Octopus Capital

Apr 25, 2023

Final Results London, UNITED KINGDOM Annual report and financial statements for the year ended 31 December 2022 Octopus Titan VCT plc (‘Titan’ and ‘the Company’) announces the final results for the year to 31 December 2022 as below. Titan’s mission is to invest in the people, ideas and industries that will change the world. Octopus Titan VCT plc has earned a reputation for backing pioneering entrepreneurs. It invests in companies that are using technology to shape the future. Highlights 5.0p 3.0p Total return is an alternative performance measure, calculated as movement in NAV per share in the period plus dividends paid in the period. Total return % is an alternative performance measure, calculated as total return/opening NAV. Dividend yield is an alternative performance measure, calculated as dividends paid/opening NAV. Chair’s statement I am pleased to present the annual results for Titan for the year ended 31 December 2022. Highlights Total return over five years: 11% Dividends paid in 2022: 5p The net asset value (NAV) per share at 31 December 2022 was 76.9p which, adjusting for dividends paid, represents a net decrease of 23.8p per share from 31 December 2021 or a total return of (22.5)%. The Total Value (NAV plus cumulative dividends paid per share since launch) at the end of the period was 173.9p (31 December 2021: 197.7p). This decline is, of course, disappointing but reflects the difficult global macro environment we have faced in the last year and follows a record year in 2021 in terms of both exit proceeds and total return. Despite the recent decrease in NAV, total return over five years is 11% and the tax-free annual compound return for the original shareholders since Titan’s launch in October 2007 is 4.2%. In the 12 months to 31 December 2022, we utilised £355 million of our cash resources, comprising £157 million in new and follow-on investments, £50 million in dividends (net of the Dividend Reinvestment Scheme), £41 million in share buybacks, £43 million in annual investment management fees and other running costs, and a £64 million performance fee payable in respect of the year ended 31 December 2021. Together, this utilised 93% of our cash and cash equivalents at 31 December 2021. The cash and corporate bond balance of £179 million at 31 December 2022 represented 17% of net assets at that date, compared to 28% at 31 December 2021. The relatively higher cash position as at 31 December 2021, was due to the significant disposal proceeds received from profitable exits in 2021 and was accelerated by the 2021 fundraise which closed having raised more than £200 million in November 2021, compared to typical closing dates of March or April. Performance incentive fees As the 2022 total return has been negative, and net assets have declined since 31 December 2021, no performance fee is payable. To remind you, the performance fee is calculated as 20% on net gains above the High Water Mark, the highest total return as at previous year ends, which is currently set as 197.7p as at 31 December 2021. Dividends Following careful consideration, I am pleased to confirm that on 16 March 2023 the Board declared a second interim dividend of 3p per share in respect of the year ended 31 December 2022. This will be paid on 24 May 2023 to shareholders on the register as at 5 May 2023, resulting in full-year dividends of 5p. This represents a tax-free dividend yield of 4.7% on the NAV at 31 December 2021, equivalent to 7% for a higher rate tax payer. As shareholders will know, our ambition is to pay an annual dividend of 5p per share, supplemented by special dividends when appropriate. If you are one of the 26% of shareholders who take advantage of the Dividend Reinvestment Scheme (DRIS), your dividend will be receivable in Titan shares. This is an excellent way for those of you who prefer the capital value of your investment to grow to achieve your investment objectives. Since inception, we have now paid 97p in tax-free dividends per share, excluding the recently declared dividend. Fundraise and buybacks On 10 November 2022, we launched a new offer to raise up to £175 million, with an over-allotment facility of up to £75 million. On 6 March 2023, we were pleased to announce, following strong investor demand, that the over-allotment facility would be used, increasing the maximum amount that could be raised under the Offer to £250 million. The Offer was closed to new applicants on 5 April 2023 having raised in total £237 million. I would like to take this opportunity to welcome all new shareholders and thank all existing shareholders for their continued support. During the period, Titan repurchased 45 million shares (representing 3.0% of the net asset value as at 31 December 2021). The Board has continued to buy back shares from shareholders at no greater than a 5% discount to NAV per share. Whilst the Board will seek authority to continue to be able to buy back up to 14.99% of Titan’s shares, the Directors intend that this authority will only be used for a maximum of 5% of the share capital annually. Board of Directors Matt Cooper, having originally been appointed to the Board of Octopus Titan 1 VCT in October 2007, and then continuing as a Director after the merger of the various Titan VCTs in 2014, has decided to retire from the Board and will not be seeking re-election at the forthcoming Annual General Meeting (AGM). It has been a pleasure to work with Matt, and I would like to take this opportunity to thank him on behalf of the Board and the shareholders for his substantial contribution over the years and help in guiding Titan through its different