Annual Financial Report

RNS Number : 5822Q

Intl. Biotechnology Trust PLC

21 October 2011

 



INTERNATIONAL BIOTECHNOLOGY TRUST PLC (the "Company")

Annual Financial Report Announcement of Audited Results for the year ended 31 August 2011

This announcement contains regulated information.

The information contained in this Annual Financial Report Announcement, including the 31 August 2010 comparatives, has been prepared in accordance with the applicable UK Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (issued in January 2009 and adopted early).  The results for the year ended 31 August 2011 are audited but do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The statutory accounts have not yet been delivered to the Registrar of Companies. Full statutory accounts for the year ended 31 August 2010 included an unqualified audit report and have been filed with the Registrar of Companies.

Financial Summary

	31 August	31 August	%
	2011	2010	Change
Group Performance
Shareholders' funds (£'000)	91,764	93,658	-2.0%
Ordinary shares in issue† ('000)	56,008	60,358	-7.2%
Net asset value ("NAV") per share	163.84p	155.17p	5.6%
Share price	143.00p	133.75p	6.9%
Share price discount	(12.7)%	(13.8)%
Total expense ratio ("TER")*	2.19% -----------	2.17% ----------	----------
Index Returns
NASDAQ Biotechnology Index ("NBI") (Sterling-adjusted)	614.28	528.42	16.2%
FTSE All-Share Index	2,800.51	2,696.72	3.8%

^†Excludes those held in treasury (31 August 2011: 4,350,000; 31 August 2010: 4,475,000).

*Calculated in accordance with The Association of Investment Companies ("the AIC") guidance. Based on total expenses excluding finance costs, performance fees and VAT recovered on management fees and expressed as a percentage of average monthly net assets.

Chairman's Statement

Investment Performance

As was the case for 2010, I am glad to be able to report to you a positive return for shareholders for the year just ended on 31 August 2011. The Net Asset Value per share ("NAV") increased by 5.6% to 163.8p per share. With a small narrowing of the discount from 13.8% to 12.7%, the share price increased by 6.9%. By comparison, the  NASDAQ Biotechnology Index ("NBI") increased a Sterling-adjusted 16.2%. Broader markets as measured by the FTSE All-Share and S&P500 indices increased by 3.8% and a Sterling-adjusted 9.6%, respectively.

At present, the quoted portfolio continues to be the main contributor to performance while the unquoted portfolio of early-stage investments matures. Investor enthusiasm for biotechnology companies improved dramatically over the period against a backdrop of a strong stock market, and this was the major driver of NAV returns for the Company.

Over the twelve months to 31 August 2011, the return for the quoted portfolio, comprising 85.6% of NAV, was 13.5%, while the return for the unquoted portfolio, comprising 18.9% of NAV, was -10.6%. At the end of the period, the Investment Manager had utilised part of the Company's borrowing facility, leading to net current liabilities of -4.5% of NAV. The strong positive return of the quoted portfolio generated a performance fee to the Investment Manager of £486,000.

Three of the Company's investments were acquired during the period - Genzyme, ProStrakan and Cadent. A fourth, Axis Shield, remains the target of a bid from a larger competitor, and a fifth, Caliper Life Sciences, was acquired in early September 2011. We consider that a high level of merger and acquisition ("M&A") activity will continue for the foreseeable future and we believe that this trend will continue to be a key driver of portfolio returns for shareholders.

During the year we bought back shares to the value of £6.4 million adding 1.9p per share to the NAV while other adjustments including management fees and other expenses, reduced the NAV by 4.7p per share. While the value of the Company's investments in local currency terms rose by 7.5% or 20.4p per share, currency exchange rate moves reduced the NAV by 2.8% or 7.6p per share. With approximately 70% of the Company's assets Dollar denominated, the weakening of the US Dollar against Sterling by 5.9% contributed the majority of the negative effect of currency moves on the NAV. Since 31 August 2011, the US Dollar has, however, appreciated against Sterling, enhancing NAV.

Borrowing Facility

With effect from 28 September 2010, the Company put in place an overdraft facility with HSBC Bank plc for the amount of £7.5m. This facility was extended to £15.0m as of 19 May 2011. This facility provides the Company with funds to take advantage of investment opportunities that occur from time to time - whether quoted or unquoted - on occasions when the portfolio is otherwise fully invested.

As of 31 August 2011, £8.0m of the overdraft facility was drawn down, with the currency of the borrowings matched against the currency of the underlying investments made, which have all been in the liquid shares of quoted companies. It is the intention of the Board that borrowings are made on a relatively short-term basis to exploit specific investment opportunities, rather than to apply long-term structural gearing to the Company's portfolio of investments.

Share Buybacks

During the year under review, the Company repurchased a total of 4,350,000 Ordinary shares into treasury (2010: 4,475,000) representing 7.2% (2010: 6.9%) of the issued share capital at the start of the year. The Company also cancelled a total of 4,475,000 Ordinary shares held in treasury (2010: 5,760,000). Since 31 August 2011, the Board has bought back a further 250,000 shares into treasury and has cancelled a further 200,000 shares from treasury. At the time of writing the Company has 4,400,000 Ordinary shares held in treasury.

It is the intention of the Board to continue its policy of buying back shares whether for cancellation or into treasury, to assist in reducing the volatility of the discount and to enhance the NAV. The Board therefore proposes and recommends that powers to repurchase up to 14.99% of the Company's shares for cancellation be renewed for a further period.

Management Agreement

Changes have been agreed to the Management Agreement which we consider are to the benefit of shareholders. An important change is the reduction in the annual management fee charged on the net asset value which has been reduced to 1.15% from 1.35%. Changes have also been made to the incentive fee arrangements. The new terms became effective on 1 September 2011 and are set out on page 22 in the Directors Report in the Annual Report.

