Int.biotech. Regulatory News (IBT)

Annual Financial Report Announcement of Audited Results for the year ended 31 August 2019

This announcement contains regulated information.

The information contained in this Annual Financial Report Announcement, including the 31 August 2018 comparatives, has been prepared in accordance with International Financial Reporting Standards (IFRS) and those parts of the Companies Act 2006 (the Act) applicable to companies reporting under IFRS. These comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU). The results for the year ended 31 August 2019 are audited but do not constitute statutory accounts as defined in Section 434 of the Act. The statutory accounts have not yet been delivered to the Registrar of Companies. Full statutory accounts for the year ended 31 August 2018 included an unqualified audit report and have been filed with the Registrar of Companies.

Fund Facts

Year ended 31 August 2019

PERFORMANCE

All sterling-adjusted and on a total return basis (with all dividends reinvested).

FINANCIAL HIGHLIGHTS

* Calculated in accordance with the Association of Investment Companies (the AIC) guidance. Based on total expenses excluding finance costs and performance fee and expressed as a percentage of average daily net assets. The ratio including performance fee has also been provided, in line with the AIC recommendations. From 3 January 2018, the research costs under MiFID II borne by the Company is included in the ongoing charges calculation.

** Includes Management fees paid to SV Health Investors LLP directly from investment in SV Fund VI of £526,000 (2018: £503,000).

TOP 30 INVESTMENTS BY % of NAV

Outlook

Q&A with Investment Managers Carl Harald Janson, Ailsa Craig and Marek Poszepczynski

The Company's Investment Managers, Carl Harald Janson, Ailsa Craig and Marek Poszepczynski, highlight the strength of the underlying drivers of the biotechnology sector and explain how they're positioning the Company to take advantage.

How has the sector changed over the past 12 months?

It has certainly been an interesting 12 months for the sector! There have been a number of large mergers & acquisitions (M&A) transactions, some high-profile failures, but also a large number of successful drug approvals and drug launches. The long-term outlook remains positive but the debates between Democratic presidential nominees have dragged healthcare spending back into the spotlight. We expect it will remain a topical issue going into the US election next autumn and it is one of the key reasons why the sector is currently out of favour. But we believe the chances of any government implementing industry-damaging reforms are low - while Medicare-for-all sounds like a great idea, there is no viable plan for rolling it out.

Do you think Brexit will impact the sector at all?

The majority of our portfolio companies are US companies with products marketed all over the world, so in that respect we expect the impact to be minimal. That said, over 90% of the portfolio is US dollar-denominated. Since we don't hedge any currency exposure, the NAV will continue to be affected by any volatility in the exchange rate between sterling and the US dollar.

What about the longer-term outlook?

The underlying drivers are as strong as ever. Over 55s account for 55% of US healthcare spend. Globally, the number of over 55s is set to double in the next thirty years, so spending on the treatments and drugs must increase too.

Will companies in the biotechnology sector be able to meet this increasing demand?

Yes, absolutely. Luckily for all of us, the unstoppable force of scientific innovation continues to churn out better treatments to help people overcome disease and live longer. Last year the FDA approved a record 59 new drugs whilst a record number of clinical trials were registered, almost double the number ten years ago. We expect this direction of travel to continue over the next decade and a half as supply keeps pace with demand.

Where is the most exciting part of the market, in terms of drug development?

Oncology and rare diseases are both exciting areas. In oncology, treatment options have multiplied beyond imagination over the last 20 years, yet each year we continue to see better, more-targeted therapies. The treatment of rare diseases is an area that has progressed so much in recent years. A significantly increased understanding of the biology of complex diseases coupled with the pricing power of these unique and innovative treatments means that diseases that once killed can now be cured. This rapid rate of development shows no sign of slowing.

Do you position the portfolio to take advantage of this?

Oncology and rare diseases are our top therapeutic categories but that's because we have analysed these companies and believe in their long-term growth potential. Our stock selection process is bottom up, but the higher weightings of these sub-sectors in our portfolio is reflective of the value we think they represent.

You mentioned the M&A transactions this year, do you think this will continue?

M&A is a hallmark of biotechnology and pharmaceuticals. As large companies struggle to maintain earnings growth, small companies are busy discovering and developing the next new innovative treatment. The problem is that small companies don't have the platforms from which to launch that treatment. That's why two-thirds of drug development takes place in small companies, but two-thirds of distribution takes place in large companies. Eight of the stocks in the Company's portfolio were acquired in the last 18 months, with investors repeatedly benefitting from the premium paid by acquiring companies.

Environmental, Social and Governance factors are increasingly important considerations for many investors. How does biotechnology lend itself to responsible investing?

Over the last five years there has been a revolution in responsible investing, with a growing number of investors embedding this approach into their portfolios. While it's quite straightforward to select companies with a good environmental and governance record, selecting those with a strong social agenda is more difficult. Investing in biotechnology is an effective way to ensure your capital will benefit society. The healthcare sector has a unique contract with policy makers and consumers. Periods of patent exclusivity incentivises the industry to find new drugs which treat unmet needs. Once those patents expire, however, these new therapies are often available for cents in the dollar in perpetuity.

CARL HARALD JANSON | Lead Investment Manager

AILSA CRAIG | Investment Manager

MAREK POSZEPCZYNSKI | Portfolio Manager

28 October 2019

Chairman's Statement

Summary

I am pleased to present the Company's Annual Report for the year ended 31 August 2019.

In difficult markets, the Company has performed well over the financial year. The Company's NAV per share and share price returned -6.8% and -2.1% respectively, whilst the NBI returned -9.8% and the FTSE All-Share Index returned 0.4%. All figures are on a total return basis, including costs and assuming dividends reinvested, and are sterling-adjusted.

Not only did the Company outperform the NBI on both a NAV per share and share price basis, but the Company successfully narrowed the discount during the year, ending the year trading at a premium to NAV.

The financial year also marked 25 years since the Company's inception, and I am very proud to be Chairman of a Company with such a long and distinguished history of creating Shareholder value.

Quoted portfolio

The quoted portfolio returned -8.6%, outperforming the benchmark in an extremely volatile period. Negative returns are always disappointing but this has largely been driven by macroeconomic and political factors such as Brexit, the China-US trade dispute and rising tensions in the Middle East. The Fund Manager has positioned the portfolio cautiously away from small cap companies with financing risk, and further diversified the portfolio holdings to ensure the Company is not exposed to unnecessary risk during volatile periods. The Fund Manager's Review below contains a more detailed review of market conditions.

