Hygea
VCT plc (formerly known as BioScience VCT plc)
Unaudited
interim results for the six months to 30 June 2006
Company
number 04221489
Financial
summary
For
the six months ended 30 June 2006
|
30 June 2006
|
30 June 2005
|
31 December 2005
|
|
|
(restated)**
|
|
Net
assets
|
£5,058,000
|
£6,057,000
|
£5,679,000
|
Net
revenue loss before tax
|
£(94,000)
|
£(71,000)
|
£(324,000)
|
Net
asset value per share
|
67.2p
|
79.7p
|
74.8p
|
Revenue
loss per share*
|
(1.25)p
|
(0.9)p
|
(4.3)p
|
Total
loss per share*
|
(7.69)p
|
(3.1)p
|
(8.1)p
|
Hygea VCT plc ("Hygea VCT" or
"Fund") is a venture capital trust ("VCT"). The investment manager is Octopus Investments
Limited ("Octopus") The Fund was launched in October 2001 and raised over £7
million (£6.8 million net of expenses) through an offer for subscription. The Fund
invests in unquoted and AIM-quoted healthcare companies and aims to provide
attractive long-term returns to shareholders.
* based on the weighted average of
7,566,573 (2005: 7,596,393) shares in issue in the period.
**
Comparative figures have been extracted from the interim accounts for the six
months ended 30 June 2005 and have been restated in accordance with UK
Financial Reporting Standard 26 in respect of the valuation of quoted
investments as disclosed in note 1. This restatement had no material effect on
the net asset value per share at 30 June 2005.
Chairman's statement
Change of name
As a result of the passing of a
resolution at the Annual General Meeting in April 2006, the name of the Fund
was changed from BioScience VCT plc to Hygea VCT plc.
Investment Policy
The
Fund ended the period under review with a portfolio of investments in a total
of 22 companies, 12 of which were quoted on AIM and 10 were unquoted. As at 30
June 2006, the portfolio was 33% invested in AIM-quoted companies, 62% in
unquoted companies, and 5% in money market securities and cash. As the Fund is
now at a point where it has only a relatively small amount of cash, it is
unlikely that any substantial further investments will be made until we have sold
some of our existing holdings.
The Board and Octopus are taking
an active role in managing the portfolio. This involves providing support to
investee companies, as well as working directly with them to ensure that they
achieve the progress that will be required in order for them to reach the next
stage of their development.
Investment Environment
The acquisition by large
pharmaceutical companies of Cambridge Antibody Technology and Neutec
Pharmaceuticals, two of the more successful quoted UK-based biotechnology
companies, is a welcome development which demonstrates what can be achieved in
this sector by determined management teams who are able to access sufficient
capital to execute their business plans. However, in our view, this has not yet
triggered an overall change in the general environment that is experienced by
most bioscience companies which remains characterised by an insufficient supply
of capital.
NAV
The net asset value per share
("NAV") at 30 June 2006 was 67.2p. The fall in the NAV in the last few months
has been caused by a combination of the decline in the value of many AIM
companies during the period of global stock market instability in May and June
and a reduction in the carrying value for one unquoted company where its
performance had been below our expectations. Despite good progress by many of
our other unquoted holdings, we are not able to write these valuations up at
this stage under our valuation policy and the International Private Equity and Venture
Capital (IPEVC) guidelines. As set out in the IPEVC guidelines, valuations of
unquoted companies are usually not changed for at least twelve months from the
date of investment unless the investee company has performed significantly
behind plan (in which case the investment is written down) or there has been a
follow-on fundraising for the company at a higher price. These guidelines
ensure prudence, and correctly do not allow advanced discussions around
licensing or sale to be reflected in the valuations for the unquoted investee
companies. We remain optimistic about the potential to generate significant
shareholder value from our portfolio of investments.
As described in the 2005 annual
report, we are now required to calculate our financial performance using certain
new Financial Reporting Standards. These changes in accounting standards,
which have been implemented as part of the process of bringing UK accounting
practices into line with international standards, mean that we are now required
to value our AIM holdings at bid prices, rather than mid prices. This has a
particularly significant impact on Hygea VCT, given the number of holdings that
we have in small AIM-quoted companies where the difference between the bid and
mid prices can be substantial. The effect of these changes means that the valuation
of the portfolio, if valued under the old Financial Reporting Standards, would have
been £63,000 higher (equivalent to approximately 1p per share).
