Schroders Cap Glbl - Half-year Report
26/09/2023 07:00
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RNS Number : 5956N Schroders Capital Global Innovation 26 September 2023
Half Year Report
Schroders Capital Global Innovation Trust plc hereby submits its Half Year
Report for the six months ended 30 June 2023 as required by the Financial
Conduct Authority's Disclosure Guidance and Transparency Rule 4.2.
Tim Edwards, Chair of the Company, commented:
"On 8 September 2023 the Board started a large programme to repurchase shares
for cancellation and alongside this, Schroders Capital will continue to invest
in private opportunities in line with the Company's global mandate and in
keeping with the path followed by them for over 25 years."
Key highlights -
· The Board has commenced large programme to repurchase shares.
· During the six month period to 30 June 2023, the net asset value
("NAV") per share decreased by 13.3% from 28.52p per share to 24.73p per
share.
· Notwithstanding the disappointments of BenevolentAI and AMO
Pharma, our Manager remains focused on key priorities, rebalancing the
portfolio and, in doing so, extracting maximum value from the Company's
holdings.
· Our Manager has made notable progress, particularly during the
second quarter of 2023, in altering the liquidity mix to ensure the Company is
appropriately positioned to execute the buyback programme efficiently and to
support the existing portfolio.
· With the portfolio in a strong liquidity position, our Manager
has been confident in continuing to pursue new investments in innovative
global venture, growth, and life science companies. During the period, we
announced two such investments, AgroStar, one of India's foremost agricultural
technology start-ups, and US-based, clinical-stage biopharmaceutical company,
Carmot Therapeutics.
· On 20 April 2023, it was announced that the Company changed its
name to Schroders Capital Global Innovation Trust plc to better reflect the
emphasis on global private equity opportunities and to align with other funds
within the Schroders Capital Global Innovation programme which Schroders
Capital has been investing in for over 25 years.
· The Board welcomed Dr Lamia Baker as an independent non-executive
Director with effect from 22 June 2023. Dr Baker has over 20 years of
experience in business and technology with skill in intellectual property,
sales, innovation, entrepreneurship, venture capital investment and
representation on companies' boards.
The Half Year Report is also available to download from the Company's webpage.
Please click on the following link to view the document:
(http://www.schroders.com/inov)
http://www.rns-pdf.londonstockexchange.com/rns/5956N_1-2023-9-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/5956N_1-2023-9-25.pdf)
The Company has submitted a copy of its Half Year Report to the National
Storage Mechanism and it will shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
Enquiries:
Schroder Investment Management Limited
Augustine
Chipungu
020 7658 2106
Shilla Pindoria
020 7658 6000
John
Spedding
020 7658 3206
Half Year Report and Accounts for the six months ended 30 June 2023
Chair's Statement
Performance and Valuation
During the six month period to 30 June 2023, the net asset value ("NAV") per
share decreased by 13.3% from 28.52p per share to 24.73p per share. The share
price decreased by 18.9% from 15.47p to 12.55p in the same period. The share
price discount to NAV per share widened from 45.8% to 51.3% during the period.
The main detractors to performance over the first half of the year included
AI-enabled drug discovery and development company, BenevolentAI, which was
further discounted because of a lack of liquidity in its listed shares; and
clinical-stage private biopharmaceutical company, AMO Pharma, who 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.
More details on performance, valuation and portfolio activity can be found in
the Manager's Report.
Cancellation of Share Premium Account
The cancellation of the share premium account and rectification measures in
respect of share repurchases undertaken in 2022 and 2023 was approved by
shareholders at the AGM on 21 June 2023 and by the court on 18 July 2023. A
set of interim accounts was filed with Companies House showing that the
Company now has sufficient distributable reserves, as at the period ended 24
July 2023, to commence the share repurchase programme detailed below.
Capital Discipline and Share Repurchases
The Company has appointed Winterflood Investment Trusts to manage an
irrevocable share repurchase programme to buy back shares, subject to certain
parameters in accordance with the Company's share buyback policy set out in
the Company's annual report and accounts for the year ended 31 December 2022.
The Board intends 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.
As at 22 September 2023, the Company has repurchased 5,762,288 shares for
cancellation. No shares are held in treasury. Accordingly, the total number of
voting rights in the Company as at 22 September 2023 was 896,721,950.
Continuation Vote
As detailed in the Company's annual report and accounts for the year ended 31
December 2022, shareholders will have the opportunity to vote on the
continuation of the Company at its AGM in 2025 and every five years
thereafter. This will allow the Board and shareholders the opportunity to
review the performance of the Manager over the five years since their
appointment which the Directors consider to be an appropriate timeframe for
the investment team to have repositioned the portfolio, including having made
a number of new investments against which its performance can be assessed.
