Annual Financial Report

RNS Number : 5106W

Schroder UK Public Private Tst plc

26 April 2021

 

Schroder UK Public Private Trust plc

Annual Report

Schroder UK Public Private Trust plc (the "Company") hereby submits its Annual Report for the year ended 31 December 2020 as required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rule 4.1.

The Company's Annual Report and Accounts for the year ended 31 December 2020 are being published in hard copy format and an electronic copy will shortly be available to download from the Company's website  www.schroders.com/publicprivatetrust . It can also be viewed at the following link:

http://www.rns-pdf.londonstockexchange.com/rns/5106W_1-2021-4-25.pdf

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

Enquiries:

Gareth Faith

Schroder Investment Management Limited

Tel: [phone]

CHAIRMAN'S STATEMENT

Performance

The year ended 31 December 2020 was turbulent. Compared to the prior year end, the net asset value fell 29.2% from 49.46p to 35.00p per share and the share price fell 19.2%, from 38.35p to 31.00p per share. While the reduction in NAV is disappointing, we believe that significant progress has been made.

Valuations

The valuation at 31 December 2020 is clearly disappointing. During the year, the Company's quoted holdings saw a decline in value of 42.4% contributing 12.7% to the reduction in NAV. The largest single negative contributor to performance was Rutherford Health, which is listed but valued by the AIFM as an illiquid investment as it takes into account the lack of market trading in the shares. The holding was revalued to £34 million at 31 December, a loss of £47 million when compared with the holding value of £81 million as of 31 December 2019. This valuation was reduced to reflect slower than expected commercial progress and increased risk to the business outlook for equity holders.

Overall, the Company's unquoted holdings saw a decline in value of 15.6% contributing 14.8% to the full year reduction in NAV. In Q4, the change in valuation comprised one significant positive contributor, reflecting the sale of Kymab to Sanofi, and several other smaller negative revaluations. The holding in Kymab was revalued to £70 million reflecting the terms of the agreed sale generating a fair value gain of £52 million after accounting for the purchase of additional shares during the year and when compared with the holding value of £14 million as of 31 December 2019. In addition to Kymab, the only other unquoted holding that experienced a fair value gain of greater than £5 million over the full year was Inivata. The company was revalued to reflect its continued progress, in addition to the strategic collaboration and investment from NeoGenomics, Inc as described in the Top 10 holdings.

There were a number of other portfolio companies, mostly notably Atom Bank, BenevolentAI and Industrial Heat, that experienced a fair value loss of greater than £5 million over the full year. Details of these writedowns and the reasons for them may be found in the Portfolio Manager's report.

On a more positive note, the NAV as at 31 December 2020 does not include any valuation adjustment for Oxford Nanopore Technologies following its recent announcement that, subject to market conditions and other matters not fully within its control, it expects to undertake an initial public offering on the London Stock Exchange in the second half of 2021. The year end valuation is based on the latest financing round which has remained consistent for over 12 months.

Progress on key objectives

The disappointment of some of the valuation writedowns in the portfolio should not detract from the progress which has been made by Schroders during the year under review. Two key objectives for Schroders for 2020 were outlined in the 2019 Annual Report. These were ensuring that the key value-creating portfolio companies received the appropriate level of strategic support to maximize the Company's investment return, and proactively seeking to pay down the debt obligations.

Both objectives were designed to place the Company in a position to rebalance the sector and company weightings over the longer term. A significant amount of groundwork was laid during the year and some evidence of this has been seen in a number of positive announcements made since the year end.

Thanks to the proceeds from the basket of sales to Rosetta Capital, which completed in March 2021, and from Sanofi's acquisition of Kymab where Schroders worked closely with Kymab's management team, 2021 will see our Portfolio Manager being able to make new investments for the first time, enabling them to drive the future direction of the portfolio.

We believe that the Company is in a much better position now than it was a year ago. Despite the challenges from the pandemic in 2020, our Portfolio Manager has been successful in carrying out the strategy for 2020 with the most critical progress being made on the debt.

Gearing policy

In my last statement I reported that the Board would work with Schroders to reduce the level of borrowings and that it was important the Portfolio Manager was provided with the time to achieve this while protecting shareholder value.

Accordingly, the Company's borrowings continued to be an area of focus throughout the year under review and in January 2021, the Board announced that the credit facility had been extended until 30 January 2023. Since then the balance has been repaid in full and the term loan subsequently converted into a £55 million revolving credit facility on 14 April 2021.

Whilst at the year end gearing represented 31.6% of NAV, as at 15 April 2021 the Company has moved to a net cash position of more than 3%. This reduction in gearing follows the receipt of proceeds from Rosetta Capital and Kymab referred to above.

Discount management

The share price discount to net asset value at the year end was 11.4% and volatility was high throughout the year. The Board is seeking to renew the authority to purchase up to 14.99% of its issued share capital, to be cancelled or held in treasury for future reissuance. The Board did not use the authority in 2020 but considers buybacks a useful mechanism for discount management and will consider buybacks once the Company is in a position to do so.

Board composition and Chair succession

In February the Company announced that Tim Edwards had been appointed as an independent non-executive Director and would succeed me as Chairman of the Company and a resolution proposing his election as a Director is included in the Notice of Annual General Meeting on page 79 of the Annual Report.

Tim is a qualified chartered accountant with a widespread background in corporate finance and investment and extensive management and advisory experience in the biopharmaceutical industry. He is currently the chairman of Storm Therapeutics Ltd, Karus Therapeutics Ltd and Modulus Oncology Ltd, a director of AstronauTx Ltd and an independent non-executive director of Record plc. Previously, Tim was a member of the governing board of InnovateUK, the UK's innovation agency, a director of the UK Cell and Gene Therapy Catapult and chairman of the UK BioIndustry Association.

The appointment of Tim is in line with the Board's agreed succession plans, as outlined last year, and follows an extensive independent search over the last twelve months to find a candidate with the appropriate balance of skills and experience to complement those of the current Directors. My colleagues and I are delighted to welcome him to the Board and are very much looking forward to working with him.

The Board believes that it is important for appropriate new skills to be brought to the Board and will continue to look to refresh one Director every two to three years. All Directors will continue to be subject to re-election each year at the AGM and will not serve for a period over nine years.

The composition of the Board has materially changed since the start of 2019 and I retire as Chair of the Company leaving it in good hands. I believe I will see Tim and the Board continue to work with Schroders and make positive progress in performance in the years ahead.

Outlook

I write my last statement to you as Chair of the Company with thanks for your patience over the last two years. The challenges of 2019 have been compounded by the COVID-19 pandemic and the valuation at the end of year is disappointing. However, I retire with cautious optimism for 2021.

There is still work to be done and challenges remain but we have seen significant progress in 2020 and Schroders are now in a position where they can support the strongest opportunities within the existing portfolio, whilst at the same time being able to invest into new high quality, high conviction public and private opportunities.

Schroders' aims for the remainder of 2021 are outlined in their report and the core tenets of the Company's strategy will be a focus on high quality UK innovation, diversification by stage and by sector and prudent debt utilisation. Schroders will also actively seek to incorporate ESG considerations and alignment with the UN SDGs as an important element of the investment process.

AGM

The AGM will be held at noon on Friday, 4 June 2021 at Schroders' offices at 1 London Wall Place, London EC2Y 5AU. As at the date of this report, the UK Government's roadmap out of lockdown states that no earlier than 17 May 2021, step 3 will be introduced and the rule of six or two households will apply indoors. Therefore, to ensure the safety and security of our shareholders, service providers, officers and guests, shareholders are asked to comply with Government requirements and guidelines relating to travelling and meetings and not attend the AGM. Shareholders are encouraged to vote by proxy, appointing the Chair of the meeting as their proxy. Proxy votes can be submitted electronically through the registrar's portal. Details are on the Company's webpages.

In the event that shareholders have a question for the Board, please email [e-mail] and we will arrange for a response to be provided to you.

Web Conference - Update from Schroders

Please join the portfolio managers for a webinar in which they will report on the year ended 31 December 2020 and outline their thoughts on the future direction of the portfolio. The presentation will be followed by a live Q&A session.

The webinar will take place on 7 May 2021 at 11.30 am. Register for the event at http://www.schroders.com/publicprivatetrust/updates.