These changes, combined with other cost savings, should enable the Company to reduce its total expense ratio ("TER"). While a relatively high TER is to be expected for a highly specialist investment vehicle offering the prospect of strong returns (especially so, given the cost of making unquoted investments), reducing expenses as far as is practically reasonable will enhance future returns, particularly when the savings are compounded over longer time periods.

Board of Directors

Shareholders will be aware that Mr John Aston was appointed a director of the Company on 23 February 2011, and will be presented for election at the forthcoming AGM. In accordance with the Company's Articles of Association, the Directors retiring by rotation and seeking re-election at this year's Annual General Meeting ("AGM") are: Mr Clifton, Mr Hammond-Chambers and myself. The Nomination Committee has met to consider the attributes and contributions of the individuals concerned and following its review, the Board strongly recommends their re-election and Mr Aston's election at the forthcoming AGM.

Prospects and Continuation Vote

The Company's Articles of Association require the Board to put a proposal for the continuation of the Company to shareholders at two yearly intervals. The next continuation vote will be put to shareholders at the forthcoming AGM in December, and the Directors strongly recommend shareholders vote in favour.

The Board of Directors has reviewed five particular aspects of the Company's business: the prospects for the biotechnology sector; the prospects for the portfolio; the strength and depth of our management; the appropriateness of the investment trust structure; and the number of investment vehicles offering investors liquid biotechnology exposure.

Your Directors remain very positive about the prospects for the biotechnology industry and so for the Company. With ageing populations and continued pressure on healthcare in developed economies, the need for innovative new drugs, diagnostics and medical devices to prevent and treat modern complex diseases and drive cost efficiencies has never been higher. Over the longer-term the increasing wealth and prosperity of the world's emerging markets represents further significant potential for the growth of the biotechnology industry.

While large pharmaceutical companies are struggling to develop new drugs and therapies from their own internal research and development ("R&D"), smaller, more nimble biotechnology companies are demonstrating higher success in providing the medical innovation required. The economic value being created within the biotechnology industry is evidenced in one measure by the long-term performance of the industry benchmark, the NBI, which has outperformed the US stock market significantly over the past five years with a Sterling-adjusted return of 56.7% against a total return (including dividends) of 21.5% for the S&P500.

As an investment trust, IBT can provide its shareholders with a diversified portfolio of stocks and shares - particularly of smaller companies developing new biotechnologies. Without the need for short-term calls on the Company's capital, we can make long-term commitments to such companies' stocks and shares whether they are quoted on a stock exchange or unquoted private-stage companies.

In this regard, the Company is unique in offering investors both a diversified and actively-managed global quoted portfolio, and an unquoted portfolio of venture investments at a meaningful NAV weighting. While returns from the Company's unquoted portfolio have been muted in recent years, I would remind investors that investing in emerging biotech companies is a relatively long-term undertaking. While the unquoted portfolio matures, the quoted portfolio continues to give investors risk-managed exposure to some of the most exciting medical innovation in a global industry that has outperformed the broader market over the long run.

The Board recognises that we are living in unprecedented economic times, with economies, companies and investors affected by the huge quantities of debt that have been accumulated by governments, by companies, by banks and by households. It understands that this will inhibit economic growth and have effects on returns that investors can earn in the stock market.  However, the Board also recognises that one of the few industries likely to prosper in these difficult times is the healthcare sector, as the convergence of emerging medical technologies and ageing populations is likely to create some of the best investor returns in the future.

We believe the Company has in its Investment Manager, SV Life Sciences Manager LLP ("SVLS") one of the strongest specialist global life sciences investors. With approximately $2bn of assets now under management, venture funds advised by SVLS have been investing in biotechnology and early stage medical technologies since the 1980s. The firm has a track record of generating consistently strong returns from investing in high risk, high return medical innovation over the long term.

For these reasons, the Board believes that the longer term prospects for the Company are excellent and therefore recommends that the Company continues in being as an investment trust; the Directors will be voting their 235,000 shares in favour of continuation.

AGM

This year's AGM will be held on 7 December 2011 at 12 noon at BNP Paribas Fortis, 5 Aldermanbury Square, London EC2V 7HR. As in previous years, in addition to the formal part of the meeting, there will be a presentation from the Investment Manager who will answer shareholder questions on the portfolio and performance. There will also be an opportunity to meet the Board and the Investment Manager. I look forward to welcoming as many of you as possible to the meeting.

If you have any detailed or technical questions, it would be helpful if you could raise these in advance of the meeting with the Company Secretary at [e-mail]. Shareholders who are unable to attend the AGM are encouraged to submit their proxy votes.

Andrew Barker

Chairman

21 October 2011

 

 

Investment Manager's Review

 

Summary

The twelve months ended 31 August 2011 saw the Company's NAV per share increase by 5.6%. By comparison the NBI increased by 16.2%. The FTSE All-Share Index increased by 3.8%, and the S&P500 increased by 9.6%. All figures are Sterling-adjusted.

The Company's quoted portfolio returned 13.5% over the year, driven by strong equity markets and improved investor interest in the biotechnology sector, despite another financial market crisis towards the end of the period. The quoted portfolio benefited from the acquisitions of two companies during the period - Genzyme and ProStrakan. A third investment, Axis Shield, remains the subject of a takeover bid from larger competitor Alere. A fourth - Caliper Life Sciences - was acquired in early September 2011. The unquoted portfolio returned -10.6% over the year, with a number of write-downs compensated for by one acquisition in the form of Cadent, an exit which added £2.0m to NAV in the period.

As we had predicted twelve months ago, investor enthusiasm for the biotechnology sector improved strongly over the period driven by increased risk appetite, positive clinical and regulatory news flow, and ongoing M&A activity. Biotechnology and emerging medical device companies are successfully delivering the innovative new products and technologies so desperately required by a global healthcare industry facing many challenges.

