Annual Financial Report

RNS Number : 6204E

Intl. Biotechnology Trust PLC

05 November 2015

 

INTERNATIONAL BIOTECHNOLOGY TRUST PLC (IBT or the Company)

Annual Financial Report Announcement of Audited Results for the year ended 31 August 2015

This announcement contains regulated information.

The information contained in this Annual Financial Report Announcement, including the 31 August 2014 comparatives, has been prepared in accordance with International Financial Reporting Standards (IFRS) and those parts of the Companies Act 2006 (the Act) applicable to companies reporting under IFRS. The comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU).  The results for the year ended 31 August 2015 are audited but do not constitute statutory accounts as defined in Section 434 of the Act.  The statutory accounts have not yet been delivered to the Registrar of Companies. Full statutory accounts for the year ended 31 August 2014 included an unqualified audit report and have been filed with the Registrar of Companies.

Financial Summary

	31 August	31 August	%
	2015	2014	Change
Group Performance
Total equity (£'000)	236,001	214,970	9.8
Ordinary shares in issue# ('000)	40,248	54,333	(25.9)
Net asset value (NAV) per share	586.4p	395.7p	48.2
Share price	551.5p	314.5p	75.4
Share price discount	(6.0)%	(20.5)%
Ongoing charges*	1.5%	1.7%
Ongoing charges including performance fee	2.0%	1.7%
Index Returns
NASDAQ Biotechnology Index (NBI) (sterling-adjusted)	2,327.37	1,741.81	33.6
FTSE All-Share Index (Total Return)	5,442.06	5,572.21	(2.3)

^# Excludes those held in treasury (31 August 2015: 4,215,000; 31 August 2014: 1,425,000).

* 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.

Chairman's Statement

Total return to 31 August 2015	One year	Three years	Five years
IBT NAV per share	48.2%	157.9%	280.4%
IBT Share Price	75.4%	169.7%	304.8%
NBI (sterling)	33.6%	161.1%	340.6%
FTSE All-Share Index	(2.3)%	29.3%	53.9%

The year ended 31 August 2015 saw the strongest performance yet reported by the Company, in both absolute and relative terms against the NBI benchmark. The NAV rose by 48.2% to 586.4p per share, while the share price increased by 75.4%, from 314.5p to 551.5p. Over the same period, the FTSE All-Share gave a negative return of (2.3)%. This also represents a significant outperformance of the sector, compared to the return of the NBI (sterling denominated) of 33.6%.

For the fourth year in succession, the quoted portfolio generated strong absolute performance of 42.1% with material outperformance over the NBI achieved through contributions from across the portfolio. This was supported by an excellent year for the unquoted stocks, which produced a return of 60.4% driven by exits and listings. Currency movements during the year produced a favourable impact on the NAV of £18.7m.

Performance Fee

As noted above the demonstrably superior performance achieved by the Investment Manager on both the quoted and unquoted pools of investments has given rise to a fee of £1,348,000. This payment includes £211,000 to reflect the intention of the Schedule to the Management Deed rather than its strict wording.

The Board considers that SV Life Sciences Managers (SVLS) gives the Company experienced fund management expertise with an excellent track record. The biotechnology sector is highly specialised and requires in depth expert knowledge that the fund manager provides being solely focused on the healthcare sector.

Share buybacks & discount

Over the period, the discount was reduced significantly, from 20.5% to 6.0%. The average discount for the period decreased to 12.6% from 15.0% for the year ended 31 August 2014. Contributing to this improvement has been the continuation of the Company's policy of strategic share buybacks. A total of 14,085,000 Ordinary shares were repurchased during the period (2014: 825,000), representing 25.3% of issued share capital at the beginning of the year. Of the shares repurchased, 10,995,000 have been cancelled, with 3,090,000 shares held in treasury. This reduced the overall Company NAV but enhanced the NAV per share by 24.3p because the shares were bought at a discount to NAV that averaged approximately 13.5%.

Since year end, a total of 510,000 further shares have been repurchased, for a consideration of £2.5m. A total of 1,125,000 ordinary shares previously held in treasury were cancelled since year end.

Investment in unquoted companies

Last year the Board decided to pause investments in new unquoted opportunities and to focus IBT's resources on the quoted portfolio. As noted above, the share prices of listed biotechnology stocks have risen significantly over the past 3 years, reflecting the maturation of the constituents of the index into more stable revenue-generating businesses. This reduction in the risk profile of the quoted portfolio provides a rationale for considering fresh investment opportunities in the unquoted area where the potential for substantial gains remains attractive. The Company will also continue to make additional follow-on investments in its existing unquoted portfolio in line with those companies' own development plans and where there is a strong investment case.

Board of Directors

Caroline Gulliver was appointed as a non-executive Director of the Company on 1 April 2015, and will be presented for election at the forthcoming Annual General Meeting (AGM). Dr David Clough has decided to retire after eleven years of service as a Director of the Company at the forthcoming AGM. The Company has benefited greatly from his considerable experience and valuable insights and, on behalf of Shareholders, I thank him for his contribution and wish him well in the future.

