Schroder UK PublicPT - Final Results
17/04/2023 07:00
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RNS Number : 3397W Schroder UK Public Private Tst plc 17 April 2023
Schroder UK Public Private Trust plc
(the "Company")
Report and Accounts
For the year ended 31 December 2022
Schroder UK Public Private Trust plc (the "Company") hereby submits its Final
Results for the year ended 31 December 2022.
The Company's Annual Report and Accounts for the year ended 31 December 2022
(the "2022 Annual Report and Accounts") are being published in hard copy
format and an electronic copy will shortly be available to download from the
Company's webpage www.schroders.com/publicprivatetrust
(http://www.schroders.com/publicprivatetrust)
It can also be viewed at the following link:
http://www.rns-pdf.londonstockexchange.com/rns/3397W_1-2023-4-15.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3397W_1-2023-4-15.pdf)
Enquiries:
Schroder Investment Management Limited
Augustine Chipungu (Press)
020 7658 6000
Shilla Pindoria (Company Secretary)
020 7658 6000
John Spedding
020 7658 6000
Chair's Statement
Performance
It is disappointing that 2022 continued to be a difficult year for the
Company. The invasion of Ukraine and pressure on financial markets led to
deteriorating market sentiment, both for the portfolio itself and for shares
in the Company. Against this backdrop, the Company's Net Asset Value (NAV) per
share for the year to 31 December 2022 fell by 40.7% and the share price by
53.3% and the Board remains frustrated with this outcome. Performance during
the year was primarily driven by the fall in the share price of our largest
holding, Oxford Nanopore and other legacy private investments including
Rutherford, BenevolentAI and Atom Bank.
Future returns will be driven by the performance of investments made by our
Manager and the Manager has continued to make significant progress in tilting
the portfolio towards venture, growth or life sciences, with six new private
investments made in 2022. The change to a global mandate has opened world
class opportunities for the portfolio and further details are provided in the
Manager's Review section.
Portfolio Management
Last year, shareholders approved changes to the Company's investment policy to
enable our Manager to consider global opportunities in private equity and to
draw on Schroders Capital's strong long term track record in private equity
investment. At the same time, we indicated that we would target around 75% of
the portfolio to be in private equity investments and that the majority of the
public holdings would be held as a consequence of private holdings going on to
IPO enabling us to capture the full lifetime value of a portfolio company.
The transition to a global private equity portfolio is taking longer than we
anticipated, mainly due to the continuing uncertainty in the private equity
market, but further progress is expected to be made in 2023.
Schroders Capital has been managing private equity investments on behalf of
investors since 1997. It has over 150 professionals committed to the private
equity business worldwide and manages nearly £14 billion of private equity
assets (as 31 December 2022). The Company's portfolio is managed by Tim Creed,
Schroders Capital's head of private equity investments, and, in view of the
greater investment emphasis on private equity, he will now be supported by
Harry Raikes, who will join the team as a co-manager. Harry, who is a member
of the Schroders Capital Private Equity investment team, has been instrumental
in transitioning the portfolio since Schroders took over management. At the
same time, Roger Doig will step away from the investment team.
Valuation Process
With effect from 30 September 2022, Schroder Unit Trusts Limited was appointed
as the Company's alternative investment fund manager (AIFM), replacing Link
Fund Solutions Limited. The Board are comfortable with the valuation process
applied by the AIFM, using research and input from its own valuation
specialist provider, IHS Markit (part of S&P Global), for the valuation of
the private equity holdings, utilising the widely respected IPEVCV guidelines.
Further details regarding the valuation approach adopted are explained in Note
1b in the notes to the Accounts.
Capital discipline and the introduction of a continuation vote
Schroders was appointed as the Company's portfolio manager in December 2019,
following which the investment team took the necessary actions to stabilise
the portfolio through the renegotiation of the debt facility, asset disposals
to allow for a substantial reduction in the level of borrowings and engagement
with the portfolio companies to determine an action plan for maximising
returns from the legacy portfolio. The portfolio manager also developed a
pipeline of opportunities to give investors access to some of the best and
most attractive venture and growth companies globally. In that regard, the
investment team have made 11 private investments since their appointment
across technology, financials, business services and healthcare sectors.
A proposal to make amendments to the Company's Articles will be made at the
Company's Annual General Meeting to include the introduction of a continuation
vote at the 2025 Annual General Meeting, which will provide shareholders with
the opportunity to vote on whether the Company should continue in its present
form. There will also be a requirement to propose a similar resolution at the
AGM every five years thereafter.
The continuation vote at the AGM in 2025 will allow the Board and shareholders
the opportunity to review the performance of the Manager over the five years
since its appointment, which the Directors consider to be an appropriate
timeframe for the investment team to have repositioned the portfolio,
including having made a number of new investments against which its
performance can be assessed.
While the portfolio progress over the last three years has been positive, the
NAV has fallen as the Company continues to work through the issues in the
legacy portfolio, which has been made more challenging with the change in the
environment for growth capital investing. Against this backdrop, the discount
at which the Company's shares trade in relation to net asset value has
widened.
This discount widened further during 2022 and stood at 45.8% at 31 December
2022, reflecting not only the performance of the Company itself but also the
poor sentiment and uncertainty surrounding the wider private equity sector.
The Board intends to make an amount equating to 25% of all net cash
realisations from the portfolio inherited from the previous portfolio manager
received between now and the 2025 Annual General Meeting available to be
redeployed to make share repurchases by the Company.
The Board acknowledges that it is not possible to accurately forecast such
realisations between now and 2025. In order to ensure that the Company remains
active in buying back its stock, the Board intends in any event to purchase
shares equal to at least 5% of the Company's issued share capital in each of
the calendar years 2023 and 2024. The intention to undertake share repurchases
outlined above is subject to the approvals detailed in the following section
of this statement.
The Company's share buy back policy will be reviewed ahead of the continuation
vote in 2025.
Share buybacks undertaken by the Company in 2022 and 2023
From 9 May 2022 to 21 December 2022, the Company undertook a series of share
buybacks totalling 4,420,000 ordinary shares for a consideration of
c.£812,000. In 2023, the Company has undertaken further share buybacks
totalling 1,735,000 ordinary shares for a consideration of c.£257,000.
Although the Company had a share premium account of £891 million at the time
of the 2022 and 2023 share buybacks, as that had not been cancelled at the
time, the Company did not have sufficient distributable profits and so those
buybacks did not comply with the requirements of the Companies Act 2006.
The Company has been advised that, in order to rectify this, shareholders may
approve various actions. Accordingly, the Company shall propose resolutions at
the forthcoming AGM to:
(i) Cancel the Company's share premium account, subject to obtaining
the requisite Court approval;
(ii) Conditional on the Court approval of the cancellation of the
share premium account, appropriate such amounts as are necessary from the
cancelled share premium account as distributable profits for the purposes of
the 2022 and 2023 share buybacks; and
(iii) Enter into deeds of release in respect of the shareholders who
received share buyback consideration and the directors who authorised the
share buybacks.
The Board plans to recommence share buybacks and, in order to do so,
shareholders must have approved these resolutions, along with the resolution
to re-new the Company's authority to buyback shares. Following the AGM, the
Company will apply to the Court for its share premium account to be cancelled,
following which the Company will be able to re-commence share buybacks.
Change of Company Name
The Board has taken steps to change the Company's name to Schroders Capital
Global Innovation Trust plc to more accurately reflect the changes in
investment objective and policy agreed at the AGM in May 2022 and the strategy
that has been followed as a result. The Company will make a further
announcement following confirmation of the change of name by Companies House.
Gearing
At the year ended 31 December 2022, the Company had cash of £16.1 million
(2021: £19.1 million). During the year, £22 million was drawn on the
£40 million revolving credit facility and this was repaid in full and
undrawn at the year end. The revolving credit facility expired on 30 January
2023 and although the Board remains of the view that gearing should be one of
the tools available to the Manager to make use of the closed ended structure,
the use of gearing is not a priority at this specific time. It will continue
to monitor whether gearing should be used by the Manager.
Board Composition
Raymond Abbott, who has served on the Board since 2019, will retire following
the conclusion of the AGM in June 2023. On behalf of the Board, I would like
to thank Raymond for his considerable contribution to the Company and wish him
well for his future plans. As part of its succession plan to promote regular
refreshment and diversity, the Board has appointed an executive search firm
and commenced the recruitment for a new director. The Board will make an
announcement once a suitable candidate has been appointed.
AGM
The Company will be posting a separate notice of AGM to shareholders in early
May, for an AGM to be held in early June. The Board looks forward to welcoming
shareholders to attend and participate in the meeting.
Shareholders will also have the opportunity to hear a presentation from the
Manager and light refreshments will be served. Please note that all voting
will be on a poll and we encourage all shareholders to exercise their votes by
means of registering them with the Company's registrar ahead of the meeting,
online or by completing paper proxy forms, and to appoint the Chair of the
meeting as their proxy.
In the event that shareholders have a question for the Board, please email
amcompanysecretary@schroders.com in advance of the AGM.
Changes to the Articles of Association
One of the resolutions that will be proposed at the AGM is an amendment to the
Company's articles of association (the "Articles") to allow for periodic
continuation votes from 2025 and thereafter at 5 yearly intervals, as noted
above and the flexibility to hold shareholder meetings (wholly or partially)
by electronic means. This latter change would allow the Board to hold hybrid
or virtual meetings when in the best interests of shareholder safety, for
example, in the event of a future pandemic. The amendments will not prevent
the Company from holding physical meetings and the Board's intention is always
to hold a physical general meeting when safe and practical to do so. Further
details will be included in the notice of AGM to be posted in early May.
Change of Auditor
Following a competitive tender process, the Company's auditor, Grant Thornton
UK LLP will not be seeking re-appointment as auditor and a resolution to
appoint Ernst & Young LLP as the Company's auditor will be made at the
AGM.
Change of Registrar
In accordance with the change of the majority of its service providers in
2022, the Board has decided to change registrar from Link to Equiniti with
effect from 30 June 2023.
Web Conference - Update from Schroders
Please join the Manager for a webinar in which they will report on the year
ended 31 December 2022 and outline their thoughts on the future direction of
the portfolio. The presentation will be followed by a live Q&A session.
The webinar will take place on 18 April 2023 at 2pm. Register for the event
at https://registration.duuzra.com/form/suppannualresults2022.
Outlook
Although 2022 was disappointing for the Company, the Manager has continued to
diversify the portfolio and the Board believes that the global remit, adopted
in 2022, enables access to the best innovation ideas in the most promising
themes, wherever they are in the world. The pivot towards private investments,
which has taken longer than anticipated due to the uncertainty of private
markets in 2022, is expected to make further progress in 2023.
The Company offers investors access to the leading growth businesses of the
future, selected by a Manager with a leading track record in private equity
investing over the last 25 years with a themed focus across technology and
healthcare.
The Board believes that the package of measures taken to narrow the discount
coupled with the ability of the Manager to capture global innovation
opportunities will help to restore shareholder and investor sentiment.
Tim Edwards
Chair
14 April 2023
Manager's Review
Summary
- The Company reported a net asset value ("NAV") of 28.52p per
share as of 31 December 2022, a decrease of 40.7% relative to the NAV share
per share as of 31 December 2021 (48.08p) and -7.6% relative to the NAV per
share as of 30 September 2022 (30.88p).
- Inflation, tightening monetary conditions and heightened
geopolitical tensions led to deteriorating market sentiment during the year,
which weighed on the performance of the portfolio. Performance over the year
was largely driven by the fall in the share price of the Companyʼs largest
holding, Oxford Nanopore Technologies plc ("Oxford Nanopore"), while other
legacy investments, including Rutherford, BenevolentAI and Atom Bank also
weighed on returns.
- With caution given the challenging market backdrop, the
Company continued to invest in ground-breaking companies, adding dedicated
renewed technology marketplace, Back Market, to the portfolio, as well as
building out its diversified portfolio of innovative life science businesses
targeting key unmet medical needs, with new positions in Epsilogen, Araris
Biotech, iOnctura, A2 Biotherapeutics and Anthos Therapeutics. Post
period-end, the Company continued to utilise its broadened global investment
remit, announcing its first transaction in Asia with an investment in
AgroStar, one of Indiaʼs foremost agricultural technology start-ups.
- We welcome the steps taken by the Board to change the name of
the Company, while our appointment of Harry Raikes as co-manager aligns with
the greater investment emphasis on private equity. These changes reflect our
ambition to provide shareholders with access to the leading growth businesses
of the future and achieve long-term capital growth.
- We are not complacent about the challenges that lie ahead.
While we have made significant progress in transforming the portfolio into one
which is gradually reflecting the opportunity set that we see, it would be
wrong to suggest that the job is anywhere near complete. The Company still has
a significant exposure to legacy investments made by the previous Portfolio
Manager and much work is required to restore the reputation of the Company in
the eyes of the investing public. Nevertheless, we believe the Company is now
on a path that the broader Schroders Capital business has been following
successfully for twenty-five years. We know where it is heading, and we are
confident that the journey represents a compelling long-term growth
opportunity. Now it is time for us to deliver that opportunity.