Susan Searle

Chair

23 April 2021

PORTFOLIO MANAGER'S REVIEW

Summary

-  2020 has been another difficult period for Schroder UK Public Private Trust Plc ("SUPP") with the concentrated portfolio inherited at the time of our appointment experiencing a downward valuation at the period end.

-  The Company reported a net asset value ("NAV") of 35.00p per share as of 31 December 2020, a decrease of 20.2% relative to the NAV as of 30 September 2020 (43.84p per share) and 29.2% relative to the NAV as of 31 December 2019 (49.46p per share).

-  In Q4, this change in valuation comprised one significant positive contributor, reflecting the sale of Kymab to Sanofi, one significant negative contributor, the revaluation of Rutherford Health, and several other smaller negative revaluations.

-  Throughout 2020, at an operational level, we focused on building relationships with the portfolio companies, contributing to strategic thinking, honouring the Company's existing financial commitments, selectively investing in new follow-on opportunities within the financial constraints and working to pay down the outstanding debt to enable longer-term repositioning.

-  After the year end, the Company reported significant progress with the full pay down of the debt facility with proceeds from the Kymab exit and the sale of a portfolio of assets to Rosetta Capital. The Company is thus now in a strong financial position to execute its strategy and enable new and follow-on investments.

Top 10 Holdings

Kymab Group (16.5% of total investments)  

Kymab develops monoclonal antibody therapeutics for oncology and other disorders. Its proprietary platform allows for precise production of a diverse range of fully humanized monoclonal antibodies. Its pipeline includes programs in oncology, immune disorders and several discovery-stage programs for other indications.

In August 2020, Kymab announced that the primary endpoints in its Phase 2a, randomized, double-blinded, placebo-controlled study had been met. The proof-of-concept study, conducted across 20 European sites, evaluated the efficacy, safety and tolerability of KY1005 in 88 adults with moderate to severe atopic dermatitis whose disease could not be adequately controlled with topical corticosteroids. KY1005 demonstrated a consistent treatment effect versus placebo across various key endpoints, including in the Eczema Area and Severity Index EASI and additional objective clinical measures.

In January 2021, post period-end, Sanofi and Kymab announced that they have entered into a Share and Purchase Agreement under which Sanofi will acquire Kymab for an upfront payment of approximately $1.1 billion and up to $350 million upon achievement of certain milestones. The transaction was completed in April 2021. Further details regarding the transaction are contained within the investment activity section of this report.

Oxford Nanopore Technologies (16.3% of total investments)  

Oxford Nanopore has developed a new generation of DNA sequencers, which uniquely scale from small portable formats to ultra-high throughput. They are unique in combining this scalability with real-time data streaming and the ability to sequence very long fragments of DNA/RNA, which provides very rich biological data. The Company now has customers across the globe using its technology for a range of scientific research including pathogen analysis, cancer research, agriculture, human genetics and environmental research.

During 2020, Oxford Nanopore successfully developed and launched LamPORE, a new generation of test for the detection of SARS-CoV-2, the virus that causes COVID-19. In August 2020, the significant progress with LamPORE culminated in an agreement with the UK's Department of Health and Social Care to support the UK's efforts to manage the continued reduction of COVID-19 and containment of new cases. By December 2020, a study of more than 23,000 samples across four NHS sites had demonstrated the accuracy of LamPORE for the detection of SARS-CoV-2 in both symptomatic and asymptomatic populations. Oxford Nanopore has indicated that it intends to submit an Emergency Use Authorisation application to the US FDA for LamPORE COVID-19. The company also raised further capital from new and existing investors including International Holdings Company (IHC), RPMI Railpen and RT Puhua Genomics.

Finally, in March 2021, Oxford Nanopore notified shareholders that is has started the process of preparing for a potential Initial Public Offering ("IPO"). Whilst the timing of a potential IPO is dependent on market conditions and other matters not fully within its control, Oxford Nanopore currently expects the IPO to occur in the second half of the year on the London Stock Exchange.

Atom Bank (9.0% of total investments)  

Atom Bank is the UK's first bank built exclusively for mobile. It is redefining what a bank should be, making things easier, more transparent and better value in a world of finance. Currently the bank offers savings accounts, mortgages and business loans.

Throughout 2020, Atom Bank has continued to make progress against its key operational, financial and strategic objectives. In particular, the company has disclosed the substantial progress achieved in redeveloping its banking stack and transitioning to the cloud - a key long-term investment intended to accelerate the speed, agility, data management and insight delivery in support of new product launches, such as the Instant Access Saver (IAS) account launched in September 2020. One indication of the success of this project has been the consistently high customer ratings, including recognition as Trustpilot's most trusted UK bank, Net Promoter Scores in excess of +75 and at the time of writing, an App store rating of 4.7 across both Android and iOS.

During the financial year, Atom took steps to improve asset yields by increasing its lending to SMEs and refocusing its offer to residential mortgage customers. The company now has a broader balance sheet which affords more efficient liquidity management with consequent benefits to net interest income. The result is an underlying net interest income improvement over the year with momentum that is expected to continue.

Post-period end, Atom announced that it had raised a further £40 million from existing shareholders and guided towards profitability from its mortgage and business lending within a year, and to IPO the year after. Atom Bank is on course to achieve 100bps of Net Interest Margin (NIM) by the end March 2021 with lending to SMEs on its balance sheet having grown to over £700 million, a tripling of business loans in the last 12 months. This growth has been achieved both within the Coronavirus Business Interruption Loan Scheme and independent of government schemes.

The latest funding round took place at a price of 60p per share, which is significantly below the 2019 funding round price. This is due to particularly weak sentiment around this sector in the public markets throughout 2020, however, we see significant value growth ahead as Atom approaches profitability and continues to scale.

Rutherford Health (8.0% of total investments)  

Rutherford operates four innovative cancer treatment centres in Newport, Northumberland, Thames Valley and Liverpool. The service offering covers imaging, chemotherapy, immunotherapy, radiotherapy and high energy proton therapy.

In May 2020, Rutherford announced that it had entered into a framework agreement with NHS Shared Business Services ("NHS SBS"), under which it is able to provide cancer treatment services on demand by any NHS Trust at a pre-agreed set of prices. The agreement lasts for two years with an option to extend for a further two years and covers the complete range of services that Rutherford offers, including radiotherapy, systemic anti-cancer therapy (chemotherapy), proton beam therapy and diagnostic services.

Post-period end, Rutherford announced a further framework agreement with NHS England under which it will provide cancer treatment and diagnostic imaging services to NHS Trusts and clinical commissioning groups.

The company also provided an update on its funding situation which highlighted the approaching need for financing during the first quarter of 2021. In March 2021, Rutherford announced that it has agreed an infrastructure investment with Equitix Investment Management Ltd, for £40 million. The proceeds from the investment will be used to repay the company's current debt of £18.6 million, for further investment in its infrastructure and for mid-term working capital purposes. The investment is backed by the freehold transfer of the Rutherford Cancer Centre South Wales and supported by other security to be put in place over the company's other centres. The agreement is for 25 years and the company will have the option to repurchase the freehold of the South Wales centre for an agreed nominal sum at expiry.

Inivata (6.2% of total investments)  

Inivata is a leader in liquid biopsy, a transformative approach that identifies tiny amounts of cancer DNA in the blood of patients with cancer. The Company's technology is based on pioneering research from the Cancer Research UK Cambridge Institute and reinforced by multiple high calibre publications. Its lead product, InVisionFirst®-Lung, is commercially available and helps clinicians to make informed treatment decisions for patients with Lung cancer. Further products in development help to manage patients with early-stage cancer. The Company has a CLIA certified, CAP accredited laboratory in Research Triangle Park, NC and laboratories in Cambridge, UK.

In May 2020, Inivata announced the formation of a strategic collaboration with NeoGenomics, Inc (NASDAQ: NEO), for the commercialisation of its InVisionFirst®-Lung liquid biopsy test in the United States which successfully launched in June 2020. NeoGenomics also made a $25 million equity investment in Inivata to take a minority shareholding with an option to buy the company outright. The new funding is being used to enable the acceleration of the company's innovative liquid biopsy products, including further development work on RaDaR. 

Post period-end, Inivata announced that it had raised a further $35 million in the second close of its Series C financing round. The round was led by Soleus Capital, who were joined by new investors including Janus Henderson Investors and Farallon Capital alongside existing investor IP Group. This latest funding takes the total raised in the Series C to $60 million. The company also announced that the U.S. Food and Drug Administration (FDA) had granted Breakthrough Device Designation for its RaDaR assay. A positive development will help accelerate the regulatory path of RaDaR for use in detection of minimal residual disease (MRD) in early-stage cancer patients.

