Annual Financial Report

RNS Number : 2115V
Woodford Patient Capital Trust PLC
05 April 2019
 

 

 

Woodford Patient Capital Trust plc

Annual Report 

 

5 April 2019

 

Woodford Patient Capital Trust plc (WPCT or the Company), announces the audited financial report for the year ended 31 December 2018.

 

KEY POINTS:

 

·    the Company's net asset value increased 6.9 per cent to 97.61p from 91.33p

·    many of the portfolios largest companies are now in the commercialisation phase

·    second wave of disruptors emerging in the portfolio

·    running costs remain at around 0.2 per cent

 

 

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

"The progress made by some of WPCT's larger unquoted holdings has resulted, in part, in the increase in net asset value (NAV) during the period of 6.9 per cent. As the top companies in our portfolio move through points of inflection in forthcoming years, we would expect this to be more strongly reflected in NAV.

 

"The objective of WPCT remains the same. The portfolio is well established with strength and depth, while there have been solid signs of progress this year. The Portfolio Manager has previously stated that performance should be judged on a three-to-five-year view. The valuation of some of the Company's largest investments are sensitive to achieving key milestones and we have seen, as with Prothena, the detrimental impact this can have on the portfolio when they are missed. However, Autolus's stock market listing highlights the impact success can have and the Portfolio Manager believes that many more of the portfolio companies are set to deliver this year. The Board will be monitoring performance closely at what is an important stage of the Company's life cycle."

 

Neil Woodford, Portfolio Manager, Woodford Patient Capital Trust plc, says:

"Against a backdrop of widespread equity market declines, WPCT delivered a positive NAV return of 6.9 per cent in 2018. More broadly, we have been pleased with the operational progress being delivered by the majority of companies in the portfolio. The portfolio's success stories are gradually beginning to account for a larger proportion of assets, so this has meant that the contribution from the positive uplifts was significantly greater than the contribution from the negatives.

 

"Several of the more mature companies in the portfolio are now at a stage where a stock market listing would appear appropriate. Indeed, several of them are well beyond the stage at which, historically, an introduction to public markets would typically have occurred. We have encouraged these businesses to remain private for as long as possible. We are only comfortable exposing these businesses to the slings and arrows of a stock market listing if we are confident that it can be done in a manner that will not compromise their ability to fulfil the potential that we have always seen in them.

 

"At the same time, our attention is, of course, also on nurturing the next wave of global disruptors. The likes of Inivata (a leader in liquid biopsy), Federated Wireless (mobile spectrum sharing technology) and Carrick Therapeutics (targeted cancer therapies) are hot on the heels of the larger positions in the portfolio, both in terms of the disruption they can bring to their respective industries, and in terms of the value they can continue to create.

 

"Irrespective of their stage of development, we are doing everything we can to ensure positive outcomes for the companies in which WPCT has invested. In turn, we are doing everything we can to ensure positive outcomes for the shareholders of this Company. There will always be things that don't go to plan within a portfolio like this, but with an appropriate balance of patience, support and determination, there is a path forward. Collectively, this represents a path towards long-term value creation, and it is a path upon which WPCT is progressing positively."

 

 

STRATEGIC REPORT

 

The investment objective of the Company 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 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.

 

 

Many of the Company's biggest holdings have reached significant milestones on the road to commercial success.

 

Building conviction

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

 

Stock market listings

Some of the Company's holdings have already hit milestones to IPO - and others are expected to follow.

 

Low cost

Annual costs of 0.2 per cent - no fee paid to Portfolio Manager unless cumulative returns exceed 10 per cent per annum.

 

 

 

FINANCIAL HIGHLIGHTS

 

At 31 December

 

2018  

£'000  

2017  

£'000  

Net assets

807,200  

755,295  

 

 

 

31 December

2018  

2017  

Net asset value and share price

 

 pence  

pence  

Net asset value per share

97.61  

91.33  

Share price

               82.10  

84.45  

 

 

 

31 December

Net asset value and share price performance

 

2018 

% 

2017  

%  

Increase/(decrease) in net asset value per share

6.9  

(2.0) 

Decrease in share price

(2.8) 

(7.2) 

Share price discount to net asset value

(15.9) 

(7.5) 

 

 

 

31 December

2018  

2017  

Ongoing charges ratio*

0.2  

0.2  

 

 

 

*          Ongoing charges ratio - calculated as a percentage of average shareholders' funds and using expenses, excluding finance costs, performance fees and taxation in accordance with the Association of Investment Companies (AIC) guidelines.

 

 

CHAIRMAN'S STATEMENT

 

Last year, I commented on tangible signs that many of the companies in the WPCT, portfolio were making good progress and that we hoped to see this reflected in financial performance in the forthcoming year.

 

The progress made by some of WPCT's larger unquoted holdings has resulted, in part, in the increase in net asset value (NAV) during the period of 6.9 per cent. However, this was tempered by the performance of some of the smaller and medium-sized quoted holdings in the portfolio where progress has often not been reflected in the share price.

 

As the top companies in our portfolio move through points of inflexion in forthcoming years, we would expect this to be more strongly reflected in the NAV. The share price traded at an average 11.3 per cent discount to its NAV and during the year the Board kept this regularly under review.

 

WPCT has a unique portfolio of companies, developed over a long period, where the Portfolio Manager has a deep insight into the evolution of the businesses. Many of these companies are now in the commercialisation phase. For example, Proton Partners, the UK's first high-energy proton beam therapy provider, treated 25 patients in its Cancer Centre in Newport last year and opened two further centres in Northumberland and Reading. Autolus successfully listed on NASDAQ and its CAR-T cell technology is in a strong position to drive advances in the battle against cancer. Meanwhile, one of the Company's largest holdings, Industrial Heat, raised capital from external investors having shown positive progress and, it is anticipating reaching a key milestone in the year ahead. Companies within the portfolio are also attracting high-calibre individuals, typified by the senior appointments at Immunocore (see below).

 

The Portfolio Manager continues to update investors with developments in the portfolio and we also held a capital markets investor day in the summer to increase awareness. WPCT re-entered the FTSE250 in December and continues to attract support from a wide variety of investors for whom it represents a unique, long-term portfolio of disruptive high-potential businesses. We also welcomed a number of new institutional shareholders with whom I met.

 

In February 2019, following more than a year of discussions with external parties (including legal counsel) and commissioning independent valuation reports, WPCT acquired a portfolio of five unquoted assets from the LF Woodford Equity Income Fund. The transaction was completed by issuing WPCT shares at the prevailing NAV (plus costs) of the Company, being at a premium to the share price, resulting in no dilution to shareholders. It is a positive transaction for shareholders, and we have increased positions in portfolio companies in which the Portfolio Manager has conviction. The assets included Atom Bank, which brings some balance in risk and sector to the top of the portfolio having represented approximately half of the transaction.

 

It has been a particularly busy year and I would like to thank the Board for giving so generously of its time. The Board is evolving, and steps have been taken to enlarge the scope of the Audit Committee, enabling it to spend even more time with the Portfolio Manager on its strategy and the portfolio. I would also like to wish Alan Hodson well as he is stepping down in the summer to spend more time on charitable endeavours.

 

The objective of WPCT remains the same. The portfolio is well established with strength and depth, while there have been solid signs of progress this year. The Portfolio Manager has previously stated that performance should be judged on a three-to-five-year view. The valuation of some of the Company's largest investments are sensitive to achieving key milestones and we have seen, as with Prothena, the detrimental impact this can have on the portfolio when they are missed. However, Autolus's stock market listing highlights the impact success can have and the Portfolio Manager believes that many more of the portfolio companies are set to deliver this year.

 

The Board will be monitoring performance closely at what is an important stage of the Company's life cycle.

