Annual Financial Report

19 May 2020

Oxford Technology 2 VCT plc ("the Company" or "OT2") 
Annual Report and Accounts for the year ended 29 February 2020

The Directors are pleased to announce the audited results of the Company for the year ended 29 February 2020.  A copy of the Annual Report and Accounts (together the "Accounts") will be made available to Shareholders shortly.  Set out below are extracts from the audited Accounts. References to page numbers below are to those Accounts.

The AGM will be held at Magdalen Centre, Oxford Science Park, Oxford OX4 4GA on Thursday 9 July 2020, at 2pm.  We believe the meeting is likely to be a virtual meeting with limited physical attendance and no investee or Investment Adviser presentations. We will provide further updates on this by the end of June via our website: https://www.oxfordtechnologyvct.com.  In this eventuality, shareholders will not be allowed to attend in person.

A copy of the Annual Report and Accounts will be available from the registered office of the Company at Magdalen Centre, Oxford Science Park, Oxford OX4 4GA, as well as on the Company's website.

Financial Headlines

	Year Ended   29 February 2020	Year Ended 28 February 2019
Net Assets at Year End	£1.48m	£1.67m
Net Asset Value (NAV) per Share	27.8p	31.4p
Dividend paid in Year	1.5p	0.0p
Cumulative Dividend per Share	22.5p	21.0p
NAV + Cumulative Dividend per Share Paid from Incorporation	50.3p	52.4p
Share Price at Year End	22.5p	40.0p
Earnings Per Share (Basic & Diluted)	(2.1)p	(0.3)p

Chairman’s Statement

I present the Annual Report for the year to 29 February 2020 to fellow shareholders.

In these unprecedented and uncertain times our thoughts are with everyone affected by the recent market and social turmoil, specifically our shareholders, the staff of our Investment Adviser and the employees of our investee companies.  We hope that by the time of our AGM in July there will be some light at the end of the tunnel and greater visibility going forward. 

Shareholders will appreciate that an annual report is a snapshot in time. Our year end was 29 February and shareholders will be aware that the FTSE100 had been above 7000 for the whole year up to 26 February and fell to 6700 at 29 February. It subsequently dropped to a low of 5000 on 23 March 2020 before recovering to 5750 as of mid-May, a drop of 14% since 29 February 2020.  Whilst the FTSE index is not a direct determinant of the valuation of small unquoted early stage technology companies, it represents a guide to market sentiment which is likely to influence general company value assessments.

Under the valuation rules we are required to produce valuations based on all the information that was known or should have been known to the Directors at 29 February 2020. Clearly the full scale of the impact of the Covid-19 virus and the extraordinary measures that the government took in March to protect the country, combined with the oil price shock were unexpected at that time, to say the least.

We have been continuously assessing the effect of this double impact. With the passage of another two months to the time of signing off this report we are beginning to get greater clarity of what it means to the investee companies and your VCT. Industry-wide the worst hit sectors have been airlines, travel, hospitality, oil and non-essential retail while on the upside some biotech companies have found new opportunities and there has been an occasional takeover of an undervalued company. For OT2, Scancell Holdings Plc (Scancell) had a 30% uplift after announcing the start of its research programme to develop a Covid-19 vaccine but has subsequently settled back to near (but modestly above) the bid share price at our year end; the rest of the portfolio has not materially changed since 29 February 2020 as a direct result of the Covid-19 pandemic.

We should also not forget that calendar 2019 also had its fair share of challenges, however benign they may seem in hindsight.  Last year our biggest Brexit concern was the uncertainty itself, and this year,  I had expected to comment on the ongoing uncertainty about the terms on which the UK would “fully leave” the EU at the end of this calendar year. The result of the General Election, the signing of the EU Withdrawal Agreement, Covid-19 and its ensuing turmoil have now returned Brexit and trade discussions to the business pages. The pandemic has highlighted a national need for a higher degree of self-sufficiency and the economic downturns across Europe will hopefully work against the introduction of extreme trade barriers and tariffs. Last year we stated that our portfolio was not overly exposed to trade with EU companies and that remains our view.

There has been significant other market turmoil over the last 12 months, including the closing of the Woodford Equity Income Fund and the suspension of several property funds driven by investors wishing to withdraw their money faster than assets could be realised. 

Despite all of the above, it is worth reminding ourselves that the VCT structure is an appropriate holding vehicle for unquoted companies through difficult times.  Unlike unit trusts, we are under no pressure to make fire sales to meet the demand from unit holders to withdraw their cash.

Your VCT has £270k in the bank, as of mid-May, which covers nearly four years of expenses, at the current running rate, and if we do not invest further in the portfolio. Furthermore the portfolio contains one liquid AIM quoted company worth £85k as of mid-May which, in extremis, could also provide liquidity,  although that is not our preference at this time.

Overview

The year started off much better than it ended, when we were pleased to receive the full amount that had been retained to cover potential warranty claims following our sale of OC Robotics Limited (OCR) two years earlier, providing a cash boost of £323k after costs, and an uplift in net asset value of some 3p per share. This uplift was due to the fact that previously only 50% of the amount originally held in escrow had been accrued.  However, some of our remaining investments have not fared so well, and the total return for the period was a loss of 2.1p per share.

Further explanations are included in the portfolio review section below. Net asset value (NAV) per share was 27.8p at 29 February 2020, after taking account of the 1.5p per share dividend paid on 21 February 2020. Total Return since the Company’s launch is 50.3p per share.

Whilst we anticipate the majority of our investees will be less impacted by the recent turmoil than many entities, they are by no means immune from it. All companies have now needed to react to the change in circumstances, revising their cash flow forecasts and adjusting for significantly reduced sales revenues.  The Investment Adviser will help companies through this process, and if desired support them to raise additional funding where possible. The Board and Investment Adviser have sought to assess the immediate impact on valuations. Using latest bid prices, and the Directors’ normal determinants of fair value, we estimate that the NAV per share has reduced to an unaudited 25.0p (a drop of 10%) as of mid-May. Given we are in no immediate hurry to liquidate any of our holdings, we would hope some form of market normality will return before asset sales occur.

Portfolio Review

The Company currently has holdings in 7 unlisted companies and one AIM quoted company. They continue to develop, and where we want to (and they need it) and permitted under VCT rules your Company continues to invest to support that development.

