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Oxford Technology VCT plc : Annual Financial Report

Released 17:00 10-May-2017

Oxford Technology VCT plc : Annual Financial Report

10 May 2017

Oxford Technology VCT plc ("the Company" or "OT1")
Annual Report and Accounts for the year ended 28 February 2017

The Directors are pleased to announce the audited results of the Company for the year ended 28 February 2017 and a copy of the Annual Report and Accounts ("Accounts") will be made available to Shareholders shortly.  Set out below are extracts of the audited Accounts. References to page numbers below are to those Accounts.
The AGM will be held at The Magdalen Centre, Oxford Science Park, Oxford OX4 4GA on Wednesday 5 July 2017, at 11am.
A copy of the Annual Report and Accounts will be available from the registered office of the Company at The Magdalen Centre, Oxford Science Park, Oxford OX4 4GA, as well as on the Company's website: www.oxfordtechnology.com

Financial Headlines

    Year Ended
  28 February 2017
Year Ended
29 February 2016
 

Net Assets at Year End
 

£2.89m
 

£3.33m
 

Net Asset Value per Share

 
 

53.2p

 
 

61.2p
Cumulative Dividend per Share 54.0p 52.7p
     
NAV + Cumulative Dividend per Share Paid from Incorporation  

107.2p
 

113.9p
 

Proposed Final Dividend per Share
 

1.0p
 

1.3p
 

Share Price at Year End
 

35.0p
 

40.5p
     
Earnings Per Share
(Basic & Diluted)
 

(6.7)p
 

(3.8)p

 

Chairman's Statement

I am pleased to present my Annual Report for the year to 28 February 2017 to fellow shareholders.

Overview

The portfolio is making good progress in line with the Company's objective, but due to portfolio company revaluations the overall loss in the year to 28 February 2017 was 6.7p per share.  Excluding changes in valuation, your VCT again generated an operating profit: our relatively concentrated portfolio of assets provided a respectable gross yield (before costs) of just under 4% (2016: 5%) of net asset value (NAV), and the Board of OT1 is recommending a final revenue dividend of 1.0p per ordinary share.  Subject to shareholder approval, the dividend will be paid on 21 July 2017 to ordinary shareholders on the register on 30 June 2017.

Portfolio Review

The NAV per share on 28 February 2017 was 53.2p compared to 61.2p on 29 February 2016.  This 8.0p drop in NAV consists of the aforementioned 6.7p loss per share as well a dividend of 1.3p per share that was paid on 20 July 2016.  Dividends paid to date are now 54.0p per share, giving a total return to date of 107.2p per share based on the NAV on 28 February 2017.

Photocopier software company, Select Technology, remains the largest holding in your Company's portfolio - it has had a profitable and cash generative year, paying another dividend in January and further dividends are expected in future.  The company has continued to grow, though profits have been slightly impacted as the company executes a planned transition to reduce dependency on one particular supplier, which will have the effect of increasing business resilience and should result in faster growth.  As Select Technology has been consistently profitable in recent years, we have continued to use a valuation metric based on a multiple of profits, resulting in a modest reduction in the valuation of our 30% stake in this business.  It could be argued that this reduction is overly cautious given the positive newsflow from the company.

Scancell Holdings Plc (Scancell), listed on the AIM market of the London Stock Exchange, is your Company's second largest holding.  Scancell continues to make progress with the development of novel immunotherapies for the treatment of cancer.  A £6.2 million funding round was completed in early April 2016, though OT1 did not participate in this placing and open AIM offer due to restrictions imposed by VCT rules.

Scancell now has a much improved balance sheet, enabling it to continue to push ahead with its commercial activities: Scancell is now active in the USA, has hired additional commercial staff and has announced several new initiatives relating to its ImmunoBody platform, inter alia a planned multicentre clinical trial that aims to demonstrate an increase in response rates when SCIB1 is added to checkpoint inhibitor monotherapy and a partnership with the Addario Lung Cancer Medical Institute to advance SCIB2 to treat non-small cell lung cancer.  Scancell is also developing its Moditope platform with first-in-man clinical studies for breast cancer, ovarian cancer and osteosarcoma anticipated to commence in 2018.

The bid price of Scancell's shares used for the calculation of the Company's net asset value on 28 February 2017 was 14.0p, down from 17.5p on 29 February 2016, resulting in a reduction of £241k in the value of Company's investment in Scancell over the same period.

Together with the Company's cash balance, Select Technology and Scancell make up just over 88% of OT1's portfolio. 
                                                                                                                                
Duncan Hynd Associates was disposed of at book value, tidying the portfolio; Getmapping increased turnover despite challenging market conditions and BioCote continues to grow its business, expand its team and is now exporting to 50 countries.  IMPT has been removed from our list of investments now that the company has been dissolved (there was no impact on the P&L as the investment had already been fully written down).

Further details are contained within the Investment Manager's Report, and on our website.

We continue to assess the opportunity for divestments so as to crystallise shareholder value as and when appropriate.  It should be noted that the cash income derived from our portfolio in the year exceeded the Company's costs for the year - overall, therefore, the Company's portfolio provides a blend of growth potential and cash generation.  The main portfolio companies have the potential for a valuation uplift in the near to medium term, therefore the Directors currently do not envisage exiting these companies in the short term.

