Annual Financial Report
RNS Announcement: Results
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Edinburgh Worldwide Investment Trust plc |
Legal Entity Identifier: 213800JUA8RKIDDLH380
Regulated Information Classification: Additional regulated information required to be disclosed under the applicable laws.
The following is the results announcement for the year to 31 October 2020 which was approved by the Board on 9 December 2020.
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Results for the year to 31 October 2020
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¾ Over the year to 31 October 2020 the Company's net asset value per share, cum income with debt at fair value, increased by 57.8% and the share price by 63.9%. The comparative index, the S&P Global Small Cap Index* total return, increased by 0.4% in sterling terms. ¾ A number of the Company's holdings contributed to the positive performance, notably: Tesla, an electric car, autonomous driving and solar energy company; Ocado, an online grocery retailer and technology provider; Teladoc, a telemedicine service provider; and Chegg, an online education company. ¾ No final dividend is being paid. Should the level of underlying income increase in future years, the Board will seek to distribute the minimum permissible to maintain investment trust status as the Company's objective remains that of generating capital growth. ¾ Over the course of the financial year, the Company issued over 51.7 million new shares at a premium to its NAV, raising net proceeds of £133.0 million. ¾ As at the financial year end, the Company held nine unlisted investments accounting for 5.8% of total assets (2019 - 5.5% of total assets in seven holdings). |
Edinburgh Worldwide's objective is the achievement of long term capital growth by investing primarily in listed companies throughout the world. The Trust has total assets of £1,040.5 million (before deduction of loans of £48.7 million) as at 31 October 2020.
Edinburgh Worldwide is managed by Baillie Gifford & Co Limited, the Edinburgh based fund management group with around £315 billion under management and advice as at 9 December 2020.
Past performance is not a guide to future performance.
The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares. Investment in investment trusts should be regarded as medium to long-term. You can find up to date performance information about Edinburgh Worldwide on the Edinburgh Worldwide page of the Managers' website at http://www.edinburghworldwide.co.uk ‡
For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
* See disclaimer at the end of this announcement.
‡ 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.
10 December 2020
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co Mark Knight, Director, Four Communications
Tel: 0131 275 2000 Tel: 0203 697 4200 or 07803 758810
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Chairman's Statement |
Covid-19
Much of the period under review has been overshadowed by the Covid-19 pandemic. Quite apart from the devasting human cost, this pandemic has also created enormous economic and business disruption. In response to these challenges, Baillie Gifford and other third-party service providers have adopted remote working practices and protocols, making full use of technology, in order to continue to provide a full service that has progressed uninterrupted. I am pleased to report that, as a result of these efforts, the oversight and management of the Company's affairs has proceeded without significant dislocation due to the pandemic. However, there have, of course, been some enforced operational changes to the way we operate, for instance undertaking Board meetings online and the restrictions on holding physical General Meetings of the Company.
Performance
In the year to 31 October 2020, the Company's net asset value ('NAV') per share, when calculated by deducting borrowings at fair value, increased by 57.8% and the share price by 63.9%, both in total return terms. The comparative index, the S&P Global Small Cap Index * total return, increased by 0.4% in sterling terms during this period. Over the course of the financial year the share price averaged a 2.0% premium to net assets, with borrowings deducted at par value. Portfolio turnover † was 8.4% compared to 4.5% in 2019 and the ongoing charges have reduced to 0.72% from 0.75%.
Over the last twelve months the majority of holdings in the portfolio have contributed to the good relative and absolute performance. Of note has been the performance of: Tesla, an electric car, autonomous driving and solar energy company; Ocado, an online grocery retailer and technology provider; Teladoc, a telemedicine service provider; and Chegg, an online education company. In aggregate, the underlying performance of the holdings in the portfolio continues to progress as hoped and in some cases events of the past year have accelerated this trend. Greater detail on this can be found within the Managers' Review.
The Company's portfolio has been managed with a focus on the opportunity set lower down the market capitalisation spectrum since the end of January 2014 and I would recommend shareholders read the portfolio managers' articulation of their investment practice and philosophy in the Managers' Review and the subsequent pages. It is pleasing to note the 221.9% growth in the NAV (total return) since then is significantly ahead of the 83.8% achieved by the comparative index. The chart below shows the distribution of returns for all the stocks held within the portfolio since 31 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 31 October 2020 or the date in which the holding was fully sold from the portfolio.
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/1439I_1-2020-12-9.pdf
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. Issuance at a premium enhances the NAV per share for existing shareholders, dilutes ongoing costs and helps with the trading liquidity of the shares of the Company.
At the end of October 2019, the Company had a market capitalisation of around £530.8 million and was a constituent of the FTSE Small Cap Index. Twelve months on, this was £1,018.7 million and the Company is now a constituent of the FTSE 250 Index, having been promoted over the summer. Over the course of the last financial year, the Company has issued over 51.7 million new shares at a premium to its NAV, raising net proceeds of £133.0 million and increasing the NAV per share by 0.44%. This equates to 17.1% of the issued share capital at the start of the year and the Company has published a Prospectus in order to enable it to issue more than 20% over a twelve-month period. Stock issuance, along with good investment performance and the tiered management fee, has contributed to the reduction in the Company's ongoing charges for the year.
Unlisted Investments
The Managers have shareholder authority to invest up to 15% of the Company's total assets, at the time of initial investment, in unlisted investments. As at the Company's year end, the portfolio weighting in unlisted investments stood at 5.8% of total assets, invested in nine companies (2019 - 5.5% of total assets in seven companies). Two new unlisted investments were made during the year: Epic Games, a US gaming platform; and, Graphcore Limited, a UK developer of intelligent computing solutions. Additions were made to the existing investments in Oxford Nanopore Technologies, Reaction Engines and Space Exploration Technologies ('SpaceX'). The other unlisted investments in the portfolio are Akili Interactive Labs, KSQ Therapeutics, PsiQuantum and Spire Global.
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% of shareholders' funds. Over the year, the invested equity gearing ranged between -1.0% and +6.6%, and stood at +0.9% of shareholders' funds at the financial year end (2019 - +6.6%).
As at 31 October 2020, the Company had a five year £25 million revolving credit facility with National Australia Bank Limited with an expiry date of 29 June 2023 and an additional five year £36 million revolving credit facility with National Australia Bank Limited with an expiry date of 30 September 2024. As at 31 October 2020, the Company had drawings of €2,821,800, US$37,090,500 and £17,500,000 (equating to total borrowings of £48,728,000 in sterling terms).
Earnings and Dividend
The Company's objective is that of generating capital growth and investors should not expect any income from this investment. This year the net revenue return per share was a negative 0.46p (2019 - negative 0.23p). 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
I am pleased to report that during the course of the year both Ms Caroline Roxburgh and Mr Jonathan Simpson-Dent were appointed to the Board with effect from 1 February 2020. Caroline, a qualified Chartered Accountant, is a former partner with a global professional services firm and has over thirty years' experience advising boards on business management, risk and assurance. Jonathan, also a qualified Chartered Accountant, has spent the majority of his career running entrepreneurial private equity and listed mid-cap businesses across multiple sectors. Both appointments fall to be ratified by shareholders as part of the 20 January 2021 Annual General Meeting business. Further information on their respective backgrounds can be found on pages 23 and 24 of the Annual Report and Financial Statements.