Change of Company Name, Auditor and Registrar
The Company changed its name to Schroders Capital Global Innovation Trust plc
on 20 April 2023. The Company's new auditor, Ernst & Young LLP, was
appointed at the AGM on 21 June 2023 and the change of registrar to Equiniti
Limited was completed on 30 June 2023.
Board Composition
The Board welcomed Dr Lamia Baker as an independent non-executive Director
with effect from 22 June 2023. Dr Baker has over 20 years of experience in
business and technology with skill in intellectual property, sales,
innovation, entrepreneurship, venture capital investment and representation on
companies' boards. She is currently the managing director (UK) of Dennemeyer
& Co Limited and Head of Commercial (EMEA) for Dennemeyer Group.
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 contribution to the
Company.
Outlook
As of 30 June 2023, the Company had £31.0 million in cash and a further
£52.1 million(1) invested in public equity investments, which will be
utilised to meet the funding requirements of the existing portfolio, execute
the buyback program, and selectively target new investments in innovative
venture, growth and life science companies.
Notwithstanding the disappointments of BenevolentAI and AMO Pharma, our
Manager remains focused on key priorities, rebalancing the portfolio and, in
doing so, extracting maximum value from the Company's holdings. On 8 September
2023 the Board started a large programme to repurchase shares for cancellation
and alongside this, Schroders Capital will continue to invest in private
opportunities in line with the Company's global mandate and in keeping with
the path followed by them for over 25 years.
(1) Excluding BenevolentAI which is fair value priced by the AIFM.
Tim Edwards
Chair
25 September 2023
Manager's Report
Summary
· The Company reported a net asset value ("NAV") of 24.73p per share as
of 30 June 2023, a decrease of 13.3% relative to the NAV share per share as of
31 December 2022 (28.52p) and a decrease of 6.1% relative to the NAV per share
as of 31 March 2023 (26.35p).
· There were three main detractors to performance over the half year
period.
· The listed share price of AI-enabled drug discovery and development
company, BenevolentAI, declined by 61.4% and was further discounted because of
a lack of liquidity in its listed shares. The Company's AIFM opted to increase
the appropriate level of discount applied to the listed share price in its
fair value assessment from 19.1% to 34.1%.
· The clinical-stage private biopharmaceutical company, AMO Pharma
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.
· The share price of Oxford Nanopore ("ONT"), the Company's largest
holding, declined by 13.5% over the period. The company reported its FY22
results in March, detailing good underlying progress, however the share price
remained weak throughout the remainder of the period.
· Additional deferred cash consideration of £2.9 million was received
as part of the sale of a basket of seven assets to Rosetta Capital which
originally completed in March 2021.
· Two new investments completed including AgroStar - an agricultural
solutions platform for Indian farmers, and Carmot Therapeutics - a clinical
stage biopharmaceutical company developing disease-modifying therapies for
people living with metabolic diseases.
· As of 30 June 2023, the Company had £31.0 million in cash and £52.1
million in public equity investments(1) to meet the funding requirements of
the existing portfolio and execute the buyback programme.
· On 20 April 2023, it was announced that the Company changed its name
to Schroders Capital Global Innovation Trust plc to better reflect the
emphasis on global private equity opportunities and to align with other funds
within the Schroders Capital Global Innovation programme which Schroders
Capital has been investing in for over 25 years.
(1) Excluding BenevolentAI which is fair value priced by the AIFM.
Introduction
Strategic update
The first half of 2023 has been challenging for the Company.
Day-to-day, our focus as Portfolio Manager continues to be on four key
strategic areas:
1. Work closely with portfolio company management teams, co-investors,
and other stakeholders to support business growth and a path to profitability.
2. Rebalance the portfolio ensuring the appropriate liquidity mix
(cash and liquid public equities) to efficiently execute the buyback programme
and support the portfolio.
3. Maximise the sale proceeds from legacy holdings, both public and
private, as part of the rebalancing exercise.
4. Complete new investments that align with our new strategy to
improve the maturity profile of the portfolio, build portfolio
diversification, and place the fund closer to the path followed by Schroders
Capital for over 25 years.
The current environment of inflation and interest rate headwinds, recession
fears, weaker business confidence, subdued equity capital markets and slow
fundraising and M&A activity, has made it particularly difficult for us to
sell legacy private holdings. However, given the absence of a liquid secondary
market for private companies, we continue to seek opportunities when possible
as they arise.