phases of growth. A new Non-Executive Director will be appointed at the completion of a structured recruitment process which is already in flight. All the other Directors have indicated their willingness to remain on the Board, and Anthony Rockley and Jane O’Riordan will be seeking re-election at the AGM. AGM and shareholder event The AGM will take place on 14 June 2023 from 12.00 noon and will be held at One Moorgate Place, London, EC2R 6EA. Full details of the business to be conducted at the AGM are given in the Notice of the AGM. Shareholders’ views are important, and the Board encourages shareholders to vote on the resolutions within the Notice of AGM using the proxy form, or electronically at www.investorcentre.co.uk/eproxy. The Board has carefully considered the business to be approved at the AGM and recommends shareholders to vote in favour of all the resolutions being proposed, as the Board will be doing. In addition to the AGM, this year, we are also pleased to offer shareholders the opportunity to attend an online shareholder webinar on 7 June at 12.00 noon, to make sure we can respond to any questions you may have for either the Portfolio Manager or Titan Board prior to the proxy forms needing to be completed. At this event, Malcolm Ferguson (lead fund manager for Titan) and I will present. For details on how to sign up please see octopustitanvct.com. Alternatively, shareholders are also invited to send any questions they may have via email to TitanAGM@octopusinvestments.com. Outlook The impact of the economic downturn is being felt globally. The escalation of the conflict in Ukraine, central banks raising interest rates, the cost-of‑living crisis deepening, political uncertainty and high inflation rates have wide-ranging impacts, and early-stage venture investments and VCTs are not immune to these turbulent trends. The Association of Investment Companies (AIC) conducted research across the VCT market and found that, after 13 consecutive years of positive returns, the VCTs analysed delivered a loss in 2022. The decline in Titan’s NAV is, of course, disappointing. Our accounting policy is to value Titan’s unquoted companies in line with the International Private Equity and Venture Capital Guidelines, which require an assessment of the fair value of each investment at 31 December 2022. In some cases, valuations have been adjusted downwards to reflect both the tougher conditions and lower market comparables, as this influences what an acquirer might deem a fair price to pay for a business in the current climate. In other cases, a decreased valuation will reflect a portfolio company’s specific performance, and we believe that, in the short term, we may unfortunately see more companies fail – they are operating under more difficult circumstances, targets set at the point of initial investment may be more difficult to achieve, and it may become more challenging for companies to raise funds. More can be read about the cash runway of the portfolio companies in the Portfolio Manager’s Review. However, despite this difficult short-term outlook, our long‑term view of early-stage venture capital remains positive. The Board is reassured by the breadth and depth of Titan’s portfolio as it spans seven investment themes (Fintech, Health, Deep tech, Consumer, Business-to-business (B2B) software, Bio and Climate) across different stages of development. This diversity means that Titan is well placed to navigate the current situation. Some portfolio companies should be more resilient to the current market volatility, such as those with recurring revenue models. Some will also thrive, as many tech-enabled companies will look to take advantage of the increased willingness to adopt new technologies to navigate the changing landscape. Great companies will continue to be established, funded and grow in uncertain times. I am pleased to report that in the 12-month period, Titan completed four profitable disposals (three full exits and one partial), including Glofox being acquired by ABC Fitness Solutions, representing a 3x return on Titan’s initial investment, and Digital Shadows being sold to ReliaQuest for $160 million. Collectively, the four companies received investment of £22 million from the Company and the combined realised consideration totalled £48 million (in cash, shares and/or deferred amounts). More can be read about these disposals in the Portfolio Manager’s Review. Titan also invested £157 million in new and follow-on opportunities in the year to 31 December 2022, which brings the total number of companies in the portfolio to 128 at 31 December 2022. The diversity and volume of exciting new investments, and the upcoming pipeline of opportunities, is a testament to the work the investment team continues to put into sourcing, securing and working with such businesses successfully. VCTs have long provided a compelling opportunity for UK investors to provide funding for businesses in a tax‑efficient way, and we look forward to Titan continuing to do so in the coming year. I would like to conclude by thanking both the Board and the Octopus team on behalf of all shareholders for their hard work. Tom Leader Portfolio Manager’s review At Octopus, our focus is on managing your investments and providing investors with open communication. Our annual and interim updates are designed to keep you informed about the progress of your investment. Titan Total Value growth from inception: The Total Value has seen a significant increase since the end of Titan’s first year (31 October 2008), as shown on the graph — from 89.9p to 173.9p at 31 December 2022. This represents an increase of 93% in