Schroders Cap Glbl - Final Results
28/03/2024 07:00
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RNS Number : 5969I Schroders Capital Global Innovation 28 March 2024
Schroders Capital Global Innovation Trust plc
( )
Final results for the year ended 31 December 2023
Schroders Capital Global Innovation Trust plc ("INOV" or "the Company"), is
pleased to publish its final results for the year ended 31 December 2023.
Tim Edwards, Chair of the Company, commented:
"The increase in net asset value in the last quarter of the year and the
positive news flow from the portfolio since the end of the year, both indicate
that momentum is beginning to turn in favour of growth in the new investments
in the portfolio".
Key highlights
· During the year, the net asset value ("NAV") per share decreased
by 11.2%, from 28.52p per share to 25.32p per share. However, importantly the
NAV per share at 31 December 2023 represents a 7.9% increase on the 30
September valuation (23.46p per share).
· The negative performance during the first three quarters of the
year can largely be attributed to a fall in the value of holdings in AMO
Pharma, BenevolentAI, Atom Bank and the largest public holding, Oxford
Nanopore.
· The strong performance during the final quarter was driven by the
Company's holding in Autolus Therapeutics, which achieved a share price
increase of 239.5% over the year, Carmot Therapeutics which announced its
acquisition by Roche and the first milestone payment following the sale of
Kymab to Sanofi.
· The share price decline was more muted at 5.3%, from 15.47p in
the previous year to 14.65p.
· As at 31 December 2023, the Company had £12.6 million in cash
and liquid money market funds and £54.6 million in liquid public equity
investments, enabling further share buybacks and new investments, in addition
to covering the funding requirements of the existing portfolio.
· During the 12 months to 31 December 2023, the Company completed
six new investments; (AgroStar, Carmot Therapeutics, Securiti, Bizongo, AI
software company (MMC SPV 3 LP) and Memo Therapeutics), across the three
strategies: venture, growth and life sciences.
· The Board successfully repurchased 45,124,212 shares equal to 5%
of the Company's issued share capital in the period September to December
2023, at an estimated weighted average discount to the last reported NAV at 30
September 2023 of 36.3%.
· The Company has already begun its programme for 2024 in order to
meet its commitments for the year, and as at 27 March 2024, the Company has
repurchased 17,500,000 shares for cancellation.
The Company's Annual Report and Accounts for the year ended 31 December 2023
are being published in hard copy format and an electronic copy will shortly be
available to download from the Company's web pages www.schroders.com/inov
(http://www.schroders.com/inov) .
The Annual Report and Accounts, including the Notice of Annual General
Meeting, will shortly be uploaded to the Financial Conduct Authority's
National Storage Mechanism and will be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . A separate
announcement will be released once this has taken place.
Page numbers and cross references in the following announcement refer to page
numbers and cross references in the Annual Report and Accounts for the year
ended 31 December 2023.
Enquiries:
Schroder Investment Management Limited
Augustine Chipungu 020 7658 2106
Shilla Pindoria 020 7658 6000
John Spedding 020 7658 3206
Chair's Statement
"The increase in net asset value in the last quarter of the year and the
positive news flow from the portfolio since the end of the year, both indicate
that momentum is beginning to turn in favour of growth in the new investments
in the portfolio."
Performance
For most of 2023, the macroeconomic backdrop of rising inflation and
tightening central bank policy proved challenging for the Company and investor
sentiment towards the areas of the market your Company invests in was
significantly depressed.
The Company's net asset value ("NAV") per share for the year to 31 December
2023 fell by 11.2% and the share price by 5.3% but importantly the NAV per
share at 31 December 2023 had recovered by 7.9% relative to the 30 September
valuation.
Performance during the first three quarters of the year was primarily driven
by a fall in value of the holdings in AMO Pharma, BenevolentAI, Atom Bank, and
our largest public holding, Oxford Nanopore. In contrast, stronger performance
in the last quarter of the year was driven by our holding in Autolus
Therapeutics, whose share price increased by 239.5% over the year reflecting
encouraging results from clinical trials and pipeline developments.
Against the difficult macroeconomic background, the Company continued to make
progress with the strategy agreed with the Investment Manager:
- Work closely with the management of portfolio companies to support
growth and map a path to profitability;
- Optimise liquidity to facilitate the execution of the buyback
programme and the continued investment in private assets;
- Maximise the sale proceeds from holdings; and
- Complete new investments in line with the investment strategy already
announced.
During the year, the Company made realisations of equities totalling
£32.8 million, acquired 46.9 million of its shares, equivalent to 5.2% of
our outstanding share capital, and made six new investments in innovative
private companies across the three strategies of venture, growth, and life
sciences which align with the Investment Manager's successful 25-year track
record.
As at 31 December 2023, the Company had £12.6 million in cash and liquid
money market funds and £54.6 million in liquid public equity investments to
meet the funding requirements of the existing portfolio, to continue to
execute the buyback programme and to target a select number of new
investments.
The Company has announced positive news at the start of 2024; we have received
a further milestone payment of £4.5 million from the sale of Kymab and
proceeds of £4.5 million, an uplift of 219.2% on the 30 September valuation
from the sale of Carmot Therapeutics which was only announced earlier in 2024.
The Board expects that future returns will likely continue to be driven by the
performance of new investments.
Capital Discipline policy
The cancellation of the share premium account and rectification measures in
respect of share repurchases undertaken in 2022 and up to the end of February
2023 were approved by shareholders at the Annual General Meeting ("AGM") on 21
June 2023 and the court on 18 July 2023.
This allowed the Company to begin a share repurchase programme in September
2023 as part of its Capital Discipline policy and we restated the intention
"to repurchase shares equal to at least 5% of the Company's issued share
capital in each of the calendar years 2023 and 2024, and in addition such
number of shares in order to ensure that over the period to the 2025 AGM, the
Company has undertaken share repurchases in an amount equating to 25% of all
net cash realisations from the portfolio inherited from the previous portfolio
manager."
The Board believes this programme demonstrates the Investment Manager's
discipline around capital allocation; underlines the Board's confidence in the
long-term prospects of the Company, its cash flows and NAV; will enhance the
NAV per Share; and over time may reduce the volatility of the Company's
discount and increase its trading liquidity.
The Board successfully repurchased 45,124,212 shares equal to 5% of the
Company's issued share capital in the four-month period September to December
2023, at an estimated weighted average discount to the last reported NAV on 30
September 2023 of 36.3%. The Company has already begun its programme for 2024
in order to meet its commitment for the year, and as at 27 March 2024, the
Company has repurchased 17,500,000 shares for cancellation. No shares are
held in treasury. Accordingly, the total number of voting rights in the
Company as at 27 March 2024 was 839,860,026. In aggregate the buybacks from
September 2023 to date represent a capital return of £9.1 million to date.
The discount to net asset value which was trading at 47.9% immediately before
the start of the share repurchase programme finished the year at 42.1% and as
at 25 March 2024, stood at 43.9%. The Directors continue to examine options
available to it to address the discount level.
The Board has continued to monitor realisations since 17 April 2023 to ensure
its commitment to return 25% of net cash realisation is being fulfilled.
Valuation process for private investments
The valuation of private investments continues to be an area of considerable
focus by the market.
The private investments are valued by a Schroders in-house valuation team
which resides in Schroders Capital Fund Operations and Services team and is
separate from the investment function.
The Company's AIFM maintains and applies effective organisational and
administrative arrangements with a view to taking all reasonable steps
designed to identify, prevent, manage and monitor conflicts of interests in
relation to the unquoted valuation process. The Schroders Capital valuation
process and governance structure is intended to ensure independence,
accountability and segregation of duties in the oversight functions.
Valuations are calculated using established methodologies and public market
comparators in accordance with International Private Equity and Venture
Capital guidelines.
Valuations of the entire portfolio are reviewed on a quarterly basis by the
Board and annually by the Auditor and clearly communicated to the market.
Comprehensive details of the valuation methodology and process can be found in
the Strategic Report on pages 30 and 31.
Valuation frequency
In the past, the Board has published an indicative NAV each day in addition to
the complete NAV calculations contained in the annual results, the interim
results and as part of two quarterly NAV updates. In view of the current
composition of the portfolio and the future investment strategy centred around
investment in private companies, the Company will cease to publish an
indicative NAV every business day from 2 April 2024 and the Company will focus
on its quarterly NAV reporting schedule. The private portfolio now accounts
for approximately 81% of the equity portfolio and this level will likely
increase during 2024. Full quarterly valuation of all holdings and quarterly
updates on the whole portfolio will provide a more definitive valuation basis
for investors. The current daily indicative NAV does not include revaluation
of the private holdings other than to account for foreign exchange movements
and the relevance of the daily update is questionable when the quarterly
valuation process for the private investments is taken into account.
The first NAV to be published under the new reporting regime will be the 31
March 2024 NAV which is expected to be published before the end of June 2024.
In addition, the Company will continue to make announcements arising from
developments within portfolio companies that have a material impact on the
NAV, as well as new private investments and realisations of any nature in
private investments (including partial realisations). The Board believes this
quarterly NAV reporting cycle will provide shareholders with a clear framework
for the release of information on the portfolio.
Change of Company Name, Auditor and Registrar
On 20 April 2023, the Company rebranded as Schroders Capital Global Innovation
Trust plc and at the Company's AGM held on 21 June 2023, Ernst & Young
LLP, was appointed as the Company's new Auditor. Additionally, the change of
registrar to Equiniti Limited "Equiniti" was finalised on 30 June 2023.
Board composition
The Board noted the departure of Raymond Abbott, who retired from the Board at
the AGM in June 2023 and, again, thank Raymond for his valuable contribution
to the Company.
Lamia Baker joined the Board as an independent non-executive Director with
effect from 22 June 2023. With more than 20 years of experience in business
and technology, Lamia brings expertise in areas such as intellectual property,
sales, innovation, entrepreneurship, venture capital investment, and board
representation. Currently, Lamia holds the position of managing director (UK)
at Dennemeyer & Co Limited and serves as the Head of Commercial (EMEA) for
Dennemeyer Group.
A resolution to appoint Lamia as a Director of the Company will be proposed at
the forthcoming AGM.
Scott Brown, who has served on the Board since 2015, will retire following the
conclusion of the forthcoming AGM in May 2024. On behalf of the Board, I would
like to thank Scott for his considerable contribution to the Company and wish
him well for his future plans.
AGM
The AGM will be held at 12.30pm on Wednesday, 22 May 2024 at 1 London Wall
Place, London EC2Y 5AU. 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 portfolio managers, Tim Creed and
Harry Raikes 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. Information on voting can be found in the
Notice of Annual General Meeting on pages 85 to 87. In the event that
shareholders have a question for the Board, please email
amcompanysecretary@schroders.com in advance of the AGM.
Continuation vote in 2025
Shareholders will have the opportunity to vote on the continuation of the
Company at its AGM in 2025 and every five years thereafter.
Packaged Retail Insurance and Investment Products ("PRIIPs") legislation
There is a view that the UK's Listed Investment Companies have been shunned by
investors and investment platforms because of the UK's unique interpretation
of the PRIIPs regulations in the Markets in Financial Instruments Directive
("MiFID") which remain on the UK statute book.
In the House of Lords on Friday, 1 March 2024, Peers from all sides of the
House agreed that a simple change to the interpretation in line with Baroness
Altmann's Alternative Investment Fund Designation Bill would bring the UK into
line with the rest of the world and was urgently needed in the interest of the
country. We support this Bill and believe it would be a helpful legislative
change.
Results webinar
Please join the Investment Manager for a webinar in which they will report on
the year ended 31 December 2023 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 28 March 2024 at 2pm.
Register for the event at https://www.schroders.events/INOV24
(https://www.schroders.events/INOV24)
Outlook
The increase in net asset value in the last quarter of the year and the
positive news flow from the portfolio since the end of the year, both indicate
that momentum is beginning to turn in favour of growth in the new investments
in the portfolio.
This progress is not currently reflected in the Company's share price and
sentiment towards the private equity sector remains muted. The Investment
Manager is finding exciting new investments and rebalancing the portfolio and
the Board is encouraged by the portfolio taking shape under their direction.
Shareholders can see this potential in the Investment Managers' Review. The
Board's continued implementation of its Capital Discipline policy will
underpin the Investment Manager's efforts and, in time, the share price and
discount should begin to respond positively.
Tim Edwards
Chair
27 March 2024
Investment Manager's Review
"The progress achieved in 2023 has been against a difficult macroeconomic
backdrop with investor focus primarily on rising inflation and the policy
response from major central banks."
Summary
- The Company reported a net asset value ("NAV") of 25.32p per share as
of 31 December 2023, a decrease of 11.2% relative to the NAV share per share
as of 31 December 2022 (28.52p) but an increase of 7.9% relative to the NAV
per share of 23.46p as of 30 September 2023.
- The main detractors from performance over the 12-month period, which
have been previously discussed, included holdings in AMO Pharma, BenevolentAI,
Oxford Nanopore and Atom Bank. On the positive side, positions in Autolus
Therapeutics, Carmot Therapeutics and Ada Health provided bright spots, while
the Company also notably benefited from the first milestone payment following
the sale of Kymab to Sanofi, and an additional deferred cash consideration
received following the sale of assets to Rosetta Capital.
- It has been a busy year with six new investments completed (AgroStar,
Carmot Therapeutics, Securiti, Bizongo, AI software company (MMC SPV 3 LP),
Memo Therapeutics) across our three strategies: venture, growth and life
sciences.
