Annual Financial Report

RNS Number : 9202C

Woodford Patient Capital Trust PLC

21 April 2017

Woodford Patient Capital Trust plc

Annual Report

21 April 2017

Woodford Patient Capital Trust plc (WPCT or the Company), announces the audited financial report for the year ended 31 December 2016.

KEY POINTS:

· money raised at launch now fully deployed across a mix of unquoted and quoted securities

· operational progress of many holdings beating expectations

· unquoted segment of portfolio delivered positive returns

· portfolio to become more concentrated on key holdings as value emerges

· the Company's net asset value declined from 97.37p to 93.24p

· low annual costs, including all transaction costs, of 0.2%

· two additional directors appointed to the Board

Susan Searle, Chairman, Woodford Patient Capital Trust plc, says:

"We commenced the year looking forward to some solid operational progress from the early-stage technology-based businesses in which the Company has invested. This progress has been forthcoming.

"As one would expect from a portfolio, these businesses are at different stages of their development but several are on the cusp of delivering their commercial potential. Milestones have been met and progress in many holdings, including Prothena, Purplebricks and Immunocore, has exceeded expectations.

"With the capital raised at launch fully invested, the Company is now in a position to nurture its portfolio of innovative businesses on the road to commercial success. The Board shares Neil's confidence that the solid operational progress seen across much of the portfolio will ultimately be reflected in the Company's valuation."

Neil Woodford, Head of Investment, Woodford Investment Management, says:

"We began 2016 with the money raised at the launch of WPCT fully deployed - and so the period under review started with a portfolio primed for its long-term patient capital journey. It is rich in quality, broad in terms of development stage and technology and, most importantly, high in potential.

"The operational progress made during the year, across the majority of the portfolio, was extremely encouraging. Much of this fundamental progress has yet to be reflected in the net asset value of the Company itself, which declined 4.2 per cent in 2016. I understand that some investors may be disappointed at the net asset value progress thus far and, although I would have preferred to have been writing this review having delivered a positive return, it must be remembered that the investment strategy was never designed to deliver significant short-term wins.

"It remains early days for this strategy, which is seeking to exploit very long-term investment opportunities. Indeed, it is the disconnect between the short-term focus of the modern stock market and the long-term needs of early-stage businesses that in part explains the Company's performance last year and which has created such a compelling investment opportunity in the first place.

"WPCT has evolved in 2016, but the original investment hypothesis remains in place. In fact, I believe it is stronger than ever."

STRATEGIC REPORT

INVESTMENT OBJECTIVE

The investment objective of WPCT is to achieve long-term capital growth through investing in a portfolio consisting predominantly of UK companies, both quoted and unquoted.

The Company will aim to deliver a return in excess of 10 per cent per annum over the longer term*.

* This is a target only, not a profit forecast, and there can be no assurance that it will be met.

OPERATIONAL HIGHLIGHTS

Diversified portfolio

The money raised at launch is fully deployed across a mix of unquoted and quoted securities as set out in the Company's prospectus at launch.

Low cost

Annual costs, including all transaction fees, of 0.2 per cent - no fee paid to Portfolio Manager unless cumulative returns in excess of 10 per cent are met.

Operational milestones

Encouraging progress of holdings against commercial and technical milestones, the key performance indicator for the Company's long-term strategy.

Building conviction

Portfolio may become more concentrated on key investments as value emerges, resulting in some holdings potentially becoming very significant as a proportion of the Company's portfolio.

Global evolution

Most holdings in the Company's portfolio emanate from the UK but as they grow some will evolve into global businesses as a result of changes in capital values or an overseas listing.

Unconstrained

Board seeking shareholder approval to amend current investment restrictions, providing the Company with greater flexibility to capture growth and follow-on investment opportunities.

FINANCIAL HIGHLIGHTS

At 31 December	2016 £'000	2015 £'000
Total assets	771,093	805,264

31 December	2016	2015
Net asset value and share price	pence	pence
Net asset value per share	93.24	97.37
Share price	91.00	101.00

31 December Net asset value and share price performance	2016 %	2015 %
Decrease in net asset value per share	(4.2)	(1.5)*
Decrease/increase in share price	(9.9)	1.0*
Share price discount/premium to net asset value	(2.4)	3.7

31 December	2016	2015
Ongoing charges ratio**	0.2	0.1

* Net asset value at admission (21 April 2015) was 98.83 pence per share. ** Ongoing charges ratio - calculated as a percentage of average shareholders' funds and using expenses, excluding finance costs, performance fees and taxation in accordance with Association of Investment Companies (AIC) guidelines. The ongoing charges figure has increased compared to the previous period as it covers the Company's first full year period. 2015 figure calculated from the date of admission (21 April 2015) to 31 December 2015.

CHAIRMAN'S STATEMENT

We commenced the year looking forward to some solid operational progress from the early-stage technology-based businesses in which the Company has invested. This progress has been forthcoming, as demonstrated in Neil's portfolio review that follows.

Success, however, can be measured in different ways and ultimately it's the Company's progress in terms of net asset value and share price that will count for investors. In this respect, 2016 was a more challenging year for the Company, with its net asset value declining modestly from 97.37p to 93.24p over the period under review. Meanwhile, the Company's share price moved from a 3.7 per cent premium to net asset value at the end of 2015, to a slight discount of -2.4 per cent at the end of the period, which meant a share price decline of -9.9 per cent during 2016.

The Company's share price traded in a relatively tight range to its net asset value throughout the year and, on average, stood at a marginal premium. This reflects a stable and supportive shareholder base who are attracted to the Company's unique value proposition and understand that it is a long-term investment strategy.

The net asset value and share price performance of the Company in 2016 fails to reflect much of the operational progress in portfolio companies that has been made in 2016. At launch, the Board was excited about the vision of building a portfolio that reflected Neil's conviction in the opportunity to invest in innovative science-based businesses with the potential to disrupt existing industries and create new ones over time. Our focus has been on whether the businesses in the portfolio are making operational progress and achieving milestones - these, in the Board's view, are the key performance indicators in this unique portfolio of quoted and unquoted assets.

As one would expect from a portfolio, these businesses are at different stages of their development but several are on the cusp of delivering their commercial potential. Milestones have been met and progress in many holdings, including Prothena, Purplebricks and Immunocore, has exceeded expectations. You can read about the progress of the Company's top 10 holdings below.

In light of the progress being made across much of the portfolio, Woodford has undertaken an analysis of how the shape of the portfolio may change over time, as material success on a stock-specific basis emerges. This analysis has highlighted a rationale for amending some of the portfolio's investment restrictions, in order to make the most of investment opportunities and avoid constraints in the future. The Board is therefore proposing a number of changes, which can be read in more detail below.

You will also find enclosed with the full Annual Report a letter asking whether you would prefer to receive future communications in electronic form rather than printed. I encourage you to consider the electronic option.

Patient capital providers build close relationships with early-stage businesses. They help nurture them to their full potential but, as we have always said, returns on investment may take time to mature. Just as some companies are ahead of schedule, some remain many years away from their commercial destiny and, inevitably, some will never complete that journey. It is why companies need capital partners such as WPCT and its investors, who are prepared to stay with them for the long term.

With the capital raised at launch fully invested, the Company is now in a position to nurture its portfolio of innovative businesses on the road to commercial success. The Board shares Neil's confidence that the solid operational progress seen across much of the portfolio will ultimately be reflected in the Company's valuation. Indeed, the uplifts to the valuations of unquoted holdings such as Oxford Nanopore, Oxford Sciences Innovation and Proton Partners International towards the end of the year hint at the value that is already beginning to accrue within the portfolio.

Susan Searle

Chairman

20 April 2017

PORTFOLIO MANAGER'S REVIEW

We began 2016 with the money raised at the launch of WPCT fully deployed - and so the period under review started with a portfolio primed for its long-term patient capital journey. It is rich in quality, broad in terms of development stage and technology and, most importantly, high in potential.

The operational progress made during the year, across the majority of the portfolio, was extremely encouraging. Much of this fundamental progress has yet to be reflected in the net asset value of the Company itself, which declined 4.2 per cent in 2016. I understand that some investors may be disappointed at the net asset value progress thus far and, although I would have preferred to have been writing this review having delivered a positive return, it must be remembered that the investment strategy was never designed to deliver significant short-term wins.

It remains early days for this strategy, which is seeking to exploit very long-term investment opportunities. Indeed, it is the disconnect between the short-term focus of the modern stock market and the long-term needs of early-stage businesses that in part explains the Company's performance last year and which has created such a compelling investment opportunity in the first place.

Long-term capital providers such as WPCT must work closely with the early-stage businesses they have backed in pursuit of commercial success, but this ultimate goal can take years, sometimes decades, to fulfil. While on the journey towards commercialisation, these companies need capital partners that are prepared to stay with them for the long term. For years, the UK has been failing to make the most of its knowledge economy assets, with increasingly adverse implications for the long-term health of the overall economy. Primarily, this is because the early-stage businesses that look to develop and commercialise the outstanding intellectual property that emanates from British universities have been deprived of the capital they need to succeed.

Encouragingly, the government does now seem to be paying attention to this fundamental problem. We are currently engaged in its Patient Capital Review, which was announced by the Chancellor in last year's Autumn Statement - and we await its outcomes with interest and optimism.

In the meantime, however, the opportunity that exists for those capital providers that are prepared to take a long-term, supportive view towards investing in early-stage businesses remains compelling.

Positive progress

Barely a week goes by when I don't hear of something coming to fruition within the portfolio. It is only a matter of time before this starts to be reflected in the net asset value and share price of the Company.

Indeed, some of this progress is already beginning to be reflected in the individual company valuations of our unquoted holdings. The unquoted portion of the portfolio, which accounted for approximately 40 per cent of the Company's assets, delivered a positive contribution to returns of more than two per cent in 2016. In contrast, the quoted part of the portfolio, which accounted for approximately 60 per cent of assets, delivered a negative contribution of more than five per cent during the year.

To an extent, this is of course down to stock specifics as I explore below. However, broadly speaking, I do not believe that the operational performance of the portfolio's quoted businesses was, in aggregate, so much worse than the operational performance of its unquoted holdings. There is a world of difference between the underwhelming progress of share prices last year and the underlying progress of the portfolio - which has surpassed my expectations. That such a wide disconnect exists serves, I believe, to highlight the problem that the Patient Capital Review is aiming to solve.

Ultimately, the probability of success or failure is no different for an unquoted company than it is for a quoted company. An issue for early-stage businesses is whether to remain unquoted or list on the stock market and, depending on the business, staying private for longer can make the journey easier. Indeed, for some there is little benefit to a stock market listing for an early-stage business that could still be several years away from generating revenues, let alone profits. But, for the patient investor, this source of market inefficiency can at least be exploited because it can lead to substantial valuation anomalies.