 

Susan Searle

Chairman

4 April 2019

 

 

 

PORTFOLIO MANAGER'S REVIEW 2018

 

Against a backdrop of widespread equity market declines, WPCT delivered a positive NAV return of 6.9 per cent in 2018. The overall performance of a portfolio is always the product of many moving parts. In the year under review, however, returns were dominated by events at three companies, and one broader theme that has persisted throughout the Company's short life thus far.

 

Firstly, the stock specifics. As we reported in last year's annual report and the interim report, the Company suffered a setback during April 2018 when Prothena announced that its Pronto trial, investigating its lead asset, NEOD001, in AL amyloidosis, had been unsuccessful. This was a very disappointing outcome for the company and its investors, which stemmed from a much bigger and more significant placebo effect than anything seen in prior trials would have suggested. More detail can be found on Woodford's website.

 

More positively, events at two unquoted companies provided some encouraging momentum to the Company's NAV as the year unfolded. In June, the initial public offering (IPO) of Autolus, a clinical-stage biotechnology business at the forefront of a revolution in cancer treatment, saw this business transition from an unquoted holding to a quoted one at a materially higher valuation. The IPO completed at the top of the guided price range and at a premium of 73 per cent to the price of the company's previous funding round in September 2017. Since listing, the shares have traded positively, albeit with some volatility, standing by year end more than 90 per cent higher than the IPO price of $17 per share.

 

We believe this is a very positive development for Autolus and, therefore, for the Company. The listing provided the opportunity to raise additional capital for further pipeline development, while also increasing its profile within the biotechnology sector. We are not surprised to see such a positive reception from the wider investment community, given the progress the company has already made with its technology and the significant opportunity that lies ahead. We believe there is considerable further upside potential should Autolus continue to develop its assets positively through clinical trials. Further news in this regard was provided towards the end of the year, with promising data from two ongoing clinical trials in its lead programme AUTO-3, presented at the American Society of Hematology (ASH) annual meeting in December.

 

Meanwhile, in September, Industrial Heat also saw a meaningful valuation uplift. The company has built a platform of new energy technologies focused on harnessing hitherto poorly understood or neglected energy science, including cold fusion. We are fully cognisant of the scepticism that has surrounded the theory and history of this branch of science. However, we believe the potential disruptive implications of a new, substantially more efficient source of energy deem the various fields of neglected energy science worthy of further investigation. We funded Industrial Heat in 2015 to engage credible world-leading institutions to rigorously assess the progress of it's technologies.

 

Following some disappointing initial developments, the investment was written down in 2016. Since then, however, progress within the portfolio of technologies has shown increasing promise. Hence, with the company last year raising capital from other investors to continue the path to commercialisation, the valuation of the company was adjusted up to reflect this progress. Although this is positive progress for Industrial Heat and the Company, it remains early days in the development and commercialisation of these technologies.

 

More broadly, we have been pleased with the operational progress being delivered by the majority of companies in the portfolio. Within the unquoted element of the portfolio, this has been reflected in valuation changes - during 2018, 20 unquoted holdings (including Industrial Heat) were revalued upwards, with 16 positions revalued downwards and 18 unchanged. The portfolio's success stories are gradually beginning to account for a larger proportion of assets, so this has meant that the contribution from the positive uplifts was significantly greater than the contribution from the negatives. This is consistent with what we have been expecting - not everything will work, but the rewards for success are asymmetric to the impact of disappointment.

 

This pattern, however, was not replicated in the quoted part of the portfolio. The operational performance of the quoted portfolio was broadly similar to that of the unquoted portfolio. It was by no means all positive, but collectively, we have seen many more operational steps forward than steps back from the portfolio of quoted businesses.

 

The share price performance of the quoted portfolio, however, was starkly different. This is not a reflection of what has happened to those businesses; the decline in share prices was further evidence of the market's aversion to early-stage investment opportunities in the current environment. This situation has worsened since the Company launched in 2015, but I continue to believe that it won't take much in the way of genuine commercial success from these businesses for the market and other investors (such as private equity and sovereign wealth) to wake up to the astonishing value on offer.

 

Ironically, several of the more mature companies in the portfolio are now at a stage where a stock market listing would appear appropriate. Indeed, several of them are well beyond the stage at which, historically, an introduction to public markets would typically have occurred. We have encouraged these businesses to remain private for as long as possible. We are only comfortable exposing these businesses to the slings and arrows of a stock market listing if we are confident that it can be done in a manner that will not compromise their ability to fulfil the potential that we have always seen in them.

 

Nevertheless, that process is underway for several of the portfolio's largest holdings. For example, Proton Partners announced a listing on London's NEX Exchange Growth Market in February 2019, which is another important stepping stone for that company's long-term growth strategy. We look forward to sharing further news with you in this regard, as the year progresses.

 

At the same time, our attention is, of course, also on nurturing the next wave of global disruptors. Further down the portfolio list, there are several businesses that have made steady progress on the road towards commercialisation since we first backed them. The likes of Inivata (a leader in liquid biopsy), Federated Wireless (mobile spectrum sharing technology) and Carrick Therapeutics (targeted cancer therapies) are hot on the heels of the larger positions in the portfolio, both in terms of the disruption they can bring to their respective industries, and in terms of the value they can continue to create.

 

Irrespective of their stage of development, we are doing everything  we can to ensure positive outcomes for the companies in which WPCT has invested. In turn, we are doing everything we can to ensure positive outcomes for the shareholders of this Company. Many things are beyond our control, and beyond the control of the companies in which we have invested. There will always be things that don't go to plan within a portfolio like this, but with an appropriate balance of patience, support and determination, there is usually a path forward. Collectively, this represents a path towards long-term value creation, and it is a path upon which WPCT is progressing positively.

 

We look forward to the future with great confidence and would like to thank shareholders for the continued support.

 

Neil Woodford
Head of Investment

 

4 April 2019

 

 

PROGRESS REPORT: JOURNEY TO COMMERCIAL SUCCESS

 

Many of the holdings in the portfolio have made good progress and operational milestones are being met. Below, we examine in more detail a selection of companies in the portfolio and the progress they made in 2018.

 

Autolus
Autolus is at the forefront of a revolutionary immuno-oncology treatment dubbed the 'living medicine', that is offering hope to patients suffering from blood-related cancers such as leukemia, lymphoma and myeloma. In June it listed on the Nasdaq Stock Exchange. It is investing in a full-scale commercial manufacturing centre in Rockville to be opened in 2021 and is building out its existing facility in Enfield, UK, opening in 2020.

 

CeQur

CeQur is developing a portfolio of simple-to-use, injection-free wearable devices that deliver insulin to diabetics and can be worn for multiple days. In July, the company acquired an approved mealtime insulin delivery device from Johnson and Johnson, PaQ Meal, which it is planning to commercialise in 2019.

 

Evofem

In December, Evofem announced that its phase 3 clinical trial of Amphora for the prevention of pregnancy successfully met its primary endpoint. The company believes the results "solidify Amphora's position as the most substantial birth control innovation in 20 years". The prescription contraceptive market is estimated to be worth $5.5bn. The company will submit the Amphora new drug application to the US Food and Drug Administration (FDA) in 2019 and, if approved, plans commercialisation from January 2020.

 

Federated Wireless

In July, the Federal Communications Commission (FCC) in the US issued a public notice that signals the start of commercial developments in shared spectrum. This has formalised the path for commercialisation and Federated Wireless is now well positioned to see its large customers offering commercial services.

 

Genomics

Genomics brings together vast swathes of genomic data to improve the drug discovery process, making it faster, more cost-efficient and increasing the likelihood of success. In August, the company successfully completed a funding round and secured a collaboration with global pharmaceutical company Vertex.

 

Immunocore

In June, Immunocore presented positive data on its lead drug candidate for the treatment of metastatic uveal melanoma, while in November it entered into a partnership with Genentech, part of the Roche Group. More recently, it made two key appointments who will lead the company through the next, scale-up phase of its development. Bahija Jallal is the company's new chief executive, having joined from AstraZeneca's biologics research and development unit, MedImmune, where she was President. Meanwhile, David Berman joined as Head of R&D having overseen AstraZeneca's Immuno-oncology (IO) Franchise.