- During the 12 months to 31 December 2023 the Company made realisations
totalling £32.8 million, with positions in Oxford Nanopore and Immunocore
reduced, while Johnson Matthey, Spirent Communications, Petershill Partners
and IDEX Biometrics were exited.
- During the year, the Company purchased 46.9 million shares, equivalent
to 5.2% of the outstanding share capital as of 31 December 2022.
- As of 31 December 2023, the Company had £2.9 million in cash (2022:
£16.1 million), along with an investment of £9.7 million in the Schroder
Special Situations - Sterling Liquidity Plus Fund (2022: nil), a daily
liquidity money-market fund and £54.6 million in liquid public equity
investments1 (2022: £83.7 million) to meet the funding requirements of the
existing portfolio, continue to execute the buyback programme and target a
select number of new investments.
Source: Schroders.
Introduction
Progress made in 2023
In the half year report and accounts, we discussed our four key strategic
areas as Investment Manager. Here, we discuss the progress made this year
towards our long-term investment strategy of pursuing opportunities in
innovative, private companies globally across three key strategies: venture,
growth and life sciences.
1. Work closely with portfolio management teams, co-investors, and other
stakeholders to support business growth and a path to profitability
As Investment Manager, we take an active approach to engagement with the
management teams of portfolio companies, with some examples provided in the
engagement section later in this report. During 2023, the portfolio made
significant progress in terms of both growth and profitability. The below
figures offer a snapshot of progress by strategy as of 31 December 2023.
11 of 12 life sciences portfolio companies have reached clinical stage
2 new venture portfolio companies added in the past 12 months
80% average sales growth for growth portfolio companies*
Source: Schroders Capital, 2024.
*As at 31 December 2023, the weighted average sales growth over the last
12 months for all growth investments valued using a market-based approach,
and excluded HP Environmental Technologies Fund.
Meanwhile, we are encouraged by the aggregate health of the portfolio in terms
of estimated cash runway 67% of equity investments (by value) as at 31
December 2023 are profitable, fully funded or have more than 24 months of
expected cash runway, as described in the below table.
Expected cash runways for portfolio companies
Expected cash runway Fair value % of equities
<12 months £24.1m 12.0%
12-24 months £43.0m 21.5%
>24 months £63.6m 31.7%
Unprofitable (fully funded) £11.8m 5.9%
Profitable (incl. milestones) £57.9m 28.9%
Total equities £200.4m 100.0%
Source: Schroders Capital, 2024. These figures represent forecasts and may not
be realised. % of total investments as at 31 December 2023.
2. Rebalance the portfolio ensuring the appropriate liquidity (cash and
liquid public equities) to execute efficiently the buyback programme and
support the portfolio
We made notable progress in altering the liquidity mix to ensure the Company
is appropriately positioned to execute efficiently the buyback programme and
support the portfolio. During the year, we reduced the exposure to certain
public holdings with the goal of reducing concentration risk, and to position
the portfolio to better align with the renewed focus on private equity. To
this end, the Company realised £23.8 million over the 12 months to 31
December 2023, exiting public equity holdings in Johnson Matthey, Spirent
Communications, Petershill Partners and IDEX Biometrics, as well as reducing
the holdings in Oxford Nanopore and Immunocore. As of 31 December 2023, the
Company had £2.9 million in cash (2022: £16.1 million), along with an
investment of £9.7 million in the Schroder Special Situations - Sterling
Liquidity Plus Fund (2022: nil), a daily liquidity money-market fund and
£54.6 million in liquid public equity investments, which we believe to be
sufficient to successfully continue the buyback programme in 2024, meet the
funding requirements of the existing portfolio and selectively target new
investments.
£12.6m in cash and money market funds
£54.6m invested in liquid public equity investments
3. Maximise the sale proceeds from holdings, both public and private, as
part of the rebalancing exercise
The economic environment in 2023 of inflation and interest rate headwinds,
recession fears, weaker business confidence, subdued equity capital markets
and slow fundraising and M&A activity, made it difficult to achieve sales
for private holdings in the portfolio. We will continue to explore sales
options in 2024, which we expect to provide an increasingly favourable
environment for exits in private markets. That said, through the sale of
public equity holdings discussed in the investment activity section and new
investments (see below), we have made considerable progress in rebalancing the
portfolio, increasing the portfolio's weightings to venture, growth and life
science investments while reducing the public equity exposure, which is
illustrated in the below figure. In addition, and more recently, we have seen
exits in Tessian (acquired by Proofpoint) and Carmot (acquired by Roche), as
well as receiving an additional £2.9 million deferred cash consideration
received following the sale of assets to Rosetta Capital and an additional
£4.6 million distribution related to the first milestone of the Kymab sale to
Sanofi.
4. Complete new investments that align with our new strategy
While ensuring the Company was in a position to successfully execute the
buyback programme, we simultaneously made good progress with our long-term
investment strategy, making six new investments in innovative, private
companies globally (from the US to India) across venture, growth and life
sciences. These are illustrated below.
Two new investments per strategy made in 2023
While we have made progress completing new investments, only 30% of total
equities as of 31 December 2023 represent investments made since Schroders
was appointed Investment Manager.
Economic and market backdrop
The progress achieved in 2023 has been against a difficult macroeconomic
backdrop with investor focus primarily on rising inflation and the policy
response from major central banks. There were fears that rising interest rates
could lead to recession, although economic growth generally remained
resilient.
In Europe, the ongoing war in Ukraine contributed to higher inflation as the
region had to import liquified natural gas from more distant producers.
However, warmer winter weather helped limit the impact of high gas prices.
China's decision to abandon its strict lockdown measures at the end of 2022
enabled economic activity to pick up, however the recovery was weaker than
many had hoped, with the property sector coming under pressure. Volatility
heightened in March 2023 as several regional US banks - including Silicon
Valley Bank - collapsed due to lack of liquidity. In Europe, this was followed
by the takeover of Credit Suisse by UBS. Further uncertainty emerged amid
concerns that the US would breach its debt ceiling. However, a deal to extend
the debt ceiling was reached in early June 2023.
Towards the end of the period, inflation readings in major economies began to
soften. The debate over the outlook for interest rates continued though, as
resilient growth and strong US labour markets raised expectations that rates
could remain elevated.
However, a definitive change appeared to come in November with the release of
softer-than-expected US and eurozone inflation data. This was followed in
December by comments from the US Federal Reserve suggesting that rates may not
only have peaked, but that cuts could be coming in 2024.
Global shares posted strong gains over the 12-month period in aggregate,
shrugging off concerns about higher interest rates and risks to growth. US
shares were among the strongest performers. Gains were led by some of the mega
cap technology and consumer stocks. Companies thought to be winners from the
AI revolution saw particularly strong share price gains around mid-year as
markets embraced the potential of AI with enthusiasm.
Against the backdrop of inflation, rate rises and macroeconomic headwinds,
global venture capital deal activity fell in 2023, with a year-on-year decline
of 42% by value (from $426 billion in 2022 to $248 billion in 2023) and 30% by
volume (from 42,069 deals in 2022 to 29,303 deals in 2023). This sees a return
to the levels of deal activity seen prior to the COVID-19 pandemic.
Meanwhile, investors have demonstrated greater selectivity of deals and have
been reluctant to participate in large, late-stage rounds. The number of
mega-rounds, which represent deals worth $100 million+, has fallen 58%
year-on-year (from 933 in 2022 to 394 in 2023), while the aggregate value of
these deals has fallen nearly 50% over the same period (from $192 billion in
2022 to $100 billion in 2023). Furthermore, while median deal sizes have come
down across all stages over the past three years, it has been most pronounced
in late-stage deals, which have fallen 58% since 2021 ($50 million in 2021 vs.
$21 million in 2023).
The market cooling was also evident with only 71 new unicorns created in 2023,
a reduction of 73% from 2022 (263 unicorns) - representing a seven-year low.
The environment for exits also saw continued weakness. The number of M&A
transactions, the predominant exit route for venture-backed businesses,
declined 18% year-on-year (from 10,234 in 2022 to 8,351 in 2023). Initial
public offerings were even further in decline, falling 48% year-on year (from
90 in 2022 to 47 in 2023).
Source for venture data: CB Insights, State of Venture 2023 Report.
Financial performance
2023 performance
The NAV as of 31 December 2023 was £217.1 million, a decrease of 15.8%
compared with the NAV (£257.9 million) as of 31 December 2022. The NAV per
share as of 31 December 2023 was 25.32p, a decrease of 11.2% compared with the
NAV per share (28.52p) as of 31 December 2022.
This 11.2% decrease in NAV per share comprised:
- Public equity holdings: -5.8%
- Private equity venture holdings: -4.2%
- Private equity life science holdings: -1.9%
- Private equity growth holdings: -0.5%
- Repurchase and cancellation of the Company's own shares: 1.9%
- Costs and other movements: -0.7%
Attribution analysis (£m)
Private equity
Life sciences* Venture Growth Public equity Money market funds Cash Other NAV
Fair value as at 34.9 49.7 62.3 95.6 0.0 16.1 (0.7) 257.9
31 December 2022
+ Investments 4.3 5.6 12.9 - 13.2 (36.0) - -
- Realisations at value (3.1) (5.2) (0.7) (23.8) (3.6) 36.4 - -
+/- Fair value gains/(losses) (5.1) (10.8) (1.2) (15.0) 0.1 - - (32.0)
+/- Reclassified holdings - - - - - - - -
- Repurchase & cancellation of the Company's own shares - - - - - (7.0) - (7.0)
+/- Costs & other movements - - - - - (6.6) 4.8 (1.8)
Fair value as at 31.0 39.3 73.3 56.8 9.7 2.9 4.1 217.1
31 December 2023
*Included £2.9 million of proceeds from Rosetta sale (sale of basket of life
science assets to Rosetta Capital).
Public equity holdings
The Company's public equity holdings saw a fair value loss of -15.7% of the
opening fair value, contributing -5.8% to the decrease in NAV per share over
the 12-month period.
The listed share price of AI-enabled drug discovery and development company
BenevolentAI declined 74.9% over the year. In April, the company announced the
results of its Phase Ila study of BEN-2293, a treatment for Atopic Dermatitis,
a common skin condition that causes patches of skin that are itchy, cracked
and sore. The treatment was safe and well tolerated, however failed to
demonstrate efficacy - the key requirement for further progression of the
drug. In May, the company announced a new strategic plan to position itself
going forward. This included streamlining its portfolio to focus on a narrower
set of drug programmes, and changing its cost base and organisational
structure, resulting in an extended cash runway to 2025. The company is
reported as a public equity holding although fair value priced by the
Company's AIFM, ("Schroder Unit Trusts Limited" or the "Manager"), due to a
lack of liquidity in the listed shares. As of 31 December 2023, the holding in
BenevolentAI is held at a discount of 33% to the listed share price (FY22:
19%).
Meanwhile, the share price of Oxford Nanopore Technologies ("ONT"), the
Company's largest holding, fell 15.6% over the year, reflecting a mixed year
in which underlying financial growth was insufficient to offset pessimistic
market sentiment and continued valuation weakness. The share price declined
13.5% in the first half and 2.4% in the second half of the year. In September,
ONT released its interim results for the six months ended 30 June 2023
detailing Life Science Research Tools ("LSRT") revenue growth of 22%
year-on-year to £86 million - towards the mid-point of previous guidance, an
adjusted EBITDA loss aligned with market consensus, whilst reiterating medium
term guidance. During its capital markets day in October, ONT announced that
bioMérieux, a leading company in the field of vitro diagnostics, planned to
make a strategic investment of £70 million in ONT at 238p per share, while
expecting to make further market share purchases, up to a further 3.5% of
Oxford Nanopore's shares. Additionally, ONT announced a multi-year joint
development collaboration with the Mayo Clinic, the renowned academic medical
centre, to develop new clinical tests for diseases and improve patient care.
After the period end, in January 2024, ONT released its FY23 trading update
outlining LSRT revenue increased 15% year-on-year to £169 million, towards
the lower end of previous guidance. Performance in the fourth quarter was
impacted by slower than expected ramp-up of certain new customers, which
management expect to fall into FY24, and a slowdown of growth in China and the
Middle East following the issuance of the recent US trade rules further
regulating sales of advanced AI semiconductors. The company also agreed to
replace and supersede its existing purchase agreement with G42 Laboratories in
support of the Emirati Genome Programme to remove the outstanding purchase
commitment.
On the positive side, the share price of Autolus Therapeutics, the CAR T-cell
therapy company, increased by 239.5% over the year. This increase reflects
encouraging results from clinical trials and pipeline developments. The
company presented positive results from a pivotal Phase 2 clinical trial for
OBE-CELL, aimed at patients with relapsed/refractory adult B-cell Acute
Lymphoblastic Leukaemia. These results were presented at the American Society
of Hematology in May and December. In November, the company filed a Biologics
License Application with the FDA, seeking US regulatory market approval.
Elsewhere in the pipeline, in April, the company reported that AUTO1/22 showed
complete responses and no antigen negative relapse in responding patients with
Acute Lymphoblastic Leukaemia in a Phase I study. In June, the company
reported that AUTO4 demonstrated responses in all four treated patients with
relapsed/refractory TRBC1-positive Peripheral T-cell Lymphoma. AUTO4 was well
tolerated with no dose-limiting toxicities. Two of these patients showed a
complete metabolic response at the highest doses.
