,946) investments | Investment income 2 | 1,194 – 1,194 | | 589 19 608 | | | --- | --- | --- | --- | --- | | Investment management fees 3 | (393) (1,179) (1,572) | | (481) (1,443) (1,924) | | | Other expenses 4 | (528) – (528) | | (580) – (580) | | | Profit/(loss) before tax 273 (15,982) (15,709) | | | (472) (36,223) (36,695) | | | Tax 6 | | – – – | | – – – | | Total comprehensive Income/ | 273 (15,982) (15,709) | | (472) (36,223) (36,695) | | (loss) after tax Earnings per share – basic and 8 0.2p (9.8p) (9.6p) (0.3p) (24.5p) (24.8p) diluted • The ‘Total’ column of this statement represents the statutory income statement of the Company prepared in accordance with the accounting policies detailed in the Notes to the financial statements; 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 on pages 54 to 69 form an integral part of the financial statements. Octopus AIM VCT 2 plc Annual report 2023 51 ## Balance sheet As at 30 November 2023 As at 30 November 2022 Notes £’000 £’000 £’000 £’000 Fixed asset investments 10 53,288 72,249 Current assets: | Investments 11 | | 8,796 | | 9,399 | | --- | --- | --- | --- | --- | | Money market funds 11 | | 21,893 | | 3,515 | | Debtors 12 | | | 152 | 205 | | Cash at bank 11 | | 1,045 | | 17,217 | | | | 31,886 | | 30,336 | | Creditors: amounts falling due within | 13 | (484) | | (791) | one year | Net current assets | | 31,402 | | 29,545 | | | --- | --- | --- | --- | --- | --- | | Total assets less current liabilities 84,690 | | | | 101,794 | | | Called up equity share capital 14 | | | 18 | | 17 | | Share premium | | 7,619 | | 12,904 | | | Capital redemption reserve | | | 3 | | 3 | | Special distributable reserve | | 80,043 | | 76,154 | | | Capital reserve realised | | (5,400) | | (5,843) | | | Capital reserve unrealised | | 4,765 | | 21,190 | | | Revenue reserve | | (2,358) | | (2,631) | | | Total equity shareholders’ funds 84,690 | | | | 101,794 | | | NAV per share – basic and diluted | 9 | 47.9p | | 61.6p | | The statements were approved by the Directors and authorised for issue on 7 March 2024 and are signed on their behalf by: Keith Mullins Chair Company No: 05528235 The accompanying notes on pages 54 to 69 form an integral part of the financial statements. Call us on 0800 316 2295 52 Octopus AIM VCT 2 plc Annual report 2023 ## Statement of changes ## in equity | | | | | Capital | | Special | | Capital | | Capital | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Share | | Share | redemption | | distributable | | | reserve | | reserve | Revenue | | | | | | | | | | | | 1 | | 1 | | | | 1 | | | capital | premium | | | reserve | | reserves | | realised | | unrealised | reserve | | | Total | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | As at 1 December 2022 17 12,904 3 76,154 (5,843) 21,190 (2,631) 101,794 Comprehensive income/(loss) for the year: Management fee allocated as capital – – – – (1,179) – – (1,179) expenditure Current year net gain on disposal – – – – 577 – – 577 Current year loss on fair value of – – – – – (15,380) – (15,380) investments Profit after tax – – – – – – 273 273 Total comprehensive loss for the year – – – – (602) (15,380) 273 (15,709) Contributions by and distributions to owners: Repurchase and cancellation of own shares – – – (3,076) – – – (3,076) Issue of shares 1 8,821 – – – – – 8,822 Share issue costs – (468) – – – – – (468) Dividends paid – – – (6,673) – – – (6,673) Total contributions by and distributions to 1 8,353 – (9,749) – – – (1,395) owners Other movements: Cancellation of share premium – (13,638) – 13,638 – – – – Prior years’ holding gains now realised – – – – 3,215 (3,215) – – Transfer between reserves – – – – (2,170) 2,170 – – Total other movements – (13,638) – 13,638 1,045 (1,045) – – Balance as at 30 November 2023 18 7,619 3 80,043 (5,400) 4,765 (2,358) 84,690 | | | | | Capital | | Special | | Capital | | Capital | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Share | | Share | redemption | | distributable | | | reserve | | reserve | Revenue | | | | | | | | | | | | 1 | | 1 | | | | 1 | | | capital | premium | | | reserve | | reserves | | realised | | unrealised | reserve | | | Total | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | As at 1 December 2021 15 54,600 2 30,826 (4,533) 56,103 (2,159) 134,854 Comprehensive income/(loss) for the year: Management fee allocated as capital – – – – (1,443) – – (1,443) expenditure Current year loss on disposal – – – – (32) – – (32) Current year loss on fair value of – – – – – (34,767) – (34,767) investments Capital investment income – – – – 19 – – 19 Loss after tax – – – – – – (472) (472) Total comprehensive loss for the year – – – – (1,456) (34,767) (472) (36,695) Contributions by and distributions to owners: Repurchase and cancellation of own shares (1) – 1 (3,117) – – – (3,117) Issue of shares 3 13,698 – – – – – 13,701 Share issue costs – (794) – – – – – (794) Dividends paid – – – (6,155) – – – (6,155) Total contributions by and distributions to 2 12,904 1 (9,272) – – – 3,635 owners Other movements: Cancellation of share premium – (54,600) – 54,600 – – – – Prior years’ holding gains now realised – – – – 146 (146) – – Total other movements – (54,600) – 54,600 146 (146) – – Balance as at 30 November 2022 17 12,904 3 76,154 (5,843) 21,190 (2,631) 101,794 1 Included within these reserves is an amount of £72,285,000 (2022: £67,680,000) which is considered distributable to shareholders under Companies Act rules. The accompanying notes on pages 54 to 69 form an integral part of the financial statements. Octopus AIM VCT 2 plc Annual report 2023 53 ##  Year to 30 November 2023 Year to 30 November 2022 Notes £’000 £’000 Cash flows from operating activities Loss on ordinary activities before tax (15,709) (36,695) Adjustments for: | Decrease/(increase) in debtors 12 | | 53 | | (20) | | --- | --- | --- | --- | --- | | Decrease in creditors 13 | | (82) | | (196) | | (Gain)/loss on disposal of fixed assets 10 | (668) | | | 32 | | Loss on disposal of current asset investments | | 91 | | – | | Loss on valuation of fixed asset investments 10 | 14,333 | | 31,821 | | | Loss on valuation of current asset investments | 1,047 | | 2,946 | | Non-cash distributions 2 – (19) Net cash utilised in operating activities (935) (2,131) Cash flows from investing activities | Purchase of fixed asset investments 10 | (4,086) | (6,071) | | | --- | --- | --- | --- | | Proceeds from sale of fixed asset investments 10 | 9,157 | 2,249 | | | Purchase of current asset investments | (2,040) | (352) | | | Proceeds from sale of current asset investments | 1,505 | | – | | Total cash flows generated from/(utilised in) | 4,536 | (4,174) | | investing activities Cash flows from financing activities | Purchase of own shares 14 | (3,076) | (3,117) | | --- | --- | --- | | Share issues net of DRIS 14 | 7,519 | 12,502 | | Share issue costs net of DRIS 14 | (468) | (794) | | Dividends paid net of DRIS | (5,370) | (4,956) | | Total cash flows (utilised in)/generated from | (1,395) | 3,635 | financing activities | Increase/(decrease) in cash and cash equivalents 2,206 | | (2,670) | | --- | --- | --- | | Opening cash and cash equivalents | 20,732 | 23,402 | | Closing cash and cash equivalents 22,938 | | 20,732 | Closing cash and cash equivalents is represented by: | Cash at bank 11 | 1,045 | 17,217 | | --- | --- | --- | | Money market funds 11 | 21,893 | 3,515 | | Total cash and cash equivalents 22,938 | | 20,732 | The accompanying notes on pages 54 to 69 form an integral part of the financial statements. Call us on 0800 316 2295 54 Octopus AIM VCT 2 plc Annual report 2023 ##  ##  1. Principal accounting policies Revenue and capital The Company is a Public Limited Company (“plc”) The Company presents its income statement in a three incorporated in England and Wales and its registered oce column format to give shareholders additional detail of is 6th Floor, 33 Holborn, London, EC1N 2HT. the performance of the Company, split between items of a revenue or capital nature as required by the SORP. The Company’s principal activity is to invest in a diverse portfolio of predominantly AIM-traded companies with the The revenue column of the income statement includes all objective of providing shareholders with attractive tax-free income and revenue expenses of the Company. The capital dividends and long-term capital growth. column includes gains and losses on disposal of investments, and gains and losses on the revaluation of investments. Basis of preparation The financial statements have been prepared under the Upon disposal of investments, gains or losses relating to the historical cost convention, except for the measurement at assets are transferred from the unrealised capital reserve to fair value of certain financial instruments, and in accordance the realised capital reserve. with UK Generally Accepted Accounting Practice (GAAP), including Financial Reporting Standard 102 – ‘The Financial Key judgements and estimates Reporting Standard applicable in the United Kingdom and The preparation of the financial statements requires the Republic of Ireland’ (FRS 102), and with the Companies Act Board to make judgements and estimates that aect the 2006 and the Statement of Recommended Practice (SORP) application of policies and reported amounts of assets and ‘Financial Statements of Investment Trust Companies and liabilities. Estimates and assumptions mainly relate to the Venture Capital Trusts (issued 2014 and updated in July 2022 fair valuation of the fixed asset investments, particularly with consequential amendments).’ unquoted investments. Estimates are based on historical experience and other assumptions that are considered The principal accounting policies have remained unchanged reasonable under the circumstances. The estimates and the since those set out in the Company’s 2022 annual report and assumptions are under continuous review with particular accounts. A summary of the principal accounting policies is attention paid to the carrying value of the investments. set out below. Investment valuation policies are important to the depiction FRS 102 sections 11 and 12 have been adopted with regard to of the Company’s financial position and require the the Company’s financial instruments. The Company held all application of subjective and complex judgements, notably fixed asset investments at fair value through profit or loss with regard to unquoted holdings, often as a result of the (‘FVTPL’); therefore all gains and losses arising from such need to make estimates about the eects of matters that investments held are attributable to financial assets held at are inherently uncertain and may change in subsequent FVTPL. Accordingly, all interest income, fee income, expenses periods. The main accounting and valuation policies used by and gains and losses on investments are attributable to the Company are disclosed below. assets held at FVTPL. Investments are regularly reviewed to ensure that the fair Going concern values are appropriately stated. Unquoted investments are After reviewing the Company’s forecasts and expectations, valued in accordance with current IPEV guidelines, although the Directors have a reasonable expectation that this does rely on subjective estimates such as appropriate the Company has adequate resources to continue in sector earnings multiples, forecast results of portfolio operational existence