The Company's quoted portfolio gives shareholders exposure to an industry sector that continues to outperform the broader equity market over the long-term while the unquoted venture portfolio matures. The Company's venture portfolio has been built up since the C Share issue in February 2007. Four and a half years on, we expect exits from the unquoted portfolio to drive NAV returns and shareholder value over the coming few years.

Portfolio Overview

At 31 August 2011, the Company held investments in 65 companies: 40 quoted (representing 85.6% of NAV) and 25 unquoted companies (representing 18.9% of NAV). The remaining (4.5)% of NAV comprised a £5.3m Cadent debtor, less current liabilities, including borrowings from the Company's overdraft facility. 1.1% of NAV was legally committed to further investments in unquoted companies, while 8.6% was investment-committee approved or reserved for further investment in unquoted companies.

By subsector, 68% of NAV was invested in the biotechnology sector, 12% in the medical device sector, 14% in the specialty pharmaceuticals sector, and 10% in the life sciences tools and diagnostics sector, emphasising the diversified nature of the Company's investments.

Representatives of the Investment Manager sat on the boards of 23 portfolio companies (20 unquoted and 3 quoted) at the end of the year. An active board seat on private companies remains an important aspect of our investing activities in early-stage unquoted biotechnology companies.

Quoted Investments

At 31 August 2011 the quoted portfolio represented 85.6% of NAV at £78.5m. The most significant positive contributions during the period came from investments in Alexion, Shire, Pharmasset, Axis Shield and Caliper Life Sciences. The most significant negative contributions came from Teva, Micromet, Pharmaxis, Affymax and Nektar Therapeutics.

The highlights of the year were M&A events for the Company's investments in Genzyme, ProStrakan and Axis Shield. After a protracted hostile bid process, large-cap biotechnology company Genzyme finally agreed to be acquired by French pharmaceutical company Sanofi for $20.1bn in February 2011. Also in February 2011, UK-based specialty pharmaceutical company ProStrakan was acquired by the Japanese pharmaceutical company Kyowa Hakko Kirin for $474m.

In July 2011, UK and Norway-based medical diagnostics company Axis Shield received an unsolicited approach from larger US competitor Alere to acquire the company for 460p per share, valuing the company at £230m. After both the board and shareholders of Axis Shield rejected the approach, in early October 2011, Alere increased their offer to 470p, which in the light of market conditions, has now been accepted by the Axis Shield board.

Shortly after the end of the period in September 2011, Caliper Life Sciences announced its acquisition by PerkinElmer for $600m in cash, representing a 3.7x return on the Company's investments in the stock since the time of first investment in late 2009. We believe the success of the Company's investment in Caliper Life Sciences highlights the potentially venture capital-like returns to be made from identifying the highest quality small-cap emerging technology companies.

Twenty two new quoted investments were made during the period, and 15 investments were sold, as we adjusted the portfolio, replacing names removed through acquisition or selling due to deterioration in specific business fundamentals that were deemed irrecoverable in the near term. At the end of the period the Company held 40 quoted investments, against 33 at the start of the year. Descriptions of the Company's largest investments at 31 August 2011 are presented on pages 12 and 13 of the Annual Report.

During the year under review, the combined effect of gains and losses on quoted investments, including currency movements, was to increase the Company's NAV by £9.6m or 17.2p per share. The return for the quoted portfolio over the period was an increase of 13.5% after taking a currency loss of £3.1m into account.

The quoted portfolio continues to include a selection of the lower risk large cap biotechnology companies where valuations remain at decade lows, despite solid earnings growth prospects and a persistent M&A theme. Sanofi's acquisition of Genzyme in our view demonstrates that Big Pharma is prepared to acquire even the very largest biotechnology companies when they believe the core product franchises can fill large holes in revenue lines caused by the upcoming wave of patent expirations.

The mid-cap biotechnology space remains a tricky place to make strong returns. Building investor enthusiasm for late-stage clinical or commercial-stage assets often sets companies up to disappoint investors, a phenomenon we saw late in the period. In August 2011, biotechnology company Dendreon shocked investors by withdrawing financial guidance early into the launch of its prostate cancer drug Provenge, and as a result knocked investor confidence in a number of other companies at a comparable stage of development.

Towards the end of the period we began to increase the weighting of the quoted portfolio towards small-cap biotech investments, particularly taking advantage of the reduced valuations caused by the equity market crisis of August 2011. We believe that at current valuations a number of small-cap companies now offer the right risk-reward characteristics for investment in their late-stage potential "blockbuster" drug products.

Unquoted Investments

At 31 August 2011, the unquoted portfolio represented 18.9% of NAV at £17.4m. The Company's venture capital investments - most of which have been made following the C Share issue in February 2007 - are continuing to mature.

The highlight of the period under review was the sale of Cadent to NASDAQ-listed Align Technologies for $190m in March 2011. Cadent, a Company investment since January 2008, has become a global leader in intra-oral scanning technology, an excellent strategic fit for Align, which is one of the world's leading orthodontics companies. The all cash unstructured transaction was valued at $8.6m (£5.3m) at the reporting date for a 2.9x return on invested capital of £1.8m. Cash from this transaction was received in October 2011.

During the year under review, seven investments, EBR Systems, Lux Bioscience, Oxagen, ReShape, Sutro, TransEnterix and Vantia were written down. In many cases, write-downs were associated with new financing rounds so that these companies are now in a stronger financial position. Four investments, Cadent, Ricerca, Archemix and RespiVert, were written up. The combined effect of these exits and valuation changes, including currency movements, was to reduce the NAV by £2.5m or 4.4p per share. The return for the unquoted portfolio only during the year was a decrease of 10.6%, after taking a currency loss of £1.2m into account.