We have made notable progress, particularly during the second quarter of 2023,
in altering the liquidity mix to ensure the Company is appropriately
positioned to execute the buyback programme efficiently and to support the
existing portfolio. We have reduced the exposure to certain public holdings
with the goal of reducing concentration risk, and positioning the portfolio to
better align with the renewed focus on private equity. To this end, the
Company realised £24.5 million over the 6 months to 30 June 2023, exiting
public equity holdings in Johnson Matthey, Spirent Communications, Petershill
Partners, as well as reducing the holdings in Oxford Nanopore, Immunocore and
IDEX Biometrics. As of 30 June 2023, the Company had £31.0 million in cash
and £52.1 million in public equity investments(1) that we believe should be
sufficient to fund the buybacks for the balance of FY23 and meet the funding
requirements of the existing portfolio.
With the portfolio in a strong liquidity position, we have been confident in
continuing to pursue new investments in innovative global venture, growth, and
life science companies. During the period, we announced two such investments,
AgroStar, one of India's foremost agricultural technology start-ups, and
US-based, clinical-stage biopharmaceutical company, Carmot Therapeutics.
Further details of these companies are provided in the investment activity
section of this report.
(1) Excluding BenevolentAI which is fair value priced by the AIFM.
Economic and market backdrop
Across developed economies, the six months continued to be dominated by the
prospects for inflation and interest rates. The US Federal Reserve (Fed)
raised interest rates three times in the period, taking the Fed Funds rate to
5.00-5.75%. The hikes came despite turmoil in the US banking sector in March,
when three regional lenders collapsed. One of these - Silicon Valley Bank -
was a key lender to the technology sector and start-ups in particular. The
Company and its underlying investee companies had minimal exposure (as
outlined in the Company's release on 15 March) and ultimately did not directly
suffer from this collapse. The Fed paused its rate rises in June as data for
May showed that US inflation was cooling. However, core inflation remained
above the Fed's target rate and the labour market was still strong with
unemployment at only 3.6% in May, suggesting further rate hikes may be
required. In the UK, inflation remained elevated so that in June, the Bank of
England accelerated the pace of its interest rate rises with a 50 basis point
increase to 5.0%.
Global equity markets made gains over the period despite fears that rising
inflation and interest rates could lead to recession in many developed
markets. However, the resilient economic backdrop and some robust corporate
earnings helped markets move higher. The MSCI World index returned 15.1% (in
US dollar terms). The information technology sector led the gains with
semiconductor stocks in particular performing well. This came in the wake of
the release of Chat GPT and a wave of investor enthusiasm about the potential
uses of generative artificial intelligence (Al). Other sectors that registered
a strong advance included consumer discretionary and communication services.
Laggards were energy and utilities.
Against this backdrop, global venture capital deal activity continued to fall
in Q1 and Q2 2023, representing the fifth and sixth consecutive down quarters,
with a year-on-year decline of 52% by value (from $270 billion in H1 2022 to
$130 billion in H1 2023) and 36% by volume (from 21,855 deals in H1 2022 to
13,982 deals in H1 2023). This sees a return to the levels of deal activity
seen prior to the COVID-19 pandemic. The number of mega-rounds - funding
rounds of more than $100 million - which declined sharply in 2022, saw some
stabilisation in the first quarter although weakened again in the second
quarter resulting in a year-on-year decline of 59% by value (from $133.4
billion in H1 2022 to $55.3 billion in H1 2023) and 69% by volume (from 649
deals in H1 2022 to 200 deals in H1 2023). The market cooling was also evident
as only 33 new unicorns were created in the first half year, moderately down
on the 45 created in H2 2022, and a fraction of the 217 created twelve months
earlier.
The environment for exits also saw continued weakness. The number of M&A
transactions, the predominant exit route for venture backed businesses,
declined 25% year-on-year (from 5,654 in H1 2022 to 4,214 in H1 2023) with a
modest 7% decline from H2 2022 (from 4,522). The number of initial public
offerings ("IPOs") was also notably weak declining 44% year-on- year (from 339
in H1 2022 to 189 in H1 2023) and 51% from H2 2022 (from 388).
Source for data: CB Insights Q2 2023 State of Venture Report.
Financial Performance
Attribution Analysis(£m) Net
Public Private (debt)/
equity equity cash Other NAV
Fair value as of 31.12.22 95.6 146.9 16.1 (0.7) 257.9
+ Investments - 8.4 (8.4) - -
- Realisations at value (21.1) (3.4) 24.5 - -
+/- Fair value gains/(losses) (18.8) (14.8) - - (33.6)
+/- Reclassified holdings - - - - -
+/- Costs and other movements - - (1.2) 0.1 (1.1)
Fair value as of 30.06.23 55.7 137.1 31.0 (0.6) 223.2
The NAV as of 30 June 2023 was £223.2 million, a decrease of 13.5% compared
with the NAV (£257.9 million) as of 31 December 2022.
