Half Yearly Report

Intl. Biotechnology Trust PLC

03 May 2023

 

3 May 2023

INTERNATIONAL BIOTECHNOLOGY TRUST PLC

("IBT" or the "Company")

Half Yearly Report for the six months ended 28 February 2023

CHAIR'S STATEMENT

I am pleased to report that the Fund Manager has again produced a strong set of results in the first six months ended 28 February 2023. This is my first report since taking over as Chair in December, and I would like to record my thanks to Jim Horsburgh for his tenure. The Company's share price returned 8.0% over the six month period, well ahead of the Nasdaq Biotechnology Index (NBI), which had a total return of 1.8%. The Company's Net Asset Value (NAV) total return over the period was 6.1%. Over three years to the end of February 2023, the total share price return was 43.2%, versus 22.6% for the NBI, and the Company's share price was also ahead over five years with a total return of 43.8% versus 41.2% for the NBI. All figures are on a sterling adjusted total return basis, with dividends reinvested.

These returns are all the more impressive given the continued upheaval in global equity markets. Markets worldwide are grappling with high levels of inflation and rising interest rates, the ongoing conflict in Ukraine and increasing geopolitical tension between the US and China. The abandonment of the Zero COVID-19 policy in China led to a recovery in global, and particularly, Asian markets during the period, whilst political gyrations in the UK in September led to a fall in the FTSE, followed by a recovery in the final months of 2022. The frothy valuations seen in the biotechnology sector during the pandemic have now been largely unwound, which has led to a more fertile environment for M&A activity. Both the quoted portfolio and the unquoted portfolio benefitted from being invested in takeover targets during the first six months of the Company's financial year.

QUOTED PORTFOLIO

Our joint lead Investment Managers, Ailsa Craig and Marek Poszepczynski have continued to focus on identifying revenue generating innovative biotech opportunities with significant success. During the six months ended 28 February 2023, the NAV per share of the quoted portfolio returned 5.8%, substantially outperforming the reference benchmark of the NBI which returned 1.8%.

During the period under review, the portfolio benefitted from having positions in three quoted companies which were the subject of takeover bids. Of particular note, was the announcement in December 2022 of the acquisition of Horizon Therapeutics by Amgen, which has not yet completed and is subject to regulatory approval. Amgen agreed to pay a premium of 47.9% above the last closing price of Horizon Therapeutics prior to the announcement that the company was the subject of a takeover bid on 29 November 2022. At the time of the announcement Horizon was the largest position in the quoted portfolio representing 13.5% of IBT's NAV.

The rising interest rate environment continues to have an impact on the financing and valuation of smaller early stage biotech companies. The Investment Managers' decision to overweight exposure towards larger biotech companies with proven therapeutics which are already generating revenues has, thus far, been vindicated.

UNQUOTED PORTFOLIO

The Investment Managers of the unquoted portfolio, Kate Bingham and Houman Ashrafian have also achieved strong performance for investors over the period. As at 28 February 2023, the unquoted portfolio comprised 11.8% of the Company's NAV. 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 contingent milestones.

SV Fund VI

SV Fund VI, which represents 5.8% of IBT's NAV, has performed well, delivering a currency adjusted internal rate of return (IRR) of 20.5% per annum since the Company's first investment in the fund in 2016. The Fund, which includes a range of early-stage biotech, medical device and healthcare services companies, is now a mature portfolio with 83% of the capital committed drawn down. During the six months ended 28 February 2023, SV Fund VI made one distribution of $1.8m (£1.6m) and one capital call of $0.9m (£0.8m).

SV BCOF

During the period under review, IBT increased its commitment to SV BCOF, the newer fund which invests in later stage and/ or pre-IPO opportunities. SV BCOF now represents 4.2% of IBT's NAV. The $30m commitment is only 27% drawn down, but the fund has had a notable early success with a £5.5m uplift in the period. In February 2023 Nimbus Therapeutics, an early BCOF investment, 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.

PERFORMANCE FEE

Thanks to outperformance in both the quoted and unquoted portfolios, a performance fee of £199,000 has been accrued in the accounts for the six months to 28 February 2023. The quoted portfolio achieved more than 10% relative performance above the NBI benchmark plus a 0.5% hurdle rate which has led to an accrual of £150,000 in performance fees. The accrued performance fee of £49,000 on the unquoted portfolio is due to net realised gains during the period.

DIVIDENDS

The Company's approved dividend policy (last approved at the 2022 AGM) is to make dividend payments equivalent to 4% of the Company's NAV, as at the last day of the preceding financial year ending 31 August through two equal semi-annual distributions. The first dividend for the year of 14 pence per share was paid on 27 January 2023. The Board intends to make the declaration of the second dividend for the year in accordance with the above policy in July for payment in August 2023.

