Half Yearly Report

RNS Number : 5561Q

Hygea VCT plc

05 August 2010

 



 

7.00am                                                                                                                        5 August 2010

Hygea VCT plc

('The Company' or 'Hygea VCT')

Unaudited Interim Report for the six months ending 30 June 2010

Financial Summary

	Six months to 30 June 2010	Six months to 30 June 2009	Year to 31 December 2009
Net assets (£'000s)	6,067	6,115	7,404
Return on ordinary activities after tax (£'000s)	(120)	781	2,070
Earnings per share	(1.4)p	9.9p	25.8p
Net asset value per share	74.8p	75.3p	91.2p
Dividends paid and payable in 2010	15p	-	-
Dividends prior to 2010	1.25p	1.25p	1.25p
Total return per share	91.1p	76.6p	92.5p

About Hygea vct plc

The Company is a Venture Capital Trust (VCT).  Since 30 July 2007, the Board has managed the Company.  The Company was launched in October 2001 and raised over £7 million through an offer for subscription.

The Company's objective is to develop a portfolio of unquoted and quoted MedTech companies conforming to Hygea's investment template (which can be found on www.hygeavct.com, clicking on About, and then clicking on Investment Strategy/Process) in order to generate capital growth over the long-term.

Venture Capital Trusts (VCTs)

VCTs were introduced by the UK Government in 1995 to encourage individuals to invest in UK smaller companies. The Government achieved this by offering VCT investors a series of tax benefits.

Hygea has been approved as a VCT by HM Revenue & Customs (HMRC). In order to maintain its approval the Company must comply with certain requirements on a continuing basis.  Within three years from the date of provisional approval at least 70% of the Company's investments must comprise "qualifying holdings" of which at least 30% must be in eligible ordinary shares.  A "qualifying holding" consists of up to £1 million invested in any one year in new shares or securities in an unquoted Company (including companies listed on AIM and PLUS) which is carrying on a qualifying trade and whose gross assets do not exceed £15 million at the time of investment.  The Company has continued its compliance with these requirements.

Chairman's Statement

I am pleased to present the results for the six months ended 30 June 2010 and to be able to report that our Company's unaudited net asset value per share at 30 June 2010 was 74.8p compared to 91.2p at 31 December 2009 and 75.3p at 30 June 2009.  The reduction in net asset value is after dividends amounting to 15p. The modest negative total return of 1.4p in the period relates largely to net operating costs and the reduction in the value of the AIM portfolio. During the period we have made further investments, both in our existing portfolio and new companies amounting to £2,206,000 as detailed below.

Since 30 June 2010, Scancell has moved from PLUS to AIM and the bid price of the shares has risen to 95p compared to our valuation at 30 June 2010 which was 45p. The key operational development was receiving approvals to start a Phase I trial on nine patients with advanced melanoma and in June, the first patient was enrolled and treated.   More data on Scancell can be accessed by clicking on www.hygeavct.com, 'Investee Companies', 'Scancell' and on 'Scancell on LCF Research' in the top right hand corner of the resulting page. If timing had allowed us to display the current value of our Scancell holding then, our net asset value would have increased by approximately 9p per share.

Results and Dividends

The total negative return for the period amounted to 1.4p (June 2009 positive 9.9p).  This was made up of a negative revenue return of 0.8p (June 2009 negative 0.8p) being net operating costs, offset by a modest amount of income and a negative capital return of 0.6p (June 2009 positive 10.7p).  This negative capital return was the result of the reduction in the value of our quoted portfolio in line with general market conditions, offset by the first receipt of deferred consideration in connection with the sale of DxS amounting to £41,000. The increase in our operating expenses results from additional overheads in connection with the payment of dividends and the increased costs associated with activity in the management of the portfolio.

Shareholders received dividends of 10p per share in March 2010 and 5p per share in July 2010. As previously announced, it is your Board's intention, if practicable, to recommend an annual final dividend of 5p per share for approval at the Annual General Meeting in 2011, and no interim dividend is proposed.