There's more detail on the progress being made by each of the Company's top 10 holdings at the end of this review but one stock I wish to highlight to demonstrate my conviction and investment strategy is Prothena - a company I have known for many years.

Having performed well in 2015, Prothena's share price fell significantly in the first few weeks of 2016, primarily as a result of an increase in the short interest in the stock. Our investment focus is resolutely on the long-term fundamentals of the business, which, despite the short-term share price performance, have been improving all year. News from the company has significantly reinforced our positive view on the stock and we took advantage of temporary share price weakness to add to the Company's position.

In particular, my increasing conviction is due to the progress that Prothena has made with its leading drug development candidate, which is for AL amyloidosis, a rare and often fatal organ disease affecting fewer than 10,000 patients a year. Results from its phase I and II trials have been outstanding, while patient advocacy groups have been calling for its urgent approval. There are currently no approved drugs for AL amyloidosis and in 2018 we will learn the results of two late-stage trials, which, if positive, would result in a significant revaluation of the company.

From a fundamental perspective, the AL amyloidosis opportunity on its own would warrant a valuation far above that of today's, in my view. Meanwhile, Prothena has also made significant progress on two other development candidates, one in Parkinson's disease and the other in psoriatic arthritis. The speed with which it has identified and developed these three assets suggests that there could be more to follow in time.

The company's rapid progress and its positive share price performance in the second half of the year are the principal reasons why its position in the portfolio has grown significantly from 6.3 per cent of assets to 14.4 per cent at year end.

In the world of equity investment, nothing is certain. As with any therapy in clinical trials, there is a risk that one or more of them fails to deliver the positive outcome that we hope for and expect. However, I am convinced that this business is poised to deliver incredibly attractive long-term returns to its shareholders and to improve the lives of patients suffering from these awful, debilitating diseases.

Overcoming hurdles

Some businesses in the portfolio have encountered problems and, undoubtedly, others will too. This is part of the territory when investing in early-stage businesses. What's important, in my opinion, is how one reacts to these hurdles when they arise and the lessons one learns.

For patient capital investing to be a success, one has to work through the difficult periods. My approach has always been to favour voice over exit, which means overcoming hurdles to continue to support and nurture businesses that I retain my long-term faith in.

This was the case with Circassia, which announced results from a late-stage trial into its cat allergy vaccine in June. Although many aspects of the trial data were highly encouraging, further evidencing the drug's strong therapeutic benefits, the results also showed that a placebo had broadly the same impact on symptoms. This development led to Circassia's share price declining by more than two-thirds during the period, making it a significant negative contributor to performance. More recently (and outside the period under review), it announced similar results for its house dust mite vaccine and has now decided to stop investing in the development of its allergy portfolio.

We share the management team's obvious disappointment at these trial results but remain supportive shareholders.

There is much more to Circassia than its allergy platform and it remains in a strong position. It continues to successfully develop the asthma and respiratory assets that it acquired in 2015, with three new pipeline candidates added in the second half of the period under review. In March 2017, it announced a commercial collaboration with AstraZeneca, which significantly strengthens the company's strategy as a speciality biopharma business.

New entrants

Several new holdings were introduced to the portfolio during 2016, primarily funded by reducing the Company's exposure to larger, more liquid companies early in the period.

These new holdings included Thin Film Electronics, a Norwegian company that specialises in printed electronics, an innovative new technology with a huge range of commercial applications, especially in relation to the 'internet of things'. I have known the company for a long time and I am confident that it is poised for substantial growth as its technology becomes more widely adopted.

We also participated in the IPO of Draper Esprit, a leading venture capital investment company involved in the creation, funding and development of high-growth technology businesses with a like-minded investment approach to our own.

Among new unquoted positions were Metalysis, a titanium materials company serving the 3D printing industry, Nexeon, a battery technology company with enormous potential to improve battery performance across a wide range of industries, and Accelerated Digital Ventures, a newly-formed business that aims to provide patient capital to young British digital businesses with significant growth potential.

Looking ahead

The WPCT has evolved in 2016, but the original investment hypothesis remains in place. In fact, I believe it is stronger than ever. That statement may surprise those investors that have been eager to see an early return on their investment or those that are frustrated by the lack of net asset value progress seen thus far. To an extent, I share those emotions, but they are insignificant compared to the confidence and excitement that I have in the opportunity from here.

I know how much fundamental progress our businesses are delivering and I hope I have managed to convey some of that progress in this update. In my view, it is only a matter of time before this progress is reflected in valuations. As for how long this takes, it is difficult to be precise. I said towards the start of this review that it is still early days for this long-term investment strategy but I acknowledge that I can't say that for ever.

At launch, I set out to deliver double-digit annualised long-term returns. It is, of course, critical that I do so and I remain absolutely confident that I will.

In the meantime, I'd like to thank investors for their continued support.

Neil Woodford

20 April 2017

PROGRESS REPORT: WOODFORD PATIENT CAPITAL TRUST'S TOP 10 HOLDINGS*

From the outset, it was the Portfolio Manager's intention to put greater emphasis on the companies in the portfolio about which it has the strongest conviction. The direction of travel of several holdings in the portfolio has been rapid and operational milestones are being met.

Name Prothena	Weight (%) 14.34
A US-based biotechnology company focused on discovering, developing and commercialising therapies directed specifically to disease-causing proteins. We have known its management team since the company spun out of Elan in 2012 and, over the years, the company has made considerable operational progress. Prothena is developing three main therapies, each in multi-billion dollar indications. A phase III trial for its lead asset, NEOD001 (a potential treatment for AL amyloidosis), is well advanced. Meanwhile, in October 2016, the company reported highly encouraging data from a phase Ib trial for PRX002, its potential therapy for Parkinson's disease, which is being developed in collaboration with Roche. Additionally, Prothena announced plans to progress its potential treatment for psoriatic arthritis, PRX003, into phase II following positive results from earlier clinical trials.
Oxford Nanopore	7.69
A healthcare technology company spun out of Oxford University in 2005, which has developed a highly disruptive, next-generation nanopore platform technology that enables the analysis of biological molecules, such as DNA. The company is making excellent progress in commercialising its technology, with its lead product, MinION, gaining increasing attention from a growing base of clients, not least because it can provide real-time data analysis at a starting price of $1,000. In 2016, MinION was used to sequence the human genome, perform surveillance of the Ebola and Zika viruses and to research cancer genetics. In August 2016, MinION was also successfully tested on board the International Space Station. The company raised a further £100m from investors in December 2016 to accelerate commercial roll-out.
Immunocore	5.60
A clinical-stage biotech founded in 2008 with technology spun out of Oxford University in 1999. The company is developing immuno-oncology drugs that redirect the human immune system to unmask and kill cancer cells. Immunocore's proprietary platform creates ImmTACs (for cancer) and ImmTAVs (for viral infection) - drugs that are made from engineered T-cell receptors (key components of our immune system) to bind to peptides found on cancer cells or viruses. Since funding, the company has commenced pivotal studies in uveal (eye) melanoma and cutaneous (skin) melanoma and has continued investing into its broader pipeline - success here could see it rivalling some of the US biotech sector's most successful stories for size and scale. In June 2016, the company announced positive data from its first in-human, phase I clinical trial for IMCgp100, its lead ImmTAC asset.
Theavance Biopharma	4.62
Theravance Biopharma is a US biotechnology company with a broad set of assets and a robust R&D engine. The company was spun out of Theravance in 2014 and it retains a valuable economic interest in the future commercial potential of the Closed Triple (a combination of three respiratory drugs into one) programme. This is being developed by GlaxoSmithKline and Innoviva as a potential treatment for patients with respiratory conditions such as chronic obstructive pulmonary disease (COPD) and asthma. During 2016, the company made excellent overall progress, announcing some very positive clinical data from a COPD phase III study for the Closed Triple programme, while a phase III study for patients with asthma is ongoing. In 2017, the company is also set for a number of phase I and II trial results in its earlier-stage pipeline of small molecule drugs. Meanwhile, its on-market antibiotic, Vibativ, is enjoying solid rates of growth, with net sales in the US increasing by 100 per cent during 2016.
Proton Partners	4.41
Proton Partners is on track to introduce the UK's first cancer centres offering proton beam therapy to cancer patients. New compact equipment has significantly improved the cost benefit of proton beam therapy versus conventional radiotherapy. Clinically, proton beam therapy should provide better outcomes for cancer patients as it reduces the damage to peripheral tissue and organs. Its first centre, in Newport, is due to open in the first half of 2017 and will offer proton beam therapy from early 2018. Meanwhile, building on its second centre in Northumberland is underway and is expected to be operational in early 2018, while in December the company announced that building at its third centre in Reading's Thames Valley Science Park will start in 2017. Proton Partners also marked their international expansion by securing a contract to manage and install their proton beam therapy technology in a private clinic in Abu Dhabi, UAE.
Allied Minds	4.03
An intellectual property commercialisation company that aims to "form, fund, manage and build" technology businesses using its unparalleled access to the best intellectual property emanating from US universities and other government-sponsored research institutions. Existing portfolio companies include Federated Wireless (which develops technology that allows the sharing of highly valuable and scarce mobile telecommunications spectrums) and SciFluor (which aims to optimise drugs through 'strategic fluorination' in order to improve potency, selectivity and to reduce harmful side effects). The company announced a write-down of several subsidiary companies in April 2017 (outside the period under review), which will allow it to focus more aggressively on the companies that are rapidly progressing towards their commercial goals and reallocate capital towards new ideas.
Mereo BioPharma	3.81
A UK-based specialty biopharmaceutical company formed in March 2015 by a highly experienced team to acquire and develop early-stage assets from major pharmaceutical companies. WPCT helped fund its acquisition of an initial portfolio of three programmes, all with proof of concept, from Novartis in July 2015 and, 11 months later, in July 2016 the company listed on London Stock Exchange's AIM market. This provided a positive uplift to the company's valuation in the Company's portfolio. Mereo benefits from an extensive network of experts with solid knowledge across multiple clinical disciplines. It has the potential to create substantial long-term shareholder returns by commercialising assets itself or by extracting value through out-licensing deals.
Purplebricks	3.79
Purplebricks is fast becoming a household name and Woodford was an early investor. It is a 'hybrid' property agent, combining a simple-to-use online platform with a team of flesh-and-blood agents. It operates 24/7 and is well placed to significantly disrupt the UK's traditional estate agency business model - indeed it is already doing so. Its growth revenues increased by 159 per cent for the six months to October 2016 after it sold £2.6bn worth of properties over that period, making it the third largest operator in the market. With the strategic and successful launch of its branch in Australia in September, Purplebricks' disruptive and competitive business model is beginning to demonstrate its international viability and it has recently raised capital to expand into the US in 2017.
Oxford Sciences Innovation	3.53
An Oxford-based investment company which provides long-term, patient capital to young, innovative businesses formed on technology and intellectual property emanating from Oxford University. The company aims to commercialise world-beating IP originating from a wide range of scientific fields, including healthcare, computer science and engineering. Existing portfolio companies include Vaccitech (which develops viral vector vaccines, good at treating recalcitrant illnesses such as prostate cancer) and Evox Therapeutics (which aims to develop an entirely novel class of biotherapeutics based on harnessing and engineering exosome proteins). The company raised a further £230m in December, which raised its capital base to £580m and provided an uplift to its valuation in the Company's portfolio.
4D pharma	3.20
An early-stage biotechnology company focused on the development of live biotherapeutics, a novel and emerging class of drugs which contain a live organism such as bacteria. The company was founded in 2014 and its proprietary platform MicroRx has already helped to build a diverse pipeline of programmes across a range of therapeutic areas including multiple sclerosis, Crohn's disease and cancer. It is making excellent operational progress, with its lead asset, Blautix, a potential treatment for patients with irritable bowel syndrome, successful in its phase I trial in 2016 and expected to move forward into phase II in 2017.