Dividends/Return of Capital

The ongoing strategy is to seek to crystallise value from the portfolio and distribute cash to shareholders via dividend payments.  Following another dividend from Select Technology, the Directors are recommending a final revenue dividend of 1.0p per ordinary share for the year ended 28 February 2017, which will be paid on 21 July 2017 to ordinary shareholders on the register on 30 June 2017.

VCT Market Changes and Continued Improvements to Cost Effectiveness

Shareholders may be aware of some significant changes to the VCT market in recent years.  Changes to pension tax reliefs are driving investors to look for alternatives - coupled with a reduced supply of tax efficient investment opportunities, this has resulted in exceptional demand from investors wishing to subscribe for VCTs.  Changes to VCT legislation have been made to target more VCT money towards the sorts of earlier stage companies that OT1 has invested in.

Following the reduction of fees implemented at the start of the previous financial year, your Board continues to look at methods of improving operational efficiency and liquidity for shareholders who wish to realise their holdings.  Several options are being explored and your Board is hoping to bring forward proposals later in the year. 

In the interim the Board would like to have the flexibility to buy back shares and is therefore proposing a buyback resolution at the AGM. This will be proposed as an Ordinary Resolution in accordance with the Companies Act 2006 (Amendment of Part 18) Regulations 2013.

Audit Tender

New legislation has been introduced in the UK on audit firm rotation, resulting from the new European Audit Regulation Directive, making it mandatory for listed companies to undergo a tender process for the audit of their company at least every ten years. An audit firm can, however, be appointed for up to twenty years provided a public tender process has been carried out after ten years. The Company has therefore recently conducted an audit tender process. The Board, on the recommendation of the Audit Committee, has decided to recommend the re-appointment of James Cowper Kreston as the Company's external auditor. For further information on the audit tender, please see the Audit Committee section of the Corporate Governance Statement on pages 26 and 27 of this Annual Report.

AGM

Shareholders should note that the AGM for the Company will be held on Wednesday 5 July 2017 at the Magdalen Centre, Oxford Science Park, starting at 11am and will include presentations by Oxford Technology Management and some of the companies that the Oxford Technology VCTs have invested in.

A formal Notice of the AGM has been enclosed with these Financial Statements together with a Form of Proxy for those not attending. We appreciate the input of our shareholders and look forward to welcoming as many of you as possible on the day. 

Outlook

The year under review was dominated by two major political events, the UK's vote to leave the European Union and the election of Donald Trump to the office of US President. In the case of the EU referendum, the leave result triggered a significant fall in the value of sterling, and it has so far remained weak. This in turn led to the increase in valuation of UK larger companies, which have a bias towards overseas earnings.

The more immediate impact on our own UK smaller investees has been to improve those with overseas revenues in sterling terms while increasing the costs for those with foreign activities or imports. These impacts are not yet material. The longer term UK/EU trading issues will take time to emerge but clearly one impact is that our investee company sterling valuations now look more attractive to overseas buyers.

Post referendum the new Theresa May government has retained the VCT model although we anticipate it will continue to be kept under review to ensure that it delivers value to the taxpayer. The Oxford Technology VCTs have operated and continue to operate very much in the spirit of the VCT legislation by investing in and subsequently supporting early stage technology companies. Unfortunately the current VCT rules sometimes limit the amount of follow on investment that we are able to make.

Looking ahead, though the portfolio remains concentrated, the VCT structure is suited to holding your Company's assets.  The overall portfolio is well positioned for both growth and cash generation.  As per our stated strategy, your Board continues to work to maximise value, reduce costs, and - when valuations and liquidity allow - crystallise shareholder value and distribute to shareholders via dividend payments. 

Alex Starling
Chairman
10 May 2017

Investment Portfolio Review

OT1 was formed in 1997 and invested in a total of 21 companies, all start-up or early stage technology companies.  Some of these companies failed with the loss of the investment.  Some have succeeded and have been sold.  Dividends paid to shareholders to date are 54p per share.  The table on page 13 shows the companies remaining in the portfolio.

The ultimate outcome for investors will depend on how the remaining investments perform.  In particular, Select Technology and Scancell have the potential to deliver significant returns. 

Select Technology (in which OT1 originally invested in 1999) specialises in software for photocopiers - now known as MFDs - Multi-Function Devices.  Over the last decade Select Technology has built up a global network of distributors and dealers through which it sells both products which it has developed itself and products which have been produced by others.  These products now include PaperCut, Kpax, Foldr and Drivve Image.

Select Technology has made steady financial progress.  Sales have increased from £210k in the year to July 2010 to £5.2m in the year to July 2016.  Select Technology is profitable and cash generative and is likely to be in a position to pay regular dividends in future. During this financial year, OT1 received a £110k dividend payment from Select Technology. It is a modern company in the sense that it has employees all over the world, and usually only one person in the office in Basingstoke: everyone usually works remotely.

