Half-year report

RNS
Oxford Technology 2 VCT Plc
Unaudited Half-Yearly Report
For the period 1 March 2020 to 31 August 2020

	6 Months Ended 31 August 2020	Year Ended 29 February 2020
Net Assets At Period End	£1.29m	£1.48m
Net Asset Value (NAV) Per Share	24.3p	27.8p
Cumulative Dividend Per Share	22.5p	22.5p
Total Nav Return Per Share	46.8p	50.3p
Share Price At Period End (Mid)	20.0p	22.5p
Earnings Per Share	(3.5)p	(2.1)p

Statement on behalf of the Board  

I am pleased to present the unaudited results for the six month period ended 31 August 2020.  The period under review continues to be dominated by the implications of the Covid-19 pandemic and the subsequent actions of the UK government. Your Investment Adviser and the Directors have continued to manage the VCT and its portfolio effectively together via remote working during lockdown.

The six months to 31 August 2020 have been a volatile and uncertain period for the economy and for businesses operating within this environment. During this period, your Board has kept the impact of the pandemic on your Company’s investments closely under review as part of our regular Board agenda.

On 19 May 2020, when we issued our annual report, we reviewed the portfolio valuation since the year ended 29 February 2020 and this led to us announce a reduction in the NAV per share from 27.8p to an unaudited 25.0p. Since then, the pandemic along with the lockdown has continued to impose great uncertainty for UK companies. However our overall portfolio has remained relatively stable as the technology sector has been less severely impacted than others.

Results and Dividend

The Company’s net asset value (NAV) per share has decreased by 3.5p per share from 27.8p at 29 February 2020 to 24.3p per share as at 31 August 2020.  Compared to 29 February 2020, operating costs reduced the NAV per share by 0.7p during the period, with the remaining 2.8p reduction being due to movements in the portfolio, the most significant of which relate to Select Technology and ImmBio,and are explained in the Portfolio Review section below.

As noted above, the NAV as at 31 August 2020 of 24.3p per share is a reduction 0.7p since the mid-May update of 25.0p per share.

The Directors are not recommending the payment of a dividend at this time. 

Portfolio Review

The majority of the portfolio which contains 8 investments in total (one of which is quoted on AIM) continues to develop. None have sought funding from the VCT during this period, although Scancell Holdings Plc (“Scancell”) did raise £15m in a round that was not VCT qualifying. 

Arecor now represents nearly 40% of the portfolio. It has published excellent phase 1 clinical data for its ultra-rapid insulin.  The trial was only sized to demonstrate equivalence, which it did, and on average the Arecor insulin delivered twice the early glucose lowering effect of the next fastest insulin on the market. The hope is that this will prove to be fast enough to respond to glucose levels as they occur, instead of a patient having to predict their insulin requirement.  Arecor will be continuing its clinical insulin programme and is expected to raise further funds soon to progress this.

Select Technology represents just over a quarter of the value of the portfolio investments. Select distributes high quality document management software via its global channel partners while adding significant further value through its development team by providing integrations and bespoke solutions.  Sales have been significantly affected by Covid-19 with sales from February to July, being about 50% down on the previous six months. However, the greatest impact was in April and May: sales have revived somewhat in the most recent months and the hope is that this continues.

ImmBio - formally known as ImmunoBiology Ltd has licensed its pneumococcal vaccine to China National Biotech Group. It has completed parts of its technology transfer and is now seeking to start a phase 2 study of the same vaccine. To do this it has been applying for grants. It was rejected for several grants but has two more applications pending. Coronavirus has again highlighted the importance of vaccines to the world and in recent years pneumococcal disease has claimed a similar number of deaths as Covid-19 in 2020. An existing vaccine has reduced the death rate, but the existing vaccines only protect against fewer than 20 of the 90 or so existing strains. As ImmBio’s ImmBioVax technology utilises heat shock proteins to activate T-cell responses, it is hoped that it can be used to create vaccines for a wide range of currently poorly served infectious diseases.

Scancell continues to develop its multiple technologies. The SCIB1 Phase 2 clinical trial programme will continue with further sites later this year and the Modi-1 Phase1/2 trial is progressing for regulatory submission with a planned study start in the UK in 1H21. In August, Scancell announced it had been awarded a grant to develop its COVIDITY Covid-19 vaccine based on its Immunobody platform into a Phase1 clinical trial. In August, it also completed a fundraising to raise £15 million at a price of 5.5p per share, and which included a significant new US institutional investor (Redmile Group LLC). This funding will allow planned trials to continue while partnering discussions are pursued. As a result of all this news, the Scancell share price has seen much volatility, both during the period to 31 August 2020 and later. It’s share price was 8p as at 31 August 2020 (on which these valuations are based), and has subsequently doubled to 16p in early October.