* as at 31 December 2016

PORTFOLIO COMPOSITION

Please find below the composition of the Woodford Patient Capital Trust portfolio by maturity stage and listing status.

Listing status		%
01	Quoted	61.29
02	Unquoted	47.62
03	Cash	-8.91*

Maturity stage		%
01	Early stage	51.10
02	Early growth	34.08
03	Mid/large	23.73
04	Cash	-8.91*

Source: Woodford

* negative due to use of overdraft facility.

And by industry and geography.*

Industry		%
01	Health Care	65.72
02	Financials	26.08
03	Industrials	8.37
04	Technology	6.02
05	Telecommunications	1.66
06	Consumer Goods	0.70
07	Basic Materials	0.36

Geographical allocation		%
01	United Kingdom	78.71
02	United States	22.74
03	Norway	3.26
04	Ireland	2.55
05	Switzerland	1.03
06	Luxembourg	0.62

Source: Woodford

* totals more than 100 per cent due to overdraft facility.

INVESTMENT PORTFOLIO

Name		Industry	Weight (%)	Holding (%)
01	Prothena	Health Care	14.34	8.17
02	Oxford Nanopore (unquoted)	Health Care	7.69	4.80
03	Immunocore A (unquoted)	Health Care	5.60	6.70
04	Theravance Biopharma	Health Care	4.62	2.70
05	Proton Partners International (unquoted)	Health Care	4.41	28.00
06	Allied Minds	Financials	4.03	2.87
07	Mereo BioPharma	Health Care	3.81	17.30
08	Purplebricks	Financials	3.79	8.49
09	Oxford Sciences Innovation (unquoted)	Financials	3.53	4.30
10	4D pharma	Health Care	3.20	5.47
11	Kymab B Pref (unquoted)	Health Care	2.69	11.50
12	Malin	Financials	2.55	4.85
13	IDEX	Technology	2.42	5.40
14	Touchstone	Financials	1.97	2.83
15	Verseon	Health Care	1.94	6.32
16	IP	Financials	1.89	1.47
17	Atom Bank (unquoted)	Financials	1.88	9.60
18	Vernalis	Health Care	1.76	7.71
19	Gigaclear (unquoted)	Telecommunications	1.66	12.50
20	ReNeuron	Health Care	1.61	15.21
21	Industrial Heat (unquoted)	Industrials	1.53	14.20
22	Horizon Discovery	Health Care	1.51	8.68
23	Circassia	Health Care	1.50	4.37
24	Drayson Technologies (unquoted)	Technology	1.34	12.20
25	Ombu (unquoted)	Financials	1.33	6.80
26	Benchmark	Health Care	1.32	2.42
27	AJ Bell (unquoted)	Financials	1.19	3.20
28	SciFluor Life Sciences (unquoted)	Health Care	1.17	8.60
29	CeQur (unquoted)	Health Care	1.03	8.10
30	AMO Pharma (unquoted)	Health Care	1.03	20.60
31	Precision Biopsy (unquoted)	Health Care	1.03	10.90
32	RM2 International	Industrials	1.00	6.14
33	Utilitywise	Industrials	0.98	4.91
34	NetScientific	Health Care	0.95	22.22
35	Mercia Technologies	Financials	0.93	6.78
36	Xeros	Industrials	0.87	3.76
37	Thin Film Electronics	Industrials	0.84	2.33
38	Mission Therapeutics (unquoted)	Health Care	0.80	8.10
39	Draper Espirit	Financials	0.78	4.34
40	Arix bioscience (unquoted)	Financials	0.77	10.10
41	Seedrs (unquoted)	Financials	0.77	21.50
42	Metalysis (unquoted)	Industrials	0.77	7.90
43	Benevolent Ai (unquoted)	Technology	0.74	0.50
44	Federated Wireless (unquoted)	Technology	0.70	9.10
45	Nexeon (unquoted)	Industrials	0.68	4.70
46	Ultrahaptics Pref (unquoted)	Technology	0.64	21.20
47	Mafic (unquoted)	Industrials	0.62	9.70
48	Industrial Heat A2 Pref (unquoted)	Industrials	0.56	45.00
49	Silence Therapeutics	Health Care	0.53	5.97
50	Abzena	Health Care	0.44	6.97
51	Inivata (unquoted)	Health Care	0.43	15.90
52	hVIVO	Health Care	0.40	2.39
53	Kind Consumer C (unquoted)	Consumer Goods	0.38	13.90
54	Autolus (unquoted)	Health Care	0.38	4.70
55	Revolymer	Basic Materials	0.36	13.29
56	Sphere Medical	Health Care	0.33	19.51
57	Oxford Pharmascience	Health Care	0.30	12.32
58	Cambridge Innovation Capital (unquoted)	Financials	0.26	1.50
59	Origin (unquoted)	Health Care	0.24	2.20
60	PsiOxus (unquoted)	Health Care	0.23	2.40
61	Fibre 7 (unquoted)	Industrials	0.22	51.90
62	Northwest Biotherapeutics	Health Care	0.22	3.95
63	American Financial Exchange (unquoted)	Financials	0.21	1.70
64	Evofem C (unquoted)	Health Care	0.21	1.30
65	Accelerated Digital Ventures (unquoted)	Financials	0.20	9.30
66	Econic (unquoted)	Industrials	0.20	8.30
67	Ultrahaptics (unquoted)	Technology	0.18	5.80
68	Kind Consumer (unquoted)	Consumer Goods	0.17	12.10
69	Eve Sleep (unquoted)	Consumer Goods	0.13	2.80
70	Halosource Reg S	Industrials	0.10	4.94
71	Kind Consumer B (unquoted)	Consumer Goods	0.02	1.80

BUSINESS REVIEW

The strategic report has been prepared in accordance with the requirements of Section 414 A-D of the Companies Act 2006 to help shareholders assess how the Company has performed and to understand its objectives and policies. The business review section of the strategic report discloses the Company's risks and uncertainties as identified by the Board, the key performance indicators used by the Board to measure the Company's performance, the strategies used to implement the Company's objectives, and the Company's environmental, social and ethical policy.

Principal activity

The Company carries on business as an investment trust and under the period under review its principal activity was investment in quoted and unquoted equities of companies incorporated or listed predominantly in the United Kingdom, with a view to achieving the Company's investment objective. Investment companies are a way for investors to make a single investment that gives a share in a much larger portfolio. A type of collective investment, they allow investors to spread risk and diversify in investment opportunities which may not otherwise be easily accessible to them. More information can be found on the Association of Investment Companies (AIC) website, via the following link: http://www.theaic.co.uk/guide-to-investment-companies.

Strategy and investment policy

As a result of the progress being made across much of the portfolio, the fund manager has undertaken an analysis of how the shape of the portfolio may change over time, as material success on a stock-specific basis materialises. This analysis has highlighted a rationale for amending the current investment objective and policy in order to avoid the Portfolio Manager becoming unintentionally constrained in the future. The existing investment objective and policy and proposed new objective and policy are set out below. The proposed new investment objective and investment policy are set out in full in Appendix 1 in the full annual report and accounts, with all the amendments to the existing investment objective and investment policy highlighted for ease of reference.

The Company's current investment objective is to achieve long-term capital growth through investing in a portfolio consisting predominantly of UK companies, both quoted and unquoted.

The Company will aim to deliver a return in excess of 10% per annum over the longer term*.

* This is a target only, not a profit forecast, and there can be no assurance that it will be met.

The Company's portfolio is constructed on the basis of an assessment of the fundamental value of individual securities and is not structured on the basis of sector weightings. The Company's portfolio is diversified across a number of sectors and, while there are no specific limits placed on exposure to any one sector, the Company will at all times invest and manage the portfolio in a manner consistent with spreading investment risk.

The Company's current investment policy is as follows:

Asset allocation and risk diversification

The Company invests in a diversified portfolio consisting predominantly of UK companies, both quoted and unquoted.

The Company invests in:

(i) early-growth companies, which are typically quoted although may be unquoted companies

(ii) early-stage companies, which are likely to include both quoted and unquoted companies

(iii) mid and large-capitalisation, listed mature companies

To acknowledge the Company's evolving structure, the Company's portfolio is generally expected to reflect the following asset allocation:

(i) between 15 and 30 per cent invested in early-growth companies

(ii) between 40 and 70 per cent invested in early-stage companies

(iii) between 15 and 30 per cent investmed in mid- and large-capitalisation listed, mature companies

However, the actual portfolio composition at any one time will reflect the opportunities available to the Portfolio Manager, the performance of the underlying investee companies and the maturity of the portfolio.

The Company's portfolio is expected to consist of 50-100 holdings. The Company may become a significant shareholder in any of the underlying portfolio companies.

Investment restrictions

The Company is subject to the following investment restrictions:

(i) investment in unquoted companies will be limited to 60 per cent of net asset value at the time of investment

(ii) investment in non-UK companies will be limited to 30 per cent of net asset value at the time of investment

(iii) the Company's portfolio shall be invested in a minimum of 40 holdings

(iv) the Company shall not invest more than 10 per cent of its net asset value at the time of investment in an investee company, save that the Portfolio Manager may make further investments into an investee company subject to an aggregate investment limit in any investee company of 15 per cent of net asset value at the time of investment

(v) the Company may invest in other investment funds, including listed closed-ended investment funds, to gain investment exposure, but such investment will be unleveraged and (other than in relation to investment in money market funds for the purposes of cash management) limited, in aggregate, to 10 per cent of net asset value at the time of investment

(vi) the Company shall not have exposure of more than 10 per cent of net asset value, at the time of investment, to any one issuer

Borrowing

The Company does not intend to deploy long-term gearing but may employ gearing of up to 20 per cent of net asset value, calculated at the time of borrowing, for the purpose of capital flexibility, including for investment purposes.