Scancell, in which OT1 first invested in 1999 when the company was based in a University Lab, is now AIM listed.  Scancell is developing novel immunotherapies for cancer, based on two platform technologies known as Immunobody and Moditope.  Results from Scancell's first clinical trial for the treatment of melanoma have been excellent.  At the start of the trial, the patients had life expectancies measured in months.   Five years later 15 of the 16 patients are alive.   Unfortunately Scancell has not yet found a pharma partner to take this forward. However, the company is now planning a new study in the US which, if successful, is expected to create a great deal more interest. The study which will evaluate SCIB1 in combination with pembrolizumab, a checkpoint inhibitor drug, will be run by leading melanoma specialist Dr Keith Flaherty and several other top investigators. Scancell is now starting work on a second Immunobody product (SCIB2) for the treatment of lung cancer in collaboration with the Addario Lung Cancer Medical Institute.    The first patients are expected to enter the trial in 2018 and the trial should complete in c 18 months. Scancell raised £6.2m during the year, although OT1 was unable to participate due to the constraints imposed by the VCT rules.

OT1 was the first investor in Getmapping when the company was founded in 1999.  Having floated on AIM and grown to 65 people, Getmapping suffered badly when Ordnance Survey terminated a reseller agreement.  Employees reduced to 12 and the share price fell to 1p.  But Getmapping survived and sales were £6m in the year to Dec 2015 and £3m in the first half of 2016.  Getmapping business is now split between the UK and Africa.  Getmapping provides aerial photography and products which enhance the value and usefulness of this data.

OT1 was the first investor in BioCote in 1997, before the company had any sales.  Today, BioCote has sales of £1.6m and supplies its antimicrobial coatings to companies all over the world.

New Investments in the year

There were no new investments during the year.

Disposals during the year

A payment of £9,715 (Net Book Value) was received from the sale of Duncan Hynd Associates.

Valuation Methodology

Quoted and unquoted investments are valued in accordance with current industry guidelines that are compliant with International Private Equity and Venture Capital Valuation Guidelines and current financial reporting standards.

VCT Compliance

Compliance with the main VCT regulations as at 28 February 2017 and for the year then ended is summarised as follows:

Type of Investment
By HMRC Valuation Rules
Actual Target
VCT Qualifying Investments 75% Minimum obligation of:
70%
Non-Qualifying Investments 25% Maximum allowed:
30%
Total 100% 100%

At least 10% of each investment in a qualifying company is held in 'eligible shares' - Complied.

No more than 15% of the income from shares and securities is retained - Complied.

No investment constitutes more than 15% of the Company's portfolio (by value at time of investment) - Complied.

No investment made by the VCT has caused the company to receive more than £5m of State Aid investment in the year - Complied as no new investments made.

Table of Investments held by Company at 28 February 2017

         

Company

 
Description

 
Date of initial investment

 
Net cost of
investment £'000
Carrying value at 28/02/17 £'000 Change in value for the year £'000 %
equity held by
OT1
%
equity held by All OTVCTs
%
net assets
Select Technology Photocopier Interfaces Sep 1999 488 1,380 (156) 30.0 58.6 47.7
Scancell
Quoted on AIM
(Bid Price 14.0p)
Antibody based
cancer therapeutics
Aug 1999

 
344

 

 
964 (241) 2.6 4.4 33.4
Getmapping Aerial photography Mar 1999

 
518

 
228 4 3.9 3.9 7.9
BioCote Bactericidal additives Dec 1997

 
85

 
106 - 6.6 6.6 3.7
Totals     1,435 2,678 (393)      
Other Net Assets       211       7.3
NET ASSETS       2,889       100

                                                                                                          

Number of shares in issue:  5,431,655
Net Asset Value per share at 28 February 2017: 53.2p
Dividends paid to date: 54.0p

This table shows the current portfolio holdings.  The investments in Avidex, Concept Broadcast, Coraltech, Eurogen, Im-Pak, Freehand Surgical, Nexus, OST, Rapier, Sirius, Synaptica and IMPT have been written off.  The investments in Valid, Dataflow, MET, Equitalk and Duncan Hynd Associates have been sold.  Some shares in Scancell have also been sold.

Directors' Report
The Directors present their report together with financial statements for the year ended 28 February 2017.

The Directors consider that the Annual Report and Financial Statements, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

This report has been prepared by the Directors in accordance with the requirements of s415 of the Companies Act 2006.  The Company's independent auditor is required by law to report on whether the information given in the Directors' Report is consistent with the financial statements. 

Principal Activity

The Company commenced business in March 1997.  The Company invests in start-up and early stage technology companies in general located within 60 miles of Oxford.  The Company has maintained its approved status as a Venture Capital Trust by HMRC.

Directors

The Directors of the Company are required to notify their interests under Disclosure and Transparency Rule 3.12R.  The present membership of the Board and their beneficial interests in the ordinary shares of the company at 28 February 2017 and at 29 February 2016 are set out below:

Name                                2017                                            2016
A Starling                          6,749                                           2,512
R Goodfellow                    90,932                                         90,932
D Livesley                        Nil                                               Nil
R Roth                              10,000                                          10,000

Under the Company's Articles of Association one third of the Directors are required to retire by rotation each year.  Robin Goodfellow and David Livesley will be nominated for re-appointment at the forthcoming AGM.  The Board believes that both non-executive Directors continue to provide a valuable contribution to the Company and remain committed to their roles.  The Board recommends that Shareholders support the resolutions to re-elect Robin Goodfellow and David Livesley at the forthcoming AGM. 

