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Half-Yearly Results
Half-Yearly Results
Octopus Titan VCT plc announces the half-yearly results for the six months ended 30 June 2024.
Titan's mission is to invest in the people, ideas and industries that will change the world.
Octopus Titan VCT plc ('Titan' or the 'Company') is managed by Octopus AIF Management Limited (the 'Manager'), which has delegated investment management to Octopus Investments Limited ('Octopus' or 'Portfolio Manager') via its investment team Octopus Ventures.
Key financials
Interim Management Report
Chair's statement
Titan's Total Return for the six months to 30 June 2024 was -11.2% with net assets at the period end totalling £892.5 million.
The Net Asset Value ('NAV') per share at 30 June 2024 was 53.5p which, adjusting for dividends paid of 1.9p per share in 30 May 2024, represents a net decrease of 7.0p per share from 31 December 2023 or a total return of –11.2%.
This decline in value has been caused by the decrease in the valuation multiples applied to some of the Company's more mature portfolio companies as well as ongoing private market volatility and the associated impact on capital availability for our portfolio companies. Many of the portfolio companies have experienced lower revenue growth rates as they have prioritised extending cash runway, looking to either achieve profitability or delay fundraising until more favourable market conditions return. The Mergers and Acquisitions (M&A) and Initial Public Offerings (IPO) markets for private companies remain substantially below the levels seen in recent years, and as a result, we have seen a marked decline in realisations from the Titan portfolio with cash receipts from exits in the first half totalling only £0.8 million.
With this further decline in NAV the 10-year tax-free annual compound return for shareholders is now 2%. Since the high watermark as at 31 December 2021, Titan's total return per share has been -38.1% with which the Board are, and shareholders will be, deeply disappointed.
Considering the ongoing challenges in the early-stage venture market to which the Company is exposed, and the resultant performance issues faced, the Board, in conjunction with the Manager, are currently reviewing the strategy of Titan. This review, which will have the benefit of independent external advice, will consider a wide range of issues including but not limited to Titan's investment strategy, dividend and share buy back policies and fund raising plans. We look forward to sharing the results of this review ahead of any potential fund raise in the 2024/25 or 2025/26 tax years.¹
In the six months to 30 June 2024, the fund utilised £90.4 million of its cash resources, comprising £24.5 million in new and follow-on investments, £24.1 million in dividends (net of the Dividend Reinvestment Scheme (DRIS)), £28.0 million in share buybacks and £13.8 million in investment management fees and other running costs, and the fund received disposal proceeds of £0.8 million. The cash and corporate bond balance of £184.6 million at 30 June 2024 represented 21% of net assets at that date, compared to 20% at 31 December 2023.
The total value (NAV plus cumulative dividends paid per share since launch) at the end of the period was 157.4p (31 December 2023: 164.4p).
Dividends
Since inception, the Company has now paid 103.9p in tax-free dividends per share. Following careful consideration and recognising the value that shareholders' place on receiving tax-free dividends, I am pleased to confirm that the Board has decided to declare an interim dividend of 1.2p per share (2023: 2.0p per share). This will be paid on 19 December 2024 to shareholders on the register as at 29 November 2024, which equates to 2% of the Company's NAV as at 31 December 2023.
The Board has concluded, however, that in light of the review being undertaken, the DRIS in respect of this interim dividend will be suspended.
Fundraise and buybacks
We were pleased to raise over £107 million in the fundraise which closed on 5 April 2024, which represented the largest VCT fundraise in the market for the 2023/24 tax year. We would like to take this opportunity to thank all shareholders for their support.
During the period, Titan repurchased 47.8 million shares for £28 million (representing 3% of the net asset value as at 31 December 2023). Further details can be found in Note 6 of the financial statements. The Board will review the policy and operation of any future share buy backs during the aforementioned review.
The Board has also determined that decisions on any future fundraising will take place at the end of the review currently underway.
