Intnl. Biotechnology - Final Results
05/11/2024 07:00
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RNS Number : 8998K Intl. Biotechnology Trust PLC 05 November 2024
LONDON STOCK EXCHANGE ANNOUNCEMENT
INTERNATIONAL BIOTECHNOLOGY TRUST PLC
ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2024
Information disclosed in accordance with DTR 4.2.2
The Company's Annual Report and Financial Statements for the year ended 31
August 2024 is being published in hard copy format and an electronic copy will
shortly be available to download from the Company's web pages: www.ibtplc.com.
Please click on the following link to view the document: www.ibtplc.com
(http://www.ibtplc.com)
Key highlights
· The net asset value ("NAV") is again ahead of the NASDAQ Biotechnology
Reference Index (the "Reference Index") rising by 15.9% per share against the
Reference Index which rose by 15.3% in the year under review.
· The NAV per share of the quoted portfolio, sterling adjusted and with
dividends reinvested, rose by 15.4% during the financial year. The management
team have delivered double digit absolute performance in addition to beating
the Reference Index.
· Successful identification of mergers and acquisitions candidates contributed
to outperformance with a further two quoted holdings being acquired during the
financial year.
· Currently the unquoted exposure represents 8.6% of the Company's total assets.
These are primarily invested in two SV venture capital funds, SV Life Sciences
Fund VI ("SV Fund VI") and SV Biotech Crossover Opportunities Fund ("SV
BCOF"). Both funds have had a successful year with two holdings being acquired
and a further company achieving a significant uplift following its public
listing on NASDAQ.
· The Company's dividend policy is to make dividend payments equivalent to 4% of
the Company's NAV, as at the last day of the preceding financial year ending
31 August, through two semi-annual distributions.
· The Board was pleased to announce on 27 August 2024 that Alexa Henderson would
be appointed as a non-executive Director and Audit Committee Chair designate
with effect from 1 January 2025.
Investor presentation
Our Portfolio Managers, Ailsa Craig and Marek Poszepczynski will be presenting
at an investor webinar on Tuesday, 5 December 2024 at 10.00 am (which can be
signed up to via the following link: https://www.schroders.events/IBT24
(https://www.schroders.events/IBT24) ).
Kate Cornish-Bowden, Chair of Schroder International Biotechnology Trust plc,
commented:
"We share our Portfolio Managers' optimism that the recovery in the
biotechnology sector is just beginning. Relative valuations are compelling and
the potential rewards for investors in innovative companies developing future
treatments look more attractive than ever."
The Company has submitted a copy of its Annual Financial Report to the
National Storage Mechanism and it will shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Enquiries:
Schroder Investment Management Limited
Charlotte Banks/Kirsty Preston (Press) 020 7658 2106
Kerry Higgins 020 7658 6000
Chair's Statement
"We share our Portfolio Managers' optimism that the recovery in the
biotechnology sector is just beginning. Relative valuations are compelling and
the potential rewards for investors in innovative companies developing future
treatments look more attractive than ever."
In the first Annual Report to you since appointing Schroders as Alternative
Investment Fund Manager (the "AIFM" or the "Manager") of International
Biotechnology Trust plc, I am pleased to report that the net asset value
("NAV") is again ahead of the NASDAQ Biotechnology Index (the "Reference
Index") delivering a NAV total return of 15.9% against the Reference Index
which rose by 15.3% in the year under review. Despite strong performance the
discount continued to widen during the year, leading to a share price total
return per share of 10.3%. All figures are on a sterling adjusted basis with
dividends reinvested.
Annualised over the three years to 31 August 2024, the NAV total return was
3.6% versus an annualised return of -0.7% for the Reference Index over the
same period.
Our Portfolio Managers, Ailsa Craig and Marek Poszepczynski, who moved to
Schroders in November 2023, have continued to apply the same investment
philosophy and approach. The transition to Schroders is now complete, and the
Company has been benefiting from the support of a larger organisation with
healthcare expertise and market-leading distribution and administrative
capabilities.
Quoted portfolio
The NAV per share of the quoted portfolio, sterling adjusted and with
dividends reinvested, rose by 15.4% during the financial year. Following a
torrid couple of years for the biotechnology sector, I am pleased that the
management team has delivered double digit absolute performance in addition to
beating the Reference Index.
Investor confidence that the interest rate cycle had peaked at the end of 2023
supported a recovery which was initially focused on the larger pharmaceutical
companies. The investment team continued to add selectively to the small and
mid capitalisation innovative biotechnology companies which are now also
participating in the sector recovery.
Vera Therapeutics, an autoimmune company and a top five holding which is
developing a promising treatment to reduce the inflammatory response in
immunoglobin A ("IgA") nephropathy, a chronic kidney disease, continued to
perform well and contributed significantly to outperformance during the
period. The share price of Insmed, which the Portfolio Managers added to
during the year, has also performed well. The company is developing a drug to
treat a debilitating lung condition, bronchiectasis, and has reported
promising clinical trial results. Ultragenyx also performed well after the
company upgraded estimates for sales of its drug Crysvita which treats a rare
form of bone disease.
Once again successful identification of mergers and acquisitions ("M&A")
candidates contributed to outperformance, with a further two quoted holdings
being acquired during the financial year. In January of this year, Bristol
Myers Squibb announced the completion of its bid for Mirati Therapeutics, an
oncology company with a commercialised lung cancer drug, Krazati. In March of
this year, Bristol Myers Squibb also acquired Karuna Therapeutics, a company
with drugs under development for neurological and psychiatric conditions.
Karuna's lead candidate for schizophrenia, Cobenfy, received US Food and Drug
Administration ("FDA") approval in September 2024.
Detractors of performance included Aurinia Pharmaceuticals, which has been
unsuccessful in generating interest in its lead commercialised medicine
Lupkynis which treats lupus, and Revance Therapeutics, which makes injectable
aesthetic therapeutics. Revance was unable to gain traction in a very
competitive market and has recently announced a merger with a competitor.
Unquoted portfolio
In line with feedback received from our shareholders, we invest up to 15% of
the total investments in innovative private equity opportunities within the
biotechnology sector. SV Health Managers LLP ("SV Health"), which has
historically delivered a strong track record for our shareholders from
investments in unquoted biotechnology assets, continues to provide advice on
the current private equity exposure. Currently, the unquoted exposure
represents 8.6% of the Company's total assets. These are primarily invested in
two SV venture capital funds, SV Life Sciences Fund VI ("SV Fund VI") and SV
Biotech Crossover Opportunities Fund ("SV BCOF").
I am pleased to report that these funds have also had a successful year with
two holdings being acquired and a further company achieving a significant
uplift following its public listing on NASDAQ. In July 2024, Edwards
Lifesciences acquired a portfolio holding in SV Fund VI, Endotronix, a leader
in heart failure management technology, as part of a $1.2 billion deal.
EyeBio, an innovative retinal disease therapy developer, which is held in our
more recent investment, SV BCOF, was acquired by Merck in May 2024 for up to
$3 billion, including up to $1.7 billion in potential milestone payments.
Post the financial year end in September 2024, Bioage, also held in the SV
BCOF portfolio, raised US$200 million from its initial public offering ("IPO")
on NASDAQ. A clinical stage company, Bioage is developing an oral drug
candidate, Alzeprag, which is undergoing a phase 2 weight loss trial in
combination with Eli Lilly's injectable obesity GLP-1 drug, Zepbound.
Dividends
The Company's dividend policy, which was last approved at the annual general
meeting ("AGM") in December 2023, is to make dividend payments equivalent to
4% of the Company's NAV, as at the last day of the preceding financial year
ending 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 13.9p per
share, was paid on 26 January 2024, and the second payment of 14.5p per share,
was made on 23 August 2024.
The dividend policy will once again be proposed to shareholders at the
Company's AGM in December 2024.
Discount management
The last twelve months have seen an increase in companies where share prices
are trading at a discount to NAV throughout the investment trust industry, and
the biotechnology and healthcare sector is no exception. The Board continues
to keep the Company's share price discount to NAV under close review and is
committed to buying back its shares to help manage the position. Although
2,483,273 shares were bought back to be held in treasury during the year, the
discount widened from 6.3% to 11.3%. Post the financial year end, we have seen
some narrowing of the discount and we are cautiously optimistic that renewed
confidence in the biotechnology sector will lead to the share price more
accurately reflecting the underlying strength of the Company's net assets.
Environmental, social and governance ("ESG") matters
As outlined in the Half Year Report, we are now able to utilise Schroders'
dedicated ESG team to help our Portfolio Managers incorporate ESG criteria in
the investment process. This additional resource has enabled us to apply a
more rigorous approach to monitoring and engagement with our investee
companies.
The updated ESG policy is detailed in the full Annual Report and Financial
Statements.
Costs and fees
As previously explained, the Manager waived its management fee for the
first six months of appointment (from 20 November 2023), to offset the costs
associated with the mandate transition. As expected, the ongoing charges ratio
has decreased since the transition to Schroders.
In accordance with the Company's remuneration policy to pay additional one off
fees in the event Directors have undertaken time-consuming work to deliver
projects in shareholders' interests, all Board members have been awarded a one
off payment following successful completion of the transition of the Company
from SV Health to Schroders. These are detailed in the Directors' Remuneration
Report in the full Annual Report and Financial Statements.
For the year ended 31 August 2024, a performance fee of £693,000 has accrued
to the Manager in respect of the quoted portfolio's performance from 20
November 2023, the date of transition to Schroders and the year end on 31
August 2024. A performance fee of £176,000 was paid to SV Health in respect
of the period from 31 August 2023 to 20 November 2023, the date of the
transition to Schroders, and a further fee of £35,000 has accrued to SV
Health due to the performance of the unquoted portfolio from 20 November 2023
to 31 August 2024.
Proposed changes to the Articles of Association
The Board is proposing to make amendments to the Company's Articles of
Association (the "Articles") primarily to reflect developments in market
practice and changes in law and regulation, including to:
• give the Company the flexibility to hold general meetings
partially by electronic means and to enable members to attend and participate
in general meetings at one or more satellite meeting places. In addition, the
Board is proposing to amend the Articles to give it certain additional powers
in respect of postponing or adjourning meetings in appropriate circumstances.
These amendments are being proposed in response to the restrictions on social
interactions that were imposed during the pandemic which, on occasion, made it
impossible or impractical for shareholders to attend physical general
meetings. The Board's objective is to make it easier for shareholders to
participate in general meetings through introducing electronic access for
those not able to travel. I should make it clear that these powers would only
be used if the specific circumstances or applicable law and regulation
required, and the Board's intention is to always hold a physical general
meeting, provided it is both safe and practical to do so; and
• increase the limit on the aggregate level of Directors' fees under
existing Article 92 from £250,000 to £300,000 per annum. The proposed
increase will provide headroom for the future and allow for potential
additional Directors to be appointed as part of the Board's succession
planning. Further details are provided in the Directors' Remuneration Report
in the full Annual Report and Financial Statements.
