Half-yearly report

Octopus Titan VCT 2 plc Half-Yearly Results 14 June 2011 Octopus Titan VCT 2 plc, managed by Octopus Investments Limited, today announces the Half-Yearly results for the six months ended 30 April 2011. These results were approved by the Board of Directors on 13 June 2011. You may shortly view the Half-Yearly Report in full atwww.octopusinvestments.com by navigating to Services, Investor Services, Venture Capital Trusts, Octopus Titan VCT 2. All other statutory information will also be found there. About Octopus Titan VCT 2 plc Octopus Titan VCT 2 plc ('Titan 2', 'Company' or 'VCT') 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 predominately unquoted companies. The Company is managed by Octopus Investments Limited ('Octopus' or 'Investment Manager'). Titan 2 was incorporated on 12 October 2007. In collaboration with Octopus Titan VCT 1 plc ('Titan 1'), the VCTs raised over £30.8 million in aggregate (£29.5 million net of expenses) through an Offer for Subscription. A further £1.37 million in aggregate (£1.29 million net of expenses) has been raised by way of a top-up. Titan 2 invests primarily in unquoted UK smaller companies and aims to deliver absolute returns on its investments. Venture Capital Trusts (VCTs) VCTs were introduced in the Finance Act 1995 to provide a means for private individuals to invest in unquoted 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. Titan 2 has been approved as a VCT by HM Revenue & Customs (HMRC). In order to maintain its approval the Company must comply with certain requirements on a continuing basis.  By the end of the Company's third accounting period at least 70% of the Company's investments must comprise 'qualifying holdings' of which at least 30% must be in eligible ordinary shares. A 'qualifying holding' consists of up to £1 million invested in any one year in new shares or securities in an unquoted company (or companies quoted on AIM) 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. The Company will continue to ensure its compliance with these qualification requirements. Financial Summary Six months to Six months to Year to 31   30 April 2011 30 April 2010 October 2010 -------------------------------------------------------------------------------- Net assets (£'000s) 14,953 14,368 15,518 Return on ordinary activities after tax (£'000s) (341) (568) 13 Net asset value per share (NAV) 92.1p 92.0p 94.9p Cumulative dividends since launch - paid and proposed 3.5p 2.0p 2.75p -------------------------------------------------------------------------------- Chairman's Statement I am pleased to present the half-yearly results for the six month period ended 30 April 2011. Results and Dividend During the six month period to 30 April 2011, the total return has declined 2.1% to 94.85 pence (being the net asset value per share (NAV) plus cumulative dividends paid). This is largely due to a net reduction in the value of the investment portfolio. However, several of the portfolio companies are trading well and have the potential to deliver above average returns to our shareholders over the medium term. We believe that our shareholders place considerable importance on the maintenance of regular dividends, particularly given their tax-free status in a period when the top rate of tax for individuals has increased to 50%. As shareholders will remember, we increased our final dividend for 2010 to 0.75p per share and we have decided, notwithstanding the modest negative return for the period, to maintain this level of dividend for the half year. This interim dividend of 0.75p per share will be payable on 29 July 2011 to shareholders on the register on 1 July 2011. It is your Board's intention to introduce a Dividend Reinvestment Scheme to allow shareholders to reinvest their dividends into new shares and take advantage of the 30% initial tax relief. This should be available for the final dividend for the current year. I will be writing to you with further details in due course. Investment Portfolio Review During the six month period our Investment Manager, Octopus, has made one new investment on behalf of the VCT into Diverse Energy, a company focusing on low carbon infrastructure to power global mobile telecommunications. They also made several follow-on investments totalling £1.35 million into 7 companies in the portfolio: True Knowledge, Zoopla, Mi-Pay, Skills Market, e-Therapeutics, Money Workout and Michelson Diagnostics. The majority of our investments have continued to report good trading results and some particularly noteworthy news over the period is that Touchtype won the 'mobile app of the year' award at the Mobile World Congress in March. Several businesses continue to perform well and exceed their targets. Our investment in the AIM listed company e-Therapeutics repaid its loan during the period and we are pleased