Unquoted portfolio

The Company continues to enjoy success through its access to an unquoted element of biotechnology, a unique differentiating feature allowing investors access to the full spectrum of this exciting sector. Our unquoted portfolio continues to perform well and has easily outperformed the NBI over the long-term.

We are now 68.7% invested of our $30m commitment to SV Life Sciences Fund VI (SV Fund VI). Following SV Fund VI's latest quarterly valuation report, our average investment has an IRR of 16.6%. During the year, SV Fund VI made three distributions to the Company after successfully exiting investments, as some of these impressive gains were realised.

Our directly-held unquoted portfolio continues to yield positive results, with the approval of Ikano's Nayzilam Nasal Spray and the performance of Kalvista being particular highlights. Overall, the unquoted portfolio generated a return of

16.3%.

While we continue to expect the valuation of SV Fund VI to increase, a number of investments within the directly-held

unquoted portfolio are now reaching exit, meaning the gains achieved will be realised. As a result, the Board expects unquoted assets to remain within the guideline range of 5-15% of total investments.

Dividends, buybacks, share issuance and discount

I am pleased to report that the Company's fifth and sixth dividend payments were made during the financial year. We paid out a dividend equal to 4% of NAV as at 31 August 2018 in two equal tranches on 31 January 2019 and 31 August 2019, equating to a 4.1% increase when compared with dividend payments in the previous year.

In accordance with the Shareholder Circular dated 13 September 2016 and as a matter of best practice, the Board will be seeking Shareholder approval to continue the payment of dividends and a resolution will be put to Shareholders at the forthcoming Annual General Meeting (AGM).

Since the announcement of our policy changes and the introduction of the dividend in September 2016, no buybacks have been required for discount management purposes. Indeed, the discount moved from a 2.7% discount at the previous year-end to a premium of 1.9% at 31 August 2019. The long-term outperformance of the benchmark, combined with the outperformance of our competitors in more recent times, have resulted in an increased demand for the Company's shares, allowing the Company to re-issue shares from treasury equivalent to 2.6% of NAV in the financial year.

The Company was not required to buy back shares to protect its discount during the year, but the Board remains committed to protecting Shareholder value should the need arise.

Performance fee

The unquoted portfolio gave rise to a performance fee of £970,000 for the year ended 31 August 2019 (2018: £93,000). The performance fee is significantly higher than in the previous year, largely because of realised gains on the sale of Kalvista and TransEnterix.

Board of Directors

The Board has set a policy on tenure that in normal circumstances, Directors will retire at the AGM in their 10th year of service. Taking this policy into account, the Nomination Committee carried out a process to agree a succession plan for future years. As part of this, I intend to retire at the conclusion of the AGM to be held in December 2020 and it is expected that Dr Bouchet will retire shortly thereafter. Accordingly, a recruitment process has begun to identify potential candidates to succeed both Dr Bouchet and me.

AGM

This year's AGM will be held at 2.30 pm on Wednesday, 11 December 2019 at the offices of BNP Paribas Securities Services S.C.A., 10 Harewood Avenue, London, NW1 6AA. In addition to the formal process of voting on various resolutions, the AGM is an opportunity for Shareholders to meet the Board and representatives of the Alternative Investment Fund Manager, SV Health Managers LLP, who will present to Shareholders.

Our regular biennial continuation vote required by the Company's Articles of Association will be put to Shareholders at the AGM. The Company has received positive feedback from major Shareholders throughout the year and my fellow Directors and I strongly recommend that Shareholders vote in favour.

If you have any detailed or technical questions, it would be helpful if you could raise these in advance of the Meeting by emailing the Company Secretary at secretarialservice@uk.bnpparibas.com or in writing to BNP Paribas Secretarial Services Limited, 10 Harewood Avenue, London, NW1 6AA. Shareholders who are unable to attend the AGM are encouraged to use their proxy votes. I look forward to welcoming as many of you as possible to the Meeting.

JOHN ASTON OBE | Chairman

28 October 2019

Summary

In the year ended 31 August 2019, the Company's NAV per share returned -6.8%. The Company's share price returned -2.1%. The NBI returned -9.8% and the FTSE All-Share Index returned 0.4%. All figures are on a total return basis, including costs and assuming dividends reinvested, and are sterling-adjusted.

By subsector, 83% of NAV was invested in therapeutics, 2% in specialty pharmaceuticals, 2% in medical devices, 3% in life science tools, diagnostics and services, and 9% in a venture capital fund, SV Fund VI. SV Fund VI makes investments into unquoted companies across three sectors; biotechnology (40%), healthcare services and IT (40%) and medical devices (20%). Cash and other net assets were 1% of NAV.

Overview and Performance

* Excluding unquoted companies fully written off (2019: 8; 2018: 7)

** Including SV Fund VI as one unquoted holding.

At 31 August 2019, for financial reporting, the quoted portfolio represented 85.2% of NAV (excluding cash and other net assets) at £202.2m. The unquoted portfolio represented 14.8% of NAV at £35.2m. For the purposes of performance measurement companies that were first invested in from the unquoted pool and have now become quoted but continue to be managed by the unquoted Investment Managers are included within the unquoted portfolio.

Quoted Portfolio

The return on the quoted portfolio was -8.6%, which outperformed the benchmark index, the NBI, by 1.2% compared with the NBI total return of -9.8%.

We are pleased to have outperformed the benchmark period over the financial year, particularly given the difficult macroeconomic conditions with which we were presented.

The first half of the financial year generated much of the year's negative return. First, almost all world equity indices posted losses during the first four months of the year. The prospect of rising interest rates, the US mid-term elections, the US-China trade dispute and the anticipation of the end of the economic cycle could all be cited as reasons. Thankfully, markets posted a strong recovery as investor confidence returned in January 2019. This broad market recovery has largely continued throughout 2019 but the biotechnology sector has been unable to participate for a number of reasons. Although, the Democratic Presidential Candidate selection process ensured healthcare, and in particular drug pricing, remained front page news, a handful of high-profile clinical trial failures have done little to boost Wall Street's confidence in the sector. We therefore believe companies in the sector are undervalued and it would appear that acquiring companies think the same. However, the Company benefitted from three sector M&A transactions, which led to the portfolio's outperformance of the NBI.

M&A Deals

Three portfolio holdings were the subjects of successful bids during the period under review: Tesaro, Celgene and Array Pharmaceuticals.

In December 2018, GSK acquired Tesaro for $5.1bn, at a 70% premium to the previous share price. Tesaro's oncology platform represented an opportunity for GSK to re-enter the space after its retreat eight years earlier.