In my report last year, I highlighted that Mr William Ducas intended to retire from the Board in 2020. Due to the uncertainties arising from the Covid-19 pandemic, and bearing in mind that the Board has been unable to meet in person since January 2020, the Board has asked William to defer his retirement in order to provide continuity and to enable the Company to benefit from his considerable experience. Accordingly, William will stand for re-election to the Board for one final time. It is intended that William will retire from the Board by the end of June, 2021.
Investment Outlook
The past year has been marked by continued market turbulence and dislocation driven largely as a consequence of Covid-19. Further uncertainty has been created by the US Presidential election and, closer to home, the continuing Brexit negotiations. Rather than focusing on macro-economic developments, your portfolio 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.
Enforced or abrupt shocks to the system act to melt away inertia. Events of 2020 have seemingly accelerated the rate of change that companies and business models are undergoing with a push for more flexibility across multiple fronts and digital-first models prevailing. Your Company's portfolio is well-positioned for this. It should not come as a surprise therefore that the portfolio managers and Board remain enthused by the prospects for the holdings within the portfolio. Whilst markets exhibit volatility, the investment trust structure permits the portfolio managers and discerning long-term investors to take positions in exciting, dynamic and innovative companies for the long term.
An overview of the portfolio is provided in the Managers' Review.
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 20 January 2021. It is intended that the meeting itself will involve the minimum number of people necessary for it to be quorate. 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.
As a consequence of Covid-19 and the uncertainty regarding government policy on group meetings, shareholders are being encouraged to submit their votes by proxy ahead of the meeting rather than attempt to do so in person; anyone not authorised to attend will likely be declined entry for health reasons. Should shareholders have questions for the Board or the Managers they are welcome as always to submit them by email to trustenquiries@bailliegifford.com or call 0800 917 2112. Should the situation change, further information will be made available through the Company's website at www.edinburghworldwide.co.uk and the London Stock
Exchange regulatory news service. Further information, including the proposed resolutions and information on the deadlines for submitting votes by proxy, can be found on pages 65 to 67 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 and there are also special arrangements for holders of shares through the Aberdeen Standard Investments Share Plan, Individual Savings Account and Investment Plan for Children who are provided with a Form of Direction. 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 submit votes in advance of the Annual General Meeting.
Henry CT Strutt
Chairman
9 December 2020
* See disclaimer at the end of this announcement
† calculated by dividing the value of sales by the average of the opening and closing value of the investment portfolio
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.
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Managers' Review |
What we seek to offer
Investing the hard-earned savings of others is a privilege. That feeling carries even greater significance when the potential outcomes from that investment go beyond financial returns and have a real-world benefit. However, we do not say that out of any sense of self-importance for what we seek to do as growth investors. Our preference towards ambitious, 'problem-solving' companies comes from a belief that the innovation and progress that they foster can significantly improve the quality of outcomes in a diverse range of industries over the long term. We concede that such a process is fiendishly difficult to track with standard economic or financial metrics. But given patience and an acceptance of delayed gratification the outcomes can be substantial - both in terms of financial returns but also in the benefits which can accrue to the wider world along the way.
As the frontiers of innovation continue to broaden and deepen, we are encouraged to find the opportunities, perhaps even the requirement, for this dual-faceted approach to investment are growing. We see several illustrations of this in the stocks which have driven the Company's asset growth over the past year and also in the recent additions to the portfolio, both discussed in greater detail later in this report.
In seeking out companies that can really make a difference we prefer to point our idea-generation radar lower down the market capitalisation spectrum. The reason for this is twofold. First, the traits that we believe are most associated with propelling companies on a path to greatness seem to be more commonly associated with younger, highly ambitious smaller companies (even if such companies are still rare in absolute frequency). Such traits include a willingness to experiment with new approaches, a vision that identifies and works towards a better way of solving a problem, the ability to galvanise a team around an ambitious goal, retaining a degree of nimbleness and entrepreneurial tenacity to adapt to the evolving challenge. To be clear, such traits are not exclusive to ambitious smaller companies, but their applicability and impact often count for more if allowed to flourish outside the constraints of bureaucracy and a large company mindset. Second, to really unlock the compounding power of long-term growth investing we believe it is important to identify high potential businesses early on their evolutionary path. We fully recognise that identifying opportunities 'early' doesn't necessarily map perfectly to them being 'small' companies in stock market terms (an important reasoning behind our growing base of unlisted holdings in the portfolio). However, the broad tenet of a company's size potentially capturing latent, undiscovered potential holds true given the tendency of stock markets to pay only for what they can see.
Whereas positive share price performance in some of the portfolio holdings means they can no longer be conventionality labelled as 'small' we believe they retain many of the attributes that initially attracted us to them. Moreover, these attributes can now synergise with operational progress and commercial clout. While the price appreciation unavoidably eats into some of the pure potential these companies initially offered us, a more relevant impact is likely to be a marked derisking of progress from this point onwards. They may not be 'small' but they are immature to where we believe they might ultimately reach and their early success on that journey makes us more confident that they can progress from being good to truly great investments.
Reflections on the current year
2020 has witnessed a truly staggering turn of events with enforced adaptation by individuals, institutions, business and society. While the costs to healthcare systems are still widespread and ongoing, there does at least appear to be a path to progress based on a deeper understanding of Covid-19 as a disease and therapeutic agents that can either mitigate its impact or severely blunt its spread. In under a year since an unknown, insidious pathogen emerged it has been extensively characterised, a range of diagnostic tests developed, therapies fast-tracked and vaccines developed and extensively tested. The speed at which this insight has been gleaned and then harnessed is breath-taking and speaks to much of the accelerated entrepreneurial spirit we discussed earlier.
In this year's Interim Report, we explored what might be the legacy of the Covid-19 pandemic. We noted that previous unexpected crises, albeit very different in nature to the pandemic, had typically served as longer term catalysts for a change in behaviours and propelled a new wave of business opportunity. At the core of this thesis is the belief that constraints breed resourcefulness and ingenuity, something we feel to be both micro and macro in scope. In its simplest form it encourages adaptability at the individual level: an openness to engage with new practices through the melting away of embedded scepticism and inertia. In its more abstract form, it will provide the fuel to the innovators and the entrepreneur to build for the future.
Our growing sense is that this adaptation will underpin an acceleration in the rate of change across many aspects of our lives. Much has been written around the immediate adaption that was required: the surging e-commerce orders, the rapid shift to digital forms for delivering healthcare, education and entertainment etc. While some of this will undoubtedly normalise, in many cases it will simply whet the appetite amongst both consumers and businesses as to just what is possible. Greater volume through these channels will drive the virtuous circle of scale, greater investment and ongoing improvement. In many areas it feels as if the path to offerings that are both better and cheaper is tantalisingly close if not here already.
The acceleration to which we refer, both that observed to date and that which we would expect to come through over the coming years, is not merely about growth rates. The more profound dynamic at work is that digital first business models will increasingly become the accepted norm in many areas. As we have seen in the rise of the internet over the past two decades, competitive dynamics in a digital world tend to operate around first mover advantage and reinforcing networks effects. Consequently, a likely effect of the pandemic will be accelerated evolution in competitive dynamics in areas of huge opportunity with the spoils of success accruing at a faster rate to a smaller number of winners. As such we see our challenge to be about identifying the companies best positioned to exploit the opportunity over the coming years. Growth rates will be an output from that but more significant will be the strategic positioning and evolutionary path that a business is likely to experience.
