Schroders Capital Global
Innovation Trust plc
Final
results for the year ended 31 December 2023
Schroders Capital Global Innovation
Trust plc ("INOV" or "the Company"), is pleased to publish its
final results for the year ended 31 December 2023.
Tim Edwards, Chair of the Company,
commented:
"The increase in net asset value in
the last quarter of the year and the positive news flow from the
portfolio since the end of the year, both indicate that momentum is
beginning to turn in favour of growth in the new investments in the
portfolio".
Key highlights
· During
the year, the net asset value ("NAV") per share decreased by 11.2%,
from 28.52p per share to 25.32p per share. However, importantly the
NAV per share at 31 December 2023 represents a 7.9% increase on the
30 September valuation (23.46p per share).
· The
negative performance during the first three quarters of the year
can largely be attributed to a fall in the
value of holdings in AMO Pharma, BenevolentAI, Atom Bank and the
largest public holding, Oxford Nanopore.
· The
strong performance during the final quarter was driven by the
Company's holding in Autolus Therapeutics, which achieved a share
price increase of 239.5% over the year, Carmot Therapeutics which announced its acquisition by Roche
and the first milestone payment following the sale of Kymab to
Sanofi.
· The
share price decline was more muted at 5.3%, from 15.47p in the
previous year to 14.65p.
· As at
31 December 2023, the Company had £12.6 million in cash and liquid
money market funds and £54.6 million in liquid public equity
investments, enabling further share buybacks and new investments,
in addition to covering the funding requirements of the existing
portfolio.
· During
the 12 months to 31 December 2023, the Company completed six new
investments; (AgroStar, Carmot Therapeutics, Securiti, Bizongo, AI
software company (MMC SPV 3 LP) and Memo Therapeutics), across the
three strategies: venture, growth and life sciences.
· The
Board successfully repurchased 45,124,212 shares equal to 5% of the
Company's issued share capital in the period September to December
2023, at an estimated weighted average discount to the last
reported NAV at 30 September 2023 of 36.3%.
· The
Company has already begun its programme for 2024 in order to meet
its commitments for the year, and as at 27
March 2024, the Company has repurchased 17,500,000 shares for
cancellation.
The Company's Annual Report and
Accounts for the year ended 31 December 2023 are being published in
hard copy format and an electronic copy will shortly be available
to download from the Company's web pages www.schroders.com/inov.
The Annual Report and Accounts,
including the Notice of Annual General Meeting, will shortly be
uploaded to the Financial Conduct Authority's National Storage
Mechanism and will be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
A separate announcement will be released once this
has taken place.
Page numbers and cross references in
the following announcement refer to page numbers and cross
references in the Annual Report and Accounts for the year ended 31
December 2023.
Enquiries:
Schroder Investment Management
Limited
Augustine Chipungu 020 7658
2106
Shilla Pindoria 020 7658
6000
John Spedding 020 7658
3206
Chair's Statement
"The increase in net asset value in
the last quarter of the year and the positive news flow from the
portfolio since the end of the year, both indicate that momentum is
beginning to turn in favour of growth in the new investments in the
portfolio."
Performance
For most of 2023, the macroeconomic
backdrop of rising inflation and tightening central bank policy
proved challenging for the Company and investor sentiment towards
the areas of the market your Company invests in was significantly
depressed.
The Company's net asset value
("NAV") per share for the year to 31 December 2023 fell by
11.2% and the share price by 5.3% but importantly the NAV per share
at 31 December 2023 had recovered by 7.9% relative to the 30
September valuation.
Performance during the first three
quarters of the year was primarily driven by a fall in value of the
holdings in AMO Pharma, BenevolentAI, Atom Bank, and our largest
public holding, Oxford Nanopore. In contrast, stronger performance
in the last quarter of the year was driven by our holding in
Autolus Therapeutics, whose share price increased by 239.5% over
the year reflecting encouraging results from clinical trials and
pipeline developments.
Against the difficult macroeconomic
background, the Company continued to make progress with the
strategy agreed with the Investment Manager:
- Work closely
with the management of portfolio companies to support growth and
map a path to profitability;
- Optimise
liquidity to facilitate the execution of the buyback programme and
the continued investment in private assets;
- Maximise the
sale proceeds from holdings; and
- Complete new
investments in line with the investment strategy already
announced.
During the year, the Company made
realisations of equities totalling £32.8 million, acquired
46.9 million of its shares, equivalent to 5.2% of our
outstanding share capital, and made six new investments in
innovative private companies across the three strategies of
venture, growth, and life sciences which align with the Investment
Manager's successful 25-year track record.
As at 31 December 2023, the Company
had £12.6 million in cash and liquid money market funds and £54.6
million in liquid public equity investments to meet the funding
requirements of the existing portfolio, to continue to execute the
buyback programme and to target a select number of new
investments.
The Company has announced positive
news at the start of 2024; we have received a further milestone
payment of £4.5 million from the sale of Kymab and proceeds of
£4.5 million, an uplift of 219.2% on the 30 September
valuation from the sale of Carmot Therapeutics which was only
announced earlier in 2024.
The Board expects that future
returns will likely continue to be driven by the performance of new
investments.
Capital Discipline policy
The cancellation of the share
premium account and rectification measures in respect of share
repurchases undertaken in 2022 and up to the end of February 2023
were approved by shareholders at the Annual General Meeting ("AGM")
on 21 June 2023 and the court on 18 July 2023.
This allowed the Company to begin a
share repurchase programme in September 2023 as part of its Capital
Discipline policy and we restated the intention "to repurchase shares equal to at least 5% of
the Company's issued share capital in each of the calendar years
2023 and 2024, and in addition such number of shares in order to
ensure that over the period to the 2025 AGM, the Company has
undertaken share repurchases in an amount equating to 25% of all
net cash realisations from the portfolio inherited from the
previous portfolio manager."
The Board believes this programme
demonstrates the Investment Manager's discipline around capital
allocation; underlines the Board's confidence in the long-term
prospects of the Company, its cash flows and NAV; will enhance the
NAV per Share; and over time may reduce the volatility of the
Company's discount and increase its trading liquidity.
The Board successfully repurchased
45,124,212 shares equal to 5% of the Company's issued share capital
in the four-month period September to December 2023, at an
estimated weighted average discount to the last reported NAV on 30
September 2023 of 36.3%. The Company has already begun its
programme for 2024 in order to meet its commitment for the year,
and as at 27 March 2024, the Company has repurchased
17,500,000 shares for cancellation. No shares are held in treasury.
Accordingly, the total number of voting rights in the Company as at
27 March 2024 was 839,860,026. In aggregate the buybacks from
September 2023 to date represent a capital return of £9.1 million
to date.
The discount to net asset value
which was trading at 47.9% immediately before the start of the
share repurchase programme finished the year at 42.1% and as at 25
March 2024, stood at 43.9%. The Directors continue to examine
options available to it to address the discount level.
The Board has continued to monitor
realisations since 17 April 2023 to ensure its commitment to return
25% of net cash realisation is being fulfilled.
Valuation process for private investments
The valuation of private investments
continues to be an area of considerable focus by the
market.
The private investments are valued
by a Schroders in-house valuation team which resides in Schroders
Capital Fund Operations and Services team and is separate from the
investment function.
The Company's AIFM maintains and
applies effective organisational and administrative arrangements
with a view to taking all reasonable steps designed to identify,
prevent, manage and monitor conflicts of interests in relation to
the unquoted valuation process. The Schroders Capital valuation
process and governance structure is intended to ensure
independence, accountability and segregation of duties in the
oversight functions.
Valuations are calculated using
established methodologies and public market comparators in
accordance with International Private Equity and Venture Capital
guidelines.
Valuations of the entire portfolio
are reviewed on a quarterly basis by the Board and annually by the
Auditor and clearly communicated to the market.
Comprehensive details of the
valuation methodology and process can be found in the Strategic
Report on pages 30 and 31.
Valuation frequency
In the past, the Board has published
an indicative NAV each day in addition to the complete NAV
calculations contained in the annual results, the interim results
and as part of two quarterly NAV updates. In view of the current
composition of the portfolio and the future investment strategy
centred around investment in private companies, the Company will
cease to publish an indicative NAV every business day from 2 April
2024 and the Company will focus on its quarterly NAV reporting
schedule. The private portfolio now accounts for approximately 81%
of the equity portfolio and this level will likely increase during
2024. Full quarterly valuation of all holdings and quarterly
updates on the whole portfolio will provide a more definitive
valuation basis for investors. The current daily indicative NAV
does not include revaluation of the private holdings other than to
account for foreign exchange movements and the relevance of the
daily update is questionable when the quarterly valuation process
for the private investments is taken into account.
The first NAV to be published under
the new reporting regime will be the 31 March 2024 NAV which is
expected to be published before the end of June 2024. In addition,
the Company will continue to make announcements arising from
developments within portfolio companies that have a material impact
on the NAV, as well as new private investments and realisations of
any nature in private investments (including partial realisations).
The Board believes this quarterly NAV reporting cycle will provide
shareholders with a clear framework for the release of information
on the portfolio.
Change of Company Name, Auditor and
Registrar
On 20 April 2023, the Company
rebranded as Schroders Capital Global Innovation Trust plc and at
the Company's AGM held on 21 June 2023, Ernst & Young LLP,
was appointed as the Company's new Auditor. Additionally, the
change of registrar to Equiniti Limited "Equiniti" was finalised on
30 June 2023.
Board composition
The Board noted the departure of
Raymond Abbott, who retired from the Board at the AGM in June 2023
and, again, thank Raymond for his valuable contribution to the
Company.
Lamia Baker joined the Board as an
independent non-executive Director with effect from 22 June 2023.
With more than 20 years of experience in business and technology,
Lamia brings expertise in areas such as intellectual property,
sales, innovation, entrepreneurship, venture capital investment,
and board representation. Currently, Lamia holds the position of
managing director (UK) at Dennemeyer & Co Limited and serves as
the Head of Commercial (EMEA) for Dennemeyer Group.
A resolution to appoint Lamia as a
Director of the Company will be proposed at the forthcoming
AGM.
Scott Brown, who has served on the
Board since 2015, will retire following the conclusion of the
forthcoming AGM in May 2024. On behalf of the Board, I would like
to thank Scott for his considerable contribution to the Company and
wish him well for his future plans.
AGM
The AGM will be held at 12.30pm on
Wednesday, 22 May 2024 at 1 London Wall Place, London EC2Y
5AU. The Board looks forward to welcoming shareholders to attend
and participate in the meeting. Shareholders will also have the
opportunity to hear a presentation from the portfolio managers,
Tim Creed and Harry Raikes and light refreshments will be
served. Please note that all voting will be on a poll and we
encourage all shareholders to exercise their votes by means of
registering them with the Company's registrar ahead of the meeting,
online or by completing paper proxy forms, and to appoint the Chair
of the meeting as their proxy. Information on voting can be found
in the Notice of Annual General Meeting on pages 85 to 87. In the
event that shareholders have a question for the Board, please email
amcompanysecretary@schroders.com in advance of the AGM.
Continuation vote in 2025
Shareholders will have the
opportunity to vote on the continuation of the Company at its AGM
in 2025 and every five years thereafter.
Packaged Retail Insurance and Investment Products ("PRIIPs")
legislation
There is a view that the UK's Listed
Investment Companies have been shunned by investors and investment
platforms because of the UK's unique interpretation of the PRIIPs
regulations in the Markets in Financial Instruments Directive
("MiFID") which remain on the UK statute book.
In the House of Lords on Friday, 1
March 2024, Peers from all sides of the House agreed that a simple
change to the interpretation in line with Baroness Altmann's
Alternative Investment Fund Designation Bill would bring the UK
into line with the rest of the world and was urgently needed in the
interest of the country. We support this Bill and believe it would
be a helpful legislative change.
Results webinar
Please join the Investment Manager
for a webinar in which they will report on the year ended 31
December 2023 and outline their thoughts on the future direction of
the portfolio. The presentation will be followed by a live
Q&A session. The webinar will take place on 28 March 2024
at 2pm. Register for the event at https://www.schroders.events/INOV24
Outlook
The increase in net asset value in
the last quarter of the year and the positive news flow from the
portfolio since the end of the year, both indicate that momentum is
beginning to turn in favour of growth in the new investments in the
portfolio.
This progress is not currently
reflected in the Company's share price and sentiment towards the
private equity sector remains muted. The Investment Manager is
finding exciting new investments and rebalancing the portfolio and
the Board is encouraged by the portfolio taking shape under their
direction. Shareholders can see this potential in the Investment
Managers' Review. The Board's continued implementation of its
Capital Discipline policy will underpin the Investment Manager's
efforts and, in time, the share price and discount should begin to
respond positively.
Tim
Edwards
Chair
27 March 2024
Investment Manager's Review
"The progress achieved in 2023 has
been against a difficult macroeconomic backdrop with investor
focus primarily on rising inflation and the policy response from
major central banks."
Summary
- The Company
reported a net asset value ("NAV") of 25.32p per share as of 31
December 2023, a decrease of 11.2% relative to the NAV share per
share as of 31 December 2022 (28.52p) but an increase of 7.9%
relative to the NAV per share of 23.46p as of 30 September
2023.
- The main
detractors from performance over the 12-month period, which have
been previously discussed, included holdings in AMO Pharma,
BenevolentAI, Oxford Nanopore and Atom Bank. On the positive side,
positions in Autolus Therapeutics, Carmot Therapeutics and Ada
Health provided bright spots, while the Company also notably
benefited from the first milestone payment following the sale of
Kymab to Sanofi, and an additional deferred cash consideration
received following the sale of assets to Rosetta
Capital.
- It has been a
busy year with six new investments completed (AgroStar, Carmot
Therapeutics, Securiti, Bizongo, AI software company (MMC SPV 3
LP), Memo Therapeutics) across our three strategies: venture,
growth and life sciences.
- During the 12
months to 31 December 2023 the Company made realisations totalling
£32.8 million, with positions in Oxford Nanopore and Immunocore
reduced, while Johnson Matthey, Spirent Communications, Petershill
Partners and IDEX Biometrics were exited.
- During the year,
the Company purchased 46.9 million shares, equivalent to 5.2% of
the outstanding share capital as of 31 December
2022.
- As of 31
December 2023, the Company had £2.9 million in cash (2022: £16.1
million), along with an investment of £9.7 million in the Schroder
Special Situations - Sterling Liquidity Plus Fund (2022: nil), a
daily liquidity money-market fund and £54.6 million in liquid
public equity investments1 (2022: £83.7 million) to meet the
funding requirements of the existing portfolio, continue to execute
the buyback programme and target a select number of new
investments.
Source: Schroders.
Introduction
Progress made in 2023
In the half year report and
accounts, we discussed our four key strategic areas as Investment
Manager. Here, we discuss the progress made this year towards our
long-term investment strategy of pursuing opportunities in
innovative, private companies globally across three key strategies:
venture, growth and life sciences.
1. Work closely with portfolio management teams,
co-investors, and other stakeholders to support business growth and
a path to profitability
As Investment Manager, we take an
active approach to engagement with the management teams of
portfolio companies, with some examples provided in the engagement
section later in this report. During 2023, the portfolio made
significant progress in terms of both growth and profitability. The
below figures offer a snapshot of progress by strategy as of 31
December 2023.
11
of 12 life sciences portfolio
companies have reached clinical stage
2 new venture portfolio
companies added in the past 12 months
80% average sales growth for
growth portfolio companies*
Source: Schroders Capital,
2024.
*As at 31 December 2023, the
weighted average sales growth over the last 12 months for all
growth investments valued using a market-based approach, and
excluded HP Environmental Technologies Fund.
Meanwhile, we are encouraged by the
aggregate health of the portfolio in terms of estimated cash runway
67% of equity investments (by value) as at 31 December 2023 are
profitable, fully funded or have more than 24 months of expected
cash runway, as described in the below table.
Expected cash runways for portfolio
companies
Expected cash runway
|
Fair
value
|
% of
equities
|
<12 months
|
£24.1m
|
12.0%
|
12-24 months
|
£43.0m
|
21.5%
|
>24 months
|
£63.6m
|
31.7%
|
Unprofitable (fully
funded)
|
£11.8m
|
5.9%
|
Profitable (incl.
milestones)
|
£57.9m
|
28.9%
|
Total equities
|
£200.4m
|
100.0%
|
Source: Schroders Capital, 2024.
These figures represent forecasts and may not be realised. % of
total investments as at 31 December 2023.
2. Rebalance the portfolio ensuring the
appropriate liquidity (cash and liquid public equities) to execute
efficiently the buyback programme and support the
portfolio
We made notable progress in altering
the liquidity mix to ensure the Company is appropriately positioned
to execute efficiently the buyback programme and support the
portfolio. During the year, we reduced the exposure to certain
public holdings with the goal of reducing concentration risk, and
to position the portfolio to better align with the renewed focus on
private equity. To this end, the Company realised £23.8 million
over the 12 months to 31 December 2023, exiting public equity
holdings in Johnson Matthey, Spirent Communications, Petershill
Partners and IDEX Biometrics, as well as reducing the holdings in
Oxford Nanopore and Immunocore. As of 31 December 2023, the
Company had £2.9 million in cash (2022: £16.1 million), along
with an investment of £9.7 million in the Schroder Special
Situations - Sterling Liquidity Plus Fund (2022: nil), a daily
liquidity money-market fund and £54.6 million in liquid public
equity investments, which we believe to be sufficient to
successfully continue the buyback programme in 2024, meet the
funding requirements of the existing portfolio and selectively
target new investments.
£12.6m in cash and money market funds
£54.6m invested in liquid public equity
investments
3. Maximise the sale proceeds from holdings, both
public and private, as part of the rebalancing
exercise
The economic environment in 2023 of
inflation and interest rate headwinds, recession fears, weaker
business confidence, subdued equity capital markets and slow
fundraising and M&A activity, made it difficult to achieve
sales for private holdings in the portfolio. We will continue to
explore sales options in 2024, which we expect to provide an
increasingly favourable environment for exits in private markets.