Introduction
Our journey so far
Schroders took on the management of the Company in December 2019 and the
journey since then has involved a lot of work and many hurdles have been
overcome. In many respects, our transformation of the portfolio remains a work
in progress, but we believe it is important to look back on the important
steps that we have taken and reflect on the prospects that await the Company.
In the early months of Schroders' tenure managing the Company, our key task
was to get our arms firmly around the portfolio by understanding the
underlying holdings in great detail. It was evident from the outset that the
legacy portfolio contained a few real gems, some of which are still held
today, but other assets required greater input and careful nurturing. Against
the backdrop of the Covid pandemic and a global economy in lockdown, the
initial progress was gradual but measured, allowing us to gain a clearer sense
of which assets would form part of the long-term future of the Company, while
thinking strategically about how to optimise value from other parts of the
portfolio. Other priorities included increasing the liquidity of the portfolio
and reducing the level of financial gearing.
A first key step in this process was completed in March 2021, with the sale of
seven assets to Rosetta Capital for more than £50 million. That transaction
represented many months of hard work, with significant contributions from
several team members. Then, in April 2021, the sale of clinical-stage
biotechnology company Kymab to Sanofi for $1.1bn plus milestones was
completed, resulting in a significant profit for the Company.
Importantly, these activities paved the way for other positive developments.
Crucially, the proceeds allowed us to fully repay the inherited debt burden
which stood at £112.9 million as of 31 December 2019. Thus, we were able to
establish a much sounder financial platform for the Company, and the prospect
of making new investments into ideas generated by Schroders Capital's
well-established and highly-experienced venture capital team was suddenly much
closer.
Indeed, the first new investment for the portfolio was committed in May 2021,
when we acquired a stake in the private, high potential UK cyber-security
business, Tessian. This was quickly followed by positions in UK neobank
Revolut, leading market research technology platform Attest, and the AI-based
digital health business Ada Health, in a series of new investments committed
through the rest of 2021, 2022 and continuing into this year. We are confident
that this new idea pipeline will continue to deliver the opportunity to invest
in similarly exciting young innovative companies that, we believe, represent
the leading growth businesses of the future.
In the meantime, we have also seen the successful IPOs of Oxford Nanopore and
Immunocore, and the holdings in Kymab, Inivata and Kuur Therapeutics have all
been acquired by larger healthcare businesses. These events have collectively
realised a valuable gain for the Company. By contrast, several of the
portfolio's publicly traded holdings have performed poorly in what has been a
challenging period for equity markets, particularly over the last eighteen
months. Meanwhile, the holding in Rutherford Health was written down to zero
when the business failed to attract sufficient new funding, and several other
legacy private holdings have seen write-downs due to disappointing
developments, including Industrial Heat, Mafic and Spin Memory. It is the
nature of early-stage investments that the performance of individual holdings
are likely to diverge significantly. Some have developed positively and are
fulfilling their high potential, whereas others, inevitably, have fallen by
the wayside. The disappointments have been in businesses that were part of the
portfolio long before Schroders took on its management, and in most cases, we
believe there has been little we could do to turn their fortunes around.
Another key milestone for the Company was the widening of its investment
powers to include a more global remit, which was approved in May 2022. This
too was influenced by Schroders Capital's significant global resources, which
we believe can now be fully deployed for shareholders benefit, in providing
access to the best venture and growth investment opportunities worldwide. The
Company's proposed name change reflects this global remit. It also captures
the essence of the current shape of the portfolio and its direction of travel.
During the 12 months to 31 December 2022, the Company made six new private
equity investments including one new growth investment and five new life
science strategy investments. Our efforts to increase the private equity
allocation further were impacted by overheating in late-stage and pre-IPO
markets which temporarily allowed private company valuations to become
detached from underlying fundamentals with some overflow effects into other
areas of the market. Our investment team did come close on several other
opportunities, however with strict valuation discipline were ultimately unable
to agree terms. However, we remain hopeful that the current more normalised
valuation environment will allow us to make further progress in 2023, and as
such we are excited to announce the investment in AgroStar, one of Indiaʼs
foremost agricultural technology start-ups.
The portfolio's longer-term strategic positioning is underway, in line with
our ambition to provide investors with access to innovative companies wherever
they are in the world, focusing on venture, growth and life sciences
opportunities, which is discussed in more detail in the Strategic Review
section of this report.
2022: Economic and market backdrop
Geopolitics and public equity markets
Global equity markets saw steep declines in 2022. Despite relatively resilient
earnings throughout much of the year, inflation, tightening monetary
conditions and geopolitical tensions drove increased volatility across equity,
bond and currency markets. Russia's invasion of Ukraine in late February
caused a global shock, with equities declining and commodity prices soaring.
This contributed to a further surge in inflation as well as supply chain
disruption. In effect, this brought about an end to the loose monetary policy
era across many developed markets as central banks moved, often belatedly, to
raise rates and halt asset purchase programmes launched in the previous
decade. This policy shift kept shares prices under pressure through the spring
and summer of 2022 as investors moved to price in expectations of future
interest rate rises and an increased risk of recession. Shares did however
briefly make gains in November as improved sentiment drove a bear market rally
until hawkish central bank rhetoric amidst a slowing growth backdrop
ultimately led markets to further losses in December.
Private equity and venture capital markets
In 2022, global venture capital (VC) funding declined 35% to $415 billion(1)
with particular weakness in the fourth quarter reflecting a 64%(1)
year-on-year fall from an exuberant 2021. This decline was reflected in both
deal volumes and average deal sizes. During the year, average deal sizes
declined by 32%(1) towards more normalised levels seen in 2020. Of particular
note, the number of mega-rounds - funding rounds of more than $100 million -
declined 78% in the fourth quarter, highlighting the retrenchment of investors
that do not typically have roots in venture capital, which had become a cause
for concern in 2021. This market cooling was also evident in the plummeting
rate of unicorn(2) creation through the year with 19 new unicorns created in
the fourth quarter, a fraction of the 139 created twelve months earlier.
(1)CB Insights State of Venture Global 2022 recap.
(2)Defined as a venture capital-backed company with a value of over
$1 billion.
Portfolio composition and valuation reviews
As of 31 December 2021, the Company had 35 portfolio holdings, including 11
public equity holdings and 24 private equity holdings (excluding 9 holdings
with no value). During the period, the number and composition of holdings was
impacted by the following events:
- One new investment completed as part of the growth strategy:
- New investment in leading, dedicated renewed technology
marketplace, Back Market (incorporated as Jung S.A.S).
- Five new investments completed as part of the life sciences
strategy:
- Innovative developer of immunoglobulin E antibodies to treat
cancer, Epsilogen Ltd ("Epsilogen").
- Antibody-drug conjugates development company, Araris Biotech
AG ("Araris").
- Clinical stage oncology company, iOnctura SA ("iOnctura").
- T-cell development company, A2 Biotherapeutics Inc
("A2 Bio").
- Clinical-stage biopharmaceutical company, Anthos Therapeutics
LLC ("Anthos").
- Continued portfolio rebalancing and diverging performance of
legacy holdings:
- Sale of Seedrs Ltd ("Seedrs").
- Rutherford Health plc ("Rutherford Health") announced the
withdrawal of its shares from trading on the AQSE Growth Market and was
subsequently revalued to no value after its Board resolved to wind-up the
company. Further details of the engagement undertaken as part of this process
can be found in the dedicated Sustainability section of this report.
- BenevolentAI completed its business combination with Odyssey
Acquisition S.A. ("Odyssey"), a Euronext Amsterdam- listed investment company.
- Disposals of small, residual positions in Reneuron, Xeros and
Plenti.
- Mafic and Metaboards revalued to zero.
As of 31 December 2022, the Company had 34 portfolio holdings, including 9
public equity holdings and 25 private equity holdings (excluding 12 holdings
with no value). All the Company's quoted holdings were valued using unadjusted
quoted prices, except BenevolentAI which was fair value priced due to a lack
of liquidity in its listed shares. For the Company's private equity holdings,
a full valuation review was conducted to determine the fair value of the
portfolio as of 31 December 2022.
Financial performance
Net
Attribution Public Private (debt)/
analysis (£m) equity equity cash Other NAV
Value as at 31.12.21 243.3 197.6 (2.9) (1.1) 436.9
+ Investments - 17.4 (17.4) - -
- Realisations at value (20.9) (19.2) 40.1 - -
+/- Fair value gains/(losses) (138.3) (37.4) - - (175.7)
+/- Reclassified holdings 11.5 (11.5) - - -
+/- Costs and other movements - - (3.7) 0.4 (3.3)
Value as at 31.12.22 95.6 146.9 16.1 (0.7) 257.9
Source: HSBC, as of 31 December 2022. Fair value gains/(losses) include
foreign exchange gains/(losses).
The NAV as of 31 December 2022 was £257.9 million, a decrease of 41.0%
compared with the NAV (£436.9 million) as of 31 December 2021.
The full year NAV decrease of 41.0% comprised:
- Public equity holdings: -31.7%
- Private equity holdings: -8.6%
- Costs and other movements: -0.8%
The Company's public equity holdings saw a decrease in value of 56.8%
contributing 31.7% to the full year decrease in NAV. This was predominantly
driven by the portfolio's largest holding, Oxford Nanopore ("ONT"), whose
share price fell 64.6% over the year, resulting in a loss of £105.1 million.
Stock performance disappointed over the period reflecting changes in the
market backdrop - including a rotation out of growth, an aversion to negative
free cashflow businesses, and weaker operating performance reported at peers.
During the year, the Company's weighting in ONT declined from 36.9% to 23.3%
of total investments as of 31 December 2022.
As mentioned in the half year report and accounts, Rutherford Health was fully
written off in June 2022 following news that the company's Board had resolved
to wind-up the company and appoint the official receiver as liquidator. The
revaluation resulted in a loss of £23.6 million. The company was reported as
an unquoted holding following withdrawal of its shares from trading on the
AQSE Growth Market on 24 January 2022. Further details of the engagement
undertaken by the investment team can be found in the dedicated Sustainability
section of this report.
Furthermore, the share price of IDEX Biometrics, the Norwegian developer of
biometric cards, declined by 68.3% over the period, representing a loss of
£8.0 million. IDEX has continued to deliver on its commercial plans with 9
commercial launches of bank cards utilising its biosensor technology over the
course of the year, including a full-scale launch by First Bank Abu Dhabi,
which generated the largest single order for IDEX biosensors to date. The mass
roll out of biometric payments cards looks to be approaching, and in 2022 IDEX
expanded the number of card manufacturers preparing card launches
incorporating the IDEX sensors substantially. However, while revenue growth of
44% year-on-year was encouraging, the revenue arising from commercialisation
has been slower than anticipated, meaning the company remains unprofitable,
and needed to raise further capital in Q4, which put pressure on the share
price.
In April 2022, BenevolentAI, the healthcare technology company applying
artificial intelligence for drug discovery and development, completed its
Business Combination with Odyssey Acquisition S.A. ("Odyssey"), a Euronext
Amsterdam-listed investment company. Disappointingly, however, given the lack
of a full price discovery process and the majority of shareholders being
locked up until mid-October, its quoted share price declined 64.7% over the
period to 31 December 2022. As at the valuation date (31 December 2022), the
Company's AIFM also opted to perform an additional fair value assessment in
order to reflect a lack of liquidity in the shares. The fair value concluded
represents a price of £2.51 per share reflecting a 19% discount to the
quoted price (£3.11 per share) as of the valuation date.
On the positive side, the share price of Immunocore, the pioneering T cell
receptor biotechnology company, increased 67.4% over the period. The company
received FDA and European Commission approval for the first treatment
developed on its TCR immunotherapy platform, KIMMETRAK, and successfully
started to commercialise the treatment over the course of the year. This was
an important proof point for the company's platform, and a number of other
therapies continue to be developed on it. A private placement in July, coupled
with an improvement in the rate of cash burn as product revenues started to
come through from KIMMETRAK, has extended the company's cash runway until at
least 2026, over which time further treatments developed on the platform are
expected to be brought through the approval process.
The Company's private equity holdings saw a decrease in value of 18.9%,
contributing 8.6% to the full year decrease in NAV.
UK app-only challenger bank, Atom Bank, was revalued down to reflect a
continued deterioration in the valuation of public market comparables and a
more prudent approach adopted by the Company's new AIFM. The valuation
adjustment resulted in a fair value loss of £14.5 million over the period,
despite which Atom Bank remains the Company's largest private holding
representing 13.1% of total investments. We are encouraged with the
operational progress at Atom Bank. The business continues to scale up and is
now profitable. Any new capital that the bank raises is therefore supporting
further growth through increased scale and new product launches, which has the
potential to deliver shareholder value over the medium term notwithstanding
the current volatile environment surrounding valuations of listed players in
the space.