Prospects

The sector has experienced another year of impressive growth, and the fund's performance has beaten the benchmark set by the NBI. Excitement around developments in areas of key unmet medical need such as dementia, and novel approaches to cancer treatments continue to draw attention to the biotechnology sector and provide ongoing opportunities for value creation.

My belief is that investments in the biotechnology sector thus continue to offer excellent long-term investment opportunity. The healthcare sector is highly profitable with predictable and stable sales and earnings. Post-approval, innovative drugs and technologies benefit from market exclusivity due to intellectual property rights. The worldwide market for pharmaceutical products is increasing in line with a rising world population, a growing middle class in emerging market economies and an ageing population. In addition to the growth of the market, the sector's productivity has improved due to more effective drug development and differentiated regulatory review times for drugs meeting high medical need. However, the most important factor for the mid and long term positive outlook for the sector is the increasing understanding of the biology/pathology of human diseases. The great scientific advancements in many fields give hope to patients with mostly untreatable conditions and also help drug development by focusing the efforts on the right molecular targets and biological pathways.

The burden on global healthcare systems of changing demographics and population trends means that there is greater need than ever to develop new treatments for chronic conditions. These are being pursued with continued vigour and improving efficiency by both biotech and pharma companies and I continue to believe that the sector remains an excellent prospect for long-term growth. The expertise provided by our Investment Manager in identifying the best companies within the sector has a real impact in this complex field and has been successful as evidenced by the Company's impressive performance for the year.

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 in December, and the Directors strongly recommend shareholders vote in favour.

Annual General Meeting (AGM)

This year's AGM will be held at 12.30 pm on Wednesday 9 December 2015 at BNP Paribas Fortis, 5 Aldermanbury Square, London EC2V 7BP. In addition to the formal process of voting on various resolutions, the AGM is an opportunity for Shareholders to meet the Board and representatives of the Investment Manager.

As in previous years, there will be a presentation from the Investment Manager. If you have any detailed or technical questions, it would be helpful if you could raise these in advance of the meeting by emailing the Company Secretary at [e-mail] or in writing to BNP Paribas Secretarial Services Limited, 55 Moorgate, London EC2R 6PA. Shareholders who are unable to attend the AGM are encouraged to use their proxy votes.

I look forward to welcoming as many of you as possible to the meeting.

Alan Clifton

Chairman

4 November 2015

 

Investment Manager's Review

Best performing investments		Worst performing investments
	Contribution to NAV		(Reduction) in NAV
Chimerix	£6.2m	Biogen	£(2.2)m
Celgene	£5.3m	Intercept pharmaceuticals	£(1.3)m
Incyte Genomics	£5.2m	Mylan	£(1.3)m
Pharmacyclics	£5.1m	TransEnterix	£(0.7)m
Regeneron	£5.0m	VITAE Pharmaceuticals	£(0.6)m

Summary - strong performance

In the year under review, the Company's NAV increased by 48.2%. Both parts of the portfolio contributed to this, with the quoted part of the portfolio increasing by 42.1%, and the unquoted portfolio increasing by 60.4%. The NBI (sterling denominated) returned 33.6% and the FTSE All-Share Index fell 2.3%.

Overview and performance

2015		2014
Total portfolio companies	101	85
Quoted	81	61
Unquoted	20	24
NAV	£236.0m	£214.9m
Quoted*	£219.1m	£206.5m
Unquoted*	£27.8m	£18.2m
Other assets/(liabilities)	£(10.9m)	£(9.8m)
Legal commitments to investments in unquoted	£0.6m	£1.0m
Reserved for further investment in unquoted	£2.2m	£4.1m

* Adjusted for investments considered as part of the unquoted portfolio for performance evaluation purposes.

Quoted and Unquoted performance

For the purposes of performance measurement, companies that were first invested in whilst in the unquoted pool and have now become quoted but which suffer from illiquidity or other restrictions on trading are retained in the unquoted portfolio. This mirrors the performance fee arrangements and the responsibilities of the fund managers from SVLS of the two portfolios. The performance review below reflects this analysis. At the period end the difference in analysis was represented by investments in Entellus and TransEnterix, representing £7.3m or 3.1% of NAV.

Quoted portfolio

The quoted portfolio returns were strong and outperformed the NBI by 8.5% in the period under review.

