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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Seneca Growth Capital Vct Plc | LSE:HYG | London | Ordinary Share | GB0031256109 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 13.50 | 10.00 | 17.00 | 13.50 | 13.50 | 13.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | -2.26M | -2.75M | -0.0950 | -6.37 | 17.5M |
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TIDMHYG
For immediate release 10 April 2017
Hygea VCT plc ("the Company" or "Hygea")
Annual Report and Accounts for the year ended 31 December 2016
and
Notice of General Meeting
The Directors are pleased to announce the audited results of the Company
for the year ended 31 December 2016 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 Friday 19 May 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 2016 Year to 31 December 2015
Net assets (GBP'000s) 5,547 6,129
Return on ordinary
activities after tax
(GBP'000s) (582) (1,205)
Earnings per share (7.2p) (14.9p)
Net asset value per share 68.3p 75.5p
Dividends paid since 24.25p 24.25p
inception
Total return (NAV plus 92.55p 99.75p
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 2016 Annual Report to shareholders.
Overview
2016 has seen no respite in the problems faced by emerging Life Science
companies which I reported last year and, whilst the events of the last
year have affected the markets less than expected, this has not
translated into any increase in institutional investors' appetite for
shares in smaller quoted companies in our sector. Therefore I regret
that the reduction in the bid price of Scancell plc from 21.5p to 14.5p
during the year (5.25p of which has already been reported in arriving at
the Net Asset Value ('NAV') at 30 June 2016) is largely responsible for
the reduction in the Company's NAV at 31 December 2016 to 68.3p (31
December 2015: 75.5p). Happily though, our largest unquoted holding
(Hallmarq Veterinary Imaging Limited) has continued to perform strongly
and we have been able to recognise this in a significant increase in
value to partially offset the reduction in the value of our Scancell
holding.
We keep our position as regards Scancell plc continually under review
and, whilst there are a range of opinions amongst our shareholders, we
believe that, for the reasons stated below, on balance, we should not
seek to reduce our holding at the current price or time.
Despite this disappointing overall result, your Board sees several signs
of optimism within the portfolio and these are referred to later in my
report and in the Investment Review.
Results and Dividend
During the year our revenue return on ordinary activities saw a loss of
1.6p per share, a 16% reduction on 2015's loss of 1.9p. This is welcome
news and follows our cost reduction programme where operating costs
reduced by GBP25,000 (or 16%), and, notwithstanding the reduction in NAV,
the total expense ratio reduced from 2.5% to 2.3%.
The capital return per share amounted to a loss of 5.6p compared to a
loss of 13.0p in 2015, primarily due to the reduction in the bid price
of Scancell plc but offset by the increase in the value of Hallmarq
Veterinary Imaging Limited as referred to earlier.
During the year we made small additions to our holdings in Arecor
Limited and Exosect Limited to support their fundraisings. In order to
fund these investments and provide for working capital, we have realised
697,688 shares in EKF Diagnostics plc, 137,900 shares in Omega
Diagnostics plc and our total holding in Reneuron plc.
As previously reported, Hygea has a policy of accruing the Board's
performance fee and, due to the reduction in Net Asset Value, this
accrual has reduced during the year by GBP146,000, thus reducing the
loss for the year. The accrual was GBP255,000 at 31 December 2016.
Overall, the total return for the year amounted to a loss of 7.2p per
share compared to a loss of 14.9p per share in 2015.
Our overdraft facility has remained at GBP200,000 throughout the year
and has been renewed. The Board continue to utilise most of this but do
not consider it prudent to seek to increase the limit, even though
interest rates remain low. We have investigated the possibility of
raising some working capital through other means but have decided that
the associated costs prohibited this course of action at this time.
As I reported last year, the Board's current policy with regard to
dividends will be to return funds to shareholders as soon as practical
following any significant realisation, once the outstanding overdraft
has been repaid. Sadly I do not see that this will be possible in the
coming year given the political uncertainties, which will affect both
the stock market and appetite for M&A transactions. However I would
point out that previous realisations have rarely been seen more than
three months ahead.
Portfolio Review
I have reported above on the purchase and sale of shares in portfolio
companies for liquidity management purposes. In addition Wound Solutions
Limited has been liquidated and, whilst it had been written down to nil
value some years ago, we have now removed it from our list of holdings.
Full details of our portfolio and an update in relation to our major
investments is included in the Investment Review.