During the year ended 31 August 2011 two new investments were made - £0.2m into Convergence and £0.2m into Kalvista, while 15 follow-on investments were made with a combined value of £2.2m into nine existing holdings. At year end commitments to unquoted companies based on milestones totalled £1.0m and estimated reserves for the future funding needs of this portfolio were £8.0m.

Acquisitions of unquoted companies are increasingly structured so that an upfront payment to existing shareholders is agreed with further amounts contingent on the future success of the programmes or projects over a number of years ahead. In this way the risk and rewards of development are shared with the original owners of the companies. The milestones can often be worth some multiple of the initial upfront payment, but because of the significant development risk, no value is recognised.

There are four companies where the Company continues to have a contingent interest in future milestone based payments which are currently valued at zero in the Financial Statements, though in total they sum to a possible $14.6m (£8.9m). This total is analysed as follows: Archemix $2.2m (£1.3m), ESBATech $9.9m (£6.1m), Ikano $0.8m (£0.5m), Itero $1.7m (£1.0m).

The investment thesis for venture capital investing in the life sciences area remains intact. Highly creative and efficient small biotech companies continue to provide the novel products so desperately needed by the pharmaceutical industry. The recent trend for large pharmaceutical companies reducing internal investment in R&D in favour of outsourcing development-stage products from smaller biotechnology companies favours the venture capital investment model in two important ways.

Firstly, it provides high quality deal-flow as relatively advanced drug development projects are spun-out of pharmaceutical companies along with their project teams and comprehensive intellectual property portfolios. For example, in September 2010, SVLS was instrumental in the creation of a new company, Convergence, focused on developing new treatments for pain from the drug candidates, patents and people divested by GlaxoSmithKline as part of their strategic R&D review.

Secondly, it provides a clear route to exiting investments while public markets risk appetite remains relatively low and biotech IPO activity remains suppressed. Venture capital investors are continuing to achieve attractive exits for their companies through M&A, with the range of buyers extending beyond the traditional Big Pharma companies to now include specialty pharmaceutical and large-cap biotech companies.

We expect news flow from the unquoted portfolio to increase in the near term as the portfolio's venture-backed companies begin to generate proof-of-concept data on lead drug candidates and medical devices or their businesses develop to a stage where they become attractive acquisition candidates for larger companies. Descriptions of the Company's unquoted investments are presented on pages 14 and 15 of the Annual Report.

Outlook

The global biotechnology industry has established itself as one of the world's most important growth industries. The last decade has seen the industry capitalise on rapidly developing understanding of molecular genetics, human biology and of the key factors driving health and disease. Investors are just beginning to see the first products of a new technology cycle as exciting new biotechnology-derived drugs and diagnostics are commercialised, all developed with the assistance of a host of powerful new tools and technologies being employed in medical research.

The NBI includes a good proportion of some of the brightest and best biotechnology companies at all stages of development and maturity operating on the global stage of medical innovation. At the end of August 2011 the combined market value of companies within this index totalled $387bn. In January 2011, industry analysts at BioCentury identified almost 30 drugs developed and marketed by biotechnology companies each achieving more than $500m in annual sales in 2010, for a total of approximately $50bn that year.

The clear message is that biotechnology should no longer be regarded as a cottage industry. With the large traditional pharmaceutical companies struggling to deliver major new drug products that offer radical new advances in the treatment of major diseases, innovative and dynamic biotechnology companies are taking up the baton of delivering the medical innovation required to meet the major healthcare challenges of the 21st century. The value being created is reflected in the level of M&A and deal-making activity ongoing in the sector as Big Pharma makes the shift to an R&D outsourcing model.

Over the coming decade, healthcare systems across the world will face huge challenges, none more so than in the world's largest and most profitable healthcare market in the United States. The political parties in Washington will need to agree on how best to make major spending adjustments to help address the stretched budget deficit while the economy struggles for growth. The life sciences specialist investment bank Leerink Swann has recently estimated that spending cuts of $300-$400bn should be expected from the US healthcare system over the coming decade - approximately 4-5% of expected Medicare spending. This will inevitably translate into downward pressure on drug pricing, prescribing trends and general healthcare utilisation.

However, we believe of all the subsectors of the healthcare industry, biotechnology is best positioned to weather the storm. Many biotech therapies treat serious life-threatening diseases with significant efficacy, often in relatively small numbers of patients, meaning that the overall cost burden on the healthcare system is relatively low, even for highly priced drugs. More broadly, the high level of medical innovation characteristic of biotechnology companies and early-stage medical device and diagnostic companies is fundamental to the ability of the broader healthcare industry to meet the basic challenge of providing better clinical outcomes for more citizens within a constrained budget.

In the near term we expect that negative news headlines regarding cuts to Medicare spending and NIH research budgets, as well as further noise around "biosimilars" legislation, could suppress more general investor interest in the sector. But fundamentally, commercial-stage biotechnology and medical device companies with highly effective specialist drugs and devices continue to show extremely attractive growth and profitability at valuations that remain low by both absolute historical and relative current standards. In our view, an excessive amount of uncertainty and investor anxiety is already reflected in the share prices of many of these companies.

For development-stage companies, the usual clinical risks of drug development are unlikely to change in the near-term. However, the regulatory environment in the United States is set to improve when the legal framework defining the interaction between industry and the regulator - known as the Prescription Drug User Fee Act ("PDUFA") - is updated and enacted in its fifth incarnation "PDUFA V" in 2012. Its defining feature will be a much enhanced level of communication between industry and the Food and Drug Administration ("FDA"), and is likely to begin to incorporate patient attitudes to risk-benefit analysis. Both of these developments should improve the probability and predictability of new drug applications reaching the market.

