NEWS RELEASE
For immediate release
19 November 2015
The Biotech Growth Trust PLC
Unaudited Half Year Results for the six months ended
30 September 2015
The following are attached:
•Company Summary and Financial Highlights
•Chairman’s Statement
•Review of Investments
•Principal Contributors to and Detractors from Net Asset Value Performance
•Portfolio
•Income Statement
•Statement of Changes in Equity
•Statement of Financial Position
•Cash Flow Statement
•Notes to the Financial Statements
• Independent Review Report
•Interim Management Report
This Announcement is not the Company’s Half Year report. It is an abridged version of the Company’s full Half Year report for the six months ended 30 September 2015. The full Half Year report will be sent to shareholders on 26 November 2015. The full Half Year report, together with a copy of this announcement, will also be available on the Company’s website: www.biotechgt.com
The Company's Half Year Report & Accounts for the six months ended 30 September 2015 has been submitted to the UK Listing Authority, and will shortly be available for inspection on the National Storage Mechanism (NSM): www.hemscott.com/nsm.do
For further information please contact: Mark Pope, Frostrow Capital LLP 020 3008 4913
Company Summary / Company Performance
Key Statistics
As at | As at | ||
30 September | 31 March | % | |
2015 | 2015 | Change | |
Net asset value per share | 679.5p | 834.7p | (18.6) |
Share price | 640.0p | 793.5p | (19.3) |
Discount of share price to net asset value per share | 5.8% | 4.9% | — |
NASDAQ Biotechnology Index (sterling adjusted) | 2,094.3 | 2,423.5 | (13.6) |
Gearing* | 13.5% | 9.4% | — |
* See glossary
Reviews / Chairman’s Statement
The Rt Hon Lord Waldegrave of North Hill
Chairman
Performance
Following an extended period of strong performance, the half year ended 30 September 2015 has proved a challenging one for the healthcare sector and for biotechnology companies in particular. Your Company’s net asset value per share fell by 18.6% and the share price by 19.3%. This compares to fall of 13.6% in the Company’s benchmark, the NASDAQ Biotechnology Index, measured in sterling terms. The discount of the Company’s share price to the net asset value per share widened slightly during the period. As at 30 September 2015 it was 5.8%, having been 4.9% at the beginning of the period. The fall in the value of many biotechnology companies was due in large part to concerns over the potential for stricter regulation of drug pricing, a cause championed by prospective Democrat Presidential candidate Hillary Clinton. Our Portfolio Manager, however, believes that while discussions regarding drug pricing will make headlines in the media, they doubt that any fundamental change will be brought about as a result. Further information on investment performance and the outlook for the Company is given in the Portfolio Manager’s Review beginning on page 3.
Capital Structure
The Board has continued to implement its policy of active discount management and to buy back shares when the discount of the share price against the net asset value per share is greater than 6%. In July, the Board took the decision to cancel all of the 6,311,088 shares then held in treasury and also to cancel any further shares repurchased by the Company as part of its discount management policy. During the six months under review the Company repurchased a total of 1,681,112 shares, 1,313,257 to be held in treasury at a cost of £10.5m (including expenses) and 367,855 shares for cancellation at a cost of £2.6m (including expenses). Since 30 September 2015, the period end, a further 612,972 shares have been repurchased for cancellation at a cost of £4.1m (including expenses). The Company no longer holds any shares in treasury.
Revenue and Dividends
The revenue profit for the period was £343,000 (six months ended 30 September 2014: profit of £123,000) and no interim dividend is declared (six months ended 30 September 2014: nil).
Board Composition
I am delighted that we have made two additions to the Board. Steve Bates was appointed on 8 July 2015 and The Rt Hon the Lord Willetts on 11 November 2015.
Steve has a wealth of experience as an investment manager and holds a number of non-executive investment trust directorships. Lord Willetts, a former minister for Universities and Science, is Executive Chairman of the Resolution Foundation and a Visiting Professor at King’s College London. He brings wide experience of public service and in particular of issues concerning research and development to the Board.
Resolutions proposing their election will be considered by shareholders at the Annual General Meeting of the Company to be held in July 2016.