Shortly after, in January 2019, Bristol-Myers Squibb agreed to acquire Celgene for approximately $74bn, the Company's third largest holding at the time, at a premium of 63%. We expect this mega acquisition to complete in early 2020.

Finally, Pfizer announced its acquisition of oncology company Array Pharmaceuticals for a 62% premium, meaning Array was the top contributor to the Company's performance for the month. Pfizer's M&A approach is typical of the sector, with this being the third time International Biotechnology Trust Shareholders have benefitted from Pfizer acquisitions in recent years.

Treatments developed by smaller companies may be very effective but small-scale, inexperienced marketing teams can be a limiting factor in the treatment's sales growth. Transferring the treatment to a large, geographically-diverse company with a well-oiled marketing machine will immediately increase the Net Present Value (NPV). This driver of value will make such acquisitions accretive to the acquirer.

These more mature pharmaceutical companies have ageing product portfolios facing patent expiry, so acquiring a company with a new treatment can help to fill holes left by the blockbuster drugs of yester-year.

Positive Contributors

Contributions from M&A aside, Acadia was the largest positive contributor to NAV per share, continually reporting strong sales for its marketed drug, Nuplazid, which treats Parkinson's Disease psychosis. The Company's Shareholders further benefitted after the year end when, on 9 September 2019, Acadia announced the success of a trial for Nuplazid in dementia-related psychosis.

Incyte benefitted from continued M&A speculation during the year. The Company invested in the stock in mid-2018 after clinical trial failure led to a 25% reduction in market cap. In early 2019, Incyte recovered much of its market cap on the back of the Celgene acquisition, at which point it was one of the Company's largest holdings.

Exelixis reported stronger than expected sales for its drug Cabometyx, which is used to treat patients with Renal Cell Carcinoma. Merck later announced positive data for a potential competitor, which slightly curtailed gains in the period. Despite this, the profitable companies in our portfolio fared far better as the market retracted, and for that reason we steered the portfolio away from high-risk companies with near-term financing difficulties.

Foreign Exchange (FX) gains positively impacted the quoted portfolio by £6.1m.

Negative Contributors

Ligand shares weakened on the back of a short report by Citron Research, claiming that the company's long-term outlook was much worse than investors had hoped. We have reduced our holding but are adopting the same wait-and-see strategy as the wider market for the time being.

Aerie shares fell because of tempering investor expectations for its newly launched glaucoma drug.

Spectrum shares fell in September after reporting disappointing data for its drug in metastatic non-small cell lung cancer. The company then completed a $150m offering later in the year, which prevented it from participating in the broader market rally.

Unquoted portfolio

The return for the unquoted portfolio over the year ended 31 August 2019 was a gain of 16.3%. The combined effect of gains and losses on the unquoted investments, including gains made in previous years now crystalised, resulted in a performance fee of £970,000 (2018: £93,000). The Company sold all of its holding in TransEnterix and part of its holding in Kalvista. These investments had made a considerable return on historical costs. The performance fee was bolstered further by the payment of a milestone from Ikano Therapeutics.

As at 31 August 2019, the Company held investments in eight unquoted portfolio companies, one investment in a venture fund, SV Fund VI, and interests in five further companies that have been sold, but where there are further receipts dependent on reaching drug development or financial milestones set at the point when those companies were sold. The Company also holds investments in three previously unquoted companies that are now listed, but are still reported for performance purposes within the unquoted portfolio.

SUMMARY OF UNQUOTED INVESTMENTS

* The number of investments listed within SV Fund VI represents the number of investments into underlying individual portfolio

companies. Three of these companies are now quoted.

The Company's investment in SV Fund VI continues to be a success, with a yearly return of 16.6% according to the latest investor communications. Over the same period, the NBI has returned 7.0% per annum. The draw down on the commitment of $30m to date is $20.25m. While further amounts will be drawn down over the lifetime of the fund, the success of the fund's investments to date mean we only expect to commit a further $5m to SV Fund VI. SV Fund VI's investee companies continue to be diversified between biotechnology, healthcare services & IT and medical devices similar to our existing unquoted investments, but with smaller allocations to each individual company, allowing for greater diversification.

While the SV Fund VI investment was clearly a highlight in 2018/19, Ikano Therapetuics was the strongest contributor to the unquoted portfolio performance in the year. Ikano's Midazolam nasal spray, for the treatment of epilepsy, has been the subject of an out-licensing deal for several years.

In May 2019, the drug, now called Nayzilam and developed by UCB, was approved by the FDA, resulting in a $1.8m milestone payment to the Company. The Company is also due further milestones and royalties on future sales of Nayzilam.

Kalvista, initially an unquoted portfolio company that has now listed, made strong gains throughout 2018/19 as its HAE and DME programmes progressed in the clinic. Kalvista received a number of buy recommendations in the financial year and the Company looks forward to data in late 2019 that is expected to have further positive effects on the share price.

FX gains contributed £1.0m in gains to the unquoted portfolio.

SV HEALTH MANAGERS LLP

28 October 2019

Principal risks and uncertainties

The Board uses a framework of key risks which affect its business, and related internal controls designed to enable the Directors to take steps to mitigate these risks as appropriate. The Directors have 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. A full analysis of the Directors' review of internal control is set out in the Corporate Governance Statement on page 33 of the Annual Financial Report.

The Company's principal risks include:

Strategic/Performance risk

The Company's returns are affected by changes in economic, financial and corporate conditions, including fluctuations in exchange rates, which can cause market fluctuations. At the time of writing, the risk of Brexit is the Company's biggest exchange rate risk. The views of the Fund Manager are highlighted in the Q&A with the Fund Manager above. A significant fall in US equity markets is also likely to affect adversely the value of the Company's portfolio. The Fund Manager provides the Board with information on the market at each Board Meeting and the Board discusses appropriate strategies to manage the impact of any significant change in circumstances. The biotechnology sector has its own specific risks leading to higher volatility than broad equity market indices. While the Company seeks to maintain a diversified portfolio within the confines of the current investment policy, biotechnology sector-specific or equity market risks cannot be eliminated by a diversified exposure to global biotechnology.

The Financial Statements and performance of the Company are denominated in sterling because it is the currency of most relevance to the Company's investors. However, the majority of the Company's assets are denominated in US dollars. Accordingly, the total return and capital value of the Company's investments can be significantly affected by movements in foreign exchange rates. It is not the Board's policy to hedge against foreign currency movements.

Failure to meet investment objectives and/or poor sector-specific or general equity sentiment can affect the Company's share price, resulting in shares trading at a relatively large discount to the underlying NAV.