Chimerix, Celgene, Incyte, Pharmacyclics and Regeneron were the largest contributors to relative performance in the period. Sector momentum has been helped by significant news flow. Chimerix announced positive progress of its late stage anti-infective programme. Celgene has been executing well on its current franchise that is dominated by the sales of its lead asset Revlimid. Investors were also impressed by Celgene's strategic move to acquire Receptos, which has the potential to diversify its product mix with an exciting mid stage multiple sclerosis asset. In addition to the Receptos acquisition, Celgene has one of the sectors' broadest advancing pipelines. Pharmacyclics was acquired by AbbVie for $21bn in March and Incyte continued its successful launch of its lead drug Jakafi as well as announcing strong advances within their extensive drug pipeline. Regeneron benefited from higher than anticipated sales of Eylea and announced strong late stage data in its new approach to tackling high cholesterol. The FDA approved Regeneron's Praluent in July and the sales launch is set to begin towards the end of the calendar year.

The main detractor from absolute performance was Biogen, which was impacted by reduced sales expectations of its multiple sclerosis drug Tecfidera. However, on the positive side, Biogen announced early stage data for a treatment for Alzheimer's disease. It was early data, so expectations should be tempered. However, it showed signals that point to possibly halting the course of the disease. Should this data translate positively in later stage trials, this would be a significant advance for patients suffering from this devastating disease. The sales potential for this programme, if successful, is large and could easily surpass Gilead's hepatitis C treatment, Sovaldi, which has sales of over $10bn per annum.

During the year, the fund has used its gearing facility in a tactical manner when opportunities have arisen, reducing the position as and when it was felt valuations were over heated. The fund was 9.2% geared at the end of the year.

Unquoted investments

During the year ended 31 August 2015, the unquoted portfolio contributed £12.0m or 29.89p per share to the Company's NAV, a return of 60.4%.

As at 31 August, the Company held 9.0% in investments in thirteen active unquoted or classified as unquoted portfolio companies plus 2.7% in interests in seven further companies that have been sold, but where further gains are possible contingent on reaching drug development or financial milestones set at the point when those companies were sold.

The main contributors to performance within the unquoted portfolio came from Convergence (£3.8m), Oncoethix (£2.4m), Entellus (£2.3m), Sutro (£1.1m) and Kalvista (£1.1m). There have been no significant changes to the investments contributing to the performance of the unquoted portfolio since the half year. Further details of the performance can be found in the interim financial statements available on the IBT website. There were no write downs or write offs of note in the period.

Follow-on investments were also made into eight existing holdings. Investments into all unquoted holdings totalled £3.1m. At the year end, there were further commitments totalling £0.6m and also additional estimated reserves of £2.2m to support existing unquoted portfolio companies. The proportion of unquoted companies in the portfolio has risen to 11.7% (31 August 2014: 9.7%) due to the increase in the value of contingent future payments on sold portfolio companies.

Outlook

Can biotech continue to outperform?

The biotechnology sector has been the top performing sector for the past five consecutive years, with 2015 set to be another year of excellent returns. The momentum of the sector is a result of a combination of factors, namely: new and exciting clinical data, strong drug launches and continued mergers and acquisitions.

Innovative new drug sub sectors

Last year investors were drawn to strong drug launches in hepatitis C and multiple sclerosis from Gilead and Biogen. This year's focus has shifted to new areas of development namely the exciting new data or drug approvals in Cystic Fibrosis (Vertex), Alzheimer's disease (Biogen) and cardiovascular disease (Amgen/Regeneron). This continuous stream of innovation and new product launches is far from over. Next year we will begin to see how the launches of Vertex's Orkambi and Amgen/Regeneron's PCSK9s pan out. Strong launches should bode well for the sector. We also expect to see new clinical data from across the industry, notably data from Biogen's Anti-LINGO drug in multiple sclerosis and further immune-oncology data which, if successful, could add to the momentum.

Valuations - large biotech

The main contributor to sector performance over the past five years has been the increase in valuations of the profitable biotechnology companies. In terms of forward P/E multiples, the sector has expanded from 9x in 2010 to 22x in 2015. However, over the same time period, the S&P 500's P/E multiple has expanded 85%. Therefore the strong absolute return that has so markedly outstripped the wider equity markets, has been driven mostly by earnings growth.

Valuations - small and mid-size biotech

These companies have also experienced a significant increase in valuations but we believe that they remain justified. Where we believe a valuation is inflated we have avoided investment, as was the case with some of the recent IPOs in the sector. It is important to note that merger and acquisition valuations are still at a premium to current market valuations, for example Alexion acquired Synergeva for $8.4bn when the market valued the company for less than half that. This highlights, not only that larger pharmaceutical companies still see value in the mid-cap arena, but also that the current backdrop of easy access to capital driven by low interest rates and strong cash generation makes acquisitive growth attractive.

Drug pricing

We would agree that one of the main risks facing the healthcare sector, is the perpetual increase in the cost burden faced by governments today. The cost, in percentage of GDP terms, is creeping up year on year in many western countries. However, drugs make up only 10% of the total healthcare bill in the US and that includes both branded and generic drugs. We believe innovative drugs will continue to secure robust prices despite the pressure on government spending. Other areas that we believe are more likely to be in focus when reducing expenditure are lengthy hospital stays and drugs without clear safety or efficacy benefits in an indication with existing approved treatment. This is why we choose to invest in highly innovative drugs for high unmet medical need. Moreover many of these new drugs actually reduce the overall cost burden by for example keeping a patient out of hospital. It is a simple and effective argument that we believe stands up to the pricing debate.