 

Industrial Heat

The NAV of WPCT saw a material uplift as a result of developments at Industrial Heat, which has built a platform of new energy technologies. Over the course of the past 12 months, there have been developments within Industrial Heat's portfolio of technologies that have shown increasing promise. With the company raising capital from other investors to continue the path to commercialisation, the valuation of the company was adjusted to reflect this progress.

 

Kymab

Kymab, which is also backed by the Wellcome Trust and the Bill & Melinda Gates Foundation, is developing monoclonal antibody treatments - a type of therapeutic drug - to counter illnesses such as atopic dermatitis and cancer. In July, it announced that its potential atopic dermatitis treatment called KY1005 was moving to a phase 2 trial following positive results from the phase 1 study in healthy volunteers.

 

Mission Therapeutics

It is estimated that 50m people are living with dementia and Alzheimer's disease. This number is expected to double every 20 years and, in November, Mission Therapeutics announced a major collaboration with AbbVie, one of the world's biggest global pharmaceutical companies, in the research and preclinical treatment of Alzheimer's and Parkinson's disease.

 

Oxford Nanopore

Oxford Nanopore is developing a new generation of DNA sequencers, some of which are small, portable and affordable. These are also the world's only sequencers that can deliver DNA analysis in real-time. In June, full-year results highlighted that its orders had increased by 240 per cent on the previous year, while in the autumn it was boosted by an equity investment of £50m from Amgen, a world leader in using strategic human genetics to deliver new medicines to patients.

 

Proton Partners

The UK's first high-energy proton beam therapy provider announced in June that it had treated its first patient with proton beam therapy at its Newport centre - also a first for the UK. In December, it announced that it would be treating patients referred through NHS Wales at its Newport centre. In August, the company opened its second cancer centre in Northumberland and in October its third centre was opened in Reading.

 

Seedrs

Seedrs, the crowdfunding platform, has now invested more than £500m into campaigns funded on the platform since launch (including £195m invested in 186 successful pitches during 2018). The company has also launched its auto-invest product - another operational milestone for the business.

 

Sensyne Health

The company analyses NHS patient data using artificial intelligence algorithms to help healthcare companies discover new medicines. Founded by Lord Drayson, the former science minister, the company (formerly known as Drayson Health) successfully listed on the London Stock Exchange in August. It now has six NHS trusts using its digital applications - two of which have come onboard since the IPO. The company recently signed a non-exclusive agreement with Jefferson Health, one of the largest healthcare providers in Pennsylvania and a three-year research alliance with Oxford University's Big Data Institute.

 

Spin Memory

In November, Spin Memory (formerly known as Spin Transfer Technologies) secured a $52m Series B funding round and commercial agreements with Arm, the world's leading semiconductor IP company, and with Nasdaq-listed Applied Materials, a leading equipment supplier to the semi-conductor industry.

 

Ultrahaptics

Towards the end of the year, Ultrahaptics completed a £35m financing round. The money will support both the company's commercial and R&D activities through its global expansion within virtual and augmented reality markets. The company, originally a University of Bristol spin-out, has developed a unique technology that uses high frequency ultrasound to enable the sensation of touch to be felt in mid-air. It has an array of commercial partners including Nike, Dell, Intel and IBM.

 

 

 

 

 

PORTFOLIO COMPOSITION

 

Please find below the composition of the WPCT portfolio and its maturity stage.

 

 

%

01

Unquoted

65.16

02

Quoted

34.84

 

Total

100.00

 

 

Maturity stage

%

01

Early Stage

79.56

02

Early Growth

18.37

03

Mid/Large

  2.07

 

Total

100.00


Source: Woodford based on gross asset value

 

And by industry and geography.

 

Industry

%

01

Health Care

53.28

02

Financials

16.80

03

Industrials

14.32

04

Technology

14.26

05

Consumer Goods

1.34

 

Total

100.0

 

Geographical allocation

%

01

United Kingdom

77.26

02

United States

17.95

03

Switzerland

1.43

04

Luxembourg

1.43

05

Norway

1.19

06

Ireland

0.74

 

Total

100.00

                                    

Geographical split based on stock market listing for quoted companies and by country of domicile for unquoted.

Source: Woodford based on gross asset value

 

 

INVESTMENT PORTFOLIO

 

Name

Industry

Portfolio  

Weight  

(%)  

  Holding 

(%)*

Autolus

Health Care

10.93   

10.2

Benevolent AI (Unquoted)

Technology

8.89   

5.8

Oxford Nanopore (Unquoted)

Health Care

7.54   

4.8

Proton Partners International (Unquoted)

Health Care

6.66   

24.1

Industrial Heat A2

Industrials

6.25   

10.0

Immunocore A (Unquoted)

Health Care

5.11   

7.0

Oxford Sciences Innovation (Unquoted)

Financials

4.19   

5.6

Atom Bank (Unquoted)

Financials

3.55   

7.6

Industrial Heat A1

Industrials

2.76   

1.2

Kymab B Pref (Unquoted)

Health Care

2.38   

9.4

Prothena

Health Care

2.07   

6.2

Mission Therapeutics (Unquoted)

Health Care

1.95   

15.4

Mereo BioPharma

Health Care

1.84   

13.9

Cell Medica C Pref (Unquoted)

Health Care

1.72   

14.1

Purplebricks

Financials

1.68   

3.6

Sensyne Health

Health Care

1.66   

7.9

Precision Biopsy (Unquoted)

Health Care

1.49   

21.7

CeQur (Unquoted)

Health Care

1.43   

8.1

AMO Pharma (Unquoted)

Health Care

1.15   

20.1

Arix Bioscience

Financials

1.11   

4.8

Ultrahaptics Pref (Unquoted)

Technology

1.06   

11.8

Federated Wireless (Unquoted)

Technology

1.02   

9.8

SciFluor Life Sciences (Unquoted)

Health Care

0.98   

8.9

Carrick Therapeutics (Unquoted)

Health Care

0.95   

14.1

Mafic B (Unquoted)

Industrials

0.95   

13.6

Genomics (Unquoted)

Health Care

0.87   

10.5

Idex

Technology

0.84   

5.0

Accelerated Digital Ventures A (Unquoted)

Financials

0.82   

16.0

Inivata (Unquoted)

Health Care

0.79   

15.7

Seedrs (Unquoted)

Financials

0.79   

19.3

Kind Consumer C (Unquoted)

Consumer Goods

0.75   

6.1

Malin

Financials

0.74   

3.5

Ombu Pref 1

Financials

0.73   

0.7

Ombu Pref 3

Financials

0.70   

0.7

Lignia Wood Pref (Unquoted)

Industrials

0.68   

35.6

Xeros

Industrials

0.63   

11.5

Kind Consumer E (Unquoted)

Consumer Goods

0.60   

19.7

Industrial Heat B1 (Unquoted)

Industrials

0.59   

0.9

Inivata B (Unquoted)

Health Care

0.56   

8.6

Reaction Engines (Unquoted)

Technology

0.52   

3.0

RateSetter (Unquoted)

Financials

0.51   

1.8

Ultrahaptics Pref (Unquoted)

Technology

0.50   

4.8

Mafic (Unquoted)

Industrials

0.49   

7.0

Evofem Biosciences

Health Care

0.48   

6.7

Mercia Technologies

Financials

0.46   

4.9

ABLS Capital (Unquoted)

Health Care

0.42   

47.5

Spin Memory B1 (Unquoted)

Technology

0.35   

3.2

Thin Film Electronics

Industrials

0.35   

4.2

Sphere Medical Conv Pref (Unquoted)

Health Care

0.33   

46.6

PsiOxus (Unquoted)

