Annual Financial Report
Edinburgh Worldwide Investment Trust plc
Legal Entity Identifier: 213800JUA8RKIDDLH380
Regulated Information Classification: Annual Financial and Audit Reports
Annual Financial Report
This is the Annual Financial Report of Edinburgh Worldwide Investment Trust plc as required to be published under DTR 4 of the UKLA Listing Rules.
The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 October 2018 or 31 October 2019 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2018 and 2019; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 October 2018 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 October 2019 will be delivered to the Registrar in due course.
The Annual Report and Financial Statements for the year ended 31 October 2019, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection http://www.morningstar.co.uk/uk/NSM and is also available on Edinburgh Worldwide's page of the Baillie Gifford website at: www.edinburghworldwide.co.uk
Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
Baillie Gifford & Co Limited
Company Secretaries
17 December 2019
Chairman's Statement
Performance
In the year to 31 October 2019, the Company's net asset value ('NAV') per share, when calculated by deducting borrowings at fair value, increased by 7.4% and the share price by 6.7%, both in total return terms. The comparative index, the S&P Global Small Cap Index* total return, increased by 7.2% in sterling terms during this period. Over the course of the financial year the share price averaged a 1.0% premium to net assets, with borrowings deducted at fair value. Portfolio turnover was 4.5% compared to 12.6% in 2018 and the ongoing charges have reduced to 0.75% from 0.81%.
The good relative and absolute performance was driven by several holdings, most notably Novocure, a US manufacturer of medical devices for cancer treatment, Seattle Genetics, a US biotechnology developer of monoclonal antibodies, and Galapagos, a Belgian clinical stage biotechnology company. On balance, the underlying performance of the holdings in the portfolio continues to progress as hoped. Greater detail on this can be found within the Managers' Review below.
Management Fee
During the year, a change was made to the management fee structure resulting in a £100,000 per annum saving to the Company. With effect from 1 January 2019, the calculation of the first tier of the management fee charged on the first £50 million of net assets was reduced from 0.95% to 0.75%. The annual management fee payable by the Company is now charged at a rate of 0.75% on the first £50 million of net assets, at 0.65% on the next £200 million of net assets and at 0.55% on the remaining net assets. The fee continues to be calculated and paid on a quarterly basis.
Share Buybacks, Treasury and Issuance
The Company will once again be seeking to renew its share buyback, issuance and treasury share authorities. The buyback facility is sought to allow the Company to buy back its own shares when the discount is substantial in absolute terms and relative to its peers. Issuance, either from treasury or of new shares, will only be undertaken at a premium to the prevailing NAV, with debt calculated at par, in order to satisfy natural market demand. This would enhance the NAV per share for existing shareholders as well as dilute ongoing costs and help with the trading liquidity of the shares of the Company.
Over the course of the last financial year, the Company has issued over 16.5 million new shares at a premium to its NAV, raising net proceeds of £30.9 million and increasing the NAV per share by 0.11%. This equates to 5.8% of the issued share capital at the start of the year. This, along with good investment performance and the reduced rate of management fee, has contributed to the reduction in the Company's ongoing charges for the year.
Unlisted Investments
At last year's Annual General Meeting shareholders approved an increase in the permissible limit of investment in unlisted investments from 5% to 15% of total assets at the time of initial investment.
Shareholders should keep in mind that this is a ceiling to exposure rather than an aspirational target. As at the Company's year end, the portfolio weighting in unlisted investments stood at 5.5% of total assets, invested in seven companies (2018 - 3.2% of total assets in five companies). Two new unlisted investments were made during the year: Space Exploration Technologies ('SpaceX'), a US company that designs, manufactures and launches advanced rockets and spacecraft; and, PsiQuantum, a US developer of commercial quantum computing. Additions were made to the existing investments in Oxford Nanopore Technologies, Reaction Engines and Spire. The other two unlisted investments in the portfolio are Akili Interactive Labs and KSQ Therapeutics.
Borrowings
The extent and range of equity gearing is discussed by the Board and Managers at each Board meeting. Both parties agree that the Company should typically be geared to equities to maximise potential returns, with the current aspirational parameters set at +5% to +15%. Over the year, the invested gearing ranged between 5.0% and 9.2%, and stood at 6.6% at the financial year end (2018 - 5.3%).
As at 31 October 2018, the Company had a five year fixed rate facility with National Australia Bank Limited with an expiry date of 30 September 2019 and a five year £25 million revolving credit facility with National Australia Bank Limited with an expiry date of 29 June 2023. On its expiry, the five year fixed rate facility was refinanced with a five year £36 million revolving credit facility with National Australia Bank Limited with an expiry date of 30 September 2024. As at 31 October 2019, the Company had drawings of €2,821,800, US$37,090,500 and £17,500,000.
Earnings and Dividend
The Company's objective is to generate capital growth and investors should not expect any dividend from this investment. This year the net revenue return per share was a negative 0.23p (2018 - negative 0.19p). As the revenue account is running at a deficit, no final dividend is being recommended by the Board. Should the level of underlying income increase in future years, the Board will seek to distribute to shareholders the minimum permissible to maintain investment trust status by way of a final dividend.
Board Composition
Mr William Ducas intends to retire from the Board in 2020. A search consultancy has been engaged to find two new non-executive Directors to create flexibility for further Board changes in the future. The Company's Nominations Committee has identified the skills and experience required; its priority is to identify candidates with the best range of skills and experience to complement existing Directors; this search is now under way. The Board does not consider it appropriate to set diversity targets or apply a diversity policy. The Board intends to engage an independent consultancy to undertake a review of governance and Board effectiveness in 2020, once the new Directors have been appointed.
Investment Outlook
For some investors, uncertainty regarding Brexit has resulted in risk aversion and a desire to withdraw exposure to equities. The reality for this portfolio is that should sterling weaken in aggregate against other currencies, then investor returns are likely to increase as the majority of assets within the portfolio are non-sterling denominated. Therefore, the converse holds true. Rather than focusing on macro-economic developments, your managers continue to direct their efforts to picking the best entrepreneurial, immature growth companies that create and exploit investment opportunities, and which exhibit excellent long-term growth prospects and the potential for positive long term returns wherever they are listed. The managers and the Board remain enthused by the prospects for the holdings within the portfolio and the many exciting company specific developments being announced. Whilst markets exhibit volatility, the investment trust structure permits the managers and discerning long-term investors to take positions for the long term when the tide of money or sentiment depresses valuations.
An overview of the portfolio is provided below.
Annual General Meeting
The Annual General Meeting of the Company will be held at Baillie Gifford's offices in Edinburgh at 12 noon on Wednesday 22 January 2020. The Directors consider that all resolutions put to shareholders are in their and the Company's best interests as a whole and recommend that shareholders vote in their favour.
Further information, including the proposed resolutions and information on the deadlines for proxy appointments, can be found on pages 57 to 59 of the Annual Report and Financial Statements. Shareholders who hold shares in their own name on the main register will be provided with a Form of Proxy. If you hold shares through a share platform or other nominee, the Board would encourage you to contact these organisations directly as soon as possible to arrange for you to attend and/or vote at the Annual General Meeting.
Douglas Brodie, the portfolio's lead manager, and Svetlana Viteva and Luke Ward, joint deputy portfolio managers, will give a presentation and take questions. The Board will also be available to respond to any questions that you may have. I hope that you will be able to attend.
Henry CT Strutt
Chairman
4 December 2019
* See disclaimer at the end of this announcement.
For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Past performance is not a guide to future performance.
Managers' Review
With the Company's net asset value ('NAV') growing by 7.4% in the year to 31 October 2019, modestly ahead of the 7.2% growth in the comparative index*, the casual observer might conclude that the performance during the period under review was solid if somewhat unspectacular. The challenge with quoting returns over a given period is that it is ultimately defined by the start and ending values, while the story of what happened in the intervening period is glossed over. The current year is a clear case in point. Pronounced portfolio and stock market weakness in the latter stages of 2018 made way for a strong rally in the first half of 2019 which ultimately contributed to a 41% rise in the NAV from December lows to the highs in July. Towards the end of the Company's year, geopolitical and macro-economic concerns reappeared on the stock market's list of worries, denting our absolute and relative performance from August onwards. The headline numbers also mask a wide dispersion of share price returns in the underlying portfolio holdings. Of the 107 companies held in the portfolio, 13 had share price moves (either positive or negative) that exceeded 75% over the year.
We have long been believers in two simple principles of long-term, active, investment management. First, the performance of a group of stocks, be it a portfolio or an index, will be driven most by a small subset of stocks that deliver exceptional share price returns. Second, the compounding of fundamental business growth and, ultimately, share price performance works to the advantage of long-term investors. We believe these principles are at their most impactful when applied to the challenge of investing in innovative companies lower down the market capitalisation spectrum. It is here that stock-picking investors can unlock the deeply powerful opportunity of long duration transformational growth with large end markets accessible from a low starting base.
As portfolio managers, we see our role as one of identifying young innovative businesses with significant long-term growth potential, providing support to those companies that deliver on that potential and maximising the benefit by avoiding selling successful companies too early on that journey. What looks simple, is fraught with practical challenges; the required tolerance of uncertainty, the inevitable businesses that fail to develop as hoped, the bouts of volatility that stock markets will periodically throw at you. These challenges combine to make our style of equity investing an endeavour that is as much about temperament and adaptability as it is about analytical skill and logical foresight.
Following shareholder approval in January 2014, the Company's growth investing style was refocussed on the opportunity set lower down the market capitalisation spectrum. With sufficient time having passed, we think it now appropriate to reflect on the progress to date. While acknowledging that the background for growth investing has been relatively robust over this period, it is pleasing to note the 104.0% growth in the NAV since January 2014 is significantly ahead of the 83.1% achieved by the comparative index*. However, like the earlier described annual portfolio returns, capturing the headline performance data is merely an output of the investment process. Only when we delve into understanding the inputs that drove the performance does the picture come to life.
