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Octopus Titan VCT PLC  -  OTV2   

Octopus Titan VCT plc : Half-year Report

Released 10:34 21-Jun-2018

Octopus Titan VCT plc : Half-year Report

Octopus Titan VCT plc ("Titan" and "the Company")

Unaudited half-yearly report for the six months ended 30 April 2018

Company number: 06397765

Today the Company announces the half-yearly results for the six month period to 30 April 2018 as below.

These results were approved by the Board of Directors on 20 June 2018.

You may view the Half-yearly Report in full at www.octopusinvestments.com shortly. All other statutory information will also be found there.

Octopus Titan VCT plc 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 unquoted companies. The Company is managed by Octopus Investments Limited ('Octopus' or 'Portfolio Manager') and Octopus AIF Management Limited (the 'Manager').

Financial Summary

  Six months to
30 April 2018
Six months to
30 April 2017
Year to
31 October 2017
Net assets (£'000s) 617,759 425,402 432,703
Profit after tax (£'000s) 6,603 1,876 16,181
NAV 94.3p 95.2p 96.4p
Cumulative dividends paid since launch 69.0p 64.0p 66.0p
Total Value 163.3p 159.2p 162.4p
Total Return * 0.9p 0.3p 3.5p
Total Return % ** 0.9% 0.3% 3.6%
Dividends paid in the period 3.0p 3.0p 5.0p
Dividend declared *** 2.0p 2.0p 3.0p

*Calculated as the change in NAV in the period plus dividends paid in the period.

**Calculated as total return/opening NAV.

*** The 2.0p interim dividend will be paid on 24 August 2018 to shareholders on the register as at 3 August 2018.

Chairman's Statement

I am pleased to present the unaudited half-yearly report for Octopus Titan VCT for the six months ended 30 April 2018.

We were delighted to have raised over £203 million before expenses in our fund raising which closed to new applications on 23 March 2018. Following this, we raised a further £5 million from the shares allotted through the dividend reinvestment scheme associated with the dividend paid on 27 April. With Titan's net assets now totalling some £620 million, we remain committed to investing in early stage technology companies which embody the overall objectives of the VCT scheme. We would like to take this opportunity to welcome all new shareholders and to thank all existing shareholders for their continued support.

As is to be expected following such a large fundraising, we now have un-invested cash, totalling over £240 million as at 30 April 2018 (compared to £130 million as at October 2017, excluding shareholders' funds awaiting allotment). This gives us confidence in our ability to continue to support our portfolio of high-growth businesses for the immediate future, many of which need further funding to achieve their ambitious plans. In the six-month period to 30 April 2018, we have deployed a total of £86 million comprising £55 million in new and follow-on investments, £20 million in dividends, £4 million in share buybacks and £7 million in running costs. Together, this therefore accounted for the deployment of 66% of the cash or cash equivalents we had available as at October 2017.

The increase in NAV in the period was 0.9p per share and the Total Value (NAV plus cumulative dividends paid per share since launch) at the end of the period is 163.3p, following the payment of a dividend in April of 3.0p per share. This return brings the tax-free annual compound return to original shareholders to 5.6% since Titan's launch.

The transactions within the portfolio are summarised in the Investment Portfolio Review below, but I would particularly like to highlight the acquisition of a majority stake in Tails.com (Tailsco Ltd) by Nestlé Purina PetCare in April. Launched in 2014, Tails.com brought tailored dog nutrition to consumers at competitive prices through digital technology. Having first invested in 2013, Titan realised its investment as part of the transaction, which saw total proceeds (including a future retention) of almost £9 million attributed to Titan (cost £1.5 million). Tails.com is a great example of a business Titan only gained access to due to Octopus' proprietary deal flow channels - the founding team included a founder of Graze.com, another highly successful Titan investee company. We are proud to be able to add this success to our history of profitable realisations.

Results
The Net Asset Value at 30 April 2018 was 94.3p, a net increase of 0.9p per share from 31 October 2017 after accounting for the dividend of 3.0p per share which was paid in April.