The other two investments still with potential (both valued at £52k) are Oxis Energy and Insense. Oxis continues with the development of its battery manufacturing capabilities. In May, it signed a lease on a manufacturing plant in Brazil which is scheduled to come online in 2023. The factory will require an investment of $50m and be capable of producing 5 million Lithium Sulphur cells a year. Whilst our holding has been significantly diluted, Oxis still offers upside potential, although it may still be several years before it is realised. Insense is developing a treatment for fungal nail disease. Work is continuing with formulation and stability testing, in preparation for a clinical trial in late 2022, or possibly in 2023.  Ultimate realisation is therefore likely to be protracted.

Overall, as seen in the Income Statement, the net impact of valuation changes across the portfolio during the first half of the 2020/2021 year was a loss of £152k.

The Directors, along with the Investment Adviser, continue to take an active interest in the companies within the portfolio, supporting management teams to achieve company development, but also to prepare companies for realisation at the appropriate time. It should however be noted that approaches do occur at other times, and the ability of the Directors and Investment Adviser to be able to provide support when such approaches occur is essential for maximising value.

VCT qualifying status

As I have previously flagged, the small size of the VCT means significant focus is required to ensure we retain sufficient working capital to manage the Company whilst meeting all the conditions laid down by HMRC for maintaining approval as a VCT. The Board has procedures in place to ensure that the Company continues to comply with these conditions, in particular the new 80% qualifying holding limit which has been in place since 1 March 2020.

Presentation of half-yearly report

In order to reduce the length of this report, we have omitted details of the Company’s objectives and investment strategy, its Advisers and Registrar and how to buy and sell shares in the Company. These details are all included in the Annual Reports, which together with previous half-yearly reports, are available for viewing on the Oxford Technology website.

Cost Control

As we have previously reported, your Board continues to look at methods of improving operational efficiency, reducing costs and, more generally, putting in place appropriate plans to ensure that your VCT’s operational costs relative to its overall size remain within acceptable limits.  Our investment management fees, Directors’ fees and auditors’ remuneration are amongst the lowest in the VCT industry.  The largest remaining elements of cost are the LSE listing fee at almost £10k and the FCA fee of £6k per annum.  The LSE has just proposed a 60% increase in its fees for the coming year, which your Directors believe is unacceptable.  We have reopened our dialogue with the LSE and will continue to fight for appropriate fees to be levied.

Outlook

Nothing has changed in our plans for your Company. We continue to believe your VCT is an appropriate structure to hold your Company’s investments, but as we have indicated for some time, it would be preferable to have a larger asset base to share the operating costs. I have reported previously of our efforts to seek prospective parties who are potentially interested in entering the VCT industry. This initiative is currently on hold whilst any such possible organisations are entirely focussed on more immediate actions within their own businesses as a result of the Covid-19 pandemic. We have always made clear that there is no certainty such a route can be achieved, but the Directors will continue seeking such opportunities when the future outlook has become clearer. Furthermore, whatever the outcome of the discussions with the LSE, the seemingly relentless upward trajectory of these regulatory costs has resulted in your Directors revisiting the economics of a merger with some or all the other Oxford Technology VCTs; such a transaction is not without risk and it is by no means clear that it would be in your Company’s best interests to participate in such a transaction. We will update shareholders if and when these discussions reach a conclusion, and in any event, shareholder approval would then be required before any transaction could proceed. 

Apart from the change to investment qualifying levels, there have been no recent changes to VCT legislation, or their potential impact on both the VCT and its investee companies. It is still too early to fully assess the impact of Covid-19, and the resulting government interventions. Whilst the impact of Brexit remains unclear, your Directors do not expect its eventual outcome to have a material impact on portfolio valuations.

Your Board and Investment Adviser continue to work so as to best position your VCT such that, when valuations and liquidity allow, holdings can be exited and proceeds distributed to shareholders, whilst keeping a keen eye on maintaining costs as low as possible in the interim.

Finally, I would like to take this opportunity to thank shareholders for their continued support. We were delighted a significant number of you managed to attend our zoom AGM, and we will consider the merits of future online forums which allow a greater number of shareholders to attend. We hope our shareholders have not been too personally affected by the difficulties this year and look forward to a return to an ‘old normal’ as soon as possible.