Outlook
Despite recent well publicised headwinds our Portfolio Manager remains confident both in the fundamentals and for the future performance of the biotechnology sector. Their focus remains on the selection of stocks with strong prospects for capital enhancement and we reiterate our belief that the long-term investor in the sector will be well rewarded.
The Rt Hon Lord Waldegrave of North Hill
Chairman
19 November 2015
Reviews / Portfolio Manager’s Review
Sven Borho
OrbiMed Capital LLC Portfolio Manager
Interim Performance Review
It is disappointing to report that both the Company’s share price and the net asset value per share underperformed the Company’s benchmark.
With regard to the portfolio, the existence of gearing during the period contributed to the underperformance together with some stock selection decisions which have not yet proved fruitful.
The largest losses included positions in Biogen, Esperion Therapeutic, Puma Biotechnology and Fluidigm.
· Biogen shares declined due to poor performance from the company’s Tecfidera franchise. The company reported lower-than-expected second quarter sales and lowered annual guidance. We believe its deep pipeline and abundant clinical catalysts in 2016 will support the stock.
· Esperion shares declined due to investor concerns that the U.S. Food and Drug Administration (FDA) will not approve the company’s drug without the need to run a lengthy cardiovascular outcomes trial.
· Puma shares declined due to concerns about the approvability and market potential of neratinib for breast cancer following presentation of phase III data.
· Fluidigm is a leader in single cell analysis allowing researchers to isolate and examine cells on individual levels compared to the traditional method of analysing cells in groups. 2015 proved to be a difficult year for Fluidigm with execution issues stemming largely from mismanaging multiple new product launches earlier in the year. Aggressive expansion plans caused salesforce confusion in their core product lines. Execution issues caused Fluidigm to miss expectations for two straight quarters causing significant underperformance in its stock price.
Top contributors to performance included Synageva, Anacor Pharmaceuticals, Receptos, and Incyte.
· Synageva shares appreciated due to the company’s acquisition by Alexion for
U.S. $8.4 billion. The deal offered shareholders
a 140% premium to the share price preceding
the merger announcement.
· Anacor shares appreciated due to positive phase III results of crisaborole for atopic dermatitis.
· Receptos shares appreciated due to the company’s acquisition by Celgene for U.S. $7.2 billion.
· Incyte shares increased due to encouraging initial data from its combination immunotherapy regimen for cancer and positive phase III data of baricitinib for rheumatoid arthritis reported by collaborator Eli Lilly.
Outlook
Since the summer, biotechnology stocks have experienced a pullback. Initially weakness could be attributed to general macroeconomic concerns about global growth. More recently, concern about the potential for new government regulation of drug pricing has caused the sector to underperform the broader market.
Sustainability of drug pricing has long been a point of focus for biotechnology investors. During the debates over U.S. healthcare reform in 2009-2010 in particular, there was much concern that new regulation would limit pricing power of biotechnology and pharmaceutical companies. The actual legislation had a limited effect on drug pricing, so these concerns dissipated. In September a press article highlighted a particularly egregious price hike by a small specialty pharmaceutical company. This brought the issue of drug pricing back onto the national stage, prompting Democratic presidential candidate Hillary Clinton to make several proposals to contain drug costs. This caused broad weakness in the biotechnology sector. However, a closer inspection of the individual proposals suggests that they would have a limited impact on prices, and several of the reforms have been proposed before without much traction in Congress. While the continued attention on this issue from the press and politicians presents a headline risk for the sector, as long as Republicans retain control of Congress, the odds of any form of drug price regulation being enacted are very low.
Although price increases have been a contributor to the growth of biotechnology companies, the main driver has been new product launches. We believe that the innovative potential remains strong within the industry, and that ultimately this innovation will drive long term stock performance. We note that two of the top contributors to performance during the period were companies with late stage assets that were acquired by larger biotechnology companies. We expect merger and acquisition activity will continue and believe that there are a number of potential acquisition targets within the portfolio. Furthermore, there are many upcoming clinical catalysts with the potential to drive shares higher in areas including immuno-oncology, orphan diseases, and gene therapy. We believe that fundamentals in the industry are sound, and that the sector will recover from recent weakness.