Arecor Limited (Arecor) has become our largest holding representing 28% of NAV, following a valuation increase as a result of its excellent progress. It recently announced that it has achieved an important second contractual milestone with one of its pharmaceutical partners. The first milestone was triggered in October 2017 following the signature of a license agreement between the parties. It has also announced a multi-product collaboration with a US-based clinical stage biotechnology company. Under the collaboration, Arecor will leverage its proprietary technology to develop liquid formulations of two proprietary novel products, one in oncology and one in a rare genetic orphan condition. It is well placed to expand and remains a bright spot in the portfolio.

Select Technology (STL Management Ltd) is still a significant holding, at more than a quarter of our NAV. It has been at the forefront of remote working both as a practitioner of the art and a provider of relevant software for others, and as a result, has seamlessly embraced lockdown working practices. Clearly, it has suffered interruption to its normal course of business as customers have grappled with the effects of the economic shock of the last two months. 

However, looking beyond the short-term disruption, there is an immediate opportunity to provision its end customers with the required software tools that ensure business resilience and effective remote working. A recent sales webinar was attended by 125 people, up nearly fivefold on normal attendee levels.

This could just because buyers are lacking things to do, but there is at least circumstantial evidence showing that companies are using the lockdown hiatus to spend time on ‘housekeeping matters’, which includes replacing out-of-date software systems.  If this is the case, then Select Technology may be well-positioned for any upcoming return to normality. Select Technology paid a dividend in February 2020.

ImmBio (more formally known as ImmunoBiology Ltd) has signed a commercial licence with the China National Biotech Group for its pneumococcal vaccine PnuBioVax and the first milestone payment has been received. Further milestones payments will be made when the transfer of certain technology is complete. This has been delayed partly by Covid-19 related events. The company is seeking to licence its vaccine in other countries and is pursuing grant applications. We have continued to support the working capital of the company with 2 small share placings during the year totalling £28k. However the continuing delays have led us to reduce the valuation during in the current year.

Scancell had a disappointing year of regulatory and clinical delays in its flagship melanoma trial and its share price fell over the course of the year. Its planned Phase 2 combination trial with their initial product SCIB1 ran into difficulties with the US Food and Drug Administration (FDA) due to the delayed approval by the FDA of the upgraded delivery device from 3^rd party Ichor. In the event, the trials started in the UK later than expected. Subsequently the required US approvals were received but a year has been lost and results will now be correspondingly delayed. Post period end the UK trial went on hold as a result of Covid-19 risks. Nevertheless good data from these trials could represent a significant value inflection point for Scancell and are eagerly awaited.

Preparations for trials with their other 2 lead products (SCIB2 and MODI-1) are continuing to make progress but both are at too early a stage to influence valuations yet.  The new AvidiMab platform has also generated significant interest and three agreements have been signed with different partners to evaluate its potential, which if successful, could translate into important commercial deals. During the year, and after conducting in-depth scientific and commercial due diligence, Vulpes Life Science Fund subscribed £4m in Scancell, through a share placing at 5.0p/share, to become a significant (17%) shareholder. The investment by Vulpes has extended the Scancell’s cash runway, but it is anticipated that there will be a need to raise further funds or form commercial partnerships to realise the potential of all the technologies under development. Scancell’s share price started the year at 7.0p and ended at 6.4p but swung during the year between a high of 9.2p and a low of 3.0p when a distressed hedge fund unhelpfully exited all its large position in an emergency fire sale.  In the latter part of April, the Scancell share price spiked temporarily following an announcement that the company had initiated a research project to use its clinical expertise in cancer to produce a simple, safe, cost effective and scalable vaccine which could induce a durable response against the virus that causes Covid-19.

Orthogem Ltd (Orthogem) was sold in January 2020 to one of its distributors TRB Chemedica (UK) Ltd for a nominal amount. Although Orthogem had made significant technical progress with the launch of its putty product and appointment of international distributors, it was unable to raise sufficient funding to be able to continue to trade. 

The Oxford Technology VCTs (OT VCTs) were willing to continue supporting the company, especially given we believed the company was very close to commercial success, but the VCT rules governing the age of companies and the use to which any new funds raised can be applied prevented us from doing so.  Similar restrictions applied to potential EIS investors. Whilst some other investors were also willing to support Orthogem, it was at an insufficient level. The only way to avoid the company being placed into liquidation was to put itself up for sale - with original investors retaining the right to a potential royalty income should product sales follow. The Investment Adviser is working with HMRC to see how the VCTs may be able to benefit from this income stream without breaching any VCT rules, should royalties become receivable in the future.

Your Company also has holdings in four other companies, which together represent less than 10% of the NAV. We still hope some of these have potential for future value growth, although we had to reduce the value of two of them: in the case of Oxis, the current valuation is in line with their latest funding round and at Inaplex, where progress is slower than hoped.

Overall, as seen in the Income Statement, the impact of valuation changes across the portfolio during 2019/2020 year was a loss of £46k, once the benefit from uplift due to the full OCR final distribution of £159k had been netted off.

The Board and your Investment Adviser continue to monitor and mentor investee companies towards points of value inflection at which we can profitably exit and return funds to shareholders. This is the nature of our technology fund with a longer than expected life.

The Directors 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 be noted, however, 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.

Further details are contained within the Investment Adviser’s Report, and on our website.

First Quarter Results Announcement

As mentioned in the overview section above, the Directors estimate that the NAV per share is 25.0p (unaudited) as of mid-May. At this time, and unless there are reasons to suggest conditions are not similar at the end of May 2020, we do not currently intend to issue a NAV as at 31 May 2020, and will update the market further with our half year results to the end of August 2020. We do not currently consider that publishing this quarterly result will add any value to shareholders, and not doing so will save some costs.

Dividends/Return of Capital

Due to its small size the Company remains exposed to balancing solvency requirements and compliance with VCT rules To that end, the Directors have elected to retain as much cash as is allowed by the VCT rules, to ensure it can continue to operate for the foreseeable future. However, part of the proceeds from the OCR sale needed to be paid out before the year end, to ensure the VCT met the more stringent 80% level of qualifying assets required by 1 March 2020 (up from 70%). As a result a dividend of 1.5p per share (the highest possible dividend whilst still retaining liquidity) was paid to shareholders on 21 February 2020.

