Preliminary Announcement for
Oxford Technology 3 Venture Capital Trust PLC
For the year ended 28 February 2014
_______________________________________________
Financial highlights
| Year ended 28 February 2014 | Year ended 28 February 2013 | |
| Net assets at year end | £6.67m | £6.60m |
| Net asset value per share at year end after distributions | 98p | 97p |
| Cumulative dividend (gross) from incorporation | 10p | 10p |
| NAV plus cumulative dividends paid to year end | 108p | 107p |
| Share price at year end | 65.0p | 63.5p |
| Earnings per share (basic & diluted) | 1.0p | 26.7p |
Statement on behalf of the Board
OT3VCT has a portfolio of 19 investees and several of these are making good or excellent progress and have the potential to become stars and deliver significant returns to OT3 shareholders. Cumulative dividends to date are 10p.
The net asset value per share was 98p on 28 February 2014, compared to 97p per share on 28 February 2013. The earnings per share in the year to 28 February 2014 were 1p compared to 26.7p in the year to February 2013.
Withdrawal of VCT Tax Relief.
On 7 March 2014, HMRC issued a letter withdrawing tax relief from OT3VCT. OT3VCT issued an appeal against this decision on 26 March.
The cause of the problem is that OT3VCT has been supporting Scancell since it first invested in 2003, following investment from OTVCT in 1999 when the company was a start-up based in a university lab in Nottingham.
Over the years, Scancell has needed to raise more capital and Oxford Technology 3 VCT has always supported it by participating in these fundraisings. Specifically, OT3VCT has invested the following amounts:
Dec 03 £150,000
Apr 05 £50,000
Sep 08 £50,000
Mar 10 £75,000
Aug 13 £75,000
Total: £400,000
This represents less than 10% of the total capital raised by OT3VCT.
The problem arose because Scancell has been very successful. Today it has a vaccine for Melanoma (skin cancer) in clinical trials. Worldwide 65,000 people die of skin cancer each year and an effective vaccine would likely be very valuable. Scancell is currently quoted on AIM and at 28 February 2014, was valued at around £70m. Just prior to the announcement of the rights issue at 22.5p per share, Scancell's share price had ranged from 40 - 50p. After the rights issue was announced, the share price fell to about 25p but then recovered to about 30 - 35p. So we believed it was in shareholders' interests that OT3VCT should take up some of its rights and we did.
However, HMRC's rules state that each time a new investment is made in a company the value of that holding has to be valued to the most recent price paid for the shares. And valued by this particular method, no company is allowed to account for more than 15% of the portfolio as a whole. Because Scancell's share price had risen so much, (although the risks are still very high - the clinical trials could go either way), the result of the investment in August 2013 was that the 15% rule was breached.
It was only in October that Oxford Technology Management realised that this had happened. We immediately informed HMRC asking what we could do to remedy the breach, for example by selling the extra shares which had been purchased. Apart from the fact that this technical rule had been breached no harm had been done to anyone, and it was agreed by all that the purpose of VCTs is to encourage investment into small high risk technology companies with potentially world-beating technology. Everyone agreed that the investment had been 100% within the spirit of the legislation. But HMRC took a hard line. No, the rule has been breached and we have no option but to withdraw VCT tax relief.
On 26 March 2014 OT3 appealed against HMRC's withdrawal of VCT approval. The appeal will be led by Graham Aaronson QC of Joseph Hage Aaronson LLP. The statutory appeal process requires that the appeal is first made to HMRC. In the event that the matter cannot be resolved at that initial stage, provision is then made for a review by HMRC of its decision and, if the outcome of the review is not favourable, an appeal to the First-tier Tribunal (Tax Chamber), which is independent of HMRC.
HMRC has helpfully offered to meet to discuss the appeals process and any request for re-approval with Oxford Technology directly. Oxford Technology has accepted this offer and it will therefore be engaging in a dialogue with HMRC in order to determine whether this matter can be resolved by agreement. To this end a meeting was scheduled for 28 April 2014 between HMRC and Oxford Technology. At this meeting it was agreed that certain detailed arguments in support of the VCTs' appeal would be submitted in writing to HMRC, who will consider them as urgently as possible.
If resolution cannot be reached via agreement, the further avenues of review and appeal will thereafter be explored. If it is necessary to pursue the appeal process to the First-tier Tribunal, the likely timescale for such a hearing is in the region of 9 to 14 months from the lodging of the appeal with the Tribunal.
Individuals who have invested in OT3 should, as previously indicated, seek their own personal financial advice from their stockbroker, bank manager, solicitor, accountant, fund manager or other independent financial adviser who specialises in advising on the acquisition or disposal of shares in order that they may ascertain the implications associated with the Company losing its VCT approval and take appropriate action. Further announcements will be made to keep shareholders fully informed of developments.
Investment Policy & Fundraising
We are continuing to run the Company and work with our investee companies to help them succeed as if still operating as a Venture Capital Trust. If the appeal is not successful we will continue to do the same work but under the corporate structure of an Investment Trust.
