LONDON STOCK EXCHANGE ANNOUNCEMENT
The Biotech Growth
Trust PLC
(the
“Company”)
Unaudited Half
Year Results For The Six Months Ended 30
September 2022
This announcement is not the Company’s Half Year Report. It is
an abridged version of the Company’s full Half Year Report for the
six months ended 30 September 2022.
This announcement contains references to graphs and charts which
appear in the full Half Year Report, which will shortly be
available on the Company’s website at www.biotechgt.com. Up to date
information on the Company, including daily NAV, share prices and
fact sheets, can also be found on the website.
The Company's Half Year Report for the six months ended
30 September 2022 has been submitted
to the UK Listing Authority, and will shortly be available for
inspection on the National Storage Mechanism (NSM) at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information please contact: Katherine Manson, Frostrow Capital LLP, 020 3709
8734
CHAIRMAN’S STATEMENT
INTRODUCTION AND RESULTS
I am pleased to present this interim report for the six months
ended 30 September 2022 and my first
report to you since being appointed Chairman on 19 July 2022. I would like to thank my
predecessor, Andrew Joy, for his
excellent stewardship of the Company during his time as
Chairman.
After a very difficult year to 31 March
2022, during which the Company’s Net Asset Value (“NAV”)
fell substantially and underperformed the NASDAQ Biotechnology
Index (the “Benchmark”), I am pleased to report that the first six
months of this year have seen the Company regain some lost ground;
the NAV per share total return^ was 9.6%, outperforming the rise of
6.8% in the Benchmark.
A number of factors contributed to this improvement in
performance, including increased levels of merger and acquisition
(“M&A”) activity and an improved regulatory and political
backdrop in the USA. A fuller
description of performance in the period is set out in the
Portfolio Manager’s Review.
The Company’s NAV also benefited from the depreciation in
sterling over the period by 15.2% against the U.S. dollar, being
the currency in which the majority of the Company’s investments are
denominated.
In addition, the presence of gearing^ over the period
contributed 0.6% to the Company’s NAV performance. While gearing
was reduced from 8.4% to 6.6% over the period and the Portfolio
Manager aims to keep gearing in the 5-10% range, they anticipate
that gearing will be at the upper end of that range in the
future.
The Company has maintained some exposure to “crossover”
investments (investments in a Company’s last private funding round
prior to an initial public offering (“IPO”)) and to Chinese
biotech. Investments in China
represented 10.3% of the portfolio as at the period end. Despite
satisfactory underlying performance, the value of these investments
fell as a result of investors’ concerns about China. The Portfolio Manager continues to
believe in the high levels of innovation found in the biotechnology
sector in China, but the difficult
local macroeconomic and regulatory environments are proving to be a
deterrent to further investment.
SHARE PRICE PERFORMANCE
The outperformance of the NAV was enhanced at the share price
level, driven by a narrowing in the discount^ of the share price to
the NAV per share. At 31 March 2022,
the discount of the share price to the NAV per share was 6.2% and
at 30 September, 5.3%. When combined with the increase in NAV, this
reduction in the discount contributed to a share price return^ over
the six months of 10.7%.
DISCOUNT AND PREMIUM MANAGEMENT
The Company’s shares continued to trade at a discount to the net
asset value per share throughout the period. Shareholders will be
aware that the Company pursues an active discount management
policy, buying back shares when the discount of the Company’s share
price to the NAV per share is higher than 6%. Accordingly, during
the period the Company bought back 1,076,286 shares, at an average
discount of 8.2% to the NAV per share, at a cost of £10.5
million.
At the period end there were 40,082,396 shares in issue and, as
previously mentioned, the share price traded at a 5.3% discount to
the NAV per share. As we have previously commented, it remains
possible for the share price discount to trade at a discount wider
than 6% for a period of days or indeed longer, particularly in
volatile markets. However, the Company remains committed to
protecting a 6% share price discount over the longer term. Since
the period end a further 61,982 shares have been bought back for
cancellation and at the time of writing the share price discount
stands at 5.7%.
PERFORMANCE FEE
At the year end, we reported that there was no provision within
the Company’s NAV for any performance fee payable at a future
calculation date. That is still the case as at the half year
end.
As explained in more detail in the Annual Report, the
performance fee is calculated quarterly and is dependent on the
long-term outperformance of the Company. 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.
OUTLOOK
While current macroeconomic conditions remain extremely
challenging, there are a number of potential catalysts for a return
to a more positive environment. These include the increase in
M&A activity, an improved political environment, and a more
benign regulatory environment in the U.S. Most importantly, in the
biotechnology sector itself, the industry pipeline is growing and
the sector continues to offer compelling innovation based on
exciting new drug technologies.
The Board shares the Portfolio Manager’s optimism for the long
term. While the current market backdrop may present some headwinds,
the Board believes that over the longer term the attractions of the
sector and the positioning of the portfolio will generate
attractive absolute and relative returns for investors.
Roger
Yates
Chairman
15 November 2022
^ Alternative Performance Measure (see Glossary)
COMPANY PERFORMANCE
KEY STATISTICS
|
As at
30 September
2022 |
As at
31 March
2022 |
% Change |
Net asset value per share |
1049.7p |
957.8p |
+9.6 |
Share price |
994.0p |
898.0p |
+10.7 |
Discount of share price to net asset
value per share^ |
5.3% |
6.2% |
|
Nasdaq Biotechnology Index (sterling
adjusted) “Benchmark” |
3,385.09 |
3,170.85 |
+6.8 |
Gearing^ |
6.6% |
8.4% |
|
Ongoing Charges (excluding
performance fees)^ |
1.2% |
1.1% |
|
Active Share* |
75.1% |
77.3% |
|
^ Alternative Performance Measure (see Glossary)
* Source: Morningstar
PORTFOLIO MANAGER’S REVIEW
GEOFF HSU
Performance
The Company’s NAV per share increased by 9.6% during the
six-month period ended 30 September
2022. This compares with a 6.8% increase in the NASDAQ
Biotechnology (the “Benchmark” or the “NBI”), measured on a
sterling adjusted basis. The devaluation of the pound versus the
U.S. dollar contributed approximately 15% of positive NAV
performance over the period.
After a difficult fiscal year for the Company, ending
31 March 2022, weakness in the
biotech sector continued in April and May, principally driven by
macroeconomic factors rather than biotech fundamentals. Investor
concerns over rising interest rates, rising inflation, and the risk
of a recession resulted in a steep correction in share prices for
unprofitable technology stocks broadly, including emerging biotech.
