Octopus Titan VCT plc : Half-yearly report

Octopus Titan VCT plc

Unaudited Half-Yearly Report for the Six Months Ended 30 April 2016

Octopus Titan VCT plc ('Titan' or 'Company'), managed by Octopus Investments Limited ('Octopus'), today announces the Half-Yearly results for the six months ended 30 April 2016.

These results were approved by the Board of Directors on 24 June 2016.

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

Titan is a venture capital trust which aims to provide shareholders with attractive tax-free dividends and long-term capital growth, by investing in a diverse portfolio of predominately unquoted companies.

Financial Headlines

95.7p                                       Net asset value per share ('NAV') as at 30 April 2016

59.0p                                       Cumulative dividends paid per share since launch

154.7p                                     Total Value (NAV plus cumulative dividends paid per share since launch) as at 30 April 2016

2.0p*                                        Interim dividend declared for the half-year to 30 April 2016

* This will be paid on 2 September 2016 to shareholders on the register as at 12 August 2016.

Financial Summary

	Six months to 30 April 2016	Six months to 30 April 2015	Year to 31 October 2015
Net assets (£'000s)	309,060	215,042	228,461
Profit/(loss) after tax (£'000s)	621	(247)	15,196
Net asset value per share ('NAV')	95.7p	97.7p	102.7p
Cumulative dividends paid per share since launch	59.0p	50.0p	52.0p
Total Value (NAV plus cumulative dividends paid per share since launch)	154.7p	147.7p	154.7p
Special dividend paid*	5.0p	-	-
Dividends declared**	2.0p	2.0p	4.0p

*     Paid predominantly in relation to the disposal of Swiftkey on 29 April 2016 to shareholders on the register on 15 April 2016
**    Year to 31 October 2015 includes a 2.0p interim and 2.0p final dividend.

Chairman's Statement

I am pleased to present the unaudited half-yearly report for Titan for the six months ended 30 April 2016.

As shareholders will be aware, we have successfully raised £99.8 million before expenses in our fund raising which closed on 12 April 2016 following which we have raised a further £7.9 million from a small top-up and the shares allotted through the dividend reinvestment scheme associated with the recent dividend. With net assets of £309 million, we are proud that Titan is, by some margin, the largest VCT and that we are firmly committed to the overall objectives to which the VCT scheme is intended, namely supporting young and early stage companies in the technology sector.

Our earnings for the six months were a modest 0.2p per share and our Total Value (NAV plus cumulative dividends paid per share since launch) is 154.7p, following the payment of a dividend in April of 7p per share, 5p of which was a special dividend following the successful exit from Swiftkey. This return brings the average tax-free annual return to original shareholders to 6.3% on their original investment of £1, or 11.4% on their net investment of 70p taking account of the 30% up front tax relief. I believe these returns justify the support shown by our existing and new shareholders in the recent fund raisings and I would like to express the Board's thanks to all those who took part.

As more fully explained below, we have invested almost £20 million in the six months and have a portfolio of 50 exciting young companies. Managing this portfolio is a challenge and we are very grateful to our Managers for their continued energy in supporting our portfolio of investee companies. The recent changes to the VCT legislation provide their own challenges but, since we are providing investment to exactly those companies which find raising early stage finance so difficult, we do not believe that we will need to change our investment strategy to any significant degree.

Fundraising
Following this period's successful fundraise, I would like to thank shareholders for their support in helping us to raise over £100 million. The fundraising closed to new applications on the 5 April 2016, nearly five months ahead of our scheduled close date. We are excited about the investment opportunities we are seeing, both from the wide range of new companies that are keen to work with us but perhaps more importantly from the exciting entrepreneurs and companies already within our portfolio.

Over a third of our portfolio companies are growing revenues by more than 50% per year, generating over £100 million of additional revenue and 800 new jobs last year. As shareholders will know, we like to start by investing small, and then as a portfolio company gathers momentum we like to invest more, increasing our exposure to the high performers in the portfolio. This strategy has served us well with an enviable performance history to date. With a portfolio of 50 companies, we are enthusiastic about the ability to deploy this newly raised capital to continue to back our best entrepreneurs as they scale up and grow, in return providing Titan shareholders with the opportunity to continue to share in that success. The board regularly monitors cash flow forecasts for Titan over future years to ensure that there is sufficient liquidity to conduct its ongoing operations, including funding shareholder buybacks and annual running costs, but more importantly to ensure that we have the appropriate amount of capital to continue to invest in our portfolio companies as they grow.

Results
During the six months to 30 April 2016, Titan generated net earnings of 0.2p per share (April 2015: 0.1p loss), comprised of an increase in the capital element of the fund of 1.0p per share, offset by the running costs of the fund of 0.8p per share.

