Annual Financial Report

RNS Number : 1901C

Monks Investment Trust PLC

24 June 2016

 

The Monks Investment Trust PLC

Annual Financial Report

A copy of the Annual Report and Financial Statements for the year ended 30 April 2016 of The Monks Investment Trust PLC has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection http://www.morningstar.co.uk/uk/NSM.

The Annual Report and Financial Statements for the year ended 30 April 2016 including the Notice of Annual General Meeting is also available on Monks page of the Baillie Gifford website at: www.monksinvestmenttrust.co.uk

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 30 April 2016 which require to be published by DTR 4.1 is set out on the following pages.

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

24 June 2016

 

Chairman's Statement

In March 2015 the Board announced a change to the management team responsible for Monks, with a switch to Baillie Gifford's Global Alpha team led by Charles Plowden. The Managers describe their investment approach below. In short, they focus their attention on companies expected to grow at an above average rate over periods of 5 years or more and build a diversified portfolio of the best ideas drawn from across Baillie Gifford's 96 investment professionals. They have followed and refined this approach since 2005 and have established a strong performance record. We believe this is a natural fit with our investment policy and objective which remains long-term capital growth from global equities.

Following the significant reorganisation of the portfolio which took place in April 2015 there have been relatively modest further changes to the equity portfolio, which is discussed more fully in the Managers' Report. The main change has been to the Balance Sheet with the Managers increasing the Company's exposure to equities through the use of borrowings and the sale of the US Treasury bond. Some gearing was invested opportunistically across the existing portfolio of stocks following the market's sharp declines in September 2015 and again in January 2016, at which time the Company repaid its ¥15.5bn loan and replaced it with a five year multi-currency revolving credit facility, drawing US$67.5m. As at the financial year end, the Company's equity gearing stood at 6.2% compared to nil a year ago, with effective gearing (including bonds) at 6.9%.

The Managers have been active in presenting the new approach to existing shareholders and to prospective investors in the Company. No shares were bought back during the year, for the first time since 2004, and the discount (at fair value) ended the financial year modestly higher at 9.5% compared to 8.6% at the prior year end. It is too early to judge the success of this new approach, which is about long-term investment, but we are encouraged by the quality of our portfolio and we are optimistic about its prospects.

Performance

In the year to 30 April 2016 the net asset value total return (capital and income), with borrowings at fair value, was minus 0.4% and the total return for the FTSE World Index was a positive 0.5%. The share price total return was minus 1.3% after the slight widening in the discount. For a discussion of performance please see the Managers' Report below.

Earnings and Dividend

As flagged at the interim stage, earnings per share for the financial year, 2.31p, were notably lower than the 4.74p of the previous year, a decrease of 51%. We are recommending a final dividend of 1p, the minimum required to maintain investment trust status. Together with the interim (0.5p) already paid, this makes the total dividend for the year 1.5p, a decrease of 62% from the 3.95p paid last year. Future dividends will be paid by way of a single final payment, reflecting our priority which is capital growth.

Buybacks, Treasury and Discount

We monitor the level of discount and have authorised the repurchase of shares when deemed appropriate. In future, any shares bought back are likely to be held in Treasury rather than cancelled automatically, as has been the case historically. At this year's Annual General Meeting the authority of shareholders is being sought to enable the Company to re-sell shares held in Treasury at a premium to the prevailing net asset value per share (further details are set out in the Directors' Report on page 19 of the Annual Report and Financial Statements). This means that any issuance would increase the net asset value per share for existing shareholders.

Outlook and Portfolio

Our portfolio is constructed on a 'bottom-up' basis, with the strength of each individual investment case determining whether any stock should be held and in what size. Diversification is across growth types (as highlighted on pages 6 and 7 of the Annual Report and Financial Statements) and the allocation to industries and regions is a function of where the portfolio managers identify the most attractive investment ideas.

The resulting portfolio consists of a wide range of stocks from all around the world. Indeed, the Managers currently feel the choice of investments which meet their growth criteria is as wide as it has been at any point over the last decade. The diversity of opportunities is healthy and is enhanced by rapid technological progress across a range of industries. With over 40% of the portfolio considered to be economically agnostic, it has a broad balance which ought to serve shareholders well over time and in most scenarios. Following the sale of the US Treasury bond in October 2015, listed equities now account for over 97% of total assets. Further information on the portfolio in various forms is shown below.

The Board

Carol Ferguson will be retiring at the forthcoming Annual General Meeting. We are grateful for her very considerable contribution to Monks over the last thirteen years.

AGM

I would encourage shareholders to attend the Annual General Meeting, which will be held on 3 August 2016 at 11.00am at the Institute of Directors. Our Managers will give a short presentation and there will be an opportunity to ask questions and to meet them and the Directors informally.

James Ferguson

15 June 2016

The Managers' Core Investment Beliefs

We believe the following features of Monks provide a sustainable basis for adding value for shareholders.

Active Management

We invest in attractive companies using a 'bottom-up' investment process. Macroeconomic forecasts are of relatively little interest to us.

¾ High active share* provides the potential for adding value.

¾ We ignore the structure of the index - for example the location of a company's HQ and therefore its domicile are less relevant to us than where it generates sales and profits.

¾ Large swathes of the market are unattractive and of no interest to us.

¾ As index agnostic global investors we can go anywhere and only invest in the best ideas.

¾ As the portfolio is very different from the index, we expect portfolio returns to vary - sometimes substantially and often for prolonged periods.

Committed Growth Investors

¾ In the long run, share prices follow fundamentals; growth drives returns.

¾ We aim to produce a portfolio of stocks with above average growth - this in turn underpins the ability of Monks to add value.

¾ We have a differentiated approach to growth, focusing on the type of growth that we expect a company to deliver. All holdings fall into one of four growth categories - as described in the equity portfolio by growth category table below.

¾ The use of these four growth categories ensures a diversity of growth drivers within a disciplined framework.

Long-Term Perspective

¾ Long-term holdings mean that company fundamentals are given time to drive returns.

¾ We prefer companies that are managed with a long-term mindset, rather than those that prioritise the management of market expectations.

¾ We believe our approach helps us focus on what is important during the inevitable periods of underperformance.

¾ Short-term portfolio results are random.

