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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Biotech Growth Trust (the) Plc | LSE:BIOG | London | Ordinary Share | GB0000385517 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 11.00 | 1.19% | 937.00 | 937.00 | 945.00 | 941.00 | 927.00 | 937.00 | 32,552 | 16:07:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | -32.42M | -41.3M | -1.0034 | -9.34 | 385.66M |
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TIDMBIOG
LONDON STOCK EXCHANGE ANNOUNCEMENT
Legal Entity Identifier 549300Z41EP32MI2DN29
The Biotech Growth Trust PLC
Audited Results for the Year Ended 31 March 2017
The Company's Annual Report will be posted to shareholders on 7 June 2017.
Members of the public may obtain copies from Frostrow Capital LLP, 25
Southampton Buildings, London WC2A 1AL or from the Company's website at:
www.biotechgt.com
The Company's Annual Report for the year ended 31 March 2017 has been submitted
to the UK Listing Authority, and will shortly be available for inspection on
the National Storage Mechanism (NSM):
www.morningstar.co.uk/uk/nsm
(Documents will usually be available for inspection within two business days of
this notice being given)
Mark Pope, Frostrow Capital LLP, Company Secretary - 0203 008 4913
25 May 2017
Strategic Report / Company Performance
Historic Performance Record for the years ended 31 March
2012 2013 2014 2015 2016 2017
Net asset value per share 34.9% 48.1% 34.2% 67.4% (24.8%) 27.5%
performance
Share price performance 42.2% 55.9% 26.9% 69.9% (26.3%) 27.9%
Benchmark performance 23.6% 37.2% 34.7% 63.7% (21.8%) 29.2%
Net asset value per share 250.9p 371.7p 498.7p 834.7p 627.9p 800.8p
Share price 236.0p 368.0p 467.0p 793.5p 585.0p 748.0p
Discount of share price to net 5.9% 1.0% 6.4% 4.9% 6.8% 6.6%
asset value per share
Ongoing charges* 1.3% 1.3% 1.2% 1.2% 1.0% 1.1%
Gearing* Nil Nil 8.3% 9.4% 11.1% 3.2%
* See glossary.
Strategic Report / Chairman's Statement
Investment performance
Your Company produced a good return in absolute terms for the year ended 31
March 2017. The Company's net asset value per share rose by 27.5% during the
year, which compares with the Company's benchmark, the NASDAQ Biotechnology
Index (sterling adjusted), which rose by 29.2%. As this shows, the
biotechnology sector performed well over the year in review, and in line with
the broader U.S. stock market. Part of the performance reflects sterling's
decline against other major currencies and in particular the U.S. dollar, which
is the currency in which almost all the Company's holdings are denominated.
Sterling fell 13.0% over the year.
The Company's share price rose by 27.9%, a little more than the net asset
value, reflecting a slight narrowing in the discount of the share price to net
asset value per share, from 6.8% at the start of the Company's year, to 6.6% at
31 March 2017.
This was a year in which "macro" factors played a more significant part in
performance than individual stock selection. The Biotechnology sector
experienced considerable volatility during the long-running primary and
Presidential campaigns in the U.S., running up to the election in November
2016. Uncertainty persisted over both who might win the election and what
policies the winner would adopt. Ultimately, the result was seen as positive
for the market and in the case of the biotechnology sector, the rally already
in train from the depressed levels in early 2016 was extended.
The other principal "macro" factor affecting performance was the decline in
sterling as noted above and in the Company's half year report, following the
UK's referendum vote to leave the European Union.
Looking at the contribution to performance from individual stocks, the
Company's positive performance during the year was due in part to the holdings
in Incyte, Celgene and Biogen. Negative performance came from holdings in Impax
Laboratories, Achillion Pharmaceuticals and Shire. Further information on the
Company's investments can be found in the Portfolio Manager's Review.
I note that the Company underperformed its benchmark slightly despite the high
absolute return. This was principally due to individual stock selection over
the course of the year.
Over the longer term, the Company's performance continues to remain strong,
both on an absolute and relative basis. In the five-year period to 31 March
2017, the Company's net asset value per share rose by 219.1% and the share
price by 217.0%, both outperforming the Company's benchmark, which rose by
205.5%.
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%. During the year, a total of 4,455,561
shares were repurchased by the Company at an average discount of 7.0% and at a
cost of GBP29.7m (including expenses). Since the year-end, to the date of this
report, no further shares have been repurchased by the Company.
Return and dividend
The total return per share amounted to 171.5p for the year (2016: loss of
208.1p), comprising a revenue gain of 1.6p per share (2016: 1.3p) and a capital
gain of 169.9p (2016: loss of 209.4p). No dividend is recommended in respect of
the year ended 31 March 2017 (2016: nil).
Board composition
The process of refreshment of the Board has continued. As reported at the half
year stage, one addition was made during the year with Julia Le Blan joining
the Board on 12 July 2016.
Julia is a Chartered Accountant and has worked in the financial services
industry for over 30 years. She was formerly a tax partner at Deloitte and sat
for two terms on the AIC's Technical Committee. We are pleased to have someone
of her calibre and experience join the Board. She will succeed Peter Keen as
Chairman of the Audit Committee upon his retirement.
Peter Keen will be retiring from the Board at the conclusion of this year's
Annual General Meeting. Peter has been a Director since the launch of the
Company in 1997 and Chairman of the Audit Committee since 2005. His extensive
knowledge of the biotechnology sector and his wise counsel will be greatly
missed.
As I said in the half-year report in November, I was honoured to succeed the Rt
Hon Lord Waldegrave of North Hill as Chairman in July last year. Like Peter
Keen, William had been a Director since the early days of the Company and with
Peter's retirement in July this year there will now no longer be any of the
original Directors on the Board. To William, Peter and all the original
Directors, all shareholders owe a great debt of gratitude, not least for having
had the wisdom to appoint OrbiMed as the Company's Portfolio Manager. Since
that moment 12 years ago, the growth in the Company's net asset value per share
has been 704.0%, comfortably ahead of the sterling adjusted NASDAQ
Biotechnology Index.
Outlook
Despite continued uncertainty over drug pricing and also ongoing political
concerns, our Portfolio Manager believes that the biotechnology sector is
well-positioned for outperformance driven principally by merger and acquisition
activity, current depressed valuations and sustained innovation. Their focus
remains on the selection of stocks with strong prospects for capital
enhancement and your Board strongly believes that the long-term investor will
be well rewarded.
Annual General Meeting
The Annual General Meeting of the Company this year will be held at the
Barber-Surgeons' Hall, Monkwell Square, Wood Street, London EC2Y 5BL on
Wednesday, 12 July 2017 at 12 noon and we hope as many shareholders as possible
will attend. This will be an opportunity to meet the Board and to receive a
presentation from our Portfolio Manager. Shareholders who are unable to attend
are encouraged to return their forms of proxy to ensure their votes are
represented.
Andrew Joy
Chairman
25 May 2017
Strategic Report / Investment Portfolio
Investments held as at 31 March 2017
Security Country/ Fair value % of
Region GBP'000 investments
Celgene United States 61,217 13.3
Biogen United States 53,702 11.6
Incyte United States 42,909 9.3
Alexion Pharmaceuticals United States 38,734 8.4
Vertex Pharmaceuticals United States 36,673 8.0
Amgen United States 23,198 5.0
Illumina United States 19,064 4.1
DBV Technologies France 14,446 3.1
Regeneron Pharmaceuticals United States 11,979 2.6
BioMarin Pharmaceutical United States 11,941 2.6
Ten largest investments 313,863 68.0
Dermira United States 11,603 2.5
GW Pharmaceuticals United Kingdom 10,562 2.3
Aurinia Pharmaceuticals Canada 10,536 2.3
Shire Jersey 10,325 2.3
Gilead Sciences United States 10,264 2.2
Ironwood Pharmaceuticals United States 9,676 2.1
Actelion Switzerland 8,398 1.8
Aerie Pharmaceuticals United States 7,876 1.7
Array BioPharma United States 7,829 1.7
Jazz Pharmaceuticals Ireland 6,847 1.5
Twenty largest investments 407,779 88.4
Alkermes Ireland 6,782 1.5
Tesaro United States 5,808 1.2
OrbiMed Asia Partners L.P. (unquoted)* Far East 5,069 1.1
Achillion Pharmaceuticals United States 4,788 1.0
Minerva Neurosciences United States 4,562 1.0
Xencor United States 4,512 1.0
Insys Therapeutics United States 3,646 0.8
Puma Biotechnology United States 3,538 0.8
Alnylam Pharmaceuticals United States 3,368 0.7
Acadia Pharmaceuticals United States 3,081 0.7
Thirty largest investments 452,933 98.2
BeiGene Cayman Islands 2,443 0.5
Clearside Biomedical United States 1,898 0.4
Infinity Pharmaceuticals United States 1,646 0.4
Fluidigm United States 1,568 0.3
Sarepta Therapeutics United States 890 0.2
Total investments 461,378 100.0
All of the above investments are equities unless otherwise stated.
* Partnership interest
Portfolio Breakdown
Fair value % of
Investments GBP'000 investments
Equities 456,309 98.9
Partnership interest (unquoted) 5,069 1.1
Total investments 461,378 100.0
Strategic Report / Portfolio Manager's Review
Performance review
The Company's net asset value per share increased 27.5% during the year. This
compares to a 29.2% increase in the Company's benchmark, the NASDAQ
Biotechnology Index (NBI) (measured on a sterling adjusted basis).
Incyte, Celgene, Biogen, Vertex Pharmaceuticals, and Amgen were the leading
positive contributors to performance in the portfolio during the year.
* Shares in Incyte appreciated due to the announcement of a strategic
collaboration with Merck to advance the combination of epacadostat/
pembrolizumab to phase III trials in four new tumour types. Full data from
the trial that supported this decision to advance the combination will be
presented in June at the American Society of Clinical Oncology meeting.
* Shares in Celgene outperformed due to multiple positive catalysts including
strong financial results, the approval of Revlimid in the maintenance
setting of multiple myeloma, and positive Phase III data for ozanimod in
multiple sclerosis.
* Shares in Vertex Pharmaceuticals appreciated due to the announcement of
positive Phase III data of tezacaftor and ivacaftor in cystic fibrosis.
Initial data suggests that this combination has a greater tolerance and a
slightly better efficacy profile compared to their marketed CF product,
Orkambi. Tezacafor/Ivacaftor is also being combined with additional
corrector drugs which may provide additional efficacy to patients;
preliminary data from the triple-combination regimens are expected later
this year.
* Shares in Amgen outperformed due to strong financial results and a
favourable court decision regarding its PCSK9 patents litigation against
Sanofi/Regeneron Pharmaceuticals. The decision is currently being appealed.
A final victory later this year could lead to the permanent removal of
Sanofi/Regeneron's competing drug from the market.
Impax Laboratories, Achillion Pharmaceuticals, Shire, Ono Pharmaceutical, and
Gilead Sciences were the principal detractors.
* Shares in Impax Laboratories were weak due to disappointing quarterly
financial results and weak guidance.
* Shares in Achillion Pharmaceuticals underperformed due to an adverse safety
finding in the phase I study of its complement factor D program. However,
the company believes that it can achieve adequate efficacy with a lower
dose than previously planned.
* Shares in Shire underperformed due to investor concerns on upcoming
competition in the haemophilia market and a slower-than-expected launch of
Xiidra, a product for dry eye.
* Shares in Ono Pharmaceutical underperformed due to unexpected negative data
from a Phase III study of nivolumab in first-line lung cancer conducted by
its U.S. partner Bristol-Myers Squibb and investor concerns regarding a
potential government mandated cut in nivolumab's price in Japan.
* Shares in Gilead Sciences were weak due to negative sentiment after
hepatitis C sales and guidance missed investor expectations.
Review of sector performance
During the year, the portfolio and the broader biotechnology sector performed
strongly, following a prior period of weakness largely caused by concerns over
the sustainability of drug pricing in the U.S. These concerns persisted in the
first half of the year, fuelled by Hillary Clinton's rhetoric on potential drug
price regulation during the U.S. Election. Additionally, as we detailed in the
previous report, the negative publicity of controversial pricing practices by
some specialty pharmaceutical companies, such as Valeant and Mylan, caused
worries among investors that enhanced scrutiny of pricing policies would spill
over to the biotechnology sector, creating an overhang. The NBI remained down
over 20% (in dollar terms) during the calendar year to early November. However,
the unexpected election of Donald Trump as President and the Republican sweep
in Congress caused an immediate positive reaction for biotechnology stocks,
with the NBI index up 9% on the day following the election. Subsequently, Mr.
Trump's public statements on drug pricing took on a more populist tone,
including that drug companies "are getting away with murder" and that drug
"pricing for the American people will come way down". The sector initially
underperformed following these comments, but sentiment has improved as
investors have concluded that actual legislation on drug pricing will be hard
to enact, and the draft legislation for the repeal and replacement of the
Affordable Care Act (ACA, or "Obamacare") did not contain significant proposals
that would be considered hostile toward the pharmaceutical and biotechnology
industries.
Healthcare reform proving to be more difficult than expected
In the past few years, the biotechnology sector has been a net beneficiary of
Obamacare, as coverage expansion has increased drug utilisation. However,
structural flaws in Obamacare have become evident, as lower than expected
enrolment and a sicker patient pool have caused significant premium increases
and large losses for insurance companies. This has prompted questions about the
sustainability of the law and what can be done to fix the issues. Throughout
the Obama administration, Republicans repeatedly advocated for the repeal of
Obamacare. However, internal divisions within the party have delayed the
process of repealing and replacing Obamacare. Importantly for biotechnology
investors, the legislation ultimately passed in the House of Representatives
made no mention of drug pricing reform, and in fact called for the removal of a
tax on branded drug makers. At this time, the Senate is crafting its own
legislation, and it is not clear how close the Senate version will be to the
bill passed in the House. President Trump has suggested that drug pricing would
be addressed at a later stage. However, the repeal and replace debate has
highlighted the difficulty of passing new healthcare legislation. We believe
there is not adequate Republican support in Congress to consider pricing
reform, and that President Trump will pivot to other priorities where he may be
more successful.
New tax changes could be positive for the biotechnology sector
Mr. Trump has also called for significant tax cuts, particularly for
businesses. His initial proposal reduces the corporate tax rate to 15% from
35%, and companies would pay little or no tax to the U.S. on foreign profits.
While most biotechnology companies already enjoy lower effective tax rates
given the multinational nature of the business and foreign domicile of
intellectual property, a lower corporate tax as proposed will still benefit
those that face high tax rates, such as Biogen and Regeneron in our portfolio.
Tax reform is also expected to allow repatriation of cash that is held overseas
at a low tax rate. As a result of current corporate tax laws, U.S. companies
with international operations often hold cash overseas to avoid paying the top
corporate tax rate of 35% on those foreign earnings. It is estimated that the
eight U.S. major pharmaceutical and biotechnology companies collectively held
over U.S.$130 billion in cash offshore at the end of 2016. This repatriation
could fuel a new wave of merger & acquisition activity as this cash can be used
to acquire U.S. emerging biotechnology companies.
The regulatory climate is becoming more favourable for the industry
President Trump has also pledged to streamline the drug approval process so
effective drugs can reach patients more quickly. We see the recent appointment
of Scott Gottlieb to head the U.S. Food & Drug Administration (FDA) as a
positive development in that direction. Dr. Gottlieb has previously been
critical of the FDA's "unreasonable hunger for statistical certainty" when
reviewing orphan drugs and has advocated for modernising the generic drug
framework to accommodate complex drugs, which could increase competition and
potentially lower prices of off-patent drugs. We believe Dr. Gottlieb is a
highly capable Commissioner who will take a more pragmatic approach to drug
approvals. We would also highlight that the FDA continues to make progress
expediting "breakthrough medicines" which allows more interaction between the
agency and companies to speed the approval of new important medicines. Last
year, 46 additional drugs received breakthrough designation, and nine drugs
with this designation were approved.
Innovation continues
Drug approvals and pipeline progress will continue to be major themes for
investment in the sector. Within the portfolio, there have been a number of
promising new drugs recently approved including Biogen's Spinraza for spinal
muscular atrophy (SMA) and Biomarin Pharmaceuticals' Brineura for Batten
disease. These new drugs have shown profound benefits in the treatment of
serious diseases lacking adequate treatment options. For example, Spinraza, the
first-ever treatment for spinal muscular atrophy approved by the FDA,
significantly improved the motor function and survival of young children with
SMA who would otherwise have experienced rapid disease progression and high
mortality. Thus far, the launch has been impressive. Biomarin's Brineura was
recently approved for the treatment of Batten disease, a rare neurodegenerative
disorder in children. Clinical data shows that Brineura nearly halts the
progression of the disease.
2017 is poised to be a landmark year for biotechnology drug development, as we
should see the first U.S. approvals of two new classes of therapy: gene therapy
and CAR-T cell therapy. We expect approval of Spark Therapeutics' gene therapy
to treat a rare inherited form of blindness. We also expect approval of two
CAR-T therapies (T-cells that are genetically modified to fight cancer), from
Kite Pharma and Novartis. These new treatment modalities allow drug developers
to address targets and diseases that are not easily treatable by more
conventional means. We expect considerable advancement of these methods in the
coming years as many biotechnology companies apply these technologies to create
new therapeutics.
We have previously highlighted the next wave of immuno-oncology (IO) as the
development of combination regimens that further stimulate the immune response
against cancer. This year, we are pleased to see significant progress in this
field, particularly with portfolio company Incyte announcing expanded strategic
collaborations with both Merck and Bristol-Myers to develop the combination of
epacadostat, Incyte's investigational oral selective IDO1 enzyme inhibitor,
with anti-PD1 therapy. These phase III trials will test epacadostat/PD-1 in
non-small cell lung cancer, bladder cancer, head and neck cancer and renal cell
cancer, in addition to melanoma that has been previously announced. We believe
the strategic decisions made by Incyte and partners to move research into this
type of therapy forward were based on solid clinical data from the phase II
studies, which suggests IDO/PD1 has emerged as a very promising combination
with broad activity as a next generation immunotherapy. We look forward to more
data from Incyte's epacadostat/PD1 and other IO combos to further establish the
future cancer treatment landscape. We continue to believe immuno-oncology
combinations will be a major area of investor interest this year.
Sven Borho
OrbiMed Capital LLC, Portfolio Manager
25 May 2017
Principal contributors to and detractors from net asset value performance
Contribution
for year to Contribution
31 March 2017 per share
Top five contributors GBP'000 (pence)*
Incyte 25,959 45.3
Celgene 15,875 27.7
Biogen 15,592 27.2
Vertex Pharmaceuticals 13,837 24.1
Amgen 12,756 22.3
84,019 146.6
Top five detractors
Impax Laboratories? (4,943) (8.6)
Achillion Pharmaceuticals (4,801) (8.4)
Shire (3,447) (6.0)
Ono Pharmaceutical? (3,446) (6.0)
Gilead Sciences (2,632) (4.6)
(19,269) (33.6)
* based on 57,315,305 ordinary shares being the weighted average
number of shares in issue for the year ended 31 March 2017
? not held in the portfolio at 31 March 2017
Strategic Report / Business Review
The aim of the Strategic Report is to provide shareholders with the ability to
assess how the Directors have performed their duty to promote the success of
the Company during the year under review.