Principal Risks and Uncertainties
The Board continues to review the risk environment in which Titan operates on a regular basis. The principal risks as set out in the Annual Report for the year ended 31 December 2023 on pages 46 to 49 remain. However, the risks around investment performance, loss of key people, valuations and liquidity have all increased since the year end. All the principal risks will be reported on in detail in the annual report to 31 December 2024.
VCT Status
In November 2023, a ten-year extension was announced to the 'sunset clause' (a retirement date for the VCT scheme), meaning VCT tax reliefs will be available until 5 April 2035. This extension passed through Parliament in February 2024 and on 3 September 2024 His Majesty's Treasury brought the extension into effect through The Finance Act 2024.
Board of Directors and Portfolio Manager
As announced in our annual report, Rupert Dickinson was appointed to the Board with effect from 1 May 2024 and was elected by shareholders at the Annual General Meeting (AGM) held in June. Rupert has over 20 years' experience in the wealth and investment management industries. We look forward to benefiting from his extensive experience.
In March 2024, Jo Oliver was appointed as lead Fund Manager and Adviser to the Board on fund and strategy on an interim basis. In August 2024, Jo stepped down from this interim role. We wish to take this opportunity to thank Jo for his contribution to the Company and wish him well for the future.
Outlook
The further decline in NAV is disappointing and has mainly been driven by a decrease in the value of the Company's largest holdings. These holdings are typically valued using comparable market multiples which fell significantly over the six-month period. This is also evidenced by the Bessemer Index (a US technology index) showing a 12% decline over this time². This has been driven by factors such as high interest rates and economic and political uncertainty.
The priority for our portfolio companies has remained cash preservation to extend their runway to achieve profitability whilst the fundraising and exit environment has been subdued. A side-effect of this focus has, in some cases, been to reduce growth rates. Titan's largest companies have also had to focus on profitability due to the funding scarcity. In the short term, this has meant their valuations have been reduced to reflect this slowed growth, but in the long run the disciplined focus on sustainable growth should be beneficial. In these difficult conditions, we have unfortunately seen more companies underperform or fail as they have struggled to raise further funding or successfully conclude an exit.
Despite this, the Board remains reasonably optimistic about the potential within what is unquestionably a diversified portfolio, with over 145 companies spanning a wide range of sectors, business models and investment stages. Furthermore, despite this slowing in growth across the portfolio, recent analysis shows 23% of the portfolio generated an increase in revenue of over 100% when comparing year-on-year 2023 to 2022 and the portfolio overall saw 19% revenue growth³. Additionally, over 50% of the portfolio NAV is comprised of companies not expecting to need further funding to achieve profitability. This figure rises to 88% when including those companies with more than 12 months' cash runway. This demonstrates that, despite the decline in NAV, the portfolio is showing a degree of resilience. Some companies have shown great agility and modified their business models to take advantage of new opportunities, as we have seen examples of more willingness to adopt new technologies in these turbulent times. As detailed in the Portfolio Manager's report, the Octopus Ventures team is now focusing its resource on follow-on funding opportunities within the portfolio to drive improved performance in the short to mid-term.
In due course we will update you on the progress of the strategic review, and ultimately share the results, but this is not expected to be until early in 2025. I would like to conclude by thanking both the Board and the Octopus team on behalf of all shareholders for their hard work during this very challenging period.
Tom Leader
Chair
1 The information contained within this paragraph is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU No. 596/2014) (which forms part of UK domestic law pursuant to the European Union (Withdrawal) Act 2018). Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.
2 https://cloudindex.bvp.com/
3 Data provided by portfolio companies, based on information available for calendar year 2022 and 2023.
Portfolio Manager's review
Focus on performance
The NAV of 53.5p per share at 30 June 2024 represents a decrease in NAV of 7.0p per share versus a NAV of 62.4p per share as at 31 December 2023, after adding back dividends paid during the year of 1.9p per share, a decrease of 11.2% in the period.