Foreign exchange
Over the full year period, the fair value of investments denominated in United
States Dollar (USD), Euro (EUD), Swiss Franc (CHF) and Norwegian Krone (NOK)
benefited from the depreciation in the value of the British pound sterling
(GBP).
Cash and debt
At the year ended 31 December 2022, the Company had cash and cash equivalents
of £16.1 million. During the year, £22 million was drawn on the £40
million revolving credit facility and this was repaid in full and undrawn at
the year end. This facility expired on 31 January 2023. We do not see the use
of gearing as a priority at this time and believe the portfolio has sufficient
cash and liquidity to efficiently manage the portfolio going forward in line
with the Board's recent proposals to shareholders. However, we remain open to
utilising a credit facility in the future when appropriate.
Investment activity
Realisations
During the 12 months to 31 December 2022, the Company made realisations
totalling £40.1 million. The key transactions are highlighted below:
• £16.7 million was realised from the Company's holding in
Immunocore to fund new private investments.
• The Company completed the sale of its holding in Seedrs to a
global institutional investment management firm in March receiving cash
proceeds of £12.0 million. For further information regarding the transaction,
investors can refer to the original announcement made by the Company on the
1st December 2021.
• The Company received £4.0 million from the deferred
purchase price release as part of the sale of Kymab to Sanofi which originally
completed back in April 2021.
• The Company sold £1.6 million in a secondary transaction as
part of Nexeon's $170m funding round.
• The Company received its second distribution of
£1.5 million from the HP Environmental Technologies Fund following the
acquisition of portfolio company, Driivz, by Vontier Corporation, a global
industrial technology company focused on transportation and mobility
solutions.
• The Company sold its small remaining public positions in
consumer lending company Plenti Group (following the expiry of its lock-up
period), stem cell research company ReNeuron and industrial technology firm
Xeros Technology.
• The remaining realisations were made from across the public
equity holdings, including Oxford Nanopore, Johnson Matthey and Spirent
Communications.
New investments
During the 12 months to 31 December 2022, the Company made six new private
equity investments totalling £15.1 million. This included one new growth
investment and five new life science strategy investments.
We provide an overview of these new investments below, with select United
Nations' Sustainable Development Goals ("SDGs") and targets aligned to their
businesses.
Back Market - New "growth" investment
Leading online marketplace dedicated to refurbished devices
In January 2022, the Company announced it had invested €12.0 million
(£10.0 million) in Back Market (incorporated as Jung S.A.S.), as part of its
$510 million Series E funding round. The round was led by Sprints Capital,
together with Eurazeo Growth, Aglaé Ventures, General Atlantic, and
Generation Investment Management. The Company invested alongside its co-
investment partner, Sprints Capital, via a single asset fund, Sprints Capital
Ellison LP.
Launched in 2014, Back Market is the leading dedicated renewed technology
marketplace. The company brings high-quality professionally refurbished
electronic devices and appliances to customers in 16 countries including the
United Kingdom, the United States, France, Germany, Italy, Spain, Belgium,
Austria, the Netherlands, and more recently, Portugal, Japan, Finland,
Ireland, Greece, Slovakia, and Sweden. The Series E round underpins Back
Market's ambitious vision and allows the company to build on its position as
the leading marketplace exclusively dedicated to the sale of expertly
refurbished electronics. Back Market is determined to make circular technology
mainstream by delivering an experience even better than buying new.
Select UN SDG(s): 11 Make cities and human settlements inclusive,
safe, resilient and sustainable
12
Ensure sustainable consumption and production patterns
13
Take urgent action to combat climate change and its impacts
Select targets: 11.6 By 2030, reduce the adverse per
capita environmental impact of the cities
12.4 By 2020, achieve the environmentally sound management of chemicals and
all wastes throughout their life cycle
12.5 By 2030, substantially reduce waste generation through prevention,
reduction, recycling and reuse
Epsilogen - New "life sciences" investment
Innovative developer of immunoglobulin E antibodies to treat cancer
In March 2022, the Company announced it had made an investment of £1.5
million* into innovative developer of immunoglobulin E antibodies to treat
cancer, Epsilogen, as part of its £30.8 million Series B funding round. The
round was led by a new investor, Novartis Venture Fund, and joined by other
new investors 3B Future Health Fund, British Patient Capital and Caribou
Property. The new syndicate joins founding Series A investor Epidarex Capital
and Series A investor ALSA Ventures both of whom also committed further
capital in the Series B fundraising.
Epsilogen is an innovative developer of immunoglobulin E (IgE) antibodies to
treat cancer. IgE's natural function is to provide immunological defence
against certain parasites. This functionality makes it an ideal treatment of
solid tumours due to its strong potency, enhanced tumour access and long
tissue half-life. Epsilogen's lead product candidate, MOv18 IgE, is the first
therapeutic IgE antibody to enter the clinic and encouraging data from a phase
I trial demonstrated MOv18 IgE to be safe and well tolerated with early signs
of clinical activity also seen. Epsilogen is also developing a proprietary
IGEG(TM) antibody platform combining elements from both IgE and IgG antibodies
into novel and proprietary antibody molecules with enhanced functionality.
*total commitment of £3.0 million.
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for
all at all ages
Select targets: 3.4 By 2030, reduce by one-third
pre-mature mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8
Support research, development and universal access to affordable vaccines and
medicines
Araris - New "life sciences" investment
Pioneering a novel linker technology for antibody-drug conjugates
In October 2022, the Company announced it had made an investment of CHF 1.5
million (£1.3 million)* into antibody-drug conjugates (ADCs) development
company, Araris Biotech AG ("Araris"), as part of its CHF 23.5 million
(£21.4 million) financing round. New investors Wille Finance (CH) and
Institute for Follicular Lymphoma Innovation (US) as well as existing
investors in the company's blue-chip syndicate participated in this financing
including Pureos Bioventures, 4BIO Capital, VI Partners, btov Partners and
Redalpine.
Araris is pioneering the development of a novel antibody-drug conjugate
(ADC)-linker technology to enable efficient and precise production of ADCs.
Its linker platform enables the attachment of any drug payload to 'off the
shelf' antibodies, without the need for prior antibody engineering. The
resulting ADCs have shown very high activity at low doses and an improved
therapeutic index compared to FDA-approved ADCs. Araris is a spin-off company
from the Paul Scherrer Institute (PSI) and ETH Zurich.
On completion of the transaction, the Company invested £1.3 million of its
total commitment with the balance expected to be invested at the milestone
closing at some point in the second quarter of 2023.
*total commitment of CHF 3 million (£2.7 million).
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for
all at all ages
Select targets: 3.4 By 2030, reduce by one-third
pre-mature mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8
Support research, development and universal access to affordable vaccines and
medicines
iOnctura - New "life sciences" investment
Dedicated to delivering innovative cancer treatments
In November 2022, the Company announced it had made an investment of €0.8
million (£0.7 million)* into clinical stage oncology company, iOnctura SA
("iOnctura"), as part of a convertible loan. All of the existing blue chip
investor syndicate including M Ventures, INKEF Capital, VI Partners, and 3B
Future Health participated in this financing.
iOnctura is a clinical-stage biotech with a portfolio of programs that each
simultaneously target multiple core mechanisms involved in cancer resistance
and survival. iOnctura's pioneering approach to drug development is expected
to offer significant clinical benefits over the traditional approach of
targeting a single pathway alone. iOnctura has progressed two therapeutic
candidates into mid-stage clinical development: IOA-244, a highly selective
allosteric inhibitor of PI3Kδ to treat Treg-driven tumours; and IOA-289, a
highly selective, non-competitive autotaxin (ATX) inhibitor to treat cancer
associated fibroblast (CAF) driven tumours.
*total commitment of €1.3 million (£1.2 million).
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for
all at all ages
Select targets: 3.4 By 2030, reduce by one-third
pre-mature mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8
Support research, development and universal access to affordable vaccines and
medicines
A2 Bio - New "life sciences" investment
Focused on the next frontier in cell therapy: solid tumors
In November 2022, the Company announced it had made an investment of $1.2
million (£1.0 million) into T-cell development company, A2 Biotherapeutics
("A2 Bio"), as part of its $50 million (£42 million) financing round. A2 Bio
is backed by investors that include The Column Group, Vida Ventures, Samsara
BioCapital, Nextech Invest, Casdin Capital, Euclidean Capital, UC Investments
(Office of the Chief Investment Officer of the Regents), Hartford HealthCare
Endowment, StepStone Group, Section 32 and Merck.
A2 Bio is using its next-generation cell therapy Tmod platform to
revolutionize the treatment of solid tumour cancers. The company engineers T
cells that target the loss of genetic material in tumours, enabling the
selective killing of tumour cells while leaving normal cells unharmed.
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for
all at all ages
Select targets: 3.4 By 2030, reduce by one-third
pre-mature mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8
Support research, development and universal access to affordable vaccines and
medicines
Anthos - New "life sciences" investment
Developing innovative therapies to advance care for people living with
cardiovascular and metabolic diseases
In December 2022, the Company announced it had made an investment of $0.7
million (£0.6 million)* into US-based, clinical- stage biopharmaceutical
company, Anthos Therapeutics LLC ("Anthos"), in its Series B financing round.
Anthos' mission is to develop innovative therapies to advance care for people
living with cardiovascular and metabolic diseases. Their most advanced program
is focused on developing abelacimab, an investigational monoclonal antibody
that inhibits coagulation Factor XI and its activated form, Factor XIa.
Abelacimab is an experimental, next-generation anticoagulant with the
potential to provide 'hemostasis-sparing anticoagulation': protection from
arterial and venous thromboembolic events with a reduced risk of
clinically-significant bleeding.
*total commitment of $2.8 million (£2.3 million)
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for
all at all ages
Select targets: 3.4 By 2030, reduce by one-third
pre-mature mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8
Support research, development and universal access to affordable vaccines and
medicine
Follow-on investments
During the period, the Company made two small follow-on investments in its
existing private equity holdings, totalling £2.4 million.
The Company invested £2.3 million in Rutherford Health to extend its runway
while in the process of trying to secure long- term funding. This investment
formed part of a restructuring plan which included the recruitment of a new
leadership team to preserve some value of the significant historical
investment made by the Company into Rutherford over the preceding years. While
the new leadership team vigorously pursued multiple options over the last
months to save the business, it could ultimately not correct the inherited
severe underlying challenges.
In January 2022, the Company invested £0.1 million in Freevolt Group Limited
("Freevolt") as part of an internal funding round designed to extend runway to
the point that commercial revenues begin to build.
Recent developments
Since the year end, the Company has put its global investment universe to good
use and made its first transaction in Asia with an investment of $8.0 million
(~£6.6 million) in AgroStar (Ulink Agritech Pvt. Ltd.), one of India's
foremost agricultural technology (AgTech) start-ups. This investment forms
part of the $25 million (~£20.6 million) total investment by Schroders
Capital that led the $40 million (~£33.0 million) financing round. The round
also saw participation from other existing investors including Accel, Chiratae
Ventures, Evolvence, Aavishkaar Capital, Bertelsmann India Investments, Hero
Enterprise, Rabo Frontier Ventures, British International Investments and IFC.
Founded in 2013, AgroStar uses technology, data and agronomy knowledge to help
Indian farmers. It provides an end-to-end solution that is solving three major
problems for Indian farmers: limited access to good quality agricultural
inputs, a knowledge gap (even among the most experienced farmers) and a lack
of access to the global markets to sell their produce. The company serves
millions of farmers across multiple Indian states via an omnichannel approach,
having built a highly engaged digital farmer network on the AgroStar app, with
over 7.5 million users, and a rapidly expanding retail network of over 5,000
stores. Through the recent acquisition of INI Farms, India's largest exporter
of fruits and vegetables, AgroStar is quickly scaling its business into
domestic and international food supply chains.
Outlook
Within the context of a challenging backdrop of higher interest rates,
inflation and volatile markets, as well as a continued overhang of inherited
holdings, we are not complacent about the challenges that lie ahead. As
outlined above, while we have made significant progress in transforming the
portfolio into one which is gradually reflecting the opportunity set we see,
it would be wrong to suggest that the job is anywhere near complete. It is a
work in progress. We know significant further efforts will be required to
fully capture the opportunity, to make further realisations, and to fully
restore the reputation of the Company in the eyes of the investing public.
Nevertheless, the Company is now on a path that the broader Schroders Capital
business has been following successfully for twenty-five years, with the
Company's extended geographical focus allowing us to capitalise on our global
network and invest in the most innovative venture, growth and life science
opportunities, when viewed on a risk return basis, no matter where they are in
the world. The below figures serve to illustrate the return profiles we are
seeking in our investments, with an indication of their relative risk level,
which we believe should allow the Company to achieve long-term capital growth
for shareholders.
We are supportive of the Board's proposals described in the Chair's Statement,
including the introduction of a continuation vote at the 2025 Annual General
Meeting, giving shareholders the opportunity to review our performance over
the five years since we took over management. We believe the Company is well
placed to deliver on these proposals and generate long-term capital growth by
making new and follow-on investments with more than £16.1 million in cash and
£83.7 million in public equity investments as at 31 December 2022, supported
by a healthy pipeline of global venture/growth stage companies.