Valuations for emerging biotech, which had already been driven to
20-year lows, sank even further at the start of the six-month
period but appeared to bottom out in May and June. In August, drug
pricing legislation in the U.S. was passed as part of the
Democrats’ “Inflation Reduction Act”. While the bill allows for
limited drug price negotiation by Medicare starting in 2026, the
provisions appear manageable for the industry and passage of the
bill clears a longstanding political overhang for the sector. By
the end of September, the biotech sector had begun staging a
recovery from depressed levels.
The Company’s outperformance versus the Benchmark during the
review period was primarily due to outperformance of the emerging
biotech positions in the portfolio.
We have chosen to maintain our strategic tilt towards the
smaller emerging companies in the biotech sector over the larger
profitable companies because most of the innovation in biotech is
occurring in the emerging segment of the industry. As shown in
Figure 1 on page 5 of the Half Year Report, as of 31 March 2021, the beginning of the prior fiscal
year, the Company was significantly overweight small cap biotech
stocks (those with a market capitalization under U.S.$2 billion) and significantly underweight large
cap biotech (those with a market capitalization above
U.S.$10 billion) relative to the
Benchmark. Given the significant underperformance of small cap
biotech versus large cap biotech of approximately 30%, the
Company’s small cap bias has acted as a significant headwind to the
Company’s relative performance for the past 18 months. Notably, as
of 30 September 2022, the divergence
between small and large cap biotech performance had not yet
converged. Our view is that a relative performance recovery of the
small cap names is long overdue given that their absolute
valuations have declined to historical lows.
We have therefore kept our overweight positioning in small caps
and underweight positioning in large caps because we believe the
small cap stocks have the most upside potential in the near
term.
Our confidence in a small cap biotech recovery is based on two
observations. The first observation is shown in Figure 2 on page 6
of the Half Year Report, which plots the relative performance of
the XBI – an equal weighted biotech index created in 2006 which is
commonly used as a proxy for small and mid cap biotech performance
- against the S&P 500 Index. Since the XBI’s inception, one can
see that it has generally outperformed the S&P 500 over the
past 15 years, indicating that emerging biotech has generally been
a good place to invest over the long term. Over the course of that
multi-year outperformance, there have been temporary periods of
relative underperformance, denoted by the red circles in the graph,
when the XBI has underperformed the S&P 500. What is so
striking about the most recent biotech drawdown is how unusual it
is in historical context. The most recent drawdown is the largest
absolute fall of the XBI since its inception and the longest and
most severe relative drawdown the XBI versus the S&P 500.
Historically, each relative performance drawdown of the XBI versus
the S&P 500 has been followed by a strong period of relative
outperformance of the XBI (shown by the green arrows), ranging from
68-109%. Notably, all previous relative performance drawdowns have
seen a subsequent recovery to a new relative performance high. Our
expectation is that a relative performance recovery from the low of
the most recent drawdown is likely to occur in the near term.
Indeed, if one looks at the rightmost portion of the graph, it does
appear we are in the early stages of such a recovery.
The second observation giving us confidence in a small cap
biotech recovery is the fact that absolute valuations for the
emerging biotech segment are so depressed. One objective way of
valuing unprofitable biotech is to simply compare the market caps
of these companies with the net cash on their balance sheets. If
one looks at the median ratio of market cap to net cash for the
biotech industry (shown in Figure 3 on page 7 of the Half Year
Report), one observes that the current drawdown has driven sector
valuations to levels we have not seen in over 20 years. Valuations
on this metric are now below those found after the Dot Com Bust,
the Great Financial Crisis, and the Hillary Clinton drug pricing
tweet in 2015. This translates into over 25% of biotech companies
(over 150 companies) that are now trading at market caps below the
net cash on their balance sheets. We do not believe these
unprecedented valuation levels are warranted given the fundamentals
of the industry.
One of the principal factors that has clearly driven overall
market weakness – and weakness in unprofitable technology companies
in particular – is the rapid rise of interest rates in the U.S.
over the past several months. In order to combat rising inflation,
the U.S. Federal Reserve (the “Fed”) has been aggressively
increasing interest rates. By increasing the risk-free rate, these
interest rate hikes increase the discount rate investors use to
value biotech companies and reduce their discounted cash flow
value. Importantly, because most biotech companies are not heavily
dependent on debt financing, an increase in short-term rates has
very little impact on their businesses. The impact on biotech
really stems from any increase in the long end of the yield curve
increasing the discount rate. Figure 5 (on page 9 of the Half Year
Report) shows that as of 30 September
2022, the U.S. 10-year government yield had risen to
approximately 4%. Importantly, this rate already incorporates
expectations for continued Fed rate hikes in the near term through
the middle of 2023, followed by rate reductions once inflation is
brought under control. We would therefore argue that many of the
near-term rate hikes are already priced into market expectations
and should not substantially impact the 10-year rate. Given that
absolute valuations for emerging biotech are already at 20-year
lows, we would not anticipate that further interest rate increases
will significantly further depress valuations.
Many economists are now forecasting a recession in 2023.
Healthcare has generally been a defensive sector during recessions,
and we would argue that biotech as a secular growth sector should
be less impacted by an economic downturn compared to other
industries. Patient demand for drugs should not be dramatically
affected if the U.S. enters a recession.
With regards to inflation, pricing power in the drug industry
has traditionally been strong. We believe most companies will be
able to push through annual price increases on their drug sales at
least on par with inflation in order to maintain margins and offset
any inflationary pressure on costs.
The China portion of the
portfolio was also under pressure during the review period for
entirely different macro reasons. Investor concerns over a slowing
Chinese economy, China’s zero COVID policy, rising
U.S.-China tensions, and
geopolitical fears over a potential invasion of Taiwan by China led to a significant decline in Chinese
securities generally during the review period. The Hang Seng Index,
a broad market index tracking Hong
Kong listed stocks, declined over 21% in local currency
terms during the review period and sat at a 10-year low as of the
end of the September. While we continue to believe in the long-term
prospects for Chinese biotech and the Chinese government’s
unwavering commitment to promoting innovation in the sector, we
have elected to reduce our Chinese public equity exposure and shift
that capital to U.S. emerging biotech. This is a tactical shift
driven by our expectation that a recovery in U.S. emerging biotech
is likely to occur sooner than a recovery in Chinese biotech.
Contributors to Performance
The principal contributors to performance during the review
period were Syndax Pharmaceuticals, Mersana Therapeutics, Forma
Therapeutics, Sarepta Therapeutics, and Global Blood
Therapeutics.
