Quarterly NAV Announcement - 31 March 2023
Schroders Capital Global Innovation Trust plc
Q1 2023 Quarterly Net Asset Value - 31 March 2023
Schroders Capital Global Innovation Trust plc (the "Company") today announces its net asset value ("NAV") as of 31 March 2023.
Summary
· NAV of 26.35p per share as of 31 March 2023, a decrease of 7.6% relative to the NAV per share as of 31 December 2022 (28.52p).
· Performance over the quarter was impacted by declines in the share price of several public equity holdings, including Oxford Nanopore, the Company's largest holding, and BenevolentAI, as well as a downward revaluation of private biopharmaceutical company, AMO Pharma. On the positive side, Back Market, the leading online marketplace dedicated to refurbished devices, a new investment completed by Schroders Capital, had a small uplift to its valuation to reflect an improvement in the valuations of its relevant public market peers.
· During the quarter, the Company completed its first transaction in Asia with an investment in AgroStar, one of India's foremost agricultural technology start-ups.
· As of 31 March 2023, the Company had more than £8.6m in cash and £82.7m in public equity investments to meet the funding requirements of the existing portfolio, execute the buyback program outlined in the FY22 Annual Report & Accounts that is subject to approval at the AGM, and target new investments in innovative venture and growth businesses.
· On 20 April 2023, it was announced that the Company changed its name to Schroders Capital Global Innovation Trust plc to better reflect the emphasis on private equity and align with other funds within the Schroders Capital Global Innovation program that has been investing for over 25 years.
Introduction
Economic backdrop
Global equities gained in Q1, buoyed by receding recession worries in developed markets. Central banks across the world took action to combat inflation. The Federal Reserve raised rates twice in the quarter, by 25 basis points in each of February and March, to combat persistent inflation. The Bank of England also raised rates twice by 25 basis points to 4.25% as UK inflation remained stubborn. While the European Central Bank raised interest rates by 50 basis points in both February and March. After initial significant volatility following the collapse of Silicon Valley Bank (SVB) and Credit Suisse, global equities in general , and "growth' equities more specifically were supported by the subsequent relaxation of monetary tightening in both the USA and Europe.
Against the backdrop of the aforementioned collapse of SVB and rising rates, global venture capital deal activity continued to fall in Q1 2023, representing the fifth consecutive down quarter, with a year-on-year decline of 61% by value (from $151 billion in Q1 2022 to $59 billion in Q1 2023) and 37% by volume (from 11,081 deals in Q1 2022 to 7,024 deals in Q1 2023). This sees a return to the more normalised levels of deal activity seen in Q1 2020 prior to the COVID-19 pandemic with 6,891 deals with a total value of $61 billion. The number of mega-rounds - funding rounds of more than $100 million which declined sharply in 2022 saw some stabilisation in the first quarter declining modestly on the prior quarter (from 127 to 90 deals and $24 billion to $22 billion). The market cooling was also evident with a continued rationalisation in the rate of unicorn* creation through the year with 13 new unicorns created in the first quarter, moderately down on the 19 created in Q4 2022, and a fraction of the 127 created twelve months earlier.
The environment for exits also saw continued weakness. The number of M&A transactions, the predominant exit route for venture backed businesses, declined 29% year-on-year (from 3,042 in Q1 2022 to 2,146 in Q1 2023) although remained broadly flat on Q4 2022. The number of initial public offerings ("IPOs") was also notably weak declining 51% year-on-year (from 177 in Q1 2022 to 86 in Q1 2023) and 47% quarter-on-quarter (from 161 in Q4 2022).
We remain in an environment where cash runway and efficient growth remain critical to business success and expect to see the slower pace of exits and weaker funding environment filter through into valuation expectations, presenting a favourable environment for long term venture capital investors such as Schroders Capital.
Source for data: CB Insights Q1 2023 State of Venture Report.
*Defined as a venture capital-backed company with a value of over $1 billion.
Portfolio composition and valuation reviews
As of 31 December 2022, the Company had 34 portfolio holdings1 including 9 public equity holdings and 25 private equity holdings. During the period, the number and composition of holdings was impacted by the following events:
· New investment in AgroStar (Ulink Agritech Pvt. Ltd.)
· American Financial Exchange was revalued to zero.