Scancell plc has announced very positive test results and are reported
to be "very optimistic" about the US study after "compelling" melanoma
trial results. We also remain optimistic that this investment will
deliver results well in excess of our current valuation. Given that this
is one of our major investments, shareholders may like to view an
interview with Scancell's CEO, Dr Richard Goodfellow, at
http://www.proactiveinvestors.co.uk/companies/stocktube/6674/scancell-very-optimistic-about-us-study-after-compelling-melanoma-trial-results-6674.html
As mentioned already, we have increased the valuation of our investment
in Hallmarq Veterinary Imaging Limited by GBP624,000 and also made
modest increases in the valuations of Arecor Limited and Insense Limited
following their recent fundraisings. Exosect Limited has progressed well
and we have taken the opportunity to release part of the provision we
made last year.
However, on a more challenging note, both Fuel 3D Limited and Glide
Pharmaceutical Technologies Limited have found that raising the extra
capital to progress their science has been extremely difficult and our
valuations now reflect this. We have written down the value of Fuel 3D
to the price of the latest fundraising. Despite Glide producing
excellent clinical results from its trials during 2016, their board
found the raising of further funds challenging and we have therefore
taken a further significant provision to reflect the penal terms that
were finally agreed with their chosen investor.
Annual General Meeting
The Company's AGM will be held at 12.00 noon on Friday 19 May 2017 at
the Offices of Octopus Investments, 33 Holborn, London E1N 2HT and we
look forward to welcoming you to the meeting.
VCT Qualifying Status
We have appointed Philip Hare & Associates to provide the Board with
advice on the ongoing compliance with HMRC rules and regulations
concerning VCTs. The Board remains confident that we comply with all the
required VCT rules and regulations.
Fund Administration
As a continuation of our objective to seek to reduce the cost of
administration, and in conjunction with Octopus Investments, we have
agreed that our administration will now be performed by Pennywise
Accounting Limited with effect from 1 April 2017. We are very grateful
to Octopus for all their help and advice since the Company was formed in
2001. As shareholders will know, our Registrars are now Neville
Registrars Limited. In addition, Annual Reports, notices of meetings and
other documents are published on our website at www.hygeavct.com. We are
grateful to those shareholders who have elected for e-communications and,
in the spirit of reducing paper, we would urge other shareholders to
elect for this method of communication by contacting the Registrars.
Future Prospects
The Chairman's Statement has previously highlighted the shortcomings of
the UK capital markets in relation to complex activities, including Life
Sciences where, quite rightly, the processes which have to be gone
through before a technology can be used on patients are very demanding,
calling for considerable patience on the part of investors. There has
been a dearth of long term capital in the UK to enable early stage
investors in UK businesses to exit and recycle their capital. However,
there are some signs that such capital in the UK is beginning to emerge,
which should form an escalator of capital for Life Science companies.
Importantly, the potential investing organisations contain people with
in-depth knowledge of the science - the shortage of such knowledge
within the UK capital markets has, in our view, been one of the big
impediments to a company such as Scancell accessing funding from major
UK institutional investors.
Your Board is disappointed that it has not been able, to date, to return
more capital to shareholders. We continue to consider a range of options
including the opportunity to increase the size of the Company or even
winding it up but have, to date, decided that no alternative option
would be in the best interests of shareholders for the following reasons
in combination:
1. the capital market developments referred to above should assist the
development of the portfolio;
2. we believe that, subject to access to the necessary capital, the
portfolio has significant upside potential;
3. if we distribute the portfolio in specie, shareholders may be exposed to
capital gains tax should this upside potential be realised, which would
be avoided if the investments continue to be held through Hygea. A number
of shareholders also have rolled over capital gains liabilities from
their initial subscription, which would be realised should a distribution
in specie be implemented, with potentially adverse consequences for
affected shareholders; and
4. the portfolio is beginning to develop as a structured portfolio with
profitable companies (e,g, Hallmarq and Omega Diagnostics) and
development stage companies (e.g. Scancell), both with significant upside
potential but the latter involving greater risks.
We consider that this makes Hygea attractive to new investors looking
for a portfolio with significant potential for capital appreciation
whilst enjoying the tax benefits associated with VCT shares. We would
hope this will appeal to new investors to provide an outlet for the
shares of any shareholders wishing to exit.
We consider that, for all these reasons, the Company remains a desirable
investment and explains why we continue to be optimistic about the
future of Hygea.