Sven Borho
OrbiMed Capital LLC
Portfolio Manager
19 November 2015
Reviews / Investment Portfolio
Investment as at 30 September 2015
Country | Fair value | % of | |
Security | /Region | £’000 | investments |
Biogen | United States | 49,298 | 10.3 |
Amgen | United States | 44,781 | 9.3 |
Gilead Sciences | United States | 35,219 | 7.3 |
Regeneron Pharmaceuticals | United States | 34,099 | 7.1 |
Incyte | United States | 33,939 | 7.1 |
Alexion Pharmaceuticals | United States | 32,520 | 6.8 |
Celgene | United States | 27,172 | 5.7 |
GW Pharmaceuticals | United Kingdom | 22,724 | 4.7 |
Illumina | United States | 21,918 | 4.6 |
Bluebird Bio | United States | 15,835 | 3.3 |
Ten largest investments | 317,505 | 66.2 | |
Impax Laboratories | United States | 13,947 | 2.9 |
Dynavax Technologies | United States | 13,094 | 2.7 |
BioMarin Pharmaceutical | United States | 13,060 | 2.7 |
Ono Pharmaceutical | Japan | 10,889 | 2.3 |
Jazz Pharmaceuticals | Ireland | 10,078 | 2.1 |
Affymetrix | United States | 8,852 | 1.8 |
Insys Therapeutics | United States | 8,173 | 1.7 |
Vertex Pharmaceuticals | United States | 7,900 | 1.7 |
Dyax | United States | 7,107 | 1.5 |
Neurocrine Biosciences | United States | 7,092 | 1.5 |
Twenty largest investments | 417,697 | 87.1 | |
Puma Biotechnology | United States | 6,140 | 1.3 |
Ironwood Pharmaceuticals | United States | 6,016 | 1.3 |
Actelion | Switzerland | 5,683 | 1.2 |
Shire | Jersey | 5,411 | 1.1 |
Genmab | Denmark | 4,708 | 1.0 |
Innate Pharmaceutical | France | 4,473 | 0.9 |
Advaxis | United States | 4,295 | 0.9 |
Anacor | United States | 4,142 | 0.9 |
Xencor | United States | 3,997 | 0.8 |
Infinity Pharmaceuticals | United States | 3,562 | 0.7 |
Thirty largest investments | 466,124 | 97.2 | |
OrbiMed Asia Partners L.P. (unquoted)* | Far East | 3,510 | 0.7 |
Horizon Pharmaceutical | Ireland | 2,666 | 0.6 |
Vitae Pharmaceuticals | United States | 2,625 | 0.5 |
Ocular Therapeutix | United States | 1,938 | 0.4 |
Fluidigm | United States | 1,846 | 0.4 |
Forward Pharma | Denmark | 1,013 | 0.2 |
Total investments | 479,722 | 100.0 |
All of the above investments are equities unless otherwise stated.
* Partnership interest
Portfolio Breakdown
Fair value | % of | |
£’000 | investments | |
Equities | 476,212 | 99.3 |
Partnership Interest | 3,510 | 0.7 |
Total investments | 479,722 | 100.0 |
Reviews / Principal Contributors to and Detractors from Net Asset Value Performance
For the six months ended 30 September 2015
Top Five Contributors
Contribution | Contribution per | |
2015 | share | |
£’000 | (pence)* | |
Synageva†| 9,889 | 15.8p |
Anacor Pharmaceuticals†| 8,991 | 14.3p |
Receptos†| 5,528 | 8.8p |
Incyte | 4,223 | 6.7p |
Innate Pharmaceutical | 3,929 | 6.3p |
32,560 | 51.9p |
Top Five Detractors
Contribution | Contribution per | |
2015 | share | |
£’000 | (pence)* | |
Biogen | (22,667) | (36.1)p |
Esperion Therapeutic†| (15,041) | (24.0)p |
Puma Biotechnology | (11,216) | (17.9)p |
Fluidigm | (7,942) | (12.6)p |
Amgen | (7,808) | (12.4)p |
(64,674) | (103.0)p |
* based on 62,780,349 ordinary shares being the weighted average number of shares in issue for the six months ended 30 September 2015
†Stock not held at the half year-end
Source: Frostrow Capital LLP
Financial Statements / Condensed Income Statement
for the six months ended 30 September 2015
(Unaudited) Six months ended 30 September 2015 |
(Unaudited) Six months ended 30 September 2014 |
(Audited) Year ended 31 March 2015 |
||||||||
Note | Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
Investment income | ||||||||||
Investment income | 2 | 849 | — | 849 | 509 | — | 509 | 988 | — | 988 |
Total income | 849 | — | 849 | 509 | — | 509 | 988 | — | 988 | |
Gains and (losses) on investments | ||||||||||