The Company has built a balanced portfolio of investments with the following characteristics:
· unlisted, UK based, science, technology and engineering businesses
· investments typically in the range of £100,000 to £500,000
· generally located within approximately 60 miles of Oxford
Business review
There was a net profit for the period after taxation amounting to £70,000 (2013: £1,794,000). The profit and loss account comprises income of £2,000 (2013: £16,000) plus unrealised profit on fair value of investments of £167,000 (2013: £1,913,000) plus gain on disposal of investments £73,000 (2013: £3,000) less management and other expenses of £172,000 (2013: £138,000).
AGM
Shareholders should note that the AGM for Oxford Technology 3 VCT (OT3) will be held on Wednesday 9 July 2014, at the Magdalen Centre, Oxford Science Park, starting at 12.00 noon and will include presentations by some of the companies in which the Oxford Technology VCTs have invested. A formal Notice of AGM has been included at the back of these Accounts together with a Form of Proxy for those not attending.
Richard Vessey
Chairman
22 May 2014
Profit and Loss Account
for the year ended 28 February 2014
| Year Ended 28 February 2014 £'000 | Year Ended 28 February 2013 £'000 | |
| Gain on disposal of investments held at fair value | 73 | 3 |
| Unrealised gain on fair value of investments | 167 | 1,913 |
| Other income | 2 | 16 |
| Investment management fees | (132) | (96) |
| Other expenses | (40) | (42) |
| Profit on ordinary activities before tax | 70 | 1,794 |
| Taxation on profit on ordinary activities | - | - |
| Profit on ordinary activities after tax | 70 | 1,794 |
| Earnings per share (basic and diluted) | 1.0p | 26.7p |
Historic Cost Profits and Losses Note
| 2014 | 2013 | |
| £'000 | £'000 | |
| Profit for the year | 70 | 1,794 |
| Unrealised (gain) on fair value of investments | (167) | (1,913) |
| (Profit) on disposal of investments held at fair value | (73) | (3) |
| (Loss) on disposal of investments held at historical value | (336) | (78) |
| Historical cost (loss) before tax | (506) | (200) |
| Historical cost (loss) after tax | (506) | (200) |
Balance Sheet at 28 February 2014
| 28 February 2014 | 28 February 2013 | |||
| £'000 | £'000 | £'000 | £'000 | |
| Fixed assets | ||||
| Investments at fair value | 6,515 | 6,337 | ||
| Current assets | ||||
| Other debtors & prepayments | 2 | 2 | ||
| Cash at bank | 267 | 342 | ||
| 269 | 344 | |||
| Creditors: amounts falling due within one year | (114) | (81) | ||
| Net current assets | 155 | 263 | ||
| Net assets | 6,670 | 6,600 | ||
| Capital and reserves | ||||
| Called up share capital | 679 | 679 | ||
| Share premium | 718 | 718 | ||
| Profit and loss account | 1,049 | 1,555 | ||
| Unrealised capital reserve | 4,224 | 3,648 | ||
| Shareholders funds | 6,670 | 6,600 | ||
| Net asset value per share | 98p | 97p |
These financial statements were approved by the directors on 22 May 2014.
JLA Cary
Director
22 May 2014
Cash Flow Statement
for the period ended 28 February 2014
| 2014 | 2013 | |
| £'000 | £'000 | |
| Net cash (outflow) from operating activities | (137) | (97) |
| Capital expenditure and financial investment | ||
| Purchase of investments | (160) | (233) |
| Sale of investments | 222 | 62 |
| Net cash inflow from capital expenditure | ||
| and financial investment | 62 | (171) |
| Net cash outflow | (75) | (268) |
| (Decrease) in cash | (75) | (268) |
Notes:
1. Basis of preparation
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of investments. The financial statements have been prepared in accordance with applicable accounting standards and with the Statement of Recommended Practice 'Financial statements of investment trust companies' issued in 2009.
2. Earnings per Ordinary Share
The calculation of earnings per share for the period is based on the profit attributable to shareholders divided by the weighted average number of shares in issue during the period.
3. Valuation of Investments
Quoted investments are stated at the bid price. Unquoted investments are stated at fair value, where fair value is estimated after following the guidelines laid down by the International Private Equity and Venture Capital Guidelines. The Directors' policy is to initially state investments at cost and then to review the valuation every three months. The Directors' may then apply an appropriate methodology which, as far as possible, draws on external, objective market data such as where fair value is indicated by:
· a material arms length transaction by a third party in the shares of the company, with discounting for more junior asset classes, and reviewed for impairment; or
· a suitable revenue or earnings multiple where the company is well established and generating maintainable profits. The multiple will be based on comparable listed companies but may be discounted to reflect a lack of marketability; or
· the net assets of the business.
Where such objective data is not available the Directors' may choose to maintain the value of the company as previously stated or to discount this where indicated by underperformance against plan.
The directors consider that this basis of valuation of unquoted investments is consistent with the International Private Equity and Venture Capital Guidelines.
4. General
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 434(3) of the Companies Act 2006. The balance sheet at 28 February 2014 and the profit and loss account, cash flow statement and associated notes for the year then ended have been extracted from the company's 2014 statutory financial statements.
Those financial statements have been delivered to the Registrar of Companies, contain an auditors' opinion that is unqualified and do not include any statement under section 498(2) or (3) of the Companies Act 2006.