We are acutely aware that many individuals and businesses will bear a huge cost from the current pandemic with the financial and economic impacts reverberating for many years. The companies we invest in are clearly not cocooned from this backdrop. However, for the sizable majority of the portfolio's holdings the opportunity afforded by structural growth, disrupting incumbents and taking of market share are likely to comfortably offset any economic headwind over the longer term. In actively looking for companies that are innovating and trying to move the world forward we believe we are concentrating on an opportunity set whose own actions will be the greatest determinant of their own success or failure. As observers along frontiers of innovation in a wide range of industries and applications we continue to be excited by the opportunities that abound. Consequently, we feel that the current portfolio and investment approach is as relevant as it's ever been.
Portfolio update
In aggregate the portfolio has performed strongly in the year to 31 October 2020. This was driven by several stocks producing sizable gains over the period exemplified by 22 holdings more than doubling their share price and 7 holdings more than tripling. The most significant contribution to performance came from the long-standing position in Tesla, the electric vehicle company. Through broadening its manufacturing footprint, expanding its product range and a widening of the competitive gap on several fronts versus the incumbent automotive companies, Tesla continues to capitalise on its initial status as a technology-powered disruptor in a vast end market. Ongoing battery and autonomous driving developments combined with likely benefits of manufacturing scale in the face of robust demand give us confidence that the company can further build on its growth strength and differentiation. We did make a reduction to the holding, but this was based on maintaining portfolio diversification. Despite this, it remains our largest portfolio holding at year end and we are excited about the path from here.
The consequences of decades worth of over reliance upon fossil fuel burning as the dominant energy source is arguably the most daunting challenge facing the world. Increasingly we expect significant entrepreneurial resource to be directed at this challenge and while still early in that response progress at companies like Tesla, or the UK fuel cell company Ceres Power, give some cause for optimism.
The robust contribution to performance from holdings such as Ocado (online grocery), Teladoc (telemedicine), Chegg (online education), MarketAxess (electronic bond trading), Zillow (online property portal) and Wayfair (online home furnishings) are indicative of the ascendency of digital platforms in the current environment. It must be expected that some of the immediate operational strength of these companies stems from unnaturally skewed demand and therefore might be expected to moderate post the pandemic. However, we believe the lasting impact is likely to be that the services provided by these companies go from being perceived merely as alternatives to a more scalable, future-proofed way forward.
In the Interim Report we discussed the purchases of LiveRamp, EverQuote, Huya, Tabula Rasa and Graphcore. New purchases in the second half of the Company's financial year comprised Sutro Biopharma, Q2 Holdings, Agora, Berkeley Lights, Cloudera, LivePerson, American Superconductor, Everbridge and Epic Games.
Sutro Biopharma has developed a novel cell-free protein synthesis technology. This represents a much more scalable approach than traditional cell cultures techniques and allows unprecedented precision in protein design and structure. It makes it possible to design and rapidly produce novel proteins with optimal therapeutic efficacy and stable, predictable pharmacokinetic features. Sutro is looking to commercialise the technology by developing drugs for the treatment of cancer patients, both through partnerships with large pharmaceutical companies and on its own.
Q2 Holdings sells cloud-based virtual banking software to regional banks and credit unions in the US. Its product portfolio is geared toward a bank's front-end operations, for example online access for account holders, voice messaging, mobile banking, bill payments, etc. Its aim is to help small regional banks compete with larger national banks by providing them with access to up-to-date technology. This is critical as banking is increasingly becoming digital. We see significant opportunity for Q2 Holdings to take share amongst the fragmented base of regional banks backed by a strong structural driver of digitisation within customer aspects of banks.
Agora Inc (ADR) is a Chinese company that provides a real-time engagement platform to application developers allowing them to easily embed high quality video-based communication in their applications (e.g. apps focused on gaming, education or telemedicine). Through working with many of the leading Chinese app developers, Agora has built significant mindshare within its core market, increasingly this translates to much faster development cycles as it can refine the product with high volume real-world data and not be heavily dependent upon simulated scenarios.
Berkeley Lights develops equipment that enables the precise control and characterisation of single cells. Its technology is based on using light to control the movements of fluid and cells on a semiconductor chip. This has the potential to simplify researchers' workflow, speed up experiments and generate more insights. Berkeley Lights is focusing on commercialising the equipment for the antibody and synthetic biology markets. Longer-term we see an opportunity for the technology to be used in cell therapy application which could markedly expand its end market potential.
Cloudera sells software which helps businesses store, manage and analyse their increasingly large and complex datasets . Over a year ago Cloudera merged with its only direct competitor, leaving the combined entity in a much stronger position. Product innovation has meaningfully accelerated since then and the company launched a range of new offerings which allow customers to manage, analyse and interface with data across any environment (on premise or in the cloud, public or private) with a single security and governance framework that persists across the entire environment. The ease of use of the updated software and the operational and economic benefits combine into an interesting value proposition for both existing and new customers.
LivePerson is a software business focused on messaging-based communication between businesses and their customers. Asynchronous messaging is emerging as the preferred communication method for many consumers and is enabling businesses to increasingly move their customer service function away from inefficient and costly call centres. Through offering a high degree of functionality and interoperability with other systems, alongside the inherent simplicity of short form communication, LivePerson has an interesting opportunity to use Machine Learning to try and automate a significant portion of customer-initiated messaging communications. This should drive further efficiency gains for its customers and increasingly opens opportunities for messaging to move closer to the transaction and not just being a customer service tool.
American Superconductor specialises in the design and manufacture of power systems and superconducting wire. Whilst the company has had mixed fortunes operating in the wind turbine industry over the past decade, consistent investment in R&D has laid the ground for sizeable new opportunities to emerge in naval power systems and renewable grid infrastructure.
Everbridge is a software company that helps its customers to automate their responses to critical events in order to keep their employees and assets safe plus minimise disruption. The company's early focus was on population alerting in critical events such a weather emergency or an earthquake. It has capitalised on its success in this area through broadening its offering and building deeper data links into customers. As such the company now offers a suite of tools that help an organisation understand critical situational awareness across both its people, facilities, inventory, supply chain and IT operations. With many businesses and institutions placing greater strategic emphasis on operational resilience we think Everbridge is uniquely positioned and that its offering will increasingly be viewed as essential.
Epic Games , u nder the leadership of founder Tim Sweeney, has adapted to and often driven important games industry shifts that have occurred since the business was founded in the 1990s. It is the studio behind Fortnite and as the developer of the Unreal Engine, the industry's largest third party game engine, it offers the tool set that enables more and higher quality games to be made. In addition, Epic Store is changing how consumers buy games and offers better incentives to developers. Each of these businesses offer great investment opportunities in their own right, but together they may be the foundations upon which large changes in video game consumption, development and distribution are built.
We are excited about these additions to the portfolio and look forward to observing how these companies evolve over the coming years.
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.
