TIDMIBT
RNS Number : 5656S
Intl. Biotechnology Trust PLC
07 November 2023
7 November 2023
INTERNATIONAL BIOTECHNOLOGY TRUST PLC
("IBT" or the "Company")
Annual Report for the year ended 31 August 2023
WHO WE ARE
International Biotechnology Trust plc offers investors access to
the fast-growing biotechnology sector through an actively managed,
diversified fund.
Our award-winning Investment Managers at SV Health Managers LLP
are scientifically, medically and financially experienced with over
75 years of experience between them. As well as investing in a
wide-ranging portfolio of global quoted biotechnology stocks, we
include a small proportion of otherwise inaccessible carefully
selected unquoted investments which have the potential to deliver
additional returns over the long-term. Excellent management teams,
unique innovative products and strong potential for outperformance
are the key criteria for inclusion in our diversified portfolio of
assets. The six key attributes of the Company are detailed
below:
Strong fundamentals
Driven by the strong fundamental demand and supply of the Biotechnology
sector
Diversified portfolio
Access to a broad spectrum of quoted and unquoted investments
Growth and yield
Provides investors exposure to both growth and an attractive
yield
Active management
Bottom up stock selection with diversification overlay
Expert team
Scientifically and financially experienced Investment Managers
with access to specialists at SV Health Managers LLP
Innovation
Invested in some of the most innovative companies in the world,
developing therapies to improve and save lives
FUND FACTS
FINANCIAL HIGHLIGHTS
31 August 2023 31 August 2022
--------------- ---------------
Total equity/net asset value (NAV) (GBP'000) 270,317 284,889
--------------- ---------------
NAV per share 687.5p 697.2p
--------------- ---------------
Share price 644.0p 651.5p
--------------- ---------------
Share price discount to NAV (6.3)% (6.6)%
--------------- ---------------
Dividend per share*** 28.2p 31.4p
--------------- ---------------
Gearing 12.0% 14.0%
--------------- ---------------
Ongoing charges * 1.4%** 1.3%**
--------------- ---------------
Ongoing charges including performance fee 1.6%** 1.5%**
--------------- ---------------
For detailed calculations on the discount/premium, gearing
and ongoing charges, please refer to Alternative Performance
Measures (APMs) on page 112.
*Calculated in accordance with the Association of Investment
Companies (the AIC) guidance. Based on total expenses excluding
finance costs and performance fee and expressed as a percentage
of average daily net assets. The ratio including performance
fee has also been provided, in line with the AIC recommendations.
Research costs under MiFID II borne by the Company are included
in the ongoing charges calculation.
**Includes Management fees paid to SV Health Managers LLP directly
from investment in SV Fund VI and SV BCOF (SV unquoted funds)
of GBP791,000 (2022: GBP623,000).
***4% of the Company's NAV as at the last day of the preceding
financial year.
FIVE YEAR PERFORMANCE (Cumulative Total Return)
1yr (%) 3yr (%) 5yr (%)
--------- -------- --------
Share price total
return to 31
August 3.0% (0.5)% 15.8%
--------- -------- --------
NAV per share
total return
to 31 August 2.7% 5.9% 18.8%
--------- -------- --------
NASDAQ Biotechnology
Index (NBI) to
31 August (1.4)% 6.1% 13.5%
--------- -------- --------
FTSE All-Share
Index to 31 August 5.0% 34.5% 18.0%
--------- -------- --------
For detailed calculations on the share price total return and
the NAV per share total return, please refer to Alternative
Performance Measures (APMs) on page 113. Data for NBI and FTSE
All-Share Index sourced from Bloomberg. All sterling-adjusted and
on a shareholder returns basis.
TOP TEN HOLDINGS
As at 31 August As at 31 August As at 31 August
2023 2023 2022
------------------ ------------------- ----------------- ------------------ ------------------
Investment Therapeutic area Geographic GBP'000 % of NAV % of NAV
location
------------------ ------------------- ----------------- ------------------ ------------------
Incyte Oncology United States 18,243 6.0 5.1
------------------ ------------------- ----------------- ------------------ ------------------
Amgen Oncology United States 16,031 5.3 1.2
------------------ ------------------- ----------------- ------------------ ------------------
SV Fund VI Venture Fund United States 14,105 4.7 6.6
------------------ ------------------- ----------------- ------------------ ------------------
Infectious
Gilead Sciences diseases United States 14,098 4.7 4.0
------------------ ------------------- ----------------- ------------------ ------------------
Harmony
Biosciences Rare diseases United States 13,803 4.6 3.5
------------------ ------------------- ----------------- ------------------ ------------------
Supernus Central nervous
Pharmaceuticals system United States 13,154 4.4 3.1
------------------ ------------------- ----------------- ------------------ ------------------
Vera Therapeutics Autoimmune United States 11,598 3.8 1.8
------------------ ------------------- ----------------- ------------------ ------------------
BioMarin
Pharmaceutical Rare diseases United States 11,081 3.7 1.6
------------------ ------------------- ----------------- ------------------ ------------------
Regeneron
Pharmaceuticals Ophthalmology United States 8,996 3.0 4.2
------------------ ------------------- ----------------- ------------------ ------------------
Intra-Cellular Central nervous
Therapies system United States 8,973 3.0 2.7
------------------ ------------------- ----------------- ------------------ ------------------
130,082 43.2
--------------------------------------------------------- ----------------- ------------------ ------------------
At 31 August 2022, the top ten holdings represented 49.5% of
NAV.
PORTFOLIO OVERVIEW
31 August 2023 31 August 2022
--------------- ---------------
Number of total portfolio companies* 76 72
--------------- ---------------
Number of quoted holdings 69 64
--------------- ---------------
Number of unquoted holdings** 7 8
--------------- ---------------
NAV GBP270.3m GBP284.9m
--------------- ---------------
Quoted investments GBP276.6m GBP285.5m
--------------- ---------------
Unquoted investments GBP25.3m GBP28.0m
--------------- ---------------
Net (debt)*** (GBP32.5m) (GBP40.0m)
--------------- ---------------
*Excluding companies fully written off.
**Includes two SV unquoted funds. SV Health Managers LLP Fund
VI (SV Fund VI) and SV Biotech Crossover Opportunities Fund
LP (SV BCOF) have a further 18 and six companies, respectively,
in their portfolios.
***Debt as at 31 August is a result of the Investment Managers'
investment strategy. Please refer to Glossary on pages 110 and
111 and APMs on page 112 for more information.
PORTFOLIO COMPOSITION as at 31 August 2023
NAV% BY SIZE*
Mega Cap > $30bn 17%
----
Large Cap =$10-30bn 24%
----
Mid cap = $2-10bn 27%
----
Small cap < $2bn 24%
----
Unquoted funds 6%
----
Directly-held unquoted 2%
----
* Adjusted for cash/(debt) balance.
----
NAV% BY DEVELOPMENT STAGE
Profitable 25%
----
Revenue growth 45%
----
Early-stage 30%
----
NAV% BY THERAPEUTIC AREA
Rare diseases 29%
----
Oncology 23%
----
Central nervous system 19%
----
Autoimmune 9%
----
Infectious diseases 5%
----
Ophthalmology 3%
----
Unquoted funds 6%
----
Other 6%
----
NAV% BY GEOGRAPHY
US/Canada 92%
----
Europe/UK 7%
----
Rest of World 1%
----
PORTFOLIO COMPOSITION as at 31 August 2022
NAV% BY SIZE*
Mega Cap > $30bn 11%
----
Large Cap =$10-30bn 32%
----
Mid cap = $2-10bn 28%
----
Small cap < $2bn 20%
----
Unquoted funds 7%
----
Directly-held unquoted 2%
----
* Adjusted for cash/(debt) balance.
----
NAV% BY DEVELOPMENT STAGE
Profitable 32%
----
Revenue growth 31%
----
Early-stage 37%
----
NAV% BY THERAPEUTIC AREA
Oncology 29%
----
Rare diseases 21%
----
Central nervous system 14%
----
Autoimmune 11%
----
Infectious diseases 5%
----
Ophthalmology 4%
----
Unquoted funds 7%
----
Other 9%
----
NAV% BY GEOGRAPHY
US/Canada 86%
----
Europe/UK 11%
----
Rest of World 3%
----
LONG-TERM RECORD
TEN YEAR PERFORMANCE as at 31 August
As at 31 Total Number NAV NAV** Share Share NBI (Discount)/premium
August NAV of shares per total price price** total %
GBP'000 in issue* share return pence total return
pence % return %
%
--------- ----------- ------- -------- ------- --------- -------- -------------------
2023 270,317 39,318,183 687.5 2.7 644.0 3.0 (1.4) (6.3)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2022 284,889 40,863,009 697.2 (6.9) 651.5 (6.4) (13.8) (6.6)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2021 323,775 41,383,817 783.2 9.8 729.5 3.8 24.8 (6.8)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2020 283,897 38,436,817 738.6 22.4 730.0 18.7 18.6 (1.2)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2019 239,579 38,397,663 623.9 (6.8) 636.0 (2.1) (9.8) 1.9
--------- ----------- ------- -------- ------- --------- -------- -------------------
2018 262,473 37,547,663 699.0 8.6 680.0 13.7 10.1 (2.7)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2017 252,651 37,547,663 672.9 20.9 624.0 30.5 21.7 (7.3)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2016 216,651 37,672,663 575.1 (1.7) 497.5 (9.8) (6.5) (13.5)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2015 236,001 40,247,663 586.4 48.2 551.5 75.4 38.0 (6.0)
--------- ----------- ------- -------- ------- --------- -------- -------------------
2014 214,970 54,332,663 395.7 26.4 314.5 16.9 33.8 (20.5)
--------- ----------- ------- -------- ------- --------- -------- -------------------
*Excludes Treasury shares.
**On a total return basis (with all dividends reinvested since
2017).
TEN YEAR PERFORMANCE
Share Price/NASDAQ Biotechnology Index Total Return (%)
Source: Bloomberg. Data rebased to 100 at 31 August 2013.
CHAIR'S STATEMENT
Kate Cornish-Bowden | Chair
SUMMARY
The share price total return of International Biotechnology
Trust plc (IBT) rose by 3% over the financial year to the end of
August 2023, while the benchmark NASDAQ Biotechnology Index (NBI)
fell by 1.4% over the same period. The Company's Net Asset Value
rose by 2.7%. All figures are on a sterling adjusted total return
basis, with dividends reinvested. It is gratifying that the Fund
Manager has again delivered a return in excess of the NBI, although
disappointing to have underperformed the FTSE All Share Index. IBT
has now outperformed the NBI over one, five and ten years.
It has been a very busy year for IBT, whilst we conducted a
comprehensive, independent process to select a new fund manager for
the Company; and it is particularly pleasing that the Investment
Managers have continued to deliver strong performance during this
transition.
A SENSITIVE WEATHERVANE
FIGURE 1: NASDAQ Biotechnology Index
Source: Bloomberg.
QUOTED PORTFOLIO
The NAV of the quoted portfolio, which represents 91.6% of total
investments, rose by 3.8% during the financial year, beating the
NBI return by 5.2%. All figures are on a sterling adjusted total
return basis, with dividends reinvested.
Your Investment Managers, Ailsa Craig and Marek Poszepczynski,
have continued to focus their efforts on identifying companies
which have innovative treatments for unmet medical needs which
command powerful competitive positions, have strong balance sheets,
and have experienced management teams. The largest exposures by
therapeutic area are Rare Diseases (29%), Oncology (23%) and the
Central Nervous System (19%).
Most of the outperformance during the financial year was due to
careful selection of mid cap revenue-generating biotech
opportunities, which became acquisition targets. IBT benefited from
being overweight in six companies which were subject to M&A
activity. The Fund Manager's Review provides more detail on these
transactions, but I would like to draw your attention to both
Horizon and Seagen, which represented the two largest portfolio
holdings before they became the subject of takeover bids from Amgen
and Pfizer respectively, in the first half of the year under
review. In both cases shareholders benefited significantly from the
performance uplift, and the Investment Managers subsequently took
the decision to reduce the positions to lower exposure to the
transaction risks. This has proved prescient as both share prices
have been volatile following announcements of investigations into
the deals by the Federal Trade Commission (FTC). Since the year
end, the FTC has given the Amgen acquisition of Horizon the green
light, but Pfizer's proposed takeover of Seagen
remains under review by the regulator.
The outlook for M&A activity in the sector remains bright.
The large cap companies in the industry have substantially
outperformed their smaller brethren this year. Whilst the NBI,
which is a market capitalisation weighted index which also includes
pharmaceutical companies, fell by 1.4% in sterling terms, XBI,
which is equal weighted, fell by 13% in sterling terms over the
same period. The relative valuation differential has made the
smaller innovative companies which are developing the drugs of the
future look even more appealing. The industry is forecast to lose
up to $200bn in sales per annum by 2030 as a result of major drugs
coming off patent. The cash-rich, large cap companies in the sector
are under pressure to maintain earnings growth and are eager to
identify the next generation of innovative candidates to fill the
pipeline.
UNQUOTED PORTFOLIO
The unquoted portfolio, which comprises 8.4% of total
investments, is primarily invested in two venture capital funds, SV
Fund VI and SV BCOF, managed by SV Health Investors LLC and SV
Health Managers LLP respectively, as well as a small number of
directly held unquoted companies, most of which have been exited
with potential contingent milestone payments still remaining.
Rising interest rates have led to a tougher funding environment
for the private equity industry, and biotechnology is no exception.
Deal activity has fallen dramatically and the heady valuations of a
couple of years ago are a distant memory. During the year SV Fund
VI, which is a mature fund with 86% of the initial IBT $30m
commitment drawn down, fell in value with a number of write downs.
Nevertheless, since its launch in 2016, SV Fund VI has delivered a
currency adjusted Internal Rate of Return (IRR) of 17.7% per annum
for investors.
The younger fund, SV BCOF, focuses on later stage, pre IPO and
newly listed opportunities. Of the initial $30m commitment from
IBT, only 28% is drawn down, and invested in six companies. During
the year, Nimbus, one of the original SV BCOF investments,
announced the sale of one of its key assets, a TYK2 Inhibitor for
psoriasis, to Takeda for $4bn in upfront cash, and up to $2bn in
commercial milestone payments. This has led to an exceptional early
return for investors in SV BCOF which has delivered a currency
adjusted IRR of 109% since it was launched in January 2022. The
majority of SV BCOF remains in cash assets ready to take advantage
of the significantly reduced valuations in the recently derated
private biotech space.
NEW MANAGER
At the beginning of August this year, we were able to release
the news to our patient shareholders and the market that we have
selected a new fund manager for IBT; Schroders. This has been the
culmination of an exhaustive and independent process, and we are
very pleased with the outcome. The transition to Schroders, which
is due to occur on 20 November 2023, ensures continuity of the
existing mandate combined with the benefit of the significant
investment trust expertise which Schroders brings to the table.
Ailsa Craig and Marek Poszepczynski are moving to Schroders and
will continue to manage the quoted portfolio with the same
investment philosophy.
As previously announced, SV Health Managers LLP served notice to
IBT in February this year following the partnership's decision to
focus on its venture capital business. The Board and its Advisers
spoke to our major shareholders in order to gain an understanding
of their priorities and expectations for the future of IBT. Our
shareholders said they were pleased with the investment record of
the Investment Managers and keen to ensure that our differentiated
mandate remained as a distinctive option within the biotechnology
and healthcare specialist area. Most of our shareholders value our
policy of paying a regular dividend out of capital, and our
commitment to invest up to 15% of assets in innovative private
equity opportunities within the biotechnology sector.
Amongst the many expressions of interest which we received the
Board was particularly keen to identify investment houses with
experience of managing investment trusts. Schroders has an
established investment trust business with 14 investment trusts and
over GBP10bn under management, and is strongly placed to support
IBT both from a regulatory and marketing perspective. IBT provides
Schroders with a flagship biotechnology offering within its global
thematic funds business.
UNQUOTED EQUITY EXPOSURE
SV Health Managers LLP, which has delivered a strong track
record for IBT shareholders from investments in unquoted biotech
assets, will continue to provide advice on the Company's current
private equity exposure. This is primarily invested in two venture
capital funds; SV Fund VI and SV BCOF. The remaining legacy direct
investments, which now represent less than 2% of total assets, will
no longer attract a management fee but will be subject to the same
performance fee of 20% (capped at 2% of the Company's NAV).
CHANGE IN DEPOSITARY, CUSTODIAN AND LER
As part of the move to Schroders, IBT is changing its depositary
and custodian from Northern Trust to HSBC. As a result of this
change, the GBP55m one year lending facility from Northern Trust
will be repaid early. The Board is in the process of negotiating a
new, one year secured revolving lending facility with Scotiabank
which will replace the arrangement with Northern Trust.
NEW FEE ARRANGEMENTS
The Board has negotiated a fee free period for up to six months
with Schroders which will offset the costs associated with the
transition. The annual management fee at Schroders will be 0.7%, in
line with the effective fee currently payable on the quoted
portfolio. The performance fee will be retained and is payable at a
rate of 10% of the relative outperformance above the NBI plus a
hurdle rate of 0.5%. The performance fee is subject to a cap of
1.25%, and payable only when the NAV per share has increased over
the period. The ongoing charge ratio is expected to fall marginally
and further reduce over time.
SUSTAINABILITY
Schroders has a dedicated sustainability team which will help
complement IBT's initiatives to incorporate Environmental, Social
and Governance (ESG) criteria into the investment process.
Investing in companies that develop innovative treatments for
patients suffering with unmet medical needs has an inherent
positive social impact. IBT has implemented an ESG policy which
incorporates ESG screening in the investment process. Data provided
by Morningstar's Sustainalytics is used to measure the
environmental and social impact and the quality of governance in
key portfolio holdings. The results of this screen are outlined on
page 32 of this Report.
DIVIDS
The Company's dividend policy is to make dividend payments
equivalent to 4% of the Company's closing NAV, as at the last day
of the preceding financial year (31 August), through two
semi-annual distributions. This enables shareholders to gain access
to this exciting growth sector without sacrificing the security of
regular income. The first dividend for the year of 14 pence per
share was paid on 27 January 2023. The second dividend for the year
of 14.2 pence per share was paid on 25 August 2023. The dividend
policy, which will be once again proposed at the AGM, will remain
the same after the transition to Schroders.
DISCOUNT AND PREMIUM MANAGEMENT
The Board keeps the Company's share price discount to NAV under
close review and is committed to buying back its shares to help
manage this. Similarly, the Board is keen to grow the Company and
will issue shares when the share price is trading at a premium to
NAV. During the year under review, 1,544,826 shares were bought
back to be held in Treasury. The share price discount to NAV, which
was 6.6% at 31st August 2022, stood at 6.3% at 31 August 2023.
PERFORMANCE FEE
Thanks to outperformance in both the quoted and unquoted
portfolios, a performance fee of GBP514,000 is payable for the year
ended 31 August 2023. The quoted portfolio outperformed the NBI
plus a 0.5% hurdle rate by over 4.5% which has led to a performance
fee payment of GBP418,000. A performance fee of GBP96,000 is also
payable on the unquoted portfolio due to net realised gains of
GBP479,000 during the financial year.
BOARD AND SUCCESSION
Gillian Elcock, who joined the Board in February this year
following the retirement of Jim Horsburgh, will be standing for
election for the first time at this year's AGM. Gillian was the
founder and Managing Director of Denny Ellison, an independent
investment research company, and is a member of the board of the
CFA UK. Gillian is also a Non-executive Director of Melrose
Industries plc and STS Global Income and Growth Trust plc.
I am a Director of Schroder Oriental Income Fund Limited and
will be stepping down from this role prior to IBT's move to
Schroders.
AGM AND CONTINUATION VOTE
We look forward to seeing as many of our shareholders as
possible at the AGM on 12 December which will be held at 3.00pm at
Schroders' offices at 1 London Wall Place, London EC2Y 5AU.
In accordance with the Company's Articles of Association, a
biennial continuation vote will be put to shareholders as an
ordinary resolution at the AGM. We have consulted with many of our
shareholders during the year and have received positive feedback.
In particular, many of our major shareholders have informed us that
they are pleased with the impending move to Schroders, and the
continuity of the mandate and the investment management team. The
Board strongly recommends that shareholders vote in favour.
OUTLOOK
It has been a volatile year for all investors as markets have
swung from facing the reality of global inflation and the threat of
recession to the belief that the interest rate cycle may be nearing
a peak and the worst may be over. At the time of writing, the
devastating news of a resurgence of the conflict in the Middle East
has shaken market confidence. The continuing war in Ukraine and the
increasingly tense relations between the US and China have further
exacerbated the uncertainty within the investment environment.
Nevertheless, the Board shares the Investment Managers' views
that there are grounds for optimism. Whilst higher costs of capital
have had a substantial effect on the funding environment for early
stage drug discovery companies, the fundamentals of the sector
remain very much intact: namely a growing elderly population, a
rising middle class, and an increasing demand for treatments to
cure disease and enhance the quality of our lives. This spend is,
to a large degree, non-discretionary.
Furthermore, scientific innovation in areas such as personalised
targeted therapies and the application of artificial intelligence
has led to faster, positive outcomes from clinical trials and
better prospects for patients.
I would like to take this opportunity to thank my fellow
Directors, the investment management team, and our professional
advisers, all of whom have worked hard this year to ensure that we
achieved the optimum outcome for our shareholders. We are excited
about the opportunities for IBT within the Schroders stable and are
looking forward to the future with confidence.
Kate Cornish-Bowden | Chair
6 November 2023
1) For information on how the performance fee is calculated,
please refer to the Directors' Report on page 41.
*For detailed calculation of the discount, please refer to APMs
on page 112.
FUND MANAGER'S REVIEW
SUMMARY
In the year to 31 August 2023, the NAV per share rose 2.7% and
the share price total return was up 3.0%. The Company's Benchmark,
the NASDAQ Biotechnology Index (NBI), fell 1.4% whilst the FTSE
All-Share Index rose 5.0%. All figures are on a sterling adjusted
total return basis, with dividends reinvested. As of 31 August
2023, the Company's NAV amounted to GBP270.3m. The quoted portfolio
represented 102.3% at GBP276.6m including 12% gearing of GBP32.5m.
The unquoted portfolio represented 9.3% of NAV at GBP25.3m, and
other net assets at GBP0.9m represented 0.4% of NAV.
Although the Company's discount widened at points during the
financial year, the discount was managed by share buybacks and
closed the year at 6.3%, not dissimilar from the 6.6% discount at
the start of the year.
By subsector, as of 31 August 2023, 87% of the portfolio was
invested in therapeutics, 4% in speciality pharmaceuticals, 3% in
life sciences, tools and diagnostics and 6% in other sub-sectors.
The Company's three largest therapeutic areas were Rare Diseases
(29%), Oncology (23%), and Central Nervous System (19%).
CYCLICAL INVESTMENT ENVIRONMENT
FIGURE 2: The stages of the biotech investment cycle
Stage 1 DESPAIR DESPAIR
Company values depressed
------------------------------------------------------------------------------
Stage 2 RECOVERY RECOVERY
M&A kickstarts and valuations start to recover
------------------------------------------------------------------------------
Stage 3 EQUILIBRIUM EQUILIBRIUM
Fair value, growth, IPO window opens influx of capital, steady stream of M&A
------------------------------------------------------------------------------
Stage 4 EUPHORIA EUPHORIA
Hyped values, booming IPOs
------------------------------------------------------------------------------
Stage 5 CORRECTION CORRECTION
M&A dries up, investment outflows
------------------------------------------------------------------------------
Source: SV Health Managers LLP
COMPANY PERFORMANCE
Quoted portfolio
For the twelve-month period ended 31 August 2023, the NAV of the
quoted portfolio rose by 3.8% (gross of management and performance
fees) against a fall of 1.4% for the NBI. All figures are on a
sterling adjusted total return basis, with dividends reinvested.
While the NBI saw a modest decline, XBI, representing smaller-cap
biotech firms, faced a more substantial setback, falling 13% when
measured in sterling terms.
The bulk of both the Company's and NBI's absolute returns
materialised during the first half of the financial year, with
performance holding relatively steady in the latter half. This
stands in contrast to the broader market, as represented by the
NASDAQ Composite, which was stagnant during the first half of the
Company's financial year, but then exhibited an impressive
turnaround, delivering a substantial 22% return (in dollar terms)
during the second half of the calendar year. Investment flows
veered away from the biotech sector towards large-cap tech stocks,
driven by the surge in excitement over advancements in artificial
intelligence (AI) and lower inflation expectations. Notably, the
NBI concluded the financial year at c4,000, marking a respectable
22% increase (in dollar terms) from the mid-2022 lows.
Nevertheless, it still trails significantly behind the peak reached
in 2021 when the index surged to c5,500 (see Figure 1).
On a positive note, the biotech sector experienced an uptick in
M&A activity, with several deals announced, including six
acquisitions within the Company's portfolio. Additionally, this
calendar year appears poised for significant new chemical entity
approvals by the Federal Drug Agency (FDA), with the sector
anticipating the green light for up to 70 new chemical entities,
reflecting robust innovation and growth. Nonetheless, the sector
found itself in a somewhat stagnant state during the second half of
the financial year ended 31 August 2023, primarily due to a
constellation of negative headwinds. These challenges encompassed
macroeconomic factors, such as the rise in interest rates,
uncertainty surrounding the impact of the Inflation Reduction Act,
and unexpected actions by the FTC. The FTC's announcement of
investigations into high-profile acquisition deals within the
biopharmaceutical industry introduced an element of uncertainty
into the sector's landscape.
As has been discussed before, the 2020/2021 pandemic ignited
fervent interest in the biotech sector, captivating generalist
investors impressed by its rapid innovation in delivering vaccines
and therapeutics. This enthusiasm drove investor focus toward
early-stage biotech companies with ground breaking platform
technologies (e.g. cell therapy, gene therapy, and RNA platforms),
leading to overheated valuations across the market. Notably,
early-stage, small-cap companies reached valuations traditionally
reserved for those with proven products. However, the Federal
Reserve's decision to raise interest rates to combat inflation had
a significant impact, especially on early-stage biotech companies,
which often operate without earnings for many years and depend on
external financing for operations and clinical trials. These
factors contributed to a prolonged market sentiment decline,
resulting in one of the longest and deepest corrections in the NBI
and small-cap biotech indices to date. Furthermore, IPOs stalled,
and companies encountered challenges raising capital. Reduced
M&A activity also played a role during the downturn, possibly
due to unrealistic valuation expectations set during the 2021
hype.
However, since the lows of May/June 2022, M&A activity has
picked up and is expected to persist as smaller companies seek
financing and present more attractive valuations. De-risked,
late-stage assets that align with an acquirer's strategic pipeline
are likely to be a top M&A priority.
The Company experienced a significant cash inflow from two major
M&A exits involving Horizon and Seagen. Both positions were the
Company's largest holdings at the time of offers from Amgen and
Pfizer respectively. The Investment Managers chose to reinvest this
cash into smaller and mid-sized companies with promising innovative
assets addressing unmet medical needs. Additionally, they continued
to reduce exposure to companies facing imminent binary events, such
as clinical data readouts. These strategies contributed to the
Company's relative outperformance and reduced portfolio volatility
compared to the NBI.
Unquoted portfolio
The Company's unquoted portfolio continues to perform well in
its objective to give investors access to innovative early-stage
companies and exposure to returns differentiated from quoted
markets. As of 31 August 2023, it comprised 8.4% of the Company's
total investments (9.3% of NAV) keeping it in line with the
Company's guideline range of 5 to 15 per cent.
The portfolio currently includes two unquoted funds, SV Fund VI
and SV BCOF as well as a small number of directly held unquoted
companies, most of which have been exited with potential contingent
milestone payments still remaining.
SUMMARY OF UNQUOTED INVESTMENTS
As at 31 August 2023
Fair value (GBP'm) % of NAV Number of investments
------------------- --------- ----------------------
SV Fund VI 14.1 5.2 18*
------------------- --------- ----------------------
SV BCOF 5.2 1.9 6*
------------------- --------- ----------------------
Exited with contingent
milestones 5.5 2.0 3
------------------- --------- ----------------------
Directly-held
unquoted 0.4 0.2 2
------------------- --------- ----------------------
Total unquoted** 25.3 9.3 29
------------------- --------- ----------------------
*The number of investments represents the number of investments
into underlying individual portfolio companies. Two of the companies
within SV Fund VI and one within SV BCOF were quoted as at 31
August 2023.
**The Board expects the unquoted portfolio to remain within
the guideline range of 5-15%.
SV BCOF
SV BCOF is the newer fund which invests mostly in later stage,
pre-IPO biotech opportunities. The $30m commitment is only 28%
drawn as at 31 August 2023, but the fund was able to make
distributions totalling $9.75m (GBP8.0m) during the year as a
result of realising significant gains on Nimbus Therapeutics, one
of its six underlying investments. In February 2023 Nimbus sold its
TYK2 Inhibitor, which had demonstrated promising Phase 2 results in
psoriasis, to Takeda for $4bn in upfront cash, and up to $2bn in
commercial milestone payments.
SV Fund VI
SV Fund VI invests in a range of early-stage biotech, medical
device and healthcare services companies. It is a mature portfolio
and as at 31 August 2023, has drawn down 86% of the $30m capital
committed. During the year, SV Fund VI made distributions of $2.2m
(GBP1.9m) and capital calls of $1.9m (GBP1.6m). Performance for
this year was disappointing with a number of write downs but, now
comprising 5.2% of IBT's NAV, SV Fund VI has delivered a currency
adjusted internal rate of return (IRR) of 17.7% per annum since the
Company's first investment in the fund in 2016.
The remaining unquoted investments have been winding down since
the Board's decision in 2016 to make all further unquoted
investments through funds. They are classified as either "exited
investments with contingent milestones" or "directly held
investments" as set out in the analysis of Unquoted investments on
pages 24 and 25. The net movement during the year has been broadly
neutral with the total value of GBP5.9m dominated by Ikano which
made distributions of GBP0.3m during the year.
The unquoted portfolio gave rise to a performance fee of
GBP96,000 (2022: GBP471,000).
Positive contributors to NAV performance
Horizon Therapeutics was the main contributor to NAV during the
year. The Investment Managers initiated an investment in 2018 after
the company acquired River Vision Development Corp. in 2017
including the main product teprotumumab, a fully human monoclonal
antibody in development for Thyroid Eye Disease, a rare autoimmune
inflammatory disorder. Horizon successfully transitioned the
product through clinical trials and received approval for the drug
in January 2020. After a very strong launch, Amgen announced its
intention to acquire Horizon for $28bn in December 2022. At the
time of the announcement, the company was the largest holding in
the Company.
Vera Therapeutics reported phase two data for its lead asset
atacicept in IgA Nephropathy, a rare kidney disease in January
2023. The negative market interpretation of the data did not align
with that of the Investment Managers who subsequently added to the
holding within the Company. Vera shares recovered markedly after
the company announced more mature data from the same trial which
showed improved efficacy. Furthermore, competitor company Chinook
Therapeutics, a read-across holding within the same disease area,
was acquired by Novartis for $3.2bn, boosting the share price of
Vera in parallel.
Seagen, an antibody-drug conjugate (ADC) company, is an
established biotechnology company with multiple approved products
addressing various oncology indications. In March 2023, Pfizer
announced its intention to acquire the company for $48bn. At the
time of the announcement, Seagen was the largest holding within the
Company.
BEST PERFORMING INVESTMENTS
Contributors to NAV (GBP'm)
Horizon Therapeutics 18.3
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Vera Therapeutics 5.6
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Seagen 3.6
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WORST PERFORMING INVESTMENTS
Detractors from NAV (GBP'm)
Harmony Biosciences (4.7)
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Revance (3.4)
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Travere Therapeutics (3.2)
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Detractors from NAV performance
Harmony Biosciences came under attack by Scorpion Capital, an
activist hedge fund based in the US, in March 2023. Scorpion
Capital's case report concerned Harmony's lead asset Wakix, which
has been marketed since 2019 in the US for the treatment of a sleep
condition called narcolepsy. Scorpion Capital cited safety concerns
and then continued with a media campaign culminating in filing a
citizen's petition with the FDA to take Wakix off the market. The
FDA has responded to the citizen's petition but, as of the time of
writing six months later, no action has been taken.
Revance launched Daxxify in January 2022 for forehead furrows.
Sales of the drug have disappointed since the launch which has had
a detrimental impact on the share price. In August 2023, the
company announced a second indication for the drug, cervical
dystonia.
Travere Therapeutics shares fell in February after disappointing
data from a two-year study of a kidney drug which failed to show a
statistically significant improvement. The company said the Phase 3
trial of sparsentan as a treatment for focal segmental
glomerulosclerosis, or FSGS, did not meet the primary efficacy eGFR
slope endpoint.
Mergers and acquisitions (M&A)
The Company benefitted from six of its portfolio companies
becoming acquisition targets in the year to 31 August 2023. The
Investment Managers anticipated that revenue growth companies would
prove to be the most attractive targets due to the pressure on big
pharmaceutical companies to plug impending gaps in their revenue
pipelines with derisked assets with a shorter lead time to
profitability. Big pharma continues to offer substantial premia to
ensure success of their bids, which makes this a lucrative,
alpha-generating area for the Company. Assuming that the share
price moves close to the bid price on announcement, the Investment
Managers will usually choose to exit their holding at that point in
order that the Company is protected from transaction risk as the
deal is negotiated further and scrutinised by the regulators. This
has proved to be a wise strategy this year.
In December 2022, Amgen made a significant announcement of its
intention to acquire Horizon for a substantial sum of $28bn,
marking a noteworthy development for our biotech investment
company. Horizon was the largest position in our portfolio,
representing 13% of the Company's holdings. The acquisition process
itself was characterised by a fiercely competitive bidding war
involving major players in the pharmaceutical industry, including
Johnson & Johnson and Sanofi. Amgen's offer for Horizon came
with a substantial premium, providing a 48% increase over the
previous day's closing share price, reflecting the perceived value
of this strategic acquisition. The Company's position was sold soon
after the transaction was announced in order to protect the Company
from transaction risk, generating a substantial return on
investment. Thereafter, in an unexpected turn of events in May, the
FTC took action against Amgen, seeking to halt the transaction. The
FTC expressed concerns that Amgen might engage in a practice
commonly referred to as 'bundling'. This practice involves
packaging different pharmaceutical products together and offering
them at discounted rates, potentially creating barriers for
competing drugs that lack such bundled advantages, especially for
smaller pharmaceutical companies with fewer products in their
portfolio. Despite the FTC's concerns the regulator settled with
Amgen and the deal looks likely to close by the end of 2023.
Also in December 2022, Takeda announced its intention to acquire
Nimbus, which is a holding within SV BCOF, part of the unquoted
portfolio of the Company. The transaction amounted to an initial
payment of $4bn with potential additional commercial-related
milestone payments of up to $2bn. Nimbus Therapeutics, a
clinical-stage drug discovery firm, employs cutting-edge
computational techniques and machine learning-based predictive
models to create small molecule medicines targeting validated yet
challenging-to-address human disease targets. Its main project
targets the TYK2 pathway, addressing inflammatory and autoimmune
conditions such as psoriasis, inflammatory bowel disease, psoriatic
arthritis and systemic lupus erythematosus.
Ipsen announced its intention to acquire Albireo, a specialised
rare disease company, for a total consideration of $952m, in
January 2023. Albireo, established 15 years ago as a spinout from
AstraZeneca, is at the forefront of developing bile acid modulators
to address a range of liver diseases. Albireo achieved notable
milestones when its product, Bylvay, obtained regulatory approvals
in both Europe and the United States in July 2021 for the treatment
of pruritus associated with progressive familial intrahepatic
cholestasis (PFIC). In October of the preceding year, Albireo
presented compelling data demonstrating Bylvay's efficacy in
managing another paediatric liver disorder, Alagille syndrome.
Ipsen's tender offer for Albireo included a purchase price of $42
per share, with an additional contingent value right of $10 per
share, contingent upon the potential approval of Bylvay for biliary
atresia, the most prevalent among the three primary paediatric
liver diseases.
Also in January of 2023, Sun Pharmaceutical entered into a
definitive agreement to acquire Concert, amounting to a total
equity value of $576m. Additionally, Concert shareholders will
receive a contingent value right (CVR), offering the potential to
receive an additional $3.50 per share of common stock in cash,
subject to specific net sales milestones achieved by deuruxolitinib
within defined timeframes as outlined in the contingent value
rights agreement. Concert Pharmaceuticals is a late-stage biotech
firm pioneering deuterium utilization in medicinal chemistry. Its
patent portfolio features deuruxolitinib, a leading product
candidate designed as an oral JAK1 and JAK2 inhibitor for treating
Alopecia Areata, an autoimmune dermatological condition in
late-stage development. Alopecia Areata is an autoimmune ailment
characterised by immune attacks on hair follicles, causing hair
loss on the scalp and body. Affecting up to 2.5% of the global
population, this condition has limited treatment options and can
lead to significant psychological consequences, including anxiety
and depression.
In March 2023, Pfizer, entered into an agreement to acquire
Seagen, a biotech firm specialising in oncology, for a total value
of $43bn. Seagen was the Company's largest holding at the time,
representing 10% of the portfolio as at end of February 2023.
