Annual Financial Report

RNS Number : 9847N

Schroder British Opportunities Tst.

05 October 2021

 

REPORT AND ACCOUNTS

Schroder British Opportunities Trust plc (the "Company") hereby submits its Report and Accounts for the period from incorporation on 21 September 2020 to 30 June 2021 , as required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rule 4.1. 

Highlights

· Strong performance during the period with NAV growth of +10.6%

· IPO proceeds more than 93% invested across public equities, private equities and futures

· Portfolio consists of 35 holdings: 29 public and 6 private businesses at 30 June 2021

· Portfolio companies have sustainable business models with strong ESG credentials aligned to UN SDGs

· Outlook remains positive with strong pipeline to facilitate further growth

· Webinar for retail investors to be held on 8 October 2021 at 12.00pm

Shareholders can sign up for the webinar at: https://registration.duuzra.com/form/feedback/SBOAnnualResults2021

The Company's Report and Accounts for the period from incorporation on 21 September 2020 to 30 June 2021 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's website  www.schroders.com/sbo . Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/9847N_1-2021-10-4.pdf

The Company has submitted its Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at:  https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

Enquiries:

Paula Lockwood

Schroder Investment Management Limited 

Tel: [phone]

Chairman's Statement

I am pleased to present the first annual report of Schroder British Opportunities Trust plc ("the Company"), covering the period from incorporation on 21 September 2020 to 30 June 2021. The investment period of the Company reviewed in this report is from IPO on 1 December 2020 to 30 June 2021.

Investment Strategy

The Company was launched during the COVID-19 pandemic with the aim of addressing a once in a generation opportunity to invest equity capital into high quality, high growth UK companies with sustainable business models at attractive valuations. The Company is set up to invest in both public and private equities and typically, when the Company is fully invested, we would expect around a 50:50 mix although this will flex dependent on the quality of the opportunities we are presented with. Environmental, social and governance ("ESG") engagement is a key feature of the Company's investment strategy and further information on this is provided on page 19 of the 2021 Report and Accounts.

Progress

£75 million was raised at IPO (£73.5 million net of costs) in what had proved to be a tough market for new investment company issuance. Since launch, the Portfolio Managers have made strong progress in identifying companies which meet our investment criteria and as at 30 June, more than 93% of net assets were invested across public equities, private equities and futures. The portfolio was made up of 29 investments in public equities and six investments in private businesses. These companies not only have strong opportunities for growth but also have business models that we consider to be sustainable and have ESG behaviours. More details on these initial investments can be found in the Portfolio Manager's report.

Since 30 June the Portfolio Managers have made an investment in LendInvest an asset management property finance platform that provides bridging loans, development finance, and buy-to-let mortgages to intermediaries, landlords and developers across the UK. The portfolio now consists of 30 public equities and six private businesses.

Growing the Company

We have an interesting pipeline of opportunities that fit our investment criteria and we intend to grow the Company over time to exploit these. It is the Company's intention to issue new ordinary shares once the existing shares in issue trade at a premium to NAV. Such issues will only take place if they are accretive to existing shareholders and will have the additional benefit of reducing our ongoing charges ratio. Resolutions to authorise the Board to issue up to 10% of the issued share capital on a non-pre-emptive basis, will be put to Shareholders at the forthcoming annual general meeting ("AGM").

Performance

I am delighted to report that, notwithstanding that the Company was substantially in cash while the Portfolio Managers were identifying and executing the initial investments post IPO, strong shareholder returns have been delivered in the period under review. The Company's NAV increased by 10.6% in the seven month period since launch. On an annualised basis, this is significantly well ahead of our declared total return target of 10% per annum. This performance has continued since the period end, and at the time of writing the NAV has increased by 16.5% since the IPO. The listed equities have driven much of this growth assisted by an early valuation uplift in one of our private holdings, Rapyd. Other private investments are currently being held at close to cost.

United Nations Sustainable Development Goals ("SDGs")

While there are a number of emerging frameworks for assessment of ESG, the Board believes that the SDGs have long-term application and relevance. The Portfolio Managers are supported by Schroders' Sustainable Investment team when evaluating the sustainability of an investee company business model. Since IPO they have actively engaged with investee companies to improve ESG characteristics and to support their efforts to incorporate SDGs into their business plans. The Board fully supports this focus. More details of the Portfolio Managers' approach to ESG and the ESG-specific engagements within the portfolio to date can be found on page 20 of the 2021 Report and Accounts . The Board has also supported the Association of Investment Companies' (AIC's) initiative to provide a database of investment trust companies' approach to ESG investing and stewardship.

Share price and discount

The Company's share price has grown by 5% in the period but has not kept pace with the increase in NAV and the Company has therefore traded at a slight discount. This discount has narrowed of late and the Board intends to take steps to continue this trend. Our objective is to trade at a slight premium to NAV justified by the opportunity that the invested portfolio offers shareholders. The Company has a buy-back policy in place to seek to prevent the discount widening beyond 5% in normal market conditions but the appetite for the Company suggests that this is unlikely to be needed. Nonetheless, a proposal providing authority to purchase up to 14.99% of its issued share capital will also be put forward at the AGM. Any shares so purchased will be cancelled or held in treasury for potential reissue at a premium to NAV.