Health Care

0.30   

2.2

Ombu Pref 7

Financials

0.29   

0.3

Nexeon (Unquoted)

Industrials

0.29   

4.4

4D Pharma

Health Care

0.29   

4.1

Federated Wireless Pref B (Unquoted)

Technology

0.28   

2.7

Seedrs Pref (Unquoted)

Financials

0.28   

6.9

Metalysis (Unquoted)

Industrials

0.28   

7.6

OxSyBio (Unquoted)

Health Care

0.28   

19.2

Dementia Discovery Fund (Unquoted)

Health Care

0.27   

5.9

ReNeuron

Health Care

0.24   

15.2

RM2 International

Industrials

0.24   

9.4

Ombu Pref 2

Financials

0.22   

0.2

Cambridge Innovation Capital (Unquoted)

Financials

0.22   

1.3

Lignia Wood A (Unquoted)

Industrials

0.21   

10.9

Ultrahaptics (Unquoted)

Technology

0.20   

3.3

Yoyo Wallet B1 (Unquoted)

Technology

0.19   

6.6

Wath Pref (Unquoted)

Industrials

0.18   

41.5

American Financial Exchange (Unquoted)

Financials

0.17   

1.5

Ombu Pref 5

Financials

0.17   

0.2

Ombu Pref 6

Financials

0.17   

0.2

Econic B Pref (Unquoted)

Industrials

0.17   

6.1

Sphere Medical Pref (Unquoted)

Health Care

0.16   

33.0

Industrial Heat A3

Industrials

0.14   

0.2

Yoyo Wallet B2 (Unquoted)

Technology

0.14   

3.8

Bodle Technologies (Unquoted)

Technology

0.10   

7.4

Metaboards (Unquoted)

Technology

0.10   

7.6

Ultromics (Unquoted)

Health Care

0.10   

3.8

Northwest Biotherapeutics

Health Care

0.10   

1.2

Novabiotics Pref (Unquoted)

Health Care

0.09   

2.2

NetScientific

Health Care

0.08   

14.4

Spin Memory B2 (Unquoted)

Technology

0.06   

0.6

Econic C Pref (Unquoted)

Industrials

0.05   

1.8

Nexeon (Unquoted)

Industrials

0.05   

0.7

Origin Pref (Unquoted)

Health Care

0.04   

5.5

Halosource

Industrials

0.03   

7.4

Sphere Medical (Unquoted)

Health Care

0.01   

8.6

Lignia Wood (Unquoted)

Industrials

0.01   

0.3

Kind Consumer (Unquoted)

Consumer Goods

0.00**

5.3

Origin (Unquoted)

Health Care

0.00**

2.1

Midatech Pharma

Health Care

0.00**

0.0

Kind Consumer B (Unquoted)

Consumer Goods

0.00**

0.8

Accelerated Digital Ventures B1 (Unquoted)

Financials

0.00**

0.0

Wath (Unquoted)

Industrials

0.00**

0.0

 

* Holding percentage in underlying portfolio company's equity.

** Stated as zero as rounded down.

 

 

 

BUSINESS REVIEW

 

The strategic report has been prepared 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 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 to investment opportunities that may not otherwise be easily accessible to them. More information can be found on the AIC website, via the following link: http://www.theaic.co.uk/guide-to-investment-companies.

 

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 change to become more global in nature for reasons such as an overseas listing or as the result of changes to capital value of a non-UK company versus a 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.

  

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 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. 

 

Investment restrictions

The Company is subject to the following investment restrictions:

 

-    investment in unquoted companies will be limited to 80 per cent of gross assets 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 NAV 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 NAV 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 NAV at the time of investment; and

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

 

Borrowing

The Company may employ gearing of up to 20 per cent of NAV, 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 will review the position with the Portfolio Manager on a regular basis.

 

Hedging

The Portfolio Manager's policy is to leave currency exposures unhedged unless the investment view points to sterling appreciation in the medium-to-long term. If such a view is held, the Portfolio Manager may introduce hedges against specific currencies to protect the sterling value of the portfolio's overseas holdings.

 

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

 

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.

 

Unquoted securities valuation policy

The pricing of unquoted securities, in line with Financial Conduct Authority regulations, is solely the responsibility of the appointed Alternative Investment Fund Manager (AIFM), Link Fund Solutions Limited. Link provides independent oversight to pricing and conducts its own Fair Value Pricing Committee (FVPC) with the support of an independent valuation firm it employs (IHSMarkit).

 

Link's Fair Value Pricing 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.

 

An in-depth valuation of each investment is performed independently by IHSMarkit using information publicly available, in addition to that supplied by the Company's investee companies. A valuation occurs: (i) at the time of initial investment, (ii) with a semi-annual frequency thereafter and (iii) as required where 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 the AIFM, who is the decision-maker on valuations and enacts the price change. Where the AIFM considers such an adjustment to be material the AIFM will inform the Board of the nature and reasons for the adjustment, with appropriate commentary from the Portfolio Manager.

 

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 NAV at the time of borrowing.

-    the Company's investment policy, which determines the diversity of the Company's portfolio.

-    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 NAV. 

 

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 discount at which the Company's ordinary shares trade in relation to the Company's underlying NAV and takes action accordingly. During the period under review, the Company's ordinary shares consistently traded at a discount to its underlying NAV. There are various demands on capital that will include new investments, follow-on investments and a reduction of debt.  The choice as to whether this capital is used to manage the discount will depend on, amongst other things, the shape of the portfolio, the financial cycle and the performance of the company's share price and NAV. As the portfolio matures, the Board will keep the use of cash under review.

 

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 authority granted at the annual general meeting (AGM) held on 12 June 2018. 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 acknowledges the benefits of greater diversity and remains committed to ensuring that the Company's Directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives to the Board. The following objectives for the appointment of Directors have been established:

-    all Board appointments will be made on merit, in the context of the skills, knowledge and experience that are needed for the Board to be effective; and

-    long lists of potential non-executive Directors should include diverse candidates of appropriate merit.

 

Corporate and operational structure

Alternative Investment Fund Manager's Directive (AIFMD)

In accordance with the AIFMD, the Company has appointed Link Fund Solutions Limited to act as its 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:

 

-    Link Company Matters Limited has been appointed to act as the Company Secretary;

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

-    Link Market Services 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, among other things, the environment, social and human rights, employee and community implications of the companies within which it invests the Company's assets and has regular meetings with members of the investment management team who provide detailed feedback on the affairs of the Company's underlying holdings. The Portfolio Manager can request that action is taken to bear pressure on the companies in 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, including those that would threaten its business model, future performance, solvency or liquidity. 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 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 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 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 principal risks and uncertainties faced by the Company in respect of the year ended 31 December 2018 are set out below. The risks arising from the Company's financial instruments are set out in note 22 of the financial statements.

 

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

 

1. Portfolio risk: 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, quoted and unquoted, may be less liquid, and as a consequence their share prices may be more volatile than larger capitalised 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. The performance of the Company's individual holdings, together with market events, may create short-term volatility in the Company's NAV.

 

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.

 

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, which may be compounded by market events, should be mitigated over time when such companies deliver on their milestones and value is recognised.

                                     

2. 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.

 

The Portfolio Manager could terminate its contract with the Company. This event would have an impact on the management of the portfolio and on 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 terminating the contract is currently assessed to be very low given the key part in the Woodford portfolio that the product plays and the associated risk to reputation.

 

3. 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 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.

 

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

 

4. Gearing

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 is utilising its gearing facility in order to invest further behind specific portfolio companies. With an established portfolio and limited gearing capacity remaining, there may be 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.

 

Mitigation - The Board reviews gearing monthly. It may set additional limits on the gearing facility and reviews these limits at each Board meeting.

 

The Portfolio Manager also provides a thorough analysis of any anticipated funding commitments and possible liquidity events of the portfolio companies at each Board meeting. This allows the Board to carefully assess the Company's ability to meet its commitments and maintain its financing facility.