Structure and objective of the Company
The Biotech Growth Trust PLC is an investment trust and has a premium listing
on the London Stock Exchange. Its investment objective is set out below. In
seeking to achieve this objective, the Company employs Frostrow Capital LLP
(Frostrow) as its Alternative Investment Fund Manager (AIFM), OrbiMed Capital
LLC (OrbiMed) as its Portfolio Manager, J.P. Morgan Europe Limited as its
Depositary and J.P. Morgan Clearing Corp. as its Prime Broker and Custodian.
Further details about their appointments can be found in the Report of the
Directors. The Board has determined an investment policy and related guidelines
and limits, as described below.
The Company is subject to UK and European legislation and regulations including
UK company law, International Financial Reporting Standards, the Alternative
Investment Fund Managers Directive, the UK Listing, Prospectus, Disclosure
Guidance and Transparency Rules, taxation law and the Company's own Articles of
Association.
The Company is an investment company within the meaning of Section 833 of the
Companies Act 2006 and has been approved by HM Revenue & Customs as an
investment trust (for the purposes of Sections 1158 and 1159 of the Corporation
Tax Act 2010). As a result, the Company is not liable for taxation on capital
gains. The Directors have no reason to believe that approval will not continue
to be retained. The Company is not a close company for taxation purposes.
Investment objective and policy
To seek capital appreciation through investment in the worldwide biotechnology
industry. In order to achieve its investment objective, the Company invests in
a diversified portfolio of shares and related securities in biotechnology
companies on a worldwide basis. Performance is measured against the NASDAQ
Biotechnology Index (sterling adjusted) (the Benchmark).
Investment strategy
The implementation of the Company's Investment Objective has been delegated to
OrbiMed by Frostrow (as AIFM) under the Board's and Frostrow's supervision and
guidance.
Details of OrbiMed's investment strategy and approach are set out in the
Portfolio Manager's review. While performance is measured against the Company's
Benchmark, Frostrow and OrbiMed have been given the ability to manage the
portfolio without regard to the Benchmark and its make-up.
While the Board's strategy is to allow flexibility in managing the investments,
in order to manage investment risk it has imposed various investment, gearing
and derivative guidelines and limits, within which Frostrow and OrbiMed are
required to manage the investments, as set out below.
Any material changes to the investment Objective, Policy and Benchmark or the
investment and gearing guidelines and limits require approval from
shareholders.
Investment limits and guidelines
The Board seeks to manage the Company's risk by imposing various investment
limits and restrictions as follows:
* The Company will not invest more than 10%, in aggregate, of the value of
its gross assets in other closed ended investment companies (including
investment trusts) listed on the London Stock Exchange, except where the
investment companies themselves have stated investment policies to invest
no more than 15% of their gross assets in other closed ended investment
companies (including investment trusts) listed on the London Stock
Exchange.
* The Company will not invest more than 15%, in aggregate, of the value of
its gross assets in other closed ended investment companies (including
investment trusts) listed on the London Stock Exchange.
* The Company will not invest more than 15% of the value of its gross assets
in any one individual stock at the time of acquisition.
* The Company will not invest more than 10% of the value of its gross assets
in direct unquoted investments at the time of acquisition. This limit does
not include any investment in private equity funds managed by the Portfolio
Manager or any affiliates of such entity.
* The Company may invest or commit for investment a maximum of U.S.$15
million, after the deduction of proceeds of disposal and other returns of
capital, in private equity funds managed by OrbiMed, the Company's
Portfolio Manager, or an affiliate thereof.
* The Company's borrowing policy is that borrowing will not exceed 20% of the
Company's net assets. The Company's borrowing requirements are met through
the utilisation of an overdraft facility, repayable on demand and provided
by J.P. Morgan Clearing Corp. This facility can be drawn at the discretion
of the AIFM.
* The Company may be unable to invest directly in certain countries. In these
circumstances, the Company may gain exposure to companies in such countries
by investing indirectly through swaps. Where the Company invests in swaps,
exposure to underlying assets will not exceed 5% of the gross assets of the
Company at the time of entering into the contract.
In accordance with the requirements of the UK Listing Authority, any material
change to the investment policy will only be made with the approval of
shareholders by ordinary resolution.
Dividend policy
The Company invests with the objective of achieving capital growth and it is
expected that dividends, if any, are likely to be small. The Board intends only
to pay dividends on the Company's shares to the extent required in order to
maintain the Company's investment trust status.
Continuation of the Company
An opportunity to vote on the continuation of the Company is given to
shareholders every five years. The next such continuation vote will be held at
the Annual General Meeting in 2020.
Company promotion
The Company has appointed Frostrow to provide marketing and investor relations
services, in the belief that a well-marketed investment company is more likely
to grow over time, have a more diverse, stable list of shareholders and its
shares will trade at close to net asset value per share over the long run.
Frostrow actively promotes the Company in the following ways:
Engaging regularly with institutional investors, discretionary wealth managers
and a range of execution-only platforms: Frostrow regularly meets with
institutional investors, discretionary wealth managers and execution-only
platform providers to discuss the Company's strategy and to understand any
issues and concerns, covering both investment and corporate governance matters;
Making Company information more accessible: Frostrow works to raise the profile
of the Company by targeting key groups within the investment community, holding
periodic investment seminars, overseeing PR output and managing the Company's
website and wider digital offering, including Portfolio Manager videos and
social media;
Disseminating key Company information: Frostrow performs the Investor Relations
function on behalf of the Company and manages the investor database. Frostrow
produces all key corporate documents, distributes Monthly Factsheets, Annual
Reports and updates from OrbiMed on the portfolio and market developments; and
Monitoring market activity, acting as a link between the Company, shareholders
and other stakeholders: Frostrow maintains regular contact with sector Broker
Analysts and other research and data providers, and conducts periodic investor
perception surveys, liaising with the Board to provide up-to-date and accurate
information on the latest shareholder and market developments.
Key performance indicators
Net asset value return
The Directors regard the Company's net asset value total return as being the
overall measure of value delivered to shareholders over the long term. Total
return reflects the net asset value growth of the Company. OrbiMed's investment
style is such that performance is likely to deviate from that of the benchmark
index. The Board considers the most important comparator to be the NASDAQ
Biotechnology Index (sterling adjusted).
During the year under review the Company's net asset value per share return was
+27.5% underperforming the benchmark by 1.7%.
A full description of performance during the year under review and the
investment portfolio is contained in the Portfolio Manager's Review.
Share price return
The Directors also regard the Company's share price return to be a key
indicator of performance. This is monitored closely by the Board.
During the year under review the Company's share price return was +27.9%.
Share price discount/premium to net asset value per share
The Board undertakes a regular review of the level of discount/premium and
consideration is given to ways in which share price performance may be
enhanced, including the effectiveness of marketing and share issuance and
buy-backs, where appropriate. The Board has a discount control mechanism in
place intended to establish a target level of no more than a 6% discount of
share price to the net asset value per share. Shareholders should note,
however, that it remains possible for the share price discount to net asset
value per share to be greater than 6% on any one day due to the fact that the
share price continues to be influenced by overall supply and demand for the
Company's shares in the secondary market. The volatility of the net asset value
per share in an asset class such as biotechnology is another factor over which
the Board has no control. The making and timing of any share buy-backs or share
issuance is at the absolute discretion of the Board.
During the year under review a total of 4,455,561 shares were repurchased by
the Company for cancellation.
The discount of the Company's share price to the net asset value per share at
31 March 2017 stood at 6.6% (2016: 6.8%).
Ongoing charges ratio
The Board continues to be conscious of expenses and works hard to maintain a
sensible balance between strong service and costs.
As at 31 March 2017 the ongoing charges ratio was 1.1% calculated by taking the
operating expenses of the Company divided by the average assets of GBP419.2m
(2016: 1.0% (average assets of GBP474.6m)).
(See glossary for further details).
Board diversity
The Board is supportive of the recommendations of Lord Davies's report that the
performance of corporate boards can be improved by encouraging the appointment
of the best people from a range of differing perspectives and backgrounds. The
Company recognises the benefits of diversity on the Board, including gender,
and takes this into account in its Board appointments. The Company is committed
to ensuring that any Director search process actively seeks persons with the
right qualifications so that appointments can be made, on the basis of merit,
against objective criteria from a diverse selection of candidates. To this end
the Board will dedicate time to considering diversity during any Director
search process and keep in mind that the Davies Review of Women on Boards
recommended that UK Listed Companies in the FTSE 100 should be aiming for a
minimum of 25% of females on the Board.
Male Female
Directors of the Company 5 2
The Company does not have any employees. Therefore there is no employee
information to disclose.
Social, economic and environmental matters
The Directors, through the Company's Portfolio Manager, encourage companies in
which investments are made to adhere to best practice with regard to corporate
governance. In light of the nature of the Company's business there are no
relevant human rights issues and the Company does not have a human rights
policy.
The Company recognises that social and environmental issues can have an effect
on some of its investee companies.
The Company is an investment trust and so its own direct environmental impact
is minimal. The Board of Directors consists of seven Directors, six of whom are
resident in the UK and one resident in the United States. The Board holds the
majority of its regular meetings in the United Kingdom and has a policy that
travel, as far as possible, is minimal, thereby minimising the Company's
greenhouse gas emissions. Further details concerning greenhouse gas emissions
can be found within the Report of the Directors.
Principal risks
The Directors confirm that they have carried out a thorough assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. The risks identified
and the ways in which they are managed or mitigated are summarised below.
With the assistance of Frostrow, the Audit Committee has drawn up a risk
matrix, which identifies the key risks to the Company. These are reviewed and
noted on a regular basis. These key risks fall broadly under the following
categories:
Principal Risks and Management/Mitigation
Uncertainties
Objective and strategy The Board reviews regularly the Company's investment
The Company becomes objective and investment guidelines in the light of investor
unattractive to investors. sentiment monitoring closely whether the Company should
continue in its present form. The Board also considers the
size of the Company to ensure that it is at an optimum level.
The Board, through the AIFM and the Portfolio Manager, holds
regular discussions with major shareholders. Each month the
Board receives a report which monitors the investments held
in the portfolio compared against the benchmark index and the
investment guidelines. Additional reports and presentations
are regularly presented to investors by the Company's AIFM
and Portfolio Manager.
Volatility and level of The Board undertakes a regular review of the level of
discount/premium discount/premium and consideration is given to ways in which
The risk of the Company's share price performance may be enhanced, including the
share price not being effectiveness of marketing and investor relations services
representative of its and also share issuance and buy-backs, if considered
underlying net assets. appropriate. The Board has an active discount management
policy in place, buying back the Company's shares for
cancellation if the market price is at a discount greater
than 6% to the net asset value per share. The making and
timing of any share issuance or buy-backs is at the absolute
discretion of the Board.
Shareholders should note, however, that it remains possible
for the share price discount to the net asset value per share
to be greater than 6% on any one day. This is due to the fact
that the share price continues to be influenced by overall
supply and demand for the Company's shares in the secondary
market. The volatility of the net asset value per share in an
asset class such as healthcare is another factor over which
the Board has no control.
Portfolio performance The Board reviews regularly investment performance against
Investment performance may the benchmark and against the Company's peer group. The Board
not be meeting shareholder also receives regular reports that show an analysis of
requirements. performance compared to other relevant indices. The Portfolio
Manager provides an explanation of significant stock
selection decisions and an overall rationale for the make-up
of the portfolio. The Portfolio Manager discusses current and
potential investment holdings with the Board on a regular
basis.
Investment management key The Board manage this risk by:
person risk
The risk that the
individual(s) responsible
for managing the Company's
portfolio may leave their
employment or may be
prevented from undertaking
their duties.
Operational and regulatory All transactions and income and expenditure forecasts are
A breach of Sections 1158 reviewed by the Board at each Board Meeting. The Board
and 1159 of the considers regularly all major risks, the measures in place to
Corporation Tax Act 2010 control them and the possibility of any other risks that
could lead to the Company could arise. The Board also ensures that satisfactory
being subject to tax on assurances are received from service providers.
capital gains, whilst a The Audit Committee has reviewed the cyber security policies
serious breach of other for the Company's principal services providers.
regulatory rules The Compliance Officer of the AIFM and of the Portfolio
(including those Manager produce regular reports for review at the Company's
associated with the Audit Committee meetings and are available to attend such
Alternative Investment meetings in person if required.
Fund Managers Directive)
may lead to suspension
from the Stock Exchange or
to a qualified Audit
Report. Other control
failures, including cyber
crime, relating to the
AIFM, the Portfolio
Manager or any other of
the Company's service
providers, may result in
operational and/or
reputational problems,
erroneous disclosures or
loss of assets through
fraud, as well as breaches
of regulations.
Market price risk The Portfolio Manager has responsibility for selecting
Uncertainty about future investments in accordance with the Company's investment
prices of financial objective and policy and seeks to ensure that investment in
instruments held. individual stocks falls within acceptable risk levels.
Compliance with the limits and guidelines contained in the
Company's investment policy is monitored daily by Frostrow
and OrbiMed and reported to the Board monthly.
Liquidity risk The Portfolio Manager has constructed the portfolio so that
Ability to meet funding funds can be raised at short notice if required.
requirements when they
arise.
Shareholder profile The AIFM provides a shareholder analysis at every Board
Activist shareholders meeting so that the Board can give consideration as to any
whose interests are not action required; this is in addition to regular reporting by
consistent with the the Company's Stockbroker. The Board has implemented an
long-term objectives of active discount management policy.
the Company may be
attracted onto the
shareholder register.
Currency risk A significant proportion of the Company's assets is, and will
Movements in exchange continue to be, invested in securities denominated in foreign
rates could adversely currencies, in particular U.S. dollars. As the Company's
affect the sterling shares are denominated and traded in sterling, the return to
performance of the shareholders will be affected by changes in the value of
portfolio. sterling relative to those foreign currencies. The Board has
made clear the Company's position with regard to currency
fluctuations which is that it does not currently hedge
against currency exposure.
Overdraft facility The Board, the AIFM and the Portfolio Manager are kept fully
The provider of the informed of any likelihood of the withdrawal of the overdraft
Company's overdraft facility so that repayment can be effected in an orderly
facility may no longer be fashion.
prepared to lend to the The Company's borrowing requirements are met through the
Company. utilisation of an overdraft facility, repayable on demand,
provided by J.P. Morgan Clearing Corp.
Credit risk The most significant counterparty the Company is exposed to
The Company is exposed to is J.P. Morgan Clearing Corp (the Company's Prime Broker)
credit risk arising from which is responsible for the safekeeping of the Company's
the use of counterparties. assets and provides the overdraft facility to the Company. As
If a counterparty were to part of the arrangements with J.P. Morgan Clearing Corp they
fail, the Company could be may take assets, up to 140% of the value of the drawn
adversely affected through overdraft, as collateral. Such assets taken as collateral by
either a delay in J.P. Morgan Clearing Corp may be used, loaned, sold,
settlement or a loss of rehypothecated or transferred. J.P. Morgan Clearing Corp is a
assets. registered broker-dealer and is accordingly subject to limits
on rehypothecation, in particular limitations set out in U.S.
Securities and Exchange Commission Rule 15c3-3. In the event
of J.P. Morgan Clearing Corp's insolvency, the Company may be
unable to recover in full assets held by the J.P. Morgan
Clearing Corp as Custodian.
This risk is managed through the selection of a financially
strong counterparty, through limitations on the use of
gearing and through reliance on a robust regulatory regime
(SEC). Furthermore, the external Auditor verifies the
safekeeping of the assets or their equivalent by confirmation
from the Depositary/Prime Broker.
Further information on financial instruments and risk, as
required by IFRS 7, can be found in note 13 to the financial
statements.
Long term viability
The Board has carried out a robust assessment of the principal risks facing the
Company including those that would threaten its business model, future
performance, solvency or liquidity. The Board has drawn up a matrix of risks
facing the Company and has put in place a schedule of investment limits and
restrictions, appropriate to the Company's investment objective and policy, in
order to mitigate these risks as far as practicable.
Previously, the Board considered it appropriate to assess the Company's
viability over rolling three-year time horizons. However, the Board now
believes it to be more appropriate to make this assessment over a five-year
period. This basis is deemed more appropriate due to our Portfolio Manager's
long-term investment horizon and also what we believe to be investors'
horizons, taking account of the Company's current position and the potential
impact of the principal risks and uncertainties.
The Directors also took into account the liquidity of the portfolio when
considering the viability of the Company over a five-year period and its
ability to meet liabilities as they fall due. In addition, the Board has noted
that an opportunity to vote on the continuation of the Company is given to
shareholders every five years. The next such continuation vote will be held at
the Annual General Meeting in 2020.
The Directors do not expect there to be any significant change in the principal
risks that have been identified and the adequacy of the mitigating controls in
place. Also the Directors do not envisage any change in strategy or objectives
or any events that would prevent the Company from continuing to operate over
that period as the Company's assets are liquid, its commitments are limited and
the Company intends to continue to operate as an investment trust. The
Directors believe that only a substantial financial crisis affecting the global
economy and causing substantial falls in share prices could have an impact on
this assessment.
Based on this assessment, the Directors have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the next five-year period.
Looking to the future
The Board concentrates its attention on the Company's investment performance
and OrbiMed's investment approach and on factors that may have an effect on
this approach. Marketing reports are given to the Board at each Board meeting
by the AIFM which include how the Company will be promoted and details of
planned communications with existing and potential shareholders. The Board is
regularly updated by the AIFM on wider investment trust industry issues and
discussions are held at each Board meeting concerning the Company's future
development and strategy.
A review of the Company's year, its performance since the year-end and the
outlook for the Company can be found in the Chairman's Statement and in the
Portfolio Manager's Review.
By order of the Board
Frostrow Capital LLP
Company Secretary
25 May 2017
Governance / Board of Directors
Andrew Joy
(Chairman of the Board and also Chairman of the Nominations Committee)
A Director since 2012
Seeks annual re-election by shareholders
Andrew was one of the founding Partners of Cinven, a leading private equity
firm investing in Europe and the U.S. He is a Senior Advisor of Stonehage
Fleming Group and Chairman of the investment committee of FPE Capital. He has
been Chairman or Director of numerous growing companies over the past 30 years.
He is a former Chairman of the BVCA (British Venture Capital and Private Equity
Association) and Director of the EVCA.