Conclusion

The outlook for the sector continues to be strong. Biotech companies continue to impress with their scientific breakthroughs and execution. We believe valuations are reasonable, at around 20x forward price/earnings ratios for true innovation and growth.

SV Life Sciences Managers LLP

Investment Manager

4 November 2015

Principal risks and uncertainties

The Board 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. A full analysis of the Directors' system of internal control is set out in the Corporate Governance Statement on page 23 of the Annual Report.

The Company's key risks include:

Market risk

The Company's returns are affected by changes in economic, financial and corporate conditions which can cause market fluctuations; a significant fall in equity markets is likely to affect adversely the value of the Company's portfolio. SVLS provides the Board with information on the market at each Board meeting and the Board discusses appropriate strategies to manage the impact of any significant change in circumstances. The biotechnology sector has its own specific risks leading to higher volatility than broad equity market indices. While the Company seeks to maintain a diversified portfolio within the confines of the current investment policy, biotechnology sector-specific or equity market risks cannot be eliminated by a diversified exposure to global biotechnology.

Investment and strategy risks

Alignment of the investment strategy with the Company's investment objective is essential and an inappropriate approach by SVLS towards stock selection and asset allocation may lead to loss and/or underperformance and failure to achieve the Company's objective of long-term capital growth, resulting in a widening of the discount. The Board manages these risks through its framework of investment restrictions and regular monitoring of SVLS' adherence to the agreed investment strategy.

SVLS provides regular reports to the Board on portfolio activity, strategy and performance, as well as risk monitoring. The reports are discussed in detail at Board meetings, which are all attended by the Investment Manager, to allow the Board to monitor the implementation of investment strategy and process.

Currency risk

The Financial Statements and performance of the Company are denominated in sterling because it is the currency of most relevance to the Company's investors. However, the majority of the Company's assets 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 currently the Board's policy to hedge against foreign currency movements.

Discount to the NAV

Failure to meet investment objectives and/or poor sector-specific or general equity sentiment can affect the Company's share price, resulting in shares trading at a relatively large discount to the underlying NAV. The Board continually reviews the Company's investment performance, taking into account changes in the market, and regularly reviews the position of the NAV per share compared to the share price. Further information on the Company's discount is provided in the Chairman's Statement above.

Tax, legal and regulatory risks

To qualify as an investment trust, the Company must comply with Section 1158 Corporation Tax Act 2010 (CTA). Further details of the Company's approval under Section 1158 CTA are set out in the Directors' Report in "Principal activities".

A breach of Section 1158 CTA could result in the Company being subject to Capital Gains Tax on the sale of investments. Consequently, pre-trade compliance checks are embedded into the investment procedures of SVLS. Reports confirming the Company's compliance with the provisions of Section 1158 CTA are submitted by SVLS to each Board meeting together with relevant portfolio and financial information.

The Company and the Group is also subject to other laws and regulations, including the Act, Financial Conduct Authority (FCA) Listing, Prospectus and Disclosure and Transparency Rules (the Rules) and Alternative Investment Fund Managers Directive (AIFMD). Breaches of these laws and regulations could lead to criminal action being taken against Directors or suspension of the Company's shares from trading. SVLS and the Company Secretary provide regular reports to the Board on compliance with relevant provisions and report breaches without delay. The Board also relies on the services of its other professional advisers to minimise these risks.

Operational risks

As the Company's main functions are delegated to third party service providers, operational risk arises from insufficient processes of internal control which would include compliance with statutes and regulations governing the functions of the Company.

Such risks are assessed by the Audit Committee, which receives regular reports from its main service providers as to the internal control processes in place within those organisations.

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 2015 was £164,726 (2014: £153,500) of which £45,125 (2014: £38,375) was outstanding at the year end.

At 31 August 2015 there was an outstanding balance of £511,000 due to subsidiary, IBT Securities Limited (2014: £511,000 due to subsidiary).

Management report

Listed companies are required by the FCA's Rules to include a management report in their Financial Statements. The information required to be in the management report for the purposes of the Rules is included in the Strategic Report on pages 3 to 14 inclusive (together with the sections of the Annual Report incorporated by reference) and the Director's Report on pages 16 to 23 of the Annual Report. Therefore, a separate management report has not been included.