That said, through the sale of public equity holdings discussed in
the investment activity section and new investments (see below), we
have made considerable progress in rebalancing the portfolio,
increasing the portfolio's weightings to venture, growth and life
science investments while reducing the public equity exposure,
which is illustrated in the below figure. In addition, and more
recently, we have seen exits in Tessian (acquired by Proofpoint)
and Carmot (acquired by Roche), as well as receiving an additional
£2.9 million deferred cash consideration received following the
sale of assets to Rosetta Capital and an additional £4.6 million
distribution related to the first milestone of the Kymab sale to
Sanofi.
4. Complete new investments that align with our
new strategy
While ensuring the Company was in a
position to successfully execute the buyback programme, we
simultaneously made good progress with our long-term investment
strategy, making six new investments in innovative, private
companies globally (from the US to India) across venture, growth
and life sciences. These are illustrated below.
Two
new investments per strategy made in 2023
While we have made progress
completing new investments, only 30% of total equities as of
31 December 2023 represent investments made since Schroders
was appointed Investment Manager.
Economic and market backdrop
The progress achieved in 2023 has
been against a difficult macroeconomic backdrop with investor focus
primarily on rising inflation and the policy response from major
central banks. There were fears that rising interest rates could
lead to recession, although economic growth generally remained
resilient.
In Europe, the ongoing war in
Ukraine contributed to higher inflation as the region had to import
liquified natural gas from more distant producers. However, warmer
winter weather helped limit the impact of high gas prices. China's
decision to abandon its strict lockdown measures at the end of 2022
enabled economic activity to pick up, however the recovery was
weaker than many had hoped, with the property sector coming under
pressure. Volatility heightened in March 2023 as several regional
US banks - including Silicon Valley Bank - collapsed due to lack of
liquidity. In Europe, this was followed by the takeover of Credit
Suisse by UBS. Further uncertainty emerged amid concerns that the
US would breach its debt ceiling. However, a deal to extend the
debt ceiling was reached in early June 2023.
Towards the end of the period,
inflation readings in major economies began to soften. The debate
over the outlook for interest rates continued though, as resilient
growth and strong US labour markets raised expectations that rates
could remain elevated.
However, a definitive change
appeared to come in November with the release of
softer-than-expected US and eurozone inflation data. This was
followed in December by comments from the US Federal Reserve
suggesting that rates may not only have peaked, but that cuts could
be coming in 2024.
Global shares posted strong gains
over the 12-month period in aggregate, shrugging off concerns about
higher interest rates and risks to growth. US shares were among the
strongest performers. Gains were led by some of the mega cap
technology and consumer stocks. Companies thought to be winners
from the AI revolution saw particularly strong share price gains
around mid-year as markets embraced the potential of AI with
enthusiasm.
Against the backdrop of inflation,
rate rises and macroeconomic headwinds, global venture capital deal
activity fell in 2023, with a year-on-year decline of 42% by value
(from $426 billion in 2022 to $248 billion in 2023) and 30% by
volume (from 42,069 deals in 2022 to 29,303 deals in 2023). This
sees a return to the levels of deal activity seen prior to the
COVID-19 pandemic.
Meanwhile, investors have
demonstrated greater selectivity of deals and have been reluctant
to participate in large, late-stage rounds. The number of
mega-rounds, which represent deals worth $100 million+, has fallen
58% year-on-year (from 933 in 2022 to 394 in 2023), while the
aggregate value of these deals has fallen nearly 50% over the same
period (from $192 billion in 2022 to $100 billion in 2023).
Furthermore, while median deal sizes have come down across all
stages over the past three years, it has been most pronounced in
late-stage deals, which have fallen 58% since 2021 ($50 million in
2021 vs. $21 million in 2023).
The market cooling was also evident
with only 71 new unicorns created in 2023, a reduction of 73% from
2022 (263 unicorns) - representing a seven-year low. The
environment for exits also saw continued weakness. The number of
M&A transactions, the predominant exit route for venture-backed
businesses, declined 18% year-on-year (from 10,234 in 2022 to 8,351
in 2023). Initial public offerings were even further in decline,
falling 48% year-on year (from 90 in 2022 to 47 in
2023).
Source for venture data: CB
Insights, State of Venture 2023 Report.
Financial performance
2023 performance
The NAV as of 31 December 2023 was
£217.1 million, a decrease of 15.8% compared with the NAV (£257.9
million) as of 31 December 2022. The NAV per share as of 31
December 2023 was 25.32p, a decrease of 11.2% compared with the NAV
per share (28.52p) as of 31 December 2022.
This 11.2% decrease in NAV per share
comprised:
- Public equity
holdings: -5.8%
- Private equity
venture holdings: -4.2%
- Private equity
life science holdings: -1.9%
- Private equity
growth holdings: -0.5%
- Repurchase and
cancellation of the Company's own shares: 1.9%
- Costs and other
movements: -0.7%
Attribution analysis (£m)
|
Private
equity
|
|
|
Life
sciences*
|
Venture
|
Growth
|
Public
equity
|
Money market
funds
|
Cash
|
Other
|
NAV
|
Fair
value as at
31
December 2022
|
34.9
|
49.7
|
62.3
|
95.6
|
0.0
|
16.1
|
(0.7)
|
257.9
|
+ Investments
|
4.3
|
5.6
|
12.9
|
-
|
13.2
|
(36.0)
|
-
|
-
|
- Realisations at value
|
(3.1)
|
(5.2)
|
(0.7)
|
(23.8)
|
(3.6)
|
36.4
|
-
|
-
|
+/- Fair value
gains/(losses)
|
(5.1)
|
(10.8)
|
(1.2)
|
(15.0)
|
0.1
|
-
|
-
|
(32.0)
|
+/- Reclassified holdings
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- Repurchase & cancellation of
the Company's own shares
|
-
|
-
|
-
|
-
|
-
|
(7.0)
|
-
|
(7.0)
|
+/- Costs & other
movements
|
-
|
-
|
-
|
-
|
-
|
(6.6)
|
4.8
|
(1.8)
|
Fair
value as at
31
December 2023
|
31.0
|
39.3
|
73.3
|
56.8
|
9.7
|
2.9
|
4.1
|
217.1
|
*Included £2.9 million of proceeds
from Rosetta sale (sale of basket of life science assets to Rosetta
Capital).
Public equity holdings
The Company's public equity holdings
saw a fair value loss of -15.7% of the opening fair value,
contributing -5.8% to the decrease in NAV per share over the
12-month period.
The listed share price of AI-enabled
drug discovery and development company BenevolentAI declined 74.9%
over the year. In April, the company announced the results of its
Phase Ila study of BEN-2293, a treatment for Atopic Dermatitis, a
common skin condition that causes patches of skin that are itchy,
cracked and sore. The treatment was safe and well tolerated,
however failed to demonstrate efficacy - the key requirement for
further progression of the drug. In May, the company announced a
new strategic plan to position itself going forward. This included
streamlining its portfolio to focus on a narrower set of drug
programmes, and changing its cost base and organisational
structure, resulting in an extended cash runway to 2025. The
company is reported as a public equity holding although fair value
priced by the Company's AIFM, ("Schroder Unit Trusts Limited" or
the "Manager"), due to a lack of liquidity in the listed shares. As
of 31 December 2023, the holding in BenevolentAI is held at a
discount of 33% to the listed share price (FY22: 19%).
Meanwhile, the share price of Oxford
Nanopore Technologies ("ONT"), the Company's largest holding, fell
15.6% over the year, reflecting a mixed year in which underlying
financial growth was insufficient to offset pessimistic market
sentiment and continued valuation weakness. The share price
declined 13.5% in the first half and 2.4% in the second half of the
year. In September, ONT released its interim results for the six
months ended 30 June 2023 detailing Life Science Research Tools
("LSRT") revenue growth of 22% year-on-year to £86 million -
towards the mid-point of previous guidance, an adjusted EBITDA loss
aligned with market consensus, whilst reiterating medium term
guidance. During its capital markets day in October, ONT announced
that bioMérieux, a leading company in the field of vitro
diagnostics, planned to make a strategic investment of £70 million
in ONT at 238p per share, while expecting to make further market
share purchases, up to a further 3.5% of Oxford Nanopore's shares.
Additionally, ONT announced a multi-year joint development
collaboration with the Mayo Clinic, the renowned academic medical
centre, to develop new clinical tests for diseases and improve
patient care. After the period end, in January 2024, ONT released
its FY23 trading update outlining LSRT revenue increased 15%
year-on-year to £169 million, towards the lower end of previous
guidance. Performance in the fourth quarter was impacted by slower
than expected ramp-up of certain new customers, which management
expect to fall into FY24, and a slowdown of growth in China and the
Middle East following the issuance of the recent US trade rules
further regulating sales of advanced AI semiconductors. The company
also agreed to replace and supersede its existing purchase
agreement with G42 Laboratories in support of the Emirati Genome
Programme to remove the outstanding purchase commitment.
On the positive side, the share
price of Autolus Therapeutics, the CAR T-cell therapy company,
increased by 239.5% over the year. This increase reflects
encouraging results from clinical trials and pipeline developments.
The company presented positive results from a pivotal Phase 2
clinical trial for OBE-CELL, aimed at patients with
relapsed/refractory adult B-cell Acute Lymphoblastic Leukaemia.
These results were presented at the American Society of Hematology
in May and December. In November, the company filed a Biologics
License Application with the FDA, seeking US regulatory market
approval. Elsewhere in the pipeline, in April, the company reported
that AUTO1/22 showed complete responses and no antigen negative
relapse in responding patients with Acute Lymphoblastic Leukaemia
in a Phase I study. In June, the company reported that AUTO4
demonstrated responses in all four treated patients with
relapsed/refractory TRBC1-positive Peripheral T-cell Lymphoma.
AUTO4 was well tolerated with no dose-limiting toxicities. Two of
these patients showed a complete metabolic response at the highest
doses.
Private equity venture holdings
The Company's venture holdings saw a
decrease in value of 21.7% contributing -4.2% to the decrease in
NAV per share over the 12-month period.
The valuation of the Company's
holding in Federated Wireless decreased as a result of slower sales
growth than anticipated. The market that Federated Wireless is
penetrating is large but relatively cautious in adopting new
technologies. As such the company has taken a more cautious view on
growth in these early years which is reflected in the valuation
change. Additionally, the valuation of the Company's holding in
Genomics was decreased over the period to reflect the terms of its
£35 million fundraise which completed in early January
2024.
A key contributor over the period
was innovative email cybersecurity company Tessian, which in
November was announced to have entered into a definitive agreement
to be acquired by Proofpoint - a people-centric cybersecurity and
compliance company. The agreement closed in December 2023, with the
Company receiving $6.7 million (£5.2 million), representing an
increase of 32% compared to the valuation as of 31 December
2022 (£3.9 million).
Private equity life science holdings
The Company's life science holdings
saw a decrease in value of 14.6% contributing -1.9% to the decrease
in NAV per share over the 12-month period.
AMO Pharma, an emerging
biopharmaceutical business developing new treatments for serious
and debilitating diseases, including rare genetic disorders, was
one of the main detractors over the year. In September, the company
reported that its Phase 3 REACH-COM clinical trial for AMO-02, a
clinical stage investigational medicine for the treatment of
Congenital Myotonic Dystrophy, did not meet its primary efficacy
endpoint.
On the positive side, we are
delighted with the progress of two of the portfolio's more recent
life science investments: clinical-stage biopharmaceutical
companies Carmot Therapeutics and Anthos Therapeutics. In December
2023, it was announced that Carmot had entered into a definitive
agreement to be acquired by Roche, a global pharmaceutical company,
at a purchase price of $2.7 billion upfront and the potential for
$400 million in milestone payments. The transaction closed on 29
January 2024. This news has been reflected in the latest valuation
(£4.3 million), which represents an uplift of 216% from the value
as at 30 June 2023 (£1.3 million). Post year end, the Company
received a $5.6 million (£4.5 million) distribution from
the completed sale.
Meanwhile, the valuation in Anthos
has increased, driven by the positive result of its Phase 2 ANT-006
("AZALEA") study designed to compare Abelacimab's safety to leading
DOAC standard-of care (Rivaroxaban) in a high bleeding-risk cohort
of atrial fibrillation patients. In September 2023, Anthos
announced that the AZALEA study of 1,287 patients with atrial
fibrillation at moderate-to-high risk of stroke met its primary
efficacy endpoint. The study was stopped early by recommendation
from the Data Monitoring Committee due to an overwhelming reduction
in the composite of major and clinically non-major bleeding in
patients taking Abelacimab compared with patients taking
Rivaroxaban. Abelacimab is the first and only Factor XI inhibitor
to demonstrate an unprecedented reduction in major bleeding
compared to a direct oral anticoagulants which are the current
standard of care.
Overall, we are strongly encouraged
by the progress made by this area of the portfolio, out of the 12
life science portfolio investments (shown below), 11 have reached
clinical stage, of which two have been acquired, five have shown
clinical proof of concept and one has been approved.
Development of life science investments
The portfolio also notably
benefitted from:
(1) An additional £2.9 million
deferred cash consideration that was received as part of the sale
of a basket of seven assets to Rosetta Capital which originally
completed in March 2021.
(2) A revaluation of the holding in
Kymab to reflect the first milestone payment following the sale of
Kymab to Sanofi which originally completed in April
2021.
Private equity growth holdings
The Company's growth holdings saw a
decrease in value of 1.9% contributing -0.5% to the decrease in NAV
per share over the 12-month period.
In November 2023, it was announced
that UK app-based bank, Atom Bank, had raised £100 million in new
equity capital from existing shareholders BBVA, Toscafund and
Infinity Investment Partners, to accelerate lending and balance
sheet growth as the bank continues to scale. Following this news,
the Company's AIFM revalued the holding in Atom Bank to £23.1
million. This revaluation, which represented a discount to the
valuation of the fundraise, resulted in a negative fair value
impact of £8.6 million relative to the holding value as of 30 June
2023 and 31 December 2022 (£31.7 million). Whilst the valuation
impact of this fundraise is disappointing in the short term, this
significant investment should be viewed as a good signal of
confidence in Atom Bank. The company now has the capital to scale
up and demonstrate the operating efficiency of its platform.
Although much work remains, Atom Bank is one step closer to
a planned future liquidity event.
On the positive side, the Company's
holdings in Ada Health, Revolut and Back Market were revalued
upwards. As detailed in the Top 10 holdings, all three companies
reported solid progress over the year. Revolut continued its rapid
international expansion, growing the number of retail customers to
over 35 million across 38 countries, with the expectation to
achieve $2 billion (£1.7 billion) in revenue in 2023, an
increase of over 80% year-on-year (FY22 revenue £923 million).
Ada Health had a successful year achieving record revenue and
becoming profitable. The company announced collaborations with
Pfizer, the global pharmaceutical company, and Jefferson Health,
Greater Philadelphia's largest health system. Meanwhile, Back
Market has achieved and maintained profitability in mature markets
such as France and Spain, while it continues its global expansion
journey, focusing on US, UK, Germany and Japan.
Foreign exchange
Over the period, the fair value of
investments denominated in United States Dollar, Euro and Norwegian
Krone were negatively impacted by appreciation in the value of the
British Pound Sterling. Meanwhile, the fair value of investments
denominated in Swiss Franc were positively impacted by depreciation
in the value of the British Pound Sterling relative to Swiss
Francs.
Investment activity
Realisations
During the 12 months to 31 December
2023, the Company made realisations totalling £32.8 million. Public
equity holdings in Johnson Matthey, Spirent Communications,
Petershill Partners and IDEX Biometrics were exited, while
positions in Oxford Nanopore and Immunocore were
reduced.
Additionally, £5.2 million was
received from the sale of Tessian, discussed above.
Furthermore, the Company received an
additional deferred consideration of £2.9 million as part of the
sale of a basket of seven assets to Rosetta Capital which completed
in March 2021. The Company received total distributions of £0.7
million from the HP Environmental Technologies Fund following
the successful sales of several portfolio companies in 2021
and 2022. The Company also sold its holding in healthcare
company, Origin Inc, generating proceeds of less than £0.2 million.
The holding was valued at zero as of 31 December 2022
resulting in a modest positive impact on performance.
After the period end, Roche's
acquisition of Carmot completed (discussed below), while the
Company also received a £4.6 million distribution related to the
first milestone of the Kymab sale to Sanofi.
Investments
During the 12 months to 31 December
2023, the Company made investments totalling £22.8 million. These
included six new holdings: two venture investments (Securiti and an
AI software company (MMC SPV 3 LP)), two growth investments
(AgroStar and Bizongo) and two life science investments (Carmot
Therapeutics and Memo Therapeutics), as well as small follow-on
investments or capital calls (£2.3 million) in iOnctura, Anthos
Therapeutics and Epsilogen.
LIFE SCIENCES
Carmot Therapeutics
The Company completed a $1.7 million
(£1.4 million) investment in US-based, clinical stage
biopharmaceutical company, Carmot Therapeutics, Inc ("Carmot"), as
part of its Series E financing round.
Carmot discovers and develops
disease modifying therapies for people living with metabolic
diseases. Utilising a pioneering drug discovery platform called
Chemotype Evolution, Carmot identifies novel drug targets and
develops a broad pipeline of experimental therapeutics with the aim
of treating patients suffering from metabolic diseases, including
obesity and diabetes.
The proceeds from the Series E round
should support development of Carmot's broad clinical-stage
metabolic pipeline including two Phase 2 trials of CT-388, a
once weekly, injectable experimental therapeutic to treat patients
with obesity and/or type 2 diabetes. In a phase I/II clinical
trial, Carmot's lead therapeutic was found to be safe,
well-tolerated, and produced more than 8% weight loss in four weeks
in overweight and obese adults.