We know where it is the path is heading, and we are confident that the journey
represents a compelling long-term growth opportunity. Now it is time for us to
deliver that opportunity.
Schroder Investment Management Limited
14 April 2023
Investment Portfolio
as at 31 December 2022
The 20 largest investments account for 93.4% of total investments by value (31
December 2021: 93.6%).
Total
Fair value investments
Holding Quoted/unquoted Industry Sector £'000 %
Oxford Nanopore(1) Quoted Health Care 56,529 23.3
Atom Bank(1) Unquoted Financials 31,686 13.1
AMO Pharma(1) Unquoted Health Care 16,408 6.8
Reaction Engines(1) Unquoted Industrials 12,500 5.2
BenevolentAl(1,2) Quoted Health Care 11,935 4.9
Federated Wireless(1) Unquoted Technology 11,227 4.6
HP Environmental Technologies Fund(1) Unquoted Industrials 10,700 4.4
Genomics(1) Unquoted Health Care 8,854 3.7
Immunocore(1) Quoted Health Care 7,855 3.3
Back Market(3) Unquoted Consumer 7,329 3.0
Ada Health Unquoted Health Care 7,122 2.9
Nexeon(1) Unquoted Industrials 6,505 2.7
Cequr(1) Unquoted Health Care 6,112 2.5
Revolut LLP Unquoted Financials 5,436 2.3
Spirent Communications Quoted Technology 5,146 2.1
OcuTerra(1) Unquoted Health Care 5,047 2.1
Johnson Matthey Quoted Industrials 4,215 1.7
Attest Technologies Unquoted Business Services 4,085 1.7
Tessian Unquoted Technology 3,928 1.6
IDEX Biometrics ASA(1) Quoted Technology 3,781 1.5
Petershill Partners Quoted Financials 3,439 1.4
Autolus Therapeutics(1) Quoted Health Care 2,642 1.1
Industrial Heat(1) Unquoted Industrials 2,214 0.9
Kymab(1) Unquoted Health Care 1,831 0.8
Epsilogen Unquoted Health Care 1,465 0.6
Araris Biotech Unquoted Health Care 1,348 0.6
A2 Biotherapeutics Unquoted Health Care 969 0.4
iOnctura Unquoted Health Care 697 0.3
Anthos Therapeutics Unquoted Health Care 582 0.2
Novabiotics(1) Unquoted Health Care 457 0.2
American Financial Exchange(1) Unquoted Financials 213 0.1
ARC Group(1) Quoted Business Services 104 -
Freevolt (formerly Drayson)(1) Unquoted Technology 85 -
Econic(1) Unquoted Industrials 58 -
Metaboards(1) Unquoted Technology - -
Rutherford Health(1) Unquoted Health Care - -
Mafic(1) Unquoted Industrials - -
Bodle Technologies(1) Unquoted Technology - -
Origin(1) Unquoted Health Care - -
Spin Memory(1) Unquoted Technology - -
Lignia Wood(1) Unquoted Industrials - -
Mereo BioPharma Group(1) Quoted Health Care - -
EVOFEM Biosciences(1) Unquoted Health Care - -
Halosource(1) Unquoted Industrials - -
Kind Consumer(1) Unquoted Consumer Staples - -
Oxsybio(1) Unquoted Health Care - -
Total investments(4) 242,504 100.0
(1)Legacy Assets
These are "Legacy Assets", being assets acquired by the Company prior to
Schroder Investment Management taking over management responsibilities in
December 2019.
(2)BenevolentAI is quoted, but the market is inactive. Thus its valuation has
been determined in accordance with the process followed for unquoted assets.
(3)Back Market
Held via the Company's holding in Sprints Capital Ellison LP, a single asset
fund.
(4)Total investments comprise:
£'000 %
Unquoted 146,858 60.6
Listed on the London Stock Exchange 69,329 28.6
Listed on a recognised stock exchange overseas 26,317 10.8
Total 242,504 100.0
Additional details of unquoteds, including investments quoted in inactive
markets, in the top ten holdings
Holding Description Cost Fair value Turnover for Pre-tax losses Net assets/
of business £'000 £'000 the latest for the (liabilities)
audited latest audited at the latest
financial financial audited
year year balance
£'000 £'000 sheet date
£'000
Atom Bank Leading UK app-only challenger bank 75,165 31,686 76,844 (14,466) 249,595
AMO Pharma Developer of drugs to treat rare or orphan diseases 7,020 16,408 - (8,696) (12,162)
Reaction Engines Developer of engine technologies to enable space and hypersonic travel 10,000 12,500 7,159 (21,626) 15,185
BenevolentAl Drug discovery using artificial intelligence 84,882 11,935 10,560 (179,852) 153,999
Federated Wireless Provider of a spectrum access controller for wireless communications 12,587 11,227 11,021 (27,668) (2,182)
HP Environmental Technologies Portfolio of venture and Fund growth-stage industrial companies 4,046 10,700 N/a(1) N/a(1) N/a(1)
Genomics Developer of precision healthcare tools that use large-scale genetic 6,512 8,854 2,542 (14,437) 30,335
information
Back Market Expert refurbishment of electronic devices 10,032 7,329 N/a(1) N/a(1) N/a(1)
(1)Information not publicly available.
Principal risks and uncertainties
The Board, through its delegation to the Audit, Risk and Valuation Committee,
is responsible for the Company's system of risk management and internal
control and for reviewing its effectiveness. The Board has adopted a detailed
matrix of principal risks affecting the Company's business as an investment
trust and has established associated policies and processes designed to manage
and, where possible, mitigate those risks, which are monitored by the Audit,
Risk and Valuation Committee on an ongoing basis. This system assists the
Board in determining the nature and extent of the risks it is willing to take
in achieving the Company's strategic objectives. Both the principal risks and
uncertainties and the monitoring system are also subject to robust assessment
at least annually. The last assessment took place in March 2023.
During the year, the Board also discussed and monitored a number of risks that
could potentially impact the Company's ability to meet its strategic
objectives. The Board receives updates from the Manager, Company Secretary and
other service providers on emerging risks that could affect the Company. The
Board was mindful of the following emerging risks during the year; the ongoing
conflict in Ukraine, rising inflation, the threat of a global recession and
increasing energy prices although they are not factors which explicitly
impacted the Company's performance. These risks are also not seen as new
principal or emerging risks but those that exacerbate existing risks and have
been incorporated in the economic and market risk section in the table below.
A significant control failing or weakness relating to the production of the
daily NAV was identified from the Audit, Risk and Valuation Committee's
ongoing risk assessment which has been in place throughout the financial year
and up to the date of this report. However, the Committee is confident that
with the change of AIFM, Depositary and Administrator these failings have been
robustly addressed and mitigated. The Board is therefore satisfied that it has
undertaken a detailed review of the risks facing the Company.
Climate change risk includes how climate change could affect the Company's
investments, and potentially shareholder returns. The Board has determined
that this risk was not sufficiently material to be categorised as an
independent principal risk and it continues to monitor developments in this
area. The Board notes the Manager integrates ESG considerations, including
climate change, into the investment process and felt that due to the nature of
ESG risk in private investee companies, that this be added to the principal
risks table below. The Manager has provided new and enhanced ESG reporting
this year which includes case studies of engagement with a sample of the
Company's portfolio companies.
Although the Board believes that it has a robust framework of internal control
in place this can provide only reasonable, and not absolute, assurance against
material financial misstatement or loss and is designed to manage, not
eliminate, risk. Actions taken by the Board and, where appropriate, its
Committees, to manage and mitigate the Company's emerging and principal risks
and uncertainties are set out in the table below.
The "Change" column on the right highlights at a glance the Board's assessment
of any increases or decreases in risk during the year after mitigation and
management. The arrows show the risks as increased, decreased or unchanged.
Risk Mitigation Change
Economic and market risk Increased
The portfolio will normally be fairly fully invested and as such will There are inherent risks involved in stock selection. The Manager is The increased risk reflects continuing geopolitical concerns following the
therefore inevitably be exposed to economic and market risk. Changes in experienced and has a long track record in successfully investing in public ongoing war in Ukraine as well as higher inflation, interest rate rises and
general economic and market conditions, such as currency exchange rates, and private equity holdings. Significant progress has been made on the ongoing economic impact of these. Foreign currency risk exposure has also
interest rates, inflation rates, industry conditions, tax laws, political transitioning the portfolio towards a more balanced and differentiated spread increased. The Board continues to monitor these events on a regular basis.
events and trends can substantially and adversely affect the value of of exposures across healthcare, technology, financials, industrials, consumer
investments. Market risk includes the potential impact of events which are and business services. Investment risk is spread by investing in high quality
outside the Company's control, such as pandemics, civil unrest and wars. companies at various stages of their development. Having the flexibility to
continue to hold these investments as they transition to public entities taps
into the growth potential of businesses throughout their life cycle. The
change to a global mandate also allows the Manager to diversify the portfolio
The Company invests in public and private equity companies with an expectation geographically and also potentially across a wider range of technologies and
of a an allocation to public:private of 25:75 per cent of companies held in thus mitigate against challenging economic conditions of a single market or
the portfolio over time. Most public company holdings will likely be a sector.
consequence of private holdings which have listed following an IPO. Private
equity companies generally have greater valuation uncertainties and liquidity
risks than public equity holdings.
The Manager will not normally hedge against foreign currency movements, but
does take into account the risk when making investment decisions. Further
details on financial risks and risk mitigation are detailed in note 20 to the
accounts.
Strategy risk Increased
Notwithstanding the Manager's very experienced team and successful long-term The Board receives regular reports on the Company's investment performance The increased risk reflects the discount widening in 2022. Following agreement
track record in this asset class, this trust and other similar trusts across against its stated objectives and peer group along with reports from with its major shareholder, the Board intends, subject to cancellation of the
the sector are all trading at very wide discounts. While this may reflect in discussions with its brokers and major shareholders. The Board also receives Company's share premium account, to make an amount equating to 25% of all net
part uncertainty about valuations and/or current market circumstances, it may regular reports on marketing activity including how the Manager is promoting cash realisations from the portfolio inherited from the previous portfolio
be that some investors begin to lose interest in listed closed end private the asset class and its opportunities, the profile of the Manager and its manager* received between now and the 2025 Annual General Meeting available to
equity as an asset class. track record and the need for a longer term investment perspective. be redeployed to make share repurchases by the Company. A continuation vote
will be held at the 2025 AGM which will provide shareholders with the
opportunity to vote on whether the Company should continue in its present
form.
The Board acknowledges that it is not possible to accurately forecast
realisations between now and 2025. In order to ensure that the Company remains
active in buying back its stock, the Board intends, subject to cancellation of
the Company's share premium account, to purchase shares equal to at least 5%
of the Company's issued share capital in each of the calendar years 2023 and
2024. Further details can be found in the Chair's Statement on pages 4 to 6 of
the 2022 Annual Report and Accounts.
Valuation risk Increased
The valuation of private equity early stage companies is inherently difficult. The Manager, under delegated authority from the Board, has responsibility for During periods of higher interest rate volatility, valuations risk can rise.
Valuation at a fixed point in time may not be representative of the medium or the valuation of the assets in the portfolio. The Manager, in turn, uses
longer term. Particular events at a company or particular funding rounds may extensive research and input from its own valuation specialist provider,
have a significant impact. Information may not be as widely available as with IHSMarkit (part of S&P Global). IHSMarkit conducts a regular rolling
public companies and these companies may not yet have meaningful revenues or review of the valuation of all portfolio assets and also review their
profits. Considerable uncertainty may exist around the eventual feasibility valuations in the event of any significant triggers at individual investee
and value of a particular technology or its commercialisation. companies. They follow the widely respected and widely followed IPEVCV
guidelines in executing these valuations; these processes are explained in
Note 1b in the notes to the Accounts.
Where other portfolio managers seek to make disposals of securities held in
portfolios they manage and these securities are also held by the Company, the
valuation of these securities may thereby be affected. Equally, market
anticipation of these disposals may also impact valuations.
Listed, but thinly traded, shares may also be subject to significant and
abrupt volatility.