Baillie Gifford Statement on Stewardship
Reclaiming Activism for Long-Term Investors
Baillie Gifford's over-arching ethos is that we are 'actual' investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies.
Our Stewardship Principles
Prioritisation of long-term value creation
We encourage company management and their boards to be ambitious and focus their investments on long-term value creation. We understand that it is easy for businesses to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long-term outcomes. We regard it as our responsibility to steer businesses away from destructive financial engineering towards activities that create genuine economic value over the long run. We are happy that our value will often be in supporting management when others do not.
A constructive and purposeful board
We believe that boards play a key role in supporting corporate success and representing the interests of minority shareholders. There is no fixed formula, but it is our expectation that boards have the resources, cognitive diversity and information they need to fulfil these responsibilities. We believe that a board works best when there is strong independent representation able to assist, advise and constructively test the thinking of management.
Long-term focused remuneration with stretching targets
We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create alignment with genuine long-term shareholders. We are accepting of significant pay-outs to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.
Fair treatment of stakeholders
We believe it is in the long-term interests of companies to maintain strong relationships with all stakeholders, treating employees, customers, suppliers, governments and regulators in a fair and transparent manner. We do not believe in one-size-fits-all governance and we recognise that different shareholder structures are appropriate for different businesses. However, regardless of structure, companies must always respect the rights of all equity owners.
Sustainable business practices
We look for companies to act as responsible corporate citizens, working within the spirit and not just the letter of the laws and regulations that govern them. We believe that corporate success will only be sustained if a business's long-run impact on society and the environment is taken into account. Management and boards should therefore understand and regularly review this aspect of their activities, disclosing such information publicly alongside plans for ongoing improvement.
Income statement |
| For the year ended 31 October 2020 | For the year ended 31 October 2019 | |||||||
| Revenue £'000 | Capital £'000 | Total £'000 |
| Revenue £'000 | Capital £'000 | Total £'000 |
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Gains on investments | - | 329,236 | 329,236 |
| - | 37,417 | 37,417 |
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Currency (losses)/gains | - | (1,360) | (1,360) |
| - | 182 | 182 |
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Income (note 2) | 773 | - | 773 |
| 1,229 | - | 1,229 |
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Investment management fee | (1,145) | (3,434) | (4,579) |
| (820) | (2,461) | (3,281) |
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Other administrative expenses | (715) | - | (715) |
| (671) | - | (671) |
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Net return before finance costs and taxation | (1,087) | 324,442 | 323,355 |
| (262) | 35,138 | 34,876 |
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Finance costs of borrowings | (331) | (991) | (1,322) |
| (368) | (1,105) | (1,473) |
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Net return before taxation | (1,418) | 323,451 | 322,033 |
| (630) | 34,033 | 33,403 |
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Tax | (61) | - | (61) |
| (54) | - | (54) |
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Net return after taxation | (1,479) | 323,451 | 321,972 |
| (684) | 34,033 | 33,349 |
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Net return per ordinary share (note 4) | (0.46p) | 100.89p | 100.43p |
| (0.23p) | 11.57p | 11.34p |
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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 after taxation is both the profit and comprehensive income for the year.
Balance sheet |
| At 31 October 2020 £'000 | At 31 October 2019 £'000 |
Fixed assets |
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Investments held at fair value through profit or loss | 1,002,194 | 572,859 |
Current assets |
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Debtors | 160 | 155 |
Cash and cash equivalents | 40,894 | 13,342 |
| 41,054 | 13,497 |
Creditors |
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Amounts falling due within one year (note 8) | (51,514) | (49,638) |
Net current liabilities | (10,460) | (36,141) |
Net assets | 991,734 | 536,718 |
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Capital and reserves |
|
|
Share capital | 3,543 | 3,026 |
Share premium account | 316,281 | 183,754 |
Special reserve | 35,220 | 35,220 |
Capital reserve | 638,381 | 314,930 |
Revenue reserve | (1,691) | (212) |
Shareholders' funds | 991,734 | 536,718 |
Net asset value per ordinary share | 279.90p | 177.37p |
Ordinary shares in issue (note 9) | 354,318,695 | 302,598,695 |
Statement of changes in equity |
For the year ended 31 October 2020
|
Share capital £'000 | Share premium account £'000 |
Special reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' funds £'000 |
Shareholders' funds at 1 November 2019 | 3,026 | 183,754 | 35,220 | 314,930 | (212) | 536,718 |
Ordinary shares issued (note 9) | 517 | 132,527 | - | - | - | 133,044 |
Net return after taxation | - | - | - | 323,451 | (1,479) | 321,972 |
Shareholders' funds at 31 October 2020 | 3,543 | 316,281 | 35,220 | 638,381 | (1,691) | 991,734 |
For the year ended 31 October 2019
|
Share capital £'000 | Share premium account £'000 |
Special reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' funds £'000 |
Shareholders' funds at 1 November 2018 | 2,861 | 153,024 | 35,220 | 280,897 | 472 | 472,474 |
Ordinary shares issued (note 9) | 165 | 30,730 | - | - | - | 30,895 |
Net return after taxation | - | - | - | 34,033 | (684) | 33,349 |
Shareholders' funds at 31 October 2019 | 3,026 | 183,754 | 35,220 | 314,930 | (212) | 536,718 |
* The capital reserve balance as at 31 October 2020 includes investment holdings gains on fixed asset investments of £476,217,000 (2019 - gains of £180,354,000).
