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Oxford Technology 3 VCT plc : Annual Financial Report

Related Companies

For RNS Release
30th June 2015

Oxford Technology 3 Venture Capital Trust Plc
Announcement for the year ended 28 February 2015

Headlines for the Year

  • Net asset value per share at the year end was 95.6p (compared to 98.3p at 28 February 2014)
  • The net assets at 28 February 2015 were £6.48m (£6.67m)
  • HMRC issues resolved successfully
  • New Common Board Structure announced
  • Manager's fee reduced to 1%
  • Performance fee threshold hurdle now subject to escalation

Financial Headlines

                      Year Ended
        28 February 2015
Year Ended
28 February 2014
 

Net Assets at Year End
 

£6.48m
 

£6.67m
 

Net Asset Value per Share

 
 

95.6p

 
 

98.3p
Cumulative Dividend 10.0p 10.0p
     
NAV + Cumulative Dividend Paid from Incorporation  

105.6p
 

108.3p
     
Share Price at Year End 72.5p 65p
     
Earnings Per Share
(Basic & Diluted)
 

(2.7)p
 

1.0p

Chairman's Statement

I am pleased to be writing my first report to shareholders as your Chairman.

Your company's net asset value per share at year end is down 2.7p at 95.6p and the total return per share since the initial 2002 flotation is down 2.7p at 105.6p from the values at the beginning of the year. The main reason for the small decrease was due to an accrual for the performance fee under the terms of the original prospectus. I will discuss this and underlying financial performance later.

Ongoing VCT Status
This time last year the main concern was the threatened loss of our VCT status. HMRC had considered that an earlier purchase of shares in Scancell Holdings Plc to be in breach of VCT rules. Following corrective action, your Company's holding in Scancell is now as it was prior to July 2013.  The corrective action undertaken resulted in no financial gain or loss to the VCT. I am pleased to report that this issue has been resolved and HMRC have confirmed that VCT status was retained throughout the year.
I would place on record my thanks to the Manager, his staff and all the Oxford Technology VCTs directors for their collective, vigorous and ultimately successful efforts in getting VCT status retained. I would specifically like to mention the outstanding work done by Joseph Hage Aaronson LLP for their legal work at no cost to your VCT.

In August last year changes in governance were put in place whereby a clear segregation of duties between Board and Manager was achieved by Lucius Cary not seeking re-election. A comprehensive and transparent nomination process for seeking new NED candidates had been put in place using an ad hoc independent committee comprising an institutional shareholder, a representative from ShareSoc and a private shareholder with an HR background.

As a result of that process, I was appointed to the Board and re-elected at the last AGM. At the same time Richard Vessey stood down as Chairman but remained a valued director on your Board. I would also like to thank Lucius Cary for his long service as director of your company.

The Board has reviewed all internal governance procedures to avoid the possibility of further breaches of VCT rules. We have worked with the Manager to upgrade policies and procedures in this area and have closely reviewed the outcomes. 

HMRC were satisfied with this work and with the revised governance procedure of a clear segregation of Board and Manager's responsibilities. The Directors now have a review and update on VCT compliance as the first item on the agenda for their quarterly meetings.  This closes a difficult period in your company's history but we can now move forward with greater confidence for shareholders who still have all their tax reliefs preserved and without reduction in their net assets.

Financial Performance & Investment Portfolio

Without the performance fee accrual of £95,000 or 1.4p per share, Oxford Technology 3 VCT Plc's ("OT3") NAV performance was basically unchanged over the year.

The stated policy of the VCT, which has been fully invested for some time, is to exit from investee companies once the technology development and/or the business model has been proved and the companies have floated or become saleable. Profits from sales on exits will be returned to shareholders along with original investment by way of dividends subject to retaining sufficient funds to pay ongoing running costs of the VCT and to support existing investee companies. During the last year no exits were achieved.

Telegesis is our largest holding by value. The company has increased sales and we have increased our valuation accordingly.

Our second largest holding by value is Scancell which is quoted on AIM. We are a 2.0% shareholder with no representation on their board. Their board has announced that the company is up for sale and are engaged in preliminary discussions with several companies under confidentiality agreements. The result of these discussions could lead to an outright sale or to licensing deals. If no agreements are reached by the end of 2015 Scancell will need to consider funding for 2016 and beyond. Your Board is monitoring this situation closely.