Investment Portfolio Review
I am pleased to report a net uplift in the value of the portfolio of £6.9 million during the period, excluding additions and disposals. This comprised £15.9 million upward and £9.0 million downward revaluations.

Details of the most significant holdings and a list of all of the portfolio investments are set out in the Investment Portfolio section below. I would like to draw your attention to five of the 10 largest investments by value, which comprise nearly 44% of the value of the portfolio:

Zenith Holding Company
This is a holding company with a stake in a limited partnership, Zenith LP, which has underlying investments in Zoopla Property Group, Graze, Calastone and Secret Escapes.

Zoopla Property Group share price has seen good strength in the last few months with half year results pleasing the market. Uswitch is trading particularly well following the acquisition by Zoopla last year. The company also announced the purchase of Property Software Group, which has been similarly well received by the market.

Graze is seeing the benefits of their multi-channel approach with wide distribution through major UK retailers, including WHSmith, Sainsbury's, Waitrose, Tesco Express, Asda and Boots. The business has established itself as one of the leading healthier snacks brand in both the UK and the US.

Calastone continues to trade well despite a period affected by volatile Asian markets and concern over the EU referendum vote.  In February Calastone announced the launch of the Calastone Data Services offering fund managers detailed insight and transparency into their global funds flow.  In addition Hargreaves Lansdown announced they went live with Calastone Settlements in April.

Secret Escapes continues to perform well; in recent months there have been four new country launches in Asia (Singapore, Hong Kong, Malaysia and Indonesia) which follow several new country launches in Europe (Switzerland, Denmark, Hungary, Slovakia, France and the Czech Republic). In addition to its core travel agency model, the business has launched a tour operating division. The company is now operating on a global basis and has 28 million members.

More details can be found online at the following websites: zoopla.co.uk, graze.com, calastone.com and secretescapes.com.

Secret Escapes
An international luxury hotels and holidays provider. Both Titan and Zenith Holding Company hold stakes in this company. A brief update on the progress of the company can be found above.

Uniplaces
An international online marketplace for student accommodation. The company secured Series B follow on funding from Atomico (totalling £15m) with participation from high profile angel investors. The business is now operating in 39 European countries and is focusing on building stronger partnerships with Universities to help drive further bookings and establish an efficient marketing channel. Uniplaces also closed an international, exclusive, two year partnership with ESN (Erasmus Student Network) which will hopefully help to drive brand awareness and inbound supply requests from landlords. More details can be found at uniplaces.com

Amplience
Helps retailers deliver profitable growth through improved online shopping experiences across desktop computers, tablets and smartphones. Amplience continues to make good progress with recent customer wins including Furniture Village, Sears and Playmobile. Future growth will be underpinned by the recent launch of its new content authoring product (a next generation content management system) which is attracting significant interest from new and existing customers. More details can be found at amplience.com

Sourceable Limited (Swoon Editions)
An online furniture designer and retailer. Swoon has launched two new product lines: mattresses (and beds) and a made-to-order sofa and chair business. It has carried out a re-branding exercise and has rolled out new marketing materials across the entire business. It has also hired several new senior members of the management team. More details can be found at swooneditions.com. Swoon is one of the three companies which have contributed most significantly to the capital value uplift in the period.

A brief update on the other two companies contributing most to the capital value uplift are below:

Property Partner
Uniquely combines residential crowdfunding with a secondary exchange upon which investors can trade their holdings. As a result of the company's progress since launch, Titan was delighted to lead the latest £15.9 million investment round, a significant increase from the value at the initial investment in 2014 and the follow-on investment in April 2015. As at the end of May 2016, more than £33 million had been invested in 229 properties by over 7,500 investors on the platform, with several properties having set new crowdfunding world records for the speed of their funding.

Magic Pony
An innovative technology company which has pioneered new machine learning techniques for visual processing. Titan first invested in the company in the summer of 2015 and then invested subsequently in this period, making it the largest institutional investor in the business. I am delighted to report that Magic Pony was acquired by Twitter on 20 June 2016.

During the six months to 30 April 2016, nearly £20 million was invested into three new companies (Segura Systems, Wave Optics and Streetbees.com) and 15 follow-on investments (listed in the Investment Portfolio). Since 30 April 2016, four more follow-on investments and two new investments (Chronext and Big Health) have been made amounting to £10.1 million.

In the period both Swiftkey and Vision Direct were sold as previously publicly released, generating significant gains on initial investment. Magic Pony was sold after the period end to Twitter.

It is the Board's strategy to continue to support portfolio businesses which have met or exceeded performance expectations, and where our Manager considers that multiple returns on investment are achievable, as well as investing into new companies which they believe have potential for significant growth. We are delighted that the recent fundraising will allow us to continue this strategy.