¾ As longer-term shareholders we are able to have greater influence on environmental, social and governance matters.

Dedicated Team with Clear Decision-making Process

¾ Senior and experienced team drawing on the full resources of Baillie Gifford.

¾ Alignment of interests - the investment team responsible for Monks all own shares in the Company.

Portfolio Construction

¾ Stocks are held in three broad holding sizes - as described in the equity portfolio by holding size table below.

¾ This allows us to back our judgement in those stocks for which we have greater conviction, and to embrace the asymmetry of returns through 'incubator' positions in higher risk/return stocks.

¾  'Asymmetry of returns': some of our smaller positions will struggle and their share prices will fall; those that are successful may rise many fold. The latter should outweigh the former.

Low Cost

¾ Savers should not be penalised by high management fees.

¾ Low turnover and trading costs benefit shareholders.

*         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.

Managers' Report

Performance

The year to end April 2016 was a volatile time for stock markets. The FTSE World index returned a pedestrian 0.5%, suggesting a lot of huffing and puffing for little reward. During the summer of 2015 commentators fretted about Chinese growth and its effect on the world economy. As the end of 2015 approached, these worries were repeated along with fears over the prospect of rising US interest rates and continued weakness in oil and other commodity prices. This led to a turbulent few weeks for markets, mainly during December and January.

Our job, as long-term investors, is to look past short-term headlines and identify those businesses that can sustainably grow their cash flows and earnings at above average rates. This perspective allows us to place short-term news and events firmly in context, stick to our approach, and add value over the long term, using gearing to take advantage of indiscriminate market weakness by buying equities at attractive valuations.

During the year to April Monks net asset value, with borrowings at fair value, returned minus 0.4%, with the second half of the period being a challenging environment with a number of our holdings suffering amidst worries about global growth. Particularly affected were companies with exposure to Asian consumption and those which had performed strongly earlier in the year. Not surprisingly, the few energy companies the portfolio did own, such as Ultra Petroleum and Inpex, performed poorly and both have been sold.

Many of the top contributors have come from our enthusiasm for the growth of the US economy - such as Royal Caribbean Cruises, Markel, the specialist insurance provider, and Martin Marietta, a leading US building aggregates supplier, and our enthusiasm for technology - such as the internet giants Amazon, Facebook and Alphabet (formerly Google). Elsewhere Ryanair, Europe's leading low cost airline, produced exceptional operating and share price performance as did Japan's M3, which provides online information for doctors; both demonstrating that great investments can be found within unpromising economies.

If there was any real surprise in these results it was that our performance came in so close to the index return. The portfolio has a high active share (93%), which means that the overlap with the index is low (at 7%), so we would expect very different performance for the portfolio over the long run.

Portfolio Restructuring

As noted in last year's report, there was a very significant portfolio reorganisation following the change of portfolio management team. Since we settled in the most notable changes have been to the Company's borrowings and an associated change in gearing position.

We view the ability of investment trusts to borrow funds to invest in long-term equities as a key advantage relative to other investment vehicles. We expect Monks to carry positive gearing to equity markets most of the time, typically in the range of 5-15% of shareholders' funds. However, a strong rise in equity markets over previous years had argued for some caution a year ago. Subsequent market volatility provided a welcome opportunity to add to the equity portfolio at significantly lower levels in both September 2015 and January 2016. At the end of April net gearing to equities amounted to 6.2% and we would anticipate taking it higher should markets decline. This seems appropriate given the borrowing cost of our new US dollar loan is around 1.8% per annum, which is well below the historic long term return from equity markets.

Equity Portfolio

If we exclude the sale of the US Treasury bond and the purchase of approximately 7% of the portfolio related to the deployment of gearing, described above, then underlying portfolio turnover during the year was relatively modest, at around 14%, which indicates an average holding period of over 7 years, consistent with our long-term investment approach. This level of turnover means that changes in the split of the portfolio between our growth categories have been minimal. However, reasonably significant trends can be discerned within our 'Growth Stalwart' and 'Rapid Growth' categories.

Historically, global consumer staples companies have made up much of our exposure to Growth Stalwarts, being companies with strong brands, low economic sensitivity and decent growth opportunities especially within developing markets. For many years Nestlé has been pre-eminent amongst such corporations and has been a prominent holding in our portfolios - but we have recently sold it for two main reasons. First, the low level of bond yields worldwide has forced investors into reliable dividend payers, such as Nestlé, in a desperate search for income. This has driven valuations of such low risk, stable equities to unusually high levels. Second, we fear that Nestlé's future growth (and that of a number of its peers) is likely to be more modest than in the past given trends towards healthier eating, weaker demand from a number of markets and already high profit margins. Instead we have been buying into Growth Stalwart companies with higher growth potential such as software company SAP, clinical waste collector Stericycle and the world's leading diabetes care company Novo Nordisk.

Within the Rapid Growth category there has been little change despite strong price performance from a number of our larger holdings such as Amazon, Alphabet, Facebook and Naspers. We increasingly believe that platform and network businesses such as these tend to 'winner takes all' outcomes as greater scale reduces costs and increases utility; as a result we sold Twitter and reduced eBay, both of which are falling further behind their respective market leaders, Facebook and Amazon, respectively. We have continued to add new holdings, taking smaller incubator (around 0.5%) positions in Nvidia, which designs graphic chips for advanced computing including virtual reality, Autohome, a Chinese online car portal, and Grubhub, which is involved with online ordering and physical delivery of takeaway meals. Such companies face considerable challenges and risks but offer very significant potential upside should they succeed and this asymmetry of returns is what we are explicitly trying to capture.

In our two other categories, 'Cyclical Growth' and 'Latent Growth', there were no discernible structural shifts. We did, however, continue to sell companies when we believed the prospects were correctly priced in by the market or where the investment case was not materialising as hoped. The funds were used to purchase companies with more exciting prospects and greater share price upside. New holdings include train equipment manufacturer Wabtec, the Macau hotel and casino operator Sands China, Swiss conglomerate OC Oerlikon and US barge operator Kirby.