The Board continually reviews the Company's investment performance, taking into account changes in the market, and

regularly reviews the position of the NAV per share compared to the share price. Further information on the Company's discount is provided in the Chairman's Statement above.

Investment related risks

Alignment of the investment strategy with the Company's investment objective is essential and an inappropriate approach by the Fund Manager towards stock selection and asset allocation may lead to loss and/or underperformance and failure to achieve the Company's objective of long-term capital growth, resulting in a widening of the discount. The Board manages these risks through its framework of investment restrictions and regular monitoring of the Fund Manager's adherence to the agreed investment strategy.

The Fund Manager provides regular reports to the Board on portfolio activity, strategy and performance, as well as risk

monitoring. The reports are discussed in detail at Board Meetings, which are all attended by the Fund Manager, to allow the Board to monitor the implementation of investment strategy and process.

Operational risks

In common with most other investment trusts, the Company has a Board of non-executive Directors and has no executive directors, no executive management and no employees. Its main functions are delegated to third party service providers which are specialists in their fields. Operational risk arises from insufficient processes of internal control which would include compliance with statutes and regulations governing the functions of the Company, however, the Board reviews the performance of these third party service providers and their risk control procedures on a regular basis as well as the terms on which they provide services to the Company.

Tax, legal and regulatory risks

To qualify as an investment trust, the Company must comply with Section 1158 Corporation Tax Act 2010 (CTA). Further details of the Company's approval under Section 1158 CTA are set out in the Directors' Report in "Principal activities" on page 25 of the Annual Financial Report.

A breach of Section 1158 CTA could result in the Company being subject to Capital Gains Tax on the sale of investments. Consequently, pre-trade compliance checks are embedded into the investment procedures of the Fund Manager. Reports confirming the Company's compliance with the provisions of Section 1158 CTA are submitted by the Fund Manager to each Board Meeting together with relevant portfolio and financial information.

The Company is also subject to other laws and regulations, including the Act, Financial Conduct Authority (FCA) Listing, Prospectus and Disclosure Guidance and Transparency Rules and the Alternative Investment Fund Manager's Directive (AIFMD). Breaches of these laws and regulations could lead to criminal action being taken against Directors or suspension of the Company's shares from trading. The Fund Manager and the Company Secretary provide regular reports to the Board on compliance with relevant provisions and report breaches without delay. The Board also relies on the services of its other professional advisers to minimise these risks.

Such risks are assessed by the Audit Committee, which receives regular reports from its main third party service providers as to the internal control processes in place within those organisations.

Management report

Listed companies are required by the FCA's Disclosure Guidance and Transparency Rules (the Rules) to include a management report in their Financial Statements. The information required to be included in the management report for the purposes of the Rules is included in the Strategic Report on pages 11 to 22 of the Annual Financial Report inclusive (together with the sections of the Annual Report incorporated by reference) and the Directors' Report on pages 25 to 33 of the Annual Financial Report. Therefore, a separate management report has not been included.

Directors' responsibilities statement

The Directors are responsible for preparing the Annual Report, the Report on Directors' Remuneration and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Financial Statements in accordance with IFRS as adopted by the EU. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the 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 IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the Financial Statements

·; Prepare Financial Statements on the going concern basis unless it is inappropriate to presume 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 enable them to ensure that the Financial Statements and the Report on Directors' Remuneration comply with the Act. 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 Annual Report is published on the following website: www.ibtplc.com which is a website maintained by SV Health Managers LLP. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of SV Health Managers LLP. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and accordingly, the Auditors accept no responsibility for any changes that have occurred to the Annual Report since it was initially presented on the website. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Annual Report may differ from legislation in their home jurisdiction.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides information necessary for Shareholders to assess the Company's position, performance, business model and strategy.

Pursuant to Rule 4.1.12 of the Rules, each of the Directors, whose names and functions are listed on page 24 of the Annual Financial Report, confirms that, to the best of his or her knowledge:

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

·; 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

·; As outlined on page 27 of the Annual Financial Report, the Directors have undertaken all necessary reviews to provide a going concern recommendation

On behalf of the Board

JOHN ASTON OBE | Chairman

28 October 2019

All revenue and capital items in the above statement derive from continuing operations. The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRSs as adopted by the EU.

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

The Financial Statements as contained within the Annual Report were approved by the Board on 28 October 2019 and signed on its behalf by John Aston OBE, Chairman and Caroline Gulliver, Chair of the Audit Committee.

The accompanying notes form part of these Financial Statements.

1. Accounting policies

The nature of the Company's operations and its principal activities are set out in the Strategic Report and Directors' Report.

The Company's Financial Statements have been prepared in accordance with IFRS and those parts of the Act applicable to companies reporting under IFRS. These comprise standards and interpretations approved by the IASB and IASC, as adopted by the EU.

For the purposes of the Financial Statements, the results and financial position of the Company are expressed in sterling, which is the functional currency and the presentational currency of the Company. Sterling is the functional currency because it is the currency which is most relevant to the majority of the Company's Shareholders and creditors and the currency in which the majority of the Company's operating expenses are paid.

The principal accounting policies followed, which have been applied consistently for all years presented, are set out below:

(a) Basis of preparation

The Company Financial Statements have been prepared on a going concern basis (as set out on page 28 of the Annual Financial Report) and under the historical cost convention, as modified by the inclusion of investments at fair value through profit or loss.

Where presentational guidance set out in the Statement of Recommended Practice (the SORP) for investment trusts issued by the AIC in November 2014 and updated in February 2018 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.

(b) Presentation of Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income.

The net loss after taxation in the revenue column is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1158 CTA.

(c) Income

Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Special dividends are treated as revenue return or as capital return, depending on the facts of each individual case. Income from current asset investments is included in the revenue for the year on an accruals basis and is recognised on a time apportionment basis. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income in the revenue column of the Statement of Comprehensive Income. Any excess in the value of shares over the amount of cash dividend foregone is recognised as a gain in the capital column of the Statement of Comprehensive Income.

Interest from fixed income securities is recognised on a time-apportionment basis so as to reflect the effective yield on the fixed income securities.

Deposit interest outstanding at the year end is calculated and accrued on a time apportionment basis using market rates of interest.

(d) Expenses and interest payable

Administrative expenses including the management fee and interest payable are accounted for on an accruals basis and are recognised when they fall due.