Portfolio managers have many tools at their disposal to analyse and help explain their performance. In anchoring to our principles, we favour a simple illustration of how our actions and the portfolio have performed, and one that also hopefully highlights a model of how we might be able to generate robust portfolio returns over coming decades. To our minds, the largest contributor to both absolute and relative performance will come from the returns achieved by the holdings in the period that are held. This will be further impacted by the sizing of those holdings and any additions or reductions to them. Trying to answer the simple question 'did we invest in enough companies that had strongly positive share price performance' has intuitive appeal.
To illustrate our performance against this objective we show below the distribution of returns for all the stocks held within the portfolio since January 2014; each bar representing the return of each stock whilst held in the portfolio. This cumulative period holding analysis shows the broad distribution of returns achieved by the holdings from time of initial purchase to end of October 2019 or the date in which the holding was fully sold from the portfolio.
*S& P Global Small Cap Index total return (in sterling terms), see disclaimer at the end of this announcement.
Asymmetry of Returns
http://www.rns-pdf.londonstockexchange.com/rns/2237X_1-2019-12-17.pdf
Source: StatPro since 31 January 2014 to 31 October 2019, sterling.
The asymmetric profile of returns is striking and underscores both the opportunity and the risks of investing in immature, innovative companies. The potential of losing up to 100% of your investment in a company (especially a young, unproven one) is an unpleasant, inescapable risk but it can be handsomely offset by the ability to make multiple times your investment in individual stocks. Asymmetry demonstrates that a handful of stocks will do the heavy lifting when it comes to portfolio performance. The 35 highest returning companies in the portfolio, on the left of the distribution, effectively accounted for the entirety of the Company's NAV performance over the period. When aggregated, the other 153 stocks off-set each others contribution.
The distribution of returns also speaks to the importance of long termism and patience in investing. Generalising around our 'failed' investments is difficult but ultimately these companies did not deliver on the potential that we saw in them. Whilst the reasons for that will be varied, we commonly see that when investments do not work as planned this is quickly reflected in share price performance. Conversely, unlocking the returns achieved by the companies on the left side of the graph is a multi-year endeavour that is driven by a combination of a long-term structural growth opportunity, execution and the power of compounding. We have also included the peak to trough drawdowns we had to tolerate in our ownership of the 10 best absolute performing holdings. We do not agree with the common perception in equity markets that this 'volatility' represents the risk associated with an equity. Given the returns these companies ultimately delivered, such drawdown periods represent opportunity more than risk.
Portfolio Update
We continue to find exciting immature, innovative companies in which to invest and remain enthusiastic about the prospects of the current holdings in aggregate. In the interim report we discussed, amongst others, the purchases of Appian, Zuora, Axon Enterprises, Kaleido Biosciences, SpaceX and Upwork. The two new purchases in the second half of the Company's year were Zai Lab and PsiQuantum. Zai Lab is a Shanghai-based emerging biopharmaceutical company developing drugs in oncology, autoimmune and infectious diseases. It is focused on bringing best-in-class assets to China via partnerships with leading global pharmaceutical companies and in therapeutic classes prioritised by the Chinese FDA. One of Zai Lab's partners, Novocure (an existing holding in the portfolio), has developed a patented, FDA approved, novel therapeutic which uses electrical fields to stop cancer cell division. Zai Lab has the exclusive license for this technology in China and the potential upside from this one division alone could be transformational for it.
PsiQuantum is an unlisted company working to develop commercial quantum computing. Current industry approaches employ exotic materials and error-prone electrons to achieve basic quantum functionality. In contrast, PsiQuantum's components are made from silicon, allowing them to use traditional semiconductor manufacturing techniques and use photons which are much more stable. Their approach shows signs of being a uniquely scalable solution and one which could realise the field's ultimate promise of solving the most complex, pressing and lucrative problems in the world today. Although in its infancy, we are impressed by the quality of the people, partnerships and processes that the Company has assembled to meet this challenge in the years ahead.
We added to the holding in US-based Codexis, a manufacturer of custom enzymes for the pharmaceutical industry. We see increasing scope for this business to broaden from supplying enzymes used in drug production towards one in which the enzymes themselves will be the active therapeutic. This would move the company higher up the value chain and could radically alter the financial characteristics of the business.
In the second half of the financial year we added to the holding in Oxford Nanopore as some existing shares became available. We have been impressed with how nanopore sequencing is gaining traction in the scientific research community driven by technological differentiation and low-cost accessibility. Following strong share price performance, we further reduced the holding in the home-furnishing e-commerce company Wayfair and we exited the positions in Nanoco, Thin Film Electronics, Basware and Xaar.
Investment Philosophy
Most small businesses are destined to stay small given their limited scope for both structural growth and meaningful differentiation. Such businesses constitute the bulk of the smaller companies' universe yet are of no appeal to us. However, what is intriguing about the smaller companies' universe is that it contains a subset of immature but potentially high growth companies. By identifying attractive growth companies earlier we seek to benefit from growth at an earlier stage in a company's lifecycle and retain ownership of successful companies as they grow and thrive; we see our role as investing in what are potentially the larger companies of the future as opposed to the smaller companies of today.
We are looking to concentrate on the part of the market where we believe our analytical effort and the pursuit of genuinely transformational growth can be better exploited. The focus at time of initial investment is on younger, more immature companies that are global and exhibiting strong growth.
It is important to remember that big successful ideas typically start out as small, tentative and unproven. Early iterations are easy to dismiss as unworkable but experimentation with, and evolution of, an initially raw concept can, over time, yield huge commercial relevance. Our philosophy involves weighing up what is proven and tangible alongside what has promise and long term potential. Integral to this approach is recognising the role of innovation in business development; it provides the fuel for business creation, growth and long term competitive differentiation. Consequently, identifying companies that value innovation, having both a cultural acceptance of it and a means to develop commercial opportunities around it, is fundamental to our investment approach.
Growth companies, especially those which are young and hard to model, are difficult businesses to value. The wide range of potential outcomes and profitability that is heavily skewed to future years is a combination of uncertainties that many investors struggle with. We do not have all the answers but by approaching the challenge with a genuine long term perspective, accepting a degree of uncertainty, backing robust innovation and entrepreneurial management, we believe we are well positioned to identify the smaller businesses most likely to shape the world in which we live. As technological advancements encroach into an increasing pool of opportunity, the rate and extent of growth that a small business can achieve, in a relatively short period of time, is almost unrecognisable to that of a few years ago. Innovative smaller businesses that are unburdened by the legacy of historic business practices, or those willing to adapt to change, are best positioned to harness this opportunity.
|
Twenty Largest Holdings and Twelve Month Performance at 31 October 2019
|
|
Name |
Business |
Country |
Fair Value 2019 £'000 |
% of total assets* |
Absolute† performance % |
Relative† performance % |
|
MarketAxess |
Electronic bond trading platform |
USA |
31,837 |
5.4 |
74.7 |
63.0 |
|
Ocado |
Online grocery retailer |
UK |
28,883 |
4.9 |
55.4 |
45.0 |
|
LendingTree |
Online loan marketplace |
USA |
28,112 |
4.8 |
76.2 |
64.4 |
|
Alnylam Pharmaceuticals |
Therapeutic gene silencing |
USA |
22,046 |
3.8 |
6.5 |
(0.6) |
|
Novocure |
Manufacturer of medical devices for cancer treatment |
USA |
21,709 |
3.7 |
113.5 |
99.2 |
|
Zillow# |
US online real estate portal |
USA |
14,479 |
2.5 |
(19.9) |
(25.3) |
|
Chegg |
Online educational company |
USA |
13,749 |
2.3 |
11.0 |
3.5 |
|
Puretech Health |
IP commercialisation focused on healthcare |
UK |
12,401 |
2.1 |
45.9 |
36.1 |
|
Yext |
Digital knowledge manager |
USA |
10,970 |
1.9 |
(14.5) |
(20.2) |
|
Galapagos |
Clinical stage biotechnology company |
Belgium |
10,941 |
1.9 |
76.7 |
64.8 |
|
Tesla |
Electric cars, autonomous driving and solar energy |
USA |
10,929 |
1.9 |
(7.8) |
(14.0) |
|
Exact Sciences |
Provides non-invasive molecular tests for early cancer detection |
USA |
10,369 |
1.8 |
21.0 |
12.9 |
|
Teladoc |
Telemedicine services provider |
USA |
10,247 |
1.7 |
9.1 |
1.8 |
|
Temenos Group |
Banking software |
Switzerland |
10,084 |
1.7 |
2.7 |
(4.1) |
|
Tandem Diabetes Care |
Manufacturer of pumps for diabetic patients |
USA |
9,973 |
1.7 |
61.7 |
50.8 |
|
Baozun SPN ADR |
Chinese e-commerce solution provider |
China |
9,907 |
1.7 |
7.8 |
0.6 |
|
AeroVironment |
Small unmanned aircraft systems |
USA |
9,869 |
1.7 |
(36.4) |
(40.6) |
|
Xero |
Cloud based accounting software |
New Zealand |
9,653 |
1.6 |
66.5 |
55.3 |
|
STAAR Surgical |
Develops and manufactures high margin visual implants |
USA |
9,142 |
1.5 |
(19.3) |
(24.7) |
|
InfoMart |
Internet platform for restaurant supplies |
Japan |
9,112 |
1.5 |
45.3 |
35.5 |
|
|
|
|
294,412 |
50.1 |
|
|
* Total assets less current liabilities before the deduction of borrowings.
† Absolute and relative performance has been calculated on a total return basis over the period 1 November 2018 to 31 October 2019. Absolute performance is in sterling terms; relative performance is against S&P Global Small Cap Index (in sterling terms).