Cash flow statement |
| For the year ended 31 October 2020 | For the year ended 31 October 2019 | ||
| £'000 | £'000 | £'000 | £'000 |
Cash flows from operating activities |
|
|
|
|
Net return before taxation |
| 322,033 |
| 33,403 |
Net gains on investments |
| (329,236) |
| (37,417) |
Currency losses/(gains) |
| 1,360 |
| (182) |
Finance costs of borrowings |
| 1,322 |
| 1,473 |
Overseas withholding tax incurred |
| (62) |
| (56) |
Changes in debtors and creditors |
| 623 |
| 54 |
Cash from operations* |
| (3,960) |
| (2,725) |
Interest paid |
| (1,378) |
| (1,469) |
Net cash outflow from operating activities |
| (5,338) |
| (4,194) |
Cash flows from investing activities |
|
|
|
|
Acquisitions of investments | (164,843) |
| (61,085) |
|
Disposals of investments | 65,917 |
| 23,969 |
|
Net cash outflow from investing activities |
| (98,926) |
| (37,116) |
Cash flows from financing activities |
|
|
|
|
Ordinary shares issued (note 9) | 133,044 |
| 30,895 |
|
Bank loans drawn down | 198,933 |
| 88,580 |
|
Bank loans repaid | (198,933) |
| (88,158) |
|
Net cash inflow from financing activities |
| 133,044 |
| 31,317 |
Increase/(decrease) in cash and cash equivalents |
| 28,780 |
| (9,993) |
Exchange movements |
| (1,228) |
| (272) |
Cash and cash equivalents at 1 November |
| 13,342 |
| 23,607 |
Cash and cash equivalents at 31 October |
| 40,894 |
| 13,342 |
|
|
|
|
|
* Cash from operations includes dividends received of £727,000 (2019 - £1,026,000) and deposit interest received of £60,000
(2019 - £217,000)
Twenty largest holdings and twelve month performance at 31 October 2020
|
| ||||||
Name |
Business |
Country | Fair Value 2020 £'000 | % of total assets* | Absolute† performance % | Relative† performance % | |
Tesla | Electric vehicles, autonomous driving and solar energy |
USA |
51,332 |
4.9 |
517.3 |
514.9 | |
Ocado | Online grocery retailer and technology provider |
UK |
49,460 |
4.8 |
71.3 |
70.6 | |
MarketAxess | Electronic bond trading platform | USA | 46,703 | 4.5 | 47.0 | 46.0 | |
Zillow# | US online real estate portal | USA | 39,507 | 3.8 | 172.9 | 171.8 | |
Chegg | Online educational company | USA | 32,964 | 3.2 | 139.7 | 138.8 | |
Anylam Pharmaceuticals | Drug developer focused on harnessing gene silencing technology |
USA |
32,238 |
3.1 |
41.9 |
41.3 | |
Novocure | Manufacturer of medical devices for cancer treatment |
USA |
28,789 |
2.8 |
71.1 |
70.4 | |
Teladoc | Telemedicine services provider | USA | 26,308 | 2.5 | 156.7 | 155.7 | |
LendingTree | Online consumer finance marketplace | USA | 25,321 | 2.4 | (10.0) | (10.4) | |
STAAR Surgical | Ophthalmic implants for vision correction | USA | 21,787 | 2.1 | 121.4 | 120.5 | |
Space Exploration Technologies#U | Designs, manufactures and launches advanced rockets and spacecraft |
USA |
20,546 |
1.9 |
11.4‡ |
11.0‡ | |
BlackLine | Enterprise financial software provider | USA | 19,058 | 1.8 | 108.3 | 107.5 | |
Kingdee International Software |
Enterprise management software provider |
China |
17,622 |
1.7 |
139.1 |
138.2 | |
Wayfair | Online furniture and homeware retailer | USA | 16,691 | 1.6 | 206.1 | 204.9 | |
Zai Lab ADR | Chinese bio-pharmaceutical development and distribution company |
China |
16,206 |
1.6 |
142.8 |
141.9 | |
Xero | Cloud based accounting software for small and medium-sized enterprises | New Zealand |
15,729 |
1.5 |
62.9 |
62.2 | |
MonotaRO | Online business supplies | Japan | 14,932 | 1.4 | 82.4 | 81.7 | |
Exact Sciences | Non-invasive molecular tests for early cancer detection |
USA |
14,746 |
1.4 |
42.4 |
41.9 | |
M3 | Online medical database | Japan | 14,556 | 1.4 | 180.0 | 178.9 | |
Appian | Enterprise software developer | USA | 14,160 | 1.3 | 41.7 | 41.1 | |
|
|
| 518,655 | 49.7 |
|
| |
* Total assets comprises all assets held less all liabilities other than liabilities in the form of borrowings.
† Absolute and relative performance has been calculated on a total return basis over the period 1 November 2019 to 31 October 2020. 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 aggregates of both lines of stock.
‡ Figures relate to part-period returns where security has been purchased or added to during the period.
U Denotes unlisted security.
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 2020
|
| |||||
Name |
Business |
Country | Fair Value 2020 £'000 |
% of total assets | Fair Value 2019 £'000 | |
Tesla | Electric vehicles, autonomous driving and solar energy |
USA |
51,332 |
4.9 |
10,929 | |
Ocado | Online grocery retailer and technology provider | UK | 49,460 | 4.8 | 28,883 | |
MarketAxess | Electronic bond trading platform | USA | 46,703 | 4.5 | 31,837 | |
Zillow Class C | US online real estate portal | USA | 33,235 | 3.2 | 12,205 | |
Zillow Class A | US online real estate portal | USA | 6,272 | 0.6 | 2,274 | |
|
|
| 39,507 | 3.8 | 14,479 | |
Chegg | Online educational company | USA | 32,964 | 3.2 | 13,749 | |
Alnylam Pharmaceuticals | Drug developer focused on harnessing gene silencing technology |
USA |
32,238 |
3.1 |
22,046 | |
Novocure | Manufacturer of medical devices for cancer treatment |
USA |
28,789 |
2.8 |
21,709 | |
Teladoc | Telemedicine services provider | USA | 26,308 | 2.5 | 10,247 | |
LendingTree | Online consumer finance marketplace | USA | 25,321 | 2.4 | 28,112 | |
STAAR Surgical | Ophthalmic implants for vision correction | USA | 21,787 | 2.1 | 9,142 | |
Space Exploration Technologies Series J Preferred U | Designs, manufactures and launches advanced rockets and spacecraft
|
USA
|
5,613
|
0.5
|
4,446
| |
Space Exploration Technologies Series K Preferred U |
Designs, manufactures and launches advanced rockets and spacecraft |
USA
|
2,559
|
0.2
|
2,026
| |
Space Exploration Technologies Series N Preferred U | Designs, manufactures and launches advanced rockets and spacecraft |
USA |
12,374 |
1.2 |
- | |
|
|
| 20,546 | 1.9 | 6,472 | |
BlackLine | Enterprise financial software provider | USA | 19,058 | 1.8 | 5,027 | |
Kingdee International Software | Enterprise management software provider |
China |
17,622 |
1.7 |
6,483 | |
Wayfair | Online furniture and homeware retailer | USA | 16,691 | 1.6 | 7,736 | |