value since Titan’s first full year, including dividends paid since inception of 97p. Since Titan launched, a total of over £428 million has been distributed back to shareholders in the form of tax-free dividends. This includes dividends reinvested as part of the DRIS. Focus on performance The NAV of 76.9p per share at 31 December 2022 represents a decrease in NAV of 23.8p per share versus a NAV of 105.7p per share as at 31 December 2021 (when adjusted for dividends). The performance over the five years to 31 December 2022 is shown below: 1 Note, the period to December 2019 was 14 months. In total, 67 companies saw a collective decrease in valuation of £352 million. The businesses that contributed most significantly to this were Cazoo, ManyPets and Chronext. Cazoo listed on the New York Stock Exchange in August 2021 and its share price has declined since the start of 2022. That being said, from a trading perspective, Cazoo has performed well, delivering revenues of £1.25 billion in 2022 (representing a 91% year-on-year growth). Chronext has been affected by a more challenging fundraising market for companies with business-to-consumer business models. ManyPets, Titan’s single largest investment, has seen its value drop in the period despite strong underlying performance, with this decline being driven by a softening of the valuation multiples of comparable companies, which has been reflected in the holding value of the company. Octopus Ventures will continue to work with these companies to help them realise their ambitions. In some cases, the support offered could include further funding, to make sure a business has the capital it needs to execute on its strategy. Despite the reduction in Titan’s NAV, 2022 saw the profitable disposal (in full or in part) of four companies (Amplience, BehavioSec, Digital Shadows and Glofox), as well as the increase in valuation of certain companies. Collectively, 40 portfolio companies drove an increase in valuation of £68 million. Please refer to the exit table in the Notes to the financial statements. The loss on Titan’s cash and cash equivalent investments was £12.6 million in the year to 31 December 2022 (2021: loss of £1.5 million). The Board’s objective for these investments is to generate sufficient returns through the cycle to cover costs, at limited risk to capital, however the holdings were negatively impacted by the rise in interest rates driving a lower market value on the corporate bond portfolio in particular. Disposals In 2022, three full profitable disposals completed in the period (BehavioSec, Digital Shadows and Glofox), with one partial profitable realisation (Amplience). In total, these disposals will return £48 million to Titan in cash, shares and/or deferred amounts, with £44 million of this having been received in 2022. More information on these exits is offered below: in February 2022, as part of a $100 million fundraise with an equity investment from Farview Partners and growth financing from Sixth Street, Titan sold a proportion of its shareholding in Amplience; in May 2022, LexisNexis Risk Solutions, a leading provider of legal and regulatory intelligence, acquired BehavioSec, a pioneer in the behavioural biometrics industry; in July 2022, ReliaQuest, a force multiplier of security operations, acquired Digital Shadows, a company which delivers threat intelligence for security teams; and in August 2022, ABC Fitness Solutions, a leading technology and related services provider for the fitness industry, acquired Glofox, a fitness management platform servicing the boutique gym and studio sector. There have also been four disposals made at a partial loss (Fluidly was acquired by OakNorth, Trouva was sold to Made.com, Jolt was purchased by Global University Systems and part of Titan’s listed holding in Eve Sleep was sold on the day it was placed into administration). Unfortunately, Whirli and WeFarm were disposed of at a full loss as they were placed into administration having been unsuccessful in securing further funding and having explored and exhausted all available options. In aggregate, these losses generated negligible proceeds (totalling £0.8 million) compared to an investment cost of £26.4 million, meaning a realised loss of £25.6 million. The underperformance of a portfolio company is always disappointing for Octopus and shareholders alike, but it’s a key characteristic of a venture capital portfolio, and we believe the successful disposals will continue to significantly outweigh the losses over the medium to long term. Note, this table includes cash and retention proceeds received within the period. New and follow-on investments Titan completed follow-on investments into 33 companies and made 31 new investments. Together, these totalled £157 million (made up of £52 million invested into the existing portfolio and £105 million into new companies). This compares with 31 new investments and 24 follow-on investments in 2021, together totalling £143 million. The total value of the portfolio as at 31 December 2022 is £837 million. Below are some examples of new investments made across our seven areas of focus during the year. For a full list, please refer to the Appendix: Fintech Cobee is a fully digital solution that simplifies employee benefits management. Using the app and Cobee Visa card, employees have access to a range of benefits; and Sidekick offers an alternative investment platform that gives retail investors access to actively managed portfolios. Deep tech Touchlab has developed an electronic skin that can provide robots with the sense of touch; and Unlikely AI is developing an Artificial Intelligence (AI) platform capable of providing intelligence in a manner similar to the brain. Health Vira is a digital health company focused on relief for the central pain points of menopause; and Little Journey has created a digital support platform that prepares, informs and provides support for a child’s healthcare procedures and clinical trials. Consumer Partly has built a global platform and protocol for vehicle parts. B2B software Contingent offers a real-time, supply chain visibility platform applicable across industries. Bio Biofidelity has developed technology that enables rapid, precise genomic profiling and stratification of cancer able to be performed on existing instruments; and Infinitopes has built an antigen discovery platform to develop cancer vaccines that provide better treatment outcomes. Climate Foodsteps offers a platform that makes it quick and affordable to calculate environmental impacts across large and complex food       operations; and Q&A How do we think about exiting our positions? In a venture capital portfolio, a relatively small number of investments generate a significant proportion of fund performance. As a result, we have a natural tension between ensuring we facilitate the best performing companies to reach their potential (including being prepared to give them sufficient time to achieve this), and maintaining good portfolio management discipline to make sure realised proceeds materially contribute towards financing the Company’s ongoing running costs and meeting its dividends targets. Private markets are by definition illiquid, and as a result, the opportunities to sell all or some of our holding in a particular company are intermittent. We find there are opportunities for partial realisations as part of later stage funding rounds, however most realisations will be part of a full exit process, usually to a strategic buyer or private equity firm. We work closely with each portfolio company to understand and optimise its cash runway, with the goal of them maintaining flexibility over exit timing with the best interests of its shareholders in mind. Our portfolio is large and diverse, and although we aim to take a systematic approach to supporting our portfolio, we know there is no definitive formula for success, especially when working across very different industries and stages. Often wider macroeconomic conditions can influence exits as much as factors within a company’s control. We also recognise it is not always the right time to exit a position and instead continue to support the company, being alert to opportunities as they arise, and helping to proactively create these opportunities where we can through our network. When do we start to think about exits? We seek to invest in pioneering entrepreneurs who are looking to change an industry for the better. Not only is that an ambitious objective, but it is also one which often requires patience. As such, we understand that for our best performing companies, we may be shareholders for ten years or more. Despite that, understanding who the likely acquirers are from the outset and throughout the holding period can help inform important strategic decisions which contribute to value creation for shareholders. As the saying goes, “companies are bought, not sold”. In practice, this means that the most impactful exits we have completed are from companies which have been successful in changing their industry, either by becoming the new dominant player or by filling a strategic gap in an incumbent’s offering. Many of the most successful companies are built with the intention of remaining independent, but believe it is healthy to maintain relationships with key potential acquirers. They are often commercial partners before becoming acquirers, and as such this activity can be highly productive. We know not all companies will be as successful as we hope at the time of the initial investment. We therefore seek to realise investments in companies which are underperforming and unlikely to generate a meaningful return. It can also help to find a “soft landing” for the company’s employees where the alternative may be placing the business into administration. Although generally not meaningful to investor returns, our behaviour in these scenarios is important to cement our reputation as a founder‑friendly investor who entrepreneurs seek to partner with on subsequent projects. How do we work with portfolio company boards? We believe that it is important to be an active and supportive investor, so we typically appoint a non-executive director or observer to the board of our portfolio companies. This allows us to offer ongoing support at the top level of the business, be involved in key decisions and allows the opportunity for us to share any expertise and insights that we may have. Even very experienced founders may only sell a business once or twice in their career, whereas as investors, we may be involved in five to ten exits each year. We therefore look to support our portfolio companies by sharing the learnings and experience gathered across our team, all with the objective of obtaining the best outcome for our investors and shareholders in the company overall. Who are typically buyers for our portfolio companies? There are a variety of exit options for our portfolio companies. For the largest and most successful companies, these may look to list on a public stock exchange. There have only been a few of these in Titan’s history so far. More common are sales to strategic acquirers and private equity firms. Titan VCT is proud to have sold companies to many of the largest global companies, including