Outlook

Whilst picking individual stocks remains at the heart of what we do, there are three broad exposures about which we are enthusiastic. The first is Asian consumption: with 100m consumers entering the Asian middle class every year there is a good deal of opportunity for companies in China and beyond to grow strongly. Second is the underlying growth of the US economy, which received another fillip in 2015 as lower gasoline prices had the effect of a meaningful tax cut. The third exposure is related to companies that use technology and innovation to disrupt existing traditional business models - online businesses, the use of the cloud, better use of data which is being crunched by ever more advanced computers and the prevalence of mobile telephony; all are creating some major changes in the world to the advantage of many new emerging businesses.

The Company's top holdings reflect these enthusiasms. Prudential (life insurance & wealth management) generates 57% of its new business profits from Asia where it has leading positions in many countries in the region built on its strengths in distribution and product design. The US recovery is represented by Royal Caribbean Cruises (cruise holidays are very popular with Americans), CRH (an Irish domiciled building materials company with extensive US interests) and CarMax (US second hand car retailer). Examples of technology companies include Amazon, Alphabet (formerly Google, the world's biggest search engine), SAP (software for business customers) and TSMC (the largest semi-conductor fabrication company in the world).

The portfolio now reflects many of the very best ideas from across the globe, researched by a wide range of our colleagues across the different investment teams within Baillie Gifford. We believe the portfolio is set to grow at an above-average rate, even in an environment of only modest economic expansion. The broad spread of investments ensures a natural diversification while the clear structure of the portfolio provides a framework which helps both analysis and decision making. There will be periods when fundamentals are not reflected in shareholder returns, such as when our growth style is out of favour. However, we remain confident that our process will create significant value for investors over the long term.

Charles Plowden

Spencer Adair

Malcolm MacColl

Past performance is not a guide to future performance.

Equity Portfolio by Growth Category as at 30 April 2016

Holding Size	Growth Stalwarts	%	Rapid Growth	%	Cyclical Growth	%	Latent Growth	%
	(c.10% p.a. earnings growth)		(c.15% to 25% p.a. earnings growth)		(c.10% to 15% p.a. earnings growth through a cycle)		(earnings growth to accelerate over time)
	Company Characteristics ¾    Durable franchise ¾    Deliver robust profitability in most macroeconomic environments ¾    Competitive advantage includes dominant local scale, customer loyalty and strong brands		Company Characteristics ¾    Early stage businesses with vast growth opportunity ¾    Innovators attacking existing profit pools or creating new markets		Company Characteristics ¾    Subject to macroeconomic and capital cycles with significant structural growth prospects ¾    Strong management teams highly skilled at capital allocation		Company Characteristics ¾    Company specific catalyst will drive above average earnings in future ¾    Unspectacular recent operational performance and therefore out of favour
Highest conviction holdings c.2.0% each Total: 34.0%	Prudential	3.5	Amazon.com	3.3	Royal Caribbean Cruises	2.9	CRH	2.7
	SAP	2.1	Naspers	2.5	TSMC	1.9	MS&AD Insurance	1.8
	Anthem	2.0	Alphabet	2.4	Markel	1.8
	Moody's	1.7	Ryanair	1.9	CarMax	1.8
					First Republic Bank	1.7
Average sized holdings c.1.0% each Total: 46.7%	Schindler Visa MasterCard American Express Colgate-Palmolive Monsanto Bureau Veritas Waters Shimano Olympus Novo Nordisk Stericycle	1.3 1.3 1.2 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.7 0.7	AIA Facebook Baidu ICICI Bank Softbank Alibaba MercadoLibre Myriad Genetics Schibstead Tesla Motors Yandex TripAdvisor Seattle Genetics HDFC MarketAxess IP Group iRobot	1.4 1.4 1.2 1.1 1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7	TD Ameritrade Martin Marietta Materials Wolseley EOG Resources Richemont Svenska Handelsbanken Hays Brambles Atlas Copco CH Robinson Worldwide SMC Teradyne Lincoln Electric Wabtec	1.5 1.3 1.1 1.0 1.0 0.9 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.7	Apache Samsung Electronics Fairfax Financial Carlsberg Sberbank of Russia Dolby Laboratories Bank of Ireland	1.2 1.1 1.0 0.8 0.7 0.7 0.7
Incubator Holdings c.0.5% each Total: 19.3%	Praxair Qualcomm Dia eBay Tsingtao Brewery Coca Cola HBC	0.6 0.5 0.5 0.5 0.2 0.1	M3 Cyberagent BMF Bovespa Japan Exchange Autohome GrubHub Renishaw Nividia Financial Engines Alnylam Pharmaceuticals Qiagan Zillow Intuitive Surgical Nanoco Stratasys Ferrari	0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.3 0.2 0.2 0.2	THK Rolls Royce Deutsche Boerse Ritchie Bros Auctioneers Jardine Matheson Volvo DistributionNOW Victrex Sands China Leucadia National SK Hyniz Aggreko Ferro Alloy Resources	0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.4 0.3 0.2 0.2 0.1	Silk Invest Africa Food Fund Toyota Tsusho Kirby Veeco Insruments Howard Hughes Rohm OC Oerlikon Fiat Chrysler Autos MTN Banco Popular Español Juridicia Investments Doric Nimrod Air One	0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.1 0.1
	Total	22.7%	Total	32.8%	Total	29.3%	Total	15.2%

Portfolio Positioning as at 30 April 2016

Thematic Risk Categories

Category		At 30 April 2016 %
Economically Agnostic		42.7
	Internet Winners	17.1
	Innovation	15.7
	Consumer Stalwarts	8.9
	Idiosyncratic	1.0
US Re-emergence		23.6
	Industrial	7.0
	Consumer	6.4
	Normalisation	6.4
	Government Budgets	2.0
	Capital Cycle	1.8
European and Japanese Healing		15.3
	Consumer	5.3
	Industrial	4.0
	Abenomics	3.6
	Normalisation	2.4
Developing Market Growth		15.3
	Consumer Catch-Up	11.4
	Commodities	2.2
	Industrial	1.7
Bonds and Net Liquid Assets		2.2
	Net Liquid Assets	1.6
	Bonds	0.6
Other		0.9
Total Assets		100.0