The ongoing strategy remains to seek to crystallise value from the portfolio and distribute cash to shareholders.  Our priority is to maximise shareholder value and liquidity over the medium term by seeking exits for these holdings at the appropriate time, but remaining mindful of the need to meet both VCT and going concern tests. 

VCT Market Changes

After some big changes in recent years, this has been another period of allowing the new regulatory landscape to bed in. The types of investment now allowed are of the sort in which the OT VCTs have always specialised and we continue to believe the VCT structure is well-suited to this patient approach to long term value creation. However, the VCT rules do provide additional challenges for very small VCTs, where there is very little flexibility in how to operate, and with a small portfolio, we are very severely hindered from continuing to support our own investee companies. Our VCT is not in line with the majority of the industry, which is continuing to raise funds and making new investments, and where scale is not an issue, so these policies impact us more than larger VCTs.  As mentioned above, from March 2020 we are required to have more than 80% of assets in qualifying assets compared to 70% in prior years.  On 29 February 2020, we were at this level, and remain so at the time of writing.

Cost Control

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. Over the last 5 years we have renegotiated almost every element of cost.

Our investment management and 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.  These regulatory fees seem to have relentless increases and bear disproportionally on a small company. We have written to both organisations to request a one-off 50% rebate in this difficult year and asked them to reconsider their overall fee structures and, in particular, relook at their charges to the lower end of the market.

Covid-19 Response

The Investment Adviser has proved to be operationally resilient and financially sound during the turmoil of Covid-19. Your Board is used to working in a virtual environment and the VCT has continued to operate effectively, as evidenced by the publication of this Annual Report and Financial Statements to our normal timetable.

Whilst your VCT remains in reasonable structural shape, it seems prudent to take some precautionary measures. Every year we have a resolution for the shareholders to enable the Directors to raise a further 5% of shares without pre-emption rights and this has always been approved. This year, following guidance from the FRC Pre-emption Group we would like, with our shareholders’ approval, to raise the current level to 20% to provide flexibility, if ever required, to raise money more cheaply and at shorter notice. This would enable to us to support investee companies (within the VCT rules) and exceptionally take advantage of other opportunities arising from other investees in the OT VCT stable.
At the moment we have no plans to raise additional capital or to conduct a possible placing, but it seems prudent in these uncertain times to have the capability in case the Board considers it opportune to act quickly.  Shareholders who might be interested in buying shares via such a placing are invited to register their potential interest at [e-mail].

AGM 

We believe the meeting is likely to be a virtual meeting with limited physical attendance and no investee or Investment Adviser presentations. We will provide further updates on this by the end of June via our website. Covid-19 permitting, the Board and Investment Adviser hope to be able to host a physical event in October/November following the half year results so that shareholders can be updated and  for them to hear how some of our investees have coped with this year’s disruption.

In the meantime, may I encourage you to return your proxies for the AGM as early as possible. Please send in any questions you might have and we will put up a Q&A section on the website.

Please note that in accordance with new AIC guidelines all four directors are standing for annual re-election. I have no hesitation in recommending shareholders to vote for all my co-directors. All have played a very full part in the VCT’s activities throughout the year.

We also recommend the re-election of UHY Hacker Young who have done a very good job this year under difficult conditions, not least of which was one of their key staff contracting Coronavirus during the period of the audit.

As in previous years, we are putting forward a resolution to vote for the continuation of the VCT. The Directors do not consider this to be an appropriate time to wind up the VCT and would not be in shareholders’ best interests.

Finally, we have taken the opportunity to further update our articles of association; we already did this 2 years ago, but we have taken the opportunity whilst the other Oxford Technology VCTs are updating theirs to make some additional improvements.  More details are shown on page 37 and on our website www.oxfordtechnologyvct.com/vct2.html.

A formal Notice of the AGM has been enclosed with these Financial Statements together with a Proxy Form.  We encourage you to vote on the AGM resolutions via your proxy forms and thank you all for your ongoing support. 

Outlook/Planning for the Future

Our company remains the smallest VCT (by both net assets and market cap, and reducing in size as we realise investments and return proceeds to shareholders), and we continue to operate on a shoestring budget. Efforts have continued throughout the year to seek a partner interested in using the existing VCT structure to launch its own share offering, and hence enabling us to expand our asset base. As I reported at the half year, we have had detailed conversations with many other prospective parties who are potentially interested in entering the VCT industry, but to date, the costs of such a launch present too high a risk for other parties to make such a  move. We have always made clear that there is no certainty such a possibility can be successful but the Directors will continue seeking such opportunities when the future outlook has become clearer.

We continue to believe your VCT is an appropriate structure to hold your Company’s investments, albeit it would be preferable to have a larger asset base to share the operating costs.

In the meantime, your Board continues to work to best position the Company such that – when conditions and liquidity permit – holdings can be exited and proceeds distributed to shareholders.

In normal years I would conclude by expressing my thanks to all shareholders for their continuing support and looking forward to welcoming as many of you as possible to the AGM. This year I will just express a wish that you keep safe and healthy and that together we may ultimately arise stronger and more united for a future in what will undoubtedly be a different world.

Richard Roth
Chairman
19 May 2020

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 24 shows the companies remaining in the portfolio. A more detailed analysis is given for some of the larger investments.

The ultimate outcome for investors will depend on how the remaining investments perform.  In particular, Select Technology, Scancell and Arecor have the potential to deliver significant returns.   However, all the companies in the portfolio will now be adjusting their business plans in response to the Covid-19 pandemic and OTM are helping and advising these companies through these difficult and unprecedented times.

Select Technology specialises in software for photocopiers – now known as MFDs – Multi-Function Devices. Over the last decade Select Technology has built up a global network of distributors and dealers through which it sells third party products.  These products now include PaperCut, KPAX, Foldr, Drivve Image, EveryonePrint and Square 9 Enterprise Content Management. Sales have increased from £210k in the year to July 2010 to just over  £6.5m in the year to January 2020.  Select paid a dividend in February 2020.