The performance over the five and a half years to 30 June 2024 is shown below:
1 The period to 31 December 2019 was 14 months.
2 Total return % is an alternative performance measure, calculated as total return/opening NAV.
3 Dividend yield is an alternative performance measure, calculated as dividends paid/opening NAV.
4 The equivalent dividend yield for higher rate taxpayers has been calculated based on current tax rates and allowances. This information is provided for illustrative purposes only and does not constitute investment advice.
The decrease in valuation over the six month period has been driven by downward valuation movements across 67 companies which saw a collective decrease in valuation of £141.8 million. The businesses that contributed most significantly to this were Amplience, ManyPets and Big Health. Amplience has been through some senior management changes and has led a cost reduction exercise to increase its cash runway. The decline in valuation reflects the lower market comparables and lower growth rate of the business. ManyPets is focusing on stabilisation and has implemented a range of initiatives to drive higher efficiency and target profitability in the short term at the expense of growth. The decline in valuation is driven by increased loss ratios and a decline in its gross written premium. For Big Health, due to high competition in the mental health space in the US and economic pressures meaning a reduction in benefits being offered by employers, the company has had to make cost reductions and reforecast its growth plans. These three valuation movements account for 33.2% of the total decline in the reporting period.
Octopus Ventures believes that many of the companies which have seen decreased valuations in the period have the potential to overcome the issues they face and get their growth plans back on track. Octopus Ventures will continue to work with them to help them realise their ambitions. In some cases, the support offered could include further funding, to ensure a business has the capital it needs to execute on its strategy.
Conversely, 38 companies saw an increase in valuation in the period, delivering a collective increase in valuation of £34.9 million. These valuation increases reflect businesses which have successfully concluded further funding rounds at increased prices, grown revenues or met certain important milestones. Notable strong performers in the portfolio include Vitesse and BondAval, both of which have shown impressive capital efficient growth. These strong performers demonstrate that there are opportunities available for companies to thrive, and Titan's diverse portfolio allows different routes for each company to succeed in their market.
The gain on Titan's uninvested cash reserves was £4.3 million in the six months to 30 June 2024, primarily driven by a fair value movement of £1.8 million in the corporate bond portfolio and a return of £2.5 million on the money market funds. The objective for the money market funds is to earn appropriate market rates on highly-liquid treasury holdings, at limited risk to capital.
Disposals
In June 2024, Taxfix (a European focused tax return technology platform) acquired TaxScouts, for a combination of cash and equity, which has allowed it to enter the UK market. As a result, Titan now holds shares in Taxfix. Outside of the reporting period in July, cash consideration was received for the disposal of Taxscouts and Foodsteps. Foodsteps was acquired by Registrar Corp (a provider of regulatory and compliance software for the food, cosmetic and life sciences industry). This transaction was also for a combination of cash and equity, and has offered Registrar Corp access to Foodsteps' global market platform of over 32,000 companies in 190 countries. In June, it was agreed that Cobee will be acquired by Pluxee Group (an employee benefits and engagement platform) as part of its strategic growth plan. The transaction has now been approved by the Spanish regulatory authorities, so we look forward to reporting further after completion has taken place.
In the six months, Titan also received deferred proceeds from the sale of Calastone (to The Carlyle Group in 2020) which was held in Octopus Zenith Holding Company, and iSize (to Sony Interactive Entertainment in 2023). In the six months, disposals and deferred proceeds have returned £0.8 million to Titan in cash during the period, including deferred amounts received in cash relating to disposals from previous periods.
There have been two disposals made at a loss: Titan sold its remaining shares in Cazoo, which was listed on the New York Stock Exchange, and Unmade was acquired by High-Tech Apparel. In aggregate, these losses generated negligible proceeds compared to an investment cost of £8.8 million.