Pfizer offered $229 in cash per Seagen share representing a premium
of approximately 35% over Seagen's closing price on the preceding
Friday. Pfizer's CEO, Albert Bourla, emphasised the company's
commitment to advancing cancer research, acknowledging oncology as
a pivotal driver of global medical growth. Seagen's expertise in
antibody-drug conjugates (ADC), a targeted therapy for cancer
cells, further complements Pfizer's portfolio. Seagen's four
approved ADC drugs are recognised for their effectiveness in
treating specific conditions. In June 2022, speculations about a
potential Seagen acquisition had surfaced, with initial discussions
involving Merck. By July, Merck had put forward a substantial
proposal, offering a minimum of $200 per share, equating to a
prospective $40bn transaction value. However, negotiations between
Seagen and Merck stagnated in August 2022, as the two entities
couldn't reach a consensus on the deal's pricing terms.
After the collapse of the Seagen/Merck transaction, the
Investment Managers bought more shares in Seagen, recognising that
Seagen's Board of Directors would be under pressure to deliver a
new deal to shareholders. Subsequently, in February 2023, reports
emerged of Pfizer's interest in Seagen. This speculation was later
confirmed a month later, as both companies disclosed their
agreement to a purchase price of $229 per share, resulting in a
monumental $43bn deal, one of the most significant in biotech
history. The Investment Managers sold the Company's position
shortly after the deal was announced to avoid exposing the Company
to transaction risk. By June 2023, Seagen publicly announced in an
SEC filing that Pfizer had initially withdrawn its application with
the FTC, only to resubmit a similar document later the same day,
reflecting the ongoing regulatory processes surrounding the
acquisition which has still not closed.
In June 2023, Novartis said it had agreed to acquire Chinook
Therapeutics for up to $3.2bn to boost its late-stage drug
development line-up, raising the stakes in the race for a rare
kidney disease treatment. Chinook's shareholders will receive
$3.2bn, or $40 per share, in cash under the agreed deal, plus a
contingent value right worth up to $300m, depending on certain
regulatory achievements. The upfront payment represents a premium
of 66.7% to Chinook's previous closing price. Chinook has a lead
compound designed to treat IgA Nephrophathy, or IgAN, that can lead
to kidney failure in young adults which is a focus for several
companies and is already the target of a drug candidate.
INVESTMENT UPDATES
Many of the therapeutic areas represented in the Company's
portfolio are at the cutting edge of current developments in
biotech. The following section focuses on three of these and
discusses how the Company's portfolio companies are at the
forefront of the relentless pursuit of new effective therapies for
debilitating diseases.
Gene Therapies
Over 10,000 genetic diseases, affecting millions of individuals
globally, originate from single gene mutations. Gene therapy, a
revolutionary approach, aspires to replace faulty genes with
healthy counterparts or correct them, offering the potential of
enduring cures. Recent technological breakthroughs have paved the
way for ground breaking gene therapy drugs, and several companies
in our portfolio have been instrumental in advancing this
transformative field.
During November 2022, Uniqure's gene therapy, Hemgenix, received
regulatory approval for the treatment of haemophilia B. This
debilitating disease results from a deficiency in factor IX, a
crucial protein in the blood clotting process. Uniqure, in
collaboration with major Australian pharmaceutical company CSL
Biopharma, embarked on a strategic partnership in 2020, culminating
in a significant upfront payment of $450m. This partnership not
only reinforced Uniqure's financial stability but also underlined
the immense potential of gene therapy in addressing previously
unmet medical needs.
In June 2023, Biomarin achieved a major milestone with the
launch of Roctavian, their cutting-edge gene therapy. Indicated for
the treatment of severe haemophilia A with congenital factor VIII
deficiency, Roctavian offers a one-time single dose infusion aimed
at restoring the missing gene. This breakthrough therapy empowers
patients with severe haemophilia A to produce their own factor VIII
protein, marking a transformative shift in the management of this
condition.
May 2023 witnessed the regulatory approval of Krystal Bio's
Vyjuvek, an innovative topical gene therapy developed by Krystal
Bio. This therapy addresses the severely debilitating dystrophic
epidermolysis bullosa disorder, a condition characterised by open
wounds, skin infections, and an elevated risk of skin cancer.
Unlike other gene therapies, Vyjuvek can be redosed with the
replaced gene, enabling patients to generate vital collagen
protein, thereby facilitating wound closure. This breakthrough
offers newfound hope to these patients who have historically faced
limited life expectancy.
Kidney Disease (IgA Nephropathy)
2023 marked significant progress in the pursuit of effective
treatments for IgA Nephropathy, also known as Berger's disease.
This kidney disorder, characterised by the accumulation of
immunoglobulin A (IgA) in the kidneys, has garnered increasing
attention from pioneering biotech companies dedicated to developing
innovative therapies. The Investment Managers adopted a strategic
"basket approach" to diversify risk across various developmental
stages of treatments, as well as across distinct mechanistic
approaches.
Calliditas Therapeutics emerged as a prominent player in the IgA
Nephropathy treatment landscape, offering Nefecon (marketed as
Tarpeyo), the first drug approved to specifically tackle this
condition. Nefecon, is an oral immunosuppressant which reduces the
pathological IgA production and alleviates kidney inflammation.
Encouraging clinical trial data indicated its potential to slow
down disease progression. In February 2023, Calliditas received a
conditional marketing authorisation for Nefecon. Further studies
are underway to confirm its clinical benefit before seeking full
FDA approval.
Travere Therapeutics secured conditional approval for its lead
asset, sparsentan (branded as Filspari), just after Nefecon making
it the second to market to treat IgA Nephropathy. Similar to
Calliditas, Travere aspires to upgrade this conditional approval to
full approval contingent upon the success of the phase 3 trial
PROTECT, with results expected by the end of 2023.
Chinook Therapeutics, a development stage biotechnology company,
is developing atrasentan, an endothelin type A antagonist currently
in late-stage trials for IgA Nephropathy. The company also has an
earlier stage, disease modifying asset BION-1301. Notably, in June
2023, Novartis announced its intention to acquire Chinook for
$3.2bn with potential further upside for investors on the success
of the Align clinical trial set to read out by the end of 2023.
Vera Therapeutics is also a development stage biotechnology
company, whose lead asset atacicept is being developed to treat IgA
Nephropathy. While initial data announced in January 2023 received
a negative market response, resulting in a 70% drop in share price,
our Investment Managers significantly increased their holding in
the company, believing the data to be sound and the market response
to be questionable. Subsequent positive data releases have
validated their conviction, and the company has benefited from a
significant recovery in its share price. The share price also
benefited from the news of the Chinook acquisition by Novartis.
Central Nervous System
Data from the Centres of Disease Control paints a stark picture
of the US mental health crisis: surging depression and anxiety,
especially among youth, worsened by the COVID-19 pandemic. Existing
antidepressants and antipsychotics have a slow onset of action,
limited efficacy and often have to be combined, adding to
stigmatising side effects, such as weight gain, leaving a clear
unmet medical need. Pioneering treatments hope to address these
limitations, many including totally novel mechanisms of action,
providing hope for patients suffering from mental health
issues.
Intra-Cellular Therapies, an innovative biotechnology company,
unveiled Caplyta (lumateperone) in 2019, initially focused on
treating schizophrenia. Traditional therapies often result in
undesirable side effects, such as weight gain, often exacerbating
the condition and hindering patient adherence. Caplyta, with its
specific approach, mitigates these concerns, presenting a
compelling alternative. Its expansion into bipolar depression in
2021, addressing another debilitating condition, expanded the
potential market for the product. Concurrently, ongoing clinical
trials are assessing its effectiveness in major depressive
disorder, a mounting concern in the US, notably exacerbated by the
pandemic.
In the latter part of 2022, Axsome Therapeutics launched
Auvelity, a groundbreaking treatment for major depressive disorder.
Unlike current therapies, which typically take six to eight weeks
to show efficacy, Auvelity has an onset of action in under a week.
Auvelity represents the first oral medication with a novel
mechanism of action approved for major depression in six decades.
This innovative drug operates by simultaneously targeting multiple
neurotransmitter pathways, including the N-methyl-D-aspartate
(NMDA) receptor and the monoamine system.
Xenon's lead asset, XEN1101, presented positive results from the
Phase 2b X-TOLE study, demonstrating statistically significant
reductions in seizures among patients grappling with
challenging-to-treat focal onset seizure epilepsy. Building on this
achievement, Xenon has recently initiated its Phase 3 epilepsy
program. Separately, the company is actively engaged in an ongoing
Phase 2 clinical trial to evaluate XEN1101's effectiveness in
managing major depressive disorder, a significant comorbidity for
epilepsy patients. Data from the X-NOVA trial are anticipated to be
available by year-end 2023.
Karuna Therapeutics has achieved success in two late-stage
clinical trials for KarXT, an experimental drug tailored for
schizophrenia treatment. The company intends to submit an FDA
approval application later this year. KarXT's innovative mechanism
targets muscarinic receptor proteins, diverging from conventional
dopamine and serotonin pathways, presenting a substantial market
opportunity. Notably, the drug exhibited a promising safety
profile, lacking the weight gain and extrapyramidal (involuntary
muscle movements) side effects commonly associated with existing
schizophrenia treatments. Furthermore, Karuna is exploring KarXT's
potential applications in Alzheimer's disease psychosis and other
conditions, broadening its therapeutic scope.
INITIAL PUBLIC OFFERINGS & THE SECONDARY MARKET
The biotech IPO market has witnessed remarkable strength in the
past, reaching its zenith during the pandemic. 2021 saw a surge of
listings from relatively young companies, prompting discussions
about the appropriate timing for public offerings. Following this
exuberance, the sector experienced a significant downturn,
resulting in a very restricted IPO window during 2022.
However, recent developments indicate a reopening of this
window, with a select few companies successfully completing IPOs in
the current year. Notably, secondary fund raisings remain active in
2023, particularly for high-quality companies with compelling
clinical data. (See Figure 4).
FUND RAISINGS REMAIN ACTIVE
FIGURE 4: Money raised year-to-date (July), 2022 vs 2023
Source: BioCentury.
The Company has not invested in any IPOs in the calendar year
2023, with the Investment Managers preferring to wait until a
proven track record is established by the management before making
investments in this area. The possible reopening of the IPO window
bodes well for the Company's investment in SV BCOF, a venture fund
specialising in pre-IPO companies.
INDUSTRY RESPONSE TO THE MARKET DRAWDOWN
The biotechnology sector has displayed remarkable adaptability
in the face of significant market turbulence following the boom
during the COVID-19 pandemic. Since that peak period, the industry
has experienced a notable decline in valuations, particularly among
smaller, unprofitable biotech enterprises. This shift has
necessitated challenging decisions for individual companies, given
the tightening of funding sources. For several years, low interest
rates and the Federal Reserve's monetary expansion policies fuelled
an abundance of available funds for companies to go public and
commence ambitious clinical programs that might otherwise have
struggled to secure financing. Over the past decade, the number of
biotech companies has more than tripled. (See Figure 5).
NUMBER OF BIOTECH COMPANIES IN EACH MARKET TIER
FIGURE 5: The number of companies rose dramatically during the
pandemic era
Source: BioCentury, September 2023 (companies below $200m excluded).
As we move beyond this era of abundance, the biotech industry
has demonstrated resilience through strategic adaptation to a new
normal:
Consolidation for Strength: In response to the shifting
landscape, larger biopharmaceutical entities have actively acquired
smaller biotech firms. This is a secular trend, but has accelerated
in recent months, partly driven by more attractive valuations
stemming from reduced stock prices. Additionally, the demand for
inorganic revenue sources to counter future revenue losses due to
patent expiries and potential pressures from the Inflation
Reduction Act, has bolstered this consolidation trend. Furthermore,
some companies have opted for "mergers of weakness", forming
alliances that generate cost-saving synergies. These merged
entities then focus their resources on the most promising assets in
their pipelines, thereby reducing clinical development
expenses.
Streamlined Portfolio Focus: Companies are strategically pruning
their development programs, concentrating resources on the most
promising pipeline assets. This approach minimises internal
clinical development costs while maximising the potential for
success.
Activist Investor Influence: A handful of activist investors
have emerged as influential voices challenging company boards to
reconsider their strategies and implement changes that benefit
shareholders. This trend underscores the heightened scrutiny of
corporate decisions within the industry.
Outcomes
The cumulative impact of these strategic shifts is expected to
result in a gradual reduction in the number of publicly listed
biotechnology companies. The Investment Managers view this as a
positive development for the sector. The rationalisation of weaker
companies eliminates inefficiencies and redirects resources away
from clinical programs with limited value. In tandem with the
aforementioned strategies, the rate of new biotech companies
entering the stock market has substantially declined. This
phenomenon is poised to further curtail the number of companies
listed on public exchanges.
FDA ENVIRONMENT
In recent years, the biotech industry has maintained a steady
pace of new drug approvals, see Figure 6, although underlying
shifts in therapeutic focus have emerged. Notably, specialty pharma
drugs have experienced a decline, offset by a rise in advanced
modalities. The combined domains of neurology and oncology continue
to account for approximately 40% of all approvals. Small molecules
remain the predominant modality, comprising roughly two thirds of
approvals YTD, although this figure has decreased from the 75-80%
range observed during 2010-2020. Notably, 2023 witnessed three gene
therapy approvals with Vyjuvek by Krystal Biotech, Biomarin's
Roctavian and Uniqure's Hemgenix signalling potential growth in
this field. All three companies are portfolio holdings in
Company.
STEADY PACE OF NEW DRUG APPROVALS
FIGURE 6: Novel drug approvals by U.S. FDA
Source: FDA as of 18 August 2023. 2023 estimate from Biocentury.
The emergence of "new" modalities such as cell therapy, gene
therapy, oligos, RNAi, bispecific antibodies, and ADCs is evident,
representing a growing proportion of New Chemical Entity approvals
and expected to accelerate throughout the rest of the calendar
year. As the years progress, these trends will evolve, and we
remain vigilant in our analysis of the dynamic biotech landscape,
poised to seize investment opportunities that align with these
industry dynamics.
INFLATION REDUCTION ACT
In 2022, the Inflation Reduction Act was enacted as a pivotal
legislative initiative, designed to address the challenges of
escalating inflation and government spending. The centrepiece of
the Inflation Reduction Act's impact on the pharmaceutical industry
is the introduction of drug pricing negotiations between the
government, specifically Medicare (the federal health insurance
programme covering over 65s and those with disabilities or certain
chronic diseases), and the pharmaceutical industry. Commencing in
2026, Medicare is empowered to negotiate prices for the top ten
revenue-generating drugs annually, expanding the list over time. It
is noteworthy that Medicare's contribution to pharmaceutical
revenues accounts for just 22%, as illustrated in Figure 7.
PHARMACEUTICAL REVENUES
FIGURE 7: Breakdown of expenditures by payer in 2021
Source: CMS, Cowen and Company.
In August 2023, the first ten drugs selected for Medicare price
negotiations were unveiled. While there were few surprises in the
selection, as industry observers had largely anticipated the
choices, the implications for the pharmaceutical giants are
unsubstantial as many of the drugs are close to patent expiry.
There is likely to be increased demand to acquire innovative
early-stage and revenue growth biotech companies as larger
pharmaceutical counterparts seek to mitigate revenue declines
stemming from looming patent expirations as well as capped revenues
on some of their blockbuster products triggered by inclusion on the
list for price negotiations by the IRA. The introduction of the IRA
has therefore amplified the urgency for acquisitions in the
burgeoning biotech sector.
GEARING
In its capacity as a closed-ended fund, the Company possesses
the requisite authority to employ leverage, up to a maximum limit
of 30% of NAV. The utilisation of gearing is made possible through
a revolving loan facility amounting to GBP55m, incurring an
interest rate that is presently set at 1.5% above the prevailing
base rate. The Investment Managers actively and judiciously employ
this gearing facility as a tactical tool, increasing its deployment
when advantageous opportunities arise for investment in promising
companies at fair valuations, thereby avoiding the necessity of
divesting existing holdings to make new investments. Conversely,
the geared exposure can be curtailed to mitigate the risk
associated with unfavourable market conditions.
Throughout the course of the reporting period, the degree of
gearing employed fluctuated within the range of 0% to 20% of NAV.
These fluctuations were driven by the Investment Managers'
assessments of market valuations and macro-economic conditions as
well as by cash inflows generated through acquisitions of holdings
in the Company's portfolio.
OUTLOOK
After experiencing remarkable highs in 2020 and 2021, the
biotech industry faced significant challenges in recent years.
However, there are compelling reasons for optimism as we move
forward.
The NBI has demonstrated resilience by rebounding 20% from
mid-2022 lows in dollar terms. Smaller biotech companies, though
affected by rising interest rates, continue to present appealing
valuations, offering unique investment opportunities.
The confluence of rising interest rates and macroeconomic
conditions, along with evolving industry dynamics related to the
FTC and the Inflation Reduction Act, has created headwinds for the
biotech sector. However, it is noteworthy that these challenges
have had minimal impact on the valuations of innovative small and
mid-cap biotech companies which represented 51% of the Company's
NAV at the end of August 2023.
The recent period of valuation adjustments has stimulated
increased M&A activity within the industry. We anticipate this
trend to persist. Biotechnology continues to display robust
innovation, boasting strong numbers of drug approvals and
increasing numbers of clinical trials. Notably, emerging modalities
such as gene and cell therapies hold transformative potential for
addressing significant unmet medical needs across various
diseases.
In conclusion, the biotech industry stands resilient and
forward-looking. Increasing demand for high quality therapies,
M&A activities, productivity improvements through
consolidation, sustained innovation, and the allure of undervalued
companies in this dynamic landscape contribute to a promising
outlook for biotech investments. As we navigate these
opportunities, our commitment to delivering value to our investors
remains steadfast. We look forward to a future marked by growth and
transformation in the biotech sector.
SV HEALTH MANAGERS LLP
Ailsa Craig
Marek Poszepczynski
6 November 2023
INVESTMENT MANAGERS
The investment team has a breadth of experience across both
public and private investments. The majority of the Company's
investments made are in the public markets, though private or
venture capital investments are also made through a relationship
with SV Health Managers LLP which provides unique deal flow for
private company investment opportunities.
AILSA CRAIG
Investment Manager
Ailsa joined SV Health in 2006 and is an Investment Manager for
the Company. Ailsa has a BSc (Hons) in Biology from the University
of Manchester. She was awarded the IMC in 2002 and a Securities
Institute Diploma in 2007.
MAREK POSZEPCZYNSKI
Investment Manager
Marek joined SV Health in 2014 and is an Investment Manager for
the Company. Marek has an MSc in Biochemistry and an MSc in
Business Management from the Royal Institute of Technology,
Stockholm.
KATE BINGHAM
Managing Partner SV
Kate joined SV Health in 1991 and is the Investment Manager for
the unquoted assets of the Company. Kate is one of the SV Health's
Managing Partners, has a first class degree in Biochemistry from
Oxford University, and graduated from Harvard Business School with
an MBA.
HOUMAN ASHRAFIAN
Managing Partner SV
Houman joined SV in 2016 and represents the team of investment
professionals managing the unquoted portfolio. Houman is currently
Head of Experimental Therapeutics at the University of Oxford and
an Honorary Consultant Cardiologist, John Radcliffe Hospital,
Oxford. Houman left SV Health Managers LLP in September 2023 to
join Sanofi as Head of R&D.
QUOTED INVESTMENTS
QUOTED INVESTMENTS RANKED BY % OF NAV
As at 31 August As at 31 August
2023 2023
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Investment Therapeutic Geographic GBP'000 % of NAV
area location
----------------- --------------- ---------------- ----------------
Incyte Genomics Oncology United States 18,243 6.7
----------------- --------------- ---------------- ----------------
Amgen Oncology United States 16,031 5.9
----------------- --------------- ---------------- ----------------
Infectious
Gilead Sciences diseases United States 14,098 5.2
----------------- --------------- ---------------- ----------------
Harmony Biosciences Rare diseases United States 13,803 5.1
----------------- --------------- ---------------- ----------------
Central nervous
Supernus Pharmaceuticals system United States 13,154 4.9
----------------- --------------- ---------------- ----------------
Vera Therapeutics Autoimmune United States 11,598 4.3
----------------- --------------- ---------------- ----------------
BioMarin Pharmaceutical Rare diseases United States 11,081 4.1
----------------- --------------- ---------------- ----------------
Regeneron
Pharmaceuticals Ophthalmology United States 8,996 3.3
----------------- --------------- ---------------- ----------------
Intra-Cellular Central nervous
Therapies system United States 8,973 3.3
----------------- --------------- ---------------- ----------------
Alnylam Pharmaceuticals Rare diseases United States 7,381 2.7
----------------- --------------- ---------------- ----------------
Total of Top
Ten Investments 123,358 45.5
---------------- ----------------
Ultragenyx
Pharmaceutical Rare diseases United States 7,256 2.7
----------------- --------------- ---------------- ----------------
Uniqure Rare diseases Europe 7,159 2.6
----------------- --------------- ---------------- ----------------
Illumina Inc Oncology United States 6,585 2.4
----------------- --------------- ---------------- ----------------
Mirati Therapeutics Oncology United States 6,336 2.3
----------------- --------------- ---------------- ----------------
Aurinia Pharmaceuticals Autoimmune United States 6,246 2.3
----------------- --------------- ---------------- ----------------
United Therapeutics Rare diseases United States 6,011 2.2
----------------- --------------- ---------------- ----------------
Horizon Therapeutics Rare diseases Europe 5,962 2.2
----------------- --------------- ---------------- ----------------
Vertex Pharmaceuticals Rare diseases United States 5,773 2.1
----------------- --------------- ---------------- ----------------
Neurocrine Central nervous
Biosciences system United States 5,659 2.1
----------------- --------------- ---------------- ----------------
Central nervous
Biogen Inc system United States 5,062 1.9
----------------- --------------- ---------------- ----------------
Total of Top
Twenty Investments 185,407 68.3
---------------- ----------------
Central nervous
Amylyx system United States 5,019 1.9
----------------- --------------- ---------------- ----------------
ArgenX Rare diseases Europe 4,896 1.8
----------------- --------------- ---------------- ----------------
Krystal Biotech Rare diseases United States 4,528 1.7
----------------- --------------- ---------------- ----------------
Central nervous
Karuna Therapeutics system United States 4,518 1.7
----------------- --------------- ---------------- ----------------
Dyne Therapeutics Rare diseases United States 4,118 1.5
----------------- --------------- ---------------- ----------------
Revance Therapeutics Other United States 4,010 1.5
----------------- --------------- ---------------- ----------------
Erasca Oncology United States 3,937 1.5
----------------- --------------- ---------------- ----------------
Central nervous
Acadia Pharmaceuticals system United States 3,830 1.4
----------------- --------------- ---------------- ----------------
Central nervous
Axsome Therapeutics system United States 3,716 1.4
----------------- --------------- ---------------- ----------------
Akero Liver United States 3,071 1.1
----------------- --------------- ---------------- ----------------
Total of Top
Thirty Investments 227,050 83.8
---------------- ----------------
QUOTED INVESTMENTS RANKED BY % OF NAV
As at 31 August As at 31 August
2023 2023
----------------- --------------- ---------------- ----------------
Investment Therapeutic Geographic GBP'000 % of NAV
area location
----------------- --------------- ---------------- ----------------
Central nervous
Xenon Pharmaceuticals system United States 2,811 1.0
----------------- --------------- ---------------- ----------------
Central nervous
Denali Therapeutics system United States 2,806 1.0
----------------- --------------- ---------------- ----------------
Madrigal Pharmaceuticals Liver United States 2,596 1.0
----------------- --------------- ---------------- ----------------
Pharming Rare diseases Europe 2,510 0.9
----------------- --------------- ---------------- ----------------
Iovance Biotherapeutics Oncology United States 2,118 0.8
----------------- --------------- ---------------- ----------------
Halozyme Oncology United States 2,089 0.8
----------------- --------------- ---------------- ----------------
Legend Biotech Oncology United States 2,082 0.8
----------------- --------------- ---------------- ----------------
BeiGene Oncology United States 2,079 0.8
----------------- --------------- ---------------- ----------------
Jazz Pharmaceuticals Rare diseases Europe 1,945 0.7
----------------- --------------- ---------------- ----------------
Rocket Pharmaceuticals Rare diseases United States 1,927 0.7
----------------- --------------- ---------------- ----------------
Travere Therapeutics Autoimmune United States 1,922 0.7
----------------- --------------- ---------------- ----------------
Sarepta Therapeutics Rare diseases United States 1,795 0.7
----------------- --------------- ---------------- ----------------
Central nervous
Marinus Pharmaceuticals system United States 1,623 0.6
----------------- --------------- ---------------- ----------------
Zai Lab Ltd Oncology United States 1,586 0.6
----------------- --------------- ---------------- ----------------
Mirum Pharmaceuticals Rare diseases United States 1,405 0.5
----------------- --------------- ---------------- ----------------
Ionis Pharmaceuticals Rare diseases United States 1,366 0.5
----------------- --------------- ---------------- ----------------
Genmab Oncology United States 1,339 0.5
----------------- --------------- ---------------- ----------------
Cogent Oncology United States 1,301 0.5
----------------- --------------- ---------------- ----------------
Novocure Oncology Europe 1,286 0.5
----------------- --------------- ---------------- ----------------
Bridgebio Rare diseases United States 1,180 0.4
----------------- --------------- ---------------- ----------------
Guardant Health Other United States 1,125 0.4
----------------- --------------- ---------------- ----------------
Celldex Autoimmune United States 1,059 0.4
----------------- --------------- ---------------- ----------------
Cytokinetics Other United States 1,019 0.4
----------------- --------------- ---------------- ----------------
Amicus Rare diseases United States 909 0.3
----------------- --------------- ---------------- ----------------
Hutchmed China
(ADR) Oncology United States 806 0.3
----------------- --------------- ---------------- ----------------
Blueprint
Medicines Oncology United States 787 0.3
----------------- --------------- ---------------- ----------------
Kezar Life
Sciences Autoimmune United States 740 0.3
----------------- --------------- ---------------- ----------------
Intellia Therapeutics Rare diseases United States 709 0.3
----------------- --------------- ---------------- ----------------
Insmed Inc Rare diseases United States 693 0.3
----------------- --------------- ---------------- ----------------
PTC Therapeutics Rare diseases United States 529 0.2
----------------- --------------- ---------------- ----------------
Agios Pharmaceuticals Rare diseases United States 520 0.2
----------------- --------------- ---------------- ----------------
Infectious
Vir Biotechnology diseases United States 469 0.2
----------------- --------------- ---------------- ----------------
I-Mab Oncology United States 466 0.2
----------------- --------------- ---------------- ----------------
Calliditas Autoimmune Europe 454 0.2
----------------- --------------- ---------------- ----------------
Beam Therapeutics Rare diseases United States 429 0.2
----------------- --------------- ---------------- ----------------
Ventyx Biosciences Autoimmune United States 396 0.1
----------------- --------------- ---------------- ----------------
Arvinas Oncology United States 378 0.1
----------------- --------------- ---------------- ----------------
Protagonist
Therapeutics Haemotology United States 311 0.1
----------------- --------------- ---------------- ----------------
Central nervous
Relmada Therapeutics system United States 27 0.0
----------------- --------------- ---------------- ----------------
Total Investments 276,642 102.3
---------------- ----------------
UNQUOTED INVESTMENTS
INVESTMENTS HELD THROUGH A VENTURE FUND
As at As at As at As at
31 August 31 August 31 August 31 August
2023 2023 2022 2022
Investment Sector Geographic Fair % of Fair % of
classification location value NAV value NAV
GBP'000 GBP'000
----------- ---------------- -------------- -------------- ------------- ------------- ---------------
SV Fund Venture
1 VI Fund United States 14,105 5.2 18,866 6.6
----------- ---------------- -------------- -------------- ------------- ------------- ---------------
An investment in a venture capital fund, SV Fund VI,
which invests in portfolio companies across three sectors;
biotechnology (39%), healthcare services (43%) and medical
devices (18%). SV Fund VI's portfolio consists of 18
underlying investments, two of which are listed as at
31 August 2023. The Company made a commitment of $30m
to the fund on 19 October 2016, equivalent to 7.5% of
the total commitments, of which 86% has been drawn.
As at 31 August 2023 the Company has invested GBP24.0m
($31.9m), excluding recallable distributions with total
distributions received of GBP27.5m ($36.6m) resulting
in a net IRR of 17.7% and a total value to paid in (TVPI)
of 1.7x.
------------------------------------------------------------------------------------------------------------
Venture
2 SV BCOF Fund United Kingdom 5,199 1.9 3,411 1.2
----------- ---------------- ------------------------- -------------- ----------- --------- ----------
An investment in a venture capital fund, SV BCOF, which
focuses on biotech companies which are either in the
clinic and/or which have the potential to enter the
clinic within 12 months (near clinical stage), typically
Series B and beyond. The fund will also invest in listed
equities subject to the restrictions set out in its
investment guidelines. The Company made a commitment
of $25m to the fund in 2021 and a further commitment
of $5m was made in January 2023. As at 31 August 2023,
the Company has invested GBP7.4m ($9.2m) with total
distributions received of GBP8.0m ($9.7m) resulting
in a net IRR of 109.2% and a TVPI of 1.8x. The fund's
portfolio consists of five unlisted investments and
one listed investment.
------------------------------------------------------------------------------------------------------------
Total investments held through
a venture fund 19,304 7.1 22,277 7.8
-------------------------------------------------------- -------------- ----------- --------- ----------
EXITED INVESTMENTS WITH CONTINGENT MILESTONES
Exited unquoted companies for which the Company retains rights
to receive future contingent performance-based payments are shown
below.
As at As at As at As at
31 August 31 August 31 August 31 August
2023 2023 2022 2022
Investment Sector classification Geographic Fair % of Fair % of
location value NAV value NAV
GBP'000 GBP'000
------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
United
1 Ikano Therapeutics Autoimmune States 4,635 1.7 4,330 1.5
------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
A company focused on nasally delivered pharmaceutical
products that sold its assets to Upsher Smith Laboratories
in 2010. The terms of the deal provide for an upfront
payment and a series of milestones and royalties. Through
a series of transactions, the Ikano contingent payouts
have now been assumed by UCB.
------------------------------------------------------------------------------------------------------------
United
2 Archemix Ophthalmology States 572 0.2 284 0.1
------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
Formerly a small biotechnology company discovering, developing,
and commercialising aptamer therapeutics, which was liquidated
in 2011. The former shareholders of Archemix may be entitled
to future proceeds upon achievement of contingent milestones
under a licensing agreement entered into between Archemix
and IVERIC bio, Inc. (NASDAQ: ISEE).
------------------------------------------------------------------------------------------------------------
United
3 Convergence Autoimmune States 320 0.1 349 0.1
------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
A company, spun out from GSK, focused on developing novel
analgesic/pain relieving drugs that was sold to Biogen
in 2015. The terms of the deal provide for an upfront
payment and a series of milestones.
------------------------------------------------------------------------------------------------------------
United
4 Spinal Kinetics Medical Devices States - - 289 0.1
------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
A company pioneering a new generation of artificial discs
for treating degenerative disc disease in the cervical
and lumbar spine that was acquired by Orthofix International
N.V. (NASDAQ: OFIX). The terms of the deal provide upfront
proceeds and additional amounts based on certain contingent
milestones and amounts held in escrow.
------------------------------------------------------------------------------------------------------------
Healthcare United
5 NCP Holdings services States - - 88 -
------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
Trading as Nordic Consultancy Partners. A company focused
on providing Epic-only consulting within the US - implementation
support and optimisation. Epic makes software for mid-size
and large medical groups, hospitals and integrated healthcare
organisations - working with customers that include community
hospitals, academic facilities, children's organisations,
safety net providers and multi-hospital systems.
------------------------------------------------------------------------------------------------------------
Total exited investments with contingent
milestones 5,527 2.0 5,340 1.8
-------------------------------------------------------- ----------- ----------- ----------- -----------
DIRECTLY-HELD UNQUOTED INVESTMENTS
Directly-held unquoted investments held by the Company are shown
below:
As at As at As at As at
31 August 31 August 31 August 31 August
2023 2023 2022 2022
Investment Sector classification Geographic Fair % of Fair % of
location value NAV value NAV
GBP'000 GBP'000
---------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
United
1 Autifony Therapeutics Other Kingdom 341 0.2 341 0.1
---------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
An early-stage company focused on delivering drugs for hearing
disorders by targeting specific ion channel modulators in
the field of hearing and sensory disorders, including schizophrenia.
---------------------------------------------------------------------------------------------------------------
United
2 Karus Therapeutics Oncology Kingdom 90 - - -
---------------------- ---------------------- ----------- ----------- ----------- ----------- -----------
Karus is an emerging pharmaceutical company whose R&D activities
are focused on the design and development of innovative,
molecular-targeted, small molecule drugs to treat immune/inflammatory
disorders and cancer.
---------------------------------------------------------------------------------------------------------------
Total directly-held unquoted investments 431 0.2 341 0.1
----------------------------------------------------------- ----------- ----------- ----------- -----------
Total exited investments with contingent
milestones 5,527 2.0 5,340 1.8
----------------------------------------------------------- ----------- ----------- ----------- -----------
Investments held through a venture
fund 19,304 7.1 22,277 7.8
----------------------------------------------------------- ----------- ----------- ----------- -----------
Total unquoted investments 25,262 9.3 27,958 9.7
----------------------------------------------------------- ----------- ----------- ----------- -----------
Investments in unquoted companies that have previously been
written down to nil net book value, but where ownership in the
company is retained, are not disclosed in this table.
STRATEGIC REVIEW
The Board presents its Strategic Review for the Company for the
year ended 31 August 2023.
BUSINESS MODEL
The Company is an investment company as defined in Section 833
of the Companies Act 2006 (the Act) and its Ordinary shares are
listed and traded on the main market of the London Stock Exchange.
The Company is incorporated in England and Wales as a public
limited company and is domiciled in the UK.
LIFE OF THE COMPANY
The Company's Articles of Association provide for the Directors
to put forward a proposal for the continuation of the Company at
the AGM at two-yearly intervals. The last continuation vote was
held at the AGM on 8 December 2021 and was passed on a show of
hands. Proxy votes cast in respect of the vote were 11,761,047
(99.96%) in favour, 4,321 (0.04%) against and 1,408 withheld. The
next continuation vote will be put to shareholders at the
forthcoming AGM to be held on 12 December 2023.
INVESTMENT OBJECTIVE AND POLICY
The Company's investment objective is to achieve long-term
capital growth by investing in biotechnology and other life
sciences companies.
The Company will seek to achieve its objective by investing in a
diversified portfolio of companies which may be quoted or unquoted
and whose shares are considered to have good growth prospects, with
suitably experienced management and strong potential upside through
the development and/or commercialisation of a product, device or
enabling technology. Investments may also be made in related
sectors such as medical devices and healthcare services. While the
Company's portfolio is held as one pool of assets, for operational
purposes there is a quoted portfolio and an unquoted portfolio. The
portfolio is diversified by geography, industry sub-sector and
investment size with no single investment in a company normally
accounting for more than 15% of the portfolio at the time of
investment.
The portfolio is split between large, mid and
small-capitalisation companies, primarily quoted on stock exchanges
in North America, where the most established and commercial
biotechnology and other life sciences companies operating in
related sectors are based, though investments may also be made in
Europe, Asia and Australia. Investments may also be made into
unquoted companies and into funds not quoted on a stock exchange,
including venture capital funds. This may include funds managed by
the Fund Manager and/or members of its group. The primary purpose
of investment in unquoted funds will be to gain exposure to
unquoted companies.
The Company may invest through equities, index-linked securities
and debt securities, cash deposits, money market instruments and
foreign currency exchange transactions. Forward or derivative
transactions are not used by the Company.
The Company may borrow from time to time to exploit specific
investment opportunities, rather than to apply long-term structural
gearing to the Company's portfolio of investments.
INVESTMENT RESTRICTIONS
The Company observes the following investment restrictions:
-- The Company will invest primarily in biotechnology and other
life science companies that are either quoted or unquoted.
-- The Company will normally invest no more than 15% in
aggregate, of the value of its gross assets in any one individual
company at the time of acquisition.
-- The great majority of the Company's assets will be invested
in the quoted biotechnology sector with a global mandate across the
entire spectrum of quoted companies. The weighting of investment in
unquoted companies will vary according to the attractiveness of the
opportunities identified.
-- Gearing is restricted to 30% of NAV.
-- The Company will invest no more than 15% in aggregate, of the
value of its gross assets in other closed-ended investment
companies quoted on the London Stock Exchange or any other stock
exchanges.
No material change will be made to the investment objective or
policy without the approval of shareholders by ordinary
resolution.
INVESTMENT STRATEGY
The Company has delegated responsibility for day-to-day
investment of its assets to the Alternative Investment Fund
Manager, SV Health Managers LLP. Consistent with the Company's
investment policy the Fund Manager makes the majority of its
investments in biotechnology companies focused on drug discovery
and development. Investments are also made in related sectors such
as medical devices or healthcare services.
The Investment Managers use a bottom-up approach to stock
selection focused on assessing the fundamentals of each investment.
The universe of possible investments is assessed and reduced to
take into account a number of key criteria such as disease area,
target market, unmet medical need, management team, stock
liquidity, market capitalisation, product portfolio and
competition. The risk/reward of each investment is assessed on its
own merits.
The Company has a GBP55m loan facility in place with the
Northern Trust Company which provides the Company with funds to
take advantage of investment opportunities that occur from time to
time on occasions when the portfolio is otherwise fully invested.