(Losses)/gains on investments held at fair value through profit or loss | — | (98,035) | (98,035) | — | 67,035 | 67,035 | — | 225,023 | 225,023 | |
Exchange gains/(losses) on currency balances | — | 682 | 682 | — | (763) | (763) | — | (4,858) | (4,858) | |
Expenses | ||||||||||
AIFM, Portfolio management and performance fees | 3 | — | (364) | (364) | — | (1,852) | (1,852) | — | (5,869) | (5,869) |
Other expenses | (394) | — | (394) | (330) | — | (330) | (735) | — | (735) | |
Profit/(loss) before finance costs and taxation | 455 | (97,717) | (97,262) | 179 | 64,420 | 64,599 | 253 | 214,296 | 214,549 | |
Finance costs | — | (165) | (165) | — | (69) | (69) | — | (157) | (157) | |
Profit/(loss) before taxation | 455 | (97,882) | (97,427) | 179 | 64,351 | 64,530 | 253 | 214,139 | 214,392 | |
Taxation | (112) | — | (112) | (56) | — | (56) | (132) | — | (132) | |
Profit/(loss) for the period/year | 343 | (97,882) | (97,539) | 123 | 64,351 | 64,474 | 121 | 214,139 | 214,260 | |
Basic and diluted earnings/(loss) per share | 4 | 0.5p | (155.9)p | (155.4)p | 0.2p | 96.3p | 96.5p | 0.2p | 327.8p | 328.0p |
The Company does not have any income or expenses which are not included in the profit for the period. Accordingly the “profit/(loss) for the period†is also the “Total Comprehensive Income for the periodâ€, as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented.
All of the profit/(loss) and total comprehensive income for the period attributable to the owners of the Company.
The “Total†column of the statement is the Company’s Income Statement, prepared in accordance with International Financial Reporting Standards (“IFRSâ€) as adopted by the EU.
The “Revenue and Capital†columns are supplementary to this and are prepared under guidelines published by the Association of Investment Companies.
All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.
The financial statements for the six months ended 30 September 2015 have not been audited by the Company’s auditors.
Financial Statements / Condensed Statement of Changes in Equity
(Unaudited)
Six months ended 30 September 2015
Ordinary | Share | Capital | |||||
Share | Premium | Special | Redemption | Capital | Revenue | ||
Capital | Account | Reserve | Reserve | Reserve | Reserve | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
At 31 March 2015 | 17,222 | 43,021 | 252 | 5,577 | 470,907 | (3,677) | 533,302 |
Net (loss)/profit for the period | — | — | — | — | (97,882) | 343 | (97,539) |
Repurchase of own shares for cancellation | (92) | — | — | 92 | (2,582) | — | (2,582) |
Repurchase of own shares to be held in treasury | — | — | (252) | — | (10,241) | — | (10,493) |
Cancellation of shares held in treasury | (1,578) | — | — | 1,578 | — | — | — |
At 30 September 2015 | 15,552 | 43,021 | — | 7,247 | 360,202 | (3,334) | 422,688 |
(Unaudited)
Six months ended 30 September 2014
Ordinary | Share | Capital | |||||
Share | Premium | Special | Redemption | Capital | Revenue | ||
Capital | Account | Reserve | Reserve | Reserve | Reserve | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
At 31 March 2014 | 17,222 | 42,732 | 21,747 | 5,577 | 256,768 | (3,798) | 340,248 |
Net profit for period | — | — | — | — | 64,351 | 123 | 64,474 |
Repurchase of own shares to be held in treasury | — | — | (20,420) | — | — | — | (20,420) |
At 30 September 2014 | 17,222 | 42,732 | 1,327 | 5,577 | 321,119 | (3,675) | 384,302 |
(Audited)
Year ended 31 March 2015
Ordinary | Share | Capital | |||||
Share | Premium | Special | Redemption | Capital | Revenue | ||
Capital | Account | Reserve | Reserve | Reserve | Reserve | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
At 31 March 2014 | 17,222 | 42,732 | 21,747 | 5,577 | 256,768 | (3,798) | 340,248 |
Net profit for the year | — | — | — | — | 214,139 | 121 | 214,260 |
