TIDMSUPP
RNS Number : 3397W
Schroder UK Public Private Tst plc
17 April 2023
Schroder UK Public Private Trust plc
(the "Company")
Report and Accounts
For the year ended 31 December 2022
Schroder UK Public Private Trust plc (the "Company") hereby
submits its Final Results for the year ended 31 December 2022.
The Company's Annual Report and Accounts for the year ended 31
December 2022 (the "2022 Annual Report and Accounts") are being
published in hard copy format and an electronic copy will shortly
be available to download from the Company's webpage
www.schroders.com/publicprivatetrust
It can also be viewed at the following link:
http://www.rns-pdf.londonstockexchange.com/rns/3397W_1-2023-4-15.pdf
Enquiries:
Schroder Investment Management Limited
Augustine Chipungu (Press) 020 7658 6000
Shilla Pindoria (Company Secretary) 020 7658 6000
John Spedding 020 7658 6000
Chair's Statement
Performance
It is disappointing that 2022 continued to be a difficult year
for the Company. The invasion of Ukraine and pressure on financial
markets led to deteriorating market sentiment, both for the
portfolio itself and for shares in the Company. Against this
backdrop, the Company's Net Asset Value (NAV) per share for the
year to 31 December 2022 fell by 40.7% and the share price by 53.3%
and the Board remains frustrated with this outcome. Performance
during the year was primarily driven by the fall in the share price
of our largest holding, Oxford Nanopore and other legacy private
investments including Rutherford, BenevolentAI and Atom Bank.
Future returns will be driven by the performance of investments
made by our Manager and the Manager has continued to make
significant progress in tilting the portfolio towards venture,
growth or life sciences, with six new private investments made in
2022. The change to a global mandate has opened world class
opportunities for the portfolio and further details are provided in
the Manager's Review section.
Portfolio Management
Last year, shareholders approved changes to the Company's
investment policy to enable our Manager to consider global
opportunities in private equity and to draw on Schroders Capital's
strong long term track record in private equity investment. At the
same time, we indicated that we would target around 75% of the
portfolio to be in private equity investments and that the majority
of the public holdings would be held as a consequence of private
holdings going on to IPO enabling us to capture the full lifetime
value of a portfolio company.
The transition to a global private equity portfolio is taking
longer than we anticipated, mainly due to the continuing
uncertainty in the private equity market, but further progress is
expected to be made in 2023.
Schroders Capital has been managing private equity investments
on behalf of investors since 1997. It has over 150 professionals
committed to the private equity business worldwide and manages
nearly GBP14 billion of private equity assets (as 31 December
2022). The Company's portfolio is managed by Tim Creed, Schroders
Capital's head of private equity investments, and, in view of the
greater investment emphasis on private equity, he will now be
supported by Harry Raikes, who will join the team as a co-manager.
Harry, who is a member of the Schroders Capital Private Equity
investment team, has been instrumental in transitioning the
portfolio since Schroders took over management. At the same time,
Roger Doig will step away from the investment team.
Valuation Process
With effect from 30 September 2022, Schroder Unit Trusts Limited
was appointed as the Company's alternative investment fund manager
(AIFM), replacing Link Fund Solutions Limited. The Board are
comfortable with the valuation process applied by the AIFM, using
research and input from its own valuation specialist provider, IHS
Markit (part of S&P Global), for the valuation of the private
equity holdings, utilising the widely respected IPEVCV guidelines.
Further details regarding the valuation approach adopted are
explained in Note 1b in the notes to the Accounts.
Capital discipline and the introduction of a continuation
vote
Schroders was appointed as the Company's portfolio manager in
December 2019, following which the investment team took the
necessary actions to stabilise the portfolio through the
renegotiation of the debt facility, asset disposals to allow for a
substantial reduction in the level of borrowings and engagement
with the portfolio companies to determine an action plan for
maximising returns from the legacy portfolio. The portfolio manager
also developed a pipeline of opportunities to give investors access
to some of the best and most attractive venture and growth
companies globally. In that regard, the investment team have made
11 private investments since their appointment across technology,
financials, business services and healthcare sectors.
A proposal to make amendments to the Company's Articles will be
made at the Company's Annual General Meeting to include the
introduction of a continuation vote at the 2025 Annual General
Meeting, which will provide shareholders with the opportunity to
vote on whether the Company should continue in its present form.
There will also be a requirement to propose a similar resolution at
the AGM every five years thereafter.
The continuation vote at the AGM in 2025 will allow the Board
and shareholders the opportunity to review the performance of the
Manager over the five years since its appointment, which the
Directors consider to be an appropriate timeframe for the
investment team to have repositioned the portfolio, including
having made a number of new investments against which its
performance can be assessed.
While the portfolio progress over the last three years has been
positive, the NAV has fallen as the Company continues to work
through the issues in the legacy portfolio, which has been made
more challenging with the change in the environment for growth
capital investing. Against this backdrop, the discount at which the
Company's shares trade in relation to net asset value has
widened.
This discount widened further during 2022 and stood at 45.8% at
31 December 2022, reflecting not only the performance of the
Company itself but also the poor sentiment and uncertainty
surrounding the wider private equity sector.
The Board intends to make an amount equating to 25% of all net
cash realisations from the portfolio inherited from the previous
portfolio manager received between now and the 2025 Annual General
Meeting available to be redeployed to make share repurchases by the
Company.
The Board acknowledges that it is not possible to accurately
forecast such realisations between now and 2025. In order to ensure
that the Company remains active in buying back its stock, the Board
intends in any event to purchase shares equal to at least 5% of the
Company's issued share capital in each of the calendar years 2023
and 2024. The intention to undertake share repurchases outlined
above is subject to the approvals detailed in the following section
of this statement.
The Company's share buy back policy will be reviewed ahead of
the continuation vote in 2025.
Share buybacks undertaken by the Company in 2022 and 2023
From 9 May 2022 to 21 December 2022, the Company undertook a
series of share buybacks totalling 4,420,000 ordinary shares for a
consideration of c.GBP812,000. In 2023, the Company has undertaken
further share buybacks totalling 1,735,000 ordinary shares for a
consideration of c.GBP257,000. Although the Company had a share
premium account of GBP891 million at the time of the 2022 and 2023
share buybacks, as that had not been cancelled at the time, the
Company did not have sufficient distributable profits and so those
buybacks did not comply with the requirements of the Companies Act
2006.
The Company has been advised that, in order to rectify this,
shareholders may approve various actions. Accordingly, the Company
shall propose resolutions at the forthcoming AGM to:
(i) Cancel the Company's share premium account, subject to
obtaining the requisite Court approval;
(ii) Conditional on the Court approval of the cancellation of
the share premium account, appropriate such amounts as are
necessary from the cancelled share premium account as distributable
profits for the purposes of the 2022 and 2023 share buybacks;
and
(iii) Enter into deeds of release in respect of the shareholders
who received share buyback consideration and the directors who
authorised the share buybacks.
The Board plans to recommence share buybacks and, in order to do
so, shareholders must have approved these resolutions, along with
the resolution to re-new the Company's authority to buyback shares.
Following the AGM, the Company will apply to the Court for its
share premium account to be cancelled, following which the Company
will be able to re-commence share buybacks.
Change of Company Name
The Board has taken steps to change the Company's name to
Schroders Capital Global Innovation Trust plc to more accurately
reflect the changes in investment objective and policy agreed at
the AGM in May 2022 and the strategy that has been followed as a
result. The Company will make a further announcement following
confirmation of the change of name by Companies House.
Gearing
At the year ended 31 December 2022, the Company had cash of
GBP16.1 million (2021: GBP19.1 million). During the year, GBP22
million was drawn on the GBP40 million revolving credit facility
and this was repaid in full and undrawn at the year end. The
revolving credit facility expired on 30 January 2023 and although
the Board remains of the view that gearing should be one of the
tools available to the Manager to make use of the closed ended
structure, the use of gearing is not a priority at this specific
time. It will continue to monitor whether gearing should be used by
the Manager.
Board Composition
Raymond Abbott, who has served on the Board since 2019, will
retire following the conclusion of the AGM in June 2023. On behalf
of the Board, I would like to thank Raymond for his considerable
contribution to the Company and wish him well for his future plans.
As part of its succession plan to promote regular refreshment and
diversity, the Board has appointed an executive search firm and
commenced the recruitment for a new director. The Board will make
an announcement once a suitable candidate has been appointed.
AGM
The Company will be posting a separate notice of AGM to
shareholders in early May, for an AGM to be held in early June. The
Board looks forward to welcoming shareholders to attend and
participate in the meeting.
Shareholders will also have the opportunity to hear a
presentation from the Manager and light refreshments will be
served. Please note that all voting will be on a poll and we
encourage all shareholders to exercise their votes by means of
registering them with the Company's registrar ahead of the meeting,
online or by completing paper proxy forms, and to appoint the Chair
of the meeting as their proxy.
In the event that shareholders have a question for the Board,
please email amcompanysecretary@schroders.com in advance of the
AGM.
Changes to the Articles of Association
One of the resolutions that will be proposed at the AGM is an
amendment to the Company's articles of association (the "Articles")
to allow for periodic continuation votes from 2025 and thereafter
at 5 yearly intervals, as noted above and the flexibility to hold
shareholder meetings (wholly or partially) by electronic means.
This latter change would allow the Board to hold hybrid or virtual
meetings when in the best interests of shareholder safety, for
example, in the event of a future pandemic. The amendments will not
prevent the Company from holding physical meetings and the Board's
intention is always to hold a physical general meeting when safe
and practical to do so. Further details will be included in the
notice of AGM to be posted in early May.
Change of Auditor
Following a competitive tender process, the Company's auditor,
Grant Thornton UK LLP will not be seeking re-appointment as auditor
and a resolution to appoint Ernst & Young LLP as the Company's
auditor will be made at the AGM.
Change of Registrar
In accordance with the change of the majority of its service
providers in 2022, the Board has decided to change registrar from
Link to Equiniti with effect from 30 June 2023.
Web Conference - Update from Schroders
Please join the Manager for a webinar in which they will report
on the year ended 31 December 2022 and outline their thoughts on
the future direction of the portfolio. The presentation will be
followed by a live Q&A session. The webinar will take place on
18 April 2023 at 2pm. Register for the event at
https://registration.duuzra.com/form/suppannualresults2022.
Outlook
Although 2022 was disappointing for the Company, the Manager has
continued to diversify the portfolio and the Board believes that
the global remit, adopted in 2022, enables access to the best
innovation ideas in the most promising themes, wherever they are in
the world. The pivot towards private investments, which has taken
longer than anticipated due to the uncertainty of private markets
in 2022, is expected to make further progress in 2023.
The Company offers investors access to the leading growth
businesses of the future, selected by a Manager with a leading
track record in private equity investing over the last 25 years
with a themed focus across technology and healthcare.
The Board believes that the package of measures taken to narrow
the discount coupled with the ability of the Manager to capture
global innovation opportunities will help to restore shareholder
and investor sentiment.
Tim Edwards
Chair
14 April 2023
Manager's Review
Summary
- The Company reported a net asset value ("NAV") of 28.52p per
share as of 31 December 2022, a decrease of 40.7% relative to the
NAV share per share as of 31 December 2021 (48.08p) and -7.6%
relative to the NAV per share as of 30 September 2022 (30.88p).
- Inflation, tightening monetary conditions and heightened
geopolitical tensions led to deteriorating market sentiment during
the year, which weighed on the performance of the portfolio.
Performance over the year was largely driven by the fall in the
share price of the Company s largest holding, Oxford Nanopore
Technologies plc ("Oxford Nanopore"), while other legacy
investments, including Rutherford, BenevolentAI and Atom Bank also
weighed on returns.
- With caution given the challenging market backdrop, the
Company continued to invest in ground-breaking companies, adding
dedicated renewed technology marketplace, Back Market, to the
portfolio, as well as building out its diversified portfolio of
innovative life science businesses targeting key unmet medical
needs, with new positions in Epsilogen, Araris Biotech, iOnctura,
A2 Biotherapeutics and Anthos Therapeutics. Post period-end, the
Company continued to utilise its broadened global investment remit,
announcing its first transaction in Asia with an investment in
AgroStar, one of India s foremost agricultural technology
start-ups.
- We welcome the steps taken by the Board to change the name of
the Company, while our appointment of Harry Raikes as co-manager
aligns with the greater investment emphasis on private equity.
These changes reflect our ambition to provide shareholders with
access to the leading growth businesses of the future and achieve
long-term capital growth.
- We are not complacent about the challenges that lie ahead.
While we have made significant progress in transforming the
portfolio into one which is gradually reflecting the opportunity
set that we see, it would be wrong to suggest that the job is
anywhere near complete. The Company still has a significant
exposure to legacy investments made by the previous Portfolio
Manager and much work is required to restore the reputation of the
Company in the eyes of the investing public. Nevertheless, we
believe the Company is now on a path that the broader Schroders
Capital business has been following successfully for twenty-five
years. We know where it is heading, and we are confident that the
journey represents a compelling long-term growth opportunity. Now
it is time for us to deliver that opportunity.
Introduction
Our journey so far
Schroders took on the management of the Company in December 2019
and the journey since then has involved a lot of work and many
hurdles have been overcome. In many respects, our transformation of
the portfolio remains a work in progress, but we believe it is
important to look back on the important steps that we have taken
and reflect on the prospects that await the Company.
In the early months of Schroders' tenure managing the Company,
our key task was to get our arms firmly around the portfolio by
understanding the underlying holdings in great detail. It was
evident from the outset that the legacy portfolio contained a few
real gems, some of which are still held today, but other assets
required greater input and careful nurturing. Against the backdrop
of the Covid pandemic and a global economy in lockdown, the initial
progress was gradual but measured, allowing us to gain a clearer
sense of which assets would form part of the long-term future of
the Company, while thinking strategically about how to optimise
value from other parts of the portfolio. Other priorities included
increasing the liquidity of the portfolio and reducing the level of
financial gearing.
A first key step in this process was completed in March 2021,
with the sale of seven assets to Rosetta Capital for more than
GBP50 million. That transaction represented many months of hard
work, with significant contributions from several team members.
Then, in April 2021, the sale of clinical-stage biotechnology
company Kymab to Sanofi for $1.1bn plus milestones was completed,
resulting in a significant profit for the Company.
