TIDMHYG
For immediate release 11 April 2016
Hygea VCT plc ("the Company" or "Hygea")
Annual Report and Accounts for the year ended 31 December 2015
and
Notice of General Meeting
The Directors are pleased to announce the audited results of the Company
for the year ended 31 December 2015 and a copy of the Annual Report and
Accounts will be made available to Shareholders shortly. Set out below
are extracts of the audited Report and Accounts.
In addition, the Notice of Annual General Meeting ("AGM") is attached at
the end of the Report and Accounts, and is set out below. The AGM will
be held at the offices of Octopus Investments, 33 Holborn, London EC1N
2HT on Thursday 2 June 2016, at 12.00 noon.
A copy of both documents will be available from the registered office of
the Company at 39 Alma Road, St Albans AL1 3AT, as well as on the
Company's website: www.hygeavct.com
Financial Summary
Year to 31 December 2015 Year to 31 December 2014
Net assets (GBP'000s) 6,129 7,334
Return on ordinary
activities after tax
(GBP'000s) (1,205) (495)
Earnings per share (14.9p) (6.1p)
Net asset value per share 75.5p 90.4p
Dividends paid since 24.25p 24.25p
inception
Total return (NAV plus 99.75p 114.65p
cumulative dividends
paid)
Enquiries:
John Hustler, Chairman on 01428 727985
Roland Cornish, Beaumont Cornish Limited on 020 7628 3396
Chairman's Statement
I am pleased to present the 2015 annual report to Shareholders in Hygea.
Overview
Against the background of the turmoil in stock markets globally, many UK
smallcaps are finding it difficult to obtain finance through the
established UK capital market channels and, within the smallcap universe,
Life Science companies are finding it particularly difficult. The UK
capital market lacks experience in successfully supporting smaller Life
Science companies through their technology development stage - this is
exacerbated by commercialising their technology being a lengthy process
because of the challenging regulatory hurdles which are (quite rightly)
in place in order to minimise risk to patients. Nevertheless, we remain
confident that many of the portfolio companies are both making good
progress in terms of their science and/or technology and applying the
right principles to commercialisation of their Intellectual Property -
both of which we expect will lead to long term success. As you will see
in UK Capital Markets section below, we also believe that developments
are occurring which will improve the ability of the UK capital market to
support companies such as those in Hygea's portfolio.
During 2015 our net asset value has declined principally due to the
reduction in the value of our AIM listed portfolio and annual running
costs. As Shareholders are aware, a large percentage of the Company's
net asset value is represented by the holding in Scancell plc shares.
The bid price of Scancell shares at 31 December 2015 was 21.5p compared
to 32p at the beginning of the year. The share price remains volatile
and the latest bid price was 17p. Your Board does not believe that there
is any underlying reason related to the science for the reduction in the
current share price of Scancell - as you will see in the Investment
Review, the company has made progress over the last year. In April 2016,
Scancell announced that it had raised gross proceeds of GBP6.2m through
a placing and open offer at 17p per share - as detailed in the
Investment Review. We were prohibited from subscribing by the VCT rules
(even had we had the funds available), as we would have exceeded the 15%
maximum holding condition allowed in any single company (as defined
within ITA07/S274(2) and S277).
On a positive note, however, we remain pleased with the progress made
with some of our unquoted portfolio companies - in particular Hallmarq
Veterinary Imaging Limited, Fuel 3D Limited and OR Productivity plc,
further details of which can be found in the Investment Review beginning
on page 5 of the Report and Accounts ("the Accounts").
Following the last Annual General Meeting ("AGM"), we announced that we
would review the Board structure and this led to the retirement of James
Otter both as Chairman and as a Director and the appointment of Richard
Roth. The Board has also carried out a review of the cost base: amongst
other savings, the salaries of Directors have been reduced and the
Performance Incentive Fee has been restructured. Details of these
changes can be found in the Directors' Remuneration Report and Note 4 to
the accounts. Whilst we are advised that the changes to the Performance
Incentive Fee do not require shareholder approval, we are asking for
your approval as part of the resolution to approve the Company's
Remuneration Policy and we trust you will find these changes beneficial
to Shareholders.
Results and Dividend
During the year our revenue return on ordinary activities saw a loss of
1.9p per share, the same as in 2014. The benefits of our cost reduction
are already being seen with our operating costs down by 5%, although our
total expense ratio rose to 2.5%, compared to 2.2% in 2014, due to the
reduction in net asset value. The ratio remains lower than most other
VCTs due to the self-management structure of Hygea and the absolute
level of day to day expenditure should reduce further in the light of
changes following our review of the cost base.
The capital return per share amounted to a loss of 13.0p compared to a
loss of 4.2p in 2014, primarily due to the reduction in bid prices on
all of our AIM shares (of between 16% and 57%).
During the year we sold 1,000 shares in EpiStem Holdings plc and the
remaining 13,000 Tristel plc shares. In addition we have supported Fuel
3D's recent fund raising.
Hygea has a policy of accruing for the Board's incentive fee
arrangements in the accounts. This fee will only start to be paid out
when distributions per share have, cumulatively, reached 80p, and,
reflecting the decrease in NAV, this accrual has been reduced from
GBP702,000 to GBP401,000 in this year's accounts.
Overall the total return for the year amounted to a loss of 14.9p per
share, compared to a loss of 6.1p per share in 2014. As Scancell made
up over 45% of the portfolio value at 31 December 2015, the loss of
GBP1,391,000 in its share value makes up a significant part of the
capital loss before the reduction in performance fee.
Subsequent to the year end, there has been continued volatility on AIM.
Had our portfolio been valued at the latest AIM bid prices, the overall
NAV would have been 69.2p, a decrease of 8% compared to the 31 December
2015 value of 75.5p.
In order to provide greater control over the timing of realising part of
our AIM portfolio to cover running costs, we have increased our
overdraft facility to GBP200,000.
Hygea's investments provide the Company with very little income, and
thus distributions or cash returns to Shareholders will come from
disposals. Historically, the Board had intended to pay out a dividend
averaging 5p per year, but following discussions after the continuation
vote last year, we have determined to return funds to our Shareholders
as soon as practicable. However, we will be precluded in this aim until
we are able to make a significant realisation and we do not believe that
the current state of the AIM market is conducive to achieving this in
the short term.
Portfolio Review
Although there has been no change in the constituents of the portfolio
(apart from the disposal of our remaining holding in Tristel), many of
the companies have made good operational progress during the year as
described in Investment Review, starting on page 5 of the Accounts.
Subsequent to the year end, to cover running costs, we have sold 226,519
shares in EKF Diagnostics Plc ("EKF") and 137,900 shares in Omega
Diagnostics. GBP20,048 of the funds raised have also been used to take
up our share of rights in a recent Exosect fund raising.
UK Capital Markets
In addition to the recent well publicised events giving rise to
uncertainty globally, the UK capital markets for smallcaps are also in
some turmoil. In our view, this is contributed to by:
-- reduced interest on the part of UK institutional investors in UK
smallcaps. This is borne out by a report issued in October 2015 by
Hardman & Co entitled 'Why AIM Company Management Ignore Retail Investors
at their Peril', which can be found at
www.hardmanandco.com/docs/default-source/newsletters/ons-article-v2;
-- the eventual onset of MiFID 2 (the EU Directive on markets in financial
instruments) is causing brokers to reconsider the economics of providing
research; and
-- there being a significant movement during 2015 of life science analysts
from one employer to another, resulting in reduced research coverage
whilst the changes are taking place. For example, a recently scheduled
analyst meeting for one of Hygea's investees was cancelled because it
proved impossible to assemble sufficient analysts.
As outlined above, the remaining institutional investors understandably
focus on the larger AIM companies, leaving companies with market caps of
under GBP50m much less well supported.
Against the background of the Board's stated objective of having as much
as possible of the portfolio in AIM quoted stocks, the Board takes a
keen interest in trying to understand why existing market mechanisms
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give rise to the huge share price volatility which AIM companies in the
Hygea portfolio have experienced in recent months. In particular, there
seems to be little correlation between the share price movement and what
is happening within the companies commercially. We also monitor market
developments which we consider will help to address the issues mentioned
above, and are pursuing several approaches (both individually and in
combination with our portfolio companies) in order to reduce the impact
of these challenges. These developments are generally based on
organising private investors by harnessing digital technology - a number
of these developments are due to become operational during 2016 and we
hope they will, in combination, result in the AIM market functioning
more effectively for companies such as those within the Hygea portfolio.