Another of our companies appointed a sales agent last year and received an offer from a third party buyer. After close consideration by the VCT and the investee company board, the offer was rejected as being too low.  The investee is cash rich and profitable and we anticipate that it will shortly begin paying dividends. At the same time the company is developing its market position which may lead to a more attractive and realistic offer being made in 2 or 3 years' time.

None of our other remaining unquoted investee companies is currently ready for an optimum sale. The Manager is being pressed by the Directors to find profitable exits for as many as possible by the end of 2017. We will update shareholders on progress of this initiative.

We made no top up investment in any of our existing portfolio companies. We will consider any investee company requests for additional funds on their merits for further investment or as a potential opportunity to make some realisations.  Since year end we have received one request which, subject to due diligence, we anticipate approving.

We have not invested in any new companies. During the year Abzena (a new company formed by a merger with Polytherics which in turn had previously acquired our initial investee Warwick Effect Polymers) floated on AIM at over twice our carrying cost. The directors have been considering whether Abzena, as a listed company, has any near term value inflection points or whether the time for realisation is approaching. Since year end we have chosen to sell 41% of our holding in Abzena at above our year end carrying price to be able to support another of our investee companies in its final round of fundraising.

So to sum up the financial performance, there has been an increase in the value of the portfolio of £117k.  The major increases are Telegesis up £425k and Abzena up £150k offset by a lower Scancell bid price £111k and a more cautious valuation of Ixaris £315k to reflect the last fundraising round and slightly lower sales. Also Insense has been written down by £44k after spin outs of some of its component parts.

Shareholders should be aware that the valuation of Glide our fourth largest investment is very dependent on continuing satisfactory performance. In the February 2013 fund raising Investec subscribed to a tranche of preference shares which rank above our equity. A downturn in performance could lead to a disproportionate decrease in the value of our equity. We have applied a discount to our valuations to reflect this possibility.

The Directors note the fund's flat performance this year. The technology area in which we are primarily invested has not yet produced the returns seen by more generalist VCT funds. Since 2002 the total return of dividends paid to shareholders plus remaining NAV is 105.6p. The Directors consider this long term performance to be very disappointing. As a result the Directors have been considering all ways of increasing fund performance both by profitable exits and by reducing costs.

Management Fees

In the light of the fully invested nature of OT3, which is now in its 14th year, your Directors have considered the level of ongoing management fees. The existing fee arrangement covered a range of responsibilities, some of which are no longer applicable, such as regularly considering and reviewing new investment opportunities. In conjunction with further changes outlined below that improve the board structure and improve the Company's corporate governance, the Board renegotiated the ongoing management fees from 2% (of which recently 1.5% has been paid out while 0.5% has been deferred) to a reduced rate of 1.0% per annum. At the same time we have agreed to pay off the deferred management fee balance of £141,000 over the next 3 years.

We have also reconfirmed that the annual regular running costs (excluding directors' fees and any performance fees payable) are subject to a cap of 3.0% of the Company's net assets. Any running costs in excess of this are borne by Oxford Technology Management. The new arrangements start from 1 March 2015.

Performance Fees

The existing OT3 performance fee structure saw Oxford Technology Management, past and current directors sharing in 20% of the returns achieved beyond 100p.  Thus taking into account dividends paid to date of 10.0p, there was a net target as at 28 February 2015 of 90.0p. Since our NAV on that date was above the net target, we have accrued for a potential performance fee liability in this year's accounts.

As outlined below, the Board is optimistic about the potential for increasing shareholder value.  However Directors are of the view that it would be inappropriate for the existing performance fee structure to remain, as it would reward performance that, in terms of annual return on investment, is actually relatively low.  The Board has therefore negotiated with relevant parties and agreed that a compound annual 6% increase shall be applied retrospectively to the performance threshold from the end of the tenth year of full trading following the year of the first major allotment under the original OT3 prospectus, namely 1 March 2013.  In recognition of dividends paid, actual returns to shareholders will be subtracted from the compounding threshold in the year these are paid. 

This will maintain the purpose of the performance fee as an appropriate and achievable incentive for Oxford Technology Management (who would receive three quarters of any performance fee payable) to maximise shareholder value, yet also ensure that the performance threshold cannot be 'inflated away' over time.  The level of the performance fee remains at 20%. Note also that your company will only pay out a performance fee after cash returns to shareholders have achieved the performance threshold - many other VCTs pay out performance fees based on growth in asset values before actual cash returns have been made to shareholders.