Board succession
The Board was pleased to announce on 27 August 2024 that Alexa Henderson would
be appointed as a non-executive Director and Audit Committee Chair designate
with effect from 1 January 2025. Alexa brings a wealth of experience in
finance, accounting and audit together with experience chairing audit
committees. The Board and I look forward to welcoming Alexa in the New Year.
In the Half Year Report, I advised that Caroline Gulliver, Chair of the
Company's Audit Committee, who has served on the Board for nine years this
year, had indicated her intention to step down as a Director at the
forthcoming AGM. As Alexa Henderson is only joining us at the beginning of
2025, Caroline has subsequently agreed to remain as Chair of the Audit
Committee for a short while after Alexa's appointment, to assist in providing
a smooth transition of responsibilities. Caroline will therefore be seeking
re-election as a Director at the forthcoming AGM.
Webinar
On 5 November 2024, the Company's Portfolio Managers will be presenting to
shareholders at a webinar at 10.00 a.m. To register your interest to attend
this webinar please visit www.schroders.events/IBT24, where the facility to
watch the recorded webinar afterwards will also be available.
AGM
The AGM will be held on Monday, 9 December 2024 at 12.00 noon at the offices
of Schroders at 1 London Wall Place, London EC2Y 5AU. A presentation from our
Portfolio Managers will be given at the AGM, and attendees will also be able
to ask questions in person and meet the Directors. Details of the formal
business of the meeting are set out in the Notice of Meeting in the full
Annual Report and Financial Statements.
All shareholders are recommended to vote by proxy in advance of the AGM and to
appoint the Chair of the meeting as their proxy. This will ensure that
shareholders' votes will be counted even if they (or any appointed proxy) are
not able to attend.
If shareholders have any questions for the Board, please write or email using
the details below. The questions and answers will be published on the
Company's web pages before the AGM.
To email, please use: amcompanysecretary@schroders.com or write to us at the
Company's registered office address: Company Secretary, International
Biotechnology Trust plc, 1 London Wall Place, London, EC2Y 5AU.
To receive regular news about the Company, shareholders are also encouraged to
sign up to the Manager's investment trusts update, which can be found at:
www.schroders.com/trust-updates/.
Outlook
It is rewarding to report on the green shoots of a recovery in the
biotechnology sector following an unprecedented period of share price declines
in the sector. The fundamentals remain strong. The ageing demographic, more
efficient, targeted clinical trials and exciting innovation in disease areas
including oncology, obesity, and neurological conditions are adding to the
positive outlook. M&A activity is increasing as large, cash-rich
pharmaceutical companies seek solutions to impending drug patent expiries.
As I write, investors seem sanguine in the face of a rapid escalation of
hostilities in the Middle East, but ongoing conflict in the region may well
impact investor confidence. The political debate around healthcare and US drug
pricing will continue, regardless of the outcome of the US election.
Notwithstanding these risks, we share our Portfolio Managers' optimism that
the recovery in the biotechnology sector is just beginning. Relative
valuations are compelling and the potential rewards for investors in
innovative companies developing future treatments look more attractive than
ever.
Kate Cornish-Bowden
Chair
4 November 2024
Portfolio Managers' Review
"As things stand, our top-down view of the biotechnology opportunity remains
positive."
We are pleased to present the Portfolio Managers' Review for the year ended 31
August 2024. During the year under review, the Company completed the
appointment of Schroder Unit Trusts Limited as its Alternative Investment Fund
Manager ("AIFM" or the "Manager"), following the announcement in August 2023
that SV Health would be relinquishing the mandate. We both joined Schroders on
20 November 2023 and have settled very quickly into our new professional
setting. In addition to healthcare expertise, Schroders brings deep experience
in investment trusts and is extremely well equipped to support the Company
from a regulatory and marketing perspective.
Market overview
The year in review commenced with a further bout of weakness from the
biotechnology sector, which revisited the lows of 2022 in November 2023,
before staging a strong recovery in the last few weeks of 2023 and through the
current year.
Initially, this recovery was led primarily by larger companies, but it has
broadened out as the year has progressed, with small and mid-cap biotechnology
stocks increasingly participating in the rally. Encouragingly, this reflects
renewed confidence across the sector after three years of a bear market, with
higher levels of private and follow-on financing, alongside tentative signs
that the IPO window is gradually re-opening.
Consolidation in the sector has also continued, with many companies undergoing
restructuring or M&A. Large pharmaceutical companies, in particular, have
been keen to fill the revenue gap that stems from their impending patent
expiries. Furthermore, the impact of the US Inflation Reduction Act which
caps/limits the potential profits available for pharmaceutical companies from
certain mature medicines has added further impetus to the need to identify the
next generation of treatments. This, we believe, has created opportunities for
active investors to benefit from the premia that are paid for innovative
companies addressing high unmet medical need.
Innovation in the biotechnology industry has continued at a rapid pace. This
is reflected in the number of new clinical trials being initiated, which has
risen every year since 2011, and, if the current rate continues, 2024 is
expected to be yet another record year. This year has, however, been slower
for regulatory approvals, but this was expected after a record year in 2023
which worked through the COVID backlog of filings. Importantly, there are a
number of imminent key product launches, product approvals and late-stage
clinical read outs in areas such as oncology, neurology and obesity, all areas
to which our portfolio is well exposed.
Performance review
The Company has delivered a solid performance during the year under review,
generating positive returns for its shareholders. The NAV per share increased
by 15.9% on a total return basis, outperforming the Reference Index return of
15.3%. In share price terms, however, the Company was behind the Reference
Index, with a total return of 10.3%(1). This stems from a widening of the
Company's discount from 6.3% to 11.3%, in a period during which the investment
trust sector as a whole suffered from widening discounts.
In accordance with our dividend policy of paying dividends equivalent to 4% of
the Company's NAV as at the last day of the Company's preceding financial
year, dividend growth was positive during the year under review, and will be
positive again for the year ahead, as illustrated in the chart in the full
Annual Report and Financial Statements.
M&A
A key development during the year has been the continued resurgence of M&A
activity in the biotechnology sector. Four companies (two quoted and two
unquoted companies) from the Company's portfolio were acquired during the
year, each at a significant premium.
In October 2023, Bristol-Myers Squibb announced it would acquire
commercial-stage, targeted cancer specialist Mirati Therapeutics, for
$4.8 billion. The deal was struck at a 45% premium to Mirati's undisturbed
share price. Mirati had received approval for its targeted cancer therapy
Krazati (adagrasib) in December 2022. Krazati treats a specific type of lung
cancer with the KRAS G12C mutation. As part of the agreed transaction,
Bristol-Myers Squibb included a non-tradable contingent value right where the
company agreed to pay Mirati shareholders a further $1 billion should the US
regulator, the FDA, accept an application for the company's pipeline drug
MRTX1719 for lung cancer.
Bristol-Myers Squibb also acquired Karuna Therapeutics for $14 billion in
December 2023, paying a 53% premium to the pre-bid share price. Karuna's lead
asset, KarXT, is positioned as a potential first-in-class treatment for
schizophrenia and other neuropsychiatric conditions. It was submitted to the
FDA in the autumn of 2023. In September 2024 the drug, now named Cobenfy,
received approval from the FDA for the treatment of schizophrenia.
As well as realising meaningful gains for the Company's shareholders, these
deals highlight our ability to identify attractively valued biotechnology
businesses with exciting technology in development.
Quoted portfolio
Contributors to NAV
Vera Therapeutics ("Vera") (gain of £15.4 million(1)) a biotechnology company
with a promising asset in late-stage development for IgA nephropathy ("IgAN"),
Atacicept. IgAN is a serious autoimmune kidney disease that can cause
progressive damage, leading to end-stage renal disease and the need for
dialysis or transplantation. Vera's disease-modifying therapy could become the
first on the market to target the root cause of IgAN rather than merely
slowing down progression and alleviating symptoms. The drug has continued to
demonstrate positive progress in clinical trials, and received FDA
Breakthrough Therapy Designation in May 2024, which recognises its potential
to deliver significant clinical improvements over current treatment options
and accelerates its progress through the regulatory process. Phase 3 clinical
trials are underway, with results due in the first half of 2025, ahead of
potential launch in 2026.
Insmed (gain of £ 4.7 million(1)), in May 2024, Insmed reported positive
phase 3 results for brensocatib, aimed at treating bronchiectasis. The drug
demonstrated exceptional efficacy, significantly surpassing the primary
endpoint showing a marked reduction in exacerbations. After the data release,
we built a significant position, and the shares appreciated a further c30%.
The trial, involving 1,680 adults and 41 adolescents, compared brensocatib
against a placebo. Patients receiving the 10 mg dose experienced a 21%
reduction in exacerbations. Key secondary endpoints, such as prolonged time to
first exacerbation and increased odds of remaining exacerbation-free over 52
weeks, were successfully achieved.
Looking ahead, Insmed intends to submit the trial data to regulators in Q4,
anticipating a market launch in mid-2025. The company is also advancing
brensocatib's development in other conditions, indicating a promising growth
trajectory.
Ultragenyx (gain of £4.6 million(1)), rare disease specialist, Ultragenyx has
demonstrated strong momentum, with Q2 2024 revenues significantly above
initial projections. This positive performance has prompted management to
raise the 2024 revenue guidance. Key contributors to this success include
robust sales of Crysvita for a rare form of bone disease.
The outlook for the pipeline remains robust following an active first half of
2024, with significant data releases anticipated in the second half. Pivotal
studies involving setrusumab in osteogenesis imperfecta, another rare bone
disease, and various gene therapies, including GTX-102 for Angelman syndrome,
are set to yield further insights and potentially enhance Ultragenyx's market
positioning.
With a solid cash position of approximately $874 million, the company is
well-capitalised to support ongoing clinical developments and navigate
upcoming regulatory meetings. Due to the strong performance of the stock, the
managers have reduced their position to preserve capital heading into
significant binary events towards the year end.
Detractors from NAV
Aurinia Pharmaceuticals ("Aurinia") (loss of £3.6 million(1)) has struggled
throughout the year, culminating in a significant drop in share price
following the disappointing conclusion of its strategic review. Despite
reaching out to over 60 potential buyers, the review yielded no formal bids,
highlighting the company's difficulties in attracting acquisition interest.
There remains some optimism as Lupkynis, Aurinia's lead asset which addresses
Lupus, is expected to generate $200-220 million in 2024 and the company is
streamlining its operations. However, Aurinia faces an uphill battle to regain
investor confidence. Future performance hinges on strong quarterly results
from Lupkynis, increased commercial execution, and improved profitability as
R&D spending diminishes in the coming year, supported by $350 million in
cash reserves.
Revance Therapeutics ("Revance") (loss of £3.0 million(1)) has encountered a
difficult year, marked by declining stock performance driven by several key
challenges. The company faced heightened competition in the neuromodulator
market, which pressured pricing and market share. Investors were concerned
about the slow uptake of Daxibotulinumtoxin A injection, its flagship product,
amidst a crowded landscape dominated by established players.
Additionally, Revance's commercial premium pricing strategy faced scrutiny, as
slower-than-expected sales growth raised doubts about the effectiveness of its
marketing strategy and its ability to expand market reach. Despite promising
clinical trial results for its innovative products, including the
next-generation treatment options, concerns surrounding regulatory timelines
and the pace of new product launches contributed to market unease. The company
was subsequently bid for by Crown Laboratories in August 2024.