Directors' responsibilities statement

The Directors are responsible for preparing the Annual Report, the Report on Directors' Remuneration and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Group and Parent Company Financial Statements in accordance with IFRS as adopted by the EU. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Parent Company and of the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgements and accounting estimates that are reasonable and prudent;

• State whether applicable IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

• Prepare Financial Statements on the going concern basis unless it is inappropriate to presume the Company and the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and the Group and enable them to ensure that the Financial Statements and the Report on Directors' Remuneration comply with the Act and, as regards the Group Financial Statements, Article 4 of the International Accounting Standards (IAS) Regulation. They are also responsible for safeguarding the assets of the Parent Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Annual Report is published on the following website: www.ibtplc.com, which is a website maintained by SVLS. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of SVLS. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditors accept 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.

The Directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides information necessary for Shareholders to assess the Company's performance business model and strategy.

Each of the Directors, whose names and functions are listed on page 15 of the Annual Report, confirms that, to the best of his or her knowledge:

• The Group Financial Statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the Group;

• The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that it faces; and

• As outlined on page 18 of the Annual Report, the Directors have undertaken all necessary reviews to provide a going concern recommendation.

On behalf of the Board

Alan Clifton

Chairman

4 November 2015

Group Statement of Comprehensive Income

		For the year ended 31 August 2015			For the year ended 31 August 2014
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	2	-	83,559	83,559	-	47,426	47,426
Exchange (losses)/gains on currency balances		-	(425)	(425)	-	8	8
Income	3	409	-	409	536	-	536
Expenses
Management fee		(2,360)	-	(2,360)	(2,145)	-	(2,145)
Performance fee		-	(1,348)	(1,348)	-	-	-
Administrative expenses		(1,136) -----------	- ----------	(1,136) -----------	(962) -----------	- ---------	(962) ---------
Profit/(loss) before finance costs and tax		(3,087)	81,786	78,699	(2,571)	47,434	44,863
Finance costs
Interest payable		(166) ---------	- ----------	(166) ----------	(109) -----------	- ----------	(109) ----------
Profit/(loss) on ordinary activities before tax		(3,253)	81,786	78,533	(2,680)	47,434	44,754
Taxation		(54) ----------	- ----------	(54) -----------	(35) -----------	- ----------	(35) ----------
Profit/(loss) for the year attributable to owners of the parent		(3,307) =====	81,786 =====	78,479 =====	(2,715) ======	47,434 =====	44,719 =====
Earnings/(loss) per Ordinary share	4	(7.52)p =====	186.06p =====	178.54p =====	(4.94)p =====	86.24p =====	81.30p =====

The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the EU.

The Group does not have any other comprehensive income and hence the net profit/(loss) for the year, as disclosed above, is the same as the Group's total comprehensive income.

The revenue and capital columns are supplementary and are prepared under guidance published by the AIC.

The accompanying notes form part of these Financial Statements.

Group and Company Statements of Changes in Equity

	Called up		Share		Capital		Share
	share		premium		redemption		purchase		Capital		Revenue
	capital		account		reserve		reserve		reserves		reserve		Total
Group	£'000		£'000		£'000		£'000		£'000		£'000		£'000
For the year ended 31 August 2015
Balance at 1 September 2014	13,939		18,805		27,878		42,497		138,116		(26,265)		214,970
Total Comprehensive Income:
Profit/(loss) for the year	-		-		-		-		81,786		(3,307)		78,479
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	-		-		-		(4,064)		(9,398)		-		(13,462)
Shares bought back and cancelled	(2,748)		-		2,748		(38,433)		(5,553)		-		(43,986)
Shares cancelled from treasury	(75) ----------		- -----------		75 -------------		- -------------		- -------------		- ------------		- ------------
Balance at 31 August 2015	11,116 ======		18,805 ======		30,701 ======		- ======		204,951 ======		(29,572) =======		236,001 =======
	Called up		Share		Capital		Share
	share		premium		redemption		purchase		Capital		Revenue
	capital		account		reserve		reserve		reserves		reserve		Total
Group	£'000		£'000		£'000		£'000		£'000		£'000		£'000
For the year ended 31 August 2014
Balance at 1 September 2013	13,939		18,805		27,878		44,918		90,682		(23,550)		172,672
Total Comprehensive Income:
Profit/(loss) for the year	-		-		-		-		47,434		(2,715)		44,719
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	- -------------		- -------------		- ---------------		(2,421) -------------		- -------------		- ------------		(2,421) ------------
Balance at 31 August 2014	13,939 =======		18,805 ======		27,878 ========		42,497 =======		138,116 =======		(26,265) =======		214,970 =======
	Called up		Share		Capital		Share
	share		premium		redemption		purchase		Capital		Revenue
	capital		account		reserve		reserve		reserves		reserve		Total
Company	£'000		£'000		£'000		£'000		£'000		£'000		£'000
For the year ended 31 August 2015
Balance at 1 September 2014	13,939		18,805		27,878		42,497		137,605		(26,265)		214,459
Total Comprehensive Income:
Profit/(loss) for the year	-		-		-		-		81,786		(3,307)		78,479
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	-		-		-		(4,064)		(9,398)		-		(13,462)
Shares bought back and cancelled	(2,748)		-		2,748		(38,433)		(5,553)		-		(43,986)
Shares cancelled from treasury	(75) -------------		- -------------		75 ---------------		- -------------		- -------------		- ------------		- ------------
Balance at 31 August 2015	11,116 ======		18,805 ======		30,701 ========		- =======		204,440 ======		(29,572) =======		235,490 =======
	Called up	Share		Capital		Share
	share	premium		redemption		purchase		Capital		Revenue
	capital	account		reserve		reserve		reserves		reserve		Total
Company	£'000	£'000		£'000		£'000		£'000		£'000		£'000
For the year ended 31 August 2014
Balance at 1 September 2013	13,939	18,805		27,878		44,918		90,171		(23,550)		172,161
Total Comprehensive Income:
Profit/(loss) for the year	-	-		-		-		47,434		(2,715)		44,719
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	- ------------	- ------------		- --------------		(2,421) -------------		- -------------		- ------------		(2,421) ------------
Balance at 31 August 2014	13,939 =======	18,805 =======		27,878 ========		42,497 =======		137,605 =======		(26,265) =======		214,459 =======