Arecor conducted its phase 1 trial for Ultra-Rapid Acting Insulin. The results were very good with all the desired outcomes being met. Arecor also has other insulin and non-insulin internal development programmes. Arecor also announced a new collaboration agreement with a pharma company and it has received a milestone payment for a partnered programme.

In February 2019 ImmBio signed a license deal for PnuBioVax in the Chinese market with a subsidiary of CNBG, the leading Chinese biologics company. PnuBioVax is a vaccine that targets pneumococcal disease in children and the elderly.  Throughout the year it has been working to transfer the technology to its partner. An investment of £150k (of which OT2 contributed £20k) was made in February  2020 to extend the company runway. In March 2019 OT2 also invested £8k as part of an earlier £150k round. 

Oxis Energy is developing a Lithium Sulphur rechargeable battery with a significantly higher specific energy (energy storage per unit weight) than the currently available Lithium Ion batteries. OT2 was the first investor in Oxis Energy (then known as Intellikraft) in January 2000. Oxis announced that it had received £3.2m of funding to establish a factory in Port Talbot, to provide components for batteries. It started a collaborative deal with US aviation company Bye Aerospace aiming to double the flight times of their electric aeroplanes.  During the year it raised a further £7.8m at a 30p share price.

Orthogem received a CE mark for its putty product in early 2018. Approvals for other countries were very slow to follow. Although a deal was made with a new and much larger UK distributor, the sales did not pick up quickly enough for the company to remain solvent going forward. The OT VCTs were willing to continue supporting the company, especially given we believed the company was very close to commercial success, but the VCT rules governing the age of companies and the use to which any new funds raised could be applied prevented us from doing so.  The company was sold for £1 and a 10% share of gross profits going forward.  We are currently working with HMRC to see how OT2 may be able to benefit from any future income stream in the form of possible royalties without breaching any VCT rules.
  
Scancell is developing novel immunotherapies for cancer based on three platform technologies known as Immunobody, Moditope and Avidimab. Results from Scancell's first clinical trial for the treatment of melanoma continue to be excellent with recurrence free survival at 69% at 5 years, surpassing results in other trials of ipilimumab (leading immunotherapy for cancer) which showed 46.5% at 3 years.  The Avidimabs – which are antibodies directed at targets expressed on cancer cells – are the latest addition to the business of Scancell and have already generated three development agreements.

Scancell had a fall in its share price in the first half of the year. An investment of £3.87m from Vulpes Life Sciences Fund supported the company and the share price rose again to 6.4p at  29 February 2020. Scancell has received authorisation to proceed with its SCIB1 trial in combination with Keytruda both in the UK and the US. Post period end Scancell has announced its plans to initiate research work to develop a vaccine against the Covid-19 virus causing a moderate increase in its share price.

New Investments in the year

Follow on investments were made into ImmBio of £8,230 in March 2019 and £20,000 in February 2020.  These have complied with both EU State Aid rules and HMRC rules.

Disposals during the year

We received £322,889 held in escrow in respect of the final earn-out from the sale of OC Robotics. Orthogem was disposed of during the year but only for a nominal sum of £1.

Valuation Methodology

Quoted and unquoted investments are valued in accordance with current industry guidelines that are compliant with International Private Equity and Venture Capital (IPEVC) Valuation Guidelines and current financial reporting standards.

VCT Compliance

Compliance with the main VCT regulations as at 29 February 2020 and for the year then ended is summarised as follows:

Type of Investment By HMRC Valuation Rules	Actual	Target
VCT Qualifying Investments	81.0%	Minimum obligation of:  70% (80% from 1 March 2020)
Non-Qualifying Investments	19.0%	Maximum allowed:  30% (20% from 1 March 2020)
Total	100%	100%

The value used in the qualifying tests is not necessarily the original investment cost due to the complex rules required by HMRC, therefore the allocation of Qualifying investments as defined by the legislation can be different to the portfolio weighting as measured by market value relative to the net assets of the VCT.

At least 70% of each investment must be 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 or when the holding is added to) - Complied.

The Company’s income in the period has been derived wholly or mainly (70% plus) from shares or securities - Complied.

No investment made by the VCT has caused the company to receive more than £5m of State Aid investment in the year, nor more than the lifetime limit of £12m – Complied.

Table of Investments held by Company at 29 February 2020

Company	Description	Date of initial investment	Net cost of investment £’000	Carrying value at 29/02/20 £’000	Change in value for the year £’000	% equity held by OT2	% equity held by all OTVCTs	% net assets
Arecor	Protein stabilisation	Jul 2007	252	420	124	1.8	10.5	28.3
Select Technology – STL Mgt.	Speciaist photocopier interfaces	Nov 2001	132	412	(17)	7.4	58.6	27.8
ImmBio	Novel vaccines	Dec 2000	295	185	(90)	3.1	22.6	12.5
Scancell (bid price 6.4p)	Antibody based cancer therapeutics	Apr 2018	150	80	(8)	0.3	2.7	5.4
Insense	Wound healing dressings	Jun 2001	204	52	-	2.0	6.8	3.5
Plasma Antennas	Solid state directional antennas	Nov 2001	188	38	-	5.6	48.8	2.6
Oxis Energy	Battery technology	Jan 2000	540	25	(10)	0.1	0.3	1.7
Inaplex	Data integration software	Jan 2001	138	2	(7)	21.5	34.8	0.1
Totals			1,900	1,214	(8)			81.9
Other Net Assets				269				18.1
NET ASSETS				1,483				100.0

                                                                               
Number of shares in issue:  5,331,889
Net Asset Value per share at 29 February 2020: 27.8p
Dividends per share paid to date: 22.5p

This table above 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, Duncan Hynd Associates, OC Robotics and Orthogem have been sold.
Lucius Cary
Director – OT2 Managers Ltd
Investment Manager
19 May 2020

Directors’ Report

The Directors present their report together with Financial Statements for the year ended 29 February 2020.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide 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.

Review of Business Activities

The Directors are required by section 417 of the Companies Act 2006 to include a Business Review to shareholders. This is set out on page 13 and forms part of the Strategic Report. The purpose of the Business Review is to inform members of the Company and help them assess how the Directors have performed their duty under section 172 of the Companies Act 2006 (duty to promote the success of the Company). The Company’s section 172 Statement on page 19, the Chairman's Statement on page 6 to 12, and the Investment Portfolio Review on pages 21 to 29 also form part of the Strategic Report.