Shareholding in the Company: 55,000
Sven Borho
A Director since 2006
Seeks annual re-election by shareholders
Sven is a founding Partner of OrbiMed, the Company's Portfolio Manager. He
heads the public equity team and is the portfolio manager for OrbiMed's public
equity and hedge funds. Sven has played an integral role in the growth of
OrbiMed's asset management activities. In 1991 he joined OrbiMed's predecessor
and was promoted to portfolio manager in 1993. He studied business
administration at Bayreuth University in Germany and received a M.Sc. (Econs.),
Accounting and Finance, from The London School of Economics.
Shareholding in the Company: 236,218
Peter Keen
(Chairman of the Audit Committee)
A Director since 1997
Seeks annual re-election by shareholders
A Chartered Accountant, Peter has over 30 years' experience in the management
and financing of life science businesses and has served on the boards of many
private and public companies. Peter is a Director of MRC Technology Ltd and
Endomagnetics Limited and was previously Chief Executive of the technology
investment firm Cambridge Innovation Capital plc. For nine years he was the
Senior Independent Director of Abcam plc and was a co-founder of Chiroscience
Group plc.
Shareholding in the Company: 55,000
Steven Bates
(Chairman of the Management Engagement Committee)
A Director since 2015
Seeks annual re-election by shareholders
Steven is chairman of F&C Capital and Income Investment Trust plc, Baring
Emerging Europe plc and the Vinacapital Vietnam Opportunity Fund Limited. He is
a non-executive director of British Empire Trust plc and is also a director of
Guard Cap Asset Management Limited. He sits on, or is advisor to, various
committees in the wealth management and pension fund areas. He was head of
global emerging markets at J.P. Morgan Asset Management until 2002.
Shareholding in the Company: Nil
Professor Dame Kay Davies, CBE
(Chairman of the Remuneration Committee and Senior Independent Director)
A Director since 2012
Seeks annual re-election by shareholders
Professor Dame Kay Davies is the Dr. Lee's Professor of Anatomy and Associate
Head of the Medical Sciences Division at the University of Oxford and a fellow
of Hertford College. She is also Co-Director of the Oxford Neuromuscular
Centre, an Independent Director of UCB Pharma S.A, Deputy Chairman of the
Wellcome Trust and a member of the Scientific Advisory Board of
biopharmaceutical company UCB Pharma S.A. As part of her role as Deputy
Chairman of the Wellcome Trust she serves on the GRL Board (Sanger Institute)
and the Genome England Board (NHS).
Shareholding in the Company: 3,500
The Rt Hon Lord Willetts
A Director since 2015
Seeks annual re-election by shareholders
Lord Willetts is Executive Chairman of the Resolution Foundation and a Visiting
Professor at King's College London. He is also a Governor of the Ditchley
Foundation, a member of the Council of the Institute for Fiscal Studies and a
Board member of the Francis Crick Institute and of the Biotech Industry
Association.
He was Minister for Universities and Science, attending Cabinet, from
2010-2014. He was the Member of Parliament for Havant from 1992-2015. Before
that, Lord Willetts worked at HM Treasury and the Number 10 Policy Unit. He
also served as Paymaster General in the last Conservative Government.
Shareholding in the Company: Nil
Julia Le Blan
A Director since July 2016
Seeks annual re-election by shareholders
A Chartered Accountant Julia has worked in the financial services industry for
over 30 years. She was formerly a tax partner at Deloitte and sat for two terms
on the AIC's technical committee.
She is a non-executive Director of F&C UK High Income Trust plc, Impax
Environmental Markets plc, J.P. Morgan US Smaller Companies Investment Trust
plc and Aberforth Smaller Companies Trust plc.
Shareholding in the Company: 4,000
Meeting attendance
The table below sets out the number of scheduled Board and Committee meetings
held during the year ended 31 March 2017 and the number of meetings attended by
each Director.
Management Board Audit and Nominations Remuneration
Engagement Management Committee Committee
Committee* Engagement
Committee
Number of meetings held in 2016/17: 1 4 2 1 1
The Rt Hon Lord Waldegrave of North - 2 1 - -
Hill?
Steven Bates 1 4 2 1 1
Sven Borho^ - 4 - - -
Professor Dame Kay Davies, CBE 1 4 2 1 1
Andrew Joy 1 4 2 1 1
Peter Keen 1 4 2 1 1
Julia Le Blan** 1 3 1 1 1
The Rt Hon Lord Willetts 1 4 2 1 1
All of the serving Directors attended the Annual General Meeting held on 12
July 2016.
* At a Board meeting held in November 2016 it was agreed to split the 'audit'
and 'management engagement' functions of the Audit and Management
Engagement Committee and to create two new committees to be responsible for
these areas. The newly constituted Audit Committee did not meet during the
year. However, the Audit and Management Engagement Committee met twice.
? Retired on 12 July 2016.
^ Sven Borho is not a member of any of the Company's committees.
** Appointed on 12 July 2016.
Governance / Corporate Governance
The Board and Committees
Responsibility for effective governance lies with the Board. The governance
framework of the Company reflects the fact that as an investment company it has
no employees. Portfolio management is delegated to OrbiMed and risk management,
company management, company secretarial, administrative and marketing services
are delegated to Frostrow. During the year, in order to strengthen its
governance structure, the Board agreed to split the 'audit' and 'management
engagement' functions of the Audit and Management Engagement Committee and to
create two new committees (an Audit Committee and a Management Engagement
Committee) to be responsible for these areas. This structure is reflected in
the diagram below.
The Board
Chairman - Andrew Joy
Senior Independent Director - Professor Dame Kay Davies
Five additional non-executive Directors, all considered independent, except for
Sven Borho.
Key responsibilities:
Remuneration Audit Committee Nominations Committee Management Engagement
Committee Chairman Chairman Committee
Chairman Peter Keen* Andrew Joy Chairman
Professor Dame All Independent All Independent Steven Bates
Kay Davies Directors Directors All Independent
All Independent Key responsibilities: Key responsibilities: Directors
Directors to make Key responsibilities:
Key responsibilities: recommendations for
any changes or new
appointments.
* The Directors believe that Peter Keen has the necessary recent and
relevant financial experience to Chair the Company's Audit Committee.
Copies of the full terms of reference, which clearly define the
responsibilities of each Committee, can be obtained from the Company Secretary,
will be available for inspection at the Annual General Meeting, and can be
found on the Company's website at
Corporate Governance
The Directors are accountable to shareholders for the governance of the
Company's affairs. The UK Listing Rules require all listed companies to
disclose how they have applied the principles and complied with the provisions
of the UK Corporate Governance Code (the 'UK Code') issued by the Financial
Reporting Council (the 'FRC'). The UK Code can be viewed at www.frc.org.uk.
The Association of Investment Companies ('AIC') publishes a Code of Corporate
Governance ('AIC Code') and a Corporate Governance Guide for Investment
Companies ('AIC Guide'). In July 2016 the AIC published a revised AIC Code and
AIC Guide.
The Financial Reporting Council has confirmed that by following the AIC Code
and the AIC Guide, boards of investment companies will meet their obligations
in relation to the UK Code and paragraph 9.8.6 of the UK Listing Rules.
The AIC Code and AIC Guide address the principles set out in the UK Code as
well as additional principles and recommendations on issues that are specific
to investment trusts. The AIC Code can be viewed at www.theaic.co.uk.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the UK
Code), will provide better information to shareholders.
Statement of Compliance
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as follows:
The UK Code includes certain provisions relating to:
* the role of the chief executive
* executive directors' remuneration
* the need for an internal audit function
For the reasons set out in the AIC Guide, and as explained in the UK Code, the
Board considers these provisions are not relevant to the position of the
Company, being an externally managed investment company. In particular, all of
the Company's day-to-day management and administrative functions are outsourced
to third parties. As a result, the Company has no executive directors,
employees or internal operations. Therefore with the exception of the need for
an internal audit function, the Company has not reported further in respect of
these provisions.
The principles of the AIC Code
The AIC Code is made up of 21 principles split into three sections covering:
* The Board
* Board Meetings and relations with AIFM and Portfolio Manager
* Shareholder Communications
AIC Code Principle Compliance Statement
The Board The Chairman, Andrew Joy is responsible for the leadership of
1. The Chairman should be the Board and for ensuring its effectiveness.
independent. The Chairman continues to be independent of the AIFM and the
Portfolio Manager. There is a clear division of
responsibility between the Chairman, the Directors, the AIFM,
the Portfolio Manager and the Company's other third party
service providers. The Chairman is responsible for the
leadership of the Board and for ensuring its effectiveness in
all aspects of its role. There are no relationships that may
create a conflict of interest between the Chairman's
2. A majority of the Board Mr. Sven Borho is a Founding General Partner of OrbiMed, the
should be independent of Company's Portfolio Manager and has served on the Board for
the Manager. more than nine years from the date of his first election. He
is not considered to be an Independent Director. Mr Borho
submits himself for annual re-election by shareholders.
The Board consists of six other non-executive Directors, each
of whom is independent of the AIFM and the Portfolio Manager.
None of the Board members is or has been an employee of the
Company.
3. Directors should be All Directors (who are not retiring from the Board) submit
submitted for re-election themselves for annual re-election by shareholders.
at regular intervals. The individual performance of each Director standing for
Nomination for re-election re-election is evaluated annually by the remaining members of
should not be assumed but the Board and, if considered appropriate, a recommendation is
be based on disclosed made that shareholders vote in favour of their re-election at
procedures and continued the Company's Annual General Meeting to be held in July 2017.
satisfactory performance. Peter Keen will be retiring from the Board and will therefore
not be seeking re-election at this year's Annual General
Meeting.
Julia Le Blan joined the Board on 12 July 2016. Accordingly,
her appointment will be proposed to shareholders for
ratification at the Annual General Meeting
4. The Board should have a The Board, meeting as the Nominations Committee, considers
policy on tenure, which is the structure of the Board and recognises the need for
disclosed in the annual progressive refreshing of its members.
report. The Board subscribes to the view expressed within the AIC
Code that long-serving Directors should not be prevented from
forming part of an independent majority. It does not consider
that a Director's tenure necessarily reduces his or her
ability to act independently and, following formal
performance evaluations, believes that each of those
Directors is independent in character and judgment and that
there are no relationships or circumstances which are likely
to affect their judgment. The Board's policy on tenure is
that continuity and experience are considered to add
significantly to the strength of the Board and, as such, no
limit on the overall length of service of any of the
Company's Directors, including the Chairman, has been
imposed. In view of its non-executive nature, the Board
considers that it is not appropriate for the Directors to be
appointed for a specified term, although new Directors are
appointed with the expectation that they will serve for a
minimum period of three years subject to shareholder
approval.
The AIC Code states that any Director who has served for more
than nine years is subject to annual re-appointment. All of
the Company's Directors (who are not retiring from the Board)
seek re-appointment at each Annual General Meeting.
The terms and conditions of the Directors' appointments are
set out in letters of engagement which are available for
inspection on request at the office of Frostrow, the
Company's AIFM and from the Company Secretary at the
Company's Annual General Meeting to be held in July 2017.
5. There should be full The Directors' biographical details demonstrate the wide
disclosure of information range of skills and experience that they bring to the Board
about the Board. together with details of their other directorships and
employment.
Further details of Board composition and succession planning
can be found within the Chairman's Statement.
6. The Board should aim to The Nominations Committee considers annually the skills
have a balance of skills, possessed by the Board and identifies any skill shortages to
experience, length of be filled by new Directors.
service and knowledge of When considering new appointments, the Board reviews the
the company. skills of the Directors and seeks to add persons with
complementary skills or who possess the skills and experience
which fill any gaps in the Board's knowledge or experience
and who can devote sufficient time to the Company to carry
out their duties effectively.
The experience of the current Directors is detailed in their
biographies.
The Company is committed to ensuring that any vacancies
arising are filled by the most qualified candidates and
recognises the value of diversity in the composition of the
Board. When Board positions become available as a result of
retirement or resignation, the Company will ensure that a
diverse group of candidates is considered.
7. The Board should During the year the performance of the Board, its committees
undertake a formal and and individual Directors (including each Director's
rigorous annual evaluation independence) was evaluated through a formal assessment
of its own performance and process led by the Senior Independent Director. This involved
that of its committees and the circulation of a Board effectiveness checklist, tailored
individual directors. to suit the nature of the Company, followed by discussions
between the Senior Independent Director and each of the
Directors where necessary. The performance of the Chairman
was evaluated by the other Directors under the leadership of
the Senior Independent Director. The review concluded that
the Board was working well.
The Board is satisfied that the structure of skills, mix,
experience, independence, knowledge, diversity and operation
of the Board continue to be effective and relevant for the
Company.
8. Directors' remuneration The Remuneration Committee annually reviews the fees paid to
should reflect their the Directors and compares these with the fees paid by the
duties, responsibilities Company's peer group and the investment trust industry
and the value of their generally, taking into account the level of commitment and
time spent. responsibility of each Board member. Details on the
remuneration arrangements for the Directors of the Company
can be found in the Directors' Remuneration Policy Report and
Directors' Remuneration Report.
As all of the Directors are non-executive, the Board
considers that it is acceptable for the Senior Independent
Director of the Company to chair meetings when discussing
Directors' fees. The Senior Independent Director takes no
part in discussions regarding her own remuneration.
9. The independent The Nominations Committee is comprised of all directors who
directors should take the are independent and chaired by the Chairman of the Board.
lead in the appointment of Subject to there being no conflicts of interest, all members
new directors and the of the Committee are entitled to vote on candidates for the
process should be appointment of new directors and on recommending for
disclosed in the annual shareholders' approval the Directors seeking re-election at
report. the Annual General Meeting.
The Chairman does not Chair the meeting when the committee is
dealing with matters concerning the appointment of a
successor to the Chairmanship.
Details of the Board's commitment to diversity is set out
within the Business Review.
As part of the process to appoint Julia Le Blan, the Board
engaged the services of a specialist recruitment consultant,
Nurole. Nurole prepared a list of potential candidates for
consideration by a sub-committee appointed by the Nominations
Committee. A short list was then arrived at, the candidates
were interviewed and Julia Le Blan was subsequently
appointed. Nurole has no other connection with the Company.
10. Directors should be New appointees to the Board are provided with a full
offered relevant training induction programme. The programme covers the Company's
and induction. investment strategy, policies and practices. The Directors
are also given key information on the Company's regulatory
and statutory requirements as they arise including
information on the role of the Board, matters reserved for
its decision, the terms of reference for the Board
Committees, the Company's corporate governance practices and
procedures and the latest financial information. It is the
Chairman's responsibility to ensure that the Directors have
sufficient knowledge to fulfil their role and Directors are
encouraged to participate in training courses where
appropriate.
The Directors have access to the advice and services of a
Company Secretary through its appointed representative which
is responsible to the Board for ensuring that Board
procedures are followed and that applicable rules and
regulations are complied with. The Company Secretary is also
responsible for ensuring good information flows between all
parties.
11. The Chairman (and the Principle 11 applies to the launch of new investment
Board) should be brought companies and is therefore not applicable to the Company.
into the process of
structuring a new launch
at an early stage.
Board Meetings and relations with Frostrow and OrbiMed
12. Boards and managers The Board meets regularly throughout the year and a
should operate in a representative of the AIFM and Portfolio Manager is in
supportive, co-operative attendance at each meeting and Committee meetings. The
and open environment. Chairman encourages open debate to foster a supportive and
co-operative approach for all participants.
13. The primary focus at The Board has agreed a schedule of matters specifically
regular Board meetings reserved for decision by the Board. This includes
should be a review of establishing the investment objectives, strategy and
investment performance and benchmarks, the level of borrowing, the permitted types or
associated matters, such categories of investments, the markets in which transactions
as gearing, asset may be undertaken, the amount or proportion of the assets
allocation, marketing/ that may be invested in any category of investment or in any
investor relations, peer one investment, and the Company's share issuance, share
group information and buy-back and treasury share policies.
industry issues. The Board, at its regular meetings, undertakes reviews of key
investment and financial data, revenue projections and
expenses, analysis of asset allocation, transactions and
performance comparisons, share price and net asset value
performance, marketing and shareholder communication
strategies, the risks associated with pursuing the investment
strategy, peer group information and industry issues.
The Chairman is responsible for ensuring that the Board
receive accurate, timely and clear information. Where
appropriate representatives of the AIFM report on issues
affecting the company.
All Directors have access to independent professional advice
where they judge it necessary to discharge their
responsibility properly.
The Audit Committee reviews the Company's risk matrix and the
performance and cost of the Company's third party service
providers.
14. Boards should give The Board is responsible for strategy and has established an
sufficient attention to annual programme of agenda items under which it reviews the
overall strategy. objectives and strategy for the Company at each meeting.
15. The Board should The Management Engagement Committee reviews annually the
regularly review both the performance of the AIFM and Portfolio Manager. The Committee
performance of, and considers the quality, cost and remuneration method
contractual arrangements (including the performance fee) of the service provided by
with, the AIFM and the the AIFM and the Portfolio Manager against their contractual
Portfolio Manager (or obligations and the Board receives monthly reports on
executives of a compliance with the investment restrictions which it has set.
self-managed company). It also considers the performance analysis provided by the
AIFM and the Portfolio Manager.
The Management Engagement Committee reviews the compliance
and control systems of both the AIFM and the Portfolio
Manager in operation insofar as they relate to the affairs of
the Company and the Board undertakes periodic reviews of the
arrangements with and the services provided by the
Depositary, to ensure that the safeguarding of the Company's
assets and security of the shareholders' investment is being
maintained.
All Directors act in what they consider to be in the best
interests of the Company, consistent with their statutory
duties set out in the Companies Act 2006.
16. The Board should agree The Portfolio Management Agreement between the Company, the
policies with the AIFM and AIFM and Portfolio Manager sets out the limits of Portfolio
the Portfolio Manager Manager's authority, beyond which Board approval is required.
covering key operational The Board has also agreed detailed investment guidelines with
issues. the AIFM and the Portfolio Manager, which are considered at
each Board meeting.
A representative of the AIFM and Portfolio Manager attends
each meeting of the Board to address questions on specific
matters and to seek approval for specific transactions which
the Portfolio Manager is required to refer to the Board.
Frostrow in their capacity as the Company's AIFM have
delegated the management of the portfolio and subsequent
proxy voting to OrbiMed as Portfolio Manager, who retain the
services of Broadridge and Glass Lewis to undertake
operational and administrative duties relating to proxy
voting. The Portfolio Manager notifies the Board of any
contentious issues that require voting upon.
The Board has reviewed the Portfolio Manager's Proxy Voting &
Class Action Policy. Reports on commissions paid by the
Portfolio Manager are submitted to the Board regularly.
17. Boards should monitor The Board considers any imbalances in the supply of and the
the level of the share demand for the Company's shares in the market and takes
price discount or premium appropriate action when considered necessary.
(if any) and, if The Board considers the discount or premium to net asset
desirable, take action to value of the Company's share price at each Board meeting and
reduce it. reviews the changes in the level of discount or premium and
in the share price since the previous Board meeting and over
the previous twelve months.