The Board is cognisant of shareholders' preference for Directors not to sit on the boards of too many larger companies ("overboarding").  Shareholders will be aware that in July 2015, the Company, along with the other VCTs that were managed by Oxford Technology Management, appointed directors such that the four VCTs each had a Common Board.  In addition, Richard Roth has subsequently also become a Director of Hygea VCT plc, a VCT investing in the Med Tech sector which is also self-managed and has a number of investments in common with the Oxford Technology VCTs.  Whilst great care is taken to safeguard the interests of the shareholders of each separate company, there is an element of overlap in the workload of each Director across the four OT funds due to the way the VCTs are managed.  The Directors note that the workload related to the four OT funds is less than it would be for four totally separate and larger funds, and are satisfied that Richard Roth has the time to focus on the requirements of each OT fund.

Investment Management Fees

OT1 Managers Ltd, the Company's wholly owned subsidiary, has an agreement to provide investment management services to the Company for a fee of 1% of net assets per annum.  Alex Starling and Robin Goodfellow together with Lucius Cary are Directors of OT1 Managers Ltd.

Directors' and Officers' Insurance

The Company has maintained insurance cover on behalf of the Directors, indemnifying them against certain liabilities which may be incurred by them in relation to their duties as Directors of the Company.

Ongoing Review

The Board has reviewed and continues to review all aspects of internal governance to mitigate the risk of breaches of VCT rules or company law.   

Whistleblowing

The Board has been informed that the Investment Manager has arrangements in place in accordance with the UK Corporate Governance Code's recommendations by which staff of Oxford Technology Management or the Secretary of the Company may, in confidence, raise concerns within their respective organisations about possible improprieties in matters of financial reporting or other matters. 

Bribery Act 2010

The Company is committed to carrying out business fairly, honestly and openly.  The Investment Manager has established policies and procedures to prevent bribery within its organisation.  The Company has adopted a zero tolerance approach to bribery and will not tolerate bribery under any circumstance in any transaction the Company is involved in. The Company has instructed the Investment Manager to adopt the same approach with investee companies.

Relations with Shareholders

The Company values the views of its shareholders and recognises their interest in the Company.   The Company's website provides information on all of the Company's investments, as well as other information of relevance to shareholders (www.oxfordtechnology.com/vct1).

Shareholders have the opportunity to meet the Board at the Annual General Meeting.  In addition to the formal business of the AGM the Board is available to answer any questions a shareholder may have.

The Board is also happy to respond to any written queries made by shareholders during the course of the year and can be contacted at the Company's registered office:  The Magdalen Centre, Oxford Science Park, Oxford OX4 4GA.

Going Concern

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason they have adopted the going concern basis in preparing the financial statements.

Substantial Shareholders

At 28 February 2017, the Company has been notified by Neville Registrars of three investors whose interest exceeds three percent of the Company's issued share capital: Redmayne Nominees Ltd, 5.6% (beneficial interest of Shivani Palakpari Shree Parikh); Richard Vessey, 4.4%; and Vidacos Nominees Ltd, 4.2%. The Directors' shareholdings are listed above.

Auditors

James Cowper Kreston offer themselves for re-appointment in accordance with Section 489 of the Companies Act 2006.  

On behalf of the Board
Alex Starling
Chairman
10 May 2017

Directors' Remuneration Report

Introduction

This report has been prepared by the Directors in accordance with the requirements of the Companies Act 2006. The Company's independent auditor, James Cowper Kreston, is required to give its opinion on certain information included in this report. This report includes a statement regarding the Directors' Remuneration Policy. Resolutions to approve the Directors' Remuneration Report will be proposed at the Annual General Meeting on 5 July 2017.

The Directors' Remuneration Policy was approved by shareholders at the AGM on 26 August 2015. The Directors' Remuneration Report for the year ended 29 February 2016 was approved by shareholders at the AGM on 8 July 2016 on a unanimous show of hands and 100% of proxies voted in favour.

This report sets out the Company's forward-looking Directors' Remuneration Policy and the Annual Remuneration Report which describes how this policy has been applied during the year.

Directors' Terms of Appointment

The Board consists entirely of non-executive Directors who meet at least four times a year and on other occasions as necessary to deal with important aspects of the Company's affairs. Directors are appointed with the expectation that they will serve for at least three years and are expected to devote the time necessary to perform their duties.  All Directors retire at the first general meeting after election and thereafter every third year, with at least one Director standing for election or re-election each year.  Re-election will be recommended by the Board but is dependent upon shareholder vote. Directors who have been in office for more than nine years will stand for annual re-election in line with the AIC Code. There are no service contracts in place, but Directors have a letter of appointment.

