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Half-year report

Oxford Technology 3 VCT plc
·18-min read

RNS
Oxford Technology 3 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

£3.37m

£4.72m

Net Asset Value (NAV) Per Share

49.7p

69.6p

Cumulative Dividend Per Share

36.0p

36.0p

Total NAV Return Per Share

85.7p

105.6p

Share Price At Period End
(Mid-Market)

35.0p

55.0p

Earnings Per Share

(19.9)p

(19.9)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 69.6p to an unaudited 56.6p. Since then, the pandemic along with the lockdown has continued to impose great uncertainty for UK companies. However while most of our overall technology portfolio has remained relatively stable, Ixaris has faced strong headwinds from the continuing severe downturn in the airline and travel sector.

Results and Dividend

The Company’s net asset value (NAV) per ordinary share has decreased by 19.9p per share from 69.6p at 29 February 2020 to 49.7p per share as at 31 August 2020. Compared to 29 February 2020, operating costs reduced the NAV per share by 0.8p during the period, with the remaining 19.1p reduction being due to movements in the portfolio, the most significant of which relate to Ixaris, and are explained in the Portfolio Review section below.

As noted above, the NAV as at 31 August 2020 of 49.7p per ordinary share is a reduction 6.9p since the mid-May update of 56.6p per share primarily as result of longer than expected travel restrictions.

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

Portfolio Review

The majority of the portfolio which contains 13 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.

Ixaris still dominates the portfolio at over 50%. The company provides a payment service to the international travel sector. It had been doing very well and had accepted an offer for sale of more than £100m at the end of 2019, (and which had the deal concluded would have enabled OT3 to pay the largest single dividend ever paid by a VCT). It has been very badly affected by Covid-19 with sales falling by 95%, as air travel collapsed. So the focus is now on survival. The company has made widespread redundancies and pay cuts for those staff that remain. In recent months, there has been some improvement as the holiday air travel business has revived somewhat, but it has been a case of 3 steps forward, 2 steps backwards as restrictions on travel to different parts of the world have come and gone and then come again. If Ixaris can survive, it is likely to require some further investment and then the hope and expectation is that it will again become valuable as the travel business returns to normal. However the risks remain high.

Arecor now represents over 20% 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 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.

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. Its 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 VCT sold £10k worth of Scancell shares prior to 31 August 2020, another £30k during the middle of September 2020, and a further £20k during October, thereby crystallising some of the gain on the VCT’s investment in Scancell and for liquidity purposes.

ImmBio - formally known as ImmunoBiology Ltd has licensed its pneumococcal vaccine to China National Biotech Group. It has completed certain 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 turned down for several grants but has two more grant 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.

Select Technology 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.

Insense is developing a treatment for fungal nail disease. Work is continuing with formulation and stability testing. The hope is that a clinical trial may start in late 2022, or possibly in 2023. It is not anticipated that Covid-19 will have any significant impact on these timescales.

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 £1,298k.

The Directors, along with the Investment Adviser, continue to take an active interest in the companies within the portfolio, both to support their 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. As noted earlier the top slicing of Scancell will assist working capital management.

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.

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 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. Directors are also revisiting the economics of a merger with some or all of 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. We will update shareholders if and when these discussions reach a conclusion, and in any event, shareholder approval will 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 in due course 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.

Robin Goodfellow
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 OT3

% Equity held All OTVCTs

% Net assets

Ixaris Group Holdings

Internet payments

535

1,849

(1,233)

6.2

6.2

54.9

Arecor

Protein stabilisation

443

712

-

3.1

10.5

21.1

Scancell

Antibody based cancer therapeutics

399

401

72

0.8

2.0

11.9

ImmBio

Novel vaccines

483

148

(100)

6.5

22.6

4.4

Select – STL Management Ltd

Specialist
Photocopier interfaces

47

108

(48)

2.8

58.6

3.2

Insense

Wound healing dressings

333

60

-

2.3

6.8

1.8

Invro

Low power electronics

40

10

-

33.1

33.1

0.3

Plasma Antennas

Solid state directional antennas

358

4

1

12.4

48.8

0.1

Inaplex

Data integration software

58

1

-

13.3

34.8

-

Metal Nanopowders

Production of metal powders

153

-

-

20.0

36.7

-

Superhard Materials

Production of hard materials

11

-

-

21.8

40.0

-

Microarray

Insense spinout

2

-

-

0.2

0.2

-

Total Investments

2,862

3,294

(1,308)

97.7

Other Net Assets

78

2.3

Net Assets

3,372

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 company 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:

Robin Goodfellow
Chairman
8 October 2020

Income Statement

Six months to 31 Aug 2020

Six months to 31 Aug 2019

Year to 29 Feb 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

-

2

2

-

-

-

-

(239)

(239)

Unrealised (loss)/gain on valuation of fixed asset investments

-

(1300)

(1300)

-

620

620

-

(997)

(997)

Investment income

-

-

-

-

-

-

1

-

1

Investment management fees

(24)

-

(24)

(7)

(23)

(30)

(61)

-

(61)

Other expenses

(28)

-

(28)

(26)

-

(26)

(54)

-

(54)

Return on ordinary activities before tax

(52)

(1298)

(1350)

(33)

597

564

(114)

(1,236)

(1,350)

Taxation on ordinary activities

-

-

-

-

-

-

-

-

-

Return on ordinary activities after tax

(52)

(1298)

(1350)

(33)

597

564

(114)

(1,236)

(1,350)

Earnings per share – basic and diluted

(0.8)p

(19.1)p

(19.9)p

(0.5)p

8.8p

8.3p

(1.7)p

(18.2)p

(19.9)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

3,294

6,457

4,601

Debtors

13

18

21

Cash at Bank

74

167

121

Creditors: falling due within one year

(9)

(6)

(21)

Net current assets

78

179

121

Net assets

3,372

6,636

4,722

Called up share capital

679

679

679

Share premium reserve

718

718

718

Unrealised capital reserve

432

3,269

1,730

Profit and Loss account

1,543

1,970

1,595

Total equity shareholders' funds

3,372

6,636

4,722

Net asset value per share

49.7p

97.8p

69.6p

Statement of Changes in Equity

Share Capital £’000

Share Premium £’000

Unrealised Capital Reserve
£’000

Profit & Loss
Reserve
£’000

Total
£’000

As at 1 March 2019

679

718

2,649

2,026

6,072

Revenue return on ordinary activities after tax

-

-

-

(56)

(56)

Current period gains on fair value of investments

-

-

620

-

620

Balance as at 31 August 2019

679

718

3,269

2,342

6,636

As at 1 March 2019

679

718

2,649

2,026

6,072

Revenue return on ordinary activities after tax

-

-

-

(114)

(114)

Current period loss on disposal

-

-

-

(239)

(239)

Current period losses on fair value of investments

-

-

(997)

-

(997)

Prior period unrealised losses now realised

-

-

78

(78)

-

Balance as at 29 February 2020

679

718

1,730

1,595

4,722

As at 1 March 2020

679

718

1,730

1,595

4,722

Revenue return on ordinary activities after tax

-

-

-

(52)

(52)

Current period gains on disposal

-

-

-

2

2

Current period losses on fair value of investments

-

-

(1,300)

-

(1,300)

Prior years’ unrealised losses now realised

-

-

2

(2)

-

Balance as at 31 August 2020

679

718

431

1,543

3,372


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

(1,350)

564

(1,350)

Adjustments for:

(Gain)/loss on disposal of fixed asset investments

(2)

-

239

Loss/(gain) on valuation of fixed asset investments

1,300

(620)

997

(Decrease)/increase in creditors

(12)

(6)

9

Decrease/(increase) in debtors

7

(16)

(19)

Outflow from operating activities

(57)

(78)

(124)

Cash flows from investing activities

Purchase of fixed asset investments

-

(21)

(21)

Sale of fixed asset investments

10

-

-

Inflow/(outflow) from investing activities

10

(21)

(21)

Cash flows from financing activities

-

-

-

Total cash flows from financing activities

-

-

-

Decrease in cash and cash equivalents

(47)

(99)

(145)

Opening cash and cash equivalents

121

266

266

Closing cash and cash equivalents

74

167

121



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 (6,785,233 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

OT3 Managers Ltd, a wholly owned subsidiary, provides investment management services to the Company for a fee of 1% of net assets per annum.

7. Events after the balance sheet date
On 14 September 2020, following the period end, the Company sold 202,027 Scancell shares at a price of 15.0p following the sharp share price rise on AIM surrounding news about the novel DNA vaccine against Covid-19 being worked on by Scancell. On 2 October 2020 the Company sold a further 101,016 Scancell shares at a price of 20.0p. The bid price used for valuation at the period end was 8.0p.

8. 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: Robin Goodfellow, Richard Roth, Alex Starling and David Livesley

Investment Manager: OT3 Managers Ltd with services contracted to Oxford Technology Management Ltd

Website: www.oxfordtechnology.comvct/vct3.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