The capital markets environment continues to provide the highest quality projects and teams access to capital, whether it is equity or debt issued in the public markets, or venture capital. To the end of August 2011, BioCentury estimates companies in the biotechnology industry raised $26.4bn versus $36.1bn in calendar 2010. While much of this represents debt raised by commercial stage companies ($17.6bn 2011 YTD and $23.6bn in calendar 2010), venture capital investing remains robust with $3.6bn invested in 2011 to the end of August as compared to $5.4bn in calendar 2010.

We expect continued M&A and high value deal-making activity across the healthcare spectrum - a key driver of positive returns for both the Company's quoted and unquoted portfolio in recent years. Big Pharma continues to invest across the market capitalisation and development-stage spectrum in what we believe is a "barbell" approach - sourcing assets and technologies either very early or late in order to reduce clinical and commercial risk. The Company's portfolio has been constructed with this trend in mind.

We believe the Company's portfolio is well constructed to generate strong returns for shareholders, albeit in part influenced by the direction of global financial markets over the coming months and years. The Company provides shareholders the unique combination of a diversified and actively managed quoted portfolio, and a maturing unquoted portfolio of venture capital investments - all in what we believe to be some of the most promising early stage medical innovation in a major global growth industry.

SV Life Sciences Managers LLP

Investment Manager

21 October 2011

 

Principal Risks and Uncertainties

The Board has adopted a matrix of key risks which affect its business, and a robust framework of internal control which is designed to monitor those risks and to provide a monitoring system to enable the Directors to take steps to mitigate these risks as far as possible. A full analysis of the Directors' system of internal control is set out in the Corporate Governance Statement on page 27 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. The Investment Manager 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

Alignment of the investment strategy with the Company's Investment Objective is essential and an inappropriate approach by the Investment Manager 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 the Investment Manager's adherence to the agreed investment strategy.

As mentioned above, 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. The Investment Manager operates in a collegiate manner, with no one individual having overall control over the Company's investments.

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 the Company's policy to hedge against foreign currency risk.

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 on pages 6 and 7 of the Annual Report.

Accounting, Legal and Regulatory

To qualify for the status of an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ("CTA"). 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 the Investment Manager.

Reports confirming the Company's compliance with the provisions of Section 1158 CTA are submitted by the Investment Manager to each Board meeting together with relevant portfolio and financial information.

The Company is also subject to compliance with other laws and regulations, including the Companies Act 2006 and the FSA's Listing, Prospectus and Disclosure and Transparency Rules. Breaches of these laws and regulations could lead to criminal action being taken against Directors or suspension of the Company's shares from trading. The Investment Manager and 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

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 Board, which receives quarterly reports from its main service providers as to the internal control processes in place within those organisations. These serve to reduce the Company's risk exposure. The Chairman of the Audit Committee annually reviews the internal control reports of the Company's main service providers produced in accordance with AAF 01/06 and SAS 70 guidance and raises any issues of concern to the Board.

Financial

The financial risks faced by the Company are set out in note 24 to the Financial Statements on pages 51 to 59 of the Annual Report.

Related Party Transactions

Details of the management fee arrangement are given in the Directors' Report on pages 22 and 23 of the Annual Report.

The total fee payable under this agreement to SVLS for the year ended 31 August 2011 was £1,351,000 (2010: £1,340,000) of which £nil (2010: £nil) was outstanding at the year end. In addition to this, the Company is also entitled to a performance fee of £486,000 (2010: £nil), all of which is outstanding at the year end.

The Directors of the Company are key management personnel. The total remuneration payable to Directors in respect of the year ended 31 August 2011 was £183,772 (2010: £199,000) of which £nil (2010: £179,000) was outstanding at the year end.

As Investment Manager, SVLS will often take seats on boards of companies in which the Company holds an investment. These positions help the monitoring of the investee companies and in many cases add to the strength and depth of management. They sometimes provide an economic benefit to the individual who takes the position - often in the form of a director's fee or share awards. SVLS has agreed with the Board a set of guidelines on how any economic interest will be divided between the Company and SVLS. The Board is informed of both the position held and any economic benefits as they arise and a summary of all the positions, benefits and allocations is presented for review at each Board meeting for formal approval. During the year to 31 August 2011 £nil (2010: £nil) was received. 

At 31 August 2011 there was an outstanding balance of £511,000 due to the subsidiary, IBT Securities Limited (2010: £511,000 due to subsidiary).

Management Report

Listed companies are required by the FSA's Disclosure and Transparency Rules (the "Rules") to include a management report in their annual financial statements. The information required to be in the management report for the purposes of the Rules is included in the Chairman's Statement on pages 6 and 7 of the Annual Report, the Investment Manager's Review on pages 8 to 11 of the Annual Report and the Business Review as contained in the Director's Report on pages 17 and 18 of the Annual Report. Therefore, a separate management report has not been included.

Directors' Responsibility Statement

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report 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 Company Financial Statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union ("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 Company and of the profit or loss of the Group for that year. 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; and

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

The Annual Report is published on the following website: www.ibtplc.com, which is a website maintained by the Company's Investment Manager. The maintenance and integrity of the website maintained by the Investment Manager is, so far as it relates to the Company, the responsibility of the Investment Manager. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditor accepts no responsibility for any changes that have occurred to the Annual Report since it was initially presented on the website. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Annual Report may differ from legislation in their home jurisdiction.

Each of the Directors, whose names and functions are listed on page 5 of the Annual Report, confirm that, to the best of their knowledge:

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

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

In accordance with Section 418 of the Companies Act 2006, the Directors at the date of approval of this Report, as listed on page 5 of the Annual Report, confirm that:

(a) so far as the Director is aware, there is no relevant audit information of which the Company's Auditors are unaware; and

(b) he/she has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.