Private equity venture holdings
The Company's venture holdings saw a decrease in value of 21.7% contributing
-4.2% to the decrease in NAV per share over the 12-month period.
The valuation of the Company's holding in Federated Wireless decreased as a
result of slower sales growth than anticipated. The market that Federated
Wireless is penetrating is large but relatively cautious in adopting new
technologies. As such the company has taken a more cautious view on growth in
these early years which is reflected in the valuation change. Additionally,
the valuation of the Company's holding in Genomics was decreased over the
period to reflect the terms of its £35 million fundraise which completed in
early January 2024.
A key contributor over the period was innovative email cybersecurity company
Tessian, which in November was announced to have entered into a definitive
agreement to be acquired by Proofpoint - a people-centric cybersecurity and
compliance company. The agreement closed in December 2023, with the Company
receiving $6.7 million (£5.2 million), representing an increase of 32%
compared to the valuation as of 31 December 2022 (£3.9 million).
Private equity life science holdings
The Company's life science holdings saw a decrease in value of 14.6%
contributing -1.9% to the decrease in NAV per share over the 12-month period.
AMO Pharma, an emerging biopharmaceutical business developing new treatments
for serious and debilitating diseases, including rare genetic disorders, was
one of the main detractors over the year. In September, the company reported
that its Phase 3 REACH-COM clinical trial for AMO-02, a clinical stage
investigational medicine for the treatment of Congenital Myotonic Dystrophy,
did not meet its primary efficacy endpoint.
On the positive side, we are delighted with the progress of two of the
portfolio's more recent life science investments: clinical-stage
biopharmaceutical companies Carmot Therapeutics and Anthos Therapeutics. In
December 2023, it was announced that Carmot had entered into a definitive
agreement to be acquired by Roche, a global pharmaceutical company, at a
purchase price of $2.7 billion upfront and the potential for $400 million in
milestone payments. The transaction closed on 29 January 2024. This news has
been reflected in the latest valuation (£4.3 million), which represents an
uplift of 216% from the value as at 30 June 2023 (£1.3 million). Post year
end, the Company received a $5.6 million (£4.5 million) distribution from
the completed sale.
Meanwhile, the valuation in Anthos has increased, driven by the positive
result of its Phase 2 ANT-006 ("AZALEA") study designed to compare
Abelacimab's safety to leading DOAC standard-of care (Rivaroxaban) in a high
bleeding-risk cohort of atrial fibrillation patients. In September 2023,
Anthos announced that the AZALEA study of 1,287 patients with atrial
fibrillation at moderate-to-high risk of stroke met its primary efficacy
endpoint. The study was stopped early by recommendation from the Data
Monitoring Committee due to an overwhelming reduction in the composite of
major and clinically non-major bleeding in patients taking Abelacimab compared
with patients taking Rivaroxaban. Abelacimab is the first and only Factor XI
inhibitor to demonstrate an unprecedented reduction in major bleeding compared
to a direct oral anticoagulants which are the current standard of care.
Overall, we are strongly encouraged by the progress made by this area of the
portfolio, out of the 12 life science portfolio investments (shown below), 11
have reached clinical stage, of which two have been acquired, five have shown
clinical proof of concept and one has been approved.
Development of life science investments
The portfolio also notably benefitted from:
(1) An additional £2.9 million deferred cash consideration that was received
as part of the sale of a basket of seven assets to Rosetta Capital which
originally completed in March 2021.
(2) A revaluation of the holding in Kymab to reflect the first milestone
payment following the sale of Kymab to Sanofi which originally completed in
April 2021.
Private equity growth holdings
The Company's growth holdings saw a decrease in value of 1.9% contributing
-0.5% to the decrease in NAV per share over the 12-month period.
In November 2023, it was announced that UK app-based bank, Atom Bank, had
raised £100 million in new equity capital from existing shareholders BBVA,
Toscafund and Infinity Investment Partners, to accelerate lending and balance
sheet growth as the bank continues to scale. Following this news, the
Company's AIFM revalued the holding in Atom Bank to £23.1 million. This
revaluation, which represented a discount to the valuation of the fundraise,
resulted in a negative fair value impact of £8.6 million relative to the
holding value as of 30 June 2023 and 31 December 2022 (£31.7 million). Whilst
the valuation impact of this fundraise is disappointing in the short term,
this significant investment should be viewed as a good signal of confidence in
Atom Bank. The company now has the capital to scale up and demonstrate the
operating efficiency of its platform. Although much work remains, Atom Bank is
one step closer to a planned future liquidity event.
On the positive side, the Company's holdings in Ada Health, Revolut and Back
Market were revalued upwards. As detailed in the Top 10 holdings, all three
companies reported solid progress over the year. Revolut continued its rapid
international expansion, growing the number of retail customers to over 35
million across 38 countries, with the expectation to achieve $2 billion (£1.7
billion) in revenue in 2023, an increase of over 80% year-on-year (FY22
revenue £923 million). Ada Health had a successful year achieving record
revenue and becoming profitable. The company announced collaborations with
Pfizer, the global pharmaceutical company, and Jefferson Health, Greater
Philadelphia's largest health system. Meanwhile, Back Market has achieved and
maintained profitability in mature markets such as France and Spain, while it
continues its global expansion journey, focusing on US, UK, Germany and Japan.
Foreign exchange
Over the period, the fair value of investments denominated in United States
Dollar, Euro and Norwegian Krone were negatively impacted by appreciation in
the value of the British Pound Sterling. Meanwhile, the fair value of
investments denominated in Swiss Franc were positively impacted by
depreciation in the value of the British Pound Sterling relative to Swiss
Francs.
Investment activity
Realisations
During the 12 months to 31 December 2023, the Company made realisations
totalling £32.8 million. Public equity holdings in Johnson Matthey, Spirent
Communications, Petershill Partners and IDEX Biometrics were exited, while
positions in Oxford Nanopore and Immunocore were reduced.
Additionally, £5.2 million was received from the sale of Tessian, discussed
above.
Furthermore, the Company received an additional deferred consideration of
£2.9 million as part of the sale of a basket of seven assets to Rosetta
Capital which completed in March 2021. The Company received total
distributions of £0.7 million from the HP Environmental Technologies Fund
following the successful sales of several portfolio companies in 2021 and
2022. The Company also sold its holding in healthcare company, Origin Inc,
generating proceeds of less than £0.2 million. The holding was valued at zero
as of 31 December 2022 resulting in a modest positive impact on performance.
After the period end, Roche's acquisition of Carmot completed (discussed
below), while the Company also received a £4.6 million distribution related
to the first milestone of the Kymab sale to Sanofi.
Investments
During the 12 months to 31 December 2023, the Company made investments
totalling £22.8 million. These included six new holdings: two venture
investments (Securiti and an AI software company (MMC SPV 3 LP)), two growth
investments (AgroStar and Bizongo) and two life science investments (Carmot
Therapeutics and Memo Therapeutics), as well as small follow-on investments or
capital calls (£2.3 million) in iOnctura, Anthos Therapeutics and Epsilogen.
LIFE SCIENCES
Carmot Therapeutics
The Company completed a $1.7 million (£1.4 million) investment in US-based,
clinical stage biopharmaceutical company, Carmot Therapeutics, Inc ("Carmot"),
as part of its Series E financing round.
Carmot discovers and develops disease modifying therapies for people living
with metabolic diseases. Utilising a pioneering drug discovery platform called
Chemotype Evolution, Carmot identifies novel drug targets and develops a broad
pipeline of experimental therapeutics with the aim of treating patients
suffering from metabolic diseases, including obesity and diabetes.
The proceeds from the Series E round should support development of Carmot's
broad clinical-stage metabolic pipeline including two Phase 2 trials of
CT-388, a once weekly, injectable experimental therapeutic to treat patients
with obesity and/or type 2 diabetes. In a phase I/II clinical trial, Carmot's
lead therapeutic was found to be safe, well-tolerated, and produced more than
8% weight loss in four weeks in overweight and obese adults.
Deep Track Capital led a Series E financing round, which was also supported by
a syndicate of new and existing healthcare investors including SAM Ventures,
Franklin Templeton, Frazier Life Sciences, Janus Henderson Investors, RA
Capital Management, Millennium Management, TCGX, The Column Group, Venrock
Healthcare Capital Partners and Willett Advisors.
Carmot's pipeline of experimental therapeutics has the potential to
significantly improve the quality of life for patients suffering from
metabolic diseases, including obesity and diabetes. Schroders Capital's
ability to access this restricted and oversubscribed funding round is
testament to the network that our healthcare team has developed across the
industry.
On 3 December 2023, it was announced that Carmot had entered into a definitive
agreement to be acquired by Roche, a global pharmaceutical company, at a
purchase price of $2.7 billion upfront and the potential for $400 million in
milestone payments. Roche completed the acquisition of Carmot on 29 January
2024.
We chose to invest in Carmot based on its compelling assets, backed by robust
clinical data and were delighted by the news of this sale, which has occurred
earlier than expected, but which reflected the unique nature of Carmot's
pipeline.
Memo Therapeutics
The Company made a commitment of CHF 0.9 million (£0.8 million) to Memo
Therapeutics, a Switzerland-based clinical-stage biopharmaceutical company.
The Company participated in Memo's Series C financing round, which raised CHF
25 million and was led by Pureos Bioventures. Existing investors Swisscanto,
Vesalius Biocapital, Adjuvant Capital, Verve Ventures, GF Group, Fresenius
Medical Care Ventures, and Red Alpine also joined the round. As of 31 December
2023, the Company had invested £0.5 million of its total commitment.
Memo develops novel therapeutic antibodies for patients with viral infections
and cancer. Memo's unique antibody discovery and functional screening platform
enables the identification, isolation, and selection of antibodies from
patient samples or vaccinated animals. This technology helps Memo to discover
antibodies with the potential to treat diseases using rare antibodies that
other methods might miss.
The Series C funding should support Memo in completing the U.S. Phase II
clinical development of their leading antibody, AntiBKV. This antibody is
designed to neutralise BK virus (BKV) infection in kidney transplant
recipients. BKV infection can have serious adverse effects on graft function
and patient survival following a transplantation procedure. Currently there
are no regulatory approved therapeutics to treat BVK infection in kidney
transplant recipients. With Phase II clinical data expected in 2024, the
funding should also enable Memo to prepare for large-scale manufacturing of
AntiBKV for a Phase III study and potential market entry. Additionally, the
investment should help Memo advance its pipeline of other experimental
antibody therapeutics.
We believe Memo is a highly complementary addition to the company's portfolio.
AntiBKV has solid pre-clinical efficacy and clinical safety data with near
term Phase II clinical efficacy data expected in 2024. A positive phase II
readout has the potential to drive a significant value inflection for Memo and
may enable a material improvement in the quality of life for kidney
transplant recipients with BKV infection.
VENTURE
Securiti
The Company made an $5.0 million (£3.9 million) investment in US-based
cybersecurity company, Securiti. The company is the pioneer of the Data
Command Center, a centralised platform that enables the safe use of data and
GenAI. Its solution unifies controls for data security, privacy, governance
and compliance in one place. This unification of data intelligence is
revolutionising important but arduous processes, allowing organisations to
retire disparate, legacy solutions which add cost and complexity.
Schroders Capital has known Securiti for a number of years, having been an
investor since 2019 through our fund investments. We believe Securiti is
playing a key role in transforming how organisations can innovate with vast
quantities of data while meeting their data obligations.
AI software company (MMC SPV 3 LP)
The Company made an investment of $2.0 million (£1.7 million) into an early
leader in an emerging segment of artificial intelligence (AI) software. The
Company invested through its co-investment partner, MMC Ventures, via a single
asset fund, MMC SPV 3 LP.
Schroders Capital has been investing in venture capital for over 25 years.
Over that time, our team has seen various waves of technological innovation
and witnessed first-hand the ripple effect through different sectors and
regions. Our belief is that AI, most recently focused on the field of
generative AI that has been enabled by the advent of large language models,
has the potential for innovation and disruption on a scale comparable to the
introduction of email, the internet and the smartphone. We see significant
opportunity in the AI sector, justifying its position as one of our eight key
global innovation themes. This investment, which forms part of our strategy of
backing innovative venture-stage business, is in an access-restricted software
company that is an early leader in an emerging application of AI. We are not
currently able to name the company due to confidentiality, however, we believe
it represents a highly complementary addition to the portfolio.
GROWTH
AgroStar
Over the period, the Company completed its first transaction in Asia with an
$8.0 million (£6.6 million) investment in AgroStar (Ulink Agritech Pvt.
Ltd.), one of India's foremost agricultural technology start-ups.
The investment formed 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 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 the
domestic and international food supply chains.
Schroders Capital has known AgroStar for several years, having been an
investor since 2021, and we believe the company has demonstrated exceptional
growth by combining technology with strong agronomy capabilities to play an
important role in the Indian agricultural sector.
Bizongo
The Company also made an investment of $8.0 million (£6.3 million) in
India-based vendor digitisation company, Bizongo. This investment formed part
of the $50.0 million Series E funding round that was led by Schroders Capital
with participation from other investors including IFC, BCap, Chiratae
Ventures, and British International Investment.
Bizongo, which was founded in 2015, is transforming supply chain operations
for large enterprises, as well as for micro, small and medium enterprises
("MSME's") in India, through its foundational vendor digitisation platform.