As at 31 August 2023, GBP32.5m was drawn down against this
facility.
PERFORMANCE
An outline of performance, market background, investment
activity and portfolio strategy during the year under review, as
well as the outlook, is provided in the Chair's Statement on pages
7 to 9 and the Fund Manager's Review on pages 10 to 20.
KEY PERFORMANCE INDICATORS (KPIs)
The Board meets regularly to review the performance of the
Company and its shares. The Board uses the following KPIs to help
assess the Company's progress and its success at meeting its
investment objective. For detailed calculations, please refer to
the APMs on pages 112 and 113.
KPIs
Year ended Year ended
--------------- ---------------
31 August 2023 31 August 2022
--------------- ---------------
NAV (GBP'000) 270,317 284,889
--------------- ---------------
Share price (pence) 644.0 651.5
--------------- ---------------
NAV per share (pence) 687.5 697.2
--------------- ---------------
Share price total return* 3.0% (6.4%)
--------------- ---------------
NAV total return* 2.7% (6.9%)
--------------- ---------------
Benchmark return* (1.4%) (13.8%)
--------------- ---------------
(Discount)/Premium (6.3%) (6.6%)
--------------- ---------------
Gearing 12.0% 14.0%
--------------- ---------------
Ongoing charges 1.4% 1.3%
--------------- ---------------
For detailed calculations on the share price total return, NAV
per share total return, discount/premium, gearing and ongoing
charges, please refer to Alternative Performance Measures (APMs)
on pages 112 and 113.
*Total return assumes all dividends are reinvested.
PRINCIPAL AND EMERGING RISKS
The Board considers that the risks detailed below are the
principal risks facing the Company currently, along with the risks
detailed in note 23 to the financial statements. These are the
risks that could affect the ability of the Company to deliver its
strategy. The Board confirms that the principal risks of the
Company, including those which would threaten its business model
and future performance, have been robustly assessed throughout the
year ended 31August 2023. In making this assessment the Board has
taken into account the emerging risks such as the tensions between
the US and China, conflicts in Ukraine and the Middle East, longer
term climate change risk, cyber security risk and the impact of
artificial intelligence on the investment industry and confirms
that processes are in place to continue this assessment.
The Audit Committee takes responsibility for overseeing the
effectiveness of risk management and internal control systems on
behalf of the Board and advises the Board on the principal risks
facing its business. The Audit Committee uses a framework of key
risks which affect its business and related internal controls
designed to enable the Directors to take steps to mitigate these
risks as appropriate; the Company's risks have been divided into
the following risk categories:
-- Strategic/Performance
-- Political
-- Investment related
-- Operational and service provider
-- Tax legal and regulatory
A detailed Risk Map is reviewed on a bi-annual basis. A summary
of the Directors' review of internal controls, including the review
of the Risk Map, is set out in the Corporate Governance Statement
on page 48.
The principal risks detailed below are assessed by the Audit
Committee, which receives regular reports from its main third party
service providers on their own internal control processes.
Principal Risk Mitigation Change from prior year
Strategic/Performance risk
The Company's returns The Investment Managers <>
are affected by changes consider carefully
in economic, financial the portfolio composition
and corporate conditions, by size of company,
which can cause market development stage and
and exchange rate fluctuations. therapeutic area and
A significant fall adjusts accordingly.
in US equity markets The Board is also supportive
is likely to adversely of the Fund Manager's
affect the value of approach of reducing
the Company's portfolio. exposure to companies
The biotechnology sector with imminent binary
has its own specific events such as a readout
risks leading to higher of data from a clinical
volatility than the trial.
broader equity market The Fund Manager provides
indices. regular reports to
In addition, the Financial the Board on general
Statements and performance economic conditions
of the Company are as well as portfolio
denominated in GBP activity, strategy
because the Company and performance, including
is a UK company listed risk monitoring. The
on the London Stock reports are discussed
Exchange. However, in detail at Board
the majority of the Meetings, which are
Company's assets are all attended by the
denominated in US dollars. Fund Manager, to allow
Accordingly, the total the Board to monitor
return and capital the implementation
value of the Company's of the investment strategy
investments can be and process.
significantly affected
by movements in foreign
exchange rates.
----------------------------------- -----------------------
Strategic/Performance risk
The Company's Articles The Broker provides ^
of Association require Shareholder feedback
the Board to put a to the Board on a regular
proposal for the continuation basis.
of the Company to shareholders
on a biennial basis. The Board has consulted
A resolution will be with our major shareholders
put to the shareholders during the year and
at the forthcoming has received positive
AGM. feedback on the decision
The Board is mindful to appoint Schroders
that this will be the as the new fund manager,
first continuation with continuity of
vote put to shareholders the existing mandate
following a change and the existing investment
of AIFM. management team.
----------------------------------- -----------------------
Strategic/Performance risk
The Board recognises The Board has developed <>
that a responsible and refined a detailed
and proactive approach ESG policy as set out
to ESG related factors in the Strategic Review
can positively impact under the Environmental,
the performance and Social and Governance
success of its portfolio Policy. The Company
companies and the Company. uses data gathered
A failure to focus by Sustainalytics to
sufficiently on ESG monitor the compliance
matters may not promote of its quoted portfolio
the Company to shareholders with an accepted set
in a way that generates of ESG standards.
investor demand.
----------------------------------- -----------------------
Political risk
A loss of investor The Fund Manager updates ^
appetite for investment the board monthly and
in the biotech sector at each scheduled board
as a result of political meeting on issues pertinent
conditions, including to the portfolio and
FDA and FTC policy the biotechnology sector
might materially affect generally, including
the ability of the the political landscape
Company to achieve and expected future
its objective and reduce drivers.
demand for the Company's The Board reviews the
shares, leading to global factors which
a wide discount. may affect investor
appetite, including
US/China tensions,
conflicts in Ukraine
and the Middle East,
and legislation concerning
Medicare and drug pricing
in the United States.
These may persist as
issues that could potentially
have a negative impact
on the biotechnology
and healthcare sectors.
----------------------------------- -----------------------
Investment related risk
Share price performance The Board closely reviews <>
may consistently lag the relative level
NAV performance leading of discount against
to wide and persistent the sector.
discount to NAV. There is active share
register management
by the Fund Manager
and Broker and a comprehensive
shareholder marketing
programme.
The Board has implemented
a robust share buyback
and issuance policy
which has been used
consistently during
the year under review
with 1,544,826 shares
being repurchased to
be held in Treasury.
The discount narrowed
slightly during the
year.
----------------------------------- -----------------------
Investment related risk
The Fund Manager's The Board is pleased <>
investment strategy that the impending
and the key personnel transition to Schroders
involved in delivering will ensure continuity
that strategy may, of both the existing
if inappropriate, result mandate and delivery
in negative investor of the investment strategy
sentiment, leading by the Company's current
to a reduction in the Investment Managers
share price and the as regards the quoted
Company underperforming portfolio. The Company
the market and/or its will also benefit from
peer group companies. Schroders' significant
investment trust expertise.
----------------------------------- -----------------------
Operational and service provider risk
Inadequate performance The Board reviews the <>
of service providers performance of all
could lead to poor third party service
performance and/or providers and their
exposure to a number risk control procedures
of financial, regulatory on a regular basis,
and business risks. as well as the terms
Service providers may on which they provide
terminate their services services to the Company.
if they deem the company The Board is mindful
to no longer fit their of the significant
business model. forthcoming change
in several service
providers including
AIFM, depositary, administration,
company secretary and
bank lender. The Board
met frequently during
the year and will continue
to monitor the transition
and services provided
carefully. The Board
has engaged professional
legal support, Gowlings,
and worked closely
with its appointed
Broker, Numis, to help
ensure a smooth transition
to new service providers.
----------------------------------- -----------------------
VIABILITY STATEMENT
In accordance with Provision 31 of the UK Corporate Governance
Code 2018, the Audit Committee has assessed the prospects of the
Company over a five year period. This is considered to be an
appropriate period given the long-term nature of investment and the
expected maturity period of the unquoted portfolio.
The Company's current position and prospects are set out in the
Chair's Statement, the Fund Manager's Review and the Strategic
Report.
In its assessment of the viability of the Company, the Audit
Committee has considered each of the Company's principal risks and
uncertainties and how these are managed. These risks and
uncertainties are detailed in this Strategic Review on pages 27 to
29 and the effectiveness of the Company's risk management and
internal control systems are detailed on page 48.
The Audit Committee has reviewed the potential impact of
emerging risks, in particular, heightened geopolitical risk as a
result of the resurgence of the conflict in the Middle East, and is
comfortable that any potential risk is suitably mitigated.
The Audit Committee has considered the income and expenditure
projections. Included within these projections are key assumptions
such as expected NAV growth and expenses to be incurred by the
Company. In order to test the reliability of the income and
expenditure projections, the key assumptions were stressed to
include scenarios of a decline in NAV and a 10% year on year
increase in expenses. The Audit Committee is satisfied that the
income and expenditure projections appear reasonable.
The Audit Committee has also considered the impact of the year
end gearing position. As at 31 August 2023, the Company had drawn
GBP32.5m of its GBP55m loan facility. The Audit Committee is
satisfied that the Company's investments comprise readily
realisable securities which can be sold to meet funding
requirements, if necessary.
As at 31 August 2023 the Company had total undrawn commitments
to unquoted funds, namely SV BCOF and SV Fund VI, of GBP21.8m. With
historical practice in mind, the Audit Committee considers it
highly improbable that the full undrawn commitments would be called
together at one time. However, in an extreme scenario, it is again
satisfied that the Company's investments comprise readily
realisable securities which can be sold to meet funding
requirements, if necessary.
The Board is mindful that the biennial continuation vote will be
put to shareholders at the AGM in December 2023 following a change
of AIFM. As noted in the Chair's Statement we have consulted with
many of our shareholders during the year and have received positive
feedback. In particular, many of our major shareholders have
informed us that they are pleased with the impending move to
Schroders, and the continuity of the existing mandate and the
existing investment management team. The Board strongly recommends
that shareholders vote in favour of the continuation of the Company
and has a reasonable expectation that the continuation vote will be
passed.
In light of these considerations and based upon the Company's
processes for evaluating the composition of the investment
portfolio, monitoring the ongoing costs of the Company, the
discount to the NAV, the level of gearing, and taking into account
the Company's current position and principal risks and
uncertainties, the Board, based on a recommendation by the Audit
Committee, considers that there is a reasonable expectation that
the Company will continue to operate and meet its liabilities, as
they fall due over the next five years.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE POLICY (ESG)
The Board recognises that a responsible and proactive approach
to ESG related factors can positively impact the performance and
success of its portfolio companies and the Company. The Company
outlined its ESG policy in its Annual Report for the year ended
August 2021.
Its policy was adopted in October 2021, and since amended in
February 2023 and aims to integrate consideration for ESG factors
into the investment process, governance and choice of suppliers for
the Company and to exert influence on portfolio companies and
suppliers to consider ESG factors in their respective activities.
The Company's Board also considers ESG factors in its choice of
suppliers. The Company's ESG policy is available on its
website.
All of the Company's investments and activities are aligned with
UN Sustainable Development Goal number 3: 'Good Health and
Well-being. Ensure healthy lives and promote well-being for all at
all ages.' as well as six other goals. The Company is dedicated to
investing in tomorrow's healthcare breakthroughs. The Company has
invested in scientific development, medical innovation, and
technologies across a wide spectrum of diseases with particular
focus on areas of high unmet medical need. The Company also adheres
to all six UN Principles for Responsible Investment (PRI) and
supports all the Ten Principles of the UN Global Compact.
Schroders, the Company's new AIFM from November 2023, is a
signatory to the UN PRI and the UN Global Compact.
The Company uses data gathered by Sustainalytics to monitor the
compliance of its quoted portfolio with an accepted set of ESG
standards. The benefit of this service means that the Company has
access to a detailed set of ESG data on the majority of the quoted
biotech universe which not only facilitates ESG reporting and
enables comparisons to benchmarks beyond the Company's own
portfolio, but also enables the incorporation of ESG screening into
its portfolio management process. In addition, the access to this
data means that the Company's Investment Managers can more readily
engage with portfolio companies with respect to areas in which
Sustainalytics considers them to fall short of their peers. The
Company continues to commit to screening and reporting on the ESG
compliance of its top 10 quoted portfolio companies in aggregate on
a semi-annual basis to coincide with the annual and interim period
ends.
The screening of the biotech companies in the Company's unquoted
portfolio takes place annually, carried out by the Fund Manager and
depends on those companies completing its bespoke ESG screening
questionnaire.
ESG Report
Suppliers: The Company requests its suppliers to provide ESG
policies annually and 14 of the 22 suppliers shared their latest
ESG Policies with the Company and ten (45%) have agreed to have
links to their policies displayed on the Company's website. This is
an improvement on 2022 when only 29% of suppliers agreed to have
links to their policies displayed on the Company's website.
Portfolio companies: The Company has been delivering financial
value to shareholders since 1994 whilst simultaneously creating a
positive social impact by investing in companies that develop
innovative treatments for patients suffering with unmet medical
needs. The products developed by the companies in which the Company
invests can radically change the way diseases are treated, bringing
positive impact to patients and healthcare systems globally.
The Company's investment approach in relation to ESG is based on
three pillars:
1. Thorough ESG diligence and investing for impact;
2. Meaningful engagement with portfolio companies; and
3. Reporting to shareholders.
The Board considers that focusing on the ESG compliance of its
investments and engaging with the management of key portfolio
companies has the potential to bring about positive change in its
investment universe. In particular, the Company believes its
potential to generate the greatest impact will generally be on its
top ten quoted holdings where the Company's larger investment size
gives it greater influence. The Board notes that ESG and
sustainability concerns have become key considerations for many of
its investors. The Board believes that through the Company's focus
on ESG as an investor, it can help maximise its portfolio
companies' positive impact whilst generating attractive investor
returns.
Sustainalytics ranks the pharmaceutical and biotech industries
in aggregate as relatively high risk in comparison to other
industries. This is mainly driven by a combination of poor Quality
and Safety scores (relating to drugs in clinical trials being found
to be inefficacious or toxic), Business Ethics issues relating to
drug pricing and availability and "Weak" management scores,
relating, in the main, to poor disclosure or perceived failure to
adequately mitigate the risks inherent in the industry. Arguably
the Quality and Safety issues and Business Ethics issues are part
and parcel of drug development and difficult for companies to
avoid. Against that backdrop, it is unsurprising that in its
industry report in October 2022, Sustainalytics rated over 55% of
biotech companies as having Severe (14%) or High (42%) ESG Risk,
with only 8% having Low ESG Risk.
In respect of the year ended 31 August 2023, we are pleased to
report that one of the Company's top holdings was rated as Low ESG
Risk which is in line with 8% for the industry as a whole and 50%
of the Company's top ten quoted holdings were rated with a Medium
ESG Risk Score compared with 36% for the industry as a whole. Four
of the top ten quoted companies were categorised as High ESG Risk
which is in line with the industry as a whole. None of the top 10
were in the Severe Risk category. All four of those categorised as
High ESG risk had "Medium" Exposure scores which refers to the
extent to which a company is exposed to different material ESG
Issues, and none of them have been implicated in any significant
ESG-related controversies. Two of them had Management scores
categorised as "Weak". On a positive note, two of the High ESG Risk
companies in the top 10 quoted companies are shown to be on a
positive trajectory in comparison to their previous Sustainalytics
screening.
The Investment Managers have closely examined the background
behind the current ESG rankings of those companies categorised as
High ESG Risk and established that the majority of the issues that
have contributed to their High ESG Risk rating results from lack of
disclosure. The Investment Managers will continue to engage with
these companies over the coming months to ensure that the current
disclosure is not concealing anything of concern, and to encourage
them to adhere to best practice on disclosure. In the case of Vera
Therapeutics below, for example, where the score for Management by
Sustainalytics is "Weak", this relates to poor disclosure on
certain key policies. The Investment Managers will engage with Vera
about ensuring that these policies are in place and disclosed over
the coming year.
Top Ten ESG Risk ESG Risk Momentum Percentile Exposure* Management
Quoted Score Rating (vs Biotech **
Holdings (Low =low sector)
risk)
Incyte
1 Genomics 24.8 Medium Deteriorating 19 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
2 Amgen 22.0 Medium Deteriorating 7 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
Gilead
3 Sciences 23.0 Medium Deteriorating 10 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
Harmony
4 Biosciences 37.5 High Improving 76 Medium Weak
------------------ ----------- --------- -------------- ------------- ---------- -----------
Supernus
5 Pharmaceuticals 31.5 High Improving 30 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
6 Vera Therapeutics 34.2 High Static 98 Medium Weak
------------------ ----------- --------- -------------- ------------- ---------- -----------
BioMarin
7 Pharmaceuticals 25.7 Medium Improving 27 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
Regeneron
8 Pharmaceuticals 18.0 Low Improving 2 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
Intra-Cellular
9 Therapies 33.4 High Static 46 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
Alnylam
10 Pharmaceuticals 28.4 Medium Improving 60 Medium Average
------------------ ----------- --------- -------------- ------------- ---------- -----------
Source: Sustainalytics
*The extent to which a company is exposed to different material
ESG issues.
**How well a company is managing its relevant ESG issues, looking
at robustness of ESG programs, practices and policies.
The Company's Investment Managers actively engage with the
management teams of their portfolio companies, and bring to light
any issues uncovered in the screening process. For example, in the
last financial year, the Investment Managers have discussed the
timing of the release of clinical data with a portfolio company. It
was felt that releasing clinical data too soon in the drug
development process led to volatility in the share price as
investors did not always understand the risks of early data being
proven to be inconclusive later in the clinical trial process. As a
further example, during the financial year, the Company's
Investment Managers engaged with another portfolio company, which
was rated as High Risk in 2022. The Investment Managers discussed
the rating with the company's management and encouraged the company
to be more transparent with respect to its procedures and policies
which affect its ESG ranking. While the portfolio company is still
rated High Risk in 2023, the rating has significantly improved
bringing it to within a whisker of a Medium Risk rating.
With regards to the 2023 screening of SV's unquoted biotech
investments, we can report the following. 12 portfolio companies
completed the Fund Manager's proprietary questionnaire, compared to
seven in 2022 and the results were analysed across the full
portfolios of the SV funds in which the Company invests as well as
the companies included being broken down into stages of development
as determined by number of full time employees. The decision to do
this additional layer of analysis was to provide portfolio
companies with a better sense of their performance against
companies of a similar size as well as to help the Fund Manager
better tailor its support. The overall results were encouraging,
particularly in the area of corporate governance and social
policies, where companies have made good progress in matters such
as having formal organisational structures and grievance resolution
procedures in place, recycling lab plastics and measuring green
house gas emissions. In the previous assessment, the early stage
companies significantly lagged later stage companies and in this
respect, an improvement was seen. Interestingly, the mid-sized
companies outperformed the latest stage companies in a number of
areas. The weakest performance was seen in environmental-related
factors as is consistent with previous years and the Fund Manager
is working to support portfolio companies in improving in these
areas in a relevant way given the relative stage and size of these
companies. Of note is that in October 2022, we are pleased to
report that Sustainalytics ranked one of the companies held in SV
BCOF as having the lowest ESG Risk rating in the industry.
The Company's Investment Managers continue to meet portfolio
companies individually to make their own assessments and use
Sustainalytics to assist with meaningful engagement on ESG matters
with portfolio companies as well as highlighting any areas of
concern. The Company continues to negatively screen companies which
would exclude from potential investment any companies which engage
in certain unsavoury practices, such as price gouging, involvement
in the US opioid scandal, "me-too" drugs lacking innovation and
anything that leads to negative effects on public health or
wellbeing.
The Fund Manager uses a third-party platform, ProxyEdge from
Broadridge Financial Solutions, to implement its voting policy,
with the option to deviate from the recommended action when it
differs from the Fund Manager's consideration of the standards for
good corporate governance and management of environmental and
social issues.
DIVERSITY AND GER REPRESENTATION ON THE BOARD
The Board's policy on diversity is to ensure that the Directors
on the Board has a broad range of experience, skills and knowledge,
with diversity of thinking, background and perspective.
Appointments to the Board are made on merit against objective
criteria, having regard to the benefits of diversity and the
current and future needs of the business and the other factors set
out in the UK Corporate Governance Code.
The composition of the Board exceeds the criteria of both the
Hampton-Alexander Review on gender balance and the Parker Review on
ethnic diversity. As at 31 August 2023, 60 per cent of the Board
were female and 20 per cent were from an ethnic minority
background.
The Board is mindful of the Listing Rules and amendments to the
Disclosure Guidance and Transparency Rules, which came into effect
for accounting periods starting on or after 1 April 2022 and will
applied to the Company from the 2023 financial year.
The Board has demonstrated its support of the Financial Conduct
Authority's aim to encourage increased transparency around
diversity reporting at a Board and senior management level by
proactively reporting on the requirements in this year's
Report.
As at 31 August 2023, the Board had already met all three
criteria set out in the Listing Rules, since 60 per cent of the
Board members are women, one of which holds a senior position on
the Board, and one Director is from an ethnic minority background.
The Company collects the data used for the purposes of making this
disclosure from Directors on a voluntary basis.
In accordance with Listing Rule 9 Annex 2.1, the following
tables, in prescribed format, show the gender and ethnic background
of the Directors at the date of this Report.
Gender identity Number of Board Percentage on Number of senior
or sex members* the Board positions on
the Board
Men 2 40 1**
---------------- -------------- -----------------
Women 3 60 1***
---------------- -------------- -----------------
Not specified/prefer N/A N/A N/A
not to say
---------------- -------------- -----------------
*The Company does not disclose the number of Directors in executive
management as this is not applicable for an externally managed
Investment Trust.
**Patrick Magee is Senior Independent Director.
***Kate Cornish-Bowden is Chair of the Board.
Ethnic background Number of Board Percentage on Number of senior
members* the Board positions on
the Board
White British or other
White (including minority
white groups) 4 80 2
---------------- -------------- -----------------
Mixed/multiple ethnic
groups 0 0 0
---------------- -------------- -----------------
Asian/Asian British 0 0 0
---------------- -------------- -----------------
Black/African/Caribbean/Black
British 1 20 0
---------------- -------------- -----------------
Other ethnic group,
including Arab 0 0 0
---------------- -------------- -----------------
Not specified/prefer N/A N/A N/A
not to say
---------------- -------------- -----------------
*The Company does not disclose the number of Directors in executive
management as this is not applicable for an externally managed
Investment Trust.
MODERN SLAVERY ACT 2015
As an investment trust, the Company does not provide goods or
services in the normal course of business and does not have any
customers or employees. All the Company's activities are outsourced
to third parties and the Board considers the Company's supply chain
to be low risk, in terms of engaging in activities which could be
deemed modern slavery, as its suppliers are typically professional
advisers and regulated entities. The investment portfolio companies
that the Company invests in are high profile listed companies who
have their own governing bodies to comply with the Modern Slavery
Act 2015 or the equivalent in their country of domicile.
The Company does not fall within the scope of the Modern Slavery
Act 2015. Accordingly, the Directors consider that the Company is
not required to make any slavery or human trafficking statement
under the Modern Slavery Act 2015.
ANTI-BRIBERY, CORRUPTION & TAX EVASION
The Company is committed to the practice of responsible
behaviour and to complying with all laws, regulations and other
requirements which govern the conduct of its activity. The Company
is fully committed to instilling a strong anti-corruption culture
and complying with anti-bribery legislation including, but not
limited to, the Bribery Act 2014. Further, the Company has adopted
a zero-tolerance approach to tax evasion and is committed to
compliance with anti-tax evasion legislation, including but not
limited to, the Criminal Finances Act 2017. This is consistent with
the policies implemented by the Fund Manager and the Company
expects its third party service providers to adopt the same
standard of zero tolerance.
The Company has implemented a conflicts of interest policy to
which the Directors must adhere. The Company is committed to acting
with integrity and in the interests of shareholders.
GREENHOUSE GAS EMISSIONS
The Company has no greenhouse gas emissions to report from the
operations of the Company and does not have responsibility for any
other emissions producing sources or energy consumed reportable
under the Companies Act 2006 (Strategic Report and Directors'
Report) Regulations 2013 or the Companies (Directors' Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018, implementing the UK Government's policy on
Streamlined Energy and Carbon Reporting. As an investment trust
without employees, the Company is not required to report against
the TCFD framework, however, understanding and managing
climate-related risks and opportunities based on the TCFD's
recommendations is a fundamental part of the Company's investment
approach.
SECTION 172 STATEMENT
The Companies (Miscellaneous Reporting) Regulations 2018 require
Directors to explain more fully how they have discharged their
duties under Section 172(1) of the Companies Act 2006. Each of the
Directors is mindful of their duties under s172 to run the Company
for the benefit of its shareholders, and in doing so, to take into
account the long-term impact of any decisions on stakeholder
relationships and the impact of the Company's activities on the
environment whilst maintaining its reputation for high standards of
business conduct at all times. This enhanced disclosure covers how
the Board has engaged with and understands the views of
stakeholders and how stakeholders' needs have been taken into
account, the outcome of this engagement and the impact that it has
had on the Board's decisions.
As the Company does not have any employees or customers beyond
its Directors, the Board considers the groups mentioned in the
following table as the key stakeholders of the Company. The reasons
for this determination, and the Board's overarching approach to
engagement, are set out in the following table.
The table below also sets out the key decisions taken by the
Directors during the year under review.
Stakeholder Group How we Engage Activity and Key Decisions
During the Year
Investors
Continued investor -- Website and regulatory -- The Board and advisers
support and engagement announcements. met with major shareholders
are critical to the -- Annual/Interim Financial following the announcement
continued existence Reports, Monthly factsheets that the Company's
of the Company and and Fund Manager commentaries. Fund Manager had served
the successful delivery -- Quarterly videos, notice of termination.
of its long-term strategy. Advertorials, marketing These discussions with
The Board is committed campaigns and webinars. shareholders helped
to maintaining open -- AGM. inform the Board's
channels of communication -- Additional meetings assessment of the alternative
and to engaging with with shareholders when options for the Company.
shareholders in a meaningful requested. -- Following the announcement
manner in order to that the Board had
gain an understanding selected Schroders
of their views. to be the new fund
manager, the Board
and its appointed Broker
have again engaged
with Shareholders regarding
the forthcoming appointment,
and received positive
feedback.
-- In accordance with
the Articles of Association,
Shareholders will again
be invited to vote
on the Continuation
of the Company at the
forthcoming AGM.
-- As part of the Board's
Discount Management
policy, approximately
3.5% of the total shares
were bought back at
a discount to NAV during
the year. The discount
narrowed slightly.
-- Following approval
at the AGM the Board
continued its dividend
policy of paying a
dividend equal to 4%
of the NAV at the start
of the year.
-------------------------------- --------------------------------
AIFM and Investment Managers
Maintaining a close -- The Chair, Senior -- Following notice
and constructive working Independent Director of termination from
relationship with the and Board regularly the Company's Fund
AIFM and Investment meet with representatives Manager, SV Health
Managers is crucial of the AIFM and the Investors, the Board
to the Board. The Board Investment Managers conducted an independent
aims to continue to throughout the year, process to find a new
achieve consistent, both formally at quarterly fund manager for the
long-term returns and Board meetings and Company.
to ensure that the informally, as required. -- The Board analysed
portfolio is run in -- The Investment Managers several different options
adherence to the Company's attend Board meetings and met with a number
strategy. to discuss the Company's of potential AIFM's
The Board maintains overall performance before selecting Schroders.
an open discussion as well as developments A new contract has
with the AIFM and Investment in individual portfolio been agreed with Schroders
Managers, whilst ensuring companies and wider which will ensure shareholders
that their interests macroeconomic developments. do not have to bear
are aligned with those -- Representatives any of the costs associated
of investors. of the AIFM's investor with the transaction.
relations, finance -- The Board met frequently
and compliance teams with the AIFM throughout
attend quarterly Board the year to ensure
meetings to report a smooth transition
on activity, processes of the business.
and controls. -- SV Health Managers
LLP will continue to
manage the unquoted
portfolio.
-- The individuals
responsible for managing
the quoted portfolio,
Ailsa Craig and Marek
Poszepczynski, will
transfer to Schroders
and continue to manage
the assets with the
same mandate.
-- At an ad hoc meeting
in December 2022, pursuant
to the Investment Managers'
proposal, the Board
approved an incremental
investment in SV BCOF
of $5m, which increased
the total investment
from $25m to $30m in
SV BCOF.
-------------------------------- --------------------------------
Service Providers
The Company contracts -- The Board and AIFM -- In addition to changing
with third party service engage regularly with the AIFM, the Depositary,
providers including all service providers the Company Secretary
Depositary, Administrator, to ensure the smooth and Lender will all
Company Secretary and running of the Company. change as part of the
Registrar. The Board -- The Management Engagement transition.
engages with all outsourced Committee reviews the -- The Board and its
third parties service performance of all advisers have negotiated
providers to ensure service providers. new contracts with
appropriate service -- The Depositary, HSBC who will be appointed
levels are maintained. Administrator, Company as the new Depositary
Secretary and Registrar (taking over from Northern
submit copies of their Trust) in November.
annual audited internal -- The principal terms
control reports to of a new secured lending
the Audit Committee. facility have been
-- The Company Secretary, agreed with Scotia
who attends quarterly Bank, replacing the
meetings, reports on current loan with Northern
key corporate governance Trust.
matters and relays -- The Board met several
any relevant information times throughout the
to the Board. year with Numis, to
ensure a successful
outcome for shareholders.
-- The Board worked
closely with Kepler
and KL to ensure our
shareholders and the
market were kept informed.
-- Schroder Investment
Management Limited,
a sister company to
Schroder Unit Trusts
Limited, will succeed
Link Company Matters
as IBT's Company Secretary
on 20 November 2023.
-------------------------------- --------------------------------
Wider Community and the Environment
IBT invests in companies -- The Investment Managers -- The Investment Managers
that develop new drugs consider social, community utilised Morningstar
for an ageing population and environmental factors Sustainalytics to risk
with unmet medical when making investment assess the portfolio's
needs. decisions and when exposure to ESG criteria.
selecting service providers. -- The Board considers
the ESG credential
of all service providers
including during the
competitive process
to select a new AIFM
for IBT.
-- The Board and AIFM
have engaged with regulators
during the process
of transferring IBT
to a new manager.
-------------------------------- --------------------------------
Portfolio
The Chair's Statement on pages 7 to 9 and the Fund Manager's
Review on pages 10 to 20 includes details of the Company's
performance and portfolio activity during the year under review.
The Strategic Report on pages 26 and 27 describes the investment
strategy undertaken by the Fund Manager.
These factors around the portfolio and performance contribute to
the long-term success of the Company and help inform investors so
that they may make personal investment decisions.
Dividend
In accordance with the Dividend Policy approved by shareholders
at the AGM held on Tuesday, 6 December 2022, two interim dividends
of 14.0p and 14.2p per share were paid on 27 January and 25 August
2023, respectively.
Discount and Premium Management
Buying back shares can help to narrow the the discount of the
share price to NAV. Issuing shares helps to provide liquidity in
the Company's shares where there is sufficient demand. The Board
keeps the discount management under review, and it continues to be
the Board's view that this policy is in the interest of all
shareholders. The Company bought back 1,544,826 of its own Ordinary
shares during the year ended 31 August 2023, which has assisted in
narrowing the discount. During the year the Company issued no
Ordinary shares.
Changes to Board composition
Given Jim Horsburgh's planned departure at the Company's 2022
Annual General meeting, the Board begun the search for a new
candidate to join the Board as a Non-executive Director. The Board
agreed on a description of the role, skills and attributes based on
a skills matrix and in an effort to achieve greater diversity,
including that of gender. In September 2022, the Board engaged
Trust Associates, an executive search firm, to help identify
suitable candidates. Following an extensive search process, the
Board is very pleased to welcome Gillian Elcock to the Board. The
Board confirms that Trust Associates has no other connection to
IBT.Gillian Elcock joined the Board in February this year and will
be standing for election for the first time at this year's AGM.
CURRENT AND FUTURE DEVELOPMENTS
Details of the Company's developments during the year ended 31
August 2023, along with its prospects for the future are set out in
the Chair's Statement on pages 7 to 9 and the Fund Manager's Review
on pages 10 to 20.
By order of the Board
Link Company Matters Limited
Company Secretary
6 November 2023
DIRECTORS' BIOGRAPHIES
KATE CORNISH-BOWDEN
Chair
Kate Cornish-Bowden was appointed as a Non-executive Director of
the Company on 19 May 2020 and was Senior Independent Director
since 8 December 2021. She became Chair of the Board upon the
conclusion of the Company's 2022 Annual General Meeting on 6
December 2022. Kate worked for Morgan Stanley Investment Management
from 1992 to 2004 where she was a Managing Director, head of MSIM's
global core equity business and head of the pharmaceuticals
research team. Prior to joining Morgan Stanley, she worked for
M&G Investment Management as a research analyst
Kate is currently a Non-executive Director of Finsbury Growth
& Income Trust plc and CC Japan Income & Growth Trust plc,
where she is also Audit Committee Chair. She is also a
Non-executive Director of Schroder Oriental Income Fund Limited,
however will be stepping down from her role on 17 November 2023,
prior to IBT's move to Schroders.
Kate has previously held directorships of Scancell Holdings plc,
Calculus VCT plc and Arcis Biotechnology Limited. She is a member
of the Chartered Financial Analyst Institute (formerly AIIMR),
holds an MBA and has completed the Financial Times Non-executive
Director Diploma.
PATRICK MAGEE
Senior Independent Director
Patrick Magee was appointed as a Non- executive Director of the
Company on 19 May 2020 and has been the Senior Independent Director
since the conclusion of the 2022 Annual General Meeting on 6
December 2022.
Patrick joined the British Business Bank in 2014 and was its
Chief Commercial Officer from 2017 to July 2022 and was an
executive director on the Bank's Board. Before joining the British
Business Bank in 2014, Patrick worked at the Shareholder Executive
from June 2012 to October 2014. Prior to joining the Shareholder
Executive, Patrick was a Managing Director of corporate finance at
JP Morgan Cazenove, having worked at the predecessor firms for
almost 18 years. Patrick has an MBA from Georgetown University,
Washington DC and an LLB from Queen's University Belfast.
Patrick is currently a member of the Investment Committee at
Queen's University, Belfast, and a Director of Edge Future Capital,
Allica Bank and Power Roll Limited. He is also a Non-executive
member of the NI Civil Service Board.
CAROLINE GULLIVER
Chair of the Audit Committee
Caroline Gulliver was appointed as a Non-executive Director of
the Company on 1 April 2015 and as Chair of the Audit Committee on
13 July 2016. She spent a 25 year career with Ernst & Young
LLP, from where she retired in 2012 to pursue other interests
including Non-executive directorship positions. She is a Chartered
Accountant with a background in the provision of audit and advisory
services to the asset management industry, with a particular focus
on investment trusts. She is also a Non-executive Director of
JPMorgan Global Emerging Markets Income Trust plc and abrdn
European Logistics Income plc. Caroline stepped down from her role
as Non-executive Director and Audit and Management Engagement
Committee Chair of Civitas Social Housing PLC in June 2023 when the
company agreed to the terms of a private offer. Since August 2022,
Caroline has been Trustee and Treasurer of Ukraine to Chilterns
Charitable Incorporated Organisation.
GILLIAN ELCOCK
Gillian Elcock was appointed as a Non-executive Director of the
Company on 1 February 2023. She is the founder of Denny Ellison, an
independent investment research and training company, and was its
Managing Director for ten years. Prior to this, she was an equity
research analyst for several years at Putnam Investments and
Insight Investment. She was named a finalist in the 'Investment
Analyst of the Year' category of the Women in Investment Awards
2018.
Gillian is a Non-executive Director of Melrose Industries plc
and STS Global Income & Growth Trust plc. She is also a member
of the board of the CFA Society of the UK. She holds an MBA from
the Harvard Business School and MEng and BSc degrees from the
Massachusetts Institute of Technology.
PATRICK MAXWELL
Professor Patrick Maxwell was appointed as a Non-executive
Director of the Company on 1 January 2022. He is currently Regius
Professor of Physic and Head of the School of Clinical Medicine at
the University of Cambridge. As a clinician scientist he has been
centrally involved in a series of discoveries that have revealed
how changes in oxygenation are sensed, and how genetic alterations
cause kidney disease. Patrick is a Fellow of the Royal College of
Physicians and the Academy of Medical Sciences, Director of
Cambridge University Health Partners and a Non-Executive Director
of Cambridge University Hospitals and Scottish Mortgage Investment
Trust.
Patrick holds a BA from Oxford, MB BS from the University of
London, D Phil from Oxford and is on the General Medical Council's
Specialist Register for Nephrology and General (Internal)
Medicine.
Kate Cornish-Bowden is Chair of the Management Engagement and
Nomination Committees as well as the main Board.
All Directors are independent.
All Directors are members of the Audit, Management Engagement
and Nomination Committees.
DIRECTORS' REPORT | Incorporating the Corporate Governance
Statement
The Directors present their Report and the audited Financial
Statements of the Company for the year ended 31 August 2023.