Importantly, these activities paved the way for other positive
developments. Crucially, the proceeds allowed us to fully repay the
inherited debt burden which stood at GBP112.9 million as of 31
December 2019. Thus, we were able to establish a much sounder
financial platform for the Company, and the prospect of making new
investments into ideas generated by Schroders Capital's
well-established and highly-experienced venture capital team was
suddenly much closer.
Indeed, the first new investment for the portfolio was committed
in May 2021, when we acquired a stake in the private, high
potential UK cyber-security business, Tessian. This was quickly
followed by positions in UK neobank Revolut, leading market
research technology platform Attest, and the AI-based digital
health business Ada Health, in a series of new investments
committed through the rest of 2021, 2022 and continuing into this
year. We are confident that this new idea pipeline will continue to
deliver the opportunity to invest in similarly exciting young
innovative companies that, we believe, represent the leading growth
businesses of the future.
In the meantime, we have also seen the successful IPOs of Oxford
Nanopore and Immunocore, and the holdings in Kymab, Inivata and
Kuur Therapeutics have all been acquired by larger healthcare
businesses. These events have collectively realised a valuable gain
for the Company. By contrast, several of the portfolio's publicly
traded holdings have performed poorly in what has been a
challenging period for equity markets, particularly over the last
eighteen months. Meanwhile, the holding in Rutherford Health was
written down to zero when the business failed to attract sufficient
new funding, and several other legacy private holdings have seen
write-downs due to disappointing developments, including Industrial
Heat, Mafic and Spin Memory. It is the nature of early-stage
investments that the performance of individual holdings are likely
to diverge significantly. Some have developed positively and are
fulfilling their high potential, whereas others, inevitably, have
fallen by the wayside. The disappointments have been in businesses
that were part of the portfolio long before Schroders took on its
management, and in most cases, we believe there has been little we
could do to turn their fortunes around.
Another key milestone for the Company was the widening of its
investment powers to include a more global remit, which was
approved in May 2022. This too was influenced by Schroders
Capital's significant global resources, which we believe can now be
fully deployed for shareholders benefit, in providing access to the
best venture and growth investment opportunities worldwide. The
Company's proposed name change reflects this global remit. It also
captures the essence of the current shape of the portfolio and its
direction of travel.
During the 12 months to 31 December 2022, the Company made six
new private equity investments including one new growth investment
and five new life science strategy investments. Our efforts to
increase the private equity allocation further were impacted by
overheating in late-stage and pre-IPO markets which temporarily
allowed private company valuations to become detached from
underlying fundamentals with some overflow effects into other areas
of the market. Our investment team did come close on several other
opportunities, however with strict valuation discipline were
ultimately unable to agree terms. However, we remain hopeful that
the current more normalised valuation environment will allow us to
make further progress in 2023, and as such we are excited to
announce the investment in AgroStar, one of India s foremost
agricultural technology start-ups.
The portfolio's longer-term strategic positioning is underway,
in line with our ambition to provide investors with access to
innovative companies wherever they are in the world, focusing on
venture, growth and life sciences opportunities, which is discussed
in more detail in the Strategic Review section of this report.
2022: Economic and market backdrop
Geopolitics and public equity markets
Global equity markets saw steep declines in 2022. Despite
relatively resilient earnings throughout much of the year,
inflation, tightening monetary conditions and geopolitical tensions
drove increased volatility across equity, bond and currency
markets. Russia's invasion of Ukraine in late February caused a
global shock, with equities declining and commodity prices soaring.
This contributed to a further surge in inflation as well as supply
chain disruption. In effect, this brought about an end to the loose
monetary policy era across many developed markets as central banks
moved, often belatedly, to raise rates and halt asset purchase
programmes launched in the previous decade. This policy shift kept
shares prices under pressure through the spring and summer of 2022
as investors moved to price in expectations of future interest rate
rises and an increased risk of recession. Shares did however
briefly make gains in November as improved sentiment drove a bear
market rally until hawkish central bank rhetoric amidst a slowing
growth backdrop ultimately led markets to further losses in
December.
Private equity and venture capital markets
In 2022, global venture capital (VC) funding declined 35% to
$415 billion(1) with particular weakness in the fourth quarter
reflecting a 64%(1) year-on-year fall from an exuberant 2021. This
decline was reflected in both deal volumes and average deal sizes.
During the year, average deal sizes declined by 32%(1) towards more
normalised levels seen in 2020. Of particular note, the number of
mega-rounds - funding rounds of more than $100 million - declined
78% in the fourth quarter, highlighting the retrenchment of
investors that do not typically have roots in venture capital,
which had become a cause for concern in 2021. This market cooling
was also evident in the plummeting rate of unicorn(2) creation
through the year with 19 new unicorns created in the fourth
quarter, a fraction of the 139 created twelve months earlier.
(1) CB Insights State of Venture Global 2022 recap.
(2) Defined as a venture capital-backed company with a value of
over $1 billion.
Portfolio composition and valuation reviews
As of 31 December 2021, the Company had 35 portfolio holdings,
including 11 public equity holdings and 24 private equity holdings
(excluding 9 holdings with no value). During the period, the number
and composition of holdings was impacted by the following
events:
- One new investment completed as part of the growth strategy:
- New investment in leading, dedicated renewed technology
marketplace, Back Market (incorporated as Jung S.A.S).
- Five new investments completed as part of the life sciences strategy:
- Innovative developer of immunoglobulin E antibodies to treat
cancer, Epsilogen Ltd ("Epsilogen").
- Antibody-drug conjugates development company, Araris Biotech AG ("Araris").
- Clinical stage oncology company, iOnctura SA ("iOnctura").
- T-cell development company, A2 Biotherapeutics Inc ("A2 Bio").
- Clinical-stage biopharmaceutical company, Anthos Therapeutics LLC ("Anthos").
- Continued portfolio rebalancing and diverging performance of legacy holdings:
- Sale of Seedrs Ltd ("Seedrs").
- Rutherford Health plc ("Rutherford Health") announced the
withdrawal of its shares from trading on the AQSE Growth Market and
was subsequently revalued to no value after its Board resolved to
wind-up the company. Further details of the engagement undertaken
as part of this process can be found in the dedicated
Sustainability section of this report.
- BenevolentAI completed its business combination with Odyssey
Acquisition S.A. ("Odyssey"), a Euronext Amsterdam- listed
investment company.
- Disposals of small, residual positions in Reneuron, Xeros and Plenti.
- Mafic and Metaboards revalued to zero.
As of 31 December 2022, the Company had 34 portfolio holdings,
including 9 public equity holdings and 25 private equity holdings
(excluding 12 holdings with no value). All the Company's quoted
holdings were valued using unadjusted quoted prices, except
BenevolentAI which was fair value priced due to a lack of liquidity
in its listed shares. For the Company's private equity holdings, a
full valuation review was conducted to determine the fair value of
the portfolio as of 31 December 2022.
Financial performance
Net
Attribution Public Private (debt)/
analysis (GBPm) equity equity cash Other NAV
------------------------------ ------- ------- ------- ----- -------
Value as at 31.12.21 243.3 197.6 (2.9) (1.1) 436.9
------------------------------ ------- ------- ------- ----- -------
+ Investments - 17.4 (17.4) - -
------------------------------ ------- ------- ------- ----- -------
- Realisations at value (20.9) (19.2) 40.1 - -
------------------------------ ------- ------- ------- ----- -------
+/- Fair value gains/(losses) (138.3) (37.4) - - (175.7)
------------------------------ ------- ------- ------- ----- -------
+/- Reclassified holdings 11.5 (11.5) - - -
------------------------------ ------- ------- ------- ----- -------
+/- Costs and other movements - - (3.7) 0.4 (3.3)
------------------------------ ------- ------- ------- ----- -------
Value as at 31.12.22 95.6 146.9 16.1 (0.7) 257.9
------------------------------ ------- ------- ------- ----- -------
Source: HSBC, as of 31 December 2022. Fair value gains/(losses)
include foreign exchange gains/(losses).
The NAV as of 31 December 2022 was GBP257.9 million, a decrease
of 41.0% compared with the NAV (GBP436.9 million) as of 31 December
2021.
The full year NAV decrease of 41.0% comprised:
- Public equity holdings: -31.7%
- Private equity holdings: -8.6%
- Costs and other movements: -0.8%
The Company's public equity holdings saw a decrease in value of
56.8% contributing 31.7% to the full year decrease in NAV. This was
predominantly driven by the portfolio's largest holding, Oxford
Nanopore ("ONT"), whose share price fell 64.6% over the year,
resulting in a loss of GBP105.1 million. Stock performance
disappointed over the period reflecting changes in the market
backdrop - including a rotation out of growth, an aversion to
negative free cashflow businesses, and weaker operating performance
reported at peers. During the year, the Company's weighting in ONT
declined from 36.9% to 23.3% of total investments as of 31 December
2022.
As mentioned in the half year report and accounts, Rutherford
Health was fully written off in June 2022 following news that the
company's Board had resolved to wind-up the company and appoint the
official receiver as liquidator. The revaluation resulted in a loss
of GBP23.6 million. The company was reported as an unquoted holding
following withdrawal of its shares from trading on the AQSE Growth
Market on 24 January 2022. Further details of the engagement
undertaken by the investment team can be found in the dedicated
Sustainability section of this report.
Furthermore, the share price of IDEX Biometrics, the Norwegian
developer of biometric cards, declined by 68.3% over the period,
representing a loss of GBP8.0 million. IDEX has continued to
deliver on its commercial plans with 9 commercial launches of bank
cards utilising its biosensor technology over the course of the
year, including a full-scale launch by First Bank Abu Dhabi, which
generated the largest single order for IDEX biosensors to date. The
mass roll out of biometric payments cards looks to be approaching,
and in 2022 IDEX expanded the number of card manufacturers
preparing card launches incorporating the IDEX sensors
substantially. However, while revenue growth of 44% year-on-year
was encouraging, the revenue arising from commercialisation has
been slower than anticipated, meaning the company remains
unprofitable, and needed to raise further capital in Q4, which put
pressure on the share price.
In April 2022, BenevolentAI, the healthcare technology company
applying artificial intelligence for drug discovery and
development, completed its Business Combination with Odyssey
Acquisition S.A. ("Odyssey"), a Euronext Amsterdam-listed
investment company. Disappointingly, however, given the lack of a
full price discovery process and the majority of shareholders being
locked up until mid-October, its quoted share price declined 64.7%
over the period to 31 December 2022. As at the valuation date (31
December 2022), the Company's AIFM also opted to perform an
additional fair value assessment in order to reflect a lack of
liquidity in the shares. The fair value concluded represents a
price of GBP2.51 per share reflecting a 19% discount to the quoted
price (GBP3.11 per share) as of the valuation date.
On the positive side, the share price of Immunocore, the
pioneering T cell receptor biotechnology company, increased 67.4%
over the period. The company received FDA and European Commission
approval for the first treatment developed on its TCR immunotherapy
platform, KIMMETRAK, and successfully started to commercialise the
treatment over the course of the year. This was an important proof
point for the company's platform, and a number of other therapies
continue to be developed on it. A private placement in July,
coupled with an improvement in the rate of cash burn as product
revenues started to come through from KIMMETRAK, has extended the
company's cash runway until at least 2026, over which time further
treatments developed on the platform are expected to be brought
through the approval process.
The Company's private equity holdings saw a decrease in value of
18.9%, contributing 8.6% to the full year decrease in NAV.
UK app-only challenger bank, Atom Bank, was revalued down to
reflect a continued deterioration in the valuation of public market
comparables and a more prudent approach adopted by the Company's
new AIFM. The valuation adjustment resulted in a fair value loss of
GBP14.5 million over the period, despite which Atom Bank remains
the Company's largest private holding representing 13.1% of total
investments. We are encouraged with the operational progress at
Atom Bank. The business continues to scale up and is now
profitable. Any new capital that the bank raises is therefore
supporting further growth through increased scale and new product
launches, which has the potential to deliver shareholder value over
the medium term notwithstanding the current volatile environment
surrounding valuations of listed players in the space.
Foreign exchange
Over the full year period, the fair value of investments
denominated in United States Dollar (USD), Euro (EUD), Swiss Franc
(CHF) and Norwegian Krone (NOK) benefited from the depreciation in
the value of the British pound sterling (GBP).
Cash and debt
At the year ended 31 December 2022, the Company had cash and
cash equivalents of GBP16.1 million. During the year, GBP22 million
was drawn on the GBP40 million revolving credit facility and this
was repaid in full and undrawn at the year end. This facility
expired on 31 January 2023. We do not see the use of gearing as a
priority at this time and believe the portfolio has sufficient cash
and liquidity to efficiently manage the portfolio going forward in
line with the Board's recent proposals to shareholders. However, we
remain open to utilising a credit facility in the future when
appropriate.
Investment activity
Realisations
During the 12 months to 31 December 2022, the Company made
realisations totalling GBP40.1 million. The key transactions are
highlighted below:
-- GBP16.7 million was realised from the Company's holding in
Immunocore to fund new private investments.
-- The Company completed the sale of its holding in Seedrs to a
global institutional investment management firm in March receiving
cash proceeds of GBP12.0 million. For further information regarding
the transaction, investors can refer to the original announcement
made by the Company on the 1st December 2021.
-- The Company received GBP4.0 million from the deferred
purchase price release as part of the sale of Kymab to Sanofi which
originally completed back in April 2021.
-- The Company sold GBP1.6 million in a secondary transaction as
part of Nexeon's $170m funding round.
-- The Company received its second distribution of GBP1.5
million from the HP Environmental Technologies Fund following the
acquisition of portfolio company, Driivz, by Vontier Corporation, a
global industrial technology company focused on transportation and
mobility solutions.
-- The Company sold its small remaining public positions in
consumer lending company Plenti Group (following the expiry of its
lock-up period), stem cell research company ReNeuron and industrial
technology firm Xeros Technology.
-- The remaining realisations were made from across the public
equity holdings, including Oxford Nanopore, Johnson Matthey and
Spirent Communications.
New investments
During the 12 months to 31 December 2022, the Company made six
new private equity investments totalling GBP15.1 million. This
included one new growth investment and five new life science
strategy investments.
We provide an overview of these new investments below, with
select United Nations' Sustainable Development Goals ("SDGs") and
targets aligned to their businesses.