 

5. Brexit

The Company's outsourced model also exposes it to the risk of service providers being unprepared for a hard Brexit. In this scenario, the Company will no longer meet EU classification of an Alternative Investment Fund (AIF). In addition, portfolio companies may face additional funding risk as investors divest or avoid taking on further UK country risk due to Brexit.

 

Mitigation -- To mitigate the potential loss of AIF status in the event of a hard Brexit, the UK government is to enact legislation to make EU law part of UK law although the timing is uncertain.

 

To mitigate the risk that portfolio companies may face funding challenges due to a hard Brexit, the Board has, through the Portfolio Manager, encouraged investee companies to seek funding from a broad investor base. This includes other investors aligned to the Board's focus on the long-term growth potential of portfolio companies.

 

The Company has reviewed Brexit planning and risk assessment reports from major service providers and the Board is satisfied that relevant parties have made adequate arrangements to continue to provide normal services to the Company through UK-domiciled entities.

 

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 2018, the Company's NAV  increased by 6.9 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 are 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 comparative benchmark against which performance is measured. It believes that operational progress is the KPI in this unique portfolio of quoted and unquoted assets.

 

Share price premium/(discount) to NAV 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. Subsequent to the year end, on 6 March 2019 the Company issued 81,639,238 ordinary shares. The Company's shares traded at an average discount of 11.3 per cent to its NAV (cum income) throughout the year to 31 December 2018. 

 

Ongoing charges

The Portfolio Manager 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 Company.

 

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. As at 31 December 2018, the Company's ongoing charges ratio was 0.2 per cent.

 

The Portfolio Manager is committed to greater transparency on the total cost of investing. All transaction costs, in addition to the ongoing charges figure, have been disclosed monthly on its website to help investors better understand the total, true cost of investing.

 

Gearing

As at 31 December 2018, the Company had gearing of £149,966,000 (19 per cent of NAV), in respect of an overdraft.

 

Portfolio diversification

The Board reviews the portfolio at every Board meeting and expects it to become more concentrated around a number of larger assets.

 

By order of the Board

 

Link Company Matters Limited

Secretary

4 April 2019

 

 

EXTRACTS FROM THE DIRECTORS' REPORT

 

Directors

Susan Searle (Chairman)

Scott Brown

Carolan Dobson

Steven Harris

Alan Hodson

Dame Louise Makin

 

 

Share capital - voting and dividend

As at 31 December 2018, the Company had 827,000,000 ordinary shares in issue. There are no other classes of shares in issue and no shares are held in treasury.

 

At the last AGM, the Board was granted authority to allot ordinary shares in the Company up to a maximum aggregate nominal amount of £827,000, representing approximately 10 per cent of the Company's issued ordinary share capital. Subsequent to the year end, on 6 March 2019 the Company issued 81,639,238 ordinary shares under this authority. The Directors are seeking to renew this authority, which will expire at the forthcoming AGM to be held on 16 May 2019.

 

The ordinary shares carry the right to receive dividends and have one voting right per ordinary share. There are no shares that 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. The Company does not have a fixed life nor is the Company subject to a continuation vote as can sometimes be required of investment companies in accordance with their Articles of Association. Each share ranks equally for any distribution made on a winding up.

 

The Directors do not propose the payment of a dividend in respect of the year ended 31 December 2018 (2017: nil).

 

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 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 2023. 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 mindful that the loan facility may not be renewed, although it considers this event unlikely. Nevertheless, alternative options the Board would pursue in the event of non-renewal include instituting a new facility and repaying the loan obligation through the liquidation of quoted and certain unquoted assets 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 2023.

 

 

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, 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, whose names are listed above 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 profit 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 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 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 2018, 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

Chairman

4 April 2019

 

 

 

 

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2018 and the year ended 31 December 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The Auditor has reported on those accounts; its 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 its report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor report can be found in the full Annual Report.

 

 

 

 

INCOME STATEMENT

 

Year ended 2018


Notes

Revenue   
£'000   

Capital  

£'000  

Total   

£'000   

Gains on investments and derivatives at fair value through profit or loss

16

0   

55,752  

55,752   

Income

3

281   

0  

281   

Portfolio management fee

4

0   

0  

0   

Other expenses

5

(1,276)  

0  

(1,276)  

Return before finance costs and taxation

 

 

(995)  

 

55,752  

 

54,757   

Finance costs

6

(2,852)  

0  

(2,852)  

Return before taxation

 

(3,847)  

55,752  

51,905   

Taxation

7

0   

0  

0   

Return for the period

 

(3,847)  

55,752  

51,905   

Return per ordinary share (pence)

9

   (0.47)p

6.74p

6.27p 

 

Year ended 2017

 

Notes

Revenue   

£'000   

Capital   

£'000   

Total   

£'000   

Losses on investments and derivatives at fair value through profit or loss

16

0   

(12,357)  

(12,357)  

Income

3

404   

0   

404   

Portfolio management fee

4

0   

0   

0   

Other expenses

5

(1,486)  

0   

(1,486)  

Return before finance costs and taxation

 

 

(1,082)  

 

(12,357)  

 

(13,439)  

Finance costs

6

(2,359)  

0   

(2,359)  

Return before taxation

 

(3,441)  

(12,357)  

(15,798)  

Taxation

7

0   

0   

0   

Return for the period

 

(3,441)  

(12,357)  

(15,798)  

Return per ordinary share (pence)

9

   (0.42)p

(1.49)p

(1.91)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 2018

 

31 December


Notes

2018  

£'000  

2017  

£'000  

 

 

 

 

Fixed assets

 

 

 

Investments at fair value through profit or loss


10


963,613  


905,284  

Current assets

 

 

 

Derivative financial instruments at fair value through profit or loss

13

1,065  

0  

Debtors

11

11  

4  

 

 

1,076  

4  

Creditors - amounts falling due within one year

 

 

 

Derivative financial instruments at fair value through profit or loss

13

(7,040) 

0  

Other creditors

12a

(483) 

(582) 

Bank overdraft

12b

(149,966) 

(149,411) 

Net current liabilities

 

(156,413) 

(149,989) 

Total assets less current liabilities

 

807,200  

755,295  

Net assets

 

807,200  

755,295  

Capital and reserves

 

 

 

Share capital

14

8,270  

8,270  

Share premium

15

813,099  

813,099  

Capital reserve

16

(6,385) 

(62,137) 

Revenue reserve

17

(7,784) 

(3,937) 

Total shareholders' funds

 

807,200  

755,295  

Net asset value per share - ordinary shares (pence)

19

97.61p

91.33p

 

The notes below form part of these accounts.

The financial statements of Woodford Patient Capital Trust plc, company number 09405653, were approved by the Board and authorised for issue on 4 April 2019 and were signed on its behalf by:

 

Susan Searle

Chairman

 

 

 

STATEMENT OF CHANGES IN EQUITY

 

Year ended 2018

Share

capital

£'000

Share

premium

account

£'000

Capital 

reserve 

£'000 

Revenue 

reserve 

£'000 

Total 

£'000 

Beginning of year

8,270

813,099

(62,137)

(3,937)

755,295 

Total comprehensive income for the financial year

0

0

55,752 

(3,847)

51,905 

Balance at 31 December 2018


8,270


813,099


(6,385)


(7,784)


807,200 

 

Year ended 2017

Share

capital

£'000

Share 

 premium 

account 

£'000 

Capital 

reserve 

£'000 

Revenue

reserve

£'000

Total 

£'000 

Beginning of year

8,270

813,099 

(49,780)

(496)

771,093 

Total comprehensive income for the financial year

0

0 

(12,357)

(3,441)

(15,798)

Balance at 31 December 2017


8,270


813,099 


(62,137)


(3,937)


755,295 

 

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

2018 

£'000 

2017 

£'000 

Cash flows from operating activities

 

 