An example of this is the recent launch by Syndicate Room, (a
crowdfunding platform) of a public market service for its investors and
its participation in the recent Scancell fundraise.
Annual General Meeting
The Company's AGM will be held at 12.00 on 2 June 2016 at the offices of
Octopus Investments, 33 Holborn, London EC1N 2HT and we look forward to
welcoming you at the meeting.
VCT Qualifying Status
PricewaterhouseCoopers LLP continues to provide the Board with advice on
the on-going compliance with the increasingly complex HMRC rules and
regulations concerning VCTs. The Board has been advised that the Company
continues to comply with the conditions laid down by HMRC for
maintaining approval as a VCT.
Registrars
As part of the review of costs, we have decided to appoint Neville
Registrars in place of Capita as our Registrars. Details of the new
contact details are set out in the Accounts. At the same time, we are
seeking to simplify and reduce the cost of communications with
Shareholders, and this is in keeping with similar proposals by many
other quoted companies, and you will have received a letter regarding
this last month.
Annual reports, notices of shareholder meetings and other documents that
are required to be sent to Shareholders are published on our website at
www.hygeavct.com. For those Shareholders who have consented, the website
will be one of the ways in which you access shareholder information.
Future prospects
Your Board would like to thank you for your support by approving the
continuation vote at the last AGM. The recent Finance Act has made
significant changes to the VCT regime largely due to the requirements of
the EU for VCTs to comply with stringent and re-enforced State Aid
regulations. We do not believe these will have any material effect on
Hygea at this time. We remain conscious that Shareholders' main
objective is to seek to expedite liquidity events within the portfolio
following which we will consult with Shareholders on the way forward in
the light of the new regulations.
Notwithstanding the current problems being faced by the AIM market, we
continue to believe that our objective of having as much of the
portfolio quoted on this market as possible is sound and allows us the
flexibility of liquidating portions of our holdings when conditions
permit. Against the global economic backdrop, there is huge pressure to
deliver better patient outcomes more efficiently. This can only be
achieved through harnessing innovation, and we believe that once our
investees can articulate the economic benefit which their products can
bring to customers, this will give them valuable pricing power. We
continue to view our portfolio with confidence but recognise that our
expected timetable of liquidity events has been extended and we are
grateful to our Shareholders for their continued patience.
John Hustler
Chairman
8 April 2016
Investment Review
Investment Portfolio
Movement
in the
year to
31
Investment Unrealised December
Unquoted at cost profit/(loss) Carrying value at 2015
Investments (GBP'000) (GBP'000) 31 December 2015 (GBP'000) (GBP'000)
Hallmarq
Veterinary
Imaging Limited 1,116 289 1,405 351
OR Productivity
plc 765 (101) 664 -
Fuel 3D Limited
(formerly Eykona
Technologies
Limited) 299 146 445 -
Glide
Pharmaceutical
Technologies
Limited 326 (7) 319 -
Arecor Limited 127 16 143 11
ImmunoBiology
Limited 868 (742) 126 -
Insense Limited 509 (421) 88 -
Miccroarray
Limited 132 (65) 67 -
Exosect Limited 250 (188) 62 (62)
Axon Limited 374 (374) - -
Wound Solutions
Limited 350 (350) - -
Total unquoted
investments 5,116 (1,797) 3,319 300
Quoted
Investments
Scancell plc 801 2,047 2,849 (1,391)
Omega Diagnostics
plc 348 29 377 (70)
EKF Diagnostics
plc 260 (118) 141 (132)
EpiStem Holdings
plc 43 (3) 39 (51)
Reneuron plc 50 (23) 28 (11)
Total quoted
investments 1,502 1,932 3,434 (1,655)
Total investments 6,618 135 6,753 (1,355)
Ten largest holdings (by value)
Scancell plc
Background: Scancell is an AIM listed, Nottingham-based biotechnology
company that is developing a pipeline of therapeutic vaccines to target
various types of cancer, with the first target being melanoma. The
platform technology, in effect, educates the immune system how to
respond - this means that the technology can also be licensed to
pharmaceutical companies to assist the development of their own
therapeutic vaccines, which is an area of emerging importance for which
a number of big pharmas do not have in-house technology. In August 2012
a new platform technology, Moditope, was announced to join the existing
Immunobody platform. The first product in clinical trials is SCIB1 -
there are early indications that it may have an important role to play
as first line treatment (adjuvant) in melanoma patients who no longer
have measurable disease (following surgery) and are often generally
quite well, but are at a high risk of recurrence and with very few, if
any, effective treatment options (there are c. 360,000 such patients in
the US alone, of whom c.45% are suitable for SCIB1 treatment).
Update since 2014: Scancell recognized that in order to develop, it
needed a strong US orientation clinically in order to access US capital
markets - the latter are required because they have deeper experience of
and appetite for investing in companies such as Scancell than the UK
capital markets. Against this background, key achievements have been:
-- the January 2016 update re the SCIB1 Phase I/II clinical trial reported
that all 16 patients on 2-4mg doses with fully resected disease are still
alive, representing a median survival time of 42 months, with 11
remaining disease free - median observation time in 4 resected patients
who received 8mg is 10 months, with all patients remaining disease free;
-- a team of investigators from leading US oncology hospitals has been
formed to lead a Phase I checkpoint inhibitor combination study with
SCIB1. This is due to start in early 2017;
-- in October 2015 an NED was appointed, bringing significant international
experience particularly in the US life science sector. In 2016 he became
chairman of Scancell, which he knew from his time as CEO of Arana which
acquired Scancell's antibody business in 2006. In addition a highly
experienced pre-clinical and clinical development consultant to the
pharmaceutical industry was appointed as advisor - he had most recently
served as VP & Global Head of Oncology at Teva Pharmaceuticals, and;
-- the company raised GBP6.2m gross proceeds through a placing and open
offer in April 2016. This capital raising will allow Scancell to prepare
for further clinical studies on both SCIB1 and Moditope.
Initial investment date: December 2003
Cost: GBP801,000
Valuation: GBP2,849,000
Equity held: 5.9%
Last audited accounts: 30 April 2015
Turnover: GBPnil
Loss before tax: GBP2.8 million
Net assets: GBP6.8 million
Valuation method: Bid price
Hallmarq Veterinary Imaging Limited
Background: Hallmarq specialises in developing low cost magnetic
resonance (MRI) imaging systems for the vet market. The first
application was for equine vets to enable the diagnosis of causes of
lameness in horses that are not identifiable by any other method - this
was the first MRI scanner in the world for standing horses. The business
model relies principally on a share of scan fees (i.e recurring income)
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rather than systems sales. The next development project is an MRI
scanner for companion animals, PetVet, a market which is significantly
larger than the equine market - the first PetVet was installed in Q4
2014.
Update since 2014: The results to August 2015 showed sales of GBP5.4
million (2014: GBP4.3 million), EBITDA of GBP2.0million (2014: GBP1.6
million) and pre-tax profit of GBP1.0 million (2014: GBP0.8 million),
with recurring income growing from GBP3.8 million to GBP4.3 million. Key
events include:
-- the appointment of a chairman with appropriate experience for assisting
the company achieve the next stage of growth.
-- commissioning of the second PetVet, with the third about to be
commissioned.
-- passing the milestone of scanning 60,000 horses since inception.
Initial investment date: 31 August 2005
Cost: GBP1,116,000
Valuation: GBP1,405,000
Equity held: 10.2%
Last audited accounts: 31 August 2015
Turnover: GBP5.4 million
Profit before tax: GBP1.0 million
Net assets: GBP7.2 million
Valuation method: Earnings multiple
OR Productivity plc
Background: At the end of 2011, Freehand 2010 (a Hygea investee) was
acquired by OR Productivity plc (ORP) in exchange for ORP shares. ORP
has established the nucleus of a very strong team (led by the former R&D
director of Smiths Medical) for commercialising productivity enhancing
technologies within the Minimally Invasive Medicine sector. The team is
aware of a number of companies within this sector which have good
technologies but lack the skills to commercialise their technology
efficiently. Freehand 2010 is ORP's first acquisition. Freehand 2010
owns the intellectual property to technology incorporated in a product
for robotically controlling the laparoscope (part of the camera system)
used by keyhole surgeons - the camera system is used to put an image of
the inside of the patient's body onto a screen, and the surgeon uses
this screen when operating to view the procedure. Keyhole surgery is
growing in relation to open surgery because the smaller incisions
required by the former result in reduced pain and reduced recovery time
(hospital stays are very expensive). The business model is free
placement of the system and sales of a consumable per operation to
generate recurring income - in 2008 there were estimated to be c.3.8
million keyhole operations in Europe and the US, a sector predicted to
grow at 9% pa. A key market development is the emergence of HD and 3D
for use by keyhole surgeons to provide improved depth of vision. However,
viewers of HD and 3D images generally become nauseous if the image is
not steady - the Freehand product still appears to be regarded as the
leading solution worldwide for enabling HD and 3D camera systems for
keyhole surgery to provide a rock steady image.