Moderna (loss of £2.4 million(1)) has faced a challenging year, reflected in
its recent reduction of guidance figures for 2024 vaccine sales. This decrease
can be attributed to heightened competition in the markets for COVID and
respiratory syncytial virus ("RSV") vaccines as well as a-lower take up of
vaccinations.
Despite reporting Q2 sales of Spikevax at $184 million, the overall figures
remain modest compared to previous years, reflecting a 37% year-on-year
decline. Notably, no revenue was reported from the recently approved RSV
vaccine. The prospect of a saturated and competitive respiratory vaccine
landscape further complicates future growth.
On a positive note, Moderna's pipeline remains active, with plans to seek
approvals for its seasonal flu and next-generation COVID vaccines by year-end.
Successful Phase III trial results have been reported for these vaccines,
alongside the flu/COVID combination vaccine, which has also met its primary
endpoints.
(1)Source; Schroders as at 31 August 2024.
Unquoted portfolio
The improved funding environment extends to the unquoted companies in the
sector and we are delighted to report two acquisitions and a significant IPO
in the SV Health funds in which we are invested, during the year under review.
SV Fund VI continued to progress well. In August 2024, the fund received
upfront proceeds of $58.0 million (4.1x multiple on invested capital ("MOIC"))
related to the acquisition of Endotronix, a leader in heart failure management
solutions which received FDA approval for Cordella, an implantable pulmonary
artery pressure sensor allowing early, targeted therapeutic intervention, by
Edwards Lifesciences. SV Fund VI is entitled to additional proceeds upon the
achievement of clinical milestones as well as escrow proceeds.
SV Fund VI also made follow-on investments in 2024 in Ribometrix, Doctors of
Physical Therapy, Jet Health and Enara. Since our initial investment in SV
Fund VI in 2016, the fund has delivered an impressive Internal Rate of Return
("IRR") of 16% per annum for investors.
2024 has been another exceptional year for SV Health's clinical stage fund, SV
BCOF, and it continues to deliver on the value accretion events that were
anticipated at the start of the year.
Most notably, in a period where liquidity is scarce, SV BCOF successfully
exited its ophthalmology company, EyeBio in a sale to global pharma company,
Merck. SV Health created EyeBio alongside serial entrepreneur and SV Venture
Partner David Guyer, providing seed funding from its venture fund, the SV7
Impact Medicine Fund.
In July 2024, Merck acquired EyeBio on the back of promising data from a Phase
1b trial from its lead programme in diabetic macular edema. Merck recognised
the major improvements in vision (+11.2 letters on a standard eye test) and
80% reduction in retinal thickness seen in patients and as a result, agreed to
pay $1.3 billion in an upfront payment, followed by a potential further
$1.7 billion in pre-agreed milestones to acquire the Company. EyeBio is a
flagship acquisition for Merck as they look to build a new ophthalmology
franchise, with their sights on the multi-billion dollar macular degeneration
market, amongst others. EyeBio has already achieved the first milestone of
dosing a patient in a Phase 3 clinical trial. The exit drove a material
distribution to SV's investors, generating a realised return of 7 times the
SV BCOF investment, and the future milestones have the potential to deliver a
further 4 times investment on a risk-adjusted basis. As a result, SV BCOF
expects to make a further distribution to investors by the end of this year.
In the Half Year Report, SV Health highlighted its investment in BioAge, a
clinical stage obesity therapeutics company, where it participated in the
highly sought after crossover round. The company is executing clinical trials
with its investigational product and an approved therapeutic with the
potential to improve on the current obesity standard of care, by shifting to
oral treatments as well as addressing lean muscle loss which can have a
material impact on patient health. The Company's plan to list on NASDAQ was
realised on the 26 September 2024 and it now trades under NASDAQ: BIOA. The
company's shares opened at $22.50 in its NASDAQ debut, 25% above the initial
public offering price of $18.00, and have continued to trade above the
marketed offering price.
In addition to these recent developments from the portfolio, SV BCOF has
invested in SV Health's latest UK company creation, Draig Therapeutics. The
Company was co-founded with Cardiff academics Professor John Atack and
Professor Simon Ward, repeat SV Venture Partner, Ruth McKernan and SV
provided the founding institutional investment. Ruth is a serial entrepreneur
and leading expert in the field of neuroscience drug development. SV Health
team members Charles Dunn and Jamil M. Beg have joined the board of directors.
Draig represents an exciting opportunity given the mature nature of the
portfolio with a lead programme already in clinical studies. This investment
offers the potential for outsized returns through the founder shares awarded
to SV Health funds as founding investor.
Strategy update
Our investment strategy remains focused on identifying companies with
innovative technologies, strong intellectual property and solid growth
potential. This is a constant feature of our investment approach, but where
within the biotechnology industry we find these businesses can change over
time, as can our appetite for risk.
The end of this financial year marks the completion of the first three full
years of our management of the Company's portfolio. Despite market volatility,
our efforts to adapt the portfolio to evolving market conditions have enabled
us to deliver consistent outperformance over the Company's Reference Index
over each of these first three years, in markedly different circumstances.
The key to this outperformance has been a flexible, valuation-driven strategy,
adapting to evolving market conditions with a focus on capital preservation
and selective risk taking. For example, in the market downturn of 2022, we
focused on managing downside risk by reducing exposure to higher-risk, smaller
biotechnology companies in favour of larger, resilient, cash-flow generating
businesses. This cautious stance paid off, and we were then able to take
advantage of lower valuations in 2023 to move back towards earlier-stage
biotechnology companies once the market had shown signs of stabilisation.
Shareholders have increasingly seen the benefit of these strategic moves as we
have progressed through 2024.
This flexibility is typical of what investors should expect from our
management. There will always be a strong emphasis placed on capital
preservation, as reflected in our approach to "binary event risk", where we
look to reduce exposure to holdings as they approach critical milestones such
as trial results, in order to reduce exposure to excessive share price
volatility.
In addition to our scientifically driven and valuation aware bottom-up stock
picking, investors should expect us to continue to take a top-down view, which
ensures that we have an appropriate breadth of exposure across the various
therapeutic areas as well as informing whether the portfolio should be tilted
towards defensive or riskier biotechnology companies, depending on where we
are in the investment cycle. This view can also be amplified through active
management of the gearing(1) facility, and by taking advantage of market
volatility as conditions evolve.
(1)Please refer to section on "Definitions of Terms and Alternative
Performance Measures".
Portfolio positioning
As things stand, our top-down view of the biotechnology opportunity remains
positive. With confidence returning and the IPO window gradually re-opening,
we believe we are at a point in the biotechnology investment cycle from which
a prolonged period of positive performance may be expected.
Early in the year under review, having seen encouraging signs of renewed
vitality in smaller, earlier-stage biotechnology, we elected to increase the
portfolio's exposure to this part of the market; and also increased gearing(1)
to a peak of 14%, confident that the recovery would continue to gather
momentum. Both of these strategic decisions stood the portfolio in good stead
through the initial stages of the biotechnology rally. We have subsequently
reduced gearing to around 5% but the portfolio remains well exposed to small
and mid-cap biotechnology, where we continue to find very attractive
opportunities.
By subsector, 39.8% of the portfolio is currently invested in early-stage
biotechnology companies which are still navigating the clinical trial and
regulatory process, 41.5% in mid-stage revenue growth companies which have
products that are approved but not yet turning a profit, and 18.7% in
later-stage, profitable businesses. We believe we have an appropriately
balanced and diversified portfolio for the current environment, but our
increased investment in carefully selected smaller, earlier-stage companies
has intentionally increased the volatility profile of the portfolio. We
believe a higher beta(2) positioning should prove beneficial to shareholders
in the period ahead.
Alongside exposure to core holdings where we find high quality, well-managed
biotechnology businesses with exciting and innovative technology under
development, we also take a "basket approach" to therapeutic areas where the
ultimate winners are still somewhat harder to predict. This involves a lower
risk, diversified strategy of taking smaller positions across a range of the
most promising assets, rather than backing a single opportunity. Below we take
a look at three of these baskets.
(1)Please refer to section on "Definitions of Terms and Alternative
Performance Measures".
(2)For help in understanding any terms used, please visit
https://www.schroders.com/en/insights/invest-iq/investiq/education-hub/glossary/.
Central nervous system ("CNS")
Just over a fifth of the portfolio is currently dedicated to therapies
targeting diseases of the CNS, such as schizophrenia, depression, Alzheimer's,
Parkinson's, epilepsy and attention deficit hyperactivity disorder ("ADHD").
These conditions are typically highly complex, with significant unmet medical
need and unfortunately a growing number of patients, and we are seeing
exciting developments from a broad range of innovative companies in this area.
Indeed, the two largest portfolio holdings have CNS assets in development.
Intra-Cellular Therapies is advancing treatments for schizophrenia and bipolar
depression, with its lead drug, Caplyta, already approved for both conditions.
Its unique mechanism of action differentiates it from other antipsychotics,
offering better tolerability with fewer side effects like weight gain or
movement disorders, making it a highly valuable asset in the CNS space. We
think of the company as a "pipeline in a drug" as it is also exploring
potential applications for Caplyta in other psychiatric areas, and continues
to advance its broader pipeline, including treatments for major depressive
disorder and other neuropsychiatric conditions.
Meanwhile, Supernus Pharmaceuticals is focusing on conditions such as ADHD and
epilepsy. Its leading products include Qelbree, an ADHD treatment that is
expanding its market share due to its non-stimulant nature, and Trokendi XR,
which is indicated for epilepsy and migraine prophylaxis. Supernus continues
to advance its pipeline, with several next-generation therapies for CNS
disorders in development.
Elsewhere, we hold smaller positions in businesses such as Neurocrine
Biosciences, which specialises in involuntary movement disorders, notably
tardive dyskinesia through its drug, Ingrezza. Other examples include Acadia
Pharmaceuticals which focuses on psychosis-related disorders and Rett
Syndrome, a rare genetic brain disease, Jazz Pharmaceuticals which is best
known for its work in sleep disorders and narcolepsy, and Uniqure which is
pioneering a gene therapy for Huntington's disease.
This therapeutic area has seen a significant amount of M&A activity in
recent times, as evidenced by the Karuna Therapeutics deal mentioned above.
This reflects the high level of interest in CNS innovation from large
pharmaceutical companies, and we expect to see this trend continue as CNS
treatments remain a priority for filling pipeline gaps.
Emerging oncology
Another fifth of the portfolio is targeting oncology innovation, with the
majority of this focused on what we consider to be the next generation of
cancer treatments.
One of the key areas here is cell therapy, where cells are genetically
modified or reprogrammed in a laboratory and then infused back into the
patient. This technique has already made a major impact in treating blood
cancers, particularly with CAR-T therapies that have shown remarkable success.
However, cell therapy's potential extends well beyond blood cancers, with
exciting prospects for treating solid tumours through both extracellular and
intracellular targeting mechanisms, enabling the immune system to attack these
tumours more effectively.