INFORMATION DISCLOSED IN THE STRATEGIC REPORT
The following matters required to be disclosed in this Report
under the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 are covered in the Strategic Report on
pages 26 to 37: the Company's status, investment objective and
policy, investment strategy, investment restrictions, financial
risk management, the Company's exposure to risks, a statement
regarding the Company's greenhouse gas emissions and the current
and future developments as well as important events effecting the
Company since the year end.
PRINCIPAL ACTIVITIES AND PURPOSE
The principal activity and therefore the purpose of the Company
is the making of investments in accordance with the investment
objective and policy set out on page 26. The Board delegates
investment management of the Company's portfolio to the Fund
Manager. A description of the Company's activities and strategy
during the year, as well as the outlook, is given in the Chair's
Statement on pages 7 to 9; and the Fund Manager's Review on pages
10 to 20.
The current portfolio of the Company is such that its shares are
eligible for inclusion in an ISA, and the Directors expect this
eligibility to be maintained.
The Company currently conducts its affairs so that its shares
can be recommended by Independent Financial Advisers in the UK to
ordinary retail investors in accordance with the FCA Rules in
relation to non-mainstream investment products and intends to
continue to do so. The shares are excluded from the FCA's
restrictions which apply to non-mainstream investment products
because they are shares in an authorised investment trust.
RESULTS AND DIVIDS
The results for the year are shown in the Statement of
Comprehensive Income on page 68. At the AGM held on 6 December
2022, shareholders approved the Company's dividend policy to pay an
annual dividend, equivalent to 4% of the Company's NAV, calculated
using the published NAV on the last day of the Company's preceding
financial year, being 31 August 2022. Dividends are paid through
two distributions in January and August of each year and are paid
out of capital reserves.
Accordingly, the Board declared and paid two interim dividends
during the year of 14.0 pence per Ordinary share for the first
interim dividend and for 14.2 pence per Ordinary share for the
second interim dividend (2022: 15.7 pence per Ordinary share in
equal payments). These were paid on 27 January 2023 and 25 August
2023. Further, the Directors intend to pay Interim Dividends for
the year ended 31 August 2023 in two tranches in January and August
2024.
In accordance with the Board's decision to seek shareholder
approval of the Company's dividend policy at each AGM, a resolution
to this effect has been included in the Notice of Meeting on page
105.
SHARE CAPITAL
At the AGM on 6 December 2022, shareholders gave approval for
the Company to purchase up to 6,124,285 Ordinary shares of its own
capital for cash, being 14.99% of the share capital in issue as at
the date of the Notice of Meeting. During the year under review,
1,544,826 shares were repurchased by the Company. The Board
considers that conducting share buybacks can help to manage the
discount of its share price to NAV, therefore enhancing share price
performance for existing shareholders. The positive effect of share
buybacks on the Company's NAV during the year has been explained in
the Chair's Statement on page 9 and in the Strategic Review on page
37. The Board regularly reviews the methods for managing the
discount and these include the use of share buybacks, payment of
dividends and marketing the Company to prospective investors.
Shareholders also provided approval for the Company to issue
4,132,834 Ordinary shares (excluding those from Treasury) with
pre-emption rights disapplied. During the year, no Ordinary shares
were re-issued from Treasury. The issued share capital of the
Company is detailed in note 15 to the Financial Statements. The
total number of Ordinary shares as at 3 November 2023 is
41,383,817.
DIRECTORS
All of the Directors as at 31 August 2023 held office throughout
the year under review, with the exception of Gillian Elcock who was
appointed to the Board on 1 February 2023. Jim Horsburgh retired as
a Non-executive Director and Chair on 6 December 2022. The
biographies of the Directors of the Company can be found on pages
38 and 39.
As indicated on page 46, all Directors are deemed by the Board
to be independent in both character and judgement, and have
performed their duties in an independent manner at all times. The
independence of Directors will continue to be assessed on a case by
case basis.
The Board recognises corporate governance best practice is for
all Directors to be submitted for annual re-election. Accordingly,
all Directors will be standing for re-election at the forthcoming
AGM. Gillian Elcock will be standing for election for the first
time since her initial appointment to the Board on 1 February
2023.
The Board has considered the position of each of the Directors
as part of the performance evaluation, the process for which is
explained in more detail on page 46. The Board has a broad range of
relevant experience to contribute towards the Company's strategic
priorities, including specialist understanding of the biotechnology
and healthcare sectors, investment trust companies, fund
management, venture capital market experience, accounting and
auditing, as detailed in the Directors' biographies on pages 38 and
39. Further, the Board has concluded that each Director continues
to demonstrate commitment to their role and provides a valuable
contribution to the deliberations of the Board. The Board therefore
recommends that shareholders vote in favour of the election of
Gillian Elcock, and re-elections of Kate Cornish-Bowden, Caroline
Gulliver, Patrick Magee and Patrick Maxwell at the forthcoming
AGM.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE AND DIRECTORS'
INDEMNITIES
Directors' and Officers' Liability Insurance cover was purchased
by the Company in April 2023 and continues to be in force as at the
date of this Report.
FUND MANAGER'S PERFORMANCE AND CONTRACTUAL ARRANGEMENTS
The Fund Manager is SV Health Managers LLP. The Board keeps the
performance of the Fund Manager under continual review. The
Management Engagement Committee conducts an annual review of the
Fund Manager's performance and makes a recommendation to the Board
about its continuing appointment. As announced in February 2023, SV
Health Managers LLP decided to focus on its venture capital
business and served notice of termination to IBT. As a result, the
continued appointment of the Fund Manager was not recommended by
the Committee. Effective November 2023, the Fund Manager and AIFM
will transition to Schroders which will ensure the continuity of
IBT's investment approach. The Board believes that Schroders will
deliver positive long-term benefits for IBT and its
shareholders.
The Fund Manager during the year under review, SV Health
Managers LLP was entitled to a management fee payable of 0.9% per
annum of the Company's NAV and to an annual performance fee which
is calculated as follows:
-- The portfolio consists of two pools: quoted and unquoted.
-- The fee on the quoted pool is 10% of relative outperformance
above the sterling-adjusted NBI plus a 0.5% hurdle.
-- The fee on the unquoted pool, excluding unquoted funds, is
20% of net realised gains, taking into account any unrealised
losses but not unrealised gains.
-- There is no performance fee calculated on unquoted funds as
the Fund Manager has carried interest in these funds.
The payment of the performance fee is subject to the following
limits:
-- The maximum performance fee in any one year is 2% of average
net assets.
-- Any underperformance of the quoted portfolio against the
benchmark is carried forward for the current financial period plus
two succeeding periods. Performance fees in excess of the
performance fee cap are carried forward for the current financial
period plus two succeeding periods and being offset against any
subsequent underperformance before being paid out.
A performance fee of GBP514,000 (GBP418,000 quoted, GBP96,000
unquoted) was payable for the unquoted portfolio in respect of the
year ended 31 August 2023 (31 August 2022: GBPnil quoted,
GBP471,000 unquoted)). Please see the Chair's Statement on page 9
for further information.
The future fee arrangements in the new Investment Management
Agreement with Schroders Unit Trust Limited are outlined on page
8.
ADMINISTRATION, DEPOSITARY AND COMPANY SECRETARIAL SERVICES
Fund administration and depositary services are provided by the
Northern Trust Company, London branch. The Administration Agreement
with the Northern Trust Company continues until terminated by
either party on giving not less than 12 months' written notice. The
Depositary Agreement with Northern Trust Investor Services Limited
continues until terminated by either party on giving not less than
6 months written notice. The Depositary also retains the right to
serve notice on the Company requiring it, at the expiry of a period
of not less than 270 calendar days, to give notice to the FCA of a
proposal to wind-up the affairs of the Company unless a replacement
Depositary has been appointed before the end of that period.
Company Secretarial services are provided by Link Company
Matters. The Agreement with Link Company Matters may be terminated
by either party on giving not less than six months' written
notice.
As referred to in the Chair's statement, as part of the move to
Schroders, IBT has appointed HSBC Bank plc as Administrator,
Custodian and Depositary with effect from 20 November 2023.
Schroder Investment Management Limited will be appointed as Company
Secretary from the same date.
COMPANIES ACT 2006 (THE ACT) DISCLOSURES
In accordance with Section 992 of the Act, the Directors
disclose the following information:
The Company's capital structure is summarised on page 84, voting
rights are summarised on page 84 and there are no restrictions on
voting rights nor any agreement between holders of securities that
result in restrictions on the transfer of securities or on voting
rights.
There exists no securities carrying special rights with regard
to the control of the Company.
The Company does not have an employees' share scheme.
The rules concerning the appointment and replacement of
Directors, amendment to the Articles of Association and powers to
issue or buyback the Company's shares are contained in the Articles
of Association of the Company and the Act. There exists no
agreements to which the Company is party that may affect its
control following a takeover bid.
There exists no agreements between the Company and its Directors
providing for compensation for loss of office that may occur
because of a takeover bid.
GOING CONCERN
The Company has reviewed the guidance issued by the FRC in order
to determine whether the going concern basis should be used in
preparing the Financial Statements for the year ended 31 August
2023. In doing so, the Directors have considered the Company's
borrowing requirements and covenants on existing borrowings;
liquidity risk (see note 23.3 on page 93); the business environment
and its impact on financial risk; the nature of the portfolio; and
expenditure projections for the next 12 months. The Company's
assets consist mainly of equity shares in companies listed on the
NASDAQ stock exchange and in most circumstances are realisable
within a short timescale.
The Company's Articles of Association require the Board to put a
proposal for the continuation of the Company to shareholders on a
biennial basis. The relevant resolution will therefore be included
in the Notice of Meeting for the forthcoming AGM. The previous
continuation vote in 2021 was passed with 99.96% of votes being in
favour of continuation. The Board is mindful that this will be the
first continuation vote following a change of AIFM and Fund
Manager. As noted in the Chair's Statement we have consulted with
many of our shareholders during the year and have received positive
feedback with many informing us that they are pleased with the
impending move to Schroders, and the continuity of the existing
mandate and investment management team. The Board noted no adverse
impact on share price or discount to NAV following announcement of
the decision to appoint Schroders. As a result of this shareholder
feedback the Board has a reasonable expectation that the
continuation vote will be passed.
As a result, the Directors believe that it is appropriate to
adopt the going concern basis in the preparation of the Financial
Statements as, assuming a successful continuation vote, there are
no material uncertainties related to events or conditions that may
cast significant doubt about the Company's ability to continue as a
going concern.
INDEPENT AUDITOR
Following a recommendation by the Audit Committee to the Board,
resolutions to re-appoint PricewaterhouseCoopers LLP as Auditor and
to authorise the Directors to determine their remuneration will be
proposed at the forthcoming AGM. The Board considers that the
Auditor remains independent and PricewaterhouseCoopers LLP have
expressed their willingness to continue in office. For information
relating to the effectiveness of the external audit process
including information regarding the full external tender of audit
services which took place in 2016, please see the Audit Committee
Report on pages 54 to 56.
SUBSTANTIAL SHARE INTERESTS
As at the year ended 31 August 2023, the interests of 3% or more
of the voting rights attaching to the Company's issued share
capital, as notified to the Company in accordance with Chapter 5 of
the FCA's Disclosure Guidance and Transparency Rules or ascertained
by the Company were as follows:
As at 31 August 2023 As at 31 August 2023
Shareholder Number of Ordinary % of voting rights
shares held
--------------------- ---------------------
Interactive Investor 5,343,661 13.59
--------------------- ---------------------
Hargreaves Lansdown 5,226,816 13.29
--------------------- ---------------------
Charles Stanley 3,164,753 8.05
--------------------- ---------------------
Border to Coast Pensions
Partnership 2,535,000 6.45
--------------------- ---------------------
AJ Bell 1,719,573 4.37
--------------------- ---------------------
South Yorkshire Pension
Authority 1,650,000 4.20
--------------------- ---------------------
RBC Brewin Dolphin 1,320,973 3.36
--------------------- ---------------------
West Yorkshire PF 1,245,599 3.17
--------------------- ---------------------
The Company has not been informed of any changes to the above
interests between 31 August 2023 and the date of this Report.
DISCLOSURE OF INFORMATION TO AUDITORS
In accordance with Section 418 of the Act, the Directors at the
date of approval of this Report, as listed on pages 38 and 39,
confirm that:
(a)so far as each Director is aware, there is no relevant audit
information of which the Company's Auditors are unaware; and
(b)each Director has taken all the steps that they ought to have
taken as a Director in order to make themselves aware of any
relevant audit information and to establish that the Company's
Auditors are aware of that information.
AGM
The AGM will be held on Tuesday, 12 December 2023 at 3.00pm.
Details of the business of the Meeting are set out in the Notice of
Meeting on pages 105 and 106.
Pursuant to the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008, the Directors are required
to provide detailed information, amongst others, on their powers in
relation to the issuing or buying back of the Company's shares. As
a result, the Board is seeking shareholder approval for the
following seven items.
Continuation Vote
The Company's Articles of Association require the Board to put a
proposal for the continuation of the Company to shareholders at two
yearly intervals. The next continuation vote will be put to
shareholders at the forthcoming AGM on 12 December 2023 as
Resolution 12 and the Directors strongly recommend shareholders
vote in favour.
Authority to allot shares
In order to provide maximum flexibility in the implementation of
the Company's corporate strategy and premium management policy, the
Directors wish to seek the power to allot new Ordinary shares for
cash at a premium to the NAV at the forthcoming AGM.
Resolution 13 seeks authority for Directors to allot shares for
cash up to a nominal amount of GBP1,021,575, equivalent to
4,086,300 Ordinary shares (being 10% of the issued Ordinary share
capital of the Company (excluding Treasury shares) in issue on 3
November 2023 (being the latest practicable date prior to the
publication of the Notice of Meeting)).
In addition, Resolution 14 seeks authority for Directors to
allot further shares for cash up to a nominal amount of
GBP1,021,575, equivalent to 4,086,300 Ordinary shares (being 10% of
the issued Ordinary share capital of the Company (excluding
Treasury shares) in issue on 3 November 2023 (being the latest
practicable date prior to the publication of the Notice of
Meeting)).
The Directors intend to use these authorities to issue new
shares only if they believe it is in the best interests of the
Company and is advantageous both to new investors and to the
Company's existing shareholders to do so. New shares will only be
issued at a price not less than the most recent published NAV per
Ordinary share prior to such issue. Both authorities will expire at
the conclusion of next year's AGM or 15 months from the date of
passing of the resolutions, whichever is earlier, unless revoked,
varied or renewed prior to that date.
Authority to disapply pre-emption rights
If new Ordinary shares are to be allotted for cash or Treasury
shares are to be sold for cash, the Act requires such new shares to
be offered first to existing holders of Ordinary shares. This
entitlement is known as a "pre-emption right". In certain
circumstances it is beneficial for the Directors to allot shares
for cash or Treasury shares to be sold for cash otherwise than pro
rata to existing shareholders and the Act provides for shareholders
to give such power to the Directors by waiving their pre-emption
rights.
Therefore, Resolution 15 will be proposed at the AGM which, if
passed, will give the Directors power to disapply the statutory
pre-emption rights of existing shareholders in relation to the
issue of Ordinary shares for cash or the sale of Ordinary shares
for cash out of Treasury up to an aggregate nominal amount of
GBP1,021,575 equivalent to 4,086,300 Ordinary shares (being 10% of
the Company's existing issued Ordinary share capital (excluding
Treasury shares) on 3 November 2023 (being the latest practicable
date prior to the publication of the Notice of Meeting)) such
Ordinary shares to be allotted or sold at a price not less than the
most recent published NAV per Ordinary share prior to such
allotment or sale.
This authority will expire at the conclusion of next year's AGM
or 15 months from the date of passing of the Resolution, whichever
is earlier, unless revoked, varied or renewed prior to that date
provided that the Company shall be entitled to make offers or
agreements before the expiry of such authority which would or might
require equity securities to be allotted after such expiry and the
Directors may allot equity securities pursuant to any such offer or
agreement as if this authority had not expired.
Resolution 16 is being proposed at the AGM in addition to
Resolution 15 which, if passed, will give Directors power to
disapply the statutory pre-emption rights of existing shareholders
in relation to the issue of Ordinary shares for cash or the sale of
Ordinary shares for cash out of Treasury, subject to the passing of
Resolution 14, up to an aggregate nominal amount of GBP1,021,575
equivalent to 4,086,300 Ordinary shares (being 10% of the Company's
existing issued Ordinary share capital (excluding Treasury shares)
on 3 November 2023 (being the latest practicable date prior to the
publication of the Notice of Meeting)) such Ordinary shares to be
allotted or sold at a price not less than the most recent published
NAV per Ordinary share prior to such allotment or sale. This
authority will expire at the conclusion of next year's AGM or 15
months from the date of passing of the resolution, whichever is
earlier, unless revoked, varied or renewed prior to that date
provided that the Company shall be entitled to make offers or
agreements before the expiry of such authority which would or might
require equity securities to be allotted after such expiry and the
Directors may allot equity securities pursuant to any such offer or
agreement as if this authority had not expired.
The Board is aware that when combined the authorities sought
under Resolutions 15 and 16 to disapply statutory pre-emption
rights amount to 20% of the Company's issued Ordinary share capital
is higher than the level recommended by best practice in accordance
with The Investment Association Share Capital Management Guidelines
and the Pre-emption Group's Statement of Principles on Disapplying
Pre-emption Rights. However, the Board notes that the Prospectus
Regulation allows for issuance for up to 20% of the Company's
issued Ordinary share capital without the need for a prospectus and
therefore, believes that the increased authority is justified and
it would be in the best interest of shareholders to provide the
extra flexibility to issue further shares in connection with the
Company's corporate strategy and premium management policy.
The increased authority:
-- would avoid the additional delay and expense of a further
shareholder resolution, which would be required in the event that
the initial 10% authority is granted and exhausted through the
programme of tap issuance;
-- is key to managing the share price premium to NAV, ensuring
that shareholders are not forced to pay an excessive premium when
adding to their holding; and
-- facilitates enhanced scale for the Company, which would have
the benefits of increasing the potential investor audience,
enhancing trading liquidity and reducing the ongoing charges
ratio.
During the year ended 31 August 2023, the Company did not
re-issue any shares from Treasury.
Share buybacks and Treasury share authority
Shareholders approved authorities for the Company to repurchase
up to 14.99% of its issued share capital (of which up to 10% of the
issued share capital may be retained in Treasury for potential
re-issue at any time) at the AGM held on Tuesday, 6 December
2022.
During the year ended 31 August 2023, the Company repurchased
1,544,826 Ordinary shares to be held in Treasury. The Directors
continue to believe it is in the best interests of the Company and
its shareholders to have a general authority for the Company to
buyback its shares in the market for cancellation or holding in
Treasury for potential subsequent re-issue. No shares held in
Treasury will be re-issued at a discount to NAV. The authority to
hold shares in Treasury is in addition to the power to buyback
shares for immediate cancellation.
Accordingly, a special resolution, Resolution 17, to authorise
the Company to purchase up to 14.99% of the share capital in issue
at the date of this Report for cancellation or for holding in
Treasury (up to a maximum of 10% of the share capital in issue at
the date of this Report) will be proposed at the forthcoming AGM.
Purchases will only be made if the Directors consider them to be
for the benefit of the Company and its shareholders, taking into
account relevant factors and circumstances at the time. The Company
can confirm that purchases of Ordinary shares under the authority
will only be made in the market for cash at prices below the
prevailing NAV per share.
Notice of General Meetings
At last year's AGM, a special resolution was passed allowing
General Meetings of the Company to be called on a minimum notice
period as provided for in the Act. For meetings other than AGMs
this is a period of 14 clear days. The Board believes that it
should have the flexibility to convene General Meetings of the
Company (other than AGMs) on 14 clear days' notice. The Board is
therefore proposing a special resolution to approve 14 clear days
as the minimum period of notice for all General Meetings of the
Company other than AGMs. The authority, if given, will be effective
until the Company's next AGM or until the expiry of 15 months from
the date of the passing of the special resolution (whichever is
earlier) and will only be used where it is merited by the purpose
of the Meeting.
Recommendation
The Directors consider that passing the Resolutions proposed at
the AGM will be in the best interests of shareholders as a whole
and unanimously recommend that shareholders vote in favour of each
of the resolutions as they intend to do so in respect of their own
beneficial holdings.
Details of proxy votes received in respect of each Resolution
are published on the Company's website following the meeting.
CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE
The Board is committed to high standards of corporate governance
and has implemented a framework for corporate governance
appropriate for an investment trust. The Board has considered the
principles and recommendations of the AIC Code of Corporate
Governance 2019 (AIC Code) which can be found on the AIC website
www.theaic.co.uk. The AIC Code addresses the principles set out in
the UK Corporate Governance Code as well as setting out additional
principles and recommendations on issues that are of specific
relevance to the Company.
As an investment company most of the day-to-day responsibilities
are delegated to outside parties as the Company has no employees
and all the Directors are Non-executive Directors. Many of the
provisions of the UK Corporate Governance Code are not directly
applicable to the Company. The Board has determined that reporting
against the AIC Code provides the most appropriate information to
shareholders, therefore the report on corporate governance
describes how the principles of the AIC Code have been applied.
STATEMENT OF COMPLIANCE
The Board considers that, for the year under review each
Director, the Board and the Company have complied with the
recommendations of the AIC Code in so far as they apply to the
Company's business and with the relevant provisions of the UK
Corporate Governance Code except as noted below:
-- As all Directors are Non-executive Directors and day-to-day
management has been contracted to third parties the Company does
not have a separate role for a Chief Executive from that of Chair
of the Board.
-- As there are no Executive Directors the provisions of the UK
Corporate Governance Code in respect of executive directors'
remuneration are not relevant.
-- The Company does not have an internal audit function as it
relies on the systems of control operated by third party suppliers,
in particular those of SV Health Managers LLP. The Board monitors
these systems of internal control to provide assurance that they
operate as intended.
This Corporate Governance Statement, together with the
Management Report and Directors' Responsibilities Statement set out
on page 45, indicate how the Company has applied the principles of
good governance and meets internal control requirements.
ROLE OF THE CHAIR
The Chair is responsible for leading the Board, ensuring its
effectiveness in all aspects of its role, and setting its
agenda.
ROLE OF THE BOARD
The Board determines and monitors the Company's investment
objective and policy, and considers its future strategic direction,
ensuring itself that these and its culture is aligned; being
collectively responsible for the long-term success of the Company.
A schedule of matters specifically reserved for consideration and
decision by the Board has been adopted. The Board is responsible
for presenting a fair, balanced and understandable assessment of
the Company's position and, where appropriate, future prospects in
Annual and Half Yearly Financial Reports and other forms of public
reporting. It monitors and reviews the shareholder base of the
Company, marketing and shareholder communication strategies, and
evaluates the performance of all service providers, with input from
its Committees where appropriate. A procedure has been adopted for
Directors, in the furtherance of their duties, to take independent
professional advice at the expense of the Company, where
appropriate. The Directors have access to the advice and services
of the corporate Company Secretary through its appointed
representative, who is responsible to the Board for, inter alia,
ensuring that Board procedures are followed and that applicable
rules and regulations are complied with. The appointment and
removal of the Company Secretary is a matter for the whole
Board.
CONFLICTS OF INTEREST
The Directors have declared any conflicts of interest to the
Company Secretary, who maintains the Register of Directors'
Conflicts of Interests. It is reviewed at each Board Meeting, and
the Directors advise the Company Secretary as soon as they become
aware of any new actual or potential conflicts of interests that
would need to be considered and approved by the disinterested
Directors.
In addition to chairing the Company, Kate Cornish-Bowden is also
currently a Director of Schroder Oriental Income Fund Limited. In
order to remain independent, Kate will be resigning from Schroder
Oriental Income prior to IBT's move to Schroders.
BOARD COMPOSITION
The Board currently consists of five Non-executive Directors.
The biographical details of each Director, including their length
of service, are set out on pages 38 and 39.
The Board is satisfied that it is of sufficient size, with an
appropriate balance of skills and experience, and that no
individual or group of individuals is, or has been, in a position
to dominate decision making. This is kept under continuous review
by the Board as part of ongoing succession planning.
The Board recognises the objectives of the Davies Report to
improve the performance of corporate boards by encouraging the
appointment of the best people from a range of differing
perspectives and backgrounds. However, it is not considered
necessary, given the diverse skill set of the Board to have set
targets in relation to diversity.
The Board has set a policy on tenure that, in normal
circumstances, Directors will retire at the AGM in their 10th year
of service. The Board is of the opinion that long service does not
necessarily compromise the independence or contribution of
Directors of investment trusts where continuity and experience can
significantly benefit a board, a view supported by the AIC.
INDUCTION AND TRAINING
Upon appointment to the Board, Directors are provided with all
the relevant information regarding the Company and their duties and
responsibilities as a Director. They receive a formal and tailored
induction, which is administered by the Company Secretary and the
Fund Manager. Directors are provided, on a regular basis, with key
information on the Board's policies, regulatory requirements and
internal controls. Changes affecting Directors' responsibilities
are advised to the Board as they arise and the Chair regularly
reviews and agrees with each Director their training and
development needs. Other advisers to the Company also prepare
reports for the Board from time to time. In addition, Directors
attend ad hoc seminars, conferences and other forums covering
issues and developments relevant to both the investment trust and
biotechnology industries.
BOARD EVALUATION
In line with best practice, the Board's effectiveness is
reviewed on an annual basis through a formal performance
evaluation, including an assessment of the Board and its
Committees. An external evaluator conducts the review every third
year, and in the two intervening years this is carried out by the
Company Secretary to ensure continuity over the three-year
cycle.
The review for the year ended 31 August 2023 was conducted by
the Company Secretary, following an external performance review
conducted by Lintstock Ltd in 2022.
The evaluation looked at several key areas, including the
performance of the Board and its Committees, the effectiveness of
the Board's oversight of the Fund Manager, investment strategy and
performance, risk management, external relations and succession
planning. The responses were then collated, analysed and presented
to both the Nomination Committee and the Board in July 2023.
There were no significant issues arising from the evaluation
process and it was agreed that the Board and its Committees were
functioning effectively.
MEETINGS AND ATTANCE
The Board held five scheduled meetings in the financial year
which were attended by all Directors entitled to attend. Additional
meetings are arranged as required and regular contact between the
Directors, the Fund Manager and the Company Secretary is maintained
throughout the year. Representatives of the Fund Manager and the
Company Secretary attend each Meeting and other advisers also
attend when requested to do so by the Board.
A schedule of Directors' attendance at Board and Committee
Meetings held during the financial year is set out above.
All Directors attended numerous additional ad hoc meetings
during the year under review in connection with the change of fund
manager.
The Board is satisfied that each of the Chair and the
Non-executive Directors commit sufficient time to the affairs of
the Company to fulfil his or her duties as Directors.
BOARD BOARD AUDIT AUDIT NOMINATION NOMINATION MANAGEMENT MANAGEMENT
COMMITTEE COMMITTEE COMMITTEE COMMITTEE ENGAGEMENT ENGAGEMENT
COMMITTEE COMMITTEE
Number Number Number Number Number Number Number Number
entitled attended entitled attended entitled attended entitled attended
to to attend to attend to attend
attend
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Jim Horsburgh* 3 3 1 1 0 0 0 0
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Kate
Cornish-Bowden 5 5 3 3 1 1 1 1
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Caroline
Gulliver 5 5 3 3 1 1 1 1
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Patrick
Magee 5 5 3 3 1 1 1 1
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Patrick
Maxwell 5 5 3 3 1 1 1 1
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Gillian
Elcock** 3 3 2 2 1 1 1 1
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
*Retired 6 December 2022.
**Appointed 1 February 2023.
INFORMATION FLOWS
The Chair ensures that all Directors receive, in a timely
manner, relevant management, regulatory and financial information
and are provided, on a regular basis, with key information on the
Company's policies, regulatory requirements and internal controls.
The Board receives and considers reports regularly from the Fund
Manager, the Company Secretary and other key advisers. Ad hoc
reports and information are supplied to the Board as required.
COMMITTEES
The Board has delegated certain responsibilities and functions
to three Committees, all of which operate under written terms of
reference. Copies of the terms of reference for the Committees have
been published on the Company's website. Committee membership is
detailed on pages 46 and 47. Please refer to page 54 for the report
on the work of the Audit Committee.
Nomination Committee
The Chair of the Board acts as Chair to the Nomination Committee
which met once during the year ended 31 August 2023. The function
of the Committee is to consider and make recommendations to the
Board on its composition and balance, including identifying and
nominating new Directors to the Board and proposing that existing
Directors be re-elected.
Before considering new appointments, the Nomination Committee
evaluates the balance of skills, experience, independence, and
knowledge of the Board, and, in light of this evaluation, prepares
a description of the roles and capabilities required for particular
appointments. Directors' independence and diversity of the Board
(including gender and ethnicity) is also considered. Newly
appointed Directors are then assessed using the aforementioned
criteria.
On those occasions when the Committee is reviewing the Chair, or
considering a successor, the Nomination Committee is chaired by the
Senior Independent Director or, in his absence, another Committee
Member and the Chair abstains from discussions in this regard.
Management Engagement Committee
The Chair of the Board acts as Chair to the Management
Engagement Committee which met once during the year ended 31 August
2023 and intends to meet annually in the future to review matters
relating to the performance of the Company's third party service
providers, including the Fund Manager, and to review the terms of
their contractual arrangements with the Company, ensuring their
continued competitiveness for shareholders.
ACCOUNTABILITY AND AUDIT
The Management Report and Directors' Responsibilities Statement
in respect of the Financial Statements are on page 57 and a
statement of going concern is set out in the Directors' Report on
page 42. The Independent Auditors' Report can be found on pages 59
to 67 and the Audit Committee Report on pages 54 to 57.
INTERNAL CONTROL
The AIC Code requires the Board to conduct at least annually a
review of the adequacy of the Company's systems of internal control
and report to shareholders that it has done so. The Board has
reviewed a detailed Risk Map identifying significant strategic,
investment-related, operational and tax, legal and regulatory risks
and emerging risks. It has adopted a monitoring system to ensure
that risk management and all aspects of internal control are
considered on a regular basis, and fully reviewed at least
annually. The Board is satisfied that these tools permit it to
review the effectiveness of the Company's internal controls and on
that basis confirms that it has reviewed the effectiveness of the
Company's risk management and internal control systems for the year
under review, taking into account all matters leading up to the
date of the approval of the Financial Statements.
The Board believes that the key risks identified and the
implementation of an ongoing system to identify, evaluate and
manage these risks are relevant to the Company's business as an
investment trust. The ongoing risk assessment, which has been in
place throughout the financial year and up to the date of this
Report, includes consideration of the scope and quality of the
systems of internal control. This includes ensuring regular
communication of the results of monitoring by third parties to the
Board, the incidence of significant control failings or weaknesses
that have been identified at any time and the extent to which they
have resulted in unforeseen outcomes or contingencies that may have
a material impact on the Company's performance or condition. There
were no significant control failings or weaknesses identified
during the course of the year and up to the date of this
Report.
Although the Board believes that it has robust systems of
internal control in place this can provide only reasonable and not
absolute assurance against material financial misstatement or loss
and is designed to manage, not eliminate, risk. The Company does
not have an internal audit function or a whistleblowing policy as
it employs no staff and delegates to third parties most of its
operations. By the procedures set out above, the Board will
continue to monitor its system of internal control in accordance
with the FRC's Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting and will continue to take
steps to embed the system of internal control and risk management
into the operations of the Company. In doing so, the Audit
Committee will review at least annually whether a function
equivalent to an internal audit is needed. During the course of its
review of the systems of internal control, the Board has not
identified nor has it been advised of any findings or weakness
which it has determined to be significant.
Certain information is required to be included in the Annual
Financial Report by Listing Rule 9.8.4. The necessary details are
included in the Report, and if not shown, the requirement is not
applicable to the Company.
DIRECTORS' DUTIES
The Board believes that it has acted in the way that they
consider in good faith would be most likely to promote the success
of the Company for the benefit of its Members (having regard to the
matters set out in Section 172(1)(a)-(f) of the Act) in the
principal decisions taken by the Board during the year. The Section
172 Statement on pages 34 to 36 of the Strategic Review sets out
further details on how the Directors had regard to its stakeholders
in its principal decisions during the year.
On behalf of the Board
INTERNATIONAL BIOTECHNOLOGY TRUST PLC
KATE CORNISH-BOWDEN | Chair
6 November 2023
REPORT ON DIRECTORS' REMUNERATION
INTRODUCTION
This Report is submitted in accordance with Sections 420 to 422
of the Act and it also meets the relevant Listing Rules of the FCA
and describes how the Board has applied the principles relating to
Directors' remuneration.
The Company's Auditor is required to report on certain
information contained within this Report. Where information set out
below has been audited, it is indicated as such. The Auditors'
opinion is included within the Independent Auditors' Report on
pages 59 to 67.
DIRECTORS' REMUNERATION POLICY
The determination of the Directors' fees is a matter dealt with
by the Board. As all the directors are independent Non-executive, a
separate remuneration committee has not been established.
The Company's Articles of Association limit the aggregate fees
payable to Directors to GBP250,000 per annum. Subject to this
limit, it is the Company's policy to determine the level of
Directors' fees having regard to the level of fees payable to
non-executive directors in the industry, the role that individual
Directors fulfil in respect of Board and Committee responsibilities
and time committed to the Company's affairs in order to promote the
long-term success of the Company. Fees payable to Directors should
be sufficient to motivate and retain candidates of a high calibre
to deliver the Company's investment objectives. No element of the
Directors' remuneration is performance-related.
The Board considers any comments received from shareholders on
the remuneration policy on an ongoing basis and if appropriate,
takes these into consideration when reviewing remuneration.
All Directors have a Letter of Appointment with the Company. The
Letters of Appointment are available for inspection at the
Company's registered office during normal business hours and at the
location of the AGM for at least 15 minutes prior to and during the
meeting. Directors do not have service contracts with the Company
and no compensation is payable to Directors on leaving office. It
is the intention of the Board that this policy will continue to
apply in the forthcoming and subsequent financial years.
All Directors are appointed for an initial term covering the
period from the date of their appointment until the first AGM,
thereafter they are required to retire by rotation at least every
three years in accordance with the Company's Articles of
Association. The Board recognises corporate governance best
practice is for all Directors to be submitted for annual
re-election. Accordingly, all Directors stand for re-election
annually.
Following the performance evaluation carried out each year, the
Board considers whether it is appropriate for each Director to seek
re-election. When recommending whether an individual Director
should seek re-election, the Board will take into account the
ongoing recommendations of the AIC Code, including the need to
refresh the Board and its Committees.
The component parts of the Directors' Remuneration are set out
in the table below:
Component parts of the Directors' remuneration
*2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Chair's
base fee 44,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 41,000 41,000 41,000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Non-executive
Director
base fee 30,000 28,000 28,000 28,000 28,000 28,000 28,000 28,000 27,000 27,000 27,000
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Additional
fee for
the Chair
of the
Audit
Committee 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Additional
fee for
the Senior
Independent
Director 2,000 2,000 2,000 2,000 2,000 2,000 2,000 - - - -
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
*Effective 1 March 2023.
1. The Company's policy is for the Chair of the Board, the Chair
of the Audit Committee and the Senior Independent Director to
be paid higher fees to reflect their more onerous roles.
2. Directors' fees are paid up to the date of termination of
their appointment, with no exit payments or compensation for
loss of office payments applicable.
3. As the Company has no employees, there are no comparisons
to be made between this Directors' Remuneration Policy and a
policy on the remuneration of employees.
4. Directors' are entitled to claim expenses in respect of duties
undertaken in connection with the management of the Company.
5. Fees are paid quarterly in arrears.
6. Fees are reviewed on an annual basis.
7. The Company retains the flexibility to pay additional one
off fees to Directors should they be required to undertake additional
work in order to deliver time consuming projects in the shareholders'
interests.
ANNUAL REPORT ON DIRECTORS' REMUNERATION
This Report sets out how the Directors' Remuneration Policy was
implemented during the year ended 31 August 2023. Directors' fees
were last reviewed by the Board in April 2023 and was examined
alongside the Directors' Remuneration Policy.
During the year under review, the Directors approved an annual
fee increase of GBP2,000 each, with effect from 1 March 2023.
Previous changes to Directors' remuneration were made in 2016 and
2017 when the additional fee for the Senior Independent Director
was introduced with effect from 1 September 2017. The amounts, set
out in the following table, were paid by the Company to the
Directors for services in respect of the year ended 31 August 2023
and the previous financial year.
Single total figure of the remuneration for each Director
(audited)
The Directors who served during the year under review received
the following emoluments:
TOTAL FEES* Remuneration for Qualifying Services
Year ended Year ended
31 August 2023 31 August 2022
---------------- ----------------
Directors GBP GBP
---------------- ----------------
Kate Cornish-Bowden
(Chair) 40,221 29,077
---------------- ----------------
Caroline Gulliver 33,500 32,500
---------------- ----------------
Patrick Magee 30,482 28,000
---------------- ----------------
Patrick Maxwell# 29,000 18,667
---------------- ----------------
Gillian Elcock# 17,271 -
---------------- ----------------
Jim Horsburgh 11,295 42,500
---------------- ----------------
Véronique Bouchet - 10,000
---------------- ----------------
Total 161,769 160,744
---------------- ----------------
There were no taxable benefits claimed during the years ended 31
August 2023 and 31 August 2022.