Update since 2014: In Q1 2015 a milestone was achieved inasmuch as UK
sales contributed gross profit which matched UK marginal overheads.
Since then the much publicised challenges within the NHS have impeded
ORP's progress in the UK. However, senior personnel within certain NHS
Trusts are starting to recognise that procurement needs to focus on
efficiency rather than just price and that innovation is key to driving
efficiency. ORP is making good progress at a senior level within several
such trusts which is expected to benefit 2016 following a very difficult
2015. These relationships are also expected to benefit ORP's strategy of
introducing in due course other Minimally Invasive Medicine technologies
alongside Freehand.
Initial investment date: March 2011
Cost: GBP765,000
Valuation: GBP664,000
Equity held: 13.8%
Last audited accounts: 31 March 2015
Turnover: GBP301,000
Loss before tax: GBP963,000
Net assets: GBP774,000
Valuation method: Price of last fundraise
Omega Diagnostics plc
Background: Omega Diagnostics plc ("Omega") listed on AIM via a reverse
acquisition in 2006. It is a healthcare diagnostics business providing
IVD products for use in hospitals, blood banks, clinics and laboratories
in over 100 countries and it specialises in the areas of Food
Intolerance, Allergy and Autoimmune Disease, and Infectious Disease. One
of its products is Food Detective for home testing of allergies brought
about by 59 commonly eaten foods. In December 2010 Allergopharma was
acquired by Omega for GBP7.75 million - it produces manual assays for
testing for allergies - part of the strategy for developing the
Allergopharma business is to leverage off Omega's distribution reach,
and take the assays into the much larger automated market using Omega's
Genarrayt platform and the IDS-iSYS platform, which has been licensed
from AIM listed Immunodiagnostic Systems Holdings.
In June 2012, Omega entered into agreements providing it with worldwide
exclusive access to two point-of-care tests, one for CD4 and the other
for Syphilis. Testing for CD4 T- cells is a vital component for the
management and care of people suffering from HIV, which affects c.33
million people worldwide - the key competition is currently flow
cytometry, which involves laboratories and centralised testing.
In summary, the group currently has two key projects, each of which has
transformational growth potential to augment the growth potential of the
existing established businesses.
Update since 2014: both of the transformational projects are progressing
and the IDS-iSYS project is expected to achieve CE marking by mid 2016.
The interim results to September 2015 showed sales of GBP6.15 million
(2014: GBP5.7 million) and adjusted pre-tax profit of GBP351,000 (2014:
GBP410,000), after increasing overheads by GBP279,000 in order to
implement growth plans.
Initial investment date: August 2007
Cost: GBP348,000
Valuation: GBP377,000
Equity held: 2.4%
Last audited accounts: 31 March 2015
Turnover: GBP12.1 million
Profit before tax: GBP684,000
Net assets: GBP18.8 million
Valuation method: Bid price
Fuel 3D Limited (formerly Eykona Limited)
Background: Eykona was founded in 2007 to deploy computer vision
technology (essentially 3D imaging) developed within Oxford University
for developing a hand held camera to measure the volume of chronic
wounds - this is a vital measurement for obtaining an understanding of
whether a wound is getting better or worse, and hence assist determining
the treatment to be applied. It was recognised from the outset that
Eykona's 3D imaging technology has potential applications outside
MedTech.
In 2013, it was learned that certain clinicians in the US were using the
camera for making masks for assisting the recovery of patients with
facial burns. As a result of this, Eykona became aware of the
opportunity within the 3D printing market to develop its camera as the
world's first high resolution 3D scanner for the consumer market. The
opportunity was validated by launching the prototype on the crowd
funding site, Kickstarter, with a 30-day sales target of 75 scanners
being set to validate the $1,000 price point - this target was achieved
within two days and the campaign closed at 430% of the initial target.
In 2014, a new company, Fuel3D Limited, raised GBP1.6 million in cash
(with Hygea subscribing GBP49,000) and also acquired Eykona's IP in
exchange for Eykona Shareholders receiving Preferred Shares in Fuel 3D.
Update since 2014: Following the launch of the 3D scanner for the
consumer market, the company has received approaches from businesses,
particularly those providing personalised solutions to consumers - an
example is orthotics where using the scanner can automate the process of
making shoes inexpensively for people whose feet are different in size
and/or shape. The business model being pursued in the B2B market is
expected to generate recurring income. The company raised further funds
in 2015.
Initial investment date: March 2010
Cost: GBP299,000
Valuation: GBP445,000
Equity held: < 1%
Last audited accounts: 31 December 2014
Turnover: GBP603,000
Loss before tax: GBP1.3 million
Net assets: GBP5.6 million
Valuation method: Price of last fundraise
Glide Pharmaceutical Technologies Limited
Background: Glide has developed a needle-free drug delivery technology
to deliver a drug formulation in a solid form directly through the skin
of a patient. The Glide technology has been shown to have a number of
benefits when compared to other delivery mechanisms - for example, it is
particularly suited for vaccines, enabling them to be delivered in solid
rather than liquid form, with the objective of delivering both better
patient outcomes and also reduced supply chain costs by removing the
need (and cost) for refrigerated storage.
Update since 2014: the key focus has been on preparing for a 22 patient
trial using Glide's injector with Octreotide - the results are expected
in July 2016. There is a strong prospect pipeline in the vaccine and
peptide markets to be progressed if the results of the trial prove
successful. Glide is targeting to become a specialty pharma business
based on using its delivery system as the platform.
Initial investment date: November 2005
Cost: GBP326,000
Valuation: GBP319,000
Equity held: 1.2%
Last audited accounts: 31 December 2014
Turnover: GBP254,000
Loss before tax: GBP3.2 million
Net assets: GBP8.5 million
Valuation method: Price of last fundraise
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Arecor Limited
Background: Arecor was a spin-out from Insense (a Hygea investee
company) to commercialise technology developed by Insense for enabling
biologics to maintain their integrity without the need for refrigeration
- this both reduces cost and also helps supply chain logistics in
developing countries where temperature monitored cold storage facilities
are in short supply. The technology also assists in maintaining the
integrity and function of proteins exposed to ionizing radiation as the
means of sterilisation.
Update since 2014: the company is transitioning from a research based
enterprise into a sustainable commercial organization focused in the
areas of diabetes, peptides, high concentration proteins and
biosimilars. This process has been assisted by the appointment of a new
CEO in May 2015, since when the business has developed from reliance on
one major client to having three such clients with multiproduct
relationships, and discussions are under way with two additional
multiproduct companies - this positioning is intended to increase the
probability of generating licenses.
Initial investment date: January 2008
Cost: GBP127,000
Valuation: GBP143,000
Equity held: 2.1%
Last audited accounts: 31 May 2015
Turnover: GBP777,000
Loss before tax: GBP705,000
Net assets: GBP31,000
Valuation method: Price of last fundraise
EKF Diagnostics Holdings plc
Background: EKF is an AIM listed company which David Evans (formerly
chairman of, inter alia, DxS) and Julian Baines took board control of in
Q4 2009, with the objective of building a leading diagnostic business
with a particular focus on the needs of diabetic patients. Messrs Evans
and Baines had been chairman and CEO respectively of AIM listed point of
care diagnostics business BBI, which listed on AIM in 2004 and was
acquired by Alere (formerly Inverness Medical) for GBP84 million in late
2007. EKF completed its first acquisition in July 2010, which has been
followed by two smaller acquisitions - one of the latter was Quotient
Diagnostics, in which Hygea invested in June 2010 and exchanged its
investment for EKF shares in October 2010. In 2011, US based Stanbio was
acquired for $19.5 million. In March 2013, 360 Genomics was acquired for
an initial consideration of GBP1.6 million paid in EKF shares - it
develops companion diagnostics to assist cancer treatment - the
technology is able to detect 1 mutant gene in 100,000 normal gene copies
versus the nearest technology that detects 1 in 100. In 2014 two
acquisitions were made for a combined initial consideration of some
GBP40 million with the objective of enabling EKF to participate
meaningfully within the field of personalised medicine.