# More than one line of stock held. Holding information represents the aggregate of both lines of stock.
Source: Baillie Gifford/StatPro and relevant underlying index providers. See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
List of Investments as at 31 October 2019
|
Name |
Business |
Country |
Fair Value 2019 £'000 |
% of total assets |
Fair Value 2018 £'000 |
||
|
MarketAxess |
Electronic bond trading platform |
USA |
31,837 |
5.4 |
18,355 |
||
|
Ocado |
Online grocery retailer |
UK |
28,883 |
4.9 |
18,588 |
||
|
LendingTree |
Online loan marketplace |
USA |
28,112 |
4.8 |
15,991 |
||
|
Alnylam Pharmaceuticals |
Therapeutic gene silencing |
USA |
22,046 |
3.8 |
17,909 |
||
|
Novocure |
Manufacturer of medical devices for cancer treatment |
USA |
21,709 |
3.7 |
10,179 |
||
|
Zillow Class C |
US online real estate portal |
USA |
12,205 |
2.1 |
9,709 |
||
|
Zillow Class A |
US online real estate portal |
USA |
2,274 |
0.4 |
2,869 |
||
|
|
|
|
14,479 |
2.5 |
12,570 |
||
|
Chegg |
Online educational company |
USA |
13,749 |
2.3 |
12,383 |
||
|
Puretech Health |
IP commercialisation focused on healthcare |
UK |
12,401 |
2.1 |
8,401 |
||
|
Yext |
Digital knowledge manager |
USA |
10,970 |
1.9 |
4,024 |
||
|
Galapagos |
Clinical stage biotechnology company |
Belgium |
10,941 |
1.9 |
6,208 |
||
|
Tesla |
Electric cars, autonomous driving and solar energy |
USA |
10,929 |
1.9 |
11,853 |
||
|
Exact Sciences |
Provides non-invasive molecular tests for early cancer detection |
USA |
10,369 |
1.8 |
10,767 |
||
|
Teladoc |
Telemedicine services provider |
USA |
10,247 |
1.7 |
9,391 |
||
|
Temenos Group |
Banking software |
Switzerland |
10,084 |
1.7 |
9,850 |
||
|
Tandem Diabetes Care |
Manufacturer of pumps for diabetic patients |
USA |
9,973 |
1.7 |
6,165 |
||
|
Baozun SPN ADR |
Chinese e-commerce solution provider |
China |
9,907 |
1.7 |
7,568 |
||
|
AeroVironment |
Small unmanned aircraft systems |
USA |
9,869 |
1.7 |
15,529 |
||
|
Xero |
Cloud based accounting software |
New Zealand |
9,653 |
1.6 |
5,801 |
||
|
STAAR Surgical |
Develops and manufactures high margin visual implants |
USA |
9,142 |
1.5 |
11,303 |
||
|
InfoMart |
Internet platform for restaurant supplies |
Japan |
9,112 |
1.5 |
6,306 |
||
|
Dexcom |
Real time blood glucose monitoring |
USA |
8,692 |
1.5 |
7,576 |
||
|
Genmab |
Therapeutic antibody company |
Denmark |
8,275 |
1.4 |
5,274 |
||
|
MonotaRO |
Online business supplies |
Japan |
8,222 |
1.4 |
6,012 |
||
|
Codexis |
Manufacturer of custom industrial enzymes |
USA |
8,075 |
1.4 |
7,302 |
||
|
Wayfair |
Online furniture and homeware retailer |
USA |
7,736 |
1.3 |
17,989 |
||
|
Oxford Nanopore Technologies U |
Novel DNA sequencing technology |
UK |
7,710 |
1.3 |
4,982 |
||
|
IPG Photonics |
High-power fibre lasers |
USA |
7,642 |
1.3 |
7,696 |
||
|
Peptidream |
Drug discovery platform |
Japan |
7,482 |
1.3 |
4,925 |
||
|
Seattle Genetics |
Biotechnology developer of monoclonal antibodies |
USA |
7,090 |
1.2 |
3,756 |
||
|
Splunk |
Data diagnostics |
USA |
6,847 |
1.2 |
5,773 |
||
|
Genus |
Animal breeding services |
UK |
6,716 |
1.2 |
4,874 |
||
|
Appian |
Enterprise software developer |
USA |
6,571 |
1.1 |
- |
||
|
Kingdee International Software |
Enterprise management software |
China |
6,483 |
1.1 |
4,871 |
||
|
Space Exploration Technologies Series J Preferred U |
Designs, manufactures and launches advanced rockets and spacecraft |
USA |
4,446 |
0.8 |
- |
||
|
Space Exploration Technologies Series K Preferred U |
Designs, manufactures and launches advanced rockets and spacecraft |
USA |
2,026 |
0.3 |
- |
||
|
|
|
|
6,472 |
1.1 |
- |
||
|
Pacira Pharmaceuticals |
Development, commercialisation and manufacturing of proprietary pharmaceutical products |
USA |
6,457 |
1.1 |
7,890 |
||
|
List of Investments as at 31 October 2019
|
|||||||
|
Name |
Business |
Country |
Fair Value 2019 £'000 |
% of total assets |
Fair Value 2018 £'000 |
||
|
CyberArk Software |
Cyber security solutions provider |
Israel |
6,319 |
1.1 |
4,299 |
||
|
Zai Lab ADR |
Bio-pharmaceutical company |
China |
5,614 |
1.0 |
- |
||
|
Morphosys |
Therapeutic antibodies |
Germany |
5,396 |
0.9 |
4,656 |
||
|
Renishaw |
Measurement and calibration equipment |
UK |
5,329 |
0.9 |
5,905 |
||
|
M3 |
Online medical database |
Japan |
5,212 |
0.9 |
3,530 |
||
|
BlackLine |
Enterprise software developer |
USA |
5,027 |
0.8 |
5,046 |
||
|
Penumbra |
Manufacturer of novel blood clot extraction technology |
USA |
4,860 |
0.8 |
4,290 |
||
|
iRobot |
Domestic and military robots |
USA |
4,764 |
0.8 |
8,854 |
||
|
Digital Garage |
Internet business incubator |
Japan |
4,607 |
0.8 |
3,851 |
||
|
Rightmove |
UK online property portal |
UK |
4,129 |
0.7 |
3,119 |
||
|
Axon Enterprises |
Law enforcement equipment and software provider |
USA |
4,034 |
0.7 |
- |
||
|
Benefitfocus |
Cloud based benefits software provider |
USA |
3,976 |
0.7 |
6,280 |
||
|
Faro Technologies |
Designs and develops measurement devices |
USA |
3,974 |
0.7 |
4,263 |
||
|
Ambarella |
Video compression and image processing semiconductors |
USA |
3,967 |
0.7 |
2,654 |
||
|
SEEK |
Online recruitment portal |
Australia |
3,940 |
0.7 |
3,232 |
||
|
Akili Interactive Labs series C PreferredU |
Digital medicine company |
USA |
3,864 |
0.7 |
3,913 |
||
|
KSQ Therapeutics Series C PreferredU |
Biotechnology target identification company |
USA |
3,864 |
0.7 |
3,913 |
||
|
PsiQuantum Series CU |
Developer of commercial quantum computing |
USA |
3,864 |
0.7 |
- |
||
|
Reaction EnginesU |
Advanced heat exchange company |
UK |
3,805 |
0.7 |
1,500 |
||
|
Dialog Semiconductor |
Analogue chips for mobile phones |
Germany |
3,704 |
0.6 |
2,204 |
||
|
Grubhub |
Online and mobile platform for restaurant pick-up and delivery orders |
USA |
3,685 |
0.6 |
10,163 |
||
|
Ceres Power Holding |
Developer of fuel cells |
UK |
3,514 |
0.6 |
2,729 |
||
|
National Instruments |
Instrumentation equipment used in research and testing |
USA |
3,498 |
0.6 |
4,192 |
||
|
Upwork |
Online recruitment services provider |
USA |
3,483 |
0.6 |
- |
||
|
ZOZO (formerly Start Today) |
Internet fashion retailer |
Japan |
3,483 |
0.6 |
3,630 |
||
|
resTORbio |
Clinical stage biopharmaceutical company |
USA |
3,453 |
0.6 |
4,132 |
||
|
Trupanion |
Pet health insurance provider |
USA |
3,390 |
0.5 |
3,656 |
||
|
IP Group |
Intellectual property commercialisation |
USA |
3,065 |
0.5 |
5,846 |
||
|
ASOS |
Online fashion retailer |
UK |
2,926 |
0.5 |
4,522 |
||
|
Oxford Instruments |
Produces advanced instrumentation equipment |
UK |
2,888 |
0.5 |
2,098 |
||
|
Victrex |
High-performance thermo-plastics |
UK |
2,792 |
0.5 |
3,370 |
||
|
Zuora |
Cloud based software developer |
USA |
2,700 |
0.4 |
- |
||
|
Spire Global Series C PreferredU |
Manufacturer and operator of nanosatellites for data collection |
USA |
2,330 |
0.4 |
2,241 |
||
|
Spire Global Inc Sub Convertible Promissory NoteU |
Manufacturer and operator of nanosatellites for data collection |
USA |
266 |
0.0 |
- |
||
|
|
|
|
2,596 |
0.4 |
2,241 |
||
|
Stratasys |
3D printer manufacturer |
USA |
2,310 |
0.4 |
2,156 |
||
|
Digimarc |
Digital watermarking technology |
USA |
2,235 |
0.4 |
1,597 |
||
|
Cellectis |
Biotech focused on genetic engineering |
France |
2,182 |
0.4 |
4,723 |
||
|
Cosmo Pharmaceuticals |
Therapies for gastrointestinal diseases |
Italy |
1,905 |
0.3 |
3,289 |
||
|
Sensirion Holding |
Manufacturer of gas and flow sensors |
Switzerland |
1,863 |
0.3 |
2,154 |
||
|
NuCana SPN ADR |
An oncology-focused biotechnology company |
UK |
1,823 |
0.3 |
4,603 |
||
|
List of Investments as at 31 October 2019
|
|||||||
|
Name |
Business |
Country |
Fair Value 2019 £'000 |
% of total assets |
Fair Value 2018 £'000 |