John Hustler
Chairman
7 April 2017
Investment Review
Investment Portfolio
Unrealised
Equity Investment at profit/(loss) Carrying value at Movement in the year to 31
Unquoted Investments Held (%) cost (GBP'000) (GBP'000) 31 December 2016 (GBP'000) December 2016 (GBP'000)
Hallmarq Veterinary
Imaging Limited 10.2 1,116 913 2,029 624
OR Productivity plc 11.1 765 (101) 664 -
Fuel 3D Technologies
Limited <1.0 299 (23) 276 (169)
Arecor Limited 2.1 141 45 186 28
ImmunoBiology
Limited 2.5 868 (742) 126 -
Insense Limited 8.1 509 (388) 121 33
Exosect Limited 1.3 270 (150) 120 38
Microarray Limited 2.9 132 (65) 67 -
Glide Pharmaceutical
Technologies
Limited 1.2 326 (314) 12 (307)
Axon Limited 13.7 374 (374) - -
Total unquoted
investments 4,800 (1,199) 3601 247
Unrealised
Shares Investment at profit/(loss) Carrying value at Movement in the year to 31
Quoted Investments Held cost (GBP'000) (GBP'000) 31 December 2016 (GBP'000) December 2016 (GBP'000)
Scancell plc 13,249,730 801 1,120 1,921 (927)
Omega Diagnostics
plc 2,293,868 328 73 401 46
EKF Diagnostics plc 587,864 119 (23) 96 31
Genedrive plc
(previously EpiStem
Holdings plc) 34,300 43 (24) 19 (21)
Total quoted
investments 1,291 1,146 2,437 (871)
Total investments 6,091 (53) 6,038 (624)
Ten largest holdings (by value)
1. Hallmarq Veterinary Imaging Limited
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) rather than systems
sales. The next development project is an MRI scanner
Initial for companion animals, PetVet, a market which is significantly
investment 31 August larger than the equine market - the first PetVet was
date: 2005 installed in Q4 2014.
Cost: GBP1,116,000
Valuation: GBP2,029,000
Equity
held: 10.2%
Last 31 August
audited 2016
accounts:
Turnover: GBP6.4
million
Profit GBP1.3
before million
tax:
Net assets: GBP8.9
million
Valuation Earnings
method: multiple
Update since 2015: The unaudited results to August 2016 showed sales of
GBP6.4 million (2015 GBP5.4 million), EBITDA of GBP2.5 million (2015:
GBP2.0 million) and pre-tax profit of GBP1.3 million (2015: GBP1.0
million), with recurring income growing from GBP4.3 million to GBP5.2
million. Key events include:
1. the first PetVet in the US (the third installation overall) has been
completed - this is expected to make selling in the US (the largest
market for PetVet) easier because US vets will no longer have to come to
the UK to see a working system;
2. a framework supply agreement for PetVet was signed with VCA (North
America's largest network with >600 small animal veterinary hospitals) -
in January 2017, it was announced that VCA is being acquired by Mars Inc.
for c.$7.7 billion; and
3. agreement was reached for Hallmarq to introduce Toshiba's CT scanning to
UK vets. Working with more than one imaging modality increases the
likelihood of generating sales from a given input of selling resource.
4. Scancell plc
Scancell is an AIM listed biotechnology company that
is developing a pipeline of therapeutic vaccines to
target various types of cancer, with the first target
being melanoma. The Immunobody 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
second platform technology, Moditope, was announced.
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
Initial very few, if any, effective treatment options - there
investment December are c. 360,000 such patients in the US alone, of whom
date: 2003 c.45% are suitable for SCIB1 treatment.
Cost: GBP801,000
Valuation: GBP1,921,000
Equity
held: 5.1%
Last 30 April
audited 2016
accounts:
Turnover: GBPnil
Loss before GBP3.0
tax: million
Net assets: GBP10.0
million
Valuation Bid price of
method: 14.5p per
share
In 2015, Scancell started to increase its US orientation in order to
access the US infrastructure (clinicians, patient support organisations,
pharma companies, capital markets etc) available for supporting Life
Sciences companies - this has included the appointment as chairman of
John Chiplin, a seasoned biotech CEO who is based in San Diego.
Update since 2015: Scancell's activity now comprises two cancer vaccine
platforms from which have been developed three products for use in five
cancer indications. An encouraging third party event has been the
acquisition in 2016 by Bristol-Myers Squibb of Padlock Therapeutics Inc
for upfront and near term contingent milestone payments of up to $225
million and additional contingent consideration of up to $375 million -
Padlock is pursuing a similar scientific approach in relation to
rheumatoid arthritis as Scancell is pursuing with Moditope for cancer.
Until fairly recently, there has been a somewhat negative attitude
within the pharma industry to vaccine based approaches to immunotherapy
due to past failures. However with developments such as the Padlock
acquisition and the support being expressed by key clinicians (see
below) it appears that the market is showing renewed interest in cancer
vaccines as ideal partners for checkpoint inhibitors. Against this
background, key achievements have been:
-- in July 2016, Dr Keith Flaherty, Director of the Termeer Center for
Targeted Therapy at Massachusetts General Hospital and lead investigator
for the trial referred to in the next bullet point, commented 'The SCIB1
overall survival and progression free survival data generated to date go
well beyond established norms for this group of melanoma patients. We
have a lot of enthusiasm for validating these results in subsequent
trials.';
-- the Phase II checkpoint inhibitor combination study with SCIB1 (melanoma)
is planned to start in H2 2017;
-- a Phase I/II clinical trial with SCIB2 (lung cancer) is planned to begin
in 2018. The Addario Lung Cancer Medical Institute and the Bonnie J.