Within the portfolio, Iovance Biotherapeutics recently launched its
tumour-infiltrating lymphocyte ("TIL") therapy, lifileucel, for advanced
melanoma. TIL therapy works by isolating and expanding the patient's own
tumour-fighting lymphocytes, which are then reinfused to target and destroy
cancer cells. This represents a new frontier in immunotherapy, particularly in
the treatment of solid tumours.
Meanwhile, Autolus Therapeutics has filed for approval of its CAR-T therapy,
obecabtagene autoleucel (obe-cel), for treating acute lymphoblastic leukaemia
("ALL"). This therapy uses a patient's own modified T-cells to target and
eliminate cancer cells, with promising clinical data showing strong efficacy
in achieving remission in this difficult-to-treat blood cancer.
Protein degradation is another exciting emerging area of oncology that
involves targeting and breaking down specific proteins that are essential for
cancer cell survival. This approach has the potential to address previously
"undruggable" proteins, significantly broadening the scope of cancers that can
be treated. The market for protein degradation, if successful, is
multi-billion in size as it introduces entirely new mechanisms for attacking
cancer at the molecular level. The portfolio is exposed to this field through
companies like BeiGene and Arvinas. BeiGene is advancing its protein
degradation platform with promising therapies such as BGB-11417, a Bcl-2
inhibitor currently in trials for chronic lymphocytic leukaemia ("CLL") and
other B-cell malignancies. Meanwhile, Arvinas' lead candidate, ARV-110,
targets the androgen receptor, a key driver in prostate cancer.
Additionally, T-cell engagers represent another next generation immunotherapy.
These bispecific antibodies simultaneously bind to cancer cells and recruit
T-cells, directing the immune system to destroy the cancer. Within the
portfolio, Immunocore is a leader in this field with Kimmtrak, a
first-in-class bispecific T-cell engager approved for treating uveal melanoma.
Janux Therapeutics is also making strides in developing T-cell engager
therapies for solid tumours, leveraging its proprietary TRACTr platform to
enhance the safety and efficacy of these treatments.
Obesity
Historically viewed as a predominantly Western problem, obesity is now a
global health challenge, with estimates suggesting that a quarter of the
world's adults will be obese by 2030. This expanding prevalence creates vast
market potential for effective therapies.
The current leading treatments are GLP-1 receptor agonists, which have been
highly successful in recent years. Market expectations are very high, however,
and risks remain regarding delivery mechanisms, reimbursement policies and
ongoing supply constraints. These factors mean that while current therapies
dominate the landscape, market leadership is far from guaranteed in this
rapidly evolving field, where innovation is occurring at a rapid pace.
There are currently 79 listed clinical-stage obesity programmes targeting at
least 41 unique mechanisms, and the numbers continue to rise. Among the most
exciting new developments are combination therapies that activate multiple
pathways, such as GLP-1 combined with gastric inhibitory polypeptide ("GIP")
agonists, amylin, glucagon or leptin. These combinations aim to boost
efficacy, improve patient outcomes and offer more comprehensive weight
management solutions. Additionally, novel targets such as mitochondrial
uncoupling and cannabinoid-1 ("CB1") reverse agonists are being explored,
promising to deliver innovative new approaches to more effective long-term
obesity management.
Approximately 7% of the portfolio's assets are allocated to obesity-related
therapies, spread across eight companies. A notable example is Altimmune,
which is developing pemvidutide, a dual GLP-1/glucagon receptor agonist
designed to enhance weight loss by increasing energy expenditure and reducing
appetite.
Outlook
The biotechnology sector looks poised to make further progress as we look
towards 2025 and beyond. Despite the recent rally, the Reference Index remains
well below its peak of 2021 and valuations are generally reasonable,
suggesting significant future upside potential, given the sector's
accelerating pace of innovation.
In large part, we believe this innovation is driven by necessity. The
increasingly complex demands of a global population that is growing older,
richer and sicker, are driving rising demand for healthcare services in
general and placing public healthcare systems under ever increasing strain.
These fundamental demographic tailwinds look capable of driving structural
growth and continued biotechnology innovation for many years, if not decades,
into the future.
In the meantime, with inflation seemingly under control and interest rates
expected to decline, the investment environment is again becoming increasingly
favourable for long-duration assets such as biotechnology. There are signs
that the IPO window is beginning to open and secondary offerings remain
strong, indicating renewed appetite for biotechnology from a broader range of
investors. This is all typical of what we would expect to see in the more
positive stages of the biotechnology investment cycle.
The potential for further M&A activity is another positive feature of the
outlook, as large, cash-rich pharmaceutical companies seek to fill gaps in
their pipelines and replace expiring patents by buying smaller biotechnology
businesses. The implementation of the US Inflation Reduction Act, which may
negatively impact the pricing of key established drugs sold by large
pharmaceutical companies, could increase the demand for innovative
biotechnology still further.
As has been the case in prior years, the US Presidential election could result
in near-term volatility in the biotechnology sector, and for healthcare more
broadly. However, we do not expect any election outcome to materially change
the positive long-term biotechnology investment case.
Conclusion
As we move further into what has historically been one of the most rewarding
phases of the biotechnology investment cycle, we believe the Company is well
positioned to capture the opportunity that lies ahead, through the disciplined
application of a successful and repeatable investment approach, augmented by
the strength and resources of Schroders. Notwithstanding the risk of near-term
volatility as we move through the US election season, we view the long-term
future for the Company and its shareholders with more confidence than ever.
Ailsa Craig and Marek Poszepczynski
Portfolio Managers
4 November 2024
Principal and emerging risks and uncertainties
The Board, through its delegation to the Audit Committee, is responsible for
the Company's system of risk management and internal control and for reviewing
its effectiveness. The Board has adopted a detailed matrix of principal risks
affecting the Company's business as an investment trust and has established
associated policies and processes designed to manage and, where possible,
mitigate those risks, which are monitored by the Audit Committee on an ongoing
basis. This system assists the Board in determining the nature and extent of
the risks it is willing to take in achieving the Company's strategic
objectives.
Risk assessment and internal controls review by the Board
Risk assessment includes consideration of the scope and quality of the systems
of internal control operating within key service providers, and ensures
regular communication of the results of monitoring by such providers to the
Audit Committee, including 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.
Although the Board believes that it has a robust framework of internal
controls 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.
Both the principal risks and uncertainties and the monitoring system are also
subject to robust review at least annually. The last assessment took place in
October 2024. As part of this review, a number of changes to the Company's
matrix of principal risks were agreed which included simplifying the risk
categories into which the Company's risks are divided. The table below sets
out the categories into which the Company's risks are now divided being
strategic, performance/investment and operational/service provider. It was
also considered appropriate to remove the risk relating to the Company's
continuation vote which was included as a principal risk for the year ended
31 August 2023 as the Company was subject to a continuation vote at the AGM in
December 2023, shortly after the transition to Schroders. The vote was passed
with 99.9% of the vote in favour of the continuation of the Company. The next
continuation vote will not be proposed to shareholders until the AGM to be
held in 2025 and this is not therefore considered a principal risk for the
year ended 31 August 2024.
During the year, the Board discussed and monitored a number of risks which
could potentially impact the Company's ability to meet its strategic
objectives. The Board receives updates from the Investment Manager, Company
Secretary and other service providers on emerging risks that could affect the
Company. The Board was mindful of the evolving global environment during the
year and the risks particularly posed by volatile markets and geopolitical
uncertainty including US-China tensions and the impending US election.
However, these are not factors which explicitly impact the Company's
performance although they could exacerbate existing risks. Where relevant
these have been incorporated in the table below.
The Board considered in detail whether there were any material emerging risks
and has included the development of artificial intelligence as an emerging
risk in the table below.
No significant control failings or weaknesses were identified from the Audit
Committee's ongoing risk assessment throughout the financial year and up to
the date of this report. The Board is satisfied that it has undertaken a
detailed review of the risks facing the Company and that the internal control
environment continues to operate effectively.
The Board considers that the risks set out in the table below are the
principal risks currently facing the Company to deliver its strategy together
with those actions taken by the Board and, where appropriate, its committees,
to manage and mitigate those risks. The "Change" column on the right
highlights at a glance the Board's assessment of any increases or decreases in
risk during the year after mitigation and management. The arrows in the change
column show the risks as increased or decreased or unchanged.
Risk Mitigation and management Change
Strategic
Investment strategy
The investment strategy may, if inappropriate, result in negative investor The appropriateness of the Company's investment mandate and the long-term
sentiment, leading to a reduction in the share price and the Company investment strategy is periodically reviewed by the Board and the success of
underperforming the market and/or its peer group companies. the Company in meeting its stated objectives is monitored. The Board holds a
strategy meeting each year to consider the investment objective and policy and
the Company's longer term investment strategy.
Investor appetite
A loss of investor appetite for investment in the biotechnology sector as a The Portfolio Managers update the Board monthly and at each scheduled Board
result of political conditions, including US Food and Drug Administration and meeting on issues pertinent to the portfolio and the biotechnology sector
Federal Trade Commission policy, might materially affect the ability of the generally, including the political landscape and expected future drivers.
Company to achieve its objective and reduce demand for the Company's shares,
leading to a wide discount. The Board reviews the global factors which 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.
Performance/investment
Macro factors
The Company's returns are affected by changes in economic, financial and The Portfolio Managers consider carefully the portfolio composition by size of
corporate conditions, which can cause market and exchange rate fluctuations. company, development stage and therapeutic area and adjusts accordingly. The
A significant fall in US equity markets is likely to adversely affect the Board is also supportive of the Portfolio Managers' approach of reducing
value of the Company's portfolio. exposure to companies with imminent binary events such as a readout of data
from a clinical trial.
The biotechnology sector has its own specific risks leading to higher
volatility than the broader equity market indices. The Portfolio Managers provide regular reports to the Board on general
economic conditions as well as portfolio activity, strategy and performance,
In addition, the Financial Statements and performance of the Company are including risk monitoring. The reports are discussed in detail at Board
denominated in sterling because the Company is a UK company listed on the Meetings, which are all attended by the Portfolio Managers, to allow the Board
London Stock Exchange. However, the majority of the Company's assets are to monitor the implementation of the investment strategy and process.
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.
Share price performance
Share price performance may consistently lag NAV performance leading to wide The share price relative to the NAV per share is kept under review as a key
and persistent discount to NAV. performance indicator and is considered against the Company's peers on a
regular basis. The Board has implemented a robust share buyback and issuance
policy which has been used consistently during the year under review with
2,483,273 shares being repurchased to be held in treasury. The use of the buy
back authority is reviewed regularly.
Proactive engagement with shareholders takes place via the AGM, feedback from
shareholder presentations, and ad hoc meetings with members of the Board.
The Manager provides a dedicated, experienced investment trust marketing team
together with PR resource. The Manager and corporate broker monitor market
feedback and the Board considers this at each quarterly meeting.