Immunocore (6.1% of total investments)  

Immunocore is a pioneering T cell receptor biotechnology company, working to develop and commercialise a new generation of transformative medicines to address unmet needs. The company's most advanced programmes are in oncology and it has a rich pipeline of programmes in infectious and autoimmune diseases.

In March 2020, Immunocore announced the completion of its Series B private financing round, led by General Atlantic, generating more than $130 million with participation from new and existing investors. The proceeds enable the company to further expand and accelerate its rapidly growing clinical stage pipeline of ImmTAX™ molecules that includes three oncology programs in MAGE-A4 (in collaboration with Genentech), NYESO-1 (in collaboration with GlaxoSmithKline), and the lead program tebentafusp (IMCgp100), which is in pivotal clinical studies as a potential treatment for patients with metastatic uveal melanoma ("mUM"). The proceeds allowed the company to advance two wholly owned clinical-stage internal programs for chronic Hepatitis B and for PRAME, a target expressed in a wide range of tumours.

In November 2020, Immunocore announced that its Phase 3 IMCgp100-202 clinical trial of tebentafusp (IMCgp100) had met the primary endpoint for Overall Survival ('OS') in its first pre-planned interim analysis. The efficacy data confirmed the OS observed in the phase 2 study of IMCgp100-102 in previously treated mUM which was presented at the ESMO Immuno-Oncology Virtual Congress 2020.

Since the year end, Immunocore has announced the completion of its $75 million Series C financing round, its initial public offering (IPO) on Nasdaq raising gross proceeds of $312 million and guided towards interim results from the IMCgp100-202 Phase 3 clinical trial to be presented at an upcoming scientific conference. If approved, Immunocore believes tebentafusp would be the first new therapy for the treatment of mUM in 40 years.

BenevolentAI (5.1% of total investments)

BenevolentAI creates and applies artificial intelligence (AI) and machine learning to transform the way medicines are discovered and developed. Benevolent integrates its technology into every step of the drug discovery process from hypothesis generation to late-stage clinical development. The Benevolent Platform® is used by scientists and technologists to find new ways to treat disease, improve the efficacy and lower the development time and costs of new treatments.

In November 2020, BenevolentAI highlighted that baricitinib, a drug it first identified as a potential treatment for COVID-19, has been granted Emergency Use Authorization ("EUA") by the U.S. Food and Drug Administration ("FDA"). The rheumatoid arthritis drug, owned and marketed by Eli Lilly under the brand name Olumiant™, is now authorised for use in hospitalised COVID-19 patients who require supplemental oxygen or invasive mechanical ventilation. This EUA decision further validated the AI-derived hypothesis of baricitinib as a potential treatment for COVID-19, first published by BenevolentAI in The Lancet on February 4, 2020. The speed at which baricitinib entered clinical trials reflected the urgency of the pandemic and is testament to the strength of BenevolentAI's initial hypothesis. This action from the FDA for the EUA of baricitinib is an important milestone that has progressed at an unprecedented pace.

Since the year end, BenevolentAI announced two important updates. Firstly, AstraZeneca had selected a novel chronic kidney disease (CKD) target to advance to its drug development portfolio, a major milestone since formation of the strategic collaboration in 2019 to discover new drugs for CKD and idiopathic pulmonary fibrosis (IPF). The collaboration combines AstraZeneca's scientific expertise and rich datasets with BenevolentAI's target identification platform and biomedical knowledge graph to understand these two complex diseases' underlying mechanisms and identify new and more efficacious drug targets.

Secondly, the company announced the dosing of the first patient in its randomised first-in-human clinical trial for BEN-2293, a molecule designed and developed to treat Atopic Dermatitis.

Reaction Engines (3.0% of total investments)  

Reaction Engines is developing an innovative engine, called SABRE, to enable more efficient and accessible space and hypersonic travel. This core vision has created a wealth of intellectual property which is being spun off to deliver a step change in performance and efficiency in an array of commercial industries.

In August 2020, Reaction Engines and Rolls-Royce plc announced a new strategic partnership agreement to develop high-speed aircraft propulsion systems and explore applications for Reaction Engines' thermal management technology within civil and defence aerospace gas turbine engines and hybrid-electric systems. Rolls-Royce also disclosed a further investment in Reaction Engines as part of a wider funding round. The two companies have been working together since 2018, including the first phase of a UK Ministry of Defence contract to undertake design studies, research, development, analysis and experimentation related to high-Mach advanced propulsion systems.

IDEX Biometrics ASA (2.7% of total investments)  

Idex Biometrics is a leading provider of fingerprint biometric sensors that are being used in an increasing range of security applications including access control and, most significantly, in the next generation of payment cards.

Over the course of 2020, Idex completed certification processes with major card schemes in the US, Europe and China, and continued to work with leading card manufacturers on scaling up the production of cards incorporating Idex's sensors. These are important milestones in preparing its cards for mass market rollouts by major card issuers. Idex also completed two private placements for a total of NOK 175m.

Post period-end, Idex completed a larger placing of NOK 229m which should fund the business through to breakeven expected in H2 2022.

AMO Pharma (2.7% of total investments)

AMO Pharma is a biopharmaceutical company working to identify and advance promising therapies for the treatment of serious and debilitating diseases in patient populations with significant areas of unmet need, including rare, debilitating childhood onset neurogenetic disorders with limited or no treatment options. As well as developing AMO-02 for congenital myotonic dystrophy, the company is progressing AMO-01 as a clinical stage treatment for Phelan McDermid Syndrome and AMO-04 as a clinic ready potential medicine for Rett Syndrome and related disorders.

In January 2020, AMO Pharma announced the initiation of patient enrolment in its pivotal clinical trial for AMO-02 following the completion of the design and outcomes measures of the trial with regulators and a successful $35 million financing with new investors.

In November 2020, AMO Pharma announced that AMO-02 had been granted a Rare Paediatric Disease ('RPD') designation by the FDA. The FDA grants RPD designation for serious and life-threatening diseases that primarily affect children aged 18 years or younger and fewer than 200,000 people in the United States. The designation qualifies AMO Pharma to receive fast track review for AMO-02 and a priority review voucher ('PRV') at the time of marketing approval. PRVs are transferable and can be used by drug developers to earn an expedited six-month review of a new drug application by the FDA.

Additional Company Updates

Seedrs

‒ In October 2020, Seedrs and Crowdcube announced their proposed merger in a move designed to accelerate their plans to create the world's largest private equity marketplace.

‒ In November 2020, the UK Competition and Markets Authority (CMA) referred the merger for an in-depth Phase 2 investigation under its fast-track procedure at the request of the merging companies.

‒ Post period end, the CMA published its provisional findings which concluded that, in their opinion, the transaction may be expected to result in a substantial lessening of competition within the supply of equity crowdfunding platforms to small and medium enterprises and investors in the UK. The only effective remedy is likely to be the prohibition of the merger.

‒ Hence, following further evaluation, both companies decided to walk away from the transaction. As commented on by the company, we are extremely disappointed by the findings and firmly disagree with the CMA's view that this would be an anti-competitive transaction. We still believe that this would be a positive outcome for small UK businesses, strengthening a vital source of funding within the broader ecosystem, and supporting thousands of ambitious companies at such a critical time.

Autolus Therapeutics

‒ During 2020, Autolus Therapeutics made continued good progress with its principal programmes, AUTO1 for adult Acute Lymphoblastic Leukemia (aALL) and AUTO3 for Diffuse Large B Cell Lymphoma (DLBCL).

‒ At the American Society of Haematology Conference in December 2020, the company presented further data from its AUTO1 programme for aALL, showing a strong efficacy and safety profile. Full data from a pivotal study is now expected in 2022, representing a slight delay to the previous schedule.

‒ The company also presented an update on its AUTO3 programme for DLBCL. This showed an encouraging safety profile - including the feasibility of administering in an outpatient setting - and good levels of complete remission at the three-month stage, but with some question marks remaining over durability of response.

‒ The company has since announced that it will seek a partner to develop AUTO3 and will focus in the near term on further developing and extending the applications of AUTO1.

‒ Shortly after the year end, the company raised capital in early 2021 that it anticipates will provide it with the required funding into 2023.