Update since 2014: the molecular diagnostics acquisitions made in 2014
significantly underperformed against expectations, principally due to
changes to reimbursement in the US. This has resulted in i) Ron
Zwanziger becoming chairman - he was the founding CEO of Alere (see
above) which was acquired in early 2016 for $5.8 bn by Abbott, and ii)
exiting molecular diagnostics activities to concentrate on Point of Care
diagnostics. The restructuring is considered by the new chairman to
provide considerable prospects for future growth.
Initial investment date: June 2010
Cost: GBP260,000
Valuation: GBP141,000
Equity held: <1%
Last audited accounts: 31 December 2014
Turnover: GBP40.1 million
Loss before tax: GBP4.0 million
Net assets: GBP87.4 million
Valuation method: Bid price
ImmunoBiology Limited
Background: ImmunoBiology is a biotechnology company that is focused on
developing treatments for illnesses such as meningitis, tuberculosis,
influenza and hepatitis C. The company's technology is based on the
discovery that a group of proteins known as 'heat shock proteins' has a
pivotal role in controlling the normal immune response to infections. It
has also licensed in Scancell's immunobody technology (see above) for
use in certain treatments - both approaches seek to educate the immune
system how to respond.
Update since 2014: the focus is currently on a vaccine for Pneumococcal
Disease, for which the challenge is that there are >90 strains in
circulation but present treatments address only a small proportion. In
December 2015 a first in human study started, with results anticipated
in Q2 2016 - subject to the results, it is intended to find partners to
progress late stage development, manufacturing and marketing.
Initial investment date: November 2005
Cost: GBP868,000
Valuation: GBP126,000
Equity held: 3%
Last audited accounts: 31 May 2015
Turnover: GBPnil
Loss before tax: GBP1.7 million
Net assets: GBP974,000
Valuation method: Price of last fundraise
Insense Limited
Background: Insense was spun-out from Unilever's R&D laboratory in
Bedfordshire, with the purpose of developing new wound healing products
that are based on the oxygenation of the wound through the action of its
patented Oxyzyme technology. It has since had two spin-outs, namely
Arecor (see above) and Microarray, leaving it developing a fungal nail
treatment.
Update since 2014: The fungal nail treatment is being developed as a
pharmaceutical product, with the current focus on preparing to undertake
a trial on humans.
Initial investment date: July 2003
Cost: GBP509,000
Valuation: GBP88,000
Equity held: 8.1%
Last audited accounts: 31 December 2014
Turnover: GBP54,000
Loss before tax: GBP259,000
Net liabilities: GBP82,000
Valuation method: Cost less provision
Directors' Report
The Directors present their report and the audited financial statements
for the year ended 31 December 2015.
The Directors consider that the Annual Report and Accounts, taken as a
whole is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Company's performance, business
model and strategy.
Review of Business Activities
The Directors are required by s417 of the Companies Act 2006 to include
a Business Review to Shareholders. This is set out in the Accounts and
forms part of the Strategic Report. The Chairman's Statement on pages 2
to 4 of the Accounts, and the Investment Review on pages 5 to 11 of the
Accounts also form part of this Strategic Report.
The purpose of this review is to provide Shareholders with a snapshot
summary setting out the business objectives of the Company, the Board's
strategy to achieve those objectives, the risks faced, the regulatory
environment and the key performance indicators used to measure
performance.
Subsequent to the year end, to cover running costs, we have sold 226,519
shares in EKF and 137,900 shares in Omega Diagnostics in addition to the
1,000 Epistem shares sold during the year. GBP20,048 of the funds raised
have also been used to take up our share of rights in a recent Exosect
fund raising.
Directors
The Directors of the Company during the period and their interests (in
respect of which transactions are notifiable under Disclosure and
Transparency Rule 3.1.2R) in the issued ordinary shares of 50p are shown
in the table below:
31 December 2015 31 December 2014
Number of Shares Number of Shares
John Hustler 190,000 190,000
Charles Breese 105,000 105,000
Richard Roth (appointed 7 October 2015) 159,612 n/a
James Otter (resigned 7 October 2015) n/a 24,050
Richard Roth held 159,612 shares on appointment as a Director of the
Company on 7 October 2015. James Otter held 24,050 shares on 7 October
2015 when he resigned as a Director of the Company.
All of the Directors' shares were held beneficially. There have been no
changes in the Directors' share interests between 31 December 2015 and
the date of this report.
Brief biographical notes on the Directors are given in the Accounts.
Directors' and Officers' Liability Insurance
The Company has maintained directors' and officers' liability insurance
cover on behalf of the Directors and Company Secretary.
Whistleblowing
The Board has approved a Whistleblowing Policy for the Company, its
directors and any employees, consultants and contractors, to allow them
to raise concerns, in confidence, in relation to possible improprieties
in matters of financial reporting and other matters.
Bribery Act
The Board has approved an Anti-Bribery Policy to ensure full compliance
with the Bribery Act 2010 and to ensure that the highest standards of
professional and ethical conduct are maintained.
Management
Since 30 July 2007 the Board has assumed responsibility for the
management of the Company and its portfolio. The Board continues to
review and evaluate the management of the Company in the light of
present circumstances whereby the resources of the Company are fully
invested in portfolio companies. It does not believe that it would be
cost effective to seek to appoint a third party manager at the present
time. The terms of the Board's remuneration are set out in the
Directors' Remuneration Report on pages 16 and 17 of the Accounts.
Share Issues and Open Offers
During the year, the Company did not issue any shares (2014 - nil
shares).
Share Capital
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The Company's issued ordinary share capital as at 31 December 2015 is
8,115,376 ordinary shares of 50p each.
Directors
Biographical details of the Directors are shown in the Accounts. Richard
Roth was appointed as a Director of the Company on 7 October 2015. James
Otter resigned as Chairman on 14 July 2015 and as a Director of the
Company on 7 October 2015.
In accordance with the provisions of the AIC Corporate Governance Guide
for Investment Companies all of the Directors will retire at the
forthcoming AGM as follows:
-- Richard Roth having been appointed during the year and offers himself for
re-election.
-- Charles Breese and John Hustler having served as Directors for more than
nine years. Each offer themselves for re-election.
The Board is satisfied that, following individual performance appraisals,
the Directors retiring by rotation continue to be effective and to
demonstrate commitment to the role and therefore offer themselves for
re-election with the support of the Board.
The Board is cognisant of shareholders' preference for Directors not to
sit on the boards of too many larger companies ("overboarding"). As
part of their assessment as to his suitability, the Directors considered
Richard Roth's other directorships at the time of his appointment, given
that he also sits on the boards of the four Oxford Technology ("OT")
VCTs. The directors noted that those four funds have a common board,
and there is an element of overlap in the workload across the four
entities, such that the time required is less than would be necessary
for four totally separate and larger companies. They also note that
Hygea has a number of shared portfolio companies with the OT VCTs. The
Board is therefore satisfied that Richard Roth has the time to focus on
the requirements of the Company.
International Financial Reporting Standards
As the Company is not part of a group it is not mandatory for it to
comply with International Financial Reporting Standards. The Company
does not anticipate that it will voluntarily adopt International
Financial Reporting Standards. The Company has adopted Financial
Reporting Standard 102 - The Financial Reporting Standard Applicable in
the United Kingdom and Republic of Ireland during the year.
Environmental Policy
The Company always a makes full effort to conduct its business in a
manner that is responsible to the environment.
Going Concern
The Company's business activities and the factors likely to affect its
future performance and position are set out in the Chairman's Statement
and Investment Review on pages 2 to 4 and pages 5 to 11 of the Accounts.
Further details on the management of financial risk may be found in note
15 to the Financial Statements.
The Board receives regular reports from the Administration Manager and
the Directors believe that, as no material uncertainties leading to
significant doubt about going concern have been identified, it is
appropriate to continue to adopt the going concern basis in preparing
the financial statements.
The assets of the Company consist mainly of securities, some of which
are readily realisable. As such, the Company has adequate financial
resources to continue in operational existence for the foreseeable
future.
Substantial Shareholdings
At 31 December 2015, two disclosures of major shareholdings had been
made to the Company under Disclosure and Transparency Rule 5 (Vote
Holder and Issuer Notification Rules).
On 13 January 2015 James Leek disclosed a shareholding of 3.10% (251,500
shares), and on 2 June 2015, a further increase in shareholding to 5.44%
(441,500 shares). On 15 July 2015 David Blundell disclosed an increase
in shareholding to 3.09% (251,000 shares). No other changes have been
notified since that date.