*No aspect of the Directors' remuneration, past or present,
is performance-related in light of the Directors' Non-executive
status. As a result, no Director is entitled to any bonuses,
benefit in kind, share options, long-term incentives, pension
or other retirement benefit. The Directors are entitled to reimbursement
of all reasonable and properly documented expenses incurred
in performing their duties.
Kate Cornish-Bowden was appointed as Non-executive Director
on 19 May 2020 and replaced Véronique Bouchet as Senior
Independent Director on 8 December 2021 and replaced Jim Horsburgh
as Chair on 6 December 2022.
Patrick Magee joined the Board as Non-executive Director on
19 May 2020 and replaced Kate Cornish-Bowden as Senior Independent
Director on 6 December 2022.
#Patrick Maxwell was appointed as a Non-executive Director with
effect from 1 January 2022 and Gillian Elcock was appointed
as a Non-executive Director with effect from 1 February 2023.
John Aston and Véronique Bouchet retired from the Board
on 15 December 2020 and 8 December 2021, respectively. Jim Horsburgh
served as Chairman from 15 December 2020 and retired from the
Board on 6 December 2022.
Annual Percentage Change in Directors' Remuneration
The table below sets out the annual percentage change in the
Directors' fees for the past four financial years:
2019-2020 2020-2021 2021-2022 2022-2023
Directors % change % change % change % change
----------- ---------- ---------- ----------
Kate Cornish-Bowden
(Chair) N/A 255 4 38
----------- ---------- ---------- ----------
Caroline Gulliver - - - 3
----------- ---------- ---------- ----------
Patrick Magee N/A 255 - 9
----------- ---------- ---------- ----------
Patrick Maxwell# N/A N/A N/A 55
----------- ---------- ---------- ----------
Gillian Elcock# N/A N/A N/A N/A
----------- ---------- ---------- ----------
Jim Horsburgh - 41 7 (73)
----------- ---------- ---------- ----------
Véronique - - (67) N/A
Bouchet
----------- ---------- ---------- ----------
John Aston - (76) N/A N/A
----------- ---------- ---------- ----------
*No aspect of the Directors' remuneration, past or present,
is performance-related in light of the Directors' Non-executive
status. As a result, no Director is entitled to any bonuses,
benefit in kind, share options, long-term incentives, pension
or other retirement benefit. The Directors are entitled to reimbursement
of all reasonable and properly documented expenses incurred
in performing their duties.
Kate Cornish-Bowden was appointed as Non-executive Director
on 19 May 2020 and replaced Véronique Bouchet as Senior
Independent Director on 8 December 2021 and replaced Jim Horsburgh
as Chair on 6 December 2022.
Patrick Magee joined the Board as Non-executive Director on
19 May 2020 and replaced Kate Cornish-Bowden as Senior Independent
Director on 6 December 2022.
#Patrick Maxwell was appointed as a Non-executive Director with
effect from 1 January 2022 and Gillian Elcock was appointed
as a Non-executive Director with effect from 1 February 2023.
John Aston and Véronique Bouchet retired from the Board
on 15 December 2020 and 8 December 2021, respectively. Jim Horsburgh
served as Chairman from 15 December 2020 and retired from the
Board on 6 December 2022.
Consideration of Matters Relating to Directors' Remuneration
In accordance with the Companies Act 2006, the Company is
required to seek shareholder approval for its remuneration policy
on a triennial basis. The Remuneration Policy was last approved by
shareholders at the 2020 annual general meeting and accordingly, a
resolution to approve the policy will be put to shareholders at
this year's annual general meeting. There have been no changes to
the provisions of the last approved policy. It is the intention of
the Board that the following policy on remuneration, will continue
to apply for the next three financial years to 31 August 2026,
subject to shareholder approval at the annual general meeting held
on 12 December 2023.
Expenditure by the Company on Directors' remuneration compared
with distributions to shareholders
The graph and table below compare the remuneration paid to
Directors and distributions to shareholders by way of share
buybacks and dividends for the past five years. As a result of a
lower NAV dividends paid to shareholders during the year decreased,
compared to the level paid in 2022.
RELATIVE COST OF DIRECTORS' REMUNERATION
Source: International Biotechnology Trust plc.
Year ended Year ended
31 August 2023 31 August 2022
GBP'000 GBP'000
------------------ ---------------- ----------------
Aggregate spend
on Directors'
fees * 162 161
---------------- ----------------
Distributions
to shareholders - dividends 11,407 12,879
------------------ ---------------- ----------------
- share buybacks 9,978 3,534
------------------------------------- ---------------- ----------------
21,385 16,413
------------------------------------- ---------------- ----------------
*As the Company has no employees the total spend on remuneration
comprises solely Directors' fees.
Directors' shareholdings (audited)
Ordinary shares of Ordinary shares of
25p each 25p each
Directors as at 31 August 2023 as at 31 August 2022
--------------------- ---------------------
Kate Cornish-Bowden 12,500 11,000
--------------------- ---------------------
Caroline Gulliver 9,500 9,500
--------------------- ---------------------
Jim Horsburgh* - 30,000
--------------------- ---------------------
Patrick Magee 11,500 10,000
--------------------- ---------------------
Professor Patrick Maxwell 3,725 3,725
--------------------- ---------------------
Gillian Elcock - -
--------------------- ---------------------
*Retired at AGM held on 6 December 2022.
All shares are held beneficially. No Director has any material
interest in any contract that is significant to the Company's
business.
Neither the Company's Articles of Association nor the Directors'
Letters of Appointment require any Director to own shares in the
Company.
PERFORMANCE GRAPH
The performance graph below charts the cumulative share price
total return to shareholders since 31 August 2013 compared to that
of the NBI. The data has been rebased to 100 at 31 August 2013 (the
start of the period covered by the graph).
STATEMENT OF IMPLEMENTATION OF DIRECTORS' REMUNERATION
POLICY
The Board does not envisage that there will be any significant
changes to the implementation of the Directors' Remuneration Policy
during the current financial year compared to how it was
implemented during the year ended 31 August 2023.
SHARE PRICE/NBI TOTAL RETURN (%)
Source: Bloomberg. Data rebased to 100 at 31 August 2013.
ANNUAL STATEMENT
On behalf of the Board and in accordance with Part 2 of Schedule
8 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulation 2013, I, as Chair of the Board,
confirm that the above Directors' Remuneration Annual Report
summarises, as applicable, for the year ended 31 August 2023:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration
made during the year; and
(c) the context in which those changes occurred and decisions
taken.
SHAREHOLDER APPROVAL
Shareholders will be asked to approve the Annual Report on
Directors' Remuneration annually by an advisory vote and an
ordinary resolution to approve the Report will be put to
shareholders at the forthcoming AGM. In addition, shareholders will
be asked to approve the Directors' Remuneration Policy, which is
subject to a binding shareholder vote, on a three-yearly basis. Any
changes to this policy would also require shareholder approval. The
Directors' Remuneration Policy was last approved at the AGM held on
15 December 2020 and accordingly, an ordinary resolution will be
put to shareholders at the annual general meeting held on 12
December 2023.
At the AGM held on 15 December 2020, votes cast (including the
votes cast at the Chair's discretion) in respect of the Directors'
Remuneration Policy were 10,102,858 (95.91%) in favour, 430,305
(4.09%) against and 32,132 votes withheld.
At the AGM held on 6 December 2022, votes cast (including the
votes cast at the Chair's discretion) in respect of the Annual
Report on Directors' Remuneration were 13,467,767 (99.71%) in
favour, 39,498 (0.29%) against and 16,904 votes withheld.
RECOMMATION
The Board considers the resolutions to be proposed at the
forthcoming AGM in the best interests of the Company and
shareholders as a whole. Accordingly, the Directors unanimously
recommend to shareholders that they vote in favour of the
resolution, as they intend to do so in respect of their own
beneficial holdings.
On behalf of the Board
KATE CORNISH-BOWDEN | Chair
6 November 2023
AUDIT COMMITTEE REPORT
COMPOSITION AND MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee is chaired by Caroline Gulliver. Given the
size of the Board, it is considered both proportionate and
practical for all Directors, including the Chair of the Company
(who was independent on appointment), to be members. All members of
the Committee are independent and have competence relevant to the
sector as a result of their current or recent employment in
financial services and other industries. As the Chair of the
Committee, Caroline Gulliver has relevant and recent financial
experience in financial services as a Chartered Accountant with a
background in the provision of audit and advisory services to the
asset management industry, with a particular focus on investment
trusts. All the Committee members have extensive experience working
in financial services. The biographies of each of the Committee
Members are shown on pages 38 to 39.
The Audit Committee met three times during the year ended 31
August 2023 and reported its findings to the Board on the matters
described below after each Meeting. The Company's Auditor is
invited to attend meetings as necessary as well as representatives
of the Fund Manager.
THE ROLE OF THE COMMITTEE
The Audit Committee operates under written terms of reference
which are reviewed annually and are available on the Company's
website. The process in respect of the evaluation of the Audit
Committee's performance is disclosed on pages 46 and 47.
The Audit Committee provides a forum through which the Company's
external Auditor reports to the Board. The main responsibilities of
the Audit Committee include:
-- Monitoring the integrity of the Company's Annual and Half
Yearly Reports and appropriateness of its accounting policies.
-- Reviewing the internal control systems and the risks to which
the Company is exposed.
-- Making recommendations to the Board on whether the Company's
Annual Report, when taken as a whole, is fair, balanced and
understandable and provides shareholders with the information they
need to assess the Company's business model, strategy, position and
performance.
-- Making recommendations to the Board regarding the appointment
of the external Auditor, its independence and the objectivity and
effectiveness of the audit process.
-- Monitoring any non-audit services being provided to the
Company by its external Auditor.
-- Consideration of the need for the Company to have its own
Internal Audit function.
EFFECTIVENESS OF THE EXTERNAL AUDIT PROCESS AND AUDITOR
INDEPENCE
The Audit Committee annually reviews the performance of
PricewaterhouseCoopers LLP, the Company's external Auditor and
discusses its effectiveness with representatives of the Fund
Manager, who work closely with the Auditor during the annual audit
process. As part of this review, the Audit Committee takes into
consideration the qualifications, expertise and resources, and
independence of the external Auditor and the effectiveness of the
external audit process, which includes a report from the external
Auditor on its own internal quality procedures. The FRCs Audit
Quality Inspection Report on the audits carried out by
PricewaterhouseCoopers LLP was also considered by the Audit
Committee. The Auditor attends the Audit Committee meeting at which
the Annual Report is considered in order to present its report and
have the opportunity to meet privately with the Audit Committee
members without representatives of the Fund Manager present.
Details of the amounts paid to the external auditor during the
financial year under review, for audit services, are set out in
note 5 to the Financial Statements on page 78. The Audit Committee
annually monitors the non-audit services provided to the Company
and has developed a formal policy to ensure that such services do
not impair the independence or objectivity of the Auditors. No
non-audit services were provided during the year under review.
Following its review, the Audit Committee remains satisfied with
the effectiveness of the audit provided and that the Auditor
remains independent.
AUDITOR APPOINTMENT AND TENURE
The Company must also comply with UK Competition and Market
Authority rules, which require the external audit contract to be
put out to tender at least every 10 years, with the proviso that no
single firm may serve as the Company's external auditor for a
period exceeding 20 years. PricewaterhouseCoopers LLP was initially
appointed in 2007 and accordingly, the Company conducted a tender
of audit services in 2016 in respect of the ongoing audits.
Following recommendation by the Audit Committee, the Board decided
to retain PricewaterhouseCoopers LLP as Auditor for the Company.
Following a review of the Auditors' performance, as described
above, the Audit Committee recommends the re-appointment of the
Auditor at the forthcoming AGM.
The Auditor is required to rotate the audit partner every five
years and this is the third year for which Colleen Local has served
as audit partner.
SIGNIFICANT ISSUES CONSIDERED WITH RESPECT TO THE ANNUAL
REPORT
Issue considered How the issue was addressed
Valuation and existence of quoted Consideration and review of valuation
and unquoted investments and processes and methodology at
gains and losses from those investments SV Health Managers LLP and the
Northern Trust Company to establish
the existence of and the accuracy
and completeness over the valuations
being recommended for approval
to the Board.
-----------------------------------------
Performance fee Review of the accuracy of the
calculation and completeness
of disclosure.
-----------------------------------------
Continuation vote The Company's Articles of Association
provide for the Directors to
put forward a proposal for the
continuation of the Company at
the AGM at two yearly intervals.
Accordingly, a continuation vote
will be put to shareholders a
the AGM in 2023.
After making enquiries of the
Company's broker pursuant to
their recent discussions with
a number of the Company's shareholders,
the Audit Committee is of the
view that the Continuation vote
will be passed at the forthcoming
AGM. The Audit Committee is of
the opinion that the going concern
basis adopted in the preparation
of the financial statements is
appropriate.
-----------------------------------------
INTERNAL AUDIT
The Audit Committee has considered the requirement for the
Company to have an internal audit function pursuant to provisions
25 and 26 of the UK Code. It was deemed unnecessary for the Company
to have its own internal audit function due to:
-- The Board delegates its main functions to third-party service
providers, who have their own internal audit functions and
established internal controls frameworks which provide reasonable
assurance on the effectiveness of the internal controls operated on
behalf of their clients.
-- The Fund Manager reports on compliance within the terms of
its delegated authority under the Investment Management Agreement
on a quarterly basis.
-- The Company Secretary also reports any breaches of law and
regulation as and when they arose.
-- In the last two financial years, when reviewing the system of
internal controls, the Audit Committee had not identified nor been
advised of any failings or weaknesses which it had determined to be
significant.
CONCLUSIONS WITH RESPECT TO THE ANNUAL REPORT
The production and the external audit of the Company's Annual
Report is an intricate process, involving a number of parties. The
Audit Committee has reviewed the internal controls in place at each
of the third party service providers in order to gain comfort over
the accuracy of the Company's financial records. Having received
the Auditors' Report on the results of the annual audit and having
taken all available information into consideration and having
discussed the content of the Annual Report with the AIFM, Fund
Manager, Company Secretary and other third party service providers,
the Audit Committee has concluded that the Annual Report for the
year ended 31 August 2023, taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy and has reported these findings to the
Board. The Board's conclusions in this respect are set out on page
57. The Board was made fully aware of any significant financial
reporting issues and judgements made in connection with the
preparation of the Financial Statements.
CAROLINE GULLIVER | Chair of the Audit Committee
6 November 2023
MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITIES STATEMENT
MANAGEMENT REPORT
Listed companies are required by the FCA's Disclosure Guidance
and Transparency Rules (the Rules) to include a management report
in their Financial Statements. The information required to be
included in the management report for the purposes of the Rules is
included in the Strategic Report on pages 27 to 37 inclusive
(together with the sections of the Annual Report incorporated by
reference) and the Directors' Report on pages 40 to 48. Therefore,
a separate management report has not been included.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law the Directors
have prepared the Financial Statements in accordance with UK
adopted international accounting standards ("IFRS").
Under company law, Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing the Financial
Statements, the Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- state whether applicable UK adopted international accounting
standards have been followed, subject to any material departures
disclosed and explained in the Financial Statements;
-- make judgements and accounting estimates that are reasonable
and prudent; and
-- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Company and enable them to
ensure that the Financial Statements and the Directors'
Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of Financial Statements
may differ from legislation in other jurisdictions.
DIRECTORS' CONFIRMATIONS
Having taken advice from the Audit Committee 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 position and
performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the Directors' Report confirm that, to the best of their
knowledge:
-- the Company Financial Statements, which have been prepared in
accordance with UK adopted international accounting standards, give
a true and fair view of the assets, liabilities, financial position
and result of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
The Annual Report is published on www.ibtplc.com which is
currently maintained by SV Health Managers LLP. The maintenance and
integrity of the website is, so far as it relates to the Company,
the responsibility of SV Health Managers LLP. The work carried out
by the Auditors does not involve consideration of the maintenance
and integrity of this website and accordingly, the Auditors accepts
no responsibility for any changes that have occurred to the Annual
Report since it was initially presented on the website. Visitors to
the website need to be aware that legislation in the UK governing
the preparation and dissemination of the Annual Report may differ
from legislation in their home jurisdiction.
This Statement of Directors' Responsibilities was approved by
the Board and signed on its behalf by:
KATE CORNISH-BOWDEN | Chair
6 November 2023
INDEPENT AUDITORS' REPORT
to the members of International Biotechnology Trust plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion, International Biotechnology Trust plc's
financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 August 2023 and of its profit and cash flows for
the year then ended;
-- have been properly prepared in accordance with UK-adopted
international accounting standards; and
-- have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the
Annual Report, which comprise: the Balance Sheet as at 31 August
2023; the Statement of Comprehensive Income, the Statement of
Changes in Equity, and the Cash Flow Statement for the year then
ended; and the notes to the financial statements, which include a
description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit
Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities under ISAs (UK) are further described in the
Auditors' responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remained independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC's Ethical
Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC's Ethical Standard were
not provided.
We have provided no non-audit services to the Company in the
period under audit.
OUR AUDIT APPROACH
Context
The Company is a standalone Investment Trust Company and engages
SV Health Managers LLP (the Fund Manager) to manage its assets.
Overview
Audit scope
-- We conducted our audit of the financial statements using
information from Northern Trust (the Administrator) with whom the
Directors have engaged to provide certain administrative
functions.
-- We tailored the scope of our audit taking into account the
types of investments held by the Company, the involvement of the
third parties referred to above, the accounting processes and
controls, and the industry in which the Company operates.
-- We obtained an understanding of the control environment in
place at both the Fund Manager and the Administrator, and adopted a
fully substantive testing approach using reports obtained from the
Fund Manager and Administrator.
Key Audit Matters
-- Valuation and existence of unquoted investments
-- Valuation and existence of quoted investments
-- Income from and gains on investments
-- Ability to continue as a going concern - Continuation
Vote
Materiality
-- Overall materiality: GBP2,703,000 (2022: GBP2,800,000) based
on approximately 1% of net assets.
-- Performance materiality: GBP2,027,000 (2022:
GBP2,100,000).
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements.
Key audit matters
Key audit matters are those matters that, in the auditors'
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters.
This is not a complete list of all risks identified by our
audit.
Ability to continue as a going concern - Continuation Vote is a
new key audit matter this year. Otherwise, the key audit matters
below are consistent with last year.
Key audit matter How our audit addressed the key
audit matter
Valuation and existence of unquoted investments
Refer to Note 1 - Accounting We have understood and evaluated
Policies and Note 10 - Investments the valuation methodology applied,
held at fair value through profit by reference to the International
or loss of the financial statements. Private Equity and Venture Capital
The investment portfolio at 31 Valuation guidelines (IPEV) and
August 2023 included unquoted tested the techniques used by
investments. We focused on the the Directors in determining
valuation and existence of the the fair value of unquoted investments,
unquoted investments as these as outlined below.
investments represented a material Our testing, performed on a sample
balance in the financial statements basis, included:
and the valuation requires significant - assessing the appropriateness
estimates and judgements to be of the valuation models used;
applied by the Directors and - testing the inputs either through
the Fund Manager. validation to appropriate third
party sources, or where relevant,
assessing the reasonableness
of estimates and judgements used;
- obtaining the latest Net Asset
Value reports and where relevant
tested distributions from and
contributions to unquoted fund
investments; and
- assess the ongoing impact of
geopolitical events on the valuation
of unquoted investments.
We found that the Directors'
valuations of unquoted investments
were materially consistent with
the IPEV guidelines and that
the assumptions used to derive
the valuations within the financial
statements were reasonable based
on the investee's circumstances
or consistent with appropriate
third party sources. No material
misstatements were identified
from this testing.
We tested the existence of the
unquoted investment portfolio
by agreeing holdings to an independently
obtained confirmation from the
custodian, Northern Trust, as
at 31 August 2023. No material
misstatements were identified
from this testing.
------------------------------------------
Valuation and existence of quoted investments
Refer to Note 1 - Accounting We tested the valuation of the
Policies and Note 10 - Investments quoted equity investments by
held at fair value through profit agreeing the prices used in the
and loss of the financial statements. valuation to independent third
The investment portfolio at the party sources.
year-end comprised quoted equity We tested the existence of the
investments. We focused on the quoted investment portfolio by
valuation and existence of quoted agreeing the holdings of quoted
investments because quoted investments investments to an independently
represent the principal element obtained confirmation from the
of the net asset value as disclosed custodian, Northern Trust, as
on the Balance Sheet. at 31 August 2023.
No material misstatements were
identified from this testing.
------------------------------------------
Income from and gains on investments
Refer to Note 1- Accounting Policies, We assessed and found that the
Note 2 - Gains on investments accounting policies implemented
held at fair value and Note 3 were in accordance with IFRS
- Income of the financial statements. and the AIC SORP, and that income
We focused on the accuracy, occurrence (revenue and capital gains and
and completeness of both net losses on investments) has been
capital gains/losses on investments accounted for in accordance with
and dividend income. We assessed the stated accounting policy.
the presentation of income in We understood and assessed the
the Statement of Comprehensive design and implementation of
Income in accordance with the key controls surrounding income
requirements of The Association recognition.
of Investment Companies' Statement Capital gains/losses on investments
of Recommended Practice (the held at fair value
"AIC SORP"). The gains/losses on investments
held at fair value comprise realised
and unrealised gains/losses.
For unrealised gains and losses,
we have tested the valuation
of the portfolio at the year-end,
together with testing the reconciliation
of opening and closing investments,
thereby we have assessed the
accuracy of the gains/losses
recorded. We have also verified
the occurrence of the gains/losses
through our testing of the existence
of investments, as noted above.
For realised gains/losses, we
tested a sample of disposal proceeds
by agreeing the proceeds to bank
statements, in order to verify
the occurrence of the gain/loss.
We re-performed the calculation
of a sample of realised gains/losses
in order to assess the accuracy
of the gains/losses recorded.
Income from investments held
at fair value through profit
or loss
We tested the accuracy of all
dividend receipts by agreeing
the dividend rates for investments
to independent market data.
To test for completeness, we
tested a sample of dividends
that had been received in the
year by reference to independent
data of dividends declared for
investments during the year.
We tested occurrence by testing
that all dividends recorded in
the year had been declared in
the market by investment holdings,
and we traced all of the dividends
received to bank statements.
We tested the allocation and
presentation of dividend income
between the revenue and capital
return columns of the Income
Statement in line with the requirements
set out in the AIC SORP by determining
reasons behind dividend distributions.
Based on the audit procedures
performed and evidence obtained,
we concluded that income from
and gains on investments was
not materially misstated.
------------------------------------------
Ability to continue as a going concern - Continuation Vote
Refer to Viability Statement Our audit procedures and findings
in the Strategic Review, the in respect of going concern are
Going Concern section in the set out in the "Conclusions relating
Directors' Report and the Audit to Going Concern' section below.
Committee Report.
A continuation vote is due to
take place at the next Annual
General Meeting in 2023, which,
if passed, will allow the Company
to continue as an investment
trust for a further two years.
As such, the Directors have considered
and assessed the potential impact
on the ability of the Company
to continue as a going concern.
------------------------------------------
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which it operates.
The Company is a standalone authorised, closed ended investment
Company that has outsourced the management and safekeeping of its
assets to the Fund Manager and the Custodian respectively. The
Company's accounting is delegated to the Administrator who
maintains the Company's accounting records and has implemented
controls over those accounting records. We applied professional
judgement to determine the extent of testing required over each
balance in the financial statements and obtained our audit evidence
which was substantive in nature from the Fund Manager and the
Administrator.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to
understand the extent of the potential impact of climate risk on
the Company's financial statements, and we remained alert when
performing our audit procedures for any indicators of the impact of
climate risk. Our procedures did not identify any material impact
as a result of climate risk on the Company's financial
statements.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall Company materiality GBP2,703,000 (2022: GBP2,800,000).
How we determined it Approximately 1% of net assets
------------------------------------
Rationale for benchmark applied We believe that net assets is
the primary measure used by the
shareholders in assessing the
performance of the entity, and
is a generally accepted auditing
benchmark. This benchmark provides
an appropriate and consistent
year on year basis for our audit.
------------------------------------
We use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to GBP2,027,000 (2022: GBP2,100,000)
for the Company financial statements.
In determining the performance materiality, we considered a
number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and
concluded that an amount at the upper end of our normal range was
appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP135,000 (2022:
GBP140,000) as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the Directors' assessment of the Company's
ability to continue to adopt the going concern basis of accounting
included:
-- evaluating the Directors' updated risk assessment and
considering whether it addressed relevant threats, including market
volatility cause by geopolitical events and wider macroeconomic
uncertainty;
-- obtaining evidence to support the key assumptions and
forecasts driving the Directors' assessment. This included
reviewing the Directors' assessment of the Company's financial
position and forecasts, their assessment of liquidity and loan
covenant compliance as well as their review of the operational
resilience of the Company and oversight of key third party service
providers;
-- assessing the performance of the Company when compared to its
stated performance comparator;
-- assessing the premium/discount the Company's share price
trades at compared to its net asset value per share; and
-- challenging the Directors' assessment of going concern in
relation to the passing of the continuation vote and obtaining
audit evidence which supports their conclusion.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are
authorised for issue.
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Company's
ability to continue as a going concern.
In relation to the Directors' reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors' statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the
Annual Report other than the financial statements and our auditors'
report thereon. The Directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic report and Directors' Report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors' Report
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Strategic report and
Directors' Report for the year ended 31 August 2023 is consistent
with the financial statements and has been prepared in accordance
with applicable legal requirements.
In light of the knowledge and understanding of the Company and
its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and
Directors' Report.
Directors' Remuneration
In our opinion, the part of the Report on Directors'
Remuneration to be audited has been properly prepared in accordance
with the Companies Act 2006.
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the Directors' statements
in relation to going concern, longer-term viability and that part
of the corporate governance statement relating to the Company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other information
are described in the Reporting on other information section of this
report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit, and we have
nothing material to add or draw attention to in relation to:
-- The Directors' confirmation that they have carried out a
robust assessment of the emerging and principal risks;
-- The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or
mitigated;
-- The Directors' statement in the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of
any material uncertainties to the Company's ability to continue to
do so over a period of at least twelve months from the date of
approval of the financial statements;
-- The Directors' explanation as to their assessment of the
Company's prospects, the period this assessment covers and why the
period is appropriate; and
-- The Directors' statement as to whether they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Our review of the Directors' statement regarding the longer-term
viability of the Company was substantially less in scope than an
audit and only consisted of making inquiries and considering the
Directors' process supporting their statement; checking that the
statement is in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the statement is
consistent with the financial statements and our knowledge and
understanding of the Company and its environment obtained in the
course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the
audit:
-- The Directors' statement that they consider the Annual
Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the
Company's position, performance, business model and strategy;
-- The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems;
and
-- The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to
report when the Directors' statement relating to the Company's
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the Directors for the financial
statements
As explained more fully in the Statement of Directors'
responsibilities in respect of the Financial Statements, the
Directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for
being satisfied that they give a true and fair view. The Directors
are also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors' report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud, is detailed below.
Based on our understanding of the Company and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to breaches of section 1158 of the Corporation
Tax Act 2010, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on
the financial statements such as the Companies Act 2006. We
evaluated management's incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of
override of controls), and determined that the principal risks were
related to posting inappropriate journal entries to increase
revenue (investment income and capital gains) or to increase net
asset value and management bias in accounting estimates. Audit
procedures performed by the engagement team included:
-- enquiries with Fund Manager and the Audit Committee,
including consideration of known or suspected instances of
non-compliance with laws and regulation and fraud where
applicable;
-- reviewing relevant committee meeting minutes, including those
of the Board and Audit Committee;
-- assessment of the Company's compliance with the requirements
of section 1158 of the Corporation Tax Act 2010, including
recalculation of numerical aspects of the eligibility
conditions;
-- challenging assumptions and judgements made by management in
their significant accounting estimates, in particular in relation
to the valuation of unquoted investments (see related key audit
matter);
-- identifying and testing journal entries, in particular a
sample of manual year end journal entries posted during the
preparation of the financial statements; and
-- designing audit procedures to incorporate unpredictability
around the nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other
cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and
only for the Company's members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- we have not obtained all the information and explanations we
require for our audit; or
-- adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- certain disclosures of Directors' remuneration specified by
law are not made; or
-- the financial statements and the part of the Report on
Directors' Remuneration to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Appointment
Following the recommendation of the Audit Committee, we were
appointed by the Directors on 12 July 2007 to audit the financial
statements for the year ended 31 August 2007 and subsequent
financial periods. The period of total uninterrupted engagement is
17 years, covering the years ended 31 August 2007 to 31 August
2023.
Colleen Local (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 November 2023
STATEMENT OF COMPREHENSIVE INCOME
For the For the For the For the For the For the
year ended year year year year year
31 August ended ended ended ended ended
2023 31 August 31 August 31 August 31 August 31 August
2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
------ ------------ ----------- ----------- ----------- ----------- -----------
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------ ------------ ----------- ----------- ----------- ----------- -----------
Gains/(losses)
on investments
held at fair
value 2 - 9,606 9,606 - (14,696) (14,696)
------ ------------ ----------- ----------- ----------- ----------- -----------
Exchange
gains/(losses)
on currency
balances - 1,591 1,591 - (4,378) (4,378)
------ ------------ ----------- ----------- ----------- ----------- -----------
Income 3 863 - 863 1,113 - 1,113
------ ------------ ----------- ----------- ----------- ----------- -----------
Expenses
------ ------------ ----------- ----------- ----------- ----------- -----------
Management
fee 4 (1,810) - (1,810) (2,009) - (2,009)
------ ------------ ----------- ----------- ----------- ----------- -----------
Performance
fee 4 - (514) (514) - (471) (471)
------ ------------ ----------- ----------- ----------- ----------- -----------
Administrative
expenses 5 (1,559) - (1,559) (1,218) - (1,218)
------ ------------ ----------- ----------- ----------- ----------- -----------
Profit/(loss)
before finance
costs and
tax (2,506) 10,683 8,177 (2,114) (19,545) (21,659)
------ ------------ ----------- ----------- ----------- ----------- -----------
Finance costs
------ ------------ ----------- ----------- ----------- ----------- -----------
Interest
payable 6 (1,242) - (1,242) (663) - (663)
------ ------------ ----------- ----------- ----------- ----------- -----------
Profit/(loss)
before tax (3,748) 10,683 6,935 (2,777) (19,545) (22,322)
------ ------------ ----------- ----------- ----------- ----------- -----------
Taxation 7 (122) - (122) (151) - (151)
------ ------------ ----------- ----------- ----------- ----------- -----------
Profit/(loss)
for the year
attributable
to shareholders (3,870) 10,683 6,813 (2,928) (19,545) (22,473)
------ ------------ ----------- ----------- ----------- ----------- -----------
Basic and
diluted earnings/(loss)
per Ordinary
share 8 (9.53)p 26.32p 16.79p (7.13)p (47.59)p (54.72)p
------ ------------ ----------- ----------- ----------- ----------- -----------
All revenue and capital items in the above statement derive from
continuing operations. The total column of this statement
represents the Company's Statement of Comprehensive Income,
prepared in accordance with IFRSs.
The Company does not have any other comprehensive income and
hence the net loss for the year, as disclosed above, is the same as
the Company's total comprehensive income.
The revenue and capital columns are supplementary and are
prepared under guidance published by the AIC.
The notes on pages 72 to 99 form part of these Financial
Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 August 2023
Called Share Capital Capital Revenue Total
up share premium redemption reserves reserve
capital account reserve
------ ---------- --------- ------------ ---------- --------- ---------
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------ ---------- --------- ------------ ---------- --------- ---------
Balance at
1 September
2022 10,346 29,873 31,482 259,849 (46,661) 284,889
------ ---------- --------- ------------ ---------- --------- ---------
Total Comprehensive
Income:
------ ---------- --------- ------------ ---------- --------- ---------
Profit for
the year - - - 10,683 (3,870) 6,813
------ ---------- --------- ------------ ---------- --------- ---------
Transactions
with owners,
recorded directly
to equity:
------ ---------- --------- ------------ ---------- --------- ---------
Dividends
paid in the
year 9 - - - (11,407) - (11,407)
------ ---------- --------- ------------ ---------- --------- ---------
Ordinary shares
bought back
into Treasury - - - (9,978) - (9,978)
------ ---------- --------- ------------ ---------- --------- ---------
Balance at
31 August
2023 10,346 29,873 31,482 249,147 (50,531) 270,317
------ ---------- --------- ------------ ---------- --------- ---------
For the year ended 31 August 2023
Called Share Capital Capital Revenue Total
up share premium redemption reserves reserve
capital account reserve
------ ---------- --------- ------------ ---------- --------- ---------
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------ ---------- --------- ------------ ---------- --------- ---------
Balance at
1 September
2021 10,346 29,873 31,482 295,807 (43,733) 323,775
------ ---------- --------- ------------ ---------- --------- ---------
Total Comprehensive
Income:
------ ---------- --------- ------------ ---------- --------- ---------
Loss for the
year - - - (19,545) (2,928) (22,473)
------ ---------- --------- ------------ ---------- --------- ---------
Transactions
with owners,
recorded directly
to equity:
------ ---------- --------- ------------ ---------- --------- ---------
Dividends
paid in the
year 9 - - - (12,879) - (12,879)
------ ---------- --------- ------------ ---------- --------- ---------
Ordinary shares
issued from
Treasury - - - (3,534) - (3,534)
------ ---------- --------- ------------ ---------- --------- ---------
Balance at
31 August
2022 10,346 29,873 31,482 259,849 (46,661) 284,889
------ ---------- --------- ------------ ---------- --------- ---------
The notes on pages 72 to 99 form part of these Financial
Statements.
BALANCE SHEET
At 31 August At 31 August
2023 2022
Notes GBP'000 GBP'000
------ ------------- -------------
Non-current assets
------ ------------- -------------
Investments held
at fair value
through profit
or loss 10 301,904 313,429
------ ------------- -------------
301,904 313,429
------ ------------- -------------
Current assets
------ ------------- -------------
Receivables 11 2,967 13,487
------ ------------- -------------
2,967 13,487
------ ------------- -------------
Total assets 304,871 326,916
------ ------------- -------------
Current liabilities
------ ------------- -------------
Borrowings 12 (32,474) (39,976)
------ ------------- -------------
Payables 13 (2,080) (2,051)
------ ------------- -------------
(34,554) (42,027)
------ ------------- -------------
Net assets 270,317 284,889
------ ------------- -------------
Equity attributable
to equity holders
------ ------------- -------------
Called up share
capital 15 10,346 10,346
------ ------------- -------------
Share premium
account 16 29,873 29,873
------ ------------- -------------
Capital redemption
reserve 17 31,482 31,482
------ ------------- -------------
Capital reserves 18 249,147 259,849
------ ------------- -------------
Revenue reserve 19 (50,531) (46,661)
------ ------------- -------------
Total equity 270,317 284,889
------ ------------- -------------
NAV per Ordinary
share 20 687.51p 697.18p
------ ------------- -------------
The Financial Statements on pages 68 to 71 were approved by the
Board on 6 November 2023 and signed on its behalf by:
KATE CORNISH-BOWDEN | Chair
CAROLINE GULLIVER | Chair of the Audit Committee
The notes on pages 72 to 99 form part of these Financial
Statements.
International Biotechnology Trust plc
Company Number 2892872
CASH FLOW STATEMENT
For the year For the year
ended ended
31 August 2023 31 August 2022
------ --------------- ---------------
Notes GBP'000 GBP'000
------ --------------- ---------------
Cash flows from
operating activities
------ --------------- ---------------
Profit/(loss)
before tax 6,935 (22,322)
------ --------------- ---------------
Adjustments for:
------ --------------- ---------------
Decrease in investments 21,006 19,009
------ --------------- ---------------
(Gains)/losses
on foreign exchange (1,588) 4,375
------ --------------- ---------------
Increase in receivables (25) (33)
------ --------------- ---------------
Increase in payables 1,082 261
------ --------------- ---------------
Taxation (111) (166)
------ --------------- ---------------
Net cash flows
generated from
operating activities 21 27,299 1,124
------ --------------- ---------------
Cash flows from
financing activities
------ --------------- ---------------
Buyback of Ordinary
shares into Treasury (9,978) (3,534)
------ --------------- ---------------
Dividends paid 9 (11,407) (12,879)
------ --------------- ---------------
Net cash used
in financing
activities (21,385) (16,413)
------ --------------- ---------------
Effect of foreign
exchange rates 1,588 (4,375)
------ --------------- ---------------
Net increase/(decrease)
in cash and cash
equivalents 7,502 (19,664)
------ --------------- ---------------
Cash and cash
equivalents at
1 September (39,976) (20,312)
------ --------------- ---------------
Cash and cash
equivalents at
31 August 12 (32,474) (39,976)
------ --------------- ---------------
The notes on pages 72 to 99 form part of these Financial
Statements.
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The nature of the Company's operations and its principal
activities are set out in the Strategic Report and Director's
Report.
The Company's Financial Statements have been prepared in
accordance with IFRS and those parts of the Companies Act 2006 (the
Act) applicable to companies reporting under IFRS. These comprise
standards and interpretations approved by the International
Accounting Standards Board (IASB) and International Accounting
Standards Committee (IASC), in conformity with the requirements of
the Companies Act 2006.