Bizongo enables vendors to source raw materials across a broad range of
categories, including steel, aluminium and textiles, and to optimise their
procurement processes. Customers leverage the Bizongo vendor digitisation
platform to source suppliers, optimise for cost, seamlessly place orders, all
whilst managing invoicing and order tracking in real-time. Bizongo has a
capital efficient, inventory-free operating model, that connects vendors
directly with suppliers. The vendor digitisation platform has seen a
three-fold rise in its gross merchandise value, the total value of sales
through the platform, from ~$215 million in FY22 to ~$750 million in FY23.
With its platform, the company has also opened doors to embedded financing
through its network of more than 40 partner banks and non-banking financial
corporations, who can evaluate MSMEs based on deep transactional and
behavioural insights, allowing them to take better financing calls, and
enabling MSMEs to scale their growth through efficient working capital.
Schroders Capital has been an investor in Bizongo since 2019, over which time
we have seen the company grow exponentially, achieve scale, and expand into
more sectors. We believe the company is playing a transformational role in
enabling vendors in India to digitalise their supply chain, which has
accelerated since the COVID-19 pandemic. We are excited that the Company is
now participating in Bizongo's future growth.
Outlook
The core tenets of the strategy pursued in 2023 remain unchanged in 2024. We
continue to work closely with portfolio company management teams,
co-investors, and other stakeholders to support business growth and a path to
profitability. Below we look at the outlook across the four different
strategies:
Growth
With an increasing percentage of the private equity portfolio, particularly
within the growth strategy, now valued on a multiples-based approach as
detailed in the Valuation Approach and Process section, we are hopeful that
during the year the portfolio will benefit from underlying financial growth
being more readily reflected in quarterly valuations. We are also cautiously
optimistic that this effect will be compounded by improving market conditions
giving rise to a more favourable valuation and exit environment.
Of the seven growth holdings in the portfolio: all generate scalable
commercial revenues, four are profitable, five are fully funded based on their
latest business plan, and none need to raise capital during 2024. We expect
exits from this segment of the portfolio to start materialising from 2026
onwards, so the near-term focus is on capital efficient growth.
Atom Bank, the second largest holding, aims to focus on productively deploying
the capital from its recent fundraise, accelerating mortgage and business
lending, and expanding its deposit base. Atom operates in highly competitive
markets dominated by large established banks, however this fresh capital is
expected to allow the bank sufficient scale to demonstrate the operational
efficiency of its digital-first model, a key requirement for any future
potential liquidity event.
Key factors for success in 2024 will include Revolut and Back Market
delivering against their ambitious international expansion plans, AgroStar and
Bizongo, our latest growth-stage investments in India, leveraging recent
funding rounds to expand domestically, investing in new product innovation and
continuing to expand their services to customers, and Ada Health replicating
the success of partnerships signed with Pfizer and Jefferson Health in 2023.
Venture
The venture segment of the portfolio by design is where we expect to see the
highest level of risk and therefore widest dispersion of returns (excluding
life sciences) and 2024 is likely to be no different. These holdings are the
hardest to value, often requiring a milestone-based approach which, at times,
can result in large swings in valuation.
Of the nine venture holdings in the portfolio: four generate scalable
commercial revenues, all are unprofitable, two are fully funded based on their
latest business plan and only one needs to raise further capital during 2024.
Key factors for success in 2024 are expected to include Reaction Engines
commercialising spin-off technologies from its core heat exchanger programme,
Nexeon making progress with building its first commercial scale production
plant and Federated Wireless driving further commercial and federal traction
enabling it to continue to scale.
Life sciences
We expect several portfolio biotech companies to experience value inflections
based on their ongoing clinical trials and potential market approvals.
Autolus, which is classified as a public company, is awaiting market approval
in the US, EU, and UK for Obe-cel, a treatment for relapsed/refractory Acute
Lymphocytic Leukaemia expected in Q2. Additionally, results from the Phase 1
clinical trial for Obe-cel in B-cell Non-Hodgkin Lymphoma and Chronic
Lymphocytic Leukaemia are expected in Q4. Phase 1 clinical trials results are
also expected in Q4 for Obe-cel in the treatment of primary CNS Lymphoma,
allogenic Obe-cell for B-cell malignancies, and AUTO8 for multiple myeloma.
OcuTerra is conducting a Phase 2 clinical trial for OTT166 in adults with
Diabetic retinopathy, and results from this trial are anticipated by Q2.
Immunocore are seeking to release additional Phase 1 clinical data for
IMC-F106C, a treatment for multiple solid tumour types between Q2 and Q4.
Anthos, which received positive results in Q4 2023 from a Phase 2 clinical
trial for its thrombosis prophylaxis Abelacimab we believe may lead to
potential mergers and acquisitions during the year.
iOnctura's Phase 1 clinical trial for IOA-244 is expected to be completed by
Q4. This trial aims to evaluate the efficacy of IOA-244 in treating patients
with Uveal Melanoma, Cutaneous Melanoma, Mesothelioma, Myelofibrosis,
Non-Hodgkin Lymphoma, and Non-Small Cell Lung Cancer ("NSCLC"). Memo
Therapeutics may release data from its ongoing pivotal Phase 2/3 clinical
trial for its therapeutic antibody AntiBVK for the treatment BK virus
infection in kidney transplant recipients in Q4. Epsilogen is expected to
initiate Phase 2 clinical trials for its lead therapeutic Mov18 in patients
with advanced solid tumours. Lastly, A2 Bio may release Phase 1 data for
A2B530, a treatment for CEA positive solid tumours by year end.
Public equities
We expect the public equity portfolio, principally Oxford Nanopore, to remain
volatile as the valuation environment for loss-making, growth focused listed
companies remains unforgiving. During 2024, Oxford Nanopore will focus on
increasing LSRT sales, developing new clinical and applied applications of its
technology, and winning new large scale genetic sequencing projects. The
company aims to achieve greater than 30% growth in underlying LSRT revenue,
expand gross margins through operating efficiency gains, demonstrate progress
on its path to profitability and ease concerns of any further future capital
needs that would be dilutive to shareholders.
Rebalancing & diversification
With only 30% of equities as of 31 December 2023 representing investments made
by Schroders, we continue to seek to maximise the sale proceeds from holdings,
both public and private, as part of the rebalancing exercise to ensure
sufficient liquidity (cash and liquid public equities) to efficiently execute
the buyback programme, support the portfolio and make new investments.
We expect diversification to be a key topic for 2024. As capital availability
allows, we seek to target new investments that align with our three strategies
(venture, growth and life sciences) with the aim of building a diversified
portfolio which more appropriately balances the risk of each strategy. This
goal remains a moving target with the requirements of the buyback programme
and uncertain timing of potential future exits, however our direction of
travel is clear. However, with private markets lagging those of public
equities, we see a compelling opportunity to continue making new investments
at attractive entry prices.
Schroders Capital remains committed to the Company and delivering long-term
value for shareholders.
Tim Creed and Harry Raikes
Portfolio Managers
27 March 2024
Top 10 investments
The Company's top ten investments as of 31 December 2023 compared with the
respective holdings as of 31 December 2022.
31 December 2022 31 December 2023
Portfolio company Strategy Value (£'000) % of total equities Value (£'000) % of total equities
Oxford Nanopore Public 56,529 23.3 41,669 20.8
Atom Bank Growth 31,686 13.1 23,105 11.5
HP Environmental Technologies Growth 10,700 4.4 10,918 5.4
Reaction Engines Venture 12,500 5.2 10,625 5.3
Ada Health Growth 7,122 2.9 9,638 4.8
Back Market Growth 7,329 3.0 8,839 4.4
Autolus Therapeutics Public 2,642 1.1 8,463 4.2
Revolut Growth 5,436 2.3 7,888 3.9
AgroStar Growth - - 7,279 3.6
Nexeon Venture 6,505 2.7 7,039 3.5
Oxford Nanopore
Technology company at the forefront of next generation DNA sequencing
instrumentation
Oxford Nanopore Technologies ("ONT") has developed a new generation of
nanopore-based electronic systems for the analysis of single molecules,
including DNA, RNA and proteins. The handheld MinION™ device, the
high-throughput PromethION™ and the GridION™ system are used in scientific
research, personalised medicine, crop science, security and defence and
environmental applications.
ONT had a mixed 2023 with key highlights including:
- In September, ONT released its interim results for the six months
ended 30 June 2023:
o LSRT revenue increased 22% year-on-year to £86 million.
o Underlying LSRT revenue growth, excluding revenue from the Emirati
Genome Program ("EGP") and COVID-19 sequencing, expected to be ~46% on
constant currency basis.
o Adjusted EBITDA loss of £39 million which aligned with market
consensus.
- In October, ONT announced various updates as part of its Capital
Markets Day including:
o Signing a multi-year joint development collaboration with Mayo Clinic,
the renowned academic medical centre.
o Securing a strategic investment from bioMerieux, a leading company in
the field of in vitro diagnostics.
o Progress advancing the technology from research into clinical and
applied industrial markets targeted at 10-20% of revenue by FY26.
- After the period end, in January 2024, ONT released its FY23 trading
update outlining:
o LSRT revenue increased 15% year-on-year to £169 million
towards the lower end of previous guidance.
o Performance in the fourth quarter was impacted by slower
than expected ramp-up of certain new customers, which management expect to
fall into FY24, and a slowdown of growth in China and the Middle East
following the issuance of the recent US semiconductor trade rule further
regulating sales of advanced AI semiconductors.
o An agreement to replace and supersede its existing
purchase agreement with G42 Laboratories in support of the EGP - the new
agreement will remove the outstanding purchase commitment and extends the
expiration date until 31 December 2026.
o Reiterated medium-term guidance including underlying
revenue growth of more than 30% per annum (on a constant currency basis),
gross margin of greater than 65% and the target for adjusted EBITDA breakeven
by the end of 2026.
Atom Bank
Leading UK app-only challenger bank
Atom Bank is the UK's first bank built exclusively for mobile. It aims to
redefine what a bank should be, making things easier, more transparent, and
better value. Atom currently offers savings accounts, mortgages and business
loans.
In July 2023, Atom Bank published its FY23 annual report for the 12-month
period to 31 March 2023 reporting its first annual operating profit of £4.2
million. Key highlights included:
- Customer numbers increased 82% from 123,000 to 224,000 whilst
maintaining industry leading customer reviews.
- Customer deposits increased 105% from £3.2 billion to £6.6 billion
with rising interest rates incentivising UK consumers to switch into the
company's competitively priced products.
- Loans under management increased 4% from £3.3 billion to
£3.4 billion with new lending slowing through the middle of the year due to
volatility in market rates.
- Net interest income increased 62% from £47 million to £76 million
due to balance sheet growth and improving spreads against a backdrop of
rapidly rising base rates.
- Net interest margin, calculated as net interest income divided by
average total loans for the period over which it was generated, declined from
2.93% to 2.84%. Despite an improving yield on lending assets, the result was
lower than the prior year due to the comparatively lower yield on cash.
In November 2023, Atom Bank announced it had raised £100 million in new
equity capital from existing shareholders BBVA, Toscafund and Infinity
Investment Partners. The funds are expected to be used to accelerate lending
and balance sheet growth as the bank continues to scale. Whilst the valuation
impact of this fundraise is disappointing in the short term, this significant
investment is a good signal of confidence in Atom Bank. The company now has
the capital to scale up and demonstrate the operating efficiency of its
platform. Although much work remains, Atom Bank is one step closer to a
planned future liquidity event.
HP Environmental Technologies
Fund that invests in emerging environmental technologies
The HP Environmental Technologies Fund invests in emerging environmental
technologies working to solve some of the most important environmental
challenges faced by the world today. The Fund was seeded through the secondary
purchase of a portfolio of seven leading environmental technology companies
and seeks primary investment opportunities that arise from efforts to reduce
our impact on the planet and move towards solving important environmental
challenges.
Key portfolio updates in 2023:
- Bluewater Bio
o Throughout 2023, Bluewater Bio continued to roll out its
FilterClear technology across the UK as a core part of water companies'
phosphorous removal programmes which are essential to maintaining the health
of our streams, rivers and lakes.
o In addition, Bluewater's HYBACS (HYBrid ACtivated Sludge)
technology continued to perform in the UK, Middle East and South Africa,
providing millions of tonnes of water for reuse, saving energy and reducing
pollution.
- P2i
o P2i protected over 100 million electronic devices with its
nano-coating in 2023, enhancing the quality of these devices and at the same
time reducing waste and the amount of rare earth metals used, and generating
significant carbon savings.
o In March 2023, P2i was proud to be part of the official
launch of the United Electronics Coating Association ("UECA"), whose formation
P2i had spearheaded. The UECA was established to support, develop and deliver
to markets sustainable electronic coating solutions in line with the
principles of the Circular Economy, recyclable electronics, and re-usability.
- Iceotope
o In February 2023, Iceotope announced the availability of
KUL Extreme, a fully integrated and standardised open radio access network
architecture solution to support far edge computing across the entire
telecommunications data centre estate. The product is a result of a close
collaboration between Iceotope, Hewlett Packard Enterprise, Intel, and nVent
to significantly reduce energy consumption and deliver a sustainable solution
across distributed workloads, for both telco service providers and
enterprises.
o In September 2023, BT Group announced that it aims to
trial 'precision liquid cooled' networks switches using a solution provided by
Iceotope and Juniper Networks QFX Series Switches, which are widely used in
existing network cloud architectures.