Directors' Remuneration Policy

The Board acts as the Remuneration Committee and meets annually to review Directors' pay to ensure it remains appropriate given the need to attract and retain candidates of sufficient calibre and ensure they are able to devote the time necessary to lead the Company in achieving its strategy.  The Board has not engaged any third party consultancy services, but did consult with the previous directors, Michael O'Regan and Richard Vessey of the other Oxford Technology VCT funds when the current levels were determined in 2015.

The Articles of Association of the company state that the aggregate of the remuneration (by way of fee) of all the Directors shall not exceed £50,000 per annum unless otherwise approved by Ordinary Resolution of the Company. Based on the Company sharing a Common Board with the other Oxford Technology VCT funds the following Directors' fees are payable by the Company;

                                                                  per annum
Director Base Fee                                      £3,500
Chairman's Supplement                              £2,000
Audit Committee Chairman                        £3,000
Audit Committee Member                          £1,500

Alex Starling chairs the Company. Richard Roth chairs the Audit Committee, with Robin Goodfellow as a member of the Committee.  As the VCT is self-managed, the Audit Committee carries out a particularly important role for the VCT and has played a greater part in the production of the annual accounts compared to earlier years. 

Fees are currently paid annually. The fees are not specifically related to the Directors' performance, either individually or collectively.  No expenses are paid to the Directors.  There are no share option schemes or pension schemes in place but Directors are entitled to a share of the carried interest as detailed below. 

Alex Starling and Robin Goodfellow receive no remuneration in respect of their directorships of OT1 Managers Ltd, the Company's Investment Manager.

The performance fee is detailed in note 3. Current Directors are entitled to benefit from any payment made, subject to a formula driven by relative lengths of service.  The performance fee becomes payable if a certain cash return threshold to shareholders is exceeded - the excess is then subject to a 20% carry that is distributed to Oxford Technology Management, past Directors and current Directors; the remaining 80% is returned to shareholders.  At 28 February 2017 no performance fee was due.

Should any performance fee be payable at the end of the year to 28 February 2018, Alex Starling, Robin Goodfellow and Richard Roth would each receive 0.21% of any amount over the threshold and David Livesley 0.74%.  No performance fee will be payable for the year ending 28 February 2018 unless original shareholders have received back at least 190.7p in cash for each 100p (gross) invested.  

Relative Spend on Directors' Fees

The Company has no employees, so no consultation with employees or comparison measurements with employee remuneration are appropriate. 

Loss of Office

In the event of anyone ceasing to be a Director, for any reason, no loss of office payments will be made.  There are no contractual arrangements entitling any Director to any such payment.

Annual Remuneration Report

Directors' Fees Year End 28/02/18
(unaudited)
Year End 28/02/17
(audited)
Year End 29/02/16
(audited)
Alex Starling £5,500 £5,500 £6,167
Richard Roth £6,500 £6,500 £8,833
Robin Goodfellow £5,000 £5,000 £3,333
David Livesley £3,500 £3,500 £2,333
Total £20,500 £20,500 £20,666

 Income Statement

    Year Ended
28 February 2017
Year Ended
29 February 2016
  Note
Ref.
Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Gain on disposal of  fixed asset investments   - - - - - -
Unrealised (loss) on valuation of fixed asset investments   - (393) (393) - (265) (265)
Investment income 2 110 - 110 154 - 154
Investment management fees 3 (8) (25) (33) (9) (26) (35)
Other expenses 4 (51) - (51) (60) - (60)
Return on ordinary activities before tax   51 (418) (367) 85 (291) (206)
Taxation on return on ordinary activities 5 - - - - - -
Return on ordinary activities after tax   51 (418) (367) 85 (291) (206)
Return on ordinary activities after tax attributable to equity shareholders   51 (418) (367) 85 (291) (206)
Earnings per share - basic and diluted 6 1.0p (7.7)p (6.7)p 1.5p (5.3)p (3.8)p

                                                                       
There was no other Comprehensive Income recognised during the year.

The 'Total' column of the Income Statement is the Profit and Loss Account of the Company, the supplementary Revenue and Capital return columns have been prepared under guidance published by the Association of Investment Companies.

All Revenue and Capital items in the above statement derive from continuing operations.

The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds.

The accompanying notes are an integral part of the financial statements.

Statement of Changes in Equity

  Share Capital Share  Premium Unrealised Capital Reserve Profit & Loss Reserve Total
  £'000 £'000 £'000 £'000 £'000
 

As at 1 March 2015

 
543 176 3,104 (290) 3,533
 

Revenue return on ordinary activities after tax

 
- - - 85 85
Expenses charged to capital       (26) (26)
 

Current period losses on fair value of investments
- - (265) - (265)
 

Reserves Transfer (note 11)

 
- - (1,493) 1,493 -
 

Balance as at 29 February 2016

 
543 176 1,346 1,262 3,327
Dividends paid - - - (71) (71)
 

Revenue return on ordinary activities after tax

 
- - - 51 51
Expenses charged to capital       (25) (25)
 

Current period losses on fair value of investments

 
- - (393) - (393)
Prior years' unrealised losses now realised

 
- - 289 (289) -
 

Balance as at 28 February 2017

 
543 176 1,242 928 2,889

The accompanying notes are an integral part of the financial statements. 

