REG - Intnl. Biotechnology - Annual Financial Report
07/11/2023 07:00
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RNS Number : 5656S Intl. Biotechnology Trust PLC 07 November 2023
7 November 2023
INTERNATIONAL BIOTECHNOLOGY TRUST PLC
("IBT" or the "Company")
Annual Report for the year ended 31 August 2023
WHO WE ARE
International Biotechnology Trust plc offers investors access to the
fast-growing biotechnology sector through an actively managed, diversified
fund.
Our award-winning Investment Managers at SV Health Managers LLP are
scientifically, medically and financially experienced with over 75 years of
experience between them. As well as investing in a wide-ranging portfolio of
global quoted biotechnology stocks, we include a small proportion of otherwise
inaccessible carefully selected unquoted investments which have the potential
to deliver additional returns over the long-term. Excellent management teams,
unique innovative products and strong potential for outperformance are the key
criteria for inclusion in our diversified portfolio of assets. The six key
attributes of the Company are detailed below:
Strong fundamentals
Driven by the strong fundamental demand and supply of the Biotechnology sector
Diversified portfolio
Access to a broad spectrum of quoted and unquoted investments
Growth and yield
Provides investors exposure to both growth and an attractive yield
Active management
Bottom up stock selection with diversification overlay
Expert team
Scientifically and financially experienced Investment Managers with access to
specialists at SV Health Managers LLP
Innovation
Invested in some of the most innovative companies in the world, developing
therapies to improve and save lives
FUND FACTS
FINANCIAL HIGHLIGHTS
31 August 2023 31 August 2022
Total equity/net asset value (NAV) (£'000) 270,317 284,889
NAV per share† 687.5p 697.2p
Share price 644.0p 651.5p
Share price discount to NAV† (6.3)% (6.6)%
Dividend per share*** 28.2p 31.4p
Gearing† 12.0% 14.0%
Ongoing charges†* 1.4%** 1.3%**
Ongoing charges including performance fee 1.6%** 1.5%**
†For detailed calculations on the discount/premium, gearing and ongoing
charges, please refer to Alternative Performance Measures (APMs) on page 112.
*Calculated in accordance with the Association of Investment Companies (the
AIC) guidance. Based on total expenses excluding finance costs and performance
fee and expressed as a percentage of average daily net assets. The ratio
including performance fee has also been provided, in line with the AIC
recommendations. Research costs under MiFID II borne by the Company are
included in the ongoing charges calculation.
**Includes Management fees paid to SV Health Managers LLP directly from
investment in SV Fund VI and SV BCOF (SV unquoted funds) of £791,000 (2022:
£623,000).
***4% of the Company's NAV as at the last day of the preceding financial year.
FIVE YEAR PERFORMANCE (Cumulative Total Return)
1yr (%) 3yr (%) 5yr (%)
Share price total return to 31 August 3.0% (0.5)% 15.8%
NAV per share total return to 31 August 2.7% 5.9% 18.8%
NASDAQ Biotechnology Index (NBI) to 31 August (1.4)% 6.1% 13.5%
FTSE All-Share Index to 31 August 5.0% 34.5% 18.0%
For detailed calculations on the share price total return and the NAV per
share total return, please refer to Alternative Performance Measures (APMs) on
page 113. Data for NBI and FTSE All-Share Index sourced from Bloomberg. All
sterling-adjusted and on a shareholder returns basis.
TOP TEN HOLDINGS
As at 31 August 2023 As at 31 August 2023 As at 31 August 2022
Investment Therapeutic area Geographic location £'000 % of NAV % of NAV
Incyte Oncology United States 18,243 6.0 5.1
Amgen Oncology United States 16,031 5.3 1.2
SV Fund VI Venture Fund United States 14,105 4.7 6.6
Gilead Sciences Infectious diseases United States 14,098 4.7 4.0
Harmony Biosciences Rare diseases United States 13,803 4.6 3.5
Supernus Pharmaceuticals Central nervous system United States 13,154 4.4 3.1
Vera Therapeutics Autoimmune United States 11,598 3.8 1.8
BioMarin Pharmaceutical Rare diseases United States 11,081 3.7 1.6
Regeneron Pharmaceuticals Ophthalmology United States 8,996 3.0 4.2
Intra-Cellular Therapies Central nervous system United States 8,973 3.0 2.7
130,082 43.2
At 31 August 2022, the top ten holdings represented 49.5% of NAV.
PORTFOLIO OVERVIEW
31 August 2023 31 August 2022
Number of total portfolio companies* 76 72
Number of quoted holdings 69 64
Number of unquoted holdings** 7 8
NAV £270.3m £284.9m
Quoted investments £276.6m £285.5m
Unquoted investments £25.3m £28.0m
Net (debt)*** (£32.5m) (£40.0m)
*Excluding companies fully written off.
**Includes two SV unquoted funds. SV Health Managers LLP Fund VI (SV Fund VI)
and SV Biotech Crossover Opportunities Fund LP (SV BCOF) have a further 18 and
six companies, respectively, in their portfolios.
***Debt as at 31 August is a result of the Investment Managers' investment
strategy. Please refer to Glossary on pages 110 and 111 and APMs on page 112
for more information.
PORTFOLIO COMPOSITION as at 31 August 2023
NAV% BY SIZE*
Mega Cap > $30bn 17%
Large Cap =$10-30bn 24%
Mid cap = $2-10bn 27%
Small cap < $2bn 24%
Unquoted funds 6%
Directly-held unquoted 2%
* Adjusted for cash/(debt) balance.
NAV% BY DEVELOPMENT STAGE
Profitable 25%
Revenue growth 45%
Early-stage 30%
NAV% BY THERAPEUTIC AREA
Rare diseases 29%
Oncology 23%
Central nervous system 19%
Autoimmune 9%
Infectious diseases 5%
Ophthalmology 3%
Unquoted funds 6%
Other 6%
NAV% BY GEOGRAPHY
US/Canada 92%
Europe/UK 7%
Rest of World 1%
PORTFOLIO COMPOSITION as at 31 August 2022
NAV% BY SIZE*
Mega Cap > $30bn 11%
Large Cap =$10-30bn 32%
Mid cap = $2-10bn 28%
Small cap < $2bn 20%
Unquoted funds 7%
Directly-held unquoted 2%
* Adjusted for cash/(debt) balance.
NAV% BY DEVELOPMENT STAGE
Profitable 32%
Revenue growth 31%
Early-stage 37%
NAV% BY THERAPEUTIC AREA
Oncology 29%
Rare diseases 21%
Central nervous system 14%
Autoimmune 11%
Infectious diseases 5%
Ophthalmology 4%
Unquoted funds 7%
Other 9%
NAV% BY GEOGRAPHY
US/Canada 86%
Europe/UK 11%
Rest of World 3%
LONG-TERM RECORD
TEN YEAR PERFORMANCE as at 31 August
As at 31 August Total NAV £'000 Number of shares in issue* NAV per share NAV** total return % Share price Share price** total return % NBI total return % (Discount)/premium %
pence pence
2023 270,317 39,318,183 687.5 2.7 644.0 3.0 (1.4) (6.3)
2022 284,889 40,863,009 697.2 (6.9) 651.5 (6.4) (13.8) (6.6)
2021 323,775 41,383,817 783.2 9.8 729.5 3.8 24.8 (6.8)
2020 283,897 38,436,817 738.6 22.4 730.0 18.7 18.6 (1.2)
2019 239,579 38,397,663 623.9 (6.8) 636.0 (2.1) (9.8) 1.9
2018 262,473 37,547,663 699.0 8.6 680.0 13.7 10.1 (2.7)
2017 252,651 37,547,663 672.9 20.9 624.0 30.5 21.7 (7.3)
2016 216,651 37,672,663 575.1 (1.7) 497.5 (9.8) (6.5) (13.5)
2015 236,001 40,247,663 586.4 48.2 551.5 75.4 38.0 (6.0)
2014 214,970 54,332,663 395.7 26.4 314.5 16.9 33.8 (20.5)
*Excludes Treasury shares.
**On a total return basis (with all dividends reinvested since 2017).
TEN YEAR PERFORMANCE
Share Price/NASDAQ Biotechnology Index Total Return (%)
Source: Bloomberg. Data rebased to 100 at 31 August 2013.
CHAIR'S STATEMENT
Kate Cornish-Bowden | Chair
SUMMARY
The share price total return of International Biotechnology Trust plc (IBT)
rose by 3% over the financial year to the end of August 2023, while the
benchmark NASDAQ Biotechnology Index (NBI) fell by 1.4% over the same period.
The Company's Net Asset Value rose by 2.7%. All figures are on a sterling
adjusted total return basis, with dividends reinvested. It is gratifying that
the Fund Manager has again delivered a return in excess of the NBI, although
disappointing to have underperformed the FTSE All Share Index. IBT has now
outperformed the NBI over one, five and ten years.
It has been a very busy year for IBT, whilst we conducted a comprehensive,
independent process to select a new fund manager for the Company; and it is
particularly pleasing that the Investment Managers have continued to deliver
strong performance during this transition.
A SENSITIVE WEATHERVANE
FIGURE 1: NASDAQ Biotechnology Index
Source: Bloomberg.
QUOTED PORTFOLIO
The NAV of the quoted portfolio, which represents 91.6% of total investments,
rose by 3.8% during the financial year, beating the NBI return by 5.2%. All
figures are on a sterling adjusted total return basis, with dividends
reinvested.
Your Investment Managers, Ailsa Craig and Marek Poszepczynski, have continued
to focus their efforts on identifying companies which have innovative
treatments for unmet medical needs which command powerful competitive
positions, have strong balance sheets, and have experienced management teams.
The largest exposures by therapeutic area are Rare Diseases (29%), Oncology
(23%) and the Central Nervous System (19%).
Most of the outperformance during the financial year was due to careful
selection of mid cap revenue-generating biotech opportunities, which became
acquisition targets. IBT benefited from being overweight in six companies
which were subject to M&A activity. The Fund Manager's Review provides
more detail on these transactions, but I would like to draw your attention to
both Horizon and Seagen, which represented the two largest portfolio holdings
before they became the subject of takeover bids from Amgen and Pfizer
respectively, in the first half of the year under review. In both cases
shareholders benefited significantly from the performance uplift, and the
Investment Managers subsequently took the decision to reduce the positions to
lower exposure to the transaction risks. This has proved prescient as both
share prices have been volatile following announcements of investigations into
the deals by the Federal Trade Commission (FTC). Since the year end, the FTC
has given the Amgen acquisition of Horizon the green light, but Pfizer's
proposed takeover of Seagen remains under review by the regulator.
The outlook for M&A activity in the sector remains bright. The large cap
companies in the industry have substantially outperformed their smaller
brethren this year. Whilst the NBI, which is a market capitalisation weighted
index which also includes pharmaceutical companies, fell by 1.4% in sterling
terms, XBI, which is equal weighted, fell by 13% in sterling terms over the
same period. The relative valuation differential has made the smaller
innovative companies which are developing the drugs of the future look even
more appealing. The industry is forecast to lose up to $200bn in sales per
annum by 2030 as a result of major drugs coming off patent. The cash-rich,
large cap companies in the sector are under pressure to maintain earnings
growth and are eager to identify the next generation of innovative candidates
to fill the pipeline.
UNQUOTED PORTFOLIO
The unquoted portfolio, which comprises 8.4% of total investments, is
primarily invested in two venture capital funds, SV Fund VI and SV BCOF,
managed by SV Health Investors LLC and SV Health Managers LLP respectively, as
well as a small number of directly held unquoted companies, most of which have
been exited with potential contingent milestone payments still remaining.
Rising interest rates have led to a tougher funding environment for the
private equity industry, and biotechnology is no exception. Deal activity has
fallen dramatically and the heady valuations of a couple of years ago are a
distant memory. During the year SV Fund VI, which is a mature fund with 86% of
the initial IBT $30m commitment drawn down, fell in value with a number of
write downs. Nevertheless, since its launch in 2016, SV Fund VI has delivered
a currency adjusted Internal Rate of Return (IRR) of 17.7% per annum for
investors.
The younger fund, SV BCOF, focuses on later stage, pre IPO and newly listed
opportunities. Of the initial $30m commitment from IBT, only 28% is drawn
down, and invested in six companies. During the year, Nimbus, one of the
original SV BCOF investments, announced the sale of one of its key assets, a
TYK2 Inhibitor for psoriasis, to Takeda for $4bn in upfront cash, and up to
$2bn in commercial milestone payments. This has led to an exceptional early
return for investors in SV BCOF which has delivered a currency adjusted IRR of
109% since it was launched in January 2022. The majority of SV BCOF remains in
cash assets ready to take advantage of the significantly reduced valuations in
the recently derated private biotech space.
NEW MANAGER
At the beginning of August this year, we were able to release the news to our
patient shareholders and the market that we have selected a new fund manager
for IBT; Schroders. This has been the culmination of an exhaustive and
independent process, and we are very pleased with the outcome. The transition
to Schroders, which is due to occur on 20 November 2023, ensures continuity of
the existing mandate combined with the benefit of the significant investment
trust expertise which Schroders brings to the table. Ailsa Craig and Marek
Poszepczynski are moving to Schroders and will continue to manage the quoted
portfolio with the same investment philosophy.
As previously announced, SV Health Managers LLP served notice to IBT in
February this year following the partnership's decision to focus on its
venture capital business. The Board and its Advisers spoke to our major
shareholders in order to gain an understanding of their priorities and
expectations for the future of IBT. Our shareholders said they were pleased
with the investment record of the Investment Managers and keen to ensure that
our differentiated mandate remained as a distinctive option within the
biotechnology and healthcare specialist area. Most of our shareholders value
our policy of paying a regular dividend out of capital, and our commitment to
invest up to 15% of assets in innovative private equity opportunities within
the biotechnology sector.
Amongst the many expressions of interest which we received the Board was
particularly keen to identify investment houses with experience of managing
investment trusts. Schroders has an established investment trust business with
14 investment trusts and over £10bn under management, and is strongly placed
to support IBT both from a regulatory and marketing perspective. IBT provides
Schroders with a flagship biotechnology offering within its global thematic
funds business.
UNQUOTED EQUITY EXPOSURE
SV Health Managers LLP, which has delivered a strong track record for IBT
shareholders from investments in unquoted biotech assets, will continue to
provide advice on the Company's current private equity exposure. This is
primarily invested in two venture capital funds; SV Fund VI and SV BCOF. The
remaining legacy direct investments, which now represent less than 2% of total
assets, will no longer attract a management fee but will be subject to the
same performance fee of 20% (capped at 2% of the Company's NAV).
CHANGE IN DEPOSITARY, CUSTODIAN AND LENDER
As part of the move to Schroders, IBT is changing its depositary and custodian
from Northern Trust to HSBC. As a result of this change, the £55m one year
lending facility from Northern Trust will be repaid early. The Board is in the
process of negotiating a new, one year secured revolving lending facility with
Scotiabank which will replace the arrangement with Northern Trust.
NEW FEE ARRANGEMENTS
The Board has negotiated a fee free period for up to six months with Schroders
which will offset the costs associated with the transition. The annual
management fee at Schroders will be 0.7%, in line with the effective fee
currently payable on the quoted portfolio. The performance fee will be
retained and is payable at a rate of 10% of the relative outperformance above
the NBI plus a hurdle rate of 0.5%. The performance fee is subject to a cap of
1.25%, and payable only when the NAV per share has increased over the period.
The ongoing charge ratio is expected to fall marginally and further reduce
over time.
SUSTAINABILITY
Schroders has a dedicated sustainability team which will help complement IBT's
initiatives to incorporate Environmental, Social and Governance (ESG) criteria
into the investment process.
Investing in companies that develop innovative treatments for patients
suffering with unmet medical needs has an inherent positive social impact. IBT
has implemented an ESG policy which incorporates ESG screening in the
investment process. Data provided by Morningstar's Sustainalytics is used to
measure the environmental and social impact and the quality of governance in
key portfolio holdings. The results of this screen are outlined on page 32 of
this Report.
DIVIDENDS
The Company's dividend policy is to make dividend payments equivalent to 4% of
the Company's closing NAV, as at the last day of the preceding financial year
(31 August), through two semi-annual distributions. This enables shareholders
to gain access to this exciting growth sector without sacrificing the security
of regular income. The first dividend for the year of 14 pence per share was
paid on 27 January 2023. The second dividend for the year of 14.2 pence per
share was paid on 25 August 2023. The dividend policy, which will be once
again proposed at the AGM, will remain the same after the transition to
Schroders.
DISCOUNT AND PREMIUM MANAGEMENT
The Board keeps the Company's share price discount to NAV under close review
and is committed to buying back its shares to help manage this. Similarly, the
Board is keen to grow the Company and will issue shares when the share price
is trading at a premium to NAV. During the year under review, 1,544,826 shares
were bought back to be held in Treasury. The share price discount to NAV,
which was 6.6% at 31st August 2022, stood at 6.3% at 31 August 2023.
PERFORMANCE FEE
Thanks to outperformance in both the quoted and unquoted portfolios, a
performance fee of £514,000 is payable for the year ended 31 August 2023. The
quoted portfolio outperformed the NBI plus a 0.5% hurdle rate by over 4.5%
which has led to a performance fee payment of £418,000. A performance fee of
£96,000 is also payable on the unquoted portfolio due to net realised gains
of £479,000 during the financial year.
BOARD AND SUCCESSION
Gillian Elcock, who joined the Board in February this year following the
retirement of Jim Horsburgh, will be standing for election for the first time
at this year's AGM. Gillian was the founder and Managing Director of Denny
Ellison, an independent investment research company, and is a member of the
board of the CFA UK. Gillian is also a Non-executive Director of Melrose
Industries plc and STS Global Income and Growth Trust plc.
I am a Director of Schroder Oriental Income Fund Limited and will be stepping
down from this role prior to IBT's move to Schroders.
AGM AND CONTINUATION VOTE
We look forward to seeing as many of our shareholders as possible at the AGM
on 12 December which will be held at 3.00pm at Schroders' offices at 1 London
Wall Place, London EC2Y 5AU.
In accordance with the Company's Articles of Association, a biennial
continuation vote will be put to shareholders as an ordinary resolution at the
AGM. We have consulted with many of our shareholders during the year and have
received positive feedback. In particular, many of our major shareholders have
informed us that they are pleased with the impending move to Schroders, and
the continuity of the mandate and the investment management team. The Board
strongly recommends that shareholders vote in favour.
OUTLOOK
It has been a volatile year for all investors as markets have swung from
facing the reality of global inflation and the threat of recession to the
belief that the interest rate cycle may be nearing a peak and the worst may be
over. At the time of writing, the devastating news of a resurgence of the
conflict in the Middle East has shaken market confidence. The continuing war
in Ukraine and the increasingly tense relations between the US and China have
further exacerbated the uncertainty within the investment environment.
Nevertheless, the Board shares the Investment Managers' views that there are
grounds for optimism. Whilst higher costs of capital have had a substantial
effect on the funding environment for early stage drug discovery companies,
the fundamentals of the sector remain very much intact: namely a growing
elderly population, a rising middle class, and an increasing demand for
treatments to cure disease and enhance the quality of our lives. This spend
is, to a large degree, non-discretionary.
Furthermore, scientific innovation in areas such as personalised targeted
therapies and the application of artificial intelligence has led to faster,
positive outcomes from clinical trials and better prospects for patients.
I would like to take this opportunity to thank my fellow Directors, the
investment management team, and our professional advisers, all of whom have
worked hard this year to ensure that we achieved the optimum outcome for our
shareholders. We are excited about the opportunities for IBT within the
Schroders stable and are looking forward to the future with confidence.
Kate Cornish-Bowden | Chair
6 November 2023
1) For information on how the performance fee is calculated, please refer to
the Directors' Report on page 41.
*For detailed calculation of the discount, please refer to APMs on page 112.
FUND MANAGER'S REVIEW
SUMMARY
In the year to 31 August 2023, the NAV per share rose 2.7% and the share price
total return was up 3.0%. The Company's Benchmark, the NASDAQ Biotechnology
Index (NBI), fell 1.4% whilst the FTSE All-Share Index rose 5.0%. All figures
are on a sterling adjusted total return basis, with dividends reinvested. As
of 31 August 2023, the Company's NAV amounted to £270.3m. The quoted
portfolio represented 102.3% at £276.6m including 12% gearing of £32.5m. The
unquoted portfolio represented 9.3% of NAV at £25.3m, and other net assets at
£0.9m represented 0.4% of NAV.
Although the Company's discount widened at points during the financial year,
the discount was managed by share buybacks and closed the year at 6.3%, not
dissimilar from the 6.6% discount at the start of the year.
By subsector, as of 31 August 2023, 87% of the portfolio was invested in
therapeutics, 4% in speciality pharmaceuticals, 3% in life sciences, tools and
diagnostics and 6% in other sub-sectors. The Company's three largest
therapeutic areas were Rare Diseases (29%), Oncology (23%), and Central
Nervous System (19%).
CYCLICAL INVESTMENT ENVIRONMENT
FIGURE 2: The stages of the biotech investment cycle
Stage 1 DESPAIR DESPAIR
Company values depressed
Stage 2 RECOVERY RECOVERY
M&A kickstarts and valuations start to recover
Stage 3 EQUILIBRIUM EQUILIBRIUM
Fair value, growth, IPO window opens influx of capital, steady stream of
M&A
Stage 4 EUPHORIA EUPHORIA
Hyped values, booming IPOs
Stage 5 CORRECTION CORRECTION
M&A dries up, investment outflows
Source: SV Health Managers LLP
COMPANY PERFORMANCE
Quoted portfolio
For the twelve-month period ended 31 August 2023, the NAV of the quoted
portfolio rose by 3.8% (gross of management and performance fees) against a
fall of 1.4% for the NBI. All figures are on a sterling adjusted total return
basis, with dividends reinvested. While the NBI saw a modest decline, XBI,
representing smaller-cap biotech firms, faced a more substantial setback,
falling 13% when measured in sterling terms.
The bulk of both the Company's and NBI's absolute returns materialised during
the first half of the financial year, with performance holding relatively
steady in the latter half. This stands in contrast to the broader market, as
represented by the NASDAQ Composite, which was stagnant during the first half
of the Company's financial year, but then exhibited an impressive turnaround,
delivering a substantial 22% return (in dollar terms) during the second half
of the calendar year. Investment flows veered away from the biotech sector
towards large-cap tech stocks, driven by the surge in excitement over
advancements in artificial intelligence (AI) and lower inflation expectations.
Notably, the NBI concluded the financial year at c4,000, marking a respectable
22% increase (in dollar terms) from the mid-2022 lows. Nevertheless, it still
trails significantly behind the peak reached in 2021 when the index surged to
c5,500 (see Figure 1).
On a positive note, the biotech sector experienced an uptick in M&A
activity, with several deals announced, including six acquisitions within the
Company's portfolio. Additionally, this calendar year appears poised for
significant new chemical entity approvals by the Federal Drug Agency (FDA),
with the sector anticipating the green light for up to 70 new chemical
entities, reflecting robust innovation and growth. Nonetheless, the sector
found itself in a somewhat stagnant state during the second half of the
financial year ended 31 August 2023, primarily due to a constellation of
negative headwinds. These challenges encompassed macroeconomic factors, such
as the rise in interest rates, uncertainty surrounding the impact of the
Inflation Reduction Act, and unexpected actions by the FTC. The FTC's
announcement of investigations into high-profile acquisition deals within the
biopharmaceutical industry introduced an element of uncertainty into the
sector's landscape.
As has been discussed before, the 2020/2021 pandemic ignited fervent interest
in the biotech sector, captivating generalist investors impressed by its rapid
innovation in delivering vaccines and therapeutics. This enthusiasm drove
investor focus toward early-stage biotech companies with ground breaking
platform technologies (e.g. cell therapy, gene therapy, and RNA platforms),
leading to overheated valuations across the market. Notably, early-stage,
small-cap companies reached valuations traditionally reserved for those with
proven products. However, the Federal Reserve's decision to raise interest
rates to combat inflation had a significant impact, especially on early-stage
biotech companies, which often operate without earnings for many years and
depend on external financing for operations and clinical trials. These factors
contributed to a prolonged market sentiment decline, resulting in one of the
longest and deepest corrections in the NBI and small-cap biotech indices to
date. Furthermore, IPOs stalled, and companies encountered challenges raising
capital. Reduced M&A activity also played a role during the downturn,
possibly due to unrealistic valuation expectations set during the 2021 hype.
However, since the lows of May/June 2022, M&A activity has picked up and
is expected to persist as smaller companies seek financing and present more
attractive valuations. De-risked, late-stage assets that align with an
acquirer's strategic pipeline are likely to be a top M&A priority.
The Company experienced a significant cash inflow from two major M&A exits
involving Horizon and Seagen. Both positions were the Company's largest
holdings at the time of offers from Amgen and Pfizer respectively. The
Investment Managers chose to reinvest this cash into smaller and mid-sized
companies with promising innovative assets addressing unmet medical needs.
Additionally, they continued to reduce exposure to companies facing imminent
binary events, such as clinical data readouts. These strategies contributed to
the Company's relative outperformance and reduced portfolio volatility
compared to the NBI.
Unquoted portfolio
The Company's unquoted portfolio continues to perform well in its objective to
give investors access to innovative early-stage companies and exposure to
returns differentiated from quoted markets. As of 31 August 2023, it comprised
8.4% of the Company's total investments (9.3% of NAV) keeping it in line with
the Company's guideline range of 5 to 15 per cent.
The portfolio currently includes two unquoted funds, SV Fund VI and SV BCOF as
well as a small number of directly held unquoted companies, most of which have
been exited with potential contingent milestone payments still remaining.
SUMMARY OF UNQUOTED INVESTMENTS
As at 31 August 2023
Fair value (£'m) % of NAV Number of investments
SV Fund VI 14.1 5.2 18*
SV BCOF 5.2 1.9 6*
Exited with contingent milestones 5.5 2.0 3
Directly-held unquoted 0.4 0.2 2
Total unquoted** 25.3 9.3 29
*The number of investments represents the number of investments into
underlying individual portfolio companies. Two of the companies within SV Fund
VI and one within SV BCOF were quoted as at 31 August 2023.
**The Board expects the unquoted portfolio to remain within the guideline
range of 5-15%.
SV BCOF
SV BCOF is the newer fund which invests mostly in later stage, pre-IPO biotech
opportunities. The $30m commitment is only 28% drawn as at 31 August 2023, but
the fund was able to make distributions totalling $9.75m (£8.0m) during the
year as a result of realising significant gains on Nimbus Therapeutics, one of
its six underlying investments. In February 2023 Nimbus sold its TYK2
Inhibitor, which had demonstrated promising Phase 2 results in psoriasis, to
Takeda for $4bn in upfront cash, and up to $2bn in commercial milestone
payments.
SV Fund VI
SV Fund VI invests in a range of early-stage biotech, medical device and
healthcare services companies. It is a mature portfolio and as at 31 August
2023, has drawn down 86% of the $30m capital committed. During the year, SV
Fund VI made distributions of $2.2m (£1.9m) and capital calls of $1.9m
(£1.6m). Performance for this year was disappointing with a number of write
downs but, now comprising 5.2% of IBT's NAV, SV Fund VI has delivered a
currency adjusted internal rate of return (IRR) of 17.7% per annum since the
Company's first investment in the fund in 2016.
The remaining unquoted investments have been winding down since the Board's
decision in 2016 to make all further unquoted investments through funds. They
are classified as either "exited investments with contingent milestones" or
"directly held investments" as set out in the analysis of Unquoted investments
on pages 24 and 25. The net movement during the year has been broadly neutral
with the total value of £5.9m dominated by Ikano which made distributions of
£0.3m during the year.
The unquoted portfolio gave rise to a performance fee of £96,000 (2022:
£471,000).
Positive contributors to NAV performance
Horizon Therapeutics was the main contributor to NAV during the year. The
Investment Managers initiated an investment in 2018 after the company acquired
River Vision Development Corp. in 2017 including the main product
teprotumumab, a fully human monoclonal antibody in development for Thyroid Eye
Disease, a rare autoimmune inflammatory disorder. Horizon successfully
transitioned the product through clinical trials and received approval for the
drug in January 2020. After a very strong launch, Amgen announced its
intention to acquire Horizon for $28bn in December 2022. At the time of the
announcement, the company was the largest holding in the Company.
Vera Therapeutics reported phase two data for its lead asset atacicept in IgA
Nephropathy, a rare kidney disease in January 2023. The negative market
interpretation of the data did not align with that of the Investment Managers
who subsequently added to the holding within the Company. Vera shares
recovered markedly after the company announced more mature data from the same
trial which showed improved efficacy. Furthermore, competitor company Chinook
Therapeutics, a read-across holding within the same disease area, was acquired
by Novartis for $3.2bn, boosting the share price of Vera in parallel.
Seagen, an antibody-drug conjugate (ADC) company, is an established
biotechnology company with multiple approved products addressing various
oncology indications. In March 2023, Pfizer announced its intention to acquire
the company for $48bn. At the time of the announcement, Seagen was the largest
holding within the Company.
BEST PERFORMING INVESTMENTS
Contributors to NAV (£'m)
Horizon Therapeutics 18.3
Vera Therapeutics 5.6
Seagen 3.6
WORST PERFORMING INVESTMENTS
Detractors from NAV (£'m)
Harmony Biosciences (4.7)
Revance (3.4)
Travere Therapeutics (3.2)
Detractors from NAV performance
Harmony Biosciences came under attack by Scorpion Capital, an activist hedge
fund based in the US, in March 2023. Scorpion Capital's case report concerned
Harmony's lead asset Wakix, which has been marketed since 2019 in the US for
the treatment of a sleep condition called narcolepsy. Scorpion Capital cited
safety concerns and then continued with a media campaign culminating in filing
a citizen's petition with the FDA to take Wakix off the market. The FDA has
responded to the citizen's petition but, as of the time of writing six months
later, no action has been taken.
Revance launched Daxxify in January 2022 for forehead furrows. Sales of the
drug have disappointed since the launch which has had a detrimental impact on
the share price. In August 2023, the company announced a second indication for
the drug, cervical dystonia.
Travere Therapeutics shares fell in February after disappointing data from a
two-year study of a kidney drug which failed to show a statistically
significant improvement. The company said the Phase 3 trial of sparsentan as a
treatment for focal segmental glomerulosclerosis, or FSGS, did not meet the
primary efficacy eGFR slope endpoint.
Mergers and acquisitions (M&A)
The Company benefitted from six of its portfolio companies becoming
acquisition targets in the year to 31 August 2023. The Investment Managers
anticipated that revenue growth companies would prove to be the most
attractive targets due to the pressure on big pharmaceutical companies to plug
impending gaps in their revenue pipelines with derisked assets with a shorter
lead time to profitability. Big pharma continues to offer substantial premia
to ensure success of their bids, which makes this a lucrative,
alpha-generating area for the Company. Assuming that the share price moves
close to the bid price on announcement, the Investment Managers will usually
choose to exit their holding at that point in order that the Company is
protected from transaction risk as the deal is negotiated further and
scrutinised by the regulators. This has proved to be a wise strategy this
year.
In December 2022, Amgen made a significant announcement of its intention to
acquire Horizon for a substantial sum of $28bn, marking a noteworthy
development for our biotech investment company. Horizon was the largest
position in our portfolio, representing 13% of the Company's holdings. The
acquisition process itself was characterised by a fiercely competitive bidding
war involving major players in the pharmaceutical industry, including Johnson
& Johnson and Sanofi. Amgen's offer for Horizon came with a substantial
premium, providing a 48% increase over the previous day's closing share price,
reflecting the perceived value of this strategic acquisition. The Company's
position was sold soon after the transaction was announced in order to protect
the Company from transaction risk, generating a substantial return on
investment. Thereafter, in an unexpected turn of events in May, the FTC took
action against Amgen, seeking to halt the transaction. The FTC expressed
concerns that Amgen might engage in a practice commonly referred to as
'bundling'. This practice involves packaging different pharmaceutical products
together and offering them at discounted rates, potentially creating barriers
for competing drugs that lack such bundled advantages, especially for smaller
pharmaceutical companies with fewer products in their portfolio. Despite the
FTC's concerns the regulator settled with Amgen and the deal looks likely to
close by the end of 2023.
Also in December 2022, Takeda announced its intention to acquire Nimbus, which
is a holding within SV BCOF, part of the unquoted portfolio of the Company.
The transaction amounted to an initial payment of $4bn with potential
additional commercial-related milestone payments of up to $2bn. Nimbus
Therapeutics, a clinical-stage drug discovery firm, employs cutting-edge
computational techniques and machine learning-based predictive models to
create small molecule medicines targeting validated yet challenging-to-address
human disease targets. Its main project targets the TYK2 pathway, addressing
inflammatory and autoimmune conditions such as psoriasis, inflammatory bowel
disease, psoriatic arthritis and systemic lupus erythematosus.
Ipsen announced its intention to acquire Albireo, a specialised rare disease
company, for a total consideration of $952m, in January 2023. Albireo,
established 15 years ago as a spinout from AstraZeneca, is at the forefront of
developing bile acid modulators to address a range of liver diseases. Albireo
achieved notable milestones when its product, Bylvay, obtained regulatory
approvals in both Europe and the United States in July 2021 for the treatment
of pruritus associated with progressive familial intrahepatic cholestasis
(PFIC). In October of the preceding year, Albireo presented compelling data
demonstrating Bylvay's efficacy in managing another paediatric liver disorder,
Alagille syndrome. Ipsen's tender offer for Albireo included a purchase price
of $42 per share, with an additional contingent value right of $10 per share,
contingent upon the potential approval of Bylvay for biliary atresia, the most
prevalent among the three primary paediatric liver diseases.
Also in January of 2023, Sun Pharmaceutical entered into a definitive
agreement to acquire Concert, amounting to a total equity value of $576m.