Reaction Engines
Developer of engine technologies to enable space and hypersonic travel
Reaction Engines is pioneering space access and sustainable technologies. For
over 30 years the company has been at the forefront of engineering innovation
- including developing SABRE, a revolutionary new class of aerospace
propulsion. SABRE enables Reaction Engines to go beyond the limits of flight
both within and outside the atmosphere.
- In January 2023, Reaction Engines announced a further £40 million
funding round led by Strategic Development Fund, the investment arm of UAE's
Tawazun Council.
- In February 2023, the company announced that it had joined the Thermal
Management for Hybrid Electric Regional Aircraft consortium, a pan-European
consortium led by Honeywell, which is researching and developing thermal
management components and architectures for next-generation narrow body and
regional, hybrid-electric aircraft.
- In June 2023, the company announced its participation in projects
RACHEL and LH2GT, two cutting-edge projects developing technologies for the
use of liquid hydrogen fuel in aviation, led by Rolls-Royce and funded by the
UK government's Aerospace Technology Institute.
- In August 2023, it was announced that the company had been awarded
funding to further a UK/US collaboration under the UK Space Agency's
International Bilateral Fund.
Ada Health
Global digital health company focused on improving human health at scale
Ada has developed a powerful AI-based health assessment and care navigation
platform that helps users to understand their symptoms, identify and
differentiate conditions with a high degree of medical accuracy, and navigate
safely to the right care at the right time.
2023 was a very successful year for Ada Health, with the company achieving
record revenues and becoming profitable at an EBITDA level. The year was
marked by many highlights, including:
- In January 2023, it was announced that Ada Health and Pfizer were
collaborating to launch a nationwide online COVID-19 Care Journey, operated by
Ada, to help connect patients with timely treatment.
- In April 2023, Ada announced a new collaboration with Jefferson
Health, Greater Philadelphia's largest health system comprised of 18 hospitals
and more than 50 outpatient facilities across Pennsylvania and New Jersey.
- In June 2023, the company announced that it had secured €30 million
to advance global growth. The agreement between Ada Health and IPF Partners
represented up to €30 million of debt borrowing and reinforced Ada Health's
financial runway through 2024 and beyond as the company steers toward
profitability. The funding enabled continued investment in product enhancement
and development, user growth, and commercial traction with leading health
systems, governments, and life sciences organisations. Initially, Ada Health
intend to only draw part of the committed funding.
- In September 2023, Ada Health launched a new collaboration to provide
medical advice and care guidance for mothers across South Africa.
- In October 2023, the company launched a COVID-19 risk and therapy
screener to help people across Germany understand their risks.
Back Market
Global marketplace for refurbished devices
Back Market is a leading online marketplace dedicated to refurbished devices.
The company's mission is to make restored devices mainstream. Back Market
works with professional refurbishers to guarantee that every device has been
tested and restored to perfect working condition according to industry
standards.
- In April 2023, Back Market announced that it had received B Corp
status. This means that from their environmental impact to their hiring
practice, they are working toward a more inclusive and sustainable economy. B
Corp is a third-party certification for "businesses meeting high standards of
verified performance, accountability, and transparency on factors from
employee benefits and charitable giving to supply chain practices and input
materials."
- Back Market now has over 1,500 professional sellers on the platform
backed by a solid ranking system.
- Profitability has been achieved and maintained in mature markets such
as France and Spain, with the company continuing on its global expansion
journey, with focus on US, UK, Germany and Japan.
- Looking forward, Back Market aims to focus on diversifying into new
categories, increasing buyback and recycling activity and furthering
partnerships with telcos.
Autolus
Clinical-stage biopharmaceutical company developing next-generation,
programmed T-cell therapies for the treatment of cancer
Autolus is a CAR T-cell therapy company. The company applies its extensive
programming capabilities to develop advanced autologous T-cell therapies that
have the potential to deliver life-changing benefits to cancer patients.
- The company presented positive results from a pivotal Phase 2 clinical
trial for OBE-CELL, aimed at patients with relapsed/refractory adult B-cell
Acute Lymphoblastic Leukaemia. These results were presented at the American
Society of Hematology in May and December 2023.
- In November 2023, the company filed a Biologics License Application
with the FDA, seeking US regulatory market approval.
- Elsewhere in their pipeline, the company reported in April 2023 that
AUTO1/22 showed complete responses and no antigen negative relapse in
responding patients with Acute Lymphoblastic Leukaemia in a Phase I study.
- In June 2023, the company reported that AUTO4 demonstrated responses
in all four treated patients with relapsed/refractory TRBC1-positive
Peripheral T-cell Lymphoma. AUTO4 was well tolerated with no dose-limiting
toxicities. Two of these patients showed a complete metabolic response at the
highest doses.
Revolut
Global neobank and financial technology company
Revolut is a fintech firm that provides banking and payment services.
The company offers multi-currency cards and a mobile app that includes
currency exchange, peer-to-peer payment and bank transfer solutions. It also
offers personal and business banking solutions.
In December 2023, Revolut released its annual report for 2022 providing
greater detail on progress in the prior year:
- Number of retail customers increased 60% year-on-year to
26.2 million, including a 55% increase in customers on paid plans, and during
the course of 2023, the number of retail customers later surpassed 35 million
customers across 38 countries.
- Number of monthly transactions increased 71% to 341 million.
- Deposits increased 71% to £12.6 billion.
- Revenue increased 45% to £923 million.
- Number of employees increased 112% to 5,913.
- During the year, Revolut continued to pursue its global expansion
across a number of markets:
o North America: United States.
o Asia-Pacific: Australia, Singapore, Japan and New Zealand (launched in
July 2023).
o Latin America: Brazil (launched in May 2023) and Mexico.
- The company reiterated its commitment to its ongoing UK banking
licence application.
- Expects to hit $2 billion (£1.7 billion) in revenue and double-digit
net profit margin for 2023.
AgroStar
One of India's foremost agricultural technology (AgTech) start-ups
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 global markets to sell their produce.
AgroStar made good progress in 2023. The private label business grew by 60%
year-on-year and expanded into five new Indian states. The company added
multiple new crops to the produce portfolio and forayed into new geographies
with partnerships with marquee global brands. Key highlights included:
- Served more than 1.4 million farmers in 2023 across channels.
- Farmer App continues to be well rated on the app store and had >1.5
million new downloads in 2023.
- Expansion of footprint to five new Indian states including Bihar,
Haryana, Karnataka, Andhra Pradesh and Telangana.
- Added over 3,000 new stores in CY23 and now have 7,000+ Saathi stores
distributing AgroStar products across 10 Indian states.
- Export of over 80,000 metric tonnes of fresh produce from Indian
farmers to global markets in 2023.
- Added new crops (guava and melons) to the offering in 2023.
Nexeon
Leader in engineered silicon materials for battery applications
Nexeon is a global leader in the development and manufacturing of
ground-breaking, silicon-based anode materials, dramatically enhancing the
performance of Lithium-Ion batteries.
- In July 2023, Nexeon announced that it had entered into a long-term
partnership with Panasonic to supply its advanced silicon-based anode
material, which has the potential to catapult the energy density of
lithium-ion cells. This technology redefines the limits of energy density and
enables a new era of enhanced battery performance.
- In August 2023, the company announced that it had signed an agreement
for its first commercial volume production site and secured a raw material
supply chain for silicon anodes. This represented a significant step towards
delivery of cost-efficient silicon anode materials for energy dense batteries.
Investment Portfolio as at 31 December 2023
The 20 largest investments account for 91.1% of total investments by value (31
December 2022: 93.4%).
Fair value Total
Holding Quoted/unquoted Strategy Industry sector £'000 investments %
Equities
Oxford Nanopore(1) Quoted Public Health Care 41,669 19.8
Atom Bank(1) Unquoted Growth Financials 23,105 11.0
HP Environmental Technologies Fund(1) Unquoted Growth Industrials 10,918 5.2
Reaction Engines(1) Unquoted Venture Industrials 10,625 5.1
Ada Health Unquoted Growth Health Care 9,638 4.6
Back Market(2) Unquoted Growth Consumer 8,839 4.2
Autolus Therapeutics(1) Quoted Public Health Care 8,463 4.0
Revolut LLP(3) Unquoted Growth Financials 7,888 3.8
AgroStar(4) Unquoted Growth Technology 7,279 3.5
Nexeon(1) Unquoted Venture Industrials 7,039 3.4
Federated Wireless(1) Unquoted Venture Technology 6,392 3.0
Kymab(1) Unquoted Life sciences Health Care 6,370 3.0
Bizongo(5) Unquoted Growth Technology 5,585 2.7
Genomics(1) Unquoted Venture Health Care 5,139 2.4
Cequr(1) Unquoted Life sciences Health Care 4,956 2.4
OcuTerra(1) Unquoted Life sciences Health Care 4,804 2.3
Immunocore(1) Quoted Public Health Care 4,437 2.1
Carmot Therapeutics Unquoted Life sciences Health Care 4,262 2.0
Securiti Unquoted Venture Technology 4,210 2.0
Attest Technologies Unquoted Venture Business Services 2,870 1.4
Anthos Therapeutics Unquoted Life sciences Health Care 2,440 1.2
BenevolentAl(1,6) Quoted Public Health Care 2,176 1.0
Epsilogen Unquoted Life sciences Health Care 2,047 1.0
MMC SPV 3 LP(7) Unquoted Venture Technology 1,651 0.8
Araris Biotech Unquoted Life sciences Health Care 1,482 0.7
iOnctura Unquoted Life sciences Health Care 1,399 0.7
AMO Pharma(1) Unquoted Life sciences Health Care 1,350 0.6
Industrial Heat(1) Unquoted Venture Industrials 1,306 0.6
A2 Biotherapeutics Unquoted Life sciences Health Care 914 0.4
Memo Therapeutics Unquoted Life sciences Health Care 558 0.3
Novabiotics(1) Unquoted Life sciences Health Care 457 0.2
Econic(1) Unquoted Venture Industrials 58 -
ARC Group(1) Quoted Public Business Services 34 -
Freevolt (formerly Drayson)(1) Unquoted Venture Technology - -
Just Benchmarks(1) Unquoted Venture Financials - -
Mafic(1) Unquoted Venture Industrials - -
Metaboards(1) Unquoted Venture Technology - -
Mereo BioPharma Group(1) Quoted Life sciences Health Care - -
EVOFEM Biosciences(1) Unquoted Life sciences Health Care - -
Halosource(1) Unquoted Venture Industrials - -
Bodle Technologies(1) Unquoted Venture Technology - -
Rutherford Health(1) Unquoted Venture Health Care - -
Lignia Wood(1) Unquoted Venture Industrials - -
Oxsybio(1) Unquoted Life sciences Health Care - -
Spin Memory(1) Unquoted Venture Technology - -
Kind Consumer(1) Unquoted Venture Consumer Staples - -
Total equities 200,360 95.4
Money market funds
Schroder Special Situations - Sterling
Liquidity Plus Fund Quoted Cash Collectives 9,733 4.6
Total money market funds 9,733 4.6
Total investments(8) 210,093 100.0
(1) Assets inherited from the previous portfolio manager.
(2) Back Market is held via the Company's holding in Sprints Capital Ellison
LP, a single asset fund.
(3) Revolut is held via the Company's holding in Target Global Selected
Opportunities, LLC - Series Space, a single asset fund.
(4) AgroStar is held via the Company's holding in Schroders Capital Private
Equity Asia Mauri VIII Ltd, a single asset fund.
(5) Bizongo is held via the Company's holding in Schroders Capital Private
Equity Asia Maurit V Ltd, a single asset fund.
(6) BenevolentAI is quoted, but the market is inactive. Thus its valuation has
been determined in accordance with the process followed for unquoted assets.
(7) MMC SPV 3 LP is a single asset fund that holds an AI software company.
(8) Total investments comprise:
£'000 %
Unquoted 143,581 68.5
Listed on the London Stock Exchange 41,669 19.8
Listed on a recognised stock exchange overseas 15,110 7.1
Collective investment scheme 9,733 4.6
Total 210,093 100.0
Additional details of unquoted, including investments quoted in inactive
markets, in the top 10 holdings
Holding Net assets/ (liabilities) at the latest audited balance sheet date £'000
Turnover for the latest audited financial year Pre-tax profit/losses for the latest audited financial year £'000
£'000
Fair value £'000
Description Cost £'000
of business
Atom Bank Leading UK app-only challenger
bank 75,165 23,105 209,107 10,097 283,134
HP Environmental Technologies Fund Portfolio of venture and growth-stage industrial companies 3,369 10,918 N/P(1) N/P(1) N/P(1)
Reaction Engines Developer of engine technologies to enable space and hypersonic travel 10,000 10,625 4,743 (28,744) 32,144
Ada Health Develops an artificial intelligence
powered personal health guide 10,028 9,638 N/P(1) N/P(1) N/P(1)
Back Market Online marketplace for
refurbished devices 10,032 8,839 N/P(1) N/P(1) N/P(1)
Revolut LLP Provides a digital banking solution 9,849 7,888 922,547 25,418 1,171,333
AgroStar Manufactures and distributes
organic fertilisers 6,581 7,279 N/P(1) N/P(1) N/P(1)
Nexeon Develops silicon materials for 4,944 7,039 4,359 (7073) 99,282
battery applications
(1) Information not publicly available.
Business Review
Principal and emerging 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.