The new arrangements will apply from 1 March 2015. Shareholders should note that no performance fee accrual will be made on 29 February 2016 unless the OT3 total return of dividends paid plus NAV on that date is above 117.2p.  No forecast is implied that this hurdle will be reached.

Your Directors believe that the lower level of management fees, together with a performance fee incorporating an escalating hurdle and only payable once shareholders have received back more than their original investment prior to any additional tax reliefs, makes this management arrangement market-leading and continues the principle always adopted by the VCT to keep its costs as low as possible.

Board Structure and Remuneration

Shareholders will be aware that the Company was considering the possibility of a merger with some, or all, of the other Oxford Technology VCTs.

Following clear feedback from shareholders the directors realised that, should they decide to merge the four companies, they would still need to maintain four separate listed share classes as some shareholders did not wish their holdings in certain specific assets to be diluted by consolidation with the other funds.  The OT3 Board determined that such a structure would not deliver sufficient savings to offset the costs of its introduction now.

The directors have therefore considered other methods by which OT3 can benefit from a more robust board structure. At present, your company has a board of just two directors. A similar situation applies to the other three VCTs within the Oxford Technology stable. Whilst directors from the other three VCTs provide ad hoc support, the board believes it is better to formalise this relationship.

It is therefore proposed to form a common board across each Company, each with its own chairman. To achieve this whilst retaining the independence that is required by generally accepted corporate governance (specifically AIC guidelines), the Directors have resolved that the Company should be self-managed by its own subsidiary company, OT3 Managers Limited. In turn, this subsidiary will sub-contract in services from Oxford Technology Management, thereby ensuring continuity from the team led by Lucius Cary. This type of self-managed format has been adopted very successfully by a number of other VCTs that are keen to maintain good and cost-effective corporate governance.

Three new directors will be appointed to the board of OT3 in early July 2015, David Livesley, Chairman of OT4 and Alex Starling and Richard Roth, respectively Chairman and Director of OT1.  Richard Vessey will not stand for re-election as a director at the AGM.  I would like to pay tribute to Richard for his service to OT3 and his wise counsel to me over the last year. Shareholders will be asked to ratify these appointments at the forthcoming AGM. 

Shareholders will also note that the remuneration committee has proposed a different structure to directors' fees. Fees are still much lower than those earned by directors of many other VCTs but represent an increase from that paid in recent years by any of the Oxford Technology funds. This also recognises, to some extent, the actual amount of work currently performed by your directors and the incremental cost is more than offset by the reduction in management fees discussed above. 

Reducing Share Premium Account

In line with normal market practice, the company is planning to clear the remaining balance on its share premium account. This has been approved by shareholders in the past, but the Board wishes to clear the amount that accrued from the share issues since that date. Once the process has been completed, this will increase the reserves ultimately available for distribution to shareholders.

Shareholder Approvals

Shareholders are invited to approve the appointment of the new directors, the revised remuneration structure and the reduction in the share premium account at the AGM on 26 August 2015, and the Board encourages you to vote in favour of all the resolutions.

Share Buybacks

The Company has the ability to buy back shares but the Directors do not think this is the best use of money at this time, preferring to reserve resources to support our investees and to pay dividends. To date this authority has never been exercised and the Directors have no current intention to do so. It is however a useful facility to have and the Company wishes to maintain this policy.

Outlook

The Directors look forward to 2015 with a degree of cautious optimism. The future of our four largest investments will determine the outturn of this fund and our ability to pay future dividends. The Directors are focussed on finding profitable exits from the VCT's major holdings at the earliest practicable date.  The Directors are not in a position to recommend a dividend at this time.

AGM

Shareholders should note that the AGM for Oxford Technology 3 VCT will be held on Wednesday 26 August 2015 at the Magdalen Centre, Oxford Science Park, starting at 11 am and will include presentations by some of the companies in which the Oxford Technology VCTs have invested.  A formal notice of the AGM has been separately included with these Financial Statements together with a Form of Proxy for those not attending.

I am always pleased to hear from shareholders. I have met many at Annual General Meetings over the last few years. If shareholders have questions or comments for me, please get in touch via our Manager, Oxford Technology Management, or by email to lucius@oxfordtechnology.com. I hope that as many shareholders as possible will be able to attend our AGM.