All expenses and interest payable have been presented as revenue items except as follows:

·; Any performance fee payable is allocated wholly to capital, as it is primarily attributable to the capital performance of the Company's assets

·; Transaction costs incurred on the acquisition or disposal of investments are expensed and included in the costs of acquisition or deducted from the proceeds of sale as appropriate

(e) Taxation

Deferred tax is calculated in full, using the liability method, on all taxable and deductible temporary differences at the Balance Sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences can be utilised.

In line with recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented in the capital column of the Statement of Comprehensive Income is the marginal basis. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital column.

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

The Company holds three types of investments: investments in funds, direct investment in unquoted companies, and direct investment in quoted companies.

Investments are recognised or derecognised on the trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned.

On initial recognition all non-current asset investments are designated as held at fair value through profit or loss as defined by IFRS. They are further categorised into the following fair value hierarchy:

All non-current investments (including those over which the Company has significant influence) are measured at fair value with gains and losses arising from changes in their fair value being included in net profit or loss for the year as a capital item.

Any gains and losses realised on disposal are recognised in the capital column of the Statement of Comprehensive Income.

Quoted investments

The fair value for quoted investments is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

Unquoted investments

In respect of unquoted investments, or where the market for a financial instrument is not active, fair value is established by using various valuation techniques, in accordance with the International Private Equity and Venture Capital (IPEVC) Valuation Guidelines (December 2018). These may include reference to recent rounds of re-financing undertaken by investee companies involving knowledgeable parties, reference to the current fair value of another instrument that is substantially the same, an earnings multiple or discounted cashflow model, all with reference to recent arm's length market transactions between knowledgeable, willing parties, where available.

As many of the unquoted investments are early-stage investments, without revenue, valuation is also assessed up or down with reference to a range of factors among which are: ability of portfolio company management to keep cash and operating budgets, clinical developments towards management and/or investor milestone targets, clinical trial data, progress of competitor products, performance and quality of the management team, litigation brought by or against the portfolio company, patent approval or challenge, the market for the product being developed and the broad climate of the economies of the countries in which they will likely be sold by reference to public stock market performance.

Investment in funds

The Company receives formal quarterly reports from each of the private equity funds in which SV Fund VI holds an investment. The value of SV Fund VI's investment in these funds is reported in these quarterly reports. The reports typically arrive within 60 days of the end of the quarter (90 days at year end). As soon as a quarterly report is received by the Company, the reported value of the SV Fund VI's investment in that fund is reflected in the NAV on the next NAV date.

During the period between quarterly reports, the Company may be advised of a sale of a portfolio company (or its securities) held within one of the funds at a different price from the last reported value in that quarterly report. As soon as the Company is informed of the completion of any such transaction establishing a new value for the investment, the new NAV of that investment to SV Fund VI is reflected in the NAV on the next NAV date. With respect to any investments within SV Fund VI for which there is a listed price, the Company revalues its investment in SV Fund VI to take account of market movements in the underlying security. The listed price of these underlying securities is monitored on a daily basis. Any price move in SV Fund VI's underlying investments that materially impacts the Company's holding in SV Fund VI is immediately reflected in the NAV on the next NAV date. If there are no material movements, these underlying securities are revalued on a monthly basis and immediately reflected in the NAV on the next NAV date.

The Company does not change the valuation of fund investments based on anticipated transactions that are not yet completed, changes in company performance or any other factors unless and until such changes are reflected in a quarterly report received from the manager of the fund.

The value of a fund investment used by the Company in determining the NAV is always based on the most current information known to the Company on the NAV date.

(g) Foreign currencies

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

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

(h) Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

The critical estimates, assumptions and judgements relate, in particular, to the valuation of unquoted investments. The critical judgements are summarised in (f) above and the impact of estimates and assumptions are summarised in note 23 below.

Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

(i) Cash and cash equivalents

In the Cash Flow Statement, cash and cash equivalents includes cash in hand, short-term deposits and bank overdrafts. These are held for the purpose of meeting short-term cash commitments rather than for investment or other purpose and cash balances are held at their fair value (translated to sterling at the Balance Sheet date where appropriate.)

(j) Receivables

Other receivables do not carry any right to interest and are short-term in nature. Accordingly they are stated at their nominal value (amortised cost) reduced by appropriate allowances for estimated irrecoverable amounts.

(k) Other payables

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

(l) Repurchase of Ordinary shares (including those held in treasury) and subsequent re-issues

The costs of repurchasing Ordinary shares including related stamp duty and transaction costs are taken directly to equity and reported through the Statement of Changes in Equity as a charge on the capital reserves.

The sales proceeds of treasury shares reissued are treated as a realised profit up to the amount of the purchase price of those shares and is transferred to capital reserves. The excess of the sales proceeds over the purchase price is transferred to the share premium account. Share purchase transactions are accounted for on a trade date basis. The nominal value of Ordinary share capital repurchased and cancelled is transferred out of called up share capital and into the capital redemption reserve. Where shares are repurchased and held in treasury, the transfer to capital redemption reserve is made if and when such shares are subsequently cancelled.

(m) Reserves

(i) Capital redemption reserve

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

(ii) Share premium account

A non-distributable reserve, represents the amount by which the fair value of the consideration received exceeds the nominal value of shares issued.

(iii) Capital reserves

The following are accounted for in this reserve and are distributable

·; Gains and losses on the realisation of investments

·; Unrealised investment holding gains and losses

·; Foreign exchange gains and losses

·; Performance fee

·; Re-issue of Ordinary shares from treasury

·; Repurchase of Ordinary shares in issue

·; Dividends paid to Shareholders

Note: Unrealised unquoted holding gains are not distributable.

(iv) Revenue reserve

Comprises accumulated undistributed revenue profits and losses.

(n) New and revised accounting Standards

There were no new IFRSs or amendments to IFRSs applicable to the current year which had any significant impact on the Company's accounts.