Investment Portfolio Review
I am pleased to report a net uplift in the value of the portfolio of £14 million during the period, excluding additions and disposals.

We set out below the cost and valuation of the top ten holdings which account for over 52% of the value of the portfolio. In total the portfolio now consists of 64 companies, of which two have been added since 30 April representing a further investment of £6 million.

Investments Investment cost at 30 April 2018*
(£'000)
Valuation at
30 April 2018
(£'000)
Zenith Holding Company Limited** 8,963 45,908
Secret Escapes Limited 4,256 35,534
Amplience Limited 13,499 25,758
Sourceable Limited (trades as Swoon Editions) 6,957 18,018
Sofar Sounds Limited 7,705 13,837
MIRACL Limited 14,223 11,258
LHE Holdings Limited (trades as Property Partner) 10,402 10,866
Uniplaces Limited 7,621 10,194
Semafone Limited 3,594 9,816
Conversocial Limited 4,165 8,803
Total 81,385 189,992

* Investment cost reflects the amount invested into each investee company from Titan's 1 - 5 before the 2014 merger and from Titan after the merger. This is different to the book cost which includes the holding gains and losses on assets which transferred from Titan's 1, 3, 4 & 5 to Titan 2 (now Titan) during the merger, as Titan purchased these assets at fair value.

** Zenith Holding Company holds shares in Calastone, graze and Secret Escapes inherited from Titans 1&2.

During the six months to 30 April 2018, the uplift in valuation has been driven by the strength of performance of a number of companies in the portfolio in aggregate. In particular, Secret Escapes, Amplience and Sofar Sounds have all achieved material increases in value. These three investee companies and 12 others together drove an uplift of £28 million. In contrast, while there have been no realised losses from the portfolio during this period, 18 companies saw a collective decrease in valuation of £14 million where performance has been more challenging, and the current valuations have been adjusted accordingly in line with the valuation policy. Octopus believes many of these businesses have the potential to overcome the issues they have faced and continues to work closely with them to secure a return to their high growth plans. Where appropriate, this may include providing further funding to ensure the business has sufficient capital to execute on its strategy. This can be seen in the cases of both MIRACL Limited and Uniplaces Limited, which Titan invested into further during the period despite the companies' prior investments being valued at less than the cost of that investment.

Turning to investments made during the previous six months, £32 million was invested into 10 new companies (listed below) and £23 million was invested into 13 follow-on investments as listed in the Investment Portfolio below. As anticipated by Octopus, given the volume of high quality investment opportunities available in the UK and Europe, this is a significant increase in investment rate compared to the six months to October 2017, during which a total of £7 million was invested into 3 new companies and £21 million was invested into 12 follow-on investments.

We have been pleased to welcome the following companies to the portfolio during the period:

·     Phoelex Ltd - new technology for components used to connect servers in large datacentres;

·     Katalyst Inc - offers premium boutique full body Electro Muscular Stimulation fitness;

·     PLU&M Limited (trading as The Plum Guide) - handpicks the world's most inspiring accommodation and hosts, using a mix of algorithms and visits by experts;

·     Rook Wealth Limited (trading as Multiply) - provides automated, personalised and holistic financial plans for those who historically have not had access to financial advice;

·     DePop Limited - a social marketplace for unique things;

·     Memrise Inc - a language learning platform;

·     Mush Limited - a local social network for new and expectant mums;

·     Picsoneye Segmentation Innovation Limited (trading as Pixoneye) - uses computer-understanding to analyse on-device user-data;

·     OpenSignal Inc - building a platform to become the global 'gold standard' for mobile network coverage mapping; and

·     GTN Ltd - technology used in the hunt for new drugs which combines and builds upon techniques from machine learning and quantum physics to simulate, filter and search for drug-like molecules, previously entirely hidden from view.

Furthermore, since 30 April 2018, 2 more new and 4 follow-on investments have been made, amounting to £17 million. The new investments were into Seatfrog UK Holdings limited, a company allowing travellers to upgrade from standard to first class travel through a live auction offered through a mobile app, and Patch Gardens Ltd, an ecommerce site aimed at urban dwellers, enabling them to discover appropriate plants for their space, purchase, and then help care for their plants during their lifetimes.