||
|
CEVA |
Licenses DSP-based platforms applications to the semiconductor industry |
USA |
1,736 |
0.3 |
1,591 |
||
|
Evolent Health |
Healthcare company which helps hospitals move to value-based healthcare |
USA |
1,727 |
0.3 |
5,097 |
||
|
Suess Microtec |
Fabrication and inspection equipment |
Germany |
1,699 |
0.3 |
1,960 |
||
|
Horizon Discovery |
Customised cell lines to aid drug discovery |
UK |
1,674 |
0.3 |
1,975 |
||
|
Unity Biotechnology |
Biotechnology company seeking to develop anti-ageing therapies |
USA |
1,645 |
0.3 |
2,950 |
||
|
AxoGen |
A regenerative medicine company |
USA |
1,629 |
0.3 |
4,944 |
||
|
Jianpu Technology ADR |
Chinese consumer finance marketplace |
China |
1,571 |
0.3 |
3,757 |
||
|
Catapult Group International |
Sports analytics focused on optimising athlete performance |
Australia |
1,356 |
0.2 |
1,027 |
||
|
Uxin ADR |
E-commerce services provider |
China |
1,335 |
0.2 |
2,404 |
||
|
Rubius Therapeutics |
Developer of novel therapies using engineered red blood cells |
USA |
1,050 |
0.2 |
1,406 |
||
|
4D Pharma |
Bacteria derived novel therapeutics |
UK |
956 |
0.2 |
1,526 |
||
|
China Financial Services |
Small and medium-sized enterprises lending in China |
China |
924 |
0.2 |
955 |
||
|
Ricardo |
Automotive engineer |
UK |
879 |
0.2 |
969 |
||
|
Kaleido Biosciences |
Clinical-stage healthcare company with a chemistry-driven approach to leveraging the microbiome to treat disease |
USA |
866 |
0.1 |
- |
||
|
Zumtobel |
Commercial lighting |
Austria |
634 |
0.1 |
738 |
||
|
Ilika |
Discovery and development of materials for mass market applications |
UK |
617 |
0.1 |
500 |
||
|
Avacta Group |
Analytical re agents and instrumentation |
UK |
600 |
0.1 |
892 |
||
|
Aduro Biotechnology |
Immunotherapy services provider |
USA |
516 |
0.1 |
1,938 |
||
|
Adaptimmune Therapeutics ADR |
Clinical stage biopharmaceutical company |
UK |
476 |
0.1 |
3,400 |
||
|
Acacia Research |
Patent licenser |
USA |
436 |
0.1 |
569 |
||
|
Tissue Regenix |
Regenerative medical devices |
UK |
399 |
0.1 |
1,344 |
||
|
Foamix Pharmaceuticals |
Drug reformulation technology |
Israel |
301 |
0.1 |
379 |
||
|
C4X Discovery Holdings |
Rational drug design and optimisation |
UK |
238 |
0.1 |
1,144 |
||
|
Summit Therapeutics |
Drug discovery and development |
UK |
213 |
0.0 |
255 |
||
|
Sarine Technologies |
Systems for diamond grading and cutting |
Singapore |
136 |
0.0 |
257 |
||
|
hVIVO (formerly Retroscreen Virology) |
Outsourced pre-clinical analytical services |
UK |
115 |
0.0 |
300 |
||
|
Applied Graphene Materials |
Manufactures graphene nanoplatelets |
UK |
108 |
0.0 |
261 |
||
|
Xeros Technology Group |
Polymer technology company with laundry and textile applications |
UK |
77 |
0.0 |
860 |
||
|
GI Dynamics |
Develops and markets medical devices |
Australia |
18 |
0.0 |
14 |
||
|
Velocys |
Gas to liquid technology |
UK |
6 |
0.0 |
18 |
||
|
China Lumena New Materials |
Mines, processes and manufactures natural thenardite products |
China |
0 |
0.0 |
0 |
||
|
Ensogo |
South East Asian e-commerce |
Australia |
0 |
0.0 |
0 |
||
|
Total equities |
|
|
572,859 |
97.9 |
|
||
|
Net liquid assets |
|
|
12,455 |
2.1 |
|
||
|
Total assets at fair value* |
|
|
585,314 |
100.0 |
|
||
|
|
|
|
|
|
|
||
* Total assets less current liabilities before deduction of borrowings.
U Denotes unlisted security.
|
|
Listed equities % |
Unlisted securities† % |
Net liquid assets % |
Total % |
|
31 October 2019 |
92.4 |
5.5 |
2.1 |
100.0 |
Figures represent percentage of total assets.
† Includes holdings in preference shares, ordinary shares and promissory note.
Distribution of Total Assets* by Industry
|
|
|
Industry Analysis 31 October 2019 % of total assets* |
|
Portfolio Weightings (relative to comparative index†) at 31 October 2019 % points overweight/(underweight) |
|
Equities: |
Biotechnology |
16.6 |
|
13.5 |
|
|
Software |
14.1 |
|
10.0 |
|
|
Healthcare Equipment and Supplies |
9.7 |
|
7.3 |
|
|
Internet and Direct Marketing Retail |
9.4 |
|
8.7 |
|
|
Capital Markets |
6.0 |
|
3.6 |
|
|
Thrifts and Mortgage Finance |
4.8 |
|
3.9 |
|
|
Electronic Equipment, Instruments and Components |
4.5 |
|
1.6 |
|
|
Aerospace and Defence |
4.1 |
|
2.9 |
|
|
Life Sciences Tools and Services |
3.8 |
|
2.9 |
|
|
Healthcare Technology |
3.6 |
|
3.3 |
|
|
Pharmaceuticals |
3.5 |
|
1.5 |
|
|
Interactive Media and Services |
3.2 |
|
2.5 |
|
|
Diversified Consumer Services |
2.4 |
|
1.4 |
|
|
Semiconductors and Semiconductor Equipment |
1.9 |
|
(0.6) |
|
|
Automobiles |
1.9 |
|
1.7 |
|
|
Professional Services |
1.6 |
|
0.1 |
|
|
Trading Companies and Distributors |
1.4 |
|
(0.1) |
|
|
Technology Hardware, Storage and Peripherals |
1.1 |
|
0.5 |
|
|
Household Durables |
0.8 |
|
(1.0) |
|
|
IT Services |
0.8 |
|
(1.9) |
|
|
Electrical Equipment |
0.7 |
|
(0.5) |
|
|
Insurance |
0.6 |
|
(2.5) |
|
|
Chemicals |
0.5 |
|
(2.3) |
|
|
Internet and Catalogue Retail |
0.5 |
|
0.5 |
|
|
Consumer Finance |
0.4 |
|
(0.3) |
|
|
Machinery |
0.0 |
|
(4.5) |
|
|
Energy Equipment and Services |
0.0 |
|
(0.8) |
|
|
Net Liquid Assets |
2.1 |
|
|
|
Total assets* |
100.0 |
|
|
|
|
* Total assets less current liabilities before the deduction of borrowings. |
||||
† S&P Global Small Cap Index (in sterling terms). Weightings exclude industries where the Company has no exposure. See disclaimer at the end of this announcement.
|
Distribution of Total Assets |
Geographical Analysis
|
|
31 October 2019 % |
31 October 2018 % |
|
|
North America |
|
59.5 |
58.7 |
|
|
USA |
59.5 |
58.7 |
|
Europe |
|
24.9 |
25.8 |
|
|
United Kingdom |
15.8 |
16.9 |
|
|
Eurozone |
4.5 |
4.7 |
|
|
Developed Europe (non euro) |
4.6 |
4.2 |
|
Asia |
|
11.0 |
9.2 |
|
|
Japan |
6.5 |
5.4 |
|
|
China |
4.5 |
3.8 |
|
|
Singapore |
0.0 |
0.0 |
|
Australasia |
|
2.5 |
1.9 |
|
|
Australia |
0.9 |
0.8 |
|
|
New Zealand |
1.6 |
1.1 |
|
Total equities |
97.9 |
95.6 |
|
Net liquid assets |
2.1 |
4.4 |
|
Total assets* |
100.0 |
100.0 |
Sectoral Analysis
|
|
31 October 2019 % |
|
31 October 2018 % |
|
|
Communication Services |
|
3.2 |
|
3.1 |
|
Consumer Discretionary |
|
14.9 |
|
18.4 |
|
Financials |
|
11.8 |
|
9.3 |
|
Healthcare |
|
37.2 |
|
36.8 |
|
Industrials |
|
7.9 |
|
6.3 |
|
Information Technology |
|
22.4 |
|
21.0 |
|
Materials |
|
0.5 |
|
0.7 |
|
Net Liquid Assets |
|
2.1 |
|
4.4 |
|
Total assets* |
|
100.0 |
|
100.0 |
* Total assets less current liabilities before the deduction of borrowings
|
Investment Changes |
|
|
Valuation at 31 October 2018 £'000 |
Net acquisition/ (disposals) £'000 |
Gains/ (losses) £'000 |
Valuation at 31 October 2019 £'000 |
|
Equities: |
|
|
|
|
|
North America |
|
|
|
|
|
USA |
304,840 |
28,932 |
14,390 |
348,162 |
|
Europe |
|
|
|
|
|
United Kingdom |
88,209 |
1,792 |
2,338 |
92,339 |
|
Eurozone |
24,981 |
(1,246) |
2,726 |
26,461 |
|
Developed Europe (non euro) |
22,156 |
(22) |
4,708 |
26,842 |
|
Asia |
|
|
|
|
|
Japan |
28,254 |
- |
9,864 |
38,118 |
|
China |
19,555 |
7,660 |
(1,381) |
25,834 |
|
Singapore |
257 |
- |
(121) |
136 |
|
Australasia |
|
|
|
|
|
Australia |
4,273 |
- |
1,041 |
5,314 |
|
New Zealand |
5,801 |
- |
3,852 |
9,653 |
|
Total equities |
498,326 |
37,116 |
37,417 |
572,859 |
|
Net liquid assets |
22,776 |
(10,049) |
(272) |
12,455 |
|
Total assets |
521,102 |
27,067 |
37,145 |
585,314 |
Key Performance Indicators
The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:
¾ the movement in net asset value per ordinary share (after deducting borrowings at fair value);
¾ the movement in the share price;
¾ the movement of the net asset value and share price compared to the comparative index;
¾ the premium/discount of the share price to the net asset value per share; and
¾ the ongoing charges.