By order of the Board

Andrew Barker

Chairman

21 October 2011

 

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

		For the year ended			For the year ended
		31 August 2011			31 August 2010
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value	2	-	7,179	7,179	-	3,338	3,338
Exchange losses on currency balances		-	(101)	(101)	-	(181)	(181)
Income	3	196	-	196	52	-	52
Expenses
Management fees		(1,351)	-	(1,351)	(1,340)	-	(1,340)
Performance fee		-	(486)	(486)	-	-	-
Administrative expenses		(830) -----------	- ----------	(830) ----------	(801) ----------	- ----------	(801) ---------
(Loss)/profit before finance costs and tax		(1,985)	6,592	4,607	(2,089)	3,157	1,068
Finance costs
Interest payable		(23) -----------	- ----------	(23) ----------	- ----------	- ---------	- ---------
(Loss)/profit on ordinary activities before tax		(2,008)	6,592	4,584	(2,089)	3,157	1,068
Taxation		(14) ----------	- ----------	(14) ----------	- ----------	- ---------	- ---------
(Loss)/profit for the year attributable to owners of the parent		(2,022) ======	6,592 ======	4,570 ======	(2,089) ======	3,157 ======	1,068 ======
(Loss)/profit per Ordinary share	4	(3.45)p ======	11.24p ======	7.79p ======	(3.36)p ======	5.07p ======	1.71p ======

The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.

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

The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies ("AIC").

All income is attributable to the owners of the company. There are no minority interests.

All items in the above statement derive from continuing operations.

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
Group	capital	account	reserve	reserve	reserves	reserve	Total
For the year ended 31 August 2011	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2010	16,208	18,805	25,609	52,913	(2,091)	(17,786)	93,658
Total Comprehensive Income:
Profit/(loss) for the year	-	-	-	-	6,592	(2,022)	4,570
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	-	-	-	(6,464)	-	-	(6,464)
Shares cancelled from treasury	(1,119) -----------	- ----------	1,119 -----------	- -----------	- -----------	- -----------	- ----------
Balance at 31 August 2011	15,089 ======	18,805 ======	26,728 =======	46,449 =======	4,501 ======	(19,808) =======	91,764 ======
	Called up	Share	Capital	Share
	share	premium	redemption	purchase	Capital	Revenue
Group	capital	account	reserve	reserve	reserves	reserve	Total
For the year ended 31 August 2010	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2009	17,648	18,746	24,169	58,637	(5,248)	(15,697)	98,255
Total Comprehensive Income:
Profit/(loss) for the year	-	-	-	-	3,157	(2,089)	1,068
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	-	-	-	(5,724)	-	-	(5,724)
Shares cancelled from treasury	(1,440)	-	1,440	-	-	-	-
Rebate of share issue costs	- ----------	59 ----------	- ----------	- ----------	- ----------	- -----------	59 ----------
Balance at 31 August 2010	16,208 ======	18,805 ======	25,609 ======	52,913 ======	(2,091) ======	(17,786) =======	93,658 ======
	Called up	Share	Capital	Share
	share	premium	redemption	purchase	Capital	Revenue
Company	capital	account	reserve	reserve	reserves	reserve	Total
For the year ended 31 August 2011	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2010	16,208	18,805	25,609	52,913	(2,602)	(17,786)	93,147
Total Comprehensive Income:
Profit/(loss) for the year	-	-	-	-	6,592	(2,022)	4,570
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	-	-	-	(6,464)	-	-	(6,464)
Shares cancelled from treasury	(1,119) -----------	- -----------	1,119 ------------	- -----------	- -----------	- -----------	- ----------
Balance at 31 August 2011	15,089 ======	18,805 ======	26,728 =======	46,449 ======	3,990 =======	(19,808) =======	91,253 ======
	Called up	Share	Capital	Share
	share	premium	redemption	purchase	Capital	Revenue
Company	capital	account	reserve	reserve	reserves	reserve	Total
For the year ended 31 August 2010	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2009	17,648	18,746	24,169	58,637	(5,759)	(15,697)	97,744
Total Comprehensive Income:
Profit/(loss) for the year	-	-	-	-	3,157	(2,089)	1,068
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	-	-	-	(5,724)	-	-	(5,724)
Shares cancelled from treasury	(1,440)	-	1,440	-	-	-	-
Rebate of share issue costs	- ---------	59 ---------	- ---------	- ---------	- ---------	- ----------	59 ----------
Balance at 31 August 2010	16,208 ======	18,805 ======	25,609 =======	52,913 ======	(2,602) ======	(17,786) ======	93,147 =====

 

 

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
		2011	2011	2010	2010
		Group	Company	Group	Company
	Note	£'000	£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit or loss		95,867 ------------	95,867 ------------	91,449 -----------	91,449 -----------
		95,867	95,867	91,449	91,449
Current assets
Current asset investments		-	-	1,500	1,500
Other receivables		5,427	5,427	874	874
Cash and cash equivalents		23 -----------	23 ------------	1,245 -----------	1,245 ----------
		5,450 -----------	5,450 ------------	3,619 -----------	3,619 ----------
Total assets		101,317	101,317	95,068	95,068
Current liabilities
Borrowings		(7,996)	(7,996)	-	-
Other payables		(1,557) -----------	(2,068) -----------	(1,410) -----------	(1,921) ----------
		(9,533) -----------	(10,064) -----------	(1,410) -----------	(1,921) ----------
Net assets		91,764 -----------	91,253 -----------	93,658 -----------	93,147 ----------
Equity attributable to equity holders
Called up share capital		15,089	15,089	16,208	16,208
Share premium account		18,805	18,805	18,805	18,805
Capital redemption reserve		26,728	26,728	25,609	25,609
Share purchase reserve		46,449	46,449	52,913	52,913
Capital reserves		4,501	3,990	(2,091)	(2,602)
Revenue reserve		(19,808) -----------	(19,808) -----------	(17,786) -----------	(17,786) -----------
Total equity		91,764 ======	91,253 ======	93,658 ======	93,147 ======
Net asset value per Ordinary share	5	163.84p ======	162.93p ======	155.17p ======	154.33p ======

Approved by the Board and authorised for issue on 21 October 2011 by Andrew Barker, Chairman and John Aston, Director.

