Octopus Titan VCT 2 PLC : Half-yearly report

Octopus Titan VCT 2 plc
Half-Yearly Results

20 June 2012

Octopus Titan VCT 2 plc, managed by Octopus Investments Limited, today announces the Half-Yearly results for the six months ended 30 April 2012.

These results were approved by the Board of Directors on 20 June 2012.

You may shortly view the Half-Yearly Report in full at www.octopusinvestments.com.

 

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 £2.71 million in aggregate (£2.56 million net of expenses) has been raised through top-ups in 2010 and 2012. 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 £5 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 30 April 2012	Six months to 30 April 2011	Year to 31 October 2011
Net assets (£'000s)	16,304	14,953	14,833
Return on ordinary activities after tax (£'000s)	384	(341)	(327)
Net asset value per share (NAV)	92.8p	92.1p	91.5p
Cumulative dividends since launch - paid and proposed	6.0p	3.5p	4.5p

Chairman's Statement

I am pleased to present the half-yearly results for the six month period ended 30 April 2012.

Results and Dividend

During the six month period to 30 April 2012, the total return has increased 2.4% from 95.0p to 97.3 pence (being the net asset value per share (NAV) of 92.8p (October 2011: 91.5p) plus cumulative dividends paid of 4.5p). This is largely due to a net increase in the value of the investment portfolio exceeding the running costs of the Company. This is encouraging progress given the long term nature of the investments made.

We continue to 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 is 50%. As shareholders will remember, we increased our final dividend for 2011 to 1.0p per share and we have decided, based on the successful part realisation of Zoopla as detailed below, to increase this level of dividend for the half year. The interim dividend of 1.5p per share will be payable on 27 July 2012 to shareholders on the register on 29 June 2012.

Investment Portfolio Review

During the six month period to 30 April 2012, we made nine follow-on investments totalling £742,000 to the portfolio. These included: Mi-Pay, Semafone, Surrey Nanosystems, Bowman Power, GetOptics, Phase Vision, PrismaStar, Soil Exchange and Diverse Energy. It is the Board's intention to continue to use our cash resources to support the existing portfolio.

The portfolio saw an encouraging overall increase in fair value of £318,000 during the period despite write downs in AQS, Bowman, Elonics and PrismaStar. This increase in fair value is largely attributable to the significant uplifts in fair value in both Zoopla and e-therapeutics, which is quoted on AIM. Zoopla alone increased in fair value by £419,000.

Notwithstanding the disappointing performance by those companies where we have made provisions against cost, which is not unexpected in the current economic climate, your Board believes that the diversified portfolio of 22 investments has good potential that will continue to provide a net uplift in fair value.

Open Ended Investment Companies (OEICs)

Titan 2 continues to hold investments in two OEICs which have seen an encouraging uplift in fair value in the six months to 30 April 2012 of £63,000. The best performance continued to be in the CF Octopus UK Micro Cap Growth Fund which increased in value by 8.5%.

Top-up

The Company, together with the other Titan funds, offered the opportunity to invest into the VCTs through a Top-up fund raising. It is pleasing to report that this offer was fully subscribed ahead of the closing date, raising £1,322,000 net of issue costs.

The majority of funds raised will be used to support existing portfolio companies where the Investment Manager sees the opportunity for potential gains.

The Budget

The 2012 budget provided, with effect from 6 April 2012, for the increase in the gross asset limit for investee companies from £7 million to £15 million and for the number of employees to be raised from 50 to 250, as well as raising the overall annual investment limit into qualifying companies from £2 million to £5 million. We are pleased to see that these measures have now received State Aid approval from the EU and welcome the changes and the continued support which the Government is giving to the VCT 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 2012, over 95.5% 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 23 of the annual report for the year ended 31 October 2011.

Outlook

It is encouraging to have seen a positive uplift in Titan 2's portfolio with significant growth in a few companies. Your Board is also pleased to have commenced making successful realisations. With such a diverse portfolio, however, it is expected at this stage of maturity that there will be challenges for a number of other companies. Octopus has continued to work hard alongside these companies in order to develop capital growth and to enable further future realisations for the Fund. Titan 2 will continue to support our existing portfolio where we believe that the companies offer good potential.

Overall, your Board believes that the portfolio is continuing to show positive signs of significant potential over the medium term to realise an above average return for our shareholders. Combining this with the successful part realisation of Zoopla, your Board is pleased to continue our strategy of paying an increasing level of dividends. 