For the purposes of the Financial Statements, the results and
financial position of the Company are expressed in pounds sterling,
which is the functional currency and the presentational currency of
the Company. Sterling is the functional currency because it is the
currency which is most relevant to the majority of the Company's
shareholders and creditors and the currency in which the majority
of the Company's operating expenses are paid. All values are
rounded to the nearest thousand pound (GBP'000) except where
otherwise indicated.
The principal accounting policies followed, which have been
applied consistently for all years presented, are set out
below:
(a) Basis of preparation
The Company Financial Statements have been prepared on a going
concern basis (as set out on page 42) and under the historical cost
convention, as modified by the inclusion of investments at fair
value through profit or loss.
Where presentational guidance set out in the Statement of
Recommended Practice (the SORP) for investment trusts issued by The
Association of Investment Companies (the AIC) in November 2014 (and
updated in July 2022) is consistent with the requirements of IFRS,
the Directors have sought to prepare the Financial Statements on a
basis compliant with the recommendations of the SORP.
The financial position of the Company as at 31 August 2023 is
shown in the balance sheet on page 70. As at 31 August 2023 the
Company's total assets exceeded its total liabilities by a multiple
of over eight. The assets of the Company consist mainly of
securities that are held in accordance with the Company's
Investment Policy, as set out on page 26. The Directors have
considered a detailed assessment of the Company's ability to meets
its liabilities as they fall due. The assessment took account of
the Company's current financial position, its cash flows and its
liquidity position. In addition to the assessment the Company
carried out stress testing, which used a variety of falling
parameters to demonstrate the effects in the Company's share prices
and NAV. In light of the results of these tests, the Company's cash
balances, and the liquidity position, the Directors consider that
the Company has adequate financial resources to enable it to
continue in operational existence. The Directors expect
shareholders to vote in favour of continuation at the 2023 AGM.
Accordingly, the Directors believe that it is appropriate to
continue to adopt the going concern basis in preparing the
Company's accounts.
(b) Presentation of Statement of Comprehensive Income
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive
Income.
The net loss after taxation in the revenue column is the measure
the Directors believe appropriate in assessing the Company's
compliance with certain requirements set out in Section 1158
CTA.
(c) Income
Dividends receivable on equity shares are recognised as revenue
for the year on an ex-dividend basis. Special dividends are treated
as revenue return or as capital return, depending on the facts of
each individual case. Income from current asset investments is
included in the revenue for the year on an accruals basis and is
recognised on a time apportionment basis. Where the Company has
elected to receive its dividends in the form of additional shares
rather than cash, the amount of cash dividend foregone is
recognised as income in the revenue column of the Statement of
Comprehensive Income. Any excess in the value of shares over the
amount of cash dividend foregone is recognised as a gain in the
capital column of the Statement of Comprehensive Income.
Interest from fixed income securities is recognised on a time
apportionment basis so as to reflect the effective yield on the
fixed income securities.
Deposit interest outstanding at the year end is calculated and
accrued on a time apportionment basis using market rates of
interest.
(d) Expenses and interest payable
Administrative expenses including the management fee and
interest payable are accounted for on an accruals basis and are
recognised when they fall due.
All expenses and interest payable have been presented as revenue
items except as follows:
-- Any performance fee payable is allocated wholly to capital,
as it is primarily attributable to the capital performance of the
Company's assets.
-- Transaction costs incurred on the acquisition or disposal of
investments are expensed and included in the costs of acquisition
or deducted from the proceeds of sale as appropriate.
(e) Taxation
Deferred tax is calculated in full, using the liability method,
on all taxable and deductible temporary differences at the Balance
Sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. Deferred
tax assets and liabilities are measured at the tax rates that are
expected to apply to the period when the asset is realised or the
liability settled, based on tax rates and tax laws that have been
enacted or substantively enacted at the Balance Sheet date.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available against
which the deductible temporary differences can be utilised.
In line with recommendations of the SORP, the allocation method
used to calculate tax relief on expenses presented in the capital
column of the Statement of Comprehensive Income is the marginal
basis. Under this basis, if taxable income is capable of being
offset entirely by expenses presented in the revenue column of the
Statement of Comprehensive Income, then no tax relief is
transferred to the capital column.
(f) Non-current asset investments held at fair value
The Company holds three types of investments: direct investments
in quoted companies, direct investments in unquoted companies and
investments in funds.
Investments are recognised or derecognised on the trade date
where a purchase or sale of an investment is under a contract whose
terms require delivery of the investment within the timeframe
established by the market concerned.
On initial recognition all non-current asset investments are
designated as held at fair value through profit or loss as defined
by IFRS. They are further categorised into the following fair value
hierarchy:
-- Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
-- Level 2: Having inputs other than quoted prices included
within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
--------------------------------------------------
-- Level 3: Having inputs for the asset or liability that are
not based on observable market data.
--------------------------------------------------
All non-current investments (including those over which the
Company has significant influence) are measured at fair value with
gains and losses arising from changes in their fair value being
included in net profit or loss for the year as a capital item.
Any gains and losses realised on disposal are recognised in the
capital column of the Statement of Comprehensive Income.
Quoted investments
The fair value for quoted investments is either the bid price or
the last traded price, depending on the convention of the exchange
on which the investment is quoted.
Unquoted Investments
In respect of unquoted investments, or where the market for a
financial instrument is not active, fair value is established by
using various valuation techniques, in accordance with the
International Private Equity and Venture Capital (IPEVC) Valuation
Guidelines (December 2018) and Special Valuations Guidance (March
2020). These may include reference to recent rounds of re-financing
undertaken by investee companies involving knowledgeable parties,
an earnings or multiple, a discounted cashflow model or the present
value of future milestone payments, all with reference to recent
arm's length market transactions between knowledgeable parties,
where available.
The valuations of the unquoted investments are assessed to
ensure that the fair value is fairly reflected and will be revalued
accordingly driven by the underlying assumptions deriving the
value, including: the ability of portfolio company management to
keep cash and operating budgets; investor milestone targets;
clinical trial data; progress of competitor products; performance
of the investment and quality of the management team; the market
for the product being developed; and the broad climate of the
economies of the countries in which they will likely be sold by
reference to public stock market performance.
Investment in Funds
The Company receives formal quarterly reports from each of the
private equity funds in which SV Fund VI and SV BCOF (SV unquoted
funds) hold an investment. The value of SV unquoted funds'
investment in these funds is reported in these quarterly reports.
The reports typically arrive within 60 days of the end of the
quarter (90 days at calendar year end). As soon as a quarterly
report is received by the Company, the reported value of the SV
unquoted funds' investment in that fund is reflected in the NAV on
the next NAV date.
During the period between quarterly reports, the Company may be
advised of a sale of a portfolio company (or its securities) held
within one of the funds at a different price from the last reported
value in that quarterly report. As soon as the Company is informed
of the completion of any such transaction establishing a new value
for the investment, the new NAV of that investment to SV unquoted
funds is reflected in the NAV on the next NAV date. With respect to
any investments within SV unquoted funds for which there is a
listed price, the Company revalues its investment in SV unquoted
funds to take account of market movements in the underlying
security. The listed price of these underlying securities is
monitored on a daily basis. Any price move in SV unquoted funds'
underlying investments that materially impacts the Company's
holding in SV unquoted funds is immediately reflected in the NAV on
the next NAV date. If there are no material movements, these
underlying securities are revalued on a monthly basis and
immediately reflected in the NAV on the next NAV date.
The value of a fund investment used by the Company in
determining the NAV is always based on the most current information
known to the Company on the NAV date.
(g) Foreign currencies
Transactions involving currencies other than sterling are
recorded at the exchange rate ruling on the transaction date.
At each Balance Sheet date, monetary items and non-monetary
assets and liabilities that are fair valued, which are denominated
in foreign currencies, are retranslated at the closing rates of
exchange. Foreign currency exchange differences arising on
translation are recognised in the Statement of Comprehensive
Income. Exchange gains and losses on investments held at fair value
through profit or loss are included within "Gains/(losses) on
investments held at fair value".
(h) Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with IFRS
requires the use of estimates and judgements. These estimates and
judgements affect the reported amounts of assets and liabilities at
the reporting date. While estimates are based on best judgement
using information and financial data available, the actual outcome
may differ from these estimates. The key sources of estimation and
uncertainty relate to the fair valuation of the unquoted
investments.
Judgements
The Directors consider that the preparation of the Financial
Statements involves the following key judgements:
(i) The fair value of the unquoted investments.
The key judgements in the fair valuation process are:
(i) The Investment Managers' determination of the appropriate
application of the IPEVC Valuation Guidelines (December 2018) and
Special Valuations Guidance (March 2020) to each unquoted
investment;
(ii) The Directors' consideration of whether each fair value is
appropriate following detailed review and challenge. The judgement
applied in the selection of the methodology used for determining
the fair value of each unquoted investment can have a significant
impact upon the valuation; and
(iii) The selection of appropriate comparable companies in order
to derive revenue multiples and meaningful relationships between
enterprise value, revenue and earnings growth. Comparable companies
are chosen on the basis of their business characteristics, such as
the industry sector in which they operate and the geographic
location of the company's operations, and revenue earnings and
growth rates.
Estimates
The key estimate in the Financial Statements is the
determination of the fair value of the unquoted investments by the
Fund Manager for consideration by the Directors. This estimate is
key as it significantly impacts the valuation of the unquoted
investments at the Balance Sheet date. The fair valuation process
involves estimation using subjective inputs that are unobservable
(for which market data is unavailable).
The main estimates involved in the selection of the valuation
process inputs are:
(i) The application of an appropriate discount factor to reflect
macro-economic factors and the reduced liquidity of unquoted
companies;
(ii) The selection of an appropriate estimate of the probability
of royalty income reflecting potential commercial uptake risk,
competitor risk and uncertainty around drug pricing; and
(iii) The calculation of valuation adjustments derived from
milestone achievement analysis incorporating the likelihood of
clinical trial success.
Fair value estimates are cross-checked to alternative estimation
methods where possible to improve the robustness of the estimate.
As the valuation outcomes may differ from the fair value estimates
a price sensitivity analysis is provided in Level 3 investments at
fair value through profit and loss - price risk sensitivity in note
23.7(iii) on page 96 to illustrate the effect on the Financial
Statements of an over or under estimation of the significant
observable inputs.
(i) Cash and cash equivalents
In the Cash Flow Statement, cash and cash equivalents includes
cash in hand, short-term deposits and bank overdrafts. These are
held for the purpose of meeting short-term cash commitments rather
than for investment or other purpose and cash balances are held at
their fair value (translated to sterling at the Balance Sheet date
where appropriate).
(j) Receivables
Other receivables do not carry any right to interest and are
short term in nature. Accordingly, they are stated at their nominal
value (amortised cost) reduced by appropriate allowances for
estimated irrecoverable amounts.
(k) Other payables
Other payables are not interest-bearing and are stated at their
nominal amount (amortised cost). Where there are any long-term
borrowings, finance costs are calculated over the term of the debt
on the effective interest basis.
(l) Repurchase of Ordinary shares (including those held in
Treasury) and subsequent re-issues
The costs of repurchasing Ordinary shares including related
stamp duty and transaction costs are taken directly to equity and
reported through the Statement of Changes in Equity as a charge on
the capital reserves.
The sales proceeds of Treasury shares re-issued are treated as a
realised profit up to the amount of the purchase price of those
shares and is transferred to capital reserves. The excess of the
sales proceeds over the purchase price is transferred to the share
premium account.
Share purchase transactions are accounted for on a trade date
basis. The nominal value of Ordinary share capital repurchased and
cancelled is transferred out of called up share capital and into
the capital redemption reserve. Where shares are repurchased and
held in Treasury, the transfer to capital redemption reserve is
made if and when such shares are subsequently cancelled.
(m) Dividend distributions
Dividend distributions to shareholders are recognised in the
period in which they are paid.
(n) Reserves
(i) Capital redemption reserve:
The capital redemption reserve, which is non-distributable,
holds the amount by which the nominal value of the Company's issued
share capital is diminished when shares redeemed or purchased out
of the Company's distributable reserves are subsequently
cancelled.
(ii) Share premium account:
A non-distributable reserve, represents the amount by which the
fair value of the consideration received exceeds the nominal value
of shares issued.
(iii) Capital reserves:
When making a distribution to shareholders, the Directors
determine profits available for distribution by reference to
'Guidance on realised and distributable profits under the Companies
Act 2006' issued by the Institute of Chartered accountants in
England and Wales and the Institute of Chartered Accounts of
Scotland in April 2017. The availability of distributable reserves
in the Company is dependent on those dividends meeting the
definition of qualifying consideration within the guidance and on
available cash resources of the company and other accessible source
of funds. The distributable reserves are therefore subject to any
future restrictions or limitations at the time such distribution is
made.
The following are accounted for in this reserve and are
distributable:
-- Gains and losses on the realisation of investments;
-- Unrealised investment holding gains and losses;
-- Foreign exchange gains and losses;
-- Performance fee;
-- Re-issue of Ordinary shares from Treasury;
-- Repurchase of Ordinary shares in issue; and
-- Dividends paid to shareholders.
Note: Unrealised unquoted holding gains are not
distributable.
(iv) Revenue reserve:
Comprises accumulated undistributed revenue profits and
losses.
(o) New and revised Accounting Standards
(i) The following standards became effective for periods
commencing on or after on 1 January 2022 and the adoption of the
standards and interpretations have not had a material impact on the
Financial Statements of the Company.
IFRS 3 - Reference to the conceptual framework
Minor amendments were made to IFRS 3 business combinations to
update the references to the conceptual framework for financial
reporting and to add an exception for the recognition of
liabilities and contingent liabilities within the scope of IAS 37
provisions, contingent liabilities and contingent assets and
interpretation 21 levies. The amendments also confirm that
contingent assets should not be recognised at the acquisition
date.
IAS 37 Onerous Contracts - Costs of Fulfilling a Contract
(amended)
Amendments to clarify that the direct costs of fulfilling a
contract include both the incremental costs of fulfilling the
contract and an allocation of other costs directly related to
fulfilling contracts. Before recognising a separate provision for
an onerous contract, the entity recognises any impairment loss that
has occurred on assets used in fulfilling the contract.
(ii) Annual improvements to IFRS Standards 2018-2022
The following improvements were finalised in May 2020:
IFRS 9 Financial Instruments - clarifies which fees should be
included in the 10% test for derecognition of financial
liabilities.
IFRS 16 Leases - amendment of illustrative example 13 to remove
the illustration of payments from the lessor relating to leasehold
improvements, to remove any confusion about the treatment of lease
incentives.
IFRS 1 First-time adoption of International Financial Reporting
Standards - allows entities that have measured their assets and
liabilities at carrying amounts recorded in amounts reported by the
parent. This amendment will also apply to associated and joint
ventures that have taken the same IFRS 1 exemption.
(iii) IFRS IC agenda decisions issued in the last 12 months
As at December 2022, the following agenda decisions were issued
that may be relevant for the preparation of annual reports in 2022.
The date issued refers to the date of the relevant IFRIC
update.
IFRS 9: Third programme of targeted longer-term refinancing
operations (TLTRO III) Transactions (issued February 2022).
IAS 7: Demand deposits with restrictions on use arising from a
contract with a third party (issued March 2022).
IAS 32: Special purpose acquisition companies (SPAC):
Classification of public shares as financial liabilities (issued
June 2022).
IFRS 17 and IAS 21: Multi-currency groups of insurance contracts
(issued September 2022).
Special purpose acquisition companies (SPAC): Accounting for
warrants at acquisition (issued September 2022).
IFRS 9 and IFRS 16: Lessor forgiveness of lease payments (issued
September 2022).
(iv) The following standards that have not yet been applied,
were in issue at the date of authorisation of these financial
statements and are effective for periods commencing on or after 1
January 2023:
IAS 1 Classification of Liabilities as Current or Non-Current
(amended)
Amendments to clarify that liabilities are classified as either
current or non-current, depending on the rights that exist at the
end of the reporting period. Classification is unaffected by the
expectations of the entity or events after the reporting date (e.g.
the receipt of a waver or a breach of covenant). The amendments
also clarify what IAS 1 means when it refers to the 'settlement' of
a liability.
IAS 8 Definition of Accounting Estimates (amended)
Amendments to clarify the distinction between changes in
accounting estimates and changes in accounting policies and the
correction of errors. Also, to clarify how companies use
measurement techniques and inputs to develop accounting
estimates.
IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting
Policies (amended)
Amendments to require entities to disclose their material rather
than their significant accounting policies. The amendments define
what is 'material accounting policy information' and explain how to
identify when accounting policy information is material. They
further clarify that immaterial accounting policy information does
not need to be disclosed. If it is disclosed, it should not obscure
material accounting information.
The Company does not believe that there will be a material
impact on the financial statements or the amounts reported from the
adoption of these standards.
2. GAINS/(LOSSES) ON INVESTMENTS HELD AT FAIR VALUE
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Net gains on disposal
of investments at historic
cost 13,719 24,495
------------------- -------------------
Fair value adjustments
in earlier years 35,163 (3,465)
------------------- -------------------
Gains based on carrying
value at previous Balance
Sheet date 48,882 21,030
------------------- -------------------
Investment holding
losses during the year (39,276) (35,726)
------------------- -------------------
9,606 (14,696)
------------------- -------------------
Gains/(losses) attributable
to:
------------------- -------------------
Quoted investments 7,743 (16,726)
------------------- -------------------
Unquoted investments 1,863 2,030
------------------- -------------------
9,606 (14,696)
------------------- -------------------
3. INCOME
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Income from investments
held at fair value
through profit or loss:
------------------- -------------------
Unfranked dividends 22 1,113
------------------- -------------------
Franked dividends 818 -
------------------- -------------------
840 1,113
------------------- -------------------
Other income:
------------------- -------------------
Bank interest 23 -
------------------- -------------------
863 1,113
------------------- -------------------
4. MANAGEMENT AND PERFORMANCE FEES
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Fees payable to the
Fund Manager are as
follows:
------------------- -------------------
Management fees paid
by Company (allocated
to revenue) 1,810 2,009
------------------- -------------------
Performance fee (allocated
to capital) 514 471
------------------- -------------------
Details of the management and performance fee arrangements are
included in the Directors' Report on page 41.
Following the investment into the SV Fund VI and SV BCOF (SV
unquoted funds), management fees are partially paid through the
venture capital investments. Venture Capital fees paid through the
investment in SV unquoted funds in the year were GBP791,000 (2022:
GBP623,000). Total Management fees on a comparative basis were
GBP2,601,000 (2022: GBP2,632,000). Refer to note 22 Related Party
Transactions on page 86, for further details.
5. ADMINISTRATIVE EXPENSES
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
General expenses 1,086 743
------------------- -------------------
Directors' fees* 162 161
------------------- -------------------
Company Secretarial
and administration
fees 235 249
------------------- -------------------
Auditors' remuneration:
------------------- -------------------
Fees payable to the
Company's Auditor for
the audit
------------------- -------------------
of the annual Financial
Statements 76 65
------------------- -------------------
1,559 1,218
------------------- -------------------
* See the Directors' Remuneration Report on pages 49 to 52.
6. INTEREST PAYABLE
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Loan interest payable 1,242 663
------------------- -------------------
7. TAXATION
(a) Analysis of charge in year
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Overseas tax 122 151
------------------- -------------------
Total tax charge for
the year 122 151
------------------- -------------------
(b) Factors affecting tax charge for the year
The tax assessed for the year is lower than that resulting from
applying the standard rate of Corporation Tax applicable in the UK
for a medium or large company of 21.5% (2022: 19%). The differences
are explained below:
For the For the For the For the For the For the
year ended year ended year ended year ended year ended year ended
31 August 31 August 31 August 31 August 31 August 31 August
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
------------ ------------ ------------ ------------ ------------ ------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ------------ ------------ ------------ ------------ ------------
Factors
affecting
tax charge
for the
year:
------------ ------------ ------------ ------------ ------------ ------------
Profit/(loss)
before taxation (3,748) 10,683 6,935 (2,777) (19,545) (22,322)
------------ ------------ ------------ ------------ ------------ ------------
Tax at the
applicable
UK corporation
tax rate
of 21.5%
(2022:19%) (806) 2,297 1,491 (528) (3,714) (4,242)
------------ ------------ ------------ ------------ ------------ ------------
Tax effect
of:
------------ ------------ ------------ ------------ ------------ ------------
Non-taxable
dividend
income (186) - (186) (211) - (211)
------------ ------------ ------------ ------------ ------------ ------------
Tax exempt
capital
returns
on investments - (2,065) (2,065) - 2,792 2,792
------------ ------------ ------------ ------------ ------------ ------------
Non taxable
exchange
(gains)/losses - (342) (342) - 832 832
------------ ------------ ------------ ------------ ------------ ------------
Non taxable
expenses
not utillised
in the year 992 110 1,102 739 90 829
------------ ------------ ------------ ------------ ------------ ------------
Overseas
tax 122 - 122 151 - 151
------------ ------------ ------------ ------------ ------------ ------------
Total tax
charge for
the year 122 - 122 151 - 151
------------ ------------ ------------ ------------ ------------ ------------
(c) Provision for deferred taxation
No provision for deferred tax has been made in the current or
prior year.
(d) Factors that may affect future tax charges
The Company has a potential deferred tax asset of GBP18,937,000
(2022: GBP18,746,000) based on a main rate of corporation tax of
25% (2022: 19%). Starting 1 April 2023, corporation tax increased
from 19% to 25%.
The deferred tax asset has arisen due to the cumulative excess
of deductible expenses over taxable income. Given the composition
of the Company's portfolio, it is not likely that this asset will
be utilised in the foreseeable future and therefore no asset has
been recognised in the Financial Statements.
Given the Company's status as an investment trust company, no
provision has been made for deferred tax on any capital gains or
losses arising on the revaluation or disposal of investments.
8. BASIC AND DILUTED EARNINGS/(LOSS) PER ORDINARY SHARE
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Net revenue loss (3,870) (2,928)
------------------- -------------------
Net capital profit/(loss) 10,683 (19,545)
------------------- -------------------
Earnings/(losses) 6,813 (22,473)
------------------- -------------------
Weighted average number
of Ordinary shares
in issue during the
year* 40,583,458 41,072,164
Pence Pence
Revenue loss per Ordinary
share (9.53) (7.13)
------- --------
Capital profit/(loss)
per Ordinary share 26.32 (47.59)
------- --------
Total earnings/(losses)
per Ordinary share 16.79 (54.72)
------- --------
*Excluding those Ordinary shares held in Treasury.
9. DIVIDS
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Dividends paid
------------------- -------------------
2023 First interim
dividend paid of 14.00p
(2022: 15.70p) 5,707 6,464
------------------- -------------------
2023 Second interim
dividend paid of 14.20p
(2022: 15.70p) 5,700 6,415
------------------- -------------------
Total dividends paid
in the year 11,407 12,879
------------------- -------------------
Dividends are included in the Financial Statements in the year
in which they are paid.
The Company is not required to pay a dividend under the
requirements of Section 1158 of the CTA due to the negative
accumulated balance on its revenue reserve. The above dividends are
paid out of the capital reserve.
10. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
(a) Analysis of investments
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Quoted overseas 276,642 285,471
------------------ ------------------
276,642 285,471
------------------ ------------------
Unquoted in the United
Kingdom 5,630 3,752
------------------ ------------------
Unquoted overseas 19,632 24,206
------------------ ------------------
25,262 27,958
------------------ ------------------
Valuation of investments 301,904 313,429
------------------ ------------------
(b) Movements on investments
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Opening book cost 318,702 311,419
------------------- -------------------
Opening investment
holdings (losses)/gains (5,273) 33,917
------------------- -------------------
Opening fair value 313,429 345,336
------------------- -------------------
Analysis of transactions
made during the year
------------------- -------------------
Purchases at cost 335,996 396,544
------------------- -------------------
Proceeds of disposals (357,127) (413,755)
------------------- -------------------
Gains/(losses) on investments
held at fair value 9,606 (14,696)
------------------- -------------------
Closing fair value 301,904 313,429
------------------- -------------------
Closing book cost 311,290 318,702
------------------- -------------------
Closing investment
holding losses (9,386) (5,273)
------------------- -------------------
Closing fair value 301,904 313,429
------------------- -------------------
The Company received GBP357,127,000 (2022: GBP413,755,000) from
disposal of investments in the year. The book cost of these
investments when they were purchased were GBP343,408,000 (2022:
GBP389,261,000). These investments have been revalued over time and
until they were sold any unrealised gains/losses were included in
the fair value of the investments.
The investment holding losses of GBP9,386,000 (2022: losses of
GBP5,273,000) have not been further analysed between those amounts
that are distributable and those that are not distributable.
The following transaction costs, including stamp duty and broker
commissions were incurred during the year:
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
On acquisitions 104 224
------------------- -------------------
On disposals 112 220
------------------- -------------------
216 444
------------------- -------------------
(c) Significant undertakings
The Company has interests of 3% or more of any class of capital
in the following investee companies:
Class of share % of class of Country of incorporation
held share held
Archemix Series B 3.80% US
--------------- -------------- -------------------------
Karus Therapeutics Series B Pref 3.25% UK
--------------- -------------- -------------------------
Oxagen Stocks* Series B Pref 25.89% UK
--------------- -------------- -------------------------
Oxagen Stocks* Series A Pref 11.55% UK
--------------- -------------- -------------------------
Oxagen Stocks* Series C Pref 11.60% UK
--------------- -------------- -------------------------
Topivert* Series A 12.01% UK
--------------- -------------- -------------------------
Topivert* Series B 19.65% UK
--------------- -------------- -------------------------
*This investment is currently in liquidation and the fair value
of the holding has been fully written off.
The Company has a holding of 12.0% in the unquoted fund SV BCOF
which is managed by the Fund Manager, and a holding of 7.8% in the
unquoted fund SV Fund VI which is managed by SV Health Investors
LLC. The total invested in both Funds to date is $41.1m.
Arrangements are in place to ensure there is no double charging
of management fees.
(d) Disposals of unquoted investments
There were no significant unquoted investment disposals during
the year (2022: Proceeds of GBP3.5m received for the full disposal
of the Company's holding in NCP Holdings).
(e) Significant changes in fair values of unquoted
investments
During the year under review the following unquoted investments
were written up/(down) by a significant extent (adjusted for
currency movements):
Write up/(down)
GBP'000
----------------
SV Fund VI* (4,761)
----------------
SV BCOF* 1,788
----------------
*The movement in Fair Value (FV) was a combination of
distributions from the above funds of GBP9,983,000, capital
contributions of GBP5,738,000, the weakening of the dollar
GBP1,775,000, and FV gains of GBP3,047,000.
11. RECEIVABLES
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Amounts due within
one year:
------------------ ------------------
Sales awaiting settlement 2,717 13,251
------------------ ------------------
Accrued income 2 90
------------------ ------------------
Prepaid expenses 35 68
------------------ ------------------
Tax recoverable 46 57
------------------ ------------------
VAT recoverable 167 21
------------------ ------------------
2,967 13,487
------------------ ------------------
12. CASH AND CASH EQUIVALENTS AND BORROWINGS
Cash and cash equivalents and borrowings include the following
for the purposes of the Statement of Cash Flows:
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Cash and cash equivalents - -
------------------ ------------------
Bank overdraft (32,474) (39,976)
------------------ ------------------
Cash and cash equivalents (32,474) (39,976)
------------------ ------------------
The Company has a GBP55.0m unsecured multi-currency overdraft
facility. The facility is structured as a part committed, part
uncommitted such that 40% of the facility is made available on a
committed basis. All cash balances are netted off against the drawn
facility to result in a net drawn overdraft balance as this is a
multi-currency overdraft facility.
On 31 August 2023, GBP32.5m (2022: GBP40m) was drawn down. The
principal covenants relating to this facility are as follows:
-- the borrowing base to consist of 20 or more individual
eligible investments; and
-- the net asset value per share of the Company must not fall by
15% over a rolling one month period, 25% over a rolling three month
period or 35% over a rolling six month period.
The Company has complied with the terms of the facility
throughout the financial year.
13. PAYABLES
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Amounts falling due
within one year:
------------------ ------------------
Purchases awaiting
settlement 143 1,196
------------------ ------------------
Accrued expenses 1,190 855
------------------ ------------------
Other 747 -
------------------ ------------------
2,080 2,051
------------------ ------------------
14. CAPITAL COMMITMENTS - CONTINGENT ASSETS AND LIABILITIES
The Company made a $30.0m commitment to SV Fund VI in 2016. Of
this $30.0m commitment, the Company has further commitments of
$4.1m as at 31 August 2023. The outstanding capital commitments are
callable by SV Fund VI at any time. While the fund will no longer
make new investments, additional follow on investments are likely
to be made by the fund into its investee companies. The Company
made a further commitment of $5.0m to SV BCOF in 2023 bringing the
total commitment to $30.0m. Of this commitment, the Company has
further commitments of $22.8m (including recallable
distributions).
15. CALLED UP SHARE CAPITAL
Allotted, Called up and Fully paid:
At 31 August At 31 August At 31 August At 31 August
2023 2022 2023 2022
Number Number GBP'000 GBP'000
------------- ------------- ------------- -------------
Allotted,
Called up
and Fully
paid shares
of 25p each:
------------- ------------- ------------- -------------
Ordinary shares
in issue 39,318,183 40,863,009 9,830 10,216
------------- ------------- ------------- -------------
Ordinary shares
held in Treasury 2,065,634 520,808 516 130
------------- ------------- ------------- -------------
41,383,817 41,383,817 10,346 10,346
------------- ------------- ------------- -------------
During the year, there were 1,544,826 Ordinary shares
repurchased into Treasury for total cost of GBP9,978,000 (2022:
GBP3,534,000).
There were no new Ordinary shares issued (2022: nil) and no
Ordinary shares issued from Treasury (2022: nil). No Ordinary
Shares were cancelled (2022: nil).
Post year-end as at 3 November 2023, 279,576 shares were
repurchased to be held in Treasury.
The Ordinary shares held in Treasury have no voting rights and
are not entitled to dividends.
16. SHARE PREMIUM ACCOUNT
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Balance brought forward 29,873 29,873
------------------- -------------------
Balance carried forward 29,873 29,873
------------------- -------------------
This reserve is not distributable.
17. CAPITAL REDEMPTION RESERVE
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Balance brought forward 31,482 31,482
------------------- -------------------
Balance carried forward 31,482 31,482
------------------- -------------------
Movement during the - -
year
------------------- -------------------
This reserve is not distributable.
18. CAPITAL RESERVES
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Balance brought forward 259,849 295,807
------------------- -------------------
Gains/(losses) on investments 9,606 (14,696)
------------------- -------------------
Cost of Ordinary shares
bought back into Treasury (9,978) (3,534)
------------------- -------------------
Performance fee (514) (471)
------------------- -------------------
Dividend paid out of
capital (11,407) (12,879)
------------------- -------------------
Realised exchange gains/(losses)
on currency balances 1,591 (4,378)
------------------- -------------------
Balance carried forward 249,147 259,849
------------------- -------------------
This reserve is distributable in accordance with accounting
policy n(iii).
19. REVENUE RESERVE
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Balance brought forward (46,661) (43,733)
------------------- -------------------
Net loss for the year (3,870) (2,928)
------------------- -------------------
Balance carried forward (50,531) (46,661)
------------------- -------------------
The revenue reserve may be distributed or used to repurchase the
Company's shares (subject to being a positive balance). A negative
revenue reserve will reduce any distributable reserves available in
the capital reserve.
20. NET ASSET VALUE PER ORDINARY SHARE
The calculation of the NAV per Ordinary share is based on the
following:
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
NAV (GBP'000) 270,317 284,889
------------------- -------------------
Number of Ordinary
shares in issue 39,318,183 40,863,009
------------------- -------------------
Basic NAV per Ordinary
share (pence) 687.51 697.18
------------------- -------------------
The decrease in the NAV per share from 697.18p (31 August 2022)
to 687.51p (31 August 2023) includes the total gain per share
during the year, and the effect on the Company of any issue of
Ordinary shares, share buybacks and dividend payments.
21. NOTES TO THE CASH FLOW STATEMENT
Cash and cash equivalents comprise cash at bank, short-term
deposits and bank overdrafts.
Included within the cash flows from operating activities are the
cash flows associated with the purchases and sales of
investments.
Cash flow from operating activities can therefore be further
analysed as follows:
For the year ended For the year ended
31 August 2023 31 August 2022
------------------- -------------------
GBP'000 GBP'000
------------------- -------------------
Proceeds on disposal
of fair value through
profit and loss investments 367,661 401,258
------------------- -------------------
Purchases of fair value
through profit and
loss investments (337,049) (396,945)
------------------- -------------------
Net cash inflow from
investments 30,612 4,313
------------------- -------------------
Cash flows from other
operating activities (3,313) (3,189)
------------------- -------------------
Net cash flows used
in operating activities 27,299 1,124
------------------- -------------------
22. TRANSACTIONS WITH THE FUND MANAGER AND RELATED PARTY
TRANSACTIONS
(a) Transactions with the Fund Manager
Details of the management fee arrangement are given in the
Directors' Report on page 41. The total fee payable under this
Agreement to SV Health Managers LLP for the year ended 31 August
2023 was GBP2,601,000 (2022: GBP2,632,000) of which GBP122,000
(2022: GBPnil) was outstanding at the year end. In addition to
this, SV Health Managers LLP is also entitled to a performance fee
of GBP514,000 on the quoted and unquoted portfolio (2022:
GBP471,000 on the quoted portfolio). Through the Company's
investments into SV Fund VI and SV BCOF, management fees of
GBP791,000 (2022: GBP623,000) are paid to SV Health Managers
LLP.
SV Health Managers LLP will often take seats on boards of
companies in which the Company holds an unquoted investment. These
positions help to monitor the investee companies and in many cases
add to the strength and depth of management. They sometimes provide
an economic benefit to the individual who takes the position -
often in the form of a Director's fee or share awards. The Fund
Manager has agreed with the Board a set of guidelines on how any
economic interest will be divided between the Company and the Fund
Manager. The Board is informed of both the position held and any
economic benefits as they arise and a summary of all the positions,
benefits and allocations is presented for review biannually at
Board meetings. During the year ended 31 August 2023 GBPnil (2022:
GBPnil) was received.
On 13 February 2023 the investment management agreement ("IMA")
between the Company and SV Health Managers LLP was amended to be
clarified for circumstances where SV Health Managers LLP gives
notice to terminate the IMA. Under this amendment SV Health
Managers LLP will be entitled to the annual performance fee
calculated until the termination date of the IMA (capped at 2% of
NAV) and any deferred performance fees (capped at 4% of NAV)
subject to a cap on the aggregate amount payable on termination of
4.99% of NAV.
In connection with the transition to Schroders, subsequent to
the year end, a tripartite agreement has been signed between the
Company, Schroder Unit Trusts Limited and SV Health Managers LLP
which details SV's role with regard to the Unquoted Portfolio, and
includes a termination fee of GBP289,439.
(b) Related party transactions
The Directors of the Company are key management personnel. The
total remuneration payable to Directors in respect of the year
ended 31 August 2023 was GBP162,000 (2022: GBP161,000) of which
GBPnil (2022: GBPnil) was outstanding at the year end.
23. FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company's financial assets and liabilities, in addition to
short-term debtors and creditors and cash, comprise financial
instruments which include investments in equity.
The holding of securities, investment activities and associated
financing undertaken pursuant to the investment policy involve
certain inherent risks. Events may occur that would result in
either a reduction in the Company's net assets or a reduction of
the total return.
The main risks arising from the Company's pursuit of its
investment objective are those that affect stock market levels:
market risk, credit risk and liquidity risk. In addition, there are
specific risks inherent in investing in the biotechnology sector.
The Board reviews and agrees policies for managing these risks, as
summarised below. These policies have remained substantially
unchanged throughout the current and preceding year. In assessing
any changes to these risks, the Board considered changes in the
economic and geopolitical climate, including the resurgence of the
conflict in the Middle East; the continuing war in Ukraine and the
increasingly tense relations between the US and China, and noted
that it did not have a significant impact on the risk management
policies for the year ended 31 August 2023.
23.1 Market risk
The fair value or future cash flows of a financial instrument
held by the Company may fluctuate because of changes in market
prices. This market risk comprises three elements - price risk,
currency risk and interest rate risk. The Fund Manager assesses the
exposure to market risk when making each investment decision, and
monitors the overall level of market risk on the whole of the
investment portfolio on an ongoing basis.
(a) Price risk
The Company is an investment company and as such its performance
is dependent on the valuation of its investments. A breakdown of
the investment portfolio is given on pages 22 to 25. Market price
risk arises mainly from uncertainty about future prices of the
financial instruments held.
Management of the risk
The Board regularly considers the asset allocation of the
portfolio as part of the process of managing the risks associated
with the biotechnology sector, described in greater detail in the
section on sector specific risk, (note 23.4), whilst continuing to
follow the investment objective. It is not the Company's current
policy to use derivative instruments to hedge the investment
portfolio against market price risk.
Price risk exposure
At the year end, the Company's assets exposed to market price
risk were as follows:
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Non-current asset investments
at fair value through
profit or loss 301,904 313,429
------------------ ------------------
Total 301,904 313,429
------------------ ------------------
The level of assets exposed to market price risk decreased by
3.7% (2022: 9.2%) during the year, through a combination of
acquisitions and disposal of investments and changes in fair
values.