Annual General Meeting
Notice convening the 2016 Annual General Meeting of the Company and a
form of proxy in relation to the meeting are enclosed separately. Part
of the business of the AGM will be to consider resolutions in relation
to the following matters:
1. Independent Auditor
James Cowper Kreston are engaged as the Company's auditors and they
offer themselves for reappointment as auditor. A resolution to
re-appoint James Cowper Kreston will be proposed at the forthcoming
Annual General Meeting.
1. Directors' Authority to Allot Shares, to Disapply Pre-emption Rights
Resolution 9 renews the Directors' authority to allot Ordinary shares.
This would enable the Directors until the next AGM, to allot up to
811,537 ordinary shares (representing approximately 10% of the Company's
issued share capital as at 8 April 2016).
Resolution 10 renews the Directors' authority to allot equity securities
for cash without pre-emption rights applying in certain circumstances.
This Resolution would authorise the Directors, to issue Ordinary shares
for cash without pre-emption rights applying up to a maximum of 811,537
Ordinary shares (representing approximately 10% of the Company's issued
share capital as at 8 April 2016).
The Directors have no current intention to utilise the authority under
Resolution 9 and 10.
By Order of the Board
Craig Hunter
Company Secretary
8 April 2016
Directors' Remuneration Report and Policy
Introduction
This report is submitted in accordance with the requirements of s420-422
of the Companies Act 2006, in respect of the year ended 31 December
2015. Resolutions to approve the Directors' Remuneration Report and the
statement of Directors' Remuneration Policy will be proposed at the
Annual General Meeting on 2 June 2016.
The Company's independent auditor, James Cowper Kreston, is required to
give its opinion on certain information included in this report as
indicated below. Their report on these and other matters is set out in
the Accounts.
Consideration by the Directors of Matters Relating to Directors'
Remuneration
The Board as a whole considers Directors' remuneration and has not
appointed a separate committee in this respect. The Board appointed
Richard Roth to advise, inter alia, on Directors' remuneration,
including the Performance Incentive Fee, during the year. The results of
this review are explained below.
Statement of the Company's policy on Directors' Remuneration
The Board manages the Company and consists of three Directors, who meet
formally as a Board at least four times a year and on other occasions as
necessary, to deal with the important aspects of the Company's affairs.
The Directors, as members of the Commercial Advisory Committee ('CAC'),
are responsible for the investment management of the Company. Directors
are appointed with the expectation that they will serve for a period of
at least three years. All Directors retire at the first general meeting
after election and thereafter one third of all Directors are subject to
retirement by rotation at subsequent Annual General Meetings. Directors
who have served for more than nine years are subject to annual
re-election in line with practices recommended in the AIC Corporate
Governance Code. Re-election will be recommended by the Board but is
dependent upon a shareholder vote.
Each Director has received a letter of appointment. A Director may
resign by notice in writing to the Board at any time. The Directors are
entitled to compensation payable upon early termination of their
contract in respect of any unexpired notice period and a pro rata
proportion of any performance fees payable to the Commercial Advisory
Committee accruing at the date of resignation up to five years from the
date of resignation.
Following the review of the cost base of the Company, and in view of the
current investment status of the Company's portfolio, the Board decided
to reduce the annual Directors' fees with effect from 1 July 2015 and
the Chairman will no longer be paid a higher fee than other
Non-executive Directors. With effect from 1 July 2015, the fee for each
Director was set at GBP12,000 per annum.
The Board has also been entitled to be repaid all reasonable travelling,
subsistence and other expenses incurred by them whilst conducting their
duties as Directors. However, from 1 January 2016, the Directors' fees
have been increased to GBP12,750 per annum inclusive of all expenses to
simplify administration.
In addition to the reduction in the Directors' fees by just over one
third, the terms of the performance incentive fee have been revised
under an agreement dated 7 October 2015. These revised arrangements are
subject to approval at the Company's 2016 AGM as part of the Company's
Remuneration Policy. The new arrangements have frozen the sum due to
those Directors serving up to 7 October 2015 at GBP702,000 (the accrued
liability as disclosed in the 2014 audited accounts) which will only
start to become payable once Shareholders have received 80p in
dividends. This liability will then be paid at the rate of 25% of
subsequent dividends until a liability of GBP702,000 has been
discharged; this is in keeping with the original approved arrangement.
Following the payment of this liability, any further performance fee in
the future will be payable at the reduced rate of 10% of total
distributions above the audited total return at 31 December 2014, with
the outstanding balance subject to a hurdle rate of 6% per annum, and
will be split between the CAC based on a formula driven by relative
length of service starting from 7 October 2015. Further details of the
revised arrangements are set out in Note 5 to the accounts.
Company Performance
The Board is responsible for the Company's investment strategy and
performance. The performance graph in the Accounts shows the performance
of the Company.
Directors' Emoluments (Information Subject to Audit)
Amount of each Director's emoluments:
Directors' fees Year ended Year ended
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31 December 2015 31 December 2014
GBP GBP
John Hustler (Chairman)* 14,750 17,500
Charles Breese 14,750 17,500
Richard Roth** 2,769 -
James Otter * and ** 16,231 20,000
Total 48,500 55,000
* On 14 July 2015 James Otter resigned as Chairman of the Board and John
Hustler was appointed as Chairman.
** On 7 October 2015 James Otter resigned as a Director and Richard Roth
was appointed as a Non-executive Director.
As referred to above, Richard Roth was appointed as a Consultant from 1
July 2015 until he joined the Board. He was paid GBP2,500 in respect of
these services.
The Directors did not receive any other form of emoluments in addition
to the directors' fees during the year. The current Directors, as
members of the CAC, may be entitled to performance fees in the future as
referred to above. Directors may be entitled to fees from investee
companies when acting on the Company's behalf as Director, Observer or
Consultant to those investees.
By order of the Board
Craig Hunter
Company Secretary
8 April 2016
Income Statement
Year to 31 December 2015 Year to 31 December 2014
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gain on disposal of fixed asset investments - 3 3 - 60 60
Loss on valuation of fixed asset investments 9 - (1,355) (1,355) - (527) (527)
Performance fee 5 - 301 301 - 123 123
Income 2 - - - 12 - 12
Other expenses 3 (154) - (154) (163) - (163)
Return on ordinary activities before tax (154) (1,051) (1,205) (151) (344) (495)
Taxation on return on ordinary activities 6 - - - - - -
Return on ordinary activities after tax (154) (1,051) (1,205) (151) (344) (495)
Return on ordinary activities after tax attributable
to:
Owners of the fund (154) (1,051) (1,205) (151) (344) (495)
Earnings per share - basic and diluted 7 (1.9)p (13.0)p (14.9)p (1.9)p (4.2)p (6.1p)
8 April 2016
There was no other Comprehensive Income recognised during the year
-- The 'Total' column of the income statement and statement of comprehensive
income is the profit and loss account of the Company; the supplementary
revenue return 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 accompanying notes are an integral part of the financial statements.
-- 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 Company has no recognised gains or losses other than the results for
the year as set out above.
Statement of Changes in Equity
Special Capital
Share distributable redemption Capital reserve gains/ Capital reserve holding gains/ Revenue
Capital reserve reserve (losses) (losses) reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1
January
2014 4,058 3,397 38 (315) 1,989 (1,338) 7,829
Revenue
return on
ordinary
activities
after tax - - - - - (151) (151)
Performance
fee
allocated
as capital
expenditure - - - 123 - - 123
Current
period
gains on
disposal - - - 60 - - 60
Current
period
losses on
fair value
of
investments - - - - (527) - (527)
Prior years'
unrealised
losses now
realised - - - (33) 33 - -
Balance as
at 31
December
2014 4,058 3,397 38 (165) 1,495 (1,489) 7,334
-
Revenue
return on
ordinary
activities
after tax - - - (154) (154)
Performance
fee
allocated
as capital
expenditure - - - 301 - - 301
Current
period
gains on
disposal - - - 3 - - 3
Current
period
losses on
fair value
of
investments - - - - (1,355) - (1,355)
Prior years'
unrealised
gains now
realised - - - 5 (5) - -
Balance as
at 31
December
2015 4,058 3,397 38 144 135 (1,643) 6,129
Refer to note 13 for movement in Shareholders' funds.
The accompanying notes are an integral part of the financial statements.