Federated Wireless

‒ In February 2020, Federated Wireless announced significant commercial partnerships with both Microsoft Azure Marketplace and Amazon Web Services. Both partnerships relate to Federated Wireless' new Connectivity-as-a-Service offering that lets U.S. enterprises buy and deploy private 4G and 5G networks with a single click. An end-to-end managed service provided by Federated Wireless which includes discovery, planning, design, build, operation and support, enabling enterprises to reap the benefits of 5G with minimum risk and capital expenditure.

‒ In March 2020, Federated Wireless confirmed that it had secured $13.7 million in additional Series C funding from existing investors Allied Minds and Pennant Investors - funding which will be used to accelerate expansion and adoption of the company's partnership with Amazon Web Services and Microsoft Azure to offer Connectivity-as-a-Service.

Mafic

‒ In July 2020, Mafic USA announced the commencement of operations at its new basalt fiber production facility in Shelby, North Carolina. The facility is the world's largest and the first such in North America capable of producing 6,000 metric tons of basalt fiber annually, nearly 30 percent of the current global output of basalt fiber.

‒ This milestone marked a major step forward in the company's goal to bring basalt fiber to North American markets and to produce on a commercially viable scale. Mafic is looking to commercialise basalt fibers for a wide array of industrial applications because of their strength and ability to replace materials susceptible to corrosion. The material has been used for decades, but until now, it has been produced in limited quantities. Mafic's goal is to bring large-scale production of basalt fiber to the construction, automotive and thermal markets, among others.

-  Mafic continues to require further capital to reach break even and profitability. We are hopeful that this can be achieved, however funding uncertainty remains.

ReNeuron Group

‒ In June 2020, ReNeuron Group announced positive data from its Phase 2a clinical trial of stem cell treatment for Retinitis Pigmentosa (RP).

‒ The Company also announced that it had received regulatory approval in both the US and UK to expand its Phase 2a clinical study to treat patients with RP at a higher dose level.

‒ The company expects to be able to seek approval in the second half of 2021 to commence a single pivotal clinical study with its stem cell therapy candidate in RP.

‒ ReNeuron raised £17.5 million in Q4 2020 to support these clinical studies.

Ombu

‒ In December 2020, it was announced that Hambro Perks, a UK venture firm and investment management platform, had agreed to acquire the entire issued share capital of Ombu Group Limited ("Ombu"), a specialist investor in early and growth stage environmental technologies, in which the Company is a minority shareholder.

‒ The transaction was financed by HP Environmental Technologies Fund LP ("HPET"), a newly established vehicle focussed on emerging environmental technologies with anchor investors which include Hambro Perks, Ombu's existing management team and several other private and institutional investors.

‒ The sale of Ombu facilitated a cash exit for several shareholders in Ombu, however, as Portfolio Manager we elected to contribute the Company's shareholding in return for a partnership interest in HPET. We deemed that the cash acquisition price offered to be more reflective of the shareholder dynamics surrounding Ombu, than a fundamental assessment of the portfolio value, so wanted to retain future value creation potential from this holding.

‒ It was anticipated that, based on the terms of the transaction, the Company's AIFM would revalue the holding to a valuation of £4.0 million implied by the acquisition price. However, following developments within the portfolio prior to period end the holding was revalued to £6.6 million as of 31 December 2020.

Spin Memory

‒ In July 2020, Spin Memory announced an extension of its Series B funding round, receiving additional investment of $8.25 million from its major investors including Arm, Applied Ventures, LLC (the venture capital arm of Applied Materials, Inc.) and Abies Ventures (Abies), as well as the company's founding investor, Allied Minds.

‒ During 2020, Spin was able to "tape out" the demonstration chip co-developed with Arm pursuant to its joint development agreement, entered in Q4 2018, representing the first time that Spin was able to demonstrate its Endurance Engine technology in silicon.

‒ Unfortunately, the work-from-home orders in the State of California due to COVID-19 delayed the required testing of the chip for nine months. The testing did commence in early Q4 2020, however this delay affected Spin's ability to secure new customers.

‒ So, coupled with an unexpected loss of a government bid in late Q4 2020, Spin is now facing significant liquidity issues which have sparked a new funding round impacting the holding valuation as at the year-end.

Ratesetter

‒ In September 2020, Metro Bank PLC completed the acquisition of Retail Money Market LTD ("RateSetter") for an initial consideration of £2.5 million, with additional consideration of up to £0.5 million payable 12 months after completion subject to the satisfaction of certain criteria and a further consideration of up to £9 million payable on the third anniversary of the completion of the transaction, subject to the satisfaction of certain key performance criteria.

‒ The acquisition did not include RateSetter's holding in RateSetter Australia (now Plenti Group) which was retained by RateSetter shareholders.

Source: Portfolio companies, including information disclosed publicly on their websites.

Outlook  

As evidenced in this report, 2020 has been another challenging year for the Company on several fronts. However, within the constraints of the situation inherited at the time of our appointment, our focus as Portfolio Manager has remained resolutely on addressing the key objectives for 2020; (1) ensuring that the key value-creating portfolio companies receive the appropriate level of strategic support to maximize the Company's investment return, and (2) seeking proactively to pay down the debt obligations. Both objectives were designed to place the Company in a position to rebalance the sector and company weightings over the longer term. This process was made harder by external factors that created one of the most challenging market periods we have experienced in recent history. However, we feel that significant progress has been made over the last twelve months to transition the Company into a position of strength.

On the first of these two objectives, we are pleased with the progress achieved with several companies progressing towards important valuation creation events, both within the 2020 financial year but most notably post period-end. Key developments include the sale of Kymab to Sanofi, Inivata's strategic partnership and investment from NeoGenomics with an option to buy the company outright, the IPO of Immunocore on Nasdaq and Oxford Nanopore's intention to float. These developments improve both the outlook for the Company's NAV and the liquidity profile of the portfolio going forward. We also navigated the period within the financial constraints inherited, honouring the Company's existing financial commitments and selectively investing in new follow-on opportunities.

Secondly, on the pay down of the debt, we are excited to report that following the completion of both the Rosetta basket and Kymab sales generating gross proceeds of over £115 million, the Company is now in a net cash position having fully repaid its outstanding debt which stood at £113 million as of 31 December 2019. This represents a tremendous leap forward in the repositioning of the fund which will enable us to support the strongest opportunities within the Company's existing portfolio, whilst at the same time being able to invest into new high quality, high conviction opportunities, both public and private.

Our current aim is to invest in two new private companies and two new public companies during 2021, and we have started curating an exciting pipeline of innovative UK businesses for consideration. In this regard, our strategy will remain true to the Company's origins, leveraging our extensive sourcing capabilities in the public and private markets, but complemented by Schroder's structure of strict governance and control processes.

The core tenets of the Company's strategy will continue to be:

(1)  Focused on high quality UK innovation. We will be looking to invest in world class innovative businesses founded in the UK. These will be companies with disruptive innovations, significant growth potential, high quality management teams and supported by highly credible co-investors. The significant weighting to UK companies will continue to be a core strength given the opportunity set that we see in the market.

(2)  Mindful of diversification by stage and sector. We will look to build out a balanced portfolio of venture, growth, and public companies across our core sectors. While we expect the existing portfolio to naturally transition from private to public investments, new private investments in the portfolio will typically be targeted at the 'growth' stage where the companies are already generating revenue with proven unit economics and scaling towards profitability. For the avoidance of doubt, we will not be looking to target early-revenue companies that require numerous rounds of further financing with a particular reliance on any one shareholder.

(3)  Prudent debt utilisation. We intend to use the Company's debt facility prudently to improve operational efficiency and minimise return dilution. The facility will only be used on a short-term basis to fund expenses and investments, but only when there is visibility of paying down the incremental amount within twelve months from future realisations (based on a probability-weighted assessment). Lastly, it is the Company's intention to keep the loan balance below 10% of gross asset value. At the time of writing, the Company's revolving credit facility can provide additional liquidity of up to £55 million in addition to the Company's cash on hand.

Other areas of the strategy that we intend to consider in more depth in consultation with the Board include opportunities at the pre-IPO, cross-over stage between public and private markets, where the Company is uniquely positioned given its hybrid investment strategy, and more active implementation of sustainability as a tool to enhance value creation within the portfolio. As referenced in the Approach to Sustainability section of this report, we see active incorporation of ESG and alignment with the UN SDGs as an important part of the investment process and something that we will target when making new investments. We also intend to engage more deeply with portfolio companies to ensure that environmental, social and governance matters remain front of mind and help provide guidance on strategy and reporting in this regard.