Microsoft, Google, Amazon, Nestlé and Unilever. Finally, we can partially realise our shareholdings in later-stage funding rounds, where existing shareholders can sell a proportion of their shareholding to accommodate new later-stage investors to the round. Though, as already stated, not all exits result in a profitable outcome. Valuations The table 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 issued 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. For further information please see Note 16, which only concerns the unquoted holdings in the portfolio. Valuation methodology www.permutive.com Permutive is a privacy-compliant advertising technology company that helps publishers and advertisers to strengthen and action their valuable data for targeting, all while keeping it safe. The partner of choice for privacy‑compliance, targeting more than 70% of the UK’s top publishers Customers include: The Times, The Economist, BuzzFeed, Condé Nast Its Audience Platform uses on-device technology to access and process data quickly, accurately and anonymously. This enables a privacy-safe way of learning about consumers’ behaviours online, without compromising data security or identifying them. For many companies, General Data Protection Regulation (GDPR) made handling consumer information complicated and opened up regulatory risk. Many existing platforms were unable to adapt to the new rules, creating a gap in the market. The platform uses a form of edge computing, keeping user data safe, and minimising latency which allows for immediate insights and targeting. Octopus investment dates: www.orbex.space £40.4 million raised in Series C funding round in October 2022 May 2022: Orbex Prime rocket unveiled – the first full-stack rocket to be revealed in Europe It has developed one of the world’s most advanced, low carbon, high performance microlauncher rockets, with the aim of launching the first vertical rocket from UK soil and creating the first European commercial launch vehicle business. The company is the first to use bio-propane as a fuel, which allows the rocket to reduce carbon emissions significantly compared to other similarly sized rockets. A study by the University of Exeter showed that a single launch of the Orbex Prime rocket will produce 96% lower carbon emissions than comparable space launch systems using fossil fuels. The use of biofuel has been made possible by Orbex’s innovative approaches to design. Octopus investment dates: www.skinandme.com Skin+Me offers direct-to-consumer, prescription‑strength personalised skin care treatments. Skin+Me combines medical expertise and technology to offer personalised treatment plans on a subscription basis. The global personalised skincare market was valued at $17.2 billion last year and is expected to hit $38.9 billion in 20301 4.5/5 stars on Trustpilot (from over 6,000 reviews) as of 1 April 2023 1 Global personalised skincare market worth $38.9 billion by 2030, InsightAce Analytic report, January 2022. Through an online consultation, customers are prescribed a bespoke treatment plan and presented with a fully customised skincare routine, without requiring a trip to the dermatologist. The momentum behind this growth is largely driven by consumers dismissing the one‑size‑fits‑all approach. There is also an increased awareness of sustainability amongst consumers, whereby Skin+Me strive to challenge industry standards. By using recyclable packaging and offering personalised solutions that are made-to-order, it means none goes to waste. Octopus investment dates: >100,000 customers, adding over 7,000 new ones per month $592 billion: value of the global blockchain technology market in 2021 Blockchain is the underlying technology that enables the existence of cryptoassets (such as Bitcoin and Ethereum) and non-fungible tokens (NFTs). All blockchains operate differently, using different mechanisms, coding languages and privacy measures, making it particularly challenging to build across multiple blockchains. Tatum’s blockchain development platform allows developers to connect various blockchains and blockchain services through a single integration. It simplifies operational processes, reduces product development time for applications by up to 90% and bridges the skills gap that exists because of the relative lack of blockchain developers in the market. Octopus investment dates: www.manypets.com ManyPets was founded in 2012 to provide a transparent and digital-first insurance experience, and in 2017 it launched its own dog and cat insurance policies. >600,000 pets covered globally Covering 85% of the pet insurance market in the US It has become one of the fastest-growing insurance businesses in Europe by listening to pet owners and solving their insurance pain points. It was the first company to create a product for pets with pre-existing conditions and partner with a video vet service. Its tech allows it to automate payments for a significant proportion of claims and fine tune pricing to ensure a sustainable loss ratio. In 2019, it launched in Sweden and then in 2021 expanded into the US. It has moved further into the pet health space by acquiring a pet medication subscription business. Octopus investment dates: www.vitessepsp.com Vitesse is a market-leading settlement and liquidity management platform to hold funds and deliver international payments globally, using domestic, in-country processing. >£8 billion settled globally to over 100 countries and payment types >70% completed transactions for the London insurance market With a focus on serving the global insurance market, the company already includes some of the world’s largest insurers