An explanation of these measures can be found in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.
The one, five and ten year records for the KPIs are shown on pages 4, 5 and 6 respectively of the Annual Report and Financial Statements.
Future Developments of the Company
The outlook for the Company for the next 12 months is set out in the Chairman's Statement and the Managers' Report and Investment Philosophy above.
Capital Structure
At the year end the Company's share capital consisted of 302,598,695 fully paid ordinary shares of 1p each. The Company currently has powers to buy back shares at a discount to net asset value per share for cancellation or retention as treasury shares as well as to issue shares/sell treasury shares at a premium to net asset value.
Following a five for one share split on 28 January 2019, each ordinary share of 5p was replaced with five new ordinary shares of 1p each.
Transactions with Related Parties and the Managers and Secretaries
The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 30 of the Annual Report and Financial Statements.
No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.
Details of the management contract are set out in the Directors' Report on page 21 of the Annual Report and Financial Statements. The management fee payable to the Managers by the Company for the year, as disclosed in note 3 in the Annual Report and Financial Statements, was £3,281,000 (2018 - £2,776,000) of which £813,000 (2018 - £750,000) was outstanding at the year end, as disclosed in note 10 in the Annual Report and Financial Statements.
Management Details
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting have been further sub-delegated to Baillie Gifford Overseas Limited.
The Investment Management Agreement between the AIFM and the Company sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than three months' notice. Compensation fees would only be payable in respect of the notice period if termination by the Company were to occur within a shorter notice period.
With effect from 1 January 2019 the annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. Prior to 1 January 2019 the fee was 0.95% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable quarterly. The Board is of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence on performance.
The details of the management fee are as follows:
|
|
2019 £'000 |
|
2018 £'000 |
|
|
|
|
|
|
Investment management fee |
3,281 |
|
2,776 |
Principal Risks
As explained on pages 26 and 27 of the Annual Report and Financial Statements there is a process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. There have been no significant charges to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below.
Financial Risk - the Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained below. As oversight of this risk, the Board considers at each meeting various metrics including the composition and diversification of the portfolio by geographies, sectors and capitalisation along with sales and purchases of investments. Individual investments are discussed with the portfolio managers together with their general views on the various investment markets and sectors. A strategy meeting is held annually.
Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value. To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy, the investment portfolio and its performance, the level of discount/premium to net asset value at which the shares trade and movements in the share register.
Discount Risk - the discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. The Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares or issue shares (including authority to sell shares
held in treasury), when deemed by the Board to be in the best interests of the Company and its shareholders.
Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit and Management Engagement Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is
made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.
Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security. To monitor potential risk, the Audit and Management Engagement Committee receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers who also agree uncertificated unlisted portfolio holdings to conformations from investee companies. In addition, the existence of assets is subject to annual external audit and the Custodian's audited internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit and Management Engagement Committee and any concerns investigated.
Small Company Risk - the Company has investments in smaller, immature companies which are generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller, immature companies may do less well in periods of unfavourable economic conditions. To mitigate this risk, the Board reviews the investment portfolio at each meeting and discusses the merits and characteristics of individual investments with the Managers. A spread of risk is achieved by holding stocks classified across at least fifteen industries and six countries.
Unlisted Investments - the Company's risk is increased by its investment in unlisted investments. These assets may be more difficult to buy or sell, so changes in their prices may be greater. To mitigate this risk, the Board considers the unlisted investments in the context of the overall investment strategy and provides guidance to the Managers on the maximum exposure to unlisted investments.
Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Audit and Management Engagement Committee reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.
Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found in note 17 on page 56 of the Annual Report and Financial Statements and the Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Political and Associated Economic Risk - the Board is of the view that political change in areas in which the Company invests or may invest may have practical consequences for the Company. Political developments are closely monitored and considered by the Board. The Board continues to monitor developments as they occur regarding the Government's intention that the UK should leave the European Union and to assess the potential consequences for the Company's future activities. Whilst there is considerable uncertainty, the Board believes that the Company's global portfolio, with only moderate exposure to the United Kingdom, positions the company to be suitably insulated from Brexit-related risk.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code the Directors have assessed the prospects of the Company over a minimum period of five years. The Directors continue to believe this period to be appropriate as it is reflective of the longer term investment strategy of the Company, and to be a period during which, in the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing the Company nor to the adequacy of the mitigating controls in place. Also, the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period.
In considering the viability of the Company, the Directors have conducted a robust assessment of each of the Company's principal risks and uncertainties detailed above and in particular the impact of a significant fall in the global equity markets on the value of the Company's investment portfolio. The Directors have also considered the Company's leverage and liquidity in the context of the floating rate loan facilities which are due to expire in June 2023 and September 2024, the income and expenditure projections and the fact that the Company's investments comprise mainly readily realisable quoted equity securities which can be sold to meet funding requirements if necessary. In addition, all of the key operations required by the company are outsourced to third party providers and alternative providers could be engaged at relatively short notice if necessary.
Based on the Company's processes for monitoring operating costs, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years as a minimum.
Going Concern
In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. An explanation of the Company's principal risks and how they are managed is set out above and contained below.
The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis.
Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.
Financial Instruments
As an Investment Trust, the Company invests in equities and makes other investments so as to meet its investment objective of achieving long term capital growth. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.
These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility.
The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.
Market Risk
The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis.
Details of the Company's investment portfolio are shown in the List of Investments above and 'Fixed Asset - Investments' below.
(i) Currency Risk
Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.
The Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Managers assess the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.
Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.
Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.
|
At 31 October 2019 |
Investments £'000 |
|
Cash and deposits £'000 |
|
Bank Loan £'000 |
|
Other debtors and creditors* £'000 |
|
Net exposure £'000 |
|
US dollar |
375,508 |
|
13,263 |
|
(28,663) |
|
(86) |
|
360,022 |
|
Yen |
38,118 |
|
- |
|
- |
|
15 |
|
38,133 |
|
Euro |
24,556 |
|
- |
|
(2,433) |
|
14 |
|
22,137 |
|
Australian dollar |
14,967 |
|
- |
|
- |
|
- |
|
14,967 |
|
Swiss franc |
13,852 |
|
- |
|
- |
|
- |
|
13,852 |
|
Danish krone |
8,275 |
|
- |
|
- |
|
- |
|
8,275 |
|
Hong Kong dollar |
7,407 |
|
- |
|
- |
|
- |
|
7,407 |
|
Singapore dollar |
136 |
|
- |
|
- |
|
- |
|
136 |
|
Norwegian krone |
- |
|
- |
|
- |
|
- |
|
- |
|
Total exposure to currency risk |
482,819 |
|
13,263 |
|
(31,096) |
|
(57) |
|
464,929 |
|
Sterling |
90,040 |
|
79 |
|
(17,500) |
|
(830) |
|
71,789 |
|
|
572,859 |
|
13,342 |
|
(48,596) |
|
(887) |
|
536,718 |
* Includes net non-monetary assets of £38,000.
|
At 31 October 2018 |
Investments £'000 |
|
Cash and deposits £'000 |
|
Bank Loan £'000 |
|
Other debtors and creditors* £'000 |
|
Net exposure £'000 |
|
US dollar |
331,250 |
|
23,011 |
|
(27,780) |
|
(85) |
|
326,396 |
|
Yen |
28,254 |
|
- |
|
- |
|
34 |
|
28,288 |
|
Euro |
21,692 |
|
- |
|
(10,223) |
|
18 |
|
11,487 |
|
Australian dollar |
10,074 |
|
- |
|
- |
|
- |
|
10,074 |
|
Swiss franc |
15,293 |
|
- |
|
- |
|
- |
|
15,293 |
|
Danish krone |
5,274 |
|
- |
|
- |
|
- |
|
5,274 |
|
Hong Kong dollar |
5,826 |
|
- |
|
- |
|
- |
|
5,826 |
|
Singapore dollar |
257 |
|
- |
|
- |
|
- |
|
257 |
|
Norwegian krone |
200 |
|
- |
|
- |
|
- |
|
200 |
|
Total exposure to currency risk |
418,120 |
|
23,011 |
|
(38,003) |
|
(33) |
|
403,095 |
|
Sterling |
80,206 |
|
596 |
|
(10,625) |
|
(798) |
|
69,379 |
|
|
498,326 |
|
23,607 |
|
(48,628) |
|
(831) |
|
472,474 |
* Includes net non-monetary assets of £38,000.
Currency Risk Sensitivity
At 31 October 2019, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the Financial Statement amounts. The level of change is considered to be reasonable based on observations of current market conditions. The analysis is performed on the same basis for 2018.
|
|
2019 £'000 |
|
2018 £'000 |
|
US dollar |
18,001 |
|
16,320 |
|
Yen |
1,906 |
|
1,414 |
|
Euro |
1,107 |
|
574 |
|
Australian dollar |
748 |
|
504 |
|
Swiss franc |
693 |
|
765 |
|
Danish krone |
414 |
|
264 |
|
Hong Kong dollar |
370 |
|
291 |
|
Singapore dollar |
7 |
|
13 |
|
Norwegian krone |
- |
|
10 |
|
|
23,246 |
|
20,155 |
(ii) Interest Rate Risk
Interest rate movements may affect directly:
¾ the fair value of investments in fixed interest rate securities;
¾ the level of income receivable on cash deposits;
¾ the fair value of fixed-rate borrowings; and
¾ the interest payable on any variable rate borrowings.
Interest rate movements may also impact upon the market value of the Company's investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.
The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.
The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value (assuming that the Company's share price is unaffected by movements in interest rates).
The interest rate risk profile of the Company's financial assets and liabilities at 31 October is shown below:
Financial Assets
|
|
2019 Fair Value £'000 |
2019 Weighted average interest rate |
2019 Weighted average period until maturity* |
2018 Fair Value £'000 |
2018 Weighted average interest rate |
2018 Weighted average period until maturity* |
|
Cash and short term deposits: |
|
|
|
|
|
|
|
US dollars |
13,263 |
1.60% |
n/a |
23,011 |
1.12% |
n/a |
|
Sterling |
79 |
- |
n/a |
596 |
- |
n/a |
*Based on expected maturity date
The cash deposits generally comprise overnight call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.