Additionally, Concert shareholders will receive a contingent value right
(CVR), offering the potential to receive an additional $3.50 per share of
common stock in cash, subject to specific net sales milestones achieved by
deuruxolitinib within defined timeframes as outlined in the contingent value
rights agreement. Concert Pharmaceuticals is a late-stage biotech firm
pioneering deuterium utilization in medicinal chemistry. Its patent portfolio
features deuruxolitinib, a leading product candidate designed as an oral JAK1
and JAK2 inhibitor for treating Alopecia Areata, an autoimmune dermatological
condition in late-stage development. Alopecia Areata is an autoimmune ailment
characterised by immune attacks on hair follicles, causing hair loss on the
scalp and body. Affecting up to 2.5% of the global population, this condition
has limited treatment options and can lead to significant psychological
consequences, including anxiety and depression.
In March 2023, Pfizer, entered into an agreement to acquire Seagen, a biotech
firm specialising in oncology, for a total value of $43bn. Seagen was the
Company's largest holding at the time, representing 10% of the portfolio as at
end of February 2023. Pfizer offered $229 in cash per Seagen share
representing a premium of approximately 35% over Seagen's closing price on the
preceding Friday. Pfizer's CEO, Albert Bourla, emphasised the company's
commitment to advancing cancer research, acknowledging oncology as a pivotal
driver of global medical growth. Seagen's expertise in antibody-drug
conjugates (ADC), a targeted therapy for cancer cells, further complements
Pfizer's portfolio. Seagen's four approved ADC drugs are recognised for their
effectiveness in treating specific conditions. In June 2022, speculations
about a potential Seagen acquisition had surfaced, with initial discussions
involving Merck. By July, Merck had put forward a substantial proposal,
offering a minimum of $200 per share, equating to a prospective $40bn
transaction value. However, negotiations between Seagen and Merck stagnated in
August 2022, as the two entities couldn't reach a consensus on the deal's
pricing terms.
After the collapse of the Seagen/Merck transaction, the Investment Managers
bought more shares in Seagen, recognising that Seagen's Board of Directors
would be under pressure to deliver a new deal to shareholders. Subsequently,
in February 2023, reports emerged of Pfizer's interest in Seagen. This
speculation was later confirmed a month later, as both companies disclosed
their agreement to a purchase price of $229 per share, resulting in a
monumental $43bn deal, one of the most significant in biotech history. The
Investment Managers sold the Company's position shortly after the deal was
announced to avoid exposing the Company to transaction risk. By June 2023,
Seagen publicly announced in an SEC filing that Pfizer had initially withdrawn
its application with the FTC, only to resubmit a similar document later the
same day, reflecting the ongoing regulatory processes surrounding the
acquisition which has still not closed.
In June 2023, Novartis said it had agreed to acquire Chinook Therapeutics for
up to $3.2bn to boost its late-stage drug development line-up, raising the
stakes in the race for a rare kidney disease treatment. Chinook's shareholders
will receive $3.2bn, or $40 per share, in cash under the agreed deal, plus a
contingent value right worth up to $300m, depending on certain regulatory
achievements. The upfront payment represents a premium of 66.7% to Chinook's
previous closing price. Chinook has a lead compound designed to treat IgA
Nephrophathy, or IgAN, that can lead to kidney failure in young adults which
is a focus for several companies and is already the target of a drug
candidate.
INVESTMENT UPDATES
Many of the therapeutic areas represented in the Company's portfolio are at
the cutting edge of current developments in biotech. The following section
focuses on three of these and discusses how the Company's portfolio companies
are at the forefront of the relentless pursuit of new effective therapies for
debilitating diseases.
Gene Therapies
Over 10,000 genetic diseases, affecting millions of individuals globally,
originate from single gene mutations. Gene therapy, a revolutionary approach,
aspires to replace faulty genes with healthy counterparts or correct them,
offering the potential of enduring cures. Recent technological breakthroughs
have paved the way for ground breaking gene therapy drugs, and several
companies in our portfolio have been instrumental in advancing this
transformative field.
During November 2022, Uniqure's gene therapy, Hemgenix, received regulatory
approval for the treatment of haemophilia B. This debilitating disease results
from a deficiency in factor IX, a crucial protein in the blood clotting
process. Uniqure, in collaboration with major Australian pharmaceutical
company CSL Biopharma, embarked on a strategic partnership in 2020,
culminating in a significant upfront payment of $450m. This partnership not
only reinforced Uniqure's financial stability but also underlined the immense
potential of gene therapy in addressing previously unmet medical needs.
In June 2023, Biomarin achieved a major milestone with the launch of
Roctavian, their cutting-edge gene therapy. Indicated for the treatment of
severe haemophilia A with congenital factor VIII deficiency, Roctavian offers
a one-time single dose infusion aimed at restoring the missing gene. This
breakthrough therapy empowers patients with severe haemophilia A to produce
their own factor VIII protein, marking a transformative shift in the
management of this condition.
May 2023 witnessed the regulatory approval of Krystal Bio's Vyjuvek, an
innovative topical gene therapy developed by Krystal Bio. This therapy
addresses the severely debilitating dystrophic epidermolysis bullosa disorder,
a condition characterised by open wounds, skin infections, and an elevated
risk of skin cancer. Unlike other gene therapies, Vyjuvek can be redosed with
the replaced gene, enabling patients to generate vital collagen protein,
thereby facilitating wound closure. This breakthrough offers newfound hope to
these patients who have historically faced limited life expectancy.
Kidney Disease (IgA Nephropathy)
2023 marked significant progress in the pursuit of effective treatments for
IgA Nephropathy, also known as Berger's disease. This kidney disorder,
characterised by the accumulation of immunoglobulin A (IgA) in the kidneys,
has garnered increasing attention from pioneering biotech companies dedicated
to developing innovative therapies. The Investment Managers adopted a
strategic "basket approach" to diversify risk across various developmental
stages of treatments, as well as across distinct mechanistic approaches.
Calliditas Therapeutics emerged as a prominent player in the IgA Nephropathy
treatment landscape, offering Nefecon (marketed as Tarpeyo), the first drug
approved to specifically tackle this condition. Nefecon, is an oral
immunosuppressant which reduces the pathological IgA production and alleviates
kidney inflammation. Encouraging clinical trial data indicated its potential
to slow down disease progression. In February 2023, Calliditas received a
conditional marketing authorisation for Nefecon. Further studies are underway
to confirm its clinical benefit before seeking full FDA approval.
Travere Therapeutics secured conditional approval for its lead asset,
sparsentan (branded as Filspari), just after Nefecon making it the second to
market to treat IgA Nephropathy. Similar to Calliditas, Travere aspires to
upgrade this conditional approval to full approval contingent upon the success
of the phase 3 trial PROTECT, with results expected by the end of 2023.
Chinook Therapeutics, a development stage biotechnology company, is developing
atrasentan, an endothelin type A antagonist currently in late-stage trials for
IgA Nephropathy. The company also has an earlier stage, disease modifying
asset BION-1301. Notably, in June 2023, Novartis announced its intention to
acquire Chinook for $3.2bn with potential further upside for investors on the
success of the Align clinical trial set to read out by the end of 2023.
Vera Therapeutics is also a development stage biotechnology company, whose
lead asset atacicept is being developed to treat IgA Nephropathy. While
initial data announced in January 2023 received a negative market response,
resulting in a 70% drop in share price, our Investment Managers significantly
increased their holding in the company, believing the data to be sound and the
market response to be questionable. Subsequent positive data releases have
validated their conviction, and the company has benefited from a significant
recovery in its share price. The share price also benefited from the news of
the Chinook acquisition by Novartis.
Central Nervous System
Data from the Centres of Disease Control paints a stark picture of the US
mental health crisis: surging depression and anxiety, especially among youth,
worsened by the COVID-19 pandemic. Existing antidepressants and antipsychotics
have a slow onset of action, limited efficacy and often have to be combined,
adding to stigmatising side effects, such as weight gain, leaving a clear
unmet medical need. Pioneering treatments hope to address these limitations,
many including totally novel mechanisms of action, providing hope for patients
suffering from mental health issues.
Intra-Cellular Therapies, an innovative biotechnology company, unveiled
Caplyta (lumateperone) in 2019, initially focused on treating schizophrenia.
Traditional therapies often result in undesirable side effects, such as weight
gain, often exacerbating the condition and hindering patient adherence.
Caplyta, with its specific approach, mitigates these concerns, presenting a
compelling alternative. Its expansion into bipolar depression in 2021,
addressing another debilitating condition, expanded the potential market for
the product. Concurrently, ongoing clinical trials are assessing its
effectiveness in major depressive disorder, a mounting concern in the US,
notably exacerbated by the pandemic.
In the latter part of 2022, Axsome Therapeutics launched Auvelity, a
groundbreaking treatment for major depressive disorder. Unlike current
therapies, which typically take six to eight weeks to show efficacy, Auvelity
has an onset of action in under a week. Auvelity represents the first oral
medication with a novel mechanism of action approved for major depression in
six decades. This innovative drug operates by simultaneously targeting
multiple neurotransmitter pathways, including the N-methyl-D-aspartate (NMDA)
receptor and the monoamine system.
Xenon's lead asset, XEN1101, presented positive results from the Phase 2b
X-TOLE study, demonstrating statistically significant reductions in seizures
among patients grappling with challenging-to-treat focal onset seizure
epilepsy. Building on this achievement, Xenon has recently initiated its Phase
3 epilepsy program. Separately, the company is actively engaged in an ongoing
Phase 2 clinical trial to evaluate XEN1101's effectiveness in managing major
depressive disorder, a significant comorbidity for epilepsy patients. Data
from the X-NOVA trial are anticipated to be available by year-end 2023.
Karuna Therapeutics has achieved success in two late-stage clinical trials for
KarXT, an experimental drug tailored for schizophrenia treatment. The company
intends to submit an FDA approval application later this year. KarXT's
innovative mechanism targets muscarinic receptor proteins, diverging from
conventional dopamine and serotonin pathways, presenting a substantial market
opportunity. Notably, the drug exhibited a promising safety profile, lacking
the weight gain and extrapyramidal (involuntary muscle movements) side effects
commonly associated with existing schizophrenia treatments. Furthermore,
Karuna is exploring KarXT's potential applications in Alzheimer's disease
psychosis and other conditions, broadening its therapeutic scope.
INITIAL PUBLIC OFFERINGS & THE SECONDARY MARKET
The biotech IPO market has witnessed remarkable strength in the past, reaching
its zenith during the pandemic. 2021 saw a surge of listings from relatively
young companies, prompting discussions about the appropriate timing for public
offerings. Following this exuberance, the sector experienced a significant
downturn, resulting in a very restricted IPO window during 2022.
However, recent developments indicate a reopening of this window, with a
select few companies successfully completing IPOs in the current year.
Notably, secondary fund raisings remain active in 2023, particularly for
high-quality companies with compelling clinical data. (See Figure 4).
FUND RAISINGS REMAIN ACTIVE
FIGURE 4: Money raised year-to-date (July), 2022 vs 2023
Source: BioCentury.
The Company has not invested in any IPOs in the calendar year 2023, with the
Investment Managers preferring to wait until a proven track record is
established by the management before making investments in this area. The
possible reopening of the IPO window bodes well for the Company's investment
in SV BCOF, a venture fund specialising in pre-IPO companies.
INDUSTRY RESPONSE TO THE MARKET DRAWDOWN
The biotechnology sector has displayed remarkable adaptability in the face of
significant market turbulence following the boom during the COVID-19 pandemic.
Since that peak period, the industry has experienced a notable decline in
valuations, particularly among smaller, unprofitable biotech enterprises. This
shift has necessitated challenging decisions for individual companies, given
the tightening of funding sources. For several years, low interest rates and
the Federal Reserve's monetary expansion policies fuelled an abundance of
available funds for companies to go public and commence ambitious clinical
programs that might otherwise have struggled to secure financing. Over the
past decade, the number of biotech companies has more than tripled. (See
Figure 5).
NUMBER OF BIOTECH COMPANIES IN EACH MARKET TIER
FIGURE 5: The number of companies rose dramatically during the pandemic era
Source: BioCentury, September 2023 (companies below $200m excluded).
As we move beyond this era of abundance, the biotech industry has demonstrated
resilience through strategic adaptation to a new normal:
Consolidation for Strength: In response to the shifting landscape, larger
biopharmaceutical entities have actively acquired smaller biotech firms. This
is a secular trend, but has accelerated in recent months, partly driven by
more attractive valuations stemming from reduced stock prices. Additionally,
the demand for inorganic revenue sources to counter future revenue losses due
to patent expiries and potential pressures from the Inflation Reduction Act,
has bolstered this consolidation trend. Furthermore, some companies have opted
for "mergers of weakness", forming alliances that generate cost-saving
synergies. These merged entities then focus their resources on the most
promising assets in their pipelines, thereby reducing clinical development
expenses.
Streamlined Portfolio Focus: Companies are strategically pruning their
development programs, concentrating resources on the most promising pipeline
assets. This approach minimises internal clinical development costs while
maximising the potential for success.
Activist Investor Influence: A handful of activist investors have emerged as
influential voices challenging company boards to reconsider their strategies
and implement changes that benefit shareholders. This trend underscores the
heightened scrutiny of corporate decisions within the industry.
Outcomes
The cumulative impact of these strategic shifts is expected to result in a
gradual reduction in the number of publicly listed biotechnology companies.
The Investment Managers view this as a positive development for the sector.
The rationalisation of weaker companies eliminates inefficiencies and
redirects resources away from clinical programs with limited value. In tandem
with the aforementioned strategies, the rate of new biotech companies entering
the stock market has substantially declined. This phenomenon is poised to
further curtail the number of companies listed on public exchanges.
FDA ENVIRONMENT
In recent years, the biotech industry has maintained a steady pace of new drug
approvals, see Figure 6, although underlying shifts in therapeutic focus have
emerged. Notably, specialty pharma drugs have experienced a decline, offset by
a rise in advanced modalities. The combined domains of neurology and oncology
continue to account for approximately 40% of all approvals. Small molecules
remain the predominant modality, comprising roughly two thirds of approvals
YTD, although this figure has decreased from the 75-80% range observed during
2010-2020. Notably, 2023 witnessed three gene therapy approvals with Vyjuvek
by Krystal Biotech, Biomarin's Roctavian and Uniqure's Hemgenix signalling
potential growth in this field. All three companies are portfolio holdings in
Company.
STEADY PACE OF NEW DRUG APPROVALS
FIGURE 6: Novel drug approvals by U.S. FDA
Source: FDA as of 18 August 2023. 2023 estimate from Biocentury.
The emergence of "new" modalities such as cell therapy, gene therapy, oligos,
RNAi, bispecific antibodies, and ADCs is evident, representing a growing
proportion of New Chemical Entity approvals and expected to accelerate
throughout the rest of the calendar year. As the years progress, these trends
will evolve, and we remain vigilant in our analysis of the dynamic biotech
landscape, poised to seize investment opportunities that align with these
industry dynamics.
INFLATION REDUCTION ACT
In 2022, the Inflation Reduction Act was enacted as a pivotal legislative
initiative, designed to address the challenges of escalating inflation and
government spending. The centrepiece of the Inflation Reduction Act's impact
on the pharmaceutical industry is the introduction of drug pricing
negotiations between the government, specifically Medicare (the federal health
insurance programme covering over 65s and those with disabilities or certain
chronic diseases), and the pharmaceutical industry. Commencing in 2026,
Medicare is empowered to negotiate prices for the top ten revenue-generating
drugs annually, expanding the list over time. It is noteworthy that Medicare's
contribution to pharmaceutical revenues accounts for just 22%, as illustrated
in Figure 7.
PHARMACEUTICAL REVENUES
FIGURE 7: Breakdown of expenditures by payer in 2021
Source: CMS, Cowen and Company.
In August 2023, the first ten drugs selected for Medicare price negotiations
were unveiled. While there were few surprises in the selection, as industry
observers had largely anticipated the choices, the implications for the
pharmaceutical giants are unsubstantial as many of the drugs are close to
patent expiry.
There is likely to be increased demand to acquire innovative early-stage and
revenue growth biotech companies as larger pharmaceutical counterparts seek to
mitigate revenue declines stemming from looming patent expirations as well as
capped revenues on some of their blockbuster products triggered by inclusion
on the list for price negotiations by the IRA. The introduction of the IRA has
therefore amplified the urgency for acquisitions in the burgeoning biotech
sector.
GEARING
In its capacity as a closed-ended fund, the Company possesses the requisite
authority to employ leverage, up to a maximum limit of 30% of NAV. The
utilisation of gearing is made possible through a revolving loan facility
amounting to £55m, incurring an interest rate that is presently set at 1.5%
above the prevailing base rate. The Investment Managers actively and
judiciously employ this gearing facility as a tactical tool, increasing its
deployment when advantageous opportunities arise for investment in promising
companies at fair valuations, thereby avoiding the necessity of divesting
existing holdings to make new investments. Conversely, the geared exposure can
be curtailed to mitigate the risk associated with unfavourable market
conditions.
Throughout the course of the reporting period, the degree of gearing employed
fluctuated within the range of 0% to 20% of NAV. These fluctuations were
driven by the Investment Managers' assessments of market valuations and
macro-economic conditions as well as by cash inflows generated through
acquisitions of holdings in the Company's portfolio.
OUTLOOK
After experiencing remarkable highs in 2020 and 2021, the biotech industry
faced significant challenges in recent years. However, there are compelling
reasons for optimism as we move forward.
The NBI has demonstrated resilience by rebounding 20% from mid-2022 lows in
dollar terms. Smaller biotech companies, though affected by rising interest
rates, continue to present appealing valuations, offering unique investment
opportunities.
The confluence of rising interest rates and macroeconomic conditions, along
with evolving industry dynamics related to the FTC and the Inflation Reduction
Act, has created headwinds for the biotech sector. However, it is noteworthy
that these challenges have had minimal impact on the valuations of innovative
small and mid-cap biotech companies which represented 51% of the Company's NAV
at the end of August 2023.
The recent period of valuation adjustments has stimulated increased M&A
activity within the industry. We anticipate this trend to persist.
Biotechnology continues to display robust innovation, boasting strong numbers
of drug approvals and increasing numbers of clinical trials. Notably, emerging
modalities such as gene and cell therapies hold transformative potential for
addressing significant unmet medical needs across various diseases.
In conclusion, the biotech industry stands resilient and forward-looking.
Increasing demand for high quality therapies, M&A activities, productivity
improvements through consolidation, sustained innovation, and the allure of
undervalued companies in this dynamic landscape contribute to a promising
outlook for biotech investments. As we navigate these opportunities, our
commitment to delivering value to our investors remains steadfast. We look
forward to a future marked by growth and transformation in the biotech sector.
SV HEALTH MANAGERS LLP
Ailsa Craig
Marek Poszepczynski
6 November 2023
INVESTMENT MANAGERS
The investment team has a breadth of experience across both public and private
investments. The majority of the Company's investments made are in the public
markets, though private or venture capital investments are also made through a
relationship with SV Health Managers LLP which provides unique deal flow for
private company investment opportunities.
AILSA CRAIG
Investment Manager
Ailsa joined SV Health in 2006 and is an Investment Manager for the Company.
Ailsa has a BSc (Hons) in Biology from the University of Manchester. She was
awarded the IMC in 2002 and a Securities Institute Diploma in 2007.
MAREK POSZEPCZYNSKI
Investment Manager
Marek joined SV Health in 2014 and is an Investment Manager for the Company.
Marek has an MSc in Biochemistry and an MSc in Business Management from the
Royal Institute of Technology, Stockholm.
KATE BINGHAM
Managing Partner SV
Kate joined SV Health in 1991 and is the Investment Manager for the unquoted
assets of the Company. Kate is one of the SV Health's Managing Partners, has a
first class degree in Biochemistry from Oxford University, and graduated from
Harvard Business School with an MBA.
HOUMAN ASHRAFIAN
Managing Partner SV
Houman joined SV in 2016 and represents the team of investment professionals
managing the unquoted portfolio. Houman is currently Head of Experimental
Therapeutics at the University of Oxford and an Honorary Consultant
Cardiologist, John Radcliffe Hospital, Oxford. Houman left SV Health Managers
LLP in September 2023 to join Sanofi as Head of R&D.
QUOTED INVESTMENTS
QUOTED INVESTMENTS RANKED BY % OF NAV
As at 31 August 2023 As at 31 August 2023
Investment Therapeutic area Geographic location £'000 % of NAV
Incyte Genomics Oncology United States 18,243 6.7
Amgen Oncology United States 16,031 5.9
Gilead Sciences Infectious diseases United States 14,098 5.2
Harmony Biosciences Rare diseases United States 13,803 5.1
Supernus Pharmaceuticals Central nervous system United States 13,154 4.9
Vera Therapeutics Autoimmune United States 11,598 4.3
BioMarin Pharmaceutical Rare diseases United States 11,081 4.1
Regeneron Pharmaceuticals Ophthalmology United States 8,996 3.3
Intra-Cellular Therapies Central nervous system United States 8,973 3.3
Alnylam Pharmaceuticals Rare diseases United States 7,381 2.7
Total of Top Ten Investments 123,358 45.5
Ultragenyx Pharmaceutical Rare diseases United States 7,256 2.7
Uniqure Rare diseases Europe 7,159 2.6
Illumina Inc Oncology United States 6,585 2.4
Mirati Therapeutics Oncology United States 6,336 2.3
Aurinia Pharmaceuticals Autoimmune United States 6,246 2.3
United Therapeutics Rare diseases United States 6,011 2.2
Horizon Therapeutics Rare diseases Europe 5,962 2.2
Vertex Pharmaceuticals Rare diseases United States 5,773 2.1
Neurocrine Biosciences Central nervous system United States 5,659 2.1
Biogen Inc Central nervous system United States 5,062 1.9
Total of Top Twenty Investments 185,407 68.3
Amylyx Central nervous system United States 5,019 1.9
ArgenX Rare diseases Europe 4,896 1.8
Krystal Biotech Rare diseases United States 4,528 1.7
Karuna Therapeutics Central nervous system United States 4,518 1.7
Dyne Therapeutics Rare diseases United States 4,118 1.5
Revance Therapeutics Other United States 4,010 1.5
Erasca Oncology United States 3,937 1.5
Acadia Pharmaceuticals Central nervous system United States 3,830 1.4
Axsome Therapeutics Central nervous system United States 3,716 1.4
Akero Liver United States 3,071 1.1
Total of Top Thirty Investments 227,050 83.8
QUOTED INVESTMENTS RANKED BY % OF NAV
As at 31 August 2023 As at 31 August 2023
Investment Therapeutic area Geographic location £'000 % of NAV
Xenon Pharmaceuticals Central nervous system United States 2,811 1.0
Denali Therapeutics Central nervous system United States 2,806 1.0
Madrigal Pharmaceuticals Liver United States 2,596 1.0
Pharming Rare diseases Europe 2,510 0.9
Iovance Biotherapeutics Oncology United States 2,118 0.8
Halozyme Oncology United States 2,089 0.8
Legend Biotech Oncology United States 2,082 0.8
BeiGene Oncology United States 2,079 0.8
Jazz Pharmaceuticals Rare diseases Europe 1,945 0.7
Rocket Pharmaceuticals Rare diseases United States 1,927 0.7
Travere Therapeutics Autoimmune United States 1,922 0.7
Sarepta Therapeutics Rare diseases United States 1,795 0.7
Marinus Pharmaceuticals Central nervous system United States 1,623 0.6
Zai Lab Ltd Oncology United States 1,586 0.6
Mirum Pharmaceuticals Rare diseases United States 1,405 0.5
Ionis Pharmaceuticals Rare diseases United States 1,366 0.5
Genmab Oncology United States 1,339 0.5
Cogent Oncology United States 1,301 0.5
Novocure Oncology Europe 1,286 0.5
Bridgebio Rare diseases United States 1,180 0.4
Guardant Health Other United States 1,125 0.4
Celldex Autoimmune United States 1,059 0.4
Cytokinetics Other United States 1,019 0.4
Amicus Rare diseases United States 909 0.3
Hutchmed China (ADR) Oncology United States 806 0.3
Blueprint Medicines Oncology United States 787 0.3
Kezar Life Sciences Autoimmune United States 740 0.3
Intellia Therapeutics Rare diseases United States 709 0.3
Insmed Inc Rare diseases United States 693 0.3
PTC Therapeutics Rare diseases United States 529 0.2
Agios Pharmaceuticals Rare diseases United States 520 0.2
Vir Biotechnology Infectious diseases United States 469 0.2
I-Mab Oncology United States 466 0.2
Calliditas Autoimmune Europe 454 0.2
Beam Therapeutics Rare diseases United States 429 0.2
Ventyx Biosciences Autoimmune United States 396 0.1
Arvinas Oncology United States 378 0.1
Protagonist Therapeutics Haemotology United States 311 0.1
Relmada Therapeutics Central nervous system United States 27 0.0
Total Investments 276,642 102.3
UNQUOTED INVESTMENTS
INVESTMENTS HELD THROUGH A VENTURE FUND
As at 31 August 2023 As at 31 August 2023 As at 31 August 2022 As at 31 August 2022
Investment Sector classification Geographic location Fair value % of Fair value % of
£'000 NAV £'000 NAV
1 SV Fund VI Venture Fund United States 14,105 5.2 18,866 6.6
An investment in a venture capital fund, SV Fund VI, which invests in
portfolio companies across three sectors; biotechnology (39%), healthcare
services (43%) and medical devices (18%). SV Fund VI's portfolio consists of
18 underlying investments, two of which are listed as at 31 August 2023. The
Company made a commitment of $30m to the fund on 19 October 2016, equivalent
to 7.5% of the total commitments, of which 86% has been drawn. As at 31 August
2023 the Company has invested £24.0m ($31.9m), excluding recallable
distributions with total distributions received of £27.5m ($36.6m) resulting
in a net IRR of 17.7% and a total value to paid in (TVPI) of 1.7x.
2 SV BCOF Venture Fund United Kingdom 5,199 1.9 3,411 1.2
An investment in a venture capital fund, SV BCOF, which focuses on biotech
companies which are either in the clinic and/or which have the potential to
enter the clinic within 12 months (near clinical stage), typically Series B
and beyond. The fund will also invest in listed equities subject to the
restrictions set out in its investment guidelines. The Company made a
commitment of $25m to the fund in 2021 and a further commitment of $5m was
made in January 2023. As at 31 August 2023, the Company has invested £7.4m
($9.2m) with total distributions received of £8.0m ($9.7m) resulting in a net
IRR of 109.2% and a TVPI of 1.8x. The fund's portfolio consists of five
unlisted investments and one listed investment.
Total investments held through a venture fund 19,304 7.1 22,277 7.8
EXITED INVESTMENTS WITH CONTINGENT MILESTONES
Exited unquoted companies for which the Company retains rights to receive
future contingent performance-based payments are shown below.
As at 31 August 2023 As at 31 August 2023 As at 31 August 2022 As at 31 August 2022
Investment Sector classification Geographic location Fair value % of Fair value % of
£'000 NAV £'000 NAV
1 Ikano Therapeutics Autoimmune United States 4,635 1.7 4,330 1.5
A company focused on nasally delivered pharmaceutical products that sold its
assets to Upsher Smith Laboratories in 2010. The terms of the deal provide for
an upfront payment and a series of milestones and royalties. Through a series
of transactions, the Ikano contingent payouts have now been assumed by UCB.
2 Archemix Ophthalmology United States 572 0.2 284 0.1
Formerly a small biotechnology company discovering, developing, and
commercialising aptamer therapeutics, which was liquidated in 2011. The former
shareholders of Archemix may be entitled to future proceeds upon achievement
of contingent milestones under a licensing agreement entered into between
Archemix and IVERIC bio, Inc. (NASDAQ: ISEE).
3 Convergence Autoimmune United States 320 0.1 349 0.1
A company, spun out from GSK, focused on developing novel analgesic/pain
relieving drugs that was sold to Biogen in 2015. The terms of the deal provide
for an upfront payment and a series of milestones.
4 Spinal Kinetics Medical Devices United States - - 289 0.1
A company pioneering a new generation of artificial discs for treating
degenerative disc disease in the cervical and lumbar spine that was acquired
by Orthofix International N.V. (NASDAQ: OFIX). The terms of the deal provide
upfront proceeds and additional amounts based on certain contingent milestones
and amounts held in escrow.
5 NCP Holdings Healthcare services United States - - 88 -
Trading as Nordic Consultancy Partners. A company focused on providing
Epic-only consulting within the US - implementation support and optimisation.
Epic makes software for mid-size and large medical groups, hospitals and
integrated healthcare organisations - working with customers that include
community hospitals, academic facilities, children's organisations, safety net
providers and multi-hospital systems.
Total exited investments with contingent milestones 5,527 2.0 5,340 1.8
DIRECTLY-HELD UNQUOTED INVESTMENTS
Directly-held unquoted investments held by the Company are shown below:
As at 31 August 2023 As at 31 August 2023 As at 31 August 2022 As at 31 August 2022
Investment Sector classification Geographic location Fair value % of Fair value % of
£'000 NAV £'000 NAV
1 Autifony Therapeutics Other United Kingdom 341 0.2 341 0.1
An early-stage company focused on delivering drugs for hearing disorders by
targeting specific ion channel modulators in the field of hearing and sensory
disorders, including schizophrenia.
2 Karus Therapeutics Oncology United Kingdom 90 - - -
Karus is an emerging pharmaceutical company whose R&D activities are
focused on the design and development of innovative, molecular-targeted, small
molecule drugs to treat immune/inflammatory disorders and cancer.
Total directly-held unquoted investments 431 0.2 341 0.1
Total exited investments with contingent milestones 5,527 2.0 5,340 1.8
Investments held through a venture fund 19,304 7.1 22,277 7.8
Total unquoted investments 25,262 9.3 27,958 9.7
Investments in unquoted companies that have previously been written down to
nil net book value, but where ownership in the company is retained, are not
disclosed in this table.
STRATEGIC REVIEW
The Board presents its Strategic Review for the Company for the year ended 31
August 2023.
BUSINESS MODEL
The Company is an investment company as defined in Section 833 of the
Companies Act 2006 (the Act) and its Ordinary shares are listed and traded on
the main market of the London Stock Exchange. The Company is incorporated in
England and Wales as a public limited company and is domiciled in the UK.
LIFE OF THE COMPANY
The Company's Articles of Association provide for the Directors to put forward
a proposal for the continuation of the Company at the AGM at two-yearly
intervals. The last continuation vote was held at the AGM on 8 December 2021
and was passed on a show of hands. Proxy votes cast in respect of the vote
were 11,761,047 (99.96%) in favour, 4,321 (0.04%) against and 1,408 withheld.
The next continuation vote will be put to shareholders at the forthcoming AGM
to be held on 12 December 2023.
INVESTMENT OBJECTIVE AND POLICY
The Company's investment objective is to achieve long-term capital growth by
investing in biotechnology and other life sciences companies.
The Company will seek to achieve its objective by investing in a diversified
portfolio of companies which may be quoted or unquoted and whose shares are
considered to have good growth prospects, with suitably experienced management
and strong potential upside through the development and/or commercialisation
of a product, device or enabling technology. Investments may also be made in
related sectors such as medical devices and healthcare services. While the
Company's portfolio is held as one pool of assets, for operational purposes
there is a quoted portfolio and an unquoted portfolio. The portfolio is
diversified by geography, industry sub-sector and investment size with no
single investment in a company normally accounting for more than 15% of the
portfolio at the time of investment.
The portfolio is split between large, mid and small-capitalisation companies,
primarily quoted on stock exchanges in North America, where the most
established and commercial biotechnology and other life sciences companies
operating in related sectors are based, though investments may also be made in
Europe, Asia and Australia. Investments may also be made into unquoted
companies and into funds not quoted on a stock exchange, including venture
capital funds. This may include funds managed by the Fund Manager and/or
members of its group. The primary purpose of investment in unquoted funds will
be to gain exposure to unquoted companies.
The Company may invest through equities, index-linked securities and debt
securities, cash deposits, money market instruments and foreign currency
exchange transactions. Forward or derivative transactions are not used by the
Company.
The Company may borrow from time to time to exploit specific investment
opportunities, rather than to apply long-term structural gearing to the
Company's portfolio of investments.
INVESTMENT RESTRICTIONS
The Company observes the following investment restrictions:
• The Company will invest primarily in biotechnology and other life science
companies that are either quoted or unquoted.
• The Company will normally invest no more than 15% in aggregate, of the
value of its gross assets in any one individual company at the time of
acquisition.
• The great majority of the Company's assets will be invested in the quoted
biotechnology sector with a global mandate across the entire spectrum of
quoted companies. The weighting of investment in unquoted companies will vary
according to the attractiveness of the opportunities identified.
• Gearing is restricted to 30% of NAV.
• The Company will invest no more than 15% in aggregate, of the value of its
gross assets in other closed-ended investment companies quoted on the London
Stock Exchange or any other stock exchanges.
No material change will be made to the investment objective or policy without
the approval of shareholders by ordinary resolution.
INVESTMENT STRATEGY
The Company has delegated responsibility for day-to-day investment of its
assets to the Alternative Investment Fund Manager, SV Health Managers LLP.
Consistent with the Company's investment policy the Fund Manager makes the
majority of its investments in biotechnology companies focused on drug
discovery and development. Investments are also made in related sectors such
as medical devices or healthcare services.
The Investment Managers use a bottom-up approach to stock selection focused on
assessing the fundamentals of each investment. The universe of possible
investments is assessed and reduced to take into account a number of key
criteria such as disease area, target market, unmet medical need, management
team, stock liquidity, market capitalisation, product portfolio and
competition. The risk/reward of each investment is assessed on its own merits.
The Company has a £55m loan facility in place with the Northern Trust Company
which provides the Company with funds to take advantage of investment
opportunities that occur from time to time on occasions when the portfolio is
otherwise fully invested. As at 31 August 2023, £32.5m was drawn down against
this facility.
PERFORMANCE
An outline of performance, market background, investment activity and
portfolio strategy during the year under review, as well as the outlook, is
provided in the Chair's Statement on pages 7 to 9 and the Fund Manager's
Review on pages 10 to 20.
KEY PERFORMANCE INDICATORS (KPIs)
The Board meets regularly to review the performance of the Company and its
shares. The Board uses the following KPIs to help assess the Company's
progress and its success at meeting its investment objective. For detailed
calculations, please refer to the APMs on pages 112 and 113.