as customers. In 2022, the company announced a strategic deal with Lloyd’s of London to improve capital efficiency across the insurance marketplace and to improve the speed of claims payment. In the same year, Vitesse won the best international payments, remittance or use of FX award at Pay360 Awards. Octopus investment dates: 2. Information not publicly available and commercially sensitive. Outlook Having enjoyed consistent growth since inception, with especially strong performance over the three years to 31 December 2021, the decline in Titan’s NAV is of course disappointing. The headwinds we have encountered over the past 12 months have been particularly strong and we have seen many existing issues intensify. Valuations of the portfolio companies are reflective of this environment. Titan’s unquoted portfolio companies are valued in accordance with the 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, assuming they had all the information we have available; are knowledgeable parties with no pre‑existing relationship; and that the transaction is carried out under the normal course of business. On top of this, several of Titan’s portfolio companies have been affected by the challenges the economic backdrop has created, with costs increasing and consumer confidence and spending declining. As a result, valuations have been reappraised in line with all these factors. Despite this decline in performance, we are reassured by the continued fundraising success of our portfolio companies as well as the resilience, ambition and drive displayed by extraordinary management teams behind them. The pie chart shows the percentage split across Titan’s NAV of the cash runway available to its portfolio companies. Almost 40% of the portfolio is not expected to require further funding, and almost 85% has cash runway of at least 12 months – this should ensure that the portfolio is well capitalised to navigate the challenging fundraising environment. The strong deployment rate over the past 12 months, with 31 new investments completing, shows us that exciting and novel businesses are still founded in turbulent times. These investments have been made into early-stage, tech-enabled businesses with high-growth potential. These types of companies should thrive in challenging periods as barriers to adopting new technologies lessen, there is a greater acceptance of change and as talent availability improves. As well as these new investments, we can see that many of Titan’s existing portfolio companies are maturing, growing their customer base, winning new contracts, hiring new talent, and developing their technologies. So, although we are currently in a more challenging exit environment, when conditions improve in the future, we believe there should be opportunities for companies to take the next steps on their growth journey. Successful exits enable Titan to realise the growth a portfolio company has achieved over its investment lifespan. Please see above where we answer some questions surrounding our exit process. To be able to support portfolio companies in their ambition to change the world, we believe we should be an active investor, offering more than just financial support. You will have read about our in-house Talent team and how they lend their expertise and knowledge to support our companies. We work to equip the management teams with the platforms and tools they need to succeed. It is typical for a member of the Octopus Ventures team to join the Board of a portfolio company to provide ongoing support. We believe that the management team are the key determining factor for a company’s success, and this support is an investment in the future, designed to bolster resilience so that our portfolio companies can weather periods of disruption, and to help them develop the culture and capabilities they need to drive ongoing success. And it sets Octopus Ventures apart, offering us a competitive advantage in winning the best investment opportunities and proving our value beyond just investment. The past 12 months have been a period of immense change on a global scale, and Titan has understandably been affected by this. Looking ahead, we are confident that many portfolio companies have the potential to build upon their successes to date. We back businesses from a wide range of sectors, at different investment stages, and we think this breadth of scope will provide Titan with the opportunities it needs to succeed in the future and return to its previous growth trajectory. Months of cash runway available to Titan’s portfolio companies % portfolio NAV Risks and risk management The Board assesses the risks faced by Titan and, as a board, reviews the mitigating controls and actions, and monitors the effectiveness of these controls and actions. Emerging and principal risks, and risk management Emerging risks The Board has considered emerging risks. The Board seeks to mitigate emerging risks and those noted below by setting policy, regular review of performance and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. The following are some of the potential emerging risks management and the Board are currently monitoring: adverse changes in global macroeconomic environment; high market valuation; Investments held and revenues generated in other currencies may not generate the expected level of returns due to changes in foreign exchange rates. Octopus and the Board regularly review the exposure to foreign currency movement to make sure the level of risk is appropriately managed. Investments are primarily made in GBP, EUR and USD so exposure is limited to a small number of currencies. On realisation of