to report that the company has seen an uplift in value of £214,000 as the bid price reached 35p per share at 30 April 2011. This was after a further round of funding into the company as part of a significant Private Placing in March. In the broader portfolio, there are also further positive signs, with Semafone, Executive Channel and TouchType all showing good progress in their respective markets. We believe that it is still appropriate to carry most of these investments at the previous valuations. However, it is not surprising that, in the current economic environment, there are a number of companies in the portfolio which are not trading in line with expectations. Following a write down of our investment in Skills Market in October 2010, this company's sales levels continued to be disappointing. As a result, we made the decision to write the valuation of this company down further to nil and since the period end, the company has gone into administration. Unfortunately, in addition to this, Money Workout also went into administration in April despite receiving further funding in January from Titan 1, 2 and 3 to explore additional sources of revenue. With regard to the investment in Diverse Energy prompt action has been taken by Octopus to address some disappointing performance issues but for the time being its valuation in the portfolio has been reduced. Cash, Liquid Resources and OEICS Following the achievement of the required 70% level of qualifying investments ahead of the October 2010 deadline, our cash resources have decreased. As mentioned in my last Chairman's Statement, your Board has reviewed our policy towards the non-qualifying section of our portfolio. We believe that it is important to retain resources to continue to invest in those companies in the portfolio which have good potential and to gradually reduce the risk profile of our non-qualifying portfolio. To this end we will realise the remainder of our holding in the CF Octopus Absolute UK Equity Fund and gradually reduce our holding in the CF Octopus UK Micro Cap Growth Fund. The resulting proceeds will be held in readily realisable investments including the IFDS Omnis Cautious Fund managed by Octopus. VCT Legislation The Chancellor announced some modest changes to VCT rules in his Budget on 23 March which will have little impact on our investments save that we will be able to continue to invest in some companies (e.g. Zoopla) as they increase their employee numbers. However, the changes signal that the Government continues to be supportive of our sector. 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 2 continues to be in compliance with the conditions laid down by HMRC for maintaining approval as a VCT. As at 30 April 2011, over 86% of the portfolio (as measured by HMRC rules) was invested in VCT qualifying investments. Principal Risks and Uncertainties The Board continues to regularly review the risk environment in which Titan 2 operates. There has been no significant change to the key risks which were set out on page 24 of the annual report for the year ended 31 October 2010. Octopus Titan VCT 5 plc In the Annual Report to 31 October 2010, I reported that Octopus launched a further VCT called Octopus Titan VCT 5 plc with the aim of investing alongside the existing Titan VCTs. This gives the Titan VCT family additional investment capacity which we believe will be an advantage to our existing VCT funds. This VCT has so far raised £10.4 million (net of expenses) and will remain open until the end of the summer. Outlook Titan 2's portfolio is still at an early stage in its development, and whilst there are some companies which are showing strong growth, it is inevitable that there will be challenges for a number of others at this stage of development. Octopus continues to work closely with these businesses to help them overcome such challenges. It is our view that it is largely inappropriate for early stage companies such as those in our portfolio to seek debt to finance their business. We will continue to support and invest in the portfolio companies with equity in the main and thus reduce their exposure to bank debt and the difficulties currently being experienced in raising bank finance in the UK. Overall, your Board considers that the portfolio is showing some evidence of significant potential over the medium term to realise an above average return for our shareholders. Where portfolio businesses have the opportunity to take advantage of the economic environment and they are performing to or above expectations, Titan 2 will look to invest further. It is this feeling of confidence that has allowed your Board to set out on our path of modestly increasing our dividends in future years. John Hustler Chairman 13 June 2011 Investment Portfolio % Investment Carrying Change in equity % cost at value at valuation held