Unfortunately, Audiotelligence, Stackin (now fully dissolved), Contingent, Phoelex, Excession and Dead Happy were placed into administration having all been unsuccessful in securing further funding and having explored and exhausted all available options. In the six months since December 2023, Third Eye and LifeBook were fully dissolved having been placed into administration in previous reporting periods.
The underperformance of a portfolio company is always disappointing for Octopus and shareholders alike, but it is a key characteristic of a venture capital portfolio, and we believe the successful disposals will continue to outweigh the losses over the medium to long-term.
1 The period to 31 December 2019 was 14 months.
2 This table includes proceeds received in the period.
VCT qualifying status
Shoosmiths LLP provides both the Board and Octopus with advice concerning ongoing compliance with HMRC rules and regulations concerning VCTs and has advised that Titan continues to be compliant with the conditions set by HMRC for maintaining approval as a VCT.
As at 30 June 2024, over 91% of the portfolio (as measured by HMRC rules) was invested in VCT-qualifying investments, above the 80% current VCT- qualifying threshold.
New and follow-on investments
Titan completed 6 new investments and made 9 follow-on investments in the reporting period. Together, these totalled £24.5 million (made up of £16.2 million into new companies and £8.3 million invested into the existing portfolio).
Below are details on our new investments:
Health
Manual is looking to become the go-to global platform to increase healthy lifespan and build a series of direct-to-consumer health brands for high importance, non-critical areas of health. To achieve this, it will provide easy to access advice and medical support for diagnosis, custom treatment plans and holistic care to induce long-term behaviour change.
Bio
Expression Edits is using a proprietary AI algorithm to design DNA sequences, named introns, which boost the expressions of proteins in mammalian cells.
Climate
Drift Energy is designing sailing vessels and the routing algorithms required to capture deep water wind energy and convert it into onboard hydrogen gas. This would then be transported back to shore using a fully integrated desalination, electrolysis and storage system.
Fintech
Swiipr has developed a digital payments platform specifically for the airline industry. The platform enables airlines to instantly compensate passengers in cases of disrupted or cancelled flights, using virtual or pre-paid cards. Swiipr aims to streamline payment processing for airlines and improve the reimbursement experience for affected passengers.
Bio
LabGenius is a next-generation platform leveraging machine learning to develop novel therapeutic antibodies.
Fintech
Remofirst is an Employer of Record (EOR) and compliance platform that allows companies to hire and pay employees globally.
With a further decline in Titan's NAV, the Octopus Ventures team is highly focused on improving performance and driving greater returns to shareholders. Given Titan's scale, the greatest returns are expected to be driven by its existing, largest holdings, and brand-new investments will have less impact in the near-term. As such, Titan will predominantly be looking to invest to build value in its existing portfolio for at least the coming six to twelve months. This will allow capital to be prioritised on existing companies where the route to success is clearer, as we have been closely involved with the businesses for some time already. We believe that this will drive positive near-term NAV performance as these portfolio companies are more established, so have a greater potential to secure a successful exit and drive meaningful returns, while significant investment in more than 80 new companies in the last three years also provides the foundations for targeting long-term returns.
Valuations
Titan's unquoted portfolio companies are valued in accordance with UK Generally Accepted Accounting Principles (GAAP) accounting standards and the International Private Equity and Venture Capital (IPEV) valuation guidelines. This means we value the portfolio at Fair Value, which is the price we expect people would be willing to buy or sell an asset for at the reference date, assuming they had all the information available we do, are knowledgeable parties with no pre-existing relationship, and that the transaction is carried out under the normal course of business.
The data below illustrates the split of valuation methodology (shown as a percentage of portfolio value and number of companies). 'External price' includes valuations based on funding rounds that typically completed in the last 12 months to the period end or shortly after the period end, and exits of companies where terms have been agreed with an acquirer. 'External price' also includes quoted holdings, which are held at their quoted price as at the valuation date. 'Multiples' is predominantly used for valuations that are based on a multiple of revenues for portfolio companies. Where there is uncertainty around the potential outcomes available to a company, a probability weighted 'scenario analysis' is considered.
