Octopus Titan VCT 5 PLC : Half-yearly report

Octopus Titan VCT 5 plc
Half-Yearly Results

21 June 2012

Octopus Titan VCT 5 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/vctarchive/titan5.html.  All other statutory information will also be found there.

About Octopus Titan VCT 5 PLC

Octopus Titan VCT 5 plc ('Titan 5', '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 5 was incorporated on 13 October 2010 and raised a total of £13.7million (£12.9million net of expenses) through an Offer for Subscription. A further £1.25million in aggregate (£1.18million net of expenses) has been raised by way of a top-up. Titan 5 invests primarily in unquoted UK smaller companies and aims to deliver a substantial level of returns on its investments over the medium to long term.

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.

The Company has been provisionally approved as a VCT by HMRC.  In order to achieve approval the Company must comply with certain requirements on a continuing basis: 

• at least 70% of the Company's investments must comprise 'qualifying holdings'* (as defined in the legislation) by 31 October 2013;
• at least 70% of the 70% of qualifying holdings must be invested into Ordinary shares with no preferential rights;
• no single investment made can exceed 15% of the total company value; and
• a minimum of 10% of each Qualifying Investment must be in Ordinary shares with no preferential rights.

*A 'qualifying holding' consists of up to £5 million invested in any one year in new shares or securities in an unquoted UK company (or companies listed 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.

Financial Summary

Chairman's Statement

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

Performance

During the six month period to 30 April 2012, the net asset value per share (NAV) has declined from 92.6p to 91.8p representing a decrease of 0.9%. This fall in NAV is due to a reduction in value of the investment portfolio and to the standard running costs of the VCT continuing to exceed the yield on the portfolio from loan interest received. The decline in NAV was partially offset by an increase in fair value in the Open Ended Investment Companies over the period of £115,000.

Titan 5 is still in the early stages of investment, 18.1% of the portfolio being in qualifying investments as at 30 April 2012. As mentioned in the first Annual Report, the NAV will be linked increasingly to the value of the investments in the portfolio companies as the VCT becomes fully invested.

Investment Portfolio Review

During the period to 30 April 2012, Titan 5 invested in six new companies. This took the number of companies in the portfolio to seven and there are a number of further new investments in the pipeline which we expect to complete in the coming months as we move towards the 70% qualifying investment level prior to 31 October 2013.

As disclosed in the Annual Report for the period ended 31 October 2011, three of the six new investments were made between the period end and the date that the accounts were signed: Rangespan, a supply chain management company; Amplience Limited, which provides online retailers with tools to quickly add interactive content modules to their websites; and Artesian Solutions, a business software company.

Titan 5 also invested £233,000 into True Knowledge and £192,000 into Semafone; both companies already in the portfolios of the earlier Titan VCTs. True Knowledge has developed internet search technology providing answers to questions posed as if you were addressing a human being while Semafone has developed fraud prevention software for use in call centres. The final company added to the portfolio during the period was Aframe, an electronic data storage company.

These additions in the period ensure we continue to create a balanced investment portfolio spanning multiple industries and business sectors.

Although the investments have reported good trading results in the six months to 30 April 2012 there has been no change in the fair value of the portfolio. The businesses in which we invest are at an early stage and valuations are calculated on a prudent basis as the shares are often illiquid. In the medium to long term, however, we expect to deliver a good level of return on your investment.

Octopus continues to focus on building the portfolio to ensure that Titan 5 has exposure to a diversified range of companies in order to limit risk. As at 30 April 2012, approximately £6.5 million remained to be invested in qualifying companies to reach the 70% threshold set by HMRC. Octopus has a number of investment propositions under review and the flow of new business opportunities continues to be reasonably strong.

Open Ended Investment Companies (OEICs)

Titan 5 continues to hold investments in three OEICs which continued to see an overall uplift in fair value in the six months to 30 April 2012. There was an encouraging £115,000 uplift in value in this reporting period. The best performance continued to be in the CF Octopus UK Micro Cap Growth Fund which increased in fair value by 8.5%.

Your Board continues to keep the investments in the OEICs under review and believes it is important to reduce the risk profile of our non-qualifying investments to protect the capital. As the VCT builds its investment portfolio, there will be cash requirements beyond the funds held on deposit and in money market accounts and we will realise these investments where necessary to maintain the required degree of liquidity.  

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 £1,250,000 into the Fund.

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, which has now received State Aid approval from Brussels, 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. Both this lessening of investment restriction and the increase in the 2012 Budget, from £2 million to £5 million, in the annual investment limit, are to be welcomed due to providing increased flexibility in investing. 

VCT Qualifying Status

PricewaterhouseCoopers LLP provides both the Board and Investment Manager with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs. The Board has been advised that Titan 5 is in compliance with the conditions laid down by HMRC for maintaining provisional approval as a VCT. 

A key requirement is to achieve the 70% qualifying investment level prior to 31 October 2013. As at 30 April 2012, over 18.1% of the portfolio (as measured by HMRC rules) was invested in VCT qualifying investments. In view of the current investment activity, the Board continues to be confident that the 70% target will be met by the required date.

Principal Risks and Uncertainties

The Company'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 the Company 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 the Company's Annual Report and Accounts for the period ended 31 October 2011. The Company's principal risks and uncertainties have not changed materially since the date of that report.

Outlook

As anticipated in the Annual Report to 31 October 2011, economic growth in the first few months of 2012 has been weak. There continues to be concerns about the sustainability of the economic recovery combined with inflationary pressures and the fragile condition of public finances within the UK. These factors provide an uncertain environment for many businesses. Despite the tough trading conditions, there continues to be opportunities to invest in attractive businesses due to the lack of liquidity in traditional banking markets. Our portfolio has made good progress in the period investing in six new companies and we look forward to the coming few years as Titan 5 becomes fully invested and our portfolio starts to mature.

Jane O'Riordan                                     
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

Jane O'Riordan 
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.

Balance Sheet

*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:

Jane O'Riodan
Chairman

Company Number: 07035434

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 period 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 period 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 13,828,560 (30 April 2011: 1,932,707 and 31 October 2011: 6,507,511) 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 14,899,391 (30 April 2011: 10,542,272 and 31 October 2011: 13,678,528) ordinary shares in issue at that date.

5.         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 £117,000 payable to Octopus (30 April 2011: £20,000 and 31 October 2011: £129,000). 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 £15,000 per annum for company secretarial services.

6.         Copies of this report are available from the registered office of the Company at 20 Old Bailey, London, EC4M 7AN.