This 13.5% decrease in NAV comprised:
· Public equity holdings: -7.4%%
· Private equity holdings: -5.7%
· Costs and other movements: -0.4%
The Company's public equity holdings saw a decrease in value of 19.7%
contributing -7.4% to the decrease in NAV over the six-month period.
The listed share price of BenevolentAI decreased by 61.4% during the period.
The company is reported as a public equity holding although fair value priced
due to a lack of liquidity in the listed shares. During the period, the AIFM
increased the size of the discount applied to the listed share price from
19.1% to 34.1% resulting in a 68.6% decline in the share price applied to the
valuation (€0.89 per share). In April, the company announced 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.
Meanwhile, the share price of Oxford Nanopore ("ONT"), the Company's largest
holding, declined by 13.5% over the half year. In March, the company announced
its FY22 results detailing good underlying progress, however the share price
remained weak throughout the remainder of the period. The results reported
that revenues from Life Science Research Tools ("LSRT"), the most sustainable
long-term revenue line, were up 16% year-on-year, with 30% underlying growth
in the core customer base. After the period end, in September, the company
released its half year results reaffirming revenue guidance for the year with
2023 LSRT revenue growth expected to be in the range 18-25% on a constant
currency basis.
The public equity portfolio was also negatively impacted by smaller declines
in the value of holdings which were either reduced or fully exited during the
period including Spirent Communications, IDEX Biometrics, Petershill Partners
and Johnson Matthey. On the positive side, shares in Autolus appreciated 25.3%
following the announcement of positive clinical trial results for experimental
therapeutics. AUTO4 demonstrated efficacy in the treatment of a blood cancer
known as Relapsed/Refractory TRBC1-Positive Peripheral T-Cell Lymphoma in a
phase 1/11 clinical trial and Obe-cell demonstrated efficacy with potential
best-in- class safety in a pivotal phase 2 trial.
The Company's private equity holdings saw a decrease in value of 10.1%
contributing -5.7% to the decrease in NAV over the six-month period. The
largest detractor to performance was legacy holding AMO Pharma, an emerging
biopharmaceutical business developing new treatments for serious and
debilitating diseases, including rare genetic disorders. 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 (further
information can be found in AMO Pharma's announcement). On the positive side,
the portfolio benefitted from 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.
Foreign exchange
Over the period, the fair value of investments denominated in United States
Dollar (USD), Euro (EUR), Swiss Franc (CHF) and Norwegian Krone (NOK) were
negatively impacted by appreciation in the value of the British Pound Sterling
(GBP).
Cash and debt
As at 30 June 2023, the Company had cash and cash equivalents of £31.0
million.
Investment activity:
Realisations
During the 6 months to 30 June 2023, the Company made realisations totalling
£24.5 million. During the second quarter, we fully exited the public equity
holdings in Johnson Matthey, Spirent Communications, Petershill Partners, and
reduced the holdings in Oxford Nanopore, Immunocore and IDEX Biometrics. As of
the period end, the proceeds from the sale of these holdings were held as cash
pending commencement of the share buyback programme.
In the private equity portfolio, as mentioned earlier, 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 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.
Investments
During the 6 months to 30 June 2023, the Company made investments totalling
£8.4 million including two new investments, AgroStar and Carmot
Therapeutics, and a small follow-on investment in iOnctura.
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.
The Company's investment in AgroStar is in line with the Company's private
equity sub-strategy of backing innovative growth businesses while utilising
the Company's broadened global investment remit. Schroders Capital has known
AgroStar for several years, having been an investor since 2021, and the
company has demonstrated exceptional growth by combining technology with
strong agronomy capabilities to play an important role in the Indian
agricultural sector.
Carmot
The Company also 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 will 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 4 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 Therapeutics is the sixth investment in the Company's growing portfolio
of new life science investments, at the clinical or near- clinical stage, and
underpinned by high quality science. The portfolio managers believe that
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.
Outlook
We remain frustrated by the lack of selling opportunities in the current
market environment, although we continue to work hard to create opportunities
when underlying company progress allows. We continue to focus on rebalancing
the portfolio to ensure the appropriate liquidity mix to efficiently execute
the buyback programme and support the portfolio. In this context, we are
closely monitoring the capital available for new investments, which remains
dependent on the execution of the Board's buyback strategy, which is the
priority. We see the current environment of slower fundraising activity and
lower valuation expectations as a favourable one in which to deploy capital.
Tim Creed and Harry Raikes
Portfolio Managers
25 September 2023
Top 10 portfolio holdings
The Company's top 10 holdings as of 30 June 2023 are shown below, compared
with the respective holdings as of 31 December 2022.