Valuation methodology – by value:
Valuation methodology – by number of companies:
Top 20 investments
We are disappointed to report a net decrease in the value of the portfolio of £106.9 million since 31 December 2023, excluding additions and disposals. This represents a decline of 13.6% on the value of the portfolio at the start of the year. Here, we set out the cost and valuation of the top 20 holdings, which account for over 57.0% of the value of the portfolio.
Outlook
Some of the Company's largest holdings have seen their valuations decrease as market multiples have declined and their growth rates have fallen. These early-stage companies require significant investment to develop, however as investors have retreated from the market over the last two years, it has been increasingly challenging for such companies to raise funding, so the focus has been on cash preservation to achieve profitability.
Against this backdrop, the Octopus Ventures team have undertaken a deep review of the entire portfolio, including each company's funding and exit plans, and worked to ascertain and establish the most impactful actions which Octopus can support to best drive performance. Titan's capital and resource will be prioritised for those portfolio companies which have the potential to drive the greatest returns. The in-house People and Talent team will be utilised to build high performing portfolio company teams and support on key recruitment initiatives.
This portfolio focus will leverage the advantages Titan has of being a very large and mature VCT holding a highly diversified portfolio. With over 80 investments having been made in the last three years, there is the opportunity for long term returns to the Company. The ongoing focus will be optimising growth plans for the portfolio and taking advantage of exit opportunities.
Directors' responsibilities statement
The Directors confirm that to the best of their knowledge:
On behalf of the Board
Tom Leader
Chair
Income statement
Titan has no other comprehensive income for the period.
The accompanying notes form an integral part of the financial statements.
Balance sheet
* In line with accounting best practice, the opening balance of accrued loan interest has been reclassified to be included in the fair value of investments. This reclassification amends the balance previously reported as of 31 December 2023.
The accompanying notes form an integral part of the financial statements.
The statements were approved by the Directors and authorised for issue on 28 September 2024 and are signed on their behalf by:
Tom Leader
Chair
Company Number 06397765
Statement of changes in equity
The accompanying notes form an integral part of the financial statements.
The accompanying notes form an integral part of the financial statements.
The accompanying notes form an integral part of the financial statements.
Cash flow statement
The accompanying notes form an integral part of the financial statements.
Condensed notes to the financial statements
1. Basis of preparation
The unaudited half-yearly results which cover the six months to 30 June 2024 have been prepared in accordance with the Financial Reporting Council's (FRC) Financial Reporting Standard 104 Interim Financial Reporting (January 2024) and the Statement of Recommended Practice (SORP) for Investment Companies re-issued by the Association of Investment Companies in July 2022.
2. Publication of non-statutory accounts
The unaudited half-yearly results for the six months ended 30 June 2024 do not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The comparative figures for the year ended 31 December 2023 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. Loss per share
The loss per share is based on 1,630,116,808 Ordinary shares (30 June 2023: 1,458,917,593 and 31 December 2023: 1,506,111,802), being the weighted average number of shares in issue during the period. There are no potentially dilutive capital instruments in issue and so no diluted returns per share figures are relevant. The basic and diluted earnings per share are therefore identical.
4. Net asset value per share
5. Dividends
The interim dividend declared of 1.2p (2%) per share for the six months ending 30 June 2024 will be paid on 19 December 2024 to those shareholders on the register as at 29 November 2024.
On 30 May 2024, a 1.9p second interim dividend relating to the 2023 financial year was paid.
6. Buybacks and allotments
During the six months to 30 June 2024, the Company bought back 47,758,782 Ordinary shares at a weighted average price of 58.6p per share (six months ended 30 June 2023: 24,948,066 Ordinary shares at a weighted average price of 72.8p per share; year ended 31 December 2023: 46,895,882 Ordinary shares at a weighted average price of 69.1p per share).