Geographical Analysis

	At 30 April 2016 %	At 30 April 2015 %
North America	46.1	38.7
Continental Europe	17.7	14.0
Emerging Markets	14.2	13.7
United Kingdom	8.3	10.7
Japan	8.3	9.3
Developed Asia	3.2	2.7
Bonds	0.6	6.5
Net Liquid Assets	1.6	4.4
Total Assets	100.0	100.0

Sectoral Analysis

		At 30 April 2016 %	At 30 April 2015 %
Equities:	Oil and Gas	2.7	4.4
	Basic Materials	1.2	1.4
	Industrials	18.9	14.3
	Consumer Goods	7.8	10.2
	Health Care	7.0	6.0
	Consumer Services	18.8	14.6
	Financials	26.8	26.6
	Technology	13.3	11.2
	Telecommunications	1.3	0.4
		97.8	89.1
Bonds		0.6	6.5
Net Liquid Assets		1.6	4.4
Total Assets		100.0	100.0

List of Investments

At 30 April 2016

Name	Business	Growth category	Fair value £'000	% of total assets		Cumulative % of total assets
Prudential	International financial services	Stalwart	37,531	3.4
Amazon.com	Online retailer	Rapid	35,472	3.2
Royal Caribbean Cruises	Cruise line operator	Cyclical	31,195	2.8
CRH	Diversified building materials	Latent	29,239	2.7
Naspers	Media and e-commerce	Rapid	26,279	2.4
Alphabet	Online search engine	Rapid	25,411	2.3
SAP	Enterprise software	Stalwart	22,225	2.0
Anthem	Healthcare insurer	Stalwart	21,342	2.0
Ryanair	Low cost airline	Rapid	20,414	1.9
TSMC	Semiconductor manufacturer	Cyclical	20,089	1.8			24.5
Markel	Speciality insurance	Cyclical	19,380	1.8
CarMax	Used car retailer	Cyclical	18,771	1.7
MS&AD Insurance	Non-life insurer	Latent	18,742	1.7
First Republic Bank	Retail bank	Cyclical	18,403	1.7
Moody's	Credit rating agency	Stalwart	18,091	1.7
TD Ameritrade	Online brokerage	Cyclical	16,244	1.5
AIA	Insurance	Rapid	15,408	1.4
Facebook	Social networking	Rapid	14,674	1.3
Schindler	Elevator and escalator manufacturer	Stalwart	14,592	1.3
Visa	Global electronic payments network	Stalwart	14,168	1.3			39.9
Martin Marietta Materials	Cement and aggregates producer	Cyclical	13,720	1.3
Apache	Oil exploration and production	Latent	13,248	1.2
Baidu	Chinese internet search engine	Rapid	13,191	1.2
MasterCard	Global electronic payments network	Stalwart	13,145	1.2
Wolseley	Building materials distributor	Cyclical	12,013	1.1
ICICI Bank	Banking and financial services	Rapid	11,459	1.1
Softbank	Telecom operator and internet investor	Rapid	11,282	1.0
Samsung Electronics	Consumer and industrial electronic equipment	Latent	11,251	1.0
EOG Resources	Oil and gas explorer and producer	Cyclical	11,197	1.0
Fairfax Financial	Financial services holding company	Latent	11,060	1.0			51.0
Alibaba	Online and mobile commerce	Rapid	11,020	1.0
MercadoLibre	Latin American e-commerce platform	Rapid	10,955	1.0
Richemont	Luxury goods designer and manufacturer	Cyclical	10,455	1.0
Svenska Handelsbanken	Retail bank	Cyclical	10,016	0.9
Hays	Recruitment	Cyclical	9,945	0.9
Myriad Genetics	Genetic testing	Rapid	9,891	0.9
American Express	Global payment and travel company	Stalwart	9,885	0.9
Schibsted	Print and online newspapers and classifieds	Rapid	9,506	0.9
Brambles	Pallet pool operator	Cyclical	9,281	0.9
Atlas Copco	Industrial compressors and mining equipment   producer	Cyclical	9,273	0.9			60.3
CH Robinson Worldwide	Delivery and logistics	Cyclical	9,190	0.8
Colgate-Palmolive	Consumer goods	Stalwart	9,163	0.8
Monsanto	Agricultural biotechnology	Stalwart	9,116	0.8
Tesla Motors	Electric cars	Rapid	8,930	0.8
Carlsberg	Brewer	Latent	8,827	0.8
Yandex	Internet search and other services	Rapid	8,594	0.8
Bureau Veritas	Consulting services company	Stalwart	8,516	0.8
Waters	Liquid chromatography products and services	Stalwart	8,459	0.8
SMC	Factory automation equipment producer	Cyclical	8,305	0.8
Teradyne	Semiconductor testing equipment manufacturer	Cyclical	8,236	0.8				68.3
Shimano	Cycling component manufacturer	Stalwart	8,228	0.8
TripAdviser	Online travel review platform	Rapid	8,182	0.8
Lincoln Electric	Welding equipment manufacturer	Cyclical	8,170	0.8
Olympus	Optics manufacturer	Stalwart	8,084	0.7
Seattle Genetics	Biotechnology treatments for cancer	Rapid	8,035	0.7
Novo Nordisk	Pharmaceutical company	Stalwart	8,021	0.7
HDFC	Indian mortgage provider	Rapid	7,922	0.7
Wabtec	Technology products and services provider for   the rail industry	Cyclical	7,678	0.7
MarketAxess	Electronic bond trading platform	Rapid	7,622	0.7
IP Group	Intellectual property commercialisation	Rapid	7,509	0.7				75.6
Sberbank of Russia	Banking and financial services	Latent	7,461	0.7
Dolby Laboratories	Audio noise reduction and encoding/   compression	Latent	7,240	0.7
Bank of Ireland	Retail and commercial bank	Latent	7,128	0.7
Stericycle	Medical waste management services	Stalwart	7,044	0.6
iRobot	Domestic robots	Rapid	6,980	0.6
M3	Online medical database	Rapid	6,948	0.6
THK	Linear motion systems manufacturer	Cyclical	6,920	0.6
Rolls Royce	Power systems manufacturer	Cyclical	6,821	0.6
Deutsche Boerse	Stock exchange operator	Cyclical	6,571	0.6
Silk Invest Africa Food Fund*	Africa-focused private equity fund	Latent	6,255	0.6				81.9
Praxair	Industrial gas supplier	Stalwart	6,215	0.6
Cyberagent	Internet advertising and content	Rapid	6,168	0.6
Ritchie Bros Auctioneers	Industrial equipment auctioneer	Cyclical	5,972	0.5
Jardine Matheson	Investment holding company	Cyclical	5,968	0.5
Toyota Tsusho	Trading company	Latent	5,865	0.5
BMF Bovespa	Stock exchange operator	Rapid	5,798	0.5
Qualcomm	Semiconductor manufacturer and wireless   patents	Stalwart	5,776	0.5
Volvo	Commercial vehicle manufacturer	Cyclical	5,774	0.5
Kirby	Marine shipping company	Latent	5,614	0.5
Veeco Instruments	Semiconductor equipment company	Latent	5,557	0.5				87.1
Japan Exchange	Stock exchange operator	Rapid	5,526	0.5
Autohome	Online destination for automobile consumers in   China	Rapid	5,503	0.5
GrubHub	Food ordering and delivery platform	Rapid	5,344	0.5
Howard Hughes	Real estate developer	Latent	5,241	0.5
Renishaw	Measurement and calibration equipment   manufacturer	Rapid	5,224	0.5
DistributionNOW	Oilfield drilling equipment distributor	Cyclical	5,154		0.5
Dia	Discount food retailer	Stalwart	5,111		0.5
eBay	Internet auction site	Stalwart	5,101		0.5
Victrex	Speciality high-performance chemicals   manufacturer	Cyclical	5,087		0.5
Nvidia	Interactive 3D graphics provider	Rapid	4,614		0.4			92.0
Financial Engines	Investment advisory firm	Rapid	4,551		0.4
Alnylam Pharmaceuticals	Biotechnology	Rapid	4,501		0.4
Qiagen	Biotechnology equipment	Rapid	4,470		0.4
Sands China	Casino operator	Cyclical	4,452		0.4
Rohm	Semiconductor manufacturer	Latent	4,442		0.4
OC Oerlikon	Industrial equipment manufacturer	Latent	4,303		0.4
Zillow	US online real estate services	Rapid	3,738		0.3
Intuitive Surgical	Surgical robots	Rapid	3,632		0.3
Fiat Chrysler Autos	Vehicle manufacturer	Latent	3,551		0.3
Leucadia National	Holding company	Cyclical	3,375		0.3			95.6
MTN	South African wireless telecom company	Latent	3,111		0.3
Banco Popular Español	Retail bank	Latent	2,824		0.3
SK Hynix	Semiconductor manufacturer	Cyclical	2,667		0.2
Nanoco	Quantum dot manufacturer	Rapid	2,562		0.2
Tsingtao Brewery	Brewer	Stalwart	2,463		0.2
Stratasys	3D printer manufacturer	Rapid	2,116		0.2
Ferrari	Vehicle manufacturer	Rapid	1,992		0.2
Aggreko	Power generation equipment rental	Cyclical	1,869		0.2
Coca Cola HBC	Soft drink producer and distributor	Stalwart	1,539		0.1
Ferro Alloy Resources*	Vanadium mining	Cyclical	1,402		0.1			97.6
Juridica Investments	Litigation financing	Latent	1,210		0.1
Doric Nimrod Air One	Aircraft leasing	Latent	1,202		0.1
Total Equity Investments			1,072,202		97.8			97.8
Bonds
Credit Suisse 0% Swap    Rate Linked Note 2017*	Variable redemption linked to 30 year GBP swap rate		5,933		0.5
K1 Life Settlements 0%    2016*	Bond linked to life insurance policies		1,299		0.1
Total Bonds			7,232		0.6
Total Investments			1,079,434		98.4			98.4
Net Liquid Assets			17,370		1.6
Total Assets at Fair Value			1,096,804		100.0			100.0