Dividends
Your Board has decided to declare an interim dividend of 2.0p (2015 2.0p) per share, which will be paid on 2 September 2016 to shareholders on the register on 12 August 2016.

VCT Qualifying Status
PricewaterhouseCoopers LLP 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 2016, over 90% of the portfolio (as measured by HMRC rules) was invested in VCT-qualifying investments as reviewed and confirmed by PwC, significantly above the 70% VCT-qualifying threshold.

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 page 15 of the annual report for the year ended 31 October 2015.

Outlook
As shareholders will discern from my report, the last six months have been a particularly busy period for our Managers. Titan is delighted with the response to its recent fundraising which will allow us to continue our mission to seek out and invest in tomorrow's emerging technology companies. Our Managers continue to see a vibrant deal flow but we believe that our number of portfolio of investments should not increase significantly and so we will also concentrate more fully on exits in the future as the portfolio matures. The recent disposals of Swiftkey, Vision Direct and Magic Pony demonstrate the success of our investment strategy.

This will allow us to continue the Company's dividend policy of paying a regular tax-free annual dividend of at least 4.0p per share, increasing to 5.0p per share by the year to 31 October 2017 together with special dividends when investments are sold for a profit from the portfolio.

Your Board views the future for Titan with confidence and we will continue to seek further funds to support our investee portfolio, the average holding period since Titan's original investment is currently only 3-4 years. As shareholders will understand, the average period from investment until realisation for young technology businesses is normally more than 7 years. We were delighted that Swiftkey was sold to Microsoft, VisionDirect to Essilor, and subsequent to the period end, Magic Pony to Twitter, all of which generated realised gains for Titan.

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

John Hustler
Chairman
24 June 2016

Investment Portfolio

Investments	Sector	Investment cost at 30 April 2016 * (£'000)	Accounting cost at 30 April 2016 * (£'000)	Unrealised profit / (loss) (£'000)	Carrying value at 30 April 2016 * (£'000)	Unrealised profit / (loss) in the period (£'000)
Zenith Holding Company Limited **	Various	14,701	24,843	8,638	33,481	(688)
Secret Escapes Limited	Consumer lifestyle and wellbeing	4,256	15,636	3,973	19,609	-
Uniplaces Limited	Consumer lifestyle and wellbeing	4,657	5,847	4,781	10,628	-
Amplience Limited	Technology	5,986	9,905	18	9,923	-
Sourceable Limited (trades as Swoon Editions)	Consumer lifestyle and wellbeing	4,029	4,621	4,347	8,968	2,654
London House Exchange Limited (trades as Property Partner)	Consumer lifestyle and wellbeing	5,175	5,175	2,922	8,097	2,693
Zynstra Limited	Technology	5,840	6,190	787	6,977	-
Conversocial Limited	Technology	4,165	4,157	2,381	6,538	-
Magic Pony Technology Limited	Consumer lifestyle and wellbeing	807	806	5,292	6,098	5,292
MIRACL Limited	Technology	5,652	6,672	(1,404)	5,268	-
Other ***		80,710	83,597	(10,919)	72,678	(3,096)
Total investments		135,978	167,449	20,816	188,265	6,855
Money market securities					7,479
OEICs					6,924
Cash at bank					99,062
Total investments, cash and cash equivalents					301,730
Debtors less creditors					7,330
Total net assets					309,060

*     Investment cost reflects the £amount invested into each portfolio company. Accounting cost reflects the uplift at the merger as a result of the transfer of the investments of Titan's 1, 3, 4 & 5 to Titan 2 (now Titan) in November 2014 at their fair value, plus all other investments made in Titan 2 and now Titan, at investment cost. Carrying value is accounting cost plus unrealised profit / (loss).

**    Owns stakes in Nature Delivered Limited (trades as Graze), Secret Escapes Limited, Calastone Limited and Zoopla plc

***  Comprises 40 investments: 38 unquoted and two quoted (Mi-Pay Group plc and e-Therapeutics plc), including two companies in liquidation at period end (Shopa Limited and Phase Vision Limited) but excluding one in administration (Aframe Media Group Limited) which has £nil value and cost.

The other 36 unquoted investment are Leanworks Limited (YPlan), Artesian Solutions Limited, Semafone Limited, Eve Sleep Limited, Sofar Sounds Limited, Oxcis Aviation Limited (trades as Stratajet), CurrencyFair Limited, Adbrain Limited, The Faction Collective SA, UltraSoC Technologies Limited, Origami Energy Limited, Metrasens Limited, Surrey NanoSystems Limited, Elliptic Enterprise Limited, Ecrebo Limited, Iovox Limited, Smartkem Limited, Tailsco Limited, Bowman Power Limited, TrialReach Limited, BridgeU Corporation, Michelson Diagnostics Limited, Streethub Limited, Trafi Limited, Affectv Limited, Segura Systems Limited, Hubbub Deliveries Limited, Behaviometrics AB, Permutive Inc., Wave Optics Limited, Kabbee Exchange Limited, Streetbees.com Limited, Phasor Inc., Excession Technologies Limited, Seedcamp III LP and Mailcloud Limited.