• Syndax
Pharmaceuticals is a clinical stage oncology company developing
two drugs, one for acute myeloid leukemia and one for chronic graft
versus host disease. Both programs will have pivotal data readouts
in the second quarter of 2023. The company’s share price rose
during the review period in anticipation of those data
releases.
• Mersana
Therapeutics is a clinical stage company developing
antibody-drug conjugate therapeutics. The company’s lead asset,
UpRi is in a pivotal program in late-stage ovarian cancer that will
have data in mid-2023. The stock appreciated during the review
period after the company signed an option license with
GlaxoSmithKline for the co-development of one of Mersana’s earlier
stage assets. As part of the deal, Mersana received a $100 million upfront payment from GSK, resulting
in a re-rating of the stock.
• Forma
Therapeutics is a development stage biopharmaceutical company
focused on developing drugs to treat nonmalignant hematological
disorders. The company’s lead drug is being developed for the
treatment of sickle cell disease. In early September, Novo Nordisk
announced that it was acquiring Forma for $1.1 billion in cash, representing a 49% premium
to Forma’s closing price the previous day.
• Sarepta
Therapeutics is a commercial biotechnology company focused on
rare neuromuscular diseases. It markets three approved therapies
for Duchenne muscular dystrophy but is also developing a gene
therapy for the condition. The company’s share price rose on the
increased investor expectation that the company would be able to
obtain accelerated approval for the gene therapy in 2023.
• Global Blood
Therapeutics is a commercial stage biopharmaceutical company
focused on developing drugs to treat sickle cell disease. In early
August, Pfizer announced that it was acquiring Global Blood for
$5.4 billion in cash, representing
over a 100% premium to the company’s share price prior to rumours
of a potential deal.
Detractors from Performance
The principal detractors from performance were Horizon
Therapeutics, Jounce Therapeutics, Guardant Health, Mirati
Therapeutics, and GH Research.
• Horizon
Therapeutics is a specialty pharmaceutical company that
launched Tepezza, a treatment for thyroid eye disease, in the U.S.
in early 2020. Tepezza sales declined sharply in 2022 due to a
combination of market saturation, stricter payor coverage, and the
COVID Omicron wave. As a result, investor expectations for
long-term Tepezza sales declined, sending the stock lower.
• Jounce
Therapeutics develops immunotherapy drugs for the treatment of
cancer. Shares of the company declined after it disclosed that a
Phase 2 study in lung cancer for one of its drugs failed to meet
its primary endpoint.
• Guardant
Health is a genomics company developing liquid biopsy tests for
detecting and monitoring cancers. Shares of the company were under
pressure during the review period due to the difficult macro
environment as well as a delay in the clinical trial data release
for the company’s blood-based screening test to detect colorectal
cancer.
• Mirati
Therapeutics is a clinical-stage biopharmaceutical company
focused on the discovery and development of novel targeted oncology
treatments. Shares underperformed amid market weakness and mixed
clinical results from their lead program in second-line lung
cancer.
• GH Research
is developing a psychedelic drug for treatment-resistant
depression. The stock fell due to overall biotech sector weakness
during the review period.
IPO Market has Slowed Considerably
Unsurprisingly, the drawdown in the general markets has resulted
in a dramatic decline in the number of IPOs, as shown in Figure 6
on page 11 of the Half Year Report. Due to market conditions, none
of the Company’s crossover positions went public during the review
period. We have also stopped making new crossover investments until
the IPO market recovers. The portfolio now includes only three
crossover investments, all of which are Chinese companies. Our
current expectation is that all of them will go public by mid-2023.
Despite the decline in IPO activity, most quality biotech companies
that are already public have not had much difficulty in raising
capital, so there remains ample investor appetite for funding
biotech. Given the lower valuations of biotech generally, we have
looked to capitalize on opportunities to finance quality companies
at these new lower prices.
Passage of Drug Pricing Legislation
Clears Political Overhang
In August, the Democrats’ “Inflation Reduction Act” was signed
into law in the U.S. The law includes a number of drug pricing
provisions to help pay for the climate and energy provisions of the
legislation. There are three elements of the drug pricing reform:
1) a redesign of Medicare Part D to cap out-of-pocket costs that
seniors pay for prescription drugs (a positive for the industry);
2) an inflation cap on annual drug price increases; and 3) the
ability for the federal government to negotiate Medicare drug
prices for a limited number of drugs starting in 2026. We don’t
think the bill will have an impact on biotech in the near term and
will generally be manageable for the drug industry overall. The
spectre of drug pricing legislation has been an overhang and risk
for the biotech sector for decades. Now that this legislation has
passed, we believe it is a clearing event for the sector that will
allow the sector to re-rate. We do not expect Congress to revisit
the issue for the next several years. On 8
November 2022, midterm Congressional elections took place in
the U.S., but as of 14 November, the results of those elections had
not been completely determined. The Democrats were able to
maintain their slight majority in the Senate, with Republicans
still appearing likely to win a small majority in the House.
If Republicans gain control of the House, the prospects of any
additional drug pricing legislation are even less likely.
M&A Activity Expected to
Accelerate
We anticipated that M&A activity in the biotech sector would
increase with the recent drawdown in valuations. Development-stage
biotech companies that can complete equity financings at healthy
prices can remain independent entities to generate additional value
and are not forced to sell themselves to a larger player if the
acquisition price is deemed insufficient. Now that stock prices are
quite a bit lower, biotech companies face the unattractive prospect
of financing their programs with much more dilutive equity
offerings than they previously contemplated, making a sale to a
strategic acquiror a more palatable alternative than it was under
healthier market conditions. At the same time, the urgency for
large pharma to acquire smaller biotech companies remains elevated.
Numerous large pharma companies like Merck, Bristol-Myers Squibb,
and AbbVie are facing key patent expirations on
multi-billion-dollar blockbuster products in the 2025-2030
timeframe. These companies are highly motivated to acquire
innovative biotech products that can help them replace expected
revenue losses in the latter half of this decade. The current
market environment should therefore be conducive to accelerated
M&A activity. Figure 7 (on page 12 of the Half Year Report)
shows announced M&A transactions involving public biotech
targets each quarter since the beginning of 2018. While there is
always natural variability year to year in M&A volume, it is
encouraging that the number of announced transactions has increased
sequentially in the second and third calendar quarters of 2022,
suggestive of a pickup in M&A activity.
The Company benefited directly from two transactions during the
review period: Novo Nordisk’s acquisition of Forma Therapeutics for
$1.1 billion and Pfizer’s acquisition
of Global Blood Therapeutics for $5.4
billion. There are many other companies in the portfolio
that we believe would make attractive M&A candidates, and we
are optimistic that some of them will be acquired as well in the
months ahead.