for the foreseeable future. The annual companies, asset values of the subsidiary companies of expenses of the Company are around £2.1 million and the portfolio companies and liquidity or marketability of the Company had £22.9 million in cash at bank and Money investments held. Market Funds at the year end. The annual expenses do not include outflows related to share buybacks or dividends Although the Company believes that the assumptions but the ability to retain cash is largely in the Company’s concerning the business environment and estimate of control as it can shift investment strategy to ensure it has future cash flows are appropriate, changes in estimates and a sucient cash buer. The Company therefore continues assumptions could require changes in the stated values. This to adopt the going concern basis in preparing its financial could lead to additional changes in fair value in the future statements. In reaching this conclusion the Directors (see note 10). have had regard to the potential impact of economic instability on the Company. See the Directors’ Report on pages 30 to 33 for further details. Octopus AIM VCT 2 plc Annual report 2023 55 | 1. Principal accounting policies continued | Reserves | | | --- | --- | --- | | Financial instruments | Called up equity share capital – represents the nominal | | | The Company’s principal financial assets are its investments | | value of shares that have been issued. | and the policies in relation to those assets are set out above Share premium account – includes any premiums received and in note 10. Financial liabilities and equity instruments on issue of share capital. Any transaction costs associated are classified according to the substance of the contractual with the issuing of shares are deducted from share premium. arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of Special distributable reserve – includes cancelled share the entity after deducting all of its financial liabilities. Where premium available for distribution. the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is Capital reserve realised – when an investment is sold, classed as an equity instrument. Dividends and distributions any balance held in capital reserve unrealised is transferred relating to equity instruments are debited direct to equity. to capital reserve realised on disposal, as a movement in reserves. The portion of the management fee allocated to The Company’s trade receivables are initially recognised capital expenditure is also included in this reserve. at fair value which is normally transaction cost and subsequently measured at amortised cost. Capital reserve unrealised – when the Company revalues the investments still held during the period, any gains or losses Cash and liquid resources arising are credited/charged to capital reserve unrealised. Cash, for the purposes of the cash flow statement, comprises cash at bank and cash equivalents. Cash Capital redemption reserve – includes nominal share equivalents are current asset investments which are capital which has been bought back by the Company for disposable without curtailing or disrupting the business cancellation and cannot be distributed to shareholders. and are either readily convertible into known amounts of cash at or close to their carrying values or traded Revenue reserve – includes all net revenue profits and losses in an active market. This comprises investments of the Company. in money market funds subject to insignificant changes in fair value. Functional and presentational currency The financial statements are presented in sterling (£). The Financing Strategy and Capital Structure functional currency is also sterling (£). We define capital as shareholder’s funds and our financial strategy in the medium term is to manage a level of cash 2. Income that balances the risks of the business with optimising the Accounting policy return on equity. The Company currently has no borrowings Investment income includes interest earned on money nor does it anticipate that it will have any borrowing facilities market securities and shown net of income tax withheld in the future to fund the acquisition of investments. at source. Dividend income is shown net of any related tax credit. Dividends are allocated to revenue or capital The Company does not have any externally imposed capital depending on whether the dividend is of a revenue or capital requirements. nature. The Board considers the distributable reserves and the total Dividends receivable are recognised when the Company’s return for the year when recommending a dividend. In right to receive payment is established and it is probable that addition, the Board is authorised to make market purchases payment will be received. Fixed returns on debt and money up to a maximum of 14.99% of the issues Ordinary share market securities are recognised on a time apportionment capital in accordance with Special Resolution 11 in order to basis so as to reflect the eective yield, provided there maintain sucient liquidity in the Company’s shares. is no reasonable doubt that payment will be received in due course. Call us on 0800 316 2295 56 Octopus AIM VCT 2 plc Annual report 2023 ##  2. Income continued Disclosure | | 30 November 2023 | | 30 November 2022 | | | --- | --- | --- | --- | --- | | | | £’000 | | £’000 | | Dividends receivable from fixed asset investments | | 563 | | 522 | 1 | In-specie dividend | – | 19 | | --- | --- | --- | | Loan note interest receivable | 20 | 30 | | Income receivable on money market securities and | 611 | 37 | bank balances 1,194 608 1 There was no in-specie dividend for the year ended 30 November 2023. In the prior period, the Company received shares in Verici Dx 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 | | | | 30 November 2023 | | | | | 30 November 2022 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Revenue | | | Capital | Total | Revenue | | | Capital | Total | | | | £’000 | | £’000 | £’000 | | £’000 | | £’000 | £’000 | | Investment management fees | | 393 1,179 1,572 | | | | | 481 1,443 1,924 | | | | Octopus provide investment management and accounting and administration services to the Company under a management agreement which initially ran for a period of five years with eect from 6 October 2005 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 insucient 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 and is set at 2% of the Company’s net assets. The Investment Manager is not entitled to any annual performance incentive scheme. During the year Octopus charged gross management fees of £1,860,000 (2022: £2,266,000). When the various allowances detailed below are included, the net management fee for the year is £1,572,000 (2022: £1,924,000). At the year end £356,000 was payable to Octopus (2022: £395,000). Octopus received £154,000 as a result of upfront fees charged on allotments of Ordinary shares (2022: £186,000). The decrease in upfront fees this year has proportionately decreased in line with the value of allotments in the year. The Company pays ongoing adviser charges to independent financial advisers (IFAs). Ongoing adviser charges are an ongoing fee of up to 0.5% per annum of the amount invested 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 30 November 2023 the rebate received was £105,000 (2022: £133,000). 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 ensure that the Company is not financially disadvantaged by such payment, a notional ongoing adviser charge equivalent to 0.5% per annum of the amount invested 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 30 November 2023 the rebate received was £127,000 (2022: £152,000). The Company also receives a reduction in the management fee for the investments in other Octopus managed funds, being the Multi Cap, Micro Cap Growth and Future Generations products, to ensure the Company is not double charged on these products. This amounted to £56,000 for the year to 30 November 2023 (2022: £57,000). 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. Octopus AIM VCT 2 plc Annual report 2023 57 4. Other expenses Accounting policy All expenses are accounted for on an accruals basis and are charged wholly to revenue, apart from management fees which are charged 25% to revenue and 75% to capital. The transaction costs incurred when purchasing or selling assets are written o to the income statement in the period that they occur. Disclosure | | 30 November 2023 | | | 30 November 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | | | £’000 | | | Other administration expenses | | | 145 | | | 204 | | IFA charges | | | 105 | | | 133 | | Directors’ remuneration | | | 103 | | | 106 | | Audit fees | | | 51 | | | 42 | | Registrar fees | | | 49 | | | 47 | | Printing and postage | | | 22 | | | 10 | | VCT monitoring fees | | | 20 | | | 3 | | Legal and professional fees | | | 14 | | | 16 | | Directors’ and ocers’ liability insurance | | | 13 | | | 12 | | Brokers’ fees | | | 6 | | | 7 | | | | | 528 | | | 580 | The fees payable to the Company’s auditor above are stated net of VAT and the VAT is included within other administration expenses. No non-audit services were provided by the Company’s auditor. The ongoing charges of the Company were 2.2% of average net assets during the year to 30 November 2023 (2022: 2.2%). 5. Directors’ remuneration Total Directors’ fees during the year were £103,000 (2022: £106,000). This excludes Employer’s National Insurance contributions of £9,500 (2022: £9,000) which have been included within other administration expenses. The highest paid Director received £29,000 (2022: £27,500). None of the Directors received any other remuneration or benefit from the Company during the year. The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was four (2022: four). 6. Tax Accounting policy Current tax is recognised for the amount of income tax payable in respect of the taxable profit/(loss) for the current or past reporting periods using the current UK corporation tax rate. The tax eect of dierent 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 dierences 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. Call us on 0800 316 2295 58 Octopus AIM VCT 2 plc Annual report 2023 ##  6. Tax continued Disclosure The corporation tax charge for the year was £nil (2022: £nil). | | 30 November 2023 | | 30 November 2022 | | | --- | --- | --- | --- | --- | | | | £’000 | | £’000 | | Loss before tax | | (15,709) | | (36,695) | | Current tax at 23.01% (2022: 19.00%) | | (3,615) | | (6,972) | Eects of | Non-taxable income | (270) | | (110) | | --- | --- | --- | --- | | Non-taxable capital gains | 3,406 | | 6,608 | | Non-deductible expenses | | 3 | 6 | | Excess management expenses on which deferred tax not | 476 | | 468 | recognised Total tax charge – – Approved VCTs are exempt from tax on capital gains within the Company. Since the Board intends that the Company will continue to conduct its aairs 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. In March 2021, the UK Government announced that from 1 April 2023, the main rate of corporation tax will be increased to 25%. Consequently, deferred tax has been calculated at the year end using a tax rate of 25%. As at 30 November 2023, there is an unrecognised deferred tax asset of £5,118,000 (2022: £4,616,000) in respect of surplus management expenses, based on a prospective 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. Additionally, the tax rate used of 23% was calculated as an average of the tax rate during the year, being 19% from 1 December 2022 to 31 March 2023, and 25% from 1 April 2023 to 30 November 2023. 