equity 30 April Unrealised 30 April in the by managed Qualifying 2011 profit/(loss) 2011 period Titan by investments Sector (£'000) (£'000) (£'000) (£'000) 2 Octopus ------------------------------------------------------------------------------------------ Zoopla Media                 1,399                 4.2% 14.9% Limited 1,071  2,470       - True Knowledge Media 1,336  -  1,336       - 8.5% 46.0% Limited Calastone Technology                                       9.8% 31.0% Limited 1,135  -  1,135       - Nature Consumer lifestyle Delivered & wellbeing  798 55  853       - 6.5% 25.6% Limited e- Consumer lifestyle Therapeutics & wellbeing  632  207  839  214 0.3% 8.8% plc Mi-Pay Telecommunications                                           4.9% 21.2% Limited  549  -   549       - Executive Channel Media  379  -   379       - 5.8% 30.5% Limited UltraSoc Technologies Technology  361  -   361       - 8.0% 44.4% Limited AQS Holdings Environmental                                           5.5% 26.0% Limited  421  -   421       - Semafone Telecommunications                                           7.4% 35.2% Limited  360  -   360       - Phase Vision Technology           (50)                   11.0% 47.5% Limited  400   350       - Michelson Consumer lifestyle Diagnostics & wellbeing  323  -   323       - 4.0% 25.6% Limited Surrey Nanosystems Technology  320  -   320       - 5.4% 29.3% Limited Elonics Technology           -         - 2.7% 16.7% Limited  305   305 PrismaStar Media                                           4.5% 30.0% Inc.  300  -   300       - Bowman Power Environmental                                           2.4% 16.1% Limited  275  -   275       - GetOptics Consumer lifestyle           (90)                   7.5% 34.8% Limited & wellbeing  361   271       - Metrasens Consumer lifestyle                                           4.3% 24.0% Limited & wellbeing  268  -   268       - Diverse Energy Environmental  367 (184)   183 (184) 5.1% 27.8% Limited TouchType Telecommunications                                           1.4% 7.2% Limited   53  -     53       - Phasor Solutions Technology  100 (50)     50       - 1.7% 31.0% Limited Skills Market Technology  186 (186)       - (136) 3.0% 12.2% Limited Money Workout Technology  445 (445)       - (289) 6.7% 32.6% Limited * The Key Revolution Technology  641 (641)       -       - 11.4% 33.2% Limited * ------------------------------------------------------------------------------------------ Total qualifying investments       15     (395) 11,386  11,401 ------------------------------------------------------------------------------------------ Money market securities   12  -     12 OEICs 2,437  497  2,934 Cash at bank  655  -   655 ------------------------------------------------------------------------------------------ Total investments 14,490  512  15,002 ------------------------------------------------------------------------------------------ Net current assets     (49) ------------------------------------------------------------------------------------------ Total net assets  14,953 ------------------------------------------------------------------------------------------ * in administration at 30 April 2011 Responsibility Statement of the Directors' in respect of the half-yearly report We confirm that to the best of our knowledge: * the half-yearly financial statements have been prepared in accordance with the statement 'Half-Yearly Financial Reports' issued by the UK Accounting Standards Board; * the half-yearly report includes a fair review of the information required by the Financial Services Authority Disclosure and Transparency Rules, being: * an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; * a description of the principal risks and uncertainties for the remaining six months of the year; and * a description of related party transactions that have taken place in the first six months of the current financial year, that may have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last annual report that could do so. On behalf of the Board John Hustler Chairman 13 June 2011 Income Statement +----------------------+ |Six months to 30 April|Six months to 30 April Year to 31 October  | 2011 | 2010 2010 | |  |Revenue Capital Total|Revenue Capital Total Revenue Capital Total | |   | £'000 £'000 £'000| £'000 £'000 £'000 £'000 £'000 £'000 --------------+----------------------+--------------------------------------------   |     | | | Realised | | gain/(loss) on| | disposal of | | current asset | | investments | - 24 24| - (15) (15) - (101) (101) | |   |      | | | Fixed asset | | investment | | holding | | (losses)/gains| - (395) (395)| - (100) (100) - 822 822 | | Current asset | | investment | | holding | | gains/(losses)| - 254 254| - (331) (331)   (408) (408) | |   |      | | | Other income | 40 - 40| 111 - 111 180 - 180 | |   |      | | | Investment | | management | | fees | (39) (116) (155)| (38) (113) (151) (70) (212) (282) | |   |      | | | Other expenses| (109) - (109)| (82) - (82) (198) - (198) | |   |      | --------------+----------------------+-------------------------------------------- Return on | | ordinary | | activities | | before tax | (108) (233) (341)| (9) (559) (568) (88) 101 13 | |   |      | | | Taxation on | | return on | | ordinary | | activities | - - -| - - - - - - | |   |      | --------------+----------------------+-------------------------------------------- Return  on | | ordinary | | activities | | after tax | (108) (233) (341)| (9) (559) (568) (88) 101 13 --------------+----------------------+-------------------------------------------- Earnings per | | share - basic | | and diluted | (0.7)p (1.4)p (2.1)p| (0.1)p (3.5)p (3.6)p (0.5)p 0.6p 0.1p +----------------------+ * 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. * The Company has no recognised gains or losses other than the results for the period as set out above. * The accompanying notes are an integral part of the half-yearly report. Reconciliation of Movements in Shareholders' Funds +-----------------+ |Six months to 30 |Six months to 30 Year to 31 October   | April 2011| April 2010 2010 | |   | £'000| £'000 £'000 -------------------------+-----------------+------------------------------------ Shareholders' funds at | | start of period | 15,518| 15,014 15,014 | | Return on ordinary | | activities after tax | (341)| (568) 13 | | Issue of equity (net of | | expenses) | -| - 647 | | Purchase of own shares | (102)| - - | | Dividends paid | (122)| (78) (156) -------------------------+-----------------+------------------------------------ Shareholders' funds at | | end of period | 14,953| 14,368 15,518 +-----------------+ Balance Sheet +-----------------+ | As at 30 April | As at 30 April As at 31 October   | 2011 | 2010 2010 | |   | £'000 £'000| £'000 £'000 £'000 £'000 ------------------------+-----------------+-------------------------------------   |    | | | Fixed asset investments*|   11,401|   6,220   10,465 | | Current assets: |    | | | Money market securities | | and other deposits* | 2,946  | 8,088   4,457 | | Debtors | 1  | 36   588 | | Cash at bank | 655  | 68   61 ------------------------+-----------------+-------------------------------------   | 3,602  | 8,192   5,106 | | Creditors: amounts | | falling due within one | | year | (50)  | (44)   (53) ------------------------+-----------------+------------------------------------- Net current assets |   3,552|   8,148   5,053 ------------------------+-----------------+-------------------------------------   |    | ------------------------+-----------------+------------------------------------- Net assets |   14,953|   14,368   15,518 ------------------------+-----------------+-------------------------------------   |    | | | Called up equity share | | capital | 1,623  | 1,562   1,635 | | Share premium | 574  | -   574 | | Special distributable | | reserve |12,938  |13,196   13,040 | | Capital redemption | | reserve | 12  | -   - | | Capital reserve - losses| | on disposal | (589)  | (832)   (773) | |                         | |    - holding gains | 511  | 410   1,050 | | Revenue reserve | (116)  | 32   (8) ------------------------+-----------------+------------------------------------- Total equity | | shareholders' funds |   14,953|   14,368   15,518 ------------------------+-----------------+------------------------------------- Net asset value per | | share |   92.1p|   92.0p   94.9p +-----------------+ *Held at fair value through profit and loss The statements were approved by the Directors and authorised for issue on 13 June 2011 and are signed on their behalf by: John Hustler Chairman Company Number: 06397765 Cash flow statement +----------------+ | Six months to| Six months to Year to 31   | 30 April 2011| 30 April 2010 October 2010 | |   | £'000| £'000 £'000 -----------------------------+----------------+---------------------------------   |  | | | Net cash inflow/(outflow) | | from operating activities | 360| (111) (833) | |   |  | | | Financial investment: |  | | | Purchase of fixed asset | | investments | (1,714)| (1,950) (5,273) | | Disposal of fixed asset | | investments | 383| - - | |   |  | | | Management of liquid | | resources: |  | | | Purchase of current asset | | investments | (2,742)| (3,097) (4,791) | | Disposal of current asset | | investments | 4,531| 4,732 9,894 | |   |  | | | Taxation | -| - - | |   |  | | | Dividends paid | (122)| (78) (156) | |   |  | | | Financing: |  | | | Issue of equity | -| - 647 | | Purchase of own shares | (102)| - - -----------------------------+----------------+--------------------------------- Increase/(decrease) in cash | | resources at bank | 594| (504) (512) +----------------+ Reconciliation