Outlook
With valuations in emerging biotech at 20-year lows and a
drawdown in small and mid-cap biotech that has been the worst in
over 15 years, we have never seen such a compelling entry point for
long-term investors to invest in biotech. We expect the sector to
resume its historical outperformance versus the general market over
the next several years. Importantly, the fundamentals of the
industry remain strong. The industry pipeline continues to grow,
with robust innovation based on new drug development technologies
like gene therapy, cell therapy, and RNA-based therapies still in
the early stages of reaching their full potential. The regulatory
environment at the FDA remains constructive towards the approval of
new drugs, especially in areas of unmet medical need. There are
signs that M&A activity is accelerating, as large pharma
companies facing upcoming patent expirations on key products
aggressively look to acquire innovative biotech companies now
trading at inexpensive valuations. Finally, the political overhang
of drug pricing reform has now been cleared with the passage of the
Inflation Reduction Act, which we expect to have minimal impact on
biotech. Indeed, we have never seen such a dramatic disconnect
between industry fundamentals and share price performance in the
sector. While rising interest rates will continue to be a headwind
for the stock market generally, any indication of inflation
moderation could have a favorable impact on future interest rate
expectations. The portfolio will continue its overweight bias in
small cap emerging biotech versus the Benchmark, as we believe this
positioning will deliver the best returns for investors when the
long overdue recovery occurs. Gearing will remain in the 5-10%
range, though given the historically depressed valuations,
investors should expect gearing at the upper end of the range.
Although the market may continue to be challenging in the short
term, the compelling valuations in biotech give us optimism that a
recovery in the sector will eventually occur in due course.
Geoff
Hsu
OrbiMed Capital LLC
Portfolio Manager
15 November 2022
INVESTMENT PORTFOLIO
INVESTMENTS HELD AS AT 30 SEPTEMBER
2022
|
|
Fair value |
% of |
Security |
Country/Region# |
£’000 |
investments |
Argenx |
Netherlands |
21,332 |
4.7 |
Sarepta Therapeutics |
United States |
21,170 |
4.7 |
Ionis Pharmaceuticals |
United States |
21,099 |
4.7 |
BioMarin Pharmaceutical |
United States |
20,921 |
4.7 |
Syndax Pharmaceuticals |
United States |
20,386 |
4.5 |
Aclaris Therapeutics |
United States |
19,219 |
4.3 |
Mersana Therapeutics |
United States |
17,396 |
3.9 |
Neurocrine Biosciences |
United States |
17,386 |
3.9 |
Biogen |
United States |
16,122 |
3.6 |
Yisheng Biopharma* |
China |
16,059 |
3.6 |
Ten largest investments |
|
191,090 |
42.6 |
BELLUS Health |
Canada |
14,878 |
3.3 |
GH Research |
Ireland |
14,359 |
3.2 |
Xenon Pharmaceuticals |
Canada |
14,157 |
3.2 |
XtalPi* |
China |
14,068 |
3.1 |
Keros Therapeutics |
United States |
13,785 |
3.1 |
Travere Therapeutics |
United States |
10,970 |
2.4 |
Chinook Therapeutics |
United States |
10,750 |
2.4 |
KalVista Pharmaceuticals |
United States |
10,386 |
2.3 |
RAPT Therapeutics |
United States |
9,248 |
2.1 |
2seventy bio |
United States |
9,180 |
2.0 |
Twenty largest
investments |
|
312,871 |
69.7 |
Aerovate Therapeutics |
United States |
8,401 |
1.9 |
uniQure NV |
Netherlands |
7,861 |
1.8 |
ALX Oncology Holdings |
United States |
7,801 |
1.7 |
Seagen |
United States |
7,673 |
1.7 |
Compass Therapeutics |
United States |
7,295 |
1.6 |
Alnylam Pharmaceuticals |
United States |
7,074 |
1.6 |
StemiRNA Therapeutics* |
China |
6,508 |
1.4 |
Verona Pharma |
United Kingdom |
6,097 |
1.4 |
EyePoint Pharmaceuticals |
United States |
5,235 |
1.2 |
Mirum Pharmaceuticals |
United States |
4,553 |
1.0 |
Thirty largest
investments |
|
381,369 |
85.0 |
Vaxcyte |
United States |
4,235 |
0.9 |
Heron Therapeutics |
United States |
4,225 |
0.9 |
Janux Therapeutics |
United States |
4,206 |
0.9 |
MeiraGTx Holdings |
United States |
3,990 |
0.9 |
Mirati Therapeutics |
United States |
3,854 |
0.9 |
Jounce Therapeutics |
United States |
3,547 |
0.8 |
Arcus Biosciences |
United States |
3,533 |
0.8 |
CinCor Pharma |
United States |
3,498 |
0.8 |
Alphamab Oncology |
China |
2,622 |
0.6 |
Dyne Therapeutics |
United States |
2,504 |
0.6 |
Forty largest
investments |
|
417,583 |
93.1 |
Scholar Rock Holding |
United States |
2,485 |
0.6 |
Remegen |
China |
2,445 |
0.5 |
Graphite Bio |
United States |
2,409 |
0.5 |
Gracell Biotechnologies |
China |
2,339 |
0.5 |
Edgewise Therapeutics |
United States |
2,339 |
0.5 |
Kezar Life Sciences |
United States |
2,244 |
0.5 |
Magenta Therapeutics |
United States |
2,157 |
0.5 |
Prelude Therapeutics |
United States |
2,049 |
0.5 |
OrbiMed Asia Partners*† |
United States |
2,045 |
0.5 |
VectivBio Holding |
Switzerland |
1,576 |
0.3 |
Fifty largest
investments |
|
439,671 |
98.0 |
Pyxis Oncology |
United States |
1,489 |
0.3 |
Clover Biopharmaceuticals |
China |
1,292 |
0.3 |
Suzhou Basecare Medical |
China |
902 |
0.2 |
Monte Rosa Therapeutics |
United States |
860 |
0.2 |
Small Pharma |
Canada |
799 |
0.2 |
AWAKN Life Sciences |
Canada |
705 |
0.2 |
Repare Therapeutics |
Canada |
535 |
0.1 |
Galecto |
Denmark |
487 |
0.1 |
Burning Rock Biotech |
China |
392 |
0.1 |
IMARA |
United States |
381 |
0.1 |
Sixty largest
investments |
|
447,513 |
99.8 |
Longboard Pharmaceuticals |
United States |
361 |
0.1 |
Fusion Pharmaceuticals |
Canada |
270 |
0.1 |
Harpoon Therapeutics |
United States |
174 |
0.0 |
LogicBio Therapeutics |
United States |
128 |
0.0 |
AWAKN Life Sciences warrants* |
Canada |
15 |
0.0 |
Total Investments |
|
448,461 |
100.0 |
# Primary listing.
* Unquoted investment.