7. Dividends Accounting policy Dividends payable are recognised as distributions in the financial statements when the Company’s liability to make a 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 30 November 2023 30 November 2022 £’000 £’000 Dividends paid on Ordinary shares during the year 2022 Final dividend – 2.3p per share paid 25 May 2023 3,746 3,080 (2022: 2.1p per share) 2023 Interim dividend – 1.8p per share paid 3 November 2,927 3,075 2023 (2022: 2.1p per share) Total 6,673 6,155 During the year £1,303,000 (2022: £1,199,000) of dividends were reinvested under the DRIS, see note 14. Octopus AIM VCT 2 plc Annual report 2023 59 7. Dividends continued Under Section 32 of FRS 102 ‘Events After the end of the Reporting Period’, dividends payable at year end are not recognised as a liability. Details of these dividends and all other dividends declared in the year are set out below. 30 November 2023 30 November 2022 £’000 £’000 Dividends paid and proposed 2023 Interim dividend – 1.8p per share paid 3 November 2,927 3,075 2023 (2022: 2.1p per share) 2023 Special dividend – 3.6p per share payable 27 June 6,639 – 2024 (2022: Nil) Final proposed dividend – 1.8p per share payable 27 June 3,328 3,773 2024 (2022: 2.3p share) 12,894 6,848 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 dier 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. 8. Earnings per share | | | | 30 November 2023 | | | | | 30 November 2022 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Revenue | | | Capital | Total | Revenue | | | Capital | Total | | | | £’000 | | £’000 | £’000 | | £’000 | | £’000 | £’000 | | Profit/(loss) attributable to Ordinary | | 273 (15,982) (15,709) | | | | | (472) (36,223) (36,695) | | | | shareholders Earnings per Ordinary share 0.2p (9.8p) (9.6p) (0.3p) (24.5p) (24.8p) The profit/(loss) per share is based on 164,257,336 (2022: 147,948,350) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year, and the loss on ordinary activities after tax for the year of £15,709,000 (2022: loss of £36,695,000). There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical. 9. Net asset value per share | | 30 November 2023 | | | | 30 November 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Net assets (£’000) | | | 84,690 | | | | 101,794 | | | Shares in issue | | 176,875,405 | | | | 165,172,844 | | | | NAV per share (p) | | | | 47.9 | | | | 61.6 | There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted NAV per share are identical. Call us on 0800 316 2295 60 Octopus AIM VCT 2 plc Annual report 2023 ##  10. Fixed asset investments within the income statement and allocated to the capital Accounting policy reserve unrealised. The Investment Manager reviews changes The Company’s principal financial assets are its investments in fair value of investments for any permanent reductions and the policies in relation to those assets are set out below. in value and will give consideration to whether these losses should be transferred to the capital reserve realised. Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade In the preparation of the valuations of assets the Directors date). are required to make judgements and estimates that are reasonable and incorporate their knowledge of the These investments will be managed and their performance performance of the portfolio companies. evaluated on a fair value basis in accordance with a documented investment strategy and information about Fair value hierarchy them has to be provided internally on that basis to the Board. Paragraph 34.22 of FRS 102 recommends following Accordingly, as permitted by FRS 102, the investments are a hierarchy of fair value measurements, for financial measured as being FVTPL on the basis that they qualify instruments measured at fair value in the balance sheet, as a group of assets managed, and whose performance which gives the highest priority to unadjusted quoted prices is evaluated, on a fair value basis in accordance with in active markets for identical assets or liabilities (Level 1) a documented investment strategy. The Company’s and the lowest priority to unobservable inputs (Level 3). investments are measured at subsequent reporting dates at This methodology is adopted by the Company and requires fair value. disclosure of financial instruments to be dependent on the lowest significant applicable input, as laid out below: In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the Level 1: The unadjusted, fully accessible and current quoted closing bid price on the relevant date or the last traded price, price in an active market for identical assets or liabilities that depending upon convention of the exchange on which the an entity can access at the measurement date. investment is quoted. In the case of unquoted investments Level 2: Inputs for similar assets or liabilities other than the and loan notes, fair value is established by assessing dierent quoted prices included in Level 1 that are directly or indirectly methods of valuation, such as price of recent transaction, observable, which exist for the duration of the period of earnings or revenue-based multiples, discounted cash flows investment. and net assets. Where price of recent investment is used as a starting point for estimating fair value at subsequent Level 3: This is where inputs are unobservable, where no measurement dates, this has been benchmarked using an active market is available and recent transactions for appropriate valuation technique. These methodologies are identical instruments do not provide a good estimate of fair consistent with IPEV guidelines. value for the asset or liability. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return Octopus AIM VCT 2 plc Annual report 2023 61 10. Fixed asset investments continued | | | Level 1: | | | Level 2: | | | Level 3: | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Quoted equity | | | Quoted equity | | | | Unquoted | | | | | investments | | | investments | | investments | | | Total | | | | £’000 | | | £’000 | | | £’000 | £’000 | Opening cost at 1 December 2022 49,113 – 3,087 52,200 Opening unrealised gain as at 1 December 15,159 – 4,890 20,049 2022 Valuation as at 1 December 2022 64,272 – 7,977 72,249 Purchases at cost* 3,741 – 120 3,861 Disposal proceeds (8,757) – (400) (9,157) ### Gain on realisation of investments 668 – – 668 Change in fair value in year (13,905) – (428) (14,333) Closing valuation as at 30 November 2023 46,019 – 7,269 53,288 ### Closing cost as at 30 November 2023 47,922 – 2,807 50,729 Closing unrealised (loss)/gain as at 30 (1,903) – 4,462 2,559 November 2023 Valuation as at 30 November 2023 46,019 – 7,269 53,288 *The dierence to the cash flow statement is a timing dierence in respect of an investment in Intelligent Ultrasound Group plc which had a trade in November 2022 whilst the settlement of cash was in December 2022. The Company received £9,157,000 (2022: £2,249,000) from investments sold in the year. The book cost of these investments when they were purchased was £5,332,000 (2022: £2,135,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. 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 2 investments are valued using other observable inputs not included in Level 1. Level 3 investments are reported at Fair Value in accordance with FRS 102 sections 11 and 12, which is determined in accordance with the latest IPEV guidelines. In estimating Fair Value, there is an element of judgement, notably in deriving reasonable assumptions, and it is possible that, if dierent assumptions were to be used, dierent valuations could have been attributed to some of the Company’s investments. The Company holds six unquoted investments, and one loan note stock, which are classified as level 3 in terms of fair value hierarchy. These are valued based on a range of valuation methodologies, determined on an investment specific basis. The price of recent investment is used where a transaction has occurred suciently close to the reporting date to make this the most reliable indicator of fair value. Where recent investment is not deemed to indicate the most reliable indicator of fair value i.e. the most recent investment is too distant from the reporting date for this to be deemed a reasonable indicator, other market based approaches including earnings multiples, annualised recurring revenues, discounted cashflows or net assets are used to determine a fair value for the investments. FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. The Company’s holdings in Hasgrove Limited and Popsa Holdings Ltd make up 99% of the market value of the level 3 investments on the balance sheet and therefore we have taken into account these valuations when considering possible alternative assumptions. See below for the results of our analysis: Call us on 0800 316 2295 62 Octopus AIM VCT 2 plc Annual report 2023 ## Notes to the financial statements continued | Valuation technique | Portfolio company | Input | Base case | Change in input | Change in fair value of investments (£m) | Change in NAV (pence per share) | | --- | --- | --- | --- | --- | --- | --- | | Revenue multiple | Hasgrove Ltd | Revenue multiple | 6.0 | +0.5x | +0.4 | +0.23 | | | | | | -0.5x | -0.4 | -0.23 | | EV/Sales multiple | Popsa Holdings Ltd | EV/Sales multiple | 1.8 | +0.2x | +0.2 | +0.11 | | | | | | -0.2x | -0.2 | -0.11 | The Board and the Investment Manager believe that the valuations as at 30 November 2023 reflect the most reasonable assumptions at that date, giving due regard to all information available from each portfolio company. 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 30 November 2023 there were no commitments in respect of investments approved by the Investment Manager but not yet completed. The transaction costs incurred when purchasing or selling assets are written off to the income statement in the period that they occur. There have been no transfers between these classifications in the year (2022: none). ### 11. Current asset investments, cash and cash equivalents #### Accounting policy For the purposes of the cash flow statement, cash at bank comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. This comprises government securities, investment grade bonds and investments in money market funds. Bank overdrafts are normally considered financing activities similar to borrowings. However, if they are repayable on demand and form an integral part of an entity's cash management, bank overdrafts are a component of cash and cash equivalents. Current asset investments on the balance sheet comprise of investments in Open Ended Investment Companies (OEICs), money market funds and deposits and are designated as FVTPL. Gains and losses arising from changes in fair value of current investments are recognised as part of the capital return within the income statement and allocated to the capital reserve unrealised. The current asset investments are convertible into cash at the choice of the Company, within seven business days. The current asset investments are held for trading, are actively managed and the performance is evaluated on a fair value basis in accordance with a documented investment strategy. Information about them has to be provided internally on that basis to the Board. Octopus AIM VCT 2 plc Annual report 2023 63 11. Current asset investments, cash and cash equivalents continued Disclosure Current asset investments at 30 November 2023 and at 30 November 2022 comprised of money market funds, deposits and OEICs. These fall into Level 1 of the fair value hierarchy as defined in the fixed asset investment accounting policy in note 10 above. 