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 the discount. 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 six months under review, 98,180 shares were bought back to be held in Treasury. The share price discount to NAV, which was 6.6% at 31 August 2022 had narrowed to 4.8% at 28 February 2023.

ESG

The Board recognises the importance that investors place on their funds being invested in responsible companies which generate sustainable returns. The companies in which IBT invests have an important social impact through extending and enhancing human life. Our Investment Managers seek to identify companies which are developing innovative treatments for diseases where there is a high unmet need, and where progress is not only profitable, but life changing for patients.

In accordance with our ESG policy, the Investment Managers incorporate an ESG screening process in the investment process. Data provided by Morningstar's Sustainalytics is used to measure the environmental and social impact and the quality of their governance in key portfolio holdings. The results of this screen are outlined on page 15 of this report.

BOARD SUCCESSION

Following Jim Horsburgh's retirement from the Board, we engaged an independent search consultant to help us identify a new director. I am delighted to welcome Gillian Elcock, who joined the Board at the beginning of February 2023. Gillian was the founder and Managing Director of Denny Ellison, an independent investment research company, and is a highly experienced equity research analyst. Gillian is also a member of the Board of the CFA UK. Gillian will stand for election at the Company's AGM in December.

CHANGE OF MANAGER

As announced on 13 February 2023, the Company's AIFM and Manager, SV Health has decided to focus on its venture capital business and has served notice of termination to IBT plc. Whilst this was an unexpected development, the Board understands SV's decision and is pleased that the Investment Managers will continue to focus on delivering results for shareholders during the transition period.

In order to ensure that shareholders views are uppermost in our minds as we deliberate on the future for IBT, the Board engaged with many of our key shareholders following the announcement. We have listened to our shareholders and sought to understand their perceptions of IBT's strengths and the key reasons why they have chosen to invest. We have used this comprehensive feedback to inform our decisions during the independent process of selecting a new manager for IBT. I am pleased to report that we received many expressions of interest in managing the Company's assets. Together with our professional advisers, we narrowed this field down to a short list of candidates before sending them request for proposals. We then selected six institutions to present to the Board. At the time of writing, we are in the process of reviewing the presentations we have received. Unfortunately, we are currently unable to disclose further details during these confidential negotiations. We are determined to minimise the period of uncertainty and expect to be able to release more information in the near future. We would like to thank shareholders for their support and patience.

OUTLOOK

Since the half year end in February, the risk of contagion following the demise of Silicon Valley Bank and Signature Bank in the US, and Credit Suisse in Europe, has sent shivers through the market. Nevertheless, the Board believes that the biotechnology sector offers a very compelling long term investment opportunity. Over the 20 years from the end of 2002 to the end of 2022 the NBI has produced an average return of 13.3% per annum versus 11.4% for the S&P 500.

The aging global population will continue to ensure strong demand for therapeutics to treat disease and enhance quality of life. We are living through a period of great innovation in medical science, including exciting advances in cell based and gene therapies, which have the potential to change outcomes for patients suffering from diseases such as cancer and dementia. The renewed focus on drug development following the global pandemic has highlighted the potential for faster, more personalised clinical trials which should reduce the risks of late stage failure.

Cash rich, large pharmaceutical companies needing to replenish their pipelines are increasingly looking to the smaller revenue generating innovative companies in which IBT invests. We share our Investment Managers' enthusiasm that the current more realistic valuations and the prospects for increased corporate activity in the biotech sector represent an excellent opportunity for IBT shareholders.

KATE CORNISH-BOWDEN | Chair

2 May 2023

FUND MANAGER'S REVIEW

SUMMARY

In the six months to 28 February 2023, the NAV per share returned 6.1% and the share price returned 8.0%. The Company's benchmark, the NASDAQ Biotechnology Index, returned 1.8%. All figures are on a sterling adjusted total return basis, with dividends reinvested.

By subsector, 74% of the portfolio was invested in therapeutics, 13% in specialty pharmaceuticals and 4% in life sciences, tools, and diagnostics. 9% of the Company was invested in venture funds.

The Company's three largest therapeutic areas were oncology 36%, rare diseases 16%, and diseases of the central nervous system 15%.

At the end of the period the Company's gearing position was 8.2% and the Company's discount had narrowed from 6.6% to 4.8%.

QUOTED PORTFOLIO

For the six-month period ended 28 February 2023, the NAV of the quoted portfolio returned 5.8%, versus 1.8% for the NASDAQ Biotechnology Index (gross of management and performance fees). All figures are on a sterling adjusted total return basis, with dividends reinvested.

Market Backdrop

During the period under review, global macro-economic conditions have continued to be uncertain. Interest rates across the world have risen and investors have been cautious about investing into areas deemed to be risky.

