Annual General Meeting (AGM) Q&A

We were sorry not to have been able to invite you to attend our AGM due to Coronavirus and the Government’s stay at home measures. However, the AGM was held on 26 May 2020 at noon and all resolutions have been passed. 

We plan to offer an alternative format and date for a presentation from the Investment Manager together with an opportunity to put questions to the Board when there is better visibility on what will be permissible and practical due to the Coronavirus measures.

In the meantime, we thought it would be helpful to publish a summary of the key themes and most frequently asked questions which we received from Shareholders.

We thank all those who have taken the time to engage with the Board of Octopus Titan VCT plc and the Investment Managers. John Hustler, Chairman, has replied to each shareholder directly, but if you have not received a response, please contact TitanAGM@octopusinvestments.com.  

If you have any questions about your investments, please contact Octopus Investments on 0800 316 2295 or email investorsupport@octopusinvestments.com and they’ll help in any way they can.

AGM

Why did you not have a virtual / hybrid meeting?

We are disappointed that we could not hold an ‘Open AGM’ but at present the Octopus Titan VCT plc’s Articles of Association do not permit hybrid or virtual meetings to take place for an AGM or General Meeting. We are aware that HM Government are considering a change in the law to allow for this but due to our change in year end, we have to hold the AGM before 14 June (15 months after the 2019 AGM) and we could not be certain that the law would be changed in time.

We will be considering including a resolution to change the Articles to allow future AGMs to be held virtually at the next available opportunity.

We plan to offer an alternative format and date for a presentation from the Investment Manager together with an opportunity to put questions to the Board when there is better visibility on what will be permissible and practical due to the Coronavirus measures.

Coronavirus & Performance

What has been the impact of Coronavirus on the Octopus Titan VCT portfolio? What is the outlook for the VCT and what is the Board doing to mitigate the risks on the portfolio?

The 2019 Report and Accounts included an audited Net Asset Value (‘NAV’) as at 31 December 2019. We published a revised NAV on 10 March, which was subsequently revised to a NAV of 91.0p per share on 3 April. Our Managers are working closely with all investee companies to help them through the current situation and we are pleased that the fund had £295 million of cash and cash equivalents available at 31 March to fund existing portfolio companies and potential new investments. 

We are pleased to say that we continue to view the outlook for the VCT with optimism in the medium term and are pleased we have a diversified portfolio of 81 companies.

Can you explain how the NAV is so steady over time and more recently given the economic crash due to Coronavirus?

The NAV of the fund remained stable largely because we have a policy of returning significant realised net gains to shareholders by way of special dividends. Those investors that prefer capital growth can achieve this through the Dividend Reinvestment Scheme (‘DRIS’), albeit that this was suspended by the Board in respect of the most recent dividend, paid in April.

In recent years, the size of the fund has increased substantially and so we have increased the number of early stage investments. We now have 81 investee companies and, whilst the diversification reduces the impact of early losses which are a normal feature of this style of portfolio, the length of time taken for such investments to mature means that the potential upside may be delayed. Overall, therefore, we are pleased that the Total Return per share has increased over time. The current crisis is, however, posing challenges and creating opportunities.

Are you receiving more requests for debt / equity and what impact is this having on the capacity to make new investments?

As you may imagine we are discussing further investments into our portfolio companies with their managements following reviews of their cash flow forecasts. For early stage companies, the majority of our investments will be into equity or convertible loan notes since it is not normally appropriate to provide debt to these companies. At 31 March we had £295 million of liquid resources and we are confident that this will be sufficient to support our existing portfolio through the Coronavirus crisis. Once our Managers have reviewed the likely requirements of the existing portfolio, we will be in a position to gauge our capacity for new investments, but it is not our intention to cease investing in new opportunities.

We do not have a clear view at present on the impact of Coronavirus on the investment period of portfolio companies although we would be wise to plan for delays to exits of some, in view of general market conditions.

For the allocation on 11 March 2020, the NAV was not recalculated completely, but an arbitrary deduction of 25% was made from the values of businesses in the travel industry. Given that it is likely that international tourism will only be possible again in late 2021, that seems a low deduction. Why was not a full recalculation of NAV carried out for the 11 March allocation and why was the figure of 25% chosen? 

In view of the need to allot shares on 11 March, the Board reviewed the 31 December 2019 valuation and also the potential effect of the Coronavirus situation. It became clear that there would be a material adverse effect on our investments in the travel industry and so a judgement was made on the best advice available. In respect of the use of 25%, it has been a widely common practice to revalue early stage unquoted investments in tranches of 25%.

Further valuation work was then carried out prior to the allotment on 3 April, which also reflected updated knowledge of the impact of Coronavirus. There remains considerable uncertainty regarding how Coronavirus will impact travel companies, the investee companies generally and the economy more broadly in the future. 

Dividends

Please can you explain why you suspended the DRIS scheme? And how long do you expect the suspension to be for?

We suspended the Dividend Reinvestment Scheme (‘DRIS’) in view of the current market conditions and potential valuation uncertainties surrounding Coronavirus. Having revalued the Net Asset Value twice since the year-end we decided that it was impractical to carry out a third revaluation in advance of allotting the DRIS shares.