ESG considerations
The Board recognises that a responsible and proactive approach to ESG related The consideration of climate change risks and ESG factors is integrated into
factors can positively impact the performance and success of its portfolio the investment process and reported at Board meetings. The ESG policy is set
companies and the Company. A failure to focus sufficiently on ESG matters may out in the Strategic Review. The Company uses data gathered by Sustainalytics
not promote the Company to shareholders in a way that generates investor to monitor the compliance of its quoted portfolio with an accepted set of ESG
demand. standards.
Operational/service provider
Oversight of service providers
Inadequate performance of service providers could lead to poor performance The Board receives reports from the Manager and Investment Manager on its
and/or exposure to a number of financial, regulatory and business risks. internal controls and risk management throughout the year, including those
relating to cybersecurity, and receives assurances from all its other
Service providers may terminate their services if they deem the company to no significant service providers on at least an annual basis.
longer fit their business model.
The Management Engagement Committee reviews the performance of key service
providers at least annually. The Manager and Investment Manager also monitor
closely the control environments and quality of services provided by third
parties, including those of the Depositary, through service level agreements
and regular meetings.
Directors are invited to an annual internal controls briefing session, hosted
by the Manager in respect of the internal controls of the Company's key
service providers including the Company's depositary and custodian, HSBC, the
Company's registrar, Equiniti, and Schroders Group Internal Audit team.
Experienced service providers are appointed by the Company subject to due
diligence processes and clearly documented contractual arrangements which
include agreed service level specifications and notice periods for
terminations.
Further details of the internal controls which are in place are set out in the
Audit Committee's Report in the full Annual Report and Financial Statements.
Information technology, resilience and security
Cyber risk such as fraud, sabotage or crime perpetrated against the Company or Cybersecurity is closely monitored by the Audit Committee as part of the
any of its third party service providers could result in data theft, service review of the internal controls of its service providers.
disruption and reputational damage.
Schroders IT security team presents to the Directors on the Manager's
cybersecurity controls as part of the annual internal controls briefing
session hosted by Schroders.
Emerging
Artificial Intelligence ("AI")
Whilst there are opportunities and benefits associated with the development of
AI, and a risk of not embracing these opportunities and benefits, the
development of AI presents potential risks to businesses in almost every
sector. The extent of the risk presented by AI is extremely hard to assess at
this point but the Board considers that it is an emerging risk and together
with the Manager and Investment Manager will monitor developments in this
area.
A full analysis of the financial risks facing the Company is set out in note
19 in the full Annual Report and Financial Statements.
Statement of Directors' Responsibilities
Directors' responsibilities
The Directors are responsible for preparing the Annual Report and 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.
Under company law, the 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 return 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 also 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 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 Manager is responsible for the maintenance and integrity of the web pages
dedicated to the Company. Legislation in the UK governing the preparation and
dissemination of Financial Statements may differ from legislation in other
jurisdictions.
Directors' statement
Each of the Directors, whose names and functions are listed in the full Annual
Report and Financial Statements confirm that, to the best of their knowledge:
- the Company's 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 profit of the Company;
- 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; and
- that the Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and strategy.
On behalf of the Board
Kate Cornish-Bowden
Chair
4 November 2024
Statement of Comprehensive Income
for the year ended 31 August 2024
2024 2023
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value through profit or loss 2 - 41,620 41,620 - 9,606 9,606
Net foreign currency gains - 1,656 1,656 - 1,591 1,591
Income 3 1,263 - 1,263 863 - 863
Total income 1,263 43,276 44,539 863 11,197 12,060
Management fee 4 (1,297) - (1,297) (1,810) - (1,810)
Performance fee 4 - (904) (904) - (514) (514)
Administrative expenses 5 (1,129) - (1,129) (1,559) - (1,559)
Profit/(loss) before finance costs and taxation (1,163) 42,372 41,209 (2,506) 10,683 8,177
Finance costs 6 (2,198) - (2,198) (1,242) - (1,242)
Profit/(loss) before taxation (3,361) 42,372 39,011 (3,748) 10,683 6,935
Taxation 7 (135) - (135) (122) - (122)
Net profit/(loss) for the year (3,496) 42,372 38,876 (3,870) 10,683 6,813
Earnings/(loss) per share (pence) 8 (9.16) 110.97 101.81 (9.53) 26.32 16.79
The "Total" column of this statement represents the Company's Statement of
Comprehensive Income prepared in accordance with UK-adopted International
Accounting Standards.
The Company does not have any other comprehensive income and hence the net
profit/(loss) for the year, as disclosed above, is the same as the Company's
total comprehensive income.
The "Revenue" and "Capital" columns represent supplementary information
prepared under guidance set out in the statement of recommended practice for
investment trust companies (the "SORP") issued by the Association of
Investment Companies in July 2022.
All revenue and capital items in the above statement are derived from
continuing operations.
The notes in the full Annual Report and Financial Statements form part of
these Financial Statements.
Statement of Changes in Equity
for the year ended 31 August 2024
Capital
Share Share redemption Capital Revenue
capital premium reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
At 31 August 2022 10,346 29,873 31,482 259,849 (46,661) 284,889
Net profit/(loss) for the year - - - 10,683 (3,870) 6,813
Dividends paid in the year 9 - - - (11,407) - (11,407)
Repurchase of ordinary shares into treasury - - - (9,978) - (9,978)
At 31 August 2023 10,346 29,873 31,482 249,147 (50,531) 270,317
Net profit/(loss) for the year - - - 42,372 (3,496) 38,876
Dividends paid in the year 9 - - - (10,768) - (10,768)
Repurchase of ordinary shares into treasury - - - (16,160) - (16,160)
At 31 August 2024 10,346 29,873 31,482 264,591 (54,027) 282,265
The notes in the full Annual Report and Financial Statements form part of
these Financial Statements.
Statement of Financial Position
as at 31 August 2024
2024 2023
Note £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 10 297,507 301,904
297,507 301,904
Current assets
Receivables 11 215 2,967
Cash and cash equivalents 12 10,433 -
10,648 2,967
Total assets 308,155 304,871
Current liabilities
Loan 13 (22,827) -
Overdraft 12 - (32,474)
Payables 13 (3,063) (2,080)
(25,890) (34,554)
Net assets 282,265 270,317
Equity attributable to shareholders
Share capital 15 10,346 10,346
Share premium 16 29,873 29,873
Capital redemption reserve 16 31,482 31,482
Capital reserves 16 264,591 249,147
Revenue reserve 16 (54,027) (50,531)
Total equity attributable to shareholders 282,265 270,317
Net asset value per share (pence) 17 766.30p 687.51p
The Financial Statements in the full Annual Report and Financial Statements
were approved by the Board of Directors and authorised for issue on 4 November
2024 and signed on its behalf by:
Kate Cornish-Bowden
Chair
The notes in the full Annual Report and Financial Statements form part of
these Financial Statements.
Registered in England and Wales as a public company limited by shares
Company registration number: 02892872
Cash Flow Statement
for the year ended 31 August 2024
2024 2023
Note £'000 £'000
Operating activities
Profit before finance costs and taxation 41,209 8,177
Adjustments for:
Net foreign currency gains (1,656) (1,591)
Gains on investments at fair value through profit or loss (41,620) (9,606)
Net sales of investments at fair value through profit or loss 50,463 30,612
Dividend income (1,045) (840)
Interest income (218) (23)
Decrease/(increase) in receivables 14 (28)
(Decrease)/increase in payables (746) 1,082
Overseas taxation paid (134) (111)
Net cash inflow from operating activities before dividends and interest 46,267 27,672
Dividends received 1,098 843
Interest received 185 23
Interest paid (2,198) (1,239)
Net cash inflow from operating activities 45,352 27,299
Financing activities
Bank loan drawdown 46,186 -
Bank loan repaid (21,456) -
Repurchase of ordinary shares into treasury (16,160) (9,978)
Dividends paid 9 (10,768) (11,407)
Net cash outflow from financing activities (2,198) (21,385)
Increase in cash and cash equivalents 43,154 5,914
Cash and cash equivalents at the start of the year (32,474) (39,976)
Effect of foreign exchange rates on cash and cash equivalents (247) 1,588
Cash and cash equivalents at the end of the year 12 10,433 (32,474)
The notes in the full Annual Report and Financial Statements form part of
these Financial Statements.
Notes to the Financial Statements
1. Material accounting policies
The nature of the Company's operations and its principal activities are set
out in the Strategic Report and Directors' Report.
The Company's Financial Statements have been prepared in accordance with
UK-adopted International Accounting Standards and those parts of the Companies
Act 2006 (the "Act") applicable to companies reporting under UK-adopted
International Accounting Standards. These comprise standards and
interpretations approved by the International Accounting Standards Board
("IASB") and International Accounting Standards Committee ("IASC"), that
remain in effect and to the extent that they have been adopted by the United
Kingdom and the Listing Rules of the FCA.
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 (£'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's Financial Statements have been prepared on a going concern basis
(as set out in the full Annual Report and Financial Statements) 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 UK-adopted International Accounting
Standards, 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 2024 is shown in the
Statement of Financial Position in the full Annual Report and Financial
Statements. As at 31 August 2024, the Company's total assets exceeded its
total liabilities by a multiple of over 11. The assets of the Company consist
mainly of securities that are held in accordance with the Company's investment
policy, as set out in the full Annual Report and Financial Statements. 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
on 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 2025
AGM. Accordingly, the Directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the Company's Financial Statements.
(b) Presentation of the 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 of the Corporation Tax Act 2010 ("CTA").
(c) Presentation of the Cash Flow Statement
The presentation of the Cash Flow Statement, as permitted under IFRS, has been
changed to present the 'Net cash flows from operating activities' in a manner
that is consistent with that of the other investment trusts managed by the
AIFM. As a result, certain comparative information was reclassified to conform
with current year's presentation. There is no change to the 'Net cash inflow
from operating activities' or the other sections of the Cash Flow Statement as
presented in the previous year.
In addition, prior year borrowings, which included the overdraft facility with
the previous custodian, were contained within cash and cash equivalents. The
repayment of this facility has not been included within financing activities
but instead reflected as part of the overall movement in cash and cash
equivalents.
(d) 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.
(e) 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.
(f) Taxation
Deferred tax is calculated in full, using the liability method, on all taxable
and deductible temporary differences at the Statement of Financial Position
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 Statement of
Financial Position 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 the 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.
(g) 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 indirect investments
held through venture 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 UK-adopted
International Accounting Standards. 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 of 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 (excluding investments in the SV unquoted
funds), or where the market for a financial instrument is not active, fair
value is established by the adviser using various valuation techniques, in
accordance with the International Private Equity and Venture Capital ("IPEV")
guidelines issued in December 2022 and Special Valuations Guidance issued in
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 by the adviser 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; and 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. Management scrutinises and
challenges the assumptions, judgements and valuation inputs used by the
adviser on a quarterly basis.
Investment in unquoted funds
The Company receives formal quarterly reports from each of the private equity
companies in which SV Fund VI and SV BCOF (the "SV unquoted funds") holds an
investment. The value of the SV unquoted funds' investment in these companies
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 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
the SV unquoted funds is reflected in the NAV on the next NAV date. With
respect to any investments within the SV unquoted funds for which there is a
listed price, the Company revalues its investment in the 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 the SV unquoted funds' underlying investments that materially impacts the
Company's holding in the 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.