*      Denotes an unlisted security

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:

- the movement in net asset value per ordinary share on a total return basis;

- the movement in the share price on a total return basis;

- the discount; and

- ongoing charges.

The one, five and ten year records of the KPIs are shown on pages 12 to 14 of the Annual Report and Financial Statements. In addition to the above, the Board also considers peer group comparative performance.

Future developments of the company

The outlook for the Company is set out in the Chairman's Statement and the Managers' Report.

Market Purchases of Own Shares

No shares were bought back during the year under review and no shares are held in treasury.

The principal reason for share buy-backs is to enhance net asset value for continuing shareholders by purchasing shares at a discount to the prevailing net asset value. The Company may hold bought-back shares 'in treasury' and then:

(i) sell such shares (or any of them) for cash (or its equivalent under the Treasury Shares Regulations); or

(ii) cancel the shares (or any of them).

Shares will only be sold from treasury at a premium to net asset value.

Related Party Transactions

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 26 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.

Management fee arrangements

Details of the Investment Management Agreement are set out on page 18 of the Annual Report and Financial Statements. The annual management fee is 0.45% of the total assets less current liabilities. The management fee is levied on all assets, including any holdings in collective investment schemes (OEICs) managed by Baillie Gifford & Co; however, the class of shares in any such OEICs held by the Company does not attract a management fee. There were no such holdings during the year.

	2016 £'000		2015 £'000
Investment management fee	4,617		4,668

Principal Risks

As explained on pages 22 and 23 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. 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. 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 in the Financial Instruments section below. To mitigate this risk, the composition and diversification of the portfolio by geography, industry, growth category, holding size and thematic risk category are considered at each Board meeting along with sales and purchases of investments. Individual investments are discussed with the Managers together with their general views on the various investment markets and sectors. A strategy meeting is held annually.

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 the Company being subject to tax on capital gains, suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit 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 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 cyber hacking. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Operational Risk - failure of Baillie Gifford's accounting 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 Board 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.

Discount Volatility - the discount at which the Company's shares trade can widen. To mitigate this risk, the Board monitors the level of discount and the Company has authority to buy back its own shares.

Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts. 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. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found on page 55 of the Annual Report and Financial Statements.