We intend the suspension to be temporary and we intend to reinstate the facility as soon as practical.

Are you planning any changes in dividend policy?

As always, the dividend policy remains under review by the Board of Directors. The current policy is to pay an annual dividend of 5p per annum with an interim dividend of 2p in late autumn and a second dividend of 3p in the following spring. This will be supplemented by special dividends following significant net realised gains when appropriate. 

Director’s Remuneration

The Articles of Association limit the Directors Remuneration to £150,000 per year. whilst recognising this is a 14-month period please can you explain the increase in fees year on year.

There are three main aspects to the increase in the Directors’ Remuneration during the period as follows: –

	£’000
The period under review relates to fourteen months rather than twelve months.	23
Appointment of extra Non-Executive Director (Tom Leader)	26
Increase in fees since 1 August 2018	11
	60

The fees were increased with effect from 1 August 2018 following a review at the same time with the search for and appointment of a new Non-Executive Director and will not be reviewed until 31 December 2020.

In relation to Director’s Fees, the Articles specifically state ‘the ordinary remuneration of the Directors shall from time to time be determined by the Directors except that such remuneration shall not exceed £150,000 per annum in aggregate’ and so, notwithstanding the amount shown in the accounts, it is legitimate. In respect of the level of Directors’ Remuneration, Octopus Titan VCT is by far the largest VCT and so has 81 Investee companies, only 2 of which are quoted. This alone involves considerably more responsibility and time than the smaller VCTs. In addition, the 6 Board meetings and 2 Audit Committee meetings shown in the Report, supplemented by separate Strategy and Prospectus meetings and conference calls, involves a greater time commitment than many smaller VCTs. Given these facts we do not think our remuneration compares unfavourably with smaller VCTs.

Why are the directors claiming expenses on top of their renumeration?

The Directors’ Remuneration Report does say that ‘the Articles entitle the Directors to be repaid all reasonable expenses……however no other remuneration or compensation was paid or payable by the Company during the period’. The total remuneration in Note 4 is shown as £181,000 which consists of £164,000 remuneration in respect of the 14-month period and £17,000 in respect of Employer’s National Insurance.

Directors’ Remuneration was reviewed in August 2018 during the process of the appointment of Tom Leader and we were advised that it represented a fair remuneration, it is not intended to review this again before the end of 2020.

What is the Remuneration Committee’s oversight of executive pay?

As with most Investment Trusts and VCTs, the Company has no Executive Directors. On page 30 we state that ‘The Board does not have a separate Remuneration Committee as the Company has no employees or Executive Directors’.

Director’s Transactions

While the current directors all have shareholdings, this does not appear to be a requirement of the remuneration policy. What is the Board’s attitude to making this a formal requirement?

We believe that there are two points of view, with many shareholders believing that there is an argument that Directors should be independent and holding shares reduces independence. Contrary to this is your view that it is preferable for Directors to hold shares but, we do not believe, to the extent that it might preclude an otherwise excellent candidate. During the interview process direct participation through a shareholding is discussed and encouraged.

Is Tom Leader planning to purchase more shares in the company this year?

Tom Leader was appointed to the Board on 8th August 2018 and subsequently purchased a total of 8,291 shares in March and April 2019. The Directors have continued to support the Company’s fundraisings throughout its life, but this decision is not normally taken before the Board has decided to publish a prospectus in each year. Overall, we are confident that the Board has a significant investment in the Company

What was Matt Cooper doing between 2001 and October 2007?

After leaving Capital One in 2001, Matt Cooper built a portfolio career, investing in and chairing a number of companies including Octopus Investments. He was also a Governor of Nottingham Trent University and a Director of Sadlers Wells Dance Theatre. Complete information can be found on his LinkedIn profile.

Fees

The Accounts state that the Management Fee of 2% and Performance Fee of 20% are based on Net Asset Value (for the Management Fee this is calculated quarterly). As at December 31, 2019 the NAV includes an exceptionally high level cash – over £280 million. Surely this element of the NAV should be subject to lower fees

On 10 December 2018 the Board renegotiated the Investment Management Agreement and one change was in connection with the fees payable on cash. Now the fee in respect of surplus cash (being cash in excess of 10% of Net Asset Value) is the lower of 2% or the actual return it receives on the cash. Further details can be found on page 62 of the accounts.

Is there an overall limit on total fees and why is there no recovery of the Performance Fee in the event of a poor year?

The Board regularly reviews the overall fees, and this led to a reduction in the Administration fees charged. The Board confirms that it considers the overall level of fees to be reasonable, notwithstanding the size of the portfolio, in view of the investment Octopus makes in the resources it maintains to manage the portfolio. Details of these resources are mentioned in the Chairman’s Statement and in the Portfolio Manager’s Review.

In a year in which the Net Asset Value reduces, the Manager would earn no Performance Fee until the High Water Mark has been achieved at a future date. The Performance Fee was originally the subject of a hurdle which has been achieved.

In our renegotiation of fees in 2018 the cap relating to the Company’s expense ratio was reduced from 3.2% of Net Asset Value to 2.5% of Net Asset Value.

Please can you provide a breakdown and amounts within “other fees” as presented in note 4 on p51 of the Annual Report.

Other Fees are as set out below: –