Operational risk Unchanged
The Company has no employees and the Directors have been appointed on a Experienced third party service providers are employed by the Company under As part of the change of the AIFM, Depositary and Administrator, the Board
nonexecutive basis. The Company is reliant upon the performance of third-party appropriate terms and conditions and with agreed service level specifications. have seen a significant improvement in the processes and procedures in place.
service providers for its executive function. The AIFM, the Manager, the Service level agreements include clauses which set out the notice periods for The Board will continue to monitor the performance of the new service
Depositary, the Company Secretary and the Administrator will be performing terminations. providers during the course of this year and expects the level of this risk to
services that are integral to the operation of the Company. Failure of any of
decrease significantly once the new providers have been in place for a period
its third-party service providers to perform in accordance with the terms of of time.
its appointment could have a material detrimental impact on the operation of
the Company. Furthermore, any of the Company's service providers could The Board receives regular reports from its service providers and the
terminate their contract. Management Engagement Committee will review the performance of key service
providers at least annually. The AIFM, Depositary and Administrator have As noted in the Chair's Statement on page 5 of the 2022 Annual Report and
changed during the year, as described in more detail in the Directors' Report. Accounts, although the Company had a share premium account of £891 million at
The Board believes the new arrangements should ensure an integrated support the time of the 2022 and 2023 share buybacks, as that had not been cancelled
Equally, the Company's reputation could be affected by shortcomings at one of structure and mitigate operational risks. at the time, the Company did not have sufficient distributable profits and so
its providers in respect of dealing with the providers' other clients or
those buybacks did not comply with the requirements of the Companies Act 2006.
regulatory failings The Board has been working with its service providers to determine how this
technical issue arose and to implement the necessary steps to remediate the
The Audit, Risk and Valuation Committee reviews reports on the external audits position.
of the internal controls operated by certain of the key service providers.
Portfolio concentration risk Decreased
Some of the Company's investments have demonstrated relatively more success The Board and the Manager feel that undue concentration is not desirable in Significant progress has been made on transitioning the portfolio towards a
and/or required more funding than others, which has led to those investments the longer term and continuously explore options to reduce this over time. more balanced spread of exposures across healthcare, technology, financials,
representing larger proportions of the portfolio than might be expected. The However, the Board's view is in the shorter term, portfolio concentration can industrials, consumer and business services. At the year end the spread across
risk linked to any portfolio concentration might be compounded due to the be acceptable. The Manager has an extensive track record of managing these sectors was healthcare (53.5%), financials (16.8%), industrials (15.0%),
nature of some of the businesses and the risks associated with both commercial diversified portfolios, both from sector and geographic perspectives, and the technology (10.0%), consumer (3.0%) and business services (1.7%).
and technical milestones. work to rebalance the portfolio continues. The Board also considers increased
specific risk that may arise from increased concentration, as the result of
the relative success of certain investee companies. The Board discusses this
risk with the Manager on a regular basis.
Performance risk Unchanged
There is always, for any investment portfolio, the generic risk of poor This risk is mitigated by the Board monitoring the performance of the
performance arising as a result of poor decisions in stock selection made by portfolio and the decisions made by the Manager through detailed reporting at
the Manager. In addition, given the long-term nature of this investment each Board meeting.
strategy (up to 10 years) and the absence of a clear benchmark, it is not
necessarily easy to make an evaluation of the Manager based simply on returns
over shorter periods.
The Audit, Risk and Valuation Committee reviews all private equity investments
on a quarterly basis and challenges methodologies used by the Manager.
Liquidity risk Unchanged
Following the expiry of the loan facility in January 2023, liquidity risk, ie The Company's assets include readily realisable securities which can be sold The loan was repaid and not replaced.
that the Company may not be able to liquidate its investments to meet its to meet ongoing funding requirements. The Manager manages its liquid
short-term financial demands. investments to ensure that sufficient cash is available to meet contractual
commitments. A cash buffer is also held to meet other short-term needs. The
Company had cash of 16.1 million (2021: 19.1 million) as at 31 December
2022.
Investee company specific risk Unchanged
The Company invests in a variety of biopharma and technology businesses, many
of them relatively early stage, where the technology is not yet fully proven
or commercialised. This can offer very significant financial success when the The private equity strategy is comprised of three sub-strategies of which the
technology delivers but also carries downside risks particular to the Life Sciences portfolio is limited to approximately 10% of total investments.
companies concerned. The eventual outcome for some of these companies may be Within the portfolio, the Manager works towards a balanced and differentiated
somewhat binary in as much as either the technology works, or it does not, spread of exposures across Diagnostics, Services and Therapeutics.
resulting in the company concerned becoming worth significantly less. Failure
may materialise, for instance, in the case of clinical trials for a
biotechnology business, in the case of scaling up or commercialisation of an
engineering business or in terms of the appearance of a new, previously The Manager conducts regular reviews of these businesses through engaging
unknown competitor for a software company. Leading edge commercial scientific regularly with all investee companies to monitor progress and ensure
development in many fields is by its nature risky. milestones are adequately met. The Manager also carries out due diligence on
the relevant technologies and obtain regular updates. The Manager uses its own
proprietary analytics to assess the prospects for investee companies and may
also seek expert third party opinions regarding the likely success of the
Short term liquidity issues can become compounded by market events. technology. The Manager works with other shareholders of a particular investee
company to assist with financial support where required.
Short term liquidity issues are mitigated over time when such companies
deliver on their milestones and value is recognised.
Information technology and information security risk Unchanged
Each of the Company's service providers is at risk of cyber attack, data
theft, service disruption, etc. While the risk of financial loss by the
Company is probably small, the risk of reputational damage and the risk of The Board receives controls reports from its service providers which describe
loss of control of sensitive information is more significant, for instance a the protective measures they take as well as their business recovery plans. In
GDPR breach. Many of the Company's service providers and the Board often have addition, the Board received presentations from the Manager on cyber risk.
sensitive information regarding transactions or pricing and information
regarded as inside information in regulatory terms. Data theft or data
corruption per se is regarded as a lower order risk as relevant data is held
in multiple locations.
Key Person Dependency risk Unchanged
The Manager operates a team approach to portfolio management and decision The Manager has a compensation and incentive scheme to recruit and retain key
making so the risk arising from the departure of one or more of the Manager's staff including the Portfolio Managers, and has developed a suitable
key investment professionals should not necessarily prevent the Company from succession planning programme, which seeks to ease the impact that additional
achieving its investment objective. workload and/or the loss of a key investment professional may have on the
Company's performance. The Manager will notify any change in its key
professionals to the Board at the earliest possible opportunity and the Board
will be made aware of all efforts made to fill a vacancy.
The Manager's resources could become stretched through the launch of new
products or team departures leading to a lack of focus on the Company's
portfolio.
Furthermore, investment decisions are made by a team of professionals,
mitigating the impact of the loss of any key professional within the Manager's
organisation on the Company's performance.
The Manager could terminate its contract with the Company. This event would
have an impact on the management of the portfolio and would constitute a
technical default on the debt facility, requiring renegotiation or
substitution, likely on less favourable terms. The AIFM agreement includes clauses which set out the notice periods for
termination from either party as detailed in the Directors' Report on page 47
of the 2022 Annual Report and Accounts.
Environmental, Social and Governance (ESG) risk Unchanged
Failure by the Manager to identify potential future ESG matters in an investee
company, given their private nature, could lead to the Company's shares being
less attractive to investors as well as potential valuation issues in the The Manager has an application process integrated into the investment process. The Manager has provided new and enhanced ESG reporting which includes its
underlying investee company. The approach to conducting ESG-related analysis of private companies is approach to ESG and case studies of engagement with a sample of the Company's
complemented with a standard exclusions list, more bespoke assessments, portfolio companies.
dedicated ESG reference calls, and by integrating several external tools and
data sources, including RepRisk, World-Check, the ESG Data Convergence Project
and eFront's ESG Outreach module to further assess ESG risks and
opportunities. This includes the risk inherent in climate change.
Risk assessment and internal controls review by the Board
Risk assessment includes consideration of the scope and quality of the systems
of internal control operating within key service providers, and ensures
regular communication of the results of monitoring by such providers to the
Audit, Risk and Valuation Committee, including the incidence of significant
control failings or weaknesses that have been identified at any time and the
extent to which they have resulted in unforeseen outcomes or contingencies
that may have a material impact on the Company's performance or condition.
Going Concern
The Board has considered the Company's principal risks and uncertainties
(including whether there are any emerging risks); has scrutinised the detailed
cash flow forecast prepared by the Manager; and considered their assessment of
the likelihood and quantum of funds which could be raised from sales of
investments. The Manager has also performed a range of stress tests, and
demonstrated to the Board that even in an adverse scenario of depressed
markets and restrictions on sales in the private equity market, the Company
could still generate sufficient funds from sales of investments to meet its
liabilities over the next twelve months. As a result, the Board is comfortable
that the Company will have sufficient liquid funds to pay operating expenses.
The Company's £40 million loan facility with The Northern Trust Company
terminated on 30 January 2023 and was not renewed. The facility was undrawn
at that date.
On this basis, the Board considers it appropriate to adopt the going concern
basis of accounting in the Company's accounts, and has not identified any
material uncertainties to the Company's ability to continue as a going concern
over a period of at least twelve months from the date of approval of these
annual report and accounts.
Viability Statement
The Board has assessed the prospects of the Company over the five-year period
ending 31 December 2027. The Board considers a five-year period to be
appropriate because it is the minimum holding period that it would recommend
to a prospective investor considering purchasing shares in the Company.
The Board has considered the principal risks set out on pages 37 to 43 of the
2022 Annual Report and Accounts and detailed cash flow forecasts prepared by
the Manager and stress case scenarios.
The Board believes that the portfolio will provide shareholders with
satisfactory returns from the investment portfolio over a five-year period
and, notwithstanding the Strategy risks mentioned in the principal risks and
uncertainties section, there should be continued demand for the Company's
shares.
The continuation of the Company will be subject to the approval of
shareholders at the 2025 AGM. The Board intends to make, subject to
cancellation of the Company's share premium account, an amount equating to 25%
of all net cash realisations from the portfolio inherited from the previous
portfolio manager received between now and the 2025 Annual General Meeting
available to be redeployed to make share repurchases by the Company. The Board
acknowledges that it is not possible to accurately forecast realisations
between now and 2025. In order to ensure that the Company remains active in
buying back its stock, the Company intends in any event, subject to
cancellation of the Company's share premium account, to purchase shares equal
to at least 5% of the Company's issued share capital in each of the calendar
years 2023 and 2024. The Board believes the Manager is well placed to deliver
on these proposals, generate long-term capital growth and have no reason to
believe that the continuation vote will not be approved in 2025.
Having considered all of the Company's resources, strategy, risks and
probabilities, the Board has a reasonable expectation that the Company will
continue to operate and meet its liabilities as they fall due, during the five
year period to 31 December 2027.
By order of the Board
Schroder Investment Management Limited
Company Secretary
14 April 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising Financial
Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in
the UK and Republic of Ireland" and applicable law). 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 return 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 UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Manager is responsible for the maintenance and integrity of the webpage
dedicated to the Company. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on pages 44 and 45
of the 2022 Annual Report and Accounts, confirm that to the best of their
knowledge:
- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), give a true and fair view of
the assets, liabilities, financial position and net return of the Company;
- the annual report and accounts 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; and
- the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
On behalf of the Board
Tim Edwards
Chair of the Board
14 April 2023
Income Statement
for the year ended 31 December 2022
2022 2021
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments held at fair value through profit or loss - (175,669) (175,669) - 124,583 124,583
Gains/(losses) on foreign exchange - 583 583 - (466) (466)
Income from investments 2 479 - 479 112 - 112
Gross return/(loss) 479 (175,086) (174,607) 112 124,117 124,229
Management fee 3 (1,989) - (1,989) (3,019) - (3,019)
Administrative expenses 4 (1,237) - (1,237) (1,448) - (1,448)
Net (loss)/return before finance costs and taxation (2,747) (175,086) (177,833) (4,355) 124,117 119,762
Finance costs 5 (304) - (304) (960) - (960)
Net (loss)/return before taxation (3,051) (175,086) (178,137) (5,315) 124,117 118,802
Taxation 6 - - - - - -
Net (loss)/return after taxation (3,051) (175,086) (178,137) (5,315) 124,117 118,802
Basic and diluted (loss)/earnings per share 8 (0.34)p (19.30)p (19.64)p (0.58)p 13.66p 13.08p
The "Total" column of this statement is the profit and loss account of the
Company. The "Revenue" and "Capital" columns represent supplementary
information prepared under guidance issued by The Association of Investment
Companies. The Company has no other items of other comprehensive income, and
therefore the net (loss)/return after taxation is also the total comprehensive
income for the year, therefore no separate Statement of Comprehensive Income
has been prepared.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The notes on pages 74 to 88 of the 2022 Annual Report and Accounts form an
integral part of these accounts.
Statement of Changes in Equity
for the year ended 31 December 2022
Called-up
share Share Capital Capital Revenue
Note capital premium redemption reserves reserve Total
At 31 December 2020 9,086 891,017 - (563,222) (18,812) 318,069
Net return/(loss) after taxation - - - 124,117 (5,315) 118,802
At 31 December 2021 13/14 9,086 891,017 - (439,105) (24,127) 436,871
Purchase of shares for cancellation (44) - 44 (812) - (812)
Net loss after taxation - - - (175,086) (3,051) (178,137)
At 31 December 2022 13/14 9,042 891,017 44 (615,003) (27,178) 257,922
The notes on pages 74 to 88 of the 2022 Annual Report and Accounts form an
integral part of these accounts.