Continued inflationary pressure has caused monetary policy makers to increase interest rates faster than anticipated. The rise in interest rates led to renewed popularity of debt instruments. Following record inflows into equities during the pandemic, the third quarter of 2022 saw record outflows from UK equities following the brief tenure of Liz Truss as Prime Minister.

The biotech sector has seen a divergence in performance depending on the characteristics of the specific biotech company. Smaller early stage companies have struggled to keep their valuations compared to their larger, more diversified peers. While innovation in these smaller companies has been exciting, investors have held off from backing them due to concerns over financing costs. In the last quarter of 2022 investors, fearing that the rising valuations seen in technology companies were unsustainable, rotated their focus into the largest biotech companies. In turn, those mega cap biotech names which are usually considered to be slow growth in nature, experienced an unexpected boost to performance. At the start of 2023, following a correction in the global mega- cap technology companies, that money retreated back into technology, causing a retraction in the 'safe haven' mega cap biotech names. Meanwhile the performance of the mid- tier biotech companies which have products that have been approved and are on the market but have not yet turned profitable, have been relatively robust and several of them have benefitted from the acquisition appetite of the cash-rich, large biopharma companies.

The Nasdaq Biotech Index (NBI) outperformed the S&P 500 over the period by 4.5% while the equal weighted S&P Biotech ETF (XBI) underperformed by 6.7% reflecting the relatively poor performance of smaller cap biotech companies against the sector as a whole.

Mergers and acquisitions (M&A)

After a delay in M&A discussions driven partly by lockdowns in 2020 and overheated valuations in 2021, 2022 saw a return to a normalised deal flow. M&A is a hallmark of the healthcare ecosystem and in the period under review the company benefitted from three acquisitions of its quoted portfolio companies and a further one of its unquoted portfolio companies.

In December 2022, Amgen announced its intention to acquire portfolio company Horizon, a revenue growth stage company with a treatment for Thyroid Eye Disease. The deal was worth $28bn which represented a premium of 48% to the share price.

At the time of the announcement the Company had a position of 13.5% of NAV. This deal is not yet completed and is subject to regulatory approval.

In January 2023, Ipsen announced that it would acquire portfolio holding Albireo, a revenue growth stage company with an approved treatment for a rare liver disease. The deal was worth $952m which represented a premium of 104% to the share price. At the time of the announcement the Company had a position of 0.23% of NAV.

Also in January 2023, Sun Pharma announced its intention to acquire Concert Pharmaceuticals. Concert Pharmaceuticals is a development stage company with an oral treatment for alopecia areata in late stage clinical trials. The deal was worth $580m which represented a premium of 33% to the share price. At the time of the announcement the Company had a position of 0.33% of NAV.

Following the end of the period under review, on 13 March 2023, Pfizer announced that it had entered an agreement to acquire portfolio holding Seagen for $43bn which represented a premium of 32.7% to the share price. At the time of the announcement, the Company had a position of 10.2% of NAV.

Positive contributors to the NAV

BEST PERFORMING INVESTMENTS
	Contributors to NAV (£'m)
Horizon Therapeutics	16.8
Gilead Sciences	3.0
Biogen Inc	3.0

Amgen announced its intention to acquire Horizon Therapeutics for $28bn in December 2022. The company is focused on rare diseases, where Tepezza for thyroid eye disease (TED), the only approved drug to treat the disease, is the largest product. TED is a condition which results in a build up of fat tissue behind the eyes. The symptoms can cause double vision and bulging eyes. Despite the logistical complications arising from the COVID-19 pandemic at the time, the Tepezza launch was the most successful rare disease product launch of all time.

In the period under review, Gilead shares benefitted from the company's HIV and cell therapy franchises that reported stronger sales than expected. Also in the wake of general market turbulence in 2022, larger biopharma companies including Gilead performed well as a group in the autumn when money flowed out of large cap technology stocks into the perceived 'safer haven' biopharma companies. Biogen, and partner Japanese pharmaceutical company Eisai, reported positive results for their Alzheimer's disease candidate lecanemab. The CLARITY-AD phase 3 trial hit its primary and key secondary endpoints. This large clinical trial compared lecanemab, an antibody that targets and eliminates amyloid-beta plaques, against placebo. The drug was found to reduce cognitive decline by 27% compared to placebo. Following on from this, lecanemab received approval from the Food & Drug Administration in January 2023 and was subsequently launched under the brand name 'leqembi'.