Back Market - New "growth" investment
Leading online marketplace dedicated to refurbished devices
In January 2022, the Company announced it had invested EUR12.0
million (GBP10.0 million) in Back Market (incorporated as Jung
S.A.S.), as part of its $510 million Series E funding round. The
round was led by Sprints Capital, together with Eurazeo Growth,
Aglaé Ventures, General Atlantic, and Generation Investment
Management. The Company invested alongside its co- investment
partner, Sprints Capital, via a single asset fund, Sprints Capital
Ellison LP.
Launched in 2014, Back Market is the leading dedicated renewed
technology marketplace. The company brings high-quality
professionally refurbished electronic devices and appliances to
customers in 16 countries including the United Kingdom, the United
States, France, Germany, Italy, Spain, Belgium, Austria, the
Netherlands, and more recently, Portugal, Japan, Finland, Ireland,
Greece, Slovakia, and Sweden. The Series E round underpins Back
Market's ambitious vision and allows the company to build on its
position as the leading marketplace exclusively dedicated to the
sale of expertly refurbished electronics. Back Market is determined
to make circular technology mainstream by delivering an experience
even better than buying new.
Select UN SDG(s): 11 Make cities and human settlements
inclusive, safe, resilient and sustainable
12 Ensure sustainable consumption and production patterns
13 Take urgent action to combat climate change and its
impacts
Select targets: 11.6 By 2030, reduce the adverse per capita
environmental impact of the cities
12.4 By 2020, achieve the environmentally sound management of
chemicals and all wastes throughout their life cycle
12.5 By 2030, substantially reduce waste generation through
prevention, reduction, recycling and reuse
Epsilogen - New "life sciences" investment
Innovative developer of immunoglobulin E antibodies to treat
cancer
In March 2022, the Company announced it had made an investment
of GBP1.5 million* into innovative developer of immunoglobulin E
antibodies to treat cancer, Epsilogen, as part of its GBP30.8
million Series B funding round. The round was led by a new
investor, Novartis Venture Fund, and joined by other new investors
3B Future Health Fund, British Patient Capital and Caribou
Property. The new syndicate joins founding Series A investor
Epidarex Capital and Series A investor ALSA Ventures both of whom
also committed further capital in the Series B fundraising.
Epsilogen is an innovative developer of immunoglobulin E (IgE)
antibodies to treat cancer. IgE's natural function is to provide
immunological defence against certain parasites. This functionality
makes it an ideal treatment of solid tumours due to its strong
potency, enhanced tumour access and long tissue half-life.
Epsilogen's lead product candidate, MOv18 IgE, is the first
therapeutic IgE antibody to enter the clinic and encouraging data
from a phase I trial demonstrated MOv18 IgE to be safe and well
tolerated with early signs of clinical activity also seen.
Epsilogen is also developing a proprietary IGEG(TM) antibody
platform combining elements from both IgE and IgG antibodies into
novel and proprietary antibody molecules with enhanced
functionality.
*total commitment of GBP3.0 million.
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for all at all ages
Select targets: 3.4 By 2030, reduce by one-third pre-mature
mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8 Support research, development and universal access to
affordable vaccines and medicines
Araris - New "life sciences" investment
Pioneering a novel linker technology for antibody-drug
conjugates
In October 2022, the Company announced it had made an investment
of CHF 1.5 million (GBP1.3 million)* into antibody-drug conjugates
(ADCs) development company, Araris Biotech AG ("Araris"), as part
of its CHF 23.5 million (GBP21.4 million) financing round. New
investors Wille Finance (CH) and Institute for Follicular Lymphoma
Innovation (US) as well as existing investors in the company's
blue-chip syndicate participated in this financing including Pureos
Bioventures, 4BIO Capital, VI Partners, btov Partners and
Redalpine.
Araris is pioneering the development of a novel antibody-drug
conjugate (ADC)-linker technology to enable efficient and precise
production of ADCs. Its linker platform enables the attachment of
any drug payload to 'off the shelf' antibodies, without the need
for prior antibody engineering. The resulting ADCs have shown very
high activity at low doses and an improved therapeutic index
compared to FDA-approved ADCs. Araris is a spin-off company from
the Paul Scherrer Institute (PSI) and ETH Zurich.
On completion of the transaction, the Company invested GBP1.3
million of its total commitment with the balance expected to be
invested at the milestone closing at some point in the second
quarter of 2023.
*total commitment of CHF 3 million (GBP2.7 million).
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for all at all ages
Select targets: 3.4 By 2030, reduce by one-third pre-mature
mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8 Support research, development and universal access to
affordable vaccines and medicines
iOnctura - New "life sciences" investment
Dedicated to delivering innovative cancer treatments
In November 2022, the Company announced it had made an
investment of EUR0.8 million (GBP0.7 million)* into clinical stage
oncology company, iOnctura SA ("iOnctura"), as part of a
convertible loan. All of the existing blue chip investor syndicate
including M Ventures, INKEF Capital, VI Partners, and 3B Future
Health participated in this financing.
iOnctura is a clinical-stage biotech with a portfolio of
programs that each simultaneously target multiple core mechanisms
involved in cancer resistance and survival. iOnctura's pioneering
approach to drug development is expected to offer significant
clinical benefits over the traditional approach of targeting a
single pathway alone. iOnctura has progressed two therapeutic
candidates into mid-stage clinical development: IOA-244, a highly
selective allosteric inhibitor of PI3K to treat Treg-driven
tumours; and IOA-289, a highly selective, non-competitive autotaxin
(ATX) inhibitor to treat cancer associated fibroblast (CAF) driven
tumours.
*total commitment of EUR1.3 million (GBP1.2 million).
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for all at all ages
Select targets: 3.4 By 2030, reduce by one-third pre-mature
mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8 Support research, development and universal access to
affordable vaccines and medicines
A2 Bio - New "life sciences" investment
Focused on the next frontier in cell therapy: solid tumors
In November 2022, the Company announced it had made an
investment of $1.2 million (GBP1.0 million) into T-cell development
company, A2 Biotherapeutics ("A2 Bio"), as part of its $50 million
(GBP42 million) financing round. A2 Bio is backed by investors that
include The Column Group, Vida Ventures, Samsara BioCapital,
Nextech Invest, Casdin Capital, Euclidean Capital, UC Investments
(Office of the Chief Investment Officer of the Regents), Hartford
HealthCare Endowment, StepStone Group, Section 32 and Merck.
A2 Bio is using its next-generation cell therapy Tmod platform
to revolutionize the treatment of solid tumour cancers. The company
engineers T cells that target the loss of genetic material in
tumours, enabling the selective killing of tumour cells while
leaving normal cells unharmed.
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for all at all ages
Select targets: 3.4 By 2030, reduce by one-third pre-mature
mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8 Support research, development and universal access to
affordable vaccines and medicines
Anthos - New "life sciences" investment
Developing innovative therapies to advance care for people
living with cardiovascular and metabolic diseases
In December 2022, the Company announced it had made an
investment of $0.7 million (GBP0.6 million)* into US-based,
clinical- stage biopharmaceutical company, Anthos Therapeutics LLC
("Anthos"), in its Series B financing round.
Anthos' mission is to develop innovative therapies to advance
care for people living with cardiovascular and metabolic diseases.
Their most advanced program is focused on developing abelacimab, an
investigational monoclonal antibody that inhibits coagulation
Factor XI and its activated form, Factor XIa. Abelacimab is an
experimental, next-generation anticoagulant with the potential to
provide 'hemostasis-sparing anticoagulation': protection from
arterial and venous thromboembolic events with a reduced risk of
clinically-significant bleeding.
*total commitment of $2.8 million (GBP2.3 million)
Select UN SDG(s): 3 Ensure healthy lives and promote wellbeing for all at all ages
Select targets: 3.4 By 2030, reduce by one-third pre-mature
mortality from non-communicable diseases (NCDs) through prevention
and treatment, and promote mental health and wellbeing
3.8 Support research, development and universal access to
affordable vaccines and medicine
Follow-on investments
During the period, the Company made two small follow-on
investments in its existing private equity holdings, totalling
GBP2.4 million.
The Company invested GBP2.3 million in Rutherford Health to
extend its runway while in the process of trying to secure long-
term funding. This investment formed part of a restructuring plan
which included the recruitment of a new leadership team to preserve
some value of the significant historical investment made by the
Company into Rutherford over the preceding years. While the new
leadership team vigorously pursued multiple options over the last
months to save the business, it could ultimately not correct the
inherited severe underlying challenges.
In January 2022, the Company invested GBP0.1 million in Freevolt
Group Limited ("Freevolt") as part of an internal funding round
designed to extend runway to the point that commercial revenues
begin to build.
Recent developments
Since the year end, the Company has put its global investment
universe to good use and made its first transaction in Asia with an
investment of $8.0 million (GBP6.6 million) in AgroStar (Ulink
Agritech Pvt. Ltd.), one of India's foremost agricultural
technology (AgTech) start-ups. This investment forms part of the
$25 million (GBP20.6 million) total investment by Schroders Capital
that led the $40 million (GBP33.0 million) financing round. The
round also saw participation from other existing investors
including Accel, Chiratae Ventures, Evolvence, Aavishkaar Capital,
Bertelsmann India Investments, Hero Enterprise, Rabo Frontier
Ventures, British International Investments and IFC.
Founded in 2013, AgroStar uses technology, data and agronomy
knowledge to help Indian farmers. It provides an end-to-end
solution that is solving three major problems for Indian farmers:
limited access to good quality agricultural inputs, a knowledge gap
(even among the most experienced farmers) and a lack of access to
the global markets to sell their produce. The company serves
millions of farmers across multiple Indian states via an
omnichannel approach, having built a highly engaged digital farmer
network on the AgroStar app, with over 7.5 million users, and a
rapidly expanding retail network of over 5,000 stores. Through the
recent acquisition of INI Farms, India's largest exporter of fruits
and vegetables, AgroStar is quickly scaling its business into
domestic and international food supply chains.
Outlook
Within the context of a challenging backdrop of higher interest
rates, inflation and volatile markets, as well as a continued
overhang of inherited holdings, we are not complacent about the
challenges that lie ahead. As outlined above, while we have made
significant progress in transforming the portfolio into one which
is gradually reflecting the opportunity set we see, it would be
wrong to suggest that the job is anywhere near complete. It is a
work in progress. We know significant further efforts will be
required to fully capture the opportunity, to make further
realisations, and to fully restore the reputation of the Company in
the eyes of the investing public.
Nevertheless, the Company is now on a path that the broader
Schroders Capital business has been following successfully for
twenty-five years, with the Company's extended geographical focus
allowing us to capitalise on our global network and invest in the
most innovative venture, growth and life science opportunities,
when viewed on a risk return basis, no matter where they are in the
world. The below figures serve to illustrate the return profiles we
are seeking in our investments, with an indication of their
relative risk level, which we believe should allow the Company to
achieve long-term capital growth for shareholders.
We are supportive of the Board's proposals described in the
Chair's Statement, including the introduction of a continuation
vote at the 2025 Annual General Meeting, giving shareholders the
opportunity to review our performance over the five years since we
took over management. We believe the Company is well placed to
deliver on these proposals and generate long-term capital growth by
making new and follow-on investments with more than GBP16.1 million
in cash and GBP83.7 million in public equity investments as at 31
December 2022, supported by a healthy pipeline of global
venture/growth stage companies.
We know where it is the path is heading, and we are confident
that the journey represents a compelling long-term growth
opportunity. Now it is time for us to deliver that opportunity.
Schroder Investment Management Limited
14 April 2023
Investment Portfolio
as at 31 December 2022
The 20 largest investments account for 93.4% of total
investments by value (31 December 2021: 93.6%).