Since the period end the discount has narrowed to 0.23% (1 October 2021).

Dividend

The Company is targeting a total return rather than a specific level of dividend income and the Board is proposing not to pay a dividend for this first period. Distributions in future years will be made primarily to maintain investment trust status.

Accounting Reference Date

The Company was incorporated on 21 September 2020 and, prior to IPO, shortened its first accounting date to the seven month period ended 30 June 2021. Subsequently, the Company will be shortening the second accounting period to the nine months to 31 March 2022 to better align our reporting with periodic valuations of underlying private equity investments. It is intended that 31 March will be the year-end for the Company in future years.

AGM

Our first AGM will be held on Tuesday, 30 November 2021 at 12.00 noon at 1 London Wall Place, London EC2Y 5AU.

The Board welcomes shareholders' comments and questions for them or the Portfolio Manager. Please contact us via our Company Secretary: [e-mail] and we will endeavour to get your questions answered and published prior to the AGM. The Board will also be providing answers to commonly asked questions on the Company's webpages. If you prefer to write in, please do so to: The Company Secretary, Schroder British Opportunities Trust plc, at the above address.

Shareholders are encouraged to cast their votes by proxy to ensure that they are counted. The Directors consider that all of the resolutions listed are in the best interests of the Company and its shareholders and therefore recommend a vote in favour of each, as the Directors intend to do in respect of their own holdings.

Presentation from the Portfolio Managers

Our Portfolio Managers will be presenting at a webinar on 8 October 2021 from 12-1pm to provide some insight into their decision making and the current portfolio. Shareholders are also encouraged to sign up using this link: https://registration.duuzra.com/form/feedback/SBOAnnualResults2021

Regular news about the Company can be found on the Company's website: https://www.schroders.com/en/uk/private-investor/fund-centre/funds-in-focus/investment-trusts/schroders-investment-trusts/never-miss-an-update

Outlook

The Company's investment thesis at the time of launch was predicated on a strong economic and market recovery as the UK economy began to normalise post-pandemic and this has thus far proven to be largely accurate. UK equity markets have performed strongly in 2021 and have begun to re-rate versus other developed markets, but a valuation gap remains. The ongoing attractiveness of British companies has been made clear by the increased levels of M&A activity witnessed recently as international operators, both public and private, look to capitalise and increase their exposure to the UK recovery.

There is a clear and ongoing opportunity and the current pipeline is strong.

The Schroders management team, led by our Portfolio Managers, Rory Bateman and Tim Creed, have a depth of skills and experience and enjoy an excellent reputation. In the short period since IPO they have deployed the cash proceeds to plan and achieved NAV growth well ahead of target.

All of the above gives support to your Board's view that the Company is well positioned to continue to achieve its performance targets in both the medium and long-term. We have a differentiated proposition with a focus on sustainable growth and this should provide attractive returns.

Neil England

Chairman

Portfolio Managers' Review

Summary

At the time of the launch of the Schroder British Opportunities Trust plc (the "Company", or "SBO") we described the opportunity as a once in generation opportunity. This was a bold statement but we are delighted to say the journey has begun extremely well. Investors around the world have identified the UK as a highly attractive place to invest and SBO has benefited both through its public and private company positions.

Immediately after the initial public offer ("IPO") in December 2020 we quickly deployed the capital into selective public equities and made our first private investments into Learning Curve Group and Graphcore by the end of the year. In line with our expectations, within six months c.93% of net assets were invested across public equities, private equities and futures. At the time of writing this commentary in September 2021, SBO had increased its Net Asset Value ("NAV") per ordinary share by more than 16% since investing the net proceeds of the IPO. This reflects the strong share price returns for a number of publicly listed holdings in the portfolio, as well as the revaluation of the investment in Rapyd - our third private equity deal completed in January 2021.

Your Portfolio Managers continue to believe the portfolio offers substantial long-term returns through the strategy of investing in both public and private growth companies with sustainable business models. Indeed, we were delighted to receive the 'Most Exciting Investment Company IPO' accolade at the ADVFN International Financial Awards in March 2021. The panel-judged awards celebrate best of breed products and services from across the financial industry, both nationally and internationally, and are recognised across the international retail investor market.

The UK Market

Recently we have all lived through unprecedented times as the spread of COVID-19 has reached all corners of the globe. After extreme market volatility in early 2020, equity markets made a strong recovery which continued into 2021 as vaccines offered the promise of more normal times ahead. Unfortunately many businesses were unable to survive the pandemic but for many investors the turmoil offered numerous opportunities to invest in great companies at depressed valuations. The UK market was particularly attractive in this regard given negative sentiment around Brexit over recent years had already put UK equities at a discount relative to other global markets.