Corporate Governance Statement

The Board has considered the principles and recommendations of the 2019 AIC Code as applied to companies reporting as at 29 February 2020.  The Company’s Corporate Governance policy is set out on pages 41 to 47.

The 2019 AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the 2019 AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies. 

The Company has complied with the recommendations of the 2019 AIC Code and the relevant provisions of the UK Code, except as set out below:

• The Company does not have a Chief Executive Officer or a Senior Independent Director. The Board does not consider this necessary as it does not have any executive directors. 
• New Directors do not receive a formal induction on joining the Board, though they did receive one tailored to them on an individual basis. 
• The Company conducts a formal review as to whether there is a need for an internal audit function. However, the Directors do not consider that an internal audit would be an appropriate control for this VCT at this time. 

• The Company does not have a Remuneration Committee as these matters are dealt with by the Board.
• The Company does not have a Nomination Committee as these matters are dealt with by the Board.

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers the above provisions are not relevant to the position of the Company, being an investment company run by the Board and managed by the Investment Adviser. In particular, all of the Company’s day-to-day administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations.

Furthmore, the Board acknowledges that it is not recommended practice that the Chariman of the Company to be chairman of the Audit Committee; however, for administrative convenience, Richard Roth is chairman of the Audit Committee as he fulfils this role for all the OT VCTs.

Directors

The Directors of the Company are required to notify their interests under Disclosure and Transparency Rule 3.12R.  The membership of the Board and their beneficial interests in the ordinary shares of the company at 29 February 2020 and at 28 February 2019 are set out below:

Name                                    2020                                  2019
R Roth                                44,033                                44,033
A Starling                                 Nil                                      Nil          
R Goodfellow                       14,000                               14,000
D Livesley                                Nil                                     Nil

Under the Company’s articles of association Directors are required to retire by rotation every third year.  However, best practice under the latest corporate governance guidelines is for all directors to stand for election each year and as a result, Richard Roth, Alex Starling, Robin Goodfellow and David Livesley will all be nominated for re-election at the forthcoming AGM.  The Board believes that all the 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 all four Directors at the forthcoming AGM. 

The Board is satisfied that, following individual performance appraisals, the Directors who are retiring continue to be effective and demonstrate commitment to their roles and therefore offer themselves for re-election with the support of the Board.

The Board did not identify any conflicts of interest between the Chairman’s interest and those of the shareholders, especially with regard to the relationship between the Chairman and the Investment Adviser.

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 Seneca Growth Capital VCT Plc, a VCT investing in the MedTech 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.  OT2 Managers Ltd subcontracts these services to OTM on a pass through basis.  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 Adviser has arrangements in place in accordance with the UK 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 Adviser 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 Adviser 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.oxfordtechnologyvct.com/vct2.html).
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: Magdalen Centre, Oxford Science Park, Oxford OX4 4GA. Alternatively your question can be emailed to: [e-mail].

Going Concern

The assets of the Company consist mainly of securities, one of which is AIM quoted, quite liquid and readily accessible, as well as cash. 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.

Share Capital

As disclosed on page 80, the Board does not have authority to make market purchases of the Company’s own shares. As a result of some shareholder representations, the Company has previously withdrawn the customary buy-back resolution and none is proposed this year.  No shares were bought back by the Company during the year.

The Board has authority to allot up to 266,950 shares (representing approximately 5% of the ordinary share capital as at 21 May 2019). No shares were allotted by the Company during the year.

The total number of Ordinary Shares of 10p each in issue at 29 February 2020 was 5,331,889 (2019: 5,331,889) with each share having one vote. There are no other share classes in issue.

As discussed in the Chairman’s Statement, whilst the VCT remains in good structural shape, it seems prudent to take some precautionary measures and the Board is proposing a resolution for the shareholders to enable the Directors to raise a further 20% of shares without pre-emption rights this year, following guidance from the FRC Pre-emption Group.

This will provide additional flexibility, if ever required, to raise money more cheaply and at shorter notice. This would enable the Company to support investee companies (within the VCT rules) and, exceptionally, take advantage of other opportunities arising from other investees in the OT VCT stable. At the moment we have no plans to raise additional capital or to conduct a possible placing, but it seems prudent in these uncertain times to have the capability in case the Board wishes to act quickly.

In accordance with Schedule 7 of the Large and Medium Size Companies and Groups (Accounts and Reports) Regulations 2008, as amended, the Directors disclose the following information:

• The Company’s capital structure and voting rights are summarised above, and there are no restrictions on voting rights nor any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights;
   
• There exist no securities carrying special rights with regard to the control of the Company;
   
• The rules concerning the appointment and replacement of Directors, amendment of the articles of association and powers to issue or buy back the Company’s shares are contained in the articles of association of the Company and the Companies Act 2006;
   
• The Company does not have any employee share scheme;
   
• There exist no agreements to which the Company is party that may affect its control following a takeover bid; and
   
• There exist no agreements between the Company and its Directors providing for compensation for loss of office that may occur following a takeover bid or for any other reason

Substantial Shareholders

At 29 February 2020, the Company has been notified of the following investors whose interest exceeds three percent of the Company’s issued share capital: Redmayne Nominees Limited 5.98% (includes the beneficial interests of Ms Shivani Palakpari Shree Parikh); Barclays Direct Investing Nominees Ltd, 4.86%; The Estate of Mr Richard Vessey, 4.38%; Mrs Mary Louisa Perry, 3.84%; Hargreaves Lansdown Nominees Limited, 3.24%; Merrick Sidney Whitehouse Feast, 3.19%.

Auditors

UHY Hacker Young LLP offer themselves for re-appointment as the independent auditors in accordance with Section 489 of the Companies Act 2006.

Adoption of New Articles of Association

At the AGM, we are also seeking to adopt new articles (“New Articles”) in substitution for the current articles.  The New Articles have tidied up a number of provisions in the current articles and make some of clauses less specific to the transaction that was previously being planned with Chelverton Asset Management Limited, and will provide the Directors more flexibility to negotiate with a new third party. Another change proposed which reduces the nominal value of each share from 10p per share to 1p per share is a pre-cursor to enable the creation of additional distributable reserves in the future, which may allow the Company to pay out more to shareholders in time.  A more detailed summary of the key differences between the current articles of the Company and the New Articles which, in the opinion of the Directors, are relevant for shareholders, is set on the Company’s website (www.oxfordtechnologyvct.com/vct2.html), as are the New Articles themselves.