During the six months to 30 June 2024, 120,898,782 shares were issued at a weighted average price of 65.5p per share (six months ended 30 June 2023: 204,539,959 shares at a weighted average price of 81.0p per share; year ended 31 December 2023: 272,547,045 shares at a weighted average price of 78.6p per share).
7. Related party transactions
Octopus acts as the Portfolio Manager of the Company. Under the management agreement, Octopus receives a fee of 2% per annum of the net assets of the Company for the investment management services, but in respect of funds raised by the Company under the 2018 Offer and thereafter (and subject to the Company having a cash reserve of 10% of its NAV), the annual management charge on uninvested cash will be the lower of either (i) the actual return that the Company receives on its cash and funds that are the equivalent of cash subject to a 0% floor and (ii) 2%. During the period, the Company incurred management fees of £10,089,000 payable to Octopus (30 June 2023: £10,439,000; 31 December 2023: £21,082,000), which were fully settled by 30 June 2024.
Octopus provides non-investment services to the Company and receives a fee for these services which is capped at the lower of (i) 0.3% per annum of the Company's NAV or (ii) the administration and accounting costs of the Company for the year ended 31 December 2020 with inflation increases in line with the Consumer Price Index. During the period, the Company incurred non-investment services fees of £1,047,000 payable to Octopus (30 June 2023: £1,046,000; 31 December 2023: £2,020,000), which were fully settled by 30 June 2024.
In addition, Octopus is entitled to performance-related incentive fees. The incentive fee arrangements were designed to make sure that there were significant tax-free dividend payments made to shareholders as well as strong performance in terms of capital and income growth, before any performance-related fee payment was made. There were no performance-related fees accrued for the six months to 30 June 2024 (30 June 2023: £nil; 31 December 2023: £nil).
Titan owns Zenith Holding Company Limited, which owns a share in Zenith LP, a fund managed by Octopus.
In the period, Octopus Investments Nominees Limited (OINL) purchased Titan shares from shareholders to correct administrative issues, with the intention that the shares will be sold back to Titan in subsequent share buybacks. As at 30 June 2024, no Titan shares were held by OINL (30 June 2023: no shares; 31 December 2023: no shares) as beneficial owner. Throughout the period to 30 June 2024, OINL purchased 7,840 shares (30 June 2023: 1,602,591; 31 December 2023: 1,883,000 shares) at a cost of £5,000 (30 June 2023: £1,372,000; 31 December 2023: £1,563,000) and sold 7,840 shares (30 June 2023: 1,602,591; 31 December 2023: 1,883,000 shares) for proceeds of £5,000 (30 June 2023: £1,171,000; 31 December 2023: £1,353,000). This is classed as a related party transaction as Octopus, the Portfolio Manager, and OINL are part of the same group of companies. Any such future transactions, where OINL takes over the legal and beneficial ownership of Company shares, will be announced to the market and disclosed in annual and half-yearly reports.
Several members of the Octopus investment team hold non-executive directorships as part of their monitoring roles in Titan's portfolio companies, but they have no controlling interests in those companies.
The Directors received the following dividends from Titan:
8. Voting rights and equity management
The following table shows the percentage voting rights held by Titan of each of the top ten investments held in Titan, on a fully diluted basis.
1 These companies have also been invested in by other funds managed by Octopus.
9. Post balance sheet events
The following events occurred between the balance sheet date and the signing of this half‑yearly report:
10. Half-Yearly Report
The unaudited half-yearly report for the six months ended 30 June 2024 will shortly be available to view at octopustitanvct.com.
A copy of the report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information please contact:
Rachel Peat
Octopus Company Secretarial Services Limited
Tel: +44 (0)80 0316 2067
LEI: 213800A67IKGG6PVYW75
2321 Rosecrans Avenue. Suite 2200
90245 El Segundo Stati Uniti