John Hustler
Chairman
20 June 2012

Investment Portfolio

Qualifying investments	Sector	Investment cost at 30 April 2012 (£'000)	Unrealised profit/(loss) (£'000)	Carrying value at 30 April 2012 (£'000)	Change in valuation in the period (£'000)	% equity held by Titan 2	% equity managed by Octopus
Zoopla Limited	Media	741	1,771	2,512	419	5.68%	19.12%
Nature Delivered Limited	Consumer lifestyle & wellbeing	798	907	1,705	-	7.63%	29.98%
Calastone Limited	Technology	1,135	567	1,702	-	10.81%	34.10%
True Knowledge Limited	Media	1,420	(7)	1,413	-	9.70%	54.01%
e-Therapeutics plc	Consumer lifestyle & wellbeing	632	338	970	323	1.73%	8.24%
Executive Channel Limited	Media	529	76	605	-	6.40%	36.76%
Mi-Pay Limited	Telecommunications	849	(260)	589	-	9.64%	32.12%
TouchType Limited	Telecommunications	385	164	549	-	4.20%	20.07%
Semafone Limited	Telecommunications	422	72	494	72	7.34%	51.03%
Surrey Nanosystems Limited	Technology	485	-	485	-	4.91%	24.55%
Michelson Diagnostics Limited	Consumer lifestyle & wellbeing	442	-	442	-	4.87%	37.53%
Metrasens Limited	Consumer lifestyle & wellbeing	338	43	381	-	5.00%	28.01%
UltraSoc Technologies Limited	Technology	361	-	361	-	10.04%	55.55%
Bowman Power Limited	Environmental	312	27	339	-	2.43%	15.56%
GetOptics Limited	Consumer lifestyle & wellbeing	422	(90)	332	-	7.52%	34.79%
Phase Vision Limited	Technology	474	(165)	309	-	10.10%	42.96%
PrismaStar Inc.	Media	424	(300)	124	(150)	4.00%	26.65%
AQS Holdings Limited	Environmental	655	(565)	90	(269)	11.68%	43.63%
Phasor Solutions Limited	Technology	100	(50)	50	-	1.74%	32.14%
Diverse Energy Limited	Environmental	382	(367)	15	-	5.47%	29.76%
Elonics Limited	Technology	305	(305)	-	(76)	3.11%	19.54%
The Key Revolution Limited *	Technology	641	(641)	-	-	12.36%	35.88%
Total qualifying investments		12,252	1,215	13,467	318
Money market securities		1,050		1,050
OEICs		807	149	956
Cash at bank		834		834
Total investments		14,943	1,364	16,307
Net current assets				(3)
Total net assets				16,304
* in administration at 30 April 2012

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

20 June 2012 Income Statement
	Six months to 30 April 2012			Six months to 30 April 2011			Year to 31 October 2011
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Realised gain/(loss) on disposal of fixed asset investments	-	271	271	-	24	24	-	156	156
Realised (loss)/gain on disposal of current asset investments	-	(15)	(15)	-	-	-	-	-	-
Fixed asset investment holding gains/(losses)	-	318	318	-	(395)	(395)	-	(98)	(98)
Current asset investment holding gains/(losses)	-	63	63	-	254	254	-	89	89
Other income	2	-	2	40	-	40	65	-	65
Investment management fees	(36)	(109)	(145)	(39)	(116)	(155)	(78)	(233)	(311)
Other expenses	(110)	-	(110)	(109)	-	(109)	(228)	-	(228)
Return on ordinary activities before tax	(144)	528	384	(108)	(233)	(341)	(241)	(86)	(327)
Taxation on return on ordinary activities	-	-	-	-	-	-	-	-	-
Return  on ordinary activities after tax	(144)	528	384	(108)	(233)	(341)	(241)	(86)	(327)
Earnings per share - basic and diluted	(0.9)p	3.2p	2.3p	(0.7)p	(1.4)p	(2.1)p	(1.5)p	(0.5)p	(2.0)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 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 April 2012	Six months to 30 April 2011	Year to 31 October 2011
	£'000	£'000	£'000
Shareholders' funds at start of period	14,833	15,518	15,518
Return on ordinary activities after tax	384	(341)	(327)
Issue of equity (net of expenses)	1,322	-	-
Purchase of own shares	(73)	(102)	(115)
Dividends paid	(162)	(122)	(243)
Shareholders' funds at end of period	16,304	14,953	14,833