Negative detractors to NAV

WORST PERFORMING INVESTMENTS
	Detractors from NAV (£'m)
Vera Therapeutics	-3.7
KalVista Pharmaceuticals	-3.1
Novavax Inc	-2.8

Vera Therapeutics reported phase two data in early January 2023 for its drug atacicept for immunoglobulin A nephropathy (IgAN), an autoimmune disease which attacks the kidneys. Atacicept has a dual APRIL/BLyS inhibition aiming to reduce the level of proteinuria in patients. Successfully reducing proteinuria is considered to be linked to longer term improvement of kidney function. The trial succeeded and showed a 30% reduction in proteinuria levels at nine months; however, investors had hoped for a greater reduction causing a sell-off in the shares.

KalVista announced it would be discontinuing a clinical trial investigating a prophylactic treatment for Hereditary Angioedema, a disorder characterised by recurrent episodes of severe swelling. KVD824 was in mid stage clinical trials for the rare condition and unfortunately was stopped due to unanticipated safety signals in some patients. The management therefore took the decision to terminate the programme.

Novavax successfully developed a vaccine for COVID-19 called Nuvaxovid which was approved for use in July of 2022. However, due to a litany of setbacks, including manufacturing issues, and being third to market after Moderna and Pfizer/ BioNTech, the company failed to generate material sales.

UNQUOTED PORTFOLIO

Summary of unquoted investments

	As at 28 February 2023			As at 31 August 2022
	Fair value (£'m)	% of NAV	No. of investments	Fair value (£'m)	% of NAV	No. of investments
Unquoted funds	29.3	10.0%	24*	22.4	7.8%	24*
Exited with contingent milestones	5.0	1.7%	5	5.3	1.8%	5
Directly-held unquoted	0.4	0.1%	2	0.3	0.1%	1
Total unquoted	34.7	11.8%	31	28.0	9.7%	30

* The number of investments within unquoted funds represents the number of investments into underlying individual portfolio companies. Three of these companies were quoted as at 28 February 2023.

The Company's unquoted portfolio continues to perform well in its objective to give investors exposure to differentiated returns from quoted markets and access to innovative early stage companies. As at 28 February 2023, it comprised 11.8% of the Company's Net Asset Value (NAV) which is in line with the Company's strategy of maintaining its exposure to unquoted companies within 5-15% of total NAV.

The portfolio currently comprises investment in two unquoted funds, SV Fund VI and SV BCOF as well as a small number of directly held unquoted companies, most of which have exited with contingent milestones.

SV Fund VI is the Company's most significant unquoted investment and has performed well delivering a currency adjusted internal rate of return (IRR) of 20.5% per annum since the date of the Company's first investment in the fund in 2016. During the six months ended 28 February 2023, SV Fund VI made one distribution of $1.8m (£1.6m) and one capital call of $0.9m (£0.8m). The draw down to date on the commitment of $30.0m is $24.9m, which represents 83.1% of the total committed capital.

SV BCOF focuses on later stage and/or pre-IPO opportunities and invests in clinical and near clinical stage biotech companies in the UK, EU and US that have the potential to deliver excellent investor returns and address significant unmet medical needs in patients.

During the period, the Company committed a further $5m (£4.2m), which raised its total commitment to $30m. Since December 2021, $8.3m of this capital has been invested. The fund has performed well due to one of its investments, Nimbus Therapeutics, being the subject of an acquisition. In February 2023, Takeda acquired Nimbus Lakshmi Inc, a wholly-owned subsidiary of Nimbus and its TYK2 inhibitor (NDI-034858) for $4bn in upfront cash, and up to $2bn in commercial milestone payments.

A fair value uplift of £5.5m was applied to the Company's investment in the fund, primarily as a result of the above Nimbus transaction.

OUTLOOK

The fundamentals underpinning the biotech industry are ever more compelling. On the demand side, the global population continues to be more heavily weighted towards the over 60s which is driving demand for medicines. Further, a growing middle class in developing markets is demanding better access to healthcare which is increasing the global take up of new drugs. The biotech industry is keeping up with this demand through an accelerating pace of innovation and an evolving regulatory backdrop that is enabling drugs to reach the market in a more efficient manner.

The 2023 to 2028 period will see an increase in the number of treatments reaching their patent expiry dates. While the prevalence of less easy to replicate biologics will mean that copycat therapies are generally slower to take hold, there is pressure on the big pharmaceutical companies to plug the impending revenue gaps in their product pipelines with new treatments.

The Investment Managers believe that big pharmaceutical companies, especially those with sound balance sheets stemming from COVID-19 vaccine and treatments sales, will be looking to deploy their cash and build their drug pipelines. Rather than focussing on early-stage biotech, the Investment Managers expect them to target de-risked companies with a shorter time horizon to profitability such as the 'revenue growth' names that already were the subject of acquisitions in the six months to February 2023.

With macro-economic uncertainty continuing and questions over access to affordable, reliable financing, the Investment Managers expect to continue to tilt the portfolio in favour of revenue growth and large cap biotech companies with carefully selected, well financed smaller cap names addressing the highest unmet needs making up the remainder of the portfolio.