KPIs
Year ended Year ended
31 August 2023 31 August 2022
NAV (£'000) 270,317 284,889
Share price (pence) 644.0 651.5
NAV per share (pence) 687.5 697.2
Share price total return* 3.0% (6.4%)
NAV total return* 2.7% (6.9%)
Benchmark return* (1.4%) (13.8%)
(Discount)/Premium (6.3%) (6.6%)
Gearing 12.0% 14.0%
Ongoing charges 1.4% 1.3%
For detailed calculations on the share price total return, NAV per share total
return, discount/premium, gearing and ongoing charges, please refer to
Alternative Performance Measures (APMs) on pages 112 and 113.
*Total return assumes all dividends are reinvested.
PRINCIPAL AND EMERGING RISKS
The Board considers that the risks detailed below are the principal risks
facing the Company currently, along with the risks detailed in note 23 to the
financial statements. These are the risks that could affect the ability of the
Company to deliver its strategy. The Board confirms that the principal risks
of the Company, including those which would threaten its business model and
future performance, have been robustly assessed throughout the year ended
31August 2023. In making this assessment the Board has taken into account the
emerging risks such as the tensions between the US and China, conflicts in
Ukraine and the Middle East, longer term climate change risk, cyber security
risk and the impact of artificial intelligence on the investment industry and
confirms that processes are in place to continue this assessment.
The Audit Committee takes responsibility for overseeing the effectiveness of
risk management and internal control systems on behalf of the Board and
advises the Board on the principal risks facing its business. The Audit
Committee uses a framework of key risks which affect its business and related
internal controls designed to enable the Directors to take steps to mitigate
these risks as appropriate; the Company's risks have been divided into the
following risk categories:
• Strategic/Performance
• Political
• Investment related
• Operational and service provider
• Tax legal and regulatory
A detailed Risk Map is reviewed on a bi-annual basis. A summary of the
Directors' review of internal controls, including the review of the Risk Map,
is set out in the Corporate Governance Statement on page 48.
The principal risks detailed below are assessed by the Audit Committee, which
receives regular reports from its main third party service providers on their
own internal control processes.
Principal Risk Mitigation Change from prior year
Strategic/Performance risk
The Company's returns are affected by changes in economic, financial and The Investment Managers consider carefully the portfolio composition by size <>
corporate conditions, which can cause market and exchange rate fluctuations. A of company, development stage and therapeutic area and adjusts accordingly.
significant fall in US equity markets is likely to adversely affect the value The Board is also supportive of the Fund Manager's approach of reducing
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 Fund Manager provides regular reports to the Board on general economic
conditions as well as portfolio activity, strategy and performance, including
In addition, the Financial Statements and performance of the Company are risk monitoring. The reports are discussed in detail at Board Meetings, which
denominated in GBP because the Company is a UK company listed on the London are all attended by the Fund Manager, to allow the Board to monitor the
Stock Exchange. However, the majority of the Company's assets are denominated implementation of the investment strategy and process.
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.
Strategic/Performance risk
The Company's Articles of Association require the Board to put a proposal for The Broker provides Shareholder feedback to the Board on a regular basis. ^
the continuation of the Company to shareholders on a biennial basis. A
resolution will be put to the shareholders at the forthcoming AGM.
The Board is mindful that this will be the first continuation vote put to The Board has consulted with our major shareholders during the year and has
shareholders following a change of AIFM. received positive feedback on the decision to appoint Schroders as the new
fund manager, with continuity of the existing mandate and the existing
investment management team.
Strategic/Performance risk
The Board recognises that a responsible and proactive approach to ESG related The Board has developed and refined a detailed ESG policy as set out in the <>
factors can positively impact the performance and success of its portfolio Strategic Review under the Environmental, Social and Governance Policy. The
companies and the Company. A failure to focus sufficiently on ESG matters may Company uses data gathered by Sustainalytics to monitor the compliance of its
not promote the Company to shareholders in a way that generates investor quoted portfolio with an accepted set of ESG standards.
demand.
Political risk
A loss of investor appetite for investment in the biotech sector as a result The Fund Manager updates the board monthly and at each scheduled board meeting ^
of political conditions, including FDA and FTC policy might materially affect on issues pertinent to the portfolio and the biotechnology sector generally,
the ability of the Company to achieve its objective and reduce demand for the including the political landscape and expected future drivers.
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.
Investment related risk
Share price performance may consistently lag NAV performance leading to wide The Board closely reviews the relative level of discount against the sector. <>
and persistent discount to NAV.
There is active share register management by the Fund Manager and Broker and a
comprehensive shareholder marketing programme.
The Board has implemented a robust share buyback and issuance policy which has
been used consistently during the year under review with 1,544,826 shares
being repurchased to be held in Treasury. The discount narrowed slightly
during the year.
Investment related risk
The Fund Manager's investment strategy and the key personnel involved in The Board is pleased that the impending transition to Schroders will ensure <>
delivering that strategy may, if inappropriate, result in negative investor continuity of both the existing mandate and delivery of the investment
sentiment, leading to a reduction in the share price and the Company strategy by the Company's current Investment Managers as regards the quoted
underperforming the market and/or its peer group companies. portfolio. The Company will also benefit from Schroders' significant
investment trust expertise.
Operational and service provider risk
Inadequate performance of service providers could lead to poor performance The Board reviews the performance of all third party service providers and <>
and/or exposure to a number of financial, regulatory and business risks. their risk control procedures on a regular basis, as well as the terms on
which they provide services to the Company.
Service providers may terminate their services if they deem the company to no
longer fit their business model. The Board is mindful of the significant forthcoming change in several service
providers including AIFM, depositary, administration, company secretary and
bank lender. The Board met frequently during the year and will continue to
monitor the transition and services provided carefully. The Board has engaged
professional legal support, Gowlings, and worked closely with its appointed
Broker, Numis, to help ensure a smooth transition to new service providers.
VIABILITY STATEMENT
In accordance with Provision 31 of the UK Corporate Governance Code 2018, the
Audit Committee has assessed the prospects of the Company over a five year
period. This is considered to be an appropriate period given the long-term
nature of investment and the expected maturity period of the unquoted
portfolio.
The Company's current position and prospects are set out in the Chair's
Statement, the Fund Manager's Review and the Strategic Report.
In its assessment of the viability of the Company, the Audit Committee has
considered each of the Company's principal risks and uncertainties and how
these are managed. These risks and uncertainties are detailed in this
Strategic Review on pages 27 to 29 and the effectiveness of the Company's risk
management and internal control systems are detailed on page 48.
The Audit Committee has reviewed the potential impact of emerging risks, in
particular, heightened geopolitical risk as a result of the resurgence of the
conflict in the Middle East, and is comfortable that any potential risk is
suitably mitigated.
The Audit Committee has considered the income and expenditure projections.
Included within these projections are key assumptions such as expected NAV
growth and expenses to be incurred by the Company. In order to test the
reliability of the income and expenditure projections, the key assumptions
were stressed to include scenarios of a decline in NAV and a 10% year on year
increase in expenses. The Audit Committee is satisfied that the income and
expenditure projections appear reasonable.
The Audit Committee has also considered the impact of the year end gearing
position. As at 31 August 2023, the Company had drawn £32.5m of its £55m
loan facility. The Audit Committee is satisfied that the Company's investments
comprise readily realisable securities which can be sold to meet funding
requirements, if necessary.
As at 31 August 2023 the Company had total undrawn commitments to unquoted
funds, namely SV BCOF and SV Fund VI, of £21.8m. With historical practice in
mind, the Audit Committee considers it highly improbable that the full undrawn
commitments would be called together at one time. However, in an extreme
scenario, it is again satisfied that the Company's investments comprise
readily realisable securities which can be sold to meet funding requirements,
if necessary.
The Board is mindful that the biennial continuation vote will be put to
shareholders at the AGM in December 2023 following a change of AIFM. As noted
in the Chair's Statement we have consulted with many of our shareholders
during the year and have received positive feedback. In particular, many of
our major shareholders have informed us that they are pleased with the
impending move to Schroders, and the continuity of the existing mandate and
the existing investment management team. The Board strongly recommends that
shareholders vote in favour of the continuation of the Company and has a
reasonable expectation that the continuation vote will be passed.
In light of these considerations and based upon the Company's processes for
evaluating the composition of the investment portfolio, monitoring the ongoing
costs of the Company, the discount to the NAV, the level of gearing, and
taking into account the Company's current position and principal risks and
uncertainties, the Board, based on a recommendation by the Audit Committee,
considers that there is a reasonable expectation that the Company will
continue to operate and meet its liabilities, as they fall due over the next
five years.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE POLICY (ESG)
The Board recognises that a responsible and proactive approach to ESG related
factors can positively impact the performance and success of its portfolio
companies and the Company. The Company outlined its ESG policy in its Annual
Report for the year ended August 2021.
Its policy was adopted in October 2021, and since amended in February 2023 and
aims to integrate consideration for ESG factors into the investment process,
governance and choice of suppliers for the Company and to exert influence on
portfolio companies and suppliers to consider ESG factors in their respective
activities. The Company's Board also considers ESG factors in its choice of
suppliers. The Company's ESG policy is available on its website.
All of the Company's investments and activities are aligned with UN
Sustainable Development Goal number 3: 'Good Health and Well-being. Ensure
healthy lives and promote well-being for all at all ages.' as well as six
other goals. The Company is dedicated to investing in tomorrow's healthcare
breakthroughs. The Company has invested in scientific development, medical
innovation, and technologies across a wide spectrum of diseases with
particular focus on areas of high unmet medical need. The Company also adheres
to all six UN Principles for Responsible Investment (PRI) and supports all the
Ten Principles of the UN Global Compact. Schroders, the Company's new AIFM
from November 2023, is a signatory to the UN PRI and the UN Global Compact.
The Company uses data gathered by Sustainalytics to monitor the compliance of
its quoted portfolio with an accepted set of ESG standards. The benefit of
this service means that the Company has access to a detailed set of ESG data
on the majority of the quoted biotech universe which not only facilitates ESG
reporting and enables comparisons to benchmarks beyond the Company's own
portfolio, but also enables the incorporation of ESG screening into its
portfolio management process. In addition, the access to this data means that
the Company's Investment Managers can more readily engage with portfolio
companies with respect to areas in which Sustainalytics considers them to fall
short of their peers. The Company continues to commit to screening and
reporting on the ESG compliance of its top 10 quoted portfolio companies in
aggregate on a semi-annual basis to coincide with the annual and interim
period ends.
The screening of the biotech companies in the Company's unquoted portfolio
takes place annually, carried out by the Fund Manager and depends on those
companies completing its bespoke ESG screening questionnaire.
ESG Report
Suppliers: The Company requests its suppliers to provide ESG policies annually
and 14 of the 22 suppliers shared their latest ESG Policies with the Company
and ten (45%) have agreed to have links to their policies displayed on the
Company's website. This is an improvement on 2022 when only 29% of suppliers
agreed to have links to their policies displayed on the Company's website.
Portfolio companies: The Company has been delivering financial value to
shareholders since 1994 whilst simultaneously creating a positive social
impact by investing in companies that develop innovative treatments for
patients suffering with unmet medical needs. The products developed by the
companies in which the Company invests can radically change the way diseases
are treated, bringing positive impact to patients and healthcare systems
globally.
The Company's investment approach in relation to ESG is based on three
pillars:
1. Thorough ESG diligence and investing for impact;
2. Meaningful engagement with portfolio companies; and
3. Reporting to shareholders.
The Board considers that focusing on the ESG compliance of its investments and
engaging with the management of key portfolio companies has the potential to
bring about positive change in its investment universe. In particular, the
Company believes its potential to generate the greatest impact will generally
be on its top ten quoted holdings where the Company's larger investment size
gives it greater influence. The Board notes that ESG and sustainability
concerns have become key considerations for many of its investors. The Board
believes that through the Company's focus on ESG as an investor, it can help
maximise its portfolio companies' positive impact whilst generating attractive
investor returns.
Sustainalytics ranks the pharmaceutical and biotech industries in aggregate as
relatively high risk in comparison to other industries. This is mainly driven
by a combination of poor Quality and Safety scores (relating to drugs in
clinical trials being found to be inefficacious or toxic), Business Ethics
issues relating to drug pricing and availability and "Weak" management scores,
relating, in the main, to poor disclosure or perceived failure to adequately
mitigate the risks inherent in the industry. Arguably the Quality and Safety
issues and Business Ethics issues are part and parcel of drug development and
difficult for companies to avoid. Against that backdrop, it is unsurprising
that in its industry report in October 2022, Sustainalytics rated over 55% of
biotech companies as having Severe (14%) or High (42%) ESG Risk, with only 8%
having Low ESG Risk.
In respect of the year ended 31 August 2023, we are pleased to report that one
of the Company's top holdings was rated as Low ESG Risk which is in line with
8% for the industry as a whole and 50% of the Company's top ten quoted
holdings were rated with a Medium ESG Risk Score compared with 36% for the
industry as a whole. Four of the top ten quoted companies were categorised as
High ESG Risk which is in line with the industry as a whole. None of the top
10 were in the Severe Risk category. All four of those categorised as High ESG
risk had "Medium" Exposure scores which refers to the extent to which a
company is exposed to different material ESG Issues, and none of them have
been implicated in any significant ESG-related controversies. Two of them had
Management scores categorised as "Weak". On a positive note, two of the High
ESG Risk companies in the top 10 quoted companies are shown to be on a
positive trajectory in comparison to their previous Sustainalytics screening.
The Investment Managers have closely examined the background behind the
current ESG rankings of those companies categorised as High ESG Risk and
established that the majority of the issues that have contributed to their
High ESG Risk rating results from lack of disclosure. The Investment Managers
will continue to engage with these companies over the coming months to ensure
that the current disclosure is not concealing anything of concern, and to
encourage them to adhere to best practice on disclosure. In the case of Vera
Therapeutics below, for example, where the score for Management by
Sustainalytics is "Weak", this relates to poor disclosure on certain key
policies. The Investment Managers will engage with Vera about ensuring that
these policies are in place and disclosed over the coming year.
Top Ten Quoted Holdings ESG Risk Score (Low =low risk) ESG Risk Rating Momentum Percentile (vs Biotech sector) Exposure* Management **
1 Incyte Genomics 24.8 Medium Deteriorating 19 Medium Average
2 Amgen 22.0 Medium Deteriorating 7 Medium Average
3 Gilead Sciences 23.0 Medium Deteriorating 10 Medium Average
4 Harmony Biosciences 37.5 High Improving 76 Medium Weak
5 Supernus Pharmaceuticals 31.5 High Improving 30 Medium Average
6 Vera Therapeutics 34.2 High Static 98 Medium Weak
7 BioMarin Pharmaceuticals 25.7 Medium Improving 27 Medium Average
8 Regeneron Pharmaceuticals 18.0 Low Improving 2 Medium Average
9 Intra-Cellular Therapies 33.4 High Static 46 Medium Average
10 Alnylam Pharmaceuticals 28.4 Medium Improving 60 Medium Average
Source: Sustainalytics
*The extent to which a company is exposed to different material ESG issues.
**How well a company is managing its relevant ESG issues, looking at
robustness of ESG programs, practices and policies.
The Company's Investment Managers actively engage with the management teams of
their portfolio companies, and bring to light any issues uncovered in the
screening process. For example, in the last financial year, the Investment
Managers have discussed the timing of the release of clinical data with a
portfolio company. It was felt that releasing clinical data too soon in the
drug development process led to volatility in the share price as investors did
not always understand the risks of early data being proven to be inconclusive
later in the clinical trial process. As a further example, during the
financial year, the Company's Investment Managers engaged with another
portfolio company, which was rated as High Risk in 2022. The Investment
Managers discussed the rating with the company's management and encouraged the
company to be more transparent with respect to its procedures and policies
which affect its ESG ranking. While the portfolio company is still rated High
Risk in 2023, the rating has significantly improved bringing it to within a
whisker of a Medium Risk rating.
With regards to the 2023 screening of SV's unquoted biotech investments, we
can report the following. 12 portfolio companies completed the Fund Manager's
proprietary questionnaire, compared to seven in 2022 and the results were
analysed across the full portfolios of the SV funds in which the Company
invests as well as the companies included being broken down into stages of
development as determined by number of full time employees. The decision to do
this additional layer of analysis was to provide portfolio companies with a
better sense of their performance against companies of a similar size as well
as to help the Fund Manager better tailor its support. The overall results
were encouraging, particularly in the area of corporate governance and social
policies, where companies have made good progress in matters such as having
formal organisational structures and grievance resolution procedures in place,
recycling lab plastics and measuring green house gas emissions. In the
previous assessment, the early stage companies significantly lagged later
stage companies and in this respect, an improvement was seen. Interestingly,
the mid-sized companies outperformed the latest stage companies in a number of
areas. The weakest performance was seen in environmental-related factors as is
consistent with previous years and the Fund Manager is working to support
portfolio companies in improving in these areas in a relevant way given the
relative stage and size of these companies. Of note is that in October 2022,
we are pleased to report that Sustainalytics ranked one of the companies held
in SV BCOF as having the lowest ESG Risk rating in the industry.
The Company's Investment Managers continue to meet portfolio companies
individually to make their own assessments and use Sustainalytics to assist
with meaningful engagement on ESG matters with portfolio companies as well as
highlighting any areas of concern. The Company continues to negatively screen
companies which would exclude from potential investment any companies which
engage in certain unsavoury practices, such as price gouging, involvement in
the US opioid scandal, "me-too" drugs lacking innovation and anything that
leads to negative effects on public health or wellbeing.
The Fund Manager uses a third-party platform, ProxyEdge from Broadridge
Financial Solutions, to implement its voting policy, with the option to
deviate from the recommended action when it differs from the Fund Manager's
consideration of the standards for good corporate governance and management of
environmental and social issues.
DIVERSITY AND GENDER REPRESENTATION ON THE BOARD
The Board's policy on diversity is to ensure that the Directors on the Board
has a broad range of experience, skills and knowledge, with diversity of
thinking, background and perspective. Appointments to the Board are made on
merit against objective criteria, having regard to the benefits of diversity
and the current and future needs of the business and the other factors set out
in the UK Corporate Governance Code.
The composition of the Board exceeds the criteria of both the
Hampton-Alexander Review on gender balance and the Parker Review on ethnic
diversity. As at 31 August 2023, 60 per cent of the Board were female and 20
per cent were from an ethnic minority background.
The Board is mindful of the Listing Rules and amendments to the Disclosure
Guidance and Transparency Rules, which came into effect for accounting periods
starting on or after 1 April 2022 and will applied to the Company from the
2023 financial year.
The Board has demonstrated its support of the Financial Conduct Authority's
aim to encourage increased transparency around diversity reporting at a Board
and senior management level by proactively reporting on the requirements in
this year's Report.
As at 31 August 2023, the Board had already met all three criteria set out in
the Listing Rules, since 60 per cent of the Board members are women, one of
which holds a senior position on the Board, and one Director is from an ethnic
minority background. The Company collects the data used for the purposes of
making this disclosure from Directors on a voluntary basis.
In accordance with Listing Rule 9 Annex 2.1, the following tables, in
prescribed format, show the gender and ethnic background of the Directors at
the date of this Report.
Gender identity or sex Number of Board members* Percentage on the Board Number of senior positions on the Board
Men 2 40 1**
Women 3 60 1***
Not specified/prefer not to say N/A N/A N/A
*The Company does not disclose the number of Directors in executive management
as this is not applicable for an externally managed Investment Trust.
**Patrick Magee is Senior Independent Director.
***Kate Cornish-Bowden is Chair of the Board.
Ethnic background Number of Board members* Percentage on the Board Number of senior positions on the Board
White British or other White (including minority white groups) 4 80 2
Mixed/multiple ethnic groups 0 0 0
Asian/Asian British 0 0 0
Black/African/Caribbean/Black British 1 20 0
Other ethnic group, including Arab 0 0 0
Not specified/prefer not to say N/A N/A N/A
*The Company does not disclose the number of Directors in executive management
as this is not applicable for an externally managed Investment Trust.
MODERN SLAVERY ACT 2015
As an investment trust, the Company does not provide goods or services in the
normal course of business and does not have any customers or employees. All
the Company's activities are outsourced to third parties and the Board
considers the Company's supply chain to be low risk, in terms of engaging in
activities which could be deemed modern slavery, as its suppliers are
typically professional advisers and regulated entities. The investment
portfolio companies that the Company invests in are high profile listed
companies who have their own governing bodies to comply with the Modern
Slavery Act 2015 or the equivalent in their country of domicile.
The Company does not fall within the scope of the Modern Slavery Act 2015.
Accordingly, the Directors consider that the Company is not required to make
any slavery or human trafficking statement under the Modern Slavery Act 2015.
ANTI-BRIBERY, CORRUPTION & TAX EVASION
The Company is committed to the practice of responsible behaviour and to
complying with all laws, regulations and other requirements which govern the
conduct of its activity. The Company is fully committed to instilling a strong
anti-corruption culture and complying with anti-bribery legislation including,
but not limited to, the Bribery Act 2014. Further, the Company has adopted a
zero-tolerance approach to tax evasion and is committed to compliance with
anti-tax evasion legislation, including but not limited to, the Criminal
Finances Act 2017. This is consistent with the policies implemented by the
Fund Manager and the Company expects its third party service providers to
adopt the same standard of zero tolerance.
The Company has implemented a conflicts of interest policy to which the
Directors must adhere. The Company is committed to acting with integrity and
in the interests of shareholders.
GREENHOUSE GAS EMISSIONS
The Company has no greenhouse gas emissions to report from the operations of
the Company and does not have responsibility for any other emissions producing
sources or energy consumed reportable under the Companies Act 2006 (Strategic
Report and Directors' Report) Regulations 2013 or the Companies (Directors'
Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018, implementing the UK Government's policy on Streamlined
Energy and Carbon Reporting. As an investment trust without employees, the
Company is not required to report against the TCFD framework, however,
understanding and managing climate-related risks and opportunities based on
the TCFD´s recommendations is a fundamental part of the Company's investment
approach.
SECTION 172 STATEMENT
The Companies (Miscellaneous Reporting) Regulations 2018 require Directors to
explain more fully how they have discharged their duties under Section 172(1)
of the Companies Act 2006. Each of the Directors is mindful of their duties
under s172 to run the Company for the benefit of its shareholders, and in
doing so, to take into account the long-term impact of any decisions on
stakeholder relationships and the impact of the Company's activities on the
environment whilst maintaining its reputation for high standards of business
conduct at all times. This enhanced disclosure covers how the Board has
engaged with and understands the views of stakeholders and how stakeholders'
needs have been taken into account, the outcome of this engagement and the
impact that it has had on the Board's decisions.
As the Company does not have any employees or customers beyond its Directors,
the Board considers the groups mentioned in the following table as the key
stakeholders of the Company. The reasons for this determination, and the
Board's overarching approach to engagement, are set out in the following
table.
The table below also sets out the key decisions taken by the Directors during
the year under review.
Stakeholder Group How we Engage Activity and Key Decisions During the Year
Investors
Continued investor support and engagement are critical to the continued • Website and regulatory announcements. • The Board and advisers met with major shareholders following the
existence of the Company and the successful delivery of its long-term
announcement that the Company's Fund Manager had served notice of termination.
strategy. • Annual/Interim Financial Reports, Monthly factsheets and Fund Manager These discussions with shareholders helped inform the Board's assessment of
commentaries. the alternative options for the Company.
The Board is committed to maintaining open channels of communication and to
engaging with shareholders in a meaningful manner in order to gain an • Quarterly videos, Advertorials, marketing campaigns and webinars. • Following the announcement that the Board had selected Schroders to be the
understanding of their views.
new fund manager, the Board and its appointed Broker have again engaged with
• AGM. Shareholders regarding the forthcoming appointment, and received positive
feedback.
• Additional meetings with shareholders when requested.
• In accordance with the Articles of Association, Shareholders will again be
invited to vote on the Continuation of the Company at the forthcoming AGM.
• As part of the Board's Discount Management policy, approximately 3.5% of
the total shares were bought back at a discount to NAV during the year. The
discount narrowed slightly.
• Following approval at the AGM the Board continued its dividend policy of
paying a dividend equal to 4% of the NAV at the start of the year.
AIFM and Investment Managers
Maintaining a close and constructive working relationship with the AIFM and • The Chair, Senior Independent Director and Board regularly meet with • Following notice of termination from the Company's Fund Manager, SV Health
Investment Managers is crucial to the Board. The Board aims to continue to representatives of the AIFM and the Investment Managers throughout the year, Investors, the Board conducted an independent process to find a new fund
achieve consistent, long-term returns and to ensure that the portfolio is run both formally at quarterly Board meetings and informally, as required. manager for the Company.
in adherence to the Company's strategy.
• The Investment Managers attend Board meetings to discuss the Company's • The Board analysed several different options and met with a number of
The Board maintains an open discussion with the AIFM and Investment Managers, overall performance as well as developments in individual portfolio companies potential AIFM's before selecting Schroders. A new contract has been agreed
whilst ensuring that their interests are aligned with those of investors. and wider macroeconomic developments. with Schroders which will ensure shareholders do not have to bear any of the
costs associated with the transaction.
• Representatives of the AIFM's investor relations, finance and compliance
teams attend quarterly Board meetings to report on activity, processes and • The Board met frequently with the AIFM throughout the year to ensure a
controls. smooth transition of the business.
• SV Health Managers LLP will continue to manage the unquoted portfolio.
• The individuals responsible for managing the quoted portfolio, Ailsa Craig
and Marek Poszepczynski, will transfer to Schroders and continue to manage the
assets with the same mandate.
• At an ad hoc meeting in December 2022, pursuant to the Investment
Managers' proposal, the Board approved an incremental investment in SV BCOF of
$5m, which increased the total investment from $25m to $30m in SV BCOF.
Service Providers
The Company contracts with third party service providers including Depositary, • The Board and AIFM engage regularly with all service providers to ensure • In addition to changing the AIFM, the Depositary, the Company Secretary
Administrator, Company Secretary and Registrar. The Board engages with all the smooth running of the Company. and Lender will all change as part of the transition.
outsourced third parties service providers to ensure appropriate service
levels are maintained. • The Management Engagement Committee reviews the performance of all service • The Board and its advisers have negotiated new contracts with HSBC who
providers. will be appointed as the new Depositary (taking over from Northern Trust) in
November.
• The Depositary, Administrator, Company Secretary and Registrar submit
copies of their annual audited internal control reports to the Audit • The principal terms of a new secured lending facility have been agreed
Committee. with Scotia Bank, replacing the current loan with Northern Trust.
• The Company Secretary, who attends quarterly meetings, reports on key • The Board met several times throughout the year with Numis, to ensure a
corporate governance matters and relays any relevant information to the Board. successful outcome for shareholders.
• The Board worked closely with Kepler and KL to ensure our shareholders and
the market were kept informed.
• Schroder Investment Management Limited, a sister company to Schroder Unit
Trusts Limited, will succeed Link Company Matters as IBT's Company Secretary
on 20 November 2023.
Wider Community and the Environment
IBT invests in companies that develop new drugs for an ageing population with • The Investment Managers consider social, community and environmental • The Investment Managers utilised Morningstar Sustainalytics to risk assess
unmet medical needs. factors when making investment decisions and when selecting service providers. the portfolio's exposure to ESG criteria.
• The Board considers the ESG credential of all service providers including
during the competitive process to select a new AIFM for IBT.
• The Board and AIFM have engaged with regulators during the process of
transferring IBT to a new manager.
Portfolio
The Chair's Statement on pages 7 to 9 and the Fund Manager's Review on pages
10 to 20 includes details of the Company's performance and portfolio activity
during the year under review. The Strategic Report on pages 26 and 27
describes the investment strategy undertaken by the Fund Manager.
These factors around the portfolio and performance contribute to the long-term
success of the Company and help inform investors so that they may make
personal investment decisions.
Dividend
In accordance with the Dividend Policy approved by shareholders at the AGM
held on Tuesday, 6 December 2022, two interim dividends of 14.0p and 14.2p per
share were paid on 27 January and 25 August 2023, respectively.
Discount and Premium Management
Buying back shares can help to narrow the the discount of the share price to
NAV. Issuing shares helps to provide liquidity in the Company's shares where
there is sufficient demand. The Board keeps the discount management under
review, and it continues to be the Board's view that this policy is in the
interest of all shareholders. The Company bought back 1,544,826 of its own
Ordinary shares during the year ended 31 August 2023, which has assisted in
narrowing the discount. During the year the Company issued no Ordinary shares.
Changes to Board composition
Given Jim Horsburgh's planned departure at the Company's 2022 Annual General
meeting, the Board begun the search for a new candidate to join the Board as a
Non-executive Director. The Board agreed on a description of the role, skills
and attributes based on a skills matrix and in an effort to achieve greater
diversity, including that of gender. In September 2022, the Board engaged
Trust Associates, an executive search firm, to help identify suitable
candidates. Following an extensive search process, the Board is very pleased
to welcome Gillian Elcock to the Board. The Board confirms that Trust
Associates has no other connection to IBT.Gillian Elcock joined the Board in
February this year and will be standing for election for the first time at
this year's AGM.
CURRENT AND FUTURE DEVELOPMENTS
Details of the Company's developments during the year ended 31 August 2023,
along with its prospects for the future are set out in the Chair's Statement
on pages 7 to 9 and the Fund Manager's Review on pages 10 to 20.
By order of the Board
Link Company Matters Limited
Company Secretary
6 November 2023
DIRECTORS' BIOGRAPHIES
KATE CORNISH-BOWDEN
Chair
Kate Cornish-Bowden was appointed as a Non-executive Director of the Company
on 19 May 2020 and was Senior Independent Director since 8 December 2021. She
became Chair of the Board upon the conclusion of the Company's 2022 Annual
General Meeting on 6 December 2022. Kate worked for Morgan Stanley Investment
Management from 1992 to 2004 where she was a Managing Director, head of MSIM's
global core equity business and head of the pharmaceuticals research team.
Prior to joining Morgan Stanley, she worked for M&G Investment Management
as a research analyst
Kate is currently a Non-executive Director of Finsbury Growth & Income
Trust plc and CC Japan Income & Growth Trust plc, where she is also Audit
Committee Chair. She is also a Non-executive Director of Schroder Oriental
Income Fund Limited, however will be stepping down from her role on 17
November 2023, prior to IBT's move to Schroders.
Kate has previously held directorships of Scancell Holdings plc, Calculus VCT
plc and Arcis Biotechnology Limited. She is a member of the Chartered
Financial Analyst Institute (formerly AIIMR), holds an MBA and has completed
the Financial Times Non-executive Director Diploma.
PATRICK MAGEE
Senior Independent Director
Patrick Magee was appointed as a Non- executive Director of the Company on 19
May 2020 and has been the Senior Independent Director since the conclusion of
the 2022 Annual General Meeting on 6 December 2022.
Patrick joined the British Business Bank in 2014 and was its Chief Commercial
Officer from 2017 to July 2022 and was an executive director on the Bank's
Board. Before joining the British Business Bank in 2014, Patrick worked at the
Shareholder Executive from June 2012 to October 2014. Prior to joining the
Shareholder Executive, Patrick was a Managing Director of corporate finance at
JP Morgan Cazenove, having worked at the predecessor firms for almost 18
years. Patrick has an MBA from Georgetown University, Washington DC and an LLB
from Queen's University Belfast.
Patrick is currently a member of the Investment Committee at Queen's
University, Belfast, and a Director of Edge Future Capital, Allica Bank and
Power Roll Limited. He is also a Non-executive member of the NI Civil Service
Board.
CAROLINE GULLIVER
Chair of the Audit Committee
Caroline Gulliver was appointed as a Non-executive Director of the Company on
1 April 2015 and as Chair of the Audit Committee on 13 July 2016. She spent a
25 year career with Ernst & Young LLP, from where she retired in 2012 to
pursue other interests including Non-executive directorship positions. She is
a Chartered Accountant with a background in the provision of audit and
advisory services to the asset management industry, with a particular focus on
investment trusts. She is also a Non-executive Director of JPMorgan Global
Emerging Markets Income Trust plc and abrdn European Logistics Income plc.
Caroline stepped down from her role as Non-executive Director and Audit and
Management Engagement Committee Chair of Civitas Social Housing PLC in June
2023 when the company agreed to the terms of a private offer. Since August
2022, Caroline has been Trustee and Treasurer of Ukraine to Chilterns
Charitable Incorporated Organisation.
GILLIAN ELCOCK
Gillian Elcock was appointed as a Non-executive Director of the Company on 1
February 2023. She is the founder of Denny Ellison, an independent investment
research and training company, and was its Managing Director for ten years.
Prior to this, she was an equity research analyst for several years at Putnam
Investments and Insight Investment. She was named a finalist in the
'Investment Analyst of the Year' category of the Women in Investment Awards
2018.
Gillian is a Non-executive Director of Melrose Industries plc and STS Global
Income & Growth Trust plc. She is also a member of the board of the CFA
Society of the UK. She holds an MBA from the Harvard Business School and MEng
and BSc degrees from the Massachusetts Institute of Technology.
PATRICK MAXWELL
Professor Patrick Maxwell was appointed as a Non-executive Director of the
Company on 1 January 2022. He is currently Regius Professor of Physic and Head
of the School of Clinical Medicine at the University of Cambridge. As a
clinician scientist he has been centrally involved in a series of discoveries
that have revealed how changes in oxygenation are sensed, and how genetic
alterations cause kidney disease. Patrick is a Fellow of the Royal College of
Physicians and the Academy of Medical Sciences, Director of Cambridge
University Health Partners and a Non-Executive Director of Cambridge
University Hospitals and Scottish Mortgage Investment Trust.
Patrick holds a BA from Oxford, MB BS from the University of London, D Phil
from Oxford and is on the General Medical Council's Specialist Register for
Nephrology and General (Internal) Medicine.
Kate Cornish-Bowden is Chair of the Management Engagement and Nomination
Committees as well as the main Board.
All Directors are independent.
All Directors are members of the Audit, Management Engagement and Nomination
Committees.
DIRECTORS' REPORT | Incorporating the Corporate Governance Statement
The Directors present their Report and the audited Financial Statements of the
Company for the year ended 31 August 2023.
