Oxford Technology 2 VCT plc : Annual Financial ...

10 May 2017
Oxford Technology 2 VCT plc ("the Company" or "OT2")
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	£2.53m	£1.91m
Net Asset Value per Share   Dividend per Share paid in Year	37.2p   -	28.2p   2.5p
Cumulative Dividend per Share	13.0p	13.0p
NAV + Cumulative Dividend per Share paid from Incorporation	50.2p	41.2p
Share Price at Year End	20.0p	20.0p
Earnings Per Share (Basic & Diluted)	9.0p	2.9p

Chairman's Statement

I am pleased to present my annual report for the year to 28 February 2017 to fellow shareholders.

Overview

Last year, it was pleasing to report that there had been some positive progress within our portfolio with the sale of Telegesis, at a multiple of 45 times our investment, which enabled the payment of the first dividend since 2009.  This year, the largest investment within our portfolio, OC Robotics (OCR), representing 60% of our net assets, is undergoing due diligence, which could result in the business being acquired by a large multi-national company. The business has continued to develop, following further commercial and grant-funded activities. If the sale completes, a further return of funds to shareholders will be possible.

We still have shareholdings in 8 other unlisted companies, and were able to provide follow-on funding to three of these during the year: Arecor (£75k), Immbio (£50k) and Orthogem (£25k).  Plasma Antennas also raised funds, but OT2 was unable to invest due to restrictions imposed by VCT legislation.

Portfolio Review

The net asset value per share on 28 February 2017 was 37.2p compared to 28.2p on 29 February 2016. The earnings per share in the year to 28 February 2017 were 9.0p. Thus at 28 February 2017, the Total Return is 50.2p. The 32% increase in net asset value has been primarily driven by the revaluation of OCR.

The Company's 9 remaining portfolio company holdings are at different stages of development.  The Directors continue to monitor all companies, looking for the optimum time to realise your Company's investment in them.

OT2 continues to invest in support of its portfolio as the companies develop.  It has not been affected by the recent changes in VCT legislation, given the types of investments OT2 makes, and the fact that all are existing investees who have previously received financing from OT2.
£75k was invested in Arecor to support its transition from a research-led company to a product-led company including an initiative with the US Juvenile Diabetes Research Foundation for the delivery of ultra-concentrated rapid acting insulin. In February 2017, Arecor was awarded a £1m grant from Innovate UK towards clinical trials.

£50k was invested into ImmBio to support the completion of their First-in-Human study of their novel vaccine, PnuBioVax(TM), against the bacterial pathogen Streptococcus pneumoniae.  PnuBioVax was found to be safe and well tolerated, and capable of producing antibody responses against key S. pneumoniae antigens broadly conserved across strains.  The company is now in detailed discussions with larger organisations regarding commercialisation.

£25k was invested in Orthogem to enable it to register its new product TriPore Putty.  The synthetic bone market has moved significantly towards putties, and the commercial launch of their new product is expected to have a significant impact on sales.

Photocopier software company, Select Technology, remains the second largest holding in the Company's portfolio - it has had a profitable and cash generative year, paying another dividend in January and further dividends are expected in future. This dividend helped cover just over 40% of OT2's costs for the year.  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.  However, the lower reported profits have caused a reduction in our valuation.

Plasma Antennas continues to be in discussion with several large players particularly around 4G and 5G telecommunications.

Further details on these investments are contained within the Investment Portfolio Review. The full list of the Company's investments is shown on page 13, with details of all investees on our website.

Dividends/Return of Capital

The ongoing strategy is to seek to crystallise value from the portfolio and distribute cash to shareholders when the opportunity arises.

The Board is considering the best way to return funds to shareholders should the sale of OCR complete. The VCT's shares currently have limited liquidity, and as a result trade at a significant discount. This acts as a major deterrent to those wishing to sell their shares, and the Board is sympathetic that many of its shareholders were subscribers in the initial offer in 2000 and may be keen to be able to dispose of some of their investment. Should the sale of OCR complete, significant funds would be available for distribution, and this could provide a one-off opportunity for shareholders to realise part of their investment at much closer to net asset value than is currently possible. However, the Board needs to consider the interests of all its shareholders, and a number may be deterred from selling any of their shares as this would have implications for previously deferred capital gains, and a simple dividend would suit them better.