Robin Goodfellow
Chairman
29 June 2015

Table of Investments held by Company at 28 February 2015
                                                                                                                                               

Company

 
Description

 
Date of initial investment

 
Net cost of
investment £'000
Carrying value at 28/02/15 £'000 Change in value for the year £'000 % equity held
Telegesis Zigbee technology Oct 2003 147 1,999 425 27.2
Ixaris Internet payments Aug 2002 218 1,461 (315) 7.1
Scancell
Quoted on AIM
Cancer therapeutics Dec 2003

 
325 1,350 (111) 2.0
Glide Technologies Needle free injector Nov 2003 225 814 28 3.3
Abzena
Quoted on AIM
Protein & peptide based drugs Nov 2002 115 268 150 0.3
Allinea Software Parallel computing May 2009 15 132 - 2.3
Plasma Antennas Directional antennas Sep 2004 108 109 - 5.3
Select Technology Photocopier Interfaces Nov 2004 47 89 19 2.8
ImmunoBiology Novel vaccines May 2003 250 87 - 2.3
Arecor Protein stabilisation Jul 2007 24 46 - 0.7
Insense Wound healing May 2003 333 44 (44) 4.1
Inaplex Data transformation software Mar 2003 58 30 (10) 13.3
Concurrent
Thinking
Cluster computing Nov 2009 97 24 (25) 2.0
Orthogem Bone graft material Dec 2004 114 22 5 2.5
Invro Low power electronics Apr  2004 40 20 - 33.1
Metal Nanopowders Production of metal powders Nov 2002 153 13 - 20.0
Superhard Materials Production of hard materials Feb 2012 11 11 - 21.8
Dataflow
Sold
Accountancy software Jul 2002 4 4 (5) -
Microarray Insense spinout Dec 2013 2 2 - 1.1
Totals     2,286 6,525 117  
Other Net Assets

 
      (40)    
NET ASSETS

 
      6,485    

 

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 and policy will be proposed at the Annual General Meeting on 26 August 2015.

A policy was approved at the AGM on 27 August 2014, together with the resolution regarding the directors' remuneration report for the year ended 28 February 2014 on a show of hands, which reflected overwhelming support amongst proxies submitted.

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 4 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 9 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' Fees

The Board acts as the Remuneration Committee and meets annually to review Directors' fees 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 carefully considers the opinions of other Oxford Technology VCT fund directors.

Given the proposed introduction of a common board across the four Oxford Technology VCTs, the additional focus on effective corporate governance (as outlined in the Chairman's statement) and the greater involvement of the Directors in the day-to-day running of the VCT, the Remuneration Committee has proposed a revised fee structure. This new fee structure also takes into account the additional responsibilities and workload for the Company Chairman and responsibilities within the Audit Committee. 

In proposing the revised levels, the Remuneration Committee took note of an internal report providing an extensive analysis of fees paid by the rest of the VCT industry, with particular focus on other VCTs managed in a similar manner to the Company, and other relevant information. They were also mindful of the low cost philosophy of the Oxford Technology VCTs and fund affordability. Fees continue to be amongst the lowest in the industry.  During the process a range of stakeholders including retiring board members from several of the Oxford Technology VCTs were consulted to provide expertise and input to reach a balanced recommendation.

As the levels and structure of remuneration have been modified, the Directors consider that this once again requires shareholder approval, as Shareholders must now vote on the remuneration policy every three years, or sooner if the Company wants to make changes to it.
               
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. Following the changes outlined above, the following Directors' fees will be payable by the Company with effect from 1 July 2015, the date of the proposed implementation of the Common Board:

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

Robin Goodfellow will continue to chair the Company and Richard Roth will chair the Audit Committee, with Robin Goodfellow as a member of the Committee.  As the VCT will be self-managed after implementation of the new structure, the Audit Committee will be carrying out a particularly important role for the VCT and will play a greater part in the production of the annual accounts compared to recent years. 

These figures compare to the previous individual fee of £7,500 per annum for each director independent of the manager and £2,500 per annum for Lucius Cary, who was a director of the Company up until 27 August 2014.  Richard Vessey will be paid £3,750 for his services from 1 March 2015 to his resignation on 26 August 2015.

The directors may at their discretion pay additional sums in respect of specific tasks carried out by individual Directors on behalf of the Company.

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.

