Annual Financial