Deep Track Capital led a Series E
financing round, which was also supported by a syndicate of new and
existing healthcare investors including SAM Ventures, Franklin
Templeton, Frazier Life Sciences, Janus Henderson Investors, RA
Capital Management, Millennium Management, TCGX, The Column Group,
Venrock Healthcare Capital Partners and Willett
Advisors.
Carmot's pipeline of experimental
therapeutics has the potential to significantly improve the quality
of life for patients suffering from metabolic diseases, including
obesity and diabetes. Schroders Capital's ability to access this
restricted and oversubscribed funding round is testament to the
network that our healthcare team has developed across the
industry.
On 3 December 2023, it was announced
that Carmot had entered into a definitive agreement to be acquired
by Roche, a global pharmaceutical company, at a purchase price
of $2.7 billion upfront and the potential for $400 million in
milestone payments. Roche completed the acquisition of
Carmot on 29 January 2024.
We chose to invest in Carmot based
on its compelling assets, backed by robust clinical data and were
delighted by the news of this sale, which has occurred earlier than
expected, but which reflected the unique nature of Carmot's
pipeline.
Memo Therapeutics
The Company made a commitment of CHF
0.9 million (£0.8 million) to Memo Therapeutics, a
Switzerland-based clinical-stage biopharmaceutical company. The
Company participated in Memo's Series C financing round, which
raised CHF 25 million and was led by Pureos Bioventures. Existing
investors Swisscanto, Vesalius Biocapital, Adjuvant Capital, Verve
Ventures, GF Group, Fresenius Medical Care Ventures, and Red Alpine
also joined the round. As of 31 December 2023, the Company had
invested £0.5 million of its total commitment.
Memo develops novel therapeutic
antibodies for patients with viral infections and cancer. Memo's
unique antibody discovery and functional screening platform enables
the identification, isolation, and selection of antibodies from
patient samples or vaccinated animals. This technology helps Memo
to discover antibodies with the potential to treat diseases using
rare antibodies that other methods might miss.
The Series C funding should support
Memo in completing the U.S. Phase II clinical development of their
leading antibody, AntiBKV. This antibody is designed to neutralise
BK virus (BKV) infection in kidney transplant recipients. BKV
infection can have serious adverse effects on graft function and
patient survival following a transplantation procedure. Currently
there are no regulatory approved therapeutics to treat BVK
infection in kidney transplant recipients. With Phase II clinical
data expected in 2024, the funding should also enable Memo to
prepare for large-scale manufacturing of AntiBKV for a Phase III
study and potential market entry. Additionally, the investment
should help Memo advance its pipeline of other experimental
antibody therapeutics.
We believe Memo is a highly
complementary addition to the company's portfolio. AntiBKV has
solid pre-clinical efficacy and clinical safety data with near term
Phase II clinical efficacy data expected in 2024. A positive phase
II readout has the potential to drive a significant value
inflection for Memo and may enable a material improvement in
the quality of life for kidney transplant recipients with BKV
infection.
VENTURE
Securiti
The Company made an $5.0 million
(£3.9 million) investment in US-based cybersecurity company,
Securiti. The company is the pioneer of the Data Command Center, a
centralised platform that enables the safe use of data and GenAI.
Its solution unifies controls for data security, privacy,
governance and compliance in one place. This unification of data
intelligence is revolutionising important but arduous processes,
allowing organisations to retire disparate, legacy solutions which
add cost and complexity.
Schroders Capital has known Securiti
for a number of years, having been an investor since 2019 through
our fund investments. We believe Securiti is playing a key role in
transforming how organisations can innovate with vast quantities of
data while meeting their data obligations.
AI
software company (MMC SPV 3 LP)
The Company made an investment of
$2.0 million (£1.7 million) into an early leader in an emerging
segment of artificial intelligence (AI) software. The Company
invested through its co-investment partner, MMC Ventures, via a
single asset fund, MMC SPV 3 LP.
Schroders Capital has been investing
in venture capital for over 25 years. Over that time, our team has
seen various waves of technological innovation and witnessed
first-hand the ripple effect through different sectors and regions.
Our belief is that AI, most recently focused on the field of
generative AI that has been enabled by the advent of large language
models, has the potential for innovation and disruption on a scale
comparable to the introduction of email, the internet and the
smartphone. We see significant opportunity in the AI sector,
justifying its position as one of our eight key global innovation
themes. This investment, which forms part of our strategy of
backing innovative venture-stage business, is in an
access-restricted software company that is an early leader in an
emerging application of AI. We are not currently able to name the
company due to confidentiality, however, we believe it represents a
highly complementary addition to the portfolio.
GROWTH
AgroStar
Over the period, the Company
completed its first transaction in Asia with an $8.0 million (£6.6
million) investment in AgroStar (Ulink Agritech Pvt. Ltd.), one of
India's foremost agricultural technology start-ups.
The investment formed part of the
$25 million (~£20.6 million) total investment by Schroders Capital
that led the $40 million (~£33.0 million) financing round. The
round also saw participation from other existing investors
including Accel, Chiratae Ventures, Evolvence, Aavishkaar Capital,
Bertelsmann India Investments, Hero Enterprise, Rabo Frontier
Ventures, British International Investments and IFC.
Founded in 2013, AgroStar uses
technology, data, and agronomy knowledge to help Indian farmers. It
provides an end-to-end solution that is solving three major
problems for Indian farmers: limited access to good quality
agricultural inputs, a knowledge gap (even among the most
experienced farmers), and a lack of access to global markets to
sell their produce. The company serves millions of farmers across
multiple Indian states via an omnichannel approach, having built a
highly engaged digital farmer network on the AgroStar app, with
over 7.5 million users, and a rapidly expanding retail network of
over 5,000 stores. Through the recent acquisition of INI Farms,
India's largest exporter of fruits and vegetables, AgroStar is
quickly scaling its business into the domestic and international
food supply chains.
Schroders Capital has known AgroStar
for several years, having been an investor since 2021, and we
believe the company has demonstrated exceptional growth by
combining technology with strong agronomy capabilities to play an
important role in the Indian agricultural sector.
Bizongo
The Company also made an investment
of $8.0 million (£6.3 million) in India-based vendor digitisation
company, Bizongo. This investment formed part of the $50.0 million
Series E funding round that was led by Schroders Capital with
participation from other investors including IFC, BCap, Chiratae
Ventures, and British International Investment.
Bizongo, which was founded in 2015,
is transforming supply chain operations for large enterprises, as
well as for micro, small and medium enterprises ("MSME's") in
India, through its foundational vendor digitisation platform.
Bizongo enables vendors to source raw materials across a broad
range of categories, including steel, aluminium and textiles, and
to optimise their procurement processes. Customers leverage the
Bizongo vendor digitisation platform to source suppliers, optimise
for cost, seamlessly place orders, all whilst managing invoicing
and order tracking in real-time. Bizongo has a capital efficient,
inventory-free operating model, that connects vendors directly with
suppliers. The vendor digitisation platform has seen a three-fold
rise in its gross merchandise value, the total value of sales
through the platform, from ~$215 million in FY22 to ~$750 million
in FY23.
With its platform, the company has
also opened doors to embedded financing through its network of more
than 40 partner banks and non-banking financial corporations, who
can evaluate MSMEs based on deep transactional and behavioural
insights, allowing them to take better financing calls, and
enabling MSMEs to scale their growth through efficient working
capital.
Schroders Capital has been an
investor in Bizongo since 2019, over which time we have seen the
company grow exponentially, achieve scale, and expand into more
sectors. We believe the company is playing a transformational role
in enabling vendors in India to digitalise their supply chain,
which has accelerated since the COVID-19 pandemic. We are excited
that the Company is now participating in Bizongo's future
growth.
Outlook
The core tenets of the strategy
pursued in 2023 remain unchanged in 2024. We continue to work
closely with portfolio company management teams, co-investors, and
other stakeholders to support business growth and a path to
profitability. Below we look at the outlook across the four
different strategies:
Growth
With an increasing percentage of the
private equity portfolio, particularly within the growth strategy,
now valued on a multiples-based approach as detailed in the
Valuation Approach and Process section, we are hopeful that during
the year the portfolio will benefit from underlying financial
growth being more readily reflected in quarterly valuations. We are
also cautiously optimistic that this effect will be compounded by
improving market conditions giving rise to a more favourable
valuation and exit environment.
Of the seven growth holdings in the
portfolio: all generate scalable commercial revenues, four are
profitable, five are fully funded based on their latest business
plan, and none need to raise capital during 2024. We expect exits
from this segment of the portfolio to start materialising from 2026
onwards, so the near-term focus is on capital efficient
growth.
Atom Bank, the second largest
holding, aims to focus on productively deploying the capital from
its recent fundraise, accelerating mortgage and business lending,
and expanding its deposit base. Atom operates in highly competitive
markets dominated by large established banks, however this fresh
capital is expected to allow the bank sufficient scale to
demonstrate the operational efficiency of its digital-first model,
a key requirement for any future potential liquidity
event.
Key factors for success in 2024 will
include Revolut and Back Market delivering against their ambitious
international expansion plans, AgroStar and Bizongo, our latest
growth-stage investments in India, leveraging recent funding rounds
to expand domestically, investing in new product innovation and
continuing to expand their services to customers, and Ada Health
replicating the success of partnerships signed with Pfizer and
Jefferson Health in 2023.
Venture
The venture segment of the portfolio
by design is where we expect to see the highest level of risk and
therefore widest dispersion of returns (excluding life sciences)
and 2024 is likely to be no different. These holdings are the
hardest to value, often requiring a milestone-based approach which,
at times, can result in large swings in valuation.
Of the nine venture holdings in the
portfolio: four generate scalable commercial revenues, all are
unprofitable, two are fully funded based on their latest business
plan and only one needs to raise further capital during
2024.
Key factors for success in 2024 are
expected to include Reaction Engines commercialising spin-off
technologies from its core heat exchanger programme, Nexeon making
progress with building its first commercial scale production plant
and Federated Wireless driving further commercial and federal
traction enabling it to continue to scale.
Life sciences
We expect several portfolio biotech
companies to experience value inflections based on their ongoing
clinical trials and potential market approvals. Autolus, which is
classified as a public company, is awaiting market approval in the
US, EU, and UK for Obe-cel, a treatment for relapsed/refractory
Acute Lymphocytic Leukaemia expected in Q2. Additionally, results
from the Phase 1 clinical trial for Obe-cel in B-cell Non-Hodgkin
Lymphoma and Chronic Lymphocytic Leukaemia are expected in Q4.
Phase 1 clinical trials results are also expected in Q4 for Obe-cel
in the treatment of primary CNS Lymphoma, allogenic Obe-cell for
B-cell malignancies, and AUTO8 for multiple myeloma.
OcuTerra is conducting a Phase 2
clinical trial for OTT166 in adults with Diabetic retinopathy, and
results from this trial are anticipated by Q2. Immunocore are
seeking to release additional Phase 1 clinical data for IMC-F106C,
a treatment for multiple solid tumour types between Q2 and Q4.
Anthos, which received positive results in Q4 2023 from
a Phase 2 clinical trial for its thrombosis prophylaxis
Abelacimab we believe may lead to potential mergers and
acquisitions during the year.
iOnctura's Phase 1 clinical trial
for IOA-244 is expected to be completed by Q4. This trial aims to
evaluate the efficacy of IOA-244 in treating patients with Uveal
Melanoma, Cutaneous Melanoma, Mesothelioma, Myelofibrosis,
Non-Hodgkin Lymphoma, and Non-Small Cell Lung Cancer ("NSCLC").
Memo Therapeutics may release data from its ongoing pivotal Phase
2/3 clinical trial for its therapeutic antibody AntiBVK for the
treatment BK virus infection in kidney transplant recipients in Q4.
Epsilogen is expected to initiate Phase 2 clinical trials for its
lead therapeutic Mov18 in patients with advanced solid tumours.
Lastly, A2 Bio may release Phase 1 data for A2B530, a
treatment for CEA positive solid tumours by year end.
Public equities
We expect the public equity
portfolio, principally Oxford Nanopore, to remain volatile as the
valuation environment for loss-making, growth focused listed
companies remains unforgiving. During 2024, Oxford Nanopore will
focus on increasing LSRT sales, developing new clinical and applied
applications of its technology, and winning new large scale genetic
sequencing projects. The company aims to achieve greater than 30%
growth in underlying LSRT revenue, expand gross margins through
operating efficiency gains, demonstrate progress on its path to
profitability and ease concerns of any further future capital needs
that would be dilutive to shareholders.
Rebalancing & diversification
With only 30% of equities as of 31
December 2023 representing investments made by Schroders, we
continue to seek to maximise the sale proceeds from holdings, both
public and private, as part of the rebalancing exercise to ensure
sufficient liquidity (cash and liquid public equities) to
efficiently execute the buyback programme, support the portfolio
and make new investments.
We expect diversification to be a
key topic for 2024. As capital availability allows, we seek to
target new investments that align with our three strategies
(venture, growth and life sciences) with the aim of building a
diversified portfolio which more appropriately balances the risk of
each strategy. This goal remains a moving target with the
requirements of the buyback programme and uncertain timing of
potential future exits, however our direction of travel is clear.
However, with private markets lagging those of public equities, we
see a compelling opportunity to continue making new investments at
attractive entry prices.
Schroders Capital remains committed
to the Company and delivering long-term value for
shareholders.
Tim
Creed and Harry Raikes
Portfolio Managers
27 March 2024
Top
10 investments
The Company's top ten investments as
of 31 December 2023 compared with the respective holdings as of 31
December 2022.
|
|
31 December
2022
|
31 December
2023
|
Portfolio company
|
Strategy
|
Value
(£'000)
|
% of total
equities
|
Value
(£'000)
|
% of total
equities
|
Oxford Nanopore
|
Public
|
56,529
|
23.3
|
41,669
|
20.8
|
Atom Bank
|
Growth
|
31,686
|
13.1
|
23,105
|
11.5
|
HP Environmental
Technologies
|
Growth
|
10,700
|
4.4
|
10,918
|
5.4
|
Reaction Engines
|
Venture
|
12,500
|
5.2
|
10,625
|
5.3
|
Ada Health
|
Growth
|
7,122
|
2.9
|
9,638
|
4.8
|
Back Market
|
Growth
|
7,329
|
3.0
|
8,839
|
4.4
|
Autolus Therapeutics
|
Public
|
2,642
|
1.1
|
8,463
|
4.2
|
Revolut
|
Growth
|
5,436
|
2.3
|
7,888
|
3.9
|
AgroStar
|
Growth
|
-
|
-
|
7,279
|
3.6
|
Nexeon
|
Venture
|
6,505
|
2.7
|
7,039
|
3.5
|
Oxford Nanopore
Technology company at the forefront of next generation DNA
sequencing instrumentation
Oxford Nanopore Technologies ("ONT") has developed a new
generation of nanopore-based electronic systems for the analysis of
single molecules, including DNA, RNA and proteins. The handheld
MinION™ device, the high-throughput PromethION™ and the GridION™
system are used in scientific research, personalised medicine, crop
science, security and defence and environmental
applications.
ONT had a mixed 2023 with key
highlights including:
- In September,
ONT released its interim results for the six months ended 30 June
2023:
o LSRT revenue
increased 22% year-on-year to £86 million.
o Underlying LSRT
revenue growth, excluding revenue from the Emirati Genome Program
("EGP") and COVID-19 sequencing, expected to be ~46% on constant
currency basis.
o Adjusted EBITDA
loss of £39 million which aligned with market consensus.
- In October, ONT
announced various updates as part of its Capital Markets Day
including:
o Signing a
multi-year joint development collaboration with Mayo Clinic, the
renowned academic medical centre.
o Securing a
strategic investment from bioMerieux, a leading company in the
field of in vitro diagnostics.
o Progress
advancing the technology from research into clinical and applied
industrial markets targeted at 10-20% of revenue by
FY26.
- After the period
end, in January 2024, ONT released its FY23 trading update
outlining:
o LSRT
revenue increased 15% year-on-year to £169 million towards the
lower end of previous guidance.
o
Performance in the fourth quarter was impacted by slower than
expected ramp-up of certain new customers, which management expect
to fall into FY24, and a slowdown of growth in China and the Middle
East following the issuance of the recent US semiconductor trade
rule further regulating sales of advanced AI
semiconductors.
o An
agreement to replace and supersede its existing purchase agreement
with G42 Laboratories in support of the EGP - the new agreement
will remove the outstanding purchase commitment and extends the
expiration date until 31 December 2026.
o
Reiterated medium-term guidance including underlying revenue growth
of more than 30% per annum (on a constant currency basis), gross
margin of greater than 65% and the target for adjusted EBITDA
breakeven by the end of 2026.
Atom Bank
Leading UK app-only challenger bank
Atom Bank is the UK's first bank built exclusively for mobile.
It aims to redefine what a bank should be, making things easier,
more transparent, and better value. Atom currently offers savings
accounts, mortgages and business loans.
In July 2023, Atom Bank published
its FY23 annual report for the 12-month period to 31 March 2023
reporting its first annual operating profit of £4.2 million. Key
highlights included:
- Customer numbers
increased 82% from 123,000 to 224,000 whilst maintaining industry
leading customer reviews.
- Customer
deposits increased 105% from £3.2 billion to £6.6 billion with
rising interest rates incentivising UK consumers to switch into the
company's competitively priced products.
- Loans under
management increased 4% from £3.3 billion to £3.4 billion with
new lending slowing through the middle of the year due to
volatility in market rates.
- Net interest
income increased 62% from £47 million to £76 million due to
balance sheet growth and improving spreads against a backdrop of
rapidly rising base rates.
- Net interest
margin, calculated as net interest income divided by average total
loans for the period over which it was generated, declined from
2.93% to 2.84%. Despite an improving yield on lending assets, the
result was lower than the prior year due to the comparatively lower
yield on cash.