Return before finance costs and taxation

54,757 

(13,439)

Adjustments for:
(Gains)/losses on investments held at

 

 

fair value through profit or loss

(55,752)

12,357 

(Increase)/decrease in debtors

(7)

34 

Increase in creditors

45 

240 

Net cash used from operating activities

(957)

(808)

Cash flows from investing activities

 

 

Purchases of investments

(117,186)

(285,503)

Proceeds from sales of investments

135,802 

194,658 

Cash outflows from derivative financial instruments

(20,989)

(15,624)

Cash inflows from derivative financial instruments

5,627 

34,865 

Net cash generated/(used) in investing activities

3,254 

(71,604)

Cash flows from financing activities

 

 

Finance costs

(2,852)

(2,359)

Net cash used in financing activities

(2,852)

(2,359)

Net decrease in cash and cash equivalents

(555)

(74,771)

Cash and cash equivalents at the beginning of the year

(149,411)

(74,640)

Cash and cash equivalents at the end of the year

(149,966)

(149,411)
 

 

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 Beaufort House, 51 New North Road, Exeter, EX4 4EP, 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 FRS 102 as it applies to the financial statements of the Company for the year ended 31 December 2018 and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in November 2014 and updated in February 2018). 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 updated in 2015.

 

Investments that are quoted, but there is no trading in those investments, are, for valuation purposes, treated as if they were unquoted investments and valued using the process described below.

 

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 unquoted investments are recognised when the contract for acquisition or sale becomes unconditional.

 

Investments in the shares of individual companies that are not quoted on any Stock Exchange ("unquoted investments") are a significant activity of the Company and represent a significant asset of the Company. Such investments are held at fair value, which requires significant estimation in concluding on their fair value. While there is a robust and consistent valuation process, undertaken by the AIFM, it is recognised that in stating these assets at fair value there is a significant element of estimation uncertainty. Central to this uncertainty is the assumption that such assets will continue to progress in line with their stated business plan and will be held for the longer term until exit, generally where either the company is sold to an interested party or lists on an appropriate exchange. However, failure of any individual unquoted investment to progress in accordance with their business plan could result in material change to the fair valuation of that company. The assumptions and estimates made in determining the fair value of each unquoted investment are considered at least each six months or sooner if there is a triggering event, for example the failure to meet an anticipated outcome of a drug trial, or other performance against tangible development milestones.

 

In determining the fair value of the unquoted investments, the AIFM, as set out in the unquoted securities valuation policy above, has done so in accordance with the following principles, which are consistent with the IPEVCV guidelines:

 

1.   held at the price of a recent investment for an appropriate period where there is considered  to have been no material change in fair value; or

 

2.   where the basis in (1) is no longer considered appropriate, then the following factors will be  considered in determining the fair value:

 

a.   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, unless the rights  attributable to the shares impact the overall capital structure and rights of existing  investors; or

 

 in the absence of (a) and depending upon both the subsequent trading performance  and investment structure of an investee company, the valuation basis will usually move  to an earnings multiple basis or, if appropriate, other valuation models such as:

 

-     Probability-Weighted Expected Return Method (PWERM), which considers on a probability weighted basis the future outcomes for the investment.

-     Option Priced Modelling (OPM) is used to value early stage companies where outcomes are uncertain.

-     Adjusted recent transaction prices (which consider the company's performance against key milestones and the complexity of the capital structure) are also used.

 

These valuation methods may lead to a company being valued on a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified when compared to the market sector (which the investment would reside were it listed) including, inter alia, a lack of marketability).

 

3.   if the investment is in a fund then the valuation will be based on the NAV of the fund (which is invariably comprised of early stage unquoted investments), or on an adjusted basis to recognise the potential for a premium or discount to be applied to the share price.

 

At the end of 2018, 43.1 per cent (2017: 36 per cent) of the NAV was valued in accordance with (1); 0 per cent (2017: 12 per cent) in accordance with (2a); 42.8 per cent (2017: 28 per cent) in accordance with 2(b) and 5.6 per cent (2017: 4 per cent) in accordance with 3. Further assessment of sensitivity to key estimates can be found in note 22.

 

(c) Foreign currency

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/losses 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, in the capital column of the income statement where they are taken out to protect the capital value of the investment portfolio.

 

(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:

 

-     any performance fee is allocated to capital;

-     investment transaction costs are allocated to capital;

-     other expenses are charged wholly to revenue;

-     direct issue costs are deducted from the share premium account; and

-     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 not be recognised to the extent that the transfer of economic benefit is not probable.

 

(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 income statement within revenue.

 

3. Income

 

Year ended

31 December

2018

£'000

Year ended

31 December

2017

£'000

Income from investments

 

 

UK dividends

0

404

Other income

281

0

Total

281

404

 

4. Portfolio management fee

 

Year ended

31 December

2018

£'000

Year ended

31 December

2017

£'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 NAV per ordinary share;

-     B is the higher of: (i) the high watermark NAV per ordinary share and (ii) the hurdle; and  

-     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 2018 and (ii) each subsequent period corresponding to each accounting period of the Company.

 

'Adjusted NAV per ordinary share' means the NAV 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 NAV per ordinary share' means the NAV 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). As at 31 December 2018, the Hurdle amount per ordinary share was 142.73p.

 

The high watermark NAV per ordinary share and the hurdle will be adjusted to reflect the impact on the adjusted NAV 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. As at 31 December 2018, the high watermark NAV per ordinary share was 129.75p.

 

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 that, 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 there from or convertible there into) 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 there into).

 

No performance fee is payable in respect of the year ended 31 December 2018 (2017: nil).

 

5. Other expenses

 

Year ended 31 December

2018

£'000

Year ended

31 December

2017

£'000

 

 

 

Secretarial services

64

61

Valuation fees

292

290

Fund administration fees

180

216

Other administration expenses

487

684

Auditor's remuneration

- Fees payable to the Company's auditor for the audit of the Company's annual accounts

 

 

62

45

 

- Fees payable to the Company's auditor for audit-related assurance services: interim review

 

 

 

10

10

Directors' fees

181

180

Total

1,276

1,486

Other administration expenses include employer's National Insurance Contributions of £15,026 (year ended 31 December 2017: £14,150).

6. Finance costs

 

Year ended

31 December

2018

£'000

Year ended

31 December

2017

£'000

 

 

 

Fee paid for credit facility and interest paid

2,852

2,359

 

7. Taxation

(a) Analysis of charge in the year: 

 

Year ended

31 December

2018

Revenue

£'000

Year ended

31 December

2018

Capital

£'000

Year ended

31 December

2018

Total

£'000

Year ended

31 December

2017

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 over the period in question of 19.00 per cent. (2017: 19.25 per cent). The differences are explained below:

 

 

Year ended 

31 

December 

2018 

Revenue 

£'000 

Year ended 

31 

December 

2018 

Capital 

£'000 

Year ended 

31 

December 

2018 

Total 

£'000 

Year ended 

31 

December 

2017 

Total 

£'000 

 

 

 

 

Total return before taxation

(3,847)

55,752 

51,905 

(15,798)

UK corporation tax at 19.00% (2017: 19.25 per cent)

(731)

10,593 

9,862 

(3,041)

 

 

 

 

 

Effects of:

 

 

 

 

Capital (gains)/losses not subject to corporation tax

0 

(10,593)

(10,593)

2,379 

Other income not taxable

(16)

0 

(16)

(76)

Loan relationship deficit not utilised

554 

0 

554 

452 

Movement in unutilised management expenses

230 

0 

230 

267 

Overseas dividends not taxable

(37)

0 

(37)

19 

Total tax charge

0 

0 

0 

0 

 

The Company is not liable to corporation tax on its chargeable 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 chargeable gains and losses arising on the revaluation or disposal of investments.