In summary, while the scale of the reduction to the NAV reported in these annual results is clearly disappointing, from a forward-looking perspective we remain encouraged by the groundwork delivered over the period and excited by the opportunity to make new investments from a position of strength through 2021 and beyond.

Schroder Investment Management Limited

23 April 2021

PRINCIPAL RISKS AND UNCERTAINTIES

The Audit, Risk and Valuation Committee has carried out a robust assessment of its principal risks during the period under review, including those that would threaten its business model, future performance, solvency, liquidity or reputation. 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 Board focus on any identified risk of particular concern and aids 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 the risks faced by the Company, which are reviewed on a regular basis to ascertain the effectiveness of each control.

The principal risks and uncertainties faced by the Company are set out below. The risks arising from the Company's financial instruments are set out in note 19 on pages 71 to 75 of the Annual Report.

COVID-19

The COVID-19 pandemic continues to have a very general widespread economic impact. While vaccinations may well allow a good economic recovery the longer-term impacts could also be significant, although these are unclear at the time of writing.

The consequences for the Company may well be lower valuation levels and greater difficulty in realising disposals and/or lower prices realised on disposal. Risks 1-6 listed below are all likely exacerbated by the COVID-19 pandemic.

The Board receives regular updates from the Portfolio Manager regarding the impact of the disease in terms of both portfolio management activities, the impact on investee companies and their responses to the pandemic. The Board also receives assurances that service providers have implemented business continuity plans.

Risk	Mitigation
1. General economic and market risk Besides COVID-19 there are many other factors which canaffectthegeneraleconomicoutlookandthusthebusinessprospectsforinvesteecompaniesandtheirvaluations. In particular, the extraordinary economic measuresadopted by governments globally in 2020 in response toCOVID-19 to maintain economic activity may proveinsufficientormisguided.Unanticipatedlyloworhighlevelsof inflation are both real possibilities with potentiallymaterialconsequentialimpactsonvaluations. Inaddition: Climate change can create sudden economic dislocations as a result of flooding, droughts, famines, civil war, etc. whichinturncanhavesignificantmarketimpact;and Following a long period of strong equity marketperformance, and even more so in certain technologysectors,asharpcorrectionispossible.Thiscouldleadtolower valuation levels for both quoted and unquotedsecurities, a more difficult funding environment anddifficulties for companies seeking initial public offerings(IPOs).Realisationofvaluemaythusbepostponed.	The Portfolio Manager keeps the Board fully briefed withtheir economic & market outlook. While the PortfolioManager's style is to be a patient, longer-term andsupportive investor, the Portfolio Manager is willing to takeadvantage of favourable market conditions to makedisposalsandtoinvestwhenmarketconditionsaredifficult. The aim is for the Company to be at least 90% invested atall times but the Company maintains a credit facility inordertotakeadvantageofopportunitiesandmaybeupto110%invested. The Company expects to continue to invest in particularsituations and technologies whose business performancemayhavelesscorrelationwiththebroaderequitymarket. OverafullmarketcycletheexpectationistheCompanywillbeonaverage100%invested.Thus,theCompanywillretaina reasonable element of market exposure. The Boardbelieves that this approach aligns with shareholders'expectationsandthatinvestinginthisassetclassisnotwellsuitedtomarkettiming.
2. Portfolio concentration risk Some of the Company's investments have demonstrated relatively more success and/or required more funding than others, which has led to those investments representing larger proportions of the portfolio than might be expected. While both the Board and the Portfolio Manager feel that undue concentration is not desirable in the longer term, in the shorter term, portfolio concentration can be acceptable. In any event, the nature of the investments means that any rebalancing of the portfolio will likely take time, as they cannot always be sold quickly. The Portfolio Manager, under delegated authority from the Board, has authority regarding portfolio construction and managing questions of portfolio concentration in the best interests of the shareholders. This approach is in line with the Portfolio Manager's investment strategy and investment philosophy. The alternative, of imposing limits on the size of any one investment, other than at the time of investment, would potentially result in the Company being a forced seller of an investment that still had further growth potential. The risk linked to any portfolio concentration might be compounded due to the nature of some of the businesses and the risks associated with both commercial and technical milestones.	The Company's portfolio is monitored closely by the Board,theAIFMandthePortfolioManager.TheCompanyseekstoinvest in a diversified portfolio across a wide range ofcompanies so as to mitigate against the risk posed by anindividual early-stage or early-growth company. However, the Board is mindful that the Company was establishedwith the aim of providing long-term growth and thatconcentration can be a sign of success as a result of assetsbacked becoming more valuable. Short-term liquidityproblems with the Company's underlying holdings, whichmaybecompoundedbymarketevents,shouldbe mitigatedovertimewhensuchcompaniesdeliverontheirmilestonesandvalueisrecognised. The Board also considers increased specific risk that may arise from increased concentration, as the result of the relative success of certain investee companies. The Board discusses this risk with the Portfolio Manager, and where appropriate with the AIFM, with a view to considering whether or not to seek to reduce the size of particularly large holdings within the portfolio. However, the Board is mindful that through the AIFM it has delegated investment management decisions to the Portfolio Manager to make as it sees fit. The Board regularly receives updates from the PortfolioManager on the engagement the team is conducting withall investee companies to challenge them on delivery ofvaluetoinvestorsandtheirproposedroutetosuccess.TheBoardcanchallengethePortfolioManagertoengagemorevigorously and/or seek partial disposals to reduce the riskofdelayedorlimitedsuccessbyinvesteecompanies
3. Performance risk There is always, for any investment portfolio, the genericrisk of poor performance arising as a result of poordecisionsmadebythePortfolioManager.Inaddition,giventhelong-termnatureofthisinvestmentstrategy(upto 10years)andtheabsenceofaclearbenchmark,itisnotnecessarily easy to make an evaluation of the PortfolioManagerbasedsimplyonreturnsovershorterperiods.	This risk is mitigated by the Board monitoring theperformanceoftheportfolioandthedecisionsmadebythePortfolio Manager through detailed reporting on thedecisions. The Board seeks to evaluate the general qualityand nature of portfolio decisions as well as theperformance. Where the Board determines that thePortfolio Manager is not performing to a satisfactorystandard, the Board, together with the AIFM for theportfolio, may decide to terminate the appointment of thePortfolioManagerunderthetermsofitscontract.
4. General valuation risk The valuation of unquoted early stage companies is inherently subjective. Valuation at a fixed point in time may not be representative of the medium or longer term. Particular events at a company or particular funding rounds may have a significant impact. Information may not be as widely available as with public companies. Companies may not yet have meaningful revenues or profits. Considerable uncertainty may exist around the eventual feasibility and value of a particular technology or its commercialisation.	The Company employs LFS, the AIFM, who has been delegated responsibility for the valuation of the assets in the portfolio. LFS, in turn, uses extensive research and input from its own valuation specialist provider, IHSMarkit. They conduct a regular rolling review of the valuation of all portfolio assets and also review their valuations in the event of any significant triggers at individual investee companies. They follow the widely respected and widely followed IPEV guidelines in executing these valuations; these processes are explained on pages 62 and 63 of the Annual Report.
5. Portfolio specific valuation risk Where other portfolio managers seek to make disposals of securities held in portfolios they manage and these securities are also held by the Company, the valuation of these securities may thereby be affected. Equally, simply market anticipation of these disposals may also impact valuations. As the new Manager of the LF Equity Income Fund (the "Fund"), formerly the LF Woodford Equity Income Fund, which used to be managed by the Company's previous Portfolio Manager, seeks to make disposals of unquoted positions in the Fund, in order to return capital to investors, these disposals may also, indirectly, when the Company's independent valuation agent, LFS, references prices of recent transactions, lead to downward revaluation of some of the Company's holdings. In as much as the wider market and other investors in the Company's investee companies are also aware of the disposal process of the Fund they may seek more demanding terms on any future funding rounds which may also in turn impact valuations.	The Board receives updates from the Portfolio Manager regarding disposal, investment and funding plans. In as much as the Portfolio Manager is aware of the holdings the Fund is seeking to sell (because these were publicly disclosed), the Portfolio Manager can adjust the divestment plan accordingly. In addition, where necessary and possible, the Portfolio Manager can seek to postpone or avoid  further funding. The Portfolio Manager  regularly categorises the Company's positions in terms of relative future importance, which helps the Board assess  divestment and funding decisions.
6. Investee company specific risk The Company invests in a variety of biopharma and technology businesses, many of them relatively early stage, where the technology is not yet fully proven or commercialised. This can offer very significant financial success when the technology delivers but also carries downside risks particular to the companies concerned. The eventual outcome for some of these companies may be somewhat binary in as much as either the technology works, or it does not, resulting in the company concerned becoming worth significantly less. Failure may materialise, for instance, in the case of clinical trials for a biotechnology business, in the case of scaling up or commercialisation of an engineering business or in terms of the appearance of a new, previously unknown competitor for a software company. Leading edge commercial scientific development in many fields is by its nature risky. The performance of the Company's individual holdings, together with market events, may thus create short-term volatility in the Company's NAV.	The Portfolio Manager conducts regular reviews of these businesses through engaging regularly with all investee companies to monitor progress. The Portfolio Manager also carries out due diligence on the relevant technologies and obtains regular updates. The Portfolio Manager uses its  own proprietary analytics to assess the prospects for investee companies and may also seek expert third party opinions regarding the likely success of the technology. The Board seeks assurance from the Portfolio Manager through its regular portfolio review meetings that thorough research has been, and is being, conducted. The Board can challenge the Portfolio Manager to engage more vigorously and/or seek partial disposals to reduce the risk of delayed or limited success by investee companies.
7. Gearing risk The Company has the ability to employ gearing up to a maximum of 20 per cent of NAV, calculated at the time of borrowing. The Company has utilised its gearing facility in order to invest further behind specific portfolio companies which means there is less flexibility to make new investments and provide follow-on funding to the portfolio companies. A higher level of gearing may have a significant downside effect on the Company's NAV during a period of poor performance or decline in the market and may impact the Company's debt covenants. A significant downturn in the values of equity market  assets, which also impacts the valuations of unquoted assets, could mean it is significantly more difficult to realise disposals or that the prices that can be realised are materially below the current carrying values. Thus, this may also trigger a need to renegotiate the debt facility or simply affect valuation levels.	The Board receives regular reports from the Administrator on the outstanding amount of the debt and regular reports from the Portfolio Manager on the programme of disposals. Gearing is reviewed by the Board at each Board meeting and more often, as necessary. The Portfolio Manager provides weekly updates to the debt provider. The Board monitors the progress of the reduction in gearing and seeks to confirm with the Portfolio Manager that this process is nevertheless preserving shareholder value. The Portfolio Manager also provides a thorough analysis of any anticipated funding decisions and possible liquidity events of the portfolio companies. This allows the Board to assess the Company's ability to meet its commitments and maintain its financing facility. When loan facility terms are being reconsidered, the Board works very closely with the Portfolio Manager to optimise any agreement. In January 2021, the Company extended its credit facility to 30 January 2023. The commitment under the facility was reduced to £107.03 million, in-line with the amount drawn under the facility at that time and consistent with the Company's intention to reduce borrowings. In March 2021, the commitment under the facility was reduced to £60 million and was converted to a revolving credit facility. In April 2021, the balance under the revolving credit facility was paid in full and converted to a £55 million revolving credit facility. Further details are included in note 22 to the Accounts on page 76 of the Annual Report. The Board views the reduction in the loan balance as a significant mitigation of gearing risk.
8. Portfolio Manager and key man risk The Portfolio Manager operates a team approach to portfolio management and decision making so the risk arising from the departure of one or more of the Portfolio Manager's key investment professionals should not necessarily prevent the Company from achieving its investment objective. The Portfolio Managers' resources could become stretched through the launch of new products or team departures leading to a lack of focus on the Company's portfolio. The Portfolio Manager could terminate its contract with the Company. This event would have an impact on the management of the portfolio and would constitute a technical default on the debt facility, requiring renegotiation or substitution, likely on less favourable terms.	The Portfolio Manager has a compensation and incentive scheme to retain key staff and 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 Portfolio  Manager will notify any change in its key professionals to the Board at the earliest possible opportunity and the Board will be made aware of all efforts made to fill a vacancy. Furthermore, investment decisions are made by a team of professionals, mitigating the impact of the loss of any key professional within the Portfolio Manager's organisation on the Company's performance. Recent experience suggests that the Board would be able to identify an alternative Portfolio Manager should the need arise.
9. Outsourced service provider 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 that 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.	The performance of the Company's service providers is monitored closely by the Board and in particular by the Management Engagement Committee. The Management Engagement Committee monitors service providers and their activities. Each of the service providers has a notice period so as to allow an alternative to be appointed. The controls and operations of each service provider, other than the Company Secretary and Portfolio Manager, 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, Risk and Valuation Committee for its review, so that it can gain a greater understanding of the risk management processes and how they apply to the Company's business. The Directors also received confirmation from the AIFM, Portfolio Manager, depositary and custodian, and the registrar on the arrangements for working during the COVID-19 pandemic lockdown.
10. Currency risk In as much as the Portfolio Manager now no longer seeks to hedge non-sterling currency exposures through forward foreign exchange contracts and some of the Company's investments are based wholly or partly outside the UK or have revenues in currencies other than sterling then the value of the portfolio, in sterling terms, may be affected negatively by a rise in sterling relative to these other currencies and, equally, positively by a fall in sterling.	The Portfolio Manager regularly reports to the Board and highlights any significant impacts of currency movements on the value of investments.
11. Cyber risk Each of the Company's service providers is at risk of cyber attack, data theft, service disruption, etc. While the risk of financial loss by the Company is probably small, the risk of reputational damage and the risk of loss of control of sensitive information is more significant, for instance a GDPR breach. Many of the Company's service providers and the Board often have sensitive information regarding transactions or pricing and information regarded as inside information in regulatory terms. Data theft or data corruption per se is regarded as a lower order risk as relevant data is held in multiple locations.	The Board receives controls reports from its service providers which describe the protective measures they take as well as their business recovery plans. In addition, the Board received presentations from the Portfolio Manager, on cyber risk and the additional steps it and its service providers were taking during the COVID-19 pandemic and the need for employees to work from home.