Quoted/ 31 December 2022 % of total 30 June 2023 % of total
unquoted (£'000) investments (£'000) investments
Oxford Nanopore Quoted 56,529 23.3 44,003 22.8
Atom Bank Unquoted 31,686 13.1 31,686 16.4
Reaction Engines Unquoted 12,500 5.2 12,500 6.5
HP Environmental Technologies Fund Unquoted 10,700 4.4 11,103 5.8
Genomics Unquoted 8,854 3.7 8,989 4.7
Federated Wireless Unquoted 11,227 4.6 8,610 4.5
Back Market Unquoted 7,329 3.0 7,987 4.1
Ada Health Unquoted 7,122 2.9 7,168 3.7
AgroStar Unquoted - - 6,292 3.3
Nexeon Unquoted 6,505 2.7 6,207 3.2
Portfolio's 3 largest positions: recent developments
Oxford Nanopore Technologies
Technology company at the forefront of next generation DNA sequencing
instrumentation
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.
· In March 2023, ONT announced its full year results for the period to
31 December 2023 outlining good operational and financial progress:
o Revenues for Life Science Research Tools ("LSRT", the main business line) up
16% year-on-year to £147 million with -30% underlying growth in the core
customer base (excl. strategic accounts).
o Gross margin for the LSRT business increased to 56%, a good outturn given
supply chain strains and increased component costs.
o 2023 LSRT revenue guidance marginally reduced to £170-190 million (16-29%
growth).
o Closing cash balance of greater than £558 million, which should be
adequate to fund the business to profitability by 2026.
· In September 2023, ONT announced its interim results for the period
to 30 June 2023 with highlights including:
o LSRT revenue of £86m, +22% yoy, +16% constant currency (H1 2022: £70.6m)
o Gross margin lower than expected (57% vs. 60%) due to the write-off of
excess COVID sequencing kit and investment in computer upgrades offsetting
improvements in manufacturing efficiency
o Adjusted EBITDA loss aligned with consensus (adjusted EBITDA
-£39.4 million, -14% yoy (H1 2022: -£34.6 million))
o Cash and equivalents of £484.6 million (31 Dec 2022: £558 million)
o Reiterated full year guidance for 2023
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 March 2023 reporting its first annual operating profit of
£4.2 million. Key highlights include:
o Customer numbers increased 82% from 123,000 to 224,000 whilst maintaining
industry leading customer reviews.
o 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.
o 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.
o 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.
o 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% reflecting an improving yield on new assets offset by the comparatively
low yield on cash.
· Since reaching a run rate of operating profit, Atom has the ability
to maintain stable regulatory capital ratios, however it remains dependent on
further fundraising to scale its balance sheet towards a level where its
technology-enabled efficiency and operating performance advantages can be
proven in the eyes of prospective investors.
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, the company announced that it had joined the Thermal
Management for Hybrid Electric Regional Aircraft ("TheMa4HERA") 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, 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 ("ATI").
Investment Portfolio
As at 30 June 2023
The 20 largest investments account for 94.8% of total investments by value (30
June 2022: 92.9% and 31 December 2022: 93.4%).
Total
Fair value investments
Holding Quoted/unquoted Industry sector £'000 %
Oxford Nanopore(1) Quoted Health Care 44,003 22.8
Atom Bank(1) Unquoted Financials 31,686 16.4
Reaction Engines(1) Unquoted Industrials 12,500 6.5
HP Environmental
Technologies Fund(1) Unquoted Industrials 11,103 5.8
Genomics(1) Unquoted Health Care 8,989 4.7
Federated Wireless(1) Unquoted Technology 8,610 4.5
Back Market(2) Unquoted Consumer 7,987 4.1
Ada Health Unquoted Health Care 7,168 3.7
AgroStar Unquoted Technology 6,292 3.3
Nexeon(1) Unquoted Industrials 6,207 3.2
Revolut LLP Unquoted Financials 6,135 3.2
Cequr(1) Unquoted Health Care 5,682 2.9
OcuTerra(1) Unquoted Health Care 4,775 2.5
Immunocore(1) Quoted Health Care 3,899 2.0
Tessian Unquoted Technology 3,716 1.9
BenevolentAl(1,3) Quoted Health Care 3,627 1.9
Attest Technologies Unquoted Business Services 3,618 1.9
Autolus Therapeutics(1) Quoted Health Care 3,131 1.6
Industrial Heat(1) Unquoted Industrials 2,005 1.0
Kymab(1) Unquoted Health Care 1,732 0.9
AMO Pharma(1) Unquoted Health Care 1,668 0.9
Epsilogen Unquoted Health Care 1,381 0.8
Carmot Therapeutics Unquoted Health Care 1,347 0.7
Araris Biotech Unquoted Health Care 1,319 0.7
iOnctura Unquoted Health Care 1,124 0.6
IDEX Biometrics ASA(1) Quoted Technology 998 0.5
A2 Biotherapeutics Unquoted Health Care 917 0.5
Anthos Therapeutics Unquoted Health Care 551 0.3
Novabiotics(1) Unquoted Health Care 457 0.2