† Partnership interest.
PORTFOLIO BREAKDOWN
|
Fair
value |
%
of |
Investments |
£’000 |
investments |
Quoted |
|
|
Equity |
409,766 |
91.4 |
Total quoted
investments |
409,766 |
91.4 |
Unquoted |
|
|
Equities |
36,635 |
8.1 |
Warrants |
15 |
– |
Partnership
interest |
2,045 |
0.5 |
Total unquoted
investments |
38,695 |
8.6 |
Total
investments |
448,461 |
100.0 |
PRINCIPAL CONTRIBUTORS TO AND
DETRACTORS FROM NET ASSET VALUE PERFORMANCE
FOR THE SIX MONTHS ENDED 30 SEPTEMBER
2022
TOP FIVE CONTRIBUTORS
|
Contribution
for the Six months ended 30 September 2022
£’000 |
Contribution
per share (pence)* |
Syndax Pharmaceuticals |
9,451 |
23.2 |
Mersana Therapeutics |
8,774 |
21.5 |
Forma Therapeutics |
7,406 |
18.2 |
Sarepta Therapeutics |
6,866 |
16.8 |
Global Blood Therapeutics |
5,759 |
14.1 |
|
38,256 |
93.8 |
|
|
|
TOP FIVE DETRACTORS |
|
|
Horizon Therapeutics |
(5,852) |
(14.4) |
Jounce Therapeutics |
(5,153) |
(12.6) |
Guardant Health |
(4,882) |
(12.0) |
Mirati Therapeutics |
(4,592) |
(11.2) |
GH Research |
(4,555) |
(11.2) |
|
(25,034) |
(61.4) |
* based on 40,781,100 Shares being the weighted average number
of shares in issue during the six months ended 30 September
2022
CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER
2022
|
|
|
(Unaudited)
Six months ended 30 September 2022 |
|
(Unaudited)
Six months ended 30 September 2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Investment income |
2 |
299 |
– |
299 |
587 |
– |
587 |
Gains/(losses) on investments held
at fair value through profit or loss |
|
|
44,507 |
44,507 |
– |
(57,118) |
(57,118) |
Exchange losses on currency
balances |
|
|
(5,293) |
(5,293) |
– |
(888) |
(888) |
AIFM, portfolio management and
performance fees |
3 |
(91) |
(1,731) |
(1,822) |
(134) |
8,191 |
8,057 |
Other expenses |
|
(371) |
(18) |
(389) |
(310) |
– |
(310) |
(Loss)/return before finance
costs and taxation |
|
(163) |
37,465 |
37,302 |
143 |
(49,815) |
(49,672) |
Finance costs |
|
(14) |
(258) |
(272) |
(4) |
(78) |
(82) |
(Loss)/return before
taxation |
|
(177) |
37,207 |
37,030 |
139 |
(49,893) |
(49,754) |
Taxation |
|
(39) |
– |
(39) |
(73) |
– |
(73) |
(Loss)/return for the
period |
|
(216) |
37,207 |
36,991 |
66 |
(49,893) |
(49,827) |
Basic and diluted (loss)/earnings
per share |
4 |
(0.5)p |
91.2p |
90.7p |
0.2p |
(119.7)p |
(119.5)p |
The Company does not have any income or expenses which are not
included in the profit or loss for the period. Accordingly the
“profit for the period” is also the “Total Comprehensive Income for
the period”, as defined in IAS 1 (revised) and no separate
Statement of Other Comprehensive Income has been presented.
The “Total” column of this statement is the Company’s Income
Statement, prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act
2006 as applicable to companies reporting under those standards.
The “Revenue” and “Capital” columns are supplementary to this and
are prepared under guidance published by the Association of the
Investment Companies.
All items in the above statement are from continuing
operations.
CONDENSED STATEMENT OF CHANGES IN
EQUITY
(UNAUDITED) SIX MONTHS ENDED 30 SEPTEMBER
2022
|
Ordinary
Share
capital
£’000 |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Capital
reserve
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
At 31 March 2022 |
10,289 |
79,951 |
13,141 |
291,231 |
(404) |
394,208 |
Net profit/(loss) for the
period |
– |
– |
– |
37,207 |
(216) |
36,991 |
Repurchase of own shares for
cancellation |
(269) |
– |
269 |
(10,465) |
– |
(10,465) |
At 30 September 2022 |
10,020 |
79,951 |
13,410 |
317,973 |
(620) |
420,734 |
(UNAUDITED) SIX MONTHS ENDED 30 SEPTEMBER
2021
|
Ordinary
Share
capital
£’000 |
Share
premium
account
£’000 |
Capital
redemption
reserve
£’000 |
Capital
reserve
£’000 |
Revenue
reserve
£’000 |
Total
£’000 |
At 31 March 2021 |
10,396 |
77,895 |
12,997 |
500,594 |
(415) |
601,467 |
Net (loss)/profit for the
period |
– |
– |
– |
(49,893) |
66 |
(49,827) |
Issue of new shares |
37 |
2,056 |
– |
– |
– |
2,093 |
Repurchase of own shares for
cancellation |
(28) |
– |
28 |
(1,396) |
– |
(1,396) |
At 30 September 2021 |
10,405 |
79,951 |
13,025 |
449,305 |
(349) |
552,337 |
CONDENSED STATEMENT OF FINANCIAL
POSITION
AS AT 30 SEPTEMBER 2022
|
Notes |
(Unaudited)
30 September
2022
£’000 |
(Audited)
31 March
2022
£’000 |
Non current assets |
|
|
|
Investments held at fair value
through profit or loss |
|
448,461 |
427,399 |
Current assets |
|
|
|
Other receivables |
|
25 |
49 |
|
|
25 |
49 |
Total assets |
|
448,486 |
427,448 |
Current liabilities |
|
|
|
Other payables |
|
2,292 |
1,499 |
Loan facility |
|
25,460 |
31,741 |
|
|
27,752 |
33,240 |
Net assets |
|
420,734 |
394,208 |
Equity attributable to equity
holders |
|
|
|
Ordinary share capital |
|
10,020 |
10,289 |
Share premium account |
|
79,951 |
79,951 |
Capital redemption reserve |
|
13,410 |
13,141 |
Capital reserve |
|
317,973 |
291,231 |
Revenue reserve |
|
(620) |
(404) |
Total equity |
|
420,734 |
394,208 |
Net asset value per
share |
5 |
1,049.7p |
957.8p |
CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER
2022
|
(Unaudited)
Six months ended
30 September 2022
£’000 |
(Unaudited)
Six months ended
30 September 2021
£’000 |
Operating activities |
|
|
Profit/(loss) before taxation* |
37,030 |
(49,754) |
Finance costs |
272 |
82 |
(Gains)/losses on investments held
at fair value through profit & loss |
(45,419) |
56,601 |
Transaction costs |
912 |
517 |
Foreign exchange losses |
5,293 |
888 |
Decrease in other receivables |
24 |
6 |
Increase/(decrease) in other
payables |
114 |
(17,852) |
Taxation paid |
(39) |
(73) |
Net cash outflow from operating
activities |
(1,813) |
(9,585) |
Investing activities |
|
|
Purchases of investments |
(254,895) |
(253,367) |
Sales of investments |
278,800 |
273,617 |
Transaction costs |
(912) |
(517) |
Net cash inflow from investing
activities |
22,993 |
19,733 |
Financing activities |
|
|
Repurchase of own shares for
cancellation |
(9,334) |
(1,396) |
Gross proceeds from the issue of
shares |
– |
2,093 |
Net repayment of the loan
facility |
(11,574) |
(8,394) |
Finance costs - interest paid |
(272) |
(82) |
Net cash outflow from financing
activities |
(21,180) |
(7,779) |
Net increase in cash and cash
equivalents |
– |
2,369 |
Cash and cash equivalents at start
of period |
– |
1,502 |
Cash and cash equivalents at end
of period |
– |
3,871 |
* Includes dividends earned during the period of £299,000 (six
months ended 30 September 2021:
£532,000) and bond income of £nil (six months ended 30 September 2021: £55,000).