INFORMATION DISCLOSED IN THE STRATEGIC REPORT
The following matters required to be disclosed in this Report under the Large
and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
are covered in the Strategic Report on pages 26 to 37: the Company's status,
investment objective and policy, investment strategy, investment restrictions,
financial risk management, the Company's exposure to risks, a statement
regarding the Company's greenhouse gas emissions and the current and future
developments as well as important events effecting the Company since the year
end.
PRINCIPAL ACTIVITIES AND PURPOSE
The principal activity and therefore the purpose of the Company is the making
of investments in accordance with the investment objective and policy set out
on page 26. The Board delegates investment management of the Company's
portfolio to the Fund Manager. A description of the Company's activities and
strategy during the year, as well as the outlook, is given in the Chair's
Statement on pages 7 to 9; and the Fund Manager's Review on pages 10 to 20.
The current portfolio of the Company is such that its shares are eligible for
inclusion in an ISA, and the Directors expect this eligibility to be
maintained.
The Company currently conducts its affairs so that its shares can be
recommended by Independent Financial Advisers in the UK to ordinary retail
investors in accordance with the FCA Rules in relation to non-mainstream
investment products and intends to continue to do so. The shares are excluded
from the FCA's restrictions which apply to non-mainstream investment products
because they are shares in an authorised investment trust.
RESULTS AND DIVIDENDS
The results for the year are shown in the Statement of Comprehensive Income on
page 68. At the AGM held on 6 December 2022, shareholders approved the
Company's dividend policy to pay an annual dividend, equivalent to 4% of the
Company's NAV, calculated using the published NAV on the last day of the
Company's preceding financial year, being 31 August 2022. Dividends are paid
through two distributions in January and August of each year and are paid out
of capital reserves.
Accordingly, the Board declared and paid two interim dividends during the year
of 14.0 pence per Ordinary share for the first interim dividend and for 14.2
pence per Ordinary share for the second interim dividend (2022: 15.7 pence per
Ordinary share in equal payments). These were paid on 27 January 2023 and 25
August 2023. Further, the Directors intend to pay Interim Dividends for the
year ended 31 August 2023 in two tranches in January and August 2024.
In accordance with the Board's decision to seek shareholder approval of the
Company's dividend policy at each AGM, a resolution to this effect has been
included in the Notice of Meeting on page 105.
SHARE CAPITAL
At the AGM on 6 December 2022, shareholders gave approval for the Company to
purchase up to 6,124,285 Ordinary shares of its own capital for cash, being
14.99% of the share capital in issue as at the date of the Notice of Meeting.
During the year under review, 1,544,826 shares were repurchased by the
Company. The Board considers that conducting share buybacks can help to manage
the discount of its share price to NAV, therefore enhancing share price
performance for existing shareholders. The positive effect of share buybacks
on the Company's NAV during the year has been explained in the Chair's
Statement on page 9 and in the Strategic Review on page 37. The Board
regularly reviews the methods for managing the discount and these include the
use of share buybacks, payment of dividends and marketing the Company to
prospective investors.
Shareholders also provided approval for the Company to issue 4,132,834
Ordinary shares (excluding those from Treasury) with pre-emption rights
disapplied. During the year, no Ordinary shares were re-issued from Treasury.
The issued share capital of the Company is detailed in note 15 to the
Financial Statements. The total number of Ordinary shares as at 3 November
2023 is 41,383,817.
DIRECTORS
All of the Directors as at 31 August 2023 held office throughout the year
under review, with the exception of Gillian Elcock who was appointed to the
Board on 1 February 2023. Jim Horsburgh retired as a Non-executive Director
and Chair on 6 December 2022. The biographies of the Directors of the Company
can be found on pages 38 and 39.
As indicated on page 46, all Directors are deemed by the Board to be
independent in both character and judgement, and have performed their duties
in an independent manner at all times. The independence of Directors will
continue to be assessed on a case by case basis.
The Board recognises corporate governance best practice is for all Directors
to be submitted for annual re-election. Accordingly, all Directors will be
standing for re-election at the forthcoming AGM. Gillian Elcock will be
standing for election for the first time since her initial appointment to the
Board on 1 February 2023.
The Board has considered the position of each of the Directors as part of the
performance evaluation, the process for which is explained in more detail on
page 46. The Board has a broad range of relevant experience to contribute
towards the Company's strategic priorities, including specialist understanding
of the biotechnology and healthcare sectors, investment trust companies, fund
management, venture capital market experience, accounting and auditing, as
detailed in the Directors' biographies on pages 38 and 39. Further, the Board
has concluded that each Director continues to demonstrate commitment to their
role and provides a valuable contribution to the deliberations of the Board.
The Board therefore recommends that shareholders vote in favour of the
election of Gillian Elcock, and re-elections of Kate Cornish-Bowden, Caroline
Gulliver, Patrick Magee and Patrick Maxwell at the forthcoming AGM.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE AND DIRECTORS' INDEMNITIES
Directors' and Officers' Liability Insurance cover was purchased by the
Company in April 2023 and continues to be in force as at the date of this
Report.
FUND MANAGER'S PERFORMANCE AND CONTRACTUAL ARRANGEMENTS
The Fund Manager is SV Health Managers LLP. The Board keeps the performance of
the Fund Manager under continual review. The Management Engagement Committee
conducts an annual review of the Fund Manager's performance and makes a
recommendation to the Board about its continuing appointment. As announced in
February 2023, SV Health Managers LLP decided to focus on its venture capital
business and served notice of termination to IBT. As a result, the continued
appointment of the Fund Manager was not recommended by the Committee.
Effective November 2023, the Fund Manager and AIFM will transition to
Schroders which will ensure the continuity of IBT's investment approach. The
Board believes that Schroders will deliver positive long-term benefits for IBT
and its shareholders.
The Fund Manager during the year under review, SV Health Managers LLP was
entitled to a management fee payable of 0.9% per annum of the Company's NAV
and to an annual performance fee which is calculated as follows:
• The portfolio consists of two pools: quoted and unquoted.
• The fee on the quoted pool is 10% of relative outperformance above the
sterling-adjusted NBI plus a 0.5% hurdle.
• The fee on the unquoted pool, excluding unquoted funds, is 20% of net
realised gains, taking into account any unrealised losses but not unrealised
gains.
• There is no performance fee calculated on unquoted funds as the Fund
Manager has carried interest in these funds.
The payment of the performance fee is subject to the following limits:
• The maximum performance fee in any one year is 2% of average net assets.
• Any underperformance of the quoted portfolio against the benchmark is
carried forward for the current financial period plus two succeeding periods.
Performance fees in excess of the performance fee cap are carried forward for
the current financial period plus two succeeding periods and being offset
against any subsequent underperformance before being paid out.
A performance fee of £514,000 (£418,000 quoted, £96,000 unquoted) was
payable for the unquoted portfolio in respect of the year ended 31 August 2023
(31 August 2022: £nil quoted, £471,000 unquoted)). Please see the Chair's
Statement on page 9 for further information.
The future fee arrangements in the new Investment Management Agreement with
Schroders Unit Trust Limited are outlined on page 8.
ADMINISTRATION, DEPOSITARY AND COMPANY SECRETARIAL SERVICES
Fund administration and depositary services are provided by the Northern Trust
Company, London branch. The Administration Agreement with the Northern Trust
Company continues until terminated by either party on giving not less than 12
months' written notice. The Depositary Agreement with Northern Trust Investor
Services Limited continues until terminated by either party on giving not less
than 6 months written notice. The Depositary also retains the right to serve
notice on the Company requiring it, at the expiry of a period of not less than
270 calendar days, to give notice to the FCA of a proposal to wind-up the
affairs of the Company unless a replacement Depositary has been appointed
before the end of that period.
Company Secretarial services are provided by Link Company Matters. The
Agreement with Link Company Matters may be terminated by either party on
giving not less than six months' written notice.
As referred to in the Chair's statement, as part of the move to Schroders, IBT
has appointed HSBC Bank plc as Administrator, Custodian and Depositary with
effect from 20 November 2023. Schroder Investment Management Limited will be
appointed as Company Secretary from the same date.
COMPANIES ACT 2006 (THE ACT) DISCLOSURES
In accordance with Section 992 of the Act, the Directors disclose the
following information:
The Company's capital structure is summarised on page 84, voting rights are
summarised on page 84 and there are no restrictions on voting rights nor any
agreement between holders of securities that result in restrictions on the
transfer of securities or on voting rights.
There exists no securities carrying special rights with regard to the control
of the Company.
The Company does not have an employees' share scheme.
The rules concerning the appointment and replacement of Directors, amendment
to the Articles of Association and powers to issue or buyback the Company's
shares are contained in the Articles of Association of the Company and the
Act. There exists no agreements to which the Company is party that may affect
its control following a takeover bid.
There exists no agreements between the Company and its Directors providing for
compensation for loss of office that may occur because of a takeover bid.
GOING CONCERN
The Company has reviewed the guidance issued by the FRC in order to determine
whether the going concern basis should be used in preparing the Financial
Statements for the year ended 31 August 2023. In doing so, the Directors have
considered the Company's borrowing requirements and covenants on existing
borrowings; liquidity risk (see note 23.3 on page 93); the business
environment and its impact on financial risk; the nature of the portfolio; and
expenditure projections for the next 12 months. The Company's assets consist
mainly of equity shares in companies listed on the NASDAQ stock exchange and
in most circumstances are realisable within a short timescale.
The Company's Articles of Association require the Board to put a proposal for
the continuation of the Company to shareholders on a biennial basis. The
relevant resolution will therefore be included in the Notice of Meeting for
the forthcoming AGM. The previous continuation vote in 2021 was passed with
99.96% of votes being in favour of continuation. The Board is mindful that
this will be the first continuation vote following a change of AIFM and Fund
Manager. As noted in the Chair's Statement we have consulted with many of our
shareholders during the year and have received positive feedback with many
informing us that they are pleased with the impending move to Schroders, and
the continuity of the existing mandate and investment management team. The
Board noted no adverse impact on share price or discount to NAV following
announcement of the decision to appoint Schroders. As a result of this
shareholder feedback the Board has a reasonable expectation that the
continuation vote will be passed.
As a result, the Directors believe that it is appropriate to adopt the going
concern basis in the preparation of the Financial Statements as, assuming a
successful continuation vote, there are no material uncertainties related to
events or conditions that may cast significant doubt about the Company's
ability to continue as a going concern.
INDEPENDENT AUDITOR
Following a recommendation by the Audit Committee to the Board, resolutions to
re-appoint PricewaterhouseCoopers LLP as Auditor and to authorise the
Directors to determine their remuneration will be proposed at the forthcoming
AGM. The Board considers that the Auditor remains independent and
PricewaterhouseCoopers LLP have expressed their willingness to continue in
office. For information relating to the effectiveness of the external audit
process including information regarding the full external tender of audit
services which took place in 2016, please see the Audit Committee Report on
pages 54 to 56.
SUBSTANTIAL SHARE INTERESTS
As at the year ended 31 August 2023, the interests of 3% or more of the voting
rights attaching to the Company's issued share capital, as notified to the
Company in accordance with Chapter 5 of the FCA's Disclosure Guidance and
Transparency Rules or ascertained by the Company were as follows:
As at 31 August 2023 As at 31 August 2023
Shareholder Number of Ordinary shares held % of voting rights
Interactive Investor 5,343,661 13.59
Hargreaves Lansdown 5,226,816 13.29
Charles Stanley 3,164,753 8.05
Border to Coast Pensions Partnership 2,535,000 6.45
AJ Bell 1,719,573 4.37
South Yorkshire Pension Authority 1,650,000 4.20
RBC Brewin Dolphin 1,320,973 3.36
West Yorkshire PF 1,245,599 3.17
The Company has not been informed of any changes to the above interests
between 31 August 2023 and the date of this Report.
DISCLOSURE OF INFORMATION TO AUDITORS
In accordance with Section 418 of the Act, the Directors at the date of
approval of this Report, as listed on pages 38 and 39, confirm that:
(a)so far as each Director is aware, there is no relevant audit information of
which the Company's Auditors are unaware; and
(b)each Director has taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit information
and to establish that the Company's Auditors are aware of that information.
AGM
The AGM will be held on Tuesday, 12 December 2023 at 3.00pm. Details of the
business of the Meeting are set out in the Notice of Meeting on pages 105 and
106.
Pursuant to the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008, the Directors are required to provide detailed
information, amongst others, on their powers in relation to the issuing or
buying back of the Company's shares. As a result, the Board is seeking
shareholder approval for the following seven items.
Continuation Vote
The Company's Articles of Association require the Board to put a proposal for
the continuation of the Company to shareholders at two yearly intervals. The
next continuation vote will be put to shareholders at the forthcoming AGM on
12 December 2023 as Resolution 12 and the Directors strongly recommend
shareholders vote in favour.
Authority to allot shares
In order to provide maximum flexibility in the implementation of the Company's
corporate strategy and premium management policy, the Directors wish to seek
the power to allot new Ordinary shares for cash at a premium to the NAV at the
forthcoming AGM.
Resolution 13 seeks authority for Directors to allot shares for cash up to a
nominal amount of £1,021,575, equivalent to 4,086,300 Ordinary shares (being
10% of the issued Ordinary share capital of the Company (excluding Treasury
shares) in issue on 3 November 2023 (being the latest practicable date prior
to the publication of the Notice of Meeting)).
In addition, Resolution 14 seeks authority for Directors to allot further
shares for cash up to a nominal amount of £1,021,575, equivalent to 4,086,300
Ordinary shares (being 10% of the issued Ordinary share capital of the Company
(excluding Treasury shares) in issue on 3 November 2023 (being the latest
practicable date prior to the publication of the Notice of Meeting)).
The Directors intend to use these authorities to issue new shares only if they
believe it is in the best interests of the Company and is advantageous both to
new investors and to the Company's existing shareholders to do so. New shares
will only be issued at a price not less than the most recent published NAV per
Ordinary share prior to such issue. Both authorities will expire at the
conclusion of next year's AGM or 15 months from the date of passing of the
resolutions, whichever is earlier, unless revoked, varied or renewed prior to
that date.
Authority to disapply pre-emption rights
If new Ordinary shares are to be allotted for cash or Treasury shares are to
be sold for cash, the Act requires such new shares to be offered first to
existing holders of Ordinary shares. This entitlement is known as a
"pre-emption right". In certain circumstances it is beneficial for the
Directors to allot shares for cash or Treasury shares to be sold for cash
otherwise than pro rata to existing shareholders and the Act provides for
shareholders to give such power to the Directors by waiving their pre-emption
rights.
Therefore, Resolution 15 will be proposed at the AGM which, if passed, will
give the Directors power to disapply the statutory pre-emption rights of
existing shareholders in relation to the issue of Ordinary shares for cash or
the sale of Ordinary shares for cash out of Treasury up to an aggregate
nominal amount of £1,021,575 equivalent to 4,086,300 Ordinary shares (being
10% of the Company's existing issued Ordinary share capital (excluding
Treasury shares) on 3 November 2023 (being the latest practicable date prior
to the publication of the Notice of Meeting)) such Ordinary shares to be
allotted or sold at a price not less than the most recent published NAV per
Ordinary share prior to such allotment or sale.
This authority will expire at the conclusion of next year's AGM or 15 months
from the date of passing of the Resolution, whichever is earlier, unless
revoked, varied or renewed prior to that date provided that the Company shall
be entitled to make offers or agreements before the expiry of such authority
which would or might require equity securities to be allotted after such
expiry and the Directors may allot equity securities pursuant to any such
offer or agreement as if this authority had not expired.
Resolution 16 is being proposed at the AGM in addition to Resolution 15 which,
if passed, will give Directors power to disapply the statutory pre-emption
rights of existing shareholders in relation to the issue of Ordinary shares
for cash or the sale of Ordinary shares for cash out of Treasury, subject to
the passing of Resolution 14, up to an aggregate nominal amount of £1,021,575
equivalent to 4,086,300 Ordinary shares (being 10% of the Company's existing
issued Ordinary share capital (excluding Treasury shares) on 3 November 2023
(being the latest practicable date prior to the publication of the Notice of
Meeting)) such Ordinary shares to be allotted or sold at a price not less than
the most recent published NAV per Ordinary share prior to such allotment or
sale. This authority will expire at the conclusion of next year's AGM or 15
months from the date of passing of the resolution, whichever is earlier,
unless revoked, varied or renewed prior to that date provided that the Company
shall be entitled to make offers or agreements before the expiry of such
authority which would or might require equity securities to be allotted after
such expiry and the Directors may allot equity securities pursuant to any such
offer or agreement as if this authority had not expired.
The Board is aware that when combined the authorities sought under Resolutions
15 and 16 to disapply statutory pre-emption rights amount to 20% of the
Company's issued Ordinary share capital is higher than the level recommended
by best practice in accordance with The Investment Association Share Capital
Management Guidelines and the Pre-emption Group's Statement of Principles on
Disapplying Pre-emption Rights. However, the Board notes that the Prospectus
Regulation allows for issuance for up to 20% of the Company's issued Ordinary
share capital without the need for a prospectus and therefore, believes that
the increased authority is justified and it would be in the best interest of
shareholders to provide the extra flexibility to issue further shares in
connection with the Company's corporate strategy and premium management
policy.
The increased authority:
• would avoid the additional delay and expense of a further shareholder
resolution, which would be required in the event that the initial 10%
authority is granted and exhausted through the programme of tap issuance;
• is key to managing the share price premium to NAV, ensuring that
shareholders are not forced to pay an excessive premium when adding to their
holding; and
• facilitates enhanced scale for the Company, which would have the benefits
of increasing the potential investor audience, enhancing trading liquidity and
reducing the ongoing charges ratio.
During the year ended 31 August 2023, the Company did not re-issue any shares
from Treasury.
Share buybacks and Treasury share authority
Shareholders approved authorities for the Company to repurchase up to 14.99%
of its issued share capital (of which up to 10% of the issued share capital
may be retained in Treasury for potential re-issue at any time) at the AGM
held on Tuesday, 6 December 2022.
During the year ended 31 August 2023, the Company repurchased 1,544,826
Ordinary shares to be held in Treasury. The Directors continue to believe it
is in the best interests of the Company and its shareholders to have a general
authority for the Company to buyback its shares in the market for cancellation
or holding in Treasury for potential subsequent re-issue. No shares held in
Treasury will be re-issued at a discount to NAV. The authority to hold shares
in Treasury is in addition to the power to buyback shares for immediate
cancellation.
Accordingly, a special resolution, Resolution 17, to authorise the Company to
purchase up to 14.99% of the share capital in issue at the date of this Report
for cancellation or for holding in Treasury (up to a maximum of 10% of the
share capital in issue at the date of this Report) will be proposed at the
forthcoming AGM. Purchases will only be made if the Directors consider them to
be for the benefit of the Company and its shareholders, taking into account
relevant factors and circumstances at the time. The Company can confirm that
purchases of Ordinary shares under the authority will only be made in the
market for cash at prices below the prevailing NAV per share.
Notice of General Meetings
At last year's AGM, a special resolution was passed allowing General Meetings
of the Company to be called on a minimum notice period as provided for in the
Act. For meetings other than AGMs this is a period of 14 clear days. The Board
believes that it should have the flexibility to convene General Meetings of
the Company (other than AGMs) on 14 clear days' notice. The Board is therefore
proposing a special resolution to approve 14 clear days as the minimum period
of notice for all General Meetings of the Company other than AGMs. The
authority, if given, will be effective until the Company's next AGM or until
the expiry of 15 months from the date of the passing of the special resolution
(whichever is earlier) and will only be used where it is merited by the
purpose of the Meeting.
Recommendation
The Directors consider that passing the Resolutions proposed at the AGM will
be in the best interests of shareholders as a whole and unanimously recommend
that shareholders vote in favour of each of the resolutions as they intend to
do so in respect of their own beneficial holdings.
Details of proxy votes received in respect of each Resolution are published on
the Company's website following the meeting.
CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE
The Board is committed to high standards of corporate governance and has
implemented a framework for corporate governance appropriate for an investment
trust. The Board has considered the principles and recommendations of the AIC
Code of Corporate Governance 2019 (AIC Code) which can be found on the AIC
website www.theaic.co.uk. The AIC Code addresses the principles set out in the
UK Corporate Governance Code as well as setting out additional principles and
recommendations on issues that are of specific relevance to the Company.
As an investment company most of the day-to-day responsibilities are delegated
to outside parties as the Company has no employees and all the Directors are
Non-executive Directors. Many of the provisions of the UK Corporate Governance
Code are not directly applicable to the Company. The Board has determined that
reporting against the AIC Code provides the most appropriate information to
shareholders, therefore the report on corporate governance describes how the
principles of the AIC Code have been applied.
STATEMENT OF COMPLIANCE
The Board considers that, for the year under review each Director, the Board
and the Company have complied with the recommendations of the AIC Code in so
far as they apply to the Company's business and with the relevant provisions
of the UK Corporate Governance Code except as noted below:
• As all Directors are Non-executive Directors and day-to-day management has
been contracted to third parties the Company does not have a separate role for
a Chief Executive from that of Chair of the Board.
• As there are no Executive Directors the provisions of the UK Corporate
Governance Code in respect of executive directors' remuneration are not
relevant.
• The Company does not have an internal audit function as it relies on the
systems of control operated by third party suppliers, in particular those of
SV Health Managers LLP. The Board monitors these systems of internal control
to provide assurance that they operate as intended.
This Corporate Governance Statement, together with the Management Report and
Directors' Responsibilities Statement set out on page 45, indicate how the
Company has applied the principles of good governance and meets internal
control requirements.
ROLE OF THE CHAIR
The Chair is responsible for leading the Board, ensuring its effectiveness in
all aspects of its role, and setting its agenda.
ROLE OF THE BOARD
The Board determines and monitors the Company's investment objective and
policy, and considers its future strategic direction, ensuring itself that
these and its culture is aligned; being collectively responsible for the
long-term success of the Company. A schedule of matters specifically reserved
for consideration and decision by the Board has been adopted. The Board is
responsible for presenting a fair, balanced and understandable assessment of
the Company's position and, where appropriate, future prospects in Annual and
Half Yearly Financial Reports and other forms of public reporting. It monitors
and reviews the shareholder base of the Company, marketing and shareholder
communication strategies, and evaluates the performance of all service
providers, with input from its Committees where appropriate. A procedure has
been adopted for Directors, in the furtherance of their duties, to take
independent professional advice at the expense of the Company, where
appropriate. The Directors have access to the advice and services of the
corporate Company Secretary through its appointed representative, who is
responsible to the Board for, inter alia, ensuring that Board procedures are
followed and that applicable rules and regulations are complied with. The
appointment and removal of the Company Secretary is a matter for the whole
Board.
CONFLICTS OF INTEREST
The Directors have declared any conflicts of interest to the Company
Secretary, who maintains the Register of Directors' Conflicts of Interests. It
is reviewed at each Board Meeting, and the Directors advise the Company
Secretary as soon as they become aware of any new actual or potential
conflicts of interests that would need to be considered and approved by the
disinterested Directors.
In addition to chairing the Company, Kate Cornish-Bowden is also currently a
Director of Schroder Oriental Income Fund Limited. In order to remain
independent, Kate will be resigning from Schroder Oriental Income prior to
IBT's move to Schroders.
BOARD COMPOSITION
The Board currently consists of five Non-executive Directors. The biographical
details of each Director, including their length of service, are set out on
pages 38 and 39.
The Board is satisfied that it is of sufficient size, with an appropriate
balance of skills and experience, and that no individual or group of
individuals is, or has been, in a position to dominate decision making. This
is kept under continuous review by the Board as part of ongoing succession
planning.
The Board recognises the objectives of the Davies Report to improve the
performance of corporate boards by encouraging the appointment of the best
people from a range of differing perspectives and backgrounds. However, it is
not considered necessary, given the diverse skill set of the Board to have set
targets in relation to diversity.
The Board has set a policy on tenure that, in normal circumstances, Directors
will retire at the AGM in their 10th year of service. The Board is of the
opinion that long service does not necessarily compromise the independence or
contribution of Directors of investment trusts where continuity and experience
can significantly benefit a board, a view supported by the AIC.
INDUCTION AND TRAINING
Upon appointment to the Board, Directors are provided with all the relevant
information regarding the Company and their duties and responsibilities as a
Director. They receive a formal and tailored induction, which is administered
by the Company Secretary and the Fund Manager. Directors are provided, on a
regular basis, with key information on the Board's policies, regulatory
requirements and internal controls. Changes affecting Directors'
responsibilities are advised to the Board as they arise and the Chair
regularly reviews and agrees with each Director their training and development
needs. Other advisers to the Company also prepare reports for the Board from
time to time. In addition, Directors attend ad hoc seminars, conferences and
other forums covering issues and developments relevant to both the investment
trust and biotechnology industries.
BOARD EVALUATION
In line with best practice, the Board's effectiveness is reviewed on an annual
basis through a formal performance evaluation, including an assessment of the
Board and its Committees. An external evaluator conducts the review every
third year, and in the two intervening years this is carried out by the
Company Secretary to ensure continuity over the three-year cycle.
The review for the year ended 31 August 2023 was conducted by the Company
Secretary, following an external performance review conducted by Lintstock Ltd
in 2022.
The evaluation looked at several key areas, including the performance of the
Board and its Committees, the effectiveness of the Board's oversight of the
Fund Manager, investment strategy and performance, risk management, external
relations and succession planning. The responses were then collated, analysed
and presented to both the Nomination Committee and the Board in July 2023.
There were no significant issues arising from the evaluation process and it
was agreed that the Board and its Committees were functioning effectively.
MEETINGS AND ATTENDANCE
The Board held five scheduled meetings in the financial year which were
attended by all Directors entitled to attend. Additional meetings are arranged
as required and regular contact between the Directors, the Fund Manager and
the Company Secretary is maintained throughout the year. Representatives of
the Fund Manager and the Company Secretary attend each Meeting and other
advisers also attend when requested to do so by the Board.
A schedule of Directors' attendance at Board and Committee Meetings held
during the financial year is set out above.
All Directors attended numerous additional ad hoc meetings during the year
under review in connection with the change of fund manager.
The Board is satisfied that each of the Chair and the Non-executive Directors
commit sufficient time to the affairs of the Company to fulfil his or her
duties as Directors.
BOARD BOARD AUDIT COMMITTEE AUDIT COMMITTEE NOMINATION COMMITTEE NOMINATION COMMITTEE MANAGEMENT ENGAGEMENT COMMITTEE MANAGEMENT ENGAGEMENT COMMITTEE
Number entitled to attend Number attended Number entitled to attend Number attended Number entitled to attend Number attended Number entitled to attend Number attended
Jim Horsburgh* 3 3 1 1 0 0 0 0
Kate Cornish-Bowden 5 5 3 3 1 1 1 1
Caroline Gulliver 5 5 3 3 1 1 1 1
Patrick Magee 5 5 3 3 1 1 1 1
Patrick Maxwell 5 5 3 3 1 1 1 1
Gillian Elcock** 3 3 2 2 1 1 1 1
*Retired 6 December 2022.
**Appointed 1 February 2023.
INFORMATION FLOWS
The Chair ensures that all Directors receive, in a timely manner, relevant
management, regulatory and financial information and are provided, on a
regular basis, with key information on the Company's policies, regulatory
requirements and internal controls. The Board receives and considers reports
regularly from the Fund Manager, the Company Secretary and other key advisers.
Ad hoc reports and information are supplied to the Board as required.
COMMITTEES
The Board has delegated certain responsibilities and functions to three
Committees, all of which operate under written terms of reference. Copies of
the terms of reference for the Committees have been published on the Company's
website. Committee membership is detailed on pages 46 and 47. Please refer to
page 54 for the report on the work of the Audit Committee.
Nomination Committee
The Chair of the Board acts as Chair to the Nomination Committee which met
once during the year ended 31 August 2023. The function of the Committee is to
consider and make recommendations to the Board on its composition and balance,
including identifying and nominating new Directors to the Board and proposing
that existing Directors be re-elected.
Before considering new appointments, the Nomination Committee evaluates the
balance of skills, experience, independence, and knowledge of the Board, and,
in light of this evaluation, prepares a description of the roles and
capabilities required for particular appointments. Directors' independence and
diversity of the Board (including gender and ethnicity) is also considered.
Newly appointed Directors are then assessed using the aforementioned criteria.
On those occasions when the Committee is reviewing the Chair, or considering a
successor, the Nomination Committee is chaired by the Senior Independent
Director or, in his absence, another Committee Member and the Chair abstains
from discussions in this regard.
Management Engagement Committee
The Chair of the Board acts as Chair to the Management Engagement Committee
which met once during the year ended 31 August 2023 and intends to meet
annually in the future to review matters relating to the performance of the
Company's third party service providers, including the Fund Manager, and to
review the terms of their contractual arrangements with the Company, ensuring
their continued competitiveness for shareholders.
ACCOUNTABILITY AND AUDIT
The Management Report and Directors' Responsibilities Statement in respect of
the Financial Statements are on page 57 and a statement of going concern is
set out in the Directors' Report on page 42. The Independent Auditors' Report
can be found on pages 59 to 67 and the Audit Committee Report on pages 54 to
57.
INTERNAL CONTROL
The AIC Code requires the Board to conduct at least annually a review of the
adequacy of the Company's systems of internal control and report to
shareholders that it has done so. The Board has reviewed a detailed Risk Map
identifying significant strategic, investment-related, operational and tax,
legal and regulatory risks and emerging risks. It has adopted a monitoring
system to ensure that risk management and all aspects of internal control are
considered on a regular basis, and fully reviewed at least annually. The Board
is satisfied that these tools permit it to review the effectiveness of the
Company's internal controls and on that basis confirms that it has reviewed
the effectiveness of the Company's risk management and internal control
systems for the year under review, taking into account all matters leading up
to the date of the approval of the Financial Statements.
The Board believes that the key risks identified and the implementation of an
ongoing system to identify, evaluate and manage these risks are relevant to
the Company's business as an investment trust. The ongoing risk assessment,
which has been in place throughout the financial year and up to the date of
this Report, includes consideration of the scope and quality of the systems of
internal control. This includes ensuring regular communication of the results
of monitoring by third parties to the Board, the incidence of significant
control failings or weaknesses that have been identified at any time and the
extent to which they have resulted in unforeseen outcomes or contingencies
that may have a material impact on the Company's performance or condition.
There were no significant control failings or weaknesses identified during the
course of the year and up to the date of this Report.
Although the Board believes that it has robust systems of internal control in
place this can provide only reasonable and not absolute assurance against
material financial misstatement or loss and is designed to manage, not
eliminate, risk. The Company does not have an internal audit function or a
whistleblowing policy as it employs no staff and delegates to third parties
most of its operations. By the procedures set out above, the Board will
continue to monitor its system of internal control in accordance with the
FRC's Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting and will continue to take steps to embed the system of
internal control and risk management into the operations of the Company. In
doing so, the Audit Committee will review at least annually whether a function
equivalent to an internal audit is needed. During the course of its review of
the systems of internal control, the Board has not identified nor has it been
advised of any findings or weakness which it has determined to be significant.
Certain information is required to be included in the Annual Financial Report
by Listing Rule 9.8.4. The necessary details are included in the Report, and
if not shown, the requirement is not applicable to the Company.
DIRECTORS' DUTIES
The Board believes that it has acted in the way that they consider in good
faith would be most likely to promote the success of the Company for the
benefit of its Members (having regard to the matters set out in Section
172(1)(a)-(f) of the Act) in the principal decisions taken by the Board during
the year. The Section 172 Statement on pages 34 to 36 of the Strategic Review
sets out further details on how the Directors had regard to its stakeholders
in its principal decisions during the year.
On behalf of the Board
INTERNATIONAL BIOTECHNOLOGY TRUST PLC
KATE CORNISH-BOWDEN | Chair
6 November 2023
REPORT ON DIRECTORS' REMUNERATION
INTRODUCTION
This Report is submitted in accordance with Sections 420 to 422 of the Act and
it also meets the relevant Listing Rules of the FCA and describes how the
Board has applied the principles relating to Directors' remuneration.
The Company's Auditor is required to report on certain information contained
within this Report. Where information set out below has been audited, it is
indicated as such. The Auditors' opinion is included within the Independent
Auditors' Report on pages 59 to 67.
DIRECTORS' REMUNERATION POLICY
The determination of the Directors' fees is a matter dealt with by the Board.
As all the directors are independent Non-executive, a separate remuneration
committee has not been established.
The Company's Articles of Association limit the aggregate fees payable to
Directors to £250,000 per annum. Subject to this limit, it is the Company's
policy to determine the level of Directors' fees having regard to the level of
fees payable to non-executive directors in the industry, the role that
individual Directors fulfil in respect of Board and Committee responsibilities
and time committed to the Company's affairs in order to promote the long-term
success of the Company. Fees payable to Directors should be sufficient to
motivate and retain candidates of a high calibre to deliver the Company's
investment objectives. No element of the Directors' remuneration is
performance-related.
The Board considers any comments received from shareholders on the
remuneration policy on an ongoing basis and if appropriate, takes these into
consideration when reviewing remuneration.
All Directors have a Letter of Appointment with the Company. The Letters of
Appointment are available for inspection at the Company's registered office
during normal business hours and at the location of the AGM for at least 15
minutes prior to and during the meeting. Directors do not have service
contracts with the Company and no compensation is payable to Directors on
leaving office. It is the intention of the Board that this policy will
continue to apply in the forthcoming and subsequent financial years.
All Directors are appointed for an initial term covering the period from the
date of their appointment until the first AGM, thereafter they are required to
retire by rotation at least every three years in accordance with the Company's
Articles of Association. The Board recognises corporate governance best
practice is for all Directors to be submitted for annual re-election.
Accordingly, all Directors stand for re-election annually.
Following the performance evaluation carried out each year, the Board
considers whether it is appropriate for each Director to seek re-election.
When recommending whether an individual Director should seek re-election, the
Board will take into account the ongoing recommendations of the AIC Code,
including the need to refresh the Board and its Committees.