The revised performance incentive fee is described in the Chairman's statement and becomes payable if a certain cash return hurdle 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 2015 the cash return to shareholders would have had to have been in excess of 111.1p for a performance fee to have been payable.  If a performance fee is not triggered (as it was not in this financial year) the hurdle, net of dividends paid, increments by a compound annual growth rate of 6%, applied quarterly.

Should the new director appointments as outlined in the Chairman's Statement go ahead as planned and any fee be payable at the end of the year to 29 February 2016, Alex Starling, Richard Roth and Robin Goodfellow would each receive 0.10% of any amount over the hurdle, whilst David Livesley would be entitled to 0.60%.

No performance fee is payable for the year ending 29 February 2016 unless original shareholders have received back at least £1.17 in cash for each £1 (gross) invested; no forecast is implied that the hurdle will be reached in the year to 29 February 2016.

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.

Directors' Emoluments

As outlined in the Chairman's statement, it is proposed to appoint Alex Starling, Richard Roth and David Livesley to the Board of OT3 on 1 July 2015.  Richard Vessey is not expecting to stand for re-election at this year's AGM.  The Directors consider it helpful to shareholders to therefore set out the full expected cost for Director's emoluments for the year to 29/2/16. Given the partial year timing for the creation of the Common Board, they have also set out the expected remuneration for each director for the year ended 28/2/17, all other things being equal.

Directors' Fees Year End
28/02/17
(unaudited)
Year End
29/02/16
(unaudited)
Year End 28/02/15
(audited)
Year End 28/02/14
(audited)
Alex Starling £3,500 £2,333 - -
Richard Roth £6,500 £4,333 - -
Richard Vessey - £3,750 £7,500 £7,500
Lucius Cary - - £1,041 £2,500
Robin Goodfellow £7,000 £7,167 £4,375 -
David Livesley £3,500 £2,333 - -
Total £20,500 £19,916 £12,916 £10,000

Prior to his appointment as an OT3 director Richard Roth received a one off payment of £2,000 as compensation for executive work undertaken in relation to setting up of the common board structure.

Income Statement

                                                                    Year to 28 February 2015           Year to 28 February 2014

  Notes Revenue
£'000
Capital
£'000
Total
£'000
Revenue
£'000
Capital
£'000
Total
£'000
Gain on disposal of investments   - 2 2 - 73 73
Unrealised gain on fair value   - 94 94 - 167 167
Other income 2 - - - 2 - 2
Performance fees 8 - (95) (95) - - -
Investment management fees 3 - (133) (133) - (132) (132)
Other expenses 4 (53) - (53) (40) - (40)
Return on ordinary activities before tax   (53) (132) (185) (38) 108 70
Taxation on return on ordinary activities 5 - - - - - -
Return on ordinary activities after tax   (53) (132) (185) (38) 108 70
Earnings per share - basic and diluted 6 (0.8)p (1.9)p (2.7)p (0.6)p 1.6p 1.0p

The 'Total' column of this statement is the profit and loss account of the Company, the supplementary revenue and capital 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 accompanying notes are an integral part of the financial statements.

Reconciliation of Movement in Shareholders' Funds

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Shareholders' funds at start of year 6,670 6,600
Return on ordinary activities after tax (185) 70
Dividends paid - -
Shareholders' funds at end of year 6,485 6,670

Balance Sheet
                                                                        Year to 28 February 2015             Year to 28 February 2014

  £'000 £'000 £'000 £'000
Fixed Asset Investments at fair value (Note 7)   6,525      6,405
Current Assets        
Debtors 1   112    
Cash at Bank 203   267    
Creditors: amounts falling due in less than 1 year (55)   (114)    
Net Current Assets   149   265  
Creditors: amounts falling due after more than 1 year   (94)   -  
Provisions (Note 8)   (95)   -  
Net Assets   6,485   6,670  
Called up equity share capital   679   679  
Share Premium   718   718  
Unrealised Capital Reserve   4,315   4,224  
Profit and Loss Account Reserve   773   1,049  
Total Equity Shareholders' Funds   6,485   6,670  
Net Asset Value Per Share   95.6p   98.3p  

The accompanying notes are an integral part of the financial statements.
The statements were approved by the Directors and authorised for issue on 29 June 2015 and are signed on their behalf by:

Robin Goodfellow
Director

Cash Flow Statement

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Net cash outflow from operating activities (76) (212)
Financial investment    
Purchase of investments - (85)
Disposal of investments 12 222
(Decrease) in cash at bank (64) (75)

Reconciliation of Net Cash Flow
to Movement in Net Funds

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Decrease in cash resources at bank (64) (75)
Opening net funds 267 342
Net funds at 28 February 2015 203 267

Reconciliation of Operating Profit/(Loss) before Taxation to Cash Flow from Operating Activities

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Return on ordinary activities before tax (185) 70
Gain on disposal of investments (2) (73)
(Gain) on valuation of investments (94) (167)
(Increase)/decrease in debtors 75 (75)
Increase in creditors 130 33
Outflow from operating activities (76) (212)

Notes to the Financial Statements

These schedules and notes have been extracted from the Financial Statements prepared to Year End 28 February 2015.

1. Principal Accounting Policies

Basis of Accounting

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 (UK GAAP) and the Statement of Recommended Practice (SORP) 'Financial Statements of Investment Trust Companies' (revised in 2009).

Investments

The company invests in financial assets with a view to profiting from their total return through income and capital growth. These investments are managed and their performance is evaluated on a fair value basis.  Accordingly as permitted by Financial Reporting Standard 26 (FRS 26) the investments are designated as fair value through profit and loss. Unrealised gains or losses on valuation are recognised through the income statement.

Valuation of Investments

Quoted investments are stated at the bid price. Unquoted investments are stated at fair value, where fair value is estimated after following the guidelines laid down by the International Private Equity and Venture Capital Guidelines. The Directors' policy is to initially state investments at cost and then to review the valuation every three months. The Directors may then apply an appropriate methodology which, as far as possible, draws on external, objective market data such as where fair value is indicated by:

·   a material arms length transaction by a third party in the shares of the company, with discounting for more junior asset classes, and reviewed for impairment; or

·   a suitable revenue or earnings multiple where the company is well established and generating maintainable profits. The multiple will be based on comparable listed companies but may be discounted to reflect a lack of marketability; or

·     the net assets of the business.

Where such objective data is not available the Directors may choose to maintain the value of the company as previously stated or to discount this where indicated by underperformance against plan.

The Directors consider that this basis of valuation of unquoted investments is consistent with the International Private Equity and Venture Capital Guidelines.

The preparation of the financial statements requires the Board to make judgments and estimates that affect the application of policies and 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.

Deferred Tax

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the company was approved as a Venture Capital Trust during the current year. HMRC has approved the company as a Venture Capital Trust for the purpose of Section 259 of the Income Tax Act 2007. The approval was given in the financial period ended 28 February 2003. 

2. Income

Income represents realised gains on the disposal of investments along with dividends and interest receivable on cash deposits and loans.  Dividends receivable on unquoted equity shares are brought into account when the company's right to receive payment is established and there is no significant doubt that payment will be received. Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. 

Fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities and shares, provided there is no significant doubt that payment will be received in due course. Interest receivable from cash and short term deposits are accrued to the end of the year.

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Bank interest receivable - 2
Loan note interest receivable - -
Total - 2

3.  Investment Management Fees

Expenses are charged wholly to revenue with the exception of the investment management (including performance fee) which has been charged 100% to the capital return.

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Investment management fee 133 132
Total 133 132

In the year to 28 February 2015 (and previous financial years), the manager received a fee of 2% of the net asset value as at the previous year end.  As indicated in the Chairman's statement, the Board have agreed with Oxford Technology Management that as from 1 March 2015, this will be reduced to 1.0% of net asset value as at the previous year end.

The Manager had agreed to defer 25% of the management fee to which it was contractually entitled (ie 0.5% of net assets) until a time when the Company was more able to afford it.  As part of the revised agreement with effect from 1 March 2015 the Board have agreed to pay over the deferred balance over a 36 month period.

In all previous years to 28 February 2015, a performance incentive has been payable to the Investment Manager once the original shareholders have received back £1.00 in cash for each £1 (gross) invested.  Each extra £1 distributed goes 80p to the shareholder and 20p to the beneficiaries of the performance incentive fee, of which Oxford Technology Management receives 15p. 

As reported in the Chairman's statement, the hurdle of £1.00 has now been increased, by compounding that portion that remains to be paid to shareholders by 6% per annum with effect from 1 March 2013.