CHANGES IN LIABILITIES ARISING FROM
FINANCING ACTIVITIES
|
(Unaudited)
Six months ended
30 September 2022
£’000 |
(Unaudited)
Six months ended
30 September 2021
£’000 |
Balance as at start of period |
31,741 |
26,779 |
Net cash flow on the loan
facility |
(11,574) |
(8,394) |
Foreign exchange losses |
5,293 |
888 |
Loan balance |
25,460 |
19,273 |
NOTES TO THE FINANCIAL STATEMENTS
1.A) GENERAL INFORMATION
The Biotech Growth Trust PLC is a company incorporated and
registered in England and
Wales. The Company operates as an
investment company within the meaning of Section 833 of the
Companies Act 2006 and has made a successful application under
Regulation 5 of the Investment Trust (Approved Company) (Tax)
Regulations 2011 for investment trust status to apply to all
accounting periods commencing on or after 1
April 2012.
1.B) BASIS OF PREPARATION
The Company’s condensed financial statements for the six months
ended 30 September 2022 have been
prepared in accordance with IAS 34 “Interim Financial Reporting”.
They do not include all the financial information required for the
full annual financial statements and have been prepared using
accounting policies adopted in the audited financial statements for
the year ended 31 March 2022. Those
financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”).
The Directors have sought to prepare the financial statements in
compliance with 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”), dated July
2022.
The Company’s financial statements are presented in sterling and
all values are rounded to the nearest thousand pounds (£’000)
except when otherwise indicated.
The financial statements have not been audited by the Company’s
auditors.
1.C) SEGMENTAL REPORTING
IFRS 8 requires entities to define operating segments and
segment performance in the financial statements based on
information used by the Board of Directors. The Directors are of
the opinion that the Company is engaged in a single segment of
business, being investment business.
1.D) 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 at least 12
months from the date of the approval of the financial statements.
The next continuation vote of the Company will be held at the
Annual General Meeting in 2025 and further opportunities to vote on
the continuation of the Company will be given to shareholders every
five years thereafter.
2. INCOME
|
(Unaudited)
Six months ended
30 September 2022
£’000 |
(Unaudited)
Six months ended
30 September 2021
£’000 |
Investment income |
|
|
Overseas dividend income |
299 |
532 |
Bond income |
– |
55 |
Total income |
299 |
587 |
3. AIFM, PORTFOLIO MANAGEMENT AND
PERFORMANCE FEES
|
Revenue
£’000 |
Capital
£’000 |
Total
(Unaudited)
Six months ended
30 September 2022
£’000 |
Revenue
£’000 |
Capital
£’000 |
Total
(Unaudited)
Six months
ended
30 September
2021
£’000 |
AIFM fee |
27 |
524 |
551 |
40 |
757 |
797 |
Portfolio management fee – OrbiMed
Capital LLC |
64 |
1,207 |
1,271 |
94 |
1,781 |
1,875 |
Performance fee |
– |
– |
– |
– |
(10,729) |
(10,729) |
|
91 |
1,731 |
1,822 |
134 |
(8,191) |
(8,057) |
As at 30 September 2022, no
performance fees were accrued or payable. During the six months
ended 30 September 2021, due to
underperformance against the Benchmark and in accordance with the
performance fee arrangements in place, prior period provisions of
£10,729,000 were reversed.
For further details on the performance fee arrangements see
pages 46 and 47 of the Company’s 2022 Annual Report.
4. BASIC AND DILUTED (LOSS)/EARNINGS
PER SHARE
|
(Unaudited)
Six months ended
30 September
2022
£’000 |
(Unaudited)
Six months ended
30 September
2021
£’000 |
The (loss)/earnings per share is
based on the following figures: |
|
|
Net revenue (loss)/return |
(216) |
66 |
Net capital return/(loss) |
37,207 |
(49,893) |
Net total return/(loss) |
36,991 |
(49,827) |
Weighted average number of shares in
issue during the period |
40,781,100 |
41,693,267 |
|
|
|
|
Pence |
Pence |
Revenue (loss)/earnings per
share |
(0.5) |
0.2 |
Capital earnings/(loss) per
share |
91.2 |
(119.7) |
Total earnings/(loss) per share |
90.7 |
(119.5) |
5. NET ASSET VALUE PER SHARE
The net asset value per share is based on the net assets
attributable to equity shareholders of £420,734,000 (31 March 2022: £394,208,000) and on 40,082,396
shares (31 March 2022: 41,158,682)
being the number of shares in issue at the period end.
6. TRANSACTION COSTS
Purchase and sale transaction costs for the six months ended
30 September 2022 amounted to
£912,000 (six months ended 30 September
2021: £517,000); broken down as follows: purchase
transactions for the six months ended 30
September 2022 amounted to £411,000 (six months ended
30 September 2021: £201,000). Sale
transactions amounted to £501,000 (six months ended
30 September 2021: £316,000). These costs comprise mainly
commission.