Statement of Financial Position
at 31 December 2022
2022 2021
Note £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 9 242,504 440,899
Current assets
Debtors 10 160 171
Cash at bank and in hand 10 16,122 19,077
16,282 19,248
Current liabilities
Creditors: amounts falling due within one year 11 (864) (1,276)
Net current assets 15,418 17,972
Total assets less current liabilities 257,922 458,871
Creditors: amounts falling due after more than one year 12 - (22,000)
Net assets 257,922 436,871
Capital and reserves
Called-up share capital 13 9,042 9,086
Share premium 14 891,017 891,017
Capital redemption reserve 14 44 -
Capital reserves 14 (615,003) (439,105)
Revenue reserve 14 (27,178) (24,127)
Total equity shareholders' funds 257,922 436,871
Net asset value per share 15 28.52p 48.08p
These accounts were approved and authorised for issue by the board of
directors on 14 April 2023 and signed on its behalf by:
Tim Edwards
Chair
The notes on pages 74 to 88 of the 2022 Annual Report and Accounts form an
integral part of these accounts.
Cash Flow Statement
for the year ended 31 December 2022
2022 2021
£'000 £'000
Cash flows from operating activities
(Loss)/return before finance costs and taxation (177,833) 119,762
Adjustments for:
Losses/(gains) on investments held at fair value through profit or loss 175,669 (124,583)
Decrease/(increase) in debtors 11 (145)
Decrease in creditors (316) (1,231)
Net cash flow from operating activities (2,469) (6,197)
Cash flows from investment activities
Purchases of investments (17,422) (61,199)
Proceeds from sales of investments 40,148 166,035
Net cash flow from investment activities 22,726 104,836
Cash flows from financing activities
Purchase of shares for cancellation (812) -
Finance costs (400) (909)
Bank loan drawn down - 22,000
Bank loan repaid (22,000) (107,032)
Net cash flow from financing activities (23,212) (85,941)
Change in cash and cash equivalents (2,955) 12,698
Cash and cash equivalents at the beginning of the year 19,077 6,379
Cash and cash equivalents at the end of the year 16,122 19,077
The notes on pages 74 to 88 of the 2022 Annual Report and Accounts form an
integral part of these accounts.
Notes to the Accounts
1. Accounting Policies
(a) Basis of accounting
Schroder UK Public Private Trust plc ("the Company") is registered in England
and Wales as a public company limited by shares. The Company's registered
office is 1 London Wall Place, London EC2Y 5AU.
The accounts are prepared in accordance with the Companies Act 2006, United
Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in
accordance with Financial Reporting Standard (FRS) 102 "The Financial
Reporting Standard applicable in the UK and Republic of Ireland", and with the
Statement of Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" (the "SORP") issued by the Association
of Investment Companies in July 2022. All of the Company's operations are of a
continuing nature.
The accounts have been prepared on a going concern basis under the historical
cost convention, as modified by the revaluation of investments and derivative
financial instruments held at fair value through profit or loss. The directors
believe that the Company has adequate resources to continue operating for at
least 12 months from the date of approval of these accounts. In forming this
opinion, the directors have taken into consideration: the controls and
monitoring processes in place; the Company's level of debt and other payables;
the level of operating expenses, comprising largely variable costs which would
reduce pro rata in the event of a market downturn; the Company's cash flow
forecasts and the liquidity of the Company's investments. In forming this
opinion, the directors have also considered the impact of climate change on
the Company. Further details of directors' considerations regarding this are
given in the Chair's Statement, Investment Managers' Review, Going Concern
Statement, Viability Statement and under Principal Risks and Uncertainties.
The accounts have been prepared on the assumption that approval as an
investment trust will continue to be granted.
In preparing these accounts the Directors have considered the impact of
climate change on the value of the Company's investments. The Board has
concluded that, for investments which are valued using quoted bid prices in
active markets, the fair value reflects market participants' view of climate
change risk. Unquoted investments are valued in accordance with the policy
detailed below, using techniques which also reflect each investment's exposure
to climate change risk.
The Company has adopted the provisions of Sections 11 and 12 of FRS 102 for
measuring and disclosing its financial instruments.
The accounts are presented in sterling and amounts have been rounded to the
nearest thousand.
The accounting policies applied to these accounts are consistent with those
applied in the accounts for the year ended 31 December 2021.
Significant estimates and assumptions have been required in valuing the
Company's investments and these are detailed below.
(b) Valuation of investments
Investments that are quoted on an exchange are valued using closing bid
prices. If there has been no material trading in an investment, it will be
valued using the process for unquoted investments, described below.
Investments in shares that are not quoted on any Stock Exchange (unquoted
investments) represent a significant part of the Company's portfolio. Such
investments are held at fair value, which requires significant estimation in
concluding on their fair value. While there is a robust and consistent
valuation process undertaken by the AIFM, it is recognised that in stating
these assets at fair value there is a significant element of estimation
uncertainty. Central to this uncertainty is the assumption that such assets
will continue to progress in line with their stated business plan and will be
held for the longer term until exit, generally where either the company is
sold to an interested party or lists on an appropriate exchange. The core to
that significant estimate is the potential failure of any individual unquoted
investment to progress in accordance with their business plan and such failure
could result in a material change to the fair valuation of that company. The
assumptions and estimates made in determining the fair value of each unquoted
investment are considered at least each six months or sooner if there is a
triggering event. An example of where a valuation would be considered out of
the six-month cycle is the failure of a drug under development to meet an
anticipated outcome of its trial, or other performance against tangible
development milestones.
A full valuation review is undertaken by the Manager in June and December,
with a review undertaken in March and September. In the event of a triggering
event being identified intra the valuation review process, an ad hoc valuation
will be undertaken.
Significant estimates of fair value are considered on an ongoing basis
including considering impact of events in the wider market. In making these
estimates, appropriate care is taken to consider the nature and inherent
uncertainties of market events and their impact on the fair value of unquoted
assets.
While there may be market speculation about potential transaction activity in
portfolio companies, such matters are not taken into account in the valuation
process until the information is public and can be considered as an observable
market transaction.
The Manager has determined the fair value of the unquoted investments and
investments quoted in inactive markets, in accordance with the following
principles, which are consistent with IPEVCV guidelines:
1. The following factors will be considered in determining the
fair value of an asset:
(i) The price of a recent investment, whilst an indicator of fair
value, is not a default that would preclude re-estimating the valuation at the
valuation date. However, if the price of recent investment is determined to be
fair value then it is used to calibrate inputs to the valuation model(s); or
(ii) Where a value is indicated by a recent material arms-length
transaction by an independent third party in the shares of a company, and
after it is established that this is fair then this value will be used, unless
the rights attributable to the shares impact the overall capital structure and
rights of existing investors; or
(iii) In the absence of (i) and (ii), and depending upon both the
subsequent trading performance and investment structure of an investee
company, the valuation basis will usually move to an earnings multiple basis
or, if appropriate, other valuation models such as:
(a) Probability-weighted expected return method (PWERM), which
considers on a probability weighted basis the future outcomes for the
investment.
(b) Option priced modelling (OPM) is used to value early stage
companies where outcomes are uncertain.
(c) Adjusted recent transaction prices (which consider the company's
performance against key milestones and the complexity of the capital
structure) are also used.
(d) Discounted cash flow model which values a business based on
estimates of future cash-flows with an appropriate discount rate.
(iv) If the investment is in a fund, the valuation will be based on
the NAV of the fund (which is invariably comprised of early-stage unquoted
investments), or on an adjusted basis to recognise the underlying performance
of the investments.
Where models are used in valuing an investment, significant judgements are
made in estimating the various inputs into the models and recognising the
sensitivity of such estimates, especially in early-stage pre-revenue
enterprises. Examples of the factors where significant judgement is made
include, but are not limited to, the probability assigned to the relative
success or failure of an enterprise; the probable future outcome paths;
discount rates; growth rates; terminal value; selection of appropriate market
comparable companies, the reliability of future revenue and growth forecasts
and the likely exit scenarios for the investor company, for example, IPO or
trade sale. In making judgements in regard to the probability of an investee
outcome, it must be noted that due to the nature of the investee company's
activity, its future outcome may, to a greater or lesser extent, be binary,
for example, if an investee company is developing one particular drug and that
fails its required trials then the outcome may be terminal for that
enterprise. It should be noted that the most significant event that will drive
valuation change in investee companies are company-specific events that would
give rise to a valuation inflexion point (known also as a 'triggering event').
An example of a material inflexion point in a bio-pharma company would be the
successful completion of a drug trial or its approval by a regulatory
authority.
These valuation methods may lead to a company being valued on a suitable
price-earnings ratio to that company's historic, current or forecast post-tax
earnings before interest and amortisation. The ratio used will be based on a
comparable sector but the resulting value will be adjusted to reflect points
of difference identified when compared to the market sector (in which the
investment would reside if it were it listed) including, inter alia, a lack of
marketability.
At 31 December 2022, 14.5% (2021: 24.2%) of the NAV was valued in accordance
with 1(i); nil% (2021: 9.1%) was valued in accordance with 1(ii); 37.9% (2021:
14.4%) in accordance with 1(iii); and 9.1% (2021: 2.4%) in accordance with
1(iv).
(c) Accounting for reserves
Capital reserve
The capital reserve reflects any:
- gains and losses on disposals of investments;
- exchange differences of a capital nature;
- increase and decreases in the fair value of investments which
have been recognised in the capital column of the Income Statement;
- expenses which are capital in nature; and
- the cost of repurchasing shares, including the related stamp
duty and transactions costs.
Any gains in the fair value of investments that are not readily convertible to
cash are treated as unrealised gains in the capital reserve.
Revenue reserve
The revenue reserve reflects all income and expenditure recognised in the
revenue column of the Income Statement and any surplus is distributable by way
of dividend.
(d) Income
Dividends receivable are included in revenue on an ex-dividend basis except
where, in the opinion of the board, the dividend is capital in nature, in
which case it is included in capital.
Overseas dividends are included gross of any withholding tax.
Deposit interest outstanding at the year end is calculated and accrued on a
time apportionment basis using market rates of interest.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are allocated
wholly to revenue, except that:
- Any performance fee is charged wholly to capital.
- Expenses incidental to the purchase or sale of an investment
are charged to capital. These expenses are commonly referred to as transaction
costs and mainly comprise brokerage commission. Details of transaction costs
are given in note 9 on page 79 of the 2022 Annual Report and Accounts.
(f) Finance costs
Finance costs, comprising loan and overdraft interest, are charged wholly to
revenue.
(g) Financial instruments
Cash at bank and in hand may comprise cash and demand deposits which are
readily convertible to a known amount of cash and are subject to insignificant
risk of changes in value. Financial liabilities, including borrowings, are
initially measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective interest method.
Bank overdrafts and loans are included in current liabilities, or creditors
falling due after more than one year, depending on the terms of the facility
agreement.
Other debtors and creditors do not carry any interest, are short-term in
nature and are accordingly stated at nominal value, with debtors reduced by
appropriate allowances for estimated irrecoverable amounts.
Any derivative financial instruments held at the year end, including forward
foreign currency contracts, are included in current assets or current
liabilities in the Statement of Financial Position at fair value, using market
prices. Forward foreign currency contracts are valued at the gain or loss if
the contracts had been closed out at the accounting date, at prevailing market
rates.
Gains or losses on derivative financial instruments are treated as capital or
revenue depending on the motive and circumstances of the transaction. Where
positions are undertaken to protect or enhance capital, the returns are
capital and where they are generating or protecting revenue, the returns are
revenue.
(h) Taxation
The tax charge for the year includes a provision for all amounts expected to
be received or paid. Deferred tax is provided on all timing differences that
have originated but not reversed by the accounting date. Deferred tax
liabilities are recognised for all taxable timing differences but deferred tax
assets are only recognised to the extent that it is probable that taxable
profits will be available against which those timing differences can be
utilised. Deferred tax is measured at the tax rate which is expected to apply
in the periods in which the timing differences are expected to reverse, based
on tax rates that have been enacted or substantively enacted at the balance
sheet date and is measured on an undiscounted basis.
(i) Value added tax ("VAT")
Expenses are disclosed inclusive of any related irrecoverable VAT.
(j) Foreign currency
In accordance with FRS 102, the Company is required to determine the
functional currency, being the currency in which the Company predominantly
operates. The board, having regard to the currency of the Company's share
capital and the predominant currency in which its shareholders operate, has
determined that sterling is the functional currency and the currency in which
the accounts are presented.
Transactions denominated in foreign currencies are converted at actual
exchange rates as at the date of the transaction.
(k) Share issues
Shares issued are recognised based on the proceeds or fair value received,
with the excess of the amount received over their nominal value being credited
to the share premium account. Direct issue costs are deducted from share
premium.
(l) Repurchases of shares for cancellation
The cost of repurchasing the Company's own shares including the related stamp
duty and transactions costs is charged to "Capital reserves", and dealt with
in the Statement of Changes in Equity. Share repurchase transactions are
accounted for on a trade date basis. The nominal value of share capital
repurchased and cancelled is transferred out of "Called-up share capital" and
into "Capital redemption reserve".