Repurchase of own shares to be held in treasury | — | — | (22,043) | — | — | — | (22,043) |
Shares issued from treasury | — | 289 | 548 | — | — | — | 837 |
At 31 March 2015 | 17,222 | 43,021 | 252 | 5,577 | 470,907 | (3,677) | 533,302 |
Financial Statements / Condensed Statement of Financial Position
as at 30 September 2015
(Unaudited) | (Unaudited) | (Audited) | ||
30 September | 30 September | 31 March | ||
2015 | 2014 | 2015 | ||
Note | £’000 | £’000 | £’000 | |
Non current assets | ||||
Investments held at fair value through profit or loss | 479,722 | 419,682 | 583,209 | |
Current assets | ||||
Other receivables | 17,251 | 15,716 | 3,325 | |
17,251 | 15,716 | 3,325 | ||
Total assets | 496,973 | 435,398 | 586,534 | |
Current liabilities | ||||
Other payables | 1,559 | 13,440 | 4,849 | |
Bank overdraft | 72,726 | 37,656 | 48,383 | |
74,285 | 51,096 | 53,232 | ||
Net assets | 422,688 | 384,302 | 533,302 | |
Equity attributable to equity holders | ||||
Ordinary share capital | 15,552 | 17,222 | 17,222 | |
Share premium account | 43,021 | 42,732 | 43,021 | |
Special reserve | — | 1,327 | 252 | |
Capital redemption reserve | 7,247 | 5,577 | 5,577 | |
Capital reserve | 360,202 | 321,119 | 470,907 | |
Revenue reserve | (3,334) | (3,675) | (3,677) | |
Total equity | 422,688 | 384,302 | 533,302 | |
Net asset value per share | 5 | 679.5p | 599.9p | 834.7p |
Financial Statements / Condensed Statement of Cash Flows
for the six months ended 30 September 2015
(Unaudited) | (Unaudited) | (Audited) | |
Six months ended | Six months ended | Year ended | |
30 September | 30 September | 31 March | |
2015 | 2014 | 2015 | |
£’000 | £’000 | £’000 | |
Operating activities | |||
(Loss)/profit before taxation | (97,427) | 64,530 | 214,392 |
Add back interest paid | 165 | 69 | 157 |
Loss/(gain) on investments held at fair value through profit & loss | 98,035 | (67,035) | (225,023) |
(Increase)/decrease in other receivables | (17) | 63 | 139 |
(Decrease)/increase in other payables | (2,127) | (780) | 1,388 |
Net cash outflow from operating activities before interest payable and taxation | (1,371) | (3,153) | (8,947) |
Interest paid | (165) | (69) | (157) |
Tax paid | (112) | (56) | (132) |
Net cash outflow from operating activities | (1,648) | (3,278) | (9,236) |
Investing Activities | |||
Purchases of investments | (245,376) | (188,310) | (358,924) |
Sales of investments | 235,756 | 202,232 | 368,863 |
Net cash (outflow)/inflow from investing activities | (9,620) | 13,922 | 9,939 |
Financing activities | |||
Repurchase of own shares to be held in treasury | (10,493) | (20,420) | (22,043) |
Repurchase of shares for cancellation | (2,582) | — | — |
Proceeds from sale of treasury shares | — | — | 837 |
Net cash outflow from financing activities | (13,075) | (20,420) | (21,206) |
Net decrease in cash and cash equivalents | (24,343) | (9,776) | (20,503) |
Cash and cash equivalents at the start of the period/year | (48,383) | (27,880) | (27,880) |
Cash and cash equivalents at the end of the period/year | (72,726) | (37,656) | (48,383) |
Financial Statements / Notes to the Financial Statements
1.a) General information
The Biotech Growth Trust PLC is a company incorporated and registered in England. The Company operates as an investment trust company within the meaning of Section 833 of the Companies Act 2006 and has made a successful application under Regulation 5 of the Investment Trust (Approved Company) (Tax) Regulations 2011 for investment trust status to apply to all accounting periods starting on or after 1 April 2012. The Company is managed in such a way to ensure that it continues to meet the eligibility conditions contained in Section 1158 of the Corporation Tax Act 2010 and the on- going requirements outlined in Chapter 3 of Part 2 of the regulations.