Balance Sheet

    Year Ended
28 February 2017
Year Ended
29 February 2016
  Note Ref. £'000 £'000 £'000 £'000
Fixed Asset Investments At Fair Value 7   2,678   3,081
Current Assets          
Debtors 8 2   2  
Cash At Bank   217   253  
Creditors: Amounts Falling Due
Within 1 Year
9 (8)   (9)  
Net Current Assets     211   246
Net Assets      2,889   3,327
Called Up Equity Share Capital 10   543   543
Share Premium     176   176
Unrealised Capital Reserve 11   1,242   1,346
Profit and Loss Account Reserve 11   928   1,262
Total Equity Shareholders' Funds 11   2,889   3,327
Net Asset Value Per Share     53.2p   61.2p

The accompanying notes are an integral part of the financial statements.

The statements were approved by the Directors and authorised for issue on 10 May 2017 and are signed on their behalf by:

Alex Starling
Chairman

Statement of Cash Flows

  Year Ended
28 February 2017
£'000
Year Ended
29 February 2016
£'000
Cash flows from operating activities    
Return on ordinary activities before tax (367) (206)
Adjustments for:    
Gain on disposal of investments - -
Loss on valuation of investments 393 265
(Increase)/decrease in debtors - -
(Decrease)/increase in creditors (1) 1
Inflow from operating activities 25 60
Cash flows from investing activities    
Purchase of investments - -
Disposal of investments 10 7
Dividends paid (71) -
(Decrease)/increase in cash at bank    (36)  67
Opening cash and cash equivalents 253                      186
Cash and cash equivalents at year end 217 253

The accompanying notes are an integral part of the financial statements.

Notes to the Financial Statements

The financial statements have been prepared under Financial Reporting Standard 102 - 'The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland' ('FRS 102').  The accounting policies have not materially changed from last year.

1. Principal Accounting Policies

Basis of Preparation
The financial statements have been prepared 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 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 (revised 2014)' issued by the AIC.

The principal accounting policies have remained materially unchanged from those set out in the Company's 2016 Annual Report and financial statements. A summary of the principal accounting policies is set out below.

FRS 102 sections 11 and 12 have been adopted with regard to the Company's financial instruments. The Company held all fixed asset investments at fair value through profit or loss. Accordingly, all interest income, fee income, expenses and gains and losses on investments are attributable to assets held at fair value through profit or loss.

The most important policies affecting the Company's financial position are those related to investment valuation and require the application of subjective and complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. These are discussed in more detail below.

Going Concern
After reviewing the Company's forecasts and expectations, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its financial statements.

Key Judgements and Estimates
The preparation of the financial statements requires the Board to make judgements and estimates regarding the application of policies and affecting the reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments particularly unquoted investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with particular attention paid to the carrying value of the investments.

Investments are regularly reviewed to ensure that the fair values are appropriately stated. Unquoted investments are valued in accordance with current International Private Equity and Venture Capital Valuation (IPEV) guidelines, which can be found on their website at www.privateequityvaluation.com, although this does rely on subjective estimates such as appropriate sector earnings multiples, forecast results of investee companies, asset values of investee companies and liquidity or marketability of the investments held.

Although the Directors believe that the assumptions concerning the business environment and estimate of future cash flows are appropriate, changes in estimates and assumptions could result in changes in the stated values. This could lead to additional changes in fair value in the future.

Functional and Presentational Currency
The financial statements are presented in Sterling (£). The functional currency is also Sterling (£).

Cash and Cash Equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and also include bank overdrafts.

Fixed Asset Investments
The Company's principal financial assets are its investments and the policies in relation to those assets are set out below. 

Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date).

These investments will be managed and their performance evaluated on a fair value basis and information about them is provided internally on that basis to the Board.  Accordingly, as permitted by FRS 102, the investments are measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy.  The Company's investments are measured at subsequent reporting dates at fair value. 

In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. In the case of AIM quoted investments this is the closing bid price.

In the case of unquoted investments, fair value is established by using measures of value such as the price of recent transactions, earnings multiple, revenue multiple, discounted cash flows and net assets.  These are consistent with the IPEV guidelines.

Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the unrealised capital reserve.

In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.

Fair Value Hierarchy
Paragraph 34.22 of FRS 102 regarding financial instruments that are measured in the balance sheet at fair value requires disclosure of fair value measurements dependent on whether the stock is quoted and the level of the accuracy in the ability to determine its fair value. The fair value measurement hierarchy is as follows:

For Quoted Investments:
Level a: quoted prices in active markets for an identical asset. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held is the bid price at the Balance Sheet date.

Level b: where quoted prices are not available (or where a stock is normally quoted on a recognised stock exchange that no quoted price is available), the price of a recent transaction for an identical asset, providing there has been no significant change in economic circumstances or a significant lapse in time since the transaction took place. The Company holds no such investments in the current or prior year.

For investments not quoted in an active market:
Level c: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data (e.g. the price of recent transactions, earnings multiple, discounted cash flows and/or net assets) where it is available and rely as little as possible on entity specific estimates. 