The Board oversees the level of gearing in the Company, and reviews the position with the Portfolio Manager on a regular basis. As at the year end, the Company had £74.6m borrowings (9.7 per cent of the Company's net asset value).

Hedging

The Company may use derivatives for the purposes of hedging any currency risk to which the Company may be subject but will not use derivatives for investment purposes. During the period under review the Company hedged its exposure to euro and USD currency denominated holdings in the portfolio using forward currency contracts. No other derivatives were employed during the period.

Cash management

While it is intended that the Company will be fully invested in normal market conditions, the Company may hold cash on deposit or invest on a temporary basis in a range of debt securities and cash equivalent instruments. There is no restriction on the amount of cash or cash equivalent instruments that the Company may hold and there may be times when it is appropriate for the Company to have a significant cash position instead of being fully or near fully invested. As at the year end the cash position was nil.

Proposed change to the investment policy

Proposed investment objective

The Company's investment objective is to achieve long-term capital growth through investing in a diversified portfolio with a focus on UK companies, both quoted and unquoted. As these companies evolve, the geographical profile of the portfolio may also change to become more global in nature for reasons such as an overseas listing or as the result of changes to the capital value of a non-UK company.

The Company will aim to deliver a return in excess of 10 per cent per annum over the longer term*.

* This is a target only, not a profit forecast, and there can be no assurance that it will be met.

Proposed investment policy

Asset allocation and risk diversification

The Company invests in a diversified portfolio with a focus on UK companies (either incorporated in the UK or traded on a UK exchange), both quoted and unquoted. As these companies evolve, the geographical profile of the portfolio may also change to become more global in nature for reasons such as an overseas listing or as the result of changes to the capital value of a non-UK company.

The Company invests in:

· early-stage companies, which are likely to include both quoted and unquoted companies; and

· mid- and large-capitalisation quoted, mature companies.

The actual portfolio composition at any one time will reflect the opportunities available to the Portfolio Manager, the performance of the underlying investee companies and the maturity of the portfolio.

The Company's portfolio will typically consist of 50-100 holdings. The Company may become a significant shareholder in any of the underlying portfolio companies.

The Company's portfolio is constructed on the basis of an assessment of the fundamental value of individual securities and will not be structured on the basis of sector weightings. The Company's portfolio is diversified across a number of sectors and, while there are no specific limits placed on exposure to any one sector, the Company will at all times invest and manage the portfolio in a manner consistent with spreading investment risk.

Investment restrictions

The Company is subject to the following investment restrictions:

· investment in unquoted companies will be limited to 80 per cent of net asset value at the time of investment;

· the Company's portfolio shall be invested in a minimum of 40 holdings;

· the Company shall not invest more than 10 per cent of its net asset value at the time of initial investment in an investee company save that the Portfolio Manager may make further investments into an investee company subject to an aggregate investment limit in any investee company of 20 per cent of net asset value at the time of investment;

· the Company may invest in other investment funds, including listed closed-ended investment funds, to gain investment exposure, but such investment will be unleveraged and (other than in relation to investment in money market funds for the purposes of cash management) limited, in aggregate, to 10 per cent of net asset value at the time of investment; and

· with respect to cash deposits, the Company shall not have exposure of more than 10 per cent of net asset value, at the time of investment, to any one issuer.

Borrowing

The Company may employ gearing of up to 20 per cent of net asset value, calculated at the time of borrowing, for the purpose of capital flexibility, including for investment purposes.

The Board will oversee the level of gearing in the Company, and will review the position with the Portfolio Manager on a regular basis.

Hedging

The Company may use derivatives for the purposes of hedging any currency risk to which the Company may be subject but will not use derivatives for investment purposes.

Cash management

Unquoted securities valuation policy

The Company unquoted securities valuation policy provides an objective, consistent and transparent basis for estimating the fair value of unquoted equity securities in accordance with Financial Reporting Standard (FRS) 102 as well as International Private Equity and Venture Capital Valuation Guidelines.

The unquoted securities valuation policy and the Portfolio Manager's valuation procedures are subject to review on a regular basis, and updated as appropriate, in line with industry best practice. In addition, the Portfolio Manager works with Duff & Phelps Ltd, an independent third-party valuation firm, to obtain assistance, advice, assurance and documentation in relation to the ongoing valuation process.

The Portfolio Manager seeks to mitigate any conflicts of interest in the valuation process by clearly segregating responsibilities in order to ensure independence in the process. The Portfolio Manager considers it impractical to perform an in-depth valuation analysis for every unquoted investment on a daily basis (whether internally or with the assistance of an independent third party). Therefore, an in-depth valuation of each investment is performed independently by Duff & Phelps (i) at the time of initial investment, (ii) with a semi-annual frequency thereafter and (iii) as required where the Portfolio Manager determines that a 'triggering event' has occurred.

A triggering event may include any of the following:

- a subsequent round of financing (whether pro rata or otherwise) by the relevant investee company.

- a significant or material milestone achieved by the relevant investee company.

- a secondary transaction involving the relevant investee company on which sufficient information is available.

- a change in the makeup of the management of the relevant investee company.

- a material change in the recent financial performance or expected future financial performance of the relevant investee company.

- a material change in the market environment in which the relevant investee company operates; or

- a significant movement in market indices or economic indicators.

Once a valuation review has been established, fair value will be assumed to be representative of fair value each business day until a valuation change is enacted by Capita Financial Managers Limited (the AIFM).

Once completed, the valuations are submitted to the Portfolio Manager's Pricing Committee for review. The Pricing Committee comprises representatives from the Portfolio Manager, the AIFM and Duff & Phelps. The AIFM is the decision-maker on valuations and enacts the price change. Where the Pricing Committee considers such an adjustment to be material, the Portfolio Manager will inform the Board of the nature and reasons for the adjustment.

Business model

The management of the Company's assets and the Company's administration has been outsourced to third-party service providers. The Board has oversight of the key elements of the Company's strategy, including the following:

- the Company's level of gearing. The Company has a maximum limit of 20 per cent of net asset value at the time of borrowing.

- the Company's investment policy which determines the diversity of the Company's portfolio. The Board sets limits and restrictions with the aim of reducing risk and maximising returns.

- the appointment, amendment or removal of the Company's third-party service providers.

- an effective system of oversight over the Company's risk management and corporate governance.

- the Board regularly reviews the premium/discount to net asset value.

In order to effectively undertake its duties the Board may seek expert legal advice. It also can call upon the advice of the company secretary.

Premium/Discount management

The Board monitors the premium or discount at which the Company's ordinary shares trade in relation to the Company's underlying net asset value and takes action accordingly. During the period under review, the Company's ordinary shares traded predominantly at a premium to its underlying net asset value. The Board is of the view that an increase of the Company's ordinary shares in issue provides benefits to shareholders, including a reduction in the Company's administrative expenses on a per share basis and increased liquidity in the Company's shares. The Company may also seek to address any significant imbalance between the supply of and demand for ordinary shares in the secondary market and to manage any discount to the net asset value at which its ordinary shares may be trading by purchasing its own ordinary shares in the market on an ad hoc basis.

As a means of controlling the discount at which the shares may, from time to time, trade, the Board may seek shareholder authority to buy back ordinary shares. The Directors have not bought back any shares under the Annual General Meeting (AGM) authority granted at the AGM held on 9 May 2016. At the forthcoming AGM, the Board is seeking to renew this authority.

Board diversity

The Board consists of six non-executive directors, three of whom are female. The Board's policy on diversity, including gender, is to consider this during the recruitment process. The Board is committed to appointing the most appropriate candidate who is the best fit for the Company regardless of gender or other forms of diversity.

Corporate and operational structure

Alternative Investment Fund Manager's Directive (AIFMD)

In accordance with the AIFMD, the Company has appointed Capita Financial Managers Limited to act as its Alternative Investment Fund Manager (AIFM). The AIFM has in turn appointed Woodford Investment Management Ltd to act as its Portfolio Manager, to manage the Company's assets. The AIFM monitors the Portfolio Manager of the Company and ensures that the Company's assets are valued appropriately in accordance with the relevant regulations and guidance. In addition, the Company has appointed The Northern Trust Company (as a delegate of the depositary) to provide custody services to the Company as required by the AIFMD.

Operational and portfolio management

In addition to the above, the Company has outsourced its operations to the following service providers:

- Capita Company Secretarial Services Limited has been appointed to act as the Company's company secretary;

- Northern Trust Global Services Limited (Northern Trust) has been appointed to act as the Company's investment accountant and administrator;

- Duff & Phelps Limited has been appointed to provide third-party valuation assistance in their capacity as a valuation firm to act as the Company's tax adviser;

- Capita Registrars Limited has been appointed as the Company's registrar; and

- Winterflood Investment Trusts (a division of Winterflood Securities Limited) has been appointed to act as the Company's corporate broker and financial adviser.

Environment, social, human rights, community and employee issues

The Board has high standards on all issues that concern the environment, social matters, human rights, community and employees. The Company has no employees and all of its Board members are non-executive. There are therefore no disclosures to be made in respect of employees. The Board has delegated the Company's day-to-day operations and investment decisions to third-party service providers.

The Portfolio Manager considers, amongst other things, the environment, social and human rights, employee and community implications of the companies within which it invests the Company's assets. The Board is provided with detailed information on each of the Company's underlying holdings on a regular basis. It has regular meetings with members of the investment management team who provide them with detailed feedback on the affairs of the Company's underlying holdings and can request that action is taken to bear pressure on the companies with which the Portfolio Manager invests on behalf of the Company to ensure the highest standards are maintained. The Portfolio Manager aims to exercise its votes at the shareholders' meetings of the Company's underlying holdings in every situation it can. In addition, the Portfolio Manager meets regularly with the management of many of the Company's underlying holdings and encourages high standards with regard to each company's approach to social, environmental, human rights, community and employee matters.

Principal risks and uncertainties

The Board has carried out a robust assessment of its risks and controls during the period under review. The process involves the maintenance of a risk register, which identifies the risks facing the Company and assesses each risk on a scale, classifying the likelihood of the risk and the potential impact of each risk to the Company. This helps the Audit Committee and Board focus on any identified risk of particular concern and aids with the development of the Board's risk appetite. In developing the risk management process, the Board took into consideration the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting issued by the Financial Reporting Council (FRC).

The Board has established controls to mitigate against risks faced by the Company, which are reviewed on a regular basis to ascertain the effectiveness of each control.