30 November 2023 30 November 2022 £’000 £’000 OEICs: | FP Octopus UK Micro Cap Growth Fund | 5,150 | 4,768 | | --- | --- | --- | | FP Octopus UK Multi Cap Income Fund | 2,925 | 4,146 | | FP Octopus UK Future Generations Fund | 721 | 485 | | Total current asset investments 8,796 | | 9,399 | | Money market funds | 21,893 | 3,515 | | Total current asset investments and money | 30,689 | 12,914 | market funds Cash at bank 1,045 17,217 Total current asset investments and cash and 31,734 30,131 cash equivalents 12. Debtors | | 30 November 2023 | | | 30 November 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | | | £’000 | | | Prepayments | | | 21 | | | 4 | | Accrued income | | | 131 | | 200 | | | Other debtors | | | – | | | 1 | | | | | 152 | | 205 | | 13. Creditors: Amounts falling due within one year | | 30 November 2023 | | | 30 November 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | | | £’000 | | | | Trade creditors* | | | 4 | | | 229 | | | Accruals | | 479 | | | | 562 | | | Other | | | 1 | | | | – | | | | 484 | | | | 791 | | *The dierence to the cash flow statement is a timing dierence in respect of an investment in Intelligent Ultrasound Group plc which had a trade in November 2022 whilst the settlement of cash was in December 2022 Call us on 0800 316 2295 64 Octopus AIM VCT 2 plc Annual report 2023 ## Notes to the financial statements continued ### 14. Share capital | | 30 November 2023 £'000 | 30 November 2022 £'000 | | --- | --- | --- | | Allotted and fully paid up: | | | | 176,875,405 Ordinary shares of 0.01p (2022: 165,172,844) | 18 | 17 | The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page 21. As the Company is registered as an Alternative Investment Fund Manager ('AIFM'), it is subject to externally imposed capital requirements, namely if the value of assets under management (AUM) exceeds €250 million then an additional amount of Company funds equal to 0.02% of the excess over €250 million (subject to a cap of €10 million capital requirement) will be required. During the year the Company repurchased the following shares to be cancelled: | Date | Number of shares | Price per share (p) | Total cost of shares repurchased (£) | | --- | --- | --- | --- | | 15 December 2022 | 274,131 | 57.9 | 159,000 | | 19 January 2023 | 436,267 | 57.7 | 252,000 | | 16 February 2023 | 432,226 | 58.5 | 253,000 | | 16 March 2023 | 731,856 | 55.6 | 407,000 | | 20 April 2023 | 442,177 | 55.6 | 246,000 | | 18 May 2023 | 359,232 | 53.1 | 191,000 | | 15 June 2023 | 219,586 | 52.0 | 114,000 | | 13 July 2023 | 320,586 | 50.3 | 161,000 | | 17 August 2023 | 422,806 | 50.5 | 214,000 | | 21 September 2023 | 314,101 | 49.5 | 155,000 | | 19 October 2023 | 976,986 | 44.7 | 437,000 | | 16 November 2023 | 1,081,143 | 45.2 | 487,000 | | **Totals** | **6,011,097** | | **3,076,000** | The total nominal value of the shares repurchased for cancellation was £601 representing 3.4% of the issued share capital (2022: 4,494,597 shares with a nominal value of £449 representing 2.7% of the issued share capital). The Company issued the following shares during the year: | Date | Number of shares | Price per share (p) | Net proceeds of shares issued (£) | | --- | --- | --- | --- | | 25 May 2023^{1} | 1,340,242 | 54.7 | 733,000 | | 10 August 2023^{2} | 38,237 | 52.4 | 20,000 | | 9 November 2023^{1} | 1,216,997 | 46.8 | 570,000 | | 10 November 2023 | 15,118,182 | 49.6 | 7,031,000 | | **Totals** | **17,713,658** | | **8,354,000** | $^{1}$Shares issued under the Dividend Reinvestment Scheme (DRIS). $^{2}$Shares issued as a result of reduced adviser charges, and reduced annual management fee for Octopus employees. Excluding the value of shares issued under the DRIS, the total value of shares issued net of share issue costs was £7,051,000 (2022: £11,708,000). This is shown in the cash flow statement. Octopus AIM VCT 2 plc Annual report 2023 65 15. Reconciliation of movements in equity | | | 30 November 2023 | | 30 November 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Notes | | £’000 | | | £’000 | | Shareholders’ funds at start of year | | | 101,794 | | 134,854 | | | Total comprehensive loss | | | (15,709) | | (36,695) | | | Share capital bought back 14 | | | (3,076) | | | (3,117) | | Issue of shares (net of issue costs) 14 | | | 8,354 | | | 12,907 | | Dividends paid 7 | | | (6,673) | | | (6,155) | | Shareholders’ funds at end of year | | | 84,690 | | 101,794 | | Included within these reserves is an amount of £72,285,000 (2022: £67,680,000) which is considered distributable to shareholders under Companies Act rules. During the year there was a share premium cancellation amounting to £13,638,000 (2022: £54,601,000). This was carried out with the approval of shareholders for the purpose of creating additional distributable reserves. 16. Financial instruments The Company’s financial instruments comprise equity investments, loan notes, OEICs, cash balances, investments in money market funds and debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying AIM-traded securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity. 30 November 2023 30 November 2022 £’000 £’000 Financial assets at fair value through profit or loss | Fixed asset investments | 53,288 | 72,249 | | --- | --- | --- | | Money market securities | 21,893 | 3,515 | | OEICs | 8,796 | 9,399 | | Total financial assets at fair value through profit or | 83,977 | 85,163 | loss Financial assets measured at amortised cost | Cash at bank | 1,045 | | 17,217 | | --- | --- | --- | --- | | Debtors | | 131 | 200 | | Total financial assets measured at amortised cost 1,176 | | | 17,417 | Financial liabilities measured at amortised cost Creditors 484 (791) Total financial liabilities measured at 484 (791) amortised cost The Company holds six qualifying, unquoted investments; Rated People Limited, Popsa Holdings Limited, Airnow Group plc, Hasgrove Limited (which delisted from AIM in 2013), The Food Marketplace Ltd and Eluceda Ltd. The Company also holds one unquoted loan note investment in Rosslyn Data Technologies plc valued at £120,000, held at price of recent investment. Unquoted investments and loan notes are included in fixed asset investments in the table above. Call us on 0800 316 2295 66 Octopus AIM VCT 2 plc Annual report 2023 # Notes to the financial statements continued ## 16. Financial instruments continued Fixed and current asset investments (see notes 10 and 11) are initially recognised at FVTPL. For quoted investments this is the bid price. The Directors believe that the fair value of the assets held at the year end is equal to their book value. Unquoted investments are valued in accordance with IPEV guidelines. The Company's creditors and debtors are initially recognised at fair value which is usually the transaction cost and subsequently measured at amortised cost using the effective interest method. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the year end is equal to their book value. ## 17. Financial risk management In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are market risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date. ### Market risk The Company's strategy for managing investment risk is determined with regard to the Company's investment objective, as outlined on page 21. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed in accordance with the policies and procedures described in the Corporate Governance Report on pages 34 to 37, having regard to the possible effects of adverse price movements, and other macroeconomic effects on the market such as economic recession, movement in interest rates, inflation, political instability and rising living costs with the objective of maximising overall returns to shareholders. Investments in smaller companies, by their nature, usually involve a higher degree of risk than investments in larger companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board. Details of the Company's investment portfolio at the balance sheet date are set out on pages 8 to 11. By value, 54.3% (2022: 63%) of the Company's net assets comprised equity securities listed on the London Stock Exchange, Aquis, NASDAQ or quoted on AIM. In the context of the continued short-term market volatility caused by the cost of living crisis and the unstable economic environment, we have maintained the sensitivity analysis at 20%, consistent with 2022. Therefore, a decrease in the bid price of these securities as at 30 November 2023 would have decreased net assets and the total return for the year by £9,204,000 (2022: £12,854,000 decrease); and an equivalent change in the opposite direction would have increased net assets for the year by the same amount. OEIC investments comprised 10.4% of the Company's net assets by value (2022: 9.0%). A 20% decrease (2022: 20%) in the price of these securities at 30 November 2023 would have decreased net assets by £1,759,000 (30 November 2022: £1,880,000 decrease); and an equivalent change in the opposite direction would have increased net assets for the year by the same amount. Unquoted investments comprised 8.6% of the Company's net assets by value (2022: 8.0%). A 20% decrease (2022: 20%) in the multiple or price of recent investment used in the valuation of these securities as at 30 November 2023 would have decreased net assets by £1,454,000 (2022: £1,595,000 decrease); and an equivalent change in the opposite direction would have increased net assets for the year by the same amount. ### Interest rate risk Some of the Company's financial assets are interest bearing. As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. Octopus AIM VCT 2 plc Annual report 2023 67 17. Financial risk management continued Floating rate The Company’s floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market securities. The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 5.25% at 30 November 2023 (2022: 3.0%). The amounts held in floating rate investments at the balance sheet date were as follows: | | 30 November 2023 | | 30 November 2022 | | | --- | --- | --- | --- | --- | | | | £’000 | | £’000 | | Money market funds | | 21,893 | | 3,515 | | Cash at bank¹ | | 1,045 | | 17,217 | | | | 22,938 | | 20,732 | 1 As part of our Cash Management policy we elect not to receive interest on cash at bank. VCTs must adhere to a nature of income condition whereby income must derive wholly or mainly from shares or securities. It is therefore deemed reasonable and prudent not to earn income on bank deposits. A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £219,000 (2022: £35,000). Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry out a regular review of counterparty risk. Where financial assets expose the Company to credit risk, the maximum exposure is represented by their carrying value. | | 30 November 2023 | | | 30 November 2022 | | | --- | --- | --- | --- | --- | --- | | | | £’000 | | | £’000 | | Investments in interest bearing instruments | | | 120 | | 400 | | Cash on deposit | | 1,045 | | | 17,217 | | Accrued dividends and interest receivable | | | 151 | | 230 | | | | 1,316 | | | 17,8 47 | Other than cash, loan notes or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 30 November 2023 or 30 November 2022. By value, no individual bank holding or fixed rate note investment exceeded 9% of the Company’s net assets at 30 November 2023 (2022: 15%). The Company’s interest-bearing deposit and current accounts are maintained with HSBC and Money Market Funds held with BlackRock, HSBC and JP Morgan. The risk of loss to this balance is deemed to be low due to the historical credit ratings and a current Moody’s rating of Aaa (2022: Aaa) for HSBC, JP Morgan and BlackRock Money Market Funds. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. Should the credit quality or the financial position of these counterparties deteriorate significantly, the Investment Manager will move the cash holdings to another bank. Credit risk relating to listed money market securities is mitigated by investing in a portfolio of investment instruments of high credit quality, comprising securities issued by the UK Government and major UK companies and institutions. Credit risk relating to loans to and shares in unquoted companies is considered to be part of market risk. Those assets of the Company which are traded on recognised stock exchanges are held on the Company’s behalf by third party sub-custodians (for example, BlackRock in the case of listed money market securities and Octopus Investments Limited in the case of quoted equity securities). Bankruptcy or insolvency of a custodian could cause the Company’s rights with respect to securities held by the custodian to be delayed or limited by bankruptcy proceedings. Credit risk arising on the sale of investments, accrued dividends and interest receivable is considered to be small due to the short settlement and the contracted agreements in place with the settlement lawyers. Call us on 0800 316 2295 68 Octopus AIM VCT 2 plc Annual report 2023 # Notes to the financial statements continued ### 17. Financial risk management continued #### Liquidity risk The Company's financial assets include investments in AIM-traded companies, which by their nature involve a higher degree of risk than investments on the main market, as well as unquoted securities which are not traded on a recognised stock exchange and which generally may be illiquid. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The Company's listed money market securities are considered to be readily realisable as they are of high credit quality as outlined above. The Company's OEIC investments are considered to be readily realisable as under the terms of the product funds can be withdrawn at any point and received within seven working days. There is a risk that the value of the investment will fall, but this is monitored continually by the Investment Manager. The Company's liquidity risk is managed on a continuing basis by the Investment Manager in accordance with policies and procedures laid down by the Board. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 November 2023 these investments were valued at £31,734,000 (2022: £30,131,000). The Company has no debt, therefore no maturity analysis is required. ### 18. Events after the end of the reporting period The following events occurred between the balance sheet date and the signing of these financial statements: - an investment of £600,000 into Verici Dx plc - an investment of £534,204 into GENinCode plc - an investment of £129,600 into Equipmake Holdings plc - an investment of £199,998 into Alusid Limited - a loan note of £600,000 into Strip Tinnings Holdings plc - an investment of £120,000 into FP Octopus UK Future Generations Fund - a partial disposal of 141,437 shares in FP Octopus UK Multi Cap Income Fund for total consideration of £200,000 - a partial disposal of 762,912 shares in Polarean Imaging plc for total consideration of £45,682 - a partial disposal of 2,800 shares in Judges Scientific plc for total consideration of £293,411 - a full disposal of 8,298,059 shares in Velocys plc for total consideration of £20,745 - a full disposal of 2,526,666 shares in Clean Power Hydrogen plc for total consideration of £213,038 - a full disposal of 108,404 shares in Renalytix plc for total consideration of £98,254 The following shares have been allotted since the year end: - 14 December 2023: 5,635,893 Ordinary shares at a price of 50.5p per share - 11 January 2024: 3,555,668 Ordinary shares at a price of 51.4p per share The following shares have been bought back since the year end: - 14 December 2023: 791,619 shares at a price of 45.9p per share - 18 January 2024: 408,110 shares at a price of 46.6p per share - 22 February 2024: 448,271 shares at a price of 46.8p per share ### 19. Contingencies, guarantees and financial commitments There were no contingencies, guarantees or financial commitments as at 30 November 2023 (2022: nil). ### 20. Transactions with the Investment Manager The Company has employed Octopus Investments Limited ('Octopus' or 'the Investment Manager') throughout the period as Investment Manager. Octopus have also been appointed as Custodian of the Company's investments under a Custodian Agreement. The Company has been charged £1,572,000 by Octopus as a management fee in the year to 30 November 2023 (2022: £1,924,000). 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 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 £56,000 in the year to 30 November 2023 (2022: £57,000). For further details please refer to note 3. Details of amounts invested in Octopus managed funds can be found on page 11. Octopus AIM VCT 2 plc Annual report 2023 69 ## 21. Related party transactions As at 30 November 2023, Octopus Investments Nominees Limited (OINL) held nil shares (2022: 4,284) in the Company as beneficial owner, having purchased these at a cost of £nil (2022: £3,000) from shareholders to protect their interests after delays or errors with shareholder instructions and other similar administrative tasks. Throughout the period to 30 November 2023 OINL purchased nil shares (2022: 7,916) at a cost of £nil (2022: £6,000) and sold 4,284 shares (2022: 3,632) for proceeds of £2,000 (2022: £3,000). In accordance with the listing rules, 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. Details of the Directors and their remuneration can be found in the Directors' Remuneration Report on pages 40 to 42. Call us on 0800 316 2295 70 Octopus AIM VCT 2 plc Annual report 2023 # Information and contact details Octopus AIM VCT 2 plc was launched as Close IHT AIM VCT plc in March 2006 and raised £25 million through an offer for subscription. On 12 August 2010 the Company acquired the assets and liabilities of Octopus Third AIM VCT plc (formerly Octopus Second AIM VCT plc) ('the merger') and changed its name from Octopus IHT AIM VCT plc to Octopus Second AIM VCT plc. Shareholders of Octopus Third AIM VCT plc received 0.48356191 Ordinary shares in the Company for each Ordinary share they had prior to the merger. On 30 January 2015, the Company name changed to Octopus AIM VCT 2 plc. An offer, launched on 6 February 2012 and which closed on 5 April 2012, raised £1.3 million for the Company. An offer launched on 25 April 2012, closed on 31 July 2012 and raised a further £0.5 million for the Company. An Enhanced Buyback Facility opened on 23 October 2012 and closed on 28 December 2012. 10,470,985 existing shares were tendered and 9,974,094 new shares were issued. An offer for subscription of up to £10 million, which opened on 1 February 2013 and closed on 17 January 2014, raised £5.9 million. A further offer for subscription to raise £4.1 million was opened on 3 February 2014 and closed, fully subscribed, on 28 March 2014. A combined fundraise with Octopus AIM VCT plc by way of an issue of new shares was launched on 29 August 2014 to raise up to £8 million with an over-allotment facility of £4 million was closed, fully subscribed on 11 August 2015. A combined fundraise with Octopus AIM VCT plc by way of an issue of new shares was launched on 21 December 2015 to raise up to £8 million with an over-allotment facility of £4 million. This offer closed, fully subscribed, on 21 October 2016. On 6 February 2017 the Board announced a further offer for subscription to raise up to £4.3 million. A further combined offer for subscription with Octopus AIM VCT plc was launched on 16 June 2017 to raise up to £12 million with an over-allotment facility of £4 million which closed to new applications on 14 November 2017. A combined fundraise with Octopus AIM VCT plc by way of an issue of new shares was launched on 3 August 2018 to raise up to £20 million with an over-allotment facility of £10 million. This offer closed, fully subscribed, on 28 September 2018. A further combined fundraise with Octopus AIM VCT plc by way of an issue of new shares was launched on 29 November 2019 to raise a combined total of up to £20 million with a £10 million over-allotment facility. This offer closed, fully subscribed, on 27 February 2020. On 20 August 2020, a prospectus offer was launched alongside Octopus AIM VCT 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 30 November 2020. On 19 August 2021, a prospectus offer was launched alongside Octopus AIM VCT plc to raise a combined total of up to £30 million with a £10 million over-allotment facility. This prospectus closed to further applications on 13 September 2021. On 22 September 2022, a prospectus offer was launched alongside Octopus AIM VCT 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. On 14 September 2023, a prospectus offer was launched alongside Octopus AIM VCT plc to raise a combined total of up to £20 million with a £10 million over-allotment facility. The Offer closed on 21 December 2023. ## About VCTs VCTs were introduced in the Finance Act 1995 to provide a means for private individuals to invest in unlisted companies in the UK. Subsequent Finance Acts have introduced changes to VCT legislation. The tax benefits currently available to eligible new investors in VCTs include: - up to 30% up-front income tax relief; - exemption from income tax on dividends paid; and - exemption from capital gains tax on disposals of shares in VCTs. The Company has been approved as a VCT by HMRC. In order to maintain its approval, the Company must comply with certain requirements on a continuing basis including the provisions of chapter 3 of the Income Tax Act 2007, in particular s280A: - at least 80% of the Company's investments must comprise 'qualifying holdings' (as defined in the legislation); - at least 70% of the qualifying holdings must be invested into Ordinary shares with no preferential rights (30% for funds invested before 6 April 2011); - no single investment made can exceed 15% of the total Company value at the time of investment; and - a minimum of 10% of each qualifying investment must be in Ordinary shares with no preferential rights. 