If all significant inputs required to fair value an instrument are observable, the instrument is included in level c (i). If one or more of the significant inputs is not based on observable market data, the instrument is included in level c (ii).

There have been no transfers between these classifications in the year (2016: none). The change in fair value for the current and previous year is recognised in the income statement.

Income
Investment income includes interest earned on bank balances and from unquoted loan note securities, and dividends.  Fixed returns on debt are recognised on a time apportionment basis so as to reflect the effective yield, provided it is probable that payment will be received in due course.  Dividend income from investments is recognised when the shareholders' rights to receive payment have been established, normally the ex dividend date.

Expenses
All expenses are accounted for on an accruals basis.  Expenses are charged wholly to revenue with the exception of the investment management fee which has been charged 75% to capital and 25% to revenue.  Any applicable performance fee will be charged 100% to capital.

Revenue and Capital
The revenue column of the Income Statement includes all income and revenue expenses of the Company.  The capital column includes gains and losses on disposal and holding gains and losses on investments.  Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the appropriate capital reserve on the basis of whether they are realised or unrealised at the balance sheet date.

Taxation
Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the current tax 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 on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date, except as otherwise indicated.

Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. 

Financial Instruments
The Company's principal financial assets are its investments and the policies in relation to those assets are set out above.  Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.

An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument.

The Company does not have any externally imposed capital requirements.

Reserves
Called up Equity Share Capital - represents the nominal value of shares that have been issued.

Share Premium Account - includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from the Share Premium Account.

Unrealised Capital Reserve arises when the Company revalues the investments still held during the period and any gains or losses arising are credited/charged to the Unrealised Capital Reserve.  When an investment is sold, any balance held on the Unrealised Capital Reserve is transferred to the Profit and Loss Reserve as a movement in reserves.

The Profit and Loss Reserve represents the aggregate of accumulated realised profits, less losses and dividends.

Dividends Payable
Dividends payable are recognised as distributions in the financial statements when the Company's liability to make payment has been established.  This liability is established for interim dividends when they are declared by the Board, and for final dividends when they are approved by the Shareholders.

2. Investment Income

  Year Ended
28 February 2017
£'000
Year Ended
29 February 2016
£'000
Dividends received 110 154
Total 110 154

3.  Investment Management Fees

Expenses are charged wholly to revenue with the exception of the investment management fee which has been charged 75% to capital in line with industry practice.

  Year Ended
28 February 2017
£'000
Year Ended
29 February 2016
£'000
Investment management fee 33 35
Total 33 35

In the year to 28 February 2017 the manager received a fee of 1% of the net asset value as at the previous year end.  (2016: 1%).  Oxford Technology Management is also entitled to certain monitoring fees from investee companies and the Board reviews the amounts.

A performance fee is payable to the Investment Manager once original shareholders have received a specified threshold in cash for each 100p (gross) invested.   The original threshold of 125p has been increased by compounding that portion that remains to be paid to shareholders by 6% per annum with effect from 1 March 2008, resulting in the remaining required threshold rising to 129.0p at 28 February 2017, corresponding to a total shareholder return of 183.0p after taking into account the 54p already paid out (54p + 129.0p = 183.0p).  After this amount has been distributed to shareholders, each extra 100p distributed goes 80p to the shareholders and 20p to the beneficiaries of the performance incentive fee, of which Oxford Technology Management receives 14p.  No performance fee has become due or been paid to date. Any applicable performance fee will be charged 100% to capital. Expenses are capped at 3%, including the management fee but excluding Directors' fees and any performance fee.
  
4. Other Expenses

All expenses are accounted for on an accruals basis.  All expenses are charged through the income statement except as follows:

  Year Ended
28 February 2017
£'000
Year Ended
29 February 2016
£'000
Directors' remuneration 21 21
Auditors' remuneration 6 6
Other expenses 24 33
Total 51 60

5. Tax on Ordinary Activities

Corporation tax payable at 20% (2016: 20%) is applied to profits chargeable to corporation tax, if any.  The corporation tax charge for the period was £nil (2016: £nil). 

  Year Ended
28 February 2017
£'000
Year Ended
29 February 2016
£'000
Return on ordinary activities before tax (367) (206)
Current tax at standard rate of taxation (73) (41)
UK dividends not taxable (22) (31)
Unrealised losses not taxable 79 53
Excess management expenses carried forward 16 18
Total current tax charge - -

Unrelieved management expenses of £1,302,574 (2016: £1,218,727) remain available for offset against future taxable profits. 

6. Earnings per Share

The calculation of earnings per share (basic and diluted) for the period is based on the net loss of £367,000 (2016: loss of £206,000) attributable to shareholders divided by the weighted average number of shares 5,431,655 (2016: 5,431,655) in issue during the period.

There are no potentially dilutive capital instruments in issue and, therefore, no diluted returns per share figures are relevant.  The basic and diluted earnings per share are therefore identical.