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. The
internal control environment of the Manager, the depositary and the registrar
are tested annually by independent external auditors. The reports are reviewed
by the Audit, Risk and Valuation Committee.
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 principal and emerging risks
and uncertainties are set out in the table below.
Both the principal and emerging risks and uncertainties and the monitoring
system are subject to robust assessment at least annually. The last assessment
took place in March 2024.
During the year, the Board 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 Investment 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; risks posed by the failure of the capital discipline mechanisms and/or
the continuation vote at the AGM in 2025. These risks have been incorporated
in the strategy risk section in the table below.
A significant control failing or weakness relating to share repurchases was
identified during the year. Although the Company had a share premium account
of £891 million, as this had not been cancelled, the Company did not have
sufficient distributable profits to comply with the requirements of the
Companies Act 2006. The Board worked with its service providers to rectify the
matter which was approved by shareholders, filed section 838 interim accounts
in July 2023 and has been given assurances that additional controls are now in
place to tighten processes and avoid a recurrence. No other significant
control failings or weaknesses were identified from the Audit, Risk and
Valuation Committee's ongoing risk assessment throughout the financial year
and up to the date of this report. The Board is therefore satisfied that it
has undertaken a detailed review of the risks facing the Company and that the
internal control environment continues to operate effectively.
Actions taken by the Board and, where appropriate, its Committees, to manage
and mitigate the Company's principal and emerging 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.
A full analysis of the financial risks facing the Company is set out in note
18 to the accounts on pages 80 and 81.
Risk Mitigation and management Change
Strategy
Investment objective and longer term growth The Board holds a strategy day each year to consider the investment ã
objective and policy and the Company's longer term investment strategy.
Investment objective is out of line with the requirements of investors or
The 5% target for share repurchases was achieved in 2023 and work continues on
investors lose interest in listed closed end private equity as an asset class. The Board receives regular reports on the Company's investment performance meeting the 2024 commitment.
against its stated objectives and peer group along with reports from
Discount widens to unacceptable levels. discussions with its major shareholders. The Board also receives regular Despite these positive efforts, the discount to NAV remains wide and the
reports on marketing and promotional activity. continued increased risk relates to market sentiment in line with the decline
Failure of capital discipline mechanisms and/or the continuation vote in May
of popularity of the private equity sector.
2025. Following the cancellation of the share premium account, the Company appointed
Winterflood Securities Limited in September 2023 to manage an irrevocable
share repurchase programme: (i) to buy back up to 5% of the Company's shares
in 2023 and 2024; (ii) to purchase such number of shares to ensure that to the
period to the 2025 AGM, the Company has undertaken share repurchases in an
amount equating to 25% of all net cash realisations from the portfolio
inherited from the previous portfolio manager1. The Board continues to monitor
these positions on an ongoing basis.
A continuation vote will be held at the 2025 AGM which will only be extended
for a further five years if the Company continues to meet investor
requirements.
Economic and market The Investment Manager is experienced and has a long track record in á â
successfully investing in private equity and venture.
The portfolio will normally be fully invested and as such will therefore
inevitably be exposed to economic and market risk. Changes in general economic The Investment Manager spreads investment risk by investing in high quality
and market conditions, such as currency exchange rates, interest rates, companies at various stages of their development. Having the flexibility to
inflation rates, industry conditions, tax laws, political events and trends continue to hold these investments as they transition to public entities taps
can substantially and adversely affect the value of investments. Market risk into the growth potential of businesses throughout their life cycle. The
includes the potential impact of events which are outside the Company's global mandate allows the Investment Manager to diversify the portfolio
control, such as pandemics, civil unrest and wars. geographically and thus mitigate against challenging economic conditions of a
single market or sector.
The Investment 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 18 to the accounts.
Investment
Investment performance This risk is mitigated by the Board monitoring the performance of the á â
portfolio and the decisions made by the Investment Manager through detailed
There is always, for any investment portfolio, the generic risk of poor reporting at each board meeting.
performance arising as a result of poor decisions in stock selection made by
the Investment Manager. In addition, given the long-term nature of this The Audit, Risk and Valuation Committee reviews all private equity investments
investment strategy (up to 10 years) and the absence of a clear benchmark, it on a quarterly basis and challenges proposed revaluations and methodologies
is not necessarily easy to make an evaluation of the Investment Manager based used by the Investment Manager at each meeting.
simply on returns over shorter periods.
Portfolio The AIFM, under delegated authority from the Board, has responsibility for the ã
valuation of the assets in the portfolio. The AIFM, in turn, uses extensive
Portfolio risk encompasses valuation, and concentration risks. research and input from S&P Global, the external valuation specialist During periods of higher interest rates and market volatility, inherent risks
provider. S&P Global conducts a regular rolling review of the valuation of in valuations risk can rise.
Private equity companies generally have greater valuation uncertainties and all portfolio assets and also reviews their valuations in the event of any
liquidity risks than public equity holdings. significant triggers at individual investee companies. They follow the widely In the year under review, the Investment Manager reduced the exposure to
respected and widely followed IPEVCV guidelines in executing these valuations; certain public holdings with the goal of reducing concentration risk. Further
The valuation of private equity early stage companies is inherently difficult. these processes are explained in the Valuation Approach and Process Report. details can be found in the Investment Manager's Review.
Valuation at a fixed point in time may not be representative of the medium or
longer term. Particular events at a company or particular funding rounds may Valuations are considered and challenged by the Audit, Risk and Valuations
have a significant impact. Information may not be as widely available as with Committee on a quarterly basis as well as on an ad hoc basis where required
public companies and these companies may not yet have meaningful revenues or together with scrutiny by the Auditor on an annual basis.
profits.
The Board and the Investment Manager feel that undue concentration is not
Investments quoted in inactive markets may also be subject to significant and desirable in the longer term and continuously explore options to reduce this
abrupt volatility and liquidity discount. over time.
The risk linked to any portfolio concentration might be compounded due to the The Investment Manager conducts regular reviews of investee companies through
nature of some of the businesses and the risks associated with both commercial regular engagement to monitor progress and ensure milestones are adequately
and technical milestones. met. Short term liquidity issues are mitigated over time when such companies
deliver on their milestones and value is recognised.
Short term liquidity issues can become compounded by market events.
Liquidity The Company has no loan facility in place and its assets include readily á â
realisable securities which can be sold to meet ongoing funding requirements.
Insufficient liquid resources to meet its ongoing financial demands. The Investment Manager manages its liquid 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 £2.9
million (2022: £16.1 million) as at 31 December 2023. In addition, the
Company has a £9.7 million holding in the Schroder Special Situations -
Sterling Liquidity Plus Fund, which is a money market fund with daily
redemption terms. The Board reviews the Company's cash flow forecasts under
various stressed scenarios on an ongoing basis.
Key person dependency The Investment Manager has a compensation and incentive scheme to recruit á â
and retain key staff including the portfolio managers, and has developed a
The Manager operates a team approach to portfolio management and suitable succession planning programme, which seeks to ease the impact
decision-making so the risk arising from the departure of one or more of the that additional workload and/or the loss of a key investment professional
Manager's key investment professionals should not necessarily prevent the may have on the Company's performance. The Investment Manager will notify any
Company from achieving its investment objective. 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
The Manager's resources could become stretched through the launch of new vacancy.
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
The Manager could terminate its contract with the Company. This event would Investment Manager's organisation on the Company's performance.
have an impact on the management of the portfolio 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.
ESG and climate change The Investment Manager integrates ESG considerations, including climate á â
change, into the investment process. Case studies of engagement with a sample
Failure by the Investment Manager to identify potential ESG matters in an of the Company's portfolio companies are incorporated in the Investment
investee company, given their private nature, could lead to the Company's Approach and Process section of the Strategic Report. The approach to
shares being less attractive to investors as well as potential valuation conducting ESG-related analysis of private companies is complemented with a
issues in the underlying investee company. standard exclusions list, more bespoke assessments, 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 in private
assets.
Operational
Operational Experienced third party service providers are employed by the Company under ä
appropriate terms and conditions and with agreed service level specifications.
The Company has no employees and the Directors have been appointed on a Service level agreements include clauses which set out the notice periods for A significant control failing or weakness relating to share repurchases was
non-executive basis. The Company is therefore reliant upon the performance of terminations. identified during the year under review. Although the Company had a share
third-party service providers.
premium account of £891 million, as this had not been cancelled, the Company
The Board receives regular reports from its service providers and the did not have sufficient distributable profits to comply with the requirements
Failure of any of the Company's service providers to perform in accordance Management Engagement Committee will review the performance of key service of the Companies Act 2006. The Board worked with its service providers to
with the terms of its appointment, to protect against breaches of the providers at least annually. rectify the matter which was approved by shareholders, filed section 838
Company's legal and regulatory obligations such as data protection, or to
interim accounts in July 2023 and has been given assurances that additional
perform its obligations at all as a result of insolvency, fraud, breaches of Directors are invited to a Manager hosted two-day annual internal controls controls are now in place to tighten processes and avoid a recurrence.
cyber security, failures in business continuity plans or other causes, could briefing sessions which covers the internal controls of its key service
have a material detrimental impact on the operation of the Company. providers including the Company's depositary and custodian, HSBC, the
Company's registrar, Equiniti, and Schroders Group Internal Audit team. In
addition, the Audit, Risk and Valuation Committee reviews reports on the
external audits of the internal controls operated by certain key service
providers.
Information technology and information security The Board receives controls reports from its key service providers which áâ
describe the protective measures they take as well as their business recovery
Each of the Company's service providers is at risk of cyber attack, data theft plans. In addition, the Board receives an annual presentation from the
and service disruption. Manager on cyber risk.
While the risk of financial loss by the Company is probably small, the risk of
reputational damage and the risk of loss of control of sensitive information
is more significant, for instance a GDPR breach. Many of the Company's service
providers and the Board often have 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.
Viability statement
The Board has assessed the prospects of the Company over the five-year period
ending 31 December 2028. 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 and emerging risks and uncertainties
set out on pages 38 to 41, including climate-related risks, and detailed
revenue and cashflow 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 has successfully repurchased shares
equal to at least 5% of the Company's issued share capital in 2023. Work has
commenced on the 2024 commitment of 5%. In addition, the Company continues to
monitor share repurchases equating to 25% of all net cash realisations from
the portfolio inherited from the previous portfolio manager. The Board
believes the Manager is well placed to deliver on these proposals, generate
long-term capital growth and has 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 2028.
Going concern
The Board has considered the Company's principal risks and uncertainties
(including whether there are any emerging risks); has scrutinised the detailed
revenue and cashflow 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 12 months. As a result, the Board is comfortable
that the Company will have sufficient liquid funds to pay operating expenses.
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 12 months from the date of approval of these annual
report and accounts.
By order of the Board
Schroder Investment Management Limited
Company Secretary
27 March 2024
Statement of Directors' Responsibilities
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 web pages
dedicated to the Company. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors' statement
Each of the Directors, whose names and functions are listed on pages 44 and
45, 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
27 March 2024
Financial
Income Statement
for the year ended 31 December 2023
2023 2022
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Losses on investments held at fair value through profit or loss - (32,015) (32,015) - (175,669) (175,669)
Net foreign currency gains - 42 42 - 583 583
Income from investments 2 784 - 784 479 - 479
Gross return/(loss) 784 (31,973) (31,189) 479 (175,086) (174,607)
Management fee 3 (1,252) - (1,252) (1,989) - (1,989)
Administrative expenses 4 (1,341) - (1,341) (1,237) - (1,237)
Net loss before finance costs and taxation (1,809) (31,973) (33,782) (2,747) (175,086) (177,833)
Finance costs 5 (16) - (16) (304) - (304)
Net loss before taxation (1,825) (31,973) (33,798) (3,051) (175,086) (178,137)
Taxation 6 - - - - - -
Net loss after taxation (1,825) (31,973) (33,798) (3,051) (175,086) (178,137)
Loss per share (pence) 7 (0.20) (3.57) (3.77) (0.34) (19.30) (19.64)
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 on ordinary activities 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 69 to 81 form an integral part of these accounts.
Statement of Changes in Equity
for the year ended 31 December 2023
Called-up Capital
share Share redemption Special Capital Revenue
Note capital premium reserve reserve reserves reserve Total
At 31 December 2021 9,086 891,017 - - (439,105) (24,127) 436,871
Repurchase and cancellation of the Company's
own shares (44) - 44 - (812) - (812)
Net loss after taxation - - - - (175,086) (3,051) (178,137)
At 31 December 2022 9,042 891,017 44 - (615,003) (27,178) 257,922
Cancellation of share premium(1) - (891,017) - 891,017 - - -
Repurchase and cancellation of the Company's
own shares (469) - 469 (7,872) 812 - (7,060)
Net loss after taxation - - - - (31,973) (1,825) (33,798)
At 31 December 2023 11,12 8,573 - 513 883,145 (646,164) (29,003) 217,064
(1) Following an application to the Court on 18 July 2023, the Company has
cancelled its share premium and converted it to a distributable reserve.
The notes on pages 69 to 81 form an integral part of these accounts.