In November 2023, Atom Bank
announced it had raised £100 million in new equity capital from
existing shareholders BBVA, Toscafund and Infinity Investment
Partners. The funds are expected to be used to accelerate lending
and balance sheet growth as the bank continues to scale. Whilst the
valuation impact of this fundraise is disappointing in the short
term, this significant investment is a good signal of confidence in
Atom Bank. The company now has the capital to scale up and
demonstrate the operating efficiency of its platform. Although much
work remains, Atom Bank is one step closer to a planned future
liquidity event.
HP
Environmental Technologies
Fund that invests in emerging environmental
technologies
The HP Environmental Technologies
Fund invests in emerging environmental technologies working to
solve some of the most important environmental challenges faced by
the world today. The Fund was seeded through the secondary purchase
of a portfolio of seven leading environmental technology companies
and seeks primary investment opportunities that arise from efforts
to reduce our impact on the planet and move towards solving
important environmental challenges.
Key portfolio updates in
2023:
- Bluewater
Bio
o
Throughout 2023, Bluewater Bio continued to roll out its
FilterClear technology across the UK as a core part of water
companies' phosphorous removal programmes which are essential to
maintaining the health of our streams, rivers and lakes.
o In
addition, Bluewater's HYBACS (HYBrid ACtivated Sludge) technology
continued to perform in the UK, Middle East and South Africa,
providing millions of tonnes of water for reuse, saving energy and
reducing pollution.
- P2i
o P2i
protected over 100 million electronic devices with its nano-coating
in 2023, enhancing the quality of these devices and at the same
time reducing waste and the amount of rare earth metals used, and
generating significant carbon savings.
o In
March 2023, P2i was proud to be part of the official launch of the
United Electronics Coating Association ("UECA"), whose formation
P2i had spearheaded. The UECA was established to support, develop
and deliver to markets sustainable electronic coating solutions in
line with the principles of the Circular Economy, recyclable
electronics, and re-usability.
-
Iceotope
o In
February 2023, Iceotope announced the availability of KUL Extreme,
a fully integrated and standardised open radio access network
architecture solution to support far edge computing across the
entire telecommunications data centre estate. The product is a
result of a close collaboration between Iceotope, Hewlett Packard
Enterprise, Intel, and nVent to significantly reduce energy
consumption and deliver a sustainable solution across distributed
workloads, for both telco service providers and
enterprises.
o In
September 2023, BT Group announced that it aims to trial 'precision
liquid cooled' networks switches using a solution provided by
Iceotope and Juniper Networks QFX Series Switches, which are widely
used in existing network cloud architectures.
Reaction Engines
Developer of engine technologies to enable space and
hypersonic travel
Reaction Engines is pioneering space access and sustainable
technologies. For over 30 years the company has been at the
forefront of engineering innovation - including developing SABRE, a
revolutionary new class of aerospace propulsion. SABRE enables
Reaction Engines to go beyond the limits of flight both within and
outside the atmosphere.
- In January 2023,
Reaction Engines announced a further £40 million funding round
led by Strategic Development Fund, the investment arm of UAE's
Tawazun Council.
- In February
2023, the company announced that it had joined the Thermal
Management for Hybrid Electric Regional Aircraft consortium, a
pan-European consortium led by Honeywell, which is researching and
developing thermal management components and architectures for
next-generation narrow body and regional, hybrid-electric
aircraft.
- In June 2023,
the company announced its participation in projects RACHEL and
LH2GT, two cutting-edge projects developing technologies for the
use of liquid hydrogen fuel in aviation, led by Rolls-Royce and
funded by the UK government's Aerospace Technology
Institute.
- In August 2023,
it was announced that the company had been awarded funding to
further a UK/US collaboration under the UK Space Agency's
International Bilateral Fund.
Ada
Health
Global digital health company focused on improving human
health at scale
Ada has developed a powerful AI-based health assessment and
care navigation platform that helps users to understand their
symptoms, identify and differentiate conditions with a high degree
of medical accuracy, and navigate safely to the right care at the
right time.
2023 was a very successful year for
Ada Health, with the company achieving record revenues and becoming
profitable at an EBITDA level. The year was marked by many
highlights, including:
- In January 2023,
it was announced that Ada Health and Pfizer were collaborating to
launch a nationwide online COVID-19 Care Journey, operated by Ada,
to help connect patients with timely treatment.
- In April 2023,
Ada announced a new collaboration with Jefferson Health, Greater
Philadelphia's largest health system comprised of 18 hospitals and
more than 50 outpatient facilities across Pennsylvania and New
Jersey.
- In June 2023,
the company announced that it had secured €30 million to
advance global growth. The agreement between Ada Health and IPF
Partners represented up to €30 million of debt borrowing and
reinforced Ada Health's financial runway through 2024 and beyond as
the company steers toward profitability. The funding enabled
continued investment in product enhancement and development, user
growth, and commercial traction with leading health systems,
governments, and life sciences organisations. Initially, Ada Health
intend to only draw part of the committed funding.
- In September
2023, Ada Health launched a new collaboration to provide medical
advice and care guidance for mothers across South
Africa.
- In October 2023,
the company launched a COVID-19 risk and therapy screener to help
people across Germany understand their risks.
Back Market
Global marketplace for refurbished devices
Back Market is a leading online marketplace dedicated to
refurbished devices. The company's mission is to make restored
devices mainstream. Back Market works with professional
refurbishers to guarantee that every device has been tested and
restored to perfect working condition according to industry
standards.
- In April 2023,
Back Market announced that it had received B Corp status. This
means that from their environmental impact to their hiring
practice, they are working toward a more inclusive and sustainable
economy. B Corp is a third-party certification for "businesses
meeting high standards of verified performance, accountability, and
transparency on factors from employee benefits and charitable
giving to supply chain practices and input materials."
- Back Market now
has over 1,500 professional sellers on the platform backed by a
solid ranking system.
- Profitability
has been achieved and maintained in mature markets such as France
and Spain, with the company continuing on its global expansion
journey, with focus on US, UK, Germany and Japan.
- Looking forward,
Back Market aims to focus on diversifying into new categories,
increasing buyback and recycling activity and furthering
partnerships with telcos.
Autolus
Clinical-stage biopharmaceutical company developing
next-generation, programmed T-cell therapies for the treatment of
cancer
Autolus is a CAR T-cell therapy company. The company applies
its extensive programming capabilities to develop advanced
autologous T-cell therapies that have the potential to deliver
life-changing benefits to cancer patients.
- The company
presented positive results from a pivotal Phase 2 clinical trial
for OBE-CELL, aimed at patients with relapsed/refractory adult
B-cell Acute Lymphoblastic Leukaemia. These results were presented
at the American Society of Hematology in May and December
2023.
- In November
2023, the company filed a Biologics License Application with the
FDA, seeking US regulatory market approval.
- Elsewhere in
their pipeline, the company reported in April 2023 that AUTO1/22
showed complete responses and no antigen negative relapse in
responding patients with Acute Lymphoblastic Leukaemia in a Phase I
study.
- In June 2023,
the company reported that AUTO4 demonstrated responses in all four
treated patients with relapsed/refractory TRBC1-positive Peripheral
T-cell Lymphoma. AUTO4 was well tolerated with no dose-limiting
toxicities. Two of these patients showed a complete metabolic
response at the highest doses.
Revolut
Global neobank and financial technology
company
Revolut is a fintech firm that provides banking and payment
services. The company offers multi-currency cards and a mobile
app that includes currency exchange, peer-to-peer payment and bank
transfer solutions. It also offers personal and business
banking solutions.
In December 2023, Revolut released
its annual report for 2022 providing greater detail on progress in
the prior year:
- Number of retail
customers increased 60% year-on-year to 26.2 million,
including a 55% increase in customers on paid plans, and during the
course of 2023, the number of retail customers later surpassed 35
million customers across 38 countries.
- Number of
monthly transactions increased 71% to 341 million.
- Deposits
increased 71% to £12.6 billion.
- Revenue
increased 45% to £923 million.
- Number of
employees increased 112% to 5,913.
- During the year,
Revolut continued to pursue its global expansion across a number of
markets:
o North America:
United States.
o Asia-Pacific:
Australia, Singapore, Japan and New Zealand (launched in July
2023).
o Latin America:
Brazil (launched in May 2023) and Mexico.
- The company
reiterated its commitment to its ongoing UK banking licence
application.
- Expects to hit
$2 billion (£1.7 billion) in revenue and double-digit net profit
margin for 2023.
AgroStar
One
of India's foremost agricultural technology (AgTech)
start-ups
AgroStar uses technology, data, and
agronomy knowledge to help Indian farmers. It provides an
end-to-end solution that is solving three major problems for Indian
farmers: limited access to good quality agricultural inputs, a
knowledge gap (even among the most experienced farmers), and a lack
of access to global markets to sell their produce.
AgroStar made good progress in 2023.
The private label business grew by 60% year-on-year and expanded
into five new Indian states. The company added multiple new crops
to the produce portfolio and forayed into new geographies with
partnerships with marquee global brands. Key highlights
included:
- Served more than
1.4 million farmers in 2023 across channels.
- Farmer App
continues to be well rated on the app store and had >1.5 million
new downloads in 2023.
- Expansion of
footprint to five new Indian states including Bihar, Haryana,
Karnataka, Andhra Pradesh and Telangana.
- Added over 3,000
new stores in CY23 and now have 7,000+ Saathi stores distributing
AgroStar products across 10 Indian states.
- Export of over
80,000 metric tonnes of fresh produce from Indian farmers to global
markets in 2023.
- Added new crops
(guava and melons) to the offering in 2023.
Nexeon
Leader in engineered silicon materials for battery
applications
Nexeon is a global leader in the development and manufacturing
of ground-breaking, silicon-based anode materials, dramatically
enhancing the performance of Lithium-Ion
batteries.
- In July 2023,
Nexeon announced that it had entered into a long-term partnership
with Panasonic to supply its advanced silicon-based anode material,
which has the potential to catapult the energy density of
lithium-ion cells. This technology redefines the limits of energy
density and enables a new era of enhanced battery
performance.
- In August 2023,
the company announced that it had signed an agreement for its first
commercial volume production site and secured a raw material supply
chain for silicon anodes. This represented a significant step
towards delivery of cost-efficient silicon anode materials for
energy dense batteries.
Investment Portfolio as at 31 December 2023
The 20 largest investments account
for 91.1% of total investments by value (31 December 2022:
93.4%).
|
|
|
|
Fair value
|
Total
|
Holding
|
Quoted/unquoted
|
Strategy
|
Industry sector
|
£'000
|
investments
%
|
Equities
|
|
|
|
|
|
Oxford
Nanopore1
|
Quoted
|
Public
|
Health Care
|
41,669
|
19.8
|
Atom Bank1
|
Unquoted
|
Growth
|
Financials
|
23,105
|
11.0
|
HP Environmental Technologies
Fund1
|
Unquoted
|
Growth
|
Industrials
|
10,918
|
5.2
|
Reaction
Engines1
|
Unquoted
|
Venture
|
Industrials
|
10,625
|
5.1
|
Ada Health
|
Unquoted
|
Growth
|
Health Care
|
9,638
|
4.6
|
Back Market2
|
Unquoted
|
Growth
|
Consumer
|
8,839
|
4.2
|
Autolus
Therapeutics1
|
Quoted
|
Public
|
Health Care
|
8,463
|
4.0
|
Revolut LLP3
|
Unquoted
|
Growth
|
Financials
|
7,888
|
3.8
|
AgroStar4
|
Unquoted
|
Growth
|
Technology
|
7,279
|
3.5
|
Nexeon1
|
Unquoted
|
Venture
|
Industrials
|
7,039
|
3.4
|
Federated
Wireless1
|
Unquoted
|
Venture
|
Technology
|
6,392
|
3.0
|
Kymab1
|
Unquoted
|
Life sciences
|
Health Care
|
6,370
|
3.0
|
Bizongo5
|
Unquoted
|
Growth
|
Technology
|
5,585
|
2.7
|
Genomics1
|
Unquoted
|
Venture
|
Health Care
|
5,139
|
2.4
|
Cequr1
|
Unquoted
|
Life sciences
|
Health Care
|
4,956
|
2.4
|
OcuTerra1
|
Unquoted
|
Life sciences
|
Health Care
|
4,804
|
2.3
|
Immunocore1
|
Quoted
|
Public
|
Health Care
|
4,437
|
2.1
|
Carmot Therapeutics
|
Unquoted
|
Life sciences
|
Health Care
|
4,262
|
2.0
|
Securiti
|
Unquoted
|
Venture
|
Technology
|
4,210
|
2.0
|
Attest Technologies
|
Unquoted
|
Venture
|
Business Services
|
2,870
|
1.4
|
Anthos Therapeutics
|
Unquoted
|
Life sciences
|
Health Care
|
2,440
|
1.2
|
BenevolentAl1,6
|
Quoted
|
Public
|
Health Care
|
2,176
|
1.0
|
Epsilogen
|
Unquoted
|
Life sciences
|
Health Care
|
2,047
|
1.0
|
MMC SPV 3 LP7
|
Unquoted
|
Venture
|
Technology
|
1,651
|
0.8
|
Araris Biotech
|
Unquoted
|
Life sciences
|
Health Care
|
1,482
|
0.7
|
iOnctura
|
Unquoted
|
Life sciences
|
Health Care
|
1,399
|
0.7
|
AMO Pharma1
|
Unquoted
|
Life sciences
|
Health Care
|
1,350
|
0.6
|
Industrial
Heat1
|
Unquoted
|
Venture
|
Industrials
|
1,306
|
0.6
|
A2 Biotherapeutics
|
Unquoted
|
Life sciences
|
Health Care
|
914
|
0.4
|
Memo Therapeutics
|
Unquoted
|
Life sciences
|
Health Care
|
558
|
0.3
|
Novabiotics1
|
Unquoted
|
Life sciences
|
Health Care
|
457
|
0.2
|
Econic1
|
Unquoted
|
Venture
|
Industrials
|
58
|
-
|
ARC Group1
|
Quoted
|
Public
|
Business Services
|
34
|
-
|
Freevolt (formerly
Drayson)1
|
Unquoted
|
Venture
|
Technology
|
-
|
-
|
Just
Benchmarks1
|
Unquoted
|
Venture
|
Financials
|
-
|
-
|
Mafic1
|
Unquoted
|
Venture
|
Industrials
|
-
|
-
|
Metaboards1
|
Unquoted
|
Venture
|
Technology
|
-
|
-
|
Mereo BioPharma
Group1
|
Quoted
|
Life sciences
|
Health Care
|
-
|
-
|
EVOFEM
Biosciences1
|
Unquoted
|
Life sciences
|
Health Care
|
-
|
-
|
Halosource1
|
Unquoted
|
Venture
|
Industrials
|
-
|
-
|
Bodle
Technologies1
|
Unquoted
|
Venture
|
Technology
|
-
|
-
|
Rutherford
Health1
|
Unquoted
|
Venture
|
Health Care
|
-
|
-
|
Lignia Wood1
|
Unquoted
|
Venture
|
Industrials
|
-
|
-
|
Oxsybio1
|
Unquoted
|
Life sciences
|
Health Care
|
-
|
-
|
Spin Memory1
|
Unquoted
|
Venture
|
Technology
|
-
|
-
|
Kind Consumer1
|
Unquoted
|
Venture
|
Consumer Staples
|
-
|
-
|
Total equities
|
|
|
|
200,360
|
95.4
|
Money market funds
|
|
|
|
|
|
Schroder Special Situations -
Sterling
|
|
|
|
|
|
Liquidity Plus Fund
|
Quoted
|
Cash
|
Collectives
|
9,733
|
4.6
|
Total money market funds
|
|
|
|
9,733
|
4.6
|
Total investments8
|
|
|
|
210,093
|
100.0
|
1 Assets inherited from the previous portfolio
manager.
2 Back Market is held via the Company's holding in Sprints
Capital Ellison LP, a single asset fund.
3 Revolut is held via the Company's holding in Target Global
Selected Opportunities, LLC - Series Space, a single asset
fund.
4 AgroStar is held via the Company's holding in Schroders
Capital Private Equity Asia Mauri VIII Ltd, a single asset
fund.
5 Bizongo is held via the Company's holding in Schroders Capital
Private Equity Asia Maurit V Ltd, a single asset fund.
6 BenevolentAI is quoted, but the market is inactive. Thus its
valuation has been determined in accordance with the process
followed for unquoted assets.
7 MMC SPV 3 LP is a single asset fund that holds an AI software
company.