Addario Lung Cancer Foundation will collaborate on the conduct of the
trial;
-- first-in-man Modi-1 clinical studies for breast cancer, ovarian cancer
and osteosarcoma are anticipated to start in 2018; and
-- the January 2017 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 52 months, with 1 patient
reaching 5-year post treatment survival time - median observation time
since entry in four resected patients who received 8mg is 21 months.
1. OR Productivity plc
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, FreeHand, 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
Initial as the leading solution worldwide for enabling HD
investment and 3D camera systems for keyhole surgery to provide
date: March 2011 a rock steady image.
Cost: GBP765,000
Valuation: GBP664,000
Equity
held: 11.1%
Last 31 March
audited 2016
accounts:
Turnover: GBP201,000
Loss before GBP1,343,000
tax:
Net assets: GBP246,000
Valuation Price of
method: last
fundraise
Update since 2015: Against the much publicised challenges being faced by
the NHS, selling new disruptive technologies to the NHS is also
challenging due to procurement practices being based primarily on price
rather than efficiency. However, encouraging developments include a) the
publication in October 2016 of Accelerated Access Review (endorsed by
the CEO of the NHS) regarding how the NHS needs to make it easier for
SMEs undertaking efficiency enhancing innovation to engage with the NHS
and b) senior personnel within two NHS Trusts known to ORP recognising
that procurement needs to focus on efficiency rather than just price and
that innovation is key to driving efficiency. Key progress has been as
follows:
1. FreeHand is being evaluated by the two NHS Trusts referred to above in
the context of potentially rolling it out across all of the hospitals
within those Trusts - if successful, these two projects alone have the
potential to make the UK FreeHand business a profit contributor;
2. new wristed instrument systems are emerging - these need a vision element
as part of the total solution, and FreeHand is very well positioned for
inclusion in such systems because it is currently available with
extensive clinical use, has international regulatory approval together
with 'freedom to operate' opinions in place around the world. One new
entrant (well-funded) has requested a quote via ORP's US distributor
which, if won, would have a first year sales value to ORP of c.GBP1.5M,
and another of the new entrants has also approached ORP; and
3. FreeHand has been engineered in a modular way, making it relatively easy
to develop variants to meet specific needs. During 2016, versions have
been developed to meet the needs of, for example i) low labour cost
markets for which a higher capital cost/lower consumable cost model is
more appropriate and ii) gynaecological surgeons; and
4. Two independent studies have been published, one showing the economic
benefit of using FreeHand and the other the ease of being trained to use
FreeHand, with a third study due for publication in 2017.
5. Omega Diagnostics plc
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
Initial using Omega's Genarrayt platform and the IDS-iSYS
investment August platform, which has been licensed from AIM listed
date: 2007 Immunodiagnostic Systems Holdings.
Cost: GBP328,000
Valuation: GBP401,000
Equity
held: 2.1%
Last 31 March
audited 2016
accounts:
Turnover: GBP12.7
million
Profit GBP662,000
before
tax:
Net assets: GBP20.2
million
Valuation Bid price
method: of 17.5p
per share
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 2015: both of the transformational projects are progressing
and the IDS-iSYS project achieved CE marking for its first panel of 41
allergens in 2016, with a long-term supply contract currently being
finalised with the first customer, which is in Germany - in addition,
CE-Marked malaria and pregnancy tests are due to be available for sale
by Q2 2017. The interim results to September 2016 showed sales of GBP6.8
million (2015: GBP6.15 million) and adjusted pre-tax profit of
GBP417,000 (2015: GBP351,000).
1. Fuel 3D Limited
Initial March 2010 Eykona was founded in 2007 to deploy computer vision
investment technology (essentially 3D imaging) developed within
date: 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.
Cost: GBP299,000
Valuation: GBP276,000
Equity < 1%
held:
Last 30
audited September
accounts: 2015
Turnover: GBP1,7
million
Loss GBP4.5
before million
tax:
Net GBP2
assets: million
Valuation Price of
method: last
fundraise
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 2015: Following the launch of the 3D scanner for the
consumer market, the company 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. Key progress has been as follows:
-- in May 2016, a Horizon 2020 EUR1.7 million grant was secured to develop
270-degree 3D scanner to support the provision of customised eyewear; and
-- in June 2016, the first enterprise system, the CryoScan3D, was launched
in partnership with Cryos Technologies (an innovator in the orthotics
sector).