The Company's operations are undertaken by third-party service providers who have established controls to mitigate against risks identified by the Board. The controls and operations of each service provider are subject to a detailed analysis of their operations, which includes testing their key systems to identify any weaknesses, by independent auditors on at least an annual basis. The findings of each review are detailed in Assurance Reports, copies of which are provided to the Audit Committee for their review, so that it can gain a greater understanding of the risk management processes and how they apply to the Company's business.

The principal risks and uncertainties faced by the Company in respect of the year ended 31 December 2016 are set out below. The risks arising from the Company's financial instruments are set out in Note 22 of the financial statements below. Proposed changes to the current investment restrictions for future years are set out above.

The Board has determined that the three key risks for the Company are portfolio concentration; potential key man dependency; and the outsourced service provider model.

Portfolio risk: Portfolio Manager failure and/or concentration risk

The company invests a significant proportion of its assets in early-stage companies and early-growth companies. Such companies may not have the financial strength, diversity and resources of larger, more established companies and may find it difficult to operate, especially in periods of low economic growth. The shares of such companies, if quoted, may be less liquid, and as a consequence their share prices may be more volatile than larger investments. The success of such quoted and unquoted companies may depend on commercial and technical milestones, some of which may not be in their control - for example, the failure of a clinical trial in a biotechnology company.

Some of the company's investments may demonstrate potentially swift growth, which could lead to those investments representing larger proportions of the portfolio than might be expected. The Board feels that in those circumstances, portfolio concentration is acceptable as it evidences the success of the Portfolio Manager's judgement. The alternative, imposing limits on the size of any one investment, would potentially result in the Company being a forced seller of an investment that still had further growth potential. The Board does not feel that this would be in the best interests of the shareholders and this view is in line with the Portfolio Manager's investment strategy.

The risk linked to any portfolio concentration might be compounded due to the nature of some of the business and the risk associated with both commercial and technical milestones. For example, the value of the trust's holding in Prothena had grown to 14.34% of the trust's assets at the end of the year. Prothena is a US-listed biotech company and in common with other biotech companies is subject to clinical trials risk.

Mitigation - The Company's portfolio is monitored closely by the Board and Portfolio Manager. The Company seeks to invest in a diversified portfolio across a wide range of companies so as to mitigate against the risk posed by an individual early-stage or early-growth company. However, the Board is mindful that the Company was established with the aim of providing long-term growth and that concentration should be a sign of success as a result of assets backed becoming more valuable. Short-term liquidity problems with the Company's underlying holdings should be mitigated over time when such companies deliver on their milestones and value is recognised. This risk is further mitigated by proposed changes to the investment policy set out above.

Portfolio Manager and key man risk

The departure of some or all of the Portfolio Manager's investment professionals could prevent the Company from achieving its investment objective. In particular, Neil Woodford is considered a key individual as the fund manager principally responsible for the management of the Company's assets. The past performance of the Portfolio Manager's investment professionals cannot be relied upon as an indication of the future performance of the Company.

Woodford Investment Management could terminate its contract with the Company. This event would have an impact on the management of the portfolio and on the provision of the debt facility.

Mitigation - The Portfolio Manager has developed a suitable succession planning programme which seeks to ease the impact that the loss of a key investment professional may have on the Company's performance. The Board has reached an agreement with the Portfolio Manager that any change in its key professionals will be notified 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 Portfolio Manager's organisation on the Company's performance. The risk of Woodford Investment Management (WIM) terminating the contract is thought to be low given the key part in the Woodford portfolio that the product plays and the associated risk to reputation.

Outsourced service provider model risk

The Company has no employees and the Directors have been appointed on a non-executive basis. The Company is reliant upon the performance of third-party service providers for its executive function. The AIFM, the Portfolio Manager, the depositary, the company secretary and the administrator will be performing services which are integral to the operation of the Company. Failure of any of its third-party service providers to perform in accordance with the terms of its appointment could have a material detrimental impact on the operation of the Company. Furthermore, any of the Company's service providers could terminate their contract.

Mitigation - The performance of the Company's service providers is monitored closely by the Board and its Committees.

KEY PERFORMANCE INDICATORS

Performance and indicators

Performance is measured against the Company's objective of in excess of 10 per cent growth per year. During the period to 31 December 2016 the Company's net asset value declined by 4.2 per cent. A more detailed explanation of the Company's performance can be found in the Portfolio Manager's review and the Chairman's statement above.

The key performance indicators (KPIs) monitored by the Board are the progress that the top 10 holdings in the portfolio make against commercial, operational and technical milestones. Progress on the next 10 holdings is also reviewed with less frequency. New entrants and emerging portfolio company progress is also discussed.

Performance against other trusts

The Company is positioned within the AIC's UK All Companies sector by most investment company broker analysts. The Board does not have a specific benchmark against which performance is measured. It believes that operational progress is the key performance indicator in this unique portfolio of quoted and unquoted assets.

Share price premium/(discount) to net asset value per share

During the Company's first financial period to 31 December 2015, it issued a total of 827,000,000 ordinary shares in order to meet natural market demand and no shares were bought back. However, no further shares were issued in the year under review. The Company's shares traded at an average premium of 0.4 per cent to its net asset value (cum income) throughout the year to 31 December 2016.

Ongoing charges

Woodford does not receive a fee for managing this investment trust, unless it delivers cumulative annual returns in excess of 10 per cent. The ongoing charges cover the general administrative and management costs associated with running the trust.

The Company calculates the ongoing charges ratio as a percentage of average shareholders' funds and expenses, excluding finance costs, performance fees and taxation, in accordance with AIC guidelines. This gives an indication as to the Company's expenses to its shareholders and potential investors. The Board monitors the Company's estimated ongoing charges against its peers at each Board meeting to ensure that the Company remains competitive against its peers. It is not expected that the ongoing charges will exceed 0.2 per cent, which compares favourably with the Company's peers who operate with an average ongoing charges level of 1.03 per cent. As at 31 December 2016 the Company's ongoing charge was 0.18 per cent.

Woodford is committed to greater transparency on the total cost of investing. Since July 2016, all transaction costs, in addition to the ongoing charge figure, have been disclosed monthly on its website to help investors better understand the total, true cost of investing.

Gearing

As at 31 December 2016 the Company had gearing of £74,640,000 (9.6 per cent), in respect of an overdraft, while the average level of gearing amongst its peers was 3.8 per cent.

Portfolio diversification

At each Board meeting the Board reviews the Company's portfolio to monitor the Company's exposure to various sectors, geographical areas, investment split between listed and unlisted equities and early-growth, early-stage and mid-large companies to ensure there is sufficient diversification of the Company's portfolio. However, as the portfolio value grows it is expected to become more concentrated around a number of large assets.

For and on behalf of the Board of Directors by

Capita Company Secretarial Services Limited

Secretary

20 April 2017

EXTRACTS FROM THE DIRECTORS' REPORT

Going concern

The financial statements have been prepared on a going concern basis. Having had regard to the Company's projected income and expenses, the Directors consider that going concern is the appropriate basis as they have a reasonable expectation that, with in excess of £771m of total assets, 52 per cent of which is realisable, the Company has adequate resources to continue in operational existence for at least the next 12-month period. The Directors shall continue to adopt the going concern basis of accounting in preparing the financial statements.

Viability statement

In accordance with Principle 21 of the AIC Code of Corporate Governance published in July 2016 and provision C.2.2 of the UK Corporate Governance Code, published by the FRC in April 2016, the Directors have assessed the prospects of the Company over the five-year period to 31 December 2021. The Directors consider that a period of at least five years is required to assess the viability of an investment company that holds predominantly young unquoted or small- to medium-sized companies, as they believe this to be a reasonable period of time for such young companies to make meaningful progress on the journey towards fulfilling their long-term potential. In its assessment of the viability of the Company, the Directors have considered each of the Company's principal risks and uncertainties detailed above and in particular the impact of the total collapse of one or more of the Company's significant holdings. The Board has considered the Company's likely income and expenditure. The Board is particularly mindful that a significant proportion of the Company's portfolio comprises cash and equity assets traded on public markets 52 per cent as at 31 December 2016), which are easily realisable and that can be sold to meet funding requirements, if required.

The Board has given careful consideration to the Company's estimated annual expenditure on operating costs, the Company's risks and internal controls, the Company's asset allocation and diversification, portfolio risk, financial controls, and the restrictions set to the Company's level of gearing. Following the Board's detailed analysis, it has concluded that there is a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the five-year period to 31 December 2021.

Post year end events

Save as otherwise disclosed, there have been no important events to disclose since the period end under review.

The full Annual Report contains the following statements regarding responsibility for the financial statements.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). 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 as at the end of each financial year and of the profit or loss of the Company for that period.

In preparing those financial statements, the Directors are required to:

- present fairly the financial position, financial performance and cash flows of the Company;

- select suitable accounting policies in accordance with United Kingdom Generally Accepted Accounting Practice and then apply them consistently;

- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

- make judgements and 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 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 Directors are also responsible for preparing the strategic report, the Directors' report, the Directors' remuneration report, the corporate governance statement and the report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Portfolio Manager for the maintenance and integrity of the Company's corporate and financial information included on Woodford Investment Management Limited's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors confirms that:

- the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and loss of the Company; and

- the strategic report contained in the annual report and financial statements 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.

The UK Corporate Governance Code requires Directors to ensure that the annual report and financial statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advises on whether it considers that the annual report and financial statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set out in its report in the full annual report. As a result, the Board has concluded that the Annual Report and financial statements for the year ended 31 December 2016, 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.

Signed on behalf of the Board of Directors by:

Susan Searle

Chairman

20 April 2017

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2016 and the period ended 31 December 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies, and those for 2016 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the full Annual Report.

INCOME STATEMENT

Year ended 2016	Notes	Revenue £000	Capital £000	Total £000
Losses on investments and derivatives measured at fair value through profit or loss	15	0	(32,193)	(32,193)
Income	3	1,255	0	1,255
Portfolio management fee	4	0	0	0
Other expenses	5	(1,367)	0	(1,367)
Return before finance costs & taxation		(112)	(32,193)	(32,305)
Finance costs	6	(599)	0	(599)
Return before taxation		(711)	(32,193)	(32,904)
Taxation	7	0	0	0
Return for the period		(711)	(32,193)	(32,904)
Return per ordinary share (pence)	18	(0.09)p	(3.89)p	(3.98)p

Period from 26 January to 31 December 2015	Notes	Revenue £000	Capital £000	Total £000
Losses on investments and derivatives measured at fair value through profit or loss		0	(17,587)	(17,587)
Income	3	2,374	0	2,374
Portfolio management fee	4	0	0	0
Other expenses	5	(816)	0	(816)
Return before finance costs & taxation		1,558	(17,587)	(16,029)
Finance costs	6	(20)	0	(20)
Return before taxation		1,538	(17,587)	(16,049)
Taxation	7	0	0	0
Return for the period		1,538	(17,587)	(16,049)
Return per ordinary share (pence)	18	0.25p	(2.88)p	(2.63)p

The notes below form part of these accounts.