Freevolt (formerly Drayson)(1) Unquoted Technology 85 -
ARC Group(1) Quoted Business Services 58 -
Econic(1) Unquoted Industrials 58 -
Just Benchmarks(1) Unquoted Financials - -
Mafic(1) Unquoted Industrials - -
Metaboards(1) Unquoted Technology - -
Mereo BioPharma Group(1) Quoted Health Care - -
EVOFEM Biosciences(1) Unquoted Health Care - -
Halosource(1) Unquoted Industrials - -
Bodle Technologies(1) Unquoted Technology - -
Rutherford Health(1) Unquoted Health Care - -
Lignia Wood(1) Unquoted Industrials - -
Oxsybio(1) Unquoted Health Care - -
Spin Memory(1) Unquoted Technology - -
Kind Consumer(1) Unquoted Consumer Staples - -
Total investments(4) 192,828 100.0
(1)Legacy Assets
These are "Legacy Assets", being assets acquired by the Company prior to
Schroder Investment Management taking over management responsibilities in
December 2019.
(2)Back Market is held via the Company's holding in Sprints Capital Ellison
LP, a single asset fund.
(3)BenevolentAI is quoted, but the market is inactive. Thus its valuation has
been determined in accordance with the process followed for unquoted assets.
(4)Total investments comprise:
£'000 %
Unquoted 137,112 71.2
Listed on the London Stock Exchange 44,003
Listed on a recognised stock exchange overseas 11,713 6.0
Total 192,828 100.0
Interim Management Statement
Principal Risks and Uncertainties
The Board has determined that the key risks for the Company are economic and
market risk, strategy risk, valuation risk, operational risk, portfolio
concentration risk, performance risk, liquidity risk, investee company
specific risk, information technology and information security risk, key
person dependency risk and ESG risk. These risks are set out on pages 37 to 42
of the Annual Report and Accounts for the year ended 31 December 2022.
The Board regularly monitors the Company's liquid assets since the
recommencement of share repurchases. There is continued geopolitical and
economic uncertainty. The Company's principal risks and uncertainties, and
their mitigation, have not materially changed during the six months to 30
June 2023 or since the Annual Report was published on 17 April 2023.
Going concern
The Board has considered the Company's principal risks and uncertainties
(including whether there are any emerging risks); has scrutinised the detailed
cash flow forecast prepared by the Manager; and considered their assessment of
the likelihood and quantum of funds which could be raised from sales of
investments. As a result, the Board is comfortable that the Company will have
sufficient liquid funds to pay operating expenses and capital commitments.
On this basis, the Board considers it appropriate to adopt the going concern
basis of accounting in preparing the Company's accounts.
Related party transactions
There have been no transactions with related parties that have materially
affected the financial position or the performance of the Company during the
six months ended 30 June 2023.
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge, this set of
condensed financial statements has been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice, in particular with Financial
Reporting Standard 104 "Interim Financial Reporting" and with the Statement of
Recommended Practice, "Financial Statements of Investment Companies and
Venture Capital Trusts" issued in July 2022 and that this Interim Management
Report includes a fair review of the information required by 4.2.7R and 4.2.8R
of the Financial Conduct Authority's Disclosure Guidance and Transparency
Rules.
Income Statement
for the six months ended 30 June 2023 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 30 June 2023 ended 30 June 2022 ended 31 December 2022
Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Loss on investments held at fair value through profit or loss - (33,566) (33,566) - (137,192) (137,192) - (175,669) (175,669)
(Losses)/gains on foreign exchange - (39) (39) - 72 72 - 583 583
Income from investments 501 - 501 258 - 258 479 - 479
Gross return/(loss) 501 (33,605) (33,104) 258 (137,120) (136,862) 479 (175,086) (174,607)
Portfolio management fee (621) - (621) (1,175) - (1,175) (1,989) - (1,989)
Administrative expenses (772) - (772) (647) - (647) (1,237) - (1,237)
Net loss before finance
costs and taxation (892) (33,605) (34,497) (1,564) (137,120) (138,684) (2,747) (175,086) (177,833)
Finance costs (16) - (16) (202) - (202) (304) - (304)
Net loss before taxation (908) (33,605) (34,513) (1,766) (137,120) (138,886) (3,051) (175,086) (178,137)
Taxation - - - - - - - - -
Net loss after taxation (908) (33,605) (34,513) (1,766) (137,120) (138,886) (3,051) (175,086) (178,137)
Loss per share 3 (0.10)p (3.72)p (3.82)p (0.20)p (15.09)p (15.29)p (0.34)p (19.30)p (19.64)p
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 loss for the period.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period.