As a result of the investment
activity in early 2006, the Fund had reduced the assets held in the form of
cash and money market securities to just £294,000 at 30 June 2006. Subsequent
to that date, liquid funds were increased through the sale of the holding in
Abcam plc for £71,000, a 60% profit on cost. As a result of the low level of
cash holdings, the income that is generated by the Fund is likely to remain low.
The Board has taken a number of
steps to ensure that our cost base is compatible with the Fund's small size
and, despite the impact on the Fund of a number of unavoidable fixed costs that
are associated with the Fund's status as a quoted company, shareholders will
note that the Fund's overall running costs during the first six months of 2006,
which amounted to £135,000, were 21% lower than in the equivalent period in
2005. As the running costs in the first six months of 2006 included several non-recurring
items, we anticipate making further progress in reducing the running costs in
the second half of the year.
Portfolio Review
Since
the end of 2005, we have made three new investments. We invested £350,000 as
part of a fundraising of £5.2 million for Wound Solutions Ltd. The
company, which is unquoted at present, is developing a product that has
potential applications in treating venous leg ulcers and diabetic foot
ulcers. These ulcers are unpleasant wounds that are often difficult
to treat using existing techniques. Over the past twenty years,
there have been relatively few improvements in the standard of care for
most patients suffering from ulcers. The market opportunity for
Wound Solutions is substantial as 1.1 million people in the US and Europe suffer from diabetic foot ulcers and 1.4 million people suffer from venous
leg ulcers. A pivotal clinical trial will be conducted by the
company in the coming months to generate the necessary data to apply
for approval to launch the product.
We
also invested £250,000 in Armstrong Healthcare Limited, an unquoted company
that has developed specialist robots for use in various surgical procedures. In
addition, we invested approximately £80,000 in Plethora Solutions Holdings plc,
an AIM-quoted company that is focused on the development of products for the
treatment of urological conditions.
During
the period under review, we also increased the size of our investment in two
existing investee companies. Hallmarq Veterinary Imaging Ltd, the
Guildford-based MRI manufacturer in which we had invested £500,000 in August
2005, raised a further amount of capital, to which we contributed £135,000. We
also invested a small additional amount in BBI Holdings plc, the AIM-quoted
diagnostics company, at the time of the company's acquisition of Alchemy
Laboratories Ltd, a Scottish rival.
No
disposals were made during the period. As mentioned above, since the end of
the period we have sold our holding in Abcam plc.
Share Price
The Board is aware that investors
in VCTs sometimes need to sell their shares. As 'second hand' VCT shares do
not qualify for upfront income tax relief, there tend to be few purchasers of these
shares. For this reason the sale of even a small number of VCT shares can
force the share price to a level that is well below the NAV. Although the
Board sees the use of share buy backs as a mechanism of last resort to close
the gap between the share price and the underlying NAV, our preference is to
focus on generating real value from the investee companies in order to
stimulate interest in the shares. This stance is taken against the background
of the stage of development of the portfolio and the limited cash retained by
the Fund.
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 has
been advised that Hygea VCT is in compliance with the conditions laid down by
HM Revenue & Customs for maintaining approval as a VCT.
Outlook
Following the completion of the
investment phase of the Fund, we are now working with our investee companies to
maximise the generation of value from our existing portfolio of investments -
we continue to believe that the portfolio will deliver an attractive overall
return to shareholders.
We are in the final stage of
developing a new and informative website for Hygea VCT to enable shareholders
to access information on the Fund and investee companies.
We look forward to updating you
on the progress of our portfolio of investments in due course.
James Otter
Chairman
28 September 2006
The
unaudited interim financial statements for the period from 1 January 2006 to 30
June 2006 are set out below.