Catalysts for 2023 are likely to include positive clinical readouts, good product launches, a steady flow of M&A deals and a reignition of biotech sector IPOs. Together, these could underpin investor interest in the sector and boost returns into the future. The Company is well positioned to benefit from these situations as they occur.

SV HEALTH MANAGERS LLP

2 May 2023

ENVIRONMENTAL, SOCIAL AND GOVERNANCE POLICY

The Company outlined its Environmental, Social and Governance (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, in conjunction with IBT's Fund Manager, SV Health Investors, and aims to integrate consideration for ESG factors into the investment process, governance and choice of suppliers for IBT and to exert influence on portfolio companies and suppliers to consider ESG factors in their respective activities. IBT's Board also considers ESG factors in its choice of suppliers.

All of IBT'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. IBT is dedicated to investing in tomorrow's healthcare breakthroughs. IBT 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. IBT also adheres to all six UN Principles for Responsible Investment and supports all the Ten Principles of the UN Global Compact.

ESG REPORT

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 we invest in can radically change the way diseases are treated, bringing positive impact to patients and healthcare systems globally.

IBT'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 focussing 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, IBT believes its potential to generate the greatest impact will generally be on its top ten quoted holdings and its private holdings where IBT'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 IBT's focus on ESG as an investor, it can help maximise its portfolio companies' positive impact whilst generating attractive investor returns.

In its Annual Report for the year ended 31 August 2022, IBT outlined the difficulties it had experienced in gathering meaningful data relating to the ESG compliance or otherwise of its top ten quoted holdings. As a result of that, a new policy has been designed which has been published on IBT's website at https://ibtplc.com/esg-policy.

The key difference in the policy is that IBT has now subscribed to the services of an external ESG monitoring agency, Sustainalytics which is part of Morningstar's platform, rather than using its bespoke ESG survey for its quoted portfolio. The decision to make this change was made after experiencing resistance from quoted portfolio companies to completing a bespoke ESG survey from a minority shareholder like IBT. This reflected the increasing pressure on companies from investors to give ESG information which in turn should lead to greater ESG awareness at portfolio companies. As a result of this pressure, companies are moving away from individual responses and are instead directing investors to their public ESG policies which makes meaningful comparisons of companies difficult.

Going forward, IBT intends to use the 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 IBT 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 IBT'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 IBT's Fund Managers can more readily engage with portfolio companies in respect to areas in which Sustainalytics considers them to fall short of their peers. IBT continues to commit to screening and reporting on the ESG compliance of its top ten quoted portfolio companies in aggregate on a semi-annual basis to coincide with the annual and interim period ends.

IBT's screening of the biotech companies in its unquoted portfolio will take place annually as before and will continue to depend on those companies completing SV's bespoke ESG screening questionnaire. This was reported on in the Annual Report for the year ended 31 August 2022. Of note, however, 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.

IBT continues to request its suppliers to provide ESG policies annually and seven of its suppliers have agreed to have links to their policies displayed on IBT's website.

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 Sustainalytics rates over 55% of companies as having Severe (14%) or High (42%) ESG Risk, with only 8% having Low ESG Risk.

In respect of the six months ended February 2023, we are pleased to report that 70% of IBT's top ten quoted holdings were rated with a Medium ESG Risk Score compared with 36% of the industry as a whole. Three of the top ten quoted companies were categorised as High ESG Risk with the highest risk of these falling in the 67th percentile of biotech companies screened by Sustainalytics and the others between the 20th and 40th percentile. None of IBT's top ten quoted companies were rated in the Severe category of ESG Risk. On a positive note, all three of the High ESG Risk companies in the top ten quoted companies are shown to be on a positive trajectory in comparison to their previous Sustainalytics screening. One of the three companies categorised as High ESG Risk has been the subject of recent active engagement by IBT's Investment Managers and we are pleased to see an improvement in its ranking. IBT's 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 rather than from any specific avoidable activity deemed to be counter to ESG principles. IBT's Investment Managers will 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.

IBT's Investment Managers look forward to having better access to ESG data on their portfolio through this new relationship with Sustainalytics and using it as the basis for meaningful engagement on ESG matters with portfolio companies going forward as well as highlighting any areas of concern. IBT 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.

INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITIES STATEMENT

Interim Management Report

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the remaining six months of the financial year are set out in the Chair's Statement on pages 7 to 9 and the Fund Manager's Review on pages 10 to 13.

The principal and emerging risks facing the Company are substantially unchanged since the date of the Annual Report and Accounts for the year ended 31 August 2022 and continue to be as set out in that report on pages 25 to 26. As detailed in the Chair's Statement on page 9, the Manager, SV Health has served notice of termination to IBT. The Board is working closely with its advisers to manage the risks associated with selection of, and transition to, a new Manager.