Given the rapid roll out of vaccines in the first quarter of calendar year 2021, UK consumer confidence grew and despite being in the third lockdown, it was widely believed there would be significant pent up demand in the economy. The market began to price in some recovery in consumer growth companies such as pubs and restaurants, whilst airlines and hotels were less fortunate given ongoing travel restrictions. Meanwhile, UK Purchasing Managers' Index data continued to indicate domestic economic expansion, which was confirmed by the results of companies in the industrial sector in the first half of the calendar year. Materials and labour costs were repetitively cited as headwinds but despite this, a number of companies in the construction and manufacturing sectors were able to increase prices ahead of cost inflation.

Very accommodating monetary and fiscal policy has created an ideal environment for equities as the economic expansion progresses. Foreign investors were quick to notice the economic recovery alongside UK equity valuations which propelled the UK market to one of the best performers in the first half of 2021. Perhaps not surprisingly, the June 2021 Bank of America Merrill Lynch 'Global Fund Manager Survey', showed that allocations to UK equities were at the highest levels since March 2014. The first six months of 2021 saw thirteen buyout bids from private equity firms - the highest figure since 1999, which compared to just four in the same period in 2020 and four in 2019. Meanwhile, the number of companies that listed on the UK stock market continued to be buoyant.

Activity in private equity markets has also been very strong since the time of the IPO in December 2020. We have seen record private equity deal volumes in the UK and are also seeing valuations increase as more capital begins to recognise the value inherent in high quality private equity investments. Deals that had been put on hold in 2020 due to concerns over Brexit and COVID-19 came back strongly as confidence returned. This dynamic was compounded as a different concern began to emerge in relation to potential capital gains tax hikes which inspired more founders and entrepreneurs to consider their options. The number of deals completed in Q1 calendar 2021 were the highest for five years and reflected the fast pace of evolution within the private equity industry in moving to remote due diligence, virtual meetings and digital transactions. The early 2020 phenomenon of private equity managers focusing purely on their existing portfolios transformed into a far more expansive approach to new deals, as healthy firepower and rapidly returning confidence revealed a number of compelling opportunities. We are delighted to have been able to participate in a number of these high quality deals and are excited to be in such a strong position looking forward.

The Portfolio

We structured SBO as a unique investment opportunity to invest in both public and private equities managed seamlessly by a team of experienced Schroders listed and non-listed equity experts. Our philosophy is simply to buy fundamentally undervalued growth companies irrespective of their ownership structure. We aim to maximise returns for our investors while helping companies maximise their sustainable growth trajectories. The reality is that there are significant benefits in combining the best ideas from both public and private and working with companies through the life cycle of their existence. It makes sense for some of our companies to shift their structure from private equity ownership through the IPO process into public hands and we intend to take our investors on the value creation journey. It also makes sense for many companies to remain in private hands where our investments can help influence significant growth. Our public positions are listed UK structural growth businesses. Such is our confidence in their business models, when appropriate we encourage the management teams to issue equity to enable them to achieve their maximum growth potential given the internal rate of returns they are able to generate.

We take a balanced, pragmatic view to portfolio construction. By investing in liquid public equities we were able to reduce cash drag which can be an issue for pure private equity portfolios. At the end of period, 32.1% of the portfolio was invested in private companies. We intend to achieve a split of around 50/50 public/private within 18-24 months from launch and from there will be flexible subject to the opportunities that present themselves. We can reassure our shareholders that liquidity and effective cash management are front of mind for the Portfolio Managers.

It is of paramount importance that we invest in sustainable businesses. This includes being cognisant of environmental, social and governance factors and how the management teams of our investments run their operations. Elsewhere in this Annual Report we discuss Schroders' approach to sustainability in detail and also how the Company integrates ESG as part of its investment process.

Finally, we have used derivatives where tactically appropriate and may do so in future.

Top 10 Equity Holdings

The Company's top ten equity positions as at 30 June 2021 are set out below, many of which we refer to in this report.

	Public/	% of Net
Top 10 Equity Holdings	Private	Asset Value
Rapyd	Private	8.2
Waterlogic	Private	4.8
Cera	Private	4.0
Graphcore	Private	3.6
Ascential	Public	3.0
Genuit Group	Public	2.8
Breedon Group	Public	2.7
Ibstock	Public	2.5
Learning Curve	Private	2.5
National Express	Public	2.4

Source: Schroders. Top 10 equity holdings (unaudited) as at 30 June 2021.

Portfolio Activity

Across our portfolio, be they public or private positions, we take a long-term approach to our investments. We hope to generate substantial returns by helping our companies to grow, providing fresh equity when appropriate and influencing management teams to adopt the very best corporate governance and ESG practices.

We made six private equity investments during the period, which we discuss below:

Our first investment was in December 2020 and was into Learning Curve Group ("LCG"), a leading private UK training and education specialist based in Durham, which helps learners improve their employability and economic well-being through practical education. LCG benefits from a flexible model, offering online and face-to-face delivery. On 1 March 2021, LCG announced that it had completed the acquisition of Antrec Limited, further solidifying its position as one of the UK's largest training providers. The acquisition forms part of Learning Curve Group's ambitious strategic growth plans in the UK.