The component parts of the Directors' Remuneration are set out in the table
below:
Component parts of the Directors' remuneration
*2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
£ £ £ £ £ £ £ £ £ £ £
Chair's base fee 44,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 41,000 41,000 41,000
Non-executive Director base fee 30,000 28,000 28,000 28,000 28,000 28,000 28,000 28,000 27,000 27,000 27,000
Additional fee for the Chair of the Audit Committee 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500
Additional fee for the Senior Independent Director 2,000 2,000 2,000 2,000 2,000 2,000 2,000 - - - -
*Effective 1 March 2023.
1. The Company's policy is for the Chair of the Board, the Chair of the Audit
Committee and the Senior Independent Director to be paid higher fees to
reflect their more onerous roles.
2. Directors' fees are paid up to the date of termination of their
appointment, with no exit payments or compensation for loss of office payments
applicable.
3. As the Company has no employees, there are no comparisons to be made
between this Directors' Remuneration Policy and a policy on the remuneration
of employees.
4. Directors' are entitled to claim expenses in respect of duties undertaken
in connection with the management of the Company.
5. Fees are paid quarterly in arrears.
6. Fees are reviewed on an annual basis.
7. The Company retains the flexibility to pay additional one off fees to
Directors should they be required to undertake additional work in order to
deliver time consuming projects in the shareholders' interests.
ANNUAL REPORT ON DIRECTORS' REMUNERATION
This Report sets out how the Directors' Remuneration Policy was implemented
during the year ended 31 August 2023. Directors' fees were last reviewed by
the Board in April 2023 and was examined alongside the Directors' Remuneration
Policy.
During the year under review, the Directors approved an annual fee increase of
£2,000 each, with effect from 1 March 2023. Previous changes to Directors'
remuneration were made in 2016 and 2017 when the additional fee for the Senior
Independent Director was introduced with effect from 1 September 2017. The
amounts, set out in the following table, were paid by the Company to the
Directors for services in respect of the year ended 31 August 2023 and the
previous financial year.
Single total figure of the remuneration for each Director (audited)
The Directors who served during the year under review received the following
emoluments:
TOTAL FEES* Remuneration for Qualifying Services
Year ended Year ended
31 August 2023 31 August 2022
Directors £ £
Kate Cornish-Bowden (Chair) 40,221 29,077
Caroline Gulliver 33,500 32,500
Patrick Magee† 30,482 28,000
Patrick Maxwell# 29,000 18,667
Gillian Elcock# 17,271 -
Jim Horsburgh 11,295 42,500
Véronique Bouchet - 10,000
Total 161,769 160,744
There were no taxable benefits claimed during the years ended 31 August 2023
and 31 August 2022.
*No aspect of the Directors' remuneration, past or present, is
performance-related in light of the Directors' Non-executive status. As a
result, no Director is entitled to any bonuses, benefit in kind, share
options, long-term incentives, pension or other retirement benefit. The
Directors are entitled to reimbursement of all reasonable and properly
documented expenses incurred in performing their duties.
Kate Cornish-Bowden was appointed as Non-executive Director on 19 May 2020 and
replaced Véronique Bouchet as Senior Independent Director on 8 December 2021
and replaced Jim Horsburgh as Chair on 6 December 2022.
†Patrick Magee joined the Board as Non-executive Director on 19 May 2020 and
replaced Kate Cornish-Bowden as Senior Independent Director on 6 December
2022.
#Patrick Maxwell was appointed as a Non-executive Director with effect from 1
January 2022 and Gillian Elcock was appointed as a Non-executive Director with
effect from 1 February 2023.
John Aston and Véronique Bouchet retired from the Board on 15 December 2020
and 8 December 2021, respectively. Jim Horsburgh served as Chairman from 15
December 2020 and retired from the Board on 6 December 2022.
Annual Percentage Change in Directors' Remuneration
The table below sets out the annual percentage change in the Directors' fees
for the past four financial years:
2019-2020 2020-2021 2021-2022 2022-2023
Directors % change % change % change % change
Kate Cornish-Bowden (Chair) N/A 255 4 38
Caroline Gulliver - - - 3
Patrick Magee† N/A 255 - 9
Patrick Maxwell# N/A N/A N/A 55
Gillian Elcock# N/A N/A N/A N/A
Jim Horsburgh - 41 7 (73)
Véronique Bouchet - - (67) N/A
John Aston - (76) N/A N/A
*No aspect of the Directors' remuneration, past or present, is
performance-related in light of the Directors' Non-executive status. As a
result, no Director is entitled to any bonuses, benefit in kind, share
options, long-term incentives, pension or other retirement benefit. The
Directors are entitled to reimbursement of all reasonable and properly
documented expenses incurred in performing their duties.
Kate Cornish-Bowden was appointed as Non-executive Director on 19 May 2020 and
replaced Véronique Bouchet as Senior Independent Director on 8 December 2021
and replaced Jim Horsburgh as Chair on 6 December 2022.
†Patrick Magee joined the Board as Non-executive Director on 19 May 2020 and
replaced Kate Cornish-Bowden as Senior Independent Director on 6 December
2022.
#Patrick Maxwell was appointed as a Non-executive Director with effect from 1
January 2022 and Gillian Elcock was appointed as a Non-executive Director with
effect from 1 February 2023.
John Aston and Véronique Bouchet retired from the Board on 15 December 2020
and 8 December 2021, respectively. Jim Horsburgh served as Chairman from 15
December 2020 and retired from the Board on 6 December 2022.
Consideration of Matters Relating to Directors' Remuneration
In accordance with the Companies Act 2006, the Company is required to seek
shareholder approval for its remuneration policy on a triennial basis. The
Remuneration Policy was last approved by shareholders at the 2020 annual
general meeting and accordingly, a resolution to approve the policy will be
put to shareholders at this year's annual general meeting. There have been no
changes to the provisions of the last approved policy. It is the intention of
the Board that the following policy on remuneration, will continue to apply
for the next three financial years to 31 August 2026, subject to shareholder
approval at the annual general meeting held on 12 December 2023.
Expenditure by the Company on Directors' remuneration compared with
distributions to shareholders
The graph and table below compare the remuneration paid to Directors and
distributions to shareholders by way of share buybacks and dividends for the
past five years. As a result of a lower NAV dividends paid to shareholders
during the year decreased, compared to the level paid in 2022.
RELATIVE COST OF DIRECTORS' REMUNERATION
Source: International Biotechnology Trust plc.
Year ended Year ended
31 August 2023 31 August 2022
£'000 £'000
Aggregate spend on Directors' fees * 162 161
Distributions to shareholders - dividends 11,407 12,879
- share buybacks 9,978 3,534
21,385 16,413
*As the Company has no employees the total spend on remuneration comprises
solely Directors' fees.
Directors' shareholdings (audited)
Ordinary shares of 25p each Ordinary shares of 25p each
Directors as at 31 August 2023 as at 31 August 2022
Kate Cornish-Bowden 12,500 11,000
Caroline Gulliver 9,500 9,500
Jim Horsburgh* - 30,000
Patrick Magee 11,500 10,000
Professor Patrick Maxwell 3,725 3,725
Gillian Elcock - -
*Retired at AGM held on 6 December 2022.
All shares are held beneficially. No Director has any material interest in any
contract that is significant to the Company's business.
Neither the Company's Articles of Association nor the Directors' Letters of
Appointment require any Director to own shares in the Company.
PERFORMANCE GRAPH
The performance graph below charts the cumulative share price total return to
shareholders since 31 August 2013 compared to that of the NBI. The data has
been rebased to 100 at 31 August 2013 (the start of the period covered by the
graph).
STATEMENT OF IMPLEMENTATION OF DIRECTORS' REMUNERATION POLICY
The Board does not envisage that there will be any significant changes to the
implementation of the Directors' Remuneration Policy during the current
financial year compared to how it was implemented during the year ended 31
August 2023.
SHARE PRICE/NBI TOTAL RETURN (%)
Source: Bloomberg. Data rebased to 100 at 31 August 2013.
ANNUAL STATEMENT
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulation 2013, I, as Chair of the Board, confirm that the above Directors'
Remuneration Annual Report summarises, as applicable, for the year ended 31
August 2023:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration made during
the year; and
(c) the context in which those changes occurred and decisions taken.
SHAREHOLDER APPROVAL
Shareholders will be asked to approve the Annual Report on Directors'
Remuneration annually by an advisory vote and an ordinary resolution to
approve the Report will be put to shareholders at the forthcoming AGM. In
addition, shareholders will be asked to approve the Directors' Remuneration
Policy, which is subject to a binding shareholder vote, on a three-yearly
basis. Any changes to this policy would also require shareholder approval. The
Directors' Remuneration Policy was last approved at the AGM held on 15
December 2020 and accordingly, an ordinary resolution will be put to
shareholders at the annual general meeting held on 12 December 2023.
At the AGM held on 15 December 2020, votes cast (including the votes cast at
the Chair's discretion) in respect of the Directors' Remuneration Policy were
10,102,858 (95.91%) in favour, 430,305 (4.09%) against and 32,132 votes
withheld.
At the AGM held on 6 December 2022, votes cast (including the votes cast at
the Chair's discretion) in respect of the Annual Report on Directors'
Remuneration were 13,467,767 (99.71%) in favour, 39,498 (0.29%) against and
16,904 votes withheld.
RECOMMENDATION
The Board considers the resolutions to be proposed at the forthcoming AGM in
the best interests of the Company and shareholders as a whole. Accordingly,
the Directors unanimously recommend to shareholders that they vote in favour
of the resolution, as they intend to do so in respect of their own beneficial
holdings.
On behalf of the Board
KATE CORNISH-BOWDEN | Chair
6 November 2023
AUDIT COMMITTEE REPORT
COMPOSITION AND MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee is chaired by Caroline Gulliver. Given the size of the
Board, it is considered both proportionate and practical for all Directors,
including the Chair of the Company (who was independent on appointment), to be
members. All members of the Committee are independent and have competence
relevant to the sector as a result of their current or recent employment in
financial services and other industries. As the Chair of the Committee,
Caroline Gulliver has relevant and recent financial experience in financial
services as a Chartered Accountant with a background in the provision of audit
and advisory services to the asset management industry, with a particular
focus on investment trusts. All the Committee members have extensive
experience working in financial services. The biographies of each of the
Committee Members are shown on pages 38 to 39.
The Audit Committee met three times during the year ended 31 August 2023 and
reported its findings to the Board on the matters described below after each
Meeting. The Company's Auditor is invited to attend meetings as necessary as
well as representatives of the Fund Manager.
THE ROLE OF THE COMMITTEE
The Audit Committee operates under written terms of reference which are
reviewed annually and are available on the Company's website. The process in
respect of the evaluation of the Audit Committee's performance is disclosed on
pages 46 and 47.
The Audit Committee provides a forum through which the Company's external
Auditor reports to the Board. The main responsibilities of the Audit Committee
include:
• Monitoring the integrity of the Company's Annual and Half Yearly Reports
and appropriateness of its accounting policies.
• Reviewing the internal control systems and the risks to which the Company
is exposed.
• Making recommendations to the Board on whether the Company's Annual
Report, when taken as a whole, is fair, balanced and understandable and
provides shareholders with the information they need to assess the Company's
business model, strategy, position and performance.
• Making recommendations to the Board regarding the appointment of the
external Auditor, its independence and the objectivity and effectiveness of
the audit process.
• Monitoring any non-audit services being provided to the Company by its
external Auditor.
• Consideration of the need for the Company to have its own Internal Audit
function.
EFFECTIVENESS OF THE EXTERNAL AUDIT PROCESS AND AUDITOR INDEPENDENCE
The Audit Committee annually reviews the performance of PricewaterhouseCoopers
LLP, the Company's external Auditor and discusses its effectiveness with
representatives of the Fund Manager, who work closely with the Auditor during
the annual audit process. As part of this review, the Audit Committee takes
into consideration the qualifications, expertise and resources, and
independence of the external Auditor and the effectiveness of the external
audit process, which includes a report from the external Auditor on its own
internal quality procedures. The FRCs Audit Quality Inspection Report on the
audits carried out by PricewaterhouseCoopers LLP was also considered by the
Audit Committee. The Auditor attends the Audit Committee meeting at which the
Annual Report is considered in order to present its report and have the
opportunity to meet privately with the Audit Committee members without
representatives of the Fund Manager present.
Details of the amounts paid to the external auditor during the financial year
under review, for audit services, are set out in note 5 to the Financial
Statements on page 78. The Audit Committee annually monitors the non-audit
services provided to the Company and has developed a formal policy to ensure
that such services do not impair the independence or objectivity of the
Auditors. No non-audit services were provided during the year under review.
Following its review, the Audit Committee remains satisfied with the
effectiveness of the audit provided and that the Auditor remains independent.
AUDITOR APPOINTMENT AND TENURE
The Company must also comply with UK Competition and Market Authority rules,
which require the external audit contract to be put out to tender at least
every 10 years, with the proviso that no single firm may serve as the
Company's external auditor for a period exceeding 20 years.
PricewaterhouseCoopers LLP was initially appointed in 2007 and accordingly,
the Company conducted a tender of audit services in 2016 in respect of the
ongoing audits. Following recommendation by the Audit Committee, the Board
decided to retain PricewaterhouseCoopers LLP as Auditor for the Company.
Following a review of the Auditors' performance, as described above, the Audit
Committee recommends the re-appointment of the Auditor at the forthcoming AGM.
The Auditor is required to rotate the audit partner every five years and this
is the third year for which Colleen Local has served as audit partner.
SIGNIFICANT ISSUES CONSIDERED WITH RESPECT TO THE ANNUAL REPORT
Issue considered How the issue was addressed
Valuation and existence of quoted and unquoted investments and gains and Consideration and review of valuation processes and methodology at SV Health
losses from those investments Managers LLP and the Northern Trust Company to establish the existence of and
the accuracy and completeness over the valuations being recommended for
approval to the Board.
Performance fee Review of the accuracy of the calculation and completeness of disclosure.
Continuation vote The Company's Articles of Association provide for the Directors to put forward
a proposal for the continuation of the Company at the AGM at two yearly
intervals. Accordingly, a continuation vote will be put to shareholders a the
AGM in 2023.
After making enquiries of the Company's broker pursuant to their recent
discussions with a number of the Company's shareholders, the Audit Committee
is of the view that the Continuation vote will be passed at the forthcoming
AGM. The Audit Committee is of the opinion that the going concern basis
adopted in the preparation of the financial statements is appropriate.
INTERNAL AUDIT
The Audit Committee has considered the requirement for the Company to have an
internal audit function pursuant to provisions 25 and 26 of the UK Code. It
was deemed unnecessary for the Company to have its own internal audit function
due to:
• The Board delegates its main functions to third-party service providers,
who have their own internal audit functions and established internal controls
frameworks which provide reasonable assurance on the effectiveness of the
internal controls operated on behalf of their clients.
• The Fund Manager reports on compliance within the terms of its delegated
authority under the Investment Management Agreement on a quarterly basis.
• The Company Secretary also reports any breaches of law and regulation as
and when they arose.
• In the last two financial years, when reviewing the system of internal
controls, the Audit Committee had not identified nor been advised of any
failings or weaknesses which it had determined to be significant.
CONCLUSIONS WITH RESPECT TO THE ANNUAL REPORT
The production and the external audit of the Company's Annual Report is an
intricate process, involving a number of parties. The Audit Committee has
reviewed the internal controls in place at each of the third party service
providers in order to gain comfort over the accuracy of the Company's
financial records. Having received the Auditors' Report on the results of the
annual audit and having taken all available information into consideration and
having discussed the content of the Annual Report with the AIFM, Fund Manager,
Company Secretary and other third party service providers, the Audit Committee
has concluded that the Annual Report for the year ended 31 August 2023, taken
as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and performance,
business model and strategy and has reported these findings to the Board. The
Board's conclusions in this respect are set out on page 57. The Board was made
fully aware of any significant financial reporting issues and judgements made
in connection with the preparation of the Financial Statements.
CAROLINE GULLIVER | Chair of the Audit Committee
6 November 2023
MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITIES STATEMENT
MANAGEMENT REPORT
Listed companies are required by the FCA's Disclosure Guidance and
Transparency Rules (the Rules) to include a management report in their
Financial Statements. The information required to be included in the
management report for the purposes of the Rules is included in the Strategic
Report on pages 27 to 37 inclusive (together with the sections of the Annual
Report incorporated by reference) and the Directors' Report on pages 40 to 48.
Therefore, a separate management report has not been included.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors have prepared the Financial
Statements in accordance with UK adopted international accounting standards
("IFRS").
Under company law, Directors must not approve the Financial Statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period. In
preparing the Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable UK adopted international accounting standards
have been followed, subject to any material departures disclosed and explained
in the Financial Statements;
• make judgements and accounting estimates that are reasonable and prudent;
and
• prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the Financial Statements and the
Directors' Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of Financial Statements may differ from legislation in other
jurisdictions.
DIRECTORS' CONFIRMATIONS
Having taken advice from the Audit Committee the Directors consider that the
Annual Report and Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Directors'
Report confirm that, to the best of their knowledge:
• the Company Financial Statements, which have been prepared in accordance
with UK adopted international accounting standards, give a true and fair view
of the assets, liabilities, financial position and result of the Company; and
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
The Annual Report is published on www.ibtplc.com which is currently maintained
by SV Health Managers LLP. The maintenance and integrity of the website is, so
far as it relates to the Company, the responsibility of SV Health Managers
LLP. The work carried out by the Auditors does not involve consideration of
the maintenance and integrity of this website and accordingly, the Auditors
accepts no responsibility for any changes that have occurred to the Annual
Report since it was initially presented on the website. Visitors to the
website need to be aware that legislation in the UK governing the preparation
and dissemination of the Annual Report may differ from legislation in their
home jurisdiction.
This Statement of Directors' Responsibilities was approved by the Board and
signed on its behalf by:
KATE CORNISH-BOWDEN | Chair
6 November 2023
INDEPENDENT AUDITORS' REPORT
to the members of International Biotechnology Trust plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion, International Biotechnology Trust plc's financial statements:
• give a true and fair view of the state of the Company's affairs as at 31
August 2023 and of its profit and cash flows for the year then ended;
• have been properly prepared in accordance with UK-adopted international
accounting standards; and
• have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements, included within the Annual Report,
which comprise: the Balance Sheet as at 31 August 2023; the Statement of
Comprehensive Income, the Statement of Changes in Equity, and the Cash Flow
Statement for the year then ended; and the notes to the financial statements,
which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK)
are further described in the Auditors' responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remained independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC's Ethical Standard, as applicable to listed public
interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services
prohibited by the FRC's Ethical Standard were not provided.
We have provided no non-audit services to the Company in the period under
audit.
OUR AUDIT APPROACH
Context
The Company is a standalone Investment Trust Company and engages SV Health
Managers LLP (the Fund Manager) to manage its assets.
Overview
Audit scope
• We conducted our audit of the financial statements using information from
Northern Trust (the Administrator) with whom the Directors have engaged to
provide certain administrative functions.
• We tailored the scope of our audit taking into account the types of
investments held by the Company, the involvement of the third parties referred
to above, the accounting processes and controls, and the industry in which the
Company operates.
• We obtained an understanding of the control environment in place at both
the Fund Manager and the Administrator, and adopted a fully substantive
testing approach using reports obtained from the Fund Manager and
Administrator.
Key Audit Matters
• Valuation and existence of unquoted investments
• Valuation and existence of quoted investments
• Income from and gains on investments
• Ability to continue as a going concern - Continuation Vote
Materiality
• Overall materiality: £2,703,000 (2022: £2,800,000) based on
approximately 1% of net assets.
• Performance materiality: £2,027,000 (2022: £2,100,000).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors' professional
judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Ability to continue as a going concern - Continuation Vote is a new key audit
matter this year. Otherwise, the key audit matters below are consistent with
last year.
Key audit matter How our audit addressed the key audit matter
Valuation and existence of unquoted investments
Refer to Note 1 - Accounting Policies and Note 10 - Investments held at fair We have understood and evaluated the valuation methodology applied, by
value through profit or loss of the financial statements. reference to the International Private Equity and Venture Capital Valuation
guidelines (IPEV) and tested the techniques used by the Directors in
The investment portfolio at 31 August 2023 included unquoted investments. We determining the fair value of unquoted investments, as outlined below.
focused on the valuation and existence of the unquoted investments as these
investments represented a material balance in the financial statements and the Our testing, performed on a sample basis, included:
valuation requires significant estimates and judgements to be applied by the
Directors and the Fund Manager. - assessing the appropriateness of the valuation models used;
- testing the inputs either through validation to appropriate third party
sources, or where relevant, assessing the reasonableness of estimates and
judgements used;
- obtaining the latest Net Asset Value reports and where relevant tested
distributions from and contributions to unquoted fund investments; and
- assess the ongoing impact of geopolitical events on the valuation of
unquoted investments.
We found that the Directors' valuations of unquoted investments were
materially consistent with the IPEV guidelines and that the assumptions used
to derive the valuations within the financial statements were reasonable based
on the investee's circumstances or consistent with appropriate third party
sources. No material misstatements were identified from this testing.
We tested the existence of the unquoted investment portfolio by agreeing
holdings to an independently obtained confirmation from the custodian,
Northern Trust, as at 31 August 2023. No material misstatements were
identified from this testing.
Valuation and existence of quoted investments
Refer to Note 1 - Accounting Policies and Note 10 - Investments held at fair We tested the valuation of the quoted equity investments by agreeing the
value through profit and loss of the financial statements. prices used in the valuation to independent third party sources.
The investment portfolio at the year-end comprised quoted equity investments. We tested the existence of the quoted investment portfolio by agreeing the
We focused on the valuation and existence of quoted investments because quoted holdings of quoted investments to an independently obtained confirmation from
investments represent the principal element of the net asset value as the custodian, Northern Trust, as at 31 August 2023.
disclosed on the Balance Sheet.
No material misstatements were identified from this testing.
Income from and gains on investments
Refer to Note 1- Accounting Policies, Note 2 - Gains on investments held at We assessed and found that the accounting policies implemented were in
fair value and Note 3 - Income of the financial statements. accordance with IFRS and the AIC SORP, and that income (revenue and capital
gains and losses on investments) has been accounted for in accordance with the
We focused on the accuracy, occurrence and completeness of both net capital stated accounting policy.
gains/losses on investments and dividend income. We assessed the presentation
of income in the Statement of Comprehensive Income in accordance with the We understood and assessed the design and implementation of key controls
requirements of The Association of Investment Companies' Statement of surrounding income recognition.
Recommended Practice (the "AIC SORP").
Capital gains/losses on investments held at fair value
The gains/losses on investments held at fair value comprise realised and
unrealised gains/losses. For unrealised gains and losses, we have tested the
valuation of the portfolio at the year-end, together with testing the
reconciliation of opening and closing investments, thereby we have assessed
the accuracy of the gains/losses recorded. We have also verified the
occurrence of the gains/losses through our testing of the existence of
investments, as noted above.
For realised gains/losses, we tested a sample of disposal proceeds by agreeing
the proceeds to bank statements, in order to verify the occurrence of the
gain/loss. We re-performed the calculation of a sample of realised
gains/losses in order to assess the accuracy of the gains/losses recorded.
Income from investments held at fair value through profit or loss
We tested the accuracy of all dividend receipts by agreeing the dividend rates
for investments to independent market data.
To test for completeness, we tested a sample of dividends that had been
received in the year by reference to independent data of dividends declared
for investments during the year.
We tested occurrence by testing that all dividends recorded in the year had
been declared in the market by investment holdings, and we traced all of the
dividends received to bank statements.
We tested the allocation and presentation of dividend income between the
revenue and capital return columns of the Income Statement in line with the
requirements set out in the AIC SORP by determining reasons behind dividend
distributions.
Based on the audit procedures performed and evidence obtained, we concluded
that income from and gains on investments was not materially misstated.
Ability to continue as a going concern - Continuation Vote
Refer to Viability Statement in the Strategic Review, the Going Concern Our audit procedures and findings in respect of going concern are set out in
section in the Directors' Report and the Audit Committee Report. the "Conclusions relating to Going Concern' section below.
A continuation vote is due to take place at the next Annual General Meeting in
2023, which, if passed, will allow the Company to continue as an investment
trust for a further two years. As such, the Directors have considered and
assessed the potential impact on the ability of the Company to continue as a
going concern.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to
be able to give an opinion on the financial statements as a whole, taking into
account the structure of the Company, the accounting processes and controls,
and the industry in which it operates.
The Company is a standalone authorised, closed ended investment Company that
has outsourced the management and safekeeping of its assets to the Fund
Manager and the Custodian respectively. The Company's accounting is delegated
to the Administrator who maintains the Company's accounting records and has
implemented controls over those accounting records. We applied professional
judgement to determine the extent of testing required over each balance in the
financial statements and obtained our audit evidence which was substantive in
nature from the Fund Manager and the Administrator.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the extent
of the potential impact of climate risk on the Company's financial statements,
and we remained alert when performing our audit procedures for any indicators
of the impact of climate risk. Our procedures did not identify any material
impact as a result of climate risk on the Company's financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We
set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Overall Company materiality £2,703,000 (2022: £2,800,000).
How we determined it Approximately 1% of net assets
Rationale for benchmark applied We believe that net assets is the primary measure used by the shareholders in
assessing the performance of the entity, and is a generally accepted auditing
benchmark. This benchmark provides an appropriate and consistent year on year
basis for our audit.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to £2,027,000 (2022: £2,100,000) for the
Company financial statements.
In determining the performance materiality, we considered a number of factors
- the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above £135,000 (2022: £140,000) as well as
misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the Directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting included:
• evaluating the Directors' updated risk assessment and considering whether
it addressed relevant threats, including market volatility cause by
geopolitical events and wider macroeconomic uncertainty;
• obtaining evidence to support the key assumptions and forecasts driving
the Directors' assessment. This included reviewing the Directors' assessment
of the Company's financial position and forecasts, their assessment of
liquidity and loan covenant compliance as well as their review of the
operational resilience of the Company and oversight of key third party service
providers;
• assessing the performance of the Company when compared to its stated
performance comparator;
• assessing the premium/discount the Company's share price trades at
compared to its net asset value per share; and
• challenging the Directors' assessment of going concern in relation to the
passing of the continuation vote and obtaining audit evidence which supports
their conclusion.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
However, because not all future events or conditions can be predicted, this
conclusion is not a guarantee as to the Company's ability to continue as a
going concern.
In relation to the Directors' reporting on how they have applied the UK
Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the Directors' statement in the financial statements about
whether the Directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report
other than the financial statements and our auditors' report thereon. The
Directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there
is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic report and Directors' Report, we also considered
whether the disclosures required by the UK Companies Act 2006 have been
included.
Based on our work undertaken in the course of the audit, the Companies Act
2006 requires us also to report certain opinions and matters as described
below.
Strategic report and Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Strategic report and Directors' Report for the year
ended 31 August 2023 is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Company and its environment
obtained in the course of the audit, we did not identify any material
misstatements in the Strategic report and Directors' Report.
Directors' Remuneration
In our opinion, the part of the Report on Directors' Remuneration to be
audited has been properly prepared in accordance with the Companies Act 2006.
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the Directors' statements in relation
to going concern, longer-term viability and that part of the corporate
governance statement relating to the Company's compliance with the provisions
of the UK Corporate Governance Code specified for our review. Our additional
responsibilities with respect to the corporate governance statement as other
information are described in the Reporting on other information section of
this report.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the corporate governance statement is materially
consistent with the financial statements and our knowledge obtained during the
audit, and we have nothing material to add or draw attention to in relation
to:
• The Directors' confirmation that they have carried out a robust assessment
of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks,
what procedures are in place to identify emerging risks and an explanation of
how these are being managed or mitigated;
• The Directors' statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them, and their identification of any material uncertainties to the
Company's ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements;
• The Directors' explanation as to their assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate; and
• The Directors' statement as to whether they have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any
related disclosures drawing attention to any necessary qualifications or
assumptions.
Our review of the Directors' statement regarding the longer-term viability of
the Company was substantially less in scope than an audit and only consisted
of making inquiries and considering the Directors' process supporting their
statement; checking that the statement is in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and
understanding of the Company and its environment obtained in the course of the
audit.
In addition, based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our
knowledge obtained during the audit:
• The Directors' statement that they consider the Annual Report, taken as a
whole, is fair, balanced and understandable, and provides the information
necessary for the members to assess the Company's position, performance,
business model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit
Committee.
We have nothing to report in respect of our responsibility to report when the
Directors' statement relating to the Company's compliance with the Code does
not properly disclose a departure from a relevant provision of the Code
specified under the Listing Rules for review by the auditors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors' responsibilities in
respect of the Financial Statements, the Directors are responsible for the
preparation of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair view. The
Directors are also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the Company and industry, we identified that the
principal risks of non-compliance with laws and regulations related to
breaches of section 1158 of the Corporation Tax Act 2010, and we considered
the extent to which non-compliance might have a material effect on the
financial statements. We also considered those laws and regulations that have
a direct impact on the financial statements such as the Companies Act 2006. We
evaluated management's incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of
controls), and determined that the principal risks were related to posting
inappropriate journal entries to increase revenue (investment income and
capital gains) or to increase net asset value and management bias in
accounting estimates. Audit procedures performed by the engagement team
included:
• enquiries with Fund Manager and the Audit Committee, including
consideration of known or suspected instances of non-compliance with laws and
regulation and fraud where applicable;
• reviewing relevant committee meeting minutes, including those of the Board
and Audit Committee;
• assessment of the Company's compliance with the requirements of section
1158 of the Corporation Tax Act 2010, including recalculation of numerical
aspects of the eligibility conditions;
• challenging assumptions and judgements made by management in their
significant accounting estimates, in particular in relation to the valuation
of unquoted investments (see related key audit matter);
• identifying and testing journal entries, in particular a sample of manual
year end journal entries posted during the preparation of the financial
statements; and
• designing audit procedures to incorporate unpredictability around the
nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described above. We are
less likely to become aware of instances of non-compliance with laws and
regulations that are not closely related to events and transactions reflected
in the financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However,
it typically involves selecting a limited number of items for testing, rather
than testing complete populations. We will often seek to target particular
items for testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion about the
population from which the sample is selected.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditors' report.
Use of this report
This report, including the opinions, has been prepared for and only for the
Company's members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
• we have not obtained all the information and explanations we require for
our audit; or
• adequate accounting records have not been kept by the Company, or returns
adequate for our audit have not been received from branches not visited by us;
or
• certain disclosures of Directors' remuneration specified by law are not
made; or
• the financial statements and the part of the Report on Directors'
Remuneration to be audited are not in agreement with the accounting records
and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the
Directors on 12 July 2007 to audit the financial statements for the year ended
31 August 2007 and subsequent financial periods. The period of total
uninterrupted engagement is 17 years, covering the years ended 31 August 2007
to 31 August 2023.
Colleen Local (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 November 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 August 2023 For the year ended 31 August 2023 For the year ended 31 August 2023 For the year ended 31 August 2022 For the year ended 31 August 2022 For the year ended 31 August 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value 2 - 9,606 9,606 - (14,696) (14,696)
Exchange gains/(losses) on currency balances - 1,591 1,591 - (4,378) (4,378)
Income 3 863 - 863 1,113 - 1,113
Expenses
Management fee 4 (1,810) - (1,810) (2,009) - (2,009)
Performance fee 4 - (514) (514) - (471) (471)
Administrative expenses 5 (1,559) - (1,559) (1,218) - (1,218)
Profit/(loss) before finance costs and tax (2,506) 10,683 8,177 (2,114) (19,545) (21,659)
Finance costs
Interest payable 6 (1,242) - (1,242) (663) - (663)
Profit/(loss) before tax (3,748) 10,683 6,935 (2,777) (19,545) (22,322)
Taxation 7 (122) - (122) (151) - (151)
Profit/(loss) for the year attributable to shareholders (3,870) 10,683 6,813 (2,928) (19,545) (22,473)
Basic and diluted earnings/(loss) per Ordinary share 8 (9.53)p 26.32p 16.79p (7.13)p (47.59)p (54.72)p
All revenue and capital items in the above statement derive from continuing
operations. The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with IFRSs.
The Company does not have any other comprehensive income and hence the net
loss for the year, as disclosed above, is the same as the Company's total
comprehensive income.
The revenue and capital columns are supplementary and are prepared under
guidance published by the AIC.
The notes on pages 72 to 99 form part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 August 2023
Called up share capital Share premium account Capital redemption reserve Capital reserves Revenue reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 September 2022 10,346 29,873 31,482 259,849 (46,661) 284,889
Total Comprehensive Income:
Profit for the year - - - 10,683 (3,870) 6,813
Transactions with owners, recorded directly to equity:
Dividends paid in the year 9 - - - (11,407) - (11,407)
Ordinary shares bought back into Treasury - - - (9,978) - (9,978)
Balance at 31 August 2023 10,346 29,873 31,482 249,147 (50,531) 270,317
For the year ended 31 August 2023
Called up share capital Share premium account Capital redemption reserve Capital reserves Revenue reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 September 2021 10,346 29,873 31,482 295,807 (43,733) 323,775
Total Comprehensive Income:
Loss for the year - - - (19,545) (2,928) (22,473)
Transactions with owners, recorded directly to equity:
Dividends paid in the year 9 - - - (12,879) - (12,879)
Ordinary shares issued from Treasury - - - (3,534) - (3,534)
Balance at 31 August 2022 10,346 29,873 31,482 259,849 (46,661) 284,889
The notes on pages 72 to 99 form part of these Financial Statements.
BALANCE SHEET
At 31 August 2023 At 31 August 2022
Notes £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 10 301,904 313,429
301,904 313,429
Current assets
Receivables 11 2,967 13,487
2,967 13,487
Total assets 304,871 326,916
Current liabilities
Borrowings 12 (32,474) (39,976)
Payables 13 (2,080) (2,051)
(34,554) (42,027)
Net assets 270,317 284,889
Equity attributable to equity holders
Called up share capital 15 10,346 10,346
Share premium account 16 29,873 29,873
Capital redemption reserve 17 31,482 31,482
Capital reserves 18 249,147 259,849
Revenue reserve 19 (50,531) (46,661)
Total equity 270,317 284,889
NAV per Ordinary share 20 687.51p 697.18p
The Financial Statements on pages 68 to 71 were approved by the Board on 6
November 2023 and signed on its behalf by:
KATE CORNISH-BOWDEN | Chair
CAROLINE GULLIVER | Chair of the Audit Committee
The notes on pages 72 to 99 form part of these Financial Statements.