1.b) Basis of preparation
The half year condensed financial statements of the Company for the six months ended 30 September 2015 have been prepared in accordance with IAS 34 “Interim Financial Reportingâ€. They do not include all the financial information required for the full annual financial statements and have been prepared using accounting policies adopted in the audited financial statements for the year ended 31 March 2015.
Those financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSâ€) as adopted by the EU.
1.c) Segmental reporting
IFRS 8 requires entities to define operating segments and segment performance in the financial statements based on information used by the Board of Directors. The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.
In line with IFRS 8, additional disclosure by geographical segment has been provided in note 10 on page 14 of this report.
1.d) Going concern
The Directors believe that it is appropriate to adopt the going concern basis in preparing the accounts as the assets of the Company consists mainly of securities that are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the forseeable future. The next continuation vote of the Company will be held at the Annual General Meeting in 2020, and further opportunities to vote on the continuation of the Company will be given to shareholders every five years thereafter.
2. Income
(Unaudited) | (Unaudited) | (Audited) | |
Six months ended | Six months ended | Year ended | |
30 September | 30 September | 31 March | |
2015 | 2014 | 2015 | |
£’000 | £’000 | £’000 | |
Investment income | |||
Overseas income | 849 | 509 | 988 |
Total income | 849 | 509 | 988 |
3. AIFM, Portfolio Management and Performance Fees
(Unaudited) | (Unaudited) | (Audited) | |
Six months ended | Six months ended | Year ended | |
30 September | 30 September | 31 March | |
2015 | 2014 | 2015 | |
£’000 | £’000 | £’000 | |
AIFM fee | 673 | 532 | 1,249 |
Portfolio management fee | 1,545 | 1,218 | 2,766 |
Performance fee (written back)/charged in the period/year* | (1,854) | 102 | 1,854 |
364 | 1,852 | 5,869 |
* During the six months ended 30 September 2015, the performance fee accrued as at the Company’s year of £1,854,000 was written back due to underperformance against the Company’s benchmark. No performance fees crystallised or became payable during the period under review (30 September 2014: £nil).
Further details of the performance fee arrangements can be found on pages 67 and 68 of the Annual Report.
4. Basic and Diluted Earnings/(Loss) per share
(Unaudited) | (Unaudited) | (Audited) | |
Six months ended | Six months ended | Year ended | |
30 September | 30 September | 31 March | |
2015 | 2014 | 2015 | |
£’000 | £’000 | £’000 | |
The earnings/(loss) per share is based on the following figures: | |||
Net revenue gain | 343 | 123 | 121 |
Net capital (loss)/gain | (97,882) | 64,351 | 214,139 |
Net total (loss)/gain | (97,539) | 64,474 | 214,260 |
Weighted average number of shares in issue during the period/year | 62,780,349 | 66,809,765 | 65,319,717 |
Pence | Pence | Pence | |
Revenue earnings per share | 0.5 | 0.2 | 0.2 |
Capital (loss)/earnings per share | (155.9) | 96.3 | 327.8 |
Total (loss)/earnings per share | (155.4) | 96.5 | 328.0 |
5. Net Asset Value per Share
The Net Asset Value per share is based on the net assets attributable to equity shareholders of £422,688,000 (30 September 2014: £384,302,000; 31 March 2015: £533,302,000) and on 62,207,404 shares (30 September 2014: 64,063,413; 31 March 2015: 63,888,516) being the number of shares in issue at the period end.
6. Transaction Costs
Purchase and sale transaction costs for the six months ended 30 September 2015 were £251,000 (six months ended 30 September 2014: £307,000; year ended 31 March 2015: £499,000). These costs comprise mainly commission.