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
	2011	2011	2010	2010
	Group	Company	Group	Company
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Profit before finance costs and taxation	4,607	4,607	1,068	1,068
Exchange losses on currency balances	101	101	181	181
Adjustments for:
(Increase)/decrease in investments	(4,418)	(4,418)	2,600	2,600
Decrease in current asset investments	1,500	1,500	2,012	2,012
Decrease/(increase) in receivables	(4,553)	(4,553)	(290)	(290)
Increase in payables	138	138	946	946
Taxation	(14) ------------	(14) ------------	- -----------	- -----------
Net cash flows (used in)/generated from operating activities	(2,639) ------------	(2,639) ------------	6,517 -----------	6,517 -----------
Cash flows (used in) financing activities
Share repurchase costs	(6,464)	(6,464)	(5,724)	(5,724)
Share issue costs rebated	-	-	59	59
Interest paid on bank overdrafts	(14) ------------	(14) ------------	- -----------	- -----------
Net cash (used in) financing activities	(6,478) ------------	(6,478) ------------	(5,665) -----------	(5,665) -----------
Net (decrease)/increase in cash and cash equivalents	(9,117)	(9,117)	852	852
Effect of foreign exchange losses	(101)	(101)	(181)	(181)
Cash and cash equivalents at 1 September	1,245 -----------	1,245 -----------	574 -----------	574 ----------
Cash and cash equivalents at 31 August	(7,973) ======	(7,973) ======	1,245 ======	1,245 ======

The accompanying notes form part of these Financial Statements.

 

 

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 August 2011

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 Director's Report on page 17 of the Annual Report.

Group and Company Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") and those parts of the Companies Act 2006 ("the Act") applicable to companies reporting under IFRSs.

These comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and

International Accounting Standards Committee ("IASC"), as adopted by the EU.

These Financial Statements are presented in pounds Sterling, as this is the principal currency in which the Group's transactions are undertaken and is therefore considered to be the functional currency of the Company.

The principal accounting policies followed are set out below:

(a) Basis of preparation

The Group and Company Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the revaluation of certain financial instruments.

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 IFRSs, the Directors have sought to prepare the Financial Statements on a basis compliant with the recommendations of the SORP.

(b) Basis of consolidation

The Group Financial Statements incorporate the audited accounts of the Company and the Subsidiary made up to 31 August each year. 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. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The Statement of Comprehensive Income is only presented in consolidated form, as provided by 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.

In accordance with the Company's status as a UK investment company under Section 833 of the Act, net capital returns may not be distributed by way of a dividend. Additionally, 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.

(d) Income

Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Income from current asset investments is included in the revenue for the year on an accruals 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.

Deposit and other interest receivable are accounted for on an accruals basis.

(e) Expenses and interest payable

Administrative expenses including the management fee and interest payable are accounted for on an accruals basis.

All expenses 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 provided 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, without discounting, 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.

Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required by Section 1158 of the Corporation Tax Act 2010 to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation of investments, or current tax on any capital gains on the disposal of investments.

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

Investments are recognised or de-recognised 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 IFRSs.

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 (August 2010). 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 to cash and operating budgets, clinical development  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 and are not distributable by way of dividend.

(h) Current asset investments

Current asset investments are measured at fair value with gains and losses arising from their changes in fair value being included in the Statement of Comprehensive Income as a revenue item.

(i) Investment in subsidiary

The Company's investment in the Subsidiary is valued at fair value in the Company's Balance Sheet. Fair value is considered to be the cost of the Subsidiary.

(j) Foreign currencies

Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date.

At each Balance Sheet date, monetary items and non-monetary assets and liabilities that are fair valued, which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Foreign currency exchange differences arising on translation are recognised in the Statement of Comprehensive Income. Exchange gains and losses on investments held at fair value through profit or loss are included within "gains/(losses) on investments held at fair value".

(k) Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRSs 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.

(l) 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 subject to an insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. In the balance sheet, bank overdrafts are shown within borrowings in current liabilities.

(m) Other 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.

(n) Other payables

Other payables are not interest-bearing and are stated at their nominal amount (amortised cost).  Where there are any long term borrowings, finance costs are calculated over the term of the debt on the effective interest basis.

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

The cost 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 in the share purchase reserve. Share repurchase 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.

(p) Reserves

(i) Capital redemption reserve

The capital redemption reserve, which is non-distributable, holds the amount by which the nominal value of the Company's issued share capital is diminished when shares are redeemed or purchased out of the Company's profits.

(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:

• Gains and losses on the realisation of investments;

• Unrealised investment holding gains and losses;

• Foreign exchange gains and losses; and

• Performance fee.

(v) Revenue reserve

Comprises accumulated undistributed revenue profits available for distribution as dividends.

(q) Accounting developments

(i) Standards, amendments and interpretations becoming effective in the year to 31 August 2011:

• IFRS 1 (Amendment), 'First time adoption of International Financial Reporting Standards' simplified the structure of

IFRS 1 without making any technical changes. No impact on the Group's Financial Statements.

• Amendment to IFRS 2, 'Share based' payments - Group cash settled share based payment transactions (effective 1 January 2010).  No impact on the Group's Financial Statements.