International Biotechnology Trust plc
Company Number 2892872
CASH FLOW STATEMENT
For the year ended For the year ended
31 August 2023 31 August 2022
Notes £'000 £'000
Cash flows from operating activities
Profit/(loss) before tax 6,935 (22,322)
Adjustments for:
Decrease in investments 21,006 19,009
(Gains)/losses on foreign exchange (1,588) 4,375
Increase in receivables (25) (33)
Increase in payables 1,082 261
Taxation (111) (166)
Net cash flows generated from operating activities 21 27,299 1,124
Cash flows from financing activities
Buyback of Ordinary shares into Treasury (9,978) (3,534)
Dividends paid 9 (11,407) (12,879)
Net cash used in financing activities (21,385) (16,413)
Effect of foreign exchange rates 1,588 (4,375)
Net increase/(decrease) in cash and cash equivalents 7,502 (19,664)
Cash and cash equivalents at 1 September (39,976) (20,312)
Cash and cash equivalents at 31 August 12 (32,474) (39,976)
The notes on pages 72 to 99 form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The nature of the Company's operations and its principal activities are set
out in the Strategic Report and Director's Report.
The Company's Financial Statements have been prepared in accordance with IFRS
and those parts of the Companies Act 2006 (the Act) applicable to companies
reporting under IFRS. These comprise standards and interpretations approved by
the International Accounting Standards Board (IASB) and International
Accounting Standards Committee (IASC), in conformity with the requirements of
the Companies Act 2006.
For the purposes of the Financial Statements, the results and financial
position of the Company are expressed in pounds sterling, which is the
functional currency and the presentational currency of the Company. Sterling
is the functional currency because it is the currency which is most relevant
to the majority of the Company's shareholders and creditors and the currency
in which the majority of the Company's operating expenses are paid. All values
are rounded to the nearest thousand pound (£'000) except where otherwise
indicated.
The principal accounting policies followed, which have been applied
consistently for all years presented, are set out below:
(a) Basis of preparation
The Company Financial Statements have been prepared on a going concern basis
(as set out on page 42) and under the historical cost convention, as modified
by the inclusion of investments at fair value through profit or loss.
Where presentational guidance set out in the Statement of Recommended Practice
(the SORP) for investment trusts issued by The Association of Investment
Companies (the AIC) in November 2014 (and updated in July 2022) is consistent
with the requirements of IFRS, the Directors have sought to prepare the
Financial Statements on a basis compliant with the recommendations of the
SORP.
The financial position of the Company as at 31 August 2023 is shown in the
balance sheet on page 70. As at 31 August 2023 the Company's total assets
exceeded its total liabilities by a multiple of over eight. The assets of the
Company consist mainly of securities that are held in accordance with the
Company's Investment Policy, as set out on page 26. The Directors have
considered a detailed assessment of the Company's ability to meets its
liabilities as they fall due. The assessment took account of the Company's
current financial position, its cash flows and its liquidity position. In
addition to the assessment the Company carried out stress testing, which used
a variety of falling parameters to demonstrate the effects in the Company's
share prices and NAV. In light of the results of these tests, the Company's
cash balances, and the liquidity position, the Directors consider that the
Company has adequate financial resources to enable it to continue in
operational existence. The Directors expect shareholders to vote in favour of
continuation at the 2023 AGM. Accordingly, the Directors believe that it is
appropriate to continue to adopt the going concern basis in preparing the
Company's accounts.
(b) Presentation of Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Statement of Comprehensive
Income.
The net loss after taxation in the revenue column is the measure the Directors
believe appropriate in assessing the Company's compliance with certain
requirements set out in Section 1158 CTA.
(c) Income
Dividends receivable on equity shares are recognised as revenue for the year
on an ex-dividend basis. Special dividends are treated as revenue return or as
capital return, depending on the facts of each individual case. Income from
current asset investments is included in the revenue for the year on an
accruals basis and is recognised on a time apportionment basis. Where the
Company has elected to receive its dividends in the form of additional shares
rather than cash, the amount of cash dividend foregone is recognised as income
in the revenue column of the Statement of Comprehensive Income. Any excess in
the value of shares over the amount of cash dividend foregone is recognised as
a gain in the capital column of the Statement of Comprehensive Income.
Interest from fixed income securities is recognised on a time apportionment
basis so as to reflect the effective yield on the fixed income securities.
Deposit interest outstanding at the year end is calculated and accrued on a
time apportionment basis using market rates of interest.
(d) Expenses and interest payable
Administrative expenses including the management fee and interest payable are
accounted for on an accruals basis and are recognised when they fall due.
All expenses and interest payable have been presented as revenue items except
as follows:
• Any performance fee payable is allocated wholly to capital, as it is
primarily attributable to the capital performance of the Company's assets.
• Transaction costs incurred on the acquisition or disposal of investments
are expensed and included in the costs of acquisition or deducted from the
proceeds of sale as appropriate.
(e) Taxation
Deferred tax is calculated in full, using the liability method, on all taxable
and deductible temporary differences at the Balance Sheet date between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply to the period when the asset is realised
or the liability settled, based on tax rates and tax laws that have been
enacted or substantively enacted at the Balance Sheet date.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profits will be available against which the deductible
temporary differences can be utilised.
In line with recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented in the capital column of the
Statement of Comprehensive Income is the marginal basis. Under this basis, if
taxable income is capable of being offset entirely by expenses presented in
the revenue column of the Statement of Comprehensive Income, then no tax
relief is transferred to the capital column.
(f) Non-current asset investments held at fair value
The Company holds three types of investments: direct investments in quoted
companies, direct investments in unquoted companies and investments in funds.
Investments are recognised or derecognised on the trade date where a purchase
or sale of an investment is under a contract whose terms require delivery of
the investment within the timeframe established by the market concerned.
On initial recognition all non-current asset investments are designated as
held at fair value through profit or loss as defined by IFRS. They are further
categorised into the following fair value hierarchy:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
• Level 2: Having inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
• Level 3: Having inputs for the asset or liability that are not based on observable
market data.
All non-current investments (including those over which the Company has
significant influence) are measured at fair value with gains and losses
arising from changes in their fair value being included in net profit or loss
for the year as a capital item.
Any gains and losses realised on disposal are recognised in the capital column
of the Statement of Comprehensive Income.
Quoted investments
The fair value for quoted investments is either the bid price or the last
traded price, depending on the convention of the exchange on which the
investment is quoted.
Unquoted Investments
In respect of unquoted investments, or where the market for a financial
instrument is not active, fair value is established by using various valuation
techniques, in accordance with the International Private Equity and Venture
Capital (IPEVC) Valuation Guidelines (December 2018) and Special Valuations
Guidance (March 2020). These may include reference to recent rounds of
re-financing undertaken by investee companies involving knowledgeable parties,
an earnings or multiple, a discounted cashflow model or the present value of
future milestone payments, all with reference to recent arm's length market
transactions between knowledgeable parties, where available.
The valuations of the unquoted investments are assessed to ensure that the
fair value is fairly reflected and will be revalued accordingly driven by the
underlying assumptions deriving the value, including: the ability of portfolio
company management to keep cash and operating budgets; investor milestone
targets; clinical trial data; progress of competitor products; performance of
the investment and quality of the management team; the market for the product
being developed; and the broad climate of the economies of the countries in
which they will likely be sold by reference to public stock market
performance.
Investment in Funds
The Company receives formal quarterly reports from each of the private equity
funds in which SV Fund VI and SV BCOF (SV unquoted funds) hold an investment.
The value of SV unquoted funds' investment in these funds is reported in these
quarterly reports. The reports typically arrive within 60 days of the end of
the quarter (90 days at calendar year end). As soon as a quarterly report is
received by the Company, the reported value of the SV unquoted funds'
investment in that fund is reflected in the NAV on the next NAV date.
During the period between quarterly reports, the Company may be advised of a
sale of a portfolio company (or its securities) held within one of the funds
at a different price from the last reported value in that quarterly report. As
soon as the Company is informed of the completion of any such transaction
establishing a new value for the investment, the new NAV of that investment to
SV unquoted funds is reflected in the NAV on the next NAV date. With respect
to any investments within SV unquoted funds for which there is a listed price,
the Company revalues its investment in SV unquoted funds to take account of
market movements in the underlying security. The listed price of these
underlying securities is monitored on a daily basis. Any price move in SV
unquoted funds' underlying investments that materially impacts the Company's
holding in SV unquoted funds is immediately reflected in the NAV on the next
NAV date. If there are no material movements, these underlying securities are
revalued on a monthly basis and immediately reflected in the NAV on the next
NAV date.
The value of a fund investment used by the Company in determining the NAV is
always based on the most current information known to the Company on the NAV
date.
(g) Foreign currencies
Transactions involving currencies other than sterling are recorded at the
exchange rate ruling on the transaction date.
At each Balance Sheet date, monetary items and non-monetary assets and
liabilities that are fair valued, which are denominated in foreign currencies,
are retranslated at the closing rates of exchange. Foreign currency exchange
differences arising on translation are recognised in the Statement of
Comprehensive Income. Exchange gains and losses on investments held at fair
value through profit or loss are included within "Gains/(losses) on
investments held at fair value".
(h) Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with IFRS requires the
use of estimates and judgements. These estimates and judgements affect the
reported amounts of assets and liabilities at the reporting date. While
estimates are based on best judgement using information and financial data
available, the actual outcome may differ from these estimates. The key sources
of estimation and uncertainty relate to the fair valuation of the unquoted
investments.
Judgements
The Directors consider that the preparation of the Financial Statements
involves the following key judgements:
(i) The fair value of the unquoted investments.
The key judgements in the fair valuation process are:
(i) The Investment Managers' determination of the appropriate
application of the IPEVC Valuation Guidelines (December 2018) and Special
Valuations Guidance (March 2020) to each unquoted investment;
(ii) The Directors' consideration of whether each fair value
is appropriate following detailed review and challenge. The judgement applied
in the selection of the methodology used for determining the fair value of
each unquoted investment can have a significant impact upon the valuation; and
(iii) The selection of appropriate comparable companies in order
to derive revenue multiples and meaningful relationships between enterprise
value, revenue and earnings growth. Comparable companies are chosen on the
basis of their business characteristics, such as the industry sector in which
they operate and the geographic location of the company's operations, and
revenue earnings and growth rates.
Estimates
The key estimate in the Financial Statements is the determination of the fair
value of the unquoted investments by the Fund Manager for consideration by the
Directors. This estimate is key as it significantly impacts the valuation of
the unquoted investments at the Balance Sheet date. The fair valuation process
involves estimation using subjective inputs that are unobservable (for which
market data is unavailable).
The main estimates involved in the selection of the valuation process inputs
are:
(i) The application of an appropriate discount factor to
reflect macro-economic factors and the reduced liquidity of unquoted
companies;
(ii) The selection of an appropriate estimate of the
probability of royalty income reflecting potential commercial uptake risk,
competitor risk and uncertainty around drug pricing; and
(iii) The calculation of valuation adjustments derived from
milestone achievement analysis incorporating the likelihood of clinical trial
success.
Fair value estimates are cross-checked to alternative estimation methods where
possible to improve the robustness of the estimate. As the valuation outcomes
may differ from the fair value estimates a price sensitivity analysis is
provided in Level 3 investments at fair value through profit and loss - price
risk sensitivity in note 23.7(iii) on page 96 to illustrate the effect on the
Financial Statements of an over or under estimation of the significant
observable inputs.
(i) Cash and cash equivalents
In the Cash Flow Statement, cash and cash equivalents includes cash in hand,
short-term deposits and bank overdrafts. These are held for the purpose of
meeting short-term cash commitments rather than for investment or other
purpose and cash balances are held at their fair value (translated to sterling
at the Balance Sheet date where appropriate).
(j) Receivables
Other receivables do not carry any right to interest and are short term in
nature. Accordingly, they are stated at their nominal value (amortised cost)
reduced by appropriate allowances for estimated irrecoverable amounts.
(k) Other payables
Other payables are not interest-bearing and are stated at their nominal amount
(amortised cost). Where there are any long-term borrowings, finance costs are
calculated over the term of the debt on the effective interest basis.
(l) Repurchase of Ordinary shares (including those held in Treasury) and
subsequent re-issues
The costs of repurchasing Ordinary shares including related stamp duty and
transaction costs are taken directly to equity and reported through the
Statement of Changes in Equity as a charge on the capital reserves.
The sales proceeds of Treasury shares re-issued are treated as a realised
profit up to the amount of the purchase price of those shares and is
transferred to capital reserves. The excess of the sales proceeds over the
purchase price is transferred to the share premium account.
Share purchase transactions are accounted for on a trade date basis. The
nominal value of Ordinary share capital repurchased and cancelled is
transferred out of called up share capital and into the capital redemption
reserve. Where shares are repurchased and held in Treasury, the transfer to
capital redemption reserve is made if and when such shares are subsequently
cancelled.
(m) Dividend distributions
Dividend distributions to shareholders are recognised in the period in which
they are paid.
(n) Reserves
(i) Capital redemption reserve:
The capital redemption reserve, which is non-distributable, holds the amount
by which the nominal value of the Company's issued share capital is diminished
when shares redeemed or purchased out of the Company's distributable reserves
are subsequently cancelled.
(ii) Share premium account:
A non-distributable reserve, represents the amount by which the fair value of
the consideration received exceeds the nominal value of shares issued.
(iii) Capital reserves:
When making a distribution to shareholders, the Directors determine profits
available for distribution by reference to 'Guidance on realised and
distributable profits under the Companies Act 2006' issued by the Institute of
Chartered accountants in England and Wales and the Institute of Chartered
Accounts of Scotland in April 2017. The availability of distributable reserves
in the Company is dependent on those dividends meeting the definition of
qualifying consideration within the guidance and on available cash resources
of the company and other accessible source of funds. The distributable
reserves are therefore subject to any future restrictions or limitations at
the time such distribution is made.
The following are accounted for in this reserve and are distributable:
• Gains and losses on the realisation of investments;
• Unrealised investment holding gains and losses;
• Foreign exchange gains and losses;
• Performance fee;
• Re-issue of Ordinary shares from Treasury;
• Repurchase of Ordinary shares in issue; and
• Dividends paid to shareholders.
Note: Unrealised unquoted holding gains are not distributable.
(iv) Revenue reserve:
Comprises accumulated undistributed revenue profits and losses.
(o) New and revised Accounting Standards
(i) The following standards became effective for periods commencing on or
after on 1 January 2022 and the adoption of the standards and interpretations
have not had a material impact on the Financial Statements of the Company.
IFRS 3 - Reference to the conceptual framework
Minor amendments were made to IFRS 3 business combinations to update the
references to the conceptual framework for financial reporting and to add an
exception for the recognition of liabilities and contingent liabilities within
the scope of IAS 37 provisions, contingent liabilities and contingent assets
and interpretation 21 levies. The amendments also confirm that contingent
assets should not be recognised at the acquisition date.
IAS 37 Onerous Contracts - Costs of Fulfilling a Contract (amended)
Amendments to clarify that the direct costs of fulfilling a contract include
both the incremental costs of fulfilling the contract and an allocation of
other costs directly related to fulfilling contracts. Before recognising a
separate provision for an onerous contract, the entity recognises any
impairment loss that has occurred on assets used in fulfilling the contract.
(ii) Annual improvements to IFRS Standards 2018-2022
The following improvements were finalised in May 2020:
IFRS 9 Financial Instruments - clarifies which fees should be included in the
10% test for derecognition of financial liabilities.
IFRS 16 Leases - amendment of illustrative example 13 to remove the
illustration of payments from the lessor relating to leasehold improvements,
to remove any confusion about the treatment of lease incentives.
IFRS 1 First-time adoption of International Financial Reporting Standards -
allows entities that have measured their assets and liabilities at carrying
amounts recorded in amounts reported by the parent. This amendment will also
apply to associated and joint ventures that have taken the same IFRS 1
exemption.
(iii) IFRS IC agenda decisions issued in the last 12 months
As at December 2022, the following agenda decisions were issued that may be
relevant for the preparation of annual reports in 2022. The date issued refers
to the date of the relevant IFRIC update.
IFRS 9: Third programme of targeted longer-term refinancing operations (TLTRO
III) Transactions (issued February 2022).
IAS 7: Demand deposits with restrictions on use arising from a contract with a
third party (issued March 2022).
IAS 32: Special purpose acquisition companies (SPAC): Classification of public
shares as financial liabilities (issued June 2022).
IFRS 17 and IAS 21: Multi-currency groups of insurance contracts (issued
September 2022).
Special purpose acquisition companies (SPAC): Accounting for warrants at
acquisition (issued September 2022).
IFRS 9 and IFRS 16: Lessor forgiveness of lease payments (issued September
2022).
(iv) The following standards that have not yet been applied, were in issue at
the date of authorisation of these financial statements and are effective for
periods commencing on or after 1 January 2023:
IAS 1 Classification of Liabilities as Current or Non-Current (amended)
Amendments to clarify that liabilities are classified as either current or
non-current, depending on the rights that exist at the end of the reporting
period. Classification is unaffected by the expectations of the entity or
events after the reporting date (e.g. the receipt of a waver or a breach of
covenant). The amendments also clarify what IAS 1 means when it refers to the
'settlement' of a liability.
IAS 8 Definition of Accounting Estimates (amended)
Amendments to clarify the distinction between changes in accounting estimates
and changes in accounting policies and the correction of errors. Also, to
clarify how companies use measurement techniques and inputs to develop
accounting estimates.
IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies
(amended)
Amendments to require entities to disclose their material rather than their
significant accounting policies. The amendments define what is 'material
accounting policy information' and explain how to identify when accounting
policy information is material. They further clarify that immaterial
accounting policy information does not need to be disclosed. If it is
disclosed, it should not obscure material accounting information.
The Company does not believe that there will be a material impact on the
financial statements or the amounts reported from the adoption of these
standards.
2. GAINS/(LOSSES) ON INVESTMENTS HELD AT FAIR VALUE
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Net gains on disposal of investments at historic cost 13,719 24,495
Fair value adjustments in earlier years 35,163 (3,465)
Gains based on carrying value at previous Balance Sheet date 48,882 21,030
Investment holding losses during the year (39,276) (35,726)
9,606 (14,696)
Gains/(losses) attributable to:
Quoted investments 7,743 (16,726)
Unquoted investments 1,863 2,030
9,606 (14,696)
3. INCOME
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Income from investments held at fair value through profit or loss:
Unfranked dividends 22 1,113
Franked dividends 818 -
840 1,113
Other income:
Bank interest 23 -
863 1,113
4. MANAGEMENT AND PERFORMANCE FEES
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Fees payable to the Fund Manager are as follows:
Management fees paid by Company (allocated to revenue) 1,810 2,009
Performance fee (allocated to capital) 514 471
Details of the management and performance fee arrangements are included in the
Directors' Report on page 41.
Following the investment into the SV Fund VI and SV BCOF (SV unquoted funds),
management fees are partially paid through the venture capital investments.
Venture Capital fees paid through the investment in SV unquoted funds in the
year were £791,000 (2022: £623,000). Total Management fees on a comparative
basis were £2,601,000 (2022: £2,632,000). Refer to note 22 Related Party
Transactions on page 86, for further details.
5. ADMINISTRATIVE EXPENSES
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
General expenses 1,086 743
Directors' fees* 162 161
Company Secretarial and administration fees 235 249
Auditors' remuneration:
Fees payable to the Company's Auditor for the audit
of the annual Financial Statements 76 65
1,559 1,218
* See the Directors' Remuneration Report on pages 49 to 52.
6. INTEREST PAYABLE
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Loan interest payable 1,242 663
7. TAXATION
(a) Analysis of charge in year
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Overseas tax 122 151
Total tax charge for the year 122 151
(b) Factors affecting tax charge for the year
The tax assessed for the year is lower than that resulting from applying the
standard rate of Corporation Tax applicable in the UK for a medium or large
company of 21.5% (2022: 19%). The differences are explained below:
For the year ended 31 August 2023 For the year ended 31 August 2023 For the year ended 31 August 2023 For the year ended 31 August 2022 For the year ended 31 August 2022 For the year ended 31 August 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Factors affecting tax charge for the year:
Profit/(loss) before taxation (3,748) 10,683 6,935 (2,777) (19,545) (22,322)
Tax at the applicable UK corporation tax rate of 21.5% (2022:19%) (806) 2,297 1,491 (528) (3,714) (4,242)
Tax effect of:
Non-taxable dividend income (186) - (186) (211) - (211)
Tax exempt capital returns on investments - (2,065) (2,065) - 2,792 2,792
Non taxable exchange (gains)/losses - (342) (342) - 832 832
Non taxable expenses not utillised in the year 992 110 1,102 739 90 829
Overseas tax 122 - 122 151 - 151
Total tax charge for the year 122 - 122 151 - 151
(c) Provision for deferred taxation
No provision for deferred tax has been made in the current or prior year.
(d) Factors that may affect future tax charges
The Company has a potential deferred tax asset of £18,937,000 (2022:
£18,746,000) based on a main rate of corporation tax of 25% (2022: 19%).
Starting 1 April 2023, corporation tax increased from 19% to 25%.
The deferred tax asset has arisen due to the cumulative excess of deductible
expenses over taxable income. Given the composition of the Company's
portfolio, it is not likely that this asset will be utilised in the
foreseeable future and therefore no asset has been recognised in the Financial
Statements.
Given the Company's status as an investment trust company, no provision has
been made for deferred tax on any capital gains or losses arising on the
revaluation or disposal of investments.
8. BASIC AND DILUTED EARNINGS/(LOSS) PER ORDINARY SHARE
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Net revenue loss (3,870) (2,928)
Net capital profit/(loss) 10,683 (19,545)
Earnings/(losses) 6,813 (22,473)
Weighted average number of Ordinary shares in issue during the year* 40,583,458 41,072,164
Pence Pence
Revenue loss per Ordinary share (9.53) (7.13)
Capital profit/(loss) per Ordinary share 26.32 (47.59)
Total earnings/(losses) per Ordinary share 16.79 (54.72)
*Excluding those Ordinary shares held in Treasury.
9. DIVIDENDS
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Dividends paid
2023 First interim dividend paid of 14.00p (2022: 15.70p) 5,707 6,464
2023 Second interim dividend paid of 14.20p (2022: 15.70p) 5,700 6,415
Total dividends paid in the year 11,407 12,879
Dividends are included in the Financial Statements in the year in which they
are paid.
The Company is not required to pay a dividend under the requirements of
Section 1158 of the CTA due to the negative accumulated balance on its revenue
reserve. The above dividends are paid out of the capital reserve.
10. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
(a) Analysis of investments
At 31 August 2023 At 31 August 2022
£'000 £'000
Quoted overseas 276,642 285,471
276,642 285,471
Unquoted in the United Kingdom 5,630 3,752
Unquoted overseas 19,632 24,206
25,262 27,958
Valuation of investments 301,904 313,429
(b) Movements on investments
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Opening book cost 318,702 311,419
Opening investment holdings (losses)/gains (5,273) 33,917
Opening fair value 313,429 345,336
Analysis of transactions made during the year
Purchases at cost 335,996 396,544
Proceeds of disposals (357,127) (413,755)
Gains/(losses) on investments held at fair value 9,606 (14,696)
Closing fair value 301,904 313,429
Closing book cost 311,290 318,702
Closing investment holding losses (9,386) (5,273)
Closing fair value 301,904 313,429
The Company received £357,127,000 (2022: £413,755,000) from disposal of
investments in the year. The book cost of these investments when they were
purchased were £343,408,000 (2022: £389,261,000). These investments have
been revalued over time and until they were sold any unrealised gains/losses
were included in the fair value of the investments.
The investment holding losses of £9,386,000 (2022: losses of £5,273,000)
have not been further analysed between those amounts that are distributable
and those that are not distributable.
The following transaction costs, including stamp duty and broker commissions
were incurred during the year:
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
On acquisitions 104 224
On disposals 112 220
216 444
(c) Significant undertakings
The Company has interests of 3% or more of any class of capital in the
following investee companies:
Class of share held % of class of share held Country of incorporation
Archemix Series B 3.80% US
Karus Therapeutics Series B Pref 3.25% UK
Oxagen Stocks* Series B Pref 25.89% UK
Oxagen Stocks* Series A Pref 11.55% UK
Oxagen Stocks* Series C Pref 11.60% UK
Topivert* Series A 12.01% UK
Topivert* Series B 19.65% UK
*This investment is currently in liquidation and the fair value of the holding
has been fully written off.
The Company has a holding of 12.0% in the unquoted fund SV BCOF which is
managed by the Fund Manager, and a holding of 7.8% in the unquoted fund SV
Fund VI which is managed by SV Health Investors LLC. The total invested in
both Funds to date is $41.1m.
Arrangements are in place to ensure there is no double charging of management
fees.
(d) Disposals of unquoted investments
There were no significant unquoted investment disposals during the year (2022:
Proceeds of £3.5m received for the full disposal of the Company's holding in
NCP Holdings).
(e) Significant changes in fair values of unquoted investments
During the year under review the following unquoted investments were written
up/(down) by a significant extent (adjusted for currency movements):
Write up/(down)
£'000
SV Fund VI* (4,761)
SV BCOF* 1,788
*The movement in Fair Value (FV) was a combination of distributions from the
above funds of £9,983,000, capital contributions of £5,738,000, the
weakening of the dollar £1,775,000, and FV gains of £3,047,000.
11. RECEIVABLES
At 31 August 2023 At 31 August 2022
£'000 £'000
Amounts due within one year:
Sales awaiting settlement 2,717 13,251
Accrued income 2 90
Prepaid expenses 35 68
Tax recoverable 46 57
VAT recoverable 167 21
2,967 13,487
12. CASH AND CASH EQUIVALENTS AND BORROWINGS
Cash and cash equivalents and borrowings include the following for the
purposes of the Statement of Cash Flows:
At 31 August 2023 At 31 August 2022
£'000 £'000
Cash and cash equivalents - -
Bank overdraft (32,474) (39,976)
Cash and cash equivalents (32,474) (39,976)
The Company has a £55.0m unsecured multi-currency overdraft facility. The
facility is structured as a part committed, part uncommitted such that 40% of
the facility is made available on a committed basis. All cash balances are
netted off against the drawn facility to result in a net drawn overdraft
balance as this is a multi-currency overdraft facility.
On 31 August 2023, £32.5m (2022: £40m) was drawn down. The principal
covenants relating to this facility are as follows:
• the borrowing base to consist of 20 or more individual eligible
investments; and
• the net asset value per share of the Company must not fall by 15% over a
rolling one month period, 25% over a rolling three month period or 35% over a
rolling six month period.
The Company has complied with the terms of the facility throughout the
financial year.
13. PAYABLES
At 31 August 2023 At 31 August 2022
£'000 £'000
Amounts falling due within one year:
Purchases awaiting settlement 143 1,196
Accrued expenses 1,190 855
Other 747 -
2,080 2,051
14. CAPITAL COMMITMENTS - CONTINGENT ASSETS AND LIABILITIES
The Company made a $30.0m commitment to SV Fund VI in 2016. Of this $30.0m
commitment, the Company has further commitments of $4.1m as at 31 August 2023.
The outstanding capital commitments are callable by SV Fund VI at any time.
While the fund will no longer make new investments, additional follow on
investments are likely to be made by the fund into its investee companies. The
Company made a further commitment of $5.0m to SV BCOF in 2023 bringing the
total commitment to $30.0m. Of this commitment, the Company has further
commitments of $22.8m (including recallable distributions).
15. CALLED UP SHARE CAPITAL
Allotted, Called up and Fully paid:
At 31 August 2023 At 31 August 2022 At 31 August 2023 At 31 August 2022
Number Number £'000 £'000
Allotted, Called up and Fully paid shares of 25p each:
Ordinary shares in issue 39,318,183 40,863,009 9,830 10,216
Ordinary shares held in Treasury 2,065,634 520,808 516 130
41,383,817 41,383,817 10,346 10,346
During the year, there were 1,544,826 Ordinary shares repurchased into
Treasury for total cost of £9,978,000 (2022: £3,534,000).
There were no new Ordinary shares issued (2022: nil) and no Ordinary shares
issued from Treasury (2022: nil). No Ordinary Shares were cancelled (2022:
nil).
Post year-end as at 3 November 2023, 279,576 shares were repurchased to be
held in Treasury.
The Ordinary shares held in Treasury have no voting rights and are not
entitled to dividends.
16. SHARE PREMIUM ACCOUNT
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Balance brought forward 29,873 29,873
Balance carried forward 29,873 29,873
This reserve is not distributable.
17. CAPITAL REDEMPTION RESERVE
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Balance brought forward 31,482 31,482
Balance carried forward 31,482 31,482
Movement during the year - -
This reserve is not distributable.
18. CAPITAL RESERVES
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Balance brought forward 259,849 295,807
Gains/(losses) on investments 9,606 (14,696)
Cost of Ordinary shares bought back into Treasury (9,978) (3,534)
Performance fee (514) (471)
Dividend paid out of capital (11,407) (12,879)
Realised exchange gains/(losses) on currency balances 1,591 (4,378)
Balance carried forward 249,147 259,849
This reserve is distributable in accordance with accounting policy n(iii).
19. REVENUE RESERVE
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Balance brought forward (46,661) (43,733)
Net loss for the year (3,870) (2,928)
Balance carried forward (50,531) (46,661)
The revenue reserve may be distributed or used to repurchase the Company's
shares (subject to being a positive balance). A negative revenue reserve will
reduce any distributable reserves available in the capital reserve.
20. NET ASSET VALUE PER ORDINARY SHARE
The calculation of the NAV per Ordinary share is based on the following:
For the year ended For the year ended
31 August 2023 31 August 2022
NAV (£'000) 270,317 284,889
Number of Ordinary shares in issue 39,318,183 40,863,009
Basic NAV per Ordinary share (pence) 687.51 697.18
The decrease in the NAV per share from 697.18p (31 August 2022) to 687.51p (31
August 2023) includes the total gain per share during the year, and the effect
on the Company of any issue of Ordinary shares, share buybacks and dividend
payments.
21. NOTES TO THE CASH FLOW STATEMENT
Cash and cash equivalents comprise cash at bank, short-term deposits and bank
overdrafts.
Included within the cash flows from operating activities are the cash flows
associated with the purchases and sales of investments.
Cash flow from operating activities can therefore be further analysed as
follows:
For the year ended For the year ended
31 August 2023 31 August 2022
£'000 £'000
Proceeds on disposal of fair value through profit and loss investments 367,661 401,258
Purchases of fair value through profit and loss investments (337,049) (396,945)
Net cash inflow from investments 30,612 4,313
Cash flows from other operating activities (3,313) (3,189)
Net cash flows used in operating activities 27,299 1,124
22. TRANSACTIONS WITH THE FUND MANAGER AND RELATED PARTY TRANSACTIONS
(a) Transactions with the Fund Manager
Details of the management fee arrangement are given in the Directors' Report
on page 41. The total fee payable under this Agreement to SV Health Managers
LLP for the year ended 31 August 2023 was £2,601,000 (2022: £2,632,000) of
which £122,000 (2022: £nil) was outstanding at the year end. In addition to
this, SV Health Managers LLP is also entitled to a performance fee of
£514,000 on the quoted and unquoted portfolio (2022: £471,000 on the quoted
portfolio). Through the Company's investments into SV Fund VI and SV BCOF,
management fees of £791,000 (2022: £623,000) are paid to SV Health Managers
LLP.
SV Health Managers LLP will often take seats on boards of companies in which
the Company holds an unquoted investment. These positions help to monitor the
investee companies and in many cases add to the strength and depth of
management. They sometimes provide an economic benefit to the individual who
takes the position - often in the form of a Director's fee or share awards.
The Fund Manager has agreed with the Board a set of guidelines on how any
economic interest will be divided between the Company and the Fund Manager.
The Board is informed of both the position held and any economic benefits as
they arise and a summary of all the positions, benefits and allocations is
presented for review biannually at Board meetings. During the year ended 31
August 2023 £nil (2022: £nil) was received.
On 13 February 2023 the investment management agreement ("IMA") between the
Company and SV Health Managers LLP was amended to be clarified for
circumstances where SV Health Managers LLP gives notice to terminate the IMA.
Under this amendment SV Health Managers LLP will be entitled to the annual
performance fee calculated until the termination date of the IMA (capped at 2%
of NAV) and any deferred performance fees (capped at 4% of NAV) subject to a
cap on the aggregate amount payable on termination of 4.99% of NAV.
In connection with the transition to Schroders, subsequent to the year end, a
tripartite agreement has been signed between the Company, Schroder Unit Trusts
Limited and SV Health Managers LLP which details SV's role with regard to the
Unquoted Portfolio, and includes a termination fee of £289,439.
(b) Related party transactions
The Directors of the Company are key management personnel. The total
remuneration payable to Directors in respect of the year ended 31 August 2023
was £162,000 (2022: £161,000) of which £nil (2022: £nil) was outstanding
at the year end.
23. FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company's financial assets and liabilities, in addition to short-term
debtors and creditors and cash, comprise financial instruments which include
investments in equity.
The holding of securities, investment activities and associated financing
undertaken pursuant to the investment policy involve certain inherent risks.
Events may occur that would result in either a reduction in the Company's net
assets or a reduction of the total return.
The main risks arising from the Company's pursuit of its investment objective
are those that affect stock market levels: market risk, credit risk and
liquidity risk. In addition, there are specific risks inherent in investing in
the biotechnology sector. The Board reviews and agrees policies for managing
these risks, as summarised below. These policies have remained substantially
unchanged throughout the current and preceding year. In assessing any changes
to these risks, the Board considered changes in the economic and geopolitical
climate, including the resurgence of the conflict in the Middle East; the
continuing war in Ukraine and the increasingly tense relations between the US
and China, and noted that it did not have a significant impact on the risk
management policies for the year ended 31 August 2023.
23.1 Market risk
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises three elements - price risk, currency risk and interest rate risk.
The Fund Manager assesses the exposure to market risk when making each
investment decision, and monitors the overall level of market risk on the
whole of the investment portfolio on an ongoing basis.