To this end, the Board is working on a plan that would enable all shareholders to sell a proportion of their holding back to the Company (although at a discount to NAV). A dividend would then be paid to all remaining shareholders.

Much of any distribution would need to be returned to shareholders within 6 months of any such sale to keep within the VCT rules, and furthermore the Board is keen to keep the costs of any such operation to a minimum. For this reason, shareholders will note the Board are asking for permission to enable the Company to buy back up to 30% of its share capital. Recent buy back resolutions in OT2 have not been supported by enough of those voting to approve the resolution. The Directors understand that this was because it was feared that such a buy back could be to the benefit of some shareholders over others. It should be noted that should the Directors choose to use the powers granted by the relevant AGM resolutions, the same terms will be offered to ALL shareholders, and each shareholder will have the choice of whether they wish to tender any of their shares or not. Indeed the ability to buy back shares under the powers allotted by this resolution have been specifically worded so that they can only be used via a tender offer to all shareholders.

It should be stressed that there can be no certainty that the sale of OCR will complete (and on the terms currently envisaged), and the above proposal could only be offered if it does. It will be at the Directors' sole discretion as to whether a tender will be proposed and its precise terms, but if it is, it will follow the parameters as set out in the resolution. Each shareholder will have the opportunity to decide whether to tender any shares at that time and how many should such an offer be made. But the Directors hope that shareholders will support the resolutions which will allow everyone who wishes to sell some of their holdings to do so, as well as enabling all remaining shareholders to receive a dividend.

Continued Improvements to Cost Effectiveness and VCT Market Changes.

Following the reduction of fees implemented at the start of the previous financial year, your Board continues to look at methods of reducing running costs as well as improving liquidity for shareholders who wish to realise their holdings. Whilst the exit from OC Robotics will provide a welcome return to shareholders, it will leave the VCT with a much reduced - yet more diversified - portfolio.

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 types of earlier stage companies that OT2 has invested in. This may present an opportunity for your VCT.

Several options are being explored, and your Board is hoping to bring forward proposals later in the year which may increase options for shareholders.

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 27 and 28 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.

The outlook has not changed from a year ago. Your Board monitors each investee, with clear views as to the value milestones which will allow investments to be realised.  In February 2016 we returned funds to shareholders after a very successful exit from Telegesis.  We are hopeful of a similar event with OC Robotics in the first half of this financial year (although can make no guarantee that the sale will complete).  We continue to work to maximise value for shareholders and will, as per our stated strategy, seek to crystallise this value and return value to shareholders when liquidity allows.

Richard Roth
Chairman
10 May 2017

Investment Portfolio Review

OT2 was formed in 2000 and invested in a total of 30 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.  The table on page 13 shows the companies remaining in the portfolio.  A more detailed analysis is given of the top five investments.

OC Robotics, the Company's largest investment, continues to promote and develop its snake arm robot technology.  There are many potential applications for such equipment, with the company benefitting from significant grants to develop its capabilities in a number of industries, including nuclear decommissioning, aircraft inspections and oil and gas extraction and storage. The company is currently considering an offer from a large multinational company for an outright sale.

Select Technology specialises in software for photocopiers - now known as MFDs or 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. 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.

Plasma Antennas has developed a range of next generation smart selectable antenna technologies and has a prototype of a true plasma antenna, which it is hoped may be at the centre of tomorrow's communications systems.  At the time of writing Plasma Antennas is in discussions with three large electronics companies none of them in the UK.  Two have visited Plasma Antennas, based in Winchester.  It is hoped that a partnership deal can be concluded with one or more of them or with another.