At the date of authorisation of these Financial Statements, the following new IFRS that potentially impacts the Company are in issue but are not yet effective and have not been applied in these accounts:

Effective for periods commencing on or after 1 January 2019:

·; IFRS16 Leases - As the Company neither holds, trades or has any lease obligations of any type, the provisions of this standard are not expected to have a material impact on the accounts

·; IFRIC 23 Uncertainty over Income Tax Treatments - The interpretation provides guidance on considering uncertain tax treatments in relation to taxable profit or loss and does not add any new disclosures. The Company complies with all relevant tax laws where applicable and the provisions of this interpretation are not expected to have a material impact on the accounts

·; IAS19 (amended) Employee Benefits - As the Company has no employees, the amendment to this standard are not expected to have any impact on the accounts

·; IAS28 (amended) Investments in Associates and Joint Ventures - As the Company has no investment in associates or joint ventures, the amendment to this standard are not expected to have any impact on the accounts

·; IFRS9 (amended) Prepayment Features with Negative Compensation - Negative compensation arises where the contractual terms permit a borrower to prepay the instrument before its contractual maturity, but the prepayment amount could be less than unpaid amounts of principal and interest

The Company has no such terms in any of its loan agreements in place and the amendments are not expected to have any impact on the accounts

·; Annual Improvement Cycles 2015-2017 (amendments) - This makes narrow-scope amendments to four IFRS Standards: IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Incomes Taxes and IAS23 Borrowing costs. These limited amendments are not expected to have any impact on the accounts

Effective for periods commencing on or after 1 January 2020:

·; IFRS 3 Business combinations (amended)

·; IAS 1 and IAS 8 Definition of Material (amended)

·; References to the conceptual Framework in IFRS Standards (amended)

IFRS 9, 15 and 16 all became effective in the year and had no impact on the accounts of the Company.

The Directors expect that the adoption of the standards listed above will have either no impact or that any impact will not be material on the Financial Statements of the Company in future periods.

2. (Losses)/gains on Investments Held at Fair Value

Exchange (losses)/gains on currency balances arise on the retranslation of foreign currency balances held by the Company.

3. Income

4. Management and Performance Fees

Details of the management and performance fee arrangements are included in the Directors' Report on page 26 of the Annual Financial Report.

Following the investment into the SV Fund VI venture capital fund on 3 October 2016, management fees are partially paid through the venture capital investment. Venture Capital fees paid through the SV Fund VI investment in the year were £526,000 (2018: £503,000). Total Management fees on a comparative basis were £2,136,000 (2018: £2,108,000).

Refer to note 22 Related Party Transaction below, for further details.

5. Administrative Expenses

* Includes research costs under MiFID II related solely to specialist biotechnology research of £96,000 (annual cap of £160,000).

These costs applied from 3 January 2018. These costs were previously partly wrapped up in trade commission. Under MiFID II which applied from 3 January 2018, changes were made to how investment managers pay for their research. This new regime requires investment managers to budget separately for research and trading costs.

**See the Directors' Remuneration Report on pages 34 and 37 of the Annual Financial Report.

6. Interest Payable

7. Taxation

(a) Analysis of charge in year

Under the Finance Act 2014 the standard rate of Corporation Tax in the UK changed from 20% to 19% with effect from 1 April 2017.

(b) Factors affecting tax charge for the year

Approved investment trust companies are exempt from tax on capital gains within the Company.

The tax assessed for the year is higher than that resulting from applying the standard rate of Corporation Tax in the UK for a medium or large company of 19% (2018: 19%). The differences are explained below:

(c) Provision for deferred taxation

No provision for deferred tax has been made in the current or prior year.

(d) Factors that may affect future tax charges

At 31 August 2019, the Company had a potential deferred tax asset of £10,732,000 (2018: £10,135,000) on taxable losses, which is available to be carried forward and offset against future taxable profits. A deferred tax asset has not been recognised for these losses as it is considered unlikely that the Company will make taxable revenue profits in the future and it is not liable to tax on capital gains.

Due to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

It is unlikely that the Company will obtain relief in the future for the potential asset disclosed above, so no deferred tax asset has been recognised.

8. Net (Loss)/Earning per Ordinary share

*Excluding those held in treasury.

9. Dividends

Dividends are included in the Financial Statements in the year in which they are paid.

The Company is not required to pay a dividend under the requirements of Section 1158 of the CTA due to the negative accumulated balance on its revenue reserve. The above dividends are paid out of the capital reserve.

10. Investments Held at Fair Value Through Profit or Loss

The following transaction costs, including stamp duty and broker commissions were incurred during the year:

(d) Disposals of unquoted investments

The significant unquoted investment disposals during the year were:

The carrying value of this investment represents the value of contingent future payments and milestones.

(e) Significant changes in fair value of unquoted investments

During the year under review the following unquoted investments were written up/(down) by a significant extent (adjusted for currency movements):

11. Receivables

12. Cash and Cash Equivalents

The Company has a £55.0m (2018: £35.0m) uncommitted multi-currency overdraft facility. On 31 August 2019, £nil (2018: £374,000) was drawn down. The principal covenants relating to this facility are that there must be at least twenty investments in the portfolio and that performance must not fall 15% in a month, 25% in two months or 30% in any six month period. The Company has complied with the terms of the facility throughout the financial year.

13. Payables

14. Capital Commitments - Contingent Assets and Liabilities

The Company made a $30.0m commitment to SV Fund VI in 2016. Of this $30.0m commitment, the Company has further commitments of £7.8m as at 31 August 2019 (2018: £8.9m).

15. Called Up Share Capital

During the year, there were 850,000 Ordinary shares issued from treasury for a total cost of £5,262,000 (2018: nil).

No Ordinary shares held in treasury were either cancelled or repurchased during the year (2018: nil).

The Ordinary shares held in treasury have no voting rights and are not entitled to dividends.

16. Share Premium Account

This reserve is not distributable.

17. Capital Redemption Reserve

This reserve is not distributable.

18. Capital Reserves

(i) These are realised distributable capital reserves which may be used to repurchase the Company's shares or be distributed as dividends.

(ii) This reserve comprises holding gains on investments (which may be deemed to be realised) and other amounts which are unrealised. An analysis has not been made between amounts that are realised (and may be distributed or used to repurchase the Company's shares) and those that are unrealised.

19. Revenue Reserve

The revenue reserve may be distributed or used to repurchase the Company's shares (subject to being a positive balance).

20. Net Asset Value per Ordinary share

The calculation of the NAV per Ordinary share is based on the following:

The decrease in the NAV per share from 699.04p (31 August 2018) to 623.94p (31 August 2019) includes the total loss per share as disclosed above and the effect on the Company, of any issue of Ordinary shares during the year, at a premium to the prevailing NAV per share and by dividend payments.

21. Notes to the Cash Flow Statement

Cash and cash equivalents comprise cash at bank, short-term deposits and bank overdrafts. Included within the cash flows from operating activities are the cash flows associated with the purchases and sales of investments. Cash flow from operating activities can therefore be further analysed as follows:

22. Transactions with the Fund Manager and Related Party Transactions

(a) Transactions with the Fund Manager

Details of the management fee arrangement are given in the Directors' Report on page 26 of the Annual Financial Report. The total fee payable under this Agreement to SV Health Managers LLP for the year ended 31 August 2019 was £2,136,000 (2018: £2,108,000) of which £nil (2018: £nil) was outstanding at the year end. In addition to this, SV Health Managers LLP is also entitled to a performance fee of £970,000 (2018: £93,000), which was outstanding at the year end.