At each meeting the Board reviews reports from the AIFM on
marketing and shareholder communication strategies. It also
considers their effectiveness as well as measures of investor
sentiment and any recommendations on share issuance and share
buy-backs.
The Board does not consider that any conflicts arose from the
AIFM and Portfolio Manager promoting the Company alongside
their other clients.
18. The Board should The Management Engagement Committee reviews, at least
monitor and evaluate other annually, the performance of all the Company's third party
service providers. service providers, including the level and structure of fees
payable and the length of the notice period, to ensure that
they remain competitive and in the best interests of
shareholders.
The Committee also reviews reports from the principal service
providers on compliance and the internal and financial
control systems in operation and relevant independent audit
reports thereon, as well as reviewing service providers'
anti-bribery and corruption policies to address the
provisions of the Bribery Act 2010.
The Board is satisfied that the Company's Auditor does not
carry out any work for the AIFM and therefore no potential
conflict will arise.
Shareholder Communications
19. The Board should A detailed analysis of the substantial shareholders in the
regularly monitor the Company is provided to the directors at each Board meeting.
shareholder profile of the Representatives of the AIFM and the Portfolio Manager
company and put in place a regularly meet with institutional shareholders and private
system for canvassing client asset managers to discuss strategy and to understand
shareholder views and for their issues and concerns and, if applicable, to discuss
communicating the Board's corporate governance issues. The results of such meetings are
views to shareholders. reported at the following Board meeting.
Regular reports from the Company's broker are submitted to
the Board on investor sentiment and industry issues.
Shareholders wishing to communicate with the Chairman, the
Senior Independent Director or any other member of the Board,
may do so by writing to the Company, for the attention of the
Company Secretary at the offices of the AIFM. All
shareholders are encouraged to attend the Annual General
Meeting, where they are given the opportunity to question the
Chairman, the Board and representatives of the Portfolio
Manager. The Portfolio Manager will make a presentation to
shareholders covering the investment performance and strategy
of the Company at the forthcoming Annual General Meeting to
be held in July 2017.
The Directors welcome the views of all shareholders and place
considerable importance on communications with them. The
Chairman will ensure that all members of the Board are made
aware of the issues and concerns raised by shareholders and
that the appropriate steps are taken so that the Board has an
adequate understanding of these views, through communication
with the Company's AIFM (e-mail address: info@frostrow.com)
and advisers.
20. The Board should All substantive communications regarding any major corporate
normally take issues are discussed by the Board taking into account
responsibility for, and representations from the AIFM, the Portfolio Manager, the
have a direct involvement Auditor, legal advisers and stockbroker.
in, the content of
communications regarding
major corporate issues
even if the manager is
asked to act as spokesman.
21. The Board should The Company places great importance on communication with
ensure that shareholders shareholders and aims to provide them with a full
are provided with understanding of the Company's investment objective, policy
sufficient information for and activities, its performance and the principal investment
them to understand the risks by means of informative annual and half-year reports.
risk/reward balance to This is supplemented by the daily publication, through the
which they are exposed by London Stock Exchange, of the net asset value per share of
holding the shares. the Company's shares.
The Board is responsible for the overall management of the
Company, approval of the Company's long-term objectives and
commercial strategy and the review of the Company's
Investment Policy. The Board continues to review the setting
of maximum borrowing limits under which the AIFM and
Portfolio Manager operates within.
The Annual Report provides information on Portfolio Manager's
investment performance, portfolio risk and operational and
compliance issues. Further details on the risk/reward balance
are set out in note 13 to the Financial Statements.
The Company's website, www.biotechgt.com, is regularly
updated with monthly fact sheets and provides useful
information about the Company including the Company's
financial reports and announcements.
The Board has considered the position of all of the Directors as part of the
evaluation process, and believes that it would be in the Company's best
interests to propose them, with the exception of Peter Keen who will be
retiring from the Board at the conclusion of the forthcoming Annual General
Meeting, for election or re-election at the forthcoming Annual General Meeting
for the following reasons:
Mr Andrew Joy, has been a Director since March 2012 and Chairman since July
2016. He has extensive knowledge of the financial sector and was one of the
founding Partners of Cinven, a leading private equity firm investing in Europe
and the U.S. He has been Chairman or Director of numerous growing companies
over the past 30 years.
Professor Dame Kay Davies, CBE, who has been a Director since March 2012. She
is Senior Independent Director and Chairman of the Remuneration Committee, has
extensive knowledge of the biopharmaceutical sector and is the Dr Lee's
Professor of Anatomy and Associate Head of the Medical Science Division at the
University of Oxford.
Julia Le Blan joined the Board in July 2016. A Chartered Accountant and a
former tax partner at Deloitte, she has a wealth of financial services industry
experience. Julia will succeed Peter Keen as Chairman of the Audit Committee
upon his retirement from the Board.
Mr Sven Borho, who has been a Director since March 2006 is one of the founding
partners of OrbiMed the Company's Portfolio Manager. He heads public equity and
hedge funds and has played an integral role in the growth of OrbiMed's asset
management activities.
Mr Steven Bates joined the Board in July 2015. He has a wealth of experience as
an investment manager. He is Chairman of the Management Engagement Committee.
The Rt Hon Lord Willetts joined the Board in November 2015. A former government
minister, he has extensive and relevant experience and a strong interest in the
biotechnology sector.
The Chairman is pleased to report that following a formal performance
evaluation, the Directors' performance continues to be effective and they
continue to demonstrate commitment to the role.
The Board's responsibilities
The Board meets regularly and four Board meetings were held during the year to
deal with the stewardship of the Company and other matters. There is a formal
schedule of matters specifically reserved for decision by the Board; it is
responsible for all aspects of the Company's affairs, including the setting of
parameters for and the monitoring of the investment strategy and the review of
investment performance and investment policy. It also has responsibility for
all corporate strategy issues, dividend policy, share buy-back and issuance
policy, borrowing, share price and discount/premium monitoring and corporate
governance matters.
Conflicts of interest
Directors have a duty to avoid a situation in which he or she has, or can have,
a direct or indirect interest that conflicts, or possibly may conflict, with
the Company's interests (a "situational conflict").
It is the responsibility of each individual Director to avoid an unauthorised
conflict situation arising. He or she must request authorisation from the Board
as soon as he or she becomes aware of the possibility of a situational conflict
arising.
The Board is responsible for considering Directors' requests for authorisation
of situational conflicts and for deciding whether they should be authorised.
The factors to be considered will include whether the situational conflict
could prevent the Director from performing his or her duties, whether it has,
or could have, any impact on the Company and whether it could be regarded as
likely to affect the judgment and/or actions of the Director in question. When
the Board is deciding whether to authorise a conflict or potential conflict,
only Directors who have no interest in the matter being considered are able to
take the relevant decision, and in taking the decision the Directors must act
in a way they consider, in good faith, will be most likely to promote the
Company's success. The Directors are able to impose limits or conditions when
giving authorisation if they think this is appropriate in the circumstances.
A register of conflicts is maintained by the Company Secretary and is reviewed
at each Board meeting, to ensure that any authorised conflicts remain
appropriate. Directors are required to confirm at these meetings whether there
has been any change to their position.
The Directors must also comply with the statutory rules requiring company
directors to declare any interest in an actual or proposed transaction or
arrangement with the Company.
Anti-Bribery and corruption policy
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly it expressly prohibits any Director or associated
persons when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit for
themselves or for the Company.
A copy of the Company's anti-bribery and corruption policy can be found on its
website at www.biotechgt.com. The policy is reviewed regularly by the Audit
Committee.
Relationship with shareholders
The Board, the AIFM and the Portfolio Manager consider maintaining good
communications with shareholders and engaging with larger shareholders through
meetings and presentations a key priority. Shareholders are being informed by
the publication of annual and half year reports which include financial
statements. These reports are supplemented by the daily release of the net
asset value per share to the London Stock Exchange and the publication of
monthly fact sheets. All this information including interviews with the
Portfolio Manager is available on the Company's website at www.biotechgt.com.
The Board is also keen that the Annual General Meeting ("AGM") be a
participative event for all shareholders. The Portfolio Manager makes a
presentation and shareholders are encouraged to attend. The Chairmen of the
Board and of the Committees attend the AGM and are available to respond to
queries and concerns from shareholders. Twenty working days' notice of the AGM
has been given to shareholders and separate resolutions are proposed in
relation to each substantive issue. Shareholders may submit questions for the
AGM in advance of the meeting or make general enquiries of the Company via the
Company Secretary at the registered office of the Company. The Directors make
themselves available after the AGM to meet shareholders.
Where the vote is decided on a show of hands, the proxy votes received are
relayed to the meeting and subsequently published on the Company's website.
Proxy forms have a 'vote withheld' option. The Notice of Meeting sets out the
business of the AGM together with the full text of any special resolutions.
The Board monitors the share register of the Company; it also reviews
correspondence from shareholders at each meeting and maintains regular contact
with major shareholders. Shareholders who wish to raise matters with a Director
may do so by writing to them at the registered office of the Company.
Exercise of voting powers
The Board has delegated authority to the Portfolio Manager to vote the shares
owned by the Company. The Board has instructed that the Portfolio Manager
submit votes for such shares wherever possible. This accords with current best
practice whilst maintaining a primary focus on financial returns. The Portfolio
Manager may refer to the Board on any matters of a contentious nature. The
Company does not retain voting rights on any shares that are subject to
rehypothecation in connection with the overdraft facility provided by J.P.
Morgan Clearing Corp.
Nominee share code
Where shares are held in a nominee company name and where the beneficial owner
of the shares is unable to vote in person, the Company nevertheless undertakes:
* to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance; and
* to allow investors holding shares through a nominee company to attend
general meetings, provided the correct authority from the nominee company
is available.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company's general meetings.
Beneficial owners of shares - information rights
Beneficial owners of shares who have been nominated by the registered holder of
those shares to receive information rights under section 146 of the Companies
Act 2006 are required to direct all communications to the registered holder of
their shares rather than to the Company's registrar, Capita Asset Services, or
to the Company directly.
By order of the Board
Frostrow Capital LLP
Company Secretary
25 May 2017
Governance / Report of the Directors
The Directors present this Annual Report on the affairs of the Company together
with the Audited Financial Statements and the Independent Auditor's Report for
the year ended 31 March 2017.
Company management
Alternative Investment Fund Manager
Frostrow under the terms of its AIFM agreement with the Company provides, inter
alia, the following services: delegation (subject to the oversight of Frostrow
and the Board) of the portfolio management function to OrbiMed; investment
portfolio administration and valuation; risk management services; marketing and
shareholder services; share price discount and premium management;
administrative and secretarial services; advice and guidance in respect of
corporate governance requirements; maintenance of the Company's accounting
records; preparation and dispatch of annual and half year reports and monthly
fact sheets; ensuring compliance with applicable legal and regulatory
requirements; and maintenance of the Company's website.
Frostrow receives a periodic fee equal to 0.30% per annum of the Company's
market capitalisation, plus a fixed amount equal to GBP60,000 per annum. Either
party may terminate the AIFM Agreement on not less than 12 months' notice.
Portfolio Manager
OrbiMed under the terms of its portfolio management agreement with the AIFM and
the Company provides, inter alia, the following services: the seeking out and
evaluating of investment opportunities; recommending the manner by which monies
should be invested, disinvested, retained or realised; advising on how rights
conferred by the investments should be exercised; analysing the performance of
investments made; and advising the Company in relation to trends, market
movements and other matters which may affect the investment objective and
policy of the Company. OrbiMed receives a periodic fee equal to 0.65% per annum
of the Company's net asset value. The proportion of the Company's assets
committed for investment in OrbiMed Asia Partners L.P., a limited partnership
managed by OrbiMed Asia G.P., L.P., an affiliate of the Portfolio Manager, is
excluded from the fee calculation. The Portfolio Management Agreement may be
terminated by either Frostrow or the Portfolio Manager giving notice of not
less than 12 months.
Performance fee
Dependent on the level of long-term outperformance of the Company, the AIFM and
Portfolio Manager are entitled to the payment of a performance fee. The
performance fee is calculated by reference to the amount by which the Company's
net asset value ('NAV') performance has outperformed the NASDAQ Biotechnology
Index (sterling adjusted), the Company's benchmark index.
The fee is calculated quarterly by comparing the cumulative performance of the
Company's NAV with the cumulative performance of the benchmark since the
commencement of the performance fee arrangement on 30 June 2005. The
performance fee amounts to 16.5% of any outperformance over the benchmark, the
AIFM receiving 1.5% and the Portfolio Manager receiving 15% respectively.
Provision is also made within the daily NAV per share calculation as required
and in accordance with generally accepted accounting standards.
In order to ensure that only sustained outperformance is rewarded, at each
quarterly calculation date any performance fee is based on the lower of:
(i) The cumulative outperformance of the portfolio over the benchmark as
at the quarter end date; and
(ii) The cumulative outperformance of the portfolio over the benchmark as
at the corresponding quarter end date in the previous year.
In addition, a performance fee only becomes payable to the extent that the
cumulative outperformance gives rise to a total fee greater than the total of
all performance fees paid to date.
The proportion of the Company's assets invested in OrbiMed Asia Partners L.P.
is excluded from the Portfolio Manager's performance fee calculation.
Depositary and Prime Broker
The Company appointed J.P. Morgan Europe Limited (the "Depositary") as its
depositary. Under the terms of the Depositary Agreement the Company has agreed
to pay the Depositary a fee calculated at 1.75 bps on net assets up to GBP150
million, 1.50 bps on net assets between GBP150 million and GBP300 million, 1.00 bps
on net assets between GBP300 million and GBP500 million and 0.50 bps on net assets
above GBP500 million.
The Depositary has delegated the custody and safekeeping of the Company's
assets to J.P. Morgan Clearing Corp (the "Prime Broker").
Under the terms of a Delegation Agreement, liability has been transferred under
Article 21(12) of the AIFMD for the loss of the Company's financial instruments
held in custody by the Prime Broker to the Prime Broker in accordance with
Article 21(13) of the AIFMD. While the Depositary Agreement prohibits the
re-use of the Company's assets by the Depositary or the Prime Broker without
the prior consent of the Company or Frostrow, the Company has consented to the
transfer and re-use of its assets by the Prime Broker (known as
"rehypothecation") in accordance with the terms of an institutional account
agreement between the Company, the Prime Broker and certain other J.P. Morgan
Entities (as defined therein) (the "Institutional Account Agreement"). This
activity is undertaken in order to take advantage of lower financing costs on
the Company's overdraft and also lower custody charges.
The Prime Broker is a registered broker-dealer and is accordingly subject to
limits on rehypothecation, in particular limitations set out in U.S. SEC Rule
15c3-3. In the event of the Prime Broker's insolvency, the Company may be
unable to recover in full all assets held by the Prime Broker as Custodian.
(See note 13 for further details.)
AIFM and Portfolio Manager evaluation and re-appointment
The performance of the AIFM and the Portfolio Manager is reviewed by the
Company's Management Engagement Committee (the "Committee") with a formal
evaluation being undertaken each year. As part of this process, the Committee
monitors the services provided by the AIFM and the Portfolio Manager and
receives regular reports and views from them. The Committee also receives
comprehensive performance measurement reports to enable it to determine whether
or not the performance objectives set by the Board have been met. The Committee
reviewed the appropriateness of the appointment of the AIFM and the Portfolio
Manager in February 2017 with a recommendation being made to the Board.
The Board believes the continuing appointment of the AIFM and the Portfolio
Manager, under the terms described above and on the previous page, is in the
interests of shareholders as a whole. In coming to this decision, it also took
into consideration the following additional reasons:
* the quality and depth of experience allocated by the Portfolio Manager to
the management of the portfolio and the level of performance of the
portfolio in absolute terms and also by reference to the benchmark index;
and
* the quality and depth of experience of the company management, company
secretarial, administrative and marketing team that the AIFM allocates to
the management of the Company.
Overdraft facility
The Company's borrowing requirements are met through the utilisation of an
overdraft facility, repayable on demand, provided by J.P. Morgan Clearing Corp.
(Further details can be found in notes 1 and 13.
Share capital
As part of the package of measures adopted in 2005 by the Board to improve the
attraction of the Company's shares to new investors and also to provide the
prospect of a sustained improvement in the rating of the Company's shares, an
active discount management policy was implemented to buy-back shares to either
hold in treasury or for cancellation if the market price is at a discount
greater than 6% to net asset value per share. As at 31 March 2017, the discount
was 6.6%. The making and timing of any share buy-back remains at the absolute
discretion of the Board. Authority to buy-back up to 14.99% of the Company's
issued share capital is sought at each Annual General Meeting.
Shareholders should note, however, that it remains possible for the share price
discount to the net asset value per share to be greater than 6% on any one day.
This is due to the fact that the share price continues to be influenced by
overall supply and demand for the Company's shares in the secondary market. The
volatility of the net asset value per share in an asset class such as
healthcare is another factor over which the Board has no control.
During the year a total of 4,455,561 shares were bought back representing 7.4%
of the issued share capital at the beginning of the year. The purchases were
made at a total cost of GBP29.7 million (including expenses). No shares have been
repurchased by the Company since the year-end. As at 25 May 2017 there were
55,839,913 shares in issue.
Annual General Meeting
THE FOLLOWING INFORMATION TO BE DISCUSSED AT THE FORTHCOMING ANNUAL GENERAL
MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the action you should take, you should seek
advice from your stockbroker, bank manager, solicitor, accountant or other
financial adviser authorised under the financial services and markets act 2000
(as amended). if you have sold or transferred all of your ordinary shares in
the company, you should pass this document, together with any other
accompanying documents, including the form of proxy, at once to the purchaser
or transferee, or to the stockbroker, bank or other agent through whom the sale
or transfer was effected, for onward transmission to the purchaser or
transferee.
Resolutions relating to the following items of special business will be
proposed at the forthcoming Annual General Meeting.
Resolution 11 Authority to allot shares
Resolution 12 Authority to disapply pre-emption rights
Resolution 13 Authority to buy back shares
Resolution 14 Authority to hold General Meetings (other than the AGM) on at
least 14 working days' notice
The full text of the resolutions can be found in the Notice of Annual General
Meeting.
Directors
Directors' & Officers' liability insurance cover
Directors' & Officers' liability insurance cover was maintained by the Board
during the year ended 31 March 2017. It is intended that this policy will
continue for the year ended 31 March 2018 and subsequent years.
Directors' indemnities
As at the date of this report, indemnities are in force between the Company and
each of its Directors under which the Company has agreed to indemnify each
Director, to the extent permitted by law, in respect of certain liabilities
incurred as a result of carrying out his/her role as a Director of the Company.
The Directors are also indemnified against the costs of defending any criminal
or civil proceedings or any claim by the Company or a regulator as they are
incurred provided that where the defence is unsuccessful the Director must
repay those defence costs to the Company. The indemnities are qualifying third
party indemnity provisions for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the Company's
registered office during normal business hours and will be available for
inspection at the Annual General Meeting.
