Octopus Titan VCT 3 PLC : Half-yearly report

Octopus Titan VCT 3 plc
Half-Yearly Results

21 June 2012

Octopus Titan VCT 3 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 21 June 2012.

You may shortly view the Half-Yearly Report in full at www.octopusinvestments.com/vctachive/titan3.html. All other statutory information will also be found there.

About Octopus Titan VCT 3 PLC

Octopus Titan VCT 3 plc ('Titan 3', '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 predominantly unquoted companies. The Company is managed by Octopus Investments Limited ('Octopus' or 'Investment Manager').

Titan 3 was incorporated on 4 March 2008 and raised over £20.0 million (£19.2 million net of expenses) through an Offer for Subscription. A further £1.40 million in aggregate (£1.32 million net of expenses) has been raised by way of a top-up. Titan 3 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 3 has been provisionally 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

Chairman's Statement

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

Results and Dividend

As at 30 April 2012 the net asset value (NAV) stood at 93.7p, compared to 92.9p at 31 October 2011 which represents an increase of 0.9% in the six month period. The small increase in the NAV is as a result of the increase in fair value of both the OEIC and the portfolio exceeding the running costs of the company. These are discussed in further detail below.

We believe that our shareholders place considerable importance on dividends, particularly given their tax-free status in a period when the top rate of tax for individuals is 50%. To that end, we have decided following a partial realisation of the holding in Zoopla to include a dividend for the half year. This interim dividend of 1p per share will be payable on 27 July 2012 to shareholders on the register on 29 June 2012.

Investment Portfolio Review

Having reached the required 70% qualifying investment threshold last October, the VCT has used the six month period to 30 April 2012 to concentrate on developing the established portfolio. The VCT therefore made ten follow-on investments amounting to a total of £1.4 million. These follow-on investments were made into the following companies: Semafone, Surrey Nanosytems, Mi-Pay, Vega-Chi, 10 CMS (renamed Amplience), Bowman Power, GetOptics, Phase Vision, PrismaStar and Diverse Energy.

It is encouraging that the portfolio has seen an overall increase in fair value of £63,000 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 of £234,000 and £204,000 respectively.  I am pleased to report that during the period the company disposed of 31.4% of its holding in Zoopla, realising a gain of £150,000 on an investment cost of £210,500.

Open Ended Investment Company (OEIC)

The CF Octopus UK Micro Cap Growth Fund has continued its strong performance and increased in fair value by £245,000 over the six months to 30 April 2012. This contributed 1.1p to the NAV. As at the period end, the investment has had a cumulative increase in fair value of £1,300,000 which equates to a 72% increase on cost.  

Top-up

The Company, together with the other Titan funds, offered its shareholders the opportunity to invest further into the Titan VCTs through a 'Top-up' offer. It is pleasing to report that this offer was fully subscribed ahead of the closing date, and raised £1,403,000 into the Fund.

The majority of the 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 has permitted an increase in the gross asset limit for portfolio companies rising from £7 million to £15 million, and in the number of employees rising from 50 to 250. These changes are effective from 6 April 2012, and coupled with the raising of the annual investment limit from £2 million to £5 million, give additional scope in terms of considering new qualifying investment opportunities.

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 3 is in compliance with the conditions laid down by HMRC for maintaining provisional approval as a VCT. 

As at 30 April 2012, over 86.3% of the portfolio (as measured by HMRC rules) was invested in VCT qualifying investments.

Principal Risks and Uncertainties

The VCT's assets consist of equity and fixed-rate interest investments, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by Titan 3 include economic, loss of approval as a VCT, investment and strategic, regulatory, reputational, operational and financial risks. These risks, and the ways in which they are managed, are described in more detail in Titan 3's Annual Report and Accounts for the year ended 31 October 2011. The VCT's principal risks and uncertainties have not changed materially since the date of that report.

Outlook

The VCT has used the six month period to focus its resources into its current portfolio of 26 companies. Although the VCT is continually seeking new opportunities, it has concentrated on a number of follow-on investments during the period in order to support companies who have met or exceeded expectations. The VCT will continue to support these investments building capital growth in the Fund and striving to make further successful realisations.

In the current economic climate, some portfolio companies will struggle to survive the adverse trading conditions. However, others continue to grow and develop, and overall we continue to have the confidence that the portfolio should realise a satisfactory return for shareholders.

I shall be writing to you again at the year end to provide a more detailed review of the portfolio.

Mark Hawkesworth
Chairman
21 June 2012

Investment Portfolio

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

Mark Hawkesworth
Chairman
21 June 2012

• 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.

*Held at fair value through profit and loss

The statements were approved by the Directors and authorised for issue on 21 June 2012 and are signed on their behalf by:

Mark Hawkesworth
Chairman

Company Number: 06523078

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 2011 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 20,413,394 (30 April 2011: 20,261,304 and 31 October 2011: 20,255,857) shares, being the weighted average number of 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 21,497,993 (30 April 2011: 20,250,554 and 31 October 2011: 20,250,554) ordinary shares in issue at that date.

5.         Dividends
The interim dividend declared of 1 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 29 June 2012. 

6.          Buy Backs
During the six months ended 30 April 2012 the Company bought back 48,975 ordinary shares at a weighted average price of 83.7pence per share (six months ended 30 April 2010: 17,595 ordinary shares at a weighted average price of 88.5 pence per share and year ended 31 October 2011: 17,595 ordinary shares at a weighted average price of 88.5 pence per share). 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 £188,000 payable to Octopus (30 April 2011: £196,000 and 31 October 2011: £392,000). 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 £10,000 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.