7. Investments
IFRS 13 requires the company to classify fair value measurements using the fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following three levels
· Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
· Level 2 – inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices), and
· Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs)
At 30 September 2015 the investment in OrbiMed Asia Partners LP Fund has been classified as level 3. The fund is valued quarterly by OrbiMed Advisors LLC and audited annually by KPMG LLP. As the 30 September 2015 valuation is not yet available, the fund has been valued at its net asset value as at 30 June 2015 adjusted for the capital distribution of £214,000 made during the quarter to 30 September 2015. It is believed that the value of the fund as at 30 September 2015 will not be materially different.
If the value of the fund was to increase or decrease by 10%, while other variables had remained constant, the return and net assets attributable to shareholders for the period ended 30 September 2015 would have increased/decreased by £351,000.
The table below sets out fair value measurements of financial assets in accordance with IFRS13 fair value hierarchy system:
Six months ended 30 September 2015
Level 1 | Level 2 | Level 3 | Total | |
£’000 | £’000 | £’000 | £’000 | |
Equity investments | 476,212 | — | — | 476,212 |
Partnership interest in LP Fund | — | — | 3,510 | 3,510 |
Total | 476,212 | — | 3,510 | 479,722 |
Six months ended 30 September 2014
Level 1 | Level 2 | Level 3 | Total | |
£’000 | £’000 | £’000 | £’000 | |
Equity investments | 416,778 | — | — | 416,778 |
Partnership interest in LP Fund | — | — | 2,904 | 2,904 |
Total | 416,778 | — | 2,904 | 419,682 |
Year ended 31 March 2015
Level 1 | Level 2 | Level 3 | Total | |
£’000 | £’000 | £’000 | £’000 | |
Equity investments | 579,770 | — | — | 579,770 |
Partnership interest in LP Fund | — | — | 3,439 | 3,439 |
Total | 579,770 | — | 3,439 | 583,209 |
Level 3 reconciliation
Please see below a reconciliation disclosing the changes during the six months for the financial assets and liabilities designated at fair value through profit or loss classified as being Level 3.
£’000 | |
Assets as at 1 April 2015 | 3,439 |
Distribution* | (214) |
Unrealised gains during the period | 285 |
Asset as at 30 September 2015 | 3,510 |
* During the period a cash distribution of U.S. $335,000 (£214,000) was made.
The distribution mainly comprised a return of capital.
8. Principal risks profile
The principal risks which the Company faces include exposure to:
i) market price risk, including currency risk, interest rate risk and other price risk;
ii) liquidity risk; and
iii) credit risk
Market price risk – is the risk that the fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements – currency risk, interest rate risk and other price risk.
Liquidity risk – This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Credit risk – This is the risk of the failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.
Further details of the Company’s management of these risks can be found in note 13 of the Company’s 2015 Annual Report.
There have been no changes to the management of or the exposure to these risks since that date.
9. Related party transactions
There have been no changes to the related party arrangements or transactions as reported in Annual Financial report for the year ended 31 March 2015.
10. Segmental reporting
Geographical Segments
(Unaudited) | (Unaudited) | (Audited) | |
Six months ended | Six months ended | Six months ended | |
30 September 2015 | 30 September 2014 | 31 March 2015 | |
Value of Investments | Value of Investments | Value of Investments | |
£’000 | £’000 | £’000 | |
North America | 408,567 | 377,328 | 494,236 |
Europe | 56,756 | 27,960 | 74,870 |
Asia | 14,399 | 14,394 | 14,103 |
Total | 479,722 | 419,682 | 583,209 |
11. Comparative Information
The financial information contained in this half year report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2015 and 2014 has not been audited by the auditors.
The information for the year ended 31 March 2015 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 March 2015 have been filed with the Registrar of the Companies. The report of the auditors on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under sections 498 (2) or 498 (3) of the Companies Act 2006.
Governance / Independent Review Report
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the period 1 April 2015 to 30 September 2015 which comprises the Condensed Income Statement, the Condensed Statement of Changes in Equity, the Condensed Statement of Financial Position, the Condensed Statement of Cash Flows and the related notes 1 to 11.