Statement of Changes in Equity
for the six months ended 30 June 2023 (unaudited)
for the six months ended 30 June 2023 (unaudited)
Capital Total
Redemption £'000
reserves
£'000
Called-up Share Capital Revenue
share capital premium reserves reserve
£'000 £'000 £'000 £'000
At 31 December 2022 9,042 891,017 44 (615,003) (27,178) 257,922
Purchase of shares for cancellation (17) - 17 (256) - (256)
Net loss after taxation - - - (33,605) (908) (34,513)
At 30 June 2023 9,025 891,017 61 (648,864) (28,086) 223,153
for the six months ended 30 June 2022 (unaudited)
Capital
Redemption
reserves
£'000
Called-up Share Capital Revenue
premium reserves reserve
£'000 £'000 £'000
share capital Total
£'000 £'000
At 31 December 2021 9,086 891,017 - (439,105) (24,127) 436,871
Purchase of shares for cancellation (8) - 8 (170) - (170)
Net loss after taxation - - - (137,120) (1,766) (138,886)
At 30 June 2022 9,078 891,017 8 (576,395) (25,893) 297,815
for the year ended 31 December 2022 (audited)
Capital
Redemption
reserves
£'000
Called-up Share Capital Revenue
premium reserves reserve
£'000 £'000 £'000
share capital Total
£'000 £'000
At 31 December 2021 9,086 891,017 - (439,105) (24,127) 436,871
Purchase of shares for cancellation (44) - 44 (812) - (812)
Net return/(loss) after taxation - - - (175,086) (3,051) (178,137)
At 31 December 2022 9,042 891,017 44 (615,003) (27,178) 257,922
Statement of Financial Position
at 30 June 2023 (unaudited)
(Unaudited) (Unaudited) (Audited)
30 June 30 June 31 December
2023 2022 2022
Note £'000 £'000 £'000
Fixed Assets
Investments held at fair value through profit or loss 4 192,828 291,857 242,504
Current Assets
Debtors 307 247 160
Cash at bank and in hand 30,954 6,729 16,122
31,261 6,976 16,282
Current liabilities
Creditors: amounts falling due within one year 5 (936) (1,018) (864)
Net current assets 30,325 5,958 15,418
Total assets less current liabilities 223,153 297,815 257,922
Net assets 223,153 297,815 257,922
Capital and reserves
Called-up share capital 6 9,025 9,078 9,042
Share premium 891,017 891,017 891,017
Capital redemption reserves 61 8 44
Capital reserves (648,864) (576,395) (615,003)
Revenue reserve (28,086) (25,893) (27,178)
Total equity shareholders' funds 223,153 297,815 257,922
Net asset value per share 7 24.73p 32.80p 28.52p
Cash Flow Statement
for the six months ended 30 June 2022 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Cash flows from operating activities
Loss before finance costs and taxation (34,497) (138,684) (177,833)
Adjustments for:
Losses on investments held at fair value through profit or loss 33,566 137,192 175,669
(Increase)/decrease in debtors (120) (76) 11
Increase/(decrease) in creditors 114 (200) (316)
Net cash flow from operating activities (937) (1,768) (2,469)
Cash flows from investment activities
Purchases of investments (8,420) (13,853) (17,422)
Proceeds from sales of investments 24,503 25,703 40,148
Net cash flow from investment activities 16,083 11,850 22,726
Cash flows from financing activities
Purchase of shares for cancellation (256) (159) (812)
Finance costs (58) (271) (400)
Repayment of bank loan - (22,000) (22,000)
Net cash flow from financing activities (314) (22,430) (23,212)
Change in cash and cash equivalents 14,832 (12,348) (2,955)
Cash and cash equivalents at the beginning of the period 16,122 19,077 19,077
Cash and cash equivalents at the end of the period 30,954 6,729 16,122
Notes to the Accounts
1. Financial Statements
The information contained within the accounts in this half year report has not
been audited or reviewed by the Company's independent auditor.
The figures and financial information for the year ended 31 December 2022 are
extracted from the latest published accounts of the Company and do not
constitute statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the report of the auditor
which was unqualified and did not contain a statement under either section
498(2) or 498(3) of the Companies Act 2006.