8 Total investments comprise:
|
£'000
|
%
|
Unquoted
|
143,581
|
68.5
|
Listed on the London Stock
Exchange
|
41,669
|
19.8
|
Listed on a recognised stock exchange
overseas
|
15,110
|
7.1
|
Collective investment
scheme
|
9,733
|
4.6
|
Total
|
210,093
|
100.0
|
Additional details of unquoted,
including investments quoted in inactive markets, in the top 10
holdings
|
|
|
|
|
|
|
Holding
|
Description
of business
|
Cost £'000
|
Fair value
£'000
|
Turnover for the latest
audited financial year
£'000
|
Pre-tax profit/losses for the
latest audited financial year £'000
|
Net assets/ (liabilities) at
the latest audited balance sheet date £'000
|
Atom Bank
|
Leading UK
app-only challenger
|
|
|
|
|
|
|
bank
|
75,165
|
23,105
|
209,107
|
10,097
|
283,134
|
HP Environmental Technologies
Fund
|
Portfolio
of venture and growth-stage industrial companies
|
3,369
|
10,918
|
N/P1
|
N/P1
|
N/P1
|
Reaction Engines
|
Developer
of engine technologies to enable space and hypersonic
travel
|
10,000
|
10,625
|
4,743
|
(28,744)
|
32,144
|
Ada Health
|
Develops
an artificial intelligence
|
|
|
|
|
|
|
powered
personal health guide
|
10,028
|
9,638
|
N/P1
|
N/P1
|
N/P1
|
Back Market
|
Online
marketplace for
|
|
|
|
|
|
|
refurbished devices
|
10,032
|
8,839
|
N/P1
|
N/P1
|
N/P1
|
Revolut LLP
|
Provides a
digital banking solution
|
9,849
|
7,888
|
922,547
|
25,418
|
1,171,333
|
AgroStar
|
Manufactures and distributes
|
|
|
|
|
|
|
organic
fertilisers
|
6,581
|
7,279
|
N/P1
|
N/P1
|
N/P1
|
Nexeon
|
Develops silicon materials for
|
4,944
|
7,039
|
4,359
|
(7073)
|
99,282
|
|
battery
applications
|
|
|
|
|
|
1 Information not publicly available.
Business Review
Principal and emerging risks and
uncertainties
The Board, through its delegation to
the Audit, Risk and Valuation Committee, is responsible for the
Company's system of risk management and internal control and for
reviewing its effectiveness. The Board has adopted a detailed
matrix of principal risks affecting the Company's business as an
investment trust and has established associated policies and
processes designed to manage and, where possible, mitigate those
risks, which are monitored by the Audit, Risk and Valuation
Committee on an ongoing basis. This system assists the Board in
determining the nature and extent of the risks it is willing to
take in achieving the Company's strategic objectives.
Risk assessment and internal controls review by the
Board
Risk assessment includes
consideration of the scope and quality of the systems of internal
control operating within key service providers, and ensures regular
communication of the results of monitoring by such providers to the
Audit, Risk and Valuation Committee, including the incidence of
significant control failings or weaknesses that have been
identified at any time and the extent to which they have resulted
in unforeseen outcomes or contingencies that may have a material
impact on the Company's performance or condition. The internal
control environment of the Manager, the depositary and the
registrar are tested annually by independent external auditors. The
reports are reviewed by the Audit, Risk and Valuation
Committee.
Although the Board believes that it
has a robust framework of internal control in place this can
provide only reasonable, and not absolute, assurance against
material financial misstatement or loss and is designed to manage,
not eliminate, risk. Actions taken by the Board and, where
appropriate, its Committees, to manage and mitigate the Company's
principal and emerging risks and uncertainties are set out in the
table below.
Both the principal and emerging
risks and uncertainties and the monitoring system are subject to
robust assessment at least annually. The last assessment took place
in March 2024.
During the year, the Board discussed
and monitored a number of risks that could potentially impact the
Company's ability to meet its strategic objectives. The Board
receives updates from the Investment Manager, Company Secretary and
other service providers on emerging risks that could affect the
Company. The Board was mindful of the following emerging risks
during the year; risks posed by the failure of the capital
discipline mechanisms and/or the continuation vote at the AGM in
2025. These risks have been incorporated in the strategy risk
section in the table below.
A significant control failing or
weakness relating to share repurchases was identified during the
year. Although the Company had a share premium account of £891
million, as this had not been cancelled, the Company did not have
sufficient distributable profits to comply with the requirements of
the Companies Act 2006. The Board worked with its service providers
to rectify the matter which was approved by shareholders, filed
section 838 interim accounts in July 2023 and has been given
assurances that additional controls are now in place to tighten
processes and avoid a recurrence. No other significant control
failings or weaknesses were identified from the Audit, Risk and
Valuation Committee's ongoing risk assessment throughout the
financial year and up to the date of this report. The Board is
therefore satisfied that it has undertaken a detailed review of the
risks facing the Company and that the internal control environment
continues to operate effectively.
Actions taken by the Board and,
where appropriate, its Committees, to manage and mitigate the
Company's principal and emerging risks and uncertainties are set
out in the table below. The "Change" column on the right highlights
at a glance the Board's assessment of any increases or decreases in
risk during the year after mitigation and management. The arrows
show the risks as increased, decreased or unchanged.
A full analysis of the financial
risks facing the Company is set out in note 18 to the accounts on
pages 80 and 81.
Risk
|
Mitigation and management
|
Change
|
Strategy
|
Investment objective and longer term growth
Investment objective is out of line
with the requirements of investors or investors lose interest in
listed closed end private equity as an asset class.
Discount widens to unacceptable
levels.
Failure of capital discipline
mechanisms and/or the continuation vote in May 2025.
|
The Board
holds a strategy day each year to consider the investment objective
and policy and the Company's longer term investment
strategy.
The Board receives regular reports
on the Company's investment performance against its stated
objectives and peer group along with reports from discussions with
its major shareholders. The Board also receives regular reports on
marketing and promotional activity.
Following the cancellation of the
share premium account, the Company appointed Winterflood Securities
Limited in September 2023 to manage an irrevocable share repurchase
programme: (i) to buy back up to 5% of the Company's shares in
2023 and 2024; (ii) to purchase such number of shares to ensure
that to the period to the 2025 AGM, the Company has undertaken
share repurchases in an amount equating to 25% of all net cash
realisations from the portfolio inherited from the previous
portfolio manager1. The Board continues to monitor these positions
on an ongoing basis.
A continuation vote will be held at
the 2025 AGM which will only be extended for a further
five years if the Company continues to meet investor
requirements.
|
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The 5% target for share repurchases
was achieved in 2023 and work continues on meeting the 2024
commitment.
Despite these positive efforts, the
discount to NAV remains wide and the continued increased risk
relates to market sentiment in line with the decline of popularity
of the private equity sector.
|
Economic and market
The portfolio will normally be fully
invested and as such will therefore inevitably be exposed to
economic and market risk. Changes in general economic and market
conditions, such as currency exchange rates, interest rates,
inflation rates, industry conditions, tax laws, political events
and trends can substantially and adversely affect the value of
investments. Market risk includes the potential impact of events
which are outside the Company's control, such as pandemics, civil
unrest and wars.
|
The Investment Manager is
experienced and has a long track record in successfully investing
in private equity and venture.
The Investment Manager spreads
investment risk by investing in high quality companies at various
stages of their development. Having the flexibility to continue to
hold these investments as they transition to public entities taps
into the growth potential of businesses throughout their life
cycle. The global mandate allows the Investment Manager to
diversify the portfolio geographically and thus mitigate against
challenging economic conditions of a single market or
sector.
The Investment Manager will not
normally hedge against foreign currency movements, but does take
into account the risk when making investment decisions. Further
details on financial risks and risk mitigation are detailed in note
18 to the accounts.
|
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Investment
|
Investment performance
There is always, for any investment
portfolio, the generic risk of poor performance arising as a result
of poor decisions in stock selection made by the Investment
Manager. In addition, given the long-term nature of this investment
strategy (up to 10 years) and the absence of a clear
benchmark, it is not necessarily easy to make an evaluation of the
Investment Manager based simply on returns over shorter
periods.
|
This risk is mitigated by the Board
monitoring the performance of the portfolio and the decisions made
by the Investment Manager through detailed reporting at each board
meeting.
The Audit, Risk and Valuation
Committee reviews all private equity investments on a quarterly
basis and challenges proposed revaluations and methodologies used
by the Investment Manager at each meeting.
|
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Portfolio
Portfolio risk encompasses
valuation, and concentration risks.
Private equity companies generally
have greater valuation uncertainties and liquidity risks than
public equity holdings.
The valuation of private equity
early stage companies is inherently difficult. Valuation at a fixed
point in time may not be representative of the medium or longer
term. Particular events at a company or particular funding rounds
may have a significant impact. Information may not be as
widely available as with public companies and these companies may
not yet have meaningful revenues or profits.
Investments quoted in inactive
markets may also be subject to significant and abrupt volatility
and liquidity discount.
The risk linked to any portfolio
concentration might be compounded due to the nature of some of the
businesses and the risks associated with both commercial and
technical milestones.
Short term liquidity issues can
become compounded by market events.
|
The AIFM, under delegated authority
from the Board, has responsibility for the valuation of the assets
in the portfolio. The AIFM, in turn, uses extensive research and
input from S&P Global, the external valuation specialist
provider. S&P Global conducts a regular rolling review of the
valuation of all portfolio assets and also reviews their valuations
in the event of any significant triggers at individual investee
companies. They follow the widely respected and widely followed
IPEVCV guidelines in executing these valuations; these processes
are explained in the Valuation Approach and Process
Report.
Valuations are considered and
challenged by the Audit, Risk and Valuations Committee on
a quarterly basis as well as on an ad hoc basis where required
together with scrutiny by the Auditor on an annual
basis.
The Board and the Investment Manager
feel that undue concentration is not desirable in the longer term
and continuously explore options to reduce this over
time.
The Investment Manager conducts
regular reviews of investee companies through regular engagement to
monitor progress and ensure milestones are adequately met. Short
term liquidity issues are mitigated over time when such companies
deliver on their milestones and value is recognised.
|
ã
During periods of higher interest
rates and market volatility, inherent risks in valuations risk can
rise.
In the year under review, the
Investment Manager reduced the exposure to certain public holdings
with the goal of reducing concentration risk. Further details can
be found in the Investment Manager's Review.
|
Liquidity
Insufficient liquid resources to
meet its ongoing financial demands.
|
The Company has no loan facility in
place and its assets include readily realisable securities which
can be sold to meet ongoing funding requirements. The Investment
Manager manages its liquid investments to ensure that sufficient
cash is available to meet contractual commitments. A cash buffer is
also held to meet other short-term needs. The Company had cash of
£2.9 million (2022: £16.1 million) as at 31 December 2023. In
addition, the Company has a £9.7 million holding in the
Schroder Special Situations - Sterling Liquidity Plus Fund, which
is a money market fund with daily redemption terms. The Board
reviews the Company's cash flow forecasts under various stressed
scenarios on an ongoing basis.
|
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Key
person dependency
The Manager operates a team approach
to portfolio management and decision-making so the risk arising
from the departure of one or more of the Manager's key investment
professionals should not necessarily prevent the Company from
achieving its investment objective.
The Manager's resources could become
stretched through the launch of new products or team departures
leading to a lack of focus on the Company's portfolio.
The Manager could terminate its
contract with the Company. This event would have an impact on the
management of the portfolio requiring renegotiation or
substitution, likely on less favourable terms.
|
The
Investment Manager has a compensation and incentive scheme to
recruit and retain key staff including the portfolio managers, and
has developed a suitable succession planning programme, which seeks
to ease the impact that additional workload and/or the loss of
a key investment professional may have on the Company's
performance. The Investment Manager will notify any change in its
key professionals to the Board at the earliest possible opportunity
and the Board will be made aware of all efforts made to fill a
vacancy.
Furthermore, investment decisions
are made by a team of professionals, mitigating the impact of
the loss of any key professional within the Investment Manager's
organisation on the Company's performance.
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.
|
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ESG
and climate change
Failure by the Investment Manager to
identify potential ESG matters in an investee company, given their
private nature, could lead to the Company's shares being less
attractive to investors as well as potential valuation issues in
the underlying investee company.
|
The Investment Manager integrates
ESG considerations, including climate change, into the investment
process. Case studies of engagement with a sample of the Company's
portfolio companies are incorporated in the Investment Approach and
Process section of the Strategic Report. The approach to conducting
ESG-related analysis of private companies is complemented with a
standard exclusions list, more bespoke assessments, dedicated ESG
reference calls, and by integrating several external tools and data
sources, including RepRisk, World- Check, the ESG Data Convergence
Project and eFront's ESG Outreach module to further assess ESG
risks and opportunities in private assets.
|
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Operational
|
|
|
Operational
The Company has no employees and the
Directors have been appointed on a non-executive basis. The Company
is therefore reliant upon the performance of third-party service
providers.
Failure of any of the Company's
service providers to perform in accordance with the terms of its
appointment, to protect against breaches of the Company's legal and
regulatory obligations such as data protection, or to perform its
obligations at all as a result of insolvency, fraud, breaches of
cyber security, failures in business continuity plans or other
causes, could have a material detrimental impact on the operation
of the Company.
|
Experienced
third party service providers are employed by the Company under
appropriate terms and conditions and with agreed service level
specifications. Service level agreements include clauses which set
out the notice periods for terminations.
The Board receives regular reports
from its service providers and the Management Engagement Committee
will review the performance of key service providers at least
annually.
Directors are invited to a Manager
hosted two-day annual internal controls briefing sessions which
covers the internal controls of its key service providers including
the Company's depositary and custodian, HSBC, the Company's
registrar, Equiniti, and Schroders Group Internal Audit team. In
addition, the Audit, Risk and Valuation Committee reviews reports
on the external audits of the internal controls operated by certain
key service providers.
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A significant control failing or
weakness relating to share repurchases was identified during the
year under review. Although the Company had a share premium
account of £891 million, as this had not been cancelled, the
Company did not have sufficient distributable profits to comply
with the requirements of the Companies Act 2006. The Board worked
with its service providers to rectify the matter which was approved
by shareholders, filed section 838 interim accounts in July 2023
and has been given assurances that additional controls are now in
place to tighten processes and avoid a recurrence.
|
Information technology and information
security
Each of the Company's service
providers is at risk of cyber attack, data theft and service
disruption.
While the risk of financial loss by
the Company is probably small, the risk of reputational damage and
the risk of loss of control of sensitive information is more
significant, for instance a GDPR breach. Many of the Company's
service providers and the Board often have sensitive information
regarding transactions or pricing and information regarded as
inside information in regulatory terms. Data theft or data
corruption per se is regarded as a lower order risk as relevant
data is held in multiple locations.
|
The Board
receives controls reports from its key service providers which
describe the protective measures they take as well as their
business recovery plans. In addition, the Board receives an
annual presentation from the Manager on cyber risk.
|
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|
Viability statement
The Board has assessed the prospects
of the Company over the five-year period ending 31 December 2028.
The Board considers a five-year period to be appropriate
because it is the minimum holding period that it would recommend to
a prospective investor considering purchasing shares in the
Company.
The Board has considered the
principal and emerging risks and uncertainties set out on pages 38
to 41, including climate-related risks, and detailed revenue and
cashflow forecasts prepared by the Manager and stress case
scenarios.
The Board believes that the
portfolio will provide shareholders with satisfactory returns from
the investment portfolio over a five-year period and,
notwithstanding the Strategy risks mentioned in the principal risks
and uncertainties section, there should be continued demand for the
Company's shares.
The continuation of the Company will
be subject to the approval of shareholders at the 2025 AGM. The
Board has successfully repurchased shares equal to at least 5% of
the Company's issued share capital in 2023. Work has commenced on
the 2024 commitment of 5%. In addition, the Company continues to
monitor share repurchases equating to 25% of all net cash
realisations from the portfolio inherited from the previous
portfolio manager. The Board believes the Manager is well placed to
deliver on these proposals, generate long-term capital growth and
has no reason to believe that the continuation vote will not be
approved in 2025.
Having considered all of the
Company's resources, strategy, risks and probabilities, the Board
has a reasonable expectation that the Company will continue to
operate and meet its liabilities as they fall due, during the five
year period to 31 December 2028.
Going concern
The Board has considered the
Company's principal risks and uncertainties (including whether
there are any emerging risks); has scrutinised the detailed revenue
and cashflow forecast prepared by the Manager; and considered their
assessment of the likelihood and quantum of funds which could be
raised from sales of investments. The Manager has also performed a
range of stress tests, and demonstrated to the Board that even in
an adverse scenario of depressed markets and restrictions on sales
in the private equity market, the Company could still generate
sufficient funds from sales of investments to meet its liabilities
over the next 12 months. As a result, the Board is comfortable that
the Company will have sufficient liquid funds to pay operating
expenses.
On this basis, the Board considers
it appropriate to adopt the going concern basis of accounting in
the Company's accounts, and has not identified any material
uncertainties to the Company's ability to continue as a going
concern over a period of at least 12 months from the date of
approval of these annual report and accounts.
By order of the Board
Schroder Investment Management Limited
Company Secretary
27 March 2024
Statement of Directors' Responsibilities
Directors' responsibilities
The Directors are responsible for
preparing the annual report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors
to prepare financial statements for each financial year. Under that
law the Directors have elected to prepare the financial statements
in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising Financial
Reporting Standard (FRS) 102 "The Financial Reporting Standard
applicable in the UK and Republic of Ireland" and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the return or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
- select suitable
accounting policies and then apply them consistently;
- make judgements
and accounting estimates that are reasonable and
prudent;
- state whether
applicable UK Accounting Standards have been followed, subject to
any material departures disclosed and explained in the financial
statements; and
- prepare the
financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in
business.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the Company's transactions and disclose with reasonable
accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the
Directors' Remuneration Report comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Manager is responsible for the
maintenance and integrity of the web pages dedicated to the
Company. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors' statement
Each of the Directors, whose names
and functions are listed on pages 44 and 45, confirm that to
the best of their knowledge:
- the financial
statements, which have been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), give a true and fair view
of the assets, liabilities, financial position and net return of
the Company;
- the annual
report and accounts includes a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces; and
- the annual
report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
On behalf of the Board
Tim
Edwards
Chair
27 March 2024
Financial
Income Statement
for
the year ended 31 December 2023
|
|
2023
|
2022
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Note
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Losses on investments held at fair
value through profit or loss
|
|
-
|
(32,015)
|
(32,015)
|
-
|
(175,669)
|
(175,669)
|
Net foreign currency gains
|
|
-
|
42
|
42
|
-
|
583
|
583
|
Income from investments
|
2
|
784
|
-
|
784
|
479
|
-
|
479
|
Gross return/(loss)
|
|
784
|
(31,973)
|
(31,189)
|
479
|
(175,086)
|
(174,607)
|
Management fee
|
3
|
(1,252)
|
-
|
(1,252)
|
(1,989)
|
-
|
(1,989)
|
Administrative expenses
|
4
|
(1,341)
|
-
|
(1,341)
|
(1,237)
|
-
|
(1,237)
|
Net
loss before finance costs and taxation
|
|
(1,809)
|
(31,973)
|
(33,782)
|
(2,747)
|
(175,086)
|
(177,833)
|
Finance costs
|
5
|
(16)
|
-
|
(16)
|
(304)
|
-
|
(304)
|
Net
loss before taxation
|
|
(1,825)
|
(31,973)
|
(33,798)
|
(3,051)
|
(175,086)
|
(178,137)
|
Taxation
|
6
|
-
|
-
|
-
|
-
|
-
|
-
|
Net
loss after taxation
|
|
(1,825)
|
(31,973)
|
(33,798)
|
(3,051)
|
(175,086)
|
(178,137)
|
Loss
per share (pence)
|
7
|
(0.20)
|
(3.57)
|
(3.77)
|
(0.34)
|
(19.30)
|
(19.64)
|
The "Total" column of this statement
is the profit and loss account of the Company. The "Revenue" and
"Capital" columns represent supplementary information prepared
under guidance issued by The Association of Investment Companies.