Balance Sheet
As at As at
31 December 2015 31 December 2014
Notes GBP'000 GBP'000 GBP'000 GBP'000
Fixed asset investments* 9 6,753 8,072
Current assets:
Debtors 10 6 8
Cash at bank (169) 16
Creditors: amounts falling due
within one year 11 (60) (60)
Net current assets (223) (36)
Creditors: amounts falling due
more than one year 11 (401) (702)
Net assets 6,129 7,334
Called up equity share capital 12 4,058 4,058
Share premium 13 - -
Special distributable reserve 13 3,397 3,397
Capital redemption reserve 13 38 38
Capital reserve - gains and
losses on disposals 13 144 (165)
-
holding
gains
and
losses 13 135 1,495
Revenue reserve 13 (1,643) (1,489)
Total equity Shareholders'
funds 6,129 7,334
Net asset value per share 8 75.5p 90.4p
*At fair value through Income Statement
The accompanying notes are an integral part of the financial statements.
The statements were approved by the Directors and authorised for issue
on 8 April 2016 and are signed on their behalf by:
John Hustler
Chairman
Company No: 04221489
Statement of Cash Flows
Year to 31 December 2015 Year to 31 December 2014
Notes GBP'000 GBP'000
Cash flows from
operating
activities
Return on
ordinary
activities
before tax (1,205) (495)
Adjustments for:
Decrease in
debtors 10 2 67
Decrease in
creditors 11 (301) (117)
Gain on disposal
of fixed
assets 9 (3) (60)
Loss on
valuation of
fixed asset
investments 9 1,355 527
Cash from
operations (152) (78)
Income taxes
paid 6 - -
Net cash
generated from
operating
activities (152) (78)
Cash flows from
investing
activities
Purchase of
fixed asset
investments 9 (49) (70)
Sale of fixed
asset
investments 9 16 134
Total cash flows
from investing
activities (33) 64
Cash flows from
financing
activities
Total cash flows
from financing
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activities - -
Decrease in cash
and cash
equivalents (185) (14)
Opening cash and
cash
equivalents 16 30
Closing cash and
cash
equivalents (169) 16
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
This is the first year in which the financial statements have been
prepared under Financial Reporting Standard 102 - 'The Financial
Reporting Standard applicable in the United Kingdom and Republic of
Ireland' ('FRS 102'). The Company has adopted FRS 102 for the year ended
31 December 2015. The main changes are primarily presentational - to the
fixed asset investments' fair value hierarchy, and the primary
statements and associated reconciliations. The accounting policies have
not materially changed from last year.
A review of any required changes to comparative figures has taken place
and it has been deemed that no such restatements are necessary.
1. Principal Accounting Policies
Basis of preparation
The financial statements have been prepared under the historical cost
convention, except for the measurement at
fair value of certain financial instruments, and in accordance with UK
Generally Accepted Accounting Practice ("GAAP"), including FRS 102 and
with the Companies Act 2006 and the Statement of Recommended Practice
(SORP) 'Financial Statements of Investment Trust Companies and Venture
Capital Trusts (revised 2014)'.
The principal accounting policies have remained materially unchanged
from those set out in the Company's 2014 Annual Report and financial
statements. There have been no changes to the measurement of the assets
and liabilities as a result of the transition to FRS 102. A summary of
the principal accounting policies is set out below.
FRS 102 sections 11 and 12 have been adopted with regard to the
Company's financial instruments. The Company held all fixed asset
investments at fair value through profit or loss. Accordingly, all
interest income, fee income, expenses and gains and losses on
investments are attributable to assets held at fair value through profit
or loss.
The most important policies affecting the Company's financial position
are those related to investment valuation and require the application of
subjective and complex judgements, often as a result of the need to make
estimates about the effects of matters that are inherently uncertain and
may change in subsequent periods. These are discussed in more detail
below.
Going Concern
After reviewing the Company's forecasts and expectations, the Directors
have a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. The
Company therefore continues to adopt the going concern basis in
preparing its financial statements.
Key judgements and estimates
The preparation of the financial statements requires the Board to make
judgements and estimates regarding the application of policies and
affecting the reported amounts of assets, liabilities, income and
expenses. Estimates and assumptions mainly relate to the fair valuation
of the fixed asset investments particularly unquoted investments.
Estimates are based on historical experience and other assumptions that
are considered reasonable under the circumstances. The estimates and the
assumptions are under continuous review with particular attention paid
to the carrying value of the investments.
Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Unquoted investments are valued in accordance with
current IPEVC valuation guidelines, although this does rely on
subjective estimates such as appropriate sector earnings multiples,
forecast results of investee companies, asset values of investee
companies and liquidity or marketability of the investments held.
Although the Directors believe that the assumptions concerning the
business environment and estimate of future cash flows are appropriate,
changes in estimates and assumptions could result in changes in the
stated values. This could lead to additional changes in fair value in
the future.
Functional and presentational currency
The financial statements are presented in Sterling (GBP). The functional
currency is also Sterling (GBP).
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 bank overdrafts.
Fixed asset investments
The Company's principal financial assets are its investments and the
policies in relation to those assets are set out below.
Purchases and sales of investments are recognised in the financial
statements at the date of the transaction (trade date).
These investments will be managed and their performance evaluated on a
fair value basis and information about them is provided internally on
that basis to the Board. Accordingly, as permitted by FRS 102, the
investments are measured as being fair value through profit or loss on
the basis that they qualify as a group of assets managed, and whose
performance is evaluated, on a fair value basis in accordance with a
documented investment strategy. The Company's investments are measured
at subsequent reporting dates at fair value.
In the case of investments quoted on a recognised stock exchange, fair
value is established by reference to the closing bid price on the
relevant date or the last traded price, depending upon convention of the
exchange on which the investment is quoted. In the case of AIM quoted
investments this is the closing bid price. In the case of unquoted
investments, fair value is established by using measures of value such
as the price of recent transactions, earnings multiple, discounted cash
flows and net assets. These are consistent with the International
Private Equity and Venture Capital (IPEVC) guidelines which can be found
on their website at www.privateequityvaluation.com.
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 capital reserve - holding gains/(losses).
In the preparation of the valuations of assets the Directors are
required to make judgements and estimates that are reasonable and
incorporate their knowledge of the performance of the investee
companies.
Fair value hierarchy
Paragraph 34.22 of FRS 102 regarding financial instruments that are
measured in the balance sheet at fair value requires disclosure of fair
value measurements dependent on whether the stock is quoted and the
level of the accuracy in the ability to determine its fair value. The
fair value measurement hierarchy is as follows:
For quoted investments:
Level a: quoted prices in active markets for an identical asset. The
fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. A market is regarded as
active if quoted prices are readily and regularly available, and those
prices represent actual and regularly occurring market transactions on
an arm's length basis. The quoted market price used for financial assets
held is the bid price at the Balance Sheet date.
Level b: where quoted prices are not available (or where a stock is
normally quoted on a recognised stock exchange that no quoted price is
available), the price of a recent transaction for an identical asset,
providing there has been no significant change in economic circumstances
or a significant lapse in time since the transaction took place. The
Company holds no such investments in the current or prior year.
For investments not quoted in an active market:
Level c: the fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. These
valuation techniques maximise the use of observable data (eg the price
of recent transactions, earnings multiple, discounted cash flows and/or
net assets) where it is available and rely as little as possible on
entity specific estimates. If all significant inputs required to fair
value an instrument are observable, the instrument is included in level
c (i). If one or more of the significant inputs is not based on
observable market data, the instrument is included in level c (ii). The
split of the investment categories is shown in note 9.
There have been no transfers between these classifications in the year
(2014: none). The change in fair value for the current and previous year
is recognised through the profit and loss account.
Current asset investments
No current asset investments were held at 31 December 2015 or 31
December 2014. Should current assets be held, 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 capital
reserve - gains/(losses) on disposal.
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.
Expenses
All expenses are accounted for on an accruals basis. Expenses are
charged wholly to revenue with the exception of the performance fee,
which has been charged 100% to the capital reserve.
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
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losses on disposal and holding gains and losses on investments. Gains
and losses arising from changes in fair value of investments are
recognised as part of the capital return within the Income Statement and
allocated to the appropriate capital reserve on the basis of whether
they are realised or unrealised at the balance sheet date.
Taxation
Current tax is recognised for the amount of income tax payable in
respect of the taxable profit for the current or past reporting periods
using the current tax rate. The tax effect of different items of
income/gain and expenditure/loss is allocated between capital and
revenue return on the "marginal" basis as recommended in the SORP.