Financial Liabilities
The interest risk profile of the Company's financial liabilities and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 31October are shown below:
Interest Rate Risk Profile
|
|
2019 £'000 |
2018 £'000 |
|
The interest rate risk profile of the Company's financial liabilities at 31 October was: |
||
|
Floating rate - Sterling denominated |
17,500 |
3,125 |
|
- US$ denominated |
28,663 |
7,745 |
|
- Euro denominated |
2,433 |
1,887 |
|
Fixed rate - Sterling denominated |
- |
7,500 |
|
- US$ denominated |
- |
20,035 |
|
- Euro denominated |
- |
8,336 |
|
|
48,596 |
48,628 |
Maturity Profile
|
The maturity profile of the Company's financial liabilities at 31 October was: |
||
|
|
2019 £'000 |
2018 £'000 |
|
In less than three months |
|
|
|
- repayment of loan |
48,596 |
48,628 |
|
- accumulated interest |
258 |
990 |
|
|
48,854 |
49,618 |
Interest Rate Risk Sensitivity
An increase of 100 basis points in interest rates, with all other variables held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 31 October 2019 by £695,000 (2018 - increased, £101,000). This is due to the Company's exposure to interest rates on its revolving floating rate bank loans and cash balances. A decrease of 100 basis points would have had an equal but opposite effect. The Company does not hold bonds.
(iii) Other Price Risk
Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 8 of the Annual Report and Financial Statements.
The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Managers. The company's portfolio of unlisted Level 3 investments is not necessarily affected by market performance, however the valuations are affected by the performance of the underlying securities in line with the valuation criteria in note 1(e) of the Annual Report and Financial Statements. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the comparative index: investments are selected based upon the merit of individual companies and therefore performance may well diverge from the short term fluctuations of the comparative index.
Other Price Risk Sensitivity
A full list of the Company's investments is given above. In addition, a geographical analysis of the portfolio and an analysis of the investment portfolio by broad industrial or commercial sector is above.
100.7% (2018 - 102.0%) of the Company's net assets are invested in quoted equities. A 10% increase in quoted equity valuations at 31 October 2019 would have increased total assets and total return on ordinary activities by £54,068,000 (2018- £48,178,000). A decrease of 10% would have had an equal but opposite effect.
6.0% (2018 - 3.5%) of the Company's net assets are invested in unlisted securities. The fair valuation of the unlisted investments is influenced by the estimates, assumptions and judgements made in the fair valuation process (see 1(d) on page 42 of the Annual Report and Financial Statements). The unlisted securities sensitivity analysis below which recognises that the valuation methodologies employed involve different levels of subjectivity in their inputs. The sensitivity analysis would apply a wider range of input variable sensitivity to the Multiples methodology as it would involve more significant subjective estimation than the recent Transaction method (the risk of over or under estimation is higher due to the greater subjectivity involved, for example, in selecting the most relevant measure of sustainable revenues and identifying appropriate comparable companies).
|
As at 31 October 2019 |
Impact |
|||||
|
Valuation Technique |
Fair Value of Investments £'000 |
Key variable input* |
|
Variable Input Sensitivity (%) |
£'000† |
% of net assets |
|
Recent Transaction/ Adjusted Recent Transaction |
28,370 |
Selection of appropriate benchmark Selection of comparable companies Probability estimation of liquidation event# Application of valuation basis
|
|
±10 |
±2,837 |
±0.5 |
|
Multiples |
3,805 |
Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of liquidation event# Application of valuation basis
|
|
±20 |
±761 |
±0.2 |
|
|
|
|
|
|
|
|
|
Total |
32,175 |
|
|
|
±3,598 |
±0.7 |
|
As at 31 October 2018 |
Impact |
||||||
|
Valuation Technique |
Fair Value of Investments £'000 |
Key variable input* |
|
Variable Input Sensitivity (%) |
£'000† |
% of net assets |
|
|
Recent Transaction/ Adjusted Recent Transaction |
16,549 |
Selection of appropriate benchmark Selection of comparable companies Probability estimation of liquidation event# Application of valuation basis
|
|
±10 |
±1,655 |
±0.4 |
|
|
Total |
16,549 |
|
|
|
±1,655 |
±0.4 |
|
† Impact on net assets and net return after taxation.
# A liquidation event is typically a company sale or an initial public offering ('IPO'). In assessing fair value the Company has determined the likely enterprise value attributed to the different investment classes held by the Company.
* Key Variable Inputs
The variable inputs applicable to each broad category of valuation basis will vary dependent on the particular circumstances of each unlisted company valuation. An explanation of each of the key variable inputs is provided below and includes an indication of the range in value for each input, where relevant. The assumptions made in the production of the inputs are described in note 1(d) on page 42 of the Annual Report and Financial Statements.
Selection of Appropriate Benchmarks
The selection of appropriate benchmarks is assessed individually for each investment. The industry and geography of each company are key inputs to the benchmark selection, with either one or two key indices or benchmarks being used for comparison.
Selection of Comparable Companies
The selection of comparable companies is assessed individually for each investment at the point of investment, and the relevance of the comparable companies is continually evaluated at each valuation. The key criteria used in selecting appropriate comparable companies are the industry sector in which they operate, the geography of the company's operations, the respective revenue and earnings growth rates and the operating margins. Typically, between 4 and 10 comparable companies will be selected for each investment, depending on how many relevant comparable companies are identified. The resultant revenue or earnings multiples derived will vary depending on the companies selected and the industries they operate in and can vary in the range of 1x to 10x.
Probability Estimation of Liquidation Events
The probability of a liquidation event such as a company sale, or alternatively an initial public offering ('IPO'), is a key variable input in the Transaction-based and Multiples-based valuation techniques. The probability of an IPO versus a company sale is typically estimated from the outset to be 50:50 if there has been no indication by the company of pursuing either of these routes. If the company has indicated an intention to IPO, the probability is increased accordingly to 75% and if an IPO has become a certainty the probability is increased to 100%. Likewise, in a scenario where a company is pursuing a trade sale the weightings will be adjusted accordingly in favour of a sale scenario, or in a situation where a company is underperforming expectations significantly and therefore deemed very unlikely to pursue an IPO.
Application of Valuation Basis
Each investment is assessed independently, and the valuation basis applied will vary depending on the circumstances of each investment. When an investment is pre-revenue, the focus of the valuation will be on assessing the recent transaction and the achievement of key milestones since investment. Adjustments may also be made depending on the performance of comparable benchmarks and companies. For those investments where a trading Multiples approach can be taken, the methodology will factor in revenue, earnings or net assets as appropriate for the investment, and where a suitable correlation can be identified with the comparable companies then a regression analysis will be performed. Discounted cash flows will also be considered where appropriate forecasts are available.
Estimated Sustainable Earnings
The selection of sustainable revenue or earnings will depend on whether the company is sustainably profitable or not, and where it is not then sustainable revenues will be used in the valuation. The valuation approach will typically assess companies based on the last twelve months of revenue or earnings, as they are the most recent available and therefore viewed as the most reliable. Where a company has reliably forecasted earnings previously or there is a change in circumstance at the business which will impact earnings going forward, then forward estimated revenue or earnings may be used instead.
Application of Liquidity Discount
The application of a liquidity discount will be applied either through the calibration of a valuation against the most recent transaction, or by application of a specific discount. The discount applied where a calibration is not appropriate is typically 10%, reflecting that the majority of the investments held are substantial companies with some secondary market activity.
Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board monitors the exposure to any one holding.
The Company has the power to take out borrowings, which gives it access to additional funding when required. The Company's borrowing facilities are detailed in notes 10 in the Annual Report and Financial Statements and the maturity profile of its borrowings are set out above.
Creditors falling due within one year:
|
|
2019 £'000 |
2018 £'000 |
|
National Australia Bank Limited £25 million revolving credit facility |
24,298 |
12,757 |
|
National Australia Bank Limited £36 million revolving credit facility |
24,298 |
- |
|
National Australia Bank Limited fixed rate facility |
- |
35,871 |
|
Investment management fee |
813 |
750 |
|
Other creditors and accruals |
229 |
228 |
|
|
49,638 |
49,606 |
Borrowing facilities at 31 October 2019
A five year £25 million revolving credit facility with National Australia Bank Limited with an expiry date of 29 June 2023.
A five year £36 million revolving credit facility with National Australia Bank Limited with an expiry date of 30 September 2024.
At 31 October 2019 drawings were as follows:
|
£25 million facility with National Australia Bank |
€1,410,900 at an interest rate of 1.22000% per annum |
|
|
US$18,545,250 at an interest rate of 3.49513% per annum |
|
|
£8,750,000 at an interest rate of 2.12800% per annum |
|
£36 million facility with National Australia Bank |
€1,410,900 at an interest rate of 1.55000% per annum |
|
|
US$18,545,250 at an interest rate of 3.88513% per annum |
|
|
£7,500,000 at an interest rate of 2.55800% per annum |
|
|
£1,250,000 at an interest rate of 2.56401% per annum |
Borrowing facilities at 31 October 2018
A five year £25 million revolving credit facility with National Australia Bank Limited with an expiry date of 29 June 2023.
A five year fixed rate facility with National Australia Bank Limited of €9.4 million, US$25.6 million and £7.5 million, with an expiry date of 30 September 2019.
At 31 October 2018 drawings were as follows:
|
£25 million facility with National Australia Bank |
€2,128,263 at an interest rate of 0.90100% per annum |
|
|
US$9,895,500 at an interest rate of 3.79613% per annum |
|
|
£3,125,000 at an interest rate of 2.17025% per annum |
|
€9.4 million, US$25.6 million and £7.5 million |
€9,400,000 at an interest rate of 1.59% per annum |
|
fixed rate facility with National Australia Bank |
US$25,600,000 at an interest rate of 3.14% per annum |
|
|
£7,500,000 at an interest rate of 3.12% per annum |
During the year the five year fixed rate facility with National Australia Bank Limited of €9.4 million, US$25.6 million and £7.5 million was replaced with a £36 million revolving credit facility with National Australia Bank Limited.