SV Health Managers LLP will often take seats on boards of companies in which the Company holds an investment. These positions help to monitor the investee companies and in many cases add to the strength and depth of management. They sometimes provide an economic benefit to the individual who takes the position - often in the form of a director's fee or share awards. The Fund Manager has agreed with the Board a set of guidelines on how any economic interest will be divided between the Company and the Fund Manager. The Board is informed of both the position held and any economic benefits as they arise and a summary of all the positions, benefits and allocations is presented for review at each Board Meeting. During the year ended 31 August 2019 £nil (2018: £nil) was received.

(b) Related party transactions

The Directors of the Company are key management personnel. The total remuneration payable to Directors in respect of the year ended 31 August 2019 was £133,000 (2018: £141,028) of which £33,250 (2018: £33,250) was outstanding at the year end.

23. Financial Instruments

Risk management policies and procedures

The Company's financial assets and liabilities, in addition to short-term debtors and creditors and cash, comprise financial instruments which include investments in equity.

The holding of securities, investment activities and associated financing undertaken pursuant to the investment policy involve certain inherent risks. Events may occur that would result in either a reduction in the Company's net assets or a reduction of the total return.

The main risks arising from the Company's pursuit of its investment objective are those that affect stock market levels: market risk, credit risk and liquidity risk. In addition, there are specific risks inherent in investing in the biotechnology sector. The Board reviews and agrees policies for managing these risks, as summarised below. These policies have remained substantially unchanged throughout the current and preceding year.

1. Market 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 - price risk, currency risk and interest rate risk. The Fund Manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

a. Price Risk

The Company is an investment company and as such its performance is dependent on the valuation of its investments. A breakdown of the investment portfolio is given within the Fund Facts and in the Fund Manager's Review above. Market price risk arises mainly from uncertainty about future prices of the financial instruments held.

Management of the risk

The Board regularly considers the asset allocation of the portfolio as part of the process of managing the risks associated with the biotechnology sector, described in greater detail in the section on specific risk, whilst continuing to follow the investment objective. It is not the Company's current policy to use derivative instruments to hedge the investment portfolio against market price risk.

Price risk exposure

At the year end, the Company's assets exposed to market price risk were as follows:

The level of assets exposed to market price risk decreased by approximately 9.8% during the year, through a combination of acquisitions and disposal of investments and decreases in fair values.

Concentration of exposure to price risk

The Company currently holds investments in 74 companies, in a mixture of quoted and unquoted investments in a variety of countries, which significantly spreads the risk of individual investments performing poorly and reduces the concentration of exposure. The classification of investments by sector is provided within the Fund Facts.

Price risk sensitivity

The following table illustrates the sensitivity of the profit for the year and the equity to an increase or decrease of 10% in the fair values of the Company's investments. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company's investments at each Balance Sheet date, with all other variables held constant.

b. Currency Risk

The Financial Statements and performance of the Company are denominated in sterling. However, the majority of the Company's assets and the total return are denominated in US dollars, accordingly the total return and capital value of the Company's investments can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge against foreign currency movement.

Management of the risk

The Fund Manager monitors the Company's exposure to foreign currencies on a daily basis, and reports to the Board on a regular basis.

Foreign currency exposure

The fair values of the Company's monetary items that have foreign currency exposure at 31 August 2019 are shown below. Where the Company's equity investments (which are not monetary items) are priced in foreign currency, they have been included separately in the analysis so as to show the overall level of exposure.

At the year end, approximately 99% (2018: 99%) of the Company's net assets were denominated in currencies other than sterling. This level of exposure is broadly representative of the levels throughout the year.

Foreign currency sensitivity

During the financial year sterling weakened by 6.3% against the US dollar, 4.1% against the Swiss franc and by 1.0% against the Euro (2018: strengthened 0.9%, 1.5% and 3.1% respectively). Given the movements over the last two years, a change of 10% or even more is possible.

The following table illustrates the sensitivity of the profit after taxation for the year and the equity in regard to the Company's financial assets and financial liabilities, assuming a 10% change in exchange rates.

If sterling had weakened against the exposure currencies, with all other variables held constant, this would have affected Company net assets and net (loss)/profit for the year attributable to equity Shareholders as follows:

If sterling had strengthened against the exposure currencies, with all other variables held constant, this would have affected Company net assets and net (loss)/profit after taxation attributable to equity Shareholders as follows:

In the opinion of the Directors, the above sensitivity analyses are not necessarily representative of the year as a whole, since the level of exposure changes as part of the currency risk management process used to meet the Company's objectives.

c. Interest rate risk

The Company will be affected by interest rate changes as it holds interest-bearing financial assets and liabilities. Interest rate changes will also have an impact in the valuation of investments, although this forms part of price risk, which is considered separately above.

Management of the risk

Interest rate risk is limited by the Company's financial structure with operations mainly financed through the share capital, share premium and retained reserves. The majority of the Company's financial assets are, under normal circumstances, equity shares and other investments which neither pay interest nor have a stated maturity date. Liquidity and overdraft facilities are managed with the aim of increasing returns for Shareholders.

In the normal course of business, the Company's policy is to be fully invested and, other than as arising from the timing of investment transactions, the cash holding is kept to a minimum.

At the year end £nil (2018: £374,000) was drawn down under the Company's committed overdraft facility.

It is not the Company's policy to use derivative instruments to mitigate interest rate risk, as the Board believes that the effectiveness of such instruments does not justify the costs involved.

Interest rate exposure

The exposure, at 31 August 2019, of financial assets and liabilities to interest rate risk is shown by reference to:

·; Floating interest rates (i.e. giving cash flow interest rate risk) - when the rate is due to be re-set; and

·; Fixed interest rates (i.e. giving fair value interest rate risk) - when the financial instrument is due for repayment.

The above amounts are not necessarily representative of the exposure to interest rates in the year ahead, as the level of cash or cash like assets such as money market funds and borrowings varies during the year according to the performance of the stock market, events within the wider economy and opportunities within the unquoted market and the Fund Manager's decisions on the best use of cash or borrowings over the year. During the year under review the level of financial assets and liabilities exposed to interest rates fluctuated between £0m and £15.3m.

Interest rate sensitivity

The following table illustrates the sensitivity of the profit after taxation for the year and equity to an increase or decrease of 50 (2018: 50) basis points in interest rates in regard to the Company's monetary financial assets, which are subject to interest rate risk. This level of change is considered to be reasonably possible based on observation of current market conditions.