· Sale of Origin Inc. (this portfolio holding was ascribed no value as of 31 December 2022)
As of 31 March 2023, the Company ended the period with 34 holdings1 including 9 public equity holdings and 25 private equity holdings. All the Company's quoted holdings were valued using unadjusted quoted prices, except BenevolentAI, which was fair value priced due to a lack of liquidity in its listed shares. For the unquoted holdings, the Alternative Investment Fund Manager considered any material 'triggering' events since the last valuation assessment as of 31 December 2022.
1Excluding holdings with no value.
Financial Performance
|
Attribution analysis (£m) |
Public equity |
Private equity |
Net (debt)/cash |
Other |
NAV |
|
Fair value as of 31.12.22 |
95.6 |
146.9 |
16.1 |
(0.7) |
257.9 |
|
+ Investments |
- |
6.6 |
(6.6) |
- |
- |
|
- Realisations at value |
- |
(0.2) |
0.2 |
- |
- |
|
+/- Fair value gains/(losses) |
(12.9) |
(6.4) |
- |
- |
(19.3) |
|
+/- Reclassified holdings |
- |
- |
- |
- |
- |
|
+/- Costs and other movements |
- |
- |
(1.1) |
0.3 |
(0.8) |
|
Fair value as of 31.03.23 |
82.7 |
146.9 |
8.6 |
(0.4) |
237.8 |
Source: AIFM as of 31 March 2023.
The NAV as of 31 March 2023 was £237.8 million reflecting a decrease of 7.8%2 compared with the NAV as of 31 December 2022 (£257.9 million).
The 7.8% decrease in NAV over the quarter comprised:
· Public equity holdings: -5.0%
· Private equity holdings: -2.5%
· Costs and other movements: -0.3%
2Performance of NAV per share return differs to NAV return due to the impact of share buybacks.
Portfolio
The Company's public equity holdings saw a decrease in value of 13.5% contributing -5.0% to the quarterly decrease in NAV. The share price of Oxford Nanopore Technologies ("ONT"), the Company's largest holding, declined 9.7% over the quarter. On 21 March 2023, the company announced its FY22 results detailing good operational and financial progress with revenues from Life Science Research Tools ("LSRT"), the most sustainable long-term revenue line, up 16% year-on-year with 30% underlying growth in the core customer base. The gross margin for the LSRT business increased to 56%, a good outturn given supply chain strains and increased component costs. Management have reduced FY23 LSRT revenue guidance to £170-190 million, from £190-220 million in guidance made in early 2022 with approximately £20 million of the difference related to Covid testing. This still represents prospective revenue growth of 16%-29% for FY23 (from £147 million in FY22). The company had a closing cash balance of greater than £558 million which should be adequate to fund the business through to profitability. Since the quarter end, the ONT share price has performed positively with 11% appreciation as of 19 May 2023.
Meanwhile, the share price of BenevolentAI decreased by 29.9% during the quarter. The company is reported as a public equity although fair value priced due to a lack of liquidity in the listed shares. As of 31 March 2023, the fair value price applied (€1.98 per share) represented a 10% discount to the listed share price (€2.20). On 16 March 2023, BenevolentAI announced its FY22 results which contained limited new information. Although, after the period end, the company announced results of its Phase Iia study of BEN-2293, a treatment for Atopic Dermatitis, a common skin condition that causes patches of skin that are itchy, cracked and sore. The treatment was safe and well tolerated, however failed to demonstrate efficacy - the key requirement for further progression of the drug. A further review of the full dataset is ongoing.
The Company's private equity holdings saw a decrease in value of 4.4% contributing -2.5% to the quarterly decrease in NAV. The largest detractor to performance was legacy holding AMO Pharma, an emerging biopharmaceutical business developing new treatments for serious and debilitating diseases, including rare genetic disorders.
On the positive side, Back Market saw its valuation increase over the quarter to reflect an improvement of 15% in the valuations of its relevant public market peers.
Foreign Exchange
During the quarter, the fair value of investments denominated in the Euro (EUR), United States Dollar (USD), Swiss Franc (CHF) and Norwegian Krone (NOK) were negatively impacted by appreciation in the value of the British pound sterling (GBP).
Cash, debt, and net current assets
As of 31 March 2023, the Company held £8.6 million in cash.
Investment Activity
Realisations
During the quarter, the Company sold its holding in healthcare company, Origin Inc, generating proceeds of less than £0.2 million. The holding was valued at zero as of 31 December 2022 resulting in a modest positive impact on performance. No other realisations completed during the period.