Portfolio review

At 30 June 2010, the Fund consisted of 18 holdings, 6 companies quoted on AIM or PLUS and 12 unquoted companies.

During the period the Company subscribed for further shares in Arecor (£106,000), Epistem (£5,000), Freehand Surgical (£335,000), Glide Pharmaceutical Technologies (£100,000), Hallmarq (£231,000), Immunobiology (£218,000), Insense (£200,000) and Scancell (£301,000). Following the realisation of our holdings in BioAnaLab and DxS last year we have been delighted to be able to invest further in companies in our portfolio.

In addition to these investments in our existing portfolio, we have been able to expand our portfolio with investments in EKF Diagnostics (£50,000) and Reneuron (£50,000), both of which are quoted on AIM, and Axon (£100,000), Exosect (£250,000), Eykona Technologies (£60,000) and Quotient Diagnostics (£200,000). Further information regarding these new investments, as well as all of our portfolio, may be found on our website at www.hygeavct.com.

Apart from Scancell, to which I have already referred, the value of our remaining quoted portfolio has fallen back in line with the market. However we do not anticipate that this is a permanent reduction in value as major bioscience players seek to acquire or license innovative technologies.

Our two largest unquoted investments, Freehand Surgical and Hallmarq, are both making satisfactory progress towards their respective goals with increased levels of interest in their products. This is due in part to more focused, simpler business models, resulting in a welcome increase in turnover.

Shares

Following the payments of dividends, we are pleased to see that demand for our shares has increased. We will continue to communicate the underlying strength of Hygea's shares together with the attractive tax free yield which they offer particularly in the light of their significant discount to net asset value.

VCT qualifying status

PricewaterhouseCoopers LLP continues to provide the Board with advice on the ongoing compliance with HM Revenue & Customs rules and regulations concerning VCTs. The Board believes that the company continues to comply with the conditions laid down by HM Revenue & Customs for maintaining approval as a VCT.

Outlook

We are delighted that our confidence in the portfolio continues to be justified, as is shown by the recent increase in value of Scancell. Following our large cash balance at the last year end we have been able to expand our portfolio and once again are now nearly fully invested. Our strategy continues to be to support the MedTech sector by investing in companies offering superior patient outcomes at a cheaper cost, whilst maintaining a low operating costs base and our intention to pay an annual dividend of 5p per share.

James Otter

Chairman

4 August 2010

Investment Review

Investment Portfolio

Unquoted Investments	Investment at cost (£'000)	Unrealised profit/(loss) (£'000)	Carrying value at 30 June 2010 (£'000)	Movement in the six months to 30 June 2010 (£'000)
ImmunoBiology Limited	818	244	1,062	-
Hallmarq Veterinary Imaging Limited	1,116	(284)	832	-
Glide Pharmaceutical Technologies Limited	306	214	520	-
Freehand Surgical Limited (holding company of Prosurgics Limited)	1,225	(537)	688	-
Insense Limited	509	(112)	397	-
Exosect Limited	250	-	250	-
Quotient Diagnostics Limited	200	-	200	-
Wound Solutions Limited	350	(175)	175	-
Arecor Limited	114	-	114	-
Axon Limited	100	-	100	-
Eykona Technologies Limited	60	-	60	-
Purely Proteins Limited	372	(372)	-	-
Total unquoted investments	5,420	(1,022)	4,398	-
Quoted Investments
Scancell plc	1,060	(392)	668	(41)
EpiStem Holdings plc	66	106	172	(44)
Omega Diagnostics plc	126	(1)	125	(8)
EKF Diagnostics plc	50	10	60	10
Reneuron plc	50	(10)	40	(10)
York Pharma plc	90	(90)	-	-
Total quoted investments	1,442	(377)	1,065	(93)
Total investments	6,862	(1,399)	5,463	(93)

Objective and Investment Policy

The Company's objective is to provide shareholders with an attractive income and capital return by investing its funds in a portfolio of unquoted and quoted UK MedTech companies which meet the relevant criteria under the VCT Rules.