Risks faced by the Company include, but are not limited to, strategic/performance risk, political risk, investment related risks, operational and service provider risks and tax, legal and regulatory risks.

Directors' Responsibilities Statement

In respect of the Interim Report for the six months ended 28 February 2023, we confirm that, to the best of our knowledge:

• the condensed set of Financial Statements contained within have been prepared in accordance with IAS 34 Interim Financial Reporting and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company as at 28 February 2023 as required by the Disclosure Guidance and Transparency Rule 4.2.4R;

• the Interim Report includes a fair review as required by Disclosure Guidance and Transparency Rule 4.2.7R, of important events that have occurred during the six months to 28 February 2023 and their impact on the condensed set of Financial Statements, and a description of the principal and emerging risks for the remaining six months of the financial year; and

• the Interim Report includes a fair review of the information concerning related party transactions as required by Disclosure Guidance and Transparency Rule 4.2.8R.

The Interim Report has not been reviewed or audited by the Company's Auditors.

The Interim Report for the six months ended 28 February 2023 was approved by the Board and the above Responsibilities Statement has been signed on its behalf by:

KATE CORNISH-BOWDEN | Chair

2 May 2023

STATEMENT OF COMPREHENSIVE INCOME

		(Unaudited)			(Unaudited)			(Audited)
		For the six months ended 28 February 2023			For the six months ended 28 February 2022			For the year ended 31 August 2022
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value		-	18,294	18,294	-	(46,452)	(46,452)	-	(14,696)	(14,696)
Exchange gains/(losses) on currency balances		-	564	564	-	(609)	(609)	-	(4,378)	(4,378)
Income	2	447	-	447	647	-	647	1,113	-	1,113
Expenses							-		-	-
Management fee		(873)	-	(873)	(1,289)	-	(1,289)	(2,009)	-	(2,009)
Performance fee		-	(199)	(199)	-	-	-	-	(471)	(471)
Administrative expenses		(659)	-	(659)	(575)	-	(575)	(1,218)	-	(1,218)
Profit/(loss) before finance costs and tax		(1,085)	18,659	17,574	(1,217)	(47,061)	(48,278)	(2,114)	(19,545)	(21,659)
Interest payable		(560)	-	(560)	(257)	-	(257)	(663)	-	(663)
Profit/(loss) on ordinary activities before tax		(1,645)	18,659	17,014	(1,474)	(47,061)	(48,535)	(2,777)	(19,545)	(22,322)
Taxation		(54)	-	(54)	(97)	-	(97)	(151)	-	(151)
Profit/(loss) for the year attributable to Shareholders		(1,699)	18,659	16,960	(1,571)	(47,061)	(48,632)	(2,928)	(19,545)	(22,473)
Basic and diluted earnings/(loss) per Ordinary share	3	(4.17)p	45.74p	41.57p	(3.81)p	(114.14)p	(117.95)p	(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 profit 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 22 to 25 form part of these Financial Statements.

STATEMENT OF CHANGES IN EQUITY

For the six months ended		Called up share capital		Share premium account	Capital redemption reserve		Capital reserves		Revenue reserve		Total
28 February 2023 (Unaudited)		£'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/(loss) for the period		-		-	-		18,659		(1,699)		16,960
Transactions with owners, recorded directly to equity:
Dividends paid in the period		-		-	-		(5,707)		-		(5,707)
Ordinary shares bought back into treasury		-		-	-		(646)		-		(646)
Balance at 28 February 2023		10,346		29,873	31,482		272,155		(48,360)		295,496
For the six months ended	Called up share capital		Share premium account		Capital redemption reserve	Capital reserves		Revenue  reserve		Total
28 February 2022 (Unaudited)	£'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 period	-		-		-	(47,061)		(1,571)		(48,632)
Transactions with owners, recorded directly to equity:
Dividends paid in the period	-		-		-	(6,464)		-		(6,464)
Ordinary shares bought back into treasury	-		-		-	(1,639)		-		(1,639)
Balance at 28 February 2022	10,346		29,873		31,482	240,643		(45,304)		267,040
For the year ended	Called up share capital		Share premium account		Capital redemption reserve	Capital reserves		Revenue  reserve		Total
31 August 2022 (Audited)	£'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	-		-		-	(12,879)		-		(12,879)
Ordinary shares bought back into 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 22 to 25 form part of these Financial Statements.