Viability Statement

Having regard to provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, the Directors have assessed the prospects of the Company over a three year period. The Directors believe this period to be appropriate as, in the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, it is a period over which they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. 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 making this assessment the Directors have taken into account the Company's current position and have conducted a robust assessment of the Company's principal risks and uncertainties (as detailed above), in particular the impact of market risk where a significant fall in global equity markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's investment objective and policy, the level of demand for the Company's shares, the nature of its assets, its liabilities and projected income and expenditure. The vast majority of the Company's investments are readily realisable and can be sold to meet its liabilities as they fall due, the main liabilities currently being the debenture stock repayable in 2023 and short term bank borrowings. In addition, substantially all of the essential services required by the Company are outsourced to third party service providers; this allows key service providers to be replaced at relatively short notice where necessary.

Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over at least the next three years.

Going Concern

Having assessed the principal risks and other matters set out in the Viability Statement above, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may effect the Company's ability to continue to do so over 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 secure its investment objective of capital growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to a variety of risks that cause short term variation in the Company's net assets and could result in either a reduction in the Company's net assets or a reduction in the profits available for dividend.

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 reduction in the Company's net assets 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 reviews and agrees policies for managing these risks and the Company's Investment Manager both assesses the exposure to market risk when making individual investment decisions and monitors the overall level of market risk across the investment portfolio on an ongoing basis.

Details of the Company's investment portfolio are shown in note 9 of the Annual Report and Financial Statements.

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 Investment Manager monitors the Company's exposure to foreign currencies and reports to the Board on a regular basis. The Investment Manager assesses 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 currency in which a company's share price is quoted is not necessarily the one in which 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 share price of the company is quoted.

Foreign currency borrowings and forward currency contracts are used periodically to limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments. Where appropriate, they are used also to achieve the portfolio characteristics that assist the Company in meeting its investment objectives.

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 30 April 2016	Investments £'000	Cash and cash equivalents £'000	Loans and debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	564,646	13,774	(46,078)	384	532,726
Japanese yen	90,510	-	-	598	91,108
Euro	84,587	36	-	914	85,537
Other overseas currencies	212,007	-	-	133	212,140
Total exposure to currency risk	951,750	13,810	(46,078)	2,029	921,511
Sterling	127,684	2,120	(39,777)	(589)	89,438
	1,079,434	15,930	(85,855)	1,440	1,010,949

*      Includes non-monetary assets of £16,000.

At 30 April 2015	Investments £'000	Cash and cash equivalents £'000	Loans and debentures £'000	Other debtors and creditors* £'000	Net exposure £'000
US dollar	556,795	48,774	-	303	605,872
Japanese yen	106,703	-	(84,284)	629	23,048
Euro	65,806	-	-	499	66,305
Other overseas currencies	209,868	-	-	117	209,985
Total exposure to currency risk	939,172	48,774	(84,284)	1,548	905,210
Sterling	157,453	2,041	(39,745)	(1,368)	118,381
	1,096,625	50,815	(124,029)	180	1,023,591

*      Includes non-monetary assets of £41,000.

Currency Risk Sensitivity

At 30 April 2016, 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 analysis is performed on the same basis for 2015.

	2016 £'000		2015 £'000
US dollar	26,636		30,294
Japanese yen	4,555		1,152
Euro	4,277		3,315
Other overseas currencies	10,607		10,499
	46,075		45,260

Interest Rate Risk

Interest rate movements may affect directly:

¾ the fair value of the investments in fixed interest rate securities;

¾ the level of income receivable on cash deposits;

¾ the fair value of derivative instruments linked to interest rates;

¾ the fair value of the Company's fixed-rate borrowings; and

¾ the interest payable on any variable rate borrowings which the Company may take out.

Interest rate movements may also impact upon the market value of the Company's investments other than its 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 fair 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 30 April is shown below.

Financial Assets

	2016			2015
	Fair value £'000	Weighted average interest rate	Weighted average period until maturity	Fair value £'000	Weighted average interest rate	Weighted average period until maturity
Fixed rate:
US bonds	-	-	-	55,123	0.5%	2 years
UK swap rate linked note*	5,933	7.2%	17 months	6,037	7.2%	2 years
Floating rate:
UK swap rate linked note*	-	n/a	17 months	569	n/a	2 years
Fixed interest collective investment schemes:
US dollar denominated funds	1,299	-	3 months	12,666	0.9%	n/a

*       This instrument comprises a zero coupon note issued by Credit Suisse and an option on sterling interest rate swaps. The zero coupon element has a redemption value of £6.25m (fair value - 5,933,000) and the redemption value of the interest rate swap element (fair value - £nil) is based on a formula linked to thirty year sterling interest swap rates with higher amounts payable as rates rise. Prior to redemption, the value of the interest rate swap element will vary depending on several factors such as the level of swap rates and the implied volatility of interest rate swap options.

Financial Liabilities

The interest rate risk profile of the Company's bank loans and debentures (at amortised cost) and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 30 April are shown below.

Interest Rate Risk Profile

	2016 £'000	2015 £'000
Floating rate - US dollar	46,078	-
Floating rate - yen	-	84,284
Fixed rate - sterling	39,777	39,745
	85,855	124,029

Maturity Profile

	2016 Within 1 year £'000	2016 Between 1 And 5 years £'000	2016 More than 5 years £'000	2015 Within 1 Year £'000	2015 Between 1 And 5 years £'000	2015 More than 5 years £'000
Repayment of loans and debentures	46,078	-	40,000	84,284	-	40,000
Interest on loans and debentures	2,764	10,200	6,375	2,720	10,200	8,925
	48,842	10,200	46,375	87,004	10,200	48,925

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond/swap yields as at 30 April 2016 would have increased total net assets and total return on ordinary activities by £3,861,000 (2015 - £6,184,000) and would have increased the net asset value per share (with borrowings at fair value) by 3.0p (2015 - 4.2p). A decrease of 100 basis points would have increased total net assets and total return on ordinary activities by £174,000 (2015 - increased by £553,000) and would have decreased net asset value per share (with borrowings at fair value) by 1.1p (2015 - 1.0p).

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 Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. 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 objective and investment policy.