 

The Company has a potential deferred tax asset of approximately £1,816,710 (31 December 2017: £596,833 plus non-trade loan relationship deficit of £518,037) based on the long-term prospective corporation tax rate of 17 per cent (31 December 2017: 17 per cent) relating to excess management expenses of £4,723,690 (31 December 2017: £3,510,780) and a non-trade loan relationship deficit of £5,962,838 (31 December 2017: £3,047,277). 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 these expenses has been recognised.

 

8. Dividend

No dividends have been paid or proposed for the year ended 31 December 2018 (31 December 2017: nil).

 

9. Return per ordinary share

 

Year ended 31 December 2018

Revenue 

Capital 

Total  

Return per ordinary share

(0.47)p

6.74p

6.27p

 

Year ended 31 December 2017

Revenue 

Capital 

Total  

Return per ordinary share

(0.42)p

(1.49)p

(1.91)p

 

Revenue return per ordinary share is based on the net revenue return after taxation of £(3,847,000) (2017: £(3,441,000)).

 

Capital return per ordinary share is based on net capital return of £55,752,000 (2017: £(12,357,000)).

 

Total return per ordinary share is based on the return after taxation of £51,905,000 (31 December 2017: £(15,798,000)). These calculations are based on 827,000,000 ordinary shares in issue during the year ended 31 December 2018 (31 December 827,000,000).

 

10. Investments 

 

10(a) Investment Summary

 

 31 December

2018

£'000

2017

£'000

Quoted investments :

 

 

Quoted - Level 1*

224,847

286,018

Quoted -- Level 3**

110,903

0

Total quoted

335,750

286,018

 

 

 

Unquoted investments: 

 

 

Unquoted - Level 3

627,863

619,266

Total investments

963,613

905,284

 

*Level 1 quoted investments include £159,678,000 of investments listed on a recognised stock exchange (NASDAQ and LSE).

 

**These investments are quoted, but there is no trading in these investments. These are valued using valuation methodologies described in note 2(b) and included as Level 3 investments in note 22(g).

 

10(b) Movement in investments

 

Year ended 31 December 2018

Quoted 

£'000 

Unquoted 

£'000 

Total 

£'000 

 

 

 

 

Book cost at beginning of year

327,632 

568,151 

895,783 

(Losses)/gains on investments held at beginning of year

(41,614)

51,115 

9,501 

Valuation at beginning of year

286,018 

619,266 

905,284 

 

 

 

 

Movements in year:

 

 

 

Purchases at cost

7,129 

109,913 

117,042 

 

 

 

 

Sales:

 

 

 

- Proceeds

(55,958)

(79,844) 

(135,802)

- (Losses)/gains on investment holdings sold in the year

(7,776)

42,802 

35,026 

Transfer between unquoted and quoted investment at valuation

110,352 

(110,352)

0 

Gains/(losses) on investments held at end of year

(4,015) 

46,078 

42,063 

Valuation at end of year

335,750 

627,863 

963,613 

 

 

Year ended 31 December 2017

Quoted 

£'000 

Unquoted 

£'000 

Total 

£'000 

 

 

 

 

Book cost at beginning of year

529,841 

345,529 

875,370 

(Losses)/gains on investments held at beginning of year

(56,958)

22,747 

(34,211)

Valuation at beginning of year

472,883 

368,276 

841,159 

 

 

 

 

Movements in year:

 

 

 

Purchases at cost

57,321 

228,623 

285,944 

 

 

 

 

Sales:

 

 

 

- Proceeds

(194,861)

0 

(194,861)

- losses on investment holdings sold in the year

(70,670)

0 

(70,670)

Transfer between unquoted and quoted investment at valuation

6,000 

(6,000)

0 

Movements in gains on investment holdings held at end of year

15,345 

28,367 

43,712 

Valuation at end of year

286,018 

619,266 

905,284 

 

(c) Significant gains/(losses) on individual investments during the year

 

£'000 

Realised gains/(losses) on investments sold in year:

 

Theravance Biopharma

5,598 

Vernalis

(12,843)

Autolus

24,417 

Gigaclear

27,761 

Purplebricks

6,081 

 

 

 

 

 

£'000 

Unrealised gains/(losses) in investments during the year:

 

Benevolent AI (Unquoted)

11,494 

IH Holdings

12,338 

Prothena

(49,048)

4D Pharma

(5,270)

RM2 International

(5,587)

Autolus Therapeutics ADR

71,287 

IH Holdings International

56,236 

ReNeuron

(6,594)

Mission Therapeutics (Unquoted)

6,366 

Mereo BioPharma

(14,748)

Purplebricks

(36,357)

NetScientific

(7,264)

Index

(5,698)

Proton Partners International (Unquoted)

25,500 

Thin Film Electronics

(7,753)

 

 

(d) Book cost reconciliation

 

 

 

 

 

 

Total 

Year ended 

31 December 

2018 

£'000 

Total 

Year ended 

31 December 

2017 

£'000 

 

 

 

 

 

Comprising:

 

 

 

Book cost at end of year

912,049 

895,783 

 

Gains on investment holdings at end of year

51,564 

9,501 

 

Valuation at end of year

963,613 

905,284 

 
         

 

 

2018

 

Quoted 

£'000 

Unquoted 

£'000 

Total 

£'000 

Book cost at end of year

381,379 

530,670 

912,049 

(Losses)/gains on investment holdings at end of year

(45,629)

97,193 

51,564 

Valuation at end of year

335,750 

627,863 

963,613 

 

 

2017

 

Quoted 

£'000 

Unquoted 

£'000 

Total 

£'000 

Book cost at end of year

327,632 

568,151 

895,783 

(Losses)/gains on investment holdings at end of year

(41,614)

51,115 

9,501 

Valuation at end of year

286,018 

619,266 

905,284 

 

Transaction costs on purchases for the year ended 31 December 2018 amounted to £66,770 (31 December 2017: £78,000) and on sales for the year amounted to £8,703 (31 December 2017: £2,150).

 

11. Debtors

 

31 December

2018

£'000

31 December

2017

£'000

Accrued income and prepayments

11

4

 

 

12a. Other creditors

 

 31 December

2018

£'000

2017

£'000

 

 

 

Amounts falling due within one year:

 

 

Purchases for future settlement

0

144

Other creditors

483

438

 

483

582

 

12b. Bank overdraft

 

 31 December

2018

£'000

2017

£'000

 

 

 

Amounts falling due within one year:

 

 

Bank overdraft

149,966

149,411

 

149,966

149,411

 

The Company has a bank overdraft credit facility provided by the Northern Trust Company, London Branch of £150,000,000 as at 31 December 2018. The interest payable on the credit facility is based on LIBOR +1.35 per cent margin on amounts drawndown. The assets of the Company are held as security for this facility. Subsequent to the year end, the bank overdraft facility was extended by 364 days to 16 January 2020.

 

13. Derivative financial instruments

31 December 2018

Current

assets

£'000

Current

liabilities

£'000

Net 

current 

assets/

(liabilities)

£'000 

 

 

 

 

Forward foreign exchange contracts-GBP/CHF

0

(326)

(326)

Forward foreign exchange contracts-GBP/EUR

18

(126)

(108)

Forward foreign exchange contracts-GBP/NOK

412

(84)

328

Forward foreign exchange contracts-GBP/USD

635

(6,504)

(5,869)

Total derivative financial instruments

1,065

(7,040)

(5,975)

 

31 December 2017

Current

assets

£'000

Current

liabilities

£'000

Net 

current 

assets/

(liabilities)

£'000 

 

 

 

 

Forward foreign exchange contracts

0

0

0 

Total derivative financial instruments

0

0

0 

 

14. Share capital

The table below details the issued share capital of the Company as at 31 December 2018.

 

31 December

2018

No of Shares

2018

£'000

2017

No of Shares

2017

£'000

 

 

 

 

 

Allotted, issued and 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 that 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. 