Balance Sheet
	As at 30 April 2012		As at 30 April 2011		As at 31 October 2011
	£'000	£'000	£'000	£'000	£'000	£'000
Fixed asset investments*		13,467		11,401		12,803
Current assets:
Money market securities and other deposits*	2,006		2,946		1,976
Debtors	54		1		16
Cash at bank	834		655		91
	2,894		3,602		2,083
Creditors: amounts falling due within one year	(57)		(50)		(53)
Net current assets		2,837		3,552		2,030
		16,304
Net assets				14,953		14,833
Called up equity share capital	1,756		1,623		1,622
Share premium	1,753		574		574
Special distributable reserve	12,609		12,938		12,682
Capital redemption reserve	22		12		13
Capital reserve - losses on disposal	(802)		(589)		(210)
- holding gains	1,363		511		401
Revenue reserve	(397)		(116)		(249)
Total equity shareholders' funds		16,304		14,953		14,833
Net asset value per share		92.8p		92.1p		91.5p

*Held at fair value through profit and loss

The statements were approved by the Directors and authorised for issue on 20 June 2012 and are signed on their behalf by:

John Hustler
Chairman

Company Number: 06397765

Cash flow statement
	Six months to 30 April 2012	Six months to 30 April 2011	Year to 31 October 2011
	£'000	£'000	£'000
Net cash inflow/(outflow) from operating activities	(287)	360	98
Financial investment:
Purchase of fixed asset investments	(742)	(1,714)	(2,818)
Disposal of fixed asset investments	665	383	382
Management of liquid resources:
Purchase of current asset investments	(1,050)	(2,742)	(2,192)
Disposal of current asset investments	1,070	4,531	4,918
Taxation	-	-	-
Dividends paid	(162)	(122)	(243)
Financing:
Issue of equity	1,322	-	-
Purchase of own shares	(73)	(102)	(115)
Increase/(decrease) in cash resources at bank	743	594	30

Reconciliation of net cash flow to movement in net funds
	Six months to 30 April 2012	Six months to 30 April 2011	Year to 31 October 2011
	£'000	£'000	£'000
Increase/(decrease) in cash resources at bank	743	594	30
Movement in cash equivalents	30	(1,511)	(2,481)
Opening net cash resources	2,067	4,518	4,518
Net funds at period end	2,840	3,601	2,067

Reconciliation of return before taxation to cash flow from operating activities
	Six months to 30 April 2012	Six months to 30 April 2011	Year to 31 October 2011
	£'000	£'000	£'000
Return on ordinary activities before tax	384	(341)	(327)
Loss/(gain) on disposal of current asset investments	15	(24)	(156)
Gain on disposal of fixed asset investments	(271)	-	-
(Gain)/ Loss on valuation of fixed asset investments	(318)	395	98
(Gain)/loss on valuation of current asset investments	(63)	(254)	(89)
(Increase)/ decrease in debtors	(38)	587	572
Increase/(decrease) in creditors	4	(3)	-
(Outflow)/inflow from operating activities	(287)	360	98

Notes to the Half-Yearly Report

1.         Basis of preparation
The unaudited half-yearly results which cover the six months to 30 April 2012 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 2011, 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 2012 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 16,402,218 (30 April 2011: 16,310,429 and 31 October 2011: 16,267,138) 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 2012 is based on 17,560,971 (30 April 2011: 16,236,217 and 31 October 2011: 16,220,459) ordinary shares in issue at that date.
           
5.         Dividends
The interim dividend declared of 1.5 pence per share for the six months ending 30 April 2012 will be paid on 27 July 2012, to those shareholders on the register on 27 June 2012.

The final dividend of 1.0 pence per share for the year ending 31 October 2011 was paid on 13 April 2012 to those shareholders on the register on 9 March 2012.

6.         Buy Backs
During the six months ended 30 April 2012 the Company bought back 88,083 ordinary shares at a weighted average price of 82.5 pence per share (six months ended 30 April 2010: 118,285 ordinary shares at a weighted average price of 86.2 pence per share and year ended 31 October 2011: 134,043 ordinary shares at a weighted average price of 85.88 pence per share). During the six months to 30 April 2012, 1,428,595 shares were issued at a price of 97.8 pence per share.

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 £145,000 payable to Octopus (30 April 2011: £155,000 and 31 October 2011: £282,000). At the period end there was £nil outstanding to Octopus (30 April 2011: £nil and 31 October 2011: £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.

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Source: Octopus Titan VCT 2 PLC via Thomson Reuters ONE

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