Also in December 2020, we completed our investment into Bristol based Graphcore, a leading machine intelligence semiconductor business, as part of its US$222m Series E funding round. Graphcore was founded in 2016 and has developed the Intelligence Processing Unit ("IPU"), a new type of microprocessor specifically designed from the ground up to meet the needs of current and next-generation artificial intelligence applications. Since our investment, the company has also begun shipping its new IPU-POD16 DA (Direct Approach), a powerful, compact, affordable system for innovators to explore new machine intelligence approaches enabled by Graphcore pioneering Intelligence Processing Unit technology.

In January 2021 we announced our investment in Rapyd, a leading global Fintech-as-a-Service company with significant UK operations, as part of its US$300m Series D financing round. Rapyd offers one of the fastest ways to power local payments anywhere in the world, enabling companies across the globe to access markets quicker than ever before. The new financing will be used to double the size of the engineering and product teams, as well as expanding the "Self-Service" element of Rapyd's platform, empowering businesses globally to onboard and begin utilizing any of Rapyd's financial capabilities in the shortest possible time frame.

In April 2021, we announced our fourth private equity investment, Cera, a technology-enabled home care provider founded and based in the UK. The new financing will be used to advance Cera's technology platform, as well as further scale its service platform through the acquisition of small- and mid-sized home care service providers in the UK.

In May 2021, we announced our fifth private equity investment, EPIC I-b Fund SLP, a single asset fund managed by Castik Capital, which had acquired a majority stake in Waterlogic Group Holdings Limited ("Waterlogic"). Waterlogic is a leading global provider of purified drinking water dispensers, headquartered in the UK. As stated in the announcement, this transaction will provide Waterlogic with an extended investment horizon, additional capital to continue executing on its buy & build strategy, and the resources to support its global growth ambitions.

In June 2021, we announced our sixth private equity investment into Easypark Group, a fast-growing European mobility company that helps drivers to find, manage, and pay for both parking and electric vehicle charging. SBO's investment provided part of the financing for Easypark Group's acquisition of PARK NOW Group ("PARK NOW") from BMW Group and Daimler Mobility AG. PARK NOW operates with 43 million users in 11 countries, including the UK where it has a market-leading position which Easypark Group plans to expand further. PARK NOW offers a broad portfolio of digital services related to parking - both in car parks and on-street in more than 1,100 cities; the acquisition will enable Easypark Group to grow further and become a global pacesetter within digital parking, electrical vehicle charging and mobility services.

We are delighted to have added these attractive private assets to the portfolio; each has strong financial metrics and substantial opportunities for further growth, combined with strong ESG credentials. We continue to see many attractive opportunities in our pipeline and we are progressing our due diligence on several of these, but will remain disciplined in our process and select only the highest quality opportunities for investment.

Elsewhere, the public equity sleeve of the portfolio saw a reasonable level of activity. Below we provide a sample of transactions since we launched the Company:

Calisen, a provider of energy meters and metering systems, received an offer from Coyote Bidco (a consortium consisting of investors including BlackRock Alternatives Management and Mubadala Investment Company) that was c.26% above the previous day's closing share price. Calisen's directors and KKR owned c.73% of the company and voted in favour of the deal; as such we believed limited acceptance would be required from the remaining shareholders to obtain the 75% supermajority required for the acquisition to go through. In addition we believed there would be no counter bid; as such we sold our position, making a c.30% return on our first exit. This transaction occurred within the first two weeks of SBO's launch and corroborated our belief that the UK public equity market had attractive investment potential.

As the UK government's vaccination rollout programme gained traction and as consumer confidence continued to improve, we began to increase exposure to the consumer discretionary sectors despite still being in the third lockdown at the time. For example, in March 2021, we invested in SSP Group, a leading global operator of food and beverage outlets in travel locations, principally airports and railway stations. At the time we believed that a combination of new equity and refinancing of existing debt would be required to repay near term maturing facilities, reduce its leverage and provide it with extra liquidity to survive a protracted lockdown scenario. The company then announced a rights issue and associated refinancing of debt facilities, which we participated in.

In May 2021, we introduced Watches of Switzerland Group, a retailer of luxury timepieces, into the portfolio. We are attracted to the firm's predominantly supply-constrained business model, which we believe should continue to drive demand for its products. Our position did well during the period, driven by a set of positive FY 2021 results and comments from the management team on a positive trading outlook for FY 2022.

On occasion some investments may not go as planned and we have to take difficult decisions. One example of this was with our holding in IQE. The entire semi-conductor space has seen significant growth throughout the pandemic period given our changing working practices and the accelerated pace of technological change. However when IQE's management guided to flat growth for H1 2021 we became concerned that aggressive competition was preventing the firm from benefiting from the secular growth trends that they are exposed to in 5G and 3D sensing. Our re-assessment of the investment case led to the disposal of the investment.