• IFRS 5 (Amendment), 'Non-current Assets Held for Sale and Discontinued Operations' (as part of Improvements to

IFRSs issued in 2009). Not currently relevant to the Group and therefore has no impact on the Financial Statements.

• IAS 32 (Amendment), 'Financial Instruments: Presentation' - amendments relating to classification of rights issues.

No impact on the Group's Financial Statements.

• IFRIC 15, 'Agreements for Construction of Real Estate'. Not relevant to the Group.

• IFRIC 19, 'Extinguishing financial liabilities with equity instruments' (effective 1 July 2010).  Provides clarification to net investment hedging issues. No impact on the Group's Financial Statements.

• 'Improvements to IFRS' issued in 2009 comprised numerous other minor amendments to IFRSs, resulting in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments. These amendments had no impact on the Group's 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 or Company

• IFRS 9, 'Financial Instruments' (effective for financial periods beginning on or after 1 January 2015). Replaces IAS 39. Simplifies accounting for financial assets, replacing the current multiple measurement categories with a single principle-based approach to classification. All financial assets to be measured at either amortised cost or fair value.  The Group will apply IFRS 9 from 1 September 2015, subject to endorsement by the EU.

• IFRS 12, 'Disclosures of interests in other entities' (effective 1 January 2013). This standard includes the disclosure requirement for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

• IFRS 13, 'Fair value measurement' (effective 1 January 2013). This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs.

• IAS 24 (revised), 'Related Party Disclosures' (effective for financial periods beginning on or after 1 January 2011, subject to EU endorsement). Revises definition of related parties. Unlikely to have a significant effect.

(iii) The following standards, amendments and interpretations to existing standards become effective in future accounting periods, but are not relevant for the Group's operations

• Amendment to IFRS 1 on hyperinflation and fixed dates (effective 1 July 2011).

• IFRS 10, 'Consolidated financial statements' (effective 1 January 2013).

• IFRS 11, 'Joint arrangements'(effective 1 January 2013).

• IFRIC 14 (Amendment), 'IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their

Interaction'

• IAS 19 (revised 2011) 'Employee benefits' (effective 1 January 2013).

• IAS 27 (revised 2011) 'Separate financial statements' (effective 1 January 2013).

• IAS 28 (revised 2011) 'Associates and joint ventures' (effective 1 January 2013).

• Amendment to IAS 12, 'Income taxes' on deferred tax (effective 1 January 2012).

(r) Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.  The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board.

The Board are of the opinion that the Group is engaged in a single segment of business, namely the investment in development staged biotechnology and other life sciences companies in accordance with the Company's Investment Objective, and consequently no segmental analysis is provided.   All activities are conducted in the UK and revenue and capital profits from investment activities are disclosed in the Group Statement of Comprehensive Income.

2.	Gains on investments held at fair value

	For the year ended	For the year ended
	31 August	31 August
	2011	2010
	£'000	£'000
Net gains/(losses) on disposal of investments at historic cost	12,241	(1,682)
(Less)/add fair value adjustments in earlier years	(939) -----------	8,102 ----------
Gains based on carrying value at previous Balance Sheet date	11,302	6,420
Investment holding losses during the year	(4,123) -----------	(3,082) ----------
	7,179 -----------	3,338 ----------
Attributable to:
Listed investments	9,646	3,294
Unquoted investments	(2,467) -----------	44 ----------
	7,179 =======	3,338 ======

 

3.

Income

	For the year ended	For the year ended
	31 August	31 August
	2011	2010
	£'000	£'000
Income from investments held at fair value through profit or loss:
Franked dividends	7	-
Unfranked dividends	183	21
Interest on debt securities	2 ------------	4 ------------
	192	25
Other income:
Income from current asset investments	3	15
Interest on deposits	-	1
VAT reclaim interest	-	11
Other income	1 ------------	- ------------
	196 =======	52 =======

 

4.	Net (Loss)/Profit per Ordinary Share

 

	For the year ended	For the year ended
	31 August	31 August
	2011	2010
	£'000	£'000
Net revenue loss	(2,022)	(2,089)
Net capital profit	6,592 ---------------	3,157 ---------------
	4,570 =========	1,068 =========
Weighted average number of Ordinary shares in issue during the year*	58,642,458	62,228,267
	Pence	Pence
Revenue loss per Ordinary share	(3.45)	(3.36)
Capital profit per Ordinary share	11.24 ----------------	5.07 ---------------
Total profit per Ordinary share	7.79 =========	1.71 =========

* excluding those held in treasury.

The increase in the NAV per share from 155.17p (31 August 2010) to 163.84p (31 August 2011) includes the total profit 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
	2011	2011	2010	2010
	Group	Company	Group	Company
Net asset value (£'000)	91,764 =========	91,253 =========	93,658 =========	93,147 =========
Number of Ordinary shares in issue	56,007,663 =========	56,007,663 =========	60,357,664 =========	60,357,664 =========
Basic net asset value per Ordinary share (pence)	163.84 =========	162.93 =========	155.17 =========	154.33 =========

 

6.

The figures and financial information for the year ended 31 August 2010 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 Companies Act 2006.  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 Companies Act 2006.   This Annual Financial Report Announcement does not constitute statutory accounts for the year ended 31 August 2011 as defined in Section 434 of the Companies Act 2006.

7.

The Annual Report for the year ended 31 August 2011 will be posted to shareholders in October 2011 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.  The Company's AGM will be held at 12 noon on Wednesday, 7 December 2011 at the offices of BNP Paribas Fortis, 5 Aldermanbury Square, London EC2V 7HR.

 

 

For further information, please contact:

Kate Bingham

Telephone: [phone]

SV Life Sciences Managers LLP

Investment Manager

Rhona Gregg

Telephone: [phone]

BNP Paribas Secretarial Services Limited

Company Secretary

21 October 2011

 

 

END

 

 

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