Total
Fair value investments
Holding Quoted/unquoted Industry Sector GBP'000 %
------------------------------ ---------------- ------------------ ---------- -----------
Oxford Nanopore(1) Quoted Health Care 56,529 23.3
------------------------------ ---------------- ------------------ ---------- -----------
Atom Bank(1) Unquoted Financials 31,686 13.1
------------------------------ ---------------- ------------------ ---------- -----------
AMO Pharma(1) Unquoted Health Care 16,408 6.8
------------------------------ ---------------- ------------------ ---------- -----------
Reaction Engines(1) Unquoted Industrials 12,500 5.2
------------------------------ ---------------- ------------------ ---------- -----------
BenevolentAl(1,2) Quoted Health Care 11,935 4.9
------------------------------ ---------------- ------------------ ---------- -----------
Federated Wireless(1) Unquoted Technology 11,227 4.6
------------------------------ ---------------- ------------------ ---------- -----------
HP Environmental Technologies
Fund(1) Unquoted Industrials 10,700 4.4
------------------------------ ---------------- ------------------ ---------- -----------
Genomics(1) Unquoted Health Care 8,854 3.7
------------------------------ ---------------- ------------------ ---------- -----------
Immunocore(1) Quoted Health Care 7,855 3.3
------------------------------ ---------------- ------------------ ---------- -----------
Back Market(3) Unquoted Consumer 7,329 3.0
------------------------------ ---------------- ------------------ ---------- -----------
Ada Health Unquoted Health Care 7,122 2.9
------------------------------ ---------------- ------------------ ---------- -----------
Nexeon(1) Unquoted Industrials 6,505 2.7
------------------------------ ---------------- ------------------ ---------- -----------
Cequr(1) Unquoted Health Care 6,112 2.5
------------------------------ ---------------- ------------------ ---------- -----------
Revolut LLP Unquoted Financials 5,436 2.3
------------------------------ ---------------- ------------------ ---------- -----------
Spirent Communications Quoted Technology 5,146 2.1
------------------------------ ---------------- ------------------ ---------- -----------
OcuTerra(1) Unquoted Health Care 5,047 2.1
------------------------------ ---------------- ------------------ ---------- -----------
Johnson Matthey Quoted Industrials 4,215 1.7
------------------------------ ---------------- ------------------ ---------- -----------
Attest Technologies Unquoted Business Services 4,085 1.7
------------------------------ ---------------- ------------------ ---------- -----------
Tessian Unquoted Technology 3,928 1.6
------------------------------ ---------------- ------------------ ---------- -----------
IDEX Biometrics ASA(1) Quoted Technology 3,781 1.5
------------------------------ ---------------- ------------------ ---------- -----------
Petershill Partners Quoted Financials 3,439 1.4
------------------------------ ---------------- ------------------ ---------- -----------
Autolus Therapeutics(1) Quoted Health Care 2,642 1.1
------------------------------ ---------------- ------------------ ---------- -----------
Industrial Heat(1) Unquoted Industrials 2,214 0.9
------------------------------ ---------------- ------------------ ---------- -----------
Kymab(1) Unquoted Health Care 1,831 0.8
------------------------------ ---------------- ------------------ ---------- -----------
Epsilogen Unquoted Health Care 1,465 0.6
------------------------------ ---------------- ------------------ ---------- -----------
Araris Biotech Unquoted Health Care 1,348 0.6
------------------------------ ---------------- ------------------ ---------- -----------
A2 Biotherapeutics Unquoted Health Care 969 0.4
------------------------------ ---------------- ------------------ ---------- -----------
iOnctura Unquoted Health Care 697 0.3
------------------------------ ---------------- ------------------ ---------- -----------
Anthos Therapeutics Unquoted Health Care 582 0.2
------------------------------ ---------------- ------------------ ---------- -----------
Novabiotics(1) Unquoted Health Care 457 0.2
------------------------------ ---------------- ------------------ ---------- -----------
American Financial
Exchange(1) Unquoted Financials 213 0.1
------------------------------ ---------------- ------------------ ---------- -----------
ARC Group(1) Quoted Business Services 104 -
------------------------------ ---------------- ------------------ ---------- -----------
Freevolt (formerly
Drayson)(1) Unquoted Technology 85 -
------------------------------ ---------------- ------------------ ---------- -----------
Econic(1) Unquoted Industrials 58 -
------------------------------ ---------------- ------------------ ---------- -----------
Metaboards(1) Unquoted Technology - -
------------------------------ ---------------- ------------------ ---------- -----------
Rutherford Health(1) Unquoted Health Care - -
------------------------------ ---------------- ------------------ ---------- -----------
Mafic(1) Unquoted Industrials - -
------------------------------ ---------------- ------------------ ---------- -----------
Bodle Technologies(1) Unquoted Technology - -
------------------------------ ---------------- ------------------ ---------- -----------
Origin(1) Unquoted Health Care - -
------------------------------ ---------------- ------------------ ---------- -----------
Spin Memory(1) Unquoted Technology - -
------------------------------ ---------------- ------------------ ---------- -----------
Lignia Wood(1) Unquoted Industrials - -
------------------------------ ---------------- ------------------ ---------- -----------
Mereo BioPharma Group(1) Quoted Health Care - -
------------------------------ ---------------- ------------------ ---------- -----------
EVOFEM Biosciences(1) Unquoted Health Care - -
------------------------------ ---------------- ------------------ ---------- -----------
Halosource(1) Unquoted Industrials - -
------------------------------ ---------------- ------------------ ---------- -----------
Kind Consumer(1) Unquoted Consumer Staples - -
------------------------------ ---------------- ------------------ ---------- -----------
Oxsybio(1) Unquoted Health Care - -
------------------------------ ---------------- ------------------ ---------- -----------
Total investments(4) 242,504 100.0
-------------------------------------------------------------------- ---------- -----------
(1) Legacy Assets
These are "Legacy Assets", being assets acquired by the Company
prior to Schroder Investment Management taking over management
responsibilities in December 2019.
(2) BenevolentAI is quoted, but the market is inactive. Thus its
valuation has been determined in accordance with the process
followed for unquoted assets.
(3) Back Market
Held via the Company's holding in Sprints Capital Ellison LP, a
single asset fund.
(4) Total investments comprise:
GBP'000 %
----------------------------------------------- ------- -----
Unquoted 146,858 60.6
----------------------------------------------- ------- -----
Listed on the London Stock Exchange 69,329 28.6
----------------------------------------------- ------- -----
Listed on a recognised stock exchange overseas 26,317 10.8
----------------------------------------------- ------- -----
Total 242,504 100.0
----------------------------------------------- ------- -----
Additional details of unquoteds, including investments quoted in
inactive markets, in the top ten holdings
Net assets/
Pre-tax (liabilities)
Turnover losses at the
for for the latest
the latest latest audited
audited audited balance
financial financial sheet
Description Cost Fair value year year date
Holding of business GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Leading UK app-only
Atom Bank challenger bank 75,165 31,686 76,844 (14,466) 249,595
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Developer of drugs
to treat rare or
AMO Pharma orphan diseases 7,020 16,408 - (8,696) (12,162)
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Developer of engine
technologies to
enable space and
Reaction Engines hypersonic travel 10,000 12,500 7,159 (21,626) 15,185
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Drug discovery
using artificial
BenevolentAl intelligence 84,882 11,935 10,560 (179,852) 153,999
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Provider of a spectrum
access controller
Federated Wireless for wireless communications 12,587 11,227 11,021 (27,668) (2,182)
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Portfolio of venture
HP Environmental and Fund growth-stage
Technologies industrial companies 4,046 10,700 N/a(1) N/a(1) N/a(1)
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Developer of precision
healthcare tools
that use large-scale
Genomics genetic information 6,512 8,854 2,542 (14,437) 30,335
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
Expert refurbishment
Back Market of electronic devices 10,032 7,329 N/a(1) N/a(1) N/a(1)
------------------- ----------------------------- -------- ---------- ----------- ---------- --------------
(1) Information not publicly available.
Principal risks and uncertainties
The Board, through its delegation to the Audit, Risk and
Valuation Committee, is responsible for the Company's system of
risk management and internal control and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Company's business as an investment trust and
has established associated policies and processes designed to
manage and, where possible, mitigate those risks, which are
monitored by the Audit, Risk and Valuation Committee on an ongoing
basis. This system assists the Board in determining the nature and
extent of the risks it is willing to take in achieving the
Company's strategic objectives. Both the principal risks and
uncertainties and the monitoring system are also subject to robust
assessment at least annually. The last assessment took place in
March 2023.
During the year, the Board also discussed and monitored a number
of risks that could potentially impact the Company's ability to
meet its strategic objectives. The Board receives updates from the
Manager, Company Secretary and other service providers on emerging
risks that could affect the Company. The Board was mindful of the
following emerging risks during the year; the ongoing conflict in
Ukraine, rising inflation, the threat of a global recession and
increasing energy prices although they are not factors which
explicitly impacted the Company's performance. These risks are also
not seen as new principal or emerging risks but those that
exacerbate existing risks and have been incorporated in the
economic and market risk section in the table below.
A significant control failing or weakness relating to the
production of the daily NAV was identified from the Audit, Risk and
Valuation Committee's ongoing risk assessment which has been in
place throughout the financial year and up to the date of this
report. However, the Committee is confident that with the change of
AIFM, Depositary and Administrator these failings have been
robustly addressed and mitigated. The Board is therefore satisfied
that it has undertaken a detailed review of the risks facing the
Company.
Climate change risk includes how climate change could affect the
Company's investments, and potentially shareholder returns. The
Board has determined that this risk was not sufficiently material
to be categorised as an independent principal risk and it continues
to monitor developments in this area. The Board notes the Manager
integrates ESG considerations, including climate change, into the
investment process and felt that due to the nature of ESG risk in
private investee companies, that this be added to the principal
risks table below. The Manager has provided new and enhanced ESG
reporting this year which includes case studies of engagement with
a sample of the Company's portfolio companies.
Although the Board believes that it has a robust framework of
internal control in place this can provide only reasonable, and not
absolute, assurance against material financial misstatement or loss
and is designed to manage, not eliminate, risk. Actions taken by
the Board and, where appropriate, its Committees, to manage and
mitigate the Company's emerging and principal risks and
uncertainties are set out in the table below.
The "Change" column on the right highlights at a glance the
Board's assessment of any increases or decreases in risk during the
year after mitigation and management. The arrows show the risks as
increased, decreased or unchanged.
Risk Mitigation Change
Economic and market Increased
risk
There are inherent risks The increased risk reflects
The portfolio will normally involved in stock selection. continuing geopolitical
be fairly fully invested The Manager is experienced concerns following the
and as such will therefore and has a long track ongoing war in Ukraine
inevitably be exposed record in successfully as well as higher inflation,
to economic and market investing in public interest rate rises
risk. Changes in general and private equity holdings. and the ongoing economic
economic and market Significant progress impact of these. Foreign
conditions, such as has been made on transitioning currency risk exposure
currency exchange rates, the portfolio towards has also increased.
interest rates, inflation a more balanced and The Board continues
rates, industry conditions, differentiated spread to monitor these events
tax laws, political of exposures across on a regular basis.
events and trends can healthcare, technology,
substantially and adversely financials, industrials,
affect the value of consumer and business
investments. Market services. Investment
risk includes the potential risk is spread by investing
impact of events which in high quality companies
are outside the Company's at various stages of
control, such as pandemics, their development. Having
civil unrest and wars. the flexibility to continue
to hold these investments
The Company invests as they transition to
in public and private public entities taps
equity companies with into the growth potential
an expectation of a of businesses throughout
an allocation to public:private their life cycle. The
of 25:75 per cent of change to a global mandate
companies held in the also allows the Manager
portfolio over time. to diversify the portfolio
Most public company geographically and also
holdings will likely potentially across a
be a consequence of wider range of technologies
private holdings which and thus mitigate against
have listed following challenging economic
an IPO. Private equity conditions of a single
companies generally market or sector.
have greater valuation
uncertainties and liquidity The Manager will not
risks than public equity normally hedge against
holdings. foreign currency movements,
but does take into account
the risk when making
investment decisions.
Further details on financial
risks and risk mitigation
are detailed in note
20 to the accounts.
----------------------------------- ---------------------------------
Strategy risk Increased
Notwithstanding the The Board receives regular The increased risk reflects
Manager's very experienced reports on the Company's the discount widening
team and successful investment performance in 2022. Following agreement
long-term track record against its stated objectives with its major shareholder,
in this asset class, and peer group along the Board intends, subject
this trust and other with reports from discussions to cancellation of the
similar trusts across with its brokers and Company's share premium
the sector are all trading major shareholders. account, to make an
at very wide discounts. The Board also receives amount equating to 25%
While this may reflect regular reports on marketing of all net cash realisations
in part uncertainty activity including how from the portfolio inherited
about valuations and/or the Manager is promoting from the previous portfolio
current market circumstances, the asset class and manager* received between
it may be that some its opportunities, the now and the 2025 Annual
investors begin to lose profile of the Manager General Meeting available
interest in listed closed and its track record to be redeployed to
end private equity as and the need for a longer make share repurchases
an asset class. term investment perspective. by the Company. A continuation
vote will be held at
the 2025 AGM which will
provide shareholders
with the opportunity
to vote on whether the
Company should continue
in its present form.
The Board acknowledges
that it is not possible
to accurately forecast
realisations between
now and 2025. In order
to ensure that the Company
remains active in buying
back its stock, the
Board intends, subject
to cancellation of the
Company's share premium
account, to purchase
shares equal to at least
5% of the Company's
issued share capital
in each of the calendar
years 2023 and 2024.
Further details can
be found in the Chair's
Statement on pages 4
to 6 of the 2022 Annual
Report and Accounts.
----------------------------------- ---------------------------------
Valuation risk Increased
The valuation of private The Manager, under delegated During periods of higher
equity early stage companies authority from the Board, interest rate volatility,
is inherently difficult. has responsibility for valuations risk can
Valuation at a fixed the valuation of the rise.
point in time may not assets in the portfolio.
be representative of The Manager, in turn,
the medium or longer uses extensive research
term. Particular events and input from its own
at a company or particular valuation specialist
funding rounds may have provider, IHSMarkit
a significant impact. (part of S&P Global).
Information may not IHSMarkit conducts a
be as widely available regular rolling review
as with public companies of the valuation of
and these companies all portfolio assets
may not yet have meaningful and also review their
revenues or profits. valuations in the event
Considerable uncertainty of any significant triggers
may exist around the at individual investee
eventual feasibility companies. They follow
and value of a particular the widely respected
technology or its commercialisation. and widely followed
IPEVCV guidelines in
Where other portfolio executing these valuations;
managers seek to make these processes are
disposals of securities explained in Note 1b
held in portfolios they in the notes to the
manage and these securities Accounts.
are also held by the
Company, the valuation
of these securities
may thereby be affected.
Equally, market anticipation
of these disposals may
also impact valuations.
Listed, but thinly traded,
shares may also be subject
to significant and abrupt
volatility.
----------------------------------- ---------------------------------
Operational risk Unchanged
The Company has no employees Experienced third party As part of the change
and the Directors have service providers are of the AIFM, Depositary
been appointed on a employed by the Company and Administrator, the
nonexecutive basis. under appropriate terms Board have seen a significant
The Company is reliant and conditions and with improvement in the processes
upon the performance agreed service level and procedures in place.
of third-party service specifications. Service The Board will continue
providers for its executive level agreements include to monitor the performance
function. The AIFM, clauses which set out of the new service providers
the Manager, the Depositary, the notice periods for during the course of
the Company Secretary terminations. this year and expects
and the Administrator the level of this risk
will be performing services The Board receives regular to decrease significantly
that are integral to reports from its service once the new providers
the operation of the providers and the Management have been in place for
Company. Failure of Engagement Committee a period of time.
any of its third-party will review the performance
service providers to of key service providers As noted in the Chair's
perform in accordance at least annually. The Statement on page 5
with the terms of its AIFM, Depositary and of the 2022 Annual Report
appointment could have Administrator have changed and Accounts, although
a material detrimental during the year, as the Company had a share
impact on the operation described in more detail premium account of GBP891
of the Company. Furthermore, in the Directors' Report. million at the time
any of the Company's The Board believes the of the 2022 and 2023
service providers could new arrangements should share buybacks, as that
terminate their contract. ensure an integrated had not been cancelled
support structure and at the time, the Company
Equally, the Company's mitigate operational did not have sufficient
reputation could be risks. distributable profits
affected by shortcomings and so those buybacks
at one of its providers The Audit, Risk and did not comply with
in respect of dealing Valuation Committee the requirements of
with the providers' reviews reports on the the Companies Act 2006.
other clients or regulatory external audits of the The Board has been working
failings internal controls operated with its service providers
by certain of the key to determine how this
service providers. technical issue arose
and to implement the
necessary steps to remediate
the position.