Equity Raises

A fundamental characteristic of SBO is to help companies maximise their potential growth by injecting fresh equity into their businesses. By the end of the period, which was only seven months after launch, the Company had already participated in six primary equity raises (three equity placings, one rights issue and two IPOs) and two secondary (one placing and one IPO). We mentioned earlier taking part in SSP Group's rights issue; below we discuss two further exciting examples:

In March 2021, we participated in the IPO of Tinybuild Inc, a global video games publisher and developer, which generates a portion of its revenues in the UK. The company is vertically integrating itself by incorporating video game development within its strategy, which means increasing its ownership of intellectual property; as such we expect it to generate higher margins in the future from better economics. Furthermore we believe that its successful track record of producing strong video game franchises, combined with its social media engagement, should enable it to continue to generate revenues as its titles mature. The company raised £36.2m in primary IPO proceeds, which will be used to fuel its strategy and fund future acquisitions.

Also in March, Trustpilot Group, the global online review company with an estimated 7.1% market share in the UK, listed on the London Stock Exchange, raising c.£47m in order to support its growth plans and reduce leverage. We took part in the listing and whilst the performance of its shares was disappointing on the first day of trading, its share price recovered to finish c.30% higher than its IPO price by the end of SBO's period end.

We see scope for companies to access the equity capital markets, and after the end of the period, we continued to deploy capital into various opportunities. For example In July 2021, we participated in the IPO of LendInvest, an asset management property finance platform providing bridging loans, development finance, and buy-to-let mortgages to intermediaries, landlords and developers across the UK. We think its prospects are exciting, as it is expected to grow its Funds Under Management materially over the next few years, which should enable it to match rising demand from borrowers. Whilst our pipeline of IPOs is strong, we also think a number of our existing companies could raise equity in the future to support their growth. To illustrate, after the period end, we took part in primary equity issuances by Gym Group, Learning Technologies Group, Ascential and discoverIE Group. All of these companies have been held in the portfolio since SBO's launch. All in all, we have invested in eleven primary and two secondary public equity transactions since SBO's inception.

Positive And Negative Performers

As a reminder, the private equity investments within the Company's portfolio will be valued on a quarterly basis in line with the 'Unquoted Securities Valuation Policy'. The policy provides an objective, consistent and transparent basis for estimating the fair value of private equity investments in accordance with generally accepted valuation principles and procedures, and in particular the International Private Equity and Venture Capital Valuation Guidelines.

On 3 August 2021, that is, after the Company's period end, we confirmed that Rapyd was the portfolio company that had earlier announced its completion of a further funding round. This led to an unaudited uplift in the fair value of SBO's investment, and consequently, a 3.3 pence increase in the Company's NAV per ordinary share.

SBO's NAV per ordinary share rose by c.10% from launch to period end. Whilst the aforementioned uplift in Rapyd's valuation helped, the increase in the value of the Company's assets was primarily driven by the public equity sleeve of the portfolio. We discuss some of the contributors in further detail below:

A number of our portfolio companies exposed to the 'Repair, Maintenance & Improvement', housing, infrastructure and construction end markets saw their share prices rise significantly by as much as c.84%, driven by a series of strong results showing a consistent robust underlying demand environment that continued to be positive for pricing. As such, our investments in Genuit Group and Volution Group did extremely well for example, as did other holdings in the portfolio exposed to these themes. All of our holdings exposed to these varying end markets have different business models; however for Genuit Group and Volution Group specifically, we continue to believe they should benefit from strong regulatory tailwinds and conducive government policies over the long term.

Meanwhile Trainline was one of the main detractors of performance in the period. This was due to market fears following a proposal in the 'Williams-Shapps Plan for Rail' report, published in May 2021, that the government would create its own website and app to retail train tickets. The market assumed that this would result in material loss of market share for Trainline but didn't, in our opinion, take into account the opportunity for Trainline to provide white-label services to the government. The firm's share price fell by c.40% in the weeks following the release of the report, but our decision to hold at that point appeared to be validated, as the stock rebounded by c.14% from its lows by the end of the Company's period end. At the time of writing this commentary in September 2021, in total, the shares have rebounded c.43% since the lows hit after the report's release. We continue to monitor both the government's intentions and Trainline's responses and will react as appropriate as the situation becomes clearer.

Conclusion

Our intention in this Review is to provide the Company's shareholders with a comprehensive overview of the portfolio's progress since SBO's IPO in December 2020. Since then, many of our predictions about the market have been realised and we have delivered on deploying the capital in the way we intended. This is the start of a long journey and we have much to do. We intend to continue to expand the Company's private equity holdings whilst also ensuring the overall portfolio is adequately diversified across sectors, with a strong focus on sustainability, corporate governance and of course effective cash management.

Perhaps most importantly, we retain our optimism about the opportunities that lie ahead. The outlook for the UK economy is strong and in our view equity valuations remain very attractive relative to other global equity markets and asset classes. The UK small and mid cap market contains some of the best, most innovative growth companies in the world and we look forward to participating in their value creation.