Income Statement
|
Six months ended 30 June 2006
|
||
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
|
|
|
|
Unrealised
loss on investments
|
-
|
(456)
|
(456)
|
|
|
|
|
Income
|
9
|
-
|
9
|
|
|
|
|
Investment
management fees
|
(10)
|
(31)
|
(41)
|
Other
expenses
|
(93)
|
-
|
(93)
|
|
|
|
|
Return
on ordinary activities before tax
|
(94)
|
(487)
|
(581)
|
|
|
|
|
Tax
|
-
|
-
|
-
|
|
|
|
|
Loss
on ordinary activities after tax
|
(94)
|
(487)
|
(581)
|
Loss
per share
|
(1.25)p
|
(6.44)p
|
(7.69)p
|
|
|
|
|
Reconciliation of movements in
shareholders' funds
|
Six months ended 30 June 2006
|
|
£000's
|
Shareholders'
funds at start of year
|
5,679
|
Loss
on ordinary activities after tax
|
(581)
|
Cost
of share buyback
|
(40)
|
Shareholders'
funds at end of year
|
5,058
|
|
Six months ended 30 June 2005
|
Year ended 31 December 2005
|
||||
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
|
|
Realised
gain on investments
|
-
|
-
|
-
|
-
|
8
|
8
|
|
|
|
|
|
|
|
Unrealised
loss on investments
|
|
(88)
|
(88)
|
-
|
(123)
|
(123)
|
|
|
|
|
|
|
|
Income
|
20
|
-
|
20
|
34
|
-
|
34
|
|
|
|
|
|
|
|
Investment
management fees
|
(26)
|
(79)
|
(105)
|
(59)
|
(177)
|
(236)
|
Other
expenses
|
(65)
|
-
|
(65)
|
(299)
|
-
|
(299)
|
|
|
|
|
|
|
|
Loss
on ordinary activities before tax
|
(71)
|
(167)
|
(238)
|
(324)
|
(292)
|
(616)
|
|
|
|
|
|
|
|
Tax
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Loss
on ordinary activities after tax
|
(71)
|
(167)
|
(238)
|
(324)
|
(292)
|
(616)
|
Loss
per share
|
(0.9)p
|
(2.2)p
|
(3.1)p
|
(4.3)p
|
(3.8)p
|
(8.1)p
|
|
|
|
|
|
|
|
|
Six months ended 30 June 2005
|
Year ended 31 December 2005
|
|
£000's
|
£000's
|
Shareholders'
funds at start of year
|
6,299
|
6,299
|
Mid price
to bid price valuation movement
|
(4)
|
(4)
|
Restated
shareholders' funds at start of year
|
6,295
|
6,295
|
Loss
on ordinary activities after tax
|
(238)
|
(616)
|
Shareholders'
funds at end of year
|
6,057
|
5,679
|
Balance sheet as at 30 June 2006
|
30 June 2006
|
|
30 June 2005
|
|
31 December 2005
|
|
£'000
|
|
£'000
|
|
£'000
|
|
|
|
|
|
|
Fixed
asset investments
|
4,800
|
|
2,118
|
|
4,428
|
Current
assets:
|
|
|
|
|
|
Debtors
|
9
|
|
10
|
|
13
|
Cash at Bank
|
294
|
|
3,969
|
|
1,369
|
|
303
|
|
3,979
|
|
1,382
|
Creditors: amounts falling due
within one year
|
(45)
|
|
(40)
|
|
(131)
|
Net current assets
|
258
|
|
3,939
|
|
1,251
|
Net
assets
|
5,058
|
|
6,057
|
|
5,679
|
|
|
|
|
|
|
Capital
and Reserves
|
|
|
|
|
|
Share
capital
|
3,765
|
|
3,798
|
|
3,798
|
Share
premium
|
1,722
|
|
3,422
|
|
1,722
|
Special
distributable reserve
|
1,660
|
|
-
|
|
1,700
|
Capital
redemption reserve
|
38
|
|
5
|
|
5
|
Capital
reserve - realised
|
(565)
|
|
(444)
|
|
(534)
|
- unrealised
|
(1,136)
|
|
(645)
|
|
(680)
|
Revenue
reserve
|
(426)
|
|
(79)
|
|
(332)
|
Total
equity shareholders' funds
|
5,058
|
|
6,057
|
|
5,679
|
Net
asset value per share
|
67.2p
|
|
79.7p
|
|
74.8p
|
|
|
|
|
|
|
Cash flow statement
|
6 Months to
|
6 Months to
|
12 Months to
|
|||||||
|
30 June 2006
|
30 June 2005
|
31 December 2005
|
|||||||
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
||||
|
|
|
|
|
|
|
||||
Net
cash (outflow)/inflow from operating activities
|
|
(207)
|
|
49
|
|
(213)
|
||||
|
|
|
|
|
|
|
||||
Financial
investment :
|
|
|
|
|
|
|
||||
Purchase
of investments
|
(828)
|
|
(823)
|
|
(3,183)
|
|
||||
Sale of investments
|
-
|
|
-
|
|
23
|
|
||||
Net
cash outflow from financial investment
|
|
(828)
|
|
(823)
|
|
(3,160)
|
||||
|
|
|
|
|
|
|
||||
Net
cash inflow from management of liquid resources