The main covenants relating to both loan facilities with National Australia Bank Limited are: total borrowings shall not exceed 35% of the Company's adjusted gross assets and the minimum adjusted gross assets shall be £260 million. There were no breaches in the loan covenants during the year to 31 October 2019 (2018 - none).
Credit Risk
This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.
This risk is managed as follows:
¾ where the Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;
- the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Managers monitor the Company's risk by reviewing the Custodian's internal control reports and reporting its findings to the Board;
- investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's Custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;
- the creditworthiness of the counterparty to transactions involving derivatives, and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Managers of the creditworthiness of that counterparty; and
- cash is only held at banks that are regularly reviewed by the Managers.
Credit Risk Exposure
The exposure to credit risk at 31 October was:
|
|
2019 £'000 |
2018 £'000 |
|
Cash and short term deposits |
13,342 |
23,607 |
|
Debtors and prepayments |
155 |
147 |
|
|
13,497 |
23,754 |
None of the Company's financial assets are past due or impaired (2018 - none).
Fair value of financial assets and financial liabilities
The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the Balance Sheet with the exception of long term borrowings. The fair values of the Company's borrowings are shown below.
|
|
2019 |
2019 |
|
2018 |
2018 |
|
|
Book £'000 |
Fair* £'000 |
|
Book £'000 |
Fair* £'000 |
|
Floating rate loan |
48,596 |
48,596 |
|
12,757 |
12,757 |
|
Fixed rate loan |
- |
- |
|
35,871 |
35,912 |
|
Total borrowings |
48,596 |
48,596 |
|
48,628 |
48,669 |
* All short term borrowings are stated at book cost which is considered to be equal to their face value given the facilities are revolving credit facilities. In the prior year, the fair value of the fixed rate bank loan is calculated with reference to government bonds of comparable yield and maturity.
Capital Management
The capital of the Company is its share capital and reserves as set out in note 12 of the Annual Report and Financial Statements together with its borrowings (see note 10 of the Annual Report and Financial Statements). The objective of the Company is the achievement of long term capital growth by investing primarily in listed companies throughout the world. The Company's investment policy is set out on page 7 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out above. The Company has the authority to issue and to buy back its shares (see page 22 and 23 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in note 11 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loan which are detailed in note 10 of the Annual Report and Financial Statements.
Fixed Assets - Investments
|
As at 31 October 2019 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
540,684 |
- |
- |
540,684 |
|
Unlisted ordinary shares |
- |
- |
11,515 |
11,515 |
|
Unlisted preference shares* |
- |
- |
20,394 |
20,394 |
|
Unlisted convertible promissory note |
- |
- |
266 |
266 |
|
Total financial asset investments |
540,684 |
- |
32,175 |
572,859 |
|
As at 31 October 2018 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
481,777 |
- |
- |
481,777 |
|
Unlisted ordinary shares |
- |
- |
6,482 |
6,482 |
|
Unlisted preference shares* |
- |
- |
10,067 |
10,067 |
|
Total financial asset investments |
481,777 |
- |
16,549 |
498,326 |
* The investments in preference shares are not classified as equity holdings as they include liquidation preference rights that determine the repayment (or multiple thereof) of the original investment in the event of a liquidation event such as a take-over.
There have been no transfers between levels of fair value hierarchy during the year.
Investments in securities are financial assets designated at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.
Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:
Level 1 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
The valuation techniques used by the Company are explained in the accounting policies on page 43 of the Annual Report and Financial Statements.
Alternative Investment Fund Managers (AIFM) Directive
In accordance with the Alternative Investment Fund Managers Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy is available at www.bailliegifford.com or on request and the numerical remuneration disclosures in respect of the AIFM's relevant reporting period are also available at www.bailliegifford.com. The Company's maximum and actual leverage levels (see Glossary of Terms and Alternative Performance Measures at the end of this announcement) at 31 October 2019 are shown below:
Leverage
|
|
Gross Method |
Commitment Method |
|
Maximum limit |
2.50:1 |
2.00:1 |
|
Actual |
1.09:1 |
1.09:1 |
Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) 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 and of the profit or loss of the Company for that period.
In preparing these Financial Statements, the Directors are required to:
¾ select suitable accounting policies and then apply them consistently;
¾ make judgements and accounting estimates that are reasonable and prudent;
¾ state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
¾ prepare the Financial Statements on the 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.
Under applicable laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that complies with that law and those regulations.
The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. The work carried out by the Auditor does not involve any consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.
Each of the Directors, whose names and functions are listed within the Directors and Management section, confirm that, to the best of their knowledge:
¾ the Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;
¾ the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
¾ the Strategic Report 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.
On behalf of the Board
Henry CT Strutt
Chairman
4 December 2019
Income Statement
|
|
For the year ended 31 October 2019 |
For the year ended 31 October 2018 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Gains on investments |
- |
37,417 |
37,417 |
- |
51,630 |
51,630 |
|
Currency gains |
- |
182 |
182 |
- |
175 |
175 |
|
Income (note 2) |
1,229 |
- |
1,229 |
1,270 |
- |
1,270 |
|
Investment management fee |
(820) |
(2,461) |
(3,281) |
(694) |
(2,082) |
(2,776) |
|
Other administrative expenses |
(671) |
- |
(671) |
(737) |
- |
(737) |
|
Net return before finance costs and taxation |
(262) |
35,138 |
34,876 |
(161) |
49,723 |
49,562 |
|
Finance costs of borrowings |
(368) |
(1,105) |
(1,473) |
(282) |
(846) |
(1,128) |
|
Net return on ordinary activities before taxation |
(630) |
34,033 |
33,403 |
(443) |
48,877 |
48,434 |
|
Tax on ordinary activities |
(54) |
- |
(54) |
(54) |
- |
(54) |
|
Net return on ordinary activities after taxation |
(684) |
34,033 |
33,349 |
(497) |
48,877 |
48,380 |
|
Net return per ordinary share* (note 3) |
(0.23p) |
11.57p |
11.34p |
(0.19p) |
18.68p |
18.49p |
*Prior year per share figures restated for the five for one share split on 28 January 2019.
The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.
Balance Sheet
|
|
At 31 October 2019 £'000 |
At 31 October 2018 £'000 |
|
Fixed assets |
|
|
|
Investments held at fair value through profit or loss |
572,859 |
498,326 |
|
|
|
|
|
Current assets |
|
|
|
Debtors |
155 |
147 |
|
Cash and cash equivalents |
13,342 |
23,607 |
|
|
13,497 |
23,754 |
|
Creditors |
|
|
|
Amounts falling due within one year |
(49,638) |
(49,606) |
|
Net current liabilities |
(36,141) |
(25,852) |
|
Net Assets |
536,718 |
472,474 |
|
Capital and reserves |
|
|
|
Share capital |
3,026 |
2,861 |
|
Share premium account |
183,754 |
153,024 |
|
Special reserve |
35,220 |
35,220 |
|
Capital reserve |
314,930 |
280,897 |
|
Revenue reserve |
(212) |
472 |
|
Shareholders' funds |
536,718 |
472,474 |
|
Net asset value per ordinary share* (after deducting borrowings at book value) |
177.37p |
165.16p |
|
Ordinary shares in issue |
302,598,695 |
286,073,695 |
* Prior year per share restated for the five for one share split on 28 January 2019.
Statement of Changes in Equity
For the year ended 31 October 2019
|
|
Share capital £'000 |
Share premium account £'000 |
Special reserve £'000 |
Capital* reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 November 2018 |
2,861 |
153,024 |
35,220 |
280,897 |
472 |
472,474 |
|
Ordinary shares issued (note 7) |
165 |
30,730 |
- |
- |
- |
30,895 |
|
Net return on ordinary activities after taxation |
- |
- |
- |
34,033 |
(684) |
33,349 |
|
Shareholders' funds at 31 October 2019 |
3,026 |
183,754 |
35,220 |
314,930 |
(212) |
536,718 |
For the year ended 31 October 2018
|
|
Share capital £'000 |
Share premium account £'000 |
Special reserve £'000 |
Capital* reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 November 2017 |
2,450 |
82,180 |
35,220 |
232,020 |
969 |
352,839 |
|
Ordinary shares issued |
411 |
70,844 |
- |
- |
- |
71,255 |
|
Net return on ordinary activities after taxation |
- |
- |
- |
48,877 |
(497) |
48,380 |
|
Shareholders' funds at 31 October 2018 |
2,861 |
153,024 |
35,220 |
280,897 |
472 |
472,474 |
* The capital reserve balance as at 31 October 2019 includes investment holdings gains on fixed asset investments of £180,354,000 (2018 - gains of £143,971,000).