Zai Lab ADR | Chinese bio-pharmaceutical development and distribution company |
China |
16,206 |
1.6 |
5,614 | |
Xero | Cloud based accounting software for small and medium-sized enterprises | New Zealand |
15,729 |
1.5 |
9,653 | |
MonotaRO | Online business supplies | Japan | 14,932 | 1.4 | 8,222 | |
Exact Sciences | Non-invasive molecular tests for early cancer detection |
USA |
14,746 |
1.4 |
10,369 | |
M3 | Online medical database | Japan | 14,556 | 1.4 | 5,212 | |
Appian | Enterprise software developer | USA | 14,160 | 1.3 | 6,571 | |
LiveRamp | Marketing technology company | USA | 13,392 | 1.3 | - | |
AeroVironment | Small unmanned aircraft and tactical missile systems |
USA |
13,022 |
1.3 |
9,869 | |
PureTech Health | IP commercialisation focused on healthcare |
UK |
12,951 |
1.3 |
12,401 | |
Genmab | Antibody based drug development | Denmark | 12,691 | 1.2 | 8,275 | |
Tandem Diabetes Care | Manufacturer of insulin pumps for diabetic patients |
USA |
12,508 |
1.2 |
9,973 | |
Upwork | Online freelancing and recruitment services platform |
USA |
12,250 |
1.2 |
3,483 | |
Everbridge | Critical event management software provider |
USA |
12,019 |
1.2 |
- | |
Codexis | Industrial and pharmaceutical enzyme developer |
USA |
11,961 |
1.1 |
8,075 | |
Ceres Power Holding | Developer of fuel cells | UK | 11,924 | 1.1 | 3,514 | |
Splunk | Data diagnostics | USA | 11,316 | 1.1 | 6,847 | |
List of investments as at 31 October 2020 (ctd)
Name |
Business |
Country | Fair Value 2020 £'000 |
% of total assets | Fair Value 2019 £'000 | ||||
Cloudera | Enterprise data software provider | USA | 11,277 | 1.1 | - |
| |||
Oxford Nanopore Technologies U | Novel DNA sequencing technology |
UK |
11,276 |
1.1 |
7,710 | ||||
Yext | Digital knowledge manager | USA | 11,059 | 1.0 | 10,970 | ||||
IPG Photonics | High-power fibre lasers | USA | 10,613 | 1.0 | 7,642 | ||||
Pacira BioSciences | Opioid free analgesics developer | USA | 10,510 | 1.0 | 6,457 | ||||
LivePerson | Messaging tools for business and customer interactions |
USA |
10,247 |
1.0 |
- | ||||
Trupanion | Pet health insurance provider | USA | 10,236 | 1.0 | 3,390 | ||||
InfoMart | Online platform for restaurant supplies | Japan | 9,936 | 1.0 | 9,112 | ||||
Genus | Livestock breeding and technology services | UK | 9,517 | 0.9 | 6,716 | ||||
Avacta Group | Affinity based diagnostic reagents and therapeutics |
UK |
9,218 |
0.9 |
600 | ||||
CyberArk Software | Cyber security solutions provider | Israel | 8,827 | 0.9 | 6,319 | ||||
Galapagos | Clinical state biotechnology company focusing on autoimmune and fibrosis diseases |
Belgium |
8,806 |
0.8 |
10,941 | ||||
Q2 Holdings | Cloud based virtual banking solutions provider | USA | 8,625 | 0.8 | - | ||||
Adaptimmune Therapeutics ADR |
Cell therapies for cancer treatment |
China |
8,494 |
0.8 |
476 | ||||
Baozun SPN ADR | Chinese e-commerce solution provider | China | 8,313 | 0.8 | 9,907 | ||||
Seagen (formerly Seattle Genetics) |
Antibody drug conjugate therapeutics |
USA |
7,937 |
0.8 |
7,090 | ||||
iRobot | Consumer robotics and connected devices | USA | 7,896 | 0.8 | 4,764 | ||||
Renishaw | Measurement and calibration equipment | UK | 7,863 | 0.8 | 5,329 | ||||
Axon Enterprise | Law enforcement equipment and software provider |
USA |
7,809 |
0.8 |
4,034 | ||||
Temenos Group | Banking software provider | Switzerland | 7,594 | 0.7 | 10,084 | ||||
Berkeley Lights | Biotechnology tools focused on cell characterisation |
USA |
7,274 |
0.7 |
- | ||||
Peptidream | Peptide based drug discovery platform | Japan | 6,843 | 0.7 | 7,482 | ||||
Dexcom | Real time blood glucose monitoring | USA | 6,655 | 0.6 | 8,692 | ||||
Sutro Biopharma | Biotechnology company focused on next generation protein therapeutic |
USA |
6,462 |
0.6 |
- | ||||
Epic Games U | Video game platform and software developer | USA | 6,187 | 0.6 | - | ||||
American Superconductor | Designs and manufactures power systems and superconducting wire |
USA |
6,071 |
0.6 |
- | ||||
Morphosys | Antibody based drug discovery platform | Germany | 5,866 | 0.6 | 5,396 | ||||
Reaction Engines U | Advanced heat exchange company | UK | 5,750 | 0.6 | 3,805 | ||||
Huya ADR | A live game streaming platform | China | 5,036 | 0.5 | - | ||||
Faro Technologies | Designs and develops measurement devices | USA | 5,024 | 0.5 | 3,974 | ||||
Agora ADR | Voice and video platform technology provider | China | 4,987 | 0.5 | - | ||||
Digital Garage | Internet business incubator | Japan | 4,934 | 0.5 | 4,607 | ||||
EverQuote | Online marketplace for buying insurance | USA | 4,853 | 0.5 | - | ||||
Akili Interactive Labs Series C Preferred U |
Digital medicine company |
USA |
4,600 |
0.4 |
3,864 | ||||
ShockWave Medical | Medical devices manufacturer | USA | 4,538 | 0.4 | - | ||||
NuCana SPN ADR | Next generation chemotherapy developer | UK | 4,523 | 0.4 | 1,823 | ||||
ASOS | Online fashion retailer | UK | 4,494 | 0.4 | 2,926 | ||||
IP Group | Intellectual property commercialisation | UK | 4,324 | 0.4 | 3,065 | ||||
Rightmove | UK online property portal | UK | 4,263 | 0.4 | 4,129 | ||||
Graphcore Series D2 Preferred U | Specialised processor chips for machine learning applications |
UK |
4,247 |
0.4 |
- | ||||
Ambarella | Video compression and image processing semiconductors |
USA |
4,129 |
0.4 |
3,967 | ||||
List of investments as at 31 October 2020 (ctd)
Name |
Business |
Country | Fair Value 2020 £'000 |
% of total assets | Fair Value 2019 £'000 |
PsiQuantum Series C Preferred U |
Developer of commercial quantum computing |
USA |
3,867 |
0.4 |
3,864 |
SEEK | Online recruitment portal | USA | 3,812 | 0.4 | 3,864 |
Digimarc | Digital watermarking technology provider | Australia | 3,791 | 0.4 | 3,940 |
Tabula Rasa HealthCare | Cloud-based healthcare software developer | USA | 3,686 | 0.4 | 2,235 |
Oxford Instruments | Advanced instrumentation and equipment provider |
UK |
3,526 |
0.3 |
2,888 |
Ilika | Discovery and development of novel materials for mass market applications |
UK |
3,348 |
0.3 |
617 |
Dialog Semiconductor | Semiconductors for mobile devices | Germany | 3,163 | 0.3 | 3,704 |