of net cash flow to movement in net funds +----------------+ | Six months to| Six months to Year to 31   | 30 April 2011| 30 April 2010 October 2010 | |   | £'000| £'000 £'000 -----------------------------+----------------+--------------------------------- Increase/(decrease) in cash | | resources at bank | 594| (504) (512) | | Movement in cash equivalents | (1,511)| (1,982) (5,612) | | Opening net cash resources | 4,518| 10,642 10,642 -----------------------------+----------------+--------------------------------- Net funds at period end | 3,601| 8,156 4,518 +----------------+ Reconciliation of return before taxation to cash flow from operating activities +----------------+ | Six months to| Six months to Year to 31   | 30 April 2011| 30 April 2010 October 2010 | |   | £'000| £'000 £'000 -----------------------------+----------------+--------------------------------- Return on ordinary activities| | before tax | (341)| (568) 13 | | (Gain)/loss on disposal of| | current asset investments | (24)| 15 101 | | Loss/(gain) on valuation of | | fixed asset investments | 395| 100 (822) | | (Gain)/loss on valuation of | | current asset investments | (254)| 331 408 | | Decrease/(increase) in | | debtors | 587| 61 (492) | | Decrease in creditors | (3)| (50) (41) -----------------------------+----------------+--------------------------------- Inflow/(outflow) from | | operating activities | 360| (111) (833) +----------------+ Notes to the Half-Yearly Report 1.        Basis of preparation The unaudited half-yearly results which cover the six months to 30 April 2011 have been prepared in accordance with the Accounting Standard Board's (ASB) statement on half-yearly financial reports (July 2007) and adopting the accounting policies set out in the statutory accounts of the Company for the year ended 31 October 2010, which were prepared under UK GAAP and in accordance with the Statement of Recommended Practice for Investment Companies issued by the Association of Investment Companies in January 2009. 2.        Publication of non-statutory accounts The unaudited half-yearly results for the six months ended 30 April 2011 do not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006. The comparative figures for the year ended 31 October 2010 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies. The independent auditor's report on those financial statements, in accordance with chapter 3, part 16 of the Companies Act 2006, was unqualified. This half-yearly report has not been reviewed by the Company's auditor. 3.        Earnings per share The earnings per share is based on 16,310,429 (30 April 2010: 15,616,879 and 31 October 2010: 15,790,677) ordinary shares, being the weighted average number of ordinary shares in issue during the period. There are no potentially dilutive capital instruments in issue and therefore no diluted returns per share figures are relevant. The basic and diluted earnings per share are therefore identical. 4.        Net asset value per share The calculation of NAV per share as at 30 April 2011 is based on 16,236,217 (30 April 2010: 15,616,879 and 31 October 2010: 16,354,502) ordinary shares in issue at that date. 5.        Dividends The interim dividend declared of 0.75 pence per share for the six months ending 30 April 2011 will be paid on 29 July 2011, to those shareholders on the register on 1 July 2011. The final dividend of 0.75 pence per share for the year ending 31 October 2010 was paid on 8 April 2011 to those shareholders on the register on 11 March 2011. 6.        Buy Backs During the six months ended 30 April 2011 the Company bought back 118,285 ordinary shares at a weighted average price of 86.2 pence per share (six months ended 30 April 2010: nil and year ended 31 October 2010: nil). No shares were issued during the period. 7.         Related Party Transactions Octopus Investments Limited acts as the Investment Manager of the Company. Under the management agreement, Octopus receives a fee of 2.0 per cent per annum of the net assets of the Company for the investment management services. During the period, the Company incurred management fees of £155,000 payable to Octopus (30 April 2010: £151,000 and 31 October 2010: £282,000). At the period end there was £nil outstanding to Octopus (30 April 2010: £nil and 31 October 2010: £nil). Furthermore, Octopus provides administration and company secretarial services to the Company. Octopus receives a fee of 0.3 per cent per annum of net assets of the Company for administration services and £7,500 per annum for company secretarial services. 8.Copies of this report are available from the registered office of the Company at 20 Old Bailey, London, EC4M 7AN. This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Octopus Titan VCT 2 PLC via Thomson Reuters ONE [HUG#1523431]

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