Substantial shareholdings
The Company was aware of the following substantial interests in the voting
rights of the Company as at 30 April 2017, the latest practicable date before
publication of the annual report.
30 April 2017 31 March 2017
% of % of
Issued Issued
No. of share No. of share
Shareholders shares capital shares capital
Hargreaves Lansdown 5,278,037 9.5 5,335,384 9.6
East Riding of Yorkshire 4,698,000 8.4 4,698,000 8.4
Alliance Trust Savings 2,895,039 5.2 2,939,133 5.3
Standard Life Wealth 1,860,553 3.3 1,870,613 3.3
Veritas Investment Management 1,706,202 3.1 1,703,752 3.1
Hansa Capital Partners 1,677,615 3.0 2,073,415 3.7
As at 31 March 2017 the Company had 55,839,913 shares in issue. As at 30 April
2017 the Company had 55,839,913 shares in issue.
Financial instruments
The Company's financial instruments comprise its portfolio, cash balances,
debtors and creditors that arise directly from its operations, such as sales
and purchases awaiting settlement and accrued income. The financial risk
management and policies arising from its financial instruments are disclosed in
note 13 to the Financial Statements.
Results and dividend
The results attributable to shareholders for the year and the transfer from
reserves are shown in the Income Statement. No dividend is proposed in respect
of the year ended 31 March 2017 (2016: nil).
Alternative performance measures
The Financial Statements set out the required statutory reporting measures of
the Company's financial performance. In addition, the Board assesses the
Company's performance against a range of criteria which are viewed as
particularly relevant for investment trusts are explained in greater detail in
the Strategic Report, under the heading 'Key Performance Indicators'.
Awareness and disclosure of relevant audit information
So far as each of the Directors is aware, there is no relevant audit
information (as defined in the Companies Act) of which the Company's auditors
are unaware.
Each of the Directors has taken all the steps that he or she ought to have
taken as a Director in order to make himself or herself aware of any relevant
audit information (as defined) and to establish that the Company's auditors are
aware of that information.
The above confirmation is given and should be interpreted in accordance with
the provision of Section 418(2) of the Companies Act 2006.
S.1 2007/1093 C.49 Commencement No2. Order 2007
The following disclosures are made in accordance with S.1 2007/1093 C.49
Commencement No2. Order 2007
Capital structure
The Company's capital structure is composed solely of Ordinary Shares. Details
are given in note 11 to the Financial Statements.
Voting rights in the Company's shares
Details of the voting rights in the Company's shares at the date of this Annual
Report are given in note 9 to the Notice of Annual General Meeting.
Political and charitable donations
The Company has not in the past and does not intend in the future to make
political or charitable donations.
Modern Slavery Act 2015
The Company does not provide goods or services in the normal course of
business, and as a financial investment vehicle does not have customers. The
Directors do not therefore consider that the Company is required to make a
statement under the Modern Slavery Act 2015 in relation to slavery or human
trafficking.
Global greenhouse gas emissions
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
Large and Medium sized Companies and Groups (Accounts and Reports) Regulations
2008 (as amended), (including those within our underlying investment
portfolio).
Common Reporting Standard (CRS)
CRS is a global standard for the automatic exchange of information commissioned
by the Organisation for Economic Cooperation and Development and incorporated
into UK law by the International Tax Compliance Regulations 2015. CRS requires
the Company to provide certain additional details to HMRC in relation to
certain shareholders. The reporting obligation began in 2016 and will be an
annual requirement going forward. The Registrars, Capita Asset Services, have
been engaged to collate such information and file the reports with HMRC on
behalf of the Company.
Corporate governance
The Corporate Governance Statement forms part of the Report of the Directors.
Listing Rule 9.8.4
Listing Rule 9.8.4 requires the Company to include certain information in a
single identifiable section of the Annual Report or a cross reference table
indicating where the information is set out. The Directors confirm that there
are no disclosures to be made in this regard.
By order of the Board
Frostrow Capital LLP
Company Secretary
25 May 2017
Governance / Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable United Kingdom law and regulations.
Company law requires the directors to prepare Financial Statements for each
financial year. Under that law, the Directors are required to prepare Financial
Statements under International Financial Reporting Standards ("IFRSs") as
adopted by the European Union. 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 Company and of the profit or loss of
the Company for that period. In preparing these Financial Statements the
Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether applicable IFRSs as adopted by the European Union have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
* prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
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 to
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors consider that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's performance, business model and strategy.
Going concern
The Directors believe that it is appropriate to adopt the going concern basis
in preparing the Financial Statements as the assets of the Company consist
mainly of securities that are readily realisable and, accordingly, the Company
has adequate financial resources to continue in operational existence for the
foreseeable future.
Statement under DTR 4.1.12
Each of the Directors confirms that, to the best of his or her knowledge:
* the Company's financial statements, which have been prepared in accordance
with IFRSs as adopted by the European Union on a going concern basis, give
a true and fair view of the assets, liabilities, financial position and
loss of the Company; and
* the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.
We consider the Annual Report and the financial statements, taken as a whole,
is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
On behalf of the Board
Andrew Joy
Chairman
25 May 2017
Governance / Audit Committee Report
for the year ended 31 March 2017
Introduction from the Chairman
I present my last formal report to shareholders as Chairman of the Audit
Committee, for the year ended 31 March 2017. I shall be retiring from the Board
at the conclusion of this year's Annual General Meeting at which time Julia Le
Blan, a Chartered Accountant, will succeed me as Chairman of the Audit
Committee.
Constitution Composition and Meetings
During the year, in order to strengthen the Company's governance structure, the
Board agreed to split the 'audit' and 'management engagement' functions of the
Audit and Management Engagement Committee and to create two new Committees (an
Audit Committee and a Management Engagement Committee) to be responsible for
these areas. The Audit and Management Engagement Committee, met twice during
the year. Membership comprises the independent Directors. I was appointed
Chairman of the Committee in 2005. The Board has taken note of the requirements
that the Committee as a whole should have competence relevant to the sector in
which the Company operates and that at least one member of the Committee should
have recent and relevant financial experience. The Committee is satisfied that
the Committee is properly constituted in both respects: I am a Chartered
Accountant and have over 30 years' experience in the management and financing
of life science businesses; the other Committee members have a combination of
financial, investment and other relevant experience gained throughout their
careers.
Responsibilities
The Committee's main responsibilities during the year were:
1. To review the Company's half year and annual financial statements
together with announcements and other filings relating to the financial
performance of the Company and issues of the Company's shares. In particular,
the Committee considered whether the annual financial statements are fair,
balanced and understandable, allowing shareholders to more easily assess the
Company's strategy, investment policy, business model and financial
performance.
2. To review the risk management and internal control processes of the
Company and its key service providers. As part of this review the Committee
again reviewed the appropriateness of the Company's anti-bribery and corruption
policy. During the year the Committee reviewed the Internal Controls in place
at the Company's AIFM, Frostrow, its Portfolio Manager, OrbiMed, its Registrar,
Capita Asset Services and its custodian J.P. Morgan Clearing Corp. Further
information concerning risk management can be found within the Strategic
Report.
3. To recommend the appointment of an external auditor, and agreeing the
scope of its work and its remuneration, reviewing its independence and the
effectiveness and objectivity of the audit process.
4. To consider any non-audit work to be carried out by the auditor. The
Committee reviews the need for non-audit services and authorises such fees on a
case by case basis, having consideration to the cost effectiveness of the
services and the independence and objectivity of the Auditors. Non-audit fees
of GBP6,825 were paid to Ernst & Young LLP for their review of the Company's
half-year accounts. In addition fees totalling GBP1,300 were earned in relation
to taxation services. The external auditor carried out no other non-audit work
during the year.
5. To consider the need for an internal audit function. Since the Company
delegates its day-to-day operations to third parties and has no employees, the
Committee has determined there is no requirement for such a function.
The Committee's terms of reference are available for review on the Company's
website at www.biotechgt.com.
Financial statements
The financial statements, and the Annual Report as a whole, are the
responsibility of the Board. The Board looks to the Audit Committee to advise
them in relation to the Financial Statements both as regards their form and
content, issues which might arise and on any specific areas requiring judgment.
Significant reporting matters
During the year the Committee considered key accounting issues, matters and
judgments in relation to the Company's financial statements and disclosures
relating to:
Company's Investments - valuation and ownership of the Company's investments
The Committee approached and dealt with this area of risk by:
* reconfirming its understanding of the processes in place to record
investment transactions and to value the investment portfolio;
* gaining an overall understanding of the performance of the investment
portfolio both in capital and revenue terms through comparison to a
suitable benchmark; and
* ensuring that all investment holdings and cash/deposit balances have been
agreed to confirmation from the custodian or relevant bank.
Taxation - ensuring that the regulations for the Company to maintain its
investment trust status have been observed
The Committee approached and dealt with the area of risk, surrounding
compliance with section 1158 of the Corporation Tax Act 2010, by:
* seeking confirmation from the AIFM that the Company continues to meet the
eligibility conditions as outlined in section 1158 through reports received
at each Board meeting and also as part of the monthly Compliance Monitoring
Report sent to the Board;
* by obtaining written confirmation from HMRC, evidencing the approval of the
Company as an investment trust under the regime; and
* understanding the risks and consequences if the Company breaches this
approval in future years.
Terms of Reference and Non-Audit Services Policy
The Committee undertook a review of the Committee's Terms of Reference and the
Company's non-audit services policy in light of the change in the nature of the
Committee's responsibilities and also of the new ethical standards.
Internal controls
The Board has established an ongoing process for identifying, evaluating and
managing any major risks faced by the Company. The process accords with advice
issued by the FRC and is subject to regular review by the Audit Committee. The
Board has overall responsibility for the Company's system of internal controls
and for reviewing its effectiveness. However, such a system is designed to
manage rather than eliminate risks of failure to achieve the Company's business
objectives and can only provide reasonable and not absolute assurance against
material misstatement or loss. The Audit Committee has reviewed the
effectiveness of the Company's system of internal controls for the year ended
31 March 2017. During the course of its review the Audit Committee has not
identified or been advised of any failings or weaknesses that have been
determined as significant. All business risks faced by the Company are recorded
in a detailed risk map which is reviewed periodically. In arriving at its
judgement of what constitutes a sound system of internal control, the Directors
considered the following factors:
* the nature and extent of risks which it regards as acceptable for the
Company to bear within its overall business objective;
* the threat of such risks becoming a reality; and
* the Company's ability to reduce the incidence and impact of risk on its
performance.
Against this background, the Board has split the review of risk and associated
controls into five sections reflecting the nature of the risks being addressed.
These sections are as follows:
* corporate strategy;
* investment activity;
* published information, compliance with laws and regulations;
* service providers; and
* financial activity.
The Company has obtained from its various service providers assurances and
information relating to their internal systems and controls to enable the Board
to make an appropriate risk and control assessment, including the following:
* details of the control environment in operation;
* identification and evaluation of risks and control objectives;
* review of communication methods and procedures; and
* assessment of the control procedures.
All of the Company's management functions are performed by third parties whose
internal controls are reviewed by the Board or on its behalf by Frostrow.
In accordance with guidance issued to directors of listed companies, the
Directors confirm that they have carried out a review of the effectiveness of
the system of internal financial control and risk management during the year,
as set out above and that the ongoing process for identifying, evaluating and
managing significant risks faced by the Company, has been in place for the year
under review and up to 25 May 2017.
Non-Audit Services
The Company operates on the basis whereby the provision of all non-audit
services by the Auditor has to be pre-approved by the Audit Committee. Such
services are only permissible where no conflicts of interest arise, the service
is not expressly prohibited by audit legislation, where the independence of the
Auditor is not likely to be impinged by undertaking the work and the quality
and the objectivity of both the non-audit work and audit work will not be
compromised. In particular, non-audit services may be provided by the Auditor
if they are inconsequential or would have no direct effect on the Company's
financial statements and the audit firm would not place significant reliance on
the work for the purposes of the statutory audit.
Audit Tendering
As a public company listed on the London Stock Exchange, the Company is subject
to the mandatory Auditor rotation requirements of the European Union. The
Company will put the external audit out to tender at least every 10 years and
change Auditor at least every 20 years. Ernst & Young LLP have been in post
since July 2014, which was the last occasion an audit tender was held. Formal
Audit tender guidelines have been adopted to govern the Audit tender process.
Auditor Reappointment
Ernst & Young LLP have indicated their willingness to continue to act as
Auditor to the Company for the forthcoming year and a resolution for their
re-appointment will be proposed at the Annual General Meeting.
The Committee reviews the scope and effectiveness of the audit process,
including agreeing the Auditor's assessment of materiality and monitors the
Auditor's independence and objectivity. It conducted a review of the
performance of the Auditor during the year and concluded that performance was
satisfactory and there were no grounds for change.
Peter Keen
Chairman of the Audit Committee
25 May 2017
Governance / Directors' Remuneration Report
for the year ended 31 March 2017
Statement from the Chairman of the Remuneration Committee
I am pleased to present the Directors' Remuneration Report to shareholders.
This report has been prepared in accordance with the requirements of Section
421 of the Companies Act 2006 and the Enterprise and Regulatory Reform Act
2013. A non-binding Ordinary Resolution for the approval of this report was
last put to the shareholders at the 2016 Annual General Meeting.
The law requires the Company's Auditor to audit certain of the disclosures
provided in this report. Where disclosures have been audited, they are
indicated as such and the Auditor's opinion is included in their report to
shareholders. The Remuneration Policy Report forms part of this report.
The Remuneration Committee considers the framework for the remuneration of the
Directors on an annual basis. It reviews the ongoing appropriateness of the
Company's remuneration policy and the individual remuneration of Directors by
reference to the activities of the Company and comparison with other companies
of a similar structure and size. This is in line with the AIC Code.
At the most recent review held on 28 February 2017, the following increases to
the fees paid to the Directors were agreed with effect from 1 April 2017:
Chairman GBP36,500 pa; Chairman of the Audit Committee GBP28,000 pa; Senior
Independent Director GBP28,000 pa; Director GBP25,500 pa. The last increase took
effect from 1 April 2015.
In the year to 31 March 2017, the Directors' fees were paid at the following
annual rates: the Chairman of the Company GBP35,500, Peter Keen as Chairman of
the Audit Committee and myself as the Senior Independent Director received an
annual fee of GBP27,000. The remaining Directors received GBP25,000.
All levels of remuneration reflect both the time commitment and responsibility
of the role.
Directors' fees
The Directors, as at the date of this report, and who all served throughout the
year (unless where stated), received the fees listed in the table below. These
exclude any employers' national insurance contributions, if applicable.
As noted in the Strategic Report, all of the Directors are non-executive and
therefore there is no Chief Executive Officer. The Company does not have any
employees. There is therefore no CEO or employee information to disclose.
Directors' emoluments for the year (audited)
The Directors who served in the year received the following emoluments in the
form of fees:
Year ended 31 March 2017 Year ended 31 March 2016
Date of Base Taxable Base Taxable
Appointment
to the Salary Benefits+ Total Salary Benefits+ Total
Board
GBP GBP GBP GBP GBP GBP
The Rt Hon Lord Waldegrave
of
North Hill (retired 12 July 6 June 1998 9,967 - 9,967 35,500 - 35,500
2016)
Steven Bates 8 July 2015 25,000 - 25,000 18,397 - 18,397
Sven Borho 23 March 25,000 - 25,000 25,000 - 25,000
2006
Professor Dame Kay Davies^ 15 March 26,369 439 26,808 25,000 231 25,231
2012
Paul Gaunt (retired on 8 - - - 4,744 506 5,250
July 2015)
Andrew Joy (Chairman)? 15 March 33,022 - 33,022 27,000 - 27,000
2012
Peter Keen (Chairman of the
Audit Committee) 23 June 27,000 1,164 28,164 27,000 561 27,561
1997
Julia Le Blan** 12 July 18,013 - 18,013 - - -
2016
The Rt Hon Lord Willetts 11 November 25,000 - 25,000 9,679 - 9,679
2015
189,371 1,603 190,974 172,320 1,298 173,618
* Taxable benefits primarily comprise travel and associated expenses incurred
by the Directors in attending Board and Committee meetings in London. These
are re-imbursed by the Company and, under a new interpretation of HMRC
Rules, are subject to tax and National Insurance and therefore are treated
as a Benefit in Kind with this table.
^ Appointed Senior Independent Director on 12 July 2016.
? Appointed as Chairman on 12 July 2016. Prior to this he was the
Senior Independent Director.
Will retire from the Board on 12 July 2017. He will be succeeded as
Chairman of the Audit Committee by Julia Le Blan.
** Appointed on 12 July 2016.
The Directors are entitled to be re-imbursed for reasonable expenses incurred
by them in connection with the performance of their duties and attendance at
Board and General Meetings.
In certain circumstances, under HMRC rules, travel and other out of pocket
expenses reimbursed to the Directors may be considered as taxable benefits.
Where expenses are classed as taxable under HMRC guidance they are shown in the
Taxable Benefits column of the table on the previous page.
Relative cost of directors' remuneration for the year ended 31 March 2017
To enable shareholders to assess the relative cost of directors' remuneration,
this has been shown in the table below compared with the Company's AIFM,
Portfolio Management and other expenses.
2017 2016 Difference
GBP000 GBP000 GBP000
Fees of non-executive directors (base salary) 189 172 17
AIFM, Portfolio management fees and other expenses 4,608 4,943 (335)
(excluding performance fee provisions)
Performance fee provision/(write back) - (1,854) 1,854
* During the year ended 31 March 2017 no performance fees were paid
(2016: GBPnil).
At the Annual General Meeting held in July 2016 the results in respect of the
non-binding resolution to approve the Directors' Remuneration Report were as
follows:
Directors' remuneration report
Percentage Percentage Number of
of of
votes cast votes cast votes
For Against withheld
99.20% 0.80% 53,991
At the Annual General Meeting held in July 2014 the results in respect of the
binding resolution to approve the Directors' Remuneration Policy were as
follows:
Directors' remuneration policy
Percentage Percentage Number of
of of
votes cast votes cast votes
For Against withheld
77.15 22.85 68,430
Further details concerning Director Remuneration can be found in the Corporate
Governance section.
A copy of the Directors' Remuneration Policy may be inspected by shareholders
by either contacting the Company Secretary or visiting the Company's website at
www.biogtechgt.com.
Loss of office
Directors do not have service contracts with the Company but are engaged under
Letters of Appointment. These specifically exclude any entitlement to
compensation upon leaving office for whatever reason.
Share price return
Share price versus the NASDAQ Biotechnology Index (sterling adjusted). The
chart overleaf illustrates the shareholder return for a holding in the
Company's shares as compared to the NASDAQ Biotechnology Index (sterling
adjusted), which the Board has adopted as the measure for both the Company's
performance and that of the Portfolio Manager for the period.