Statement of Financial Position
at 31 December 2023
2023 2022
Note £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 8 210,093 242,504
Current assets
Debtors 9 5,511 160
Cash and cash equivalents 9 2,913 16,122
8,424 16,282
Current liabilities
Creditors: amounts falling due within one year 10 (1,453) (864)
Net current assets 6,971 15,418
Total assets less current liabilities 217,064 257,922
Net assets 217,064 257,922
Capital and reserves
Called-up share capital 11 8,573 9,042
Share premium 12 - 891,017
Capital redemption reserve 12 513 44
Special reserve 12 883,145 -
Capital reserves 12 (646,164) (615,003)
Revenue reserve 12 (29,003) (27,178)
Total equity shareholders' funds 217,064 257,922
Net asset value per share (pence) 13 25.32 28.52
These accounts were approved and authorised for issue by the Board of
Directors on 27 March 2024 and signed on its behalf by:
Tim Edwards
Chair
The notes on pages 69 to 81 form an integral part of these accounts.
Registered in England and Wales as a public company limited by shares
Company registration number: 09405653
Cash Flow Statement
for the year ended 31 December 2023
2023 2022
£'000 £'000
Operating activities
Net loss before finance costs and taxation (33,782) (177,833)
Adjustments for
Capital loss before taxation 31,973 175,669
(Increase)/decrease in debtors (134) 11
Increase/(decrease) in creditors 514 (316)
Net cash outflow from operating activities (1,429) (2,469)
Investing activities
Purchases of investments (35,999) (17,422)
Sales of investments 31,178 40,148
Net cash (outflow)/inflow from investing activities (4,821) 22,726
Financing activities
Repurchase and cancellation of the Company's own shares (6,985) (812)
Finance costs (16) (400)
Bank loan repaid - (22,000)
Net cash outflow from financing activities (7,001) (23,212)
Change in cash and cash equivalents (13,251) (2,955)
Cash and cash equivalents at the beginning of the year 16,122 19,077
Exchange movements 42 -
Cash and cash equivalents at the end of the year 2,913 16,122
Dividends received during the year amounted to £311,000 (2022: £425,000) and
deposit interest receipts amounted to £376,000 (2022: £15,000).
The notes on pages 69 to 81 form an integral part of these accounts.
Notes to the Accounts
1. Accounting Policies
(a) Basis of accounting
Schroders Capital Global Innovation 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, except for certain financial
information required by paragraph 82(c) regarding unquoted holdings with a
value greater than 5% of the portfolio or included in the top 10, where
information is not publicly available. All of the Company's operations are of
a continuing nature.
The accounts have been prepared on a going concern basis with investments at
fair value through profit or loss. The Directors believe that the Company has
adequate resources to continue operating for the period to 31 March 2025,
which is 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 low level of operating expenses, comprising largely
variable costs which would reduce pro rata in the event of a market downturn;
the Company's revenue and cashflow forecasts and the liquidity of the
Company's investments. The Directors have also considered any potential impact
of climate change on the viability of 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 the principal and emerging risks and uncertainties.
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 2022.
Significant judgements, estimates and assumptions have been required in
valuing the Company's investments and these are detailed below.
(b) Use of judgements, estimates and assumptions
The preparation of the accounts requires management to make judgements,
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates. The resulting accounting judgements,
estimates and assumptions will, by definition, seldom equal the related actual
results.
Judgements, estimates and underlying assumptions are reviewed on an on-going
basis. Revisions to accounting estimates are recognised in the period in which
the estimates are revised and in any future periods affected. The key
estimates in the accounts are the determination of the fair values of the
unquoted investments by the Investment Manager for consideration by the
Directors.
These estimates are key, as they significantly impact the valuation of the
unquoted investments at the year end. The fair valuation process involves
estimation using subjective inputs that are unobservable (for which market
data is unavailable). The key judgements, estimates and assumptions are
described in note 17 on pages 76 and 77.
Fair value estimates are cross-checked to alternative estimation methods where
possible to improve the robustness of the estimates. The risk of an over or
under estimation of fair values is greater when methodologies are applied
using more subjective inputs.
(c) 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. The Company's AIFM conducts valuations for the
portfolio holdings on a quarterly basis. Each quarter, the Audit, Risk and
Valuation Committee reviews a report on the revaluations undertaken on the
unquoted holdings during the period and challenges the considerations and key
assumptions made, where appropriate, to ensure that the valuations are
reliable. Investments in shares that are not quoted on any stock exchange
(unquoted investments) represent a significant part of the Company's portfolio
and may include common stock, preferred stock, warrants and other option-like
instruments. Those investments are carried at their estimated fair values,
consistent with the UK accounting convention FRS 102 and the recommendations
on best practices of the International Private Equity and Venture Capital
("IPEV") guidelines issued in December 2022. The following factors will be
considered in determining the fair value of an unquoted asset:
(i) Investments which are not traded in an active market are valued using
the price of a recent investment, where there are no factors observed to
suggest a material change in fair value.
(ii) Where (i) is no longer considered appropriate, investments are valued
at the price used in a material arm's length transaction by an independent
third party, and where there is no impact on the rights of existing
shareholders.
(iii) In the absence of (ii), one of the following methods may be used:
a. Revenue, Gross Profit or EBITDA multiples, based on listed investments
and private market transactions in the relevant sector, adjusted for
differences such as lack of marketability, size and growth profile.
b. Recent transaction prices adjusted for the company's performance
against key milestones and the complexity of the capital structure.
c. Probability-weighted expected return scenarios, discounted at a
risk-adjusted rate of return.
d. Discounted cash flows analyses based on estimate future cash flows with
an appropriate discount rate.
e. Option price modelling.
(iv) Investments in funds (which are invariably comprised of unquoted
investments) are valued using the NAV per unit with an appropriate discount or
premium applied to arrive at a unit price.
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.
(d) Accounting for reserves
Gains and losses on sales of investments are included in the Income Statement
and in capital reserves within "Gains and losses on sales of investments".
Increases and decreases in the valuation of investments held at the year end
are included in the Income Statement and in capital reserves within "Net
movement in investment holding gains and losses".
Foreign exchange gains and losses on cash and deposit balances are included in
the Income Statement and in capital reserves.
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.
(e) 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.
(f) 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 8 on page 74.
(g) Finance costs
Finance costs, comprising loan and overdraft interest, are charged wholly to
revenue.
(h) Financial instruments
Cash and cash equivalents 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.
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.
Bank loans and overdrafts are initially measured at the transaction price and
subsequently at amortised cost. They are recorded at the proceeds received net
of direct issue costs.
(i) 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.
(j) Value added tax ("VAT")
Expenses are disclosed inclusive of any related irrecoverable VAT.
(k) Foreign currency
In accordance with FRS 102, the Company is required to determine a 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. Monetary assets, liabilities
and equity investments held at fair value, denominated in foreign currencies
at the year end are translated at the rates of exchange prevailing at close of
business on the accounting date.
(l) 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.
(m) 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 the "Special reserve" in the current
year, and dealt with in the Statement of Changes in Equity. These costs were
charged to the "Capital Reserve" in the prior year. 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
2023 2022
£'000 £'000
Income from investments
UK dividends 256 425
Interest from debt securities 166 20
Bank interest 362 34
784 479
3. Management fee
2023 2022
£'000 £'000
Management fee 1,252 1,989
1,252 1,989
Under the terms of the AIFM 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 page 47. No
performance fee is payable for the current or prior year and no provision is
required at 31 December 2023.
Details of all transactions with the Manager are given in note 15 on page 76.
4. Administrative expenses
2023 2022
£'000 £'000
Other administration expenses(1) 632 529
Legal and professional fees(2) 304 97
Valuation fees(3) 21 275
Directors' fees(4) 196 186
Auditor's remuneration(5) 188 150
1,341 1,237
(1) Prior year fee adjusted to split out legal and professional fee and
include irrecoverable VAT on Auditors renumeration.
(2) Legal and professional fees are disclosed on a separate line due to the
size of the current years fee. The increase in fee is due to one off costs in
relation to the revolving credit facility and the cancellation of the share
premium reserve.
(3) The valuation fees have reduced significantly in the current year due to
an over accrual at the prior year end.
(4) Details payable to the Directors are given in the Directors' Remuneration
Report on pages 55 to 57.
(5) No amounts are payable to the Auditor for non-audit services. In the prior
year the audit fee was disclosed including VAT amounting to £30,000. For
consistency with industry practice, the audit fee in the table above is shown
excluding VAT with any irrecoverable VAT included as part of other
administrative expenses and the comparative figure reflects this change.
5. Finance costs
2023 2022
£'000 £'000
Interest on bank loans and overdrafts 16 304
16 304
6. Taxation
(a) Analysis of tax charge for the year
2023 2022
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
2023 (2022: nil).
(b) Factors affecting tax charge for the year
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net loss on ordinary activities before taxation (1,825) (31,973) (33,798) (3,051) (175,086) (178,137)
Net loss on ordinary activities before taxation multiplied by the
Company's applicable rate of corporation tax for the year
of 23.5% (2022: 19.0%) (429) (7,514) (7,943) (580) (33,266) (33,846)
Effects of:
Capital loss on investments - 7,514 7,514 - 33,266 33,266
UK dividends which are not taxable (60) - (60) (81) - (81)
Disallowed expenses 7 - 7 24 - 24
Unrelieved loan relationship deficit - - - 48 - 48
Unrelieved management expenses 482 - 482 589 - 589
Taxation on ordinary activities - - - - - -
(c) Deferred taxation
The Company has an unrecognised deferred tax asset £8,042,000 (2022:
£7,529,000) arising from unutilised tax losses of £32,169,000 (2022:
£30,117,000) based on a prospective corporation tax rate of 25.0% (2022:
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.
The 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.
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.
7. Return/(loss) per share
2023 2022
£'000 £'000
Revenue loss (1,825) (3,051)
Capital loss (31,973) (175,086)
Total loss (33,798) (178,137)
Weighted average number of shares in issue during the year 895,075,078 907,291,950
Revenue loss per share (0.20) (0.34)
Capital loss per share (3.57) (19.30)
Loss per share (pence) (3.77) (19.64)
The basic and diluted loss per share is the same because there are no dilutive
instruments in issue.
8. Investments held at fair value through profit or loss
(a) Movement in investments
2023 2022
£'000 £'000
Opening book cost 581,253 622,857
Opening investment holding losses (338,749) (181,958)
Opening fair value 242,504 440,899
Purchases at cost 35,999 17,422
Sales proceeds (36,395) (40,148)
Losses on investments held at fair value through profit or loss (32,015) (175,669)
Closing fair value 210,093 242,504
Closing book cost 553,693 581,253
Closing investment holding losses (343,600) (338,749)
Closing fair value 210,093 242,504
The Company received £36,395,000 (2022: £40,148,000) from investments sold
in the year. The book cost of the investments when they were purchased was
£63,560,000 (2022: £59,026,000). 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.
(b) Unquoted investments, including investments quoted in inactive markets
Material revaluations of unquoted investments during the year 2023
Opening Closing
valuation at valuation at
31 December Valuation Purchases/ 31 December
2022 adjustment (disposals) 2023
£'000 £'000 £'000 £'000
Atom Bank 31,686 (8,581) - 23,105
Ada Health 7,122 2,516 - 9,638
Revolut LLP 5,436 2,452 - 7,888
Federated Wireless 11,227 (4,835) - 6,392
Kymab 1,831 4,539 - 6,370
Genomics 8,854 (3,715) - 5,139
BenevolentAI 11,935 (9,679) (80) 2,176
AMO Pharma 16,408 (15,058) - 1,350
Material revaluations of unquoted investments during the year 2022
Opening Closing
valuation at valuation at
31 December Valuation Purchases/ 31 December
2021 adjustment (disposals) 2022
£'000 £'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
Material disposals of unquoted investments during the year 2023
Gain based
Carrying on carrying
value at value at
31 December Sales 31 December
Book cost 2022 Proceeds 2023
£'000 £'000 £'000 £'000
Tessian 4,806 3,928 5,217 1,289
Material disposals of unquoted investments during the year 2022
Gain based
Carrying on carrying
value at value at
31 December Sales 31 December
Book cost 2021 Proceeds 2022
£'000 £'000 £'000 £'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:
2023 2022
£'000 £'000
On acquisitions - -
On disposals 10 8
10 8
9. Current assets
2023 2022
Debtors £'000 £'000
Securities sold awaiting settlement 5,217 -
Dividends and interest receivable 191 94
Other debtors 103 66
5,511 160
The Directors consider that the carrying amount of accrued income and debtors
approximate to their fair value.
Cash and cash equivalents
The carrying amount of cash, amounting to £2,913,000 (2022: £16,122,000)
represents its fair value.
10. Creditors: amounts falling due within one year
2023 2022
Creditors: amounts falling due within one year £'000 £'000
Repurchase and cancellation of the Company's own shares awaiting settlement 75 -
Management fee payable 633 373
Other creditors and accruals 745 491
1,453 864
The Directors consider that the carrying amount of creditors falling due
within one year approximates to their fair value.
11. Called-up share capital
2023 2022
£'000 £'000
Ordinary shares of 1p each allotted, called up and fully paid:
Opening balance of 904,219,238 (2022: 908,639,238) shares 9,042 9,086
Repurchase and cancellation of 46,859,212 (2022: 4,420,000) shares (469) (44)
Closing balance of 857,360,026 (2022: 904,219,238) shares 8,573 9,042
During the year, the Company made market purchases of 46,859,212 of its own
shares, nominal value £469,000, for cancellation, representing 5.2% of the
shares outstanding at the beginning of the year. The total consideration paid
for these shares amounted to £7,060,000. The reason for these purchases was
to seek to manage the volatility of the share price discount to NAV per share.