2. Income
2022 2021
£'000 £'000
Income from investments:
UK dividends 425 112
Interest from debt securities 20 -
Bank interest 34 -
479 112
3. Management fee
2022 2021
£'000 £'000
Management fee 1,989 3,019
1,989 3,019
Under the terms of the management agreement, the Manager is entitled to a
management fee and a performance fee, subject to achieving performance
targets. Details of these calculations are set out in the Directors' Report on
pages 47 and 48 of the 2022 Annual Report and Accounts. No performance fee is
payable for the current or prior year and no provision is required at 31
December 2022.
Details of all transactions with the current and previous Managers are given
in note 17 on page 82 of the 2022 Annual Report and Accounts.
4. Other administrative expenses
2022 2021
£'000 £'000
Other administration expenses 596 818
Valuation fees 275 303
Directors' fees(1) 186 189
Auditor's remuneration for the audit of the Company's annual accounts(2) 180 138
1,237 1,448
(1)Full details are given in the remuneration report on pages 57 to 59 of the
2022 Annual Report and Accounts.
(2)Includes VAT amounting to £30,000 (2021: £23,000).
5. Finance costs
2022 2021
£'000 £'000
Bank loan/overdraft fees and interest 304 960
304 960
6. Taxation
(a) Analysis of tax charge for the year
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Taxation on ordinary activities - - - - - -
The Company has no corporation tax liability for the year ended 31 December
2022 (2021: nil).
(b) Factors affecting tax charge for the year
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net (loss)/gain on ordinary activities before taxation (3,051) (175,086) (178,137) (5,315) 124,117 118,802
Net (loss)/gain on ordinary activities before taxation multiplied by the (580) (33,266) (33,846) (1,010) 23,582 22,572
Company's applicable rate of corporation tax for the year of 19.0% (2021:
19.0%)
Effects of:
Capital loss/(return) on investments - 33,266 33,266 - (23,582) (23,582)
UK dividends which are not taxable (81) - (81) (21) - (21)
Disallowed expenses 24 - 24 - - -
Unrelieved loan relationship deficit 48 - 48 182 - 182
Unrelieved management expenses 589 - 589 849 - 849
Taxation on ordinary activities - - - - - -
(c) Deferred taxation
Given the Company's intention to meet the conditions required to retain its
status as an Investment Trust Company, no provision has been made for deferred
tax on any capital gains or losses arising on the revaluation or disposal of
investments.
The Company has an unrecognised deferred tax asset £7,529,000 (2021:
£6,027,000) arising from unutilised tax losses of £30,117,000 (2021:
£24,106,000) based on a prospective corporation tax rate of 25.0% (2021:
25%). In its 2021 budget, the government announced that the main rate of
corporation tax would increase to 25% for the fiscal year beginning on
1 April 2023.This deferred tax asset has arisen due to the cumulative excess
of deductible expenses over taxable income. Given the composition of the
Company's portfolio, it is not likely that this asset will be utilised in the
foreseeable future and therefore no asset has been recognised in the accounts.
7. Dividends
No dividends have been paid or proposed in respect of the year ended 31
December 2022 (2021: nil).
8. Basic and diluted (loss)/earnings per share
2022 2021
£'000 £'000
Revenue loss (3,051) (5,315)
Capital (loss)/return (175,086) 124,117
Total (loss)/return (178,137) 118,802
Weighted average number of shares in issue during the year 907,291,950 908,639,238
Revenue loss per share (0.34)p (0.58)p
Capital (loss)/return per share (19.30)p 13.66p
Total basic and diluted (loss)/return per share (19.64)p 13.08p
The basic and diluted (loss)/return per share are the same because there are
no dilutive instruments in issue.
9. Investments held at fair value through profit or loss
(a) Movement in investments
2022 2021
£'000 £'000
Opening book cost 622,857 759,715
Opening investment holding losses (181,958) (338,563)
Opening fair value 440,899 421,152
Purchases at cost 17,422 88,680
Sales proceeds (40,148) (193,516)
(Losses)/gains on investments held at fair value through profit or loss (175,669) 124,583
Closing fair value 242,504 440,899
Closing book cost 581,253 622,857
Closing investment holding losses (338,749) (181,958)
Closing fair value 242,504 440,899
The Company received £40,148,000 (2021: £193,516,000) from investments sold
in the year. The book cost of the investments when they were purchased was
£59,026,000 (2021: £225,538,000). These investments have been revalued
overtime and, until they were sold, any unrealised gains/losses were included
in the fair value of the investments.
Purchases and sales include non-cash transactions in relation to HP
Environmental Technologies Fund (2021: Athenex and Kuur).
(b) Unquoted investments, including investments quoted in inactive
markets
Material revaluations of unquoted investments during the year
Opening valuation Valuation Closing valuation
at 31/12/21(1) adjustment at 31/12/22
£'000 £'000 £'000
Atom Bank 46,209 (14,523) 31,686
AMO Pharma 11,668 4,740 16,408
BenevolentAI 28,484 (16,549) 11,935
Revolut LLP 10,115 (4,679) 5,436
(1)Based on the closing holding at opening prices.
Material disposals of unquoted investments during the year
Book cost Carrying value Sales Proceeds Gain/(loss)
£'000 at 31/12/21 £'000 based on
£'000 carrying value
at 31/12/21
£'000
Seedrs 10,470 11,272 12,000 728
Nexeon 1,059 7,788 1,552 (6,236)
(c) Transaction costs
The following transaction costs, comprising stamp duty and brokerage
commission, were incurred in the year:
2022 2021
£'000 £'000
On acquisitions - 78
On disposals 8 397
8 475
10. Current
assets
2022 2021
£'000 £'000
Debtors
Accrued income 94 54
Other debtors 66 117
160 171
The Directors consider that the carrying amount of accrued income and debtors
approximate to their fair value.
Cash at bank and in hand
The carrying amount of cash, amounting to £16,122,000 (2021: £19,077,000)
represents its fair value.
11. Creditors: amounts falling due within one year
2022 2021
£'000 £'000
Management fee payable 373 765
Other creditors and accruals 491 511
864 1,276
The Company has a £40 million loan facility agreement with The Northern Trust
Company, which terminates on 30 January 2023; interest on any drawings accrues
daily and is calculated at the aggregate of The Bank of England base rate and
a 2% margin. Drawings on the facility are secured on all of the Company's
assets. The facility was undrawn at the year end. At the prior year end, the
Company had drawn down £22 million on this facility, as stated in note 12
below.
The Directors consider that the carrying amount of creditors falling due
within one year approximates to their fair value.
12. Creditors: amounts falling due after more than one year
2022 2021
£'000 £'000
Bank loan - 22,000
The bank loan was drawn down on the Company's £40 million loan facility
agreement with The Northern Trust Company. Further details of this facility
are given in note 11 above.
The Directors consider that the carrying amount of the bank loan approximates
to its fair value.
13. Called-up share capital
2022 2021
£'000 £'000
Ordinary shares allotted, called up and fully paid:
Ordinary shares of 1p each:
908,639,238 ordinary shares of 1p each 9,086 9,086
Repurchase and cancellation of 4,420,000 (2021: nil) shares (44) -
Closing balance of 904,219,238 (2021: 908,639,238) shares 9,042 9,086
During the year, the Company made market purchases of 4,420,000 of its own
shares, nominal value £44,200, for cancellation, representing 0.5% of the
shares outstanding at the beginning of the year. The total consideration paid
for these shares amounted to c.£812,000. The reason for these purchases was
to seek to manage the volatility of the share price discount to NAV per share.
As noted in the Chair's statement on page 5 of the 2022 Annual Report and
Accounts, although the Company had a share premium account of £891 million at
the time of the 2022 and 2023 share buybacks, as that had not been cancelled
at the time, the Company did not have sufficient distributable profits and so
those buybacks did not comply with the requirements of the Companies Act 2006.
14. Reserves
Capital reserves
Capital Losses on Investment
Share redemption sales of holding Revenue
premium(1) reserve(2) investments(3) losses(4) reserve(5)
£'000 £'000 £'000 £'000 £'000
At 31 December 2021 891,017 - (256,487) (182,618) (24,127)
Losses on sales of investments based on historic cost - - (18,878) - -
Net movement in investment holding gains and losses - - - (156,791) -
Repurchase and cancellation of shares - 44 (812) - -
Exchange gains - - 583 - -
Retained revenue loss for the year - - - - (3,051)
At 31 December 2022 891,017 44 (275,594) (339,409) (27,178)
Capital reserves
Capital Losses on Investment
Share redemption sales of holding Revenue
premium(1) reserve(2) investments(3) losses(4) reserve(5)
£'000 £'000 £'000 £'000 £'000
At 31 December 2020
Opening balance 891,017 - (224,465) (338,757) (18,812)
Losses on sales of investments based on historic cost - - (32,022) - -
Net movement in investment holding gains and losses - - - 156,605 -
Exchange losses - - - (466) -
Retained revenue loss for the year - - - - (5,315)
At 31 December 2021 891,017 - (256,487) (182,618) (24,127)
The Company's articles of association permit dividend distributions out of
realised capital profits.
(1)The share premium is a non distributable reserve and represents the amount
by which the fair value of the consideration received from shares issued
exceeds the nominal value of shares issued.
(2)The capital redemption reserve represents the accumulated nominal value of
shares repurchased for cancellation. This reserve is not distributable.
(3)This is a realised (distributable) capital reserve and a positive balance
may be used to repurchase the Company's own shares or distributed as
dividends. However, the Company is not currently in a position to make such a
distribution as the balance is negative.
(4)This reserve may include some holding gains on liquid investments (which
may be deemed to be realised) and other amounts which are unrealised. An
analysis has not been made between those amounts that are realised (and may be
distributed as dividends or used to repurchase the Company's own shares) and
those that are unrealised. The Company is not currently in a position to make
any distributions due to total net negative balances on its distributable
reserves.
(5)A positive balance on the revenue reserve may be distributed as dividends
or used to repurchase the Company's own shares.
15. Net asset value per share
2022 2021
Net assets attributable to shareholders (£'000) 257,922 436,871
Shares in issue at the year end 904,219,238 908,639,238
Net asset value per share 28.52p 48.08p
16. Uncalled capital commitments
At 31 December 2022, the Company had uncalled capital commitments amounting to
£5,121,000 (2021: nil) in respect of follow-on investments, which may be
called by investee companies, subject to their achievement of certain
milestones and objectives.
17. Transactions with the Manager and Alternative Investment Fund
Manager (AIFM)
A management fee amounting to £1,989,000 (2021: £3,019,000) is payable to
Schroder Investment Management Limited for the year ended 31 December 2022, of
which £373,000 (2021: £765,000) was outstanding at the year end.
Fees amounting to £65,000 (2021: £88,000) were payable to Link Fund
Solutions Limited for services as AIFM, of which £nil (2021: £22,000) was
outstanding at the year end.
Fees amounting to £41,000 were payable to Schroder Unit Trusts Limited for
services as AIFM, following its appointment as AIFM with effect from 1 October
2022, and the whole of this amount was outstanding at the year end.
Under the terms of the Alternative Investment Management Agreement dated 29
September 2022, Schroder Unit Trusts Limited may reclaim from the Company
certain expenses which it has paid on behalf of the Company to HSBC in
connection with accounting and administrative services provided to the
Company. These charges amounted to £17,000 for the 3 months ended 31 December
2022, and the whole of this amount was outstanding at the year end.
No Director of the Company served as a director of any member of the Schroder
Group, Link Fund Solutions Limited or its affiliates at any time during the
year.
18. Related party transactions
Details of the remuneration payable to directors are given in the Directors'
Remuneration Report on page 58 of the 2022 Annual Report and Accounts and
details of directors' shareholdings are given in the Directors' Remuneration
Report on page 59 of the 2022 Annual Report and Accounts. Details of
transactions with the Manager, the AIFM and its associated companies are given
in note 17 above. There have been no other transactions with related parties
during the year (2021: nil).
19. Disclosures regarding financial instruments measured at fair value
The Company's financial instruments within the scope of FRS 102 that are held
at fair value comprise its investment portfolio and derivative financial
instruments.
FRS 102 requires that financial instruments held at fair value are categorised
into a hierarchy consisting of the three levels below. A fair value
measurement is categorised in its entirety on the basis of the lowest level
input that is significant to the fair value measurement.
Level 1 - valued using unadjusted quoted prices in active markets for
identical assets.
Level 2 - valued using observable inputs other than quoted prices included
within Level 1.
Level 3 - valued using inputs that are unobservable.
Details of the Company's policy for valuing investments and derivative
instruments are given in note 1(b) on pages 74 and 75 and 1(g) on page 76 of
the 2022 Annual Report and Accounts. Level 3 investments have been valued in
accordance with note 1(b) (i) - (iv) .