New Investments
During the quarter, the Company completed its first transaction in Asia with an $8.0 million investment in AgroStar (Ulink Agritech Pvt. Ltd.), one of India's foremost agricultural technology start-ups.
The investment formed part of the $25 million (~£20.6 million) total investment by Schroders Capital that led the $40 million (~£33.0 million) financing round. The round also saw participation from other existing investors including Accel, Chiratae Ventures, Evolvence, Aavishkaar Capital, Bertelsmann India Investments, Hero Enterprise, Rabo Frontier Ventures, British International Investments and IFC.
Founded in 2013, AgroStar uses technology, data, and agronomy knowledge to help Indian farmers. It provides an end-to-end solution that is solving three major problems for Indian farmers: limited access to good quality agricultural inputs, a knowledge gap (even among the most experienced farmers), and a lack of access to global markets to sell their produce. The company serves millions of farmers across multiple Indian states via an omnichannel approach, having built a highly engaged digital farmer network on the AgroStar app, with over 7.5 million users, and a rapidly expanding retail network of over 5,000 stores. Through the recent acquisition of INI Farms, India's largest exporter of fruits and vegetables, AgroStar is quickly scaling its business into the domestic and international food supply chains.
The investment in AgroStar is in line with SDG 2 "End hunger, achieve food security and improved nutrition and promote sustainable agriculture," specifically Target 2.3 "By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets, and opportunities for value addition and non-farm employment" and Target 2.4 "By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems, that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding and other disasters and that progressively improve land and soil quality."
The Company's investment in AgroStar is in line with the Company's private equity sub-strategy of backing innovative growth businesses while utilizing the Company's broadened global investment remit. Schroders Capital has known AgroStar for a number of years, having been an investor since 2021, and the company has demonstrated exceptional growth by combining technology with strong agronomy capabilities to play an important role in the Indian agricultural sector.
Top 10
The Company's top 10 holdings as of 31 March 2023 compared with the respective holding as of 31 December 2022.
|
Holding |
Fair value as of 31 Dec 22 (£m) |
% of total investments |
Fair value as of 31 Mar 23 (£m) |
% of total investments |
|
Oxford Nanopore |
56.5 |
23.3 |
51.0 |
22.2 |
|
Atom Bank |
31.7 |
13.1 |
31.7 |
13.8 |
|
Reaction Engines |
12.5 |
5.2 |
12.5 |
5.4 |
|
Federated Wireless |
11.2 |
4.6 |
10.9 |
4.8 |
|
HP Environmental Technologies Fund |
10.7 |
4.4 |
10.7 |
4.7 |
|
AMO Pharma |
16.4 |
6.8 |
10.3 |
4.5 |
|
Genomics |
8.9 |
3.7 |
8.9 |
3.9 |
|
Back Market |
7.3 |
3.0 |
8.3 |
3.6 |
|
BenevolentAI |
11.9 |
4.9 |
8.3 |
3.6 |
|
Ada Health |
7.1 |
2.9 |
7.1 |
3.1 |
Source: AIFM as of 31 March 2023.
Outlook
Within the context of a challenging backdrop of higher interest rates, inflation and volatile markets, as well as a continued overhang of inherited holdings, we are not complacent about the challenges that lie ahead. There is still much work to be done on rebalancing the portfolio, which remains weighted towards legacy holdings. We remain cognisant of the heightened risk-return profile of these positions. AMO Pharma, for example, is approaching an inflection point with regards to its REACH-CDM clinical trial, with an update on the trial due to be presented on 7July 2023.
Our current focus is on prudent capital allocation and ensuring an appropriate mix of liquidity (public equities and cash) to execute the Company's buyback program, which is subject to approval at the AGM. With the buyback program in mind, we still plan to make new investments in innovative, global venture/growth stage companies but are conscious of the capacity for new investments as the liquidity profile of the Company evolves through time. This is under continual review.
Nevertheless, the Company is now on a path that the broader Schroders Capital business has been following successfully for twenty-five years, with the Company's extended geographical focus allowing us to capitalise on our global network and invest in the most innovative venture, growth and life science opportunities, when viewed on a risk return basis, no matter where they are in the world.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. The securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
Enquiries:
Schroder Investment Management Limited
|
Shilla Pindoria (Company Secretary) |
0207 658 7267 |
|
Augustine Chipungu (Press) |
0207 658 2106 |
|
John Spedding (Head of Investment Trusts) |
0207 658 3206 |
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