The Company has no other items of other comprehensive income, and
therefore the net loss on ordinary activities after taxation is
also the total comprehensive income for the year, therefore no
separate Statement of Comprehensive Income has been
prepared.
All revenue and capital items in the
above statement derive from continuing operations. No operations
were acquired or discontinued in the year.
The notes on pages 69 to 81 form an
integral part of these accounts.
Statement of Changes in Equity
for
the year ended 31 December 2023
|
|
Called-up
|
|
Capital
|
|
|
|
|
|
|
share
|
Share
|
redemption
|
Special
|
Capital
|
Revenue
|
|
|
Note
|
capital
|
premium
|
reserve
|
reserve
|
reserves
|
reserve
|
Total
|
At
31 December 2021
|
|
9,086
|
891,017
|
-
|
-
|
(439,105)
|
(24,127)
|
436,871
|
Repurchase and cancellation of the
Company's
|
|
|
|
|
|
|
|
|
own shares
|
|
(44)
|
-
|
44
|
-
|
(812)
|
-
|
(812)
|
Net loss after taxation
|
|
-
|
-
|
-
|
-
|
(175,086)
|
(3,051)
|
(178,137)
|
At
31 December 2022
|
|
9,042
|
891,017
|
44
|
-
|
(615,003)
|
(27,178)
|
257,922
|
|
|
|
|
|
|
|
|
|
Cancellation of share
premium1
|
|
-
|
(891,017)
|
-
|
891,017
|
-
|
-
|
-
|
Repurchase and cancellation of the
Company's
|
|
|
|
|
|
|
|
|
own shares
|
|
(469)
|
-
|
469
|
(7,872)
|
812
|
-
|
(7,060)
|
Net loss after taxation
|
|
-
|
-
|
-
|
-
|
(31,973)
|
(1,825)
|
(33,798)
|
At
31 December 2023
|
11,12
|
8,573
|
-
|
513
|
883,145
|
(646,164)
|
(29,003)
|
217,064
|
1 Following an application to the Court on 18 July 2023, the
Company has cancelled its share premium and converted it to a
distributable reserve.
The notes on pages 69 to 81 form an
integral part of these accounts.
Statement of Financial Position
at
31 December 2023
|
|
2023
|
2022
|
|
Note
|
£'000
|
£'000
|
Fixed assets
|
|
|
|
Investments held at fair value
through profit or loss
|
8
|
210,093
|
242,504
|
Current assets
|
|
|
|
Debtors
|
9
|
5,511
|
160
|
Cash and cash equivalents
|
9
|
2,913
|
16,122
|
|
|
8,424
|
16,282
|
Current liabilities
|
|
|
|
Creditors: amounts falling due within
one year
|
10
|
(1,453)
|
(864)
|
Net
current assets
|
|
6,971
|
15,418
|
Total assets less current liabilities
|
|
217,064
|
257,922
|
Net
assets
|
|
217,064
|
257,922
|
Capital and reserves
|
|
|
|
Called-up share capital
|
11
|
8,573
|
9,042
|
Share premium
|
12
|
-
|
891,017
|
Capital redemption reserve
|
12
|
513
|
44
|
Special reserve
|
12
|
883,145
|
-
|
Capital reserves
|
12
|
(646,164)
|
(615,003)
|
Revenue reserve
|
12
|
(29,003)
|
(27,178)
|
Total equity shareholders' funds
|
|
217,064
|
257,922
|
Net
asset value per share (pence)
|
13
|
25.32
|
28.52
|
These accounts were approved and
authorised for issue by the Board of Directors on 27 March 2024 and
signed on its behalf by:
Tim
Edwards
Chair
The notes on pages 69 to 81 form an
integral part of these accounts.
Registered in England and Wales as a
public company limited by shares
Company registration number: 09405653
Cash
Flow Statement
for
the year ended 31 December 2023
|
2023
|
2022
|
|
£'000
|
£'000
|
Operating activities
|
|
|
Net
loss before finance costs and taxation
|
(33,782)
|
(177,833)
|
Adjustments for
|
|
|
Capital loss before
taxation
|
31,973
|
175,669
|
(Increase)/decrease in
debtors
|
(134)
|
11
|
Increase/(decrease) in
creditors
|
514
|
(316)
|
Net
cash outflow from operating activities
|
(1,429)
|
(2,469)
|
Investing activities
|
|
|
Purchases of investments
|
(35,999)
|
(17,422)
|
Sales of investments
|
31,178
|
40,148
|
Net
cash (outflow)/inflow from investing activities
|
(4,821)
|
22,726
|
Financing activities
|
|
|
Repurchase and cancellation of the
Company's own shares
|
(6,985)
|
(812)
|
Finance costs
|
(16)
|
(400)
|
Bank loan repaid
|
-
|
(22,000)
|
Net
cash outflow from financing activities
|
(7,001)
|
(23,212)
|
Change in cash and cash equivalents
|
(13,251)
|
(2,955)
|
Cash and cash equivalents at the
beginning of the year
|
16,122
|
19,077
|
Exchange movements
|
42
|
-
|
Cash
and cash equivalents at the end of the year
|
2,913
|
16,122
|
Dividends received during the year
amounted to £311,000 (2022: £425,000) and deposit interest receipts
amounted to £376,000 (2022: £15,000).
The notes on pages 69 to 81 form an
integral part of these accounts.
Notes to the Accounts
1. Accounting Policies
(a) Basis of accounting
Schroders Capital Global Innovation
Trust plc ("the Company") is registered in England and Wales as a
public company limited by shares. The Company's registered office
is 1 London Wall Place, London EC2Y 5AU.
The accounts are prepared in
accordance with the Companies Act 2006, United Kingdom Generally
Accepted Accounting Practice ("UK GAAP"), in particular in
accordance with Financial Reporting Standard (FRS) 102 "The
Financial Reporting Standard applicable in the UK and Republic
of Ireland", and with the Statement of Recommended Practice
"Financial Statements of Investment Trust Companies and Venture
Capital Trusts" (the "SORP") issued by the Association of
Investment Companies in July 2022, except for certain financial
information required by paragraph 82(c) regarding unquoted
holdings with a value greater than 5% of the portfolio or included
in the top 10, where information is not publicly available.
All of the Company's operations are of a continuing
nature.
The accounts have been prepared on a
going concern basis with investments at fair value through profit
or loss. The Directors believe that the Company has adequate
resources to continue operating for the period to 31 March 2025,
which is at least 12 months from the date of approval of these
accounts. In forming this opinion, the Directors have taken into
consideration: the controls and monitoring processes in place; the
Company's level of debt and other payables; the low level of
operating expenses, comprising largely variable costs which would
reduce pro rata in the event of a market downturn; the Company's
revenue and cashflow forecasts and the liquidity of the Company's
investments. The Directors have also considered any potential
impact of climate change on the viability of the Company. Further
details of directors' considerations regarding this are given in
the Chair's Statement, Investment Managers' Review, Going Concern
Statement, Viability Statement and under the principal and emerging
risks and uncertainties.
In preparing these accounts the
Directors have considered the impact of climate change on the value
of the Company's investments. The Board has concluded that, for
investments which are valued using quoted bid prices in active
markets, the fair value reflects market participants' view of
climate change risk. Unquoted investments are valued in accordance
with the policy detailed below, using techniques which also reflect
each investment's exposure to climate change risk.
The Company has adopted the
provisions of Sections 11 and 12 of FRS 102 for measuring and
disclosing its financial instruments.
The accounts are presented in
sterling and amounts have been rounded to the nearest
thousand.
The accounting policies applied to
these accounts are consistent with those applied in the accounts
for the year ended 31 December 2022.
Significant judgements, estimates
and assumptions have been required in valuing the Company's
investments and these are detailed below.
(b)
Use of judgements, estimates and assumptions
The preparation of the accounts
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. The resulting accounting
judgements, estimates and assumptions will, by definition, seldom
equal the related actual results.
Judgements, estimates and underlying
assumptions are reviewed on an on-going basis. Revisions to
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected. The key
estimates in the accounts are the determination of the fair values
of the unquoted investments by the Investment Manager for
consideration by the Directors.
These estimates are key, as they
significantly impact the valuation of the unquoted investments at
the year end. The fair valuation process involves estimation using
subjective inputs that are unobservable (for which market data is
unavailable). The key judgements, estimates and assumptions are
described in note 17 on pages 76 and 77.
Fair value estimates are
cross-checked to alternative estimation methods where possible to
improve the robustness of the estimates. The risk of an over or
under estimation of fair values is greater when methodologies are
applied using more subjective inputs.
(c) Valuation of investments
Investments that are quoted on an
exchange are valued using closing bid prices. If there has been no
material trading in an investment, it will be valued using the
process for unquoted investments, described below.
Investments in shares that are not
quoted on any Stock Exchange (unquoted investments) represent a
significant part of the Company's portfolio. Such investments are
held at fair value, which requires significant estimation in
concluding on their fair value. The Company's AIFM conducts
valuations for the portfolio holdings on a quarterly basis. Each
quarter, the Audit, Risk and Valuation Committee reviews a report
on the revaluations undertaken on the unquoted holdings during the
period and challenges the considerations and key assumptions made,
where appropriate, to ensure that the valuations are reliable.
Investments in shares that are not quoted on any stock exchange
(unquoted investments) represent a significant part of the
Company's portfolio and may include common stock, preferred stock,
warrants and other option-like instruments. Those investments are
carried at their estimated fair values, consistent with the UK
accounting convention FRS 102 and the recommendations on best
practices of the International Private Equity and Venture Capital
("IPEV") guidelines issued in December 2022. The following factors
will be considered in determining the fair value of an unquoted
asset:
(i) Investments which
are not traded in an active market are valued using the price of a
recent investment, where there are no factors observed to suggest a
material change in fair value.
(ii) Where (i) is no longer
considered appropriate, investments are valued at the price used in
a material arm's length transaction by an independent third party,
and where there is no impact on the rights of existing
shareholders.
(iii) In the absence of (ii), one of
the following methods may be used:
a. Revenue, Gross Profit
or EBITDA multiples, based on listed investments and private market
transactions in the relevant sector, adjusted for differences such
as lack of marketability, size and growth profile.
b. Recent transaction
prices adjusted for the company's performance against key
milestones and the complexity of the capital structure.
c. Probability-weighted
expected return scenarios, discounted at a risk-adjusted rate of
return.
d. Discounted cash flows
analyses based on estimate future cash flows with an appropriate
discount rate.
e. Option price
modelling.
(iv) Investments in funds (which are
invariably comprised of unquoted investments) are valued using the
NAV per unit with an appropriate discount or premium applied to
arrive at a unit price.
Where models are used in valuing an
investment, significant judgements are made in estimating the
various inputs into the models and recognising the sensitivity of
such estimates, especially in early-stage pre-revenue enterprises.
Examples of the factors where significant judgement is made
include, but are not limited to - the probability assigned to the
relative success or failure of an enterprise; the probable future
outcome paths; discount rates; growth rates; terminal value;
selection of appropriate market comparable companies, the
reliability of future revenue and growth forecasts and the likely
exit scenarios for the investor company, for example, IPO or trade
sale. In making judgements in regard to the probability of an
investee outcome, it must be noted that due to the nature of the
investee company's activity, its future outcome may, to a greater
or lesser extent, be binary, for example, if an investee company is
developing one particular drug and that fails its required trials
then the outcome may be terminal for that enterprise. It should be
noted that the most significant event that will drive valuation
change in investee companies are company-specific events that would
give rise to a valuation inflexion point (known also as a
'triggering event'). An example of a material inflexion point in a
bio-pharma company would be the successful completion of a drug
trial or its approval by a regulatory authority.
These valuation methods may lead to
a company being valued on a suitable price-earnings ratio to that
company's historic, current or forecast post-tax earnings before
interest and amortisation. The ratio used will be based on a
comparable sector but the resulting value will be adjusted to
reflect points of difference identified when compared to the market
sector (in which the investment would reside if it were it listed)
including, inter alia, a lack of marketability.
(d)
Accounting for reserves
Gains and losses on sales of
investments are included in the Income Statement and in capital
reserves within "Gains and losses on sales of investments".
Increases and decreases in the valuation of investments held at the
year end are included in the Income Statement and in capital
reserves within "Net movement in investment holding gains and
losses".
Foreign exchange gains and losses on
cash and deposit balances are included in the Income Statement and
in capital reserves.
Revenue reserve
The revenue reserve reflects all
income and expenditure recognised in the revenue column of the
Income Statement and any surplus is distributable by way of
dividend.
(e)
Income
Dividends receivable are included in
revenue on an ex-dividend basis except where, in the opinion of the
board, the dividend is capital in nature, in which case it is
included in capital.
Overseas dividends are included
gross of any withholding tax.
Deposit interest outstanding at the
year end is calculated and accrued on a time apportionment basis
using market rates of interest.
(f) Expenses
All expenses are accounted for on an
accruals basis. Expenses are allocated wholly to revenue, except
that:
- Any performance
fee is charged wholly to capital.
- Expenses
incidental to the purchase or sale of an investment are charged to
capital. These expenses are commonly referred to as transaction
costs and mainly comprise brokerage commission. Details of
transaction costs are given in note 8 on page 74.
(g)
Finance costs
Finance costs, comprising loan and
overdraft interest, are charged wholly to revenue.
(h)
Financial instruments
Cash and cash equivalents may
comprise cash and demand deposits which are readily convertible to
a known amount of cash and are subject to insignificant risk of
changes in value.
Other debtors and creditors do not
carry any interest, are short-term in nature and are accordingly
stated at nominal value, with debtors reduced by appropriate
allowances for estimated irrecoverable amounts.
Bank loans and overdrafts are
initially measured at the transaction price and subsequently at
amortised cost. They are recorded at the proceeds received net of
direct issue costs.
(i) Taxation
The tax charge for the year includes
a provision for all amounts expected to be received or paid.
Deferred tax is provided on all timing differences that have
originated but not reversed by the accounting date. Deferred tax
liabilities are recognised for all taxable timing differences but
deferred tax assets are only recognised to the extent that it is
probable that taxable profits will be available against which those
timing differences can be utilised. Deferred tax is measured at the
tax rate which is expected to apply in the periods in which the
timing differences are expected to reverse, based on tax rates that
have been enacted or substantively enacted at the balance sheet
date and is measured on an undiscounted basis.
(j) Value added tax ("VAT")
Expenses are disclosed inclusive of
any related irrecoverable VAT.
(k)
Foreign currency
In accordance with FRS 102, the
Company is required to determine a functional currency, being the
currency in which the Company predominantly operates. The board,
having regard to the currency of the Company's share capital and
the predominant currency in which its shareholders operate, has
determined that sterling is the functional currency and the
currency in which the accounts are presented.
Transactions denominated in foreign
currencies are converted at actual exchange rates as at the date of
the transaction. Monetary assets, liabilities and equity
investments held at fair value, denominated in foreign currencies
at the year end are translated at the rates of exchange prevailing
at close of business on the accounting date.
(l) Share issues
Shares issued are recognised based
on the proceeds or fair value received, with the excess of the
amount received over their nominal value being credited to the
share premium account. Direct issue costs are deducted from share
premium.
(m) Repurchases of shares for
cancellation
The cost of repurchasing the
Company's own shares including the related stamp duty and
transactions costs is charged to the "Special reserve" in the
current year, and dealt with in the Statement of Changes in Equity.
These costs were charged to the "Capital Reserve" in the prior
year. Share repurchase transactions are accounted for on a trade
date basis. The nominal value of share capital repurchased and
cancelled is transferred out of "Called-up share capital" and into
"Capital redemption reserve".
2. Income
|
2023
|
2022
|
|
£'000
|
£'000
|
Income from investments
|
|
|
UK dividends
|
256
|
425
|
Interest from debt
securities
|
166
|
20
|
Bank interest
|
362
|
34
|
|
784
|
479
|
3. Management fee
|
2023
|
2022
|
|
£'000
|
£'000
|
Management fee
|
1,252
|
1,989
|
|
1,252
|
1,989
|
Under the terms of the AIFM
agreement, the Manager is entitled to a management fee and a
performance fee, subject to achieving performance targets. Details
of these calculations are set out in the Directors' Report on page
47. No performance fee is payable for the current or prior year and
no provision is required at 31 December 2023.
Details of all transactions with the
Manager are given in note 15 on page 76.
4. Administrative expenses
|
2023
|
2022
|
|
£'000
|
£'000
|
Other administration
expenses1
|
632
|
529
|
Legal and professional
fees2
|
304
|
97
|
Valuation fees3
|
21
|
275
|
Directors'
fees4
|
196
|
186
|
Auditor's
remuneration5
|
188
|
150
|
|
1,341
|
1,237
|
1 Prior year fee adjusted to split out legal and professional
fee and include irrecoverable VAT on Auditors
renumeration.