The company raised further funds in 2016, and is completing an GBP8
million fundraising in 2017.
1. Arecor Limited
Arecor was a spin-out from Insense (a Hygea investee
company - see below) 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
Initial also assists in maintaining the integrity and function
investment of proteins exposed to ionizing radiation as the means
date: January 2008 of sterilisation.
Cost: GBP141,000
Valuation: GBP186,000
Equity
held: 2.1%
Last 31 May 2016
audited
accounts:
Turnover: GBP1,030,000
Profit GBP127,000
before
tax:
Net assets: GBP216,000
Valuation Price of
method: last
fundraise
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.
Update since 2015: key progress has been as follows:
1. in July 2016, a partnership was entered into with the Juvenile Diabetes
Research Foundation (JRDF) with the objective of accelerating the
development of a stable, rapid-acting, ultra-concentrated insulin - JDRF
will provide $900,000 of funding to support the project to the end of
non-clinical studies;
2. the company ended 2016 with relationships with 4 multi-product
development partners; and
3. in February 2017, a partnership was entered into with Innovate UK
providing a GBP1.05M grant to advance Arecor's proprietary stable
liquid glucagon product towards proof of concept in Phase I clinical
trials.
4. ImmunoBiology Limited
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
Initial technology (see above) for use in certain treatments
investment November - both approaches seek to educate the immune system
date: 2005 how to respond.
Cost: GBP868,000
Valuation: GBP126,000
Equity
held: 2.5%
Last 31 May
audited 2016
accounts:
Turnover: GBPnil
Loss before GBP1.9
tax: million
Net assets: GBP1.2
million
Valuation Price of
method: last
fundraise
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.
Update since 2015: the trial referred to above was successful with no
safety issues and good immunogenicity. On the back of this human data,
the company is seeking a licensor or buyer of the technology.
1. Insense Limited
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
Initial technology. It has since had two spin-outs, namely
investment Arecor (see above) and Microarray, leaving it developing
date: July 2003 a fungal nail treatment.
Cost: GBP509,000
Valuation: GBP121,000
Equity
held: 8.1%
Last 31
audited December
accounts: 2015
Turnover: GBP54,000
Loss before GBP259,000
tax:
Net assets: GBP328,000
Valuation Price of
method: last
fundraise
Update since 2015: good progress has been made with the preparatory work
to undertake clinical trials with the fungal nail treatment.
1. Exosect Limited
Exosect was spun-out of Southampton University in
2001 to commercialise innovative pest control technology
and reduce the use of insecticides. Until 2015, it
sought to develop its own pesticide products. However,
following a change of CEO, the strategy was changed
whereby the company regarded its technology as a platform
for helping pesticide manufacturers target their products
more accurately and thereby achieve environmental
benefits (through enabling a 50% reduction in active
Initial ingredients required as currently more than 50% of
investment January applied agrochemicals do not reach their intended
date: 2010 target) with resulting cost savings.
Cost: GBP270,000
Valuation: GBP120,000
Equity
held: 1.3%
Last 31
audited December
accounts: 2015
Turnover: GBP165,000
Loss before GBP2.3
tax: million
Net assets: GBP2
million
Valuation Price of
method: last
fundraise
Update since 2015: in March 2016, Talc USA (one of the largest talc
suppliers for seed lubrication in the US) entered into a manufacture and
license for launch initially into the Canadian market, where the use of
talc and graphite fluency agents in seed treatment were banned in 2014.
In January 2017, the scope of the license was increased to include the
US.
1. EKF Diagnostics Holdings plc
Initial June 2010 EKF Diagnostics is an in vitro diagnostic devices
investment business, with a particular focus on applications
date: which will benefit most from the migration of routine
diagnostic testing from the clinical laboratory to
PoC - a particular focus is in the area of diabetes.
EKF has an estate of over 90,000 analysers in regular
use in more than 100 countries running more than 56m
tests every year.
Cost: GBP119,000
Valuation: GBP96,000
Equity <1%
held:
Last 31
audited December
accounts: 2015
Turnover: GBP30
million
Loss GBP15.8
before million
tax:
Net GBP46.8
assets: million
Valuation Bid price
method: of 16.25p
per share
Update since 2015: 2016 was a year of substantial change with i) Harwood
Capital acquiring a 28% shareholding through subscribing new funds, ii)
the founder of Harwood becoming chairman of EKF, and iii) closure of
EKF's lossmaking molecular diagnostics division, leaving the company
able to focus on its PoC business. These changes have stabilised the
business after a challenging 2015, with the January 2017 update
reporting that the final results to December 2016 are anticipated to
show sales of over GBP38.0 million (2015: GBP30.0 million) and EBITDA
comfortably exceeding GBP5.5 million (2015: GBP348,000 loss). EKF is
currently evaluating plans under which it would split into two companies
based on the business divisions (point of care and lab diagnostics).