investments held in foreign currencies, cash is translated to GBP shortly after receiving the proceeds to limit the amount of time exposed to foreign currency fluctuations. Reduced exposure due to the realisation of investments held in foreign currencies during the year. Viability statement In accordance with the FRC UK Corporate Governance Code published in 2018 and provision 36 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of Titan over a period of five years, consistent with the expected investment hold period of a VCT investor. A fundraising was launched on 10 November 2022 and closed on 5 April 2023, raising £237 million. Under VCT rules, subscribing investors are required to hold their investment for a five-year period in order to benefit from the associated tax reliefs. The Board regularly considers strategy, including investor demand for Titan’s shares, and a five-year period is considered to be a reasonable time horizon for this. The Board carried out a robust assessment of the emerging and principal risks facing Titan and its current position, including risks which may adversely impact its business model, future performance, solvency or liquidity, and focused on the major factors which affect the economic, regulatory and political environment. Particular consideration was given to Titan’s reliance on, and close working relationship with, the Portfolio Manager. The principal risks faced by Titan and the procedures in place to monitor and mitigate them are set out above. The Board has carried out robust stress testing of cash flows which included assessing the resilience of portfolio companies, including the requirement for any future financial support and the ability to pay dividends, and buybacks. The Board has additionally considered the ability of Titan to comply with the ongoing conditions to make sure it maintains its VCT qualifying status under its current investment policy. Based on this assessment the Board confirms that it has a reasonable expectation that Titan will be able to continue in operation and meet its liabilities as they fall due over the five-year period to 31 December 2027. The Board is mindful of the ongoing risks and will continue to make sure that appropriate safeguards are in place, in addition to monitoring the cash flow forecasts to ensure Titan has sufficient liquidity. Directors’ responsibilities statement The Directors are responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report and financial statements include information required by the Listing Rules of the Financial Conduct Authority. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (GAAP), including Financial Reporting Standard 102 – ‘The Financial Reporting Standard Applicable in the United Kingdom and Republic of Ireland’ (FRS 102), (United Kingdom accounting standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and prepare a Strategic Report, Directors’ Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 2006. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as each of the Directors is aware: there is no relevant audit information of which the Company’s auditor is unaware; and the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors are of the opinion that this report as a whole provides the necessary information to assess the Company’s performance, business model and strategy and is fair, balanced and understandable. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors confirm that, to the best of their knowledge: the financial statements, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and the annual report and financial statements (including the Strategic Report), give a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. On behalf of the Board Tom Leader Notes to the financial statements 1. Principal accounting policies Titan is a Public Limited Company (plc) incorporated in England and Wales and its registered office is at 6th Floor, 33 Holborn, London EC1N 2HT. Titan has been approved as a Venture Capital Trust by HMRC under Section 259 of the Income Taxes Act 2007. The shares of Titan were first admitted to the Official List of the UK Listing Authority and trading on the London Stock Exchange on 28 December 2007 and can be found under the TIDM code OTV2. Titan is premium listed. The principal activity of Titan is to invest in a diversified portfolio of UK smaller companies in order to generate capital growth over the long term as well as an attractive tax-free dividend stream. The financial statements are presented in sterling (£) to the nearest £’000. The functional currency is also sterling (£). Basis of preparation The financial statements have been prepared on a going concern basis under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (GAAP), including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (FRS 102), and with the Companies Act 2006 and the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts (July 2022)’. Subsidiaries Zenith Holding Company is a wholly-owned subsidiary of Titan, but owing to the exemption permitted under FRS 102 to not have to consolidate investment companies held as part of an investment portfolio (Section 9 of FRS 102, paragraphs 9.9(b) and 9.9B), Titan has not consolidated the assets and liabilities of Zenith Holding Company. Zenith Holding Company made a profit of £10,513 during the period (2021: (11,158,934)) and its aggregate capital and reserves during the period amounted to £11,372,628 (2021: 11,383,141). 