----------------------------------- ---------------------------------
Portfolio concentration Decreased
risk
The Board and the Manager Significant progress
Some of the Company's feel that undue concentration has been made on transitioning
investments have demonstrated is not desirable in the portfolio towards
relatively more success the longer term and a more balanced spread
and/or required more continuously explore of exposures across
funding than others, options to reduce this healthcare, technology,
which has led to those over time. However, financials, industrials,
investments representing the Board's view is consumer and business
larger proportions of in the shorter term, services. At the year
the portfolio than might portfolio concentration end the spread across
be expected. The risk can be acceptable. The these sectors was healthcare
linked to any portfolio Manager has an extensive (53.5%), financials
concentration might track record of managing (16.8%), industrials
be compounded due to diversified portfolios, (15.0%), technology
the nature of some of both from sector and (10.0%), consumer (3.0%)
the businesses and the geographic perspectives, and business services
risks associated with and the work to rebalance (1.7%).
both commercial and the portfolio continues.
technical milestones. The Board also considers
increased specific risk
that may arise from
increased concentration,
as the result of the
relative success of
certain investee companies.
The Board discusses
this risk with the Manager
on a regular basis.
----------------------------------- ---------------------------------
Performance risk Unchanged
There is always, for This risk is mitigated
any investment portfolio, by the Board monitoring
the generic risk of the performance of the
poor performance arising portfolio and the decisions
as a result of poor made by the Manager
decisions in stock selection through detailed reporting
made by the Manager. at each Board meeting.
In addition, given the
long-term nature of The Audit, Risk and
this investment strategy Valuation Committee
(up to 10 years) and reviews all private
the absence of a clear equity investments on
benchmark, it is not a quarterly basis and
necessarily easy to challenges methodologies
make an evaluation of used by the Manager.
the Manager based simply
on returns over shorter
periods.
----------------------------------- ---------------------------------
Liquidity risk Unchanged
Following the expiry The Company's assets The loan was repaid
of the loan facility include readily realisable and not replaced.
in January 2023, liquidity securities which can
risk, ie that the Company be sold to meet ongoing
may not be able to liquidate funding requirements.
its investments to meet The Manager manages
its short-term financial its liquid investments
demands. to ensure that sufficient
cash is available to
meet contractual commitments.
A cash buffer is also
held to meet other short-term
needs. The Company had
cash of 16.1 million
(2021: 19.1 million)
as at 31 December 2022.
----------------------------------- ---------------------------------
Investee company specific Unchanged
risk
The Company invests The private equity strategy
in a variety of biopharma is comprised of three
and technology businesses, sub-strategies of which
many of them relatively the Life Sciences portfolio
early stage, where the is limited to approximately
technology is not yet 10% of total investments.
fully proven or commercialised. Within the portfolio,
This can offer very the Manager works towards
significant financial a balanced and differentiated
success when the technology spread of exposures
delivers but also carries across Diagnostics,
downside risks particular Services and Therapeutics.
to the companies concerned.
The eventual outcome The Manager conducts
for some of these companies regular reviews of these
may be somewhat binary businesses through engaging
in as much as either regularly with all investee
the technology works, companies to monitor
or it does not, resulting progress and ensure
in the company concerned milestones are adequately
becoming worth significantly met. The Manager also
less. Failure may materialise, carries out due diligence
for instance, in the on the relevant technologies
case of clinical trials and obtain regular updates.
for a biotechnology The Manager uses its
business, in the case own proprietary analytics
of scaling up or commercialisation to assess the prospects
of an engineering business for investee companies
or in terms of the appearance and may also seek expert
of a new, previously third party opinions
unknown competitor for regarding the likely
a software company. success of the technology.
Leading edge commercial The Manager works with
scientific development other shareholders of
in many fields is by a particular investee
its nature risky. company to assist with
financial support where
Short term liquidity required.
issues can become compounded
by market events. Short term liquidity
issues are mitigated
over time when such
companies deliver on
their milestones and
value is recognised.
----------------------------------- ---------------------------------
Information technology Unchanged
and information security
risk
The Board receives controls
Each of the Company's reports from its service
service providers is providers which describe
at risk of cyber attack, the protective measures
data theft, service they take as well as
disruption, etc. While their business recovery
the risk of financial plans. In addition,
loss by the Company the Board received presentations
is probably small, the from the Manager on
risk of reputational cyber risk.
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.
----------------------------------- ---------------------------------
Key Person Dependency Unchanged
risk
The Manager has a compensation
The Manager operates and incentive scheme
a team approach to portfolio to recruit and retain
management and decision key staff including
making so the risk arising the Portfolio Managers,
from the departure of and has developed a
one or more of the Manager's suitable succession
key investment professionals planning programme,
should not necessarily which seeks to ease
prevent the Company the impact that additional
from achieving its investment workload and/or the
objective. loss of a key investment
professional may have
The Manager's resources on the Company's performance.
could become stretched The Manager will notify
through the launch of any change in its key
new products or team professionals to the
departures leading to Board at the earliest
a lack of focus on the possible opportunity
Company's portfolio. and the Board will be
made aware of all efforts
The Manager could terminate made to fill a vacancy.
its contract with the
Company. This event Furthermore, investment
would have an impact decisions are made by
on the management of a team of professionals,
the portfolio and would mitigating the impact
constitute a technical of the loss of any key
default on the debt professional within
facility, requiring the Manager's organisation
renegotiation or substitution, on the Company's performance.
likely on less favourable
terms. The AIFM agreement includes
clauses which set out
the notice periods for
termination from either
party as detailed in
the Directors' Report
on page 47 of the 2022
Annual Report and Accounts.
----------------------------------- ---------------------------------
Environmental, Social Unchanged
and Governance (ESG)
risk
The Manager has an application The Manager has provided
Failure by the Manager process integrated into new and enhanced ESG
to identify potential the investment process. reporting which includes
future ESG matters in The approach to conducting its approach to ESG
an investee company, ESG-related analysis and case studies of
given their private of private companies engagement with a sample
nature, could lead to is complemented with of the Company's portfolio
the Company's shares a standard exclusions companies.
being less attractive list, more bespoke assessments,
to investors as well dedicated ESG reference
as potential valuation calls, and by integrating
issues in the underlying several external tools
investee company. and data sources, including
RepRisk, World-Check,
the ESG Data Convergence
Project and eFront's
ESG Outreach module
to further assess ESG
risks and opportunities.
This includes the risk
inherent in climate
change.
----------------------------------- ---------------------------------
Risk assessment and internal controls review by the Board
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit, Risk and Valuation
Committee, including the incidence of significant control failings
or weaknesses that have been identified at any time and the extent
to which they have resulted in unforeseen outcomes or contingencies
that may have a material impact on the Company's performance or
condition.
Going Concern
The Board has considered the Company's principal risks and
uncertainties (including whether there are any emerging risks); has
scrutinised the detailed cash flow forecast prepared by the
Manager; and considered their assessment of the likelihood and
quantum of funds which could be raised from sales of investments.
The Manager has also performed a range of stress tests, and
demonstrated to the Board that even in an adverse scenario of
depressed markets and restrictions on sales in the private equity
market, the Company could still generate sufficient funds from
sales of investments to meet its liabilities over the next twelve
months. As a result, the Board is comfortable that the Company will
have sufficient liquid funds to pay operating expenses.
The Company's GBP40 million loan facility with The Northern
Trust Company terminated on 30 January 2023 and was not renewed.
The facility was undrawn at that date.
On this basis, the Board considers it appropriate to adopt the
going concern basis of accounting in the Company's accounts, and
has not identified any material uncertainties to the Company's
ability to continue as a going concern over a period of at least
twelve months from the date of approval of these annual report and
accounts.
Viability Statement
The Board has assessed the prospects of the Company over the
five-year period ending 31 December 2027. The Board considers a
five-year period to be appropriate because it is the minimum
holding period that it would recommend to a prospective investor
considering purchasing shares in the Company.
The Board has considered the principal risks set out on pages 37
to 43 of the 2022 Annual Report and Accounts and detailed cash flow
forecasts prepared by the Manager and stress case scenarios.
The Board believes that the portfolio will provide shareholders
with satisfactory returns from the investment portfolio over a
five-year period and, notwithstanding the Strategy risks mentioned
in the principal risks and uncertainties section, there should be
continued demand for the Company's shares.
The continuation of the Company will be subject to the approval
of shareholders at the 2025 AGM. The Board intends to make, subject
to cancellation of the Company's share premium account, an amount
equating to 25% of all net cash realisations from the portfolio
inherited from the previous portfolio manager received between now
and the 2025 Annual General Meeting available to be redeployed to
make share repurchases by the Company. The Board acknowledges that
it is not possible to accurately forecast realisations between now
and 2025. In order to ensure that the Company remains active in
buying back its stock, the Company intends in any event, subject to
cancellation of the Company's share premium account, to purchase
shares equal to at least 5% of the Company's issued share capital
in each of the calendar years 2023 and 2024. The Board believes the
Manager is well placed to deliver on these proposals, generate
long-term capital growth and have no reason to believe that the
continuation vote will not be approved in 2025.
Having considered all of the Company's resources, strategy,
risks and probabilities, the Board has a reasonable expectation
that the Company will continue to operate and meet its liabilities
as they fall due, during the five year period to 31 December
2027.
By order of the Board
Schroder Investment Management Limited
Company Secretary
14 April 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising Financial Reporting
Standard (FRS) 102 "The Financial Reporting Standard applicable in
the UK and Republic of Ireland" and applicable law). Under company
law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Company and of the return or loss of the Company
for that period. In preparing these financial statements, the
Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Directors' Remuneration Report
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Manager is responsible for the maintenance and integrity of
the webpage dedicated to the Company. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on
pages 44 and 45 of the 2022 Annual Report and Accounts, confirm
that to the best of their knowledge:
- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
give a true and fair view of the assets, liabilities, financial
position and net return of the Company;
- the annual report and accounts includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces; and
- the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy.
On behalf of the Board
Tim Edwards
Chair of the Board
14 April 2023
Income Statement
for the year ended 31 December 2022
2022 2021
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains
on investments
held at fair value
through profit
or loss - (175,669) (175,669) - 124,583 124,583
Gains/(losses)
on foreign exchange - 583 583 - (466) (466)
Income from investments 2 479 - 479 112 - 112
------------------------ ---- ------- --------- --------- ------- ------- -------
Gross return/(loss) 479 (175,086) (174,607) 112 124,117 124,229
Management fee 3 (1,989) - (1,989) (3,019) - (3,019)
Administrative
expenses 4 (1,237) - (1,237) (1,448) - (1,448)
------------------------ ---- ------- --------- --------- ------- ------- -------
Net (loss)/return
before finance
costs and taxation (2,747) (175,086) (177,833) (4,355) 124,117 119,762
Finance costs 5 (304) - (304) (960) - (960)
------------------------ ---- ------- --------- --------- ------- ------- -------
Net (loss)/return
before taxation (3,051) (175,086) (178,137) (5,315) 124,117 118,802
Taxation 6 - - - - - -
------------------------ ---- ------- --------- --------- ------- ------- -------
Net (loss)/return
after taxation (3,051) (175,086) (178,137) (5,315) 124,117 118,802
------------------------ ---- ------- --------- --------- ------- ------- -------
Basic and diluted
(loss)/earnings
per share 8 (0.34)p (19.30)p (19.64)p (0.58)p 13.66p 13.08p
The "Total" column of this statement is the profit and loss
account of the Company. The "Revenue" and "Capital" columns
represent supplementary information prepared under guidance issued
by The Association of Investment Companies. The Company has no
other items of other comprehensive income, and therefore the net
(loss)/return after taxation is also the total comprehensive income
for the year, therefore no separate Statement of Comprehensive
Income has been prepared.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year.
The notes on pages 74 to 88 of the 2022 Annual Report and
Accounts form an integral part of these accounts.
Statement of Changes in Equity
for the year ended 31 December 2022
Called-up
share Share Capital Capital Revenue
Note capital premium redemption reserves reserve Total
At 31 December
2020 9,086 891,017 - (563,222) (18,812) 318,069
Net return/(loss)
after taxation - - - 124,117 (5,315) 118,802
------------------- ----- --------- ------- ---------- --------- -------- ---------
At 31 December
2021 13/14 9,086 891,017 - (439,105) (24,127) 436,871
Purchase of shares
for cancellation (44) - 44 (812) - (812)
Net loss after
taxation - - - (175,086) (3,051) (178,137)
------------------- ----- --------- ------- ---------- --------- -------- ---------
At 31 December
2022 13/14 9,042 891,017 44 (615,003) (27,178) 257,922
------------------- ----- --------- ------- ---------- --------- -------- ---------
The notes on pages 74 to 88 of the 2022 Annual Report and
Accounts form an integral part of these accounts.
Statement of Financial Position
at 31 December 2022
2022 2021
Note GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit
or loss 9 242,504 440,899
---------------------------------------------- ---- --------- ---------
Current assets
Debtors 10 160 171
Cash at bank and in hand 10 16,122 19,077
---------------------------------------------- ---- --------- ---------
16,282 19,248
---------------------------------------------- ---- --------- ---------
Current liabilities
Creditors: amounts falling due within one
year 11 (864) (1,276)
---------------------------------------------- ---- --------- ---------
Net current assets 15,418 17,972
---------------------------------------------- ---- --------- ---------
Total assets less current liabilities 257,922 458,871
Creditors: amounts falling due after more
than one year 12 - (22,000)
---------------------------------------------- ---- --------- ---------
Net assets 257,922 436,871
---------------------------------------------- ---- --------- ---------
Capital and reserves
Called-up share capital 13 9,042 9,086
Share premium 14 891,017 891,017
Capital redemption reserve 14 44 -
Capital reserves 14 (615,003) (439,105)
Revenue reserve 14 (27,178) (24,127)
---------------------------------------------- ---- --------- ---------
Total equity shareholders' funds 257,922 436,871
---------------------------------------------- ---- --------- ---------
Net asset value per share 15 28.52p 48.08p
These accounts were approved and authorised for issue by the
board of directors on 14 April 2023 and signed on its behalf
by:
Tim Edwards
Chair
The notes on pages 74 to 88 of the 2022 Annual Report and
Accounts form an integral part of these accounts.
