REG-Hygea VCT plc : Annual Report and Accounts, Notice of AGM <Origin Href="QuoteRef">HYG.L</Origin>
11/04/2016 07:05
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 (£'000s) 6,129 7,334
Return on ordinary activities after tax (£'000s) (1,205) (495)
Earnings per share (14.9p) (6.1p)
Net asset value per share 75.5p 90.4p
Dividends paid since inception 24.25p 24.25p
Total return (NAV plus cumulative dividends paid) 99.75p 114.65p
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
£6.2m 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 £702,000 to £401,000 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 £1,391,000 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 £200,000.
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.
£20,048 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 £50m
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 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
Unquoted Investments Investment at cost (£'000) Unrealised profit/(loss) (£'000) Carrying value at 31 December 2015 (£'000) Movement in the year to 31 December 2015 (£'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 £6.2m 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: £801,000
Valuation: £2,849,000
Equity held: 5.9%
Last audited accounts: 30 April 2015
Turnover: £nil
Loss before tax: £2.8 million
Net assets: £6.8 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) 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 £5.4 million
(2014: £4.3 million), EBITDA of £2.0million (2014: £1.6 million) and
pre-tax profit of £1.0 million (2014: £0.8 million), with recurring income
growing from £3.8 million to £4.3 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: £1,116,000
Valuation: £1,405,000
Equity held: 10.2%
Last audited accounts: 31 August 2015
Turnover: £5.4 million
Profit before tax: £1.0 million
Net assets: £7.2 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: £765,000
Valuation: £664,000
Equity held: 13.8%
Last audited accounts: 31 March 2015
Turnover: £301,000
Loss before tax: £963,000
Net assets: £774,000
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 £7.75 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 £6.15 million (2014: £5.7
million) and adjusted pre-tax profit of £351,000 (2014: £410,000), after
increasing overheads by £279,000 in order to implement growth plans.
Initial investment date: August 2007
Cost: £348,000
Valuation: £377,000
Equity held: 2.4%
Last audited accounts: 31 March 2015
Turnover: £12.1 million
Profit before tax: £684,000
Net assets: £18.8 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 £1.6 million
in cash (with Hygea subscribing £49,000) 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: £299,000
Valuation: £445,000
Equity held: < 1%
Last audited accounts: 31 December 2014
Turnover: £603,000
Loss before tax: £1.3 million
Net assets: £5.6 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: £326,000
Valuation: £319,000
Equity held: 1.2%
Last audited accounts: 31 December 2014
Turnover: £254,000
Loss before tax: £3.2 million
Net assets: £8.5 million
Valuation method: Price of last fundraise
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: £127,000
Valuation: £143,000
Equity held: 2.1%
Last audited accounts: 31 May 2015
Turnover: £777,000
Loss before tax: £705,000
Net assets: £31,000
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 £84 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 £1.6 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 £40 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: £260,000
Valuation: £141,000
Equity held: <1%
Last audited accounts: 31 December 2014
Turnover: £40.1 million
Loss before tax: £4.0 million
Net assets: £87.4 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: £868,000
Valuation: £126,000
Equity held: 3%
Last audited accounts: 31 May 2015
Turnover: £nil
Loss before tax: £1.7 million
Net assets: £974,000
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: £509,000
Valuation: £88,000
Equity held: 8.1%
Last audited accounts: 31 December 2014
Turnover: £54,000
Loss before tax: £259,000
Net liabilities : £82,000
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. £20,048 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
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:
1Independent 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.
1Directors' 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
£12,000 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 £12,750 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 £702,000 (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 £702,000 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
31 December 2015 31 December 2014
£ £
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 £2,500 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
Note s £'000 £'000 £'000 £'000 £'000 £'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
Share Capital Special distributable reserve Capital redemption reserve Capital reserve gains/ (losses) Capital reserve holding gains/ (losses) Revenue reserve Total
£'000 £'000 £'000 £'000 £'000 £'000Recent news on Seneca Growth Capital VCT
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