Dividends
As shareholders will know, our ambition is to pay an annual dividend of 5.0p per share. Following careful consideration, I am pleased to confirm that your Board has now decided to declare an interim dividend of 2.0p (2017 2.0p) per share in respect of the current financial year, which will be paid on 24 August 2018 to shareholders on the register as at 3 August 2018.

VCT Qualifying Status
PricewaterhouseCoopers LLP (PwC) provides both the Board and Octopus with advice concerning ongoing compliance with HMRC rules and regulations concerning VCTs. The Board has been advised that Titan continues to be in compliance with the conditions laid down by HMRC for maintaining approval as a VCT.

As at 30 April 2018, over 95% of the portfolio (as measured by HMRC rules) was invested in VCT-qualifying investments as reviewed and confirmed by PwC, significantly above the 70% current VCT-qualifying threshold.

Change to the Directors of the Board
We recognise that ensuring the Board of your VCT remains independent and robust is of the utmost importance to our shareholders. To this end, your Board have decided to appoint an additional Non-Executive Director, and we expect to announce an appointment shortly once the selection process has been concluded.

As recently announced, as at 9 April 2018, Nicola Board resigned as Company Secretary and Parisha Kanani was subsequently appointed. The Board would like to thank Nicola for her hard work over the past three years, and welcome Parisha.

Auditor to the Fund
At the recent AGM, James Cowper Kreston, our Auditor for the last five years, was re-appointed. However, they have since informed us that they have taken the decision to withdraw from auditing certain Public Interest Entities including VCTs for the time being because of the increasing regulatory landscape and associated costs. Your Board has, therefore, carried out a tender process to appoint new Auditors and it has been decided to appoint BDO, pending their re-appointment at the next AGM. We would like to thank James Cowper Kreston for their excellent service over the last five years and we look forward to working with BDO in the future.

Principal Risks and Uncertainties
The Board continues to regularly review the risk environment in which Titan operates. There have been no significant changes to the key risks which were fully described on pages 8 and 9 of the Annual Report for the year ended 31 October 2017 and the Board does not anticipate there will be significant changes to these risks for the remaining six months of the financial year.

Outlook
The last six months have been a particularly busy period for Titan.

We are delighted by another very positive response to Titan's most recent fundraising efforts, and excited about the ability this gives us to continue to support both the most compelling opportunities within the portfolio, as well as the brightest new technology businesses and entrepreneurial teams emerging from the UK and Europe.

While the macro environment remains somewhat uncertain in the medium term, your Board also undertook a review of the non-qualifying portfolio with Octopus during the period. Following this, we have elected to make a number of adjustments with the aim of reducing the risk profile associated with this part of Titan's assets.

In the meantime, through Octopus, Titan continues to gain access to opportunities showing great promise as demonstrated by the investment rate over the past six months, and your Board remains positive about the prospects of the existing portfolio. We look forward to following the investee companies as they drive forward with their ambitious growth plans and hope this will crystallise into a number of profitable realisations in the coming years. However, this is expected to require some patience. Shareholders should bear in mind that the typical period from investment until realisation for early stage technology businesses is normally at least seven years, and as a result, we are still likely to see some businesses fall by the wayside prior to such successes. As noted earlier in my report, Titan is now paying targeted regular annual dividends of 5p. In the case of particularly profitable realisations from the portfolio, we also aim to pay special dividends, although it may not always be in the best interests of Titan to pay a special dividend after a profitable realisation.

Your Board believes there are many reasons to remain confident about the future for Titan, and, as a result, it is our intention to seek further funds to support our investee portfolio later in the year.

I would like to conclude by thanking Octopus, on behalf of all shareholders, for their hard work, without which our investment strategy would not achieve the success we are seeing.