(h) Foreign currencies
Transactions involving currencies other than sterling are recorded at the
exchange rate ruling on the transaction date.
At each Statement of Financial Position date, monetary items and non-monetary
assets and liabilities that are fair valued, which are denominated in foreign
currencies, are translated 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".
(i) Critical accounting estimates and judgements
The preparation of financial statements in conformity with UK-adopted
International Accounting Standards 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 value 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 value process are:
(i) The adviser's (SV Health's) determination of the
appropriate application of the IPEV Valuation Guidelines (December 2022) and
Special Valuations Guidance (March 2020) to each unquoted investment; and
(ii) The Directors' consideration of whether each fair value is
appropriate following detailed review and challenge. The judgement applied by
the adviser in the selection of the methodology used for determining the fair
value of each unquoted investment can have a significant impact upon the
valuation.
Estimates
The key estimate in the Financial Statements is the determination of the fair
value of the unquoted investments (excluding investments in the SV unquoted
funds) by SV Health for consideration by the Directors. This estimate is key
as it significantly impacts the valuation of the unquoted investments
(excluding investments in the SV unquoted funds) at the Statement of Financial
Position date. The fair value 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 19.7 in the full Annual Report and Financial
Statements to illustrate the effect on the Financial Statements of an over or
under estimation of the significant observable inputs.
(j) Other financial assets and liabilities
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
purposes and cash balances are held at their fair value (translated to
sterling at the Statement of Financial Position date where appropriate).
Interest-bearing bank loans are initially recognised at cost, being the
proceeds received net of direct issue costs, and subsequently at amortised
cost.
(k) 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.
(l) 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.
(m) Bank loans and finance costs
Interest-bearing bank loans are initially recognised at cost, being the
proceeds received net of direct issue costs, and subsequently at amortised
cost. The amounts falling due for repayment within one year are included under
current liabilities and more than one year under non-current liabilities in
the Statement of Financial Position.
Finance costs are calculated using the effective interest rate method and are
accounted for on an accruals basis and, in line with the management fee
expense, are charged 100% to the revenue account of the Statement of
Comprehensive Income.
(n) Repurchase of ordinary shares (including those held in treasury) and
subsequent reissues
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 reissued 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 share premium.
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
the capital redemption reserve is made if and when such shares are
subsequently cancelled.
(o) Dividend distributions
Dividend distributions to shareholders are recognised in the period in which
they are paid.
(p) 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 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 Accountants 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;
- Realised investment holding gains and losses;
- Foreign exchange gains and losses;
- Performance fee;
- Reissue 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.
(q) New and revised accounting standards
There were no new IFRSs or amendments to IFRSs applicable to the current year
which had any significant impact on the Company's Financial Statements.
i) The following new or amended standards became effective
for the current annual reporting period and the adoption of the standards and
interpretations have not had a material impact on the Financial Statements of
the Company.
Standards and Interpretations Effective for periods commencing on or after
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Requirement amended to disclose material accounting policies instead of 1 January 2023
Statement 2) significant accounting policies and provided guidance in making materiality
judgements to accounting policy disclosure.
Definition of Accounting Estimates (Amendments to IAS 8) Introduced the definition of accounting estimates and included other 1 January 2023
amendments to IAS 8 to help entities distinguish changes in accounting
estimates from changes in accounting policy.
ii) At the date of authorisation of the Company's Financial
Statements, the following relevant standards that potentially impact the
Company are in issue but are not yet effective and have not been applied to
the Financial Statements:
Standards and Interpretations Effective for periods commencing on or after
International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12) A mandatory temporary exception to the accounting for deferred taxes arising 1 January 2023
from the jurisdictional implementation of the Pillar Two model rules; and
disclosure requirements for affected entities to help users of the financial
statements better understand an entity's exposure to Pillar Two income taxes
arising from that legislation, particularly before its effective date.
Amendments to IAS 1 Presentation of Financial Statements: The amendments clarify that only covenants with which an entity must comply on 1 January 2024
or before the reporting date will affect a liability's classification as
- Non-current Liabilities with Covenants current or non-current and the disclosure requirement in the financial
statements for the risk that non-current liabilities with covenants could
- Deferral of Effective Date Amendment (published 15 July 2020) become repayable within twelve months.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
(publicised 23 January 2020)
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) The amendments address the disclosure requirements to enhance the transparency 1 January 2024
of supplier finance arrangements and their effects on a company's liabilities,
cash flows and exposure to liquidity risk.
The Directors expect that the adoption of the
standards listed above will have either no impact or that any impact will not
be material on the Financial Statements of the Company in future periods.
2. Gains on investments held at fair value through profit or loss
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
Gains on sales of investments based on historic cost 11,923 13,719
Amounts recognised in investment holdings losses in the previous year in 12,199 35,163
respect of investments sold in the year
Gains on sales of investments based on the carrying value at the previous
Statement of
Financial Position date 24,122 48,882
Net movement in investment holding gains 17,498 (39,276)
Gains on investments held at fair value through profit or loss 41,620 9,606
Gains attributable to:
Quoted investments 36,155 7,743
Unquoted investments 5,465 1,863
41,620 9,606
3. Income
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
Income from investments:
UK dividends 146 22
Overseas dividends 899 818
1,045 840
Other income:
Deposit interest 218 23
Total income 1,263 863
4. Management and performance fees
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
Management fee (allocated to revenue) 1,297 1,810
Performance fees (allocated to capital) 904 514
The basis for calculating the investment management fee and any performance
fees are set out in the Directors' Report in the full Annual Report and
Financial Statements.
Following the investments into the SV unquoted funds, the management fee is
partially paid through the venture capital investments. Venture capital fees
paid through the investment in the SV unquoted funds in the year were
£691,000 (2023: £791,000). The total management fee on a comparative basis
was £1,988,000 (2023: £2,601,000).
Refer to note 18, Transactions with the Manager and related party transactions
in the full Annual Report and Financial Statements, for further details.
5. Administrative expenses
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
General expenses 723 1,086
Directors' fees* 218 162
Company secretarial and administration fees 111 235
Auditors' remuneration for audit services(1) 77 76
1,129 1,559
( )
(1)There are no non-audit services performed by the auditors during the year
(2023: None).
*As reported in the Chair's Statement, a one off fee, amounting to £46,310 in
total, was paid to the Directors following the completion of the change of
Manager in November 2023 to compensate the Directors for the considerable
additional time and commitment associated with the transaction. Full details
are provided in the Directors' Remuneration Report.
6. Finance costs
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
Interest on loan and overdraft 2,198 1,242
All finance costs are allocated 100% to revenue.
7. Taxation
(a) Analysis of the tax charge for the year
For the year ended 31 August 2024 For the year ended 31 August 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Irrecoverable overseas tax 135 - 135 122 - 122
Taxation for the year 135 - 135 122 - 122
The Company has no corporation tax liability for the year ended 31 August 2024
(2023: the same).
(b) Factors affecting the tax charge for the year
The tax assessed for the year ending 31 August 2024 is lower (2023: lower)
than the Company's applicable rate of corporation tax for that year of 25%
(2023: 21.5%).
The factors affecting the tax charge for the year are as follows:
For the year ended 31 August 2024 For the year ended 31 August 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return/(loss) before taxation (3,361) 42,372 39,011 (3,748) 10,683 6,935
Net return/(loss) before taxation multiplied by the Company's applicable rate (840) 10,593 9,753 (806) 2,297 1,491
of corporation tax for the year of 25% (2023: 21.5%)
Effects of:
Revenue not chargeable to corporation tax (261) - (261) (186) - (186)
Tax exempt capital returns on investments - (10,405) (10,405) - (2,065) (2,065)
Non taxable exchange gains - (414) (414) - (342) (342)
Non taxable expenses not utilised in the year 1,101 226 1,327 992 110 1,102
Irrecoverable overseas tax 135 - 135 122 - 122
Taxation for the year 135 - 135 122 - 122
(c) Deferred taxation
The Company has an unrecognised deferred tax asset of £21,345,000 (2023:
£18,937,000) based on a main rate of corporation tax of 25% (2023: 25%). The
main rate of corporation tax increased to 25% for fiscal years beginning on or
after 1 April 2023.
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. (Loss)/earnings
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
Net revenue loss (3,496) (3,870)
Net capital profit 42,372 10,683
Total profit 38,876 6,813
Weighted average number of ordinary shares in issue during the year* 38,184,030 40,583,458
Revenue loss per share (pence) (9.16) (9.53)
Capital profit per share (pence) 110.97 26.32
Total earnings per share (pence) 101.81 16.79
*Excluding those ordinary shares held in treasury.
9. Dividends paid
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
2024 First interim dividend paid of 13.90p per share (2023: 14.00p per share) 5,391 5,707
2024 Second interim dividend paid of 14.50p per share (2023: 14.20p per share) 5,377 5,700
Total dividends paid of 28.40p per share (2023: 28.20p per share) 10,768 11,407
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 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
31 August 31 August
2024 2023
£'000 £'000
Quoted overseas 270,883 276,642
270,883 276,642
Unquoted in the United Kingdom 8,813 5,630
Unquoted overseas 17,811 19,632
26,624 25,262
Valuation of investments 297,507 301,904
(b) Movements on investments
For the For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
Opening book cost 311,290 318,702
Opening investment holding losses (9,386) (5,273)
Opening fair value 301,904 313,429
Analysis of transactions made during the year
Purchases at cost 349,648 335,996
Sales proceeds (395,665) (357,127)
Gains on investments held at fair value through profit or loss 41,620 9,606
Closing fair value 297,507 301,904
Closing book cost 277,196 311,290
Closing investment holding gains/(losses) 20,311 (9,386)
Closing fair value 297,507 301,904
The Company received £395,665,000 (2023: £357,127,000) from disposal of
investments in the year. The book cost of these investments when they were
purchased was £383,742,000 (2023: £343,408,000). 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 gains of £20,311,000 (2023: losses of £9,386,000)
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 For the
year ended year ended
31 August 31 August
2024 2023
£'000 £'000
On acquisitions 146 104
On disposals 122 112
268 216
(c) Significant undertakings
The Company has interests of 3% or more of any class of capital in the
following investee companies.
Class % of class Country of
of share held of share held incorporation
Uniqure Ordinary 3.02% Netherlands
Karus Therapeutics* Series B Pref 3.25% 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 11.2% in the unquoted fund SV BCOF and 7.7% in
the unquoted fund SV Fund VI which are both managed by SV Health. These
percentages are of the underlying fund share capital and not the NAV of the
Company. The total invested in both funds to date is $34.5 million (at cost).
The investment is drawn and not committed.
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 (2023:
nil).
(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) Write up/(down)
2024 2023
£'000 £'000
SV Fund VI* (985) (4,761)
SV BCOF* 3,233 1,788
*The movement in Fair Value ("FV") was a combination of distributions from the
above funds of £5.7 million (2023: £10.0 million), capital contributions of
£3.0 million (2023: £5.7 million), and foreign currency and FV gains of
£5.0 million (2023: £1.3 million).