The accompanying notes form part of these Financial Statements.

 

Group and Company Balance Sheets

		At 31 August	At 31 August	At 31 August	At 31 August
		2015	2015	2014	2014
		Group	Company	Group	Company
	Notes	£'000	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		246,929 -------------	246,929 --------------	224,723 ---------------	224,723 ---------------
		246,929	246,929	224,723	224,723
Current assets
Receivables		14,456	14,456	890	890
Cash and cash equivalents		296 ------------	296 -------------	- --------------	- --------------
		14,752 ------------	14,752 -------------	890 --------------	890 --------------
Total assets		261,681	261,681	225,613	225,613
Current liabilities
Borrowings		(21,864)	(21,864)	(3,017)	(3,017)
Payables		(3,816) -------------	(4,327) -------------	(7,626) -------------	(8,137) --------------
		(25,680) -------------	(26,191) -------------	(10,643) -------------	(11,154) --------------
Net assets		236,001 -------------	235,490 -------------	214,970 -------------	214,459 --------------
Equity attributable to equity holders
Called up share capital		11,116	11,116	13,939	13,939
Share premium account		18,805	18,805	18,805	18,805
Capital redemption reserve		30,701	30,701	27,878	27,878
Share purchase reserve		-	-	42,497	42,497
Capital reserves		204,951	204,440	138,116	137,605
Revenue reserve		(29,572) --------------	(29,572) --------------	(26,265) --------------	(26,265) --------------
Total equity		236,001 =======	235,490 =======	214,970 =======	214,459 =======
Basic and diluted NAV per Ordinary share	5	586.37p =======	585.10p =======	395.66p =======	394.71p =======

The Financial Statements as contained within the Annual Report were approved by the Board on 4 November 2015 and signed on its behalf by Alan Clifton, Chairman and John Aston, Audit Committee Chairman.

The accompanying notes form part of these Financial Statements.

Group and Company Cash Flow Statements

	For the	For the	For the	For the
	year ended	year ended	year ended	year ended
	31 August	31 August	31 August	31 August
	2015	2015	2014	2014
	Group	Company	Group	Company
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Profit before tax	78,533	78,533	44,754	44,754
Adjustments for:
Increase in investments	(22,206)	(22,206)	(56,285)	(56,285)
(Increase)/decease in receivables	(13,566)	(13,566)	1,933	1,933
(Decease)/increase in payables	(3,810)	(3,810)	7,402	7,402
Taxation	(54) -----------	(54) -----------	(35) ---------	(35) ---------
Net cash flows generated from/(used in) operating activities	38,897 -----------	38,897 -----------	(2,231) ---------	(2,231) ----------
Cash flows used in financing activities
Share repurchase costs	(57,448) -----------	(57,448) -----------	(2,421) ---------	(2,421) ----------
Net cash used in financing activities	(57,448) -----------	(57,448) -----------	(2,421) ---------	(2,421) ----------
Net decrease in cash and cash equivalents	(18,551)	(18,551)	(4,652)	(4,652)
Cash and cash equivalents at 1 September	(3,017) -----------	(3,017) -----------	1,635 ---------	1,635 ----------
Cash and cash equivalents at 31 August	(21,568) =====	(21,568) ======	(3,017) ======	(3,017) ======

The accompanying notes form part of these Financial Statements.

 

Notes to the Financial Statements

1. Accounting Policies

The Group comprises International Biotechnology Trust plc (the Company) and its wholly owned subsidiary, IBT Securities Limited (the Subsidiary).

The nature of the Group's operations and its principal activities are set out in the Strategic Report and Directors' Report.

Consolidated and Company Financial Statements have been prepared in accordance with International Financial Reporting Standards (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), as adopted by the EU.