The sensitivity analysis is based on the Company's monetary financial instruments held at each Balance Sheet date, with all other variables held constant.

In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure may change.

2. Credit Risk

In undertaking purchases and sales of investments, there is a risk that the counterparty will not deliver the investment before or after the Company has fulfilled its responsibilities. Additionally, the Company has funds on deposit with banks or in money market funds. HSBC Bank plc is the Custodian of the Company's assets. The Company's investments are held in accounts which are segregated from the Custodian's own trading assets. If the Custodian were to be become insolvent, the Company's right of ownership is clear and they are therefore protected. However cash balances deposited with the Custodian may be at risk in this instance, as the Company would rank alongside other creditors.

Management of the risk

During the year the Company bought and sold investments only through brokers which had been approved by the Fund Manager as acceptable counterparties. The Company invests in markets that operate a 'Delivery Versus Payment' settlement process which mitigates the risk of losing the principal of a trade during settlement. In addition, limits are set as to the maximum exposure to any individual broker that may exist at any time. These limits are reviewed regularly.

Cash balances will only be deposited with reputable banks with high quality credit ratings.

Credit risk exposure

All of the above financial assets are current, their fair values are considered to be the same as the values shown and the likelihood of a material credit default is considered to be low.

None of the Company's financial assets are past due or impaired.

3. Liquidity risk

Liquidity risk is the possibility of failure of the Company to realise sufficient assets to meet its financial liabilities.

Management of the risk

Liquidity and cash flow risk are minimised as the Fund Manager aims to hold sufficient Company assets in the form of readily realisable securities which can be sold to meet funding commitments as necessary. In addition, the Company has an overdraft facility with HSBC Bank plc of £55 million (2018: £35 million).

It should be noted, however, that investments in unquoted securities will not be readily realisable. Furthermore, even where the Company holds an investment in quoted securities, the Company may be restricted in its ability to trade that investment either because the investment becomes subject to restrictions when the company concerned becomes publicly quoted or, at certain times, as a consequence of the Company being privy to confidential price sensitive information as a result of the Fund Manager's active involvement in that company.

Liquidity risk exposure

As an Investment Trust, the Company has limited liquidity risk. In any event, the Company estimates it could liquidate 59.1% of the portfolio within five days if required. A summary of the Company's financial liabilities is provided below in sub-note 6.

4. Specific Risk

As well as the general risk factors outlined above, investing in the biotechnology sector carries some particular risks:

(a) the stock prices of publicly quoted biotechnology companies have been characterised by periods of high volatility

(b) a significant proportion of the Company's investments will be in companies whose securities are not publicly traded or freely marketable and may, therefore, be difficult to realise. In addition, there are inherent difficulties in valuing unquoted investments and the realisations from sales of investments could be less than their carrying value

(c) biotechnology companies typically have a limited product range and those products may be subject to extensive government regulation. Obtaining necessary approval for new products can be a lengthy process, which is expensive and uncertain as to outcome

(d) technological advances can render existing biotechnology products obsolete

(e) intense competition exists in certain product areas in relation to obtaining and sustaining proprietary technology protection and the complex nature of the technologies involved can lead to patent disputes

(f) certain biotechnology companies may be exposed to potential product liability risks, particularly in relation to the testing, manufacturing and sales of healthcare products

(g) biotechnology companies spend a considerable proportion of their resources on R&D, which may be commercially unproductive or require the injection of further funds to exploit the results of their work

(h) the growing cost of providing healthcare has placed financial strains on governments, insurers, employers and individuals, all of whom are searching for ways to reduce costs. As a result, certain areas may be affected by price controls and reimbursement limitations

5. Fair values of financial assets and financial liabilities

All financial assets and liabilities are either carried in the Balance Sheet at fair value or the Balance Sheet amount is a reasonable approximation of fair value. The fair value of Quoted shares and securities is based on the bid price or last traded price, depending on the convention of the exchange on which the investment is quoted.

Unquoted investments are valued in accordance with IPEVC Guidelines. The methods commonly used to value unquoted securities are stated in accounting policy 1(f).

6. Summary of financial assets and financial liabilities by category

The carrying amounts of the Company's financial assets and financial liabilities as recognised at the Balance Sheet date of the reporting periods under review are categorised as follows:

Note: Amortised cost is the same as the carrying value shown above.

7. Classification under the fair value hierarchy

The table below sets out fair value measurements using the IFRS 7 fair value hierarchy:

(i) Financial assets at fair value through profit or loss

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

Level 1 - valued using quoted prices in active markets for identical assets.

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

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

The valuation techniques used by the Company are explained in the accounting policies noted above.

There have been no transfers during the year between Levels 1 and 2. A reconciliation of fair value measurements in Level 3 is set out below.

(ii) Level 3 investments at fair value through profit or loss

(iii) Level 3 investments at fair value through profit or loss

The table above outlines the Level 3 investments where there are considered to be reasonable possible alternatives to the assumptions used within the valuations. The effects of using the alternatives within the valuations are shown. The table does not include Level 3 investments where there is not considered to be reasonable possible alternatives to the assumptions used within the valuations or where no assumptions are used in the valuations (e.g. where the Level 3 investment is valued by reference to the initial cost).

8. Capital management policies and procedures

The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting year.

The Company's capital is managed to ensure that it will continue as a going concern and to maximise the capital return to its equity Shareholders over the longer-term.

The Board, with the assistance of the Fund Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This includes consideration of:

(i) The buyback or issuance of equity shares

(ii) The level of gearing, if any

(iii) The determination of dividend payments, if any

The Company is subject to externally imposed capital requirements through the Act, with respect to its status as a public limited company.

In addition, with respect to the obligation and ability to pay dividends, the Company must comply with the provisions of Section 1158 CTA and the Act respectively.

Gearing for this purpose is defined as borrowings used for investment purposes, less cash, expressed as a percentage of net assets.

Borrowings are made on a relatively short-term basis to exploit specific investment opportunities, rather than to apply long-term structural gearing to the Company's portfolio of investments.

24. Segmental Reporting

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

The Board is of the opinion that the Company is engaged in a single segment of business, namely the investment in development stage biotechnology and other life sciences companies in accordance with the Company's investment objective, and consequently no segmental analysis is provided.

For further information, please contact:

Lucy Costa Duarte

Telephone: 020 7421 7070

SV Health Managers LLP

Fund Manager

Susan Gledhill

Telephone: 020 7410 5971

BNP Paribas Secretarial Services Limited

Company Secretary

29 OCTOBER 2019