Cash Flow Statement
|
|
For the year ended 31 October 2019 |
For the year ended 31 October 2018 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Net return on ordinary activities before taxation |
|
33,403 |
|
48,434 |
|
Net gains on investments |
|
(37,417) |
|
(51,630) |
|
Currency gains |
|
(182) |
|
(175) |
|
Finance costs of borrowings |
|
1,473 |
|
1,128 |
|
Overseas tax incurred |
|
(56) |
|
(52) |
|
Changes in debtors and creditors |
|
54 |
|
116 |
|
Cash from operations* |
|
(2,725) |
|
(2,179) |
|
Interest paid |
|
(1,469) |
|
(1,083) |
|
Net cash outflow from operating activities |
|
(4,194) |
|
(3,262) |
|
Cash flows from investing activities |
|
|
|
|
|
Acquisitions of investments |
(61,085) |
|
(118,338) |
|
|
Disposal of investments |
23,969 |
|
55,488 |
|
|
Net cash outflow from investing activities |
|
(37,116) |
|
(62,850) |
|
Cash flows from financing activities |
|
|
|
|
|
Shares issued |
30,895 |
|
71,255 |
|
|
Bank loans drawn |
88,580 |
|
25,057 |
|
|
Bank loans repaid |
(88,158) |
|
(12,564) |
|
|
Net cash inflow from financing activities |
|
31,317 |
|
83,748 |
|
(Decrease)/increase in cash and cash equivalents |
|
(9,993) |
|
17,636 |
|
Exchange movements |
|
(272) |
|
1,285 |
|
Cash and cash equivalents at 1 November |
|
23,607 |
|
4,686 |
|
Cash and cash equivalents at 31 October |
|
13,342 |
|
23,607 |
* Cash from operations includes dividends received of £1,026,000 (2018 - £1,086,000) and interest received of £217,000 (2018 - £184,000)
Notes to the Condensed Financial Statements
|
1. |
The Financial Statements for the year to 31 October 2019 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' The accounting policies adopted are consistent with those of the previous financial year. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment. |
||||||||||||||||
|
2. |
Income |
2019 £'000 |
2018 £'000 |
||||||||||||||
|
Income from investments |
|
|
|||||||||||||||
|
UK dividends |
433 |
448 |
|||||||||||||||
|
Overseas dividends |
574 |
638 |
|||||||||||||||
|
Overseas interest |
5 |
- |
|||||||||||||||
|
|
1,012 |
1,086 |
|||||||||||||||
|
Other Income |
|
|
|||||||||||||||
|
Deposit Income |
217 |
184 |
|||||||||||||||
|
Total Income |
1,229 |
1,270 |
|||||||||||||||
|
Total income comprises: |
|
|
|||||||||||||||
|
Dividends from financial assets designated at fair value through profit or loss |
1,007 |
1,086 |
|||||||||||||||
|
Interest from financial assets designated at fair value through profit or loss |
5 |
- |
|||||||||||||||
|
Interest from financial assets not designated at fair value through profit or loss |
217 |
184 |
|||||||||||||||
|
|
1,229 |
1,270 |
|||||||||||||||
|
|
|
||||||||||||||||
|
3. |
|
||||||||||||||||
|
|
Revenue return per ordinary share is based on the net revenue loss on ordinary activities after taxation of £684,000 (2018 - net revenue loss of £497,000) and on 294,171,777 (2018 - 261,676,350) ordinary shares, being the weighted average number of ordinary shares during the year.
Capital return per ordinary share is based on the net capital gain for the financial year of £34,033,000 (2018 - net capital gain of £48,877,000) and on 294,171,777 (2018 - 261,676,350) ordinary shares, being the weighted average number of ordinary shares in issue during the year.
There are no dilutive or potentially dilutive shares in issue.
* Prior year per share restated for the five for one share split on 28 January 2019. |
||||||||||||||||
4. There are no dividends paid and proposed in respect of the financial year. There is no revenue available for distribution by way of dividend for the year (2019 - revenue loss of £684,000; 2018 - revenue loss of £497,000) which is the basis on which the requirements of section 1158 of the Corporation Tax Act are considered.
|
5. |
The fair value of the bank loans at 31 October 2019 was £48,596,000 (31 October 2018 - £48,669,000 ). |
|
|
6. |
The Company incurred transaction costs on purchases of £18,000 (2018- £44,000) and on sales of £13,000 (2018 - £25,000 ). |
|
|
7. |
At the Annual General Meeting held on 23 January 2019 shareholders approved an ordinary resolution that each of the ordinary shares of 5p each in the capital of the Company be subdivided into five ordinary shares of 1p each (the 'New Ordinary Shares'). The New Ordinary Shares were admitted to the Official List of the UK Listing Authority and to trading on the London Stock Exchange's market for listed securities at 8.00am on 28 January 2019). Accordingly, the 57,389,739 ordinary shares of 5p in issue as at 23 January 2019 were sub-divided into 286,948,695 ordinary shares of 1p. The Company has authority to allot shares under section 551 of the Companies Act 2006. The Board has authorised use of this authority to issue new shares at a premium to net asset value in order to enhance the net asset value per share for existing shareholders and improve the liquidity of the Company's shares. In the year to 31 October 2019 the Company issued a total of 16,525,000 shares on a non pre-emptive basis (nominal value £165,000, representing 5.8% of the issued share capital at 31 October 2018) at a premium to net asset value (on the basis of debt valued at book value) raising net proceeds of £30,895,000 (In the year to 31 October 2018 - 41,052,100 shares with a nominal value of £411,000, representing 16.8% of the issued share capital at 31 October 2017 raising net proceeds of £71,255,000). The Company also has authority to buy back shares. In the year to 31 October 2019 no ordinary shares were bought back therefore the Company's authority remains unchanged at 43,013,609 ordinary shares. * Prior period number of shares figures restated for the five for one share split on 28 January 2019. |
|
|
8 |
Glossary of Terms and Alternative Performance Measures ('APM') |
|
|
|
An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. |
|
|
|
Total Assets |
|
|
|
The total value of all assets held less all liabilities other than liabilities in the form of borrowings. |
|
|
|
Net Asset Value ('NAV') |
|
|
|
Also described as shareholders' funds, net asset value is the value of total assets less liabilities (including borrowings). Net asset value can be calculated on the basis of borrowings stated at book value and fair value. An explanation of each basis is provided below. The net asset value per share is calculated by dividing the amount by the number of ordinary shares in issue excluding any shares held in treasury. |
|
|
|
Net Asset Value (Borrowings at Book Value) |
|
|
|
Borrowings are valued at their nominal book value. The value of the borrowings at book and fair value are set out on page 56 of the Annual Report and Financial Statements. |
|
|
|
Net Asset Value (Borrowings at Fair Value) (APM) |
|
|
|
Borrowings are valued at an estimate of their market worth. The value of the borrowings at book and fair value are set out on page 56 of the Annual Report and Financial Statements. |
|
|
|
Net Asset Value (Reconciliation of NAV at Book Value to NAV at Fair Value) |
||
|
|
|
31 October 2019 |
31 October 2018 |
|
Net Asset Value per ordinary share (borrowings at book value) |
177.37p |
165.16p |
|
|
Shareholders' Funds (borrowings at book value) |
£536,718,000 |
£472,474,000 |
|
|
Add: book value of borrowings |
£48,596,000 |
£48,628,000 |
|
|
Less: fair value of borrowings |
(£48,596,000) |
(£48,669,000) |
|
|
|
Shareholders' funds (borrowings at fair value) |
£536,718,000 |
£472,433,000 |
|
|
Number of shares in issue |
302,598,695 |
286,073,695 |
|
|
Net Asset Value per ordinary share (borrowings at fair value)* |
177.37p |
165.14p |
|
|
At 31 October 2019 all borrowings are in the form of short term floating rate borrowings and their fair value is considered equal to their book value, hence there is no difference in the net asset value at book value and fair value. * Prior year figures restated for the five for one share split on 28 January 2019. |
||
|
|
Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings. |
||
|
8. |
Glossary of Terms and Alternative Performance Measures ('APM') (Ctd) |
|
|
Discount/Premium (APM) |
|
|
As stock markets and share prices vary, an investment trust's share price is rarely the same as its net asset value. When the share price is lower than the net asset value per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage of the net asset value per share. If the share price is higher than the net asset value per share, this situation is called a premium. |
|
|
Total Return (APM) |
|
|
The |
|
|
Compound Annual Return (APM) |
|
|
The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compound value at the start of each year. |
|
|
Ongoing Charges (APM) |
|
|
The total recurring expenses (excluding the Company's cost of dealing in investments and borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies. |
|
|
Ongoing Charges Calculation |
|
|
31 October 2019 |
31 October 2018 |
|
Investment management fee |
£3,281,000 |
£2,776,000 |
|
Other administrative expenses |
£671,000 |
£737,000 |
|
Total Expenses (a) |
£3,952,000 |
£3,513,000 |
|
Average daily cum-income net asset value (with debt at fair value) (b) |
£525,391,000 |
£432,553,000 |
|
Ongoing charges (a)÷(b) (expressed as a percentage) |
0.75% |
0.81% |
|
|
Gearing (APM) |
||
|
|
At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. |
||
|
|
Gearing is the Company's borrowings at book value less cash and cash equivalents (including any outstanding trade settlements) expressed as a percentage of shareholders' funds. |
||
|
|
Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. |
||
|
|
|
31 October 2019 |
31 October 2018 |
|
Borrowings (at book value) |
£48,596,000 |
£48,628,000 |
|
|
Less: cash and cash equivalents |
(£13,342,000) |
(£23,607,000) |
|
|
Less: sales for subsequent settlement |
- |
- |
|
|
Add: purchases for subsequent settlement |
- |
- |
|
|
|
Adjusted borrowings (a) |
£35,254,000 |
£25,021,000 |
|
|
Shareholders' funds |
£536,718,000 |
£472,474,000 |
|
|
Gearing: (a) as a percentage of (b) |
7% |
5% |
|
|
|
31 October 2019 |
31 October 2018 |
|
Borrowings (at book value) (a) |
£48,596,000 |
£48,628,000 |
|
|
Shareholders' funds (b) |
£536,718,000 |
£472,474,000 |
|
|
Potential gearing (a) ÷ (b) (expressed as a percentage) |
9% |
10% |
|
|
8. |
Glossary of Terms and Alternative Performance Measures ('APM') (Ctd) |
||
|
|
Leverage (APM) |
||
|
|
For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. |
||
|
|
Active Share (APM) |
||
|
|
Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index. |
||
|
|
Share Split |
||
|
|
A share split (or stock split) is the process by which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases, the total value of the shares remains the same with respect to the pre-split value. |
||
|
|
Unlisted Company |
||
|
|
An unlisted company means a company whose shares are not available to the general public for trading and not listed on a stock exchange.
|
||
Third Party Data Provider Disclaimer
No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.
No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.
S&P Index Data
The S&P Global Small Cap Index ('Index') is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates ('SPDJI'). Standard & Poor's® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC, a division of S&P Global ('S&P'); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ('Dow Jones'). Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
|
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- ends -
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