Schroder Investment Management Limited

Strategic Review

Principal risks and uncertainties

The Board 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 and risk committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives. Both the principal risks and the monitoring system are also subject to regular, robust review. The last review took place in September 2021.

Although the Board believes that it has a robust framework of internal controls 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 risks and uncertainties are set out in the table below.

Emerging risks and uncertainties

During the period, the Board also discussed and monitored a number of risks that could potentially impact the Company's ability to meet its strategic objectives. These included political risk, climate change risk and COVID-19-related risks. The Board receives updates from the Manager, Company Secretary and other service providers on other potential risks that could affect the Company.

Risk	Mitigation and management
Strategic risks The Company's investment objectives may become out of line with the requirements of investors, or the Company's investment strategy might not lead to the Company achieving its investment objective resulting in the Company being subscale and shares trading at a discount.	The appropriateness of the Company's investment remit is regularly reviewed and the success of the Company in meeting its stated objectives is monitored. The share price relative to NAV per share is monitored and the Board has undertaken a capital reduction to facilitate a buy-back programme should this be required.
The Company has a fixed life. In the event that no alternative proposals are put forward to shareholders, or such proposals are not approved by shareholders, the Company will commence winding up in 2028. It could take several years until all of the Company's private equity investments are disposed of and any final distribution of proceeds made to shareholders.	The private equity managers have extensive experience and a track record in accurately timing the exits of private equity investments. The Board will regularly monitor the position to ensure that any alternative proposals to be made to shareholders are put forward at an appropriate time.
Market risks Underlying investee companies within the Company's portfolio may experience fluctuations in their operating results due to fluctuations in market or general economic conditions (including changes to interest rates, inflation, changes in laws and regulations). These would in turn affect the performance of the Company.	The Manager adopts an active management approach and focuses on sustainable businesses capable of generating long-term returns for shareholders. The Manager has used futures contracts to ensure the Company was fully invested despite some cash being retained to invest in private equity companies. At each Board meeting the Board reviews a report from the Portfolio Managers on the performance of the Company's investments and market outlook.
The Company's shares may not trade in line with NAV, depending on factors such as supply and demand for the Company's shares, market conditions and general investor sentiment. The operation of the Company's policy to manage any discount could result in the Company's operating charges ratio becoming excessive.	The marketing and distribution activity is regularly monitored by the Board. The Manager and broker engage proactively with shareholders.
Valuation risks Private equity investments are generally less liquid and more difficult to value than publicly traded companies. A lack of open market data and reliance on investee company projections may also make it more difficult to estimate fair value on a timely basis.	Contracts are drafted to include obligations to provide information with investee companies are in a timely manner, where possible. The Portfolio Managers have an extensive track record of valuing privately held investments. The audit and risk committee reviews all valuations of unlisted investments on a quarterly basis and challenges methodologies used by the Portfolio Manager.
Liquidity Risks Liquidity risks include those risks resulting from holding private equity investments as well as not being able to participate in follow-on fundraises through lack of available capital which could result in dilution of an investment.	Concentration limits are imposed on single investments to minimise the size of positions. The Investment Managers consider liquidity risk when selecting investments. The Portfolio Managers will seek to manage cashflow such that the Company will be able to participate in follow up fundraisings where appropriate. The investment in private equity companies will be limited to no more than 60% of the Company's gross assets at the time an investment commitment is made.
Outsourced service provider risks The Company has no employees and the Directors have been appointed on a non-executive basis and the Company is 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. The AIFM, the Portfolio Managers, the Depositary, the Company Secretary and the Administrator will be performing services that are integral to the operation of the Company and any of the Company's service providers could terminate their contract.	Experienced third party service providers are employed by the Company under appropriate terms and conditions and with agreed service level specifications. 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. The audit and risk committee reviews reports on the external audits of the internal controls operated by certain of the key service providers.
The Company's investment portfolio is managed by the Manager and, in particular, is led by two key individuals. Loss of a portfolio manager could affect performance and market sentiment leading to a widening discount of the share price compared with the NAV.	The Board regularly considers key man risk and seeks assurances concerning the depth of expertise of the investment management teams which manage the Company's portfolio. The Board receives assurances regarding the Manager's incentive arrangements and succession planning.
Legal and Regulatory risks Changes to the framework of regulation and legislation (including rules relating to listed closed-end investment companies or loss of the exemption for investment trusts from UK tax on chargeable gains) within which the Company operates could have a material adverse impact on the Company.	The Company Secretary, Manager and auditor appraise the Board of any prospective changes to the legal and regulatory framework so that requisite actions can be planned.

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 and risk 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.

No significant control failings or weaknesses were identified from the audit and risk committee's ongoing risk assessment which has been in place throughout the reporting period and up to the date of this report. The Board is satisfied that it has undertaken a detailed review of the risks facing the Company.

An analysis of the financial risks facing the Company is set out in note 21 to the accounts on pages 57 to 58 of the 2021 Report and Accounts .