2 Legal and professional fees are disclosed on a separate line
due to the size of the current years fee. The increase in fee is
due to one off costs in relation to the revolving credit facility
and the cancellation of the share premium reserve.
3 The valuation fees have reduced significantly in the current
year due to an over accrual at the prior year end.
4 Details payable to the Directors are given in the Directors'
Remuneration Report on pages 55 to 57.
5 No amounts are payable to the Auditor for non-audit services.
In the prior year the audit fee was disclosed including VAT
amounting to £30,000. For consistency with industry practice, the
audit fee in the table above is shown excluding VAT with any
irrecoverable VAT included as part of other administrative expenses
and the comparative figure reflects this change.
5. Finance costs
|
2023
|
2022
|
|
£'000
|
£'000
|
Interest on bank loans and
overdrafts
|
16
|
304
|
|
16
|
304
|
6. Taxation
(a) Analysis of tax charge for the
year
|
2023
|
2022
|
|
|
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Taxation on ordinary
activities
|
-
|
-
|
-
|
-
|
-
|
-
|
The Company has no corporation tax
liability for the year ended 31 December 2023 (2022:
nil).
(b)
Factors affecting tax charge for the year
|
2023
|
2022
|
|
|
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Net loss on ordinary activities
before taxation
|
(1,825)
|
(31,973)
|
(33,798)
|
(3,051)
|
(175,086)
|
(178,137)
|
Net loss on ordinary activities
before taxation multiplied by the
|
|
|
|
|
|
|
Company's applicable rate of
corporation tax for the year
|
|
|
|
|
|
|
of 23.5% (2022: 19.0%)
|
(429)
|
(7,514)
|
(7,943)
|
(580)
|
(33,266)
|
(33,846)
|
Effects of:
|
|
|
|
|
|
|
Capital loss on
investments
|
-
|
7,514
|
7,514
|
-
|
33,266
|
33,266
|
UK dividends which are not
taxable
|
(60)
|
-
|
(60)
|
(81)
|
-
|
(81)
|
Disallowed expenses
|
7
|
-
|
7
|
24
|
-
|
24
|
Unrelieved loan relationship
deficit
|
-
|
-
|
-
|
48
|
-
|
48
|
Unrelieved management
expenses
|
482
|
-
|
482
|
589
|
-
|
589
|
Taxation on ordinary activities
|
-
|
-
|
-
|
-
|
-
|
-
|
(c) Deferred taxation
The Company has an unrecognised
deferred tax asset £8,042,000 (2022: £7,529,000) arising from
unutilised tax losses of £32,169,000 (2022: £30,117,000) based on a
prospective corporation tax rate of 25.0% (2022: 25%). In its 2021
budget, the government announced that the main rate of corporation
tax would increase to 25% for the fiscal year beginning on 1 April
2023.
The deferred tax asset has arisen
due to the cumulative excess of deductible expenses over taxable
income. Given the composition of the Company's portfolio, it is not
likely that this asset will be utilised in the foreseeable future
and therefore no asset has been recognised in the
accounts.
Given the Company's intention to
meet the conditions required to retain its status as an Investment
Trust Company, no provision has been made for deferred tax on any
capital gains or losses arising on the revaluation or disposal of
investments.
7. Return/(loss) per share
|
2023
|
2022
|
|
£'000
|
£'000
|
Revenue loss
|
(1,825)
|
(3,051)
|
Capital loss
|
(31,973)
|
(175,086)
|
Total loss
|
(33,798)
|
(178,137)
|
Weighted average number of shares in
issue during the year
|
895,075,078
|
907,291,950
|
Revenue loss per share
|
(0.20)
|
(0.34)
|
Capital loss per share
|
(3.57)
|
(19.30)
|
Loss
per share (pence)
|
(3.77)
|
(19.64)
|
The basic and diluted loss per share
is the same because there are no dilutive instruments in
issue.
8. Investments held at fair value through profit
or loss
(a) Movement in investments
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening book cost
|
581,253
|
622,857
|
Opening investment holding
losses
|
(338,749)
|
(181,958)
|
Opening fair value
|
242,504
|
440,899
|
Purchases at cost
|
35,999
|
17,422
|
Sales proceeds
|
(36,395)
|
(40,148)
|
Losses on investments held at fair
value through profit or loss
|
(32,015)
|
(175,669)
|
Closing fair value
|
210,093
|
242,504
|
Closing book cost
|
553,693
|
581,253
|
Closing investment holding
losses
|
(343,600)
|
(338,749)
|
Closing fair value
|
210,093
|
242,504
|
The Company received £36,395,000
(2022: £40,148,000) from investments sold in the year. The book
cost of the investments when they were purchased was £63,560,000
(2022: £59,026,000). These investments have been revalued over time
and, until they were sold, any unrealised gains/losses were
included in the fair value of the investments.
(b)
Unquoted investments, including investments quoted in inactive
markets
Material revaluations of unquoted
investments during the year 2023
|
Opening
|
|
|
Closing
|
|
valuation
at
|
|
|
valuation
at
|
|
31 December
|
Valuation
|
Purchases/
|
31 December
|
|
2022
|
adjustment
|
(disposals)
|
2023
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Atom Bank
|
31,686
|
(8,581)
|
-
|
23,105
|
Ada Health
|
7,122
|
2,516
|
-
|
9,638
|
Revolut LLP
|
5,436
|
2,452
|
-
|
7,888
|
Federated Wireless
|
11,227
|
(4,835)
|
-
|
6,392
|
Kymab
|
1,831
|
4,539
|
-
|
6,370
|
Genomics
|
8,854
|
(3,715)
|
-
|
5,139
|
BenevolentAI
|
11,935
|
(9,679)
|
(80)
|
2,176
|
AMO Pharma
|
16,408
|
(15,058)
|
-
|
1,350
|
Material revaluations of unquoted
investments during the year 2022
|
Opening
|
|
|
Closing
|
|
valuation
at
|
|
|
valuation
at
|
|
31 December
|
Valuation
|
Purchases/
|
31 December
|
|
2021
|
adjustment
|
(disposals)
|
2022
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Atom Bank
|
46,209
|
(14,523)
|
-
|
31,686
|
AMO Pharma
|
11,668
|
4,740
|
-
|
16,408
|
BenevolentAI
|
28,484
|
(16,549)
|
-
|
11,935
|
Revolut LLP
|
10,115
|
(4,679)
|
-
|
5,436
|
Material disposals of unquoted
investments during the year 2023
|
|
|
|
Gain based
|
|
|
Carrying
|
|
on carrying
|
|
|
value at
|
|
value at
|
|
|
31 December
|
Sales
|
31 December
|
|
Book cost
|
2022
|
Proceeds
|
2023
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Tessian
|
4,806
|
3,928
|
5,217
|
1,289
|
Material disposals of unquoted
investments during the year 2022
|
|
|
|
Gain based
|
|
|
Carrying
|
|
on carrying
|
|
|
value at
|
|
value at
|
|
|
31 December
|
Sales
|
31 December
|
|
Book cost
|
2021
|
Proceeds
|
2022
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Seedrs
|
10,470
|
11,272
|
12,000
|
728
|
Nexeon
|
1,059
|
7,788
|
1,552
|
(6,236)
|
(c) Transaction costs
The following transaction costs,
comprising stamp duty and brokerage commission, were incurred in
the year:
|
2023
|
2022
|
|
£'000
|
£'000
|
On acquisitions
|
-
|
-
|
On disposals
|
10
|
8
|
|
10
|
8
|
9. Current assets
|
2023
|
2022
|
Debtors
|
£'000
|
£'000
|
Securities sold awaiting
settlement
|
5,217
|
-
|
Dividends and interest
receivable
|
191
|
94
|
Other debtors
|
103
|
66
|
|
5,511
|
160
|
The Directors consider that the
carrying amount of accrued income and debtors approximate to their
fair value.
Cash and cash equivalents
The carrying amount of cash,
amounting to £2,913,000 (2022: £16,122,000) represents its fair
value.
10.
Creditors: amounts falling due within one year
|
2023
|
2022
|
Creditors: amounts falling due within one
year
|
£'000
|
£'000
|
Repurchase and cancellation of the
Company's own shares awaiting settlement
|
75
|
-
|
Management fee payable
|
633
|
373
|
Other creditors and
accruals
|
745
|
491
|
|
1,453
|
864
|
The Directors consider that the
carrying amount of creditors falling due within one year
approximates to their fair value.
11.
Called-up share capital
|
2023
|
2022
|
|
£'000
|
£'000
|
Ordinary shares of 1p each allotted,
called up and fully paid:
|
|
|
Opening balance of 904,219,238 (2022:
908,639,238) shares
|
9,042
|
9,086
|
Repurchase and cancellation of
46,859,212 (2022: 4,420,000) shares
|
(469)
|
(44)
|
Closing balance of 857,360,026 (2022:
904,219,238) shares
|
8,573
|
9,042
|
During the year, the Company made
market purchases of 46,859,212 of its own shares, nominal value
£469,000, for cancellation, representing 5.2% of the shares
outstanding at the beginning of the year. The total consideration
paid for these shares amounted to £7,060,000. The reason for these
purchases was to seek to manage the volatility of the share price
discount to NAV per share.
12.
Reserves
|
Capital
reserves
|
|
|
|
|
Losses on
|
Investment
|
|
|
Share
|
Capital
|
Special
|
sales of
|
holding
|
Revenue
|
|
premium1
|
redemption2
|
reserve3
|
investments4
|
losses5
|
reserve6
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
At
31 December 2022
|
891,017
|
44
|
-
|
(275,594)
|
(339,409)
|
(27,178)
|
Losses on sales of investments based
on historic cost
|
-
|
-
|
-
|
(27,164)
|
-
|
-
|
Net movement in investment holding
gains and losses
|
-
|
-
|
-
|
-
|
(4,851)
|
-
|
Repurchase and cancellation of the
Company's own shares
|
-
|
469
|
(7,872)
|
812
|
-
|
-
|
Exchange gains
|
-
|
-
|
-
|
42
|
-
|
-
|
Cancellation of share
premium
|
(891,017)
|
-
|
891,017
|
-
|
-
|
-
|
Retained revenue loss for the
year
|
-
|
-
|
-
|
-
|
-
|
(1,825)
|
At
31 December 2023
|
-
|
513
|
883,145
|
(301,904)
|
(344,260)
|
(29,003)
|
|
Capital
reserves
|
|
|
|
|
Losses on
|
Investment
|
|
|
Share
|
Capital
|
Special
|
sales of
|
holding
|
Revenue
|
|
premium1
|
redemption2
|
reserve3
|
investments4
|
losses5
|
reserve6
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
At
31 December 2021
|
891,017
|
-
|
-
|
(256,487)
|
(182,618)
|
(24,127)
|
Losses on sales of investments based
on historic cost
|
-
|
-
|
-
|
(18,878)
|
-
|
-
|
Net movement in investment holding
gains and losses
|
-
|
-
|
-
|
-
|
(156,791)
|
-
|
Repurchase and cancellation of the
Company's own shares
|
-
|
44
|
-
|
(812)
|
-
|
-
|
Exchange gains
|
-
|
-
|
-
|
583
|
-
|
-
|
Retained revenue loss for the
year
|
-
|
-
|
-
|
-
|
-
|
(3,051)
|
At
31 December 2022
|
891,017
|
44
|
-
|
(275,594)
|
(339,409)
|
(27,178)
|
The Company's articles of
association permit dividend distributions out of realised capital
profits.
1 The share premium reserve is a non distributable reserve and
represents the amount by which the fair value of the consideration
received from shares issued exceeds the nominal value of shares
issued. Following an application to the Court on 18 July 2023, the
Company has cancelled its share premium and converted it to a
distributable reserve.
2 The capital redemption reserve represents the accumulated
nominal value of shares repurchased for cancellation. This reserve
is not distributable.
3 This is a distributable capital reserve arising from the
cancellation of the share premium, and may be distributed as
dividends or used to repurchase the Company's own
shares.
4 This is a realised (distributable) capital reserve and a
positive balance may be used to repurchase the Company's own shares
or distributed as dividends. However, the Company is not currently
in a position to make such a distribution as the balance is
negative.
5 This reserve may include some holding gains on liquid
investments (which may be deemed to be realised) and other amounts
which are unrealised. An analysis has not been made between those
amounts that are realised (and may be distributed as dividends or
used to repurchase the Company's own shares) and those that are
unrealised. The Company is not currently in a position to make any
distributions due to total net negative balances on its
distributable reserves.
6 A positive balance on the revenue reserve may be distributed
as dividends or used to repurchase the Company's own
shares.
13.
Net asset value per share
|
2023
|
2022
|
Net assets (£'000)
|
217,064
|
257,922
|
Shares in issue at the year
end
|
857,360,026
|
904,219,238
|
Net asset value per share
(pence)
|
25.32
|
28.52
|
14.
Uncalled capital commitments
At 31 December 2023, the Company had
uncalled capital commitments amounting to £3,275,000 (2022:
£5,121,000) in respect of follow-on investments, which may be
called by investee companies, subject to their achievement of
certain milestones and objectives.
15.
Transactions with the Manager and Alternative Investment Fund
Manager (AIFM)
Under the terms of the AIFM
Agreement, the Manager is entitled to receive a management fee and
a company secretarial fee. Details of the basis of the management
fee calculation are given in the Directors' Report on page 47. A
management fee amounting to £1,252,000 (2022: £1,989,000) is
payable to Schroder Investment Management Limited for the year
ended 31 December 2023, of which £633,000 (2022: £373,000) was
outstanding at the year end.
Fees amounting to £165,000 (2022:
£41,000) were payable to Schroder Unit Trusts Limited for services
as AIFM, following its appointment as AIFM with effect from 1
October 2022, of which £206,000 (2022: £41,000) was outstanding at
the year end.
There were no further fees paid to
Link Fund Solutions Limited for services as AIFM (2022:
£65,000).
Under the terms of the Alternative
Investment Management Agreement dated 29 September 2022, Schroder
Unit Trusts Limited may reclaim from the Company certain expenses
which it has paid on behalf of the Company to HSBC in connection
with accounting and administrative services provided to the
Company. These charges amounted to £128,000 (2022: £17,000 for the
three months ended 31 December 2022), of which £60,000 (2022:
£17,000) was outstanding at the year end.
No Director of the Company served as
a Director of any member of the Schroder Group or its affiliates at
any time during the year.
16.
Related party transactions
Details of the remuneration payable
to Directors are given in the Directors' Remuneration Report on
page 56 and details of Directors' shareholdings are given in the
Directors' Remuneration Report on page 57. Details of transactions
with the Manager, the AIFM and its associated companies are given
in note 15 above. There have been no other transactions with
related parties during the year (2022: nil).
17.
Disclosures regarding financial instruments measured at fair
value
The Company's financial instruments
within the scope of FRS 102 that are held at fair value comprise
its investment portfolio and derivative financial
instruments.
FRS 102 requires that financial
instruments held at fair value are categorised into a hierarchy
consisting of the three levels below. A fair value measurement is
categorised in its entirety on the basis of the lowest level input
that is significant to the fair value measurement.
Level 1 - valued using unadjusted
quoted prices in active markets for identical assets.
Level 2 - valued using observable
inputs other than quoted prices included within Level 1.
Level 3 - valued using inputs that
are unobservable.
Details of the Company's policy for
valuing investments and derivative instruments are given in note
1(c) on page 70 and 1(g) on page 70. Level 3 investments have
been valued in accordance with note 1(c)(i) - (iv).
The primary technique for
investments with no expected short-term earnings or where the
investment outcome is based on a discrete set of (often binary)
scenarios and for which investments are funded for, is the
milestone approach. This is typically the case for pre-revenue and
clinical life science investments. The milestone approach is based
on a set of agreed milestones at the time of the initial
investment. These include various measurements depending on the
type of investment, the industry as well as the key drivers of the
investment company. Progress against these milestones is measured
at each valuation date and drives fair value changes. If a
milestone event was achieved or if it was failed to achieve, a
variety of valuation techniques may be used to quantify the
resulting fair value impact.
The primary technique for
investments that are producing either maintainable revenues or
earnings is the market approach. This approach determines the fair
value of a company based on the market price of selected comparable
companies or recent transactions (or a combination of both) and its
relationship to relevant performance measures with the assumption
that the relationship between the market price and the financial
performance of the comparable company is similar. The relevant
multiples can be subject to adjustments for general qualitative
differences between the underlying portfolio company and the
comparable companies. These adjustments may include, but are not
limited to, differences due to size, marketability, growth profile
or the market size of end-markets.
The primary technique for
investments that have not yet or have just commenced to produce
revenues and that possess material future earnings potential is the
Probability-Weighted-Expected-Return-Method ("PWERM"). It involves
estimating the expected cash flows of the company under different
scenarios, such as best-case, base-case, and worst-case scenarios.
Each scenario is assigned a probability based on the likelihood of
its occurrence. The expected cash flows are then discounted back to
their present value using an appropriate discount rate, which
reflects the risk and uncertainty associated with each scenario.
The PWERM approach also considers other factors such as changes in
market conditions, industry trends, competitive landscape,
regulatory changes, and other macroeconomic factors. Adjustments
are made to the cash flow projections and discount rates to reflect
these factors and their potential impact on the company's
value.
Once a company's value is
established, it is allocated to the company's various share
classes. Early-stage, venture and growth investments typically
possess complex capital structures with varying rights and economic
preferences attached to each share class. To assess the relative
value of these individual share classes, either a qualitative
scenario-analysis of the expected ultimate pay-off profile of each
share class, or an option pricing model is utilised. The relative
value of each share class is dependent on the expected time to
exit, volatility, and other relevant quantitative or qualitative
parameters.