Risk assessment and internal controls review by the Board

Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit, Risk and Valuation Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition.

No significant control failings or weaknesses were identified from the Audit, Risk and Valuation Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this report or the controls reports that were received from all service providers and reviewed by the Committee. The Board is therefore satisfied that it has undertaken a detailed review of the risks facing the Company.

Going Concern

T he Board has considered the Company's principal risks and uncertainties (including whether there are any emerging risks); has scrutinised the detailed cash flow forecast prepared by the Portfolio Manager; and considered their assessment of the likelihood and quantum of funds which could be raised from sales of investments. The Portfolio Manager has also performed a range of stress tests, and demonstrated to the Board that even in an adverse scenario of depressed markets and restrictions on sales in the private equity market, the Company could still generate sufficient funds from sales of investments to meet its liabilities over the next twelve months. As a result, the Board is comfortable that the Company will have sufficient liquid funds to pay operating expenses.

The Board has also considered the provisions in the new revolving credit facility, and have taken into account that the outstanding loan balance has been fully repaid after the accounting date.

On this basis, the Board considers it appropriate to adopt the going concern basis of accounting in the Company's accounts, and has not identified any material uncertainties to the Company's ability to continue as a going concern over a period of at least twelve months from the date of approval of these financial statements.

Viability Statement

The Board has assessed the prospects of the Company over the five-year period ending 31 December 2025. The Board considers a five-year period to be appropriate because it is the minimum holding period that it would recommend to a prospective investor considering purchasing shares in the Company.

The Board has considered the Principal Risks set out on above and detailed cash flow forecasts prepared by the Portfolio Manager, and stress case scenarios, including the possibility of breach of its loan covenants.

The Board believes that the portfolio will provide shareholders with satisfactory returns from the investment portfolio over a five-year period and that there will be continued demand for the Company's shares.