Cash Flow Statement
for the year ended 31 December 2022
2022 2021
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/return before finance costs and taxation (177,833) 119,762
Adjustments for:
Losses/(gains) on investments held at fair value
through profit or loss 175,669 (124,583)
Decrease/(increase) in debtors 11 (145)
Decrease in creditors (31 6 ) (1,231)
-------------------------------------------------- --------- ---------
Net cash flow from operating activities (2,4 69) (6,197)
-------------------------------------------------- --------- ---------
Cash flows from investment activities
Purchases of investments (17,422) (61,199)
Proceeds from sales of investments 40,148 166,035
-------------------------------------------------- --------- ---------
Net cash flow from investment activities 22,726 104,836
-------------------------------------------------- --------- ---------
Cash flows from financing activities
Purchase of shares for cancellation (812) -
Finance costs (4 00 ) (909)
Bank loan drawn down - 22,000
Bank loan repaid (22,000) (107,032)
-------------------------------------------------- --------- ---------
(23,2 12
Net cash flow from financing activities ) (85,941)
-------------------------------------------------- --------- ---------
Change in cash and cash equivalents (2,955) 12,698
Cash and cash equivalents at the beginning of the
year 19,077 6,379
-------------------------------------------------- --------- ---------
Cash and cash equivalents at the end of the year 16,122 19,077
-------------------------------------------------- --------- ---------
The notes on pages 74 to 88 of the 2022 Annual Report and
Accounts form an integral part of these accounts.
Notes to the Accounts
1. Accounting Policies
(a) Basis of accounting
Schroder UK Public Private Trust plc ("the Company") is
registered in England and Wales as a public company limited by
shares. The Company's registered office is 1 London Wall Place,
London EC2Y 5AU.
The accounts are prepared in accordance with the Companies Act
2006, United Kingdom Generally Accepted Accounting Practice ("UK
GAAP"), in particular in accordance with Financial Reporting
Standard (FRS) 102 "The Financial Reporting Standard applicable in
the UK and Republic of Ireland", and with the Statement of
Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" (the "SORP") issued by the
Association of Investment Companies in July 2022. All of the
Company's operations are of a continuing nature.
The accounts have been prepared on a going concern basis under
the historical cost convention, as modified by the revaluation of
investments and derivative financial instruments held at fair value
through profit or loss. The directors believe that the Company has
adequate resources to continue operating for at least 12 months
from the date of approval of these accounts. In forming this
opinion, the directors have taken into consideration: the controls
and monitoring processes in place; the Company's level of debt and
other payables; the level of operating expenses, comprising largely
variable costs which would reduce pro rata in the event of a market
downturn; the Company's cash flow forecasts and the liquidity of
the Company's investments. In forming this opinion, the directors
have also considered the impact of climate change on the Company.
Further details of directors' considerations regarding this are
given in the Chair's Statement, Investment Managers' Review, Going
Concern Statement, Viability Statement and under Principal Risks
and Uncertainties. The accounts have been prepared on the
assumption that approval as an investment trust will continue to be
granted.
In preparing these accounts the Directors have considered the
impact of climate change on the value of the Company's investments.
The Board has concluded that, for investments which are valued
using quoted bid prices in active markets, the fair value reflects
market participants' view of climate change risk. Unquoted
investments are valued in accordance with the policy detailed
below, using techniques which also reflect each investment's
exposure to climate change risk.
The Company has adopted the provisions of Sections 11 and 12 of
FRS 102 for measuring and disclosing its financial instruments.
The accounts are presented in sterling and amounts have been
rounded to the nearest thousand.
The accounting policies applied to these accounts are consistent
with those applied in the accounts for the year ended 31 December
2021.
Significant estimates and assumptions have been required in
valuing the Company's investments and these are detailed below.
(b) Valuation of investments
Investments that are quoted on an exchange are valued using
closing bid prices. If there has been no material trading in an
investment, it will be valued using the process for unquoted
investments, described below.
Investments in shares that are not quoted on any Stock Exchange
(unquoted investments) represent a significant part of the
Company's portfolio. Such investments are held at fair value, which
requires significant estimation in concluding on their fair value.
While there is a robust and consistent valuation process undertaken
by the AIFM, it is recognised that in stating these assets at fair
value there is a significant element of estimation uncertainty.
Central to this uncertainty is the assumption that such assets will
continue to progress in line with their stated business plan and
will be held for the longer term until exit, generally where either
the company is sold to an interested party or lists on an
appropriate exchange. The core to that significant estimate is the
potential failure of any individual unquoted investment to progress
in accordance with their business plan and such failure could
result in a material change to the fair valuation of that company.
The assumptions and estimates made in determining the fair value of
each unquoted investment are considered at least each six months or
sooner if there is a triggering event. An example of where a
valuation would be considered out of the six-month cycle is the
failure of a drug under development to meet an anticipated outcome
of its trial, or other performance against tangible development
milestones.
A full valuation review is undertaken by the Manager in June and
December, with a review undertaken in March and September. In the
event of a triggering event being identified intra the valuation
review process, an ad hoc valuation will be undertaken.
Significant estimates of fair value are considered on an ongoing
basis including considering impact of events in the wider market.
In making these estimates, appropriate care is taken to consider
the nature and inherent uncertainties of market events and their
impact on the fair value of unquoted assets.
While there may be market speculation about potential
transaction activity in portfolio companies, such matters are not
taken into account in the valuation process until the information
is public and can be considered as an observable market
transaction.
The Manager has determined the fair value of the unquoted
investments and investments quoted in inactive markets, in
accordance with the following principles, which are consistent with
IPEVCV guidelines:
1. The following factors will be considered in determining the fair value of an asset:
(i) The price of a recent investment, whilst an indicator of
fair value, is not a default that would preclude re-estimating the
valuation at the valuation date. However, if the price of recent
investment is determined to be fair value then it is used to
calibrate inputs to the valuation model(s); or
(ii) Where a value is indicated by a recent material arms-length
transaction by an independent third party in the shares of a
company, and after it is established that this is fair then this
value will be used, unless the rights attributable to the shares
impact the overall capital structure and rights of existing
investors; or
(iii) In the absence of (i) and (ii), and depending upon both
the subsequent trading performance and investment structure of an
investee company, the valuation basis will usually move to an
earnings multiple basis or, if appropriate, other valuation models
such as:
(a) Probability-weighted expected return method (PWERM), which
considers on a probability weighted basis the future outcomes for
the investment.
(b) Option priced modelling (OPM) is used to value early stage
companies where outcomes are uncertain.
(c) Adjusted recent transaction prices (which consider the
company's performance against key milestones and the complexity of
the capital structure) are also used.
(d) Discounted cash flow model which values a business based on
estimates of future cash-flows with an appropriate discount
rate.
(iv) If the investment is in a fund, the valuation will be based
on the NAV of the fund (which is invariably comprised of
early-stage unquoted investments), or on an adjusted basis to
recognise the underlying performance of the investments.
Where models are used in valuing an investment, significant
judgements are made in estimating the various inputs into the
models and recognising the sensitivity of such estimates,
especially in early-stage pre-revenue enterprises. Examples of the
factors where significant judgement is made include, but are not
limited to, the probability assigned to the relative success or
failure of an enterprise; the probable future outcome paths;
discount rates; growth rates; terminal value; selection of
appropriate market comparable companies, the reliability of future
revenue and growth forecasts and the likely exit scenarios for the
investor company, for example, IPO or trade sale. In making
judgements in regard to the probability of an investee outcome, it
must be noted that due to the nature of the investee company's
activity, its future outcome may, to a greater or lesser extent, be
binary, for example, if an investee company is developing one
particular drug and that fails its required trials then the outcome
may be terminal for that enterprise. It should be noted that the
most significant event that will drive valuation change in investee
companies are company-specific events that would give rise to a
valuation inflexion point (known also as a 'triggering event'). An
example of a material inflexion point in a bio-pharma company would
be the successful completion of a drug trial or its approval by a
regulatory authority.
These valuation methods may lead to a company being valued on a
suitable price-earnings ratio to that company's historic, current
or forecast post-tax earnings before interest and amortisation. The
ratio used will be based on a comparable sector but the resulting
value will be adjusted to reflect points of difference identified
when compared to the market sector (in which the investment would
reside if it were it listed) including, inter alia, a lack of
marketability.
At 31 December 2022, 14.5% (2021: 24.2%) of the NAV was valued
in accordance with 1(i); nil% (2021: 9.1%) was valued in accordance
with 1(ii); 37.9% (2021: 14.4%) in accordance with 1(iii); and 9.1%
(2021: 2.4%) in accordance with 1(iv).
(c) Accounting for reserves
Capital reserve
The capital reserve reflects any:
- gains and losses on disposals of investments;
- exchange differences of a capital nature;
- increase and decreases in the fair value of investments which
have been recognised in the capital column of the Income
Statement;
- expenses which are capital in nature; and
- the cost of repurchasing shares, including the related stamp duty and transactions costs.
Any gains in the fair value of investments that are not readily
convertible to cash are treated as unrealised gains in the capital
reserve.
Revenue reserve
The revenue reserve reflects all income and expenditure
recognised in the revenue column of the Income Statement and any
surplus is distributable by way of dividend.
(d) Income
Dividends receivable are included in revenue on an ex-dividend
basis except where, in the opinion of the board, the dividend is
capital in nature, in which case it is included in capital.
Overseas dividends are included gross of any withholding
tax.
Deposit interest outstanding at the year end is calculated and
accrued on a time apportionment basis using market rates of
interest.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses
are allocated wholly to revenue, except that:
- Any performance fee is charged wholly to capital.
- Expenses incidental to the purchase or sale of an investment
are charged to capital. These expenses are commonly referred to as
transaction costs and mainly comprise brokerage commission. Details
of transaction costs are given in note 9 on page 79 of the 2022
Annual Report and Accounts .
(f) Finance costs
Finance costs, comprising loan and overdraft interest, are
charged wholly to revenue.
(g) Financial instruments
Cash at bank and in hand may comprise cash and demand deposits
which are readily convertible to a known amount of cash and are
subject to insignificant risk of changes in value. Financial
liabilities, including borrowings, are initially measured at fair
value, net of transaction costs and are subsequently measured at
amortised cost using the effective interest method. Bank overdrafts
and loans are included in current liabilities, or creditors falling
due after more than one year, depending on the terms of the
facility agreement.
Other debtors and creditors do not carry any interest, are
short-term in nature and are accordingly stated at nominal value,
with debtors reduced by appropriate allowances for estimated
irrecoverable amounts.
Any derivative financial instruments held at the year end,
including forward foreign currency contracts, are included in
current assets or current liabilities in the Statement of Financial
Position at fair value, using market prices. Forward foreign
currency contracts are valued at the gain or loss if the contracts
had been closed out at the accounting date, at prevailing market
rates.
Gains or losses on derivative financial instruments are treated
as capital or revenue depending on the motive and circumstances of
the transaction. Where positions are undertaken to protect or
enhance capital, the returns are capital and where they are
generating or protecting revenue, the returns are revenue.
(h) Taxation
The tax charge for the year includes a provision for all amounts
expected to be received or paid. Deferred tax is provided on all
timing differences that have originated but not reversed by the
accounting date. Deferred tax liabilities are recognised for all
taxable timing differences but deferred tax assets are only
recognised to the extent that it is probable that taxable profits
will be available against which those timing differences can be
utilised. Deferred tax is measured at the tax rate which is
expected to apply in the periods in which the timing differences
are expected to reverse, based on tax rates that have been enacted
or substantively enacted at the balance sheet date and is measured
on an undiscounted basis.
(i) Value added tax ("VAT")
Expenses are disclosed inclusive of any related irrecoverable
VAT.
(j) Foreign currency
In accordance with FRS 102, the Company is required to determine
the functional currency, being the currency in which the Company
predominantly operates. The board, having regard to the currency of
the Company's share capital and the predominant currency in which
its shareholders operate, has determined that sterling is the
functional currency and the currency in which the accounts are
presented.
Transactions denominated in foreign currencies are converted at
actual exchange rates as at the date of the transaction.
(k) Share issues
Shares issued are recognised based on the proceeds or fair value
received, with the excess of the amount received over their nominal
value being credited to the share premium account. Direct issue
costs are deducted from share premium.
(l) Repurchases of shares for cancellation
The cost of repurchasing the Company's own shares including the
related stamp duty and transactions costs is charged to "Capital
reserves", and dealt with in the Statement of Changes in Equity.
Share repurchase transactions are accounted for on a trade date
basis. The nominal value of share capital repurchased and cancelled
is transferred out of "Called-up share capital" and into "Capital
redemption reserve".
2. Income
2022 2021
GBP'000 GBP'000
Income from investments:
UK dividends 425 112
Interest from debt securities 20 -
Bank interest 34 -
------------------------------ ------- -------
479 112
------------------------------ ------- -------
3. Management fee
2022 2021
GBP'000 GBP'000
Management fee 1,989 3,019
--------------- ------- -------
1,989 3,019
--------------- ------- -------
Under the terms of the management agreement, the Manager is
entitled to a management fee and a performance fee, subject to
achieving performance targets. Details of these calculations are
set out in the Directors' Report on pages 47 and 48 of the 2022
Annual Report and Accounts . No performance fee is payable for the
current or prior year and no provision is required at 31 December
2022.
Details of all transactions with the current and previous
Managers are given in note 17 on page 82 of the 2022 Annual Report
and Accounts .
4. Other administrative expenses
2022 2021
GBP'000 GBP'000
Other administration expenses 596 818
Valuation fees 275 303
Directors' fees(1) 186 189
Auditor's remuneration for the audit of the Company's
annual accounts(2) 180 138
------------------------------------------------------ ------- -------
1,237 1,448
------------------------------------------------------ ------- -------
(1) Full details are given in the remuneration report on pages
57 to 59 of the 2022 Annual Report and Accounts .
(2) Includes VAT amounting to GBP30,000 (2021: GBP23,000).