Directors' interests in ordinary shares (audited)
The Directors interests in the share capital of the Company are shown in the
table below:
Number of shares held as at
25 May 31 March 31 March
2017 2017 2016
Andrew Joy (Chairman) 55,000 55,000 55,000
The Rt Hon Lord Waldegrave of North Hill N/A N/A 58,716
Steven Bates nil nil nil
Sven Borho 236,218 236,218 236,218
Professor Dame Kay Davies, CBE 3,500 3,500 nil
Peter Keen 55,000 55,000 55,000
Julia Le Blan 4,000 4,000 N/A
The Rt Hon Lord Willetts nil nil nil
None of the Directors was granted or exercised rights over shares during the
year. Sven Borho is a Partner at OrbiMed, the Company's Portfolio Manager,
which is party to the Portfolio Management Agreement with the Company and
receives fees.
Annual statement
On behalf of the Board I confirm that the Remuneration Policy and Remuneration
Report summarise, as applicable, for the year to 31 March 2017:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration made during
the year; and
(c) the context in which the changes occurred and decisions have been
taken.
Professor Dame Kay Davies CBE
Senior Independent Director and Chairman of the Remuneration Committee
27 May 2017
Governance / Directors' Remuneration Policy
The Company follows the recommendations of the AIC Code that Directors'
remuneration should reflect their duties, responsibilities and the value of
their time spent. The Board's policy is that the remuneration of the Directors
should reflect the experience of the Board as a whole, and is determined with
reference to comparable organisations and appointments. There are no
performance conditions attaching to the remuneration of the Directors as the
Board does not believe that this is appropriate for non-executive Directors.
This policy is reviewed annually and it is intended that it will continue for
the year ending 31 March 2017 and for subsequent financial years.
The fees for the Directors are determined within the limits set out in the
Company's Articles of Association, the maximum aggregate limit currently being
GBP250,000 per annum, and they are not eligible for bonuses, pension benefits,
share options, long-term incentive schemes or other benefits. The current and
projected Directors' fees are shown in the following table. The Company does
not have any employees.
Directors' remuneration year ended 31 March 2017
None of the Directors has a service contract. The terms of their appointment
provide that Directors shall retire and be subject to election at the first
Annual General Meeting after their appointment and to re-election annually
thereafter. The terms also provide that a Director may be removed without
notice and that compensation will not be due on leaving office.
No communications have been received from shareholders regarding Directors'
remuneration.
In accordance with best practice recommendations the Board will put the
Remuneration Policy to shareholders at the Annual General Meeting at least once
every three years.
Approval of this policy was granted by shareholders at the Annual General
Meeting held in July 2014 and so shareholder approval will again be sought at
this year's Annual General Meeting.
Governance / Independent Auditor's Report to the Members of The Biotech Growth
Trust PLC
Our opinion on the financial statements
In our opinion the accompanying financial statements:
* give a true and fair view of the financial position of the Company as at 31
March 2017 and of its financial performance and its cash flows for the year
then ended;
* have been properly prepared in accordance with IFRSs as adopted by the
European Union; and
* the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
What we have audited
We have audited the financial statements of The Biotech Growth Trust PLC which
comprise:
* Income Statement for the year ended 31 March 2017
* Statement of Financial Position as at 31 March 2017
* Statement of Changes in Equity for the year ended 31 March 2017
* Statement of Cash Flows for the year ended 31 March 2017
* The related notes 1 to 17
The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union.
Overview of our audit approach
Risks of material misstatement
* Incorrect valuation of the investment portfolio.
Audit Scope
* We performed an audit of the complete financial information of The Biotech
Growth Trust PLC.
Materiality
* GBP4.4 million which represents 1% of total equity (2016: GBP3.8 million) as at
31 March 2017.
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that
had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. In
addressing these risks, we have performed the procedures below which were
designed in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual areas.
Risk Our response to the risk What we concluded to the
Audit Committee
Incorrect valuation of the We performed the following
investment portfolio procedures:
The valuation of the assets For quoted investments, we The results of our
held in the investment agreed 100% of the year end procedures identified no
portfolio is the key driver prices to independent material error in the
of the Company's investment pricing sources. For the valuation of the investment
return. Incorrect valuation unquoted investment, we have portfolio assets.
of assets by the Company assessed the Company's Based on the work performed,
could have a significant estimation of fair value and we have no matters to
impact on portfolio have obtained independent report.
valuation and, therefore, confirmation that the fair
the return generated for value, as at the year-end
shareholders. date, is in accordance with
the Company's valuation
policy. We have ensured that
there is no material
difference between
management's valuation and
the company's partner's
capital as at 31 March 2017.
We have also assessed the
reasonableness of the FX
used to an independent
source. No issues noted.
The scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope for the company. Taken
together, this enables us to form an opinion on the financial statements. We
take into account size, risk profile, the organisation of the Company and
effectiveness of controls, including controls at Frostrow Capital LLP and J.P.
Morgan Chase Bank, changes in the business environment and other factors such
as recent Service Organisation Control ('SOC') Reports when assessing the level
of work to be performed at Company level.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in
evaluating the effect of identified misstatements on the audit and in forming
our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions of
the users of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the company to be GBP4.4 million (2016: GBP3.8
million), which is 1% of total equity as at 31 March 2017. We believe that
total equity is the most important financial metric on which shareholders judge
the performance of the Company.
Performance materiality
The application of materiality at the individual account or balance level. It
is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our assessment of the
Company's overall control environment, our judgement was that performance
materiality (i.e. our tolerance for misstatement in an individual account or
balance) was 75% (2016: 75%) of our planning materiality, namely GBP3.4 million
(2016: GBP2.8 million). We have set performance materiality at this percentage
due to our past experience of the audit that indicates a lower risk of
misstatements, both corrected and uncorrected.
Given the importance of the distinction between revenue and capital for the
Company we also applied a separate testing threshold of GBP60k (2016: GBP54k) for
the revenue column of the income statement, being 5% of the revenue profit
before taxation.
Reporting threshold
An amount below which identified misstatements are considered as being clearly
trivial.
We agreed with the audit committee that we would report to them all uncorrected
audit differences in excess of GBP224k (2016: GBP189k), which is set at 5% of
planning materiality, as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial
information in the Annual Report to identify material inconsistencies with the
audited financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications
for our report.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors' Responsibilities, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is
to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's Ethical
Standards for Auditors.
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
* the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
* based on the work undertaken in the course of the audit:
* the information given in the Strategic Report and the Directors' Report for
the financial year for which the financial statements are prepared is
consistent with the financial statements.
* the Strategic Report and the Directors' Report have been prepared in
accordance with applicable legal requirements;
Matters on which we are required to report by exception
ISAs (UK and We are required to report to you if, in our opinion, We have no
Ireland) financial and non-financial information in the annual exceptions to
reporting report is: report.
In particular, we are required to report whether we have
identified any inconsistencies between our knowledge
acquired in the course of performing the audit and the
directors' statement that they consider the annual
report and accounts taken as a whole is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the entity's
performance, business model and strategy; and whether
the annual report appropriately addresses those matters
that we communicated to the audit committee that we
consider should have been disclosed.
Companies Act In light of the knowledge and understanding of the We have no
2006 Company and its environment obtained in the course of exceptions to
reporting the audit, we have identified no material misstatements report.
in the Strategic Report, Directors' Report or Corporate
Governance Report.
We are required to report to you if, in our opinion:
Listing Rules We are required to review: We have no
review exceptions to
requirements report.
Statement on the Directors' assessment of the principal risks that would
threaten the solvency or liquidity of the entity
ISAs (UK and We are required to give a statement as to whether we We have
Ireland) have anything material to add or to draw attention to in nothing
reporting relation to: material to
add or to draw
attention to.
AMARJIT SINGH
SENIOR STATUTORY AUDITOR
FOR AND ON BEHALF OF ERNST & YOUNG LLP
STATUTORY AUDITOR
LONDON
25 May 2017
Financial Statements / Income Statement
for the year ended 31 March 2017
2017 2016
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment Income
Investment income 2 1,905 - 1,905 1,820 - 1,820
Total income 1,820 - 1,820
Gains/(losses) on
investments
Gains/(losses) on
investments held at fair
value
through profit or loss 8 - 103,813 103,813 - (125,284) (125,284)
Exchange losses on - (2,252) (2,252) - (1,802) (1,802)
currency balances
Expenses
AIFM, Portfolio management
and
performance fees 3 - (3,905) (3,905) - (2,353) (2,353)
Other expenses 4 (703) - (703) (736) - (736)
Profit/(loss) before 1,202 97,656 98,858 1,084 (129,439) (128,355)
finance costs and taxation
Finance costs 5 - (280) (280) - (340) (340)
Profit/(loss) before 1,202 97,376 98,578 1,084 (129,779) (128,695)
taxation
Taxation 6 (281) - (281) (254) - (254)
Profit/(loss) for the year 921 97,376 98,297 830 (129,779) (128,949)
Basic and diluted earnings 7 1.6p 169.9p 171.5p 1.3p (209.4)p (208.1)p
/(loss) per share
The Company does not have any income or expenses which are not included in the
profit for the year. Accordingly the "profit for the year" is also the "total
comprehensive income for the year", as defined in IAS 1 (revised) and no
separate Statement of Comprehensive Income has been presented.
The "Total" column of this statement represents the Company's Income Statement,
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the EU. The "Revenue" and "Capital" columns are supplementary to
this and are prepared under guidance published by the Association of Investment
Companies.
The accompanying notes are an integral part of this statement.
Financial Statements / Statement of Financial Position
as at 31 March 2017
2017 2016
Notes GBP'000 GBP'000
Non current assets
Investments held at fair value through profit or loss 8 461,378 420,427
Current assets
Other receivables 9 117 4,718
117 4,718
461,495 425,145
Current liabilities
Other payables 10 1,235 10,389
Bank overdraft 13,083 36,189
14,318 46,578
Net assets 447,177 378,567
Equity attributable to equity holders
Ordinary share capital 11 13,960 15,074
Share premium account 43,021 43,021
Capital redemption reserve 8,839 7,725
Capital reserve 16 383,283 315,594
Revenue reserve (1,926) (2,847)
Total equity 447,177 378,567
Net asset value per share 12 800.8p 627.9p
The financial statements were approved by the Board on 25 May 2017 and were
signed on its behalf by:
Andrew Joy
Chairman
The accompanying notes are an integral part of this statement.
The Biotech Growth Trust PLC - Company Registration Number 3376377 (Registered
in England)
Financial Statements / Statement of Changes in Equity
for the year ended 31 March 2017
Ordinary Share Capital
share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2016 15,074 43,021 - 7,725 315,594 (2,847) 378,567
Net profit for the year - - - - 97,376 921 98,297
Repurchase of own shares (1,114) - - 1,114 (29,687) - (29,687)
for cancellation*
At 31 March 2017 13,960 43,021 - 8,839 383,283 (1,926) 447,177
* Further details can be found in note 11.
for the year ended 31 March 2016
Ordinary Share Capital
share premium Special redemption Capital Revenue
capital account reserve reserve reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2015 17,222 43,021 252 5,577 470,907 (3,677) 533,302
Net (loss)/profit for the - - - - (129,779) 830 (128,949)
year
Repurchase of own shares - - (252) - (10,241) - (10,493)
to be held in treasury*
Repurchase of own shares (570) - - 570 (15,293) - (15,293)
for cancellation*
Cancellation of own shares (1,578) - - 1,578 - - -
held in treasury*
At 31 March 2016 15,074 43,021 - 7,725 315,594 (2,847) 378,567
The accompanying notes are an integral part of this statement.
Financial Statements / Statement of Cash Flows
for the year ended 31 March 2017
2017 2016
GBP'000 GBP'000
Operating activities
Profit/(loss) before taxation* 98,578 (128,695)
Finance costs 280 340
(Gains)/losses on investments held at fair value through profit or loss (103,813) 125,284
Decrease/(increase) in other receivables 45 (24)
Increase/(decrease) in other payables 186 (2,218)
Net cash outflow from operating activities before interest and taxation (4,724) (5,313)
Finance costs - interest paid (280) (340)
Taxation paid (281) (254)
Net cash outflow from operating activities (5,285) (5,907)
Investing Activities
Purchases of investments held at fair value through profit or loss (298,295) (378,906)
Sales of investments held at fair value through profit or loss 356,373 422,793
Net cash inflow from investing activities 58,078 43,887
Financing activities
Repurchase of own shares to be held in treasury - (10,493)
Repurchase of own shares for cancellation (29,687) (15,293)
Net cash outflow from financing activities (29,687) (25,786)
Net increase in cash and cash equivalents 23,106 12,194
Cash and cash equivalents at start of year (36,189) (48,383)
Cash and cash equivalents at end of year (13,083) (36,189)
* Includes dividends and other income earned during the year of GBP
1,905,000 (2016: GBP1,820,000).
The accompanying notes are an integral part of this statement.
Financial Statements / Notes to the Financial Statements
1. Accounting policies
(a) Basis of preparation
The financial statements of the Company have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These comprise standards
and interpretations approved by the International Accounting Standards Board
("IASB"), together with interpretations of the International Accounting
Standards and Standing Interpretations Committee approved by the International
Accounting Standards Committee ("IASC") that remain in effect, to the extent
that IFRS have been adopted by the European Union.
The principal accounting policies adopted are set out below.
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of investments. Where
presentational guidance set out in the Statement of Recommended Practice ("the
SORP") for Investment Trust Companies and Venture Capital Trusts produced by
the Association of Investment Companies ("AIC") revised November 2014 is
consistent with the requirements of IFRS, the Directors have sought to prepare
the financial statements on a basis compliant with the recommendations of the
SORP.
The Company's financial statements are presented in sterling and all values are
rounded to the nearest thousand pounds (GBP'000) except when otherwise indicated.
The accounts have been prepared on a going concern basis as the Directors
consider that in the foreseeable future (at least 12 months from the date of
approval of the financial statements) the Company will continue to be able to
meet its liabilities as they fall due.
The accounting policies adopted are consistent with those of the previous
financial year.
Judgements and key sources of estimation and uncertainty
The preparation of the financial statements requires the Directors to make
judgements, estimates and assumptions that affect the amounts reported for
assets and liabilities as at the statement of financial position date and the
amounts reported for revenues and expenses during the year. However, the nature
of estimation means that actual outcomes could differ from those estimates. In
the process of applying the Company's accounting policies, the Directors have
made the following estimate:
Fair value of the unquoted investments estimate
The unquoted investment OrbiMed Asia Partners L.P., has been valued using the
Net Asset Value as presented in the partnership's Consolidated Financial
Statements as at 31 December 2016. The statements were audited by KPMG LLP (New
Jersey Headquarters) and were approved on 28 March 2017.The Directors believe
that the NAV as at 31 March 2017 is not materially different.
(b) Investments
Investments are recognised and de-recognised on the trade date.
As the entity's business is investing in financial assets with a view to
profiting from their total return in the form of dividends or increases in fair
value, investments are designated as fair value through profit or loss and are
initially recognised at fair value. The entity manages and evaluates the
performance of these investments on a fair value basis in accordance with its
investment strategy, and information about the investments is provided
internally on this basis to the Board.
Investments designated as at fair value through profit or loss, which are
quoted investments, are measured at subsequent reporting dates at fair value
which is either the bid or the last trade price, depending on the convention of
the exchange on which it is quoted.
In respect of unquoted investments, or where the market for a financial
instrument is not active, fair value is established by using valuation
techniques which may include using recent arm's length market transactions
between knowledgeable, willing parties, if available, reference to the current
fair value of another instrument that is substantially the same, discounted
cash flow analysis and option pricing models. Where there is a valuation
technique commonly used by market participants to price the instrument and that
technique has been demonstrated to provide reliable estimates of prices
obtained in actual market transactions, that technique is utilised.
Gains and losses on disposal and fair value changes are also recognised in the
Income Statement.
(c) Presentation of Income Statement
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 Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement. Net revenue is the measure the
Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in section 1158 of the Corporation Tax Act 2010.
The requirements are to distribute net revenue but only so far as there are
positive revenue reserves.
(d) Income
Dividends receivable on equity shares are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when the
Company's right to receive payment is established.
Dividends from investments in unquoted shares and securities are recognised
when they become receivable. Income from stock re-hypothecation is recognised
when the Company's right to receive payment is established.
(e) Expenses and finance costs
All expenses are accounted for on an accruals basis. Expenses are charged
through the Income Statement as follows:
* expenses which are incidental to the acquisition or disposal of an
investment are charged to the capital column of the Income Statement;
* expenses are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the
investment can be demonstrated, and accordingly;
* AIFM and Portfolio management fees are charged to the capital column of the
Income Statement as the Directors expect that in the long term virtually
all of the Company's returns will come from capital; and
* bank overdraft interest is charged through the Income Statement on an
effective rate basis and allocated to the capital column, as the Directors
expect that in the long-term virtually all of the Company's returns will
come from capital.
(f) Taxation
In line with the recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented against capital returns in the
supplementary information in the Income Statement 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 Income Statement, then no tax
relief is transferred to the capital column.
Investment trusts which have approval under Section 1158 Corporation Tax Act
2010 are not liable for taxation on capital gains.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the Balance Sheet liability method. Deferred
tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the Income Statement, except when it relates to items
charged or credited directly to equity, or Other Comprehensive Income (OCI), in
which case the deferred tax is also dealt with in equity or OCI respectively.
(g) Foreign currencies
The currency of the primary economic environment in which the Company operates
(the functional currency) is sterling, which is also the presentational
currency of the Company. Transactions involving currencies other than sterling
are recorded at the exchange rate ruling on the transaction date. At each
Statement of Financial Position 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.
Exchange differences are included in the Income Statement and allocated as
capital if they are of a capital nature, or as revenue if they are of a revenue
nature.
(h) Functional and presentational currency
The financial information is shown in sterling, being the Company's
presentational currency. In arriving at the functional currency the Directors
have considered the following:
(i) the primary economic environment of the Company;
(ii) the currency in which the original capital was raised;
(iii) the currency in which distributions are made;
(iv) the currency in which performance is evaluated; and
(v) the currency in which the capital would be returned to shareholders on
a break up basis.
The Directors have also considered the currency to which the underlying
investments are exposed and liquidity is managed. The Directors are of the
opinion that sterling best represents the functional currency.
(i) Reserves
Equity share capital
* represents the nominal value of the issued share capital
Capital reserves
The following are credited or charged to the capital column of the Income
Statement and then transferred to the Capital Reserve:
* gains or losses on disposal of investments
* exchange differences of a capital nature
* expenses allocated to this reserve in accordance with the above referred
policies
* increases and decreases in the valuation of investments held at year end
Capital redemption reserve
* a transfer will be made to this reserve on cancellation of the Company's
own shares purchased, equal to the nominal value of the Shares
Special reserve
During the financial year ended 31 March 2004, a Special Reserve was created,
following the cancellation of the Share Premium account, in order to provide an
increased distributable reserve out of which to purchase the Company's own
shares.
* a transfer will be made from this reserve on cancellation of the Company's
own shares purchased or when the Company repurchases its own shares to be
held in treasury.