A copy of the proposed New Articles is also available for inspection from the date of this Annual Report at the registered office of the Company and for at least 15 minutes prior to and during the Annual General Meeting at the place of the Annual General Meeting, Magdalen Centre, Oxford Science Park, Oxford OX4 4GA. 

On behalf of the Board
Richard Roth
Chairman
19 May 2020

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, UHY Hacker Young LLP, is required to give its opinion on certain information included in this report. This report includes a statement regarding the Directors’ Remuneration Policy. This report sets out the Company’s Directors’ Remuneration Policy and the Annual Remuneration Report which describes how this policy has been applied during the year.

The Directors' Remuneration Policy was last approved by shareholders at the AGM on 12 July 2018. It needs to be put to a shareholder vote every three years, and shareholders will be asked to approve it again at the Annual General Meeting in 2021.

Shareholders also need to approve the Directors' Remuneration Report every year. It was last approved at the AGM on 3 July 2019 on a unanimous show of hands and 100% of proxies voted in favour.  A Resolution to approve the Directors’ Remuneration Report for the year ended 29 February 2020 will be proposed at the Annual General Meeting on 9 July 2020.

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.  In line with best practice, all Directors will offer themselves for re-election this year. Re-election will be recommended by the Board, but is dependent upon shareholder vote. 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 articles of association of the company state that the aggregate of the remuneration (by way of fee) of all the Directors shall not exceed £75,000 per annum unless otherwise approved by Ordinary Resolution of the Company. 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

The OT2 Director Fees are amongst the lowest of any VCT.   
Richard Roth chairs the Company and 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 plays a significant part in the sign off of quarterly management accounts, and the production of the half year and annual statutory accounts.

Fees are currently paid annually. The fees are not specifically related to the Directors’ performance, either individually or collectively.  No expenses are paid to the Directors.  There are no share option schemes or pension schemes in place, but Directors are entitled to a share of the carried interest as detailed below. The Directors may at their discretion pay additional sums in respect of specific tasks carried out by individual Directors on behalf of the Company.

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 29 February 2020 no performance fee was due.

Should any performance fee be payable at the end of the year to 28 February 2021, Alex Starling, Robin Goodfellow, and Richard Roth would each receive 0.36% of any amount over the threshold and David Livesley 0.87%.  No performance fee will be payable for the year ending 28 February 2021 unless original shareholders have received back at least 166.9p 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

No change to Director’s remuneration is expected for the year ending 28 February 2021.

Directors’ Fees	Year End 28/02/21 (unaudited)	Year End 29/02/20 (audited)	Year End 28/02/19* (audited)
Richard Roth	£8,500	£8,500	£16,500
Alex Starling	£3,500	£3,500	£5,500
Robin Goodfellow	£5,000	£5,000	£5,000
David Livesley	£3,500	£3,500	£3,500
Total	£20,500	£20,500	£30,500

*In 2019 an additional one off payment was made to Richard Roth of £8,000 and £2,000 to Alex Starling as compensation for work undertaken in relation to setting up of the new B share structure as well as the preparation of the circular and draft prospectus associated with the planned offer for subscription by Chelverton.

Income Statement

		Year Ended 29 February 2020			Year Ended 28 February 2019
	Note Ref.	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
Loss on disposal of fixed asset investments		-	(10)	(10)	-	-	-
Unrealised (loss)/gain on valuation of fixed asset investments		-	(36)	(36)	-	59	59
Investment income	2	4	-	4	4	-	4
Investment management fees	3	(17)	-	(17)	(1)	(13)	(14)
Other expenses	4	(51)	-	(51)	(67)	-	(67)
Return on ordinary activities before tax		(64)	(46)	(110)	(64)	46	(18)
Taxation on return on ordinary activities	5	-	-	-	-	-	-
Return on ordinary activities after tax		(64)	(46)	(110)	(64)	46	(18)
Return on ordinary activities after tax attributable to equity shareholders		(64)	(46)	(110)	(64)	46	(18)
Earnings per share – basic and diluted	6	(1.2)p	(0.9)p	(2.1)p	(1.2)p	0.9p	(0.3)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.
The accompanying notes are an integral part of the Financial Statements.

Balance Sheet

		Year Ended 29 February 2020		Year Ended 28 February 2019
	Note Ref.	£’000	£’000	£’000	£’000
Fixed Asset Investments at Fair Value	7		1,214		1,391
Debtors	8	10		168
Cash at Bank		270		126
Creditors	9	(11)		(12)
Net Current Assets			269		282
Net Assets			1,483		1,673
Called Up Share Capital	10		533		533
Capital Redemption Reserve			146		146
Share Premium Reserve			376		376
Unrealised Capital Reserve	11		(686)		(881)
Profit and Loss Account	11		1,114		1,499
Total Equity Shareholders’ Funds	11		1,483		1,673
Net Asset Value Per Share			27.8p		31.4p

The accompanying notes are an integral part of the Financial Statements.

The statements were approved by the Directors and authorised for issue on 19 May 2020 and are signed on their behalf by:

Richard Roth
Chairman

Statement of Changes in Equity

	Called up Share Capital £’000	Captial Redemption Reserve £’000	Share  Premium Reserve £’000	Unrealised Capital Reserve £’000	Profit & Loss   £’000	Total     £’000
As at 1 March 2018	533	146	376	(940)	1,576	1,691
Revenue return on ordinary activities after tax	-	-	-	-	(64)	(64)
Expenses charged to capital	-	-	-	-	(13)	(13)
Current period gains on fair value of investments	-	-	-	59	-	59
Balance as at 28 February 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

The accompanying notes are an integral part of the Financial Statements.