'A 'qualifying holding' consists of up to £5 million invested in any one year in new shares or securities in a company admitted to trading on AIM (or an unquoted UK company) which is carrying on a qualifying trade and whose gross assets do not exceed a prescribed limit at the time of investment. The definition of a 'qualifying trade' excludes certain activities such as property investment and development, financial services and asset leasing. ## VCT legislation changes The Finance Act 2018 contained some further adjustments to the VCT regulations. The new requirements are that any funds raised in accounting periods beginning on or after 6 April 2018 should be 30% invested in qualifying holdings within 12 months of the end of the accounting period in which the shares were issued, and for financial years ending after 6 April 2019 the portfolio also has to maintain a minimum qualifying investment of 80%. Octopus AIM VCT 2 plc Annual report 2023 71 Dividends Dividends will be paid by the registrar on behalf of the Company. Shareholders who wish to have dividends paid directly into their bank account rather than by cheque to their registered address can complete a mandate form for this purpose or complete an instruction electronically by visiting the Computershare Investor Centre at: www-uk.computershare.com/investor/. Queries relating to dividends, shareholdings or requests for mandate forms should be directed to Computershare by calling 0370 703 6326 (calls are charged at the standard geographic rate and will vary by provider. Calls from outside the United Kingdom will be charged at the applicable international rate. Lines are open Monday-Friday 9.00am-5.30pm), or by writing to them at: The Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ The table below shows the NAV per share and lists the dividends that have been paid since the launch of the Company. Following the merger of Octopus IHT AIM VCT and Octopus Third AIM VCT and various share re-organisations, there is now only one share class, Ordinary shares. For Octopus IHT AIM VCT Ordinary shares, together with Octopus Third AIM VCT Ordinary shares and ‘C’ and ‘D’ shares, the figures below represent the NAV, rebased to assume investment at 100p, and adjusted in accordance with the relevant conversion factors. Investment has been assumed at the first allotment of each tax year, hence the dividends shown below may not necessarily equate to the dividends actually received by shareholders. | | | | | | | | | | | | | | | | Octopus | Octopus | Octopus | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | Second | Third AIM | Third AIM | | | | | | | | | | | | | | | | | AIM VCT | VCT C&D | Ordinary | | | | | | | | | | | | | | | | | (formerly | shares | shares | | | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | 2005/06 | 2000/01 | | | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | IHT AIM | (formerly | (formerly | | Dividends paid | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | VCT A&B | Octopus | Octopus | | during the period | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares) | Second | Second AIM | | ending | 2023/24 | 2022/23 | 2021/22 | 2020/21 | 2019/20 | 2018/19 | 2017/18 | 2016/17 | 2015/16 | 2014/15 | 2013/14 | 2012/13 | 2011/12 | 2010/11 | 2005/06 | AIM VCT) | VCT plc) | 30 November 2003 – – – – – – – – – – – – – – – – 1.6 30 November 2004 – – – – – – – – – – – – – – – – – 30 November 2005 – – – – – – – – – – – – – – – – – 30 November 2006 – – – – – – – – – – – – – – 1.4 – 1 30 November 2007 – – – – – – – – – – – – – – 2.0 0.8 7 30 November 2008 – – – – – – – – – – – – – – 2.0 2.2 11 30 November 2009 – – – – – – – – – – – – – – 2.0 2.0 2 30 November 2010 – – – – – – – – – – – – – – 2.5 5.4 2.2 | 30 November 2011 – – – – – – – – – – – – – 4.7 | | | | | | | | | | | | | 1 | 3.3 3.9 | 1 | 1.6 1 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 30 November 2012 – – – – – – – – – – – 2.3 | | | | | | | | | | | 1 | 4.4 1 | 4.6 1 | 3.2 3.8 | 1 | 1.6 1 | | 30 November 2013 – – – – – – – – – – 4.5 | | | | | | | | | | 1 | 5.1 1 | 4.7 1 | 5.0 1 | 3.5 4.1 | 1 | 1.7 1 | | 30 November 2014 – – – – – – – – – 4.3 | | | | | | | | | 1 | 5.2 1 | 5.8 1 | 5.4 1 | 5.8 1 | 4.0 4.7 | 1 | 1.9 1 | | 30 November 2015 – – – – – – – – 7.0 | | | | | | | | 1 | 6.4 1 | 7.8 1 | 8.7 1 | 8.1 1 | 8.6 1 | 6.0 7.1 | 1 | 2.9 1 | | 30 November 2016 – – – – – – – 4.8 | | | | | | | 1 | 4.6 1 | 4.3 1 | 5.2 1 | 5.8 1 | 5.4 1 | 5.8 1 | 4.0 4.7 | 1 | 1.9 1 | | 30 November 2017 – – – – – 4.5 | | | | | | 1 | 4.9 1 | 4.8 1 | 4.4 1 | 5.3 1 | 5.9 1 | 5.5 1 | 5.9 1 | 4.1 4.8 | 1 | 2.0 1 | | 30 November 2018 – – – – – 4.5 | | | | | 1 | 4.6 1 | 5.0 1 | 4.9 1 | 4.5 1 | 5.5 1 | 6.1 1 | 5.6 1 | 6.0 1 | 4.2 4.9 | 1 | 2.0 1 | | 30 November 2019 – – – – 9.8 | | | | 1 | 8.7 1 | 8.9 1 | 9.7 1 | 9.4 1 | 8.6 1 | 10.5 1 | 11.7 1 | 10.9 1 | 11.6 1 | 8.1 9.5 | 1 | 3.9 1 | | 30 November 2020 – – – 6.0 | | | 1 | 5.1 1 | 4.5 1 | 4.6 1 | 5.0 1 | 4.9 1 | 4.5 1 | 5.5 1 | 6.1 1 | 5.6 1 | 6.0 1 | 4.2 4.9 | 1 | 2.0 1 | | 30 November 2021 – – 6.2 | | 1 | 8.4 1 | 7.2 1 | 6.3 1 | 6.5 1 | 7.0 1 | 6.8 1 | 6.3 1 | 7.7 1 | 8.6 1 | 7.9 1 | 8.5 1 | 5.9 6.9 | 1 | 2.9 1 | | 30 November 2022 – 5.0 | 1 | 4.4 1 | 6.0 1 | 5.1 1 | 4.5 1 | 4.6 1 | 5.0 1 | 4.9 1 | 4.5 1 | 5.5 1 | 6.1 1 | 5.6 1 | 6.0 1 | 4.2 4.9 | 1 | 2.0 1 | | 30 November 2023 7. 5 4.9 | 1 | 4.3 1 | 5.8 1 | 5.0 1 | 4.4 1 | 4.5 1 | 4.9 1 | 4.8 1 | 4.4 1 | 5.3 1 | 5.9 1 | 5.5 1 | 5.9 1 | 4.1 4.8 | 1 | 2.0 1 | Total dividends paid (assumed 7.5 9.9 14.9 26.2 32.1 33.0 38.1 46.2 52.0 52.0 67.9 78.1 74.7 84.5 68.7 79.5 53.3 investment at 100p) Adjusted NAV (assumed 87.6p 56.9p 50.3p 68.2p 2 58.1 2 51.5 2 52.4 2 57.1 2 55.6 2 51.0 2 62.2 2 69.4 2 64.4 2 68.9 2 47.9 56.3 2 23.2 2 investment at 100p) NAV plus total dividends (assumes 95.1 66.7 65.2 94.4 3 90.2 3 84.5 3 90.5 3 103.3 3 107.5 3 103.0 3 130.1 3 147.5 3 139.0 3 153.4 3 116.6 135.8 3 76.4 3 investment at 100p) 1 Notional dividends assuming investment at 100p and adjusting for conversion of various share classes into Octopus AIM 2 VCT plc Ordinary shares. 2 NAV assuming investment at 100p and adjusting for conversion of various share classes into Octopus AIM 2 VCT plc Ordinary shares. 3 NAV plus cumulative dividends adjusting for conversion, assuming investment at 100p showing the notional return to shareholders based on their original investment share class. Call us on 0800 316 2295 72 Octopus AIM VCT 2 plc Annual report 2023 ## Information and contact details continued Notes • Octopus Third AIM VCT ‘D’ shares converted into ‘C’ shares in May 2009, in accordance with a conversion factor of 1 ‘C’ share for each ‘D’ share. • Octopus Third AIM VCT ‘C’ shares converted into Octopus Third AIM VCT Ordinary shares in May 2009, in accordance with a conversion factor of 2.4313 Ordinary shares for each ‘C’ share. • Octopus AIM VCT 2 plc (previously Octopus IHT AIM VCT) ‘B’ shares converted into ‘A’ shares in May 2009, in accordance with a conversion factor of 1 ‘A’ share for each ‘B’ share. • Octopus Third AIM Ordinary shares converted into Octopus Second AIM (post August 2010) Ordinary shares in August 2010, in accordance with a conversion factor of 0.48356191 Octopus Second AIM Ordinary shares (post August 2010), for each Octopus Third AIM Ordinary share. • In August 2010, Octopus IHT AIM VCT was renamed Octopus Second AIM VCT, and subsequently changed its name to Octopus AIM VCT 2 plc. The graph below depicts the NAV per share and the dividends that have been paid since the launch of Octopus AIM VCT 2 plc for each class of share issued since the start, assuming an investment at 100p including the up-front tax relief and adjusted in accordance with the relevant conversion factors. Investment has been assumed at the first allotment of each tax year: 180p 30.0p 30.0p 160p 30.0p 40.0p 30.0p 140p 40.0p | 120p | | | | | | 30.0p | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 30.0p | | 30.0p | | | | | | | | | | | | | 78.1p | | 84.5p | | | 30.0p | 30.0p | | | | | | | | | | | | | 30.0p | 30.0p | | | | | 74.6p | | 100p 30.0p 67.9p 74.6p 7.5p | | | | | | | | | 52.0p | | 64.6p | 20.0p | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 80p | 30.0p | | 26.2p | | | | 46.2p | | | | | | | | 30.0p | | | | | | | 52.0p | | | | | | | | 32.1p | | 38.1p | | | | | | | 60p | 9.9p | | | | 33.0p | | | | | | | 14.9p 87.6p 51.3p 40p | | | 68.2p | | | | | | | | 69.4p | | 68.9p | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 56.9p | | | 58.1p | | | 57.1p | | | 62.2p | | 64.4p | | 56.3p | | | 50.3p | | | 51.5p | 52.4p | | 55.6p | 51.0p | | | | | | 47.9p 20p 23.2p 0p | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | Octopus | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | AIM VCT 2 | Second | Third AIM VCT | Third AIM | | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | Ordinary | AIM VCT | C&D shares | Ordinary | | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | shares | (formerly | (formerly | shares | | 2023/24 | 2022/23 | 2021/22 | 2020/21 | 2019/20 | 2018/19 | 2017/18 | 2016/17 | 2015/16 | 2014/15 | 2013/14 | 2012/13 | 2011/12 | 2010/11 | Octopus IHT | Octopus | (formerly | | | | | | | | | | | | | | | | AIM VCT | Second | Octopus | | | | | | | | | | | | | | | | A&B shares) | AIM VCT) | Second | | | | | | | | | | | | | | | | 2005/06 | 2005/06 | AIM VCT plc) | | | | | | Adjusted NAV (p) assuming investment at 100p Cumulative dividends paid (p) | | | | | | | | | | | | 2000/01 | 200p The proposed final dividend of 1.8p and proposed special dividend of 3.6p will, if approved by shareholders, be paid on 27 June 2024 to shareholders on the register on 31 May 2024. Dividend Reinvestment Scheme (DRIS) The Company established a DRIS in 2014, under which shareholders are given the opportunity to automatically reinvest future dividend payments by subscribing for new Ordinary shares. This allows participating shareholders to reinvest the growth in their shareholdings and, subject to personal circumstances, benefit from additional income tax reliefs. Total return (p) Any shareholder wishing to reinvest their dividends can request a DRIS instruction form by calling Computershare on 0370 703 6326 or complete an instruction electronically by visiting the Computershare Investor Centre at: www-uk.computershare.com/investor/. The application form and rules can also be found in the Document Library on the Octopus website: www.octopusinvestments.com/investor/our-products/venture-capital-trusts/octopus-aim-vcts/. Income tax relief (p) Cost of investment Octopus AIM VCT 2 plc Annual report 2023 73 ## Share price The Company's share price can be found on various financial websites including www.londonstockexchange.com, with the following TIDM/EPIC code: | | Ordinary shares | | --- | --- | | TIDM/EPIC code | OSEC | | Latest share price 6 March 2024 | 45.8 pence per share | ## Buying and selling shares The Company's Ordinary shares can be bought and sold in the same way as any other company quoted on the London Stock Exchange via a stockbroker. There may be tax implications in respect of selling all or part of your holdings, so shareholders should contact their independent financial adviser if they have any queries. ## Buyback of shares The Company operates a policy of buying its own shares for cancellation as they become available, and envisages that purchases will be made at up to a 5% discount to the prevailing NAV. The Company is, however, unable to buy back shares directly from shareholders. If you are considering selling your shares or trading in the secondary market, please contact Panmure Gordon (UK) Limited, the Company's broker. Panmure