(a) Price risk
The Company is an investment company and as such its performance is dependent
on the valuation of its investments. A breakdown of the investment portfolio
is given on pages 22 to 25. Market price risk arises mainly from uncertainty
about future prices of the financial instruments held.
Management of the risk
The Board regularly considers the asset allocation of the portfolio as part of
the process of managing the risks associated with the biotechnology sector,
described in greater detail in the section on sector specific risk, (note
23.4), whilst continuing to follow the investment objective. It is not the
Company's current policy to use derivative instruments to hedge the investment
portfolio against market price risk.
Price risk exposure
At the year end, the Company's assets exposed to market price risk were as
follows:
At 31 August 2023 At 31 August 2022
£'000 £'000
Non-current asset investments at fair value through profit or loss 301,904 313,429
Total 301,904 313,429
The level of assets exposed to market price risk decreased by 3.7% (2022:
9.2%) during the year, through a combination of acquisitions and disposal of
investments and changes in fair values.
Concentration of exposure to price risk
The Company currently holds investments in 76 companies (excluding those
valued at £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 investments into SV Fund VI and SV BCOF as two unquoted holdings.
However, SV Fund VI and SV BOCF have 18 and 6 companies, respectively, in
their own portfolios. The classification of investments by sector is provided
within the Fund Facts.
Price risk sensitivity
The following table illustrates the sensitivity of the profit for the year and
the equity to an increase or decrease of 10% (2022: 10%) in the fair values of
the Company's investments. The Board believe that a 10% (2022: 10%) movement
is sufficient to provide a reasonable range that could have affected the
investment valuations at the year end. This level of change is considered to
be reasonably possible based on observation of current market conditions. The
sensitivity analysis is based on the Company's investments at each Balance
Sheet date, with all other variables held constant.
At 31 August 2023 At 31 August 2023 At 31 August 2022 At 31 August 2022
Increase in fair value Decrease in fair value Increase in fair value Decrease in fair value
£'000 £'000 £'000 £'000
Effect on revenue return (272) 272 (282) 282
Effect on capital return 30,190 (30,190) 31,343 (31,343)
Effect on total return and net assets 29,918 (29,918) 31,061 (31,061)
(b) Currency risk
The Financial Statements of the Company are denominated in sterling. However,
the majority of the Company's assets and the total return are denominated in
US dollars, accordingly the total return and capital value of the Company's
investments can be significantly affected by movements in foreign exchange
rates. It is not the Company's policy to hedge against foreign currency
movement.
Management of the risk
The Fund Manager monitors the Company's exposure to foreign currencies on a
daily basis, and reports to the Board on a regular basis.
Foreign currency exposure
The fair values of the Company's monetary items that have foreign currency
exposure at 31 August 2023 are shown below. Where the Company's equity
investments (which are not monetary items) are priced in a foreign currency,
they have been included separately in the analysis so as to show the overall
level of exposure.
At 31 August 2023 At 31 August 2022
£'000 £'000
Monetary (liabilities)/assets
Cash and cash equivalents:
US dollars (32,084) (39,771)
Danish krone - -
Euros - -
Short-term receivables:
US dollars 2,756 13,378
Danish krone 13 20
Short-term payables:
US dollars (143) (1,196)
Foreign currency exposure on net monetary items (29,458) (27,569)
Non-current asset investments held at fair value
US dollars 293,614 309,128
Danish krone - -
Euros 7,405 2,517
Swedish krona 454 1,443
Total net foreign currency exposure 272,015 285,519
At the year end, approximately 100.6% (2022: 99.8%) of the Company's net
assets were denominated in currencies other than sterling. This level of
exposure is broadly representative of the levels throughout the year.
Foreign currency sensitivity
The Company measures foreign currency sensitivity by calculating the standard
deviation of rates throughout the financial year. On this basis sterling
strengthened by 0.63% against the US dollar, by 0.36% against the Euro, by
0.36% against the Danish krone, by 0.75% against the Swiss franc and by 0.44%
against Swedish krona (2022: strengthened 0.45%, 0.34%, 0.34%, 0.39% and 0.49%
respectively). Given the movements over the last two years, a change of 10% or
even more is possible.
The following table illustrates the sensitivity of the profit after taxation
for the year and the equity in regard to the Company's financial assets and
financial liabilities, assuming a 10% (2022: 10%) change in exchange rates.
If sterling had weakened by 10% against the exposure currencies, with all
other variables held constant, this would have affected Company net assets and
net profit for the year attributable to equity shareholders as follows:
At 31 August 2023 At 31 August 2022
£'000 £'000
US dollars 26,414 28,154
Euros 741 252
Danish krone 1 2
Swedish krona 45 144
27,201 28,552
If sterling had strengthened by 10% against the exposure currencies, with all
other variables held constant, this would have affected Company net assets and
net profit for the year attributable to equity shareholders as follows:
At 31 August 2023 At 31 August 2022
£'000 £'000
US dollars (26,414) (28,154)
Euros (741) (252)
Danish krone (1) (2)
Swedish krona (45) (144)
(27,201) (28,552)
In the opinion of the Directors, the above sensitivity analyses are not
necessarily representative of the year as a whole, since the level of exposure
changes as part of the currency risk management process used to meet the
Company's objectives.
(c) Interest rate risk
The Company will be affected by interest rate changes as it holds
interest-bearing financial assets and liabilities. Interest rate changes will
also have an impact on the valuation of investments, although this forms part
of price risk, which is considered separately above.
Management of the risk
Interest rate risk is limited by the Company's financial structure with
operations mainly financed through share capital, share premium and retained
reserves. The majority of the Company's financial assets are, under normal
circumstances, equity shares and other investments which neither pay interest
nor have a stated maturity date. Liquidity and overdraft facilities are
managed with the aim of increasing returns for shareholders.
In the normal course of business, the Company's policy is to be fully invested
and, other than as arising from the timing of investment transactions, the
cash holding is kept to a minimum.
At the year end, £32.5m (2022: £40m) was drawn down under the Company's
committed overdraft facility.
It is not the Company's policy to use derivative instruments to mitigate
interest rate risk, as the Board believes that the effectiveness of such
instruments does not justify the costs involved.
Interest rate exposure
The exposure, at 31 August 2023, of financial assets and liabilities to
interest rate risk is shown by reference to:
• Floating interest rates (i.e. giving cash flow interest rate risk) - when
the rate is due to be re-set; and
• Fixed interest rates (i.e. giving fair value interest rate risk) - when
the financial instrument is due for repayment.
For the year ended 31 August 2023 For the year ended 31 August 2023 For the year ended 31 August 2023 For the year ended 31 August 2022 For the year ended 31 August 2022 For the year ended 31 August 2022
Within one year More than one year Total Within one year More than one year Total
£'000 £'000 £'000 £'000 £'000 £'000
Exposure to floating interest rates:
Cash and cash equivalents (32,474) - (32,474) (39,976) - (39,976)
Exposure to fixed interest rates:
Non-current asset investments held at fair value through profit or loss - - - - - -
Total exposure to interest rates (32,474) - (32,474) (39,976) - (39,976)
The above amounts are not necessarily representative of the exposure to
interest rates in the year ahead, as the level of cash or cash like assets
such as money market funds and borrowings varies during the year according to
the performance of the stock market, events within the wider economy and
opportunities within the unquoted market and the Fund Manager's decisions on
the best use of cash or borrowings over the period. During the year under
review the level of financial assets and liabilities exposed to interest rates
fluctuated between £0m and £55m.
Interest rate sensitivity
The following table illustrates the sensitivity of the profit after taxation
for the year and equity to an increase or decrease of 300 (2022: 300) basis
points in interest rates in regard to the Company's monetary financial assets,
which are subject to interest rate risk. This level of change is considered to
be reasonably possible based on observation of current market conditions.
The sensitivity analysis is based on the Company's monetary financial
instruments held at each Balance Sheet date, with all other variables held
constant.
At 31 August 2023 At 31 August 2023 At 31 August 2022 At 31 August 2022
Increase in rate Decrease in rate Increase in rate Decrease in rate
£'000 £'000 £'000 £'000
Effect on revenue return (974) 974 (1,199) 1,199
Effect on capital return - - - -
Effect on total return and net assets (974) 974 (1,199) 1,199
In the opinion of the Directors, the above sensitivity analyses may not be
representative of the year as a whole, since the level of exposure may change.
(d) Loss of investor appetite
Loss of investor appetite risk is the risk that there will be a loss of
investor appetite for investing in the biotech sector as a result of political
conditions, including FDA and FTC policy, or declining interest in IPOs.
Management of the risk
Loss of investor appetite risk is mitigated as the Fund Manager updates the
Board monthly and at each scheduled Board Meeting on issues pertinent to the
portfolio and the biotechnology sector generally, including expected future
drivers.
Loss of investor appetite risk exposure
As an Investment Trust that invests in the biotech sector the Company has a
moderate loss of investor appetite risk exposure.
23.2 Credit risk
Credit risk is the risk of exposure to loss from failure of a counterparty to
deliver securities or cash for acquisitions or disposals of investments.
Additionally, the Company has funds on deposit with banks or in money market
funds. Northern Trust is the Custodian of the Company's assets. The Company's
investments are held in accounts which are segregated from the Custodian's own
trading assets. If the Custodian were to be become insolvent, the Company's
right of ownership is clear and the investments are therefore protected.
However, cash balances deposited with the Custodian may be at risk in this
instance, as the Company would rank alongside other creditors.
Management of the risk
During the year the Company bought and sold investments only through brokers
which had been approved by the Fund Manager as acceptable counterparties. In
addition, limits are set as to the maximum exposure to any individual broker
that may exist at any time. These limits are reviewed regularly.
Cash balances will only be deposited with reputable banks with high quality
credit ratings.
Credit risk exposure
At 31 August 2023 At 31 August 2022
£'000 £'000
Sales awaiting settlement 2,717 13,251
Accrued income 2 90
Cash at bank - -
2,719 13,341
All of the above financial assets are current, their fair values are
considered to be the same as the values shown and the likelihood of a material
credit default is considered to be low.
None of the Company's financial assets are past due or impaired.
23.3 Liquidity risk
Liquidity risk is the possibility of failure of the Company to realise
sufficient assets to meet its financial liabilities.
Management of the risk
Liquidity and cash flow risk are mitigated as the Fund Manager aims to hold
sufficient Company assets in the form of readily realisable securities which
can be sold to meet funding commitments as necessary. In addition, the Company
has an overdraft facility with Northern Trust of £55.0m (2022: £55.0m).
It should be noted, however, that investments in unquoted securities will not
be readily realisable. Furthermore, even where the Company holds an investment
in quoted securities, the Company may be restricted in its ability to trade
that investment either because the investment becomes subject to restrictions
when the company concerned becomes publicly quoted or, at certain times, as a
consequence of the Company being privy to confidential price sensitive
information as a result of the Fund Manager's active involvement in that
company.
Liquidity risk exposure
As an Investment Trust, the Company has limited liquidity risk. In any event,
the Company estimates it could liquidate 56% (2022: 60%) of the portfolio
within five days if required. A summary of the Company's financial liabilities
is provided in note 23.6.
23.4 Sector specific risk
As well as the general risk factors outlined above, investing in the
biotechnology sector carries some particular risks:
(a) the stock prices of publicly quoted biotechnology companies have been
characterised by periods of high volatility;
(b) a significant proportion of the Company's investments will be in companies
whose securities are not publicly traded or freely marketable and may,
therefore, be difficult to realise. In addition, there are inherent
difficulties in valuing unquoted investments and the realisations from sales
of investments could be less than their carrying value;
(c) biotechnology companies typically have a limited product range and those
products may be subject to extensive government regulation. Obtaining
necessary approval for new products can be a lengthy process, which is
expensive and uncertain as to outcome;
(d) technological advances can render existing biotechnology products
obsolete;
(e) intense competition exists in certain product areas in relation to
obtaining and sustaining proprietary technology protection and the complex
nature of the technologies involved can lead to patent disputes;
(f) certain biotechnology companies may be exposed to potential product
liability risks, particularly in relation to the testing, manufacturing and
sales of healthcare products;
(g) biotechnology companies spend a considerable proportion of their resources
on R&D, which may be commercially unproductive or require the injection of
further funds to exploit the results of their work; and
(h) the growing cost of providing healthcare has placed financial strains on
governments, insurers, employers and individuals, all of whom are searching
for ways to reduce costs. As a result, certain areas may be affected by price
controls and reimbursement limitations.
23.5 Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried in the Balance Sheet
at fair value or the Balance Sheet amount is a reasonable approximation of
fair value. The fair value of quoted shares and securities is based on the bid
price or last traded price, depending on the convention of the exchange on
which the investment is quoted.
Unquoted investments are valued in accordance with IPEVC Valuation Guidelines.
The methods commonly used to value unquoted securities are stated in
accounting policy 1(f).
23.6 Summary of financial assets and financial liabilities by category
The carrying amounts of the Company's financial assets and financial
liabilities as recognised at the Balance Sheet date of the reporting periods
under review are categorised as follows:
Financial assets
At 31 August 2023 At 31 August 2022
£'000 £'000
Financial assets at fair value through profit or loss:
Non-current asset investments - designated as such on initial recognition 301,904 313,429
Cash and receivables:
Current assets:
Receivables 2,967 13,487
2,967 13,487
Financial liabilities
At 31 August 2023 At 31 August 2022
£'000 £'000
Measured at amortised cost
Creditors: amounts falling due within one month:
Purchases awaiting settlement 143 1,196
Bank overdraft 32,474 39,976
Accruals 1,190 855
Payables 747 -
34,554 42,027
Note: Amortised cost is the same as the carrying value shown above.
23.7 Classification under the fair value hierarchy
The table below sets out fair value measurements using the IFRS 7 fair value
hierarchy:
(i) Financial assets at fair value through profit or loss
At 31 August 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
At 31 August 2022 Total Level 1 Level 2 Level 3
£'000 £'000 £'000 £'000
Equity investments 313,429 285,471 - 27,958
313,429 285,471 - 27,958
Categorisation within the hierarchy has been determined on the basis of the
lowest level of input that is significant to the fair value measurement of the
relevant asset as follows:
Level 1 - valued using quoted prices in active markets for identical assets.
Level 2 - valued by reference to valuation techniques using observable inputs
other than quoted prices included within Level 1.
Level 3 - valued by reference to valuation techniques using inputs that are
not based on observable market data.
The valuation techniques used by the Company are explained in the accounting
policies noted on page 73.
There have been no transfers during the year between Levels 1, 2 and 3. A
reconciliation of fair value measurements in Level 3 is set out below.
(ii) Level 3 investments at fair value through profit or loss
At 31 August 2023 At 31 August 2022
£'000 £'000
Opening valuation 27,958 30,971
Acquisitions - 1,324
Disposal proceeds (4,665) (7,362)
Total gains included in the Statement of Comprehensive Income
- on assets sold 2,693 6,186
- on assets held at the year end (724) (3,161)
Closing valuation 25,262 27,958
(iii) Level 3 investments at fair value through profit and loss - price risk
sensitivity
Investments are reported at their fair values. A full list of the Company's
investments is given on pages 22 to 25. As at 31 August 2023, 90.7% of the
Company's net assets (including cash and net liabilities) are invested in
quoted investments and 9.3% of the Company's net assets are invested in
unquoted investments.
The fair value of unquoted investments is influenced by the estimates,
assumptions and judgements made in the valuation process. A sensitivity
analysis is provided below which recognises that the valuation methodologies
used involve different levels of subjectivity in their inputs.
Year ended 31 August 2023
Effect of reasonably possible alternative assumptions
Valuation techniques* Fair value Significant unobservable inputs* Favourable impacts Unfavourable impacts
£'000 £'000 £'000
Discounted future cash flows 4,635 Probability estimate of royalty income 471 (471)
Discount rate 203 (191)
Present value of future milestone payments 892 Probability estimate of milestone achievement 32 (29)
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)
Year ended 31 August 2022
Effect of reasonably possible alternative assumptions
Valuation techniques* Fair value Significant unobservable inputs* Favourable impacts Unfavourable impacts
£'000 £'000 £'000
Discounted future cash flows 4,330 Probability estimate of royalty income 444 (404)
Discount rate 225 (210)
Present value of future milestone payments 922 Estimated sustainable earnings 64 (58)
Selection of appropriate price multiple 4 (4)
Calibration price of recent investment 341 Calibration price of recent investment 34 (34)
5,593 770 (710)
Net asset value 88 No significant judgements applied - -
5,681 770 (710)
*Excludes investments in unquoted funds.
Please refer to the accounting policy note 1(f) on pages 73 to 74 for details
on the valuation methodology for SV Fund VI and SV BCOF. As at 31 August 2023,
SV unquoted funds have been valued in accordance with this valuation
methodology. No key estimates or assumptions have been applied to the
valuation of SV Fund VI and SV BCOF between the date of the last quarterly
report received and 31 August 2023.
*Significant unobservable inputs
The significant unobservable inputs applicable to each type of valuation
technique will vary dependent on the particular circumstances of each unquoted
company valuation. An explanation of each of the significant unobservable
inputs is provided below and includes an indication of the range in value for
each input, where relevant. The assumptions made in the production of the
inputs are described in note 1(f) on pages 73 to 74.
Probability estimate of royalty income
The probability estimate of royalty income is a key variable input in the
discounted future cash flow valuation technique and represents the potential
commercial uptake risk, competitor risk and uncertainty around drug pricing.
To factor in the uncertainty surrounding the probability estimate of royalty
income, the input has been stressed by a factor of +/- 10%. Management is
comfortable that the largest differential in the flux of the valuations would
be 10%.
Probability estimate of milestone achievement
The probability estimate of milestone achievement is a key variable input in
the present value of future milestone payments valuation technique and
represents the potential risk that commercial milestones are not achieved in
accordance with the estimated timeline. To factor in the uncertainty
surrounding the probability estimate of milestone achievement, the input has
been stressed by a factor of +/- 10%. Management is comfortable that the
largest differential in the flux of the valuations would be 10%.
Discount rate
The application of a risk adjusted discount rate has been applied to
discounted future cash flow and present value of future milestone payments
valuation techniques. The discount rate takes into account the macro market
risk and the liquidity premium. To factor in the uncertainty surrounding the
discount rate, the input has been stressed by +/- 2%. Management is
comfortable that the largest differential in the flux of the discount rate
would be 2%.
Estimated sustainable earnings
The selection of sustainable revenue or earnings will depend on whether the
company is sustainably profitable or not and the value of the investment's
assets and liabilities on the valuation date. The valuation approach will
typically assess companies based on the last twelve months of revenue or
earnings, as they are the most recent available and therefore viewed as the
most reliable. To factor in the uncertainty surrounding the estimated
sustainable earnings, the fair value of the investment at the reporting date
has been stressed by +/- 20%.
Selection of appropriate price multiple
The selection and relevance of the appropriate multiple is assessed
individually for each investment at the date of valuation. The key criteria
used in selecting appropriate comparable companies on which the multiple is
selected are the industry sector in which they operate, the geographic
location of the company's operations, the respective revenue and earnings
growth rates and the operating margins. Approximately 10 comparable companies
will be selected for each investment, depending on how many relevant
comparable companies are identified. To factor in the uncertainty surrounding
the selection of comparable companies, the applicable multiple has been
stressed by +/- 2%.
Calibration price of recent investment
The fair values of the underlying investments are based on the calibration
price but remain unadjusted from the recent price of the investment. To factor
in the uncertainty surrounding the selection of calibration price, the fair
value of the investment at the reporting date has been stressed by +/- 10%.
23.8 Capital management policies and procedures
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting year.
At 31 August 2023 At 31 August 2022
£'000 £'000
Debt
Bank loan 32,474 39,976
Equity
Called up share capital 10,346 10,346
Reserves 230,098 274,543
Total equity 240,444 284,889
Total debt and equity 272,918 324,865
The Company's capital is managed to ensure that it will continue as a going
concern and to maximise the capital return to its equity shareholders over the
longer-term.
The Board, with the assistance of the Fund Manager, monitors and reviews the
broad structure of the Company's capital on an ongoing basis. This includes
consideration of:
(i) the planned level of gearing;
(ii) the need to buyback or issue equity shares; and
(iii) the determination of dividend payments.
The Company is subject to externally imposed capital requirements through the
Act, with respect to its status as a public limited company.
In addition, with respect to the obligation and ability to pay dividends, the
Company must comply with the provisions of Section 1158 of the CTA and the Act
respectively.
Gearing represents borrowings used for investment purposes, less cash,
expressed as a percentage of net assets.
At 31 August 2023 At 31 August 2022
£'000 £'000
Borrowings used for investment purposes, including cash 32,474 39,976
Net assets 270,317 284,889
Gearing 12.0% 14.0%
Borrowings are made on a relatively short-term basis to exploit specific
investment opportunities, rather than to apply long-term structural gearing to
the Company's portfolio of investments.
24. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board.
The Board is of the opinion that the Company is engaged in a single segment of
business, namely the investment in biotechnology and other life sciences
companies in accordance with the Company's investment objective, and
consequently no segmental analysis is provided.
25. POST BALANCE SHEET EVENTS
After the year end and up to 3 November 2023, 279,576 Ordinary shares were
bought back to be held in Treasury. Following this buyback, the total number
of shares in issue was 41,383,817 of which 2,345,210 were held in Treasury.
Three contractual agreements have been entered into post the year end.
1. A new investment management agreement has been signed which appoints
Schroder Unit Trusts Limited as the Company's Fund Manager and AIFM.
2. A new depository agreement has been signed between the Company, Schroder
Unit Trusts Limited and HSBC Bank plc.
3. A tripartite agreement has signed between the Company, Schroder Unit Trusts
Limited and SV Health Managers LLP which details SV's role with regard to the
Unquoted Portfolio, and includes a termination fee of £289,439.
No other significant events occurred after the end of the reporting period to
the date of this Report requiring disclosure.
ALTERNATIVE INVESTMENT FUND MANAGER'S DISCLOSURE (UNAUDITED)
SV Health Managers LLP is the Company's Alternative Investment Fund Manager
(AIFM). Details of the Management Agreements dated 11 February 2017 are
included in the Directors' Report on page 41.
The below disclosures include information required by the FCA FUND 3.2 and
3.3.
Investment management
The AIFM provides portfolio management of assets and investment advice in
relation to the assets of the Company. The Board remains responsible for
setting the investment strategy, investment policy and investment guidelines
and the AIFM operates within these guidelines. Any material changes to the
published investment policy are put to shareholders for a vote. Any changes to
the investment strategy are agreed by the Board of the Company.
Details of the Company's investment objective and policy, and investment
strategy, including limits, are on page 26 of this Report.
Contractual relationship with the Company
The Articles of Association between the Company's shareholders and the Company
is governed by English law and, by purchasing shares, investors agree that the
Courts of England have exclusive jurisdiction to settle any disputes. All
communications in connection with the purchase of the Company's shares will be
in English. Certain judgements obtained in EU Member States (excluding Denmark
at this time) in proceedings commenced on or after 10 January 2017, can be
enforced in England and Wales under the Recast Brussels Regulation by
obtaining a certificate from the court of origin certifying that the judgement
is enforceable, serving the certificate and judgement on the judgement debtor
and, when seeking enforcement, providing the Courts of England and Wales with
an authenticated copy of the judgement and certificate and certifying
compliance with the requirements as to service on the debtor. The judgement
debtor can apply for the enforcement of the judgement to be refused on limited
grounds. Further, certain judgements obtained in EU Member States (including
Denmark) in proceedings commenced before 10 January 2017, or in Iceland,
Norway and Switzerland can be enforced in England and Wales under the 2001
Brussels Regulation or the 2007 Lugano Convention and certain judgements
obtained from a country to which any of the Administration of Justice Act
1920, the Foreign Judgments (Reciprocal Enforcement) Act 1933 or the Civil
Jurisdiction and Judgments Act 1982 applies can also be enforced in England
and Wales by making an application to the High Court for an order for
registration of the judgement for enforcement. The judgement debtor may
appeal/challenge registration on limited grounds. It may also be possible to
enforce a judgement obtained in a country to which none of the above regimes
apply in England and Wales if such judgement is: (1) final and conclusive on
the merits; (2) given by a Court regarded by English law as competent to do
so; and (3) for a fixed sum of money.
Professional liability risk
The AIFM maintains both the capital requirements and the required professional
indemnity insurance at the level required under AIFM Rules in order to cover
potential liability risks arising from professional negligence.
Company management
The Board announced on 21 July 2016 that with effect from 21 July 2016 the
Company had entered into new Agreements with the relevant suppliers of
services to the Company to comply with AIFMD. The Agreements with the
Company's Fund Manager and AIFM - SV Health Managers LLP, the Company
Secretary Link Company Matters Limited and Administrator, Northern Trust -
differ only to the extent necessary to comply with the AIFMD.
Management functions delegated by AIFM
A description of safe-keeping functions, administrative functions and
secretarial functions delegated by the AIFM and the identity of such delegates
can be found on page 42 under the heading "Administration, Depositary and
Company Secretarial Services". The AIFM does not consider that any conflicts
of interest arise from the delegation of these functions.
Valuation policy
The Company's portfolio of listed assets will be valued on each Dealing Day (a
day on which the London Stock Exchange and banks in England and Wales are
normally open for business). All instructions to issue or cancel Ordinary
shares given for a prior dealing day shall be assumed to have been carried out
(and any cash paid or received).
The valuation will be based on the following:
(a) Cash and amounts held in current and deposit accounts and in other
time-related deposits will be valued at their nominal value.
(b) All transferable securities will be valued at fair value. Fair value for
quoted investments is deemed to be bid market prices, or last traded price,
depending on the convention of the exchange on which they are quoted.
(c) All other property contained within the Company's portfolio of assets will
be priced at a value which, in the opinion of the AIFM, represents a fair and
reasonable price.
(d) If there are any outstanding agreements to purchase or sell any of the
Company's portfolio of assets which are incomplete, then the valuation will
assume completion of the agreement.
(e) Added to the valuation will be:
(i) any accrued and anticipated tax repayments of the
Company
(ii) any money due to the Company because of Ordinary
shares issued prior to the relevant Dealing Day
(iii) income due and attributed to the Company but not
received
(iv) any other credit of the Company due to be received
by the Company. Amounts which are de minimis may be omitted from the valuation
(f) Deducted from the valuation will be:
(i) any anticipated tax liabilities of the Company
(ii) any money due to be paid out by the Company
because of Ordinary shares bought back by the Company prior to the valuation
(iii) the principal amount and any accrued but unpaid
interest on any borrowings
(iv) any other liabilities of the Company, with
periodic items accruing on a daily basis. Amounts which are de minimis may be
omitted from the valuation
Valuations of NAV per Ordinary share will be suspended only in any
circumstances in which the underlying data necessary to value the investments
of the Company cannot readily or without undue expenditure be obtained. Any
such suspension will be announced to the Regulatory Information Service.
The Company's unquoted portfolio of assets will be valued on each working day
in accordance with IFRS and the PE and VC Valuation guidelines (IPEVC).
Further information regarding the valuation of unquoted assets and any
sensitivities arising from unobservable inputs can be found in note 23 to the
Financial Statements.
Liquidity risk management
The AIFM has a liquidity management policy which it uses to monitor the
liquidity risk of the Company. Shareholders have no right to redeem their
Ordinary shares from the Company but may trade their Ordinary shares on the
secondary market. However, there is no guarantee that there is a liquid market
in the Ordinary shares.
Further details regarding the risk management process and liquidity management
are available from the AIFM, on request.
Fees
A description of certain of the fees, charges and expenses and of the maximum
amounts thereof (to the extent that this can be assessed) which are borne by
the Company and thus indirectly by investors are included in the paragraph
'Company Management' on page 100. In addition to the Administration and
Depositary fees, the Company will pay all other fees, charges and expenses
incurred in the operation of its business including, without limitation:
• Brokerage and other transaction charges and taxes.
• Directors' fees and expenses.
• Fees and expenses for custodial, registrar, legal, auditing and other
professional services.
• Any borrowing costs.
• The ongoing costs of maintaining the listing of the Ordinary shares and
their continued admission to trading on the London Stock Exchange.
• Directors' and Officers' Liability insurance premiums.
• Research costs.
• Promotional expenses (including membership of any industry bodies,
including the AIC, and marketing initiatives approved by the Board).
• Costs of printing the Company's financial reports and posting them to
shareholders.
Such fees and expenses are not subject to a maximum unit.
Remuneration of the AIFM staff
The AIFM operates under the terms of the Remuneration Policy Statement. This
ensures that the AIFM complies with the requirements of the FCA's AIFM
Remuneration Code (SYSC19B).
Following completion of an assessment of the application of the
proportionality principle to the FCA's AIFM Remuneration Code, the AIFM has
disapplied the pay-out process rules with respect to it and any of its
delegates. This is because the AIFM considers that it is operating on a small
scale, carries out non-complex activities and has a relatively low risk
profile.
Fair treatment of investors
The AIFM has procedures, arrangements and policies in place to ensure
compliance with the principles more particularly described in the AIFM Rules
relating to the fair treatment of investors. The principles of treating
investors fairly include, but are not limited to:
• Acting in the best interests of the Company and of the shareholders.
• Ensuring that the investment decisions taken for the account of the
Company are executed in accordance with the Company's investment policy and
objective and risk profile.
• Ensuring that the interests of any group of shareholders are not placed
above the interests of any other group of shareholders.
• Ensuring that fair, correct and transparent pricing models and valuation
systems are used for the Company.
• Preventing undue costs being charged to the Company and shareholders.
• Taking all reasonable steps to avoid conflicts of interests and, when they
cannot be avoided, identifying, managing, monitoring and, where applicable,
disclosing those conflicts of interest to prevent them from adversely
affecting the interests of shareholders.
• Recognising and dealing with complaints fairly.
The AIFM maintains and operates organisational, procedural and administrative
arrangements and implements policies and procedures designed to manage actual
and potential conflicts of interest. In addition, as its Ordinary shares are
admitted to the Official List, the Company is required to comply with, among
other things, the FCA's Listing Rules and Disclosure Guidance and Transparency
Rules and the Takeover Code, all of which operate to ensure a fair treatment
of investors. As at the date of this Annual Report, no investor has obtained
preferential treatment or the right to obtain preferential treatment.
Procedure and conditions for the issuance of Ordinary shares
The Company's Ordinary shares are admitted to the Official List of the UKLA
and to trading on the main market of the London Stock Exchange. Accordingly,
the Company's Ordinary shares may be purchased and sold on the main market of
the London Stock Exchange.
While the Company will typically have shareholder authority to buyback shares,
shareholders do not have the right to have their shares purchased by the
Company.
Net asset value
The NAV of the Company's Ordinary shares is published daily by the AIFM via a
Regulatory Information Service announcement.
Historical performance
Historical financial information demonstrating the Company's historical
performance can be found under the Long-term record on page 5. Copies of the
Company's audited Financial Statements for the financial year ended 31 August
2022 are available for inspection at the Registered Office address of Link
Company Matters Limited and can be viewed on the Company's website at
www.ibtplc.com (http://www.ibtplc.com) .
Transfer and reuse of the Company's assets
The Depositary may not use or re-use the Company's securities or other
investments without the prior consent of the Company.
Periodic disclosures
During the year ended 31 August 2023, the overdraft facility available to the
Company was £55.0m (2022: £55.0m).
Risk management
In its capacity as AIFM, SV Health Managers LLP has a responsibility for risk
management for the Company which is in addition to the Board's corporate
governance responsibility for risk management.
The Company has risk management controls which are agreed with the Board. The
Fund Manager maintains adequate risk management systems in order to identify,
measure and monitor principal risks at least annually under AIFMD. The Fund
Manager is responsible for the implementation of various risk activities such
as risk systems, risk profile, risk limits and testing.
The Board, as part of UK corporate governance, remains responsible for the
identification of significant risks and for the ongoing review of the
Company's risk management and internal control processes.
The AIFM has an ongoing process for identifying, evaluating and managing the
principal and emerging risks faced by the Company and this is regularly
reviewed by the Board. The Board remains responsible for the Company's system
of internal control and for reviewing its effectiveness. Further details can
be found in the Strategic Review on pages 27 to 29 of the Annual Report 2023
and in note 23 to the Financial Statements 2023 on pages 87 to 98.
Valuation of illiquid assets
The Directive requires the disclosure of the percentage of the AIF's assets
which are subject to special arrangements arising from their illiquid nature.
Further, any new arrangements for managing the liquidity of the Company must
be disclosed.
The liquidity management policy requires the AIFM to identify and monitor its
investment in asset classes which are considered to be relatively illiquid.
The majority of the Company's investment portfolio is invested directly in
liquid equities and this equity portfolio is monitored on an ongoing basis to
ensure that it is adequately diversified.
The liquidity management policy is reviewed and updated, as required, on at
least an annual basis.
Gearing
The Company uses gearing to increase its exposure primarily for short-term
investment opportunities. The AIFM in dialogue with the Board has set maximum
levels of gearing that are reasonable. It has implemented systems to calculate
and monitor compliance against these limits and has ensured that the limits
have been complied with at all times.
The maximum gearing limits are 30.0% for both the gross method and the
commitment method of calculating gearing. There have been no changes to the
maximum level of gearing that the Company may employ during the year.
At 31 August 2023, £32.5m was drawn down against the uncommitted loan
facility. The Company has complied with the terms of the facility throughout
the financial year. Further details can be found in note 12 on page 83.
Periodic disclosures will be made to investors through the Company's website,
www.ibtplc.com, regarding the following areas as required:
• Brokerage and other transaction charges and taxes.
• Directors' fees and expenses.
• Fees and expenses for custodial, registrar, legal, auditing and other
professional services.
• Any borrowing costs.
• The ongoing costs of maintaining the listing of the Ordinary shares and
their continued admission to trading on the London Stock Exchange.
• Directors' and Officers' Liability insurance premiums.
• Research costs.
• Promotional expenses (including membership of any industry bodies,
including the AIC, and marketing initiatives approved by the Board).
• Costs of printing the Company's financial reports and posting them to
shareholders.