Concentration of exposure to price risk
The Company currently holds investments in 76 companies
(excluding those valued at GBPnil), in a mixture of quoted and
unquoted investments in a variety of countries, which significantly
spreads the risk of individual investments performing poorly and
reduces the concentration of exposure. This includes the Company's
investments into SV Fund VI and SV BCOF as two unquoted holdings.
However, SV Fund VI and SV BOCF have 18 and 6 companies,
respectively, in their own portfolios. The classification of
investments by sector is provided within the Fund Facts.
Price risk sensitivity
The following table illustrates the sensitivity of the profit
for the year and the equity to an increase or decrease of 10%
(2022: 10%) in the fair values of the Company's investments. The
Board believe that a 10% (2022: 10%) movement is sufficient to
provide a reasonable range that could have affected the investment
valuations at the year end. This level of change is considered to
be reasonably possible based on observation of current market
conditions. The sensitivity analysis is based on the Company's
investments at each Balance Sheet date, with all other variables
held constant.
At 31 August At 31 August At 31 August At 31 August
2023 2023 2022 2022
Increase in Decrease in Increase in Decrease in
fair value fair value fair value fair value
------------- ------------- ------------- -------------
GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------- ------------- -------------
Effect on
revenue return (272) 272 (282) 282
------------- ------------- ------------- -------------
Effect on
capital return 30,190 (30,190) 31,343 (31,343)
------------- ------------- ------------- -------------
Effect on
total return
and net assets 29,918 (29,918) 31,061 (31,061)
------------- ------------- ------------- -------------
(b) Currency risk
The Financial Statements of the Company are denominated in
sterling. However, the majority of the Company's assets and the
total return are denominated in US dollars, accordingly the total
return and capital value of the Company's investments can be
significantly affected by movements in foreign exchange rates. It
is not the Company's policy to hedge against foreign currency
movement.
Management of the risk
The Fund Manager monitors the Company's exposure to foreign
currencies on a daily basis, and reports to the Board on a regular
basis.
Foreign currency exposure
The fair values of the Company's monetary items that have
foreign currency exposure at 31 August 2023 are shown below. Where
the Company's equity investments (which are not monetary items) are
priced in a foreign currency, they have been included separately in
the analysis so as to show the overall level of exposure.
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Monetary (liabilities)/assets
------------------ ------------------
Cash and cash equivalents:
------------------ ------------------
US dollars (32,084) (39,771)
------------------ ------------------
Danish krone - -
------------------ ------------------
Euros - -
------------------ ------------------
Short-term receivables:
------------------ ------------------
US dollars 2,756 13,378
------------------ ------------------
Danish krone 13 20
------------------ ------------------
Short-term payables:
------------------ ------------------
US dollars (143) (1,196)
------------------ ------------------
Foreign currency exposure
on net monetary items (29,458) (27,569)
------------------ ------------------
Non-current asset investments
held at fair value
------------------ ------------------
US dollars 293,614 309,128
------------------ ------------------
Danish krone - -
------------------ ------------------
Euros 7,405 2,517
------------------ ------------------
Swedish krona 454 1,443
------------------ ------------------
Total net foreign currency
exposure 272,015 285,519
------------------ ------------------
At the year end, approximately 100.6% (2022: 99.8%) of the
Company's net assets were denominated in currencies other than
sterling. This level of exposure is broadly representative of the
levels throughout the year.
Foreign currency sensitivity
The Company measures foreign currency sensitivity by calculating
the standard deviation of rates throughout the financial year. On
this basis sterling strengthened by 0.63% against the US dollar, by
0.36% against the Euro, by 0.36% against the Danish krone, by 0.75%
against the Swiss franc and by 0.44% against Swedish krona (2022:
strengthened 0.45%, 0.34%, 0.34%, 0.39% and 0.49% respectively).
Given the movements over the last two years, a change of 10% or
even more is possible.
The following table illustrates the sensitivity of the profit
after taxation for the year and the equity in regard to the
Company's financial assets and financial liabilities, assuming a
10% (2022: 10%) change in exchange rates.
If sterling had weakened by 10% against the exposure currencies,
with all other variables held constant, this would have affected
Company net assets and net profit for the year attributable to
equity shareholders as follows:
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
US dollars 26,414 28,154
------------------ ------------------
Euros 741 252
------------------ ------------------
Danish krone 1 2
------------------ ------------------
Swedish krona 45 144
------------------ ------------------
27,201 28,552
------------------ ------------------
If sterling had strengthened by 10% against the exposure
currencies, with all other variables held constant, this would have
affected Company net assets and net profit for the year
attributable to equity shareholders as follows:
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
US dollars (26,414) (28,154)
------------------ ------------------
Euros (741) (252)
------------------ ------------------
Danish krone (1) (2)
------------------ ------------------
Swedish krona (45) (144)
------------------ ------------------
(27,201) (28,552)
------------------ ------------------
In the opinion of the Directors, the above sensitivity analyses
are not necessarily representative of the year as a whole, since
the level of exposure changes as part of the currency risk
management process used to meet the Company's objectives.
(c) Interest rate risk
The Company will be affected by interest rate changes as it
holds interest-bearing financial assets and liabilities. Interest
rate changes will also have an impact on the valuation of
investments, although this forms part of price risk, which is
considered separately above.
Management of the risk
Interest rate risk is limited by the Company's financial
structure with operations mainly financed through share capital,
share premium and retained reserves. The majority of the Company's
financial assets are, under normal circumstances, equity shares and
other investments which neither pay interest nor have a stated
maturity date. Liquidity and overdraft facilities are managed with
the aim of increasing returns for shareholders.
In the normal course of business, the Company's policy is to be
fully invested and, other than as arising from the timing of
investment transactions, the cash holding is kept to a minimum.
At the year end, GBP32.5m (2022: GBP40m) was drawn down under
the Company's committed overdraft facility.
It is not the Company's policy to use derivative instruments to
mitigate interest rate risk, as the Board believes that the
effectiveness of such instruments does not justify the costs
involved.
Interest rate exposure
The exposure, at 31 August 2023, of financial assets and
liabilities to interest rate risk is shown by reference to:
-- Floating interest rates (i.e. giving cash flow interest rate
risk) - when the rate is due to be re-set; and
-- Fixed interest rates (i.e. giving fair value interest rate
risk) - when the financial instrument is due for repayment.
For the For the For the For the For the For the
year ended year ended year ended year ended year ended year ended
31 August 31 August 31 August 31 August 31 August 31 August
2023 2023 2023 2022 2022 2022
Within More than Total Within More than Total
one year one year one year one year
------------ ------------ ------------ ------------ ------------ ------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ------------ ------------ ------------ ------------ ------------
Exposure
to floating
interest
rates:
------------ ------------ ------------ ------------ ------------ ------------
Cash and
cash equivalents (32,474) - (32,474) (39,976) - (39,976)
------------ ------------ ------------ ------------ ------------ ------------
Exposure
to fixed
interest
rates:
------------ ------------ ------------ ------------ ------------ ------------
Non-current - - - - - -
asset investments
held at
fair value
through
profit or
loss
------------ ------------ ------------ ------------ ------------ ------------
Total exposure
to interest
rates (32,474) - (32,474) (39,976) - (39,976)
------------ ------------ ------------ ------------ ------------ ------------
The above amounts are not necessarily representative of the
exposure to interest rates in the year ahead, as the level of cash
or cash like assets such as money market funds and borrowings
varies during the year according to the performance of the stock
market, events within the wider economy and opportunities within
the unquoted market and the Fund Manager's decisions on the best
use of cash or borrowings over the period. During the year under
review the level of financial assets and liabilities exposed to
interest rates fluctuated between GBP0m and GBP55m.
Interest rate sensitivity
The following table illustrates the sensitivity of the profit
after taxation for the year and equity to an increase or decrease
of 300 (2022: 300) basis points in interest rates in regard to the
Company's monetary financial assets, which are subject to interest
rate risk. This level of change is considered to be reasonably
possible based on observation of current market conditions.
The sensitivity analysis is based on the Company's monetary
financial instruments held at each Balance Sheet date, with all
other variables held constant.
At 31 August At 31 August At 31 August At 31 August
2023 2023 2022 2022
Increase in Decrease in Increase in Decrease in
rate rate rate rate
------------- ------------- ------------- -------------
GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------- ------------- -------------
Effect on
revenue return (974) 974 (1,199) 1,199
------------- ------------- ------------- -------------
Effect on - - - -
capital return
------------- ------------- ------------- -------------
Effect on
total return
and net assets (974) 974 (1,199) 1,199
------------- ------------- ------------- -------------
In the opinion of the Directors, the above sensitivity analyses
may not be representative of the year as a whole, since the level
of exposure may change.
(d) Loss of investor appetite
Loss of investor appetite risk is the risk that there will be a
loss of investor appetite for investing in the biotech sector as a
result of political conditions, including FDA and FTC policy, or
declining interest in IPOs.
Management of the risk
Loss of investor appetite risk is mitigated as the Fund Manager
updates the Board monthly and at each scheduled Board Meeting on
issues pertinent to the portfolio and the biotechnology sector
generally, including expected future drivers.
Loss of investor appetite risk exposure
As an Investment Trust that invests in the biotech sector the
Company has a moderate loss of investor appetite risk exposure.
23.2 Credit risk
Credit risk is the risk of exposure to loss from failure of a
counterparty to deliver securities or cash for acquisitions or
disposals of investments. Additionally, the Company has funds on
deposit with banks or in money market funds. Northern Trust is the
Custodian of the Company's assets. The Company's investments are
held in accounts which are segregated from the Custodian's own
trading assets. If the Custodian were to be become insolvent, the
Company's right of ownership is clear and the investments are
therefore protected. However, cash balances deposited with the
Custodian may be at risk in this instance, as the Company would
rank alongside other creditors.
Management of the risk
During the year the Company bought and sold investments only
through brokers which had been approved by the Fund Manager as
acceptable counterparties. In addition, limits are set as to the
maximum exposure to any individual broker that may exist at any
time. These limits are reviewed regularly.
Cash balances will only be deposited with reputable banks with
high quality credit ratings.
Credit risk exposure
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Sales awaiting settlement 2,717 13,251
------------------ ------------------
Accrued income 2 90
------------------ ------------------
Cash at bank - -
------------------ ------------------
2,719 13,341
------------------ ------------------
All of the above financial assets are current, their fair values
are considered to be the same as the values shown and the
likelihood of a material credit default is considered to be
low.
None of the Company's financial assets are past due or
impaired.
23.3 Liquidity risk
Liquidity risk is the possibility of failure of the Company to
realise sufficient assets to meet its financial liabilities.
Management of the risk
Liquidity and cash flow risk are mitigated as the Fund Manager
aims to hold sufficient Company assets in the form of readily
realisable securities which can be sold to meet funding commitments
as necessary. In addition, the Company has an overdraft facility
with Northern Trust of GBP55.0m (2022: GBP55.0m).
It should be noted, however, that investments in unquoted
securities will not be readily realisable. Furthermore, even where
the Company holds an investment in quoted securities, the Company
may be restricted in its ability to trade that investment either
because the investment becomes subject to restrictions when the
company concerned becomes publicly quoted or, at certain times, as
a consequence of the Company being privy to confidential price
sensitive information as a result of the Fund Manager's active
involvement in that company.
Liquidity risk exposure
As an Investment Trust, the Company has limited liquidity risk.
In any event, the Company estimates it could liquidate 56% (2022:
60%) of the portfolio within five days if required. A summary of
the Company's financial liabilities is provided in note 23.6.
23.4 Sector specific risk
As well as the general risk factors outlined above, investing in
the biotechnology sector carries some particular risks:
(a) the stock prices of publicly quoted biotechnology companies
have been characterised by periods of high volatility;
(b) a significant proportion of the Company's investments will
be in companies whose securities are not publicly traded or freely
marketable and may, therefore, be difficult to realise. In
addition, there are inherent difficulties in valuing unquoted
investments and the realisations from sales of investments could be
less than their carrying value;
(c) biotechnology companies typically have a limited product
range and those products may be subject to extensive government
regulation. Obtaining necessary approval for new products can be a
lengthy process, which is expensive and uncertain as to
outcome;
(d) technological advances can render existing biotechnology
products obsolete;
(e) intense competition exists in certain product areas in
relation to obtaining and sustaining proprietary technology
protection and the complex nature of the technologies involved can
lead to patent disputes;
(f) certain biotechnology companies may be exposed to potential
product liability risks, particularly in relation to the testing,
manufacturing and sales of healthcare products;
(g) biotechnology companies spend a considerable proportion of
their resources on R&D, which may be commercially unproductive
or require the injection of further funds to exploit the results of
their work; and
(h) the growing cost of providing healthcare has placed
financial strains on governments, insurers, employers and
individuals, all of whom are searching for ways to reduce costs. As
a result, certain areas may be affected by price controls and
reimbursement limitations.
23.5 Fair values of financial assets and financial
liabilities
All financial assets and liabilities are either carried in the
Balance Sheet at fair value or the Balance Sheet amount is a
reasonable approximation of fair value. The fair value of quoted
shares and securities is based on the bid price or last traded
price, depending on the convention of the exchange on which the
investment is quoted.
Unquoted investments are valued in accordance with IPEVC
Valuation Guidelines. The methods commonly used to value unquoted
securities are stated in accounting policy 1(f).
23.6 Summary of financial assets and financial liabilities by
category
The carrying amounts of the Company's financial assets and
financial liabilities as recognised at the Balance Sheet date of
the reporting periods under review are categorised as follows:
Financial assets
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Financial assets at
fair value through
profit or loss:
------------------ ------------------
Non-current asset investments
- designated as such
on initial recognition 301,904 313,429
------------------ ------------------
Cash and receivables:
------------------ ------------------
Current assets:
------------------ ------------------
Receivables 2,967 13,487
------------------ ------------------
2,967 13,487
------------------ ------------------
Financial liabilities
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Measured at amortised
cost
------------------ ------------------
Creditors: amounts
falling due within
one month:
------------------ ------------------
Purchases awaiting
settlement 143 1,196
------------------ ------------------
Bank overdraft 32,474 39,976
------------------ ------------------
Accruals 1,190 855
------------------ ------------------
Payables 747 -
------------------ ------------------
34,554 42,027
------------------ ------------------
Note: Amortised cost is the same as the carrying value shown
above.
23.7 Classification under the fair value hierarchy
The table below sets out fair value measurements using the IFRS
7 fair value hierarchy:
(i) Financial assets at fair value through profit or loss
At 31 August Total Level 1 Level 2 Level 3
2023
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Equity investments 301,904 276,642 - 25,262
-------- -------- -------- --------
301,904 276,642 - 25,262
-------- -------- -------- --------
At 31 August Total Level 1 Level 2 Level 3
2022
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
Equity investments 313,429 285,471 - 27,958
-------- -------- -------- --------
313,429 285,471 - 27,958
-------- -------- -------- --------
Categorisation within the hierarchy has been determined on the
basis of the lowest level of input that is significant to the fair
value measurement of the relevant asset as follows:
Level 1 - valued using quoted prices in active markets for
identical assets.
Level 2 - valued by reference to valuation techniques using
observable inputs other than quoted prices included within Level
1.
Level 3 - valued by reference to valuation techniques using
inputs that are not based on observable market data.
The valuation techniques used by the Company are explained in
the accounting policies noted on page 73.
There have been no transfers during the year between Levels 1, 2
and 3. A reconciliation of fair value measurements in Level 3 is
set out below.
(ii) Level 3 investments at fair value through profit or
loss
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Opening valuation 27,958 30,971
------------------ ------------------
Acquisitions - 1,324
------------------ ------------------
Disposal proceeds (4,665) (7,362)
------------------ ------------------
Total gains included
in the Statement of
Comprehensive Income
------------------ ------------------
- on assets sold 2,693 6,186
------------------ ------------------
- on assets held at
the year end (724) (3,161)
------------------ ------------------
Closing valuation 25,262 27,958
------------------ ------------------
(iii) Level 3 investments at fair value through profit and loss
- price risk sensitivity
Investments are reported at their fair values. A full list of
the Company's investments is given on pages 22 to 25. As at 31
August 2023, 90.7% of the Company's net assets (including cash and
net liabilities) are invested in quoted investments and 9.3% of the
Company's net assets are invested in unquoted investments.
The fair value of unquoted investments is influenced by the
estimates, assumptions and judgements made in the valuation
process. A sensitivity analysis is provided below which recognises
that the valuation methodologies used involve different levels of
subjectivity in their inputs.
Year ended 31 August 2023
Effect of reasonably possible alternative assumptions
Valuation techniques* Fair value Significant unobservable Favourable impacts Unfavourable impacts
inputs*
----------- ----------------------------- ------------------- ---------------------
GBP'000 GBP'000 GBP'000
----------- ----------------------------- ------------------- ---------------------
Probability estimate of
Discounted future cash flows 4,635 royalty income 471 (471)
----------- ----------------------------- ------------------- ---------------------
Discount rate 203 (191)
----------- ----------------------------- ------------------- ---------------------
Present value of future 892 Probability estimate of 32 (29)
milestone payments milestone achievement
----------- ----------------------------- ------------------- ---------------------
Discount rate 1 (1)
----------- ----------------------------- ------------------- ---------------------
Calibration price of recent Calibration price of recent
investment 341 investment 34 (34)
----------- ----------------------------- ------------------- ---------------------
5,868 741 (726)
----------- ----------------------------- ------------------- ---------------------
Net asset value 90 No significant judgements - -
applied
----------- ----------------------------- ------------------- ---------------------
5,958 741 (726)
----------- ----------------------------- ------------------- ---------------------
Year ended 31 August 2022
Effect of reasonably possible alternative assumptions
Valuation techniques* Fair value Significant unobservable Favourable impacts Unfavourable impacts
inputs*
----------- ----------------------------- ------------------- ---------------------
GBP'000 GBP'000 GBP'000
----------- ----------------------------- ------------------- ---------------------
Probability estimate of
Discounted future cash flows 4,330 royalty income 444 (404)
----------- ----------------------------- ------------------- ---------------------
Discount rate 225 (210)
----------- ----------------------------- ------------------- ---------------------
Present value of future Estimated sustainable
milestone payments 922 earnings 64 (58)
----------- ----------------------------- ------------------- ---------------------
Selection of appropriate
price multiple 4 (4)
----------- ----------------------------- ------------------- ---------------------
Calibration price of recent Calibration price of recent
investment 341 investment 34 (34)
----------- ----------------------------- ------------------- ---------------------
5,593 770 (710)
----------- ----------------------------- ------------------- ---------------------
Net asset value 88 No significant judgements - -
applied
----------- ----------------------------- ------------------- ---------------------
5,681 770 (710)
----------- ----------------------------- ------------------- ---------------------
*Excludes investments in unquoted funds.
Please refer to the accounting policy note 1(f) on pages 73 to
74 for details on the valuation methodology for SV Fund VI and SV
BCOF. As at 31 August 2023, SV unquoted funds have been valued in
accordance with this valuation methodology. No key estimates or
assumptions have been applied to the valuation of SV Fund VI and SV
BCOF between the date of the last quarterly report received and 31
August 2023.
*Significant unobservable inputs
The significant unobservable inputs applicable to each type of
valuation technique will vary dependent on the particular
circumstances of each unquoted company valuation. An explanation of
each of the significant unobservable inputs is provided below and
includes an indication of the range in value for each input, where
relevant. The assumptions made in the production of the inputs are
described in note 1(f) on pages 73 to 74.
Probability estimate of royalty income
The probability estimate of royalty income is a key variable
input in the discounted future cash flow valuation technique and
represents the potential commercial uptake risk, competitor risk
and uncertainty around drug pricing. To factor in the uncertainty
surrounding the probability estimate of royalty income, the input
has been stressed by a factor of +/- 10%. Management is comfortable
that the largest differential in the flux of the valuations would
be 10%.
Probability estimate of milestone achievement
The probability estimate of milestone achievement is a key
variable input in the present value of future milestone payments
valuation technique and represents the potential risk that
commercial milestones are not achieved in accordance with the
estimated timeline. To factor in the uncertainty surrounding the
probability estimate of milestone achievement, the input has been
stressed by a factor of +/- 10%. Management is comfortable that the
largest differential in the flux of the valuations would be
10%.
Discount rate
The application of a risk adjusted discount rate has been
applied to discounted future cash flow and present value of future
milestone payments valuation techniques. The discount rate takes
into account the macro market risk and the liquidity premium. To
factor in the uncertainty surrounding the discount rate, the input
has been stressed by +/- 2%. Management is comfortable that the
largest differential in the flux of the discount rate would be
2%.
Estimated sustainable earnings
The selection of sustainable revenue or earnings will depend on
whether the company is sustainably profitable or not and the value
of the investment's assets and liabilities on the valuation date.
The valuation approach will typically assess companies based on the
last twelve months of revenue or earnings, as they are the most
recent available and therefore viewed as the most reliable. To
factor in the uncertainty surrounding the estimated sustainable
earnings, the fair value of the investment at the reporting date
has been stressed by +/- 20%.
Selection of appropriate price multiple
The selection and relevance of the appropriate multiple is
assessed individually for each investment at the date of valuation.
The key criteria used in selecting appropriate comparable companies
on which the multiple is selected are the industry sector in which
they operate, the geographic location of the company's operations,
the respective revenue and earnings growth rates and the operating
margins. Approximately 10 comparable companies will be selected for
each investment, depending on how many relevant comparable
companies are identified. To factor in the uncertainty surrounding
the selection of comparable companies, the applicable multiple has
been stressed by +/- 2%.
Calibration price of recent investment
The fair values of the underlying investments are based on the
calibration price but remain unadjusted from the recent price of
the investment. To factor in the uncertainty surrounding the
selection of calibration price, the fair value of the investment at
the reporting date has been stressed by +/- 10%.
23.8 Capital management policies and procedures
The Company's objectives, policies and processes for managing
capital are unchanged from the preceding accounting year.
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Debt
------------------ ------------------
Bank loan 32,474 39,976
------------------ ------------------
Equity
------------------ ------------------
Called up share capital 10,346 10,346
------------------ ------------------
Reserves 230,098 274,543
------------------ ------------------
Total equity 240,444 284,889
------------------ ------------------
Total debt and equity 272,918 324,865
------------------ ------------------
The Company's capital is managed to ensure that it will continue
as a going concern and to maximise the capital return to its equity
shareholders over the longer-term.
The Board, with the assistance of the Fund Manager, monitors and
reviews the broad structure of the Company's capital on an ongoing
basis. This includes consideration of:
(i) the planned level of gearing;
(ii) the need to buyback or issue equity shares; and
(iii) the determination of dividend payments.
The Company is subject to externally imposed capital
requirements through the Act, with respect to its status as a
public limited company.
In addition, with respect to the obligation and ability to pay
dividends, the Company must comply with the provisions of Section
1158 of the CTA and the Act respectively.
Gearing represents borrowings used for investment purposes, less
cash, expressed as a percentage of net assets.
At 31 August 2023 At 31 August 2022
GBP'000 GBP'000
------------------ ------------------
Borrowings used for
investment purposes,
including cash 32,474 39,976
------------------ ------------------
Net assets 270,317 284,889
------------------ ------------------
Gearing 12.0% 14.0%
------------------ ------------------
Borrowings are made on a relatively short-term basis to exploit
specific investment opportunities, rather than to apply long-term
structural gearing to the Company's portfolio of investments.
24. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board.
The Board is of the opinion that the Company is engaged in a
single segment of business, namely the investment in biotechnology
and other life sciences companies in accordance with the Company's
investment objective, and consequently no segmental analysis is
provided.
25. POST BALANCE SHEET EVENTS
After the year end and up to 3 November 2023, 279,576 Ordinary
shares were bought back to be held in Treasury. Following this
buyback, the total number of shares in issue was 41,383,817 of
which 2,345,210 were held in Treasury.
Three contractual agreements have been entered into post the
year end.
1. A new investment management agreement has been signed which
appoints Schroder Unit Trusts Limited as the Company's Fund Manager
and AIFM.
2. A new depository agreement has been signed between the
Company, Schroder Unit Trusts Limited and HSBC Bank plc.
3. A tripartite agreement has signed between the Company,
Schroder Unit Trusts Limited and SV Health Managers LLP which
details SV's role with regard to the Unquoted Portfolio, and
includes a termination fee of GBP289,439.
No other significant events occurred after the end of the
reporting period to the date of this Report requiring
disclosure.
ALTERNATIVE INVESTMENT FUND MANAGER'S DISCLOSURE (UNAUDITED)
SV Health Managers LLP is the Company's Alternative Investment
Fund Manager (AIFM). Details of the Management Agreements dated 11
February 2017 are included in the Directors' Report on page 41.
The below disclosures include information required by the FCA
FUND 3.2 and 3.3.
Investment management
The AIFM provides portfolio management of assets and investment
advice in relation to the assets of the Company. The Board remains
responsible for setting the investment strategy, investment policy
and investment guidelines and the AIFM operates within these
guidelines. Any material changes to the published investment policy
are put to shareholders for a vote. Any changes to the investment
strategy are agreed by the Board of the Company.
Details of the Company's investment objective and policy, and
investment strategy, including limits, are on page 26 of this
Report.
Contractual relationship with the Company
The Articles of Association between the Company's shareholders
and the Company is governed by English law and, by purchasing
shares, investors agree that the Courts of England have exclusive
jurisdiction to settle any disputes. All communications in
connection with the purchase of the Company's shares will be in
English. Certain judgements obtained in EU Member States (excluding
Denmark at this time) in proceedings commenced on or after 10
January 2017, can be enforced in England and Wales under the Recast
Brussels Regulation by obtaining a certificate from the court of
origin certifying that the judgement is enforceable, serving the
certificate and judgement on the judgement debtor and, when seeking
enforcement, providing the Courts of England and Wales with an
authenticated copy of the judgement and certificate and certifying
compliance with the requirements as to service on the debtor. The
judgement debtor can apply for the enforcement of the judgement to
be refused on limited grounds. Further, certain judgements obtained
in EU Member States (including Denmark) in proceedings commenced
before 10 January 2017, or in Iceland, Norway and Switzerland can
be enforced in England and Wales under the 2001 Brussels Regulation
or the 2007 Lugano Convention and certain judgements obtained from
a country to which any of the Administration of Justice Act 1920,
the Foreign Judgments (Reciprocal Enforcement) Act 1933 or the
Civil Jurisdiction and Judgments Act 1982 applies can also be
enforced in England and Wales by making an application to the High
Court for an order for registration of the judgement for
enforcement. The judgement debtor may appeal/challenge registration
on limited grounds. It may also be possible to enforce a judgement
obtained in a country to which none of the above regimes apply in
England and Wales if such judgement is: (1) final and conclusive on
the merits; (2) given by a Court regarded by English law as
competent to do so; and (3) for a fixed sum of money.
Professional liability risk
The AIFM maintains both the capital requirements and the
required professional indemnity insurance at the level required
under AIFM Rules in order to cover potential liability risks
arising from professional negligence.
Company management
The Board announced on 21 July 2016 that with effect from 21
July 2016 the Company had entered into new Agreements with the
relevant suppliers of services to the Company to comply with AIFMD.
The Agreements with the Company's Fund Manager and AIFM - SV Health
Managers LLP, the Company Secretary Link Company Matters Limited
and Administrator, Northern Trust - differ only to the extent
necessary to comply with the AIFMD.
Management functions delegated by AIFM
A description of safe-keeping functions, administrative
functions and secretarial functions delegated by the AIFM and the
identity of such delegates can be found on page 42 under the
heading "Administration, Depositary and Company Secretarial
Services". The AIFM does not consider that any conflicts of
interest arise from the delegation of these functions.
Valuation policy
The Company's portfolio of listed assets will be valued on each
Dealing Day (a day on which the London Stock Exchange and banks in
England and Wales are normally open for business). All instructions
to issue or cancel Ordinary shares given for a prior dealing day
shall be assumed to have been carried out (and any cash paid or
received).
The valuation will be based on the following:
(a) Cash and amounts held in current and deposit accounts and in
other time-related deposits will be valued at their nominal
value.
(b) All transferable securities will be valued at fair value.
Fair value for quoted investments is deemed to be bid market
prices, or last traded price, depending on the convention of the
exchange on which they are quoted.
(c) All other property contained within the Company's portfolio
of assets will be priced at a value which, in the opinion of the
AIFM, represents a fair and reasonable price.
(d) If there are any outstanding agreements to purchase or sell
any of the Company's portfolio of assets which are incomplete, then
the valuation will assume completion of the agreement.
(e) Added to the valuation will be:
(i) any accrued and anticipated tax repayments of the
Company
(ii) any money due to the Company because of Ordinary shares
issued prior to the relevant Dealing Day
(iii) income due and attributed to the Company but not
received
(iv) any other credit of the Company due to be received by the
Company. Amounts which are de minimis may be omitted from the
valuation
(f) Deducted from the valuation will be:
(i) any anticipated tax liabilities of the Company
(ii) any money due to be paid out by the Company because of
Ordinary shares bought back by the Company prior to the
valuation
(iii) the principal amount and any accrued but unpaid interest
on any borrowings
(iv) any other liabilities of the Company, with periodic items
accruing on a daily basis. Amounts which are de minimis may be
omitted from the valuation
Valuations of NAV per Ordinary share will be suspended only in
any circumstances in which the underlying data necessary to value
the investments of the Company cannot readily or without undue
expenditure be obtained. Any such suspension will be announced to
the Regulatory Information Service.
The Company's unquoted portfolio of assets will be valued on
each working day in accordance with IFRS and the PE and VC
Valuation guidelines (IPEVC). Further information regarding the
valuation of unquoted assets and any sensitivities arising from
unobservable inputs can be found in note 23 to the Financial
Statements.
Liquidity risk management
The AIFM has a liquidity management policy which it uses to
monitor the liquidity risk of the Company. Shareholders have no
right to redeem their Ordinary shares from the Company but may
trade their Ordinary shares on the secondary market. However, there
is no guarantee that there is a liquid market in the Ordinary
shares.
Further details regarding the risk management process and
liquidity management are available from the AIFM, on request.
Fees
A description of certain of the fees, charges and expenses and
of the maximum amounts thereof (to the extent that this can be
assessed) which are borne by the Company and thus indirectly by
investors are included in the paragraph 'Company Management' on
page 100. In addition to the Administration and Depositary fees,
the Company will pay all other fees, charges and expenses incurred
in the operation of its business including, without limitation:
-- Brokerage and other transaction charges and taxes.
-- Directors' fees and expenses.
-- Fees and expenses for custodial, registrar, legal, auditing
and other professional services.
-- Any borrowing costs.
-- The ongoing costs of maintaining the listing of the Ordinary
shares and their continued admission to trading on the London Stock
Exchange.
-- Directors' and Officers' Liability insurance premiums.
-- Research costs.
-- Promotional expenses (including membership of any industry
bodies, including the AIC, and marketing initiatives approved by
the Board).
-- Costs of printing the Company's financial reports and posting
them to shareholders.
Such fees and expenses are not subject to a maximum unit.
Remuneration of the AIFM staff
The AIFM operates under the terms of the Remuneration Policy
Statement. This ensures that the AIFM complies with the
requirements of the FCA's AIFM Remuneration Code (SYSC19B).
Following completion of an assessment of the application of the
proportionality principle to the FCA's AIFM Remuneration Code, the
AIFM has disapplied the pay-out process rules with respect to it
and any of its delegates. This is because the AIFM considers that
it is operating on a small scale, carries out non-complex
activities and has a relatively low risk profile.
Fair treatment of investors
The AIFM has procedures, arrangements and policies in place to
ensure compliance with the principles more particularly described
in the AIFM Rules relating to the fair treatment of investors. The
principles of treating investors fairly include, but are not
limited to:
-- Acting in the best interests of the Company and of the
shareholders.
-- Ensuring that the investment decisions taken for the account
of the Company are executed in accordance with the Company's
investment policy and objective and risk profile.
-- Ensuring that the interests of any group of shareholders are
not placed above the interests of any other group of
shareholders.
-- Ensuring that fair, correct and transparent pricing models
and valuation systems are used for the Company.
-- Preventing undue costs being charged to the Company and
shareholders.
-- Taking all reasonable steps to avoid conflicts of interests
and, when they cannot be avoided, identifying, managing, monitoring
and, where applicable, disclosing those conflicts of interest to
prevent them from adversely affecting the interests of
shareholders.
-- Recognising and dealing with complaints fairly.
The AIFM maintains and operates organisational, procedural and
administrative arrangements and implements policies and procedures
designed to manage actual and potential conflicts of interest. In
addition, as its Ordinary shares are admitted to the Official List,
the Company is required to comply with, among other things, the
FCA's Listing Rules and Disclosure Guidance and Transparency Rules
and the Takeover Code, all of which operate to ensure a fair
treatment of investors. As at the date of this Annual Report, no
investor has obtained preferential treatment or the right to obtain
preferential treatment.
Procedure and conditions for the issuance of Ordinary shares
The Company's Ordinary shares are admitted to the Official List
of the UKLA and to trading on the main market of the London Stock
Exchange. Accordingly, the Company's Ordinary shares may be
purchased and sold on the main market of the London Stock
Exchange.
While the Company will typically have shareholder authority to
buyback shares, shareholders do not have the right to have their
shares purchased by the Company.
Net asset value
The NAV of the Company's Ordinary shares is published daily by
the AIFM via a Regulatory Information Service announcement.
Historical performance
Historical financial information demonstrating the Company's
historical performance can be found under the Long-term record on
page 5. Copies of the Company's audited Financial Statements for
the financial year ended 31 August 2022 are available for
inspection at the Registered Office address of Link Company Matters
Limited and can be viewed on the Company's website at
www.ibtplc.com .
Transfer and reuse of the Company's assets
The Depositary may not use or re-use the Company's securities or
other investments without the prior consent of the Company.
Periodic disclosures
During the year ended 31 August 2023, the overdraft facility
available to the Company was GBP55.0m (2022: GBP55.0m).
Risk management
In its capacity as AIFM, SV Health Managers LLP has a
responsibility for risk management for the Company which is in
addition to the Board's corporate governance responsibility for
risk management.
The Company has risk management controls which are agreed with
the Board. The Fund Manager maintains adequate risk management
systems in order to identify, measure and monitor principal risks
at least annually under AIFMD. The Fund Manager is responsible for
the implementation of various risk activities such as risk systems,
risk profile, risk limits and testing.
The Board, as part of UK corporate governance, remains
responsible for the identification of significant risks and for the
ongoing review of the Company's risk management and internal
control processes.
The AIFM has an ongoing process for identifying, evaluating and
managing the principal and emerging risks faced by the Company and
this is regularly reviewed by the Board. The Board remains
responsible for the Company's system of internal control and for
reviewing its effectiveness. Further details can be found in the
Strategic Review on pages 27 to 29 of the Annual Report 2023 and in
note 23 to the Financial Statements 2023 on pages 87 to 98.
Valuation of illiquid assets
The Directive requires the disclosure of the percentage of the
AIF's assets which are subject to special arrangements arising from
their illiquid nature. Further, any new arrangements for managing
the liquidity of the Company must be disclosed.
The liquidity management policy requires the AIFM to identify
and monitor its investment in asset classes which are considered to
be relatively illiquid. The majority of the Company's investment
portfolio is invested directly in liquid equities and this equity
portfolio is monitored on an ongoing basis to ensure that it is
adequately diversified.
The liquidity management policy is reviewed and updated, as
required, on at least an annual basis.
Gearing
The Company uses gearing to increase its exposure primarily for
short-term investment opportunities. The AIFM in dialogue with the
Board has set maximum levels of gearing that are reasonable. It has
implemented systems to calculate and monitor compliance against
these limits and has ensured that the limits have been complied
with at all times.
The maximum gearing limits are 30.0% for both the gross method
and the commitment method of calculating gearing. There have been
no changes to the maximum level of gearing that the Company may
employ during the year.
At 31 August 2023, GBP32.5m was drawn down against the
uncommitted loan facility. The Company has complied with the terms
of the facility throughout the financial year. Further details can
be found in note 12 on page 83.
Periodic disclosures will be made to investors through the
Company's website, www.ibtplc.com, regarding the following areas as
required:
-- Brokerage and other transaction charges and taxes.
-- Directors' fees and expenses.
-- Fees and expenses for custodial, registrar, legal, auditing
and other professional services.
-- Any borrowing costs.
-- The ongoing costs of maintaining the listing of the Ordinary
shares and their continued admission to trading on the London Stock
Exchange.
-- Directors' and Officers' Liability insurance premiums.
-- Research costs.
-- Promotional expenses (including membership of any industry
bodies, including the AIC, and marketing initiatives approved by
the Board).
-- Costs of printing the Company's financial reports and posting
them to shareholders.
SV HEALTH MANAGERS LLP
6 November 2023
STATEMENT OF THE DEPOSITARY'S RESPONSIBILITIES (UNAUDITED)
Statement of the Depositary's Responsibilities in Respect of the
Scheme and Report of the Depositary to the Shareholders of
International Biotechnology Trust (the Company) for the year ended
31 August 2023.
The Depositary must ensure that the Company is managed in
accordance with the Financial Conduct Authority's Investment Funds
Sourcebook, (the Sourcebook), the Alternative Investment Fund
Managers Directive (AIFMD), (together the Regulations), and the
Company's Articles of Association.
The Depositary must in the context of its role act honestly,
fairly, professionally, independently and in the interests of the
Company and its investors.
The Depositary is responsible for the safekeeping of the assets
of the Company in accordance with the Regulations.