Statement of Cash Flows

	Year Ended 29 February 2020 £’000	Year Ended 28 February 2019 £’000
Cash flows from operating activities
Return on ordinary activities before tax	(110)	(18)
Adjustments for:
Loss on disposal of investments	10	-
Loss/(gain) on valuation of investments	36	(59)
(Decrease)/increase in creditors	(1)	2
Decrease/(increase) in debtors	158	(2)
Movement in investment debtors and creditors	(164)	-
Cash outflow from operating activities	(71)	(77)
Cash flows from investing activities
Purchase of investments	(28)	(183)
Disposal of investments	323	-
Cash inflows/(outflows) from investing activities	295	(183)
Cash flows from financing activities
Dividends paid	(80)	-
Increase/(decrease) in cash at bank	144	(260)
Opening cash and cash equivalents	126	386
Cash and cash equivalents at year end	270	126

 The accompanying notes are an integral part of the Financial Statements.

Notes to the Financial Statements

 Oxford Technology 2 Venture Capital Trust Plc is a public company and is limited by shares.

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 Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (‘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 2018)’ issued by the AIC.

The principal accounting policies have remained materially unchanged from those set out in the Company’s 2019 Annual Report and Financial Statements (the only change relating to investment management fees no longer being partially allocated to capital, as explained below). A summary of the principal accounting policies follows.

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

The assets of the Company consist mainly of securities, one of which is AIM quoted, quite liquid and readily accessible, as well as cash. 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 IPEVC Valuation Guidelines, which can be found on their website at www.privateequityvaluation.com, although this does rely on subjective estimates such as appropriate sector earnings or revenue 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, and in particular this could be the case in the short term if the Covid-19 lockdown is extended.

The material factors affecting the returns and net assets attributable to shareholders are the valuations of the investments and ongoing general expenses.

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 and 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 or revenue multiples, discounted cash flows and net assets.  These are consistent with the IPEVC Valuation 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 1: 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 2: 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 held no such investments in the current or prior year.

For investments not quoted in an active market:
Level 3: 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/revenue multiple, discounted cash flows and/or net assets) where it is available and rely as little as possible on entity specific estimates.

There have been no transfers between these classifications in the year (2019: 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 and are charged wholly to revenue. Historically investment management fees were charged 75% to capital and 25% to revenue. However, the Directors have determined that a more appropriate current split is to charge these fees 100% to revenue since the company is a small late life VCT no longer raising new capital. This modification to the policy has been applied this year. There is no change to the total return, nor to distributable reserves. Any applicable performance fee will continue to be charged 100% to capital. Due to the small amounts involved we have not restated the previous year.

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 applicable 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 Share Capital – represents the nominal value of shares that have been issued.

Share Premium Reserve – includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from the Share Premium Reserve.

Capital Redemption Reserve – represents the nominal value of the shares repurchased in the tender offer in September 2017.

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 Account as a movement in reserves.

The Profit and Loss Account 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 shareholders.

2.  Investment Income

	Year Ended 29 February 2020 £’000	Year Ended 28 February 2019 £’000
Dividends received	4	4
Total	4	4

All of the Company’s income has been generated in the United Kingdom from its investment portfolio.

 3.  Investment Management Fees

Investment Management Fees are accounted for on an accruals basis and are charged wholly to revenue.  In the previous year, the investment management fee was charged 75% to capital.

	Year Ended 29 February 2020 £’000	Year Ended 28 February 2019 £’000
Investment management fee	17	16
Cost Cap refund from OTM	-	(2)
Total	17	14

In the year to 29 February 2020 the manager received a fee of 1% of the net asset value as at the previous year end (2019: 1%). Oxford Technology Management is also entitled to certain monitoring fees from investee companies and the Board reviews the amounts.

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 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 129.8p at 29 February 2020, corresponding to a total shareholder return of 159.1p after taking into account the 29.3p already paid out (29.3p + 129.8p = 159.1p).  The 29.3p already paid out includes an effective 6.8p (per original share) that was returned to shareholders as part of the Tender Offer.

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.  Oxford Technology Management did not need to reduce their management fee in the current year (2019: £2,000 with the amount credited to the revenue account).

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 29 February 2020 £’000	Year Ended 28 February 2019 £’000
Directors’ remuneration	21	31
Auditors’ remuneration	8	7
London Stock Exchange Fees	10	9
FCA Fees	6	6
Other expenses	6	14
Total	51	67

5. Tax on Ordinary Activities

Corporation tax payable at 19.0% (2019: 19.0%) is applied to profits chargeable to corporation tax, if any. The corporation tax charge for the period was £ nil (2019: £ nil).

	Year Ended 29 February 2020 £’000	Year Ended 28 February 2019 £’000
Return on ordinary activities before tax	(110)	(18)
Current tax at standard rate of taxation	(21)	(3)
UK dividends not taxable	(1)	(1)
Unrealised losses/(gains) not taxable	7	(11)
Realised losses not taxable	2	-
Excess management expenses carried forward	13	15
Total current tax charge	-	-

Unrelieved management expenses of £1,690,416 (2019: £1,621,167) remain available for offset against future taxable profits.

6. Earnings per Share

The calculation of earnings per share (basic and diluted) for the period is based on the net loss of £110,000 (2019: loss of £18,000) attributable to shareholders divided by the daily weighted average number of shares 5,331,889 (2019: 5,331,889) 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

	AIM quoted investments Level 1 £’000	Unquoted investments Level 3 £’000	Total investments £’000
Valuation and net book amount:   Book cost as at 28 February 2019	150	2,123	2,273
Cumulative revaluation to 28 February 2019	(62)	(819)	(881)
Valuation at 28 February 2019	88	1,303	1,391
Movement in the year:
Purchases at cost	-	28	28
Disposals at cost	-	(401)	(401)
Disposals revaluation	-	232	232
Revaluation in year	(8)	(28)	(36)
Valuation at 29 February 2020	80	1,134	1,214
Book cost at 29 February 2020	150	1,750	1,900
Cumulative revaluation to 29 February 2020	(70)	(616)	(686)
Valuation at 29 February 2020	80	1,134	1,214

All investments are initially measured at their transaction price. Subsequently, at each reporting date, the investments are valued at fair value through profit and loss, and all capital gains or losses on investments are so measured. 

The changes in fair value of such investments recognised in these Financial Statements are treated as unrealised holding gains or losses.

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 29 February 2020 are as follows:

	Country of Registration	Nature of Business	Turnover	Retained profit/loss	Net Assets
OT2 Managers Ltd	England and Wales	Investment Manager	£16,736	£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 Venture Capital Trust Plc, which the Directors also consider is the most useful presentation for shareholders.