5. Finance costs
2022 2021
GBP'000 GBP'000
Bank loan/overdraft fees and interest 304 960
-------------------------------------- ------- -------
304 960
-------------------------------------- ------- -------
6. Taxation
(a) Analysis of tax charge for the year
2022 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Taxation on ordinary
activities - - - - - -
-------------------- ------- ------- ------- ------- ------- -------
The Company has no corporation tax liability for the year ended
31 December 2022 (2021: nil).
(b) Factors affecting tax charge for the year
2022 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net (loss)/gain on
ordinary activities
before taxation (3,051) (175,086) (178,137) (5,315) 124,117 118,802
----------------------------- ------- --------- --------- ------- -------- --------
Net (loss)/gain on
ordinary activities
before taxation multiplied
by the Company's applicable
rate of corporation
tax for the year of
19.0% (2021: 19.0%) (580) (33,266) (33,846) (1,010) 23,582 22,572
----------------------------- ------- --------- --------- ------- -------- --------
Effects of:
Capital loss/(return)
on investments - 33,266 33,266 - (23,582) (23,582)
UK dividends which
are not taxable (81) - (81) (21) - (21)
Disallowed expenses 24 - 24 - - -
Unrelieved loan relationship
deficit 48 - 48 182 - 182
Unrelieved management
expenses 589 - 589 849 - 849
----------------------------- ------- --------- --------- ------- -------- --------
Taxation on ordinary
activities - - - - - -
----------------------------- ------- --------- --------- ------- -------- --------
(c) Deferred taxation
Given the Company's intention to meet the conditions required to
retain its status as an Investment Trust Company, no provision has
been made for deferred tax on any capital gains or losses arising
on the revaluation or disposal of investments.
The Company has an unrecognised deferred tax asset GBP7,529,000
(2021: GBP6,027,000) arising from unutilised tax losses of
GBP30,117,000 (2021: GBP24,106,000) based on a prospective
corporation tax rate of 25.0% (2021: 25%). In its 2021 budget, the
government announced that the main rate of corporation tax would
increase to 25% for the fiscal year beginning on 1 April 2023.This
deferred tax asset has arisen due to the cumulative excess of
deductible expenses over taxable income. Given the composition of
the Company's portfolio, it is not likely that this asset will be
utilised in the foreseeable future and therefore no asset has been
recognised in the accounts.
7. Dividends
No dividends have been paid or proposed in respect of the year
ended 31 December 2022 (2021: nil).
8. Basic and diluted (loss)/earnings per share
2022 2021
GBP'000 GBP'000
Revenue loss (3,051) (5,315)
Capital (loss)/return (175,086) 124,117
-------------------------------------------------- ----------- -----------
Total (loss)/return (178,137) 118,802
-------------------------------------------------- ----------- -----------
Weighted average number of shares in issue during
the year 907,291,950 908,639,238
Revenue loss per share (0.34)p (0.58)p
Capital (loss)/return per share (19.30)p 13.66p
-------------------------------------------------- ----------- -----------
Total basic and diluted (loss)/return per share (19.64)p 13.08p
-------------------------------------------------- ----------- -----------
The basic and diluted (loss)/return per share are the same
because there are no dilutive instruments in issue.
9. Investments held at fair value through profit or loss
(a) Movement in investments
2022 2021
GBP'000 GBP'000
Opening book cost 622,857 759,715
Opening investment holding losses (181,958) (338,563)
------------------------------------------------- --------- ---------
Opening fair value 440,899 421,152
Purchases at cost 17,422 88,680
Sales proceeds (40,148) (193,516)
(Losses)/gains on investments held at fair value
through profit or loss (175,669) 124,583
------------------------------------------------- --------- ---------
Closing fair value 242,504 440,899
------------------------------------------------- --------- ---------
Closing book cost 581,253 622,857
Closing investment holding losses (338,749) (181,958)
------------------------------------------------- --------- ---------
Closing fair value 242,504 440,899
------------------------------------------------- --------- ---------
The Company received GBP40,148,000 (2021: GBP193,516,000) from
investments sold in the year. The book cost of the investments when
they were purchased was GBP59,026,000 (2021: GBP225,538,000). These
investments have been revalued overtime and, until they were sold,
any unrealised gains/losses were included in the fair value of the
investments.
Purchases and sales include non-cash transactions in relation to
HP Environmental Technologies Fund (2021: Athenex and Kuur).
(b) Unquoted investments, including investments quoted in inactive markets
Material revaluations of unquoted investments during the
year
Opening valuation Valuation Closing valuation
at 31/12/21(1) adjustment at 31/12/22
GBP'000 GBP'000 GBP'000
------------- ----------------- ---------- -----------------
Atom Bank 46,209 (14,523) 31,686
------------- ----------------- ---------- -----------------
AMO Pharma 11,668 4,740 16,408
------------- ----------------- ---------- -----------------
BenevolentAI 28,484 (16,549) 11,935
------------- ----------------- ---------- -----------------
Revolut LLP 10,115 (4,679) 5,436
------------- ----------------- ---------- -----------------
(1) Based on the closing holding at opening prices.
Material disposals of unquoted investments during the year
Gain/(loss)
based on
Carrying value carrying value
Book cost at 31/12/21 Sales Proceeds at 31/12/21
GBP'000 GBP'000 GBP'000 GBP'000
------- --------- -------------- -------------- ---------------
Seedrs 10,470 11,272 12,000 728
------- --------- -------------- -------------- ---------------
Nexeon 1,059 7,788 1,552 (6,236)
------- --------- -------------- -------------- ---------------
(c) Transaction costs
The following transaction costs, comprising stamp duty and
brokerage commission, were incurred in the year:
2022 2021
GBP'000 GBP'000
On acquisitions - 78
On disposals 8 397
---------------- ------- -------
8 475
---------------- ------- -------
10. Current assets
2022 2021
GBP'000 GBP'000
Debtors
Accrued income 94 54
Other debtors 66 117
--------------- ------- -------
160 171
--------------- ------- -------
The Directors consider that the carrying amount of accrued
income and debtors approximate to their fair value.
Cash at bank and in hand
The carrying amount of cash, amounting to GBP16,122,000 (2021:
GBP19,077,000) represents its fair value.
11. Creditors: amounts falling due within one year
2022 2021
GBP'000 GBP'000
Management fee payable 373 765
Other creditors and accruals 491 511
----------------------------- ------- -------
864 1,276
----------------------------- ------- -------
The Company has a GBP40 million loan facility agreement with The
Northern Trust Company, which terminates on 30 January 2023;
interest on any drawings accrues daily and is calculated at the
aggregate of The Bank of England base rate and a 2% margin.
Drawings on the facility are secured on all of the Company's
assets. The facility was undrawn at the year end. At the prior year
end, the Company had drawn down GBP22 million on this facility, as
stated in note 12 below.
The Directors consider that the carrying amount of creditors
falling due within one year approximates to their fair value.
12. Creditors: amounts falling due after more than one year
2022 2021
GBP'000 GBP'000
Bank loan - 22,000
---------- ------- -------
The bank loan was drawn down on the Company's GBP40 million loan
facility agreement with The Northern Trust Company. Further details
of this facility are given in note 11 above.
The Directors consider that the carrying amount of the bank loan
approximates to its fair value.
13. Called-up share capital
2022 2021
GBP'000 GBP'000
Ordinary shares allotted, called up and fully paid:
Ordinary shares of 1p each:
908,639,238 ordinary shares of 1p each 9,086 9,086
Repurchase and cancellation of 4,420,000 (2021: nil)
shares (44) -
----------------------------------------------------- ------- -------
Closing balance of 904,219,238 (2021: 908,639,238)
shares 9,042 9,086
----------------------------------------------------- ------- -------
During the year, the Company made market purchases of 4,420,000
of its own shares, nominal value GBP44,200, for cancellation,
representing 0.5% of the shares outstanding at the beginning of the
year. The total consideration paid for these shares amounted to
c.GBP812,000. The reason for these purchases was to seek to manage
the volatility of the share price discount to NAV per share. As
noted in the Chair's statement on page 5 of the 2022 Annual Report
and Accounts , although the Company had a share premium account of
GBP891 million at the time of the 2022 and 2023 share buybacks, as
that had not been cancelled at the time, the Company did not have
sufficient distributable profits and so those buybacks did not
comply with the requirements of the Companies Act 2006.
14. Reserves
Capital reserves
Capital Losses on Investment
Share redemption sales of holding Revenue
premium(1) reserve(2) investments(3) losses(4) reserve(5)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2021 891,017 - (256,487) (182,618) (24,127)
Losses on sales of
investments based
on historic cost - - (18,878) - -
Net movement in investment
holding gains and
losses - - - (156,791) -
Repurchase and cancellation
of shares - 44 (812) - -
Exchange gains - - 583 - -
Retained revenue
loss for the year - - - - (3,051)
At 31 December 2022 891,017 44 (275,594) (339,409) (27,178)
---------------------------- ---------- ---------- -------------- ---------- ----------
Capital reserves
Capital Losses on Investment
Share redemption sales of holding Revenue
premium(1) reserve(2) investments(3) losses(4) reserve(5)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2020
Opening balance 891,017 - (224,465) (338,757) (18,812)
Losses on sales of
investments based
on historic cost - - (32,022) - -
Net movement in investment
holding gains and
losses - - - 156,605 -
Exchange losses - - - (466) -
Retained revenue
loss for the year - - - - (5,315)
---------------------------- ---------- ---------- -------------- ---------- ----------
At 31 December 2021 891,017 - (256,487) (182,618) (24,127)
---------------------------- ---------- ---------- -------------- ---------- ----------
The Company's articles of association permit dividend
distributions out of realised capital profits.
(1) The share premium is a non distributable reserve and
represents the amount by which the fair value of the consideration
received from shares issued exceeds the nominal value of shares
issued.
(2) The capital redemption reserve represents the accumulated
nominal value of shares repurchased for cancellation. This reserve
is not distributable.
(3) This is a realised (distributable) capital reserve and a
positive balance may be used to repurchase the Company's own shares
or distributed as dividends. However, the Company is not currently
in a position to make such a distribution as the balance is
negative.
(4) This reserve may include some holding gains on liquid
investments (which may be deemed to be realised) and other amounts
which are unrealised. An analysis has not been made between those
amounts that are realised (and may be distributed as dividends or
used to repurchase the Company's own shares) and those that are
unrealised. The Company is not currently in a position to make any
distributions due to total net negative balances on its
distributable reserves.
(5) A positive balance on the revenue reserve may be distributed
as dividends or used to repurchase the Company's own shares.
15. Net asset value per share
2022 2021
Net assets attributable to shareholders (GBP'000) 257,922 436,871
Shares in issue at the year end 904,219,238 908,639,238
-------------------------------------------------- ----------- -----------
Net asset value per share 28.52p 48.08p
-------------------------------------------------- ----------- -----------
16. Uncalled capital commitments
At 31 December 2022, the Company had uncalled capital
commitments amounting to GBP5,121,000 (2021: nil) in respect of
follow-on investments, which may be called by investee companies,
subject to their achievement of certain milestones and
objectives.
17. Transactions with the Manager and Alternative Investment Fund Manager (AIFM)
A management fee amounting to GBP1,989,000 (2021: GBP3,019,000)
is payable to Schroder Investment Management Limited for the year
ended 31 December 2022, of which GBP373,000 (2021: GBP765,000) was
outstanding at the year end.
Fees amounting to GBP65,000 (2021: GBP88,000) were payable to
Link Fund Solutions Limited for services as AIFM, of which GBPnil
(2021: GBP22,000) was outstanding at the year end.
Fees amounting to GBP41,000 were payable to Schroder Unit Trusts
Limited for services as AIFM, following its appointment as AIFM
with effect from 1 October 2022, and the whole of this amount was
outstanding at the year end.
Under the terms of the Alternative Investment Management
Agreement dated 29 September 2022, Schroder Unit Trusts Limited may
reclaim from the Company certain expenses which it has paid on
behalf of the Company to HSBC in connection with accounting and
administrative services provided to the Company. These charges
amounted to GBP17,000 for the 3 months ended 31 December 2022, and
the whole of this amount was outstanding at the year end.
No Director of the Company served as a director of any member of
the Schroder Group, Link Fund Solutions Limited or its affiliates
at any time during the year.
18. Related party transactions
Details of the remuneration payable to directors are given in
the Directors' Remuneration Report on page 58 of the 2022 Annual
Report and Accounts and details of directors' shareholdings are
given in the Directors' Remuneration Report on page 59 of the 2022
Annual Report and Accounts . Details of transactions with the
Manager, the AIFM and its associated companies are given in note 17
above. There have been no other transactions with related parties
during the year (2021: nil).
19. Disclosures regarding financial instruments measured at fair value
The Company's financial instruments within the scope of FRS 102
that are held at fair value comprise its investment portfolio and
derivative financial instruments.
FRS 102 requires that financial instruments held at fair value
are categorised into a hierarchy consisting of the three levels
below. A fair value measurement is categorised in its entirety on
the basis of the lowest level input that is significant to the fair
value measurement.
Level 1 - valued using unadjusted quoted prices in active
markets for identical assets.
Level 2 - valued using observable inputs other than quoted
prices included within Level 1.
Level 3 - valued using inputs that are unobservable.
Details of the Company's policy for valuing investments and
derivative instruments are given in note 1(b) on pages 74 and 75
and 1(g) on page 76 of the 2022 Annual Report and Accounts . Level
3 investments have been valued in accordance with note 1(b) (i) -
(iv) .
At 31 December, the Company's investment portfolio and any
derivative financial instruments were categorised as follows:
2022
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments in
equities - quoted 83,711 - 11,935 95,646
- unquoted - - 146,858 146,858
--------------------------- ------- ------- ------- -------
Total 83,711 - 158,793 242,504
---------------------------- ------- ------- ------- -------
RM2 International GBP104,000 transferred from Level 3 to Level 1
during the year following the conversion of RM2 International
shares into ARC Group Worldwide shares.
2021
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments in
equities - quoted 222,031 - 21,312 243,343
- unquoted - - 197,556 197,556
--------------------------- ------- ------- ------- -------
Total 222,031 - 218,868 440,899
---------------------------- ------- ------- ------- -------
Immunocore GBP21,044,000 and Oxford Nanopore GBP162,641,000
transferred from Level 3 to Level 1 during the year following their
IPOs on NASDAQ and London Stock Exchange, respectively.