BALANCE SHEET AS AT 28 FEBRUARY 2023

		(Unaudited)	(Unaudited)	(Audited)
		At 28 February 2023	At 28 February 2022	At 31 August 2022
	Notes	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		321,668	312,388	313,429
		321,668	312,388	313,429
Current assets
Receivables		9,525	188	13,487
Cash and cash equivalents		-	-	-
		9,525	188	13,487
Total assets		331,193	312,576	326,916
Current liabilities
Borrowings		(24,193)	(45,140)	(39,976)
Payables		(11,504)	(396)	(2,051)
		(35,697)	(45,536)	(42,027)
Net assets		295,496	267,040	284,889
Equity attributable to equity holders
Called up share capital		10,346	10,346	10,346
Share premium account		29,873	29,873	29,873
Capital redemption reserve		31,482	31,482	31,482
Capital reserves	5	272,155	240,643	259,849
Revenue reserve		(48,360)	(45,304)	(46,661)
Total equity		295,496	267,040	284,889
NAV per Ordinary share	6	724.88p	648.82p	697.18p

The notes on pages 22 to 25 form part of these Financial Statements.

CASH FLOW STATEMENT

		(Unaudited)	(Unaudited)	(Audited)
		For the six months ended	For the six months ended	For the year ended
		28 February 2023	28 February 2022	31 August 2022
		£'000	£'000	£'000
Cash flows from operating activities
Profit/(loss) on ordinary activities before tax		17,014	(48,535)	(22,322)
Adjustments for:
	Decrease in investments	5,378	32,948	19,009
	(Gains)/losses on foreign exchange	(564)	-	4,375
	(Increase)/decrease in receivables	(99)	754	(33)
	(Decrease)/increase in payables	(112)	(1,795)	261
	Taxation	(45)	(97)	(166)
Net cash flows generated from/(used in) operating activities		21,572	(16,725)	1,124
Cash flows from financing activities
Buyback of Ordinary shares into treasury		(646)	(1,639)	(3,534)
Dividends paid		(5,707)	(6,464)	(12,879)
Net cash used in financing activities		(6,353)	(8,103)	(16,413)
Effect of foreign exchange rates		564	-	(4,375)
Net generated from/(used in) in cash and cash equivalents		15,783	(24,828)	(19,664)
Cash and cash equivalents at 1 March		(39,976)	(20,312)	(20,312)
Cash and cash equivalents at 28 February		(24,193)	(45,140)	(39,976)

The notes on pages 22 to 25 form part of these Financial Statements.

NOTES TO THE FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

The Financial Statements have been prepared on a going concern basis, in accordance with International Accounting Standard 34 Interim Financial Reporting and the accounting policies set out in the Annual Report of the Company for the year ended 31 August 2022. Where presentational guidance set out in the Statement of Recommended Practice (the SORP) for investment trusts issued by the Association of Investment Companies in October 2019 is inconsistent with the requirements of IFRS, the Financial Statements have been prepared on a basis compliant with the recommendations of the SORP.

The interim information for each of the six month periods ended 28 February 2023 and 28 February 2022 comprises non-statutory accounts within the meaning of Sections 434 - 436 of the Companies Act 2006 (the Act). The financial information for the year ended 31 August 2022 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

The Company has reviewed the guidance issued by the Financial Reporting Council (FRC) in order to determine whether the going concern basis should be used in preparing the Financial Statements for the six months ended 28 February 2023. The Directors have reviewed the likely operational costs and cashflows for the Company for the 12 months from the date of this Half Yearly Report and are of the opinion that the Company has adequate resources to continue in operational existence for the foreseeable future. The Directors believe that it is appropriate to adopt the going concern basis in the preparation of the Financial Statements as 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.

The Company's principal and emerging risks remained unchanged to those described in the Annual Report for the year ended 31 August 2022. These include strategic/ performance risk, political risk, investment related risks, operational risks and tax, legal and regulatory risks. These risks, and the way in which they are managed, are described in more detail under the heading Principal and emerging risks within the Strategic Report in the Company's Annual Report for the year ended 31 August 2022.

2. INCOME

				(Unaudited) For the six months ended	(Unaudited) For the six months ended	(Audited) For the year ended
				28 February 2023	28 February 2022	31 August 2022
				£'000	£'000	£'000
Income from investments held at fair value through profit or loss:
Unfranked dividends				360	647	1,113
Franked dividends				80	-	-
Other income:
Bank interest				7	-	-
				447	647	1,113

3. NET (LOSSES)/EARNINGS PER ORDINARY SHARE

				(Unaudited) For the six months ended	(Unaudited) For the six months ended	(Audited) For the year ended
				28 February 2023	28 February 2022	31 August 2022
Net revenue loss (£'000)				(1,699)	(1,571)	(2,928)
Net capital profit/(loss) (£'000)				18,659	(47,061)	(19,545)
				16,960	(48,632)	(22,473)
Weighted average number of Ordinary shares in issue*				40,794,704	41,231,966	41,072,164
				Pence	Pence	Pence
Revenue loss per Ordinary share				(4.17)p	(3.81)p	(7.13)p
Capital profit/(loss) per Ordinary share				45.74p	(114.14)p	(47.59)p
Total earnings/(losses) per Ordinary share				41.57p	(117.95)p	(54.72)p

*Excludes those held in treasury (28 February 2023: 618,988; 28 February 2022: 225,970; 31 August 2022: 520,808).

4. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS

The Company's portfolio of investments, comprising investments in companies and any derivatives, are carried in the balance sheet at fair value. Other financial instruments held by the Company comprise amounts due to or from brokers, dividends and interest receivable, accruals, cash and drawings on the credit facility. For these instruments, the balance sheet amount is a reasonable approximation of fair value. The recognition and measurement policies for financial instruments measured at fair value have not changed from those set out in the statutory accounts of the Company for the year ended 31 August 2022.

The investments in the Company's portfolio are categorised into a hierarchy comprising the following three levels:

Level 1 - valued using quoted prices in active markets.

Level 2 - valued by reference to valuation techniques using observable inputs other than quoted market prices included within Level 1.

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

At 28 February 2023, the Company's investment portfolio was categorised as follows:

				(Unaudited)	(Unaudited)	(Audited)
				At 28 February 2023	At 28 February 2022	At 31 August 2022
				£'000	£'000	£'000
Level 1				286,934	284,107	285,471
Level 2				-	-	-
Level 3				34,734	28,281	27,958
Total				321,668	312,388	313,429

There have been no transfers between Level 1, 2 or 3 during the period (period ended 28 February 2022 and year ended 31 August 2022: nil).

5. CAPITAL RESERVES

The capital reserve account comprises both realised gains on investments sold and unrealised gains and losses on investments held, which are analysed as follows:

				(Unaudited)	(Unaudited)	(Audited)
				At 28 February 2023	At 28 February 2022	At 31 August 2022
				£'000	£'000	£'000
Capital reserve - on investments sold				273,192	273,449	265,122
Capital reserve - on investments held				(1,037)	(32,806)	(5,273)
				272,155	240,643	259,849

6. NET ASSET VALUE PER ORDINARY SHARE 

				(Unaudited)	(Unaudited)	(Audited)
				At 28 February 2023	At 28 February 2022	At 31 August 2022
Net assets attributable to Ordinary Shareholders (£'000)				295,496	267,040	284,889
Ordinary shares in issue at end of period*				40,764,829	41,157,847	40,863,009
NAV per Ordinary share (pence)				724.88	648.82	697.18

*Excludes those held in treasury (28 February 2023: 618,988; 28 February 2022: 225,970; 31 August 2022: 520,808).

7. RELATED PARTY TRANSACTIONS

There have been no related party transactions that have materially affected the financial position or the performance of the Company during the six month period to 28 February 2023.

a) Transactions with the Investment Manager

Details of the management fee arrangement are given in the Directors' Report on page 35 of the Annual Report for the year ended 31 August 2022. Following the investment into the SV Fund VI in October 2016 and SV BCOF in December 2021, a portion of the management fee has been paid via fees due on these investments, with the remaining fees charged directly to the Company. The amounts paid can be seen in the table below and continue to total 0.9% of NAV.

				(Unaudited)	(Unaudited)	(Audited)
				At 28 February 2023 £'000	At 28 February 2022 £'000	At 31 August 2022 £'000
Fees paid to the Investment Manager:
Management fee paid through unquoted funds				427,556	92,353	623,361
Management fee paid by the Company directly to the Fund Manager				872,740	1,288,775	2,009,347
Total				1,300,296	1,381,128	2,632,708

A performance fee of £199,000 has been accrued as at 28 February 2023 (28 February 2022: £nil; 31 August 2022: £471,000).

b) Transactions with Key Management Personnel

The Directors of the Company are key management personnel. The total remuneration payable to Directors in respect of the six months ended 28 February 2023 was £84,000 (28 February 2022: £80,000), of which £nil (28 February 2022: £nil) was outstanding at the period end.

8. EVENTS AFTER THE REPORTING PERIOD

After the period end and up to 28 April 2023, 176,738 Ordinary shares were brought back to be held in treasury. Following these buybacks, the total number of shares in issue was 41,383,817 of which 795,726 were held in treasury.

The Directors have evaluated the period since the interim date and have not noted any other significant events after the end of the reporting period to the date of this Report requiring disclosure.  

For further information, please contact:

Company Secretary and Registered Office

Link Company Matters Limited

6th Floor, 65 Gresham Street, London, England, EC2V 7NQ

Telephone: [phone]

Email: [e-mail]

LEI: 213800N1QUJ744P76D11

 

END