For the purposes of the consolidated Financial Statements, the results and financial position of each entity is expressed in pounds sterling, which is the functional currency of the Company and of its Subsidiary and the presentational currency of the Group. 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 Group's operating expenses are paid.

The principal accounting policies followed, which have been applied consistently for all years presented, are set out below:

(a) Basis of preparation

The consolidated and parent company Financial Statements have been prepared on a going concern basis 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 January 2009 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.

(b) Basis of consolidation

The consolidated Financial Statements of the Group comprise the Financial Statements of the Company and its Subsidiary. The Subsidiary is fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Company has power to govern the financial and operating policies of an investee entity so as to obtain all the benefits from its activities. Inter-company transactions, balances and unrealised gains/losses on transactions between group companies are eliminated. Accounting policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Group.

No Statement of Comprehensive Income is presented for the Company, as permitted under Section 408 of the Act.

(c) 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 profit after taxation in the revenue column is the measure the Directors believe appropriate in assessing the Group's compliance with certain requirements set out in Section 1158 Corporation Tax Act 2010 (CTA).

(d) Income

Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Special dividends are treated as revenue return or as capital return, depending on the facts of each individual case. Income from current asset investments is included in the revenue for the year on an accruals basis and is recognised on a time apportionment basis. Where the Group has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income in the revenue column of the Statement of Comprehensive Income. Any excess in the value of shares over the amount of cash dividend foregone is recognised as a gain in the capital column of the Statement of Comprehensive Income.

Interest from fixed income securities is recognised on a time-apportionment basis so as to reflect the effective yield on the fixed income securities.

Deposit interest outstanding at the year end is calculated and accrued on a time apportionment basis using market rates of interest.

(e) Expenses and interest payable

Administrative expenses including the management fee and interest payable are accounted for on an accruals basis and are recognised when they fall due.

All expenses and interest payable have been presented as revenue items except as follows:

• Any performance fee payable is allocated wholly to capital, as it is primarily attributable to the capital performance of the Company's assets; and

• Transaction costs incurred on the acquisition or disposal of investments are expensed and included in the costs of acquisition or deducted from the proceeds of sale as appropriate.

(f) Taxation

Deferred tax is calculated in full, using the liability method, on all taxable and deductible temporary differences at the 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.

(g) Non-current asset investments held at fair value

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 Group 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.

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.

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 2012). These may include using recent arm's length market transactions between knowledgeable, willing parties, if available, reference to recent rounds of re-financing undertaken by investee companies involving knowledgeable parties, reference to the current fair value of another instrument that is substantially the same or an earnings multiple.

As many of the unquoted investments are early stage investments, without revenue, valuation is also assessed up or down with reference to a range of factors among which are: ability of portfolio company management to keep within cash and operating budgets, clinical developments towards management and/or investor milestone targets, clinical trial data, progress of competitor products, performance and quality of the management team, litigation brought by or against the portfolio company, patent approval or challenge, 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.

Any gains and losses realised on disposal are recognised in the capital column of the Statement of Comprehensive Income.

(h) Investment in subsidiary

The Company's investment in the Subsidiary is included at cost in the Company's Balance Sheet.

(i) 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 on investments held at fair value through profit or loss".

(j) Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

The critical estimates and assumptions relate, in particular, to the valuation of unquoted investments, as summarised in (g) above.

Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

(k) Cash and cash equivalents

In the Statement of Cash Flows, 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 or investment opportunities and cash balances are held at their value (translated to sterling at the Balance Sheet date where appropriate). In the Balance Sheet, bank overdrafts are shown within borrowings in current liabilities.

(l) 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.

(m) Other payables

Other payables are non 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.

(n) Repurchase of Ordinary shares (including those held in treasury)

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 share purchase reserve and thereafter the capital reserves. 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.

(o) 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) Share purchase reserve

A distributable reserve, which is used to finance the repurchase of shares in issue.

(iv) Capital reserves

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; and

• Repurchase of shares in issue.

(v) Revenue reserve

Comprises accumulated undistributed revenue profits and losses.

(p) Accounting developments

(i) Standards, amendments and interpretations becoming effective in the year to 31 August 2015:

• IAS 27 (revised), 'Separate financial statements' Requirements for consolidated financial statements moved to IFRS10.

• IAS 28 (revised), 'Associates and joint ventures' Supersedes IAS28, 'Investments in Associates'.

• IFRS 10, 'Consolidated Financial Statements' Provides additional guidance to assist in the determination of control where this is difficult to assess.

• IFRS 11, 'Joint Arrangements' Replaces IAS31, Interests in Joint Ventures.

• IFRS 12, 'Disclosure of Interests in Other Entities' Includes the disclosure requirement for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

• Amendments to IFRS 10,11,12 - transition guidance.

• Amendments to IFRS 10, IFRS12 and IAS27 - Exception from consolidation for 'investment entities'.