(j) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and
short-term deposits with a majority of three months or less, highly liquid
investments readily convertible to known amounts of cash and subject to
insignificant risk of changes in value. Bank overdrafts that are repayable on
demand, which form an integral part of the Company's cash management, are
included as a component of cash and cash equivalents for the purpose of the
statement of cash flows.
(k) Bank overdraft
The Company has an overdraft facility repayable on demand, provided by J.P.
Morgan Clearing Corp. Interest on the facility is charged at the Federal Funds
open rate plus 45 basis points. Finance costs are apportioned 100% to capital
in accordance with the policy set out under note 1(e) Expenses and finance
costs.
(l) Operating segments
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 the investments business. The results
published in this report therefore correspond to this sole operating segment.
In line with IFRS 8, additional disclosure by geographical segment has been
provided in note 14.
(m) Financial instruments
Financial assets and financial liabilities are recognised on the statement of
financial position when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are de-recognised when the
Company's contractual right to the cash flows from the asset expires or
substantially all the risks and rewards of ownership are transferred. Financial
liabilities are de-recognised when the contractual obligation is discharged,
with gains and losses recognised in the income statement.
(n) Standards, amendments and interpretations to existing standards become
effective in future accounting periods and have not been adopted by the
Company:
* IFRS 9 Financial Instruments - The standard introduces new requirements for
classification and measurement, impairment, and hedge accounting. IFRS 9 is
effective for annual periods beginning on or after 1 January 2018. It is
not practicable to provide a reasonable estimate of the effect of the
standard until a detailed review has been completed, however the adoption
of IFRS 9 is unlikely to have a material effect on the classification and
measurement of the Company's financial assets or liabilities.
* IFRS 15 Revenue from contracts with customers - The objective of IFRS 15 is
to establish the principles that an entity shall report useful information
to users of financial statements about the nature, amount, timing, and
uncertainty of revenue and cash flows arising from a contact with a
consumer. Application of the standard of mandatory for annual reporting
periods starting from 1 January 2018.
2. Income
2017 2016
GBP'000 GBP'000
Investment income
Overseas dividend income 1,823 1,820
Other income
Other fee income 82 -
Total income 1,905 1,820
3. AIFM, portfolio management and performance fees
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AIFM fee - 1,190 1,190 - 1,266 1,266
Portfolio management fee - 2,715 2,715 - 2,941 2,941
Performance fee/(provision written - - - - (1,854) (1,854)
back)
- 3,905 3,905 - 2,353 2,353
Further details of the AIFM, portfolio management fee and the performance fee
basis can be found in the Report of the Directors.
4. Other expenses
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors' emoluments 189 - 189 172 - 172
AIFM fixed fee 60 - 60 60 - 60
Auditor's remuneration for the 27 - 27 26 - 26
audit of the Company's financial
statements
Auditor's remuneration for 7 - 7 7 - 7
independent review of the half year
accounts
Auditor's remuneration for tax - -
compliance services 1 - 1 3 - 3
Legal and professional fees 1 - 1 25 - 25
Registrar fees 44 - 44 61 - 61
Depositary fees 61 - 61 66 - 66
Listing fees 27 - 27 26 - 26
Other costs 286 - 286 290 - 290
Total expenses 703 - 703 736 - 736
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report and the Directors' Remuneration Policy Report.
5. Finance costs
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Bank overdraft interest - 280 280 - 340 340
- 280 280 - 340 340
6. Taxation
(a) Analysis of charge in the year:
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Overseas tax suffered 281 - 281 254 - 254
Total taxation for the year (see 281 - 281 254 - 254
note 6(b))
(b) Factors affecting total tax charge for year
Approved investment trusts are exempt from tax on capital gains made within the
Company.
The tax assessed for the year is lower than the standard rate of corporation
tax in the UK of 20% (2016: 20%). The differences are explained below:
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net profit on ordinary 1,202 97,376 98,578 1,084 (129,779) (128,695)
activities before taxation
Corporation tax at 20% 240 19,475 19,715 217 (25,956) (25,739)
(2016: 20%)
Effects of:
Non-taxable (gains)/losses
on
investments - (20,312) (20,312) - 25,417 25,417
Non-taxable overseas (365) - (365) (364) - (364)
dividends
Overseas taxes 281 - 281 254 - 254
Excess expenses unused 125 837 962 147 539 686
Total tax charge 281 - 281 254 - 254
(c) Provision for deferred tax
No provision for deferred taxation has been made in the current or prior year.
The Company has not provided for deferred tax on capital gains or losses
arising on the revaluation or disposal of investments, as it is exempt from tax
on these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset of GBP7,311,000 (17% tax
rate) (2016: GBP6,876,000 (18% tax rate)) arising as a result of excess
management expenses and loan relationship deficits. These excess expenses will
only be utilised if the Company generates sufficient taxable income in the
future.
7. Basic and diluted earnings/(loss) per share
The Return/(loss) per Ordinary Share is as follows:
2017 2016
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Earnings/(loss) per share 1.6 169.9 171.5 1.3 (209.4) (208.1)
The total earnings per share of 171.5p (2016: loss 208.1p) is based on the
total earnings attributable to equity shareholders of GBP98,297,000 (2016: loss GBP
128,949,000).
The revenue gain per share 1.6p (2016: gain 1.3p) is based on the revenue gain
attributable to equity shareholders of GBP921,000 (2016: revenue gain of GBP
830,000). The capital gain per share of 169.9p (2016: loss 209.4p) is based on
the capital gain attributable to equity shareholders of GBP97,376,000 (2016: loss
GBP129,779,000).
The total earnings per share are based on the weighted average number of shares
in issue during the year of 57,315,305 (2016: 61,972,355).
8. Investments held at fair value through profit and loss
All investments are designated as fair value through profit or loss on initial
recognition, therefore all gains and losses arise on investments designated as
fair value through profit or loss.
As at 31 March 2017, all investments with the exception of the unquoted
investment in OrbiMed Asia Partners L.P. fund have been classified as level 1.
OrbiMed Asia Partners L.P. fund has been classified as level 3. See note 13 for
further details.
2017 2016
Listed
Equity Unquoted Total Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost at 1 April 2016 376,651 2,614 379,265 346,840
Investment holding gains at 1 April 2016 39,762 1,400 41,162 236,369
Valuation at 1 April 2016 416,413 4,014 420,427 583,209
Movement in the year
Purchases at cost 288,955 - 288,955 386,664
Sales - proceeds (351,431) (386) (351,817) (424,162)
- gains on disposal 79,321 73 79,394 69,923
Net movement in investment holding gains 23,051 1,368 24,419 (195,207)
Valuation at 31 March 2017 456,309 5,069 461,378 420,427
Closing book cost at 31 March 2017 393,496 2,301 395,797 379,265
Investment holding gains at 31 March 2017 62,813 2,768 65,581 41,162
Valuation at 31 March 2017 456,309 5,069 461,378 420,427
2017 2016
GBP'000 GBP'000
Gains/(losses) on investments:
Gains on disposal based on historical cost 79,394 69,923
Amounts recognised as investment holding loss in previous year (48,986) (105,360)
Gains(losses) on disposal based on carrying value at previous 30,408 (35,437)
financial position date
Net movement in investment holding gains in the year 73,405 (89,847)
Gains/(losses) on investments 103,813 (125,284)
The total transaction costs for the year were GBP472,000 (31 March 2016: GBP
453,000) broken down as follows: purchase transaction costs for the year to 31
March 2017 were GBP238,000, (31 March 2016: GBP187,000), sale transaction costs
were GBP234,000 (31 March 2016: GBP266,000). These costs consist mainly of
commission.
9. Other receivables
2017 2016
GBP'000 GBP'000
Future settlements - sales - 4,556
Other debtors 15 26
Prepayments and accrued income 102 136
117 4,718
10. Other payables
2017 2016
GBP'000 GBP'000
Future settlements - purchases - 9,340
Other creditors and accruals 1,235 1,049
1,235 10,389
11. Ordinary share capital
2017 2016
GBP'000 GBP'000
Allotted, issued and fully paid:
55,839,913 shares of 25p (2016: 60,295,474) 13,960 15,074
No shares were held in treasury at 31 March 2017 (2016: nil) - -
13,960 15,074
2017 2016
Issued & Treasury Outstanding Issued & Treasury Outstanding
fully paid Shares Shares fully paid Shares Shares
At 1 April 60,295,474 - 60,295,474 68,886,347 4,997,831 63,888,516
Repurchase of own shares to be - - - - 1,313,257 (1,313,257)
held in treasury
Cancellation of own shares held - - - (6,311,088) (6,311,088) -
in treasury
Repurchase of own shares for (4,455,561) - (4,455,561) (2,279,785) - (2,279,785)
cancellation
At 31 March 55,839,913 - 55,839,913 60,295,474 - 60,295,474
As at 31 March 2017 the Company had 55,839,913 shares of 25p in issue, no
shares were held in treasury (2016: 60,295,474). During the year a total of
4,455,561 share were repurchased for cancellation by the Company at a cost of GBP
29.7 million. Subsequent to the year end and to the date of this report no
further shares were repurchased for cancellation.
12. Net asset value per share
2017 2016
Net asset value per share 800.8p 627.9p
The net asset value per share is based on the net assets attributable to equity
shareholders of GBP447,177,000 (2016: GBP378,567,000) and on 55,839,913 (2016:
60,295,474) shares in issue at 31 March 2017.
13. Risk management policies and procedures
As an investment trust, the Company invests in equities and other investments
for the long term in order to achieve its investment objective. In pursuing its
investment objective, the Company is exposed to a variety of risks that could
result in either a reduction or increase in the Company's net assets or in
profits.
The Company's financial instruments comprise securities and other investments,
cash balances, debtors and creditors and an overdraft facility that arise
directly from its operations (for example, in respect of sales and purchases
awaiting settlement).
The main risks the Company faces from its financial instruments are (i) market
price risk (comprising currency risk, interest rate risk and other price risk
(i.e. changes in market prices other than those arising from interest rate or
currency risk)), (ii) liquidity risk and (iii) credit risk.
The Board reviews and agrees policies regularly for managing and monitoring
each of these risks.
I. Market price risk:
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises three elements - currency risk, interest rate risk and other price
risk.
The Company's portfolio is exposed to market price fluctuations which are
monitored by the AIFM and the Portfolio Manager in pursuance of the investment
objective.
No derivatives or hedging instruments are utilised to manage market price risk.
(a) Currency risk:
The Company's portfolio is denominated in currencies other than sterling (the
Company's functional currency, and in which it reports its results). As a
result, movements in exchange rates can significantly affect the sterling value
of those items.
Management of risk
The AIFM and Portfolio Manager monitor the Company's exposure to foreign
currencies on a continuous basis and report to the Board regularly. The Company
does not hedge against foreign currency movements.
Income denominated in foreign currencies is converted into sterling on receipt.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that the income is included in the
financial statements and its receipt.
Foreign currency exposure
At the date of the Statement of Financial Position the Company held GBP
452,980,000 (2016: GBP387,367,000) of investments denominated in U.S. dollars and
GBP8,398,000 (2016: GBP33,060,000) in other non-sterling currencies.
Currency sensitivity
The following table details the sensitivity of the Company's profit or loss
after taxation for the year to a 10% increase and decrease in the value of
sterling compared to the U.S. dollar and other non-sterling currencies (2016:
10% increase and decrease).
The above percentages have been determined based on market volatility in
exchange rates over the previous twelve months. The analysis is based on the
Company's foreign currency financial instruments held at each Statement of
Financial Position date, after adjusting for an increase/decrease in management
fees. Movements in the performance fee accruals have been excluded from the
analysis below.
If sterling had weakened against the U.S. dollar and other non-sterling
currencies, as stated above, this would have had the following effect:
2017 2016
GBP'000 GBP'000
Impact on revenue return - -
Impact on capital return 50,777 42,761
Total return after tax/effect on shareholders' funds 50,777 42,761
If sterling had strengthened against the U.S. dollar, as stated above, this
would have had the following effect:
2017 2016
GBP'000 GBP'000
Impact on revenue return - -
Impact on capital return (41,545) (34,986)
Total return after tax/effect on shareholders' funds (41,545) (34,986)
(b) Interest rate risk:
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
Interest rate exposure
The Company's main exposure to interest rate risk is through its overdraft
facility with J.P. Morgan Clearing Corp. which is repayable on demand.
At the year end financial liabilities subject to interest rate risk were as
follows (there were no assets subject to interest rate risk).
2017 2016
GBP'000 GBP'000
Financial liabilities:
Overdraft facility 13,083 36,189
Interest rate sensitivity
The majority of the Company's financial assets are equity shares and other
investments which neither pay interest nor have a maturity date. The Company
has an overdraft facility with J.P.Morgan Clearing Corp. disclosed above. The
amount overdrawn at 31 March 2017 was GBP13,083,000 (2016: GBP36,189,000). Interest
is charged at the Federal Funds Open rate plus 45 basis points. The level of
interest fluctuates in line with the Federal Funds open rate and the amount of
the overdraft. If the open rate increased by 1%, the impact on the profit or
loss and net assets would be expected to be GBP131,000 (2016: GBP362,000).
(c) Other price risk
Other price risk may affect the value of the quoted investments.
If market prices at the date of the Statement of Financial Position had been
20% higher or lower (2016: 20% higher or lower) while all other variables had
remained constant, the return and net assets attributable to shareholders for
the year ended 31 March 2017 would have increased/decreased by GBP91,399,000
(2016: GBP83,287,000), after adjusting for an increase or decrease in the AIFM
and Portfolio management fees. The calculations are based on the portfolio
valuations as at the respective Statement of Financial Position dates.
2. Liquidity risk:
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the Company's assets are
investments in quoted equities that are readily realisable within one week, in
normal market conditions.
The Board gives guidance to the Portfolio Manager as to the maximum amount of
the Company's resources that should be invested in any one company.
Liquidity exposure and maturity
Contractual maturities of the financial liabilities as at 31 March 2017, based
on the earliest date on which payment can be required, are as follows:
2017 2016
3 months 3 months
or less or less
GBP'000 GBP'000
Overdraft facility 13,083 36,189
Amounts due to brokers and accruals 1,235 10,389
14,318 46,578
3. Credit risk:
Credit risk is the risk of failure of a counterparty to discharge its
obligations resulting in the Company suffering a loss.
J.P. Morgan Clearing Corp. may take assets with a value of up to 140% of the
overdraft as collateral. Such assets held by J.P. Morgan Clearing Corp. are
available for rehypothecation? . As at 31 March 2017, the maximum value of
assets available for rehypothecation was GBP18.3 million (31 March 2016: GBP50.7
million). As at this date, assets with a total market value of GBP7.8m were
rehypothecated (2016: GBP49.3 million).
See the Business Review for further details on the overdraft facility and the
associated credit risk.
? See glossary.
Management of the risk
The risk is not significant and is managed as follows:
* by only dealing with brokers which have been approved by OrbiMed Capital
LLC and banks with high credit ratings; and
* by investing in markets that operate DVP (delivery versus payment)
settlement.
* all cash balances are held with approved counterparties. J.P. Morgan
Clearing Corp. is the custodian of the Company's assets and all assets are
segregated from J.P. Morgan's own assets.
At 31 March 2017 the Company's exposure to credit risk amounted to GBP117,000 and
was in respect of amounts due from brokers in relation to future settlements
and other receivables, such as amounts due from brokers and accrued income
(2016: GBP4,718,000).
Hierarchy of investments
As required under IFRS 13 "Fair Value Measurement", the Company has classified
its financial assets designated at fair value through profit or loss using a
fair value hierarchy that reflects the significance of the inputs used in
making the fair value measurements. The hierarchy has the following 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).
As at 31 March 2017 the investment in OrbiMed Asia Partners LP fund has been
classified as Level 3. The fund has been valued at the net asset value as at 31
December 2016 and it is believed that the value of the fund as at 31 March 2017
will not be materially different. If the value of the fund was to increase or
decrease by 10%, while all other variables had remained constant, the return
and net assets attributable to Shareholders for the year ended 31 March 2017
would have increased/decreased by GBP507,000 (2016: GBP401,000).
Level 1 Level 2 Level 3 Total
As of 31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Financial investments designated at fair value 456,309 - 5,069 461,378
through profit or loss
Level 1 Level 2 Level 3 Total
As of 31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Financial investments designated at fair value 416,413 - 4,014 420,427
through profit or loss
Level 3 Reconciliation
Please see on the previous page a reconciliation disclosing the changes during
the year for the financial assets and liabilities designated at fair value
through profit or loss classified as being Level 3. There has been no transfer
between fair value hierarchy levels.
2017 2016
GBP'000 GBP'000
Assets
As at 1 April 4,014 3,439
Net movement in investment holding gains during the year 1,441 789
Return of capital (386) (214)
Assets as at 31 March 5,069 4,014
Fair value of financial assets and financial liabilities:
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value or at a reasonable approximation of
fair value.
Capital management
The Board considers the capital of the Company to be its issued share capital
and reserves.
The Company's capital management objectives are:
* to ensure that it will be able to continue as a going concern; and
* to maximise the total return to its equity shareholders.
The Company's capital is disclosed in the Statement of Financial Position and
is managed on a basis consistent with its investment objective and policy.
Shares may be repurchased by the Company.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
14. Segment reporting
Geographical segments
2017 2016
Value of Value of
investments investments
Region GBP'000 GBP'000
North America 398,949 359,328
Europe 57,360 26,276
Asia 5,069 34,823
Total 461,378 420,427
15. Related parties
The following are considered to be related parties:
* Frostrow Capital LLP (under the Listing Rules)
* OrbiMed Capital LLC
* The Directors of the Company
A number of the partners at, and a former partner of OrbiMed Capital LLC have a
minority financial interest totalling 20% in Frostrow Capital LLP, the
Company's AIFM.
Further details of the relationship between the Company and Frostrow Capital
LLP, the Company's AIFM and OrbiMed Capital LLC, the Company's Portfolio
Manager, are disclosed in the Report of Directors. During the year ended 31
March 2017 Frostrow Capital LLP earned GBP1,250,000 in respect of AIFM fees of
which GBP309,000 was outstanding at the year end; during the year ended 31 March
2017, OrbiMed Capital LLC earned GBP2,715,000 in respect of Portfolio Management
fees, of which GBP710,000 was outstanding at the year end. Mr Sven Borho is a
Director of the Company, as well as a Partner at OrbiMed Capital LLC. During
the year no performance fees crystallised (2016: nil). All material related
party transactions have been disclosed. Details of the remuneration of all
Directors can be found in the Directors' Remuneration Report.