Cellectis | Genetic engineering for cell based therapies | France | 2,966 | 0.3 | 2,182 |
National Instruments | Instrumentation and software for semiconductor research and testing |
USA |
2,646 |
0.3 |
3,498 |
CEVA | Licenses IP to the semiconductor Industry | USA | 2,573 | 0.2 | 1,736 |
Spire Global Series C Preferred U | Satellite powered data collection and analysis company |
USA |
2,134 |
0.2 |
2,330 |
Spire Global Inc Sub. Convertible Promissory NoteU |
Satellite powered data collection and analysis company |
USA |
269 |
0.0 |
266 |
|
|
| 2,403 | 0.2 | 2,596 |
Sensirion Holding | Manufacturer of gas and flow sensors | Switzerland | 2,400 | 0.2 | 1,863 |
Victrex | High-performance thermo-plastics | UK | 2,345 | 0.2 | 2,792 |
Cosmo Pharmaceuticals | Therapies for gastrointestinal diseases | Italy | 2,084 | 0.2 | 1,905 |
4D Pharma | Microbiome biology therapeutics | UK | 1,971 | 0.2 | 956 |
4D Pharma Warrants | Microbiome biology therapeutics | UK | 35 | 0.0 | - |
|
|
| 2,006 | 0.2 | 956 |
KSQ Therapeutics Series C Preferred U |
Biotechnology target identification company |
USA |
1,925 |
0.2 |
3,864 |
Zuora | Enterprise sales management software | USA | 1,823 | 0.2 | 2,700 |
Benefitfocus | Employee benefits software provider |
USA |
1,807 |
0.2 |
3,976 |
AxoGen | Regenerative medicine and nerve repair company | USA | 1,645 | 0.2 | 1,629 |
Catapult Group International | Analytics and data collection technology for sports teams and athletes |
Australia |
1,638 |
0.1 |
1,356 |
Stratasys | 3D printer manufacturer | USA | 1,429 | 0.1 | 2,310 |
Chinook Therapeutics (formerly Aduro Biotechnology) |
Immunotherapy drug development |
USA |
1,117 |
0.1 |
516 |
Unity Biotechnology | Biotechnology company seeking to develop anti ageing therapies |
USA |
1,018 |
0.1 |
1,645 |
Kaleido Biosciences | Microbiome chemistry therapeutics | USA | 913 | 0.1 | 866 |
Horizon Discovery | Customised cell lines to aid drug discovery | UK | 910 | 0.1 | 1,674 |
Adicet Bio (formerly resTORbio) | Biotechnology company focused on age related disorders |
USA |
728 |
0.1 |
3,453 |
C4X Discovery Holdings | Rational drug design and optimisation | UK | 510 | 0.1 | 238 |
Rubius Therapeutics | Developer of novel therapies using engineered red blood cells |
USA |
505 |
<0.1 |
1,050 |
Ricardo | Engineering services provider | UK | 483 | <0.1 | 879 |
Summit Therapeutics ADR | Developer of novel antibiotics | UK | 479 | <0.1 | 213 |
Uxin ADR | Online Chinese used car marketplace | China | 420 | <0.1 | 1,335 |
VYNE Therapeutics (formerly Menlo Therapeutics) |
Biopharmaceutical company focused in the dermatology space |
USA |
248 |
<0.1 |
301 |
Xeros Technology Group | Polymer technology company with laundry and textile applications |
UK |
93 |
<0.1 |
77 |
List of investments as at 31 October 2020 (ctd)
Name |
Business |
Country | Fair Value 2020 £'000 |
% of total assets | Fair Value 2019 £'000 |
Tissue Regenix | Regenerative medicine technology provider | UK | 66 | <0.1 | 399 |
Velocys | Gas to liquid technology | UK | 19 | <0.1 | 6 |
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 |
|
| 1,002,194 | 96.3 |
|
Net liquid assets |
|
| 38,268 | 3.7 |
|
Total assets at fair value* |
|
| 1,040,462 | 100.0 |
|
* Total assets comprises all assets held less all liabilities other than liabilities in the form of borrowings.
U Denotes unlisted security.
| Listed equities % | Unlisted securities† % | Net liquid assets % | Total assets % |
31 October 2020 | 90.5 | 5.8 | 3.7 | 100.0 |
31 October 2019 | 92.4 | 5.5 | 2.1 | 100.0 |
Distribution of total assets by industry
|
|
Industry Analysis 31 October 2020 % of total assets* |
| Portfolio Weightings (relative to comparative index†) at 31 October 2020 % points overweight/(underweight) |
| Software | 16.2 |
| 11.2 |
| Biotechnology | 15.5 |
| 11.2 |
| Healthcare Equipment and Supplies | 8.2 |
| 5.2 |
| Internet and Direct Marketing Retail | 7.2 |
| 6.2 |
| Interactive Media and Services | 5.1 |
| 4.6 |
| Automobiles | 4.9 |
| 4.7 |
| Capital Markets | 4.9 |
| 2.3 |
| Healthcare Technology | 4.8 |
| 4.1 |
| Aerospace and Defence | 4.5 |
| 3.4 |
| Electronic Equipment, Instruments and Components | 3.2 |
| 0.5 |
| Diversified Consumer Services | 3.2 |
| 2.2 |
| IT Services | 2.7 |
| 0.1 |
| Life Sciences Tools and Services | 2.5 |
| 0.9 |
| Consumer Finance | 2.4 |
| 1.7 |
| Electrical Equipment | 1.7 |
| 0.2 |
| Professional Services | 1.6 |
| 0.3 |
| Pharmaceuticals | 1.5 |
| -0.9 |
| Trading Companies and Distributors | 1.4 |
| -0.1 |
| Insurance | 1.0 |
| -1.8 |
| Semiconductors and Semiconductor Equipment | 1.0 |
| -2.2 |
| Technology Hardware, Storage and Peripherals | 0.9 |
| 0.3 |
| Household Durables | 0.8 |
| -1.1 |
| Entertainment | 0.5 |
| -0.3 |
| Internet and Catalogue Retail | 0.4 |
| 0.4 |
| Chemicals | 0.2 |
| -2.9 |
| Machinery | <0.1 |
| -4.4 |
| Energy Equipment and Services | <0.1 |
| -0.4 |
| Net Liquid Assets | 3.7 |
|
|
Total assets* | 100.0 |
|
| |
* Total assets comprises all assets held less all liabilities other than liabilities in the form 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 2020 % | 31 October 2019 % | ||
North America |
| 63.5 | 59.5 |
|
| USA | 63.5 | 59.5 |
|
Europe |
| 20.7 | 24.9 |
|
| United Kingdom | 15.5 | 15.8 |
|
| Eurozone | 2.2 | 4.5 |
|
| Developed Europe (non euro) | 3.0 | 4.6 |
|
Asia |
| 10.1 | 11.0 |
|
| Japan | 5.0 | 6.5 |
|
| China | 5.1 | 4.5 |
|
Australasia |
| 2.0 | 2.5 |
|
| Australia | 0.5 | 0.9 |
|
| New Zealand | 1.5 | 1.6 |
|
Total equities | 96.3 | 97.9 |
| |
Net liquid assets | 3.7 | 2.1 |
| |
Total assets* | 100.0 | 100.0 |
| |
Sectoral Analysis
| 31 October 2020 % |
| 31 October 2019 % |
| |
Consumer Discretionary |
| 16.5 |
| 14.9 |
|
Financials |
| 8.3 |
| 11.8 |
|
Healthcare |
| 32.5 |
| 37.2 |
|
Industrials |
| 9.2 |
| 7.9 |
|
Information Technology |
| 24.0 |
| 22.4 |
|
Materials |
| 0.2 |
| 0.5 |
|
Communication Services |
| 5.6 |
| 3.2 |
|
Net Liquid Assets |
| 3.7 |
| 2.1 |
|
Total assets* |
| 100.0 |
| 100.0 |
|
* Total assets comprises all assets held less all liabilities other than liabilities in the form of borrowings.