Richard Roth
Chairman
8 October 2020

Investment Portfolio as at 31 August 2020

Company	Description	Net Cost of investment £’000	Carrying value at 31/08/20 £’000	Change in value for the 6 month period £’000	% Equity held OT2	% Equity held All OTVCTs	% Net Assets
Arecor	Protein stabilisation	252	420	-	1.8	10.5	32.4
Select – STL Management	Specialist photocopier interfaces	132	286	(126)	7.4	58.6	22.1
ImmBio	Novel vaccines	295	110	(75)	3.1	22.6	8.5
Scancell (bid price 8.0p)	Antibody based cancer therapeutics	150	100	20	0.2	2.1	7.7
Insense	Wound healing dressings	204	52	-	2.0	6.8	4.0
Oxis Energy	Battery technology	540	52	27	0.1	0.3	4.0
Plasma Antennas	Solid state directional antennas	188	40	2	5.6	48.8	3.1
Inaplex	Data integration software	138	2	-	21.5	34.8	0.2
Total Investments		1,899	1,062	(152)			82.0
Other Net Assets			233				18.0
Net Assets			1,295				100.0

Responsibility Statement of the Directors in respect of the half-yearly report

We confirm that to the best of our knowledge:

• the half-yearly financial statements have been prepared in accordance with the statement “Interim Financial Reporting” issued by the Financial Reporting Council;

• the half-yearly report includes a fair review of the information required by the Financial Services Authority Disclosure and Transparency Rules, being:

• an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements.
• a description of the principal risks and uncertainties for the remaining six months of the year.
• a description of related party transactions that have taken place in the first six months of the current financial year that may have materially affected the financial position or performance of the Company during that period and any changes in the related party transactions described in the last annual report that could do so.

• The assets of the Company include cash and shares in an AIM quoted which is quite liquid and readily accessible. After reviewing the forecast for the Company, 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 the half year accounts.

On behalf of the Board:
Richard Roth
Chairman
8 October 2020

Income Statement

	Six months to 31 Aug 2020			Six months to 31 Aug 2019			Year to 29 February 2020
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Gain/(loss) on disposal of fixed asset investments	-	-	-	-	159	159	-	(10)	(10)
Unrealised loss on valuation of fixed asset investments	-	(152)	(152)	-	(53)	(53)	-	(36)	(36)
Investment income	-	-	-	-	-	-	4	-	4
Investment management fees	(8)	-	(8)	(2)	(6)	(8)	(17)	-	(17)
Other expenses	(28)	-	(28)	(25)	-	(25)	(51)	-	(51)
Return on ordinary activities before tax	(36)	(152)	(188)	(27)	100	73	(64)	46	(110)
Taxation on ordinary activities	-	-	-	-	-	-	-	-	-
Return on ordinary activities after tax	(36)	(152)	(188)	(27)	100	73	(64)	46	(110)
Earnings per share – basic and diluted	(0.6)p	(2.9)p	(3.5)p	(0.5)p	1.9p	1.4p	(1.2)p	(0.9)p	(2.1)p

There was no other Comprehensive Income recognised during the year.

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

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

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

Balance Sheet

	As at 31 Aug 2020		As at 31 Aug 2019		As at 29 Feb 2020
	£’000	£’000	£’000	£’000	£'000	£'000
Fixed asset investments at fair value		1,062		1,346		1,214
Debtors	20		18		10
Cash at Bank	222		388		270
Creditors: amounts falling due within one year	(9)		(6)		(11)
Net current assets		233		400		269
Net assets		1,295		1,746		1,483
Called up share capital		533		533		533
Capital redemption reserve		146		146		146
Share premium reserve		376		376		376
Unrealised capital reserve		(838)		(934)		(686)
Profit and Loss account		1,078		1,625		1,114
Total equity shareholders' funds		1,295		1,746		1,483
Net asset value per share		24.3p		32.8p		27.8p