16. Capital reserve
2017 2016
Capital Capital
reserve - reserve -
Capital investment Capital investment
reserves holdings reserves holdings
- -
other gains/ Total other gains/ Total
(losses) (losses)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 April 274,432 41,162 315,594 234,538 236,369 470,907
Transfer on disposal of 48,986 (48,986) - 105,360 (105,360) -
investments
Net gains/(losses) on 30,408 73,405 103,813 (35,437) (89,847) (125,284)
investments
Exchange losses (2,252) - (2,252) (1,802) - (1,802)
Expenses charged to capital (4,185) - (4,185) (2,693) - (2,693)
Repurchase of own shares to be
held in Treasury - - - (10,241) - (10,241)
Repurchase of own shares for (29,687) - (29,687) (15,293) - (15,293)
cancellation
At 31 March 317,702 65,581 383,283 274,432 41,162 315,594
Profits arising out of a change in fair value of assets, recognised in
accordance with Accounting Standards, may be distributed provided the relevant
assets can be readily convertible into cash. Securities listed on a recognised
stock exchange are generally regarded as being readily convertible into cash.
Under the terms of the revisions made to the Company's Articles of Association
in 2013, sums within "Capital reserves - other" are also available for
distribution.
17. Contingent liabilities and capital commitments
As at 31 March 2017 there were no contingent liabilities or capital commitments
for the Company (2016: GBPnil).
Further Information / AIFMD Related Disclosure
Alternative Investments Fund Managers Directive (AIFMD) Disclosures (Unaudited)
Investment objective and leverage
A description of the investment strategy and objectives of the Company, the
types of assets in which the Company may invest, the techniques it may employ,
any applicable investment restrictions, the circumstances in which it may use
leverage, the types and sources of leverage permitted and the associated risks,
any restrictions on the use of leverage and the maximum level of leverage which
the AIFM and Portfolio Manager are entitled to employ on behalf of the Company
and the procedures by which the Company may change its investment strategy and/
or the investment policy can be found in the Business Review within the
Strategic Report.
The table below sets out the current maximum permitted limit and actual level
of leverages for the Company:
As a percentage of
net assets
Gross Commitment
Method Method
Maximum level of leverage 130.0% 130.0%
Actual level at 31 March 2017 103.2% 103.2%
Remuneration of AIFM staff
Following completion of an assessment of the application of the proportionality
principle to the FCA's AIFM Remuneration Code, the AIFM has disapplied the
pay-out process rules with respect to it and any of its delegates. This is
because the AIFM considers that it carries out non-complex activities and is
operating on a small scale.
Further disclosures required under the AIFM Rules can be found within the
Investor Disclosure Document on the Company's website: www.biotechgt.com.
Further Information / Glossary of Terms
AIC
Association of Investment Companies.
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transported into UK legislation, the AIFMD classifies certain investment
vehicles, including investment companies, as Alternative Investment Funds
(AIFs) and requires them to appoint an Alternative Investment Fund Manager
(AIFM) and depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty to
shareholders.
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
Calculated using the Association of Investment Companies definition.
Gearing represents borrowings less cash and cash equivalents expressed as a
percentage of shareholders' funds.
Leverage
The AIFM Directive (the "Directive") 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 AIF 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.
Net Asset Value (NAV)
The value of the Company's assets, principally investments made in other
companies and cash being held, less 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.
Ongoing Charges
Ongoing charges are calculated by taking the Company's annualised operating
expenses expressed as a proportion of the average daily net asset value of the
Company over the year.
The costs of buying and selling investments are excluded, as are interest
costs, taxation, performance fees, cost of buying back or issuing ordinary
shares and other non-recurring costs.
Rehypothecation
Rehypothecation is the practice by banks and brokers of using, for their own
purposes, assets that have been posted as collateral by clients.
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.
Further Information / Notice of the Annual General Meeting
Notice is hereby given that the Annual General Meeting of The Biotech Growth
Trust PLC will be held at Barber-Surgeons' Hall, Monkwell Square, Wood Street,
London EC2Y 5BL on Wednesday 12 July 2017 at 12 noon, for the following
purposes:
Ordinary business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive and, if thought fit, to accept the Audited Financial
Statements and the Report of the Directors for the year ended 31 March 2017
2. To approve the Directors' Remuneration Report for the year ended 31
March 2017
3. To approve the Directors' Remuneration Policy
4. To re-elect Andrew Joy as a Director of the Company
5. To re-elect Professor Dame Kay Davies, CBE as a Director of the Company
6. To re-elect Sven Borho as a Director of the Company
7. To re-elect Steven Bates as a Director of the Company
8. To re-elect The Rt Hon Lord Willetts as a Director of the Company
9. To elect Julia Le Blan as a Director of the Company
10. To re-appoint Ernst & Young LLP as Auditor to the Company and to
authorise the Audit Committee to determine their remuneration
Special business
To consider and, if thought fit, pass the following resolutions of which
resolutions 12, 13 and 14 will be proposed as special resolutions:
Authority to allot shares
11. THAT in substitution for all existing authorities the Directors be and
are hereby generally and unconditionally authorised in accordance with Section
551 of the Companies Act 2006 (the "Act") to exercise all powers of the Company
to allot relevant securities (within the meaning of Section 551 of the Act) up
to a maximum aggregate nominal amount of GBP1,395,997 (being 10% of the issued
share capital of the Company at the date of the notice convening the meeting at
which this resolution is proposed) and representing 5,583,991 shares of 25
pence each (or, if less, the number representing 10% of the issued share
capital of the Company at the date at which this resolution is passed),
provided that this authority shall expire at the conclusion of the Annual
General Meeting of the Company to be held in 2018 or 15 months from the date of
passing this resolution, whichever is the earlier, unless previously revoked,
varied or renewed, by the Company in general meeting and provided that the
Company shall be entitled to make, prior to the expiry of such authority, an
offer or agreement which would or might require relevant securities to be
allotted after such expiry and the Directors may allot relevant securities
pursuant to such offer or agreement as if the authority conferred hereby had
not expired.
Disapplication of pre-emption rights
12. THAT in substitution of all existing powers the Directors be and are
hereby generally empowered pursuant to Sections 570 and 573 of the Companies
Act 2006 (the "Act") to allot equity securities (within the meaning of section
560 of the Act) including if immediately before the allotment, such shares are
held by the Company as treasury shares (as defined in Section 724 of the Act)
for cash pursuant to the authority conferred on them by resolution 13 set out
in the notice convening the Annual General Meeting at which this resolution is
proposed or otherwise as if section 561(1) of the Act did not apply to any such
allotment and to sell relevant shares (within the meaning of section 560 of the
Act) for cash as if section 561(1) of the Act did not apply to any such sale,
provided that this power shall be limited to the allotment of equity securities
pursuant to:
(a) an offer of equity securities open for acceptance for a period fixed by
the Directors where the equity securities respectively attributable to the
interests of holders of shares of 25 pence each in the Company ("Shares") are
proportionate (as nearly as may be) to the respective numbers of Shares held by
them but subject to such exclusions or other arrangements in connection with
the issue as the Directors may consider necessary, appropriate, or expedient to
deal with equity securities representing fractional entitlements or to deal
with legal or practical problems arising in any overseas territory, the
requirements of any regulatory body or stock exchange, or any other matter
whatsoever; and
(b) (otherwise than pursuant to sub-paragraph (a) above) up to an aggregate
nominal value of GBP1,395,997 or, if less, the number representing 10% of the
issued share capital of the Company at the date of the meeting at which this
resolution is passed, and expires at the conclusion of the next Annual General
Meeting of the Company after the passing of this resolution or 15 months from
the date of passing this resolution, whichever is the earlier, unless
previously revoked, varied or renewed by the Company in general meeting and
provided that the Company shall be entitled to make, prior to the expiry of
such authority, an offer or agreement which would or might require equity
securities to be allotted after such expiry and the Directors may allot equity
securities pursuant to such offer or agreement as if the power conferred hereby
had not expired.
Authority to repurchase ordinary shares
13. THAT the Company be and is hereby generally and unconditionally
authorised in accordance with section 701 of the Companies Act 2006 (the "Act")
to make one or more market purchases (within the meaning of section 693(4) of
the Act) of ordinary shares of 25 pence each in the capital of the Company
("Shares") either for retention as treasury shares for future reissue, resale,
transfer or for cancellation provided that:
(a) the maximum aggregate number of Shares authorised to be purchased is
8,370,402 (representing approximately 14.99% of the issued share capital of the
Company at the date of the notice convening the meeting at which this
resolution is proposed);
(b) the minimum price (exclusive of expenses) which may be paid for a Share
is 25 pence;
(c) the maximum price (exclusive of expenses) which may be paid for a Share
is an amount equal to the greater of (i) 105% of the average of the middle
market quotations for a Share as derived from the Daily Official List of the
London Stock Exchange for the five business days immediately preceding the day
on which that Share is purchased and (ii) the higher of the price of the last
independent trade in shares and the highest then current independent bid for
shares on the London Stock Exchange as stipulated in Article 5(1) of Regulation
No. 2233/2003 of the European Commission (Commission Regulation of 22 December
2003 implementing the Market Abuse Directive as regards exemptions for buy-back
programmes and stabilisation of financial instruments);
(d) the authority hereby conferred shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2018 or, if earlier, on the
expiry of 15 months from the date of the passing of this resolution unless such
authority is renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority
before the expiry of such authority which will or may be executed wholly or
partly after the expiration of such authority, and may make a purchase of
Shares in pursuance of any such contract.
General meetings
14. THAT the Directors be authorised to call general meetings (other than
Annual General Meetings) on not less than 14 working days' notice, such
authority to expire at the conclusion of the next Annual General Meeting of the
Company or, if earlier, until expiry of 15 months from the date of the passing
of this resolution.
By order of the Board Registered office:
Frostrow Capital LLP One Wood Street
Company Secretary London EC2V 7WS
25 May 2017
Notes
1. Members are entitled to appoint a proxy to exercise all or any of
their rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not be a shareholder of
the Company. A proxy form which may be used to make such appointment and give
proxy instructions accompanies this notice.
2. A vote withheld is not a vote in law, which means that the vote will
not be counted in the calculation of votes for or against the resolutions. If
no voting indication is given, a proxy may vote or abstain from voting at his/
her discretion. A proxy may vote (or abstain from voting) as he or she thinks
fit in relation to any other matter which is put before the meeting.
3. To be valid any proxy form or other instrument appointing a proxy
must be completed and signed and received by post or (during normal business
hours only) by hand at Capita Asset Services, PXS1, 34 Beckenham Road,
Beckenham, Kent BR3 4ZF no later than 12 noon on 10 July 2017.
4. In the case of a member which is a company, the instrument
appointing a proxy must be executed under its seal or signed on its behalf by a
duly authorised officer or attorney or other person authorised to sign. Any
power of attorney or other authority under which the instrument is signed (or a
certified copy of it) must be included with the instrument.
5. The return of a completed proxy form, other such instrument or any
CREST Proxy Instruction (as described below) will not prevent a shareholder
attending the meeting and voting in person if he/she wishes to do so.
6. Any person to whom this notice is sent who is a person nominated
under section 146 of the Companies Act 2006 to enjoy information rights (a
"Nominated Person") may, under an agreement between him/her and the shareholder
by whom he/she was nominated, have a right to be appointed (or have someone
else appointed) as a proxy for the meeting. If a Nominated Person has no such
proxy appointment right or does not wish to exercise it, he/she may, under any
such agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
7. The statement of the rights of shareholders in relation to the
appointment of proxies in paragraphs 1 and 3 above does not apply to Nominated
Persons. The rights described in these paragraphs can only be exercised by
shareholders of the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities
Regulations 2001, only shareholders registered on the register of members of
the Company (the "Register of Members") at the close of business on 10 July
2017 (or, in the event of any adjournment, on the date which is two days before
the time of the adjourned meeting) will be entitled to attend and vote or be
represented at the meeting in respect of shares registered in their name at
that time. Changes to the Register of Members after that time will be
disregarded in determining the rights of any person to attend and vote at the
meeting.
9. As at 25 May 2017 (being the last business day prior to the
publication of this notice) the Company's issued share capital consists of
55,839,913 ordinary shares, carrying one vote each. Therefore, the total voting
rights in the Company as at 25 May 2017 are 55,839,913.
10. CREST members who wish to appoint a proxy or proxies through the
CREST electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
11. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with the
specifications of Euroclear UK and Ireland Limited ("CRESTCo"), and must
contain the information required for such instruction, as described in the
CREST Manual. The message, regardless of whether it constitutes the appointment
of a proxy or is an amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be transmitted so as to be received
by the issuer's agent (ID RA10) no later than 48 hours before the time
appointed for holding the meeting. For this purpose, the time of receipt will
be taken to be the time (as determined by the timestamp applied to the message
by the CREST Application Host) from which the issuer's agent is able to
retrieve the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
12. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of the CREST
system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14. In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment submitted by the most
senior holder will be accepted. Seniority is determined by the order in which
the names of the joint holders appear in the Register of Members in respect of
the joint holding (the first named being the most senior).
15. Members who wish to change their proxy instructions should submit a
new proxy appointment using the methods set out above. Note that the cut-off
time for receipt of proxy appointments (see above) also applies in relation to
amended instructions; any amended proxy appointment received after the relevant
cut-off time will be disregarded.
16. Members who have appointed a proxy using the hard-copy proxy form and
who wish to change the instructions using another hard-copy form, should
contact Capita Asset Services on 0871 664 0300 or 0371 664 0300 if calling from
outside the United Kingdom. Calls cost 12p per minute plus your phone company's
access charge. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 09.00-17.30, Monday to
Friday excluding public holidays in England and Wales.
17. If a member submits more than one valid proxy appointment, the
appointment received last before the latest time for the receipt of proxies
will take precedence.
18. In order to revoke a proxy instruction, members will need to inform
the Company. Members should send a signed hard copy notice clearly stating
their intention to revoke a proxy appointment to Capita Asset Services, PXS1,
34 Beckenham Road, Beckenham, Kent BR3 4ZF.
In the case of a member which is a company, the revocation notice must be
executed under its common seal or signed on its behalf by an officer of the
company or an attorney for the company. Any power of attorney or any other
authority under which the revocation notice is signed (or a duly certified copy
of such power of attorney) must be included with the revocation notice. If a
member attempts to revoke their proxy appointment but the revocation is
received after the time for receipt of proxy appointments (see above) then,
subject to paragraph 4, the proxy appointment will remain valid.
Further Information / Explanatory Notes to the Resolutions
Resolution 1 - To receive the Annual Report and Accounts
The Annual Report and Accounts for the year ended 31 March 2017 will be
presented to the Annual General Meeting. These accounts accompanied this Notice
of Meeting and shareholders will be given an opportunity at the meeting to ask
questions.
Resolutions 2 and 3 - Remuneration Report and Remuneration Policy
The Report on Directors' Remuneration is set out in full in the Directors'
Remuneration Report. The Remuneration Policy is also set out separately
following this report.
Resolutions 4 to 9 - Re-election of Directors
Resolutions 4 to 9 deal with the election and re-election of each Director.
The Board has confirmed, following a performance review, that the Directors
standing for election and re-election continue to perform effectively.
Resolution 10 - Re-Appointment of Auditor and the determination of their
remuneration
Resolution 10 relates to the re-appointment of Ernst & Young LLP as the
Company's independent auditor to hold office until the next Annual General
Meeting of the Company and also authorises the Audit Committee to set their
remuneration.
Resolutions 11 and 12 - Issue of Shares
Ordinary Resolution 11 in the Notice of Annual General Meeting will renew the
authority to allot the unissued share capital up to an aggregate nominal amount
of GBP1,395,997 (equivalent to 5,583,991 shares, or 10% of the Company's existing
issued share capital on 25 May 2017, being the nearest practicable date prior
to the signing of this Report). Such authority will expire on the date of the
next Annual General Meeting or after a period of 15 months from the date of the
passing of the resolution, whichever is earlier. This means that the authority
will have to be renewed at the next Annual General Meeting.
When shares are to be allotted for cash, Section 551 of the Companies Act 2006 (the "Act") provides that existing shareholders have pre-emption rights and that the new shares must be offered first to such shareholders in proportion to their existing holding of shares. However, shareholders can, by special resolution, authorise the Directors to allot shares otherwise than by a pro rata issue to existing shareholders. Special Resolution 12 will, if passed, give the Directors power to allot for cash equity securities up to 10% of the Company's existing share capital on 25 May 2017, as if Section 551 of the Act does not apply. This is the same nominal amount of share capital which the Directors are seeking the authority to allot pursuant to Resolution 11. This authority will also expire on the date of the next Annual General Meeting or after a period of 15 months, whichever is earlier. This authority will not be used in connection with a rights issue by the Company. The Directors intend to use the authority given by Resolutions 11 and 12 to allot shares and disapply pre-emption rights only in circumstances where this will be clearly beneficial to shareholders as a whole. The issue proceeds would be available for investment in line with the Company's investment policy. No issue of shares will be made which would effectively alter the control of the Company without the prior approval of shareholders in general meeting. Resolution 13 - Share Repurchases The Directors wish to renew the authority given by shareholders at the previous Annual General Meeting. The principal aim of a share buy-back facility is to enhance shareholder value by acquiring shares at a discount to net asset value, as and when the Directors consider this to be appropriate. The purchase of shares, when they are trading at a discount to net asset value per share, should result in an increase in the net asset value per share for the remaining shareholders. This authority, if conferred, will only be exercised if to do so would result in an increase in the net asset value per share for the remaining shareholders and if it is in the best interests of shareholders generally. Any purchase of shares will be made within guidelines established from time to time by the Board. It is proposed to seek shareholder authority to renew this facility for another year at the Annual General Meeting. Under the current Listing Rules, the maximum price that may be paid on the exercise of this authority must not exceed the higher of (i) 105% of the average of the middle market quotations for the shares over the five business days immediately preceding the date of purchase and (ii) the higher of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out. The minimum price which may be paid is 25p per share. Shares which are purchased under this authority will either be cancelled or held as treasury shares. Special Resolution 13 in the Notice of Annual General Meeting will renew the authority to purchase in the market a maximum of 14.99% of shares in issue on 25 May 2017, being the nearest practicable date prior to the signing of this Report, (amounting to 8,370,402 shares). Such authority will expire on the date of the next Annual General Meeting or after a period of 15 months from the date of passing of the resolution, whichever is earlier. This means in effect that the authority will have to be renewed at the next Annual General Meeting or earlier if the authority has been exhausted. Resolution 14 - General Meetings Special Resolution 14 seeks shareholder approval for the Company to hold General Meetings (other than the Annual General Meeting) on not less than at 14 working days' notice. Recommendation The Board considers that the resolutions relating to the above items of special business, are in the best interests of shareholders as a whole. Accordingly, the Board unanimously recommends to the shareholders that they vote in favour of the above resolutions to be proposed at the forthcoming Annual General Meeting as the Directors intend to do in respect of their own beneficial holdings totaling 353,718 shares. Frostrow Capital LLP, Company Secretary 25 May 2017 ANNOUNCEMENT ENDS END
(END) Dow Jones Newswires
May 25, 2017 08:24 ET (12:24 GMT)
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