Notes to the condensed financial statements (unaudited) |
1. | Basis of Accounting
The Financial Statements for the year to 31 October 2020 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and on the basis of the accounting policies which are unchanged from the prior year and have been applied consistently. | ||
2. | Income | 2020 £'000 | 2019 £'000 |
Income from investments |
|
| |
UK dividends | 154 | 433 | |
Overseas dividends | 538 | 574 | |
Overseas interest | 21 | 5 | |
| 713 | 1,012 | |
Other income |
|
| |
| Deposit interest | 60 | 217 |
| Total income | 773 | 1,229 |
| Total income comprises: |
|
|
| Dividends from financial assets designated at fair value through profit or loss | 692 | 1,007 |
| Interest from financial assets designated at fair value through profit or loss | 21 | 5 |
| Interest from financial assets not at fair value through profit or loss | 60 | 217 |
|
| 773 | 1,229 |
3. | Investment Manager The Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager 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 and Baillie Gifford Asia (Hong Kong) Limited. The Management Agreement can be terminated on three months' notice. With effect from 1 January 2019 the annual management fee is 0.75% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets. Prior to 1 January 2019 the fee was 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable quarterly. | ||
4. |
| |||||||||||||||||||||
| Revenue return per ordinary share is based on the net revenue loss after taxation of £1,479,000 (2019 - net revenue loss of £684,000) and on 320,606,304 (2019 - 294,171,777) 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 £323,451,000 (2019 - net capital gain of £34,033,000) and on 320,606,304 (2019 - 294,171,777) 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. | |||||||||||||||||||||
5. | Dividends
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 to 31 October 2020. Revenue loss of £1,479,000 (2019 - revenue loss of £684,000) which is the basis on which the requirements of section 1158 of the Corporation Tax Act are considered. | |||||||||||||||||||||
6. | Fair Value Hierarchy |
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| As at 31 October 2020 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | |||||||||||||||||
| Listed equities | 941,393 | - | - | 941,393 | ||||||||||||||||||
| Unlisted ordinary shares | - | - | 23,213 | 23,213 | |||||||||||||||||
| Unlisted preference shares* | - | - | 37,319 | 37,319 | |||||||||||||||||
| Unlisted convertible promissory note | - | - | 269 | 269 | |||||||||||||||||
| Total financial asset investments | 941,393 | - | 60,801 | 1,002,194 | |||||||||||||||||
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| 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 | |||||||||||||||||
| * 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 fair value of listed investments is either bid price or, depending on the convention of the exchange on which the investment is listed, last traded price. Listed investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data. Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' unlisted investment policy applies methodologies consistent with the International Private Equity and Venture Capital Valuation guidelines ('IPEV'). The principal methodologies can be categorised as follows: (a) market approach (price of recent investment, multiples, industry valuation benchmarks and available market prices); (b) income approach (discounted cash flows); and (c) replacement cost approach (net assets). The Company's holdings in unlisted investments are categorised as Level 3 as unobservable data is a significant input to their fair value measurements. | |||||||||||||||||||||
7. | Transaction Costs
The Company incurred transaction costs on purchases of £49,000(2019 - £18,000) and on sales of £21,000 (2019 - £13,000). | |||||||||||||||||||||
8. | Bank Loans
As at 31 October 2020 and 31 October 2019, the Company had a five year £25 million revolving credit facility with National Australia Bank Limited with an expiry date of 29 June 2023 and an additional five year £36 million revolving credit facility with National Australia Bank Limited with an expiry date of 30 September 2024. As at 31 October 2020 and 31 October 2019, the Company had drawings of €2,821,800, US$37,090,500 and £17,500,000 (equating to total borrowings of £48,728,000 in sterling terms (31 October 2019 - £48,596,000)).
The fair value of the bank loans at 31 October 2020 was £48,728,000 (31 October 2019 - £48,596,000). | |||||||||||||||||||||
9. | Share Capital
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 2020 the Company issued a total of 51,720,000 shares on a non pre-emptive basis (nominal value of £517,000, representing 17.1% of the issued share capital at 31 October 2019) at a premium to net asset value (on the basis of debt valued at book value) raising net proceeds of £133,044,000 (In the year to 31 October 2019 - 16,525,000 shares with a nominal value of £165,000, representing 5.8% of the issued share capital at 31 October 2018 raising net proceeds of £30,895,000).
The Company also has authority to buy back shares. In the year to 31 October 2020 no ordinary shares were bought back therefore the Company's authority remains unchanged at 45,359,544 ordinary shares. | |||||||||||||||||||||
10. | Analysis of Change in Debt |
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| At 31 October 2019 £'000 |
Cash flows £'000 |
Exchange movement £'000 | At 31 October 2020 £'00 |
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| Cash and cash equivalents | 13,342 | 28,780 | (1,228) | 40,894 |
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| Loans due within one year | (48,596) | - | (132) | (48,728) |
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| (35,254) | 28,780 | (1,360) | (7,834) |
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11. | Financial Information
The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2020. The financial information for 2020 is derived from the statutory accounts for 2020 which will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The financial information for 2019 is derived from the statutory accounts for 2019 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2020 accounts, their report was unqualified and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
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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 this 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.
Net Asset Value (Borrowings at Fair Value) (APM)
Borrowings are valued at an estimate of their market value.
Net Asset Value (Reconciliation of NAV at Book Value to NAV at Fair Value)
| 31 October 2020 | 31 October 2019 |
Net Asset Value per ordinary share (borrowings at book value) | 279.90p | 177.37p |
Shareholders' funds (borrowings at book value) | £991,734,000 | £536,718,000 |
Add: book value of borrowings | £48,728,000 | £48,596,000 |
Less: fair value of borrowings | (£48,728,000) | (£48,596,000) |
Shareholders' funds (borrowings at fair value) | £991,734,000 | £536,718,000 |
Number of shares in issue | 354,318,695 | 302,598,695 |
Net Asset Value per ordinary share (borrowings at fair value) | 279.90p | 177.37p |
At 31 October 2020 and 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.
Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings. |
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.
|
| 31 October 2020 | 31 October 2019 |
Net asset value per share | (a) | 279.90p | 177.37p |
Share price | (b) | 287.50p | 175.40p |
Premium/(discount) | ((b)-(a)) ÷(a) | 2.7% | (1.1%) |
Total Return (APM)
The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.
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.
Glossary of Terms and Alternative Performance Measures ('APM') (Ctd)
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 2020 | 31 October 2019 |
Investment management fee | £4,579,000 | £3,281,000 |
Other administrative expenses | £715,000 | £671,000 |
Total Expenses (a) | £5,294,000 | £3,952,000 |
Average daily cum-income net asset value (with debt at fair value) (b) | £736,409,000 | £525,391,000 |
Ongoing charges (a) as a percentage of (b) | 0.72% | 0.75% |
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. |
| 31 October 2020 | 31 October 2019 |
Borrowings (at book value) | £48,728,000 | £48,596,000 |
Less: cash and cash equivalents | (£40,894,000) | (£13,342,000) |
Less: sales for subsequent settlement | - | - |
Add: purchases for subsequent settlement | £1,173,000 | - |
Adjusted borrowings (a) | £9,007,000 | £35,254,000 |
Shareholders' funds (b) | £991,734,000 | £536,718,000 |
Gearing: (a) as a percentage of (b) | 1% | 7% |
Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.
| 31 October 2020 | 31 October 2019 |
Borrowings (at book value) (a) | £48,728,000 | £48,596,000 |
Shareholders' funds (b) | £991,734,000 | £536,718,000 |
Potential gearing (a) as a percentage of (b) | 5% | 9% |
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.
Glossary of Terms and Alternative Performance Measures ('APM') (Ctd)
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.
The Annual Report and Financial Statements will be available on the Edinburgh Worldwide page of the Managers' website http://www.edinburghworldwide.co.uk† on or around 16 December 2020.
†Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on
the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
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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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