Although there may well be short term strains arising from the current economic crisis driven by the COVID-19 pandemic, and some companies in the portfolio may be severely affected, the portfolio's exposure to healthcare companies which may benefit from the pandemic will help to provide a balance. Based on current understanding, as with other pandemics, the impact will diminish over time and the opportunities arising from investing in new innovative businesses will remain. It should therefore be possible for the new Portfolio Manager to have moved materially to implement the new strategy within a five-year timeframe. Having considered all of the Company's resources, strategy, risks and probabilities, the Board has a reasonable expectation that the Company will continue to operate and meet its liabilities as they fall due, during the five year period to 31 December 2025.

By order of the Board

 Schroder Investment Management Limited

Company Secretary

23 April 2021

Board of Directors

Susan Searle (Chair)

Raymond Abbott

Scott Brown

Stephen Cohen (Chairman of Audit, Risk and Valuation Committee)

Tim Edwards

Jane Tufnell (Senior Independent Director)

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, the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law, including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland". 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 these 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 (UK GAAP) 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 and the report of the Audit, Risk and Valuation 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 of the Company's corporate and financial information included on its web pages. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names are listed above, confirms that, to the best of their knowledge:

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

-  the Strategic Report contained in the annual report and financial statements include 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 AIC Code of Corporate Governance 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, Risk and Valuation Committee advises on whether it considers that the annual report and financial statements fulfil these requirements. The process by which the Audit, Risk and Valuation Committee has reached these conclusions is set out in its report on pages 38 to 39 of the Annual Report. As a result, the board has concluded that the annual report and financial statements for the year ended 31 December 2020, taken as a whole, are fair, balanced and understandable and provide 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

Chair

23 April 2021

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020



	2020			2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Losses on investments held at fair value through profit or loss	-	(126,095)	(126,095)	-	(421,175)	(421,175)
Losses on derivative contracts	-	-	-	-	(9,373)	(9,373)
Losses on foreign exchange	-	(193)	(193)	-	(1)	(1)
Total return	-	(126,288)	(126,288)	-	(430,549)	(430,549)
Portfolio management fee	(1,923)	-	(1,923)	-	-	-
Other administrative expenses	(1,240)	-	(1,240)	(3,115)	-	(3,115)
Net loss before finance costs and taxation	(3,163)	(126,288)	(129,451)	(3,115)	(430,549)	(433,664)
Finance costs	(1,909)	-	(1,909)	(2,841)	-	(2,841)
Net loss before taxation	(5,072)	(126,288)	(131,360)	(5,956)	(430,549)	(436,505)
Taxation	-	-	-	-	-	-
Net loss after taxation	(5,072)	(126,288)	(131,360)	(5,956)	(430,549)	(436,505)
Basic and diluted loss per share	(0.56)p	(13.90)p	(14.46)p	(0.67)p	(48.08)p	(48.75)p

The "Total" column of this statement is the Income Statement of the Company. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other items of other comprehensive income, and therefore the net loss after taxation is also the total comprehensive income for the year.

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

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020

	Called-up share capital £'000	Share premium £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
At 31 December 2018	8,270	813,099	(6,385)	(7,784)	807,200
Net loss after taxation	-	-	(430,549)	(5,956)	(436,505)
Issue of shares	816	78,105	-	-	78,921
Share issue costs	-	(187)	-	-	(187)
At 31 December 2019	9,086	891,017	(436,934)	(13,740)	449,429
Net loss after taxation	-	-	(126,288)	(5,072)	(131,360)
At 31 December 2020	9,086	891,017	(563,222)	(18,812)	318,069

STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2020

	2020	2019
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	421,152	561,115
Current assets
Debtors	26	30
Cash at bank and in hand	6,379	2,234
	6,405	2,264
Current liabilities
Creditors: amounts falling due within one year	(109,488)	(1,050)
Net current (liabilities)/assets	(103,083)	1,214
Total assets less current liabilities	318,069	562,329
Creditors: amounts falling due after more than one year	-	(112,900)
Net assets	318,069	449,429
Capital and reserves
Called-up share capital	9,086	9,086
Share premium	891,017	891,017
Capital reserves	(563,222)	(436,934)
Revenue reserve	(18,812)	(13,740)
Total equity shareholders' funds	318,069	449,429
Net asset value per share	35.00p	49.46p

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020

		2020	2019
		£'000	£'000
Cash flows from operating activities
Net loss before finance costs and taxation		(129,451)	(433,664)
Adjustments for:
Losses on investments held at fair value through profit or loss		126,095	421,175
Net movement in foreign forward currency contracts		-	9,373
Net movement in foreign exchange		-	1
Decrease/(increase) in debtors		4	(19)
Increase in creditors		1,430	578
Net cash flow from operating activities		(1,922)	(2,556)
Cash flows from investment activities
Purchases of investments		(6,859)	(137,143)
Proceeds from sales of investments		20,727	191,387
Settlement of foreign forward currency contracts		-	(15,349)
Net cash flow from investment activities		13,868	38,895
Cash flows from financing activities
Issue of shares		-	6,000
Share issue costs		-	(187)
Finance costs		(1,933)	(2,852)
Repayment of loan		(5,868)	-
Net cash flow from financing activities		(7,801)	2,961
Change in cash and cash equivalents		4,145	39,300
Cash and cash equivalents at the beginning of the year		2,234	(149,966)
Reclassification of overdraft liabilities in the year1		-	112,900
Cash and cash equivalents at the end of the year		6,379	2,234

¹ Following the amendments to the term facility agreement with The Northern Trust Company during the prior year, the overdraft was reclassified as a loan.

NOTES TO THE ACCOUNTS

1.  Accounting Policies

Basis of accounting

Schroder UK Public Private Trust plc ("the Company") is registered in England and Wales as a public company limited by shares. The Company's registered office is 1 London Wall Place, London EC2Y 5AU.

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in accordance with Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (the "SORP") issued by the Association of Investment Companies in October 2019. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments held at fair value through profit or loss. The Directors believe that the Company has adequate resources to continue operating for at least 12 months from the date of approval of these accounts. In forming this opinion, the Directors have taken into consideration: the controls and monitoring processes in place; the Company's level of debt and other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event of a market downturn; the Company's cash flow forecasts and the liquidity of the Company's investments. Further details of the Directors' considerations in forming this opinion are given on page 31 of the Annual Report. The financial statements have been prepared on the assumption that approval as an investment trust will continue to be granted.

The Company has adopted the provisions of Sections 11 and 12 of FRS 102 for measuring and disclosing its financial instruments.

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

The accounting policies applied to these accounts are consistent with those applied in the accounts for the year ended 31 December 2019.

2.  Portfolio management fee

	2020	2019
	£'000	£'000
Portfolio management fee	1,923	-
	1,923	-

The Company appointed Schroder Investment Management Limited (SIML) as Portfolio Manager, effective from 13 December 2019. Under the terms of the new management agreement, SIML is entitled to a management fee, effective from 13 March 2020 and a performance fee, subject to achieving performance targets. Details of these calculations are set out in the Directors' Report on page 35 of the Annual Report. No performance fee is payable for the current or prior year and no provision is required at 31 December 2020.

Details of all transactions with the current and previous Portfolio Managers are given in note 16 on page 70 of the Annual Report.

3.  Other administrative expenses

	2020	2019
	£'000	£'000
Other administration expenses	562	1,869
Valuation fees	293	282
Directors' fees1	191	210
Company secretarial fee	44	122
Auditor's remuneration for the audit of the Company's annual accounts2	150	346
Auditor's remuneration for audit related services interim review2	-	286
	1,240	3,115

¹ Full details are given in the Directors' Remuneration Report on pages 44 to 46 of the Annual Report.

² The annual audit fee includes VAT amounting to £25,000 (2019: £46,000). The interim review fee includes VAT amounting to nil (2019: £38,000).

4.  Finance costs

	2020	2019
	£'000	£'000
Bank loan/overdraft fees and interest	1,909	2,841
	1,909	2,841

5.  Taxation

(a)  Analysis of tax charge for the year

	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Taxation on ordinary activities	-	-	-	-	-	-

The Company has no corporation tax liability for the year ended 31 December 2020 (2019: nil).

(b)  Factors affecting tax charge for the year

	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Net loss on ordinary activities before taxation	(5,072)	(126,288)	(131,360)	(5,956)	(430,549)	(436,505)
Net loss on ordinary activities before taxation
multiplied by the Company's applicable rate of
corporation tax for the year of 19.0% (2019: 19.0%)	(964)	(23,995)	(24,959)	(1,132)	(81,804)	(82,936)
Effects of:
Capital loss on investments	-	23,995	23,995	-	81,804	81,804
Unrelieved loan relationship deficit	363	-	363	540	-	540
Unrelieved management expenses	601	-	601	560	-	560
Expenses not deductible for corporation tax purposes	-	-	-	32	-	32
Taxation on ordinary activities	-	-	-	-	-	-

(c)  Deferred taxation

Given the Company's intention to meet the conditions required to retain its status as an Investment Trust Company, no provision has been made for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.