The Company's investment policy is designed to deliver absolute returns on its investments rather than a performance measured against the market indices.  On an ongoing basis, it is intended that at least 80% of the Company's assets will be invested in qualifying holdings, with the remainder held in cash and money market securities.  The Board does not intend to vary the Company's investment policy. However, should a material change be deemed appropriate this will be done with shareholders' approval by the passing of an ordinary resolution and in accordance with the Listing Rules.

The Directors control the overall risk of the portfolio by ensuring that the Company has exposure to a diversified range of quoted and unquoted companies from the MedTech sector.  The Directors will continually monitor the investment process and ensure compliance with the investment policy.

 

Valuation Methodology

Quoted and unquoted investments are valued in accordance with the accounting policy set out on page 32 of the 2009 Annual Report, which takes account of current industry guidelines for the valuation of venture capital portfolios and is compliant with International Private Equity and Venture Capital Valuations guidelines and current financial reporting standards.

Income Statement
	Six months to 30 June 2010			Six months to 30 June 2009			Year to 31 December 2009
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/gain on disposal of fixed asset investments	-	41	41	-	-	-	-	2,285	2,285
Loss on valuation of fixed asset investments	-	-	-	-	-	-	-	(198)	(198)
(Loss)/gain on valuation of fixed asset investments	-	(93)	(93)	-	846	846	-	-	-
Investment income	27	-	27	-	-	-	113	-	113
Other expenses	(95)	-	(95)	(65)	-	(65)	(130)	-	(130)
Return on ordinary activities before tax	(68)	(52)	(120)	(65)	846	781	(17)	2,087	2,070
Taxation on profit/(loss) on ordinary activities	-	-	-	-	-	-	-	-	-
Return  on ordinary activities after tax	(68)	(52)	(120)	(65)	846	781	(17)	2,087	2,070
Earnings per share - basic and diluted	(0.8)p	(0.6)p	(1.4)p	(0.8)p	10.7p	9.9p	(0.2)p	26.0p	25.8p

·    The 'Total' column of this statement 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 half-yearly report

·    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 those disclosed in the income statement.

Reconciliation of Movements in Shareholders' Funds
	Six months to 30 June 2010	Six months to 30 June 2009	Year to 31 December 2009
	£'000	£'000	£'000
Shareholders' funds at start of period	7,404	5,155	5,155
Return on ordinary activities after tax	(120)	781	2,070
Issue of equity	-	179	179
Dividends paid	(1,217)	-	-
Shareholders' funds at end of period	6,067	6,115	7,404

Balance Sheet
	As at 30 June 2010		As at 30 June 2009		As at 31 December 2009
	£'000	£'000	£'000	£'000	£'000	£'000
Fixed asset investments*		5,463		6,016		3,359
Current assets:
Debtors	19		36		29
Cash at bank	614		92		4,036
	633		128		4,065
Creditors: amounts falling due within one year	(29)		(29)		(20)
Net current assets		604		99		4,045
Net assets		6,067		6,115		7,404
Called up equity share capital	4,058		4,058		4,058
Share premium	1,737		1,737		1,737
Special distributable reserve	1,660		1,660		1,660
Capital redemption reserve	38		38		38
Capital reserve - gains/(losses) on disposal	839		(1,595)		2,256
- holding gains/(losses)	(1,398)		1,063		(1,547)
Revenue reserve	(867)		(846)		(798)
Total equity shareholders' funds		6,067		6,115		7,404
Net asset value per share		74.8p		75.3p		91.2p

Cash flow statement
	Six months to 30 June 2010	Six months to 30 June 2009	Year to 31 December 2009
	£'000	£'000	£'000
Net cash (outflow)/inflow from operating activities	(49)	(25)	21
Financial investment:
Purchase of investments	(2,206)	(28)	(585)
Sale of investments	50	-	4,455
Dividends paid:	(1,217)	-	-
Financing:
Issue of equity	-	179	179
(Decrease)/increase in cash resources at bank	(3,422)	126	4,070