The total column of this statement is the profit and loss account of the Company.

All the revenue and capital items in the above statement derive from continuing operations.

There is no other comprehensive income.

STATEMENT OF FINANCIAL POSITION

As at 31 December 2016

31 December	Notes	2016 £'000	2015 £'000
Fixed assets
Investments at fair value through profit or loss	9	841,159	796,929

Current assets
Derivative financial instruments at fair value through profit or loss	12	5,730	0
Debtors	10	38	326
Cash at bank		0	12,008
		5,768	12,334
Creditors - amounts falling due within one year
Derivative financial instruments at fair value through profit or loss	12	(996)	(368)
Other creditors	11a	(198)	(3,631)
Bank overdraft	11b	(74,640)	0
Net current (liabilities)/assets		(70,066)	8,335
Total assets less current liabilities		771,093	805,264
Net assets		771,093	805,264
Capital and reserves
Share capital	13	8,270	8,270
Share premium	14	813,099	813,043
Capital reserve	15	(49,780)	(17,587)
Revenue reserve	16	(496)	1,538
Total shareholders' funds		771,093	805,264
Net asset value per share - ordinary shares (pence)	19	93.24p	97.37p

The financial statements of Woodford Patient Capital Trust plc, company number 09405653, were approved by the Board and authorised for issue on 20 April 2017 and were signed on its behalf by:

Susan J Searle

Chairman

STATEMENT OF CHANGES IN EQUITY

Year ended 2016	Share capital £'000	Share premium account £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
Beginning of year	8,270	813,043	(17,587)	1,538	805,264
Total comprehensive income for the financial year	0	0	(32,193)	(711)	(32,904)
Issue of ordinary shares	0	0	0	0	0
Share issue costs written back	0	56	0	0	56
Dividends paid	0	0	0	(1,323)	(1,323)
Balance at 31 December 2016	8,270	813,099	(49,780)	(496)	771,093

Period from 26 January to 31 December 2015	Share capital £'000	Share premium account £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
Beginning of year	0	0	0	0	0
Total comprehensive income for the financial year	0	0	(17,587)	1,538	(16,049)
Issue of ordinary shares	8,270	822,190	0	0	830,460
Share issue costs written back	0	(9,147)	0	0	(9,147)
Dividends paid	0	0	0	0	0
Balance at 31 December 2015	8,270	813,043	(17,587)	1,538	805,264

Distributable reserves comprise: the revenue reserve and capital reserve attributable to realised profits.

Share capital represents the nominal value of shares that have been issued. The share premium account includes any premiums received on issue of share capital. Any direct transaction costs associated with the issuing of shares are deducted from share premium.

All investments are held at fair value through profit or loss. When the Company revalues the investments still held during the period, any gains or losses arising are credited/charged to the capital reserve.

CASH FLOW STATEMENT

31 December	2016 £'000	2015 £'000
Cash flow from operating activities
Loss before finance costs and taxation	(32,305)	(16,029)
Adjustments for:
Movements in investments held at fair value through profit or loss	32,193	17,587
Decrease in debtors	288	(326)
Increase in creditors	15	550
Net cash (used)/generated from operating activities	191	1,782
Cash flows from investing activities
Purchases of investments	(217,879)	(820,489)
Proceeds from sales of investments	136,354	9,365
Cash outflows from derivative financial instruments	(5,507)	0
Cash inflows from derivative financial instruments	2,115	0
Net cash used in investing activities	(84,917)	(811,124)
Cash flows from financing activities
Issue of ordinary share capital	0	830,460
Share issue costs	0	(9,090)
Dividends paid	(1,323)	0
Fee paid for credit facility	(599)	(20)
Net cash (used in)/from financing activities	(1,922)	821,350
Net (decrease)/increase in cash and cash equivalents	(86,648)	12,008
Cash and cash equivalents at the beginning of the year	12,008	0
Cash and cash equivalents at the end of the year	(74,640)	12,008

NOTES TO THE FINANCIAL STATEMENTS

1. General information

Woodford Patient Capital Trust Plc (the 'Company') was incorporated in England and Wales on 26 January 2015 with registered number 09405653, as a closed-ended investment Company. The Company commenced its operations on 21 April 2015. The Company intends to carry on business as an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.

The Company's investment objective is to achieve long-term capital growth through investing in a portfolio consisting predominantly of UK companies, both quoted and unquoted. The Company will aim to deliver a return in excess of 10 per cent per annum over the longer term.

The Company's shares were admitted to the Official List of the UK Listing Authority with a premium listing on 21 April 2015. On the same day, trading of the ordinary shares commenced on the London Stock Exchange. The registered office is 40 Dukes Place, London EC3A 7NH, United Kingdom.

2. Accounting policies

The principal accounting policies followed by the Company are set out below:

(a) Basis of accounting

The Company's financial statements have been prepared in compliance with FRS102 as it applies to the financial statements of the Company for the period ended 31 December 2016 and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in November 2014 and updated in January 2017). The financial statements have been prepared on the historical cost basis except for the modification to a fair value basis for certain financial instruments as specified in the accounting policies below.

The financial statements have been prepared on a going concern basis (see above) and on assumption that approval as an investment trust will continue to be granted.

The financial statements have been presented in Sterling (£), which is also the functional currency of the Company.

(b) Investments

The Company has adopted the provisions of Sections 11 and 12 of FRS 102 for measuring and disclosing its financial instruments. All investments held by the Company are classified as "fair value through profit or loss", and are valued in accordance with the International Private Equity and Venture Capital Valuation (IPEVCV) guidelines.

For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional.

Unquoted investments are a significant accounting judgement which is stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEVCV guidelines:

All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered:

(i) where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used.

(ii) in the absence of i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to an earnings multiple basis or, if appropriate, other valuation methods are also used. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector, but the resulting value being adjusted to reflect points of difference identified by the investment adviser compared to the sector including, inter alia, a lack of marketability).

At the year end, of the unquoted holdings, 93 per cent were valued using the process explained in (i) above and the remaining 7 per cent valued using techniques described in (ii) above.

Transactions denominated in foreign currencies are translated into Sterling at actual exchange rates as at the date of the transaction. Assets and liabilities denominated in foreign currencies at the period end are reported at the rates of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the income statement as appropriate. Foreign exchange movements on investments are included in the Income Statement within gains on investments.

(d) Derivatives

Derivatives, including forward foreign exchange contracts, are non-basic financial instruments.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss.

(e) Income

Investment income has been accounted for on an ex-dividend basis or when the Company's right to the income is established. Special dividends are credited to capital or revenue in the income statement, according to the circumstances surrounding the payment of the dividend. UK dividends are accounted for net of any tax credits. Overseas dividends are included gross of withholding tax. Interest receivable on deposits is accounted for on an accruals basis.

(f) Expenses

All expenses are accounted for on an accruals basis and are charged as follows (31 December 2015: the Company commenced its operations on 21 April 2015):

- any performance fee is allocated to capital

- investment transactions costs are allocated to capital

- other expenses are charged wholly to revenue

- direct issue costs are deducted from the share premium account

- finance costs are charged wholly to revenue.

(g) Taxation

The charge for taxation is based upon the net revenue for the year. The tax charge is allocated to the revenue and capital accounts according to the marginal basis whereby revenue expenses are first matched against taxable income arising in the revenue account. Deferred taxation will be recognised as an asset or a liability if transactions have occurred at the interim reporting date that give rise to an obligation to pay more taxation in the future, or a right to pay less taxation in the future. An asset will only be recognised to the extent that transfer of economic benefit is uncertain.

(h) Cash and cash equivalents

Cash and cash equivalents are defined as cash and demand deposits readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts, when applicable, are shown within current liabilities.

(i) Finance costs

Finance costs are interest costs on the overdraft facility and are recognised in the profit and loss account within Revenue.

3. Income

	Year ended 31 December 2016 £'000	Period from 26 January to 31 December 2015 £'000
Income from investments
UK franked dividends	1,255	2,317
Other Income	0	57
Total	1,255	2,374

4. Portfolio management fee

	Year ended 31 December 2016 £'000	Period from 26 January to 31 December 2015 £'000

Performance fee accrual: 100% charged to capital	0	0
Total	0	0

The Portfolio Manager is entitled to receive a performance fee equal to 15 per cent of any excess returns over a cumulative 10 per cent per annum hurdle rate, subject to a high watermark. The performance fee is calculated on the following basis.

PF = ((A-B) x C) x 15 per cent.

Where:

- PF is the performance fee, if any, payable to the Portfolio Manager

- A is the adjusted net asset value per ordinary share

- B is the higher of: (i) the high watermark net asset value per ordinary share and (ii) the hurdle

- C is the time weighted average number of ordinary shares in issue since the last performance period in respect of which a performance fee was earned, or if no performance fee has yet been earned, admission

In the event that A-B is a negative number, it shall be taken to equal zero.

For these purposes:

'Performance period' means: (i) the period beginning on the date of admission and ending on 31 December 2015 and (ii) each subsequent period corresponding to each accounting period of the Company.

'Adjusted net asset value per ordinary share' means the net asset value per ordinary share on the last business day of each performance period, adjusted by adding back any performance fee accrual in respect of such performance period.

'High watermark net asset value per ordinary share' means the net asset value per ordinary share as at the last business day of the performance period in respect of which a performance fee was last earned, adding back the effect of any performance fee paid in respect of such performance period (or, if no performance fee has yet been earned, the issue price).

'Hurdle' means the issue price increased, from admission, at a rate of 10 per cent per annum, compounded annually as at the last business day of each performance period (pro-rated, in the case of the first performance period, from the date of admission).

The high watermark net asset value per ordinary share and the hurdle will be adjusted to reflect the impact on the adjusted net asset value per ordinary share from a capital return and/or dividend and/or distribution to shareholders at the time of such capital return and/or dividend and/or distribution, on a pence per ordinary share basis.

If at any time a potential adjustment event shall occur, the Portfolio Manager and the Company will discuss in good faith what adjustment would be appropriate for the purpose of calculation of the performance fee. Failing such agreement, the Company will instruct another independent firm of accountants, to report to the Company and the Portfolio Manager regarding any adjustment which in the opinion of the independent firm of accountants, shall be appropriate to be made for the purpose of the calculation of the performance fee.

'Potential adjustment event' means, in relation to the Company, every issue by way of capitalisation of profits or reserves and every issue by way of rights or bonus and every consolidation or sub-division or reduction of capital or share premium or capital dividend or redemption of ordinary shares, or other reconstruction or adjustment relating to the share capital of the Company (or any shares, stock or securities derived therefrom or convertible thereinto) and also includes any other amalgamation or reconstruction affecting the share capital of the Company (or any shares, stock or securities derived therefrom or convertible thereinto).