2. Accounting Policies
Basis of accounting
The accounts have been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, in particular with Financial Reporting
Standard 104 "Interim Financial Reporting" and with the Statement of Recommend
Practice "Financial Statements of Investment Trust Companies and Venture
Capital Trusts" issued by the Association of Investment Companies in July
2022.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these accounts are consistent with those
applied in the accounts for the year ended 31 December 2022. In particular,
the policy on valuation of investments is consistent with that detailed in
note 1(b) to the accounts for the year ended 31 December 2022, presented on
pages 74 and 75 of the annual report.
3. Loss per share
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Revenue loss (908) (1,766) (3,051)
Capital loss (33,605) (137,120) (175,086)
Total loss (34,513) (138,886) (178,137)
Weighted average number of shares in issue during the period 902,740,094 908,544,238 907,291,950
Revenue loss per share (0.10)p (0.20)p (0.34)p
Capital loss per share (3.72)p (15.09)p (19.30)p
Total basic and diluted loss per share (3.82)p (15.29)p (19.64)p
The basic and diluted loss per share is the same because there are no dilutive
instruments in issue.
4. Investments held at fair value through profit or loss
(a) Movement in investments
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
30 June 30 June 31 December
2022 2022 2022
£'000 £'000 £'000
Opening book cost 581,253 622,857 622,857
Opening investment holding losses (338,749) (181,958) (181,958)
Opening fair value 242,504 440,899 440,899
Purchases at cost 8,420 13,853 17,422
Sales proceeds (24,530) (25,703) (40,148)
Losses on investments held at fair value through profit or loss (33,566) (137,192) (175,669)
Closing fair value 192,828 291,857 242,504
Closing book cost 547,562 604,401 581,253
Closing investment holding losses (354,734) (312,544) (338,749)
Closing fair value 192,828 291,857 242,504
The Company received £24,530,000 (period ended 30 June 2022: £25,703,000 and
year ended 31 December 2022: £40,148,000) from investments sold in the
period. The book cost of the investments when they were purchased was
£42,111,000 (period ended 30 June 2022: £32,309,000 and year ended 31
December 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 period (unaudited)
Opening Closing
valuation at valuation at
31 December Valuation 30 June
2022(1) adjustment 2023
£'000 £'000 £'000
Federated Wireless 11,227 (2,617) 8,610
BenevolentAI 11,935 (8,308) 3,627
AMO Pharma 16,408 (14,740) 1,668
(1)Based on the closing holding at opening prices.
There have been no material disposals of unquoted investments during the
period.
5. Creditors: amounts falling due within one year
(Unaudited) (Unaudited) (Audited)
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Other creditors and accruals 936 1,018 864
The Directors consider that the carrying amount of creditors falling due
within one year approximates to their fair value.
6. Called-up share capital
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Ordinary shares allotted, called up and fully paid:
Ordinary shares of 1p each:
Opening balance of 904,219,238 (31 December
2021: 908,639,238) shares 9,042 9,086 9,086
1,735,000 (period ended 30 June 2022: 770,000 and year ended 31 December 2022: (17) (8) (44)
4,420,000) shares purchased and cancelled
Closing balance of 902,484,238 (30 June 2022: 907,869,238 and 31 December 9,025 9,078 9,042
2022: 904,219,238) shares
7. Net asset value per share
(Unaudited) (Unaudited) (Audited)
30 June 30 June 31 December
2023 2022 2022
Net assets attributable to shareholders (£'000) 223,153 297,815 257,922
Shares in issue at the period end 902,484,238 907,869,238 904,219,238
Net asset value per share 24.73p 32.80p 28.52p
8. 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.
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.
The Company's investment portfolio was categorised as follows:
30 June 2022 (unaudited)
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments in equities - quoted 52,089 - 3,627 55,716
- unquoted - - 137,112 137,112
Total 52,089 - 140,739 192,828
There have been no transfers between levels during the period ended 30 June
2023.
30 June 2022 (unaudited)
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments in equities - quoted 27,741 - - 127,741
- unquoted - - 164,116 164,116
Total 127,741 - 164,116 291,857
During the period ended 30 June 2021, Immunocore £23,410,000 transferred from
Level 3 to Level 1 following its IPO on the NASDAQ.
31 December 2022 (audited)
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments in equities - quoted 83,711 - 11,935 95,646
- unquoted - - 146,858 146,858
Total 83,711 - 158,793 242,504
During the year ended 31 December 2022, RM2 International £104,000
transferred from Level 3 to Level 1, following the conversion of RM2
International shares into ARC Group Worldwide shares.
9. Events after the interim date that have not been reflected in
the financial statements for the interim period
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 Directors have evaluated the period since the interim date and have not
noted any other events which have not been reflected in the financial
statements.
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