Reconciliation of net cash flow to movement in liquid resources
	Six months to 30 June 2010	Six months to 30 June 2009	Year to 31 December 2009
	£'000	£'000	£'000
(Decrease)/increase in cash resources at bank	(3,422)	126	4,070
Opening net liquid resources	4,036	(34)	(34)
Net funds at period end	614	92	4,036

Reconciliation of profit before taxation to cash flow from operating activities
	Six months to 30 June 2010	Six months to 30 June 2009	Year to 31 December 2009
	£'000	£'000	£'000
Return on ordinary activities before tax	(120)	781	2,070
Gain on disposal of fixed asset investments	(41)	-	(2,285)
Loss/(gain) on valuation of fixed asset investments	93	(846)	198
Decrease in debtors	10	43	50
Increase/(decrease) in creditors	9	(3)	(12)
Net cash (outflow)/inflow from operating activities	(49)	(25)	21

Notes to the Half-Yearly Report

1.         Basis of preparation

The unaudited half-yearly results which cover the six months to 30 June 2010 have been prepared in accordance with the Accounting Standard Board's (ASB) statement on half-yearly financial reports (July 2007) and adopting the accounting policies set out in the statutory accounts of the Company for the year ended 31 December 2009, which were prepared under UK GAAP and in accordance with the Statement of Recommended Practice for Investment Companies issued by the Association of Investment Companies in January 2009.

2.         Publication of non-statutory accounts

The unaudited half-yearly results for the six months ended 30 June 2010 do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 and have not been delivered to the Registrar of Companies. The comparative figures for the year ended 31 December 2009 have been extracted from the audited financial statements for that year, which have been delivered to the Registrar of Companies. The independent auditor's report on those financial statements under Section 235 of the Companies Act 1985 was unqualified. This half-yearly report has not been reviewed by the Company's auditor.

3.         Earnings per share

The earnings per share at 30 June 2010 are calculated on the basis of 8,115,376 (31 December 2009: 8,017,636 and 30 June 2009: 7,918,276) being the weighted average number of shares in issue during the period.

There are no potentially dilutive capital instruments in issue and, therefore, no diluted returns per share figures are relevant.

4.         Net asset value per share

The net asset value per share is based on net assets as at 30 June 2010 divided by 8,115,376 (31 December 2009: 8,115,376 and 30 June 2009: 7,918,276) shares in issue at that date.

5.         Principal risks and uncertainties

The Company's assets consist of equity and fixed interest investments, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by the Company include economic, loss of approval as a Venture Capital Trust, investment and strategic, regulatory, reputational, operational and financial risks. These risks, and the way in which they are managed, are described in more detail in the Company's Annual Report and Accounts for the year ended 31 December 2009. The Company's principal risks and uncertainties have not changed materially since the date of that report.

6.         Related party transactions

The Board of Hygea acts as the investment manager of the Company through its Commercial Advisory Committee.  During the period under review, no remuneration was paid to the Board in their capacity as investment manager.  The Directors received remuneration for their roles as non-executive Directors to Hygea on the terms as set out in the Directors' Remuneration Report of the Company's Annual Report and Accounts for the year ended 31 December 2009. 

The Commercial Advisory Committee shall be entitled to receive a performance incentive fee which shall be calculated as 20% of sums returned to shareholders by way of dividends and capital distributions of whatever nature, which in aggregate exceeds the sum of 80p per share (including dividends paid to date, i.e. 16.25p, but excluding any sums returned to shareholders from HMRC in the year of subscription).

7.         Copies of this statement are being sent to all shareholders. Copies are also available from the registered office of the Company at 39 Alma Road, St Albans, AL1 3AT.

Enquiries:

Charles Breese, Hygea VCT plc on 01280 703482 or [e-mail]

Roland Cornish, Beaumont Cornish Limited on 020 7628 3396

 

END

 

 

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