Gordon (UK) Limited is able to provide details of close periods (when the Company is prohibited from buying in shares) and details of the price at which the Company has bought its shares. Panmure Gordon (UK) Limited can be contacted as follows: | Chris Lloyd | 020 7886 2716 | chris.lloyd@panmure.com | | --- | --- | --- | | Paul Nolan | 020 7886 2717 | paul.nolan@panmure.com | ## Secondary market UK income tax payers, aged 18 or over, can purchase shares in the secondary market and benefit from: - Tax-free dividends - Realised gains not being subject to capital gains tax (although any realised losses are not allowable) - No minimum holding period - No need to include VCT dividends in annual tax returns The UK tax treatment of VCTs is on a first in and first out basis and therefore tax advice should be obtained before shareholders dispose of their shares. ## Notification of change of address Communications with shareholders are mailed to the registered address held on the share register. In the event of a change of address or other amendment, this should be notified to the Company's registrar, Computershare, under the signature of the registered holder or via the Computershare Investor Centre at: www.uk.computershare.com/investor/. Computershare's contact details are provided on page 75. ## Other information for shareholders Previously published Annual Reports and Half-yearly Reports are available for viewing on the Investment Manager's website at www.octopusinvestments.com by navigating to Products, Venture Capital Trusts, Octopus AIM VCTs, Shareholder Information. If your shares are held via a nominee company, you won't receive communications regarding Annual Reports and Half-yearly Reports directly from us or the Registrars. You'll need to speak to your nominee company about this or you can find latest published reports on the Investment Manager's website. Other statutory information about the Company can also be found on this page. ## Electronic communications We also publish reports and accounts and all other correspondence electronically. This cuts the cost of print and reduces the impact on the environment. If, in future, you would prefer to receive an email telling you a report is available to view or to receive documents by email, please contact Octopus on 0800 316 2295 or Computershare on 0370 703 6326. Alternatively you can sign up to receive e-communications via the Computershare Investor Centre at: www.uk.computershare.com/investor/. ## Warning to shareholders Many companies are aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based 'brokers' who target UK shareholders offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. They can be very persistent and extremely persuasive. Shareholders are therefore advised to be wary of any unsolicited advice, offer to buy shares at a discount or offer for free Company reports. Please note that it is very unlikely that either the Company, Octopus or the Registrar would make unsolicited telephone calls to shareholders and that any such calls would relate only to official documentation already circulated to shareholders and would never be in respect of investment advice. If you are in any doubt about the authenticity of an unsolicited phone call, please call Octopus on 0800 316 2295. The Financial Conduct Authority have also issued guidelines on how to avoid share fraud and further information can be found on their website: www.fca.org.uk/consumers/scams/investment-scams/share-fraud-and-boiler-room-scams. You can report any share fraud to them by calling 0800 111 6768. Call us on 0800 316 2295 74 Octopus AIM VCT 2 plc Annual report 2023 ## Glossary of terms Alternative performance measure (APM) Total return A financial measure of historical or future financial performance, Total return is calculated as movement in NAV per share in the financial position or cash flows, other than a financial measure period plus dividends paid in the period. Total return per share defined or specified in the applicable financial reporting enables shareholders to evaluate more clearly the performance framework. These APMs will help shareholders to understand and of the Company, as it reflects the underlying value of the portfolio assess the Company’s progress. A number of terms within this at the reporting date. glossary have been identified as APMs. Total return % Net asset value or NAV Total return % is calculated as movement in NAV per share in The value of the VCT’s total assets less liabilities. It is equal to the the period plus dividends paid in the period, divided by the NAV total shareholders’ funds. per share at the beginning of the period. Total return % on the NAV per share enables shareholders to evaluate more clearly the performance of the Company, as it reflects the underlying value Net asset value per share or NAV per share of the portfolio at the reporting date. The NAV per share of the Company is the sum of the underlying assets less the liabilities of the Company divided by the total number of shares in issue. Money Market Fund (MMF) A mutual fund that invests in highly liquid, short term instruments. These instruments include cash, cash equivalent securities, Ongoing Charges Ratio and high credit rating debt based securities with a short term The Ongoing Charges ratio has been calculated using the maturity. They are intended to oer investors high liquidity with AIC recommended methodology and excludes exceptional a low level of risk. costs and trail commission. The figure shows the annual percentage reduction in shareholder returns as a result of recurring operational expenses. It informs shareholders Open Ended Investment Company (OEIC) of the likely costs that will be incurred in managing the Company A type of investment fund that invests in equities, bonds and in the future. other securities. The price of the shares is based on the underlying assets of the fund. These are highly liquid as new shares can be This is calculated by dividing the expenses of £1,970,000 which created to meet investor demand and the fund will cancel shares includes the management fee in note 3 on page 56 and the of investors who exit the fund. expenses listed out in note 4 on page 57 excluding irrecoverable VAT, exceptional costs and trail commission, by average net assets of £89,047,000. Octopus AIM VCT 2 plc Annual report 2023 75 ## Directors and advisers | The Board of Directors | Independent Auditor | | --- | --- | | Keith Mullins (Chair) | BDO LLP | | Andrew Raynor FCA | 55 Baker Street | | Elizabeth Kennedy LLB (Hons) | London | | Brad Ormsby CA | W1U 7EU | Virginia (Connelly) Bull Tax Adviser Company Number James Cowper Kreston Registered in England No: 05528235 The White Building 1-4 Cumberland Place Southampton Legal Entity Identifier (LEI) SO15 2NP 213800BW27BKJCI35L17 VCT Status Adviser Secretary and Registered oce Shoosmiths LLP Octopus Company Secretarial Services Limited Apex Plaza 33 Holborn Forbury Road London Reading EC1N 2HT RG1 1AX Investment and Administration Manager Registrar Octopus Investments Limited Computershare Investor Services PLC 33 Holborn The Pavilions London Bridgwater Road EC1N 2HT Bristol Tel: 0800 316 2295 BS99 6ZZ www.octopusinvestments.com Tel: 0370 703 6326 (Calls are charged at the standard geographic rate and will | Custodians | vary by provider. Calls from outside the United Kingdom will be | | --- | --- | | Octopus Investments Limited | charged at the applicable international rate.) | | 33 Holborn | www.computershare.com/uk | | London | www-uk.computershare.com/investor/ | EC1N 2HT Corporate Broker | Bankers | Panmure Gordon (UK) Limited | | --- | --- | | HSBC Bank plc | 40 Gracechurch Street | | 31 Holborn | London | | London | EC3V 0BT | | EC1N 2HR | Tel: 020 7886 2500 | Call us on 0800 316 2295 76 Octopus AIM VCT 2 plc Annual report 2023 # Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of Octopus AIM VCT 2 plc will be held at 33 Holborn, London, EC1N 2HT on 16 May 2024 at 12 noon for the purposes of considering, and if thought fit, passing the following resolutions of which Resolutions 1 to 9 and 14 will be proposed as Ordinary Resolutions and Resolutions 10 to 13 will be proposed as Special Resolutions: ## Ordinary Business 1. To receive and adopt the annual report and audited financial statements for the year to 30 November 2023. 2. To approve a final dividend of 1.8p per Ordinary share. 3. To approve a special dividend of 3.6p per Ordinary share. 4. To approve the Directors' Remuneration Report. 5. To re-elect Andrew Raynor as a Director. 6. To elect Virginia (Connelly) Bull as a Director. 7. To re-appoint BDO LLP as auditor of the Company in accordance with section 489 of the Companies Act 2006 (the 'Act'), until the conclusion of the next general meeting of the Company at which audited accounts are laid before members, and to authorise the Directors to determine their remuneration. ## Special Business To consider and if thought fit, pass Resolutions 7 to 8 and 13 as Ordinary Resolutions and Resolutions 9 to 12, as Special Resolutions: ### 8. Authority to allot relevant securities THAT, in addition to existing authorities, the Directors be and are generally and unconditionally authorised in accordance with s551 of the Act to exercise all the powers of the Company to allot shares in the Company up to a maximum nominal amount of £3,688 (representing approximately 20% of the Ordinary share capital in issue at the date of this Notice) such authority to expire at the earlier of the conclusion of the Company's AGM next following the passing of this Resolution and the expiry of 15 months from the passing of the relevant Resolution (unless previously renewed, varied or revoked by the Company in a general meeting) but so that such authority allows the Company to make offers or agreements before the expiry thereof, which would or might require relevant securities to be allotted after the expiry of such authority. ### 9. Authority to allot relevant securities under the DRIS THAT, in addition to existing authorities, the directors of the Company be and hereby are generally and unconditionally authorised in accordance with Section 551 of the Act to exercise all the powers of the Company to allot shares in the Company up to a maximum nominal amount of £553 in connection with the Company's dividend reinvestment scheme (representing approximately 3% of the Ordinary share capital in issue as at the date of this Notice) provided that the authority conferred by this Resolution shall expire on the date falling 15 months from the date of the passing of this Resolution (unless previously renewed, varied or revoked by the Company in general meeting) save that this authority shall allow the Company to make, before the expiry of this authority, any offers or agreements which would or might require Shares to be allotted or rights to be granted after such expiry and the directors may allot Shares in pursuance of any such offer or agreement notwithstanding the expiry of such authority. ### 10. Empowerment to make allotments of equity securities THAT, conditional upon the passing of Resolution 7 above, and in addition to existing authorities, the Directors of the Company be and are hereby empowered pursuant to s571 of the Act to allot or make offers or agreements to allot equity securities (as defined in s560(1) of the Act) for