2. Investment income Accounting policy Investment income includes interest earned on money market funds. Dividend income is shown net of any related tax credit. Dividends receivable are brought into account when Titan’s right to receive payment is established and there is no reasonable doubt that payment will be received. Fixed returns on debt and money market funds are recognised so as to reflect the effective interest rate, provided there is no reasonable doubt that payment will be received in due course. Disclosure The performance fee has been wholly attributed to capital. The Portfolio Manager provides investment management services through agreements with Octopus AIF Management Limited and Titan. It also provides non-investment services to Titan under a non-investment services agreement. No compensation is payable if the agreement is terminated by either party, if the required notice period is given. The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The basis upon which the management fee is calculated is disclosed within the Annual Report and financial statements. 4. Other expenses Other expenses are accounted for on an accruals basis and are charged wholly to revenue. The transaction costs incurred when purchasing or selling assets are written off to the Income statement in the period that they occur. Includes employers’ NI. Total ongoing charges are capped at 2.5% of net assets. For the year to 31 December 2022 the ongoing charges were 2.2% of net assets (2021: 2.0%). This is calculated by summing the expenses incurred in the period (excluding ongoing IFA charges and non‑recurring expenses) divided by the average NAV throughout the period. 5. Tax on ordinary activities Accounting policy Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the ‘marginal’ basis as recommended in the SORP. Deferred tax is recognised in respect of all timing differences at the reporting date. Timing differences are differences between taxable profits and total income as stated in the financial statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements. Disclosure — In 2021, £25 million was distributed from Zenith Holding Company to Titan following the sale of Calastone, which is taxable income for Titan. Tax rate difference due to tax charge for the year being calculated at 19% and excess management expenses on which deferred tax is not recognised being calculated at 25%. Unrelieved tax losses of £186,669,000 (2021: £164,870,000) are estimated to be carried forward at 31 December 2022 (subject to completion of Titan’s tax return) and are available for offset against future taxable income, subject to agreement with HMRC. Titan has not recognised the deferred tax asset of £46,667,000 (2021: £41,218,000) in respect of these tax losses because there is insufficient forecast taxable income in excess of deductible expenses to utilise these losses carried forward. There is no expiry period on these deductible expenses under the UK HMRC legislation. Approved VCTs are exempt from tax on capital gains. As the Directors intend for Titan to continue to maintain its approval as a VCT through its affairs, no current deferred tax has been recognised in respect of any capital gains or losses arising on the revaluation or disposal of investment. 6. Dividends Accounting policy Dividends payable are recognised as distributions in the financial statements when Titan’s liability to make the payment has been established. This liability is established on the record date, the date on which those shareholders on the share register are entitled to the dividend. Disclosure 9. Related party transactions Titan owns Zenith Holding Company Limited, which owns a share in Zenith LP, a fund managed by Octopus. In the year, Octopus Investments Nominees Limited (OINL) has purchased Titan shares from shareholders to correct administrative issues, on the understanding that shares will be sold back to Titan in subsequent share buybacks. As at 31 December 2022, no Titan shares were held by OINL (2021: 7,637 shares) as beneficial owner. Throughout the period to 31 December 2022, OINL purchased 729,365 shares (2021: 24,359 shares) at a cost of £678,000 (2021: £27,000) and sold 737,002 shares (2021: 16,816 shares) for proceeds of £672,000 (2021: £18,000). 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. Matt Cooper, a Non-Executive Director of Titan, was the Chair of Octopus Capital Limited until his resignation on 14 September 2022. Matt Cooper owned shares in Octopus Group Holdings Ltd during the year, which have been fully disposed of as at year end. The Directors received the following dividends from Titan: 10. 2022 financial information The figures and financial information for the year ended 31 December 2022 are extracted from the Company’s annual financial statements for the period and do not constitute statutory accounts. The Company’s annual financial statements for the year to 31 December 2022 have been audited but have not yet been delivered to the Registrar of Companies. The Auditors’ report on the 2022 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006. 11. 2021 financial information The figures and financial information for the period ended 31 December 2021 are compiled from an extract of the published financial statements for the period and do not constitute statutory accounts. Those financial statements have been delivered to the Registrar of Companies and included the Auditors’ report which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006. 12. Annual Report and financial statements The Annual Report and financial statements will be posted to shareholders in early May and will be available on the Company’s website, octopustitanvct.com. The Notice of Annual General Meeting is contained within the Annual Report. 13. General information LEI: 213800A671KGG6PVYW75