John Hustler
Chairman
20 June 2018

Investment Portfolio

Investments Sector Investment cost at
30 April 2018* (£'000)
Amount invested in the six months ending 30 April 2018
(£'000)
MIRACL Limited Security 14,223 2,045
Amplience Limited Business Software 13,499 2,513
LHE Holdings Limited (trades as Property Partner) Property 10,402 3,492
Zenith Holding Company Limited ** Other   8,963   - 
UltraSoC Technologies Limited Hardware   8,361   - 
Zynstra Limited Business Software   8,317   - 
Oxcis Aviation Limited (trades as Stratajet) Leisure & Consumer   7,817   - 
Sofar Sounds Limited Leisure & Consumer   7,705   - 
Uniplaces Limited Property   7,621   - 
CurrencyFair Limited Financial Services   7,551   805
Sourceable Limited (trades as Swoon Editions) Ecommerce   6,957   - 
Origami Energy Limited Hardware   5,533   3,500
Artesian Solutions Limited Business Software   5,481   - 
Iovox Limited Business Software   5,272   2,000
Antidote Technologies Ltd Health & Medical   5,096   2,107
DePop Limited Ecommerce   5,000   5,000
OpenSignal Inc Business software   4,862   4,862
Katalyst Inc Health & Medical   4,820   4,820
Chiaro Technology Limited Health & Medical   4,739   1,969
Michelson Diagnostics Limited Health & Medical   4,702   158
Token, Inc Financial Services   4,398   - 
Memrise Inc Leisure & Consumer   4,375   4,375
Secret Escapes Limited Leisure & Consumer   4,256   - 
Digital Shadows Inc. Security   4,225   - 
Picsoneye Segmentation Innovation Limited Business software   4,200   4,200
Conversocial Limited Business Software   4,165   - 
Appear Here Limited Property 3,814   - 
Wave Optics Limited Hardware   3,774   - 
Smartkem Limited Hardware   3,714   - 
Semafone Limited Business Software   3,594   - 
PLU&M limited (trades as Plum Guide) Ecommerce   3,500   3,500
Behaviometrics AB Security   3,336   2,735
Big Health Limited Health & Medical   3,276   - 
Chronext AG Ecommerce   3,164   - 
Mi-Pay Group plc Financial services   3,011   - 
The Faction Collective SA Ecommerce   2,968   - 
BridgeU Inc. Business Software   2,935   - 
Ecrebo Limited Business Software   2,857   - 
Bought By Many Limited Financial Services   2,780   - 
Medisafe Project Limited Health & Medical   2,713   - 
Metrasens Limited Hardware   2,688   - 
Affectv Limited Business Software   2,627   - 
e-Therapeutics plc Health & Medical   2,415   - 
Eve Sleep Plc Ecommerce   2,394   - 
Bowman Power Limited Hardware   2,305   - 
Trafi Limited Leisure & Consumer   2,288   - 
Impatients N.V. (trades as myTomorrows) Health & Medical   2,090   - 
Elliptic Enterprise Limited Security   2,084   423
Surrey NanoSystems Limited Hardware   1,993   - 
Streethub Limited Ecommerce   1,980   - 
Permutive Inc. Business Software   1,863   1,473
Phoelex Ltd Hardware   1,525   1,525
Mush Limited Leisure & Consumer   1,500   1,500
Pop Global Limited Business Software   1,500   - 
Segura Systems Limited Business Software   1,470   - 
Fluidly Limited Business Software   1,400   - 
Rook Wealth Limited (trades as Multiply) Financial Services   1,000   1,000
Streetbees.com Limited Business Software   890   - 
GTN Ltd Health & Medical   800   800
Time Out Group PLC Leisure & Consumer   349   - 
Excession Technologies Limited Business Software   298   90
Phasor Inc. Hardware   250   - 
Total   253,685 54,892

*Investment cost reflects the amount invested into each investee company from Titan's 1 - 5 before the 2014 merger and from Titan after the merger. This is different to the book cost which includes the holding gains and losses on assets which transferred from Titan's 1, 3, 4 & 5 to Titan 2 (now Titan) during the merger, as Titan purchased these assets at fair value.