Other Price Risk Sensitivity

A full list of the Company's investments is shown on pages 9 to 11 of the Annual Report and Financial Statements. In addition, a geographical analysis of the portfolio, an analysis of the portfolio by broad industrial or commercial sector are contained in the Strategic Report. There were no derivative financial instruments open during the year other than the interest rate swap element of the Credit Suisse Note, as described above. 105.3% of the Company's net assets are invested in quoted equities (2015 - 99%). A 5% increase in quoted equity valuations at 30 April 2016 would have increased total assets and total return on ordinary activities by £53,227,000 (2015 - £50,649,000). A decrease of 5% would have had an equal but opposite effect.

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 also sets parameters for the degree to which the Company's net assets are invested in quoted equities. The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's current borrowing facilities are detailed below and the maturity profile of its borrowings is set out above.

Borrowings falling due within one year:

	2016 £'000	2015 £'000
National Australia Bank Limited loan	46,078	84,284

Borrowing facilities

At 30 April 2016 the Company had a 5 year £100 million floating rate loan facility with National Australia Bank Limited and an uncommitted 1 year £20 million floating rate loan facility with The Bank of New York Mellon.

At 30 April 2016 drawings were as follows:

¾ National Australia Bank Limited: US$67.5 million at an interest rate of 1.8351% (2015 - ¥15,500 million at an interest rate of 0.71918%)

¾ The Bank of New York Mellon: nil (2015 - nil)

The main covenants relating to the above loans are that total borrowings shall not exceed 30% of the Company's adjusted net asset value and the Company's minimum adjusted net asset value shall be £450 million.

During the year the Company replaced its ¥18,500 million 1 year facility with National Australia Bank with a £100 million 5 year facility with the same bank, with ¥15,500 million borrowings being repaid and US$67.5 million being drawn down.

There were no breaches of loan covenants during the year.

Borrowings falling due after more than one year:

	Repayment date	Nominal rate	Effective rate	2016 £'000	2015 £'000
£40 million 6 3/8% debenture stock 2023	1/9/2023	6.375%	6.5%	39,777	39,745

Debenture Stock

The debenture stock is stated at amortised cost (see note 1 on page 37 of the Annual Report and Financial Statements); the cumulative effect is to decrease the carrying amount of borrowings by £223,000 (2015 - £255,000). The debenture stock is secured by a floating charge over the assets of the Company. Under the terms of the Debenture Agreement, total borrowings should not exceed net assets and the Company cannot undertake share buy-backs if this would result in total borrowings exceeding 66.67%.

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 Investment Manager makes 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;

¾ 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 Depositary has delegated the custody function to Bank of New York Mellon SA/NV London Branch. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting their findings to the Board;

¾ investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily done 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;

¾ the creditworthiness of the counterparty to transactions involving derivatives, structured notes 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 Investment Manager; and

¾ cash is only held at banks that have been identified by the Managers as reputable and of high credit quality.

Credit Risk Exposure

The amount that best represents the Company's maximum exposure to direct credit risk at 30 April was:

	2016 £'000	2015 £'000
Fixed interest investments	7,232	74,395
Cash and cash equivalents	15,930	50,815
Debtors and prepayments*	3,330	2,032
	26,492	127,242

*      Includes non-monetary assets of £16,000 (2015 - £41,000).

None of the Company's financial assets are past due or impaired.

Fair value of financial assets and financial liabilities

The Directors are of the opinion that there is no difference between the amounts at which the financial assets and liabilities of the Company are carried in the Balance Sheet and their fair values, with the exception of fixed rate borrowings. The fair values of the Company's borrowings are shown below.

	2016			2015
	Nominal value £'000	Book value £'000	Fair value £'000	Nominal value £'000	Book value £'000	Fair value £'000
Bank loans due within one year	46,078	46,078	46,078	84,284	84,284	84,284
6 3/8% debenture stock 2023*	40,000	39,777	44,800	40,000	39,745	44,800
	86,078	85,855	90,878	124,284	124,029	129,084

*      Financial liabilities stated in the balance sheet at amortised cost (book value).

Capital Management

The capital of the Company is its share capital and reserves as set out in note 14 of the Annual Report and Financial Statements together with its borrowings (see above). The objective of the Company is to invest globally to achieve capital growth, which takes priority over income and dividends. The Company's investment policy is set out on page 15 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 on pages 15, 16, 22 and 23 of the Annual Report and Financial Statements.

The Company has the ability to buy back its shares (see page 19 of the Annual Report and Financial Statements) and any changes to the share capital during the year are set out in note 13 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loans and debentures which are detailed above.

Investments

As at 30 April 2016	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	1,064,545	-	-	1,064,545
Unlisted equities	-	-	7,657	7,657
Unlisted debt securities	-	-	7,232	7,232
Total financial asset investments	1,064,545	-	14,889	1,079,434

As at 30 April 2015	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	1,012,525	464	-	1,012,989
Listed debt securities	55,123	-	-	55,123
Unlisted equities	-	-	9,241	9,241
Unlisted debt securities	-	-	19,272	19,272
Total financial asset investments	1,067,648	464	28,513	1,096,625

Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the above tables 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 basis on which the fair values of financial instruments held at fair value through the profit and loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement

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).

Statement of Directors' Responsibilities in Respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration 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 the Directors have prepared the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). 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 and the Directors' Remuneration Report 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 law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and 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 on the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names 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) 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 position and 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.

By order of the Board

JGD Ferguson

Chairman

15 June 2016

 

Income statement

	For the year ended 30 April 2016			For the year ended 30 April 2015
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(10,799)	(10,799)	-	99,275	99,275
Currency gains	-	1,655	1,655	-	4,892	4,892
Income	15,149	-	15,149	20,215	-	20,215
Investment management fee	(4,617)	-	(4,617)	(4,668)	-	(4,668)
Other administrative expenses	(1,150)	-	(1,150)	(1,087)	-	(1,087)
Net return before finance costs and taxation	9,382	(9,144)	238	14,460	104,167	118,627
Finance costs of borrowings	(3,291)	-	(3,291)	(2,846)	-	(2,846)
Net return on ordinary activities before taxation	6,091	(9,144)	(3,053)	11,614	104,167	115,781
Tax on ordinary activities	(1,137)	-	(1,137)	(1,065)	-	(1,065)
Net return on ordinary activities after taxation	4,954	(9,144)	(4,190)	10,549	104,167	114,716
Net return per ordinary share (note 2)	2.31p	(4.27p)	(1.96p)	4.74p	46.84p	51.58p
Note: Dividends per share paid and payable in respect of the year (note 3)	1.50p			3.95p