Deferred tax is recognised on an undiscounted basis in respect of all
timing differences that have originated but not reversed at the balance
sheet date, except as otherwise indicated.
Deferred tax assets are only recognised to the extent that it is
probable that they will be recovered against the reversal of deferred
tax liabilities or other future taxable profits.
Financial instruments
The Company's principal financial assets are its investments and the
policies in relation to those assets are set out above. Financial
liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the
assets of the entity after deducting all of its financial liabilities.
Where the contractual terms of share capital do not have any terms
meeting the definition of a financial liability then this is classed as
an equity instrument.
Capital management is monitored and controlled using the internal
control procedures set out in the Accounts. The capital being managed
includes equity and fixed-interest investments, cash balances and liquid
resources including debtors and creditors.
The Company does not have any externally imposed capital requirements.
Reserves
Called up equity share capital - represents the nominal value of shares
that have been issued.
Share premium account - includes any premiums received on issue of share
capital. Any transaction costs associated with the issuing of shares are
deducted from share premium.
Special distributable reserve - includes cancelled share premium
available for distribution.
Capital reserve - holding gains & losses - arises when the Company
revalues the investments still held during the period with any gains or
losses arising being credited/ charged to the Capital reserve - holding
gains & losses.
Capital reserve - gains and losses on disposal - arises when an
investment is sold any balance held on the Capital reserve - holding
gains and losses is transferred to the Capital reserve - gains and
losses on disposal, as a movement in reserves.
Dividends
Dividends payable are recognised as distributions in the financial
statements when the Company's liability to make payment has been
established. This liability is established for interim dividends when
they are declared by the Board, and for final dividends when they are
approved by the Shareholders.
1. Income
Year to 31 December 2015 Year to 31 December 2014
GBP'000 GBP'000
Dividends received - 2
Loan note interest
receivable - 10
- 12
1. Other Expenses
Year to Year to
31 31
December December
2015 2014
GBP'000 GBP'000
Directors' remuneration 49 55
Fees payable to the Company's auditor for the audit
of the financial statements 9 8
Fees payable to the Company's auditor for other services
- tax compliance 1 1
Legal and professional expenses 55 57
Accounting and administration services 30 35
Other expenses 10 7
154 163
For the year ended 31 December 2015 the running costs were 2.5% (2014:
2.2%) of net assets.
1. Directors' Remuneration
Year to 31 December 2015 Year to 31 December 2014
GBP GBP
Directors' emoluments
John Hustler (Chairman)* 14,750 17,500
Charles Breese 14,750 17,500
Richard Roth** 2,769 -
James Otter * and ** 16,231 20,000
48,500 55,000
* On 15 July 2015 James Otter retired as Chairman of the Board and John
Hustler was appointed as Chairman.
** On 7 October 2015 James Otter resigned as a Director and Richard Roth
was appointed as a Director.
None of the Directors received any other remuneration from the Company
during the year. The Directors may become entitled to receive a share of
the Performance Incentive Fee as detailed in the Directors' Remuneration
Report on Page 16 of the Accounts and in note 5. The Company has no
employees other than non-executive Directors. The average number of
non-executive Directors in the year was three (2014: three).
1. Performance fees
The Commercial Advisory Committee took over management of the Company's
investments on 30 July 2007, and at that time, a revised Performance
Incentive Scheme was implemented, such that its members would be
entitled to 20% of all cash returns above the initial net cost to
subscribing shareholders of 80p.
On 7 October 2015, this scheme was varied such that any returns above
the 31 December 2014 levels would be subject to a hurdle, and the share
to the CAC reduced from 20% to 10%. The hurdle is a compound 6% per
annum on any amounts below the latest hurdle still due to be paid to
shareholders (i.e. in recognition of dividends paid, actual returns to
shareholders will be subtracted from the compounding threshold in the
year these are paid).
The Total Gross Return at 31 December 2014 on which the performance fee
liability of GBP702,000 was calculated was 123.3p, resulting in the
quoted net asset value of 114.6p. For the purposes of this note 5, Total
Gross Return is defined as the total return made by the fund, before the
deduction of any dividend payments or accruals and/or payments made
relating to any potential (or actual) performance incentive fee.
Any dividends paid above 80p will be split 80% to shareholders and 20%
to the members of the CAC as at 31 December 2014, until shareholders
have received dividends totalling 114.6p.
A performance fee may be payable on any further dividends above this
level, but only if the hurdle applicable at that time has been met.
As at 31 December 2015, the Total Gross Return is 104.7p, and so 4.94p
per share totalling GBP401,000 has been accrued (31 December 2014 123.3,
8.7p and GBP702,000).
Assuming no dividends are paid during the year, the Total Gross Return
would need to exceed 134.4p at 31 December 2016 before any fee above
GBP702,000 could be due, and at that time, it would be 10% of any cash
payments made above this threshold. If such a performance fee is not
triggered (as it has not been in this financial year) the hurdle, net of
dividends paid, increments by a compound annual growth rate of 6%,
applied quarterly.
1. Tax on Ordinary Activities
The corporation tax charge for the period was GBPnil (2014: GBPnil).
The current rate of tax is the small companies' rate of corporation tax
at 20.0% (2014: 20.0%)
Year to Year to
31 31
December December
Current tax reconciliation: 2015 2014
GBP'000 GBP'000
Return on ordinary activities before tax (154) (151)
Current tax at 20.0% (2014: 20.0%) (31) (30)
Unrecognised tax losses 31 30
Total current tax charge and tax on results of ordinary - -
activities
The company has excess management charges of GBP2,610,885 (2014:
GBP2,757,976) to carry forward to offset against future taxable profits.
Approved VCTs are exempt from tax on capital gains within the Company.
Since the Directors intend that the Company will continue to conduct its
affairs so as to maintain its approval as a VCT, no current deferred tax
has been provided in respect of any capital gains or losses arising on
the revaluation or disposal of investments.
1. Earnings per Share
The earnings per share is based on 8,115,376 (31 December 2014:
8,115,376) shares, being the weighted average number of shares in issue
during the year, and a return for the year totalling (GBP1,205,000) (31
December 2014: (GBP495,000)).
There are no potentially dilutive capital instruments in issue and,
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therefore, no diluted returns per share figures are relevant. The basic
and diluted earnings per share are therefore identical.
1. Net Asset Value per Share
The calculation of NAV per share as at 31 December 2015 is based on
8,115,376 ordinary shares in issue at that date (31 December 2014:
8,115,376).
1. Fixed Asset Investments
Level c (ii):
Level a: Unquoted Total
AIM-quoted investments investments investments
GBP'000 GBP'000 GBP'000
Valuation and net
book amount:
Book cost as at 1
January 2015 1,510 5,067 6,577
Cumulative
revaluation 3,592 (2,097) 1,495
Valuation at 1
January 2015 5,102 2,970 8,072
Movement in the
year:
Purchases at cost - 49 49
Disposal proceeds (13) (3) (16)
Gain/(loss) on
disposal - 3 3
Revaluation in
year (1,655) 300 (1,355)
Valuation at 31
December 2015 3,434 3,319 6,753
Book cost at 31
December 2015 1,502 5,116 6,618
Revaluation to 31
December 2015 1,932 (1,797) 135
Valuation at 31
December 2015 3,434 3,319 6,753
Further details of the fixed asset investments held by the Company are
shown within the Investment Review on pages 5 to 11 of the Accounts.
All investments are initially measured as fair value through profit or
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.
1. Debtors
31 December 2015 31 December 2014
GBP'000 GBP'000
Prepayments and accrued income 6 8
6 8
1. Creditors
31 December 2015 31 December 2014
GBP'000 GBP'000
Amounts falling due within one year
Accruals 24 24
Trade creditors 7 7
Other creditors 29 29
Total amounts falling due within one year 60 60
Amounts falling due after one year
Accruals 401 702
Total amounts falling due after one year 401 702
The amount falling due after more than one year relates to the potential
liability for a performance fee. More details are in Note 5.
1. Share Capital
31 December 2015 31 December 2014
GBP'000 GBP'000
Allotted and fully paid up:
8,115,376 Ordinary shares of 50p (2014:
8,115,376) 4,058 4,058
The capital of the Company is managed in accordance with its investment
policy with a view to the achievement of its investment objective as set
in the Accounts.
During the year, the Company did not issue, nor buy back, any shares.