7. INVESTMENTS
IFRS 13 requires the Company to classify fair value measurements
using the fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value
hierarchy consists of the following three levels:
• Level 1 – quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
• Level 2 – inputs
other than quoted prices included with Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
• Level 3 – inputs for
the asset or liability that are not based on observable market data
(unobservable inputs).
At 30 September 2022 the
investments in OrbiMed Asia Partners LP Fund (the LP Fund), XtalPi,
StemiRNA and Yisheng Biopharma have been classified as Level 3 (see
Level 3 reconciliation below).
The LP Fund is valued quarterly by OrbiMed Advisors LLC and is
audited annually by KPMG LLP. As the 30
September 2022 valuation is not yet available, the LP Fund
has been valued at its net asset value as at 30 June 2022. It is believed that the value of
the LP Fund as at 30 September 2022
will not be materially different. If the value of the LP Fund were
to increase or decrease by 10%, while other variables had remained
constant, the return and net assets attributable to shareholders
for the period ended 30 September
2022 would have increased or decreased by £205,000 (year
ended 31 March 2022: £209,000).
The following investments have been valued by the Board
following recommendations made by the Valuation Committee which has
reviewed in detail both the valuations and the methodologies
provided by Kroll, an independent valuer.
StemiRNA, XtalPi and Yisheng Biopharma have been valued using
the probability-weighted expected returns methodology and are
classified as Level 3. If the value of these investments were to
increase or decrease by 10%, while all other variables remain
constant, the return attributable to shareholders for the period
ended 30 September 2022 would have
increased or decreased by £3,664,000 (year ended 31 March 2022: £3,218,000).
Awakn Life Sciences warrants have been classified as Level 2 at
the period end. If the value of the warrants were to increase or
decrease by 10%, the return and net assets attributable to
shareholders would have increased or decreased by £1,500.
The table overleaf sets out fair value measurements of financial
assets in accordance with the IFRS13 fair value hierarchy
system:
(UNAUDITED) SIX MONTHS ENDED 30 SEPTEMBER
2022
|
Level
1
£’000 |
Level
2
£’000 |
Level
3
£’000 |
Total
£’000 |
Equity investments |
409,766 |
– |
36,635 |
446,401 |
Warrants |
– |
15 |
– |
15 |
Partnership interest in LP Fund |
– |
– |
2,045 |
2,045 |
Total |
409,766 |
15 |
38,680 |
448,461 |
(AUDITED) YEAR ENDED 31 MARCH
2022
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
Equity investments |
393,169 |
– |
32,178 |
425,347 |
Warrants |
– |
303 |
– |
303 |
Partnership interest in LP Fund |
– |
– |
1,749 |
1,749 |
Total |
393,169 |
303 |
33,927 |
427,399 |
LEVEL 3 RECONCILIATION
Please see below a reconciliation disclosing the changes during
the six months for the financial assets and liabilities, designated
at fair value through profit or loss, classified as being Level
3.
|
(Unaudited)
Six months ended
30 September
2022
£’000 |
(Audited)
Year ended
31 March
2022
£’000 |
Assets as at beginning of
period |
33,927 |
37,483 |
Purchase of unquoted
investments |
– |
13,266 |
Sale of unquoted investments |
– |
(40) |
Net movement in investment holding
gains during the period/year |
4,753 |
2,843 |
Transfer from level 3 to level
1 |
– |
(19,625) |
Assets as at 30 September/31
March |
38,680 |
33,927 |
8. PRINCIPAL RISKS PROFILE
The principal risks which the Company faces from its financial
instruments are:
i) market price risk,
including currency risk, interest rate risk and other price
risk;
ii) liquidity risk; and
iii) credit risk.
Market price risk – This is the risk that the fair value
or future cash flows of a financial instrument held by the Company
may fluctuate because of changes in market prices. This market risk
comprises three elements – currency risk, interest rate risk and
other price risk.
Liquidity risk – This is the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities.
Credit risk – This is the risk that the counterparty to a
transaction fails to discharge its obligations under that
transaction, which could result in the Company suffering a
loss.
Details of the Company’s management of these risks can be found
in note 14 in the Company’s 2022 Annual Report.
There have been no changes to the management of or the exposure
to these risks since the date of the Annual Report.
9. RELATED PARTY TRANSACTIONS
There have been no changes to the related party arrangements or
transactions as reported in the Annual Report for the year ended
31 March 2022.
10. CREDIT RISK
J.P. Morgan Securities LLC (J.P. Morgan) may take assets with a
value of up to 140% of the Company’s loan facility as collateral.
Such assets held by J.P. Morgan are available for
rehypothecation*.
* See Glossary.
As at 30 September 2022, the
maximum value of assets available for rehypothecation was
£35.6 million being 140% of the loan balance (£25.5 million)
(31 March 2022: £44.4 million).
11. COMPARATIVE INFORMATION
The financial information contained in this half year report
does not constitute statutory accounts as defined in sections 434
to 436 of the Companies Act 2006. The financial information for the
six months ended 30 September 2022
and 2021 has not been audited by the Company’s auditor.
The information for the year ended 31
March 2022 has been extracted from the latest published
audited financial statements. The audited financial statements for
the year ended 31 March 2022 have
been filed with the Registrar of the Companies. The report of the
Company’s auditor on those accounts was unqualified, did not
include a reference to any matters to which the Company’s auditor
drew attention by way of emphasis without qualifying the report and
did not contain statements under section 498(2) or 498(3) of the
Companies Act 2006.
INTERIM MANAGEMENT REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
A review of the half year, including reference to the risks and
uncertainties that existed during the period and the outlook for
the Company can be found in the Chairman’s Statement and in the
Portfolio Manager’s Review. The principal risks faced by the
Company fall into the following broad categories: objective and
strategy; share price volatility and the level of discount/premium;
portfolio performance; portfolio management key person risk;
operational and regulatory risk (including cyber risk); market
price risk; valuation risk; climate change; liquidity risk;
shareholder profile; currency risk; the risk associated with the
Company’s loan facility; and credit risk. Information on each of
these areas is given in the Strategic Report/ Business Review
within the Annual Report for the year ended 31 March 2022. The Company’s principal risks and
uncertainties have not changed materially since the date of that
report and are not expected to change materially for the remaining
six months of the Company’s financial year, although Russia’s
invasion of Ukraine and the
ensuing war, together with increasing tensions between the West and
China, have brought the
geopolitical aspect of market risk into greater focus.