11. Current assets
At At
31 August 31 August
2024 2023
£'000 £'000
Receivables
Securities sold awaiting settlement - 2,717
Dividends and interest receivable 109 2
Prepaid expenses 7 35
Tax recoverable 45 46
VAT recoverable 54 167
215 2,967
12. Cash and cash equivalents
Cash and cash equivalents include the following for the purposes of the
Statement of Cash Flows:
At At
31 August 31 August
2024 2023
£'000 £'000
Cash at bank 10,433 -
Bank overdraft - (32,474)
Cash and cash equivalents 10,433 (32,474)
In the prior year the Company made use of the £55.0 million unsecured
multi-currency overdraft facility. All cash balances were netted off against
the drawn facility to result in a net drawn overdraft balance. Following the
change in custodian during the year, this facility closed and the Company
entered into a secured revolving credit facility with the Bank of Novia Scotia
(see note 13).
13. Current liabilities
At At
31 August 31 August
2024 2023
£'000 £'000
Payables
Loan 22,827 -
Securities purchased awaiting settlement 1,872 143
Accrued expenses 1,191 1,190
Other - 747
25,890 2,080
The Company arranged a £55 million secured credit facility revolving on a
monthly basis with The Bank of Nova Scotia, effective from 16 November 2023.
Interest is payable at the aggregate of the compounded Risk Free Rate ("RFR")
for the relevant currency and loan period, plus a margin. Amounts are normally
drawn down on the facility for a one month period, at the end of which it may
be rolled over or adjusted. As at 31 August 2024, the Company had a drawndown
amount of US$30 million (£22.8 million) (2023: Nil) which carries an interest
rate of 6.5% per annum (2023: Nil). The revolving credit facility is secured
on all of the Company's assets (except for level 3 assets) and undertakings
both present and future. The drawings are subject to covenants and
restrictions which are customary for a facility of this nature and all of
these have been complied with.
14. Capital commitments - contingent assets and liabilities
The Company made a $30.0 million commitment to SV Fund VI in 2016. Of this
$30.0 million commitment, the Company has further commitments of
$3.0 million as at 31 August 2024 (2023: $4.1 million). 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 has a commitment of $30.0 million to SV BCOF (2023: $30.0
million). The Company made no further commitments in 2024 (2023: $5.0
million). Of this commitment, the Company has further commitments of
$21.5 million (including recallable distributions) as at 31 August 2024
(2023: $22.8 million).
15. Share capital
At At
31 August 31 August
2024 2023
£'000 £'000
Ordinary shares of 25p each, allotted, called-up and fully paid:
Opening balance of 39,318,183 (2023: 40,863,009) shares, excluding shares held 9,830 10,216
in treasury
Repurchase of 2,483,273 (2023: 1,544,826) shares into treasury (621) (386)
Sub total of 36,834,910 (2023: 39,318,183) shares, excluding shares held in 9,209 9,830
treasury
4,548,907 (2023: 2,065,634) shares held in treasury 1,137 516
Closing balance of 41,383,817 (2023: 41,383,817) shares 10,346 10,346
The ordinary shares rank pari passu, and each share carries one vote. The
ordinary shares held in treasury have no voting rights and are not entitled to
dividends. The nominal value of each share is 25p.
During the year, the Company purchased 2,483,273 of its own shares, nominal
value of £621,000 to hold in treasury for a total consideration of
£16,160,000 representing 6.0% of the shares outstanding at the beginning of
the year (including shares held in treasury). The reason for these shares
purchases was to seek to manage the volatility of the share price discount to
net asset value per share.
16. Reserves
Capital reserves
Gains and Investment
Capital losses on holding
Share redemption sales of gains and Revenue
premium(1) reserve(1) investments(2) losses(3) reserve(4)
£'000 £'000 £'000 £'000 £'000
At 1 September 2023 29,873 31,482 258,533 (9,386) (50,531)
Gains on sales of investments based on the carrying value at the previous - - 24,122 - -
Statement of Financial Position date
Net movement in investment holding gains and losses - - - 17,498 -
Transfer on disposal of investments - - (12,199) 12,199 -
Realised exchange losses on cash and short-term deposits - - (247) - -
Exchange gains on foreign currency loan - - 830 1,073 -
Performance fee allocated to capital - - (904) - -
Share repurchases into treasury - - (16,160) - -
Dividend paid - - (10,768) - -
Net revenue loss for the year - - - - (3,496)
At 31 August 2024 29,873 31,482 243,207 21,384 (54,027)
Capital reserves
Gains and Investment
Capital losses on holding
Share redemption sales of gains and Revenue
premium(1) reserve(1) investments(2) losses(3) reserve(4)
£'000 £'000 £'000 £'000 £'000
At 1 September 2022 29,873 31,482 265,122 (5,273) (46,661)
Gains on sales of investments based on the carrying value at the previous - - 48,882 - -
Statement of Financial Position date
Net movement in investment holding gains and losses - - - (39,276) -
Transfer on disposal of investments - - (35,163) 35,163 -
Realised exchange gains on cash and short-term deposits - - 1,591 - -
Performance fee allocated to capital - - (514) - -
Share repurchases into treasury - - (9,978) - -
Dividend paid - - (11,407) - -
Net revenue loss for the year - - - - (3,870)
At 31 August 2023 29,873 31,482 258,533 (9,386) (50,531)
( )
(1)These reserves are not distributable.
(2)These are realised (distributable) capital reserves which may be used to
repurchase the Company's own shares or distributed as dividends.
(3)This reserve comprises holding gains on liquid investments (which may be
deemed to be realised) and other amounts which are unrealised. An analysis has
not been made between those amounts that are realised (and may be distributed
as dividends or used to repurchase the Company's own shares) and those that
are unrealised.
(4)The revenue reserve may be distributed as dividends or used to repurchase
the Company's own shares (subject to being a positive balance). A negative
revenue reserve will reduce any distributable reserves available in the
capital reserve.
17. Net asset value per share
For the For the
year ended year ended
31 August 31 August
2024 2023
Net assets attributable to shareholders (£'000) 282,265 270,317
Shares in issue at year end 36,834,910 39,318,183
Net asset value per share (pence) 766.30 687.51
18. Transactions with the Manager and related party transactions
(a) Transactions with the AIFM/Investment Manager
With effect from 20 November 2023, Schroder Unit Trusts Limited ("SUTL") has
been appointed as the Company's AIFM. SUTL agreed to waive its management fee
for the first six months from 20 November 2023, after which the management fee
payable by the Company on its quoted portfolio will be 0.7% per annum.
Details of the management and performance fee agreements are given in the
Directors' Report in the full Annual Report and Financial Statements. The
management fee payable in respect of the year amounted to £1,988,000 (2023:
£2,601,000) which includes £691,000 (2023: £791,000) paid to SV Health for
the Company's investments into the SV unquoted funds. As at year end,
£308,000 was outstanding to SUTL (2023: £122,000 to SV Health).
Details of the previous management fee arrangement with SV Heath are given in
the Directors' Report on page 41 of the Annual Report for the year ended 31
August 2023.
At At
31 August 31 August
2024 2023
£'000 £'000
Fees paid to the investment manager/adviser:
Management fee paid by the Company directly to SUTL 498** -
Management fee paid through unquoted funds to SV Health 154 791
Adviser fee paid through unquoted funds to SV Health 537 -
Management fee paid by the Company directly to SV Health 799* 1,810
Accounting and administration fee payable by the Company directly to SUTL 78 -
Total 2,066 2,601
*Includes a termination fee of £289,439 paid to SV Health.
**Reflects SUTL agreed waiver of six months management fees from 20 November
2023 to 20 May 2024 under the terms of the new AIFM agreement.
A performance fee of £904,000 was payable for the year ended 31 August 2024
(2023: £514,000). Of the £904,000 payable, £35,000 was outstanding to SV
Health and £693,000 was outstanding to SUTL at the year end. £176,000 was
paid to SV Health before the Company transitioned to SUTL.
Under the terms of the new AIFM, SUTL is entitled to receive an annual fee of
£100,000 in respect of the accounting and administration services it provides
to the Company. The administration fee payable in respect of the period under
SUTL was £78,000 of which £17,000 was outstanding at the year end.
SV Health will continue to provide ongoing investment management assistance to
the Company in respect of the exited investments with contingent milestones,
the exited investments in liquidation and the directly held unquoted
investments in consideration for payment of a performance fee on the same
terms as previously set out in the Directors' Report on page 41 of the Annual
Report for the year ended 31 August 2023.
(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 2024
was £218,000 (2023: £162,000) of which £27,000 (2023: £nil) was
outstanding at the year end.
This includes a one off fee of £47,000 for the additional work in relation to
the change of AIFM.
19. 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 end 31 August 2024.
19.1 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 Portfolio Managers assess the exposure to market risk when making each
investment decision, and monitor 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 in the full Annual Report and Financial Statements. 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 specific risk (note 19.4),
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 At
31 August 31 August
2024 2023
£'000 £'000
Non-current asset investments at fair value through profit or loss 297,507 301,904
Total 297,507 301,904
The level of assets exposed to market price risk decreased by approximately
1.5% (2023: 3.7%) 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 83 (2023: 76) companies (excluding
those valued at £nil), 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 investment into SV Fund VI and SV BCOF as two
unquoted holdings. However, SV Fund VI and SV BCOF have 13 and 7 companies,
respectively, in their own portfolios. The classification of investments by
sector is provided within the Investment Portfolio section of the report.
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% (2023: 10%) in the fair values of
the Company's investments. The Board believes that a 10% (2023: 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 and
based on the average total share price percentage return over the last five
years on the '10-Year Financial Record' in the full Annual Report and
Financial Statements. The sensitivity analysis is based on the Company's
investments at each Statement of Financial Position date, with all other
variables held constant.
At 31 August 2024 At 31 August 2023
Increase in Decrease in Increase in Decrease in
fair value fair value fair value fair value
£'000 £'000 £'000 £'000
Effect on net revenue return (208) 208 (272) 272
Effect on net capital return 29,751 (29,751) 30,190 (30,190)
Effect on total net return and net assets 29,543 (29,543) 29,918 (29,918)
(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 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 2024 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 At
31 August 31 August
2024 2023
£'000 £'000
Monetary (liabilities)/assets
Cash and cash equivalents:
US dollars 7,009 (32,084)
Short-term receivables:
US dollars 109 2,756
Danish krone 13 13
Short-term payables:
US dollars (24,716) (143)
Foreign currency exposure on net monetary items (17,585) (29,458)
Non-current asset investments held at fair value
US dollars 291,948 293,614
Euros 5,178 7,405
Swedish krona - 454
Total net foreign currency exposure 279,541 272,015
At the year end, approximately 99.0% (2023: 100.6%) 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 3.7% against the US dollar, by 1.7% against the Euro and by
1.8% against the Danish krone and weakened by 0.4% against the Swiss franc and
by 3.0% against Swedish krona (2023: strengthened 0.63%, 0.36%, 0.36%, 0.75%
and 0.44% 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% (2023: 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 At
31 August 31 August
2024 2023
£'000 £'000
US dollars 27,435 26,414
Euros 518 741
Danish krone 1 1
Swedish krona - 45
27,954 27,201
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 after taxation attributable to equity Shareholders as follows:
At At
31 August 31 August
2024 2023
£'000 £'000
US dollars (27,435) (26,414)
Euros (518) (741)
Danish krone (1) (1)
Swedish krona - (45)
(27,954) (27,201)
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 the 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 loan 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.