Directors' Report
The Directors present their Report and the audited Financial Statements
for the year ended 31 December 2016.
The Directors consider that the Annual Report and Financial Statements,
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 forms part of the Strategic
Report. The Chairman's Statement and the Investment Review 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, the Company sold
208,727 shares in EKF. This is in addition to the 697,688 EKF shares,
137,900 Omega shares, and 1,000,000 shares in Reneuron sold during the
year.
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 2016 31 December 2015
Number of Shares Number of Shares
John Hustler 190,000 190,000
Charles Breese 105,000 105,000
Richard Roth 209,612 159,612
All of the Directors' shares were held beneficially. There have been no
changes in the Directors' share interests between 31 December 2016 and
the date of this report.
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.
Share Issues and Open Offers
During the year, the Company did not issue any shares (2015: nil).
Share Capital
The Company's issued ordinary share capital as at 31 December 2016 is
8,115,376 ordinary shares of 50p each.
Directors
Biographical details of the Directors are shown on page 20 of the Annual
Report and Accounts.
In accordance with best practice, all of the Directors will retire and
offer themselves for re-election at the forthcoming AGM.
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 listed companies ("over-boarding"). 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 listed companies. They also note that
Hygea has a number of shared portfolio companies with the OT VCTs. The
Board was satisfied that Richard Roth had the time to focus on the
requirements of the Company, and this has proven to be the case.
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.
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. 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 2016, two disclosures of major shareholdings had been
made to the Company under Disclosure and Transparency Rule 5 (Vote
Holder and Issuer Notification Rules).
-- James Leek has disclosed a shareholding of 5.44% (441,500 shares).
-- David Blundell has disclosed a shareholding of 3.09% (251,000 shares).
No other changes have been notified to the Company.
Annual General Meeting
Notice convening the 2017 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 AGM.
1. Directors' Authority to Allot Shares, to Disapply Pre-emption Rights
Resolution 8 renews the Directors' authority to allot Ordinary shares.
This would enable the Directors until the next AGM, to allot up to
405,768 ordinary shares (representing approximately 5% of the Company's
issued share capital as at 7 April 2017).
Resolution 9 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 405,768
Ordinary shares (representing approximately 5% of the Company's issued
share capital as at 7 April 2017).
The Directors have no current intention to utilise the authorities under
Resolution 8 and 9.
By Order of the Board
Craig Hunter
Company Secretary
7 April 2017
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
2016. A resolution to approve the Directors' Remuneration Report will be
proposed at the Annual General Meeting on 19 May 2017. The statement of
Directors' Remuneration Policy was approved by shareholders 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
below.
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. During 2015, the Board
appointed Richard Roth to advise, inter alia, on Directors' remuneration,
including the Performance Incentive Fee. 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. With effect from 7
October 2015, 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 is no longer 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 was also 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 were 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 were revised under an
agreement dated 7 October 2015. 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 Financial Statements)
which will only start to become payable once a further 55.75p of
dividends have been paid in respect of each share (such that original
subscribing shareholders will have received 80p per share 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 Financial Statements.
Company Performance
The Board is responsible for the Company's investment strategy and
performance.
Directors' Emoluments (Information Subject to Audit)
Amount of each Director's emoluments:
Directors' fees Year ended Year ended
31 December 2016 31 December 2015
GBP GBP
John Hustler (Chairman)* 12,750 14,750
Charles Breese 12,750 14,750
Richard Roth** 12,750 2,769
James Otter * (and) ** - 16,231
Total 38,250 48,500
* 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 as a Director on 7 October 2015. 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
7 April 2017
Income Statement
Year to 31 December 2016 Year to 31 December 2015
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 - 25 25 - 3 3
Loss on valuation of fixed asset investments 9 - (624) (624) - (1,355) (1,355)
Performance fee 5 - 146 146 - 301 301
Income 2 - - - - - -
Other expenses 3 (129) - (129) (154) - (154)
Return on ordinary activities before tax (129) (453) (582) (154) (1,051) (1,205)
Taxation on return on ordinary activities 6 - - - - - -
Return on ordinary activities after tax (129) (453) (582) (154) (1,051) (1,205)
Return on ordinary activities after tax attributable
to:
Owners of the fund (129) (453) (582) (154) (1,051) (1,205)
Earnings per share - basic and diluted 7 (1.6)p (5.6)p (7.2)p (1.9)p (13.0)p (14.9p)
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 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.