The Board, the AIFM and the Portfolio Manager discuss and
identify emerging risks as part of the risk identification process
and have considered, amongst other things, the potential effects of
the economic slowdown in China and
ongoing global supply chain disruption on the Company’s
performance.
RELATED PARTY TRANSACTIONS
During the first six months of the current financial year, no
transactions with related parties have taken place which have
materially affected the financial position or the performance of
the Company.
GOING CONCERN
The Directors believe, having considered the Company’s
investment objective, risk management policies, capital management
policies and procedures, the nature of the portfolio and
expenditure projections, that the Company has adequate resources,
an appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the
foreseeable future and, more specifically, that there are no
material uncertainties relating to the Company that would prevent
its ability to continue in such operational existence for at least
twelve months from the date of the approval of this half yearly
financial report. For these reasons, they consider there is
reasonable evidence to continue to adopt the going concern basis in
preparing the financial statements.
DIRECTORS’ RESPONSIBILITIES
The Board of Directors confirms that, to the best of its
knowledge:
(i) the condensed set of
financial statements contained within the Half Year Report have
been prepared in accordance with applicable International
Accounting Standards (IAS) 34; and
(ii) the interim management report
includes a true and fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure
Guidance and Transparency Rules, being an indication of important
events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure
Guidance and Transparency Rules, being related party transactions
that have taken place in the first six months of the current
financial year and that have materially affected the financial
position or performance of the entity during that period; and any
changes in the related party transactions described in the last
annual report that could do so.
The Half Year Report has not been audited by the Company’s
auditors.
This Half Year Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the date of
this report and such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
For and on behalf of the Board
Roger
Yates
Chairman
15 November 2022
GLOSSARY OF TERMS AND ALTERNATIVE
PERFORMANCE MEASURES
AIC
Association of Investment Companies.
ALTERNATIVE INVESTMENT FUND MANAGERS
DIRECTIVE (“AIFMD”)
Agreed by the European Parliament and the Council of the
European Union and transposed 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.
ALTERNATIVE PERFORMANCE MEASURE
(“APMs”)
An APM is a numerical measure of the Company’s current,
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial framework. In selecting these APMs, the
Directors considered the key objectives and expectations of typical
investors in an investment trust such as the Company. Definitions
of the terms used and the basis of calculation are set out in this
Glossary and the APMs are indicated with a caret (^).
ACTIVE SHARE
Active Share is expressed as a percentage and shows the extent
to which a fund’s holdings and their weightings differ from those
of the fund’s benchmark index. A fund that closely tracks its index
might have a low Active Share of less than 20% and be considered
passive, while a fund with an Active Share of 60% or higher is
generally considered to be actively managed.
CROSSOVER INVESTMENTS
Investments in a company’s last private round prior to an
initial public offering (“IPO”).
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.
|
Pages |
As at
30 September
2022
pence |
As at
31 March
2022
pence |
Share price |
3 |
994.0 |
898.0 |
Net asset value per share
(see note 5 on page 24 for further information) |
3 |
1,049.7 |
957.8 |
Discount of share price to net asset
value per share |
3 |
5.3% |
6.2% |
DRAWDOWN
A measure of downside volatility, a drawdown refers to how much
an investment or sector is down from the peak before it recovers
back to the peak.
GEARING^
Gearing represents prior charges, adjusted for net current
liabilities, expressed as a percentage of net assets. Prior charges
includes all loans for investment purposes.
|
Pages |
As at
30 September 2022
£’000 |
As at
31 March 2022
£’000 |
Loan facility |
20 |
25,460 |
31,741 |
Net current liabilities (excluding
loan) |
– |
2,267 |
1,450 |
|
|
27,727 |
33,191 |
Net assets |
20 |
420,734 |
394,208 |
Gearing |
3 |
6.6% |
8.4% |
NET ASSET VALUE (“NAV”)
The value of the Company’s assets, principally investments made
in other companies and cash being held, minus any liabilities. The
NAV is also described as ‘shareholders’ funds’. The NAV is often
expressed in pence per share after being divided by the number of
shares which are in issue at the relevant date. 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.
NAV PER SHARE TOTAL RETURN^
The NAV per share total return for the period ended 30 September 2022 is calculated by taking the
percentage movement from the NAV per share as at 31 March 2022 of 957.8p (31 March 2021: 1,446.4p) to the NAV at
30 September 2022 of 1,049.7p (30
September 2021: 1,327.0p). The Company has not paid any
dividends to shareholders during the period.
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.
|
Pages |
As at
30 September 2022
£’000 |
As at
31 March 2022
£’000 |
AIFM and portfolio management
fees* |
– |
3,816 |
4,734 |
Operating expenses* |
– |
665 |
678 |
Total expenses* |
– |
4,481 |
5,412 |
Average daily net assets for the
period/year |
– |
388,909 |
507,333 |
Ongoing charges |
3 |
1.2% |
1.1% |
* Estimated expenses for the year ending 31 March 2023 based on assets as at 30 September 2022.
OTC EQUITY SWAPS
Over-the-Counter (“OTC”) refers to the process of how securities
are traded via a broker - dealer network, as opposed to a
centralised exchange.
An equity swap is an agreement where one party (counterparty)
transfers the total return of an underlying equity position to the
other party (swap holder) in exchange for a payment of the
principal, and interest for financed swaps, at a set date. Total
return includes dividend income and gains or losses from market
movements. The exposure of the holder is the market value of the
underlying equity position.
There are two main types of equity swaps:
• Funded – where
payment is made on acquisition. They are equivalent to holding the
underlying equity position with the exception of additional
counterparty risk and not possessing voting rights in the
underlying; and
• Financed – where
payment is made on maturity. As there is no initial outlay,
financed swaps increase exposure by the value of the underlying
equity position with no initial increase in the investments value –
there is therefore embedded leverage within a financed swap due to
the deferral of payment to maturity.
REHYPOTHECATION
Rehypothecation is the practice by banks and brokers of using
collateral posted as security for loans as regulated by the U.S.
Securities Exchange Commission.
SHARE PRICE TOTAL RETURN^
The share price total return for the period ended 30 September 2022 is calculated by taking the
percentage movement from the share price as at 31 March 2022 of 898.0p (31 March 2021: 1,426.0p) to the share price as at
30 September 2022 of 994.0p
(31 September 2021: 1,206.0p). The
Company has not paid any dividends to shareholders during the
period.
^ Alternative Performance Measure
15 November 2022
Frostrow Capital LLP
Company Secretary
END