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 of financial assets and financial liabilities to floating rates,
giving cash flow interest risk when rates are re-set, is shown below:
At At
31 August 31 August
2024 2023
£'000 £'000
Exposure to floating interest rates:
Cash and cash equivalents 10,433 (32,474)
Other payables: drawings on credit facility (22,827) -
Total exposure (12,394) (32,474)
See notes 12 and 13 for details of the secured revolving credit facility, the
prior year overdraft, and the respective interest rates.
The above year end amounts are not representative of the exposure to interest
rates during the year as the level of cash balances and drawings on the
secured credit facility have fluctuated. The maximum and minimum net interest
rate exposure during the year has been as follows:
At At
31 August 31 August
2024 2023
£'000 £'000
Maximum interest rate exposure during the year - net debt (34,101) (32,474)
Maximum/minimum interest rate exposure during the year - net cash/(debt) 117 (24,193)
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to a 3.0% (2023: 3.0%) increase or decrease in
interest rates in regards to the Company's monetary financial assets and
financial liabilities. This level of change is considered to be a reasonable
illustration based on observation of current market conditions. The
sensitivity analysis is based on the Company's monetary financial instruments
held at the Statement of Financial Position date with all other variables held
constant.
At 31 August 2024 At 31 August 2023
3% 3% 3% 3%
increase decrease increase decrease
in rate in rate in rate in rate
£'000 £'000 £'000 £'000
Effect on net revenue return (372) 372 (974) 974
Effect on net capital return - - - -
Effect on total net return (372) 372 (974) 974
In the opinion of the Directors, this sensitivity analysis may not be
representative of the Company's future exposure to interest rate changes due
to fluctuations in the level of cash balances and drawings on the secured
credit facility.
(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 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 Portfolio Managers update
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 biotechnology sector the Company
has a moderate loss of investor appetite risk exposure.
19.2 Credit risk
Credit risk is the 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. HSBC
Bank plc 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 they 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 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 At
31 August 31 August
2024 2023
£'000 £'000
Sales awaiting settlement - 2,717
Accrued income 109 2
Cash at bank 10,433 -
10,542 2,719
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.
19.3 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 Portfolio Managers aim 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 a secured credit facility with The Bank of Nova Scotia, London
Branch of £55.0 million (2023: Overdraft facility - Northern Trust Bank
$55.0 million).
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 Portfolio Managers' 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 87% (2023: 56%) of the portfolio
within five days if required. A summary of the Company's financial liabilities
is provided in sub-note 19.6.
19.4 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.
19.5 Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried in the Statement of
Financial Position at fair value or the Statement of Financial Position 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 Guidelines. The
methods commonly used to value unquoted securities are stated in accounting
policy 1(f).
19.6 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 Statement of Financial Position date of the
reporting periods under review are categorised as follows:
Financial assets
At At
31 August 31 August
2024 2023
£'000 £'000
Financial assets at fair value through profit or loss:
Non-current asset investments - designated as such on initial recognition 297,507 301,904
Cash and receivables:
Current assets:
Receivables 215 2,967
Cash at bank 10,433 -
10,648 2,967
Financial liabilities
At At
31 August 31 August
2024 2023
£'000 £'000
Measured at amortised cost
Creditors: amounts falling due within one month:
Purchases awaiting settlement 1,872 143
Loan 22,827 -
Bank overdraft - 32,474
Accruals 1,191 1,190
Payables - 747
25,890 34,554
Note: Amortised cost is the same as the carrying value shown above.
19.7 Disclosures regarding financial instruments measured at fair
value
The Company's portfolio of investments, which may comprise investments in
quoted equities and unquoted holdings, are carried in the Statement of
Financial Position at fair value. Other financial instruments held by the
Company may comprise amounts due to or from brokers, dividends and interest
receivable, accruals, cash at bank and drawings on the secured credit
facility.
For these instruments, the Statement of Financial Position amount is a
reasonable approximation of fair value.
The investments are categorised into a hierarchy comprising the following
three levels:
Level 1 - valued using quoted prices in active markets.
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.
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.
Details of the valuation techniques used by the Company are given in the
accounting policies noted in the full Annual Report and Financial Statements.
(i) Financial assets at fair value through profit or loss
At 31 August 2024
Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Equity investments 297,507 270,883 - 26,624
297,507 270,883 - 26,624
At 31 August 2023
Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Equity investments 301,904 276,642 - 25,262
301,904 276,642 - 25,262
There were no transfers between levels 1, 2 or 3 during the period (2023:
Same). 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 At
31 August 31 August
2024 2023
£'000 £'000
Opening valuation 25,262 27,958
Capital contributions 2,995 -
Distributions (7,098) (4,665)
Total gains included in the Statement of Comprehensive Income
- on assets realised (843) 2,693
- on assets held at the year end 6,308 (724)
Closing valuation 26,624 25,262
(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 in the full Annual Report and Financial Statements. As at
31 August 2024, 95.97% of the Company's net assets (including cash and net
liabilities) are invested in level 1 investments and 9.43% of Company's net
assets are invested in level 3.
The fair value of level 3 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 in respect of
unquoted investments (excluding investments in SV unquoted funds). The SV
unquoted funds do not have significant unobservable inputs used in the
determination of their fair value, as described in note 1(g). 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 2024.
Year ended 31 August 2024* Effect of reasonably possible alternative assumptions
Fair value Significant Favourable impacts Unfavourable impacts
Valuation techniques** £'000 unobservable inputs** £'000 £'000
Discounted future cash flows 4,382*** Probability estimate of royalty income 438 (438)
Discount rate 157 (148)
Present value of future milestone 309 Probability estimate of milestone achievement 31 (31)
payments Discount rate 4 (4)
Calibration price of recent investment 341 Calibration price of recent investment 34 (34)
5,032 664 (655)
Net asset value 40 No significant judgements applied - -
5,072 664 (655)
*Investments in the table above have been valued by the adviser for the
unquoted portfolio.
**Excludes investments in SV unquoted funds.
***Ikano Therapeutics.
Year ended 31 August 2023 Effect of reasonably possible alternative assumptions
Fair value Significant Favourable impacts Unfavourable impacts
Valuation techniques* £'000 unobservable inputs* £'000 £'000
Discounted future cash flows 4,635** Probability estimate of royalty income 471 (471)
Discount rate 203 (191)
Present value of future milestone 892 Probability estimate of milestone achievement 32 (29)
payments Discount rate 1 (1)
Calibration price of recent investment 341 Calibration price of recent investment 34 (34)
5,868 741 (726)
Net asset value 90 No significant judgements applied - -
5,958 741 (726)
*Excludes investments in SV unquoted funds.
**Ikano Therapeutics.
*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(g) in the full Annual Report and Financial
Statements.
Probability estimate of royalty income
The probability estimate of royalty income is a key variable input in the
discounted future cash flow valuation technique used by the adviser and
further probability adjusted at 80% (2023: 85%) of the calculated net present
value. It 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 with the adviser's assessment
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 used by the
adviser and represents the potential risk that commercial milestones are not
achieved/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
with the adviser's assessment that the largest differential in the flux of the
valuations would be 10%.
Discount rate
The application of a risk adjusted discount rate (13.5% for Ikano Therapeutics
(2023: 12.5%)) has been applied by the adviser 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 with the adviser's
assessment that the largest differential in the flux of the valuations would
be 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%.
19.8 Capital management policies and procedures
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding year.
The Company's debt and capital structure comprises the following:
At At
31 August 31 August
2024 2023
£'000 £'000
Debt
Loan 22,827 -
Bank overdraft - 32,474
Total debt 22,827 32,474
Equity
Share capital 10,346 10,346
Reserves 271,919 259,971
Total equity 282,265 270,317
Total debt and equity 305,092 302,791
The Company's capital management objectives are to ensure that it will
continue as a going concern and to maximise total return to its equity
Shareholders through an appropriate level of gearing.
The Board's policy is to limit gearing to 30%. Gearing for this purpose is
defined as borrowings used for investment purposes, less cash, expressed as a
percentage of net assets.
At At
31 August 31 August
2024 2023
£'000 £'000
Borrowings used for investment purposes, including cash 12,394 32,474
Net assets 282,265 270,317
Gearing 4.4% 12.0%
The Board, with the assistance of the Manager, monitors and reviews the broad
structure of the Company's capital on an ongoing basis. This review includes:
(i) the planned level of gearing, which takes into account the
Manager's view of the market;
(ii) the need to buyback the Company's own shares for
cancellation or to hold in treasury, which takes into account the share price
discount;
(iii) the opportunities for issue of new shares or to reissue
shares from treasury; and
(iv) the amount of dividend to be paid, in excess of that which is
required to be distributed.
20. 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.
21 Post statement of financial position events
After the year end and up to 1 November 2024, 386,604 ordinary shares were
bought back to be held in treasury. Following the buy backs, the total number
of shares in issue was 41,383,817 of which 4,935,511 were held in treasury.
No other significant events occurred after the end of the reporting period to
the date of this Report requiring disclosure.
22. Status of results announcement
2024 Financial Information
The figures and financial information for 2024 are extracted from the Annual
Report and Financial Statements for the year ended 31 August 2024 and do not
constitute the statutory accounts for that year. The Annual Report and
Financial Statements include the Report of the Independent Auditors which is
unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The Annual Report and Financial
Statements will be delivered to the Registrar of Companies in due course.
2023 Financial Information
The figures and financial information for 2023 are extracted from the
published Annual Report and Financial Statements for the year ended 31 August
2023 and do not constitute the statutory accounts for the year. The Annual
Report and Financial Statements have been delivered to the Registrar of
Companies and included the Report of the Independent Auditors which was
unqualified and did not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006.
Neither the contents of the Company's web pages nor the contents of any
website accessible from hyperlinks on the Company's web pages (or any other
website) is incorporated into, or forms part of, this announcement.
4 November 2024
For further information:
Kerry Higgins
Schroder Investment Management Limited
E-mail: AMCompanySecretary@Schroders.com
(mailto:AMCompanySecretary@Schroders.com)
Issued by Schroder Investment Management Limited. Registration No 1893220
England.
Authorised and regulated by the Financial Conduct Authority. For regular
updates by e-mail please register online at www.schroders.com
(https://url.uk.m.mimecastprotect.com/s/t7puCxn15T1LlkKtvh4FyxHrZ?domain=schroders.com/)
for our alerting service.
ENDS
A copy of the 2024 Annual Report will shortly be submitted to the FCA's
National Storage Mechanism and will be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
The 2024 Annual Report and Financial Statements will shortly be available on
the Company's web pages at www.ibtplc.com (http://www.ibtplc.com) where
up-to-date information on the Company, including daily NAV and share prices,
factsheets and portfolio in formation can also be found.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
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. END FR FSEEELELSEFF
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