1. Movement in Shareholders' Funds
Year ended Year ended
31 December 2015 31 December 2014
GBP'000 GBP'000
Shareholders' funds at start of year 7,334 7,829
Return on ordinary activities after
tax (1,205) (495)
Shareholders' funds at end of year 6,129 7,334
The analysis of changes in equity by the various reserves are shown on
Page 19.
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 held are then transferred to the capital
reserve - holding gains/(losses). When an investment is sold any balance
held on the capital reserve - holding gains/(losses) reserve is
transferred to the capital reserve - gains/(losses) on disposal as a
movement in reserves.
The purpose of the special distributable reserve was to create a reserve
which will be capable of being used by the Company to pay dividends and
for the purpose of making repurchases of its own shares in the market
with a view to narrowing the discount at which the Company's shares
trade to net asset value, providing shareholder authority has been
granted.
During 2010, the Company revoked investment company status in order to
allow payment of dividends from distributable reserves. Distributable
reserves are represented by the special distributable reserve, the
capital reserve gains/(losses) on disposal and the revenue reserve
reduced by negative holding reserves (if any) which total GBP1,898,000
as at 31 December 2015 (2014: GBP1,743,000).
1. Financial Instruments
The Company's financial instruments comprise equity and loan note
investments, cash balances and liquid resources including debtors and
creditors.
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 31 December
2015 and 31 December 2014:
31 December 2015 31 December 2014
GBP'000 GBP'000
Financial assets at fair value through
profit or loss
Fixed asset investments 6,753 8,072
Total 6,753 8,072
Financial assets measured at amortised
cost
Cash at bank (169) 16
Debtors 6 8
Total (163) 24
Financial liabilities measured at
amortised cost
Creditors (461) (762)
Total (461) (762)
Fixed asset investments (see note 9) 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 recognised at fair value which
is usually the transaction cost or net realisable value if lower.
Hygea has an overdraft facility of GBP200,000 with the Royal Bank of
Scotland. There is a debenture security held over this overdraft.
1. 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.
Market risk
The Company's strategy for managing investment risk is determined with
regard to the Company's investment objective, as outlined in the
Accounts. 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 page 5 of the Accounts.
54.2% (2014: 40.5%) by value of the Company's gross assets comprise
investments in unquoted companies held at fair value. The valuation
methods used by the Company include the application of a price/earnings
ratio derived from listed companies with similar characteristics, and
consequently the value of the unquoted element of the portfolio can be
indirectly affected by price movements on the London Stock Exchange. A
10% overall increase in the valuation of the unquoted investments at 31
December 2015 would have increased net assets and the total return for
the year by GBP331,900 (2014: GBP297,000) 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.
56.0% (2014: 69.9%) by value of the Company's gross net assets comprises
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equity securities quoted on AIM. A 10% increase in the bid price of
these securities as at 31 December 2015 would have increased net assets
and the total return for the year by GBP343,000 (2014: GBP510,000)
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 31 December 2015 or 31 December 2014.
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.
At 31 December 2015 the Company's financial assets exposed to credit
risk comprised the following:
31 December 2015 31 December 2014
GBP000 GBP000
Cash at bank (169) 16
(169) 16
The Company's interest-bearing deposit and current accounts are
maintained with The Royal Bank of Scotland plc.
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, or to respond to specific events such as deterioration in
the creditworthiness of any particular issuer.
The Company's liquidity risk is managed on a continuing basis by the
Board in accordance with policies and procedures laid down by the Board.
The Company's overall liquidity risks are monitored on a quarterly basis
by the Board.
1. Events After the Balance Sheet Date
As referenced in the Chairman's statement, in March 2016, we invested
GBP20,048 in Exosect, and sold 226,519 shares in EKF for GBP25,000 and
137,900 shares in Omega Diagnostic for GBP20,000.
1. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at
31 December 2015 (2014: GBPnil).
1. Related Party Transactions
The Board acts as the investment manager of the Company. No
remuneration has been paid to the Board during the year in its capacity
as investment manager. The Directors are entitled to participate in a
performance bonus as detailed in Note 5.
James Otter was an Observer on the board of Hallmarq for which he
received a fee from Hallmarq during the year of GBP5,500 (2014:
GBP6,000).
Charles Breese is a director of OR Productivity and received GBPnil from
OR Productivity in fees for his support during the year (GBP2014:
GBP10,000).
Richard Roth was appointed as a Consultant from 1 July 2015 until he
joined the Board. He was paid GBP2,500 in respect of these services.
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 31 December 2015, income statement and
cash flow statement for the period then ended have been extracted from
the Company's 2015 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 31 December 2015 will
be filed with the Registrar of Companies.
Copies of the documents will be submitted to the National Storage
Mechanism and are available for inspection at:
http://www.mornningstar.co.uk/uk/NNSM
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Hygea vct plc
("the Company") will be held at the offices of Octopus Investments, 33
Holborn, London, EC1N 2HT on Thursday 2 June 2016 at 12.00 noon for the
following purposes:
ORDINARY BUSINESS
To consider and if thought fit, pass the following as Ordinary
Resolutions
1. That the Directors' Annual Report and Accounts and the auditors' report
thereon for the year ended 31 December 2015 be received and adopted.
2. That the Directors' Remuneration Report in respect of the year ended 31
December 2015 be received and adopted.
3. That the Directors' Remuneration Policy contained in the Directors'
Remuneration Report for the year ended 31 December 2015 be approved.
4. That Charles Breese be re-elected as a Director of the Company.
5. That John Hustler be re-elected as a Director of the Company.
6. That Richard Roth be re-elected as a Director of the Company.
7. That James Cowper Kreston be re-appointed as auditors of the Company
until the conclusion of the next Annual General Meeting of the Company at
which accounts are laid before the Members.
8. That the Directors be authorised to determine the auditor's remuneration.
SPECIAL BUSINESS
1. AUTHORITY TO ALLOT RELEVANT SECURITIES
That the Directors be and are generally and unconditionally authorised
in accordance with s551 of the Companies Act 2006 to exercise all the
powers of the Company to allot shares in the Company up to a maximum
nominal amount of GBP405,767 (representing approximately 10% of the
Ordinary share capital in issue at today's date such authority to expire
at the later of the conclusion of the Company's Annual General Meeting
next following the passing of this Resolution and the expiry of 15
months from the passing of the relevant Resolution (unless previously
revoked, varied or extended by the Company in a general meeting but so
that such authority allows the Company to make offers or agreements
before the expiry thereof, which would or might require relevant
securities to be allotted after the expiry of such authority).
To consider and, if thought fit, pass the following as a Special
Resolution:
1. EMPOWERMENT TO MAKE ALLOTMENTS OF EQUITY SECURITIES
THAT the Directors pursuant to s571 of the Companies Act 2006 be
empowered to allot or make offers or agreements to allot equity
securities (as defined in s560(1) of the said Act) for cash pursuant to
the authority referred to in Resolution 9 as if s561 (1) of the Act did
not apply to any such allotments and so that:
1. reference to allotment in this Resolution shall be construed in
accordance with s560(2) of the Act; and
2. the power conferred by this Resolution shall enable the Company to make
any offer or agreement before the expiry of the said power which would or
might require equity securities to be allotted after the expiry of the
said power and the Directors may allot equity securities in pursuance of
such offer or agreement notwithstanding the expiry of such power.
And this power, unless previously varied, revoked or renewed, shall come
to an end at the conclusion of the Annual General Meeting of the Company
next following the passing of this Resolution or, if earlier, on the
expiry of 15 months from the passing of this Resolution.
Notice of Annual General Meeting (continued)
By order of the Board Registered office:
39 Alma Road
St Albans
AL1 3AT
Craig Hunter Company Secretary
NOTES:
(a) A member entitled to attend and vote at the Annual General
Meeting may appoint one or more proxies to attend and vote on his or her
behalf. A proxy need not be a member.
(b) A form of proxy is enclosed which, to be effective, must be
completed and delivered to the registrars of the Company, Neville
Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, B63 3DA so
as to be received by no later than 48 hours before the time the Annual
General Meeting is scheduled to begin. The completion and return of the
form of proxy will not affect the right of a member to attend and vote
at the Annual General Meeting.
(c) Copies of the Directors' Letters of Appointment, the Register
of Directors' Interests in the Ordinary shares of the Company kept in
accordance with the Listing Rules Articles of Association will be
available for inspection at the registered office of the Company during
usual business hours on any weekday from the date of this notice until
the Annual General Meeting, and at the place of that meeting for at
least 15 minutes prior to the commencement of the meeting until its
conclusion.
This announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Hygea VCT plc via Globenewswire
HUG#2002134
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