The Company has an unrecognised deferred tax asset of £3,731,000 (2019: £2,801,000) based on a prospective corporation tax rate of 19% (2019: 17%). In its 2020 budget, the government announced that the main rate of corporation tax would remain at 19% for fiscal years beginning on 1 April 2020 and 2021. It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised in the accounts.

6.  Dividends

No dividends have been paid or proposed in respect of the year ended 31 December 2020 (2019: nil).

7.  Basic and diluted loss per share

	2020	2019
	£'000	£'000
Revenue loss	(5,072)	(5,956)
Capital loss	(126,288)	(430,549)
Total loss	(131,360)	(436,505)
Weighted average number of shares in issue during the year	908,639,238	895,442,758
Revenue loss per share	(0.56)p	(0.67)p
Capital loss per share	(13.90)p	(48.08)p
Total basic and diluted loss per share	(14.46)p	(48.75)p

The basic and diluted loss per share is the same because there are no dilutive instruments in issue.

8.  Creditors: amounts falling due within one year

	2020	2019
	£'000	£'000
Bank loan	107,032	-
Portfolio management fee payable	1,923	-
Other creditors and accruals	533	1,050
	109,488	1,050

The bank loan is drawn on the Company's facility with The Northern Trust Company, which expires on 15 January 2021. The loan is secured on all the Company's assets. The agreement requires that, subject to an allowance for operating expenses, the proceeds of Private Asset sales must be used to make loan repayments, which cannot be redrawn. Furthermore, the Company may not make further Private Assets investments until certain repayments have been made. The loan agreement also requires the Company to seek to maintain a balance between the listed and unlisted investments in the portfolio. Interest payable is calculated at LIBOR, for one month or other agreed loan period, plus a margin of 1.5%.

Details of an extension to the loan facility, and repayments after the accounting date, are given in note 22 on page 76 of the Annual Report.

The Directors consider that the carrying amount of creditors falling due within one year approximates to their fair value.

9.  Creditors: amounts falling due after more than one year

	2020	2019
	£'000	£'000
Bank loan	-	112,900

10.  Called-up share capital

	2020	2019
	£'000	£'000
Ordinary shares allotted, called up and fully paid:
Ordinary shares of 1p each:
Opening balance of 908,639,238 (2019: 827,000,000) shares	9,086	8,270
Issue of nil (2019: 81,639,238) shares	-	816
Closing balance of 908,639,238 (2019: 908,639,238) shares	9,086	9,086

11.  Net asset value per share

	2020	2019
Net assets attributable to shareholders (£'000)	318,069	449,429
Shares in issue at the year end	908,639,238	908,639,238
Net asset value per share	35.00p	49.46p

12.  Disclosures regarding financial instruments measured at fair value

The Company's financial instruments within the scope of FRS 102 that are held at fair value comprise its investment portfolio and derivative financial instruments.

FRS 102 requires that financial instruments held at fair value are categorised into a hierarchy consisting of the three levels below. A fair value measurement is categorised in its entirety on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - valued using unadjusted quoted prices in active markets for identical assets.

Level 2 - valued using observable inputs other than quoted prices included within Level 1.

Level 3 - valued using inputs that are unobservable.

Details of the Company's policy for valuing investments and derivative instruments are given in note 1(b) on pages 62 and 63 of the Annual Report and 1(g) on page 64 of the Annual Report. Level 3 investments have been valued in accordance with note 1(b) (i) - (iv) .

At 31 December, the Company's investment portfolio and any derivative financial instruments were categorised as follows:

		2020
		Level 1	Level 2	Level 3	Total
		£'000	£'000	£'000	£'000
Investments in equities	- quoted	32,697	-	33,889	66,586
	- unquoted	-	-	354,566	354,566
Total		32,697	-	388,455	421,152

		2019
		Level 1	Level 2	Level 3	Total
		£'000	£'000	£'000	£'000
Investments in equities	- quoted	53,476	-	80,811	134,287
	- unquoted	-	-	426,828	426,828
Total		53,476	-	507,639	561,115

There have been no transfers between Levels 1, 2 or 3 during the year (2019: nil).

Movements in fair value measurements included in Level 3 during the year are as follows:

	2020	2019
	£'000	£'000
Opening book cost	702,358	580,006
Opening investment holding (losses)/gains	(194,719)	158,760
Opening valuation	507,639	738,766
Purchases at cost	9,952	126,733
Investments received as consideration for share issue	-	72,921
Sales proceeds	(11,654)	(81,390)
Net movement in investment holding gains and losses	(117,482)	(349,391)
Closing valuation	388,455	507,639
Closing book cost	663,223	702,358
Closing investment holding losses	(274,768)	(194,719)
Total level 3 investments held at fair value through profit or loss	388,455	507,639

The Company received £11,654,000 (2019: £81,390,000) from Level 3 investments sold in the year. The book cost of the investments when they were purchased was £49,087,000 (2019: £77,302,000). These investments had been revalued over time and, until they were sold, any unrealised gains or losses were included in the fair value of the investments.

13.  Events after the accounting date that have not been reflected in the financial statements

Loan facility with The Northern Trust Company

The Company arranged a new,  amended loan facility agreement with The Northern Trust Company, effective from 15 January 2021. The initial proceeds of two transactions detailed below, totalling £115.1 million, have been received by the Company post the accounting date, and £107,032,000 of that amount has been used to fully pay down the loan. Under the terms of the new loan facility agreement, following the above repayment, the arrangement changes to a "Revolving Facility Commitment", and the principal terms of this are as follows:

-  The facility limit is reduced to £55 million;

-  The termination date is 30 January 2023;

-  Interest on any drawings will accrue daily and will be calculated at the aggregate of The Bank of England Base Rate, a 2% margin and a 0.6% facility fee, per annum.

Material transactions after the accounting date

Acquisition of certain of the Company's investments by Rosetta Capital Limited

Under the terms of a transaction completed in February 2021, the Company's investments detailed below, have been acquired by Rosetta Capital. The initial sales proceeds of £52.9 million were received by the Company in March 2021, including recompense for £2.9 million of follow-on payments made after the accounting date relating to Carrick Therapeutics and Mission Therapeutics, and £1.0 million from a positive adjustment to the acquisition price due to changes in the values of the listed portfolio companies Mereo BioPharma and ReNeuron. An additional amount of £5.0 million may be receivable, dependent on the divestment of Immunocore by Rosetta Capital.

The investments acquired by Rosetta Capital were as follows:

	Percentage	Valuation
	of the Company's	in the accounts
	holding sold	(of portion sold)
	%	£'000
Portfolio company
Inivata	50	13,069
Immunocore	48	12,274
Carrick Therapeutics	100	11,155
Mission Therapeutics	100	4,488
Mereo BioPharma	100	4,052
ReNeuron	61	2,575
PsiOxus Therapeutics	100	615
		48,228

Acquisition of Kymab Limited, by Sanofi S.A.

Under the terms of a transaction completed in February 2021, the Company's entire holding in Kymab, valued at £69.6 million in the accounts, has been acquired by Sanofi. The consideration agreed was as follows:

-  The initial proceeds of £63.2 million were received by the Company in April 2021;

-  In addition, circa US$6.1 million will be held in escrow as a guarantee against warranties; of which 50% will be released after 6 months and the remainder after 18 months, subject to certain deductions; and

-  An amount of up to US$26.9 million is potentially receivable over the next 13 years; this is dependent on the achievement of various development and regulatory milestones.

Status of announcement

2019 Financial Information

The figures and financial information for 2019 are extracted from the published Annual Report and Accounts for the year ended 31 December 2019 and do not constitute the statutory accounts for that year. The 2019 Annual Report and Accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2020 Financial Information

The figures and financial information for 2020 are extracted from the Annual Report and Accounts for the year ended 31 December 2020 and do not constitute the statutory accounts for the year. The 2020 Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The 2020 Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

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

 

END

 

 

ACSSESFAIEFSEFL