cash pursuant to the authority granted by Resolution 7 as if s561 of the Act did not apply to any such allotment and so that: (a) reference to allotment of equity securities in this Resolution shall be construed in accordance with s560(2) of the Act; and (b) the power conferred by this Resolution shall enable the Company to make any offer or agreement before the expiry of the said power which would or might require equity securities to be allotted after the expiry of the said power and the Directors may allot equity securities in pursuance of such offer or agreement notwithstanding the expiry of such power. The power provided by this Resolution shall expire on the earlier of the conclusion of the Company's AGM next following the passing of this Resolution and the date falling 15 months from the date of the passing of this Resolution (unless previously renewed, varied or revoked by the Company in a general meeting). Octopus AIM VCT 2 plc Annual report 2023 77 **11. Empowerment to make allotments of equity securities under the DRIS** THAT, conditional upon the passing of Resolution 8 above and in addition to existing authorities, the directors of the Company be and hereby are empowered pursuant to Section 571 of the Act to allot or make offers or agreements to allot equity securities (which expression shall have the meaning ascribed to it in Section 560(1) of the Act) for cash pursuant to the authority granted by Resolution 9 above, as if Section 561 of the Act did not apply to any such allotment and so that: - (a) reference to allotment of equity securities in this Resolution shall be construed in accordance with Section 560(2) of the Act; and - (b) the power conferred by this Resolution shall enable the Company to make any offer or agreement before the expiry of the said power which would or might require equity securities to be allotted after the expiry of the said power and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding the expiry of such power. The power provided by this Resolution shall expire on the date falling 15 months from the date of the passing of this Resolution (unless previously renewed, varied or revoked by the Company in general meeting). **12. Authority to make market purchases** THAT, in addition to existing authorities, the Company be and is hereby generally and unconditionally authorised to make market purchases (within the meaning of s693(4) of the Act) of Ordinary shares of 0.01p each in the Company ('Ordinary shares') provided that: - (a) the maximum number of Ordinary shares so authorised to be purchased shall not exceed 27,644,406 Ordinary shares, representing approximately 14.99% of the Company's issued share capital at the date of this Notice; - (b) the minimum price which may be paid for an Ordinary share shall be its nominal value; - (c) the maximum price, exclusive of expenses, which may be paid for an Ordinary share is an amount equal to (i) 105% of the average of the middle market quotation for an Ordinary share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the Ordinary share is contracted to be purchased; and (ii) the amount stipulated by Article 5(6) of the Market Abuse Regulation; - (d) the authority conferred comes to an end at the conclusion of the next AGM of the Company or upon the expiry of 15 months from the passing of this Resolution, whichever is the earlier; and - (e) that the Company may enter into a contract to purchase its Ordinary shares under this authority prior to the expiry of this authority which would or might be completed wholly or partly after the expiry of this authority. **13. Cancellation of Share Premium Account** THAT, subject to the sanction of the High Court, the amount standing to the credit of the share premium account of the Company, at the date an order is made confirming such cancellation by the Court, be and hereby is cancelled, and the amount by which the share capital is so reduced be credited to a reserve of the Company. **14. Continuation of the Company as a VCT** THAT the Company continue in being as a Venture Capital Trust. By Order of the Board Keith Mullins Chair 7 March 2024 Call us on 0800 316 2295 78 Octopus AIM VCT 2 plc Annual report 2023 ## Notice of Annual General Meeting continued ### Notes: - (a) A member entitled to attend and vote at the AGM may appoint one or more proxies to attend and vote on his or her behalf. A proxy need not be a member. - (b) Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, entitlement to attend and vote at the meeting and the number of votes which may be cast thereat will be determined by reference to the Register of Members of the Company at close of business on the day which is two days before the day of the meeting. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend and vote at the meeting. - (c) A form of proxy is enclosed which, to be effective, must be completed and delivered to the Company's registrars, **Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY** or alternatively, you may register your proxy electronically at **www.investorcentre.co.uk/eproxy**, in each case, so as to be received by no later than 48 hours before the time the AGM is scheduled to begin. To vote electronically, you will be asked to provide your Control Number, Shareholder Reference Number and PIN which are detailed on your proxy form. - Appointment of a proxy, or any CREST proxy instruction (as described in paragraph (d) below) will not preclude a member from subsequently attending and voting at the meeting should he or she choose to do so. This is the only acceptable means by which proxy instructions may be submitted electronically. - (d) To appoint one or more proxies or to give an instruction to a proxy (whether previously appointed or otherwise) via the CREST system, CREST messages must be received by the issuer's agent (ID number 3RA50) not later than 48 hours (excluding non-working days) before the time appointed for holding the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp generated by the CREST system) from which the issuer's agent is able to retrieve the message. After this time any change of instructions to a proxy appointed through CREST should be communicated to the proxy by other means. CREST personal members or other CREST sponsored members, and those CREST members who have appointed voting service provider(s) should contact their CREST sponsor or voting service provider(s) for assistance with appointing proxies via CREST. For further information on CREST procedures, limitations and system timings please refer to the CREST manual. The Company may treat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. - (e) Any person receiving a copy of the Notice as a person nominated by a member to enjoy information rights under section 146 of the Companies Act 2006 (a 'Nominated Person') should note that the provisions in Notes (a) and (b) above concerning the appointment of a proxy or proxies to attend the meeting in place of a member, do not apply to a Nominated Person as only shareholders have the right to appoint a proxy. However, a Nominated Person may have a right under an agreement between the Nominated Person and the member by whom he or she was nominated to be appointed, or to have someone else appointed, as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may have a right under such an agreement to give instructions to the member as to the exercise of voting rights at the meeting. - (f) Section 319A of the Companies Act 2006 requires the Directors to answer any question raised at the AGM which relates to the business of the meeting although no answer need be given (a) if to do so would interfere unduly with the preparation of the meeting or involve disclosure of confidential information; (b) if the answer has already been given on the Company's website; or (c) if it is undesirable in the best interests of the Company or the good order of the meeting. - Questions from our shareholders in relation to the AGM can be sent via email to **AIMVCT2AGM@octopusinvestments.com**. The Company may, however, elect to provide answers to questions raised within a reasonable period of days after the conclusion of the AGM. - (g) Members satisfying the thresholds in section 527 of the Companies Act 2006 can require the Company to publish a statement on its website setting out any matter relating to (a) the audit of the Company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the AGM; or (b) any circumstances connected with an auditor of the Company ceasing to hold office since the last AGM, that the members propose to raise at the meeting. The Company cannot require the members requesting the publication to pay its expenses. Any statement required to be placed on the website must also be sent to the Company's auditors no later than the time it makes its statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required to publish on its website. - (h) Under sections 338 and 338A Companies Act 2006, members meeting the threshold requirements in those sections have the right to require the Company: - (i) To give, to members of the Company entitled to receive notice of the meeting, notice of a resolution which may properly be moved and is intended to be moved at the meeting, and/or Octopus AIM VCT 2 plc Annual report 2023 79 (ii) To include the business to be dealt with at the meeting (i) A copy of the Notice of AGM and the information required any matters (other than a proposed resolution) which by Section 311A Companies Act 2006 is included on the may be properly included in the business. Company’s website, www.octopusinvestments.com under VCTs. Copies of the Directors’ Letters of Appointment, A resolution may properly be moved or a matter may the Register of Directors’ Interests in the Ordinary shares of properly be included in the business unless: the Company kept in accordance with the Listing Rules and a copy of the Memorandum and Articles of Association of the (i) (In the case of a resolution only) it would, if passed, be Company will be available for inspection at the registered ineective (whether by reason of inconsistency with any oce of the Company during usual business hours on any enactment or the Company’s constitution or otherwise); weekday from the date of this notice until the AGM, and at (ii) It is defamatory of any person; or the place of that meeting for at least 15 minutes prior to the (iii) It is frivolous or vexatious. commencement of the meeting until its conclusion. (j) As at 6 March 2024 (being the last practicable date prior to Such a request may be in hard copy form or in electronic the publication of this Notice) the Company’s issued share form, and must identify the resolution of which notice is to capital consists of 184,418,986 Ordinary shares, carrying one be given or the matter to be included in the business, must vote each. Therefore, the total voting rights in the Company be authorised by the person or persons making it, must be as at 6 March 2024 are 184,418,986. received by the Company not later than six weeks before the meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request. Call us on 0800 316 2295 80 Octopus AIM VCT 2 plc Annual report 2023 Intentionally Blank Octopus AIM VCT 2 plc Annual report 2023 81 Intentionally Blank Call us on 0800 316 2295 82 Octopus AIM VCT 2 plc Annual report 2023 Octopus AIM VCT 2 plc