8.  Debtors

	29 February 2020 £’000	28 February 2019 £’000
Prepayments, accrued income & other debtors	10	4
Deferred consideration from sale of investments	-	164
Total	10	168

9. Creditors

	29 February 2020 £’000	28 February 2019 £’000
Creditors and accruals	11	12
Total	11	12

10. Share Capital

	29 February 2020 £’000	28 February 2019 £’000
Allotted, called up and fully paid: 5,331,889 (2019: 5,331,889) ordinary shares of 10p each	533	533

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 as a movement in reserves. 

Distributable reserves are £428,000 as at 29 February 2020 (2019: £618,000).

Reconciliation of Movement in Shareholders’ Funds

	29 February 2020 £’000	28 February 2019 £’000
Shareholders’ funds at start of year	1,673	1,691
Return on ordinary activities after tax	(110)	(18)
Dividends paid	(80)	-
Shareholders’ funds at end of year	1,483	1,673

12. Capital Commitments

The Company had no commitments at 29 February 2020 or 28 February 2019.

13.  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, £16,736 was paid in respect of these fees (2019: £14,569).  No amounts were outstanding at the year end.

14.  Financial Instruments

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 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, though VCT rules limit the extent to which suitable Qualifying investments can be bought or sold.

The Company’s portfolio is concentrated for various reasons, including the age of the VCT, exits within the portfolio and the Company’s policy of seeking to return excess capital to shareholders.  No new funds have been raised by the Company since 2010. No investments in new portfolio companies have been made since 2018. The overall disposition of the Company’s assets is regularly monitored by the Board.

Classification of financial instruments
The Company held the following categories of financial instruments, all of which are included in the balance sheet at fair value, at 29 February 2020 and 28 February 2019:

	29 February 2020 £’000	28 February 2019 £’000
Financial assets at fair value through profit or loss
Fixed asset investments	1,214	1,391
Total	1,214	1,391
Financial assets measured at amortised cost
Cash at bank and in hand	270	126
Debtors	10	168
Total	280	294
Financial liabilities measured at amortised cost
Creditors	-	-
Accruals	11	12
Total	11	12

Fixed asset investments (see note 7) are valued at fair value. Unquoted investments are carried at fair value as determined by the Directors in accordance with current venture capital industry guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the year-end is equal to their book value.

The Company’s creditors and debtors are initially recognised at fair value, which is usually the transaction price, and then thereafter at amortised cost.

15. Financial Risk Management

In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are market risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the Balance Sheet date. In addition, the Board considers that the impact of Covid-19 presents an additional risk that is worth flagging separately.

Market risk
The Company’s strategy for managing investment risk is determined with regard to the Company’s investment objective, as outlined on page 5. The management of market risk is part of the investment management process. 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 in the medium term. 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.

Details of the Company’s investment portfolio at the Balance Sheet date are set out on pages 21 to 29.

76.5% (2019: 77.9%) by value of the Company’s net assets comprise investments in unquoted companies held at fair value. The valuation methods used by the Company include the price of recent transactions, earnings or revenue multiples, discounted cashflows and net assets. A 10% overall increase in the valuation of the unquoted investments at 29 February 2020 (28 February 2019) would have increased net assets and the total return for the year by £113,000 (2019: £130,000) disregarding the impact of the performance fee; an equivalent change in the opposite direction would have reduced net assets and the total return for the year by the same amount.

5.4% (2019: 5.3%) by value of the Company’s net assets comprises equity securities quoted on AIM. A 10% increase in the bid price of these securities as at 29 February 2020 (28 February 2019) would have increased net assets and the total return for the year by £8,000 (2019: £9,000) disregarding the impact of the performance fee; a corresponding fall would have reduced net assets and the total return for the year by the same amount.

Credit risk
There were no significant concentrations of credit risk to counterparties at 29 February 2020 or 28 February 2019.

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Board carries out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the Balance Sheet date.

Liquidity risk
The Company’s financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally are illiquid. They also include investments in AIM-quoted companies, which, by their nature, involve a higher degree of risk than investments on the main market. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements.

The Company’s liquidity risk is managed and monitored on a continuing basis by the Board in accordance with policies and procedures laid down by the Board.

Covid-19 risk
At the time of writing there remains significant uncertainty with regard to the lasting effects on the world economy of Covid-19 although it is clear that UK economic growth will fall this year. The worst hit sectors have been airlines, travel, hospitality, oil and non- essential retail, while on the upside some biotech companies have found new opportunities. Investee companies have been creative in finding short term solutions but delays in restarting the economy will be very hard to accommodate without major pain. 

16.  Control

Oxford Technology 2 Venture Capital Trust Plc is not under the control of any one party or individual.

17.  Events after the Balance Sheet Date

As referred to in the Chairman’s Statement, the financial implications of the Covid 19 pandemic only really started to become apparent post the Balance Sheet date. Under the valuation rules we are required to produce valuations based on all the information that was known or should have been known to the Directors at 29 February 2020. Hence the valuations used to assess the Company’s NAV at 29 February 2020 did not take into account the implications of any possible lock down, nor the global oil market collapse that again only manifested itself in March.

The Board and Investment Adviser have sought to assess the immediate impact on valuations. Using latest bid prices, and the Directors’ normal determinants of fair value, we estimate that the NAV per share has reduced to an unaudited 25.0p (a drop of 10%) as of mid-May, mainly due to falls in the valuation of Select Technology and ImmBio.  This change has been treated as an unadjusting event after the Balance Sheet date, since the major impacts of Covid-19 on UK lockdown happened after period end.

As highlighted on page 27, ImmBio had made 3 vaccine grant applications at the end of 2019: in two of them, active discussions with the grant award bodies have continued post year end. Unfortunately, in May 2020, ImmBio were advised that they had been unsuccessful in accessing one of the remaining two grants. Dialogue continues regarding the third application. Separately, they have also decided to launch the development of a vaccine against Covid-19. Both of these have been treated as a non-adjusting post Balance Sheet events.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014
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 29 February 2020, Income Statement and Statement of Cash Flows for the period then ended have been extracted from the Company's 2020 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 29 February 2020 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/NSM