SV HEALTH MANAGERS LLP
6 November 2023
STATEMENT OF THE DEPOSITARY'S RESPONSIBILITIES (UNAUDITED)
Statement of the Depositary's Responsibilities in Respect of the Scheme and
Report of the Depositary to the Shareholders of International Biotechnology
Trust (the Company) for the year ended 31 August 2023.
The Depositary must ensure that the Company is managed in accordance with the
Financial Conduct Authority's Investment Funds Sourcebook, (the Sourcebook),
the Alternative Investment Fund Managers Directive (AIFMD), (together the
Regulations), and the Company's Articles of Association.
The Depositary must in the context of its role act honestly, fairly,
professionally, independently and in the interests of the Company and its
investors.
The Depositary is responsible for the safekeeping of the assets of the Company
in accordance with the Regulations.
The Depositary must ensure that:
• the Company's cash flows are properly monitored and that cash of the
Company is booked in cash accounts in accordance with the Regulations;
• the sale, issue, repurchase, redemption and cancellation of shares are
carried out in accordance with the Regulations;
• the assets under management and the net asset value per share of the
Company are calculated in accordance with the Regulations;
• any consideration relating to transactions in the Company's assets is
remitted to the Company within the usual time limits;
• the Company's income is applied in accordance with the Regulations; and
• the instructions of the Alternative Investment Fund Manager (the AIFM) are
carried out (unless they conflict with the Regulations).
The Depositary also has a duty to take reasonable care to ensure that the
Company is managed in accordance with the Articles of Association in relation
to the investment and borrowing powers applicable to the Company.
Having carried out such procedures as we consider necessary to discharge our
responsibilities as Depositary of the Company, it is our opinion, based on the
information available to us and the explanations provided, that in all
material respects the Company, acting through the AIFM has been managed in
accordance with the rules in the Sourcebook, the Articles of Association of
the Company and as required by the AIFMD.
Northern Trust Investor Services Limited
UK Trustee and Depositary Services
6 November 2023
NOTICE OF MEETING (UNAUDITED)
This document is important and requires your immediate attention. If you are
in any doubt as to any aspect of the proposals referred to in this document or
as to the action you should take, you should seek advice from your
stockbroker, solicitor/attorney, accountant, central securities depository
participant ('CSDP'), banker or other independent professional advisor
immediately. If you have sold or otherwise transferred all of your shares,
please pass this document, together with the relevant accompanying documents,
to the purchaser or transferee, or to the person who arranged the sale or
transfer, so they can pass these documents to the person who now holds the
shares.
This document is important and requires your immediate attention. If you are
in any doubt as to any aspect of the proposals referred to in this document or
as to the action you should take, you should seek advice from your
stockbroker, solicitor/attorney, accountant, central securities depository
participant ('CSDP'), banker or other independent professional advisor
immediately. If you have sold or otherwise transferred all of your shares,
please pass this document, together with the relevant accompanying documents,
to the purchaser or transferee, or to the person who arranged the sale or
transfer, so they can pass these documents to the person who now holds the
shares.
Notice is hereby given that the Annual General Meeting (AGM) of International
Biotechnology Trust plc (the Company) will be held on Tuesday, 12 December
2023 at 3.00pm at Schroders, 1 London Wall Place, London, EC2Y 5AU, to
consider and, if thought fit, to pass the following resolutions, of which
resolutions 1 to 14 will be proposed as ordinary resolutions and resolutions
15 to 18 will be proposed as special resolutions.
ORDINARY RESOLUTIONS
1. To receive the Directors' Report and the audited Financial Statements for the
year ended 31 August 2023.
2. To approve the Report on Directors' Remuneration for the year ended 31 August
2023.
3. To approve the Directors' Remuneration Policy.
4. To approve the Company's dividend policy of making dividend payments,
equivalent to 4% of the Company's NAV as at the last day of the Company's
preceding financial year, through two equal semi-annual distributions.
5. To elect Ms Gillian Elcock as a Director of the Company.
6. To re-elect Miss Kate Cornish-Bowden as a Director of the Company.
7. To re-elect Mrs Caroline Gulliver as a Director of the Company.
8. To re-elect Mr Patrick Magee as a Director of the Company.
9. To re-elect Professor Patrick Maxwell as Director of the Company.
10. To re-appoint PricewaterhouseCoopers LLP as the Independent Auditors of the
Company from the conclusion of this Meeting until the conclusion of the next
AGM at which the Financial Statements are laid before Members.
11. To authorise the Directors to determine the remuneration of the Auditors.
To consider and, if thought fit, pass the following resolutions as ordinary
resolutions:
12. THAT, in accordance with the Articles of Association, the Company should
continue as an investment trust for a further two-year period.
13. THAT, the Directors be generally and unconditionally authorised pursuant to
and in accordance with Section 551 of the Companies Act 2006 (the "Act"), to
exercise all the powers of the Company to allot ordinary shares of 25p each in
the capital of the Company (the "Ordinary Shares") and to grant rights to
subscribe for or to convert any security into Ordinary Shares up to an
aggregate nominal amount of £1,021,575, equivalent to 4,086,300 Ordinary
Shares (being 10% of the issued Ordinary Share capital of the Company on 3
November 2023 (excluding Treasury shares) (being the latest practicable date
prior to the publication of this Notice of Meeting)), such authority to apply
in substitution for all previous authorities pursuant to Section 551 of the
Act and to expire (unless renewed, varied or revoked by the Company in a
general meeting) at the conclusion of the AGM held in 2024 or 15 months from
the date of passing this resolution, whichever is the earlier, save that the
Company may, at any time such expiry, make any offer and enter into any
agreement which would, or might, require Ordinary Shares to be allotted or
rights to subscribe for or to convert any security into Ordinary Shares to be
granted after the authority given by this resolution has expired and the
Directors may allot Ordinary Shares or grant rights to subscribe for or
convert securities into Ordinary Shares in pursuance of such offer or
agreement as if the authority conferred hereby had not expired.
14. THAT, subject to the passing of Resolution 13, in addition to the authority
granted pursuant to Resolution 13, the Directors of the Company be and are
hereby generally and unconditionally authorised pursuant to Section 551 of the
Act, to exercise all the powers of the Company to allot Ordinary Shares in the
Company and to grant rights to subscribe for or convert any security into
Ordinary Shares up to an aggregate nominal amount of £1,021,575, equivalent
to 4,086,300 Ordinary Shares (being 10% of the issued Ordinary Share capital
of the Company on 3 November 2023 (excluding Treasury shares) (being the
latest practicable date prior to the publication of this Notice of Meeting)),
and such authority to expire (unless renewed, varied or revoked by the Company
in general meeting) at the conclusion of the AGM held in 2024 or 15 months
from the date of passing this resolution, whichever is earlier, save that the
Company may, at any time before such expiry make any offer and enter into any
agreement which would, or might, require Ordinary Shares to be allotted or
rights to subscribe for or to convert any security into Ordinary Shares to be
granted after the authority given by this resolution has expired and the
Directors may allot Ordinary Shares or grant rights to subscribe for or to
convert any securities into Ordinary Shares in pursuant of such offer or
agreement as if the authority conferred hereby had not expired.
SPECIAL RESOLUTIONS
To consider and, if thought fit, pass the following resolutions as special
resolutions:
15. THAT, subject to the passing of Resolution 13, the Directors be and are hereby
authorised pursuant to Sections 570 and 573 of the Act, to allot and make
offers or agreements to allot equity securities (as defined in Section 560 of
the Act) pursuant to the authority granted by Resolution 13 and/or to sell
equity securities held by the Company as Treasury shares (as defined in
Section 724 of the Act) for cash as if Section 561(1) of the Act did not apply
to any such allotment or sale of equity securities, provided that this
authority:
(a) shall be limited to the allotment of equity securities and/or the sale of
equity securities held in Treasury for cash up to an aggregate nominal amount
of £1,021,575 equivalent to 4,086,300 Ordinary Shares (representing 10% of
the Company's existing issued Ordinary Share capital (excluding Treasury
shares) on 3 November 2023 (being the latest practicable date prior to the
publication of this Notice of Meeting));
(b) shall expire (unless renewed, varied or revoked by the Company in General
Meeting) at the conclusion of the AGM held in 2024 or 15 months from the date
of passing this resolution, whichever is earlier, save that the Company may at
any time before such expiry make any offer, and enter into any agreement,
which would, or might, require equity securities to be allotted (and Treasury
shares to be sold) after the authority expires and the Directors may allot
equity securities (and sell Treasury shares) in pursuance of such offer or
agreement as if the authority conferred hereby had not expired.
16. THAT, subject to the passing of Resolution 14, the Directors be and are hereby
authorised (and in addition to any authority granted under Resolution 15) (as
defined in Section 560 of the Act) pursuant to Sections 570 and 573 of the Act
to allot and make offers or agreements to allot equity securities pursuant to
the authority granted by Resolution 14 and/or to sell equity securities held
by the Company as Treasury shares (as defined in Section 724 of the Act) for
cash as if Section 561(1) of the Act did not apply to any such allotment or
sale of equity securities, provided that this authority:
(a) shall be limited to the allotment of equity securities and/or the sale of
equity securities held in Treasury for cash up to an aggregate nominal amount
of £1,021,575 equivalent to 4,086,300 Ordinary Shares (representing 10% of
the Company's existing issued Ordinary Share capital (excluding Treasury
shares) on 3 November 2023 (being the latest practicable date prior to the
publication of this Notice of Meeting));
(b) shall expire (unless renewed, varied or revoked by the Company in General
Meeting) at the conclusion of the AGM held in 2024 or 15 months from the date
of passing this resolution, whichever is earlier; save that the Company may at
any time before such expiry make any offer and enter into any agreement, which
would, or might, require equity securities to be allotted (and Treasury shares
to be sold) after the authority expires and the Directors may allot equity
securities (and sell Treasury shares) in pursuance of any such offer or
agreement as if the authority had not expired.
17. THAT, the Company be generally and unconditionally authorised, for the
purposes of Section 701 of the Act to make market purchases (within the
meaning of Section 693(4) of the Act) of Ordinary Shares, provided that:
(a) the maximum number of Ordinary Shares which may be purchased is 5,851,887
(being 14.99% of the issued Ordinary Share capital, excluding Treasury shares,
as at 3 November 2023 (being the last practicable date prior to the
publication of this Notice of Meeting));
(b) the minimum price which may be paid for each Ordinary Share is 25p (being
the nominal value of an Ordinary Share) exclusive of expenses,
(c) the maximum price, exclusive of expenses, which may be paid for each
Ordinary share is an amount equal to the higher of:
(i) 105% of the average of the middle market quotations for the Ordinary
Shares derived from the London Stock Exchange Daily Official List for the five
business days immediately before the day on which that Ordinary Share is
contracted for purchase; and
(ii) the higher of the price of the last independent trade of an Ordinary
Share and the highest current bid for an Ordinary Share on the trading venue
where the purchase is carried out; and
(d) the authority to purchase hereby conferred shall expire (unless renewed or
revoked by the Company in general meeting) at the conclusion of the AGM held
in 2024 or 15 months from the date of passing this resolution, whichever is
the earlier, save that the Company may, at any time before such expiry enter
into a contract to purchase Ordinary Shares which will or may be executed
wholly or partly after the expiry of such authority.
18. THAT, a General Meeting (other than an AGM) may be called on not less than 14
clear days' notice.
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
Registered Office:
6th floor, 65 Gresham St, London EC2V 7NQ
6 November 2023
NOTICE OF MEETING|NOTES (UNAUDITED)
NOTICE OF MEETING NOTES
1. Holders of Ordinary Shares ("Ordinary Shareholders") are entitled to attend
and vote at the Meeting and to appoint one or more proxies or corporate
representatives to exercise all or any of their rights to attend, speak and
vote on their behalf at the Meeting but only if each proxy or corporate
representative is appointed to vote on separate forms or separate blocks of
shares registered to the shareholder. A proxy need not be a member of the
Company. A proxy form is enclosed accordingly. To be valid, the proxy form
together with any power of attorney or other authority under which it is
signed or a certified copy thereof, should be lodged at the office of the
Company's Registrar, Equiniti Limited, Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA, no later than 3.00pm. on Friday, 8 December 2023. If you
return more than one proxy appointment, either by paper or electronic
communication, that received last by Link Group before the latest time for the
receipt of proxies will take precedence. You are advised to read the terms and
conditions of use carefully. Electronic communication facilities are open to
all shareholders and those who use them will not be disadvantaged.
Any person to whom this notice is sent, who is a person nominated under
Section 146 of the Act to enjoy information rights (a Nominated Person) may,
under an agreement between him or her and the shareholder by whom he or she
was nominated, have a right to be appointed (or to have someone else
appointed) as a proxy for the AGM. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he or she may, under any
such agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
The statement of the rights of shareholders in relation to the appointment of
proxies in this note does not apply to Nominated Persons. The rights described
in this note can only be exercised by shareholders of the Company.
2. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001,
the Company has specified that only those shareholders registered in the
Register of Members of the Company at 6.30pm on Friday, 8 December 2023, two
working days prior to the date of an adjourned Meeting, shall be entitled to
submit proxy votes at the Meeting in respect of the number of shares
registered in their name at that time.
Only those Ordinary Shareholders registered in the register of members of the
Company as at close of business on Friday, 8 December 2023 (the "specified
time") shall be entitled to vote at the aforesaid AGM in respect of the number
of shares registered in their name at that time. Changes to the Register of
Members after 6.30pm on Friday, 8 December 2023 shall be disregarded in
determining the right of any person to vote at the Meeting. The voting record
date has been determined as Friday, 8 December 2023. If the meeting is
adjourned to a time not more than 48 hours after the specified time applicable
to the original meeting, that time will also apply for the purpose of
determining the entitlement of members to vote (and for the purpose of
determining the number of votes they may cast) at the adjourned meeting. If
however the meeting is adjourned for a longer period then, to be so entitled,
members must be entered on the Company's register of members at the time which
is 48 hours before the time fixed for the adjourned meeting, or if the Company
gives notice of the adjourned meeting, at the time specified in that notice.
3. In the case of joint holders of a share the vote of the first named on the
Register of Members who tenders a vote by proxy, shall be accepted to the
exclusion of the votes of the other joint holders.
4. Any corporation which is a member may appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a member
provided that they do not do so in relation to the same shares.
5. Proxies may be submitted electronically at www.sharevote. co.uk by entering
the Voting ID, Task ID and Shareholder Reference ID set out in the attached
proxy form.
Alternatively, Ordinary Shareholders who have already registered with
Equiniti's Shareview service can appoint their proxy/proxies by logging onto
their account at www.shareview.co.uk using their usual user ID and password.
Once logged in simply click "View" on the "My Investments" page, click on the
link to vote then follow the on screen instructions.
6. If you are an institutional investor you may be able to appoint a proxy
electronically via the Proxymity platform, a process which has been agreed by
the Company and approved by the Registrar. For further information regarding
Proxymity, please go to www.proxymity.io. Your proxy must be lodged by 3.00pm
on 8 December 2023 in order to be considered valid. Before you can appoint a
proxy via this process you will need to have agreed to Proxymity's associated
terms and conditions. It is important that you read these carefully as you
will be bound by them and they will govern the electronic appointment of your
proxy. An electronic proxy appointment via the Proxymity platform may be
revoked completely by sending an authenticated message via the platform
instructing the removal of your proxy vote.
7. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so for the AGM to be held on
Tuesday, 12 December 2023 and any adjournment(s) thereof by using the
procedures described in the CREST Manual on the Euroclear website
(www.euroclear.com). CREST personal members or other CREST sponsored members,
and those CREST members who have appointed a voting service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service
to be valid, the appropriate CREST message (a CREST Proxy Instruction) must be
properly authenticated in accordance with Euroclear UK & International
Limited's specifications and must contain the information required for such
instructions, as described in the CREST Manual (available via
www.euroclear.com/CREST). The message, regardless of whether it constitutes
the appointment of a proxy or an amendment to the instruction given to a
previously appointed proxy must, in order to be valid, be transmitted so as to
be received by the issuer's agent (ID RA19) by 3.00pm on Friday, 8 December
2023. For this purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST Applications
Host) from which the Company's agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST. After this time any change
of instructions to proxies appointed through CREST should be communicated to
the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service
provider(s) should note that Euroclear UK & International Limited does not
make available special procedures in CREST for any particular messages. Normal
system timings and limitations will therefore apply in relation to the input
of CREST Proxy Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal member or
sponsored member or has appointed a voting service provider(s), to procure
that his CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection, CREST members and,
where applicable, their CREST sponsors or voting service provider(s) are
referred, in particular, to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
8. You should not use any electronic address provided either in the Notice of
Meeting or any related documents (including the form of proxy) to communicate
with the Company for any purposes other than those expressly stated.
9. Copies of the Appointment Letters of the Non-executive Directors, the
Company's Articles of Association and a statement of all transactions of each
Director and of their family interests in the shares of the Company, will be
available for inspection by any shareholder of the Company at the Registered
Office of the Company during normal business hours on any weekday (English
public holidays excepted) and at the AGM by any attendee, for at least 15
minutes prior to, and during, the AGM. None of the Directors has a contract of
service with the Company.
10. The biographies of the Directors offering themselves for election and
re-election are set out on pages 38 and 39 of the Company's Annual Report for
the year ended 31 August 2023 and set out each Director's experience. These,
along with the disclosure in the Directors' Report on pages 40 and 41, explain
why the Directors' contributions are important to the Company's sustainable
success.
11. As at 3 November 2023, 41,383,817 Ordinary Shares of 25 pence were in issue,
of which, 2,345,210 Ordinary Shares were held in Treasury (equivalent to 5.7%
of the issued share capital, including Treasury shares). Each Ordinary Share
(excluding ordinary shares held in Treasury) carries one vote. Accordingly,
the total number of voting rights of the Company as at 3 November 2023 is
39,038,607, being the issued share capital minus ordinary shares held in
Treasury.
12. If the Chair, as a result of any proxy appointments, is given discretion as to
how the votes of those proxies are cast and the voting rights in respect of
those discretionary proxies, when added to the interests of the Company's
securities already held by the Chair, result in the Chair holding such number
of voting rights that he has a notifiable obligation under the Disclosure
Guidance and Transparency Rules, the Chair will make the necessary
notifications to the Company and the FCA. As a result, any member holding 3
per cent. or more of the voting rights in the Company who grants the Chair a
discretionary proxy in respect of some or all of those voting rights and so
would otherwise have a notification obligation under the Disclosure Guidance
and Transparency Rules, need not make a separate notification to the Company
and the FCA.
13. A personalised proxy form will be sent to each registered shareholder with the
Annual Report and this Notice of Meeting, and instructions on how to vote will
be contained thereon.
14. Shareholders are advised that they have the right to have questions answered
at the AGM. The Company must cause to be answered any such question relating
to the business being dealt with at the AGM but no such answer need be given
if:
(a) to do so would interfere unduly with the preparation for the Meeting or
involve the disclosure of confidential information;
(b) the answer has already been given on the Company's website
(www.ibtplc.com) in the form of an answer to a question; or
(c) it is undesirable in the interests of the Company or the good order of the
Meeting that the question be answered.
The Board encourages shareholders to submit any questions they may wish to
raise at the AGM in writing to the Company Secretary in advance of the
Meeting. The Company Secretary can be contacted by email at
AMCompanySecretary@Schroders.com
15. As soon as practicable following the AGM, the results of the voting at the
Meeting and the number of votes cast for and against and the number of votes
withheld in respect of each resolution will be announced via a Regulatory
Information Service and placed on the Company's website. Under Section 527 of
the Act, shareholders meeting the threshold requirements set out in that
Section have the right to require the Company to publish on a website a
statement setting out any matter relating to:
(a) the audit of the Company's Financial Statements (including the Independent
Auditors' Report and the conduct of the audit) that are to be laid before the
AGM
(b) any circumstance connected with the auditor of the Company ceasing to hold
office since the previous meeting at which an Annual Report and Financial
Statements were laid in accordance with Section 437 of the Act.
The Company may not require the shareholders requesting any such website
publication to pay its expenses in complying with Sections 527 or 528 of the
Act. Where the Company is required to place a statement on a website under
Section 527 of the Act, it must forward the statement to the Company's Auditor
not later than the time when it makes the statement available on the website.
The business which may be dealt with at the AGM includes any statement that
the Company has been required under Section 527 of the Act to publish on a
website.
17. Members satisfying the thresholds in section 338 of the Act may require the
Company to give to members of the Company entitled to receive notice of the
annual general meeting, notice of a resolution which those members intend to
move (and which may properly be moved) at the annual general meeting. A
resolution may properly be moved at the annual general meeting unless (i) it
would, if passed, be ineffective (whether by reason of any inconsistency with
any enactment or the Company's constitution or otherwise); (ii) it is
defamatory of any person; or (iii) it is frivolous or vexatious. A request
made pursuant to this right may be in hard copy or electronic form, must
identify the resolution of which notice is to be given, must be authenticated
by the person(s) making it and must be received by the Company not later than
six weeks before the date of the annual general meeting.
18. Members satisfying the thresholds in section 338A of the Act may request the
Company to include in the business to be dealt with at the annual general
meeting any matter (other than a proposed resolution) which may properly be
included in the business at the annual general meeting. A matter may properly
be included in the business at the annual general meeting unless (i) it is
defamatory of any person, or (ii) it is frivolous or vexatious. A request made
pursuant to this right may be in hard copy or electronic form, must identify
grounds for the request, must be authenticated by the person(s) making it and
must be received by the Company not later than six weeks before the date of
the annual general meeting.
19. A copy of this Notice, and other information required by Section 311A of the
Act, can be viewed and/or downloaded at www.ibtplc.com and, if applicable, any
Members' statements, resolutions or matters of business received by the
Company after the date of this Notice will be available on the Company's
website www.ibtplc.com.
GLOSSARY (UNAUDITED)
$-US dollar.
Administrator-the administrator is The Northern Trust Company to which the
Company has delegated certain trade processing, valuation and middle office
tasks and systems. From November 2023 the administrator will be HSBC Bank plc.
AIC-Association of Investment Companies, the trade body for investment
companies.
AIFM-Alternative Investment Fund Manager - SV Health Managers LLP.
AIFMD-Alternative Investment Fund Managers Directive - Issued by the European
Parliament in 2012 and 2013, the Directive requires that all investment
vehicles (AIFs) in the European Union, including investment trusts, appoint a
Depositary and an Alternative Investment Fund Manager (AIFM). The Board
remains responsible, however, for all aspects of the Company's strategy,
operations and compliance with regulations.
APM(s)-Alternative Performance Measures are numerical measures of current and
historical performance, financial position or cash flow that are not IFRS
measures (please refer to pages 112 to 113).
Benchmark-the benchmark is the NASDAQ Biotechnology Index (NBI) (total return
in sterling with dividends reinvested).
Company-International Biotechnology Trust plc or IBT.
Custodian-the Custodian is Northern Trust Investor Services Limited. From
November 2023 the Custodian will be HSBC Bank plc. The Custodian is a
financial institution responsible for safeguarding the securities and cash
assets of the Company, as well as the income arising therefrom, through
provision of custodial, settlement and associated services.
Depositary-the Depositary is Northern Trust Investor Services Limited. From
November 2023 the Depositary will be HSBC Bank plc. Under AIFMD rules, the
Company must have a Depositary whose duties in respect of investments and cash
include safekeeping; verification of ownership and valuation; and cash
monitoring. Under the AIFMD rules, the Depositary has strict liability for the
loss of the Company's financial assets in respect of which it has safekeeping
duties.
Discount/Premium-the share price of an investment trust is derived from buyers
and sellers trading their shares on the London Stock Exchange and is not
always the same as the NAV per share. If the share price is lower than the NAV
per share, the shares are said to be trading 'at a discount'. If the share
price is above the NAV per share, the shares are said to be trading 'at a
premium'.
Distributable reserves-reserves distributable by way of dividend or for the
purpose of buying back Ordinary share capital.
Fund Manager and Alternative Investment Fund Manager (AIFM)-SV Health Managers
LLP. From 20 November 2023, Schroder Investment Management Limited will be the
Company Fund Manager, and Schroder Unit Trust Limited we be appointed as the
Company's AIFM. The responsibilities and remuneration of the Fund Manager are
set out in the Directors' Report and note 4 to the Financial Statements.
Independent Auditor-PricewaterhouseCoopers LLP.
Initial public offering (IPO)-an initial public offering (IPO) refers to the
process of offering shares of a private company to the public in a new stock
issuance for the first time. An IPO allows a company to raise equity capital
from public investors.
Joint Lead Investment Managers-Ailsa Craig and Marek Poszepczynski, employees
of the Fund Manager with overall management responsibility for the total
portfolio.
Management fee-the Fund Manager is entitled to a management fee payable
monthly at the rate of 0.9% per annum of the Company's NAV.
Market capitalisation-the stock market quoted price of the Company's shares,
multiplied by the number of shares in issue. If the Company's shares trade at
a discount to NAV, the market capitalisation will be lower than the NAV.
Net Asset Value (NAV)-the assets less the liabilities of the Company, as set
out in the Statement of Financial Position, all valued in accordance with the
Company's accounting policies as described in note 1 to the Financial
Statements.
Non-executive Director-a Director who has a letter of appointment, rather than
a contract of employment, with the Company. The Company does not have any
executive Directors.
Ongoing charges-ongoing charges are all operating costs expected to be
regularly incurred and that are payable by the Company. Ongoing charges are
calculated in accordance with the Association of Investment Companies (the
AIC) guidance, based on total expenses excluding finance costs and performance
fee and expressed as a percentage of average daily net assets. The ratio
including performance fee has also been provided, in line with the AIC
recommendations. Research costs under MiFID II borne by the Company are
included in the ongoing charges calculation.
Performance fee-the Fund Manager is entitled to a performance fee which is
calculated as follows:
• The fee on the quoted portfolio is 10% of relative outperformance above
the sterling-adjusted NBI plus a 0.5% hurdle.
• The fee on the unquoted pool, excluding the investments in unquoted funds,
is 20% of net realised gains, taking into account any unrealised losses but
not unrealised gains.
The payment of the performance fee is subject to the following limits:
• The maximum performance fee in any one year is 2% of average net assets;
and
• Any underperformance of the quoted portfolio against the benchmark is
carried forward for the current financial period plus two succeeding periods.
Performance fees in excess
of the performance fee cap are carried forward for the current financial
period plus two succeeding periods and are offset against any subsequent
underperformance before being paid out.
SV BCOF - SV Biotech Crossover Opportunities Fund LP.
Total return-the total return is the return to Shareholders after reinvesting
the net dividend on the date that the share price goes ex-dividend.
UK Code of Corporate Governance (UK Code)-the standards of good practice in
relation to board leadership and effectiveness, remuneration, accountability
and relations with Shareholders that all companies with a Premium Listing on
the London Stock Exchange are required to report on in their annual report and
accounts.
XBI-the stock symbol (ticker) for SPDR S&P Biotech ETF, an Exchange Traded
Fund which seeks to replicate as closely as possible the performance of the
S&P Biotechnology Select Industry index.
Alternative Performance Measures (APMs) (UNAUDITED)
The Board uses the following APMs to review the performance of the Company and
supplement the information in the financial statements in line with industry
standards (listed in alphabetical order):
Discount/Premium
The Company's share price is not always the same as the NAV per share. If the
share price is lower than the NAV per share, the shares are said to be trading
'at a discount'. If the share price is above the NAV per share, the shares are
said to be trading 'at a premium'. The Board's objective is to keep the
discount within a defined range and actively monitors it to allow it to take
the correcting action of conducting share buybacks when the discount widens
beyond that range.
At 31 August 2023 At 31 August 2022
NAV per share (pence) a 687.5 697.2
Share price (pence) b 644.0 651.5
Discount (b ÷ a) - 1 (6.3%) (6.6%)
Gearing
Gearing for this purpose is defined as borrowings used for investment
purposes, less cash, expressed as a percentage of net assets. The Company has
authority to use gearing to a maximum of 30% of NAV and this is monitored
daily to ensure this level is not exceeded.
Note At 31 August 2023 At 31 August 2022
Borrowings used for investment purposes including cash (£'000) a 12 32,474 39,976
Net assets (£'000) b 270,317 284,889
Gearing a ÷ b 12.0% 14.0%
Ongoing charges
Ongoing charges are calculated in accordance with the AIC's recommended
methodology using the charges for the current year and the average daily NAV
during the year. This calculation allows a comparison to be made between the
costs of the Company and external investment companies and is a key metric
used by the Board to ensure it remains competitive.
Year ending Year ending
Notes 31 August 2023 31 August 2022
Management fee paid by the Company (£'000) 4 1,810 2,009
Management fee paid directly by SV unquoted funds (£'000) 4 791 623
Administrative expenses (£'000) 5 1,559 1,218
Total ongoing expenses (£'000) a 4,160 3,850
Average daily NAV (£'000) b 289,512 290,719
Ongoing Charges (expressed as a percentage) a ÷ b 1.4% 1.3%
Total return
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend. Total Return is
the primary measurement used by the Board to assess Company performance
against the benchmark and its competitors on a consistent basis.
(a) NAV total return
Year ending Year ending
31 August 2023 31 August 2022
Opening NAV per share (pence) a 697.2 782.4
Closing NAV per share (pence) b 687.5 697.2
Dividend adjustment factor* c 1.0416 1.0450
Adjusted closing NAV per share (pence) d = b x c 716.1 728.6
Total return (d ÷ a) -1 2.7% (6.9%)
*The dividend adjustment factor is calculated on the assumption that the
dividends paid by the Company during the year were reinvested into shares of
the Company at the cum income NAV per share at the ex-dividend date.
NAV total return is analysed further into its components and sub-components,
namely quoted portfolio total return, SV Fund VI total return, SV BCOF total
return and directly-held unquoted portfolio total return, as discussed in the
Chair's Statement and Fund Manager's Review. The calculations for these
components of total return are based on geometric algorithms taking into
account individual investment's pricing movements, acquisitions and disposals,
the dividend adjustment factor, fees and administration expenses incurred by
the Company.
(b) Share price total return
Year ending Year ending
31 August 2023 31 August 2022
Opening price per share (pence) a 651.5 729.5
Closing price per share (pence) b 644.0 651.5
Dividend adjustment factor* c 1.0424 1.0482
Adjusted closing price per share (pence) d = b x c 671.3 682.9
Total return (d ÷ a) -1 3.0% (6.4%)
*The dividend adjustment factor is calculated on the assumption that the
dividends paid by the Company during the year were reinvested into shares of
the Company at the share price, at the ex-dividend date.
DIRECTORS AND ADVISERS, COMPANY SUMMARY, SHAREHOLDER INFORMATION
Directors
Kate Cornish-Bowden
(Chair)
Patrick Magee
(Senior Independent Director)
Caroline Gulliver
(Chair of the Audit Committee)
Professor Patrick Maxwell
Gillian Elcock
ADVISERS
Fund Manager and AIFM
SV Health Managers LLP
71 Kingsway
London WC2B 6ST
Telephone: 020 7421 7070
AIFM
(From 20 November 2023)
Schroder Unit Trusts Limited
1 London Wall Place
London EC2Y 5AU
Investment Managers
(From 20 November 2023)
Schroder Investment Management Limited
1 London Wall Place
London EC2Y 5AU
Company Secretary and Registered Office
Link Company Matters Limited
6th Floor, 65 Gresham Street, London, England EC2V 7NQ
Telephone: +44 (0)20 7410 5971
Email: companymatters@linkgroup.co.uk (mailto:companymatters@linkgroup.co.uk)
(From 20 November 2023)
Schroder Investment Management Limited
1 London Wall Place
London EC2Y 5AU
Administrator
The Northern Trust Company
50 Bank Street
London E14 5NT
Custodian and Depositary
Northern Trust Investor Services Limited
50 Bank Street
London E14 5NT
Administrator, Custodian and Depositary
(From 20 November 2023)
HSBC Bank plc
8 Canada Square
London E14 5HQ
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Embankment Place
London WC2N 6RH
Stockbroker
Deutsche Numis
45 Gresham Street
London EC2V 7BF
Registrar
Equiniti Limited
Aspect House
Spencer Road, Lancing
West Sussex BN99 6DA
Shareholder Helpline:
0371 384 2624
Website: www.shareview.co.uk (http://www.shareview.co.uk)
Lines are open from 8.30am to 5.30pm Monday to Friday
(excluding public holidays in England and Wales).
Company Status
The Company was established in 1994 as an independent investment trust whose
shares are listed on the London Stock Exchange (Ordinary shares: ISIN No:
GB0004559349; EPIC Code: IBT). The Company is registered in England and Wales
with a company number of 2892872.
Life of the Company
The Company's Articles of Association provide for Directors to put forward a
proposal for the continuation of the Company at the Company's AGM at
two-yearly intervals. Accordingly, a proposal will be put forward at the AGM
to be held on Tuesday, 12 December 2023.
Share Price and NAV Information
The Company's shares are listed on the London Stock Exchange. The Company
releases its NAV per share to the market on a daily basis.
Association of Investment Companies
The Company is a member of the Association of Investment Companies (the AIC).
Further information on the AIC can be found at its website, www.theaic.co.uk
(http://www.theaic.co.uk) .
Financial Calendar
January Payment of first interim dividend
28 February Half Year End
April Half Yearly Results announced
August Payment of second interim dividend
31 August Year End
November Annual Results announced
December Annual General Meeting (AGM)
Shares in Issue
As at 3 November 2023, the Company had 41,383,817 Ordinary shares of 25p each
in issue which included 2,345,210 Ordinary shares of 25p each held in
Treasury.
Website
The Company's website is located at www.ibtplc.com. The site provides share
price and NAV information as well as details of the Board of Directors, Fund
Manager and AIFM, information on investee companies, monthly factsheets, the
latest published Annual and Half Yearly Financial Statements and access to
recent market announcements.
ANNUAL REPORT
31 August 2023
SV Health Managers LLP
71 Kingsway
London, WC2B 6ST
Telephone: +44 (0)20 7421 7070
Email: IBT-IR@svhealthinvestors.com
Link Company Matters Limited
6th Floor, 65 Gresham Street
London, England, EC2V 7NQ
Telephone: +44 (0)20 7410 5971
For further information: www.ibtplc.com
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