The following table provides an
overview of the select (primary) valuation techniques:
|
|
|
% of
|
|
|
Range of
|
unquoted
|
Valuation techniques
|
Key input
|
metric
utilised
|
portfolio
|
Market approach
|
|
|
|
Arm's length transaction
|
Premium/(discount) to last negotiated price
|
(33.9)% to
7.3%
|
9.3
|
Adjusted transaction price
|
|
|
28.2
|
Multiples-based
|
Multiple
of Sales
|
7.0x to
9.5x
|
33.3
|
|
Multiple
of Gross Profit
|
9.0x to
13.6x
|
|
Milestone approach
|
Discount
rate
|
17.5% to
35.0%
|
8.3
|
Probability-weighted-expected
return
|
|
|
13.5
|
Third-party fund NAV
|
N/A
|
N/A
|
7.5
|
N/A No range utilised.
At 31 December, the Company's
investment portfolio and any derivative financial instruments were
categorised as follows:
|
2023
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Investments in equities -
quoted
|
54,603
|
9,733
|
2,176
|
66,512
|
Investments in equities -
unquoted
|
-
|
-
|
143,581
|
143,581
|
Total
|
54,603
|
9,733
|
145,757
|
210,093
|
The Level 2 asset relates to the
holding in Schroders Special Situations - Sterling Liquidity Plus
Fund. BenevolentAI is quoted, but the market is inactive. Thus its
valuation has been determined in accordance with the process
followed for unquoted assets and included in Level 3
above.
|
2022
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Investments in equities -
quoted
|
83,711
|
-
|
11,935
|
95,646
|
Investments in equities -
unquoted
|
-
|
-
|
146,858
|
146,858
|
Total
|
83,711
|
-
|
158,793
|
242,504
|
Movements in fair value measurements
included in Level 3 during the year are as follows:
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening book cost
|
458,690
|
482,416
|
Opening investment holding
losses
|
(299,897)
|
(263,548)
|
Opening valuation
|
158,793
|
218,868
|
Purchases at cost
|
22,759
|
17,422
|
Sales proceeds
|
(6,056)
|
(19,289)
|
Transfer between Level 3 and Level
1
|
-
|
(19,152)
|
Net movement in investment holding
gains and losses
|
(29,739)
|
(39,056)
|
Closing valuation
|
145,757
|
158,793
|
Closing book cost
|
473,660
|
458,690
|
Closing investment holding
losses
|
(327,903)
|
(299,897)
|
Total level 3 investments held at
fair value through profit or loss
|
145,757
|
158,793
|
The Company received £6,056,000
(2022: £19,289,000) from Level 3 investments sold in the year. The
book cost of the investments when they were purchased was
£7,789,000 (2022: £20,384,000). These investments have been
revalued over time and, until they were sold, any unrealised
gains/losses were included in the fair value of the
investments.
18.
Financial instruments' exposure to risk and risk management
policies
The investment objective is set out
on the inside front cover of this report. In pursuing this
objective, the Company is exposed to a variety of financial risks
that could result in a reduction in the Company's net assets or a
reduction in the profits available for dividends. These financial
risks include market risk (comprising currency risk, interest rate
risk and market price risk), liquidity risk and credit risk. The
Directors' policy for managing these risks is set out below. The
board coordinates the Company's risk management policy.
The objectives, policies and
processes for managing the risks and the methods used to measure
the risks that are set out below, have not changed from those
applying in the comparative year.
The Company's classes of financial
instruments may comprise the following:
- investments in
shares of quoted and unquoted companies which are held in
accordance with the Company's investment objective;
- short-term
debtors, creditors and cash arising directly from its operations;
and
- forward foreign
currency contracts, the purpose of which is to manage the currency
risk arising from the Company's investment activities.
(a) Market risk
The fair value or future cash flows
of a financial instrument held by the Company may fluctuate because
of changes in market prices. This market risk comprises three
elements: currency risk, interest rate risk and other price risk.
Information to enable an evaluation of the nature and extent of
these three elements of market risk is given in parts (i) to (iii)
of this note, together with sensitivity analyses where appropriate.
The board reviews and agrees policies for managing these risks and
these policies have remained unchanged from those applying in the
comparative year. The Manager assesses the exposure to market risk
when making each investment decision and monitors the overall level
of market risk on the whole of the investment portfolio on an
ongoing basis.
(i) Currency risk
Certain of the Company's assets,
liabilities and income are denominated in currencies other than
sterling, which is the Company's functional currency and the
presentational currency of the accounts. As a result, movements in
exchange rates will affect the sterling value of those
items.
Management of currency risk
The AIFM monitors the Company's
exposure to foreign currencies on a daily basis and reports to the
Board, which meets on at least four occasions each year. The
Manager measures the risk to the Company of the foreign currency
exposure by considering the effect on the Company's net asset value
and income of a movement in the rates of exchange to which the
Company's assets, liabilities, income and expenses are
exposed.
Income denominated in foreign
currencies is converted into sterling on receipt
It is currently not the Company's
policy to hedge against currency risk, but the Manager may, with
the board's consent and oversight, hedge against specific
currencies, depending on their longer term view.
Foreign currency exposure
The fair value of the Company's
monetary items that have foreign currency exposure at 31 December
are shown below.
|
2023
|
|
|
Norwegian
|
Swiss
|
US
|
|
|
Euro
|
Krone
|
Francs
|
Dollars
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Cash and cash equivalents
|
11
|
-
|
3
|
583
|
597
|
Investments held at fair value
through profit or loss
|
22,051
|
-
|
6,997
|
70,255
|
99,303
|
Total net foreign currency exposure
|
22,062
|
-
|
7,000
|
70,838
|
99,900
|
|
2022
|
|
|
Norwegian
|
Swiss
|
US
|
|
|
Euro
|
Krone
|
Francs
|
Dollars
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Cash and cash equivalents
|
6
|
-
|
-
|
3,618
|
3,624
|
Investments held at fair value
through profit or loss
|
27,083
|
3,781
|
7,460
|
62,542
|
100,866
|
Total net foreign currency exposure
|
27,089
|
3,781
|
7,460
|
66,160
|
104,490
|
The above year end amounts are
broadly representative of the exposure to foreign currency risk
during the current and comparative year.
Foreign currency sensitivity
The following tables illustrate the
sensitivity of net profit for the year and net assets with regard
to the Company's monetary financial assets and financial
liabilities and exchange rates. The sensitivity analysis is based
on the Company's foreign and non-monetary currency financial
instruments held at each accounting date and assumes a 10% (2022:
10%) appreciation or depreciation in sterling against all the
currencies to which the Company is exposed, which is considered to
be a reasonable illustration based on the volatility of exchange
rates during the year.
If sterling had weakened by 10% this
would have had the following effect:
|
2023
|
2022
|
|
£'000
|
£'000
|
Income Statement - return after
taxation
|
|
|
Revenue return
|
17
|
-
|
Capital return
|
9,990
|
10,449
|
Total return after taxation
|
10,007
|
10,449
|
Net
assets
|
10,007
|
10,449
|
Conversely if sterling had
strengthened by 10% this would have had the following
effect:
|
2023
|
2022
|
|
£'000
|
£'000
|
Income Statement - return after
taxation
|
|
|
Revenue return
|
(17)
|
-
|
Capital return
|
(9,990)
|
(10,449)
|
Total return after taxation
|
(10,007)
|
(10,449)
|
Net
assets
|
(10,007)
|
(10,449)
|
In the opinion of the directors, the
above sensitivity analysis is broadly representative of the whole
of the current and comparative year.
(ii) Interest rate risk
Interest rate movements may affect
the level of income receivable on cash balances and the interest
payable on the bank overdraft when interest rates are
re-set.
Management of interest rate risk
Liquidity and borrowings are managed
with the aim of increasing returns to shareholders. The board would
not normally expect gearing to exceed 20% where gearing is defined
as borrowings used for investment purposes, less cash, expressed as
a percentage of net assets.
Interest rate exposure
The exposure of financial assets and
financial liabilities to floating interest rates, giving cash flow
interest rate risk when rates are re-set, is shown
below:
|
2023
|
2022
|
|
£'000
|
£'000
|
Exposure to floating interest
rates:
|
|
|
Cash and cash equivalents
|
2,913
|
16,122
|
The floating rate assets comprise
cash deposits on call. Sterling cash deposits at call earn interest
at floating rates based on Sterling Overnight Index Average rates
("SONIA").
The above year end amount may not be
representative of the exposure to interest rates during the year,
due to fluctuating cash balances.
Interest rate sensitivity
The following table illustrates the
sensitivity of the return after taxation for the year and net
assets to a 1.5% (2022: 1.5%) increase or decrease in interest
rates in regards to the Company's monetary financial assets and
financial liabilities. This level of change is considered to be a
reasonable illustration based on observation of current market
conditions. The sensitivity analysis is based on the Company's
monetary financial instruments which are exposed to interest rate
changes held at the accounting date, with all other variables held
constant.
|
2023
|
2022
|
|
1.5%
increase
|
1.5%
decrease
|
1.5%
increase
|
1.5%
decrease
|
|
in rate
|
in rate
|
in rate
|
in rate
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Income statement - return after
taxation
|
|
|
|
|
Revenue return
|
44
|
(44)
|
242
|
(242)
|
Capital return
|
-
|
-
|
-
|
-
|
Total return after
taxation
|
44
|
(44)
|
242
|
(242)
|
Net assets
|
44
|
(44)
|
242
|
(242)
|
Given the increase in UK interest
rates, the interest rate sensitivity has been updated to 1.5%. The
prior year disclosure has been updated to 1.5% to show a direct
comparison in the sensitivity. In the prior year report, the
sensitivity was calculated using 1.0%, which was representative of
the market at 31 December 2022. As disclosed in the prior year
annual report, an increase of 1.0% increased total return after
taxation by £161,000 (a decrease of 1.0% had an equal and opposite
effect).
(iii) Market price risk
Market price risk includes changes
in market prices, other than those arising from interest rate risk,
which may affect the value of investments.
Management of market price risk
The Board meets on at least four
occasions each year to consider the asset allocation of the
portfolio and the risk associated with particular countries and
industry sectors. The investment management team has responsibility
for monitoring the portfolio, which is selected in accordance with
the Company's investment objective and seeks to ensure that
individual stocks meet an acceptable risk/reward profile. The Board
may authorise the Manager to enter derivative transactions for the
purpose of protecting the portfolio against falls in market
prices.
Market price risk exposure
The Company's total exposure to
changes in market prices at 31 December comprises the
following:
|
2023
|
2022
|
|
£'000
|
£'000
|
Investments held at fair value
through profit or loss
|
210,093
|
242,504
|
The above data is broadly
representative of the exposure to market price risk during the
year.
Concentration of exposure to market price
risk
A sector and geographical analysis
of the Company's investments is given on page 20. This shows a
concentration of exposure to economic conditions in the United
Kingdom and to the Health Care sector. In addition, it is noted
that as the Company's holds six (2022: five) investments amounting
to approximately £28.6 million (2022: £61.5 million), representing
13.2% (2022: 23.8%) of NAV, whose valuation is deemed to be
potentially volatile, as it is dependent on a number of factors
including future funding and meeting of anticipated
milestones.
Market price risk sensitivity
The following table illustrates the
sensitivity of the return after taxation for the year and net
assets to an increase or decrease of 20% (2022: 20%) in the fair
values of the Company's investments. This level of change is
considered to be a reasonable illustration based on observation of
current market conditions.
|
2023
|
2022
|
|
20%
increase
|
20%
decrease
|
20%
increase
|
20%
decrease
|
|
in fair
value
|
in fair
value
|
in fair
value
|
in fair
value
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Income statement - return after
taxation
|
|
|
|
|
Revenue return
|
-
|
-
|
-
|
-
|
Capital return
|
42,019
|
(42,019)
|
48,501
|
(48,501)
|
Total return after taxation and net
assets
|
42,019
|
(42,019)
|
48,501
|
(48,501)
|
Percentage change in net asset value
|
19.4
|
(19.4)
|
18.8
|
(18.8)
|
(b)
Liquidity risk
This is the risk that the Company
will encounter difficulty in meeting its obligations associated
with financial liabilities that are settled by delivering cash or
another financial asset.
Management of the risk
The Company's assets include readily
realisable securities amounting to £64,336,000 (2022: £83,711,000),
which can be sold to meet ongoing funding requirements.
Additionally, the Company has level 3 investments valued at
£145,757,000 (2022: £158,793,000) which are illiquid, but could be
sold if required.
Liquidity risk exposure
Contractual maturities of financial
liabilities, based on the earliest date on which payment can be
required are as follows:
|
2023
|
2022
|
|
|
More than
|
|
|
|
More than
|
|
|
|
|
three
|
|
|
|
three
|
|
|
|
|
months
|
|
|
|
months
|
|
|
|
Three
|
but not
|
More
|
|
Three
|
but not
|
More
|
|
|
months
|
more than
|
than
|
|
months
|
more than
|
than
|
|
|
or less
|
one year
|
one year
|
Total
|
or less
|
one year
|
one year
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Creditors: amounts falling due
within
|
|
|
|
|
|
|
|
|
one year
|
|
|
|
|
|
|
|
|
Other creditors and
accruals
|
1,453
|
-
|
-
|
1,453
|
864
|
-
|
-
|
864
|
Uncalled capital
commitments
|
549
|
1,328
|
1,398
|
3,275
|
-
|
1,700
|
3,421
|
5,121
|
|
2,002
|
1,328
|
1,398
|
4,728
|
864
|
1,700
|
3,421
|
5,985
|
(c) Credit risk
Credit risk is the risk that the
failure of the counterparty to a transaction to discharge its
obligations under that transaction could result in loss to the
Company.
Management of credit risk
This risk is not significant and is
managed as follows:
Portfolio dealing
The credit ratings of broker
counterparties is monitored by the AIFM and limits are set on
exposure to any one broker.
Exposure to the custodian
The custodian of the Company's
assets is HSBC Bank plc which has Long-Term Credit Ratings of AA-
with Fitch and A1 with Moody's. The Company's investments are held
in accounts which are segregated from the custodian's own trading
assets. If the custodian were to become insolvent, the Company's
right of ownership of its investments is clear and they are
therefore protected. However the Company's cash balances are all
deposited with the custodian as banker and held on the custodian's
balance sheet. Accordingly, in accordance with usual banking
practice, the Company will rank as a general creditor to the
custodian in respect of cash balances.
Credit risk exposure
The amounts shown in the balance
sheet under debtors and cash at bank and in hand represent the
maximum exposure to credit risk at the current and comparative year
ends. No debtors are past their due date and none have been
provided for. There has been no stock lending during the year, or
prior year.
(d)
Fair values of financial assets and financial
liabilities
All financial assets and liabilities
are either carried in the balance sheet at fair value, or the
balance sheet amount is a reasonable approximation of fair
value.
19.
Analysis of changes in net debt
|
At
|
|
At
|
|
31 December
|
|
31 December
|
|
2022
|
Cashflows
|
2023
|
|
£'000
|
£'000
|
£'000
|
Cash
and cash equivalents
|
|
|
|
Cash and cash equivalents
|
16,122
|
(13,209)
|
2,913
|
20.
Capital management policies and procedures
The Company's capital is represented
by its net assets and borrowings, which are managed to achieve the
Company's investment objective, as set out on page 33. The Board,
with the assistance of the Manager, monitors and reviews the broad
structure of the Company's capital on an ongoing basis. The Board
intends to make an amount equating to 25% of all net cash
realisations from the portfolio inherited from the previous
portfolio manager received between now and the 2025 AGM available
to be redeployed to make share repurchases by the
Company.
The Board acknowledges that it is
not possible to accurately forecast such realisations between now
and 2025. In order to ensure that the Company remains active in
buying back its stock, the Board intends in any event to purchase
shares equal to at least 5% of the Company's issued share capital
in each of the calendar years 2023 and 2024.
The Company's debt and capital
structure comprises the following:
|
2023
|
2022
|
|
£'000
|
£'000
|
Equity
|
|
|
Called-up share capital
|
8,573
|
9,042
|
Reserves
|
208,491
|
248,880
|
|
217,064
|
257,922
|
Total debt and equity
|
217,064
|
257,922
|
21.
Post balance sheet events
On 14 March 2024, OcuTerra
Therapeutics, Inc., one of the Company's life-science investments,
published study results for its lead therapeutic candidate in Phase
2 of clinical development. The results from its Phase 2 clinical
trial (DR:EAM), which evaluated the safety and efficacy of its
single clinical stage experimental therapeutic OTT166
(nesvategrast) in patients with diabetic retinopathy, demonstrated
OTT166 to be safe and well tolerated but the study did not meet its
primary efficacy endpoint. The review of the full dataset from the
DR:EAM trial to evaluate the future of OTT166 is
ongoing.
The Company has assessed this
development and considers this to be a non-adjusting event for
these financial statements. It currently estimates a negative
valuation adjustment to £1.5 million, a decrease of 1.5% on the 31
December 2023 net asset value. It is anticipated that the full
magnitude of the valuation adjustment will be reflected in the
quarterly net asset value as of 31 March 2024.
Status of announcement
2022 Financial
Information
The figures and financial
information for 2022 are extracted from the published Annual Report
and Accounts for the year ended 31 December 2022 and do not
constitute the statutory accounts for that year. The 2022 Annual
Report and Accounts have been delivered to the Registrar of
Companies and included the Report of the Independent Auditors which
was unqualified and did not contain a statement under either
section 498(2) or section 498(3) of the Companies Act
2006.
2023 Financial
Information
The figures and financial
information for 2023 are extracted from the Annual Report and
Accounts for the year ended 31 December 2023 and do not constitute
the statutory accounts for the year. The 2023 Annual Report and
Accounts include the Report of the Independent Auditors which is
unqualified and does not contain a statement under either section
498(2) or section 498(3) of the Companies Act 2006. The 2023 Annual
Report and Accounts will be delivered to the Registrar of Companies
in due course.
Neither the contents of the Company's
web pages nor the contents of any website accessible from
hyperlinks on the Company's web pages (or any other website) is
incorporated into, or forms part of, this announcement.