|
|
-
|
|
(425)
|
|
-
|
||||
|
|
|
|
|
|
|
||||
Net
cash outflow before financing
|
|
(1,035)
|
|
(1,199)
|
|
(3,373)
|
||||
|
|
|
|
|
|
|
||||
Financing:
|
|
|
|
|
|
|
||||
Purchase
of own shares
|
(40)
|
|
-
|
|
-
|
|
||||
|
|
|
|
|
|
|
||||
Total
financing
|
|
(40)
|
|
-
|
|
-
|
||||
|
|
|
|
|
|
|
||||
Decrease
in cash resources
|
|
(1,075)
|
|
(1,199)
|
|
(3,373)
|
||||
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of operating profit to net cash outflow from operating activities
|
|
6 Months to
|
|
|
|
30 June 2006
|
|
|
|
£'000
|
|
Loss
on ordinary activities before Tax
|
|
(94)
|
|
Decrease
in debtors
|
|
4
|
|
Decrease
in creditors
|
|
(86)
|
|
Management
fees charged to capital account
|
|
(31)
|
|
Net
cash outflow from operating activities
|
|
(207)
|
Investment portfolio
as at 30 June 2006
|
|
|
|
Cost
|
Valuation
|
|
£'000
|
£'000
|
Ten largest investments
|
|
|
Hallmarq Veterinary
Imaging Limited
|
635
|
635
|
Scancell Limited
|
725
|
600
|
NeutraHealth plc
|
360
|
471
|
Wound Solutions Limited
|
350
|
350
|
Evolutec Group plc
|
347
|
315
|
Immunobiology
Limited
|
300
|
300
|
DxS Limited
|
263
|
263
|
BioAnaLab Limited
|
250
|
250
|
Armstrong Healthcare
Limited
|
250
|
250
|
Insense Limited
|
148
|
181
|
|
3,628
|
3,615
|
|
|
|
Other AIM
investments
|
1,836
|
926
|
Other unquoted investments
|
472
|
259
|
|
|
|
|
5,936
|
4,800
|
|
|
|
NOTES
1.
The
Fund is required to comply with a number of new UK Financial Reporting
Standards (FRSs) in presenting its financial statements for the year ending 31
December 2006. These standards have been introduced as part of the process of
converging UK standards with International Financial Reporting Standards
(IFRS). The financial information provided in the unaudited interim results
for the six months ended 30 June 2006 has been prepared on a consistent basis
with the accounting policies as disclosed in the Fund's annual report and
accounts for the period ended 31 December 2005 except for such changes as are
required by the new FRSs. These changes arise from "FRS26 - Financial
Instruments: Measurement".
The nature and effect of these changes for the period
ended 30 June 2006 are explained below.
Under FRS26, quoted investments are valued at bid price
rather than mid price. The effect of this is to decrease the valuations at
which such investments are stated in the balance sheet and to decrease the
unrealised gains on investments shown in the capital column of the statement of
total return. This change resulted in reductions of £4,000 in the valuation of
fixed asset investments at 30 June 2005 and a corresponding decrease in the
unrealised capital reserve at those dates.
The unaudited interim results for the six months ended
30 June 2006 and the period ended 30 June 2005 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.
2.
The
calculation of the revenue and capital loss per share is based on the loss on
ordinary activities after tax for the period and on 7,566,573 (30 June 2005 -
7,596,393) ordinary shares, being the weighted average number of shares in
issue during the period from 1 January 2006 to 30 June 2006.
3.
The
number of shares in issue at 30 June 2006 amounted to 7,530,191 (30 June 2005 -
7,596,393).
4.
The
number of shares bought back in the period to 30 June 2006 amounted to 66,202
and were purchased at an average price of 60p per share.
5.
Copies
of the interim report are being sent to all shareholders. Further copies are
available free of charge from Octopus Investments Ltd at 8 Angel Court, London EC2R 7HP.