We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) “Review of Interim Financial Information Performed by the Independent Auditor of the Entity†issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors’ Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom’s Financial Conduct Authority.
As disclosed in note 1, the financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, “Interim Financial Reportingâ€, as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with the International Standard on Review Engagements (UK and Ireland) 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity†issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the period from 1 April 2015 to 30 September 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom’s Financial Conduct Authority.
Ernst & Young LLP
London
19 November 2015
Governance / Interim Management Report
Principal Risks and Uncertainties
A review of the half year, including reference to the risks and uncertainties that existed during the period and the outlook for the Company can be found in the Chairman’s Statement beginning on page 2 and in the Portfolio Manager’s Review beginning on page 3. The principal risks faced by the Company fall into the following broad categories: objective and strategy; level of discount/premium; portfolio performance; operational and regulatory; market price risks; liquidity risk; shareholder profile; currency risk; the risk associated with the Company’s overdraft facility; and credit risk. Information on each of these areas is given in the Strategic Report/ Business Review within the Annual Report and Accounts for the year ended 31 March 2015. In the view of the Board these principal risks and uncertainties are applicable to the remaining six months of the financial year as they were to the six months under review.
Related Party Transactions
During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.
Going Concern
The Directors believe, having considered the Company’s investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties relating to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.
Directors’ Responsibilities
The Board of Directors confirms that, to the best of its knowledge:
i) the condensed set of financial statements contained within the Half Year Report has been prepared in accordance with applicable International Accounting Standards, (IAS) 34; and
ii) the Interim Management Report and the Chairman’s Statement includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure and Transparency Rules.
In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgments and accounting estimates that are reasonable and prudent;
· state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;
and the Directors confirm that they have done so.
The Half Year Report has not been audited by the Company’s auditors.
The Half Year Report was approved by the Board on 19 November 2015 and the above responsibility statement was signed on its behalf by:
The Rt Hon Lord Waldegrave of North Hill
Chairman
Further Information / Glossary of Terms
Investment Trust Terms
AIFMD
The Alternative Investment Fund Manager Directive (the “Directiveâ€) is a European Union Directive that entered into force on 22 July 2013. The Directive regulates EU fund managers that manage alternative investment funds (this includes investment trusts).
Discount or Premium
A description of the difference between the share price and the net asset value per share. The size of the discount or premium is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the share price is lower than the net asset value per share, the shares are trading at a discount.
Gearing
The gearing figure reflects the amount of prior charges actively invested, and not held in cash/cash equivalents, expressed as a percentage of the Company’s net assets.
Leverage
The AIFM Directive (the “Directiveâ€) has introduced the obligation on the Company and its AIFM in relation to leverage as defined by the Directive. The Directive leverage definition is slightly different to the Association of Investment Companies method of calculating gearing and is as follows: any method by which the AIFM increases the exposure of an AIFM it manages whether through borrowing of cash or securities, or leverage embedded in derivative positions.
There are two methods for calculating leverage under the Directive – the Gross Method and the Commitment Method. The process for calculating exposure under each methodology is largely the same, except where certain conditions are met, the Commitment Method enables instruments to be netted off to reflect ‘netting’ or ‘hedging’ arrangements and the entity exposure is effectively reduced.
The Board has set the leverage limit for both the Gross method and the Commitment method at 130%. These limits are monitored by both the Board and the AIFM.
As at 30 September 2015 the actual level of leverage for the Company was 113.5% for the Gross method and 113.5% for the Commitment method.
Net Asset Value (NAV)
The value of the Company’s assets, principally investments made in other companies and cash being held, minus any liabilities. The NAV is also described as ‘shareholders’ funds’. The NAV is often expressed in pence per share after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the relationship between the demand and supply of the shares in the secondary market.
Prior Charges
Prior charges includes all loans and bank overdrafts for investment purposes.
Treasury Shares
Shares previously issued by a company that have been bought back from Shareholders to be held by the Company for potential sale or cancellation at a later date. Such shares are not capable of being voted and carry no rights to dividends.
For and on behalf of
Frostrow Capital LLP, Secretary
19 November 2015
- ENDS -