7. Investments

  AIM quoted investments
Level a
£'000
Unquoted investments
Level c(ii)
£'000
Total investments £'000
Valuation and net book amount:      
Book cost as at 29 February 2016 344 1,391 1,735
Cumulative revaluation 861 485 1,346
Valuation at 29 February 2016 1,205 1,876 3,081
Movement in the year:      
Purchases at cost - - -
Redeemed/Disposed - (10) (10)
Revaluation in year (241) (152) (393)
Valuation at 28 February 2017 964 1,714 2,678
Book cost at 28 February 2017 344 1,091 1,435
Cumulative revaluation to 28 February 2017  

620
 

623
 

1,243
Valuation at 28 February 2017 964 1,714 2,678

Subsidiary Company

The Company also holds 100% of the issued share capital of OT1 Managers Ltd at a cost of £1.

Results of the subsidiary undertaking for the year ended 28 February 2017 are as follows:

  Country of Registration Nature of Business Turnover

 
Retained profit/loss

 
Net Assets

 
OT1 Managers Ltd England and Wales Investment Manager  

£33,262
 

£0
 

£1
           

Consolidated group financial statements have not been prepared as the subsidiary undertaking is not considered to be material for the purpose of giving a true and fair view.  The Financial Statements therefore present only the results of Oxford Technology VCT plc, which the Directors also consider is the most useful presentation for Shareholders.

8.  Debtors

  28 February 2017
£'000
29 February 2016
£'000
Prepayments, accrued income & other debtors 2 2
Total 2 2

9. Creditors

  28 February 2017
£'000
29 February 2016
£'000
Other creditors and accruals 8 9
Total 8 9

10. Share Capital

  28 February 2017
£'000
29 February 2016
£'000
Authorised:    
10,000,000 ordinary shares of 10p each 1,000 1,000
500,000 redeemable preference shares of  10p each 50 50
Total Authorised 1,050 1,050
Allotted, called up and fully paid:    
5,431,655 (2016: 5,431,655) ordinary shares of 10p each 543 543
     

11.   Reserves

When the Company revalues its investments during the period, any gains or losses arising are credited/charged to the Income Statement.  Changes in fair value of investments are then transferred to the Unrealised Capital Reserve.  When an investment is sold any balance held on the Unrealised Capital Reserve is transferred to the Profit and Loss Account Reserve as a movement in reserves.

The transfer between the Unrealised Capital Reserve and the Profit and Loss Reserve in 2016 was the result of the correction of historic misclassifications between the two reserves.  The historic misclassifications were immaterial as they had no impact on reported returns or net assets and had no bearing on any distributions.

Distributable reserves are £ 928,000 as at 28 February 2017 (2016: £1,262,000).

Reconciliation of Movement in Shareholders' Funds

  28 February 2017
£'000
29 February 2016
£'000
Shareholders' funds at start of year 3,327 3,533
Return on ordinary activities after tax (367) (206)
Dividends paid (71) -
Shareholders' funds at end of year 2,889 3,327

The Company paid a final revenue dividend for 2016 of 1.3p per ordinary share on 20 July 2016.  Subject to shareholder approval, the Company will pay a final revenue dividend for 2017 of 1.0p per ordinary share on 21 July 2017.

12.  Financial Instruments and Risk Management

The Company's financial instruments comprise equity and loan note investments, cash balances and debtors and creditors.  The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT - qualifying quoted and unquoted securities whilst holding a proportion of its assets in cash or near cash investments in order to provide a reserve of liquidity.  The risk faced by these instruments, such as interest rate risk or liquidity risk is considered to be minimal due to their nature.  All of these are carried in the accounts at fair value.

The Company's strategy for managing investment risk is determined with regard to the Company's investment objective.  The management of market risk is part of the investment management process and is a central feature of venture capital investment.  The Company's portfolio is managed with regard to the possible effects of adverse price movements and with the objective of maximising overall returns to shareholders.   Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes.  The overall disposition of the Company's assets is regularly monitored by the Board.

13. Capital Commitments

The Company had no commitments at 28 February 2017 or 29 February 2016.

14.  Related Party Transactions

OT1 Managers Ltd, a wholly owned subsidiary, provides investment management services to the Company with effect from 1 July 2015 for a fee of 1% of net assets per annum.  During the year, £33,262 was paid in respect of these fees (2016: £23,533).  No amounts were outstanding at the year end.

15.  Events after the Balance Sheet Date

The Directors have declared a final revenue dividend of 1.0p per share which, subject to shareholder approval at the AGM, will be paid on 21 July 2017 to ordinary shareholders on the register on 30 June 2017.

Company Number: 3276063 
Note to the announcement:
The financial information set out in this announcement does not constitute statutory accounts as defined in the Companies Act 2006 ("the Act").  The balance sheet as at 28 February 2017, income statement and cash flow statement for the period then ended have been extracted from the Company's 2017 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under the section 495 of the Act.
The Annual Report and Accounts for the year ended 28 February 2017 will be filed with the Registrar of Companies.
Copies of the documents will be submitted to the National Storage Mechanism and are available for inspection at: http://www.mornningstar.co.uk/uk/NNSM




This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Oxford Technology VCT plc via Globenewswire


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Oxford Technology VCT plc : Annual Financial Report - RNS