Going concern

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence until 31 October 2022, which is more than twelve months from the date when these financial statements were signed and the Directors have accordingly adopted the going concern basis in preparing the financial statements.

In reaching this assessment the Directors have considered the principal risks, the impact of the emerging risks and uncertainties including those posed by COVID-19 and the matters referred to in the viability statement. They have additionally considered the liquidity of the Company's portfolio of listed investments, the Company's cash balances and the forecast income and expenditure flows as well as commitments to provide further funding to the Company's private equity investee companies; the Company currently has no borrowings. A substantial proportion of the Company's expenditure varies with the value of the investment portfolio. In the event that there is insufficient cash to meet the Company's liabilities, the listed investments in the portfolio may be realised and the Directors have reviewed the average days to liquidate the listed investments. The Company is a closed-end investment trust and there is no requirement to redeem or buy back shares. The Company has additionally performed stress tests which confirm that a 50% fall in the market prices of the portfolio would not affect the Board's conclusions in respect of going concern.

Viability statement

In accordance with the AIC Code the Board has considered the longer term prospects for the Company beyond the twelve months required to assess the Company's ability to continue as a going concern. The Board believes that a period of five years reflects a suitable time horizon for strategic planning, the investment cycle of private equity and the longer term view taken by the Portfolio Managers and investors; this period is in line with the Company's Key Information Document.

As an investment trust, the Company is entitled to beneficial treatment with regard to chargeable gains. Any change to such taxation arrangements could affect the Company's viability as an effective investment vehicle.

In their assessment of the prospects for the Company over the next five years, the Directors have assumed that the Company will continue to adopt the same investment objective, that the Company's performance will continue to be attractive to shareholders and that the Company will continue to meet the requirements so as to retain its status as an investment trust.

The Directors have considered each of the Company's principal and emerging risks (including those posed by the COVID-19 pandemic) and uncertainties detailed on pages 22 and 23 of the 2021 Report and Accounts and, in particular, the impact of a significant fall in equity markets on the value of the Company's investment portfolio. The Directors have, furthermore, considered the Company's projections of income and expenditure as well as any commitments to provide funding to investee companies. They have noted that the Company's investment portfolio will continue to comprise a significant proportion of highly liquid listed equities which can be readily realised and that a substantial proportion of the Company's operating expenses vary with the value of the investment portfolio. As stated in Going Concern above, the Company is a close-end investment trust and there is no requirement to redeem or buy back shares. A stress test to evaluate the consequences of a 50% reduction in the market value of the Company's investments over the five year period has also been evaluated.

The conclusion of this review is that the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report, and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared 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, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

-   notify the Company's shareholders in writing about the use of disclosure exemptions in FRS 102, used in the preparation of the financial statements; and

-   prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Manager is responsible for the maintenance and integrity of the webpage dedicated to the Company. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed on pages 25 and 26 of the 2021 Report and Accounts , confirm that to the best of their knowledge:

-   the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

-   the Strategic Report contained in the 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.

Income Statement

For the period from the date of incorporation on 21 September 2020, to 30 June 2021.

The Company began investing on 1 December 2020.

		Revenue	2021 Capital	Total
		£'000	£'000	£'000
Gains on investments held at fair value through profit or loss		-	6,853	6,853
Gains on derivative contracts		-	1,839	1,839
Gains on foreign exchange		-	71	71
Income from investments		250	-	250
Other interest receivable and similar income		-	-	-
Gross return		250	8,763	9,013
Portfolio management fee		(278)	-	(278)
Performance fee		-	(402)	(402)
Administrative expenses		(404)	-	(404)
Other transaction costs		-	(116)	(116)
Net (loss)/return before finance costs and taxation		(432)	8,245	7,813
Finance costs		(1)	-	(1)
Net (loss)/return before taxation		(433)	8,245	7,812
Taxation		-	-	-
Net (loss)/return after taxation		(433)	8,245	7,812
(Loss)/return per share		(0.58)p	10.99p	10.41p

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 return after taxation is also the total comprehensive income for the period.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

Statement of Changes in Equity

For the period from the date of incorporation on 21 September 2020, to 30 June 2021

		 Called-up share capital	Share premium	Special  d istributable  capital reserve	Capital reserves	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Issue of Management Shares		50	-	-	-	-	50
Redemption of Management Shares		(50)	-	-	-	-	(50)
Issue of Ordinary Shares		750	74,250	-	-	-	75,000
Share issue costs		-	(1,521)	36	-	-	(1,485)
Cancellation of share premium		-	(72,729)	72,729	-	-	-
Net return/(loss) after taxation		-	-	-	8,245	(433)	7,812
At 30 June 2021		750	-	72,765	8,245	(433)	81,327