No performance fee is payable in respect of the year ended 31 December 2016 (2015: nil).

5. Other expenses

		Year ended 31 December 2016 £'000	Period from 26 January to 31 December 2015 £'000

Secretarial services		88	50
Administration expenses		1,071	628
Auditor's remuneration	- Fees payable to the Company's auditors for the audit of the Company's annual accounts	45	40
	- Fees payable to the Company's auditors for audit related assurance services: interim review	10	10
Directors' fees		153	88
Total		1,367	816

The above expenses includes employer's National Insurance Contributions of £12,452 (period ended 31 December 2015: £5,821).

The comparative is from the date the Company commenced its operations 21 April 2015 to 31 December 2015.

Other fees paid to Grant Thornton in 2015 (£30,000 in connection with the launch of the Company) are included in the share issue costs charged to share premium which are disclosed in note 14.

6. Finance costs

Year ended

31 December

2016

£'000

Period from

26 January to

31 December

2015

£'000

Fee paid for credit facility and interest paid

599

7. Taxation

(a) Analysis of charge in the year:

	Year ended 31 December 2016 Revenue £000	Year ended 31 December 2016 Capital £000	Year ended 31 December 2016 Total £000	Period from 26 January to 31 December 2015 Total £000

Overseas tax	0	0	0	0
Total tax charge for the year (see note 7(b))	0	0	0	0

(b) Factors affecting the tax charge for the year:

The tax assessed for the year is lower than the standard rate of corporation tax in the UK for a large company of 20.0%. (2015: 20.19%). The differences are explained below:

	Year ended 31 December 2016 Revenue £000	Year ended 31 December 2016 Capital £000	Year ended 31 December 2016 Total £000	Period from 26 January to 31 December 2015 Total £000

Total return before taxation	(711)	(32,193)	(32,904)	(16,049)
UK corporation tax at 20.0% (2015: 20.19%)	(142)	(6,439)	(6,581)	(3,240)

Effects of:
Capital (gains)/losses not subject to corporation tax	0	6,439	6,439	3,551
UK dividends which are not taxable	(251)	0	(251)	(468)
Loan relationship deficit not utilised	120	0	120	0
Movement in unutilised management expenses	269	0	269	157
Expenses not deductible for UK corporation tax purposes	4	0	4	0
Total tax charge	0	0	0	0

The Company is not liable to tax on capital gains due to its status as an investment trust. Due to the Company's status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

After claiming relief against accrued income taxable on receipt, the Company has a deferred tax asset of approximately £361,079 (31 December 2015: £140,191) based on the long-term prospective corporation tax rate of 17% (31 December 2015: 18%) relating to excess management expenses of £2,123,996 (31 December 2015: £778,836). The Company has deferred tax assets of approximately £101,846 (31 December 2015: £nil) based on the long-term prospective corporation tax of 17% (31 December 2015: 18%) relating to non-trading loan relationship expenses of £599,093 (31 December 2015: £nil). It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset in respect of either of these expenses has been recognised.

8. Dividend

No dividend is payable for the year ended 31 December 2016 (31 December 2015: 0.16 pence per share).

Dividend paid:	2016		2015
	Pence	£'000	Pence	£'000
Final dividend in respect of previous year	16	1,323	0	0
	16	1,323	0	0

Dividend proposed:	2016		2015
	Pence	£'000	Pence	£'000
Final dividend proposed	0	0	16	1,323
	0	0	16	1,323

9. Investments

For financial reporting purposes, fair value measurements are categorised into a fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements in its entirety, which are described as follows:

Level 1 - The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

In preparing these financial statements, the Company has early adopted 'Amendments to FRS102: Fair value hierarchy disclosure (March 2016)' published by the FRC.

31 December	2016 £'000	2015 £'000

Level 1
Investments listed on a recognised investment exchange:	472,883	507,267
Level 3
Unquoted investments:	368,276	289,662
Total	841,159	796,929

(b) Movements

Year ended 31 December 2016	Listed £000	Unquoted £000	Total £000

Book cost at beginning of year	533,913	275,843	809,756
(Losses)/gains on investments held at beginning of year	(26,646)	13,819	(12,827)
Valuation at beginning of year	507,267	289,662	796,929

Movements in year:
Purchases at cost	139,670	72,974	212,644

Sales:
- proceeds	(131,837)	(4,096)	(135,933)
- (losses)/gains on investment holdings sold in the year	(11,906)	808	(11,098)
Movements in (losses)/gains on investment holdings held at end of year	(30,311)	8,928	(21,383)
Valuation at end of year	472,883	368,276	841,159

Period from 26 January to 31 December 2015	Listed £000	Unquoted £000	Total £000

Book cost at beginning of year	-	-	-
Gains/(losses) on investments held at beginning of year	-	-	-
Valuation at beginning of year	-	-	-

Movements in year:
Purchases at cost	548,038	275,843	823,881

Sales:
- proceeds	(9,365)	-	(9,365)
- losses on investment holdings sold in the year	(4,760)	-	(4,760)
Movements in (losses)/gains on investment holdings held at end of year	(26,646)	13,819	(12,827)
Valuation at end of year	507,267	289,662	796,929

	Total Year ended 31 December 2016 £'000	Total Period from 26 January to 31 December 2015 £'000

Comprising:
Book cost at end of year	875,370	809,756
Losses on investment holdings at end of year	(34,211)	(12,827)
Valuation at end of year	841,159	796,929

	2016
	Listed	Unquoted	Total
Book cost at end of year	529,841	345,529	875,370
Losses on investment holdings at end of year	(56,958)	22,747	(34,211)
Valuation at the end of year	472,883	368,276	841,159

Transaction costs on purchases for the year ended 31 December 2016 amounted to £175,000 (31 December 2015: £763,000) and on sales for the year amounted to £35,000 (31 December 2015: £8,000).

10. Debtors

31 December

2016

£'000

31 December

2015

£'000

Accrued income and prepayments

326

11a. Other creditors

31 December	2016 £'000	2015 £'000

Amounts falling due within one year:
Purchases for future settlement	0	3,392
Other creditors	198	239
	198	3,631

11b. Bank overdraft

31 December	2016 £'000	2015 £'000

Amounts falling due within one year:
Bank overdraft	74,640	0
	74,640	0

The Company has a bank overdraft credit facility provided by The Northern Trust Company, London Branch of £75,000,000 as at 31 December 2016. Commitment fees are charged on any undrawn amounts at commercial rates. Interest is charged at a rate per annum equivalent to the Bank of England base rate plus 1.25 per cent.

The terms of the bank overdraft facility are typical of those normally found in facilities of this nature. Since the year end, the bank overdraft facility has been increased to £150,000,000.

12. Derivative financial instruments

31 December 2016	Current assets £'000	Current liabilities £'000	Net current assets/ (liabilities) £'000

Forward foreign exchange contracts - GBP/CHF	495	0	495
Forward foreign exchange contracts - GBP/EUR	1,001	(118)	883
Forward foreign exchange contracts - GBP/NOK	1,370	(56)	1,314
Forward foreign exchange contracts - GBP/USD	2,864	(822)	2,042
Total derivative financial instruments	5,730	(996)	4,734

31 December 2015	Current assets £'000	Current liabilities £'000	Net current assets/ (liabilities) £'000

Forward foreign exchange contracts - GBP/EUR	-	(368)	(368)
Total derivative financial instruments	-	(368)	(368)

The above derivatives are classified as level 2 as defined in note 9.

13. Share capital

The table below details the issued share capital of the Company as at the date of the accounts:

31 December	2016 No of Shares	2016 £'000	2015 No of Shares	2015 £'000

Allotted, issued & fully paid:
Ordinary shares of 1p	827,000,000	8,270	827,000,000	8,270
	827,000,000	8,270	827,000,000	8,270

The ordinary shares carry the right to receive dividends and have one voting right per ordinary share.

There are no shares which carry specific rights with regard to the control of the Company. The shares are freely transferable.

There are no restrictions or agreements between shareholders on the voting rights of any of the ordinary shares or the transfer of shares.

Share movement

The table below sets out the share movement since incorporation (26 January 2015) to 31 December 2015.

	Total Ordinary Shares in issue number	Total Redeemable Preference Shares in issue number

Issue of shares on incorporation	1	50,000
Ordinary shares of 1p	826,999,999	0
Cancellation of Redeemable Preference Shares	0	50,000
At 31 December 2015	827,000,000	0

At 31 December 2016	827,000,000	0

	2016 £'000	2015 £'000
Issued and fully paid:
Ordinary shares of 1p	8,270	8,270

14. Share premium

31 December	2016 £'000	2015 £'000

Opening balance	813,043	0
Share premium issue of ordinary shares	0	822,190
Share issue costs written back/costs	56	(9,147)
Closing balance	813,099	813,043

15. Capital reserve

31 December	2016 £'000	2015 £'000

Opening balance	(17,587)	-
Losses on investments - held at fair value through profit or loss	(32,193)	(17,587)
Closing balance	(49,780)	(17,587)

During the year, the Company made realised losses of £16,017 (2015: £4,286) and unrealised losses of £16,176 (2015: £13,301). At the year end, the Company had total realised losses of £20,303 and unrealised losses of £29,477.

16. Revenue reserve

31 December	2016 £'000	2015 £'000

Opening balance	1,538	-
Retained (loss)/profit for the year	(711)	1,538
Dividends paid	(1,323)	-
Closing balance	(496)	1,538

17. Financial commitments

At 31 December 2016 there were no commitments in respect of unpaid calls or underwriting.

18. Return per ordinary share

Year ended 31 December 2016	Revenue	Capital	Total

Return per ordinary share	(0.09)p	(3.89)p	(3.98)p

Period from 26 January to 31 December 2015	Revenue	Capital	Total

Return per ordinary share	0.25p	(2.88)p	(2.63)p

Revenue return per ordinary share is based on the net return after taxation of £(711,000) (2015: £1,538,000).

Capital return per ordinary share is based on net capital return of £(32,193,000) (2015: £(17,587,000)).

Total return per ordinary share is based on the return after taxation of £(32,904,000) (31 December 2015: £(16,049,000)). These calculations are based on 827,000,000 ordinary shares in issue during the year (31 December 2015: calculation is based on the weighted average of 610,349,412 ordinary shares in issue during the period).

There were no instruments outstanding at the year end (2015: nil) with a dilutive impact on return per share.

19. Net asset value per share

Total shareholders' funds and the net asset value per share attributable to the ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:

31 December

2016

Net asset

value

per share

pence

2016

Net assets

available

£'000

2015

Net asset

value

per share

pence

2015

Net assets

available

£'000

Ordinary shares (827,000,000 shares in issue)

93,24

771,093

97.37

805,264

The net asset value per share is based on total shareholders' funds above, and on 827,000,000 ordinary shares in issue at the year end.