The accompanying notes are an integral part of the Financial Statements.
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
2015 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
Revenue
return on
ordinary
activities
after tax - - - (129) (129)
Performance
fee
allocated
as capital
expenditure - - - 146 - - 146
Current
period
gains on
disposal - - - 25 - - 25
Current
period
losses on
fair value
of
investments - - - - (624) - (624)
Prior years'
unrealised
losses now
realised - - - (436) 436 - -
Balance as
at 31
December
2016 4,058 3,397 38 (121) (53) (1,772) 5,547
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 2016 31 December 2015
Notes GBP'000 GBP'000 GBP'000 GBP'000
Fixed asset investments* 9 6,038 6,753
Current assets:
Debtors 10 4 6
Bank Overdraft (185) (169)
Creditors: amounts falling due
within one year 11 (55) (60)
Net current assets (236) (223)
Creditors: amounts falling due
more than one year 11 (255) (401)
Net assets 5,547 6,129
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 (121) 144
-
holding
gains
and
losses 13 (53) 135
Revenue reserve 13 (1,772) (1,643)
Total equity shareholders' funds 5,547 6,129
Net asset value per share 8 68.3p 75.5p
*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 7 April 2017 and are signed on their behalf by:
John Hustler
Chairman
Company No: 04221489
Statement of Cash Flows
Year to 31 December 2016 Year to 31 December 2015
Notes GBP'000 GBP'000
Cash flows from
operating
activities
Return on ordinary
activities before
tax (582) (1,205)
Adjustments for:
Decrease in debtors 10 2 2
Decrease in
creditors 11 (151) (301)
Gain on disposal of
fixed assets 9 (25) (3)
Loss on valuation
of fixed asset
investments 9 624 1,355
Cash from
operations (132) (152)
Income taxes paid 6 - -
Net cash used in
operating
activities (132) (152)
Cash flows from
investing
activities
Purchase of fixed
asset investments 9 (35) (49)
Sale of fixed asset
investments 9 151 16
Total cash flows
from investing
activities 116 (33)
Cash flows from
financing
activities
Total cash flows
from financing
activities - -
Decrease in cash
and cash
equivalents (16) (185)
Opening cash and
cash equivalents (169) 16
Closing cash and
cash equivalents (185) (169)
The accompanying notes are an integral part of the Financial Statements.
Notes to the Financial Statements
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 2015 Annual Report and Financial
Statements. A summary of the principal accounting policies is set out
below.
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 International Private Equity and Venture Capital Valuation
(IPEV) guidelines, which can be found on their website at
www.privateequityvaluation.com, 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 IPEV 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 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
(2015: 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 2016 or 31
December 2015. 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
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 detailed on page 25 of the annual report and
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 and 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 and 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.
Revenue reserve - represents the aggregate value 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 the shareholders.
1. Income
Year to 31 December 2016 Year to 31 December 2015
GBP'000 GBP'000
Dividends received - -
Loan note interest - -
receivable
- -
1. Other Expenses
Year to Year to
31 31
December December
2016 2015
GBP'000 GBP'000
Directors' remuneration 38 49
Fees payable to the Company's auditor for the audit
of the Financial Statements 9 9
Fees payable to the Company's auditor for other services
- tax compliance 1 1
Legal and professional expenses 44 55
Accounting and administration services 26 30
Other expenses 11 10
129 154
For the year ended 31 December 2016 the running costs were 2.3% (2015:
2.5%) of net assets.
1. Directors' Remuneration
Year to 31 December 2016 Year to 31 December 2015
GBP GBP
Directors' emoluments:
John Hustler (Chairman)* 12,750 14,750
Charles Breese 12,750 14,750
Richard Roth** 12,750 2,769
James Otter* (and) ** - 16,231
38,250 48,500
* 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.
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 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 (2015: 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 (i.e. 25% of dividends
paid to shareholders), 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 2016, the Total Gross Return is 95.7p, and so 3.15p
per share totalling GBP255,000 has been accrued (31 December 2015 104.7p,
4.94p and GBP401,000).
Assuming no dividends are paid during the year, the Total Gross Return
would need to exceed 140.5p at 31 December 2017 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 (2015: GBPnil).