At 31 December, the Company's investment portfolio and any derivative
financial instruments were categorised as follows:
2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments in equities - quoted 83,711 - 11,935 95,646
- unquoted - - 146,858 146,858
Total 83,711 - 158,793 242,504
RM2 International £104,000 transferred from Level 3 to Level 1 during the
year following the conversion of RM2 International shares into ARC Group
Worldwide shares.
2021
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments in equities - quoted 222,031 - 21,312 243,343
- unquoted - - 197,556 197,556
Total 222,031 - 218,868 440,899
Immunocore £21,044,000 and Oxford Nanopore £162,641,000 transferred from
Level 3 to Level 1 during the year following their IPOs on NASDAQ and London
Stock Exchange, respectively.
Movements in fair value measurements included in Level 3 during the year are
as follows:
2022 2021
£'000 £'000
Opening book cost 482,416 663,223
Opening investment holding losses (263,548) (274,768)
Opening valuation 218,868 388,455
Purchases at cost 17,422 39,437
Sales proceeds (19,289) (185,825)
Transfer between Level 3 and Level 1 (19,152) (66,197)
Net movement in investment holding gains and losses (39,056) 42,998
Closing valuation 158,793 218,868
Closing book cost 458,690 482,416
Closing investment holding losses (299,897) (263,548)
Total level 3 investments held at fair value through profit or loss 158,793 218,868
The company received £19,289,000 (2021: £185,825,000) from Level 3
investments sold in the year. The book cost of the investments when they were
purchased was £20,384,000 (2021: £154,047,000). These investments have been
revalued over time and, until they were sold, any unrealised gains/losses were
included in the fair value of the investments.
20. Financial instruments' exposure to risk and risk management policies
The investment objective is set out on the inside front cover of this report.
In pursuing this objective, the Company is exposed to a variety of financial
risks that could result in a reduction in the Company's net assets or a
reduction in the profits available for dividends. These financial risks
include market risk (comprising currency risk, interest rate risk and market
price risk), liquidity risk and credit risk. The directors' policy for
managing these risks is set out below. The board coordinates the Company's
risk management policy.
The objectives, policies and processes for managing the risks and the methods
used to measure the risks that are set out below, have not changed from those
applying in the comparative year.
The Company's classes of financial instruments may comprise the following:
- investments in shares of quoted and unquoted companies which
are held in accordance with the Company's investment objective;
- short-term debtors, creditors and cash arising directly from
its operations;
- a bank loan from Northern Trust Company, the purpose of which
is to assist in financing the Company's operations; and
- forward foreign currency contracts, the purpose of which is to
manage the currency risk arising from the Company's investment activities.
(a) 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: currency risk, interest rate risk and other price
risk. Information to enable an evaluation of the nature and extent of these
three elements of market risk is given in parts (i) to (iii) of this note,
together with sensitivity analyses where appropriate. The board reviews and
agrees policies for managing these risks and these policies have remained
unchanged from those applying in the comparative year. The 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.
(i) Currency risk
Certain of the Company's assets, liabilities and income are denominated in
currencies other than sterling, which is the Company's functional currency and
the presentational currency of the accounts. As a result, movements in
exchange rates will affect the sterling value of those items.
Management of currency risk
The AIFM monitors the Company's exposure to foreign currencies on a daily
basis and reports to the board, which meets on at least four occasions each
year. The Manager measures the risk to the Company of the foreign currency
exposure by considering the effect on the Company's net asset value and income
of a movement in the rates of exchange to which the Company's assets,
liabilities, income and expenses are exposed.
Income denominated in foreign currencies is converted into sterling on
receipt.
It is currently not the Company's policy to hedge against currency risk, but
the Manager may, with the board's consent and oversight, hedge against
specific currencies, depending on their longer term view.
Foreign currency exposure
The fair value of the Company's monetary and non-monetary items that have
foreign currency exposure at 31 December are shown below.
2022
Norwegian Swiss US
Euro Krone Francs Dollars Total
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 6 - - 3,618 3,624
Investments held at fair value through profit or loss 27,083 3,781 7,460 62,542 100,866
Total net foreign currency exposure 27,089 3,781 7,460 66,160 104,490
2021
Australian Norwegian Swiss US
Dollars Euro Krone Francs Dollars Total
£'000 £'000 £'000 £'000 £'000 £'000
Cash at bank and in hand - 10,078 - - 1,167 11,245
Investments held at fair value through profit or loss 996 9,905 11,823 5,513 82,198 110,435
Total net foreign currency exposure 996 19,983 11,823 5,513 83,365 121,680
The above year end amounts are broadly representative of the exposure to
foreign currency risk during the current and comparative year.
Foreign currency sensitivity
The following tables illustrate the sensitivity of net profit for the year and
net assets with regard to the Company's monetary financial assets and
financial liabilities and exchange rates. The sensitivity analysis is based on
the Company's foreign and non-monetary currency financial instruments held at
each accounting date and assumes a 10% (2021: 10%) appreciation or
depreciation in sterling against all the currencies to which the Company is
exposed, which is considered to be a reasonable illustration based on the
volatility of exchange rates during the year.
If sterling had weakened by 10% this would have had the following effect:
2022 2021
£'000 £'000
Income Statement - return after taxation
Revenue return - -
Capital return 10,449 12,168
Total return after taxation 10,449 12,168
Net assets 10,449 12,168
Conversely if sterling had strengthened by 10% this would have had the
following effect:
2022 2021
£'000 £'000
Income Statement - return after taxation
Revenue return - -
Capital return (10,449) (12,168)
Total return after taxation (10,449) (12,168)
Net assets (10,449) (12,168)
In the opinion of the directors, the above sensitivity analysis is broadly
representative of the whole of the current and comparative year.
(ii) Interest rate risk
Interest rate movements may affect the level of income receivable on cash
balances and the interest payable on the bank overdraft when interest rates
are re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing returns to
shareholders. The board would not normally expect gearing to exceed 20% where
gearing is defined as borrowings used for investment purposes, less cash,
expressed as a percentage of net assets.
Interest rate exposure
The exposure of financial assets and financial liabilities to floating
interest rates, giving cash flow interest rate risk when rates are re-set, is
shown below:
2022 2021
£'000 £'000
Exposure to floating interest rates:
Cash at bank and in hand 16,122 19,077
Creditors: amounts falling due after more than one year
Bank loan - (22,000)
Net exposure 16,122 (2,923)
Sterling cash deposits at call earn interest at floating rates based on
Sterling Overnight Index Average ("SONIA") rates, (2021: LIBOR).
The Company has a £40 million loan facility agreement with The Northern Trust
Company, which terminates on 30 January 2023; interest on any drawings accrues
daily and is calculated at the aggregate of The Bank of England base rate and
a 2% margin. The facility was undrawn at the year end (2021: £22 million).
The above year end amounts are broadly representative of the exposure to
interest rates during the year.
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to a 1.0% (2021: 1.0%) increase or decrease in
interest rates in regards to the Company's monetary financial assets and
financial liabilities. This level of change is considered to be a reasonable
illustration based on observation of current market conditions. The
sensitivity analysis is based on the Company's monetary financial instruments
which are exposed to interest rate changes held at the accounting date, with
all other variables held constant.
2022 2021
1.0% increase 1.0% decrease 1.0% increase 1.0% decrease
in rate in rate in rate in rate
£'000 £'000 £'000 £'000
Income statement - return after taxation
Revenue return 161 (161) (29) 29
Capital return - - - -
Total return after taxation 161 (161) (29) 29
Net assets 161 (161) (29) 29
Given the increase in UK interest rates, the interest rate sensitivity has
been updated to 1.0%. The prior year disclosure has been updated to 1.0% to
show a direct comparison in the sensitivity. In the prior year report, the
sensitivity was calculated using 0.25%, which was representative of the market
at 31 December 2021. As disclosed in the prior year annual report and
accounts, an increase of 0.25% reduced total return after taxation by £7,308
(a decrease of 0.25% had an equal and opposite effect).
(iii) Market price risk
Market price risk includes changes in market prices, other than those arising
from interest rate risk, which may affect the value of investments.
Management of other price risk
The board meets on at least four occasions each year to consider the asset
allocation of the portfolio and the risk associated with particular countries
and industry sectors. The investment management team has responsibility for
monitoring the portfolio, which is selected in accordance with the Company's
investment objective and seeks to ensure that individual stocks meet an
acceptable risk/reward profile. The board may authorise the Manager to enter
derivative transactions for the purpose of protecting the portfolio against
falls in market prices.
Market risk exposure
The Company's total exposure to changes in market prices at 31 December
comprises the following:
2022 2021
£'000 £'000
Investments held at fair value through profit or loss 242,504 440,899
The above data is broadly representative of the exposure to market price risk
during the year.
Concentration of exposure to market price risk
A sector and geographical analysis of the Company's investments is given on
page 24 of the 2022 Annual Report and Accounts. This shows a concentration of
exposure to economic conditions in the United Kingdom and to the Health Care
sector. In addition, it is noted that as the Company's holds five (2021: six)
investments amounting to approximately £61.5 million (2021: £91.7 million),
representing 23.8% (2021: 20.9%) of NAV, whose valuation is deemed to be
potentially volatile, as it is dependent on a number of factors including
future funding and meeting of anticipated milestones.
Market price risk sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to an increase or decrease of 20% (2021: 20%) in
the fair values of the Company's investments. This level of change is
considered to be a reasonable illustration based on observation of current
market conditions.
2022 2021
20% increase 20% decrease 20% increase 20% decrease
in fair value in fair value in fair value in fair value
£'000 £'000 £'000 £'000
Income statement - return after taxation
Revenue return - - - -
Capital return 48,501 (48,501) 88,180 (88,180)
Total return after taxation and net assets 48,501 (48,501) 88,180 (88,180)
Percentage change in net asset value 18.8% (18.8%) 20.2% (20.2%)
(b) Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting its
obligations associated with financial liabilities that are settled by
delivering cash or another financial asset.
Management of the risk
The Company's assets include readily realisable securities amounting to
£83,711,000 (2021: £222,031,000), which can be sold to meet ongoing funding
requirements. Additionally, the Company has level 3 investments valued at
£158,793,000 (2021: £218,868,000) which are illiquid, but could be sold if
required.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the earliest date on
which payment can be required are as follows:
2022 2021
More than More than
three three
months months
Three but not More Three but not More
months more than than months more than than
or less one year one year Total or less one year one year Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Creditors: amounts falling due within one year
Bank loan - including interest - - - - 274 454 22,050 22,778
Other creditors and accruals 864 - - 864 1,138 - - 1,138
Uncalled capital commitments - 1,700 3,421 5,121 - - - -
864 1,700 3,421 5,985 1,412 454 22,050 23,916
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to a transaction
to discharge its obligations under that transaction could result in loss to
the Company.
Management of credit risk
This risk is not significant and is managed as follows:
Portfolio dealing
The credit ratings of broker counterparties is monitored by the AIFM and
limits are set on exposure to any one broker.
Exposure to the Custodian
The custodian of the Company's assets is HSBC Bank plc which has Long-Term
Credit Ratings of AA- with Fitch and Aa3 with Moody's.
The Company's investments are held in accounts which are segregated from the
custodian's own trading assets. If the custodian were to become insolvent, the
Company's right of ownership of its investments is clear and they are
therefore protected. However the Company's cash balances are all deposited
with the custodian as banker and held on the custodian's balance sheet.
Accordingly, in accordance with usual banking practice, the Company will rank
as a general creditor to the custodian in respect of cash balances.
(d) 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.
21. Analysis of changes in net debt
At At
31 December 31 December
2021 Cashflows 2022
£'000 £'000 £'000
Cash and cash equivalents
Cash at bank and in hand 19,077 (2,955) 16,122
Borrowings
Debt due after more than one year (22,000) 22,000 -
Net debt (2,923) 19,045 16,122
22. Capital management policies and procedures
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding year.
The Company's debt and capital structure comprises the following:
2022 2021
£'000 £'000
Debt
Bank loan - 22,000
Equity
Called-up share capital 9,042 9,086
Reserves 248,880 427,785
257,922 436,871
Total debt and equity 257,922 458,871
23. Post balance sheet events
The Company's £40 million loan facility agreement with The Northern Trust
Company terminated on 30 January 2023 and was not renewed. The facility was
undrawn at 31 December 2022.
Status of announcement
2021 Financial Information
The figures and financial information for 2021 are extracted from the
published Annual Report and Accounts for the year ended 31 December 2021 and
do not constitute the statutory accounts for that year. The 2021 Annual Report
and Accounts have been delivered to the Registrar of Companies and included
the Report of the Independent Auditors which was unqualified and did not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
2022 Financial Information
The figures and financial information for 2022 are extracted from the Annual
Report and Accounts for the year ended 31 December 2022 and do not constitute
the statutory accounts for the year. The 2022 Annual Report and Accounts
include the Report of the Independent Auditors which is unqualified and does
not contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The 2022 Annual Report and Accounts will be delivered to
the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents of any website
accessible from hyperlinks on the Company's webpages (or any other website) is
incorporated into, or forms part of, this announcement.
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