• Amendments to IAS 32 - 'Financial instruments: Presentation', clarifies offsetting financial assets and liabilities.

• Amendments to IAS 39 'Financial instruments: Recognition and measurement', novation of derivatives and continuation of hedge accounting.

• IFRIC 21, 'Levies'.

None of the above had any significant impact on the amounts reported in these Financial Statements.

(ii) Standards, amendments and interpretations to existing standards that become effective in future accounting periods and have not been adopted early by the Group:

• IFRS 9, 'Financial Instruments' (effective for financial periods beginning on or after 1 January 2018) - addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group is yet to assess IFRS 9's full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January 2018, subject to endorsement by the EU.

• IFRS 15, 'Revenue from contracts with customers' (effective for annual reporting periods beginning on or after 1 January 2018).

It is not expected that the standards listed above will have a significant impact on the Financial Statements of the Group in future periods.

(iii) Standards, amendments and interpretations to existing standards that become effective in future accounting periods (periods after 1 January 2016), but are not relevant for the Group's operations:

• IAS 1 - (amended) Presentation of Financial Statements

• IAS 16 - (amended) Property, Plant and Equipment

• IAS 38 - (amended) Intangible Assets.

2. Gains on Investments Held at Fair Value

	For the year ended	For the year ended
	31 August	31 August
	2015	2014
	£'000	£'000
Net gains on disposal of investments at historic cost	99,394	28,523
Less fair value adjustments in earlier years	(39,241) ------------	(14,438) ------------
Gains based on carrying value at previous Balance Sheet date	60,153	14,085
Investment holding gains during the year	23,406 -----------	33,341 ------------
	83,559 -----------	47,426 ------------
Attributable to:
Quoted investments	72,833	46,630
Unquoted investments	10,726 ======	796 ======
	83,559 ======	47,426 ======

3. Income

	For the year ended	For the year ended
	31 August	31 August
	2015	2014
	£'000	£'000
Income from investments held at fair value through profit or loss:
Unfranked dividends	363	247
Interest on debt securities	46 -----------	289 -----------
	409 ======	536 ======

4. Net Profit/(Loss) per Ordinary Share

	For the year ended	For the year ended
	31 August	31 August
	2015	2014
	£'000	£'000
Net revenue loss	(3,307)	(2,715)
Net capital profit	81,786 ------------	47,434 ------------
	78,479 ======	44,719 ======
Weighted average number of Ordinary shares in issue during the year*	43,955,896	55,003,553
	Pence	Pence
Revenue loss per Ordinary share	(7.52)	(4.94)
Capital profit per Ordinary share	186.06 ------------	86.24 -----------
Total earnings per Ordinary share	178.54 ======	81.30 ======

*Excluding those held in treasury.

The increase in the NAV per share from 395.66p (31 August 2014) to 586.37p (31 August 2015) includes the total earnings per share as disclosed above and the effect of the Company, during the year, repurchasing shares at a discount to the prevailing NAV per share.

5. Net Asset Value per Ordinary Share

The calculation of the NAV per Ordinary share is based on the following:

	At 31 August	At 31 August	At 31 August	At 31 August
	2015	2015	2014	2014
	Group	Company	Group	Company
NAV (£'000)	236,001 ========	235,490 ========	214,970 ========	214,459 ========
Number of Ordinary shares in issue	40,247,663 ========	40,247,663 ========	54,332,663 ========	54,332,663 ========
NAV per Ordinary share (pence)	586.37 ========	585.10 ========	395.66 ========	394.71 ========

6.

The figures and financial information for the year ended 31 August 2014 have been extracted from the latest published Financial Statements and do not constitute the statutory accounts for that year as defined in Section 434 of the Act.  Those Financial Statements have been delivered to the Registrar of Companies and included the Report of the Auditors which was unqualified and did not contain a statement under Section 498 of the Act.   This Annual Financial Report Announcement does not constitute statutory accounts for the year ended 31 August 2015 as defined in Section 434 of the Act.

7.

The Annual Report for the year ended 31 August 2015 will be posted to Shareholders in November 2015 and thereafter copies will be available upon request at the Company's Registered Office: 55 Moorgate, London EC2R 6PA.  The Annual Report will also be available on the Company's website, www.ibtplc.com, from today.  A copy of the Annual Report for the year ended 31 August 2015 has been submitted to the National Storage Mechanism of the UK Listing Authority and will shortly be available for inspection at: www.Hemscott.com/nsm.do. The Company's AGM will be held at 12.30 pm on Wednesday, 9 December 2015 at the offices of BNP Paribas Fortis, 5 Aldermanbury Square, London EC2V 7BP.

 

 

For further information, please contact:

Kate Bingham

Telephone: [phone]

SV Life Sciences Managers LLP

Investment Manager

Nariman Ghandhi

Telephone: [phone]

BNP Paribas Secretarial Services Limited

Company Secretary

5 NOVEMBER 2015

 

 

END

 

 

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