**Owns stakes in Nature Delivered Limited (trades as graze), Secret Escapes Limited and Calastone Limited.

Income Statement

  Unaudited
Six months to 30 April 2018
Unaudited
Six months to 30 April 2017
  Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Gains on disposal of portfolio investments - 2,945 2,945 - 511 511
Gains on disposal of OEIC investments - 3,739 3,739 - - -
Portfolio investment holding gains - 14.300 14,300 - 3,906 3,906
OEIC investment holding losses/(gains) - (6,058) (6,058) - 2,861 2,861
Investment income 190 - 190 107 - 107
Investment management fees (1,201) (3,604) (4,805) (870) (2,609) (3,479)
Performance fee - (1,592) (1,592) - (259) (259)
Other expenses (1,850) - (1,850) (1,268) - (1,268)
FX translation - (266) (266) - (503) (503)
Profit/(loss) before tax (2,861) 9,464 6,603 (2,031) 3,907 1,876
Taxation - - - - - -
Profit/(loss) after tax (2,861) 9,464 6,603 (2,031) 3,907 1,876
Earnings per share - basic and diluted (0.5)p 1.7p 1.2p (0.5)p 1.0p 0.5p

·     The 'Total' column of this statement is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies.

·     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.

Titan has no other comprehensive income for the period.

Balance Sheet

  Unaudited
Six months to 30 April 2018
Audited
Year to 31 October 2017
  £'000 £'000 £'000 £'000
Portfolio investments   364,442   301,791
Current assets:        
OEICs 72,466   104,484  
Cash at bank 93,202   23,290  
Applications cash* 300   39,272  
Debtors 16,122   5,821  
Money market securities 76,269   2,453  
  258,359   175,320  
Current liabilities (5,042)   (44,408)  
Net current assets   253,317   130,912
         
Net assets   617,759   432,703
         
Called up equity share capital   65,479   44,899
Share premium   295,277   114,404
Special distributable reserve   186,106   211,122
Capital redemption reserve   1,495   1,071
Capital reserve - gains on disposals   9,405   2,284
Capital reserve - holding gains   74,869   70,668
Revenue reserve   (14,724)   (11,863)
Translation reserve   (148)   118
Total equity shareholders' funds   617,759   432,703
Net asset value per share   94.3p   96.4p

*Cash held but not yet allotted.

The statements were approved by the Directors and authorised for issue on 20 June 2018 and are signed on their behalf by:

John Hustler
Chairman

Statement of Changes in Equity

  Unaudited
Six months to
30 April 2018
£'000
Audited
Year ended
31 October 2017
£'000
Unaudited
Six months to
30 April 2017
£'000
Shareholders' funds at start of year 432,703 315,976 315,976
Profit after tax 6,603 16,181 1,876
Issue of equity (net of expenses) 201,877 125,744 122,571
Purchase of own shares (3,905) (2,926) (1,694)
Dividends paid (19,519) (22,272) (13,327)
Shareholders' funds at end of period 617,759 432,703 425,402

Cash Flow Statement

  Unaudited
Six months to
30 April 2018
£'000
Unaudited
Six months to
30 April 2017
£'000
Reconciliation of profit to cash flows from operating activities    
Profit before tax 6,603 1,876
(Increase)/decrease in debtors (10,301) 8,844
Decrease in creditors (39,366) (20,405)
Gains on disposal of fixed asset investments (2,945) (511)
Gains on valuation of fixed asset investments (14,300) (3,906)
Surplus funds received from fixed asset investments - 513
Outflow from operating activities (60,309) (13,589)
     
Cash flows from investing activities    
Purchase of fixed asset investments (54,892) (31,867)
Sale of fixed asset investments 9,486 110
Zenith distribution - 9,182
Outflow from investing activities (45,406) (22,575)
     
Cash flows from financing activities    
Dividends paid (19,519) (13,327)
Purchase of own shares (3,905) (1,694)
Issue of equity (net of expenses) 201,877 122,571
Inflow from financing activities 178,453 107,550
     
Increase in cash and cash equivalents 72,738 71,386
     
Opening cash and cash equivalents  169,499 100,644
Closing cash and cash equivalents 242,237 172,030



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


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