20. Transactions with the Portfolio Manager and the AIFM

The Company provides additional information concerning its relationship with the Portfolio Manager, Woodford Investment Management Ltd. The amount of the accrual established as a provision for the performance fee due to Woodford is nil as set out in note 4. At 31 December 2016 no amount was payable in respect of the fee as it only crystallises at the end of a performance period, although it would accrue if over the hurdle (31 December 2015: no amount was payable in respect of the fee).

Capita Financial Managers Limited, as the AIFM of the Company, was paid £83,000 in respect of the year ended 31 December 2016 (31 December 2015: £54,000) and also has a fee payable for the year ended 31 December 2016 of £6,250 (31 December 2015: £18,000). Capita Company Secretarial Services Limited, which provides the Company with company secretarial services, was paid £77,250 in respect of the year ended 31 December 2016 (31 December 2015: £33,000 paid during the year and £17,000 payable).

Woodford has subcontracted to Northern Trust Global Services Limited (NT) the provision of the middle office function on behalf of the Company. NT charges the Company directly for that service. From time-to-time Woodford instructs various third parties to undertake various functions on behalf of the Company which they recharge the Company at cost. During the year charges relating to middle office services amounts to £78,496 (period since incorporation to 31 December 2015: charges relating to middle office services amounted to £67,807).

21. Related party transactions

Under the Listing Rules, the Portfolio Manager is regarded as a related party of the Company. However, the existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, in terms of FRS 102, the Portfolio Manager is not considered a related party.

Fees paid to the Company's Directors are disclosed in the Directors' remuneration report.

22. Risk management policies and procedures

As an investment trust the Company invests in equities and other investments for the long term so as to secure its investment objectives stated above. In pursuing its investment objectives, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends.

The Company's financial instruments comprise securities in unquoted and quoted companies, trade receivables, trade payables and cash.

The main risks arising from the Company's financial instruments are fluctuations in market price, interest rate, credit, liquidity, capital and foreign currency exchange rate risk. The policies for managing each of these risks are summarised below.

(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 (see (b) below), interest rate risk (see (c) below) and other price risk (see (d) below). The Board reviews and agrees policies for managing these risks. The Company's AIFM 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.

(b) Currency risk

Certain of the Company's assets, liabilities and income are denominated in currencies other than Sterling (the Company's functional currency, in which it reports its results). As a result, movements in exchange rates may affect the Sterling value of those items.

The AIFM monitors the Company's exposures and reports to the Board on a regular basis. Income denominated in foreign currencies is converted to Sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.

Foreign currency exposures

An analysis of the Company's equity investments and liabilities at 31 December 2016 (shown at fair value, except derivatives at gross exposure value) that are priced in a foreign currency based on the country of primary exposure are shown below:

As at 31 December 2016	Investments £'000	Derivative financial instruments £'000	Net financial assets £'000
Currency
Euro	19,000	(17,251)	1,749
Norwegian Krone	25,267	(23,409)	1,858
Swiss Francs	8,090	(7,289)	801
US Dollar	202,836	(183,137)	19,699
Total	255,193	(231,086)	24,107

As at 31 December 2015	Investments £'000	Derivative financial instruments £'000	Net financial assets £'000
Currency
Euro	16,547	(15,204)	1,343
Norwegian Krone	23,282	-	23,282
Swiss Francs	10,370	-	10,370
US Dollar	141,544	-	141,544
Total	191,743	(15,204)	176,539

Foreign currency sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and the equity in regard to the Company's non-monetary financial assets to changes in the exchange rates for the portfolio's significant currency exposure, being Sterling / US Dollar.

It assumes the following changes in exchange rates:

Sterling/US Dollar 10 per cent (2015: +/- 2 per cent)

These percentages have been determined based on a reasonable estimate of the potential volatility. The sensitivity analysis is based on the foreign currency financial instruments held at each statement of financial position date.

If Sterling had strengthened against the US Dollar, this would have had the following effect:

As at 31 December	2016 US Dollar £'000	2015 US Dollar £'000

Projected change	10%	2%
Impact on capital return	(1,970)	(2,831)
Return after taxation for the period	(1,970)	(2,831)

If Sterling had weakened against the US Dollar, this would have had the following effect:

As at 31 December	2016 US Dollar £'000	2015 US Dollar £'000

Projected change	10%	2%
Impact on capital return	1,970	2,831
Return after taxation for the period	1,970	2,831

In the opinion of the Directors, the above sensitivity analyses are not representative of the period as a whole, since the level of exposure changes frequently as part of the currency risk management process used to meet the Company's objectives.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company is exposed to interest rate risk specifically through its bank overdraft (2015: cash holdings). Interest rate movements may affect the level of income receivable from any cash at bank and on deposits or payable on the bank overdraft facility (see note 11b). The effect of interest rate changes on the earnings of the companies held within the portfolio may have a significant impact on the valuation of the Company's investments.

The Company does not have any fixed rate exposure at 31 December 2016.

Due to the insignificant impact of fluctuations in interest rates no sensitivity analysis is shown.

(d) Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market.

The Company is exposed to market price risk arising from its equity investments. The movements in the prices of these investments result in movements in the performance of the Company.

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the AIFM. The Board meets regularly and at each Board meeting reviews investment performance. The Board monitors the AIFM's compliance with the Company's objectives.

Concentration of exposure to other price risks

A sector breakdown and geographical allocation of the portfolio is contained above.

Other price risk sensitivity

The following table illustrates the sensitivity of the profit after taxation for the year to an increase or decrease of 10 per cent in the fair values of the Company's equities. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company's equities at the balance sheet date, with all other variables held constant.

	2016 Increase in fair value £'000	2016 Decrease in fair value £'000	2015 Increase in fair value £'000	2015 Decrease in fair value £'000

Income statement - return after taxation:
Capital return - increase/(decrease)	84,116	(84,116)	79,693	(79,693)
Return after taxation other than arising from interest rate or currency risk - increase/(decrease)	84,116	(84,116)	79,693	(79,693)

(e) Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk exposure

The Company's assets comprise quoted and unquoted equity shares. While the unquoted equity is intentionally illiquid, the quoted assets comprise readily realisable securities which can be sold to meet funding requirements if necessary.

For the avoidance of doubt, none of the assets of the Company are subject to special liquidity arrangements.

The investment in unquoted securities may have limited liquidity and be difficult to realise. At 31 December 2016 the unquoted securities are valued at £368,276,000 (31 December 2015: £289,662,000).

(f) Credit risk

The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

The cash is subject to counterparty credit risk as the Company's access to its cash could be delayed should the counterparties become insolvent or bankrupt.

In summary, the exposure to credit risk at 31 December 2016 was as follows:

	2016 3 months or less £'000	2015 3 months or less £'000

Cash at bank	-	12,008
Debtors	38	326
Total	38	12,334

None of the above assets were impaired or past due but not impaired.

Investment transactions are carried out with a number of brokers, whose credit standing is reviewed periodically by the AIFM, and limits are set on the amount that may be due from any one broker.

Cash at bank is held only with reputable banks with high-quality external credit ratings.

(g) Fair value measurements of financial assets and financial liabilities

The financial assets and liabilities are either carried in the balance sheet at their fair value, or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals and cash balances).

The valuation techniques used by the Company are explained in the accounting policies note 2(b) above.

The table below sets out fair value measurements using fair value hierarchy.

Financial assets at fair value through profit or loss:

At 31 December 2016	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000

Assets:
Equity investments	472,883	0	368,276	841,159
Derivative financial instruments	0	5,730	0	5,730
Total	472,883	5,730	368,276	846,889

At 31 December 2015	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000

Assets:
Equity investments	507,267	-	289,662	796,929
Total	507,267	-	289,662	796,929

A reconciliation of the fair value movements in Level 3 is set out below:

31 December 2016	£'000

Opening fair value of Level 3	289,662

Purchases at cost	72,974
Sales proceeds	(4,096)
Profits on investment holdings sold in the year	808

Movement in holding gains on assets held at the year end	8,928
Closing fair value of Level 3	368,276

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset (see note 9 above for details).

The change in fair value for the current year is recognised through the income statement.

Financial liabilities at fair value through profit or loss:

At 31 December 2016	Note	Level 2 £'000	Total £'000

Liabilities:
Derivative financial instruments	12	996	996
Total		996	996

At 31 December 2015	Note	Level 2 £'000	Total £'000

Liabilities:
Derivative financial instruments	12	368	368
Total		368	368

Categorisation within the liabilities has been determined on the basis of level input 2 that is significant to the fair value measurement of the relevant liability (see note 9 above for details).

(h) Capital management policies and procedures

The Company's capital management objectives are:

- to ensure that the Company will be able to continue as a going concern

- to deliver a return in excess of 10 per cent per annum over the longer term.

Although the Company has the ability to deploy gearing of up to 20 per cent of its net asset value, this is primarily to be achieved through equity capital.

The Company's total capital at 31 December 2016 was £771,093,000 with an overdraft facility of £74,640,000 (31 December 2015: £805,264,000).

23. Segmental analysis

There is only one class of business and the operations of the Company are wholly in the United Kingdom.

This announcement was approved by the Board of Directors on 20 April 2017.

Annual Report and Financial Statements

Copies of the Annual Report and Financial Statements will be sent to members shortly and will be available from the registered office, c/o The Company Secretary, Woodford Patient Capital Trust plc, 1^st Floor, 40 Dukes Place, London EC3A 7NH.

Annual General Meeting

The Annual General Meeting of the Company will be held at Modern Art Oxford, 30 Pembroke St, Oxford OX1 1BP on 12 June 2017 at 11.00 am.

National Storage Mechanism

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm.

The Annual Report will also be available on the Woodford Patient Capital Trust plc's section of Woodford Investment Management LLP's website at www.woodfordfunds.com. Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.

ENDS

For further information, contact:

Four Broadgate
Roland Cross / Cara Steinson / Ed Hooper
020 3697 4200
woodford@fourbroadgate.com

Notes to editors:

For further information go to: woodfordfunds.com

About Woodford Investment Management:

Woodford Investment Management Limited is a fast-growing asset management company built on a founding philosophy of transparency and simplicity. Launched in May 2014, the company has more than £17bn assets under management and advice. Further information can be found at https://woodfordfunds.com

Woodford Investment Management Ltd

9400 Garsington Road Oxford OX4 2HN

+44 (0)1865 809 000

info@woodfordfunds.com

woodfordfunds.com

Authorised and regulated by the Financial Conduct Authority

Registered in England and Wales. Number 10118169

This information is provided by RNS

The company news service from the London Stock Exchange

END

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