 

15. Share premium

31 December

2018

£'000

2017

£'000

 

 

 

Opening balance

813,099

813,099

Share issue costs written back

0

0

Closing balance

813,099

813,099

 

16. Capital reserve

 

 31 December

2018 

£'000 

2017 

£'000 

 

 

 

Opening balance

(62,137)

(49,780)

Profit /(losses) on investments - held at fair value through profit or loss

55,752 

(12,357)

Closing balance

(6,385)

(62,137)

 

At the year end, the Company's capital reserve comprised £51,974,000 (2017: £71,638,000) and unrealised gains of £45,589,000 (2017: gains of £9,501,000).

 

 

Gains/ losses on investments and derivatives during the year comprised:

 

 

2018 

£'000 

 

2017 

£'000 

Realised gains/(losses) on investments

35,026 

(70,670)

Realised/unrealised (losses)/gains on forward currency contracts

 

(21,337)

 

14,601 

Unrealised movement in investments

42,063 

43,712 

Gains/(losses) on investments and forward currency contracts

55,752 

(12,357)

 

17. Revenue reserve

 

31 December

2018 

£'000 

2017 

£'000 

Opening balance

(3,937)

(496)

Retained loss for the year

(3,847)

(3,441)

Closing balance

(7,784)

(3,937)

 

 

18. Financial commitments

At 31 December 2018, the Company had outstanding commitments of £16,837,551 in respect of unpaid calls (2017: none).

 

 

19. Net asset value per share

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

 

31 December

2018

Net asset

value

per share

pence

 

2018

Net assets

available

£'000

2017

Net asset

value

per share

pence

 

2017

Net assets

available

£'000

 

 

 

 

 

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

97.61

807,200

91.33

755,295

 

The NAV 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 transactions 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 2018, 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 2017: no amount was payable in respect of the fee).

 

Link Fund Solutions Limited, as the AIFM of the Company, was paid £75,000 in respect of the year ended 31 December 2018 (31 December 2017: £75,000) and also has a fee payable for the year ended 31 December 2018 of £6,250 (31 December 2017: £12,500). Link Company Matters Limited, which provides the Company with company secretarial services, was paid £64,106 in respect of the year ended 31 December 2018 (31 December 2017: £60,560 paid during the year).

 

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 amount to £104,382 (31 December 2017: £133,961).

 

21.  Related party transactions

Under the Listing Rules, the Portfolio Manager and AIFM are regarded as related parties 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 and the AIFM are not considered related parties. Transactions with the Portfolio Manager and AIFM are noted above.

 

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

Some 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 2018 (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 2018

Investments

£'000

Derivative

financial

instruments

£'000

Net financial

assets

£'000

Currency

 

 

 

Euro

6,896

(6,142)

754

Norwegian Krone

11,469

(10,613)

856

Swiss Francs

13,899

(12,151)

1,748

US Dollar

326,973

(287,481)

39,492

Total

359,237

(316,387)

42,850

 

As at 31 December 2017

Investments

£'000

Derivative 

financial 

instruments 

£'000 

Net financial

assets

£'000

Currency

 

 

 

Euro

20,638

0

20,638

Norwegian Krone

24,923

0

24,923

Swiss Francs

9,634

0

9,634

US Dollar

251,815

0

251,815

Total

307,010

0

307,010

 

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 (2017: +/- 10 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 and assumes no foreign exchange hedging.

 

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

 

As at 31 December

2018  

US Dollar  

£'000  

2017  

US Dollar  

£'000  

 

 

 

Projected change

10%

10%

Impact on capital return

(32,697)  

(25,182)  

Return after taxation for the period

(32,697)  

(25,182)  

 

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

 

As at 31 December

2018  

US Dollar  

£'000  

2017  

US Dollar  

£'000  

 

 

 

Projected change

10%

10%

Impact on capital return

32,697   

25,182   

Return after taxation for the period

32,697   

25,182   

 

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.

 

(c) Interest rate risk

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. 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 12b). 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 has a £150 million bank overdraft facility which was extended by 364 days to 16 January 2020. If interest rates had been +/- 25 basis points and all other variables were held constant, the Company's return attributable to ordinary shareholders for the year ended 31 December 2018 would have increased/(decreased) by approximately +/- £375,000.

 

(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 set out above.

 

Other price risk sensitivity

The following table illustrates the sensitivity of the return 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 overall portfolio sensitivity analysis is based on the Company's total equities at the balance sheet date, with all other variables held constant.

 

 

2018

Increase in

fair value

£'000

2018

Decrease in

fair value

£'000

2017

Increase in

fair value

£'000

2017

Decrease in

fair value

£'000

 

 

 

 

 

Income statement - return after taxation:

 

 

 

 

Capital return - increase/(decrease)

96,361 

(96,361)

90,528

(90,528)

Return after taxation other than arising from interest rate or currency risk - increase/(decrease)

96,361 

(96,361)

90,528

(90,528)

 

As discussed above in relation to portfolio concentration risk, the performance of the Company's individual holdings, together with market events, may create short term volatility in the Company's NAV. The valuation of some of the Company's larger investments, totalling approximately 15 per cent, are particularly sensitive to achieving key technological milestones. Successful completion or failure to achieve these milestones could have a significant impact on the Company's net assets and capital return. These investments are subject to greater risk of fluctuation in valuation than the overall portfolio sensitivity described above.

 

(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, part of the portfolio of quoted assets comprises readily realisable securities that 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 Level 3 securities may have limited liquidity and may be difficult to realise. At 31 December 2018, the total Level 3 securities are valued at £738,766,000 (31 December 2017: £619,266,000).

 

(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 2018 was as follows:

 

 

2018

3 months

or less

£'000

2017

3 months

or less

£'000

 

 

 

Debtors

11

4

Total

11

4

 

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 in note 2(b) above.

 

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.

 

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

 

Financial assets at fair value through profit or loss:

 

 

At 31 December 2018

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

 

 

 

 

 

Assets:

 

 

 

 

Equity investments

224,847

0

738,766

963,613

Derivative financial instruments

0

1,065

0

1,065

Total

224,847

1,065

738,766

964,678

 

 

At 31 December 2017

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

 

 

 

 

 

Assets:

 

 

 

 

Equity investments

286,018

0

619,266

905,284

Derivative financial instruments

0

0

0

0

Total

286,018

0

619,266

905,284

 

During the year to 31 December 2018, £42,680,000 in respect of financial assets at fair value moved from Level 3 to Level 1 (2017: £6,000,000).

 

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.

 

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 2018

 

Note

Level 2

£'000

Total

£'000

 

 

 

 

Liabilities:

 

 

 

Derivative financial instruments

13

7,040

7,040

Total

 

7,040

7,040

 

 

At 31 December 2017

 

Note

Level 2

£'000

Total

£'000

 

 

 

 

Liabilities:

 

 

 

Derivative financial instruments

13

0

0

Total

 

0

0

 

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.

 

(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; and

-     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 NAV, this is primarily to be achieved through equity capital.

 

The Company's total capital at 31 December 2018 was £827,000,000 with an overdraft facility of £149,966,000 (31 December 2017: £755,295,000 with an overdraft facility of £149,411,000).

 

23. Segmental analysis

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

 

24. Post balance sheet events

Subsequent to the year end, on 6 March 2019 the Company issued 81,639,238 ordinary shares at a price of 96.67 pence per share, resulting in a total value of £78,920,651. £75,432,424 of the ordinary shares were issued to the LF Woodford Equity Income Fund (WEIF) for £72.9 million in exchange for a portfolio of unquoted assets. The remaining 6,206,814 ordinary shares were purchased for cash by the WEIF.

 

 

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 Limited'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.

 

 

For further information, please contact:

 

Four Communications

Roland Cross / Jonathan Atkins/ Matthew Jones

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 an asset management company built on a founding philosophy of transparency and simplicity. Launched in May 2014, the company has more than £10.2bn 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

 

LEI: 2138008X94M7OVE73I77


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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