Statement of Financial Position

at 30 June 2021

		2021
		£'000
Fixed assets
Investments held at fair value through profit or loss		64,509
Current assets
Debtors		39
Cash at bank and in hand		17,960
		17,999
Current liabilities
Creditors: amounts falling due within one year		(969)
Derivative financial instruments held at fair value through profit or loss		(212)
		(1,181)
Net current assets		16,818
Total assets less current liabilities		81,327
Net assets		81,327
Capital and reserves
Called-up share capital		750
Capital reserves		81,010
Revenue reserve		(433)
Total equity shareholders' funds		81,327
Net asset value per share		108.44p

Cash Flow Statement 

For the period from the date of incorporation on 21 September 2020, to 30 June 2021

		2021
		£'000
Net cash outflow from operating activities		(21)
Investing activities
Purchases of investments		(61,109)
Sales of investments		3,453
Cash inflow from derivative instruments		2,051
Net cash outflow from investing activities		(55,605)
Net cash outflow before financing		(55,626)
Financing activities
Issue of Management Shares		13
Redemption of Management Shares		(13)
Issue of Ordinary Shares		75,000
Share issue costs		(1,485)
Net cash inflow from financing activities		73,515
Net cash inflow in the period		17,889
Cash at bank and in hand at the beginning of the period		-
Net cash inflow in the period		17,889
Exchange movements		71
Cash at bank and in hand at the end of the period		17,960

Included under operating activities are dividends received during the period amounting to £227,000.

Notes to the Accounts

1.  Accounting Policies

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". The accounts are prepared in accordance 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 October 2019, except for certain details about private assets. In particular, the Company has not disclosed the proportion of the share class held in each of its material private asset holdings, as investees would prefer this information to remain confidential. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments held at fair value through profit or loss. The directors believe that the Company has adequate resources to continue operating to 31 October 2022, 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 cash flow forecasts and the liquidity of the Company's investments.

The accounts are presented in sterling and amounts have been rounded to the nearest thousand.

Certain judgements, estimates and assumptions may be required in valuing the Company's unquoted investments and these are detailed in note 20 on page 57   of the 2021 Report and Accounts.

2.  Income from investments

		2021
		£'000
Income from investments
UK dividends		216
Overseas dividends		34
		250

3.  Investment management fee and performance fee

		2021 £'000
Revenue:
Investment management fee		278
Capital:
Performance fee		402

The bases for calculating the investment management and performance fees are set out in the Report of the Directors on page 28 of the 2021 Report and Accounts and details of all amounts payable to the Manager are given in note 18 on page 56 of the 2021 Report and Accounts.

4.  Dividends

The Company has reported a revenue loss after taxation of £433,000 for the period and accordingly there is no requirement to pay a dividend under Section 1158 of the Corporation Tax Act 2010.

5.  Return/(loss) per share

	2021 £'000
Revenue loss	(433)
Capital return	8,245
Total return	7,812
Weighted average number of shares in issue during the year	75,000,000
Revenue loss per share	(0.58)p
Capital return per share	10.99p
Total return per share	10.41p

6.  Called-up share capital

The issued share capital at the accounting date was as follows:

	2021 £'000
Ordinary shares allotted, called-up and fully paid:
75,000,000 shares of 1p each:	750

On incorporation, the issued share capital of the Company comprised a single 1p Ordinary Share, £1 paid, held by an employee of the Company's legal adviser, as subscriber to the Company's memorandum of association. On 4 November 2020 this share was transferred to Schroder Investment Company Limited ("SICL"), an affiliate of the AIFM.

On 27 October 2020, 50,000 Management Shares were allotted to SICL, in order to obtain a certificate to conduct business. These shares were paid up to one quarter of their nominal value of £1 per share.

On 1 December 2020 74,499,999 Ordinary Shares were issued at £1 per share, following a placing and offer for subscription, and the Management Shares were redeemed out of the proceeds of the issue.

7.  Net asset value per share

	2021
Net assets attributable to shareholders (£'000)	81,327
Shares in issue at the period end	75,000,000
Net asset value per share	108.44p

8.  Transactions with the Manager

Under the terms of the Alternative Investment Fund Manager ("AIFM") Agreement, the Manager is entitled to receive a management fee, a company secretarial and administrative fee, and a performance fee. Details of the bases of these calculations are given in the Directors' Report on page 28 of the 2021 Report and Accounts .

The management fee payable in respect of the period ended 30 June 2021 amounted to £278,000, and the whole of this amount was outstanding at the period end. Any investments in funds managed or advised by the Manager or any of its associated companies, are excluded from the assets used for the purpose of the calculation and therefore incur no fee. There have been no such investments during the period.

A performance fee provision amounting to £402,000 has been included in these accounts. This amount will be carried forward until such time as it may be paid under the terms of the AIFM Agreement.

The company secretarial and administrative fee payable for the period amounted to £105,000 and the whole of this amount was outstanding at the period end.

No director of the Company served as a director of any company within the Schroder Group at any time during the period.

9. Status of announcement

2021 Financial Information

The figures and financial information for 2021 are extracted from the Report and Accounts for the period from incorporation on 21 September 2020 to 30 June 2021 and do not constitute the statutory accounts for the period. The 2021 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 2021 Report and Accounts will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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