Movements in fair value measurements included in Level 3 during
the year are as follows:
2022 2021
GBP'000 GBP'000
Opening book cost 482,416 663,223
Opening investment holding losses (263,548) (274,768)
----------------------------------------------------- --------- ---------
Opening valuation 218,868 388,455
Purchases at cost 17,422 39,437
Sales proceeds (19,289) (185,825)
Transfer between Level 3 and Level 1 (19,152) (66,197)
Net movement in investment holding gains and losses (39,056) 42,998
----------------------------------------------------- --------- ---------
Closing valuation 158,793 218,868
----------------------------------------------------- --------- ---------
Closing book cost 458,690 482,416
Closing investment holding losses (299,897) (263,548)
----------------------------------------------------- --------- ---------
Total level 3 investments held at fair value through
profit or loss 158,793 218,868
----------------------------------------------------- --------- ---------
The company received GBP19,289,000 (2021: GBP185,825,000) from
Level 3 investments sold in the year. The book cost of the
investments when they were purchased was GBP20,384,000 (2021:
GBP154,047,000). These investments have been revalued over time
and, until they were sold, any unrealised gains/losses were
included in the fair value of the investments.
20. Financial instruments' exposure to risk and risk management policies
The investment objective is set out on the inside front cover of
this report. In pursuing this objective, the Company is exposed to
a variety of financial risks that could result in a reduction in
the Company's net assets or a reduction in the profits available
for dividends. These financial risks include market risk
(comprising currency risk, interest rate risk and market price
risk), liquidity risk and credit risk. The directors' policy for
managing these risks is set out below. The board coordinates the
Company's risk management policy.
The objectives, policies and processes for managing the risks
and the methods used to measure the risks that are set out below,
have not changed from those applying in the comparative year.
The Company's classes of financial instruments may comprise the
following:
- investments in shares of quoted and unquoted companies which
are held in accordance with the Company's investment objective;
- short-term debtors, creditors and cash arising directly from its operations;
- a bank loan from Northern Trust Company, the purpose of which
is to assist in financing the Company's operations; and
- forward foreign currency contracts, the purpose of which is to
manage the currency risk arising from the Company's investment
activities.
(a) Market risk
The fair value or future cash flows of a financial instrument
held by the Company may fluctuate because of changes in market
prices. This market risk comprises three elements: currency risk,
interest rate risk and other price risk. Information to enable an
evaluation of the nature and extent of these three elements of
market risk is given in parts (i) to (iii) of this note, together
with sensitivity analyses where appropriate. The board reviews and
agrees policies for managing these risks and these policies have
remained unchanged from those applying in the comparative year. The
Manager assesses the exposure to market risk when making each
investment decision and monitors the overall level of market risk
on the whole of the investment portfolio on an ongoing basis.
(i) Currency risk
Certain of the Company's assets, liabilities and income are
denominated in currencies other than sterling, which is the
Company's functional currency and the presentational currency of
the accounts. As a result, movements in exchange rates will affect
the sterling value of those items.
Management of currency risk
The AIFM monitors the Company's exposure to foreign currencies
on a daily basis and reports to the board, which meets on at least
four occasions each year. The Manager measures the risk to the
Company of the foreign currency exposure by considering the effect
on the Company's net asset value and income of a movement in the
rates of exchange to which the Company's assets, liabilities,
income and expenses are exposed.
Income denominated in foreign currencies is converted into
sterling on receipt.
It is currently not the Company's policy to hedge against
currency risk, but the Manager may, with the board's consent and
oversight, hedge against specific currencies, depending on their
longer term view.
Foreign currency exposure
The fair value of the Company's monetary and non-monetary items
that have foreign currency exposure at 31 December are shown
below.
2022
Norwegian Swiss US
Euro Krone Francs Dollars Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash at bank and in
hand 6 - - 3,618 3,624
Investments held at
fair value through
profit or loss 27,083 3,781 7,460 62,542 100,866
-------------------- ---------- ------- --------- ------- ------- -------
Total net foreign
currency exposure 27,089 3,781 7,460 66,160 104,490
-------------------- ---------- ------- --------- ------- ------- -------
2021
Australian Norwegian Swiss US
Dollars Euro Krone Francs Dollars Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash at bank and in
hand - 10,078 - - 1,167 11,245
Investments held at
fair value through
profit or loss 996 9,905 11,823 5,513 82,198 110,435
-------------------- ---------- ------- --------- ------- ------- -------
Total net foreign
currency exposure 996 19,983 11,823 5,513 83,365 121,680
-------------------- ---------- ------- --------- ------- ------- -------
The above year end amounts are broadly representative of the
exposure to foreign currency risk during the current and
comparative year.
Foreign currency sensitivity
The following tables illustrate the sensitivity of net profit
for the year and net assets with regard to the Company's monetary
financial assets and financial liabilities and exchange rates. The
sensitivity analysis is based on the Company's foreign and
non-monetary currency financial instruments held at each accounting
date and assumes a 10% (2021: 10%) appreciation or depreciation in
sterling against all the currencies to which the Company is
exposed, which is considered to be a reasonable illustration based
on the volatility of exchange rates during the year.
If sterling had weakened by 10% this would have had the
following effect:
2022 2021
GBP'000 GBP'000
Income Statement - return after taxation
Revenue return - -
Capital return 10,449 12,168
----------------------------------------- ------- -------
Total return after taxation 10,449 12,168
----------------------------------------- ------- -------
Net assets 10,449 12,168
----------------------------------------- ------- -------
Conversely if sterling had strengthened by 10% this would have
had the following effect:
2022 2021
GBP'000 GBP'000
Income Statement - return after taxation
Revenue return - -
Capital return (10,449) (12,168)
----------------------------------------- -------- --------
Total return after taxation (10,449) (12,168)
----------------------------------------- -------- --------
Net assets (10,449) (12,168)
----------------------------------------- -------- --------
In the opinion of the directors, the above sensitivity analysis
is broadly representative of the whole of the current and
comparative year.
(ii) Interest rate risk
Interest rate movements may affect the level of income
receivable on cash balances and the interest payable on the bank
overdraft when interest rates are re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing
returns to shareholders. The board would not normally expect
gearing to exceed 20% where gearing is defined as borrowings used
for investment purposes, less cash, expressed as a percentage of
net assets.
Interest rate exposure
The exposure of financial assets and financial liabilities to
floating interest rates, giving cash flow interest rate risk when
rates are re-set, is shown below:
2022 2021
GBP'000 GBP'000
Exposure to floating interest rates:
Cash at bank and in hand 16,122 19,077
Creditors: amounts falling due after more than one
year
Bank loan - (22,000)
--------------------------------------------------- ------- --------
Net exposure 16,122 (2,923)
--------------------------------------------------- ------- --------
Sterling cash deposits at call earn interest at floating rates
based on Sterling Overnight Index Average ("SONIA") rates, (2021:
LIBOR).
The Company has a GBP40 million loan facility agreement with The
Northern Trust Company, which terminates on 30 January 2023;
interest on any drawings accrues daily and is calculated at the
aggregate of The Bank of England base rate and a 2% margin. The
facility was undrawn at the year end (2021: GBP22 million).
The above year end amounts are broadly representative of the
exposure to interest rates during the year.
Interest rate sensitivity
The following table illustrates the sensitivity of the return
after taxation for the year and net assets to a 1.0% (2021: 1.0%)
increase or decrease in interest rates in regards to the Company's
monetary financial assets and financial liabilities. This level of
change is considered to be a reasonable illustration based on
observation of current market conditions. The sensitivity analysis
is based on the Company's monetary financial instruments which are
exposed to interest rate changes held at the accounting date, with
all other variables held constant.
2022 2021
1.0% increase 1.0% decrease 1.0% increase 1.0% decrease
in rate in rate in rate in rate
GBP'000 GBP'000 GBP'000 GBP'000
Income statement - return
after taxation
Revenue return 161 (161) (29) 29
Capital return - - - -
---------------------------- ------------- ------------- ------------- -------------
Total return after taxation 161 (161) (29) 29
---------------------------- ------------- ------------- ------------- -------------
Net assets 161 (161) (29) 29
---------------------------- ------------- ------------- ------------- -------------
Given the increase in UK interest rates, the interest rate
sensitivity has been updated to 1.0%. The prior year disclosure has
been updated to 1.0% to show a direct comparison in the
sensitivity. In the prior year report, the sensitivity was
calculated using 0.25%, which was representative of the market at
31 December 2021. As disclosed in the prior year annual report and
accounts, an increase of 0.25% reduced total return after taxation
by GBP7,308 (a decrease of 0.25% had an equal and opposite
effect).
(iii) Market price risk
Market price risk includes changes in market prices, other than
those arising from interest rate risk, which may affect the value
of investments.
Management of other price risk
The board meets on at least four occasions each year to consider
the asset allocation of the portfolio and the risk associated with
particular countries and industry sectors. The investment
management team has responsibility for monitoring the portfolio,
which is selected in accordance with the Company's investment
objective and seeks to ensure that individual stocks meet an
acceptable risk/reward profile. The board may authorise the Manager
to enter derivative transactions for the purpose of protecting the
portfolio against falls in market prices.
Market risk exposure
The Company's total exposure to changes in market prices at 31
December comprises the following:
2022 2021
GBP'000 GBP'000
Investments held at fair value through profit or
loss 242,504 440,899
------------------------------------------------- ------- -------
The above data is broadly representative of the exposure to
market price risk during the year.
Concentration of exposure to market price risk
A sector and geographical analysis of the Company's investments
is given on page 24 of the 2022 Annual Report and Accounts . This
shows a concentration of exposure to economic conditions in the
United Kingdom and to the Health Care sector. In addition, it is
noted that as the Company's holds five (2021: six) investments
amounting to approximately GBP61.5 million (2021: GBP91.7 million),
representing 23.8% (2021: 20.9%) of NAV, whose valuation is deemed
to be potentially volatile, as it is dependent on a number of
factors including future funding and meeting of anticipated
milestones.
Market price risk sensitivity
The following table illustrates the sensitivity of the return
after taxation for the year and net assets to an increase or
decrease of 20% (2021: 20%) in the fair values of the Company's
investments. This level of change is considered to be a reasonable
illustration based on observation of current market conditions.
2022 2021
20% increase 20% decrease 20% increase 20% decrease
in fair in fair in fair in fair
value value value value
GBP'000 GBP'000 GBP'000 GBP'000
Income statement - return after taxation
Revenue return - - - -
Capital return 48,501 (48,501) 88,180 (88,180)
----------------------------------------- ------------ ------------ ------------ ------------
Total return after taxation and net
assets 48,501 (48,501) 88,180 (88,180)
----------------------------------------- ------------ ------------ ------------ ------------
Percentage change in net asset value 18.8% (18.8%) 20.2% (20.2%)
(b) Liquidity Risk
This is the risk that the Company will encounter difficulty in
meeting its obligations associated with financial liabilities that
are settled by delivering cash or another financial asset.
Management of the risk
The Company's assets include readily realisable securities
amounting to GBP83,711,000 (2021: GBP222,031,000), which can be
sold to meet ongoing funding requirements. Additionally, the
Company has level 3 investments valued at GBP158,793,000 (2021:
GBP218,868,000) which are illiquid, but could be sold if
required.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the
earliest date on which payment can be required are as follows:
2022 2021
More than More than
three three
months months
Three but not More Three but not More
months more than than months more than than
or less one year one year Total or less one year one year Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Creditors:
amounts
falling
due within
one year
Bank loan
- including
interest - - - - 274 454 22,050 22,778
Other creditors
and accruals 864 - - 864 1,138 - - 1,138
Uncalled
capital
commitments - 1,700 3,421 5,121 - - - -
---------------- ------- --------- -------- ------- ------- --------- -------- -------
864 1,700 3,421 5,985 1,412 454 22,050 23,916
---------------- ------- --------- -------- ------- ------- --------- -------- -------
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to
a transaction to discharge its obligations under that transaction
could result in loss to the Company.
Management of credit risk
This risk is not significant and is managed as follows:
Portfolio dealing
The credit ratings of broker counterparties is monitored by the
AIFM and limits are set on exposure to any one broker.
Exposure to the Custodian
The custodian of the Company's assets is HSBC Bank plc which has
Long-Term Credit Ratings of AA- with Fitch and Aa3 with
Moody's.
The Company's investments are held in accounts which are
segregated from the custodian's own trading assets. If the
custodian were to become insolvent, the Company's right of
ownership of its investments is clear and they are therefore
protected. However the Company's cash balances are all deposited
with the custodian as banker and held on the custodian's balance
sheet. Accordingly, in accordance with usual banking practice, the
Company will rank as a general creditor to the custodian in respect
of cash balances.
(d) Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried in the
balance sheet at fair value, or the balance sheet amount is a
reasonable approximation of fair value.
21. Analysis of changes in net debt
At At
31 December 31 December
2021 Cashflows 2022
GBP'000 GBP'000 GBP'000
Cash and cash equivalents
Cash at bank and in hand 19,077 (2,955) 16,122
Borrowings
Debt due after more than one year (22,000) 22,000 -
---------------------------------- ----------- --------- -----------
Net debt (2,923) 19,045 16,122
---------------------------------- ----------- --------- -----------
22. Capital management policies and procedures
The Company's objectives, policies and processes for managing
capital are unchanged from the preceding year.
The Company's debt and capital structure comprises the
following:
2022 2021
GBP'000 GBP'000
Debt
Bank loan - 22,000
------------------------ ------- -------
Equity
Called-up share capital 9,042 9,086
Reserves 248,880 427,785
------------------------ ------- -------
257,922 436,871
------------------------ ------- -------
Total debt and equity 257,922 458,871
------------------------ ------- -------
23. Post balance sheet events
The Company's GBP40 million loan facility agreement with The
Northern Trust Company terminated on 30 January 2023 and was not
renewed. The facility was undrawn at 31 December 2022.
Status of announcement
2021 Financial Information
The figures and financial information for 2021 are extracted
from the published Annual Report and Accounts for the year ended 31
December 2021 and do not constitute the statutory accounts for that
year. The 2021 Annual Report and Accounts have been delivered to
the Registrar of Companies and included the Report of the
Independent Auditors which was unqualified and did not contain a
statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
2022 Financial Information
The figures and financial information for 2022 are extracted
from the Annual Report and Accounts for the year ended 31 December
2022 and do not constitute the statutory accounts for the year. The
2022 Annual Report and Accounts include the Report of the
Independent Auditors which is unqualified and does not contain a
statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The 2022 Annual Report and Accounts will be
delivered to the Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents
of any website accessible from hyperlinks on the Company's webpages
(or any other website) is incorporated into, or forms part of, this
announcement.
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END
FR SFFFAIEDSELL
(END) Dow Jones Newswires
April 17, 2023 02:00 ET (06:00 GMT)
Woodford Patient Capital (LSE:WPCT)
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