The current rate of tax is the small companies' rate of corporation tax
at 20.0% (2015: 20.0%)
Year to Year to
31 31
December December
Current tax reconciliation: 2016 2015
GBP'000 GBP'000
Return on ordinary activities before tax (582) (1,205)
Current tax at 20.0% (2015: 20.0%) (116) (241)
Gains/losses not subject to tax 120 270
Excess management expenses carried forward (4) (29)
Total current tax charge and tax on results of ordinary - -
activities
The company has excess management expenses of GBP2,592,000 (2015:
GBP2,609,000) 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 2015:
8,115,376) shares, being the weighted average number of shares in issue
during the year, and a return for the year totalling (GBP582,000) (31
December 2015: (GBP1,205,000)).
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.
1. Net Asset Value per Share
The calculation of NAV per share as at 31 December 2016 is based on
8,115,376 ordinary shares in issue at that date (31 December 2015:
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 2016 1,502 5,116 6,618
Cumulative
revaluation 1,932 (1,797) 135
Valuation at 1
January 2016 3,434 3,319 6,753
Movement in the
year:
Purchases at cost - 35 35
Disposal proceeds (151) - (151)
Gain/(loss) on
disposal 25 - 25
Revaluation in
year (871) 247 (624)
Valuation at 31
December 2016 2,437 3,601 6,038
Book cost at 31
December 2016 1,291 4,800 6,091
Revaluation to 31
December 2016 1,146 (1,199) (53)
Valuation at 31
December 2016 2,437 3,601 6,038
Further details of the fixed asset investments held by the Company are
shown within the Investment Review.
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 2016 31 December 2015
GBP'000 GBP'000
Prepayments and accrued income 4 6
4 6
1. Creditors
31 December 2016 31 December 2015
GBP'000 GBP'000
Amounts falling due within one year
Accruals 26 24
Trade creditors - 7
Other creditors 29 29
Total amounts falling due within one year 55 60
Amounts falling due after one year
Accruals 255 401
Total amounts falling due after one year 255 401
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 2016 31 December 2015
GBP'000 GBP'000
Allotted and fully paid up:
8,115,376 Ordinary shares of 50p (2015:
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.
During the year, the Company did not issue, nor buy back, any shares.
1. Movement in Shareholders' Funds
Year ended Year ended
31 December 2016 31 December 2015
GBP'000 GBP'000
Shareholders' funds at start of year 6,129 7,334
Return on ordinary activities after
tax (582) (1,205)
Shareholders' funds at end of year 5,547 6,129
The analysis of changes in equity by the various reserves are shown in
the Statement of Changes in Equity.
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 GBP1,451,000
as at 31 December 2016 (2015: GBP1,898,000).
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
2016 and 31 December 2015:
31 December 2016 31 December 2015
GBP'000 GBP'000
Financial assets at fair value through
profit or loss
Fixed asset investments 6,038 6,753
Total 6,038 6,753
Financial assets measured at amortised
cost
Debtors - -
Total - -
Financial liabilities measured at
amortised cost
Bank Overdraft (185) (36)
Creditors (29) (169)
Total (214) (205)
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. 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 in the Investment Review.
64.9% (2015: 54.2%) 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 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 2016 would have increased net assets and the total return for
the year by GBP360,000 (2015: GBP331,900) 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.
43.9% (2015: 56.0%) 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 31 December 2016 would have increased net assets
and the total return for the year by GBP244,000 (2015: GBP343,000)
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 2016 or 31 December 2015.
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, or to respond to specific events such as deterioration in
the creditworthiness of any particular issuer.
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.
1. Events After the Balance Sheet Date
Subsequent to the year-end, 208,727 shares in EKF Diagnostics have been
sold for net proceeds of GBP40,000 to provide liquidity to cover
operational costs.
1. Contingencies, Guarantees and Financial Commitments
There were no contingencies, guarantees or financial commitments as at
31 December 2016 (2015: 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.
Charles Breese is a director of OR Productivity and received GBPnil from
OR Productivity in fees for his support during the year (2015: GBPnil).
During the year Larpent Newton & Co Ltd, a company controlled by Charles
Breese, acquired shares in OR Productivity.
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 Friday 19 May 2017 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 Financial Statements and the
auditors' report thereon for the year ended 31 December 2016 be received
and adopted.
2. THAT the Directors' Remuneration Report in respect of the year ended 31
December 2016 be received and adopted.
3. THAT Charles Breese be re-elected as a Director of the Company.
4. THAT John Hustler be re-elected as a Director of the Company.
5. THAT Richard Roth be re-elected as a Director of the Company.
6. 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.
7. 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 GBP202,884 (representing approximately 5% 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 8 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.
By order of the Board Registered Office:
Craig Hunter 39 Alma Road
Company Secretary St Albans
7 April 2017 AL1 3AT
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 and 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 Corporate Solutions on behalf of Nasdaq 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
(END) Dow Jones Newswires
April 10, 2017 02:00 ET (06:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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