The Depositary must ensure that:
-- the Company's cash flows are properly monitored and that cash
of the Company is booked in cash accounts in accordance with the
Regulations;
-- the sale, issue, repurchase, redemption and cancellation of
shares are carried out in accordance with the Regulations;
-- the assets under management and the net asset value per share
of the Company are calculated in accordance with the
Regulations;
-- any consideration relating to transactions in the Company's
assets is remitted to the Company within the usual time limits;
-- the Company's income is applied in accordance with the
Regulations; and
-- the instructions of the Alternative Investment Fund Manager
(the AIFM) are carried out (unless they conflict with the
Regulations).
The Depositary also has a duty to take reasonable care to ensure
that the Company is managed in accordance with the Articles of
Association in relation to the investment and borrowing powers
applicable to the Company.
Having carried out such procedures as we consider necessary to
discharge our responsibilities as Depositary of the Company, it is
our opinion, based on the information available to us and the
explanations provided, that in all material respects the Company,
acting through the AIFM has been managed in accordance with the
rules in the Sourcebook, the Articles of Association of the Company
and as required by the AIFMD.
Northern Trust Investor Services Limited
UK Trustee and Depositary Services
6 November 2023
NOTICE OF MEETING (UNAUDITED)
This document is important and requires your immediate
attention. If you are in any doubt as to any aspect of the
proposals referred to in this document or as to the action you
should take, you should seek advice from your stockbroker,
solicitor/attorney, accountant, central securities depository
participant ('CSDP'), banker or other independent professional
advisor immediately. If you have sold or otherwise transferred all
of your shares, please pass this document, together with the
relevant accompanying documents, to the purchaser or transferee, or
to the person who arranged the sale or transfer, so they can pass
these documents to the person who now holds the shares.
This document is important and requires your immediate
attention. If you are in any doubt as to any aspect of the
proposals referred to in this document or as to the action you
should take, you should seek advice from your stockbroker,
solicitor/attorney, accountant, central securities depository
participant ('CSDP'), banker or other independent professional
advisor immediately. If you have sold or otherwise transferred all
of your shares, please pass this document, together with the
relevant accompanying documents, to the purchaser or transferee, or
to the person who arranged the sale or transfer, so they can pass
these documents to the person who now holds the shares.
Notice is hereby given that the Annual General Meeting (AGM) of
International Biotechnology Trust plc (the Company) will be held on
Tuesday, 12 December 2023 at 3.00pm at Schroders, 1 London Wall
Place, London, EC2Y 5AU, to consider and, if thought fit, to pass
the following resolutions, of which resolutions 1 to 14 will be
proposed as ordinary resolutions and resolutions 15 to 18 will be
proposed as special resolutions.
ORDINARY RESOLUTIONS
1. To receive the Directors' Report and the audited Financial Statements for the year ended 31
August 2023.
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2. To approve the Report on Directors' Remuneration for the year ended 31 August 2023.
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3. To approve the Directors' Remuneration Policy.
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4. To approve the Company's dividend policy of making dividend payments, equivalent to 4% of
the Company's NAV as at the last day of the Company's preceding financial year, through two
equal semi-annual distributions.
---------------------------------------------------------------------------------------------------
5. To elect Ms Gillian Elcock as a Director of the Company.
---------------------------------------------------------------------------------------------------
6. To re-elect Miss Kate Cornish-Bowden as a Director of the Company.
---------------------------------------------------------------------------------------------------
7. To re-elect Mrs Caroline Gulliver as a Director of the Company.
---------------------------------------------------------------------------------------------------
8. To re-elect Mr Patrick Magee as a Director of the Company.
---------------------------------------------------------------------------------------------------
9. To re-elect Professor Patrick Maxwell as Director of the Company.
---------------------------------------------------------------------------------------------------
10. To re-appoint PricewaterhouseCoopers LLP as the Independent Auditors of the Company from the
conclusion of this Meeting until the conclusion of the next AGM at which the Financial Statements
are laid before Members.
---------------------------------------------------------------------------------------------------
11. To authorise the Directors to determine the remuneration of the Auditors.
---------------------------------------------------------------------------------------------------
To consider and, if thought fit, pass the following resolutions as ordinary resolutions:
12. THAT, in accordance with the Articles of Association, the Company should continue as an investment
trust for a further two-year period.
---------------------------------------------------------------------------------------------------
13. THAT, the Directors be generally and unconditionally authorised pursuant to and in accordance
with Section 551 of the Companies Act 2006 (the "Act"), to exercise all the powers of the
Company to allot ordinary shares of 25p each in the capital of the Company (the "Ordinary
Shares") and to grant rights to subscribe for or to convert any security into Ordinary Shares
up to an aggregate nominal amount of GBP1,021,575, equivalent to 4,086,300 Ordinary Shares
(being 10% of the issued Ordinary Share capital of the Company on 3 November 2023 (excluding
Treasury shares) (being the latest practicable date prior to the publication of this Notice
of Meeting)), such authority to apply in substitution for all previous authorities pursuant
to Section 551 of the Act and to expire (unless renewed, varied or revoked by the Company
in a general meeting) at the conclusion of the AGM held in 2024 or 15 months from the date
of passing this resolution, whichever is the earlier, save that the Company may, at any time
such expiry, make any offer and enter into any agreement which would, or might, require Ordinary
Shares to be allotted or rights to subscribe for or to convert any security into Ordinary
Shares to be granted after the authority given by this resolution has expired and the Directors
may allot Ordinary Shares or grant rights to subscribe for or convert securities into Ordinary
Shares in pursuance of such offer or agreement as if the authority conferred hereby had not
expired.
---------------------------------------------------------------------------------------------------
14. THAT, subject to the passing of Resolution 13, in addition to the authority granted pursuant
to Resolution 13, the Directors of the Company be and are hereby generally and unconditionally
authorised pursuant to Section 551 of the Act, to exercise all the powers of the Company to
allot Ordinary Shares in the Company and to grant rights to subscribe for or convert any security
into Ordinary Shares up to an aggregate nominal amount of GBP1,021,575, equivalent to 4,086,300
Ordinary Shares (being 10% of the issued Ordinary Share capital of the Company on 3 November
2023 (excluding Treasury shares) (being the latest practicable date prior to the publication
of this Notice of Meeting)), and such authority to expire (unless renewed, varied or revoked
by the Company in general meeting) at the conclusion of the AGM held in 2024 or 15 months
from the date of passing this resolution, whichever is earlier, save that the Company may,
at any time before such expiry make any offer and enter into any agreement which would, or
might, require Ordinary Shares to be allotted or rights to subscribe for or to convert any
security into Ordinary Shares to be granted after the authority given by this resolution has
expired and the Directors may allot Ordinary Shares or grant rights to subscribe for or to
convert any securities into Ordinary Shares in pursuant of such offer or agreement as if the
authority conferred hereby had not expired.
---------------------------------------------------------------------------------------------------
SPECIAL RESOLUTIONS
To consider and, if thought fit, pass the following resolutions as special resolutions:
15. THAT, subject to the passing of Resolution 13, the Directors be and are hereby authorised
pursuant to Sections 570 and 573 of the Act, to allot and make offers or agreements to allot
equity securities (as defined in Section 560 of the Act) pursuant to the authority granted
by Resolution 13 and/or to sell equity securities held by the Company as Treasury shares (as
defined in Section 724 of the Act) for cash as if Section 561(1) of the Act did not apply
to any such allotment or sale of equity securities, provided that this authority:
---------------------------------------------------------------------------------------------------
(a) shall be limited to the allotment of equity securities and/or the sale of equity securities
held in Treasury for cash up to an aggregate nominal amount of GBP1,021,575 equivalent to
4,086,300 Ordinary Shares (representing 10% of the Company's existing issued Ordinary Share
capital (excluding Treasury shares) on 3 November 2023 (being the latest practicable date
prior to the publication of this Notice of Meeting));
---------------------------------------------------------------------------------------------------
(b) shall expire (unless renewed, varied or revoked by the Company in General Meeting) at
the conclusion of the AGM held in 2024 or 15 months from the date of passing this resolution,
whichever is earlier, save that the Company may at any time before such expiry make any offer,
and enter into any agreement, which would, or might, require equity securities to be allotted
(and Treasury shares to be sold) after the authority expires and the Directors may allot equity
securities (and sell Treasury shares) in pursuance of such offer or agreement as if the authority
conferred hereby had not expired.
---------------------------------------------------------------------------------------------------
16. THAT, subject to the passing of Resolution 14, the Directors be and are hereby authorised
(and in addition to any authority granted under Resolution 15) (as defined in Section 560
of the Act) pursuant to Sections 570 and 573 of the Act to allot and make offers or agreements
to allot equity securities pursuant to the authority granted by Resolution 14 and/or to sell
equity securities held by the Company as Treasury shares (as defined in Section 724 of the
Act) for cash as if Section 561(1) of the Act did not apply to any such allotment or sale
of equity securities, provided that this authority:
---------------------------------------------------------------------------------------------------
(a) shall be limited to the allotment of equity securities and/or the sale of equity securities
held in Treasury for cash up to an aggregate nominal amount of GBP1,021,575 equivalent to
4,086,300 Ordinary Shares (representing 10% of the Company's existing issued Ordinary Share
capital (excluding Treasury shares) on 3 November 2023 (being the latest practicable date
prior to the publication of this Notice of Meeting));
---------------------------------------------------------------------------------------------------
(b) shall expire (unless renewed, varied or revoked by the Company in General Meeting) at
the conclusion of the AGM held in 2024 or 15 months from the date of passing this resolution,
whichever is earlier; save that the Company may at any time before such expiry make any offer
and enter into any agreement, which would, or might, require equity securities to be allotted
(and Treasury shares to be sold) after the authority expires and the Directors may allot equity
securities (and sell Treasury shares) in pursuance of any such offer or agreement as if the
authority had not expired.
---------------------------------------------------------------------------------------------------
17. THAT, the Company be generally and unconditionally authorised, for the purposes of Section
701 of the Act to make market purchases (within the meaning of Section 693(4) of the Act)
of Ordinary Shares, provided that:
---------------------------------------------------------------------------------------------------
(a) the maximum number of Ordinary Shares which may be purchased is 5,851,887 (being 14.99%
of the issued Ordinary Share capital, excluding Treasury shares, as at 3 November 2023 (being
the last practicable date prior to the publication of this Notice of Meeting));
---------------------------------------------------------------------------------------------------
(b) the minimum price which may be paid for each Ordinary Share is 25p (being the nominal
value of an Ordinary Share) exclusive of expenses,
---------------------------------------------------------------------------------------------------
(c) the maximum price, exclusive of expenses, which may be paid for each Ordinary share is
an amount equal to the higher of:
---------------------------------------------------------------------------------------------------
(i) 105% of the average of the middle market quotations for the Ordinary Shares derived from
the London Stock Exchange Daily Official List for the five business days immediately before
the day on which that Ordinary Share is contracted for purchase; and
---------------------------------------------------------------------------------------------------
(ii) the higher of the price of the last independent trade of an Ordinary Share and the highest
current bid for an Ordinary Share on the trading venue where the purchase is carried out;
and
---------------------------------------------------------------------------------------------------
(d) the authority to purchase hereby conferred shall expire (unless renewed or revoked by
the Company in general meeting) at the conclusion of the AGM held in 2024 or 15 months from
the date of passing this resolution, whichever is the earlier, save that the Company may,
at any time before such expiry enter into a contract to purchase Ordinary Shares which will
or may be executed wholly or partly after the expiry of such authority.
---------------------------------------------------------------------------------------------------
18. THAT, a General Meeting (other than an AGM) may be called on not less than 14 clear days'
notice.
---------------------------------------------------------------------------------------------------
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
Registered Office:
6th floor, 65 Gresham St, London EC2V 7NQ
6 November 2023
NOTICE OF MEETING|NOTES (UNAUDITED)
NOTICE OF MEETING NOTES
1. Holders of Ordinary Shares ("Ordinary Shareholders") are entitled to attend and vote at the
Meeting and to appoint one or more proxies or corporate representatives to exercise all or
any of their rights to attend, speak and vote on their behalf at the Meeting but only if each
proxy or corporate representative is appointed to vote on separate forms or separate blocks
of shares registered to the shareholder. A proxy need not be a member of the Company. A proxy
form is enclosed accordingly. To be valid, the proxy form together with any power of attorney
or other authority under which it is signed or a certified copy thereof, should be lodged
at the office of the Company's Registrar, Equiniti Limited, Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA, no later than 3.00pm. on Friday, 8 December 2023. If you return more
than one proxy appointment, either by paper or electronic communication, that received last
by Link Group before the latest time for the receipt of proxies will take precedence. You
are advised to read the terms and conditions of use carefully. Electronic communication facilities
are open to all shareholders and those who use them will not be disadvantaged.
Any person to whom this notice is sent, who is a person nominated under Section 146 of the
Act to enjoy information rights (a Nominated Person) may, under an agreement between him or
her and the shareholder by whom he or she was nominated, have a right to be appointed (or
to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such
proxy appointment right or does not wish to exercise it, he or she may, under any such agreement,
have a right to give instructions to the shareholder as to the exercise of voting rights.
-------------------------------------------------------------------------------------------------------------
The statement of the rights of shareholders in relation to the appointment of proxies in this
note does not apply to Nominated Persons. The rights described in this note can only be exercised
by shareholders of the Company.
-------------------------------------------------------------------------------------------------------------
2. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company has
specified that only those shareholders registered in the Register of Members of the Company
at 6.30pm on Friday, 8 December 2023, two working days prior to the date of an adjourned Meeting,
shall be entitled to submit proxy votes at the Meeting in respect of the number of shares
registered in their name at that time.
-------------------------------------------------------------------------------------------------------------
Only those Ordinary Shareholders registered in the register of members of the Company as at
close of business on Friday, 8 December 2023 (the "specified time") shall be entitled to vote
at the aforesaid AGM in respect of the number of shares registered in their name at that time.
Changes to the Register of Members after 6.30pm on Friday, 8 December 2023 shall be disregarded
in determining the right of any person to vote at the Meeting. The voting record date has
been determined as Friday, 8 December 2023. If the meeting is adjourned to a time not more
than 48 hours after the specified time applicable to the original meeting, that time will
also apply for the purpose of determining the entitlement of members to vote (and for the
purpose of determining the number of votes they may cast) at the adjourned meeting. If however
the meeting is adjourned for a longer period then, to be so entitled, members must be entered
on the Company's register of members at the time which is 48 hours before the time fixed for
the adjourned meeting, or if the Company gives notice of the adjourned meeting, at the time
specified in that notice.
-------------------------------------------------------------------------------------------------------------
3. In the case of joint holders of a share the vote of the first named on the Register of Members
who tenders a vote by proxy, shall be accepted to the exclusion of the votes of the other
joint holders.
-------------------------------------------------------------------------------------------------------------
4. Any corporation which is a member may appoint one or more corporate representatives who may
exercise on its behalf all of its powers as a member provided that they do not do so in relation
to the same shares.
-------------------------------------------------------------------------------------------------------------
5. Proxies may be submitted electronically at www.sharevote. co.uk by entering the Voting ID,
Task ID and Shareholder Reference ID set out in the attached proxy form.
-------------------------------------------------------------------------------------------------------------
Alternatively, Ordinary Shareholders who have already registered with Equiniti's Shareview
service can appoint their proxy/proxies by logging onto their account at www.shareview.co.uk
using their usual user ID and password. Once logged in simply click "View" on the "My Investments"
page, click on the link to vote then follow the on screen instructions.
-------------------------------------------------------------------------------------------------------------
6. If you are an institutional investor you may be able to appoint a proxy electronically via
the Proxymity platform, a process which has been agreed by the Company and approved by the
Registrar. For further information regarding Proxymity, please go to www.proxymity.io. Your
proxy must be lodged by 3.00pm on 8 December 2023 in order to be considered valid. Before
you can appoint a proxy via this process you will need to have agreed to Proxymity's associated
terms and conditions. It is important that you read these carefully as you will be bound by
them and they will govern the electronic appointment of your proxy. An electronic proxy appointment
via the Proxymity platform may be revoked completely by sending an authenticated message via
the platform instructing the removal of your proxy vote.
-------------------------------------------------------------------------------------------------------------
7. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment
service may do so for the AGM to be held on Tuesday, 12 December 2023 and any adjournment(s)
thereof by using the procedures described in the CREST Manual on the Euroclear website (www.euroclear.com).
CREST personal members or other CREST sponsored members, and those CREST members who have
appointed a voting service provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on their behalf.
-------------------------------------------------------------------------------------------------------------
In order for a proxy appointment or instruction made using the CREST service to be valid,
the appropriate CREST message (a CREST Proxy Instruction) must be properly authenticated in
accordance with Euroclear UK & International Limited's specifications and must contain the
information required for such instructions, as described in the CREST Manual (available via
www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment
of a proxy or an amendment to the instruction given to a previously appointed proxy must,
in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA19)
by 3.00pm on Friday, 8 December 2023. For this purpose, the time of receipt will be taken
to be the time (as determined by the timestamp applied to the message by the CREST Applications
Host) from which the Company's agent is able to retrieve the message by enquiry to CREST in
the manner prescribed by CREST. After this time any change of instructions to proxies appointed
through CREST should be communicated to the appointee through other means.
-------------------------------------------------------------------------------------------------------------
CREST members and, where applicable, their CREST sponsors or voting service provider(s) should
note that Euroclear UK & International Limited does not make available special procedures
in CREST for any particular messages. Normal system timings and limitations will therefore
apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the
CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored
member or has appointed a voting service provider(s), to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure that a message
is transmitted by means of the CREST system by any particular time. In this connection, CREST
members and, where applicable, their CREST sponsors or voting service provider(s) are referred,
in particular, to those sections of the CREST Manual concerning practical limitations of the
CREST system and timings.
-------------------------------------------------------------------------------------------------------------
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in
Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
-------------------------------------------------------------------------------------------------------------
8. You should not use any electronic address provided either in the Notice of Meeting or any
related documents (including the form of proxy) to communicate with the Company for any purposes
other than those expressly stated.
-------------------------------------------------------------------------------------------------------------
9. Copies of the Appointment Letters of the Non-executive Directors, the Company's Articles of
Association and a statement of all transactions of each Director and of their family interests
in the shares of the Company, will be available for inspection by any shareholder of the Company
at the Registered Office of the Company during normal business hours on any weekday (English
public holidays excepted) and at the AGM by any attendee, for at least 15 minutes prior to,
and during, the AGM. None of the Directors has a contract of service with the Company.
-------------------------------------------------------------------------------------------------------------
10. The biographies of the Directors offering themselves for election and re-election are set
out on pages 38 and 39 of the Company's Annual Report for the year ended 31 August 2023 and
set out each Director's experience. These, along with the disclosure in the Directors' Report
on pages 40 and 41, explain why the Directors' contributions are important to the Company's
sustainable success.
-------------------------------------------------------------------------------------------------------------
11. As at 3 November 2023, 41,383,817 Ordinary Shares of 25 pence were in issue, of which, 2,345,210
Ordinary Shares were held in Treasury (equivalent to 5.7% of the issued share capital, including
Treasury shares). Each Ordinary Share (excluding ordinary shares held in Treasury) carries
one vote. Accordingly, the total number of voting rights of the Company as at 3 November 2023
is 39,038,607, being the issued share capital minus ordinary shares held in Treasury.
-------------------------------------------------------------------------------------------------------------
12. If the Chair, as a result of any proxy appointments, is given discretion as to how the votes
of those proxies are cast and the voting rights in respect of those discretionary proxies,
when added to the interests of the Company's securities already held by the Chair, result
in the Chair holding such number of voting rights that he has a notifiable obligation under
the Disclosure Guidance and Transparency Rules, the Chair will make the necessary notifications
to the Company and the FCA. As a result, any member holding 3 per cent. or more of the voting
rights in the Company who grants the Chair a discretionary proxy in respect of some or all
of those voting rights and so would otherwise have a notification obligation under the Disclosure
Guidance and Transparency Rules, need not make a separate notification to the Company and
the FCA.
-------------------------------------------------------------------------------------------------------------
13. A personalised proxy form will be sent to each registered shareholder with the Annual Report
and this Notice of Meeting, and instructions on how to vote will be contained thereon.
-------------------------------------------------------------------------------------------------------------
14. Shareholders are advised that they have the right to have questions answered at the AGM. The
Company must cause to be answered any such question relating to the business being dealt with
at the AGM but no such answer need be given if:
-------------------------------------------------------------------------------------------------------------
(a) to do so would interfere unduly with the preparation for the Meeting or involve the disclosure
of confidential information;
-------------------------------------------------------------------------------------------------------------
(b) the answer has already been given on the Company's website (www.ibtplc.com) in the form
of an answer to a question; or
-------------------------------------------------------------------------------------------------------------
(c) it is undesirable in the interests of the Company or the good order of the Meeting that
the question be answered.
-------------------------------------------------------------------------------------------------------------
The Board encourages shareholders to submit any questions they may wish to raise at the AGM
in writing to the Company Secretary in advance of the Meeting. The Company Secretary can be
contacted by email at
-------------------------------------------------------------------------------------------------------------
AMCompanySecretary@Schroders.com
-------------------------------------------------------------------------------------------------------------
15. As soon as practicable following the AGM, the results of the voting at the Meeting and the
number of votes cast for and against and the number of votes withheld in respect of each resolution
will be announced via a Regulatory Information Service and placed on the Company's website.
Under Section 527 of the Act, shareholders meeting the threshold requirements set out in that
Section have the right to require the Company to publish on a website a statement setting
out any matter relating to:
-------------------------------------------------------------------------------------------------------------
(a) the audit of the Company's Financial Statements (including the Independent Auditors' Report
and the conduct of the audit) that are to be laid before the AGM
-------------------------------------------------------------------------------------------------------------
(b) any circumstance connected with the auditor of the Company ceasing to hold office since
the previous meeting at which an Annual Report and Financial Statements were laid in accordance
with Section 437 of the Act.
-------------------------------------------------------------------------------------------------------------
The Company may not require the shareholders requesting any such website publication to pay
its expenses in complying with Sections 527 or 528 of the Act. Where the Company is required
to place a statement on a website under Section 527 of the Act, it must forward the statement
to the Company's Auditor not later than the time when it makes the statement available on
the website.
-------------------------------------------------------------------------------------------------------------
The business which may be dealt with at the AGM includes any statement that the Company has
been required under Section 527 of the Act to publish on a website.
-------------------------------------------------------------------------------------------------------------
17. Members satisfying the thresholds in section 338 of the Act may require the Company to give
to members of the Company entitled to receive notice of the annual general meeting, notice
of a resolution which those members intend to move (and which may properly be moved) at the
annual general meeting. A resolution may properly be moved at the annual general meeting unless
(i) it would, if passed, be ineffective (whether by reason of any inconsistency with any enactment
or the Company's constitution or otherwise); (ii) it is defamatory of any person; or (iii)
it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or
electronic form, must identify the resolution of which notice is to be given, must be authenticated
by the person(s) making it and must be received by the Company not later than six weeks before
the date of the annual general meeting.
-------------------------------------------------------------------------------------------------------------
18. Members satisfying the thresholds in section 338A of the Act may request the Company to include
in the business to be dealt with at the annual general meeting any matter (other than a proposed
resolution) which may properly be included in the business at the annual general meeting.
A matter may properly be included in the business at the annual general meeting unless (i)
it is defamatory of any person, or (ii) it is frivolous or vexatious. A request made pursuant
to this right may be in hard copy or electronic form, must identify grounds for the request,
must be authenticated by the person(s) making it and must be received by the Company not later
than six weeks before the date of the annual general meeting.
-------------------------------------------------------------------------------------------------------------
19. A copy of this Notice, and other information required by Section 311A of the Act, can be viewed
and/or downloaded at www.ibtplc.com and, if applicable, any Members' statements, resolutions
or matters of business received by the Company after the date of this Notice will be available
on the Company's website www.ibtplc.com.
-------------------------------------------------------------------------------------------------------------
GLOSSARY (UNAUDITED)
$-US dollar.
Administrator-the administrator is The Northern Trust Company
to which the Company has delegated certain trade processing,
valuation and middle office tasks and systems. From November
2023 the administrator will be HSBC Bank plc.
AIC-Association of Investment Companies, the trade body for
investment companies.
AIFM-Alternative Investment Fund Manager - SV Health Managers
LLP.
AIFMD-Alternative Investment Fund Managers Directive - Issued
by the European Parliament in 2012 and 2013, the Directive requires
that all investment vehicles (AIFs) in the European Union, including
investment trusts, appoint a Depositary and an Alternative Investment
Fund Manager (AIFM). The Board remains responsible, however,
for all aspects of the Company's strategy, operations and compliance
with regulations.
APM(s)-Alternative Performance Measures are numerical measures
of current and historical performance, financial position or
cash flow that are not IFRS measures (please refer to pages
112 to 113).
Benchmark-the benchmark is the NASDAQ Biotechnology Index (NBI)
(total return in sterling with dividends reinvested).
Company-International Biotechnology Trust plc or IBT.
Custodian-the Custodian is Northern Trust Investor Services
Limited. From November 2023 the Custodian will be HSBC Bank
plc. The Custodian is a financial institution responsible for
safeguarding the securities and cash assets of the Company,
as well as the income arising therefrom, through provision of
custodial, settlement and associated services.
Depositary-the Depositary is Northern Trust Investor Services
Limited. From November 2023 the Depositary will be HSBC Bank
plc. Under AIFMD rules, the Company must have a Depositary whose
duties in respect of investments and cash include safekeeping;
verification of ownership and valuation; and cash monitoring.
Under the AIFMD rules, the Depositary has strict liability for
the loss of the Company's financial assets in respect of which
it has safekeeping duties.
Discount/Premium-the share price of an investment trust is derived
from buyers and sellers trading their shares on the London Stock
Exchange and is not always the same as the NAV per share. If
the share price is lower than the NAV per share, the shares
are said to be trading 'at a discount'. If the share price is
above the NAV per share, the shares are said to be trading 'at
a premium'.
Distributable reserves-reserves distributable by way of dividend
or for the purpose of buying back Ordinary share capital.
Fund Manager and Alternative Investment Fund Manager (AIFM)-SV
Health Managers LLP. From 20 November 2023, Schroder Investment
Management Limited will be the Company Fund Manager, and Schroder
Unit Trust Limited we be appointed as the Company's AIFM. The
responsibilities and remuneration of the Fund Manager are set
out in the Directors' Report and note 4 to the Financial Statements.
Independent Auditor-PricewaterhouseCoopers LLP.
Initial public offering (IPO)-an initial public offering (IPO)
refers to the process of offering shares of a private company
to the public in a new stock issuance for the first time. An
IPO allows a company to raise equity capital from public investors.
Joint Lead Investment Managers-Ailsa Craig and Marek Poszepczynski,
employees of the Fund Manager with overall management responsibility
for the total portfolio.
Management fee-the Fund Manager is entitled to a management
fee payable monthly at the rate of 0.9% per annum of the Company's
NAV.
Market capitalisation-the stock market quoted price of the Company's
shares, multiplied by the number of shares in issue. If the
Company's shares trade at a discount to NAV, the market capitalisation
will be lower than the NAV.
Net Asset Value (NAV)-the assets less the liabilities of the
Company, as set out in the Statement of Financial Position,
all valued in accordance with the Company's accounting policies
as described in note 1 to the Financial Statements.
Non-executive Director-a Director who has a letter of appointment,
rather than a contract of employment, with the Company. The
Company does not have any executive Directors.
Ongoing charges-ongoing charges are all operating costs expected
to be regularly incurred and that are payable by the Company.
Ongoing charges are calculated in accordance with the Association
of Investment Companies (the AIC) guidance, based on total expenses
excluding finance costs and performance fee and expressed as
a percentage of average daily net assets. The ratio including
performance fee has also been provided, in line with the AIC
recommendations. Research costs under MiFID II borne by the
Company are included in the ongoing charges calculation.
Performance fee-the Fund Manager is entitled to a performance
fee which is calculated as follows:
-- The fee on the quoted portfolio is 10% of relative outperformance
above the sterling-adjusted NBI plus a 0.5% hurdle.
-- The fee on the unquoted pool, excluding the investments in
unquoted funds, is 20% of net realised gains, taking into account
any unrealised losses but not unrealised gains.
The payment of the performance fee is subject to the following
limits:
-- The maximum performance fee in any one year is 2% of average
net assets; and
-- Any underperformance of the quoted portfolio against the
benchmark is carried forward for the current financial period
plus two succeeding periods. Performance fees in excess
of the performance fee cap are carried forward for the current
financial period plus two succeeding periods and are offset
against any subsequent underperformance before being paid out.
SV BCOF - SV Biotech Crossover Opportunities Fund LP.
Total return-the total return is the return to Shareholders
after reinvesting the net dividend on the date that the share
price goes ex-dividend.
UK Code of Corporate Governance (UK Code)-the standards of good
practice in relation to board leadership and effectiveness,
remuneration, accountability and relations with Shareholders
that all companies with a Premium Listing on the London Stock
Exchange are required to report on in their annual report and
accounts.
XBI-the stock symbol (ticker) for SPDR S&P Biotech ETF, an Exchange
Traded Fund which seeks to replicate as closely as possible
the performance of the S&P Biotechnology Select Industry index.
Alternative Performance Measures (APMs) (UNAUDITED)
The Board uses the following APMs to review the performance of
the Company and supplement the information in the financial
statements in line with industry standards (listed in alphabetical
order):
Discount/Premium
The Company's share price is not always the same as the NAV per
share. If the share price is lower than the NAV per share, the
shares are said to be trading 'at a discount'. If the share price
is above the NAV per share, the shares are said to be trading 'at a
premium'. The Board's objective is to keep the discount within a
defined range and actively monitors it to allow it to take the
correcting action of conducting share buybacks when the discount
widens beyond that range.
At 31 August 2023 At 31 August 2022
NAV per share (pence) a 687.5 697.2
------------------ ------------------ ------------------
Share price (pence) b 644.0 651.5
------------------ ------------------ ------------------
Discount (b ÷ a) - 1 (6.3%) (6.6%)
------------------ ------------------ ------------------
Gearing
Gearing for this purpose is defined as borrowings used for
investment purposes, less cash, expressed as a percentage of net
assets. The Company has authority to use gearing to a maximum of
30% of NAV and this is monitored daily to ensure this level is not
exceeded.
Note At 31 August At 31 August
2023 2022
Borrowings
used for investment
purposes including
cash (GBP'000) a 12 32,474 39,976
------------ ----- ------------- -------------
Net assets
(GBP'000) b 270,317 284,889
------------ ----- ------------- -------------
Gearing a ÷ b 12.0% 14.0%
------------ ----- ------------- -------------
Ongoing charges
Ongoing charges are calculated in accordance with the AIC's
recommended methodology using the charges for the current year and
the average daily NAV during the year. This calculation allows a
comparison to be made between the costs of the Company and external
investment companies and is a key metric used by the Board to
ensure it remains competitive.
Year ending Year ending
Notes 31 August 31 August
2023 2022
------------ ------ ------------ ------------
Management
fee paid by
the Company
(GBP'000) 4 1,810 2,009
------ ------------ ------------
Management
fee paid directly
by SV unquoted
funds (GBP'000) 4 791 623
------ ------------ ------------
Administrative
expenses (GBP'000) 5 1,559 1,218
------ ------------ ------------
Total ongoing
expenses (GBP'000) a 4,160 3,850
------------ ------ ------------ ------------
Average daily
NAV (GBP'000) b 289,512 290,719
------------ ------ ------------ ------------
Ongoing Charges
(expressed
as a percentage) a ÷ b 1.4% 1.3%
------------ ------ ------------ ------------
Total return
The total return is the return to shareholders after reinvesting
the net dividend on the date that the share price goes ex-dividend.
Total Return is the primary measurement used by the Board to assess
Company performance against the benchmark and its competitors on a
consistent basis.
(a) NAV total return
Year ending Year ending
31 August 2023 31 August 2022
----------------- --------------- ----------------
Opening NAV per share (pence) a 697.2 782.4
----------------- --------------- ----------------
Closing NAV per share (pence) b 687.5 697.2
----------------- --------------- ----------------
Dividend adjustment factor* c 1.0416 1.0450
----------------- --------------- ----------------
Adjusted closing NAV per share (pence) d = b x c 716.1 728.6
----------------- --------------- ----------------
Total return (d ÷ a) -1 2.7% (6.9%)
----------------- --------------- ----------------
*The dividend adjustment factor is calculated on the assumption
that the dividends paid by the Company during the year were
reinvested into shares of the Company at the cum income NAV per
share at the ex-dividend date.
NAV total return is analysed further into its components and
sub-components, namely quoted portfolio total return, SV Fund VI
total return, SV BCOF total return and directly-held unquoted
portfolio total return, as discussed in the Chair's Statement and
Fund Manager's Review. The calculations for these components of
total return are based on geometric algorithms taking into account
individual investment's pricing movements, acquisitions and
disposals, the dividend adjustment factor, fees and administration
expenses incurred by the Company.
(b) Share price total return
Year ending Year ending
31 August 2023 31 August 2022
----------------- --------------- ----------------
Opening price per share (pence) a 651.5 729.5
----------------- --------------- ----------------
Closing price per share (pence) b 644.0 651.5
----------------- --------------- ----------------
Dividend adjustment factor* c 1.0424 1.0482
----------------- --------------- ----------------
Adjusted closing price per share (pence) d = b x c 671.3 682.9
----------------- --------------- ----------------
Total return (d ÷ a) -1 3.0% (6.4%)
----------------- --------------- ----------------
*The dividend adjustment factor is calculated on the assumption
that the dividends paid by the Company during the year were
reinvested into shares of the Company at the share price, at the
ex-dividend date.
DIRECTORS AND ADVISERS, COMPANY SUMMARY, SHAREHOLDER
INFORMATION
Directors
Kate Cornish-Bowden
(Chair)
Patrick Magee
(Senior Independent Director)
Caroline Gulliver
(Chair of the Audit Committee)
Professor Patrick Maxwell
Gillian Elcock
ADVISERS
Fund Manager and AIFM
SV Health Managers LLP
71 Kingsway
London WC2B 6ST
Telephone: 020 7421 7070
AIFM
(From 20 November 2023)
Schroder Unit Trusts Limited
1 London Wall Place
London EC2Y 5AU
Investment Managers
(From 20 November 2023)
Schroder Investment Management Limited
1 London Wall Place
London EC2Y 5AU
Company Secretary and Registered Office
Link Company Matters Limited
6th Floor, 65 Gresham Street, London, England EC2V 7NQ
Telephone: +44 (0)20 7410 5971
Email: companymatters@linkgroup.co.uk
(From 20 November 2023)
Schroder Investment Management Limited
1 London Wall Place
London EC2Y 5AU
Administrator
The Northern Trust Company
50 Bank Street
London E14 5NT
Custodian and Depositary
Northern Trust Investor Services Limited
50 Bank Street
London E14 5NT
Administrator, Custodian and Depositary
(From 20 November 2023)
HSBC Bank plc
8 Canada Square
London E14 5HQ
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Embankment Place
London WC2N 6RH
Stockbroker
Deutsche Numis
45 Gresham Street
London EC2V 7BF
Registrar
Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA
Shareholder Helpline:
0371 384 2624
Website: www.shareview.co.uk
Lines are open from 8.30am to 5.30pm Monday to Friday
(excluding public holidays in England and Wales).
Company Status
The Company was established in 1994 as an independent investment
trust whose shares are listed on the London Stock Exchange
(Ordinary shares: ISIN No: GB0004559349; EPIC Code: IBT). The
Company is registered in England and Wales with a company number of
2892872.
Life of the Company
The Company's Articles of Association provide for Directors to
put forward a proposal for the continuation of the Company at the
Company's AGM at two-yearly intervals. Accordingly, a proposal will
be put forward at the AGM to be held on Tuesday, 12 December
2023.
Share Price and NAV Information
The Company's shares are listed on the London Stock Exchange.
The Company releases its NAV per share to the market on a daily
basis.
Association of Investment Companies
The Company is a member of the Association of Investment
Companies (the AIC). Further information on the AIC can be found at
its website, www.theaic.co.uk .
Financial Calendar
January Payment of first interim dividend
28 February Half Year End
-----------------------------------
April Half Yearly Results announced
-----------------------------------
August Payment of second interim dividend
-----------------------------------
31 August Year End
-----------------------------------
November Annual Results announced
-----------------------------------
December Annual General Meeting (AGM)
-----------------------------------
Shares in Issue
As at 3 November 2023, the Company had 41,383,817 Ordinary
shares of 25p each in issue which included 2,345,210 Ordinary
shares of 25p each held in Treasury.
Website
The Company's website is located at www.ibtplc.com. The site
provides share price and NAV information as well as details of the
Board of Directors, Fund Manager and AIFM, information on investee
companies, monthly factsheets, the latest published Annual and Half
Yearly Financial Statements and access to recent market
announcements.
ANNUAL REPORT
31 August 2023
SV Health Managers LLP
71 Kingsway
London, WC2B 6ST
Telephone: +44 (0)20 7421 7070
Email: IBT-IR@svhealthinvestors.com
Link Company Matters Limited
6th Floor, 65 Gresham Street
London, England, EC2V 7NQ
Telephone: +44 (0)20 7410 5971
For further information: www.ibtplc.com
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END
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November 07, 2023 02:00 ET (07:00 GMT)
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