The total column of this statement represents the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

 

Balance sheet

	At 30 April 2016 £'000	At 30 April 2015 £'000
Fixed assets
Investments held at fair value through profit or loss	1,079,434	1,096,625
Current assets
Debtors	3,330	2,032
Cash and cash equivalents	15,930	50,815
	19,260	52,847
Creditors
Amounts falling due within one year (note 4)	(47,968)	(86,136)
Net current liabilities	(28,708)	(33,289)
Total assets less current liabilities	1,050,726	1,063,336
Creditors
Amounts falling due after more than one year (note 4)	(39,777)	(39,745)
Net assets	1,010,949	1,023,591
Capital and reserves
Called up share capital	10,698	10,698
Share premium account	11,100	11,100
Capital redemption reserve	8,700	8,700
Capital reserve	934,814	943,958
Revenue reserve	45,637	49,135
Shareholders' funds	1,010,949	1,023,591
Net asset value per ordinary share (after deducting borrowings at fair value)	470.1p	476.0p
Net asset value per ordinary share (after deducting borrowings at par)	472.4p	478.3p
Ordinary shares in issue (note 5)	213,963,859	213,963,859

 

Statement of changes in equity

For the year ended 30 April 2016

	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2015	10,698	11,100	8,700	943,958	49,135	1,023,591
Net return on ordinary activities after taxation	-	-	-	(9,144)	4,954	(4,190)
Dividends paid during the year (note 3)	-	-	-	-	(8,452)	(8,452)
Shareholders' funds at 30 April 2016	10,698	11,100	8,700	934,814	45,637	1,010,949

For the year ended 30 April 2015

	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2014	11,394	11,100	8,004	894,882	47,516	972,896
Net return on ordinary activities after taxation	-	-	-	104,167	10,549	114,716
Shares purchased for cancellation (note 5)	(696)	-	696	(55,091)	-	(55,091)
Dividends paid during the year (note 3)	-	-	-	-	(8,930)	(8,930)
Shareholders' funds at 30 April 2015	10,698	11,100	8,700	943,958	49,135	1,023,591

Cash flow statement

	Year ended 30 April 2016		Year ended 30 April 2015
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation		(3,053)		115,781
Net losses/(gains) on investments		10,799		(99,275)
Currency gains		(1,655)		(4,892)
Amortisation of fixed income book cost		(353)		(444)
Finance costs of borrowings		3,291		2,846
Overseas tax incurred		(1,125)		(987)
Changes in debtors and creditors		(1,257)		(562)
Cash from operations		6,647		12,467
Interest paid		(3,214)		(2,809)
Net cash inflow from operating activities		3,433		9,658
Cash flows from investing activities
Acquisitions of investments	(209,105)		(956,481)
Disposals of investments	215,791		930,889
Net cash inflow/(outflow) from investing activities		6,686		(25,592)
Cash flows from financing activities
Equity dividends paid	(8,452)		(8,930)
Shares purchased for cancellation	(2)		(55,089)
Borrowings (repaid)/drawn down	(39,536)		84,382
Net cash (outflow)/inflow from financing activities		(47,990)		20,363
(Decrease)/increase in cash and cash equivalents		(37,871)		4,429
Exchange movements		2,986		4,794
Cash and cash equivalents at 1 May		50,815		41,592
Cash and cash equivalents at 30 April		15,930		50,815

Notes to the financial statements

1.	The Financial Statements for the year to 30 April 2016 have been prepared in accordance with The Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') which the Company must adopt for its financial year ending 30 April 2016. Following the application of the new reporting standard and the AIC's issued Statement of Recommended Practice, there has been no impact on the Company's Income Statement, Balance Sheet or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) for the period previously reported. The Cash Flow Statement reflects the presentational requirements of FRS 102, which are different to FRS 1. In addition, the Cash Flow Statement reconciles to cash and cash equivalents whereas under previous UK GAAP the Cash Flow Statement reconciled to cash. The Company has early adopted the amendments to Section 34 of FRS 102 regarding fair value hierarchy disclosures.
2.	Net Return per Ordinary Share		2016				2015
	Revenue return		2.31p				4.74p
	Capital return		(4.27p)				46.84p
	Total return		(1.96p)				51.58p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £4,954,000 (2015 - £10,549,000) and on 213,963,859 (2015 - 222,374,615) ordinary shares of 5p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital loss for the financial year of £9,144,000 (2015 - gain of £104,167,000) and on 213,963,859 (2015 - 222,374,615) 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
3.	Ordinary Dividends			2016	2015			2016 £'000	2015 £'000
	Amounts recognised as distributions in the year:
	Previous year's final (paid 7 August 2015)			3.45p	3.45p			7,382	7,824
	Interim (paid 29 January 2016)			0.50p	0.50p			1,070	1,106
				3.95p	3.95p			8,452	8,930
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £4,954,000 (2015 - £10,549,000).
		Ordinary Dividends		2016	2015			2016 £'000	2015 £'000
		Amounts paid and payable in respect of the financial year:
		Adjustment to previous year's final dividend re shares bought back		-	-			-	(38)
		Interim (paid 29 January 2016)		0.50p	0.50p			1,070	1,106
		Proposed final (payable 5 August 2016)		1.00p	3.45p			2,140	7,382
				1.50p	3.95p			3,210	8,450
		If approved the recommended final dividend will be paid on 5 August 2016 to shareholders on the register at the close of business on 8 July 2016. The ex-dividend date is 7 July 2016. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 15 July 2016.
4.		At 30 April 2016 the book value of the Company's borrowings amounted to £86m (2015 - £124m), comprising a £40m   6 3/8% debenture stock repayable in 2023 (2015 - £40m) and a short-term bank loan of US$67.5m (2015 - ¥15.5bn). The fair value of borrowings at 30 April 2016 was £91m (2015 - £129m).
5.		The Company did not buy back any ordinary shares during the year. At 30 April 2016 the Company had authority to buy back 32,073,182 ordinary shares, being 14.99% of the shares in issue at the year end.
6.		None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

‡      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.

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