Statement of Changes in Equity

	Share Capital £’000	Capital Redemption Reserve £’000	Share Premium £’000	Unrealised Capital Reserve £’000	Profit & Loss Reserve £’000	Total £’000
As at 1 March 2019	533	146	376	(881)	1,499	1,673
Revenue return on ordinary activities after tax	-	-	-	-	(33)	(33)
Current period gains on disposal	-	-	-	-	159	159
Current period losses on fair value of investments	-	-	-	(53)	-	(53)
Balance as at 31 August 2019	533	146	376	(934)	1,625	1,746
As at 1 March 2019	533	146	376	(881)	1,499	1,673
Revenue return on ordinary activities after tax	-	-	-	-	(64)	(64)
Current period losses on disposal	-	-	-	-	(10)	(10)
Current period losses on fair value of investments	-	-	-	(36)	-	(36)
Prior years losses now realised	-	-	-	231	(231)	-
Dividends paid	-	-	-	-	(80)	(80)
Balance as at 29 February 2020	533	146	376	(686)	1,114	1,483
As at 1 March 2020	533	146	376	(686)	1,114	1,483
Revenue return on ordinary activities after tax	-	-	-	-	(36)	(36)
Current period losses on fair value of investment	-	-	-	(152)	-	(152)
Balance as at 31 August 2020	533	146	376	(838)	1,078	1,295

  Statement of Cash Flows

	Six months to 31 Aug 2020	Six months to 31 Aug 2019	Year to 29 Feb 2020
	£'000	£’000	£'000
Cash flows from operating activities
Return on ordinary activities before tax	(188)	72	(110)
Adjustments for:
(Gain)/Loss on disposal of fixed asset investments	-	(159)	10
Losses on valuation of fixed asset investments	152	53	36
Decrease in creditors	(2)	(5)	(1)
(Increase)/Decrease in debtors	(10)	150	158
Movement in investment debtors and creditors	-	(164)	(164)
Outflow from operating activities	(48)	(53)	(71)
Cash flows from investing activities
Purchase of fixed asset investments	-	(8)	(28)
Sale of fixed asset investments	-	323	323
Inflow from investing activities	-	315	295
Cash flows from financing activities
Dividends paid	-	-	(80)
Total cash flows from financing activities	-	-	(80)
(Decrease)/increase in cash and cash equivalents	(48)	262	144
Opening cash and cash equivalents	270	126	126
Closing cash and cash equivalents	222	388	270

  

Notes to the Half-Yearly Report

1.         Basis of preparation

The unaudited half-yearly results which cover the six months to 31 August 2020 have been prepared in accordance with the Financial Reporting Council’s (FRC) Financial Reporting Standard 104 Interim Financial Reporting (‘FRS 104’) and the Statement of Recommended Practice (SORP) for Investment Companies re-issued by the Association of Investment Companies in November 2014. Details of the accounting policies and valuation methodologies are included in the Annual Report.

2.         Publication of non-statutory accounts

The unaudited half-yearly results for the six months ended 31 August 2020 do not constitute statutory accounts within the meaning of Section 415 of the Companies Act 2006. The comparative figures for the year ended 29 February 2020 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies. The independent auditor’s report on those financial statements, in accordance with chapter 3, part 16 of the Companies Act 2006, was unqualified. This half-yearly report has not been reviewed by the Company’s auditor.

3.         Earnings per share

The calculation of earnings per share for the period is based on the return attributable to shareholders divided by the weighted average number of shares in issue during the period. There are no potentially dilutive capital instruments in issue and, therefore, no diluted returns per share figures are relevant.

4.         Net asset value per share

The net asset value per share is based on the net assets at the period end divided by the number of shares in issue at that date (5,331,889 in each case).

5.         Principal risks and uncertainties

The Company’s assets consist of equity and fixed interest investments, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by the Company include economic, loss of approval as a Venture Capital Trust, investment and strategic, regulatory, reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail in the Company’s Annual Report and Accounts for the year ended 29 February 2020. The Company’s principal risks and uncertainties have not changed materially since the date of that report.

6.         Related party transactions

OT2 Managers Ltd, a wholly owned subsidiary, provides investment management services to the Company for a fee of 1% of net assets per annum.

7.         Copies of this statement are available from Oxford Technology Management, Magdalen Centre, Oxford Science Park, Oxford OX4 4GA and on the Company’s website.

Board Directors: Richard Roth, Alex Starling, Robin Goodfellow and David Livesley

Investment Manager: OT2 Managers Ltd with services contracted to Oxford Technology Management Ltd

Website: www.oxfordtechnologyvct.com/vct2.html

The information above is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU No. 596/2014). Upon the publication of this announcement via a Regulatory Information Service this inside information is now considered to be in the public domain.

Enquiries – Lucius Cary
Oxford Technology Management
01865 784466