The following 15 follow-on investments were made in the period: Uniplaces, Property Partner, Zynstra, Conversocial, Magic Pony, MIRACL, Eve Sleep, Stratajet, CurrencyFair, The Faction Collective, Origami Energy, Elliptic Enterprise, Tailsco, TrialReach and Seedcamp.

Income Statement

	Six months to 30 April 2016			Six months to 30 April 2015
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Realised losses on fixed asset investments	-	(2,521)	(2,521)	-	-	-
Fixed asset investment holding gains	-	6,855	6,855	-	2,059	2,059
Current asset investment holding gains	-	25	25	-	156	156
Investment income	(160)	-	(160)	210	-	210
Investment management fees	(611)	(1,834)	(2,445)	(368)	(1,156)	(1,524)
Other expenses and income	(1,136)	3	(1,133)	(1,148)	-	(1,148)
Profit/(loss) before tax	(1,907)	2,528	621	(1,306)	1,059	(247)
Taxation	-	-	-	-	-	-
Profit/(loss) after tax	(1,907)	2,528	621	(1,306)	1,059	(247)
Earnings per share - basic and diluted	(0.8)p	1.0p	0.2p	(0.7)p	0.6p	(0.1)p

• 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 money market funds.
• The Company has no recognised gains or losses other than the results for the period as set out above.
• The Company has no other comprehensive income.

Statement of Changes in Equity

	Six months to 30 April 2016	Year ended 31 October 2015	Six months to 30 April 2015
	£'000	£'000	£'000
Shareholders' funds at start of period	228,461	32,876	32,876
Profit/(loss) after tax	621	15,196	(247)
Net proceeds from share issues	104,134	53,897	185,335
Merger share issues	-	137,417	-
Titan's 1, 3, 4 and 5 fee write offs	-	110	-
Purchase of own shares	(1,868)	(5,729)	(2,111)
Dividends paid	(22,288)	(5,306)	(811)
Shareholders' funds at end of period	309,060	228,461	215,042

Balance Sheet  

	Six months to 30 April 2016		Year to 31 October 2015
	£'000	£'000	£'000	£'000
Fixed asset investments*		188,265		211,581
Current assets:
Cash at bank	99,062		10,630
Money market securities*	7,479		9,462
OEICs	6,924		6,899
Debtors	9,562		1,790
	123,027		28,781
Creditors: amounts falling due within one year	(2,232)		(11,901)
Net current assets		120,795		16,880
Net assets		309,060		228,461
Called up equity share capital		32,296		22,246
Share premium		93,886		-
Special distributable reserve		158,703		182,331
Capital redemption reserve		523		325
Capital reserve - realised gains/(losses)		7,908		(4,279)
Capital reserve - holding gains		21,034		31,221
Revenue reserve		(5,290)		(3,383)
Total equity shareholders' funds		309,060		228,461
Net asset value per share		95.7p		102.7p

 

* Held at fair value and unrealised gains in the period have been accounted for in the 'Capital reserve - holding gains' reserve

The statements were approved by the Directors and authorised for issue on 24 June 2016 and are signed on their behalf by:

John Hustler
Chairman
Company Number: 06397765

Cash flow statement

	Six months to 30 April 2016	Six months to 30 April 2015
	£'000	£'000
Reconciliation of profit to cash flows from operating activities
Profit/(loss) before tax	621	(247)
Increase in debtors	(7,772)	(1,192)
Decrease in creditors	(9,669)	(637)
Debtors obtained from merger	-	6,123
Creditors obtained from merger	-	(13,412)
Gains on disposal of fixed assets	2,521	-
Gains on valuation of fixed asset investments	(6,855)	(2,059)
Outflow from operating activities (a)	(21,154)	(11,424)
Cash flows from investing activities
Purchase of fixed asset investments	(19,569)	(16,940)
Sale of fixed asset investments	47,219	150
Inflow/(outflow) from investing activities (b)	27,650	(16,790)
Cash flows from financing activities
Dividends paid	(22,288)	(811)
Purchase of own shares	(1,868)	(2,111)
Net proceeds from share issues	104,134	47,107
Inflow from financing activities (c)	79,978	44,185
Cash and cash equivalents acquired in merger
Cash acquired in merger	-	8,237
OEICS acquired in merger	-	11,282
Acquired from merger (d)	-	19,519
Increase in cash and cash equivalents (a+b+c+d)	86,474	35,490
Opening cash and cash equivalents	26,991	6,144
Closing cash and cash equivalents	113,465	41,634

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX 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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