12. Reserves
Capital reserves
Losses on Investment
Share Capital Special sales of holding Revenue
premium(1) redemption(2) reserve(3) investments(4) losses(5) reserve(6)
£'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2022 891,017 44 - (275,594) (339,409) (27,178)
Losses on sales of investments based on historic cost - - - (27,164) - -
Net movement in investment holding gains and losses - - - - (4,851) -
Repurchase and cancellation of the Company's own shares - 469 (7,872) 812 - -
Exchange gains - - - 42 - -
Cancellation of share premium (891,017) - 891,017 - - -
Retained revenue loss for the year - - - - - (1,825)
At 31 December 2023 - 513 883,145 (301,904) (344,260) (29,003)
Capital reserves
Losses on Investment
Share Capital Special sales of holding Revenue
premium(1) redemption(2) reserve(3) investments(4) losses(5) reserve(6)
£'000 £'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 the Company's own 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)
The Company's articles of association permit dividend distributions out of
realised capital profits.
(1) The share premium reserve 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. Following an application to
the Court on 18 July 2023, the Company has cancelled its share premium and
converted it to a distributable reserve.
(2) The capital redemption reserve represents the accumulated nominal value of
shares repurchased for cancellation. This reserve is not distributable.
(3) This is a distributable capital reserve arising from the cancellation of
the share premium, and may be distributed as dividends or used to repurchase
the Company's own shares.
(4) 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.
(5) 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.
(6) A positive balance on the revenue reserve may be distributed as dividends
or used to repurchase the Company's own shares.
13. Net asset value per share
2023 2022
Net assets (£'000) 217,064 257,922
Shares in issue at the year end 857,360,026 904,219,238
Net asset value per share (pence) 25.32 28.52
14. Uncalled capital commitments
At 31 December 2023, the Company had uncalled capital commitments amounting to
£3,275,000 (2022: £5,121,000) in respect of follow-on investments, which may
be called by investee companies, subject to their achievement of certain
milestones and objectives.
15. Transactions with the Manager and Alternative Investment Fund Manager
(AIFM)
Under the terms of the AIFM Agreement, the Manager is entitled to receive a
management fee and a company secretarial fee. Details of the basis of the
management fee calculation are given in the Directors' Report on page 47. A
management fee amounting to £1,252,000 (2022: £1,989,000) is payable to
Schroder Investment Management Limited for the year ended 31 December 2023, of
which £633,000 (2022: £373,000) was outstanding at the year end.
Fees amounting to £165,000 (2022: £41,000) were payable to Schroder Unit
Trusts Limited for services as AIFM, following its appointment as AIFM with
effect from 1 October 2022, of which £206,000 (2022: £41,000) was
outstanding at the year end.
There were no further fees paid to Link Fund Solutions Limited for services as
AIFM (2022: £65,000).
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 £128,000 (2022: £17,000 for the three
months ended 31 December 2022), of which £60,000 (2022: £17,000) was
outstanding at the year end.
No Director of the Company served as a Director of any member of the Schroder
Group or its affiliates at any time during the year.
16. Related party transactions
Details of the remuneration payable to Directors are given in the Directors'
Remuneration Report on page 56 and details of Directors' shareholdings are
given in the Directors' Remuneration Report on page 57. Details of
transactions with the Manager, the AIFM and its associated companies are given
in note 15 above. There have been no other transactions with related parties
during the year (2022: nil).
17. 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(c) on page 70 and 1(g) on page 70. Level 3
investments have been valued in accordance with note 1(c)(i) - (iv).
The primary technique for investments with no expected short-term earnings or
where the investment outcome is based on a discrete set of (often binary)
scenarios and for which investments are funded for, is the milestone approach.
This is typically the case for pre-revenue and clinical life science
investments. The milestone approach is based on a set of agreed milestones at
the time of the initial investment. These include various measurements
depending on the type of investment, the industry as well as the key drivers
of the investment company. Progress against these milestones is measured at
each valuation date and drives fair value changes. If a milestone event was
achieved or if it was failed to achieve, a variety of valuation techniques may
be used to quantify the resulting fair value impact.
The primary technique for investments that are producing either maintainable
revenues or earnings is the market approach. This approach determines the fair
value of a company based on the market price of selected comparable companies
or recent transactions (or a combination of both) and its relationship to
relevant performance measures with the assumption that the relationship
between the market price and the financial performance of the comparable
company is similar. The relevant multiples can be subject to adjustments for
general qualitative differences between the underlying portfolio company and
the comparable companies. These adjustments may include, but are not limited
to, differences due to size, marketability, growth profile or the market size
of end-markets.
The primary technique for investments that have not yet or have just commenced
to produce revenues and that possess material future earnings potential is the
Probability-Weighted-Expected-Return-Method ("PWERM"). It involves estimating
the expected cash flows of the company under different scenarios, such as
best-case, base-case, and worst-case scenarios. Each scenario is assigned a
probability based on the likelihood of its occurrence. The expected cash flows
are then discounted back to their present value using an appropriate discount
rate, which reflects the risk and uncertainty associated with each scenario.
The PWERM approach also considers other factors such as changes in market
conditions, industry trends, competitive landscape, regulatory changes, and
other macroeconomic factors. Adjustments are made to the cash flow projections
and discount rates to reflect these factors and their potential impact on the
company's value.
Once a company's value is established, it is allocated to the company's
various share classes. Early-stage, venture and growth investments typically
possess complex capital structures with varying rights and economic
preferences attached to each share class. To assess the relative value of
these individual share classes, either a qualitative scenario-analysis of the
expected ultimate pay-off profile of each share class, or an option pricing
model is utilised. The relative value of each share class is dependent on the
expected time to exit, volatility, and other relevant quantitative or
qualitative parameters.
The following table provides an overview of the select (primary) valuation
techniques:
% of
Range of unquoted
Valuation techniques Key input metric utilised portfolio
Market approach
Arm's length transaction Premium/(discount) to last negotiated price (33.9)% to 7.3% 9.3
Adjusted transaction price 28.2
Multiples-based Multiple of Sales 7.0x to 9.5x 33.3
Multiple of Gross Profit 9.0x to 13.6x
Milestone approach Discount rate 17.5% to 35.0% 8.3
Probability-weighted-expected return 13.5
Third-party fund NAV N/A N/A 7.5
(N/A) No range utilised.
At 31 December, the Company's investment portfolio and any derivative
financial instruments were categorised as follows:
2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments in equities - quoted 54,603 9,733 2,176 66,512
Investments in equities - unquoted - - 143,581 143,581
Total 54,603 9,733 145,757 210,093
The Level 2 asset relates to the holding in Schroders Special Situations -
Sterling Liquidity Plus Fund. BenevolentAI is quoted, but the market is
inactive. Thus its valuation has been determined in accordance with the
process followed for unquoted assets and included in Level 3 above.
2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments in equities - quoted 83,711 - 11,935 95,646
Investments in equities - unquoted - - 146,858 146,858
Total 83,711 - 158,793 242,504
Movements in fair value measurements included in Level 3 during the year are
as follows:
2023 2022
£'000 £'000
Opening book cost 458,690 482,416
Opening investment holding losses (299,897) (263,548)
Opening valuation 158,793 218,868
Purchases at cost 22,759 17,422
Sales proceeds (6,056) (19,289)
Transfer between Level 3 and Level 1 - (19,152)
Net movement in investment holding gains and losses (29,739) (39,056)
Closing valuation 145,757 158,793
Closing book cost 473,660 458,690
Closing investment holding losses (327,903) (299,897)
Total level 3 investments held at fair value through profit or loss 145,757 158,793
The Company received £6,056,000 (2022: £19,289,000) from Level 3 investments
sold in the year. The book cost of the investments when they were purchased
was £7,789,000 (2022: £20,384,000). 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.
18. 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; 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 items that have foreign currency
exposure at 31 December are shown below.
2023
Norwegian Swiss US
Euro Krone Francs Dollars Total
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 11 - 3 583 597
Investments held at fair value through profit or loss 22,051 - 6,997 70,255 99,303
Total net foreign currency exposure 22,062 - 7,000 70,838 99,900
2022
Norwegian Swiss US
Euro Krone Francs Dollars Total
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 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
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% (2022: 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:
2023 2022
£'000 £'000
Income Statement - return after taxation
Revenue return 17 -
Capital return 9,990 10,449
Total return after taxation 10,007 10,449
Net assets 10,007 10,449
Conversely if sterling had strengthened by 10% this would have had the
following effect:
2023 2022
£'000 £'000
Income Statement - return after taxation
Revenue return (17) -
Capital return (9,990) (10,449)
Total return after taxation (10,007) (10,449)
Net assets (10,007) (10,449)
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:
2023 2022
£'000 £'000
Exposure to floating interest rates:
Cash and cash equivalents 2,913 16,122
The floating rate assets comprise cash deposits on call. Sterling cash
deposits at call earn interest at floating rates based on Sterling Overnight
Index Average rates ("SONIA").
The above year end amount may not be representative of the exposure to
interest rates during the year, due to fluctuating cash balances.
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to a 1.5% (2022: 1.5%) 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.
2023 2022
1.5% increase 1.5% decrease 1.5% increase 1.5% decrease
in rate in rate in rate in rate
£'000 £'000 £'000 £'000
Income statement - return after taxation
Revenue return 44 (44) 242 (242)
Capital return - - - -
Total return after taxation 44 (44) 242 (242)
Net assets 44 (44) 242 (242)
Given the increase in UK interest rates, the interest rate sensitivity has
been updated to 1.5%. The prior year disclosure has been updated to 1.5% to
show a direct comparison in the sensitivity. In the prior year report, the
sensitivity was calculated using 1.0%, which was representative of the market
at 31 December 2022. As disclosed in the prior year annual report, an increase
of 1.0% increased total return after taxation by £161,000 (a decrease of 1.0%
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 market 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 price risk exposure
The Company's total exposure to changes in market prices at 31 December
comprises the following:
2023 2022
£'000 £'000
Investments held at fair value through profit or loss 210,093 242,504
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 20. 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 six (2022: five) investments amounting to approximately
£28.6 million (2022: £61.5 million), representing 13.2% (2022: 23.8%) 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% (2022: 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.
2023 2022
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 42,019 (42,019) 48,501 (48,501)
Total return after taxation and net assets 42,019 (42,019) 48,501 (48,501)
Percentage change in net asset value 19.4 (19.4) 18.8 (18.8)
(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
£64,336,000 (2022: £83,711,000), which can be sold to meet ongoing funding
requirements. Additionally, the Company has level 3 investments valued at
£145,757,000 (2022: £158,793,000) 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:
2023 2022
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
Other creditors and accruals 1,453 - - 1,453 864 - - 864
Uncalled capital commitments 549 1,328 1,398 3,275 - 1,700 3,421 5,121
2,002 1,328 1,398 4,728 864 1,700 3,421 5,985
(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 A1 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.
Credit risk exposure
The amounts shown in the balance sheet under debtors and cash at bank and in
hand represent the maximum exposure to credit risk at the current and
comparative year ends. No debtors are past their due date and none have been
provided for. There has been no stock lending during the year, or prior year.
(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.
19. Analysis of changes in net debt
At At
31 December 31 December
2022 Cashflows 2023
£'000 £'000 £'000
Cash and cash equivalents
Cash and cash equivalents 16,122 (13,209) 2,913
20. Capital management policies and procedures
The Company's capital is represented by its net assets and borrowings, which
are managed to achieve the Company's investment objective, as set out on page
33. The Board, with the assistance of the Manager, monitors and reviews the
broad structure of the Company's capital on an ongoing basis. 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 AGM 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 Company's debt and capital structure comprises the following:
2023 2022
£'000 £'000
Equity
Called-up share capital 8,573 9,042
Reserves 208,491 248,880
217,064 257,922
Total debt and equity 217,064 257,922
21. Post balance sheet events
On 14 March 2024, OcuTerra Therapeutics, Inc., one of the Company's
life-science investments, published study results for its lead therapeutic
candidate in Phase 2 of clinical development. The results from its Phase 2
clinical trial (DR:EAM), which evaluated the safety and efficacy of its single
clinical stage experimental therapeutic OTT166 (nesvategrast) in patients with
diabetic retinopathy, demonstrated OTT166 to be safe and well tolerated but
the study did not meet its primary efficacy endpoint. The review of the full
dataset from the DR:EAM trial to evaluate the future of OTT166 is ongoing.
The Company has assessed this development and considers this to be a
non-adjusting event for these financial statements. It currently estimates a
negative valuation adjustment to £1.5 million, a decrease of 1.5% on the 31
December 2023 net asset value. It is anticipated that the full magnitude of
the valuation adjustment will be reflected in the quarterly net asset value as
of 31 March 2024.
Status of announcement
2022 Financial Information
The figures and financial information for 2022 are extracted from the
published Annual Report and Accounts for the year ended 31 December 2022 and
do not constitute the statutory accounts for that year. The 2022 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.
2023 Financial Information
The figures and financial information for 2023 are extracted from the Annual
Report and Accounts for the year ended 31 December 2023 and do not constitute
the statutory accounts for the year. The 2023 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 2023 Annual Report and Accounts will be delivered to
the Registrar of Companies in due course.
Neither the contents of the Company's web pages nor the contents of any
website accessible from hyperlinks on the Company's web pages (or any other
website) is incorporated into, or forms part of, this announcement.
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