Annual running costs are capped at 3%, including the management fee but excluding Directors fees.

4. Other Expenses

All expenses are accounted for on an accruals basis.  All expenses are charged through the profit and loss account except as follows:

·        those expenses which are incidental to the acquisition of an investment are included within the cost of the investment

·        expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Directors' remuneration 13 10
Auditors' remuneration 6 5
Legal and professional expenses 10 6
Accounting and administration services 4 2
Other expenses 20 17
Total 53 40

5. Tax on Ordinary Activities

Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate.  The corporation tax charge for the period was £nil (2014: nil) 

  Year Ended
28 February 2015
£'000
Year Ended
28 February 2014
£'000
Return on ordinary activities before tax (185) 70
Current tax at standard rate of taxation (39) 14
Unrecognised tax losses 39 (14)
Total current tax charge - -

Unrelieved management expenses of £1,716,092 (2014: £1,435,542) 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 £185,000 (2014: profit of £70,000) attributable to shareholders divided by the weighted average number of shares 6,785,233 (6,785,233) 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

Fixed asset investments are valued at fair value.  Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines.  Purchases and sales of investments are recognised in the financial statements at the date of the transaction.

Where financial instruments are measured in the balance sheet at fair value, FRS 29 requires disclosure of the fair value measurements by level based on the following fair value investment hierarchy.

Level 1: quoted prices in active markets for identical assets and liabilities.  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 current bid price.  These instruments are included in level 1 and comprise AIM quoted investments classified as held at fair value through profit or loss.

Level 2: 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 where it is available and rely as little as possible on entity-specific estimates. 

Level 3: the fair value of financial instruments that are not traded in an active market (for example investments in unquoted companies) is determined by using valuation techniques such as earnings or sales multiples.  Level 3 valuations include assumptions based on non-observable market data, such as discounts applied either to reflect fair value of financial assets held at the price of recent investment, or, in the case of unquoted investments to adjust earnings or sales multiples. 

  AIM quoted investments
Level 1
£'000
Unquoted investments
Level 3
£'000
Total investments £'000
Valuation and net book amount:      
Book cost as at 28 February 2014 325 1,967 2,292
Cumulative revaluation 1,135 2,978 4,113
Valuation at 28 February 2014 1,460 4,945 6,405
Movement in the year:      
Purchases at cost - 2 2
Redeemed/Disposed - (8) (8)
IPO during year at 28/2 valuation 119 (119) -
Revaluation in year 39 87 126
Valuation at 28 February 2015 1,618 4,907 6,525
Book cost at 28 February 2015 440 1,846 2,286
Revaluation to 28 February 2015 1,178 3,061 4,239
Valuation at 28 February 2015 1,618 4,907 6,525

8. Provisions

  28 February 2015
£'000
28 February 2014
£'000
Performance Fee 95 -
Total 95 -

In all previous years to 28 February 2015, a performance incentive has been payable to the Investment Manager once the original shareholders have received back £1.00 in cash for each £1 (gross) invested.  Each extra £1 distributed goes 80p to the shareholder and 20p to the beneficiaries of the performance incentive fee, of which Oxford Technology Management receives 15p.  As reported in the Chairman's statement, the hurdle of £1.00 has now been increased, by compounding that portion that remains to be paid to shareholders by 6% per annum with effect from 1 March 2013.  No forecast is implied that this hurdle will be reached.

Based on the net asset value per share and cumulative dividends paid to date this is more than likely to occur and the Directors assessed that the costs should be included in the accounts.  The value of the liability arising to date can be estimated, however the timing of the future payment is uncertain.

 9.  Events after the Balance Sheet Date

OT3 sold 73,534 shares in Abzena Plc in May 2015 at a price of 81.83p.  In June 2015 it subsequently sold an additional 58,000 shares at a price of 86p.  The company retains 190,541 shares.

10.  Notes

The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 28 February 2015 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. 

Statutory accounts for the year ended 28 February 2015 will be delivered to Companies House following the Company's Annual General Meeting.  The auditors have reported on those accounts: their report was unqualified and did not contain a statement under Section 489 of the Companies Act 2006.

The Annual Report for the year ended 28 February 2015 will shortly be made available on the Company's website www.oxfordtechnology.com.  Shareholders will be notified of this by email or post or sent a hard copy in the post in accordance with their instructions.




This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX 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 3 VCT plc via Globenewswire

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