Arecor in which OT2 is a small shareholder is making encouraging progress.  In particular it is developing its own products for the better treatment of diabetes.  In February 2017, Arecor won a grant of just over £1m to help with this programme.  Arecor has signed a £45m license deal regarding insulin glargine with India's largest privately held pharmaceutical company, Cadila.  Details of the deal have not been disclosed.

Orthogem has been selling synthetic bone graft for many years in granule form and has a network of distributors around the world.  This year it has raised money to enable it to launch the next generation material: a putty material that will be more convenient for surgeons to use. OT2 contributed to the fund raising.  Sales of the granules have fluctuated throughout the year, but use has started in India which is a significant new market for the company.

Dividends paid to shareholders to date are 13p per share. 

New Investments in the year

There were three follow on investments during the year of £75,000 into Arecor, £25,000 into Orthogem and £50,000 into ImmBio.  All new investments have complied with both EU State Aid rules and HMRC VCT rules. 

Disposals during the year

A payment of £435 was received from the disposal of Duncan Hynd Associates Ltd during the year.

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	80%	Minimum obligation of: 70%
Non-Qualifying Investments	20%	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

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 OT2	% equity held by all OTVCTs	% Net Assets
OC Robotics	Snake arm robots	Jan 2001	311	1,535	675	35.8	35.8	60.7
Select Technology	Photocopier Interfaces	Nov 2001	132	341	(39)	7.4	58.6	13.4
Plasma Antennas	Solid state directional antennas	Nov 2001	188	129	(10)	6.7	45.3	5.1
Arecor	Protein stabilization	Jul 2007	89	121	83	1.2	11.4	4.8
Orthogem	Bone graft material	Dec 2000	342	100	25	7.7	29.5	4.0
ImmBio	Novel vaccines	Dec 2000	225	63	50	1.2	13.9	2.5
Insense	Active wound healing dressings	Jun 2001	204	52	14	2.0	6.8	2.1
Inaplex	Data transformation software	Sep 2001	138	37	0	21.5	34.8	1.4
Oxis Energy	Rechargeable batteries	Jan 2000	540	27	5	0.2	0.5	1.1
Totals			2,170	2,405	803
Other Net Assets				123				4.9
NET ASSETS				2,528				100

Number of shares in issue:  6,792,923
Net Asset Value per share at 28 February 2017: 37.2 p
Dividends paid to date per share: 13p per share

This table shows the current portfolio holdings.  The investments in Acumen, Assertion, Astron Clinica, Ciphergrid, CHR Design, Coraltech, Im-Pak, Freehand Surgical, Inscentinel, Jetmask, M3 Networks, OST, Promic and SVA have been written off.   The investments in Hardide, Commerce Decisions, MET, Telegesis, Equitalk and Duncan Hynd Associates have 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 2000.  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 and previous 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
R Roth                                                     62,902                          62,902
R Goodfellow                                           9,700                           19,700
D Livesley                                                Nil                              Nil
A Starling                                                 Nil                              Nil

Under the Company's Articles of Association one third of the Directors are required to retire by rotation each year.  Richard Roth and Alex Starling 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 Richard Roth and Alex Starling 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

OT2 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 Richard Roth, together with Lucius Cary are Directors of OT2 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/vct2).

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 five investors whose interest exceeds three percent of the Company's issued share capital (Vidacos Nominees Ltd, 12.7% (beneficial interest of Starcap ANS 7.4%); Redmayne Nominees Ltd 4.8% (beneficial interest of Shivani Palakpari Shree Parikh representing 4.7%); Barclayshare Nominees (Europe) Ltd, 3.5%; Richard Vessey, 3.4%; and TD Direct Investing Nominees (Europe) Ltd 3.1%. 

Auditors

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

On behalf of the Board
Richard Roth
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 Chairman, Michael O'Regan and Richard Vessey, the previous Chairman of Oxford Technology 3 VCT 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

Each of the directors have agreed to waive £1,500 of their fee until the fund performance improves.  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. 

Richard Roth chairs the Company. Richard also 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. 

Alex Starling and Richard Roth receive no remuneration in respect of their directorships of OT2 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 nor accrued.

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 0.23% of any amount over the threshold and David Livesley 0.80%.  No performance fee will be payable for the year ending 28 February 2018 unless original shareholders have received back at least 144.8p 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)
Richard Roth	£7,000	£7,000	£4,667
Alex Starling	£2,000	£2,000	£1,333
Mike O'Regan*	-	-	£0
Lucius Cary	-	-	£1,250
Robin Goodfellow	£3,500	£3,500	£2,333
David Livesley	£2,000	£2,000	£1,333
Total	£14,500	£14,500	£10,916

* Mike O'Regan waived his fees.

Prior to his appointment as a director of OT2, Richard Roth received an additional one off payment of £2,000 in the year to 29 February 2016 as compensation for executive work undertaken in relation to the setting up of the Common Board structure.

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		-	-	-	-	142	142
Unrealised gain on valuation of fixed asset investments		-	653	653	-	83	83
Investment income	2	27	-	27	36	-	36
Investment management fees	3	(5)	(14)	(19)	(3)	(14)	(17)
Other expenses	4	(45)	-	(45)	(52)	-	(52)
Return on ordinary activities before tax		(23)	639	616	(19)	211	192
Taxation on return on ordinary activities	5	-	-	-	-	-	-
Return on ordinary activities after tax		(23)	639	616	(19)	211	192
Return on ordinary activities after tax attributable to equity shareholders		(23)	639	616	(19)	211	192
Earnings per share - basic and diluted	6	(0.4)p	9.4p	9.0p	(0.2)p	3.1p	2.9p

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	679	376	803	32	1,890
Revenue return on ordinary activities after tax	-	-	-	(19)	(19)
Expenses charged to capital	-	-	-	(14)	(14)
Current period gains on disposal	-	-	-	142	142
Current period gains on fair value of investments	-	-	83	-	83
Prior years' losses now realised	-	-	(207)	207	-
Movement in reserves (note 11)	-	-	(1,097)	1,097	-
Dividends paid	-	-	-	(170)	(170)
Balance as at 29 February 2016	679	376	(418)	1,275	1,912
Revenue return on ordinary activities after tax	-	-	-	(23)	(23)
Expenses charged to capital	-	-	-	(14)	(14)
Current period gains on disposal	-	-	-	-	-
Current period gains on fair value of investments	-	-	653	-	653
Balance as at 28 February 2017	679	376	235	1,238	2,528

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		2,405		1,602
Current Assets
Debtors	8	2		21
Cash At Bank		146		333
Creditors: Amounts Falling Due Within 1 Year	9	(25)		(27)
Net Current Assets			123		327
Creditors: Amounts Falling Due In More Than 1 Year	9		-		(17)
Net Assets			2,528		1,912
Called Up Equity Share Capital	10		679		679
Share Premium			376		376
Unrealised Capital Reserve	11		235		(418)
Profit and Loss Account Reserve	11		1,238		1,275
Total Equity Shareholders' Funds	11		2,528		1,912
Net Asset Value Per Share			37.2p			28.2p

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:

Richard Roth
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	616	192
Adjustments for:
Gain on disposal of investments	-	(142)
Gain on valuation of investments	(653)	(83)
Decrease/(increase) in debtors	19	(2)
Decrease in creditors	(19)	(17)
Outflow from operating activities	(37)	(52)
Cash flows from investing activities
Purchase of investments	(150)	(13)
Disposal of investments	-	355
Dividends paid	-	(170)
(Decrease)/increase in cash at bank	(187)	120
Opening cash and cash equivalents	333	213
Cash and cash equivalents at year end	146	333

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.

Investment Income

	Year Ended 28 February 2017 £'000	Year Ended 29 February 2016 £'000
Dividends received	27	36
Total	27	36

3.  Investment Management Fees

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

	Year Ended 28 February 2017 £'000	Year Ended 29 February 2016 £'000
Investment management fee	19	19
Cost cap refund from OTM	-	(2)
Total	19	17

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.

Oxford Technology Management had previously agreed to defer 25% of the 2% management fee to which it was contractually entitled (ie 0.5% of net assets) until such a time when the finances of the Company made this payment more affordable.  As part of the revised agreement with effect from 1 March 2015 the Board have agreed to pay the deferred balance over a 36 month period. 

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 100p has now been increased by compounding that portion that remains to be paid to shareholders by 6% per annum with effect from 1 March 2010, resulting in the remaining required threshold rising to 124.3p at 28 February 2017, corresponding to a total shareholder return of 137.3p after taking into account the 13p already paid out (13p + 124.3p = 137.3p).  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.   Accordingly Oxford Technology Management reduced their management fee by £ nil (2016: £2,000).

 4. Other Expenses

All expenses are accounted for on an accruals basis.  All expenses are charged through the income statement 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 2017 £'000	Year Ended 29 February 2016 £'000
Directors' remuneration	15	11
Auditors' remuneration	6	6
Other expenses	24	35
Total	45	52

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	616	192
Current tax at standard rate of taxation	123	38
UK dividends not taxable	(5)	(7)
Unrealised gains not taxable	(131)	(17)
Realised gains not taxable	-	(28)
Excess management expenses carried forward	13	14
Total current tax charge	-	-

Unrelieved management expenses of £1,465,200 (2016: £1,400,741) 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 profit of £616,000 (2016: £192,000) attributable to shareholders divided by the weighted average number of shares 6,792,923 (2016; 6,792,923) 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

	Unquoted investments Level c(ii) £'000	Total investments £'000
Valuation and net book amount:
Book cost as at 29 February 2016	2,020	2,020
Cumulative revaluation	(418)	(418)
Valuation at 29 February 2016	1,602	1,602
Movement in the year:
Purchases at cost	150	150
Disposals - costs	-	-
Disposals - revaluation	-	-
Revaluation in year	653	653
Valuation at 28 February 2017	2,405	2,405
Book cost at 28 February 2017	2,170	2,170
Cumulative revaluation to 28 February 2017	235	235
Valuation at 28 February 2017	2,405	2,405

Subsidiary Company
The Company also holds 100% of the issued share capital of OT2 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
OT2 Managers Ltd	England and Wales	Investment Manager	£19,122	£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 2 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	21
Total	2	21

9. Creditors - amounts falling due in less than 1 year

	28 February 2017 £'000	29 February 2016 £'000
Investment management fee accrual	18	18
Other creditors and accruals	7	9
Total	25	27

Creditors - amounts falling due in more than 1 year

	28 February 2017 £'000	29 February 2016 £'000
Investment management fee accrual	-	17
Total	-	17

The Investment Manager has previously deferred 25% of fees, as detailed in Note 3.  These are now being paid between March 2015 and February 2018.

10. Share Capital

	28 February 2017 £'000	29 February 2016 £'000
Authorised:
10,000,000 ordinary shares of 10p each	1,000	1,000
Total Authorised	1,000	1,000
Allotted, called up and fully paid:
6.792,923 (2016: 6,792,923) ordinary shares of 10p each	679	679

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 £1,238,000 as at 28 February 2017 (2016: £857,000).

Reconciliation of Movement in Shareholders' Funds

	28 February 2017 £'000	29 February 2016 £'000
Shareholders' funds at start of year	1,912	1,890
Return on ordinary activities after tax	616	192
Dividends paid	-	(170)
Shareholders' funds at end of year	2,528	1,912

The Company paid a dividend of 2.5p per share on 19 February 2016.

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

OT2 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, £19,122 was paid in respect of these fees (2016: £12,601).  No amounts were outstanding at the year end.

15.  Events after the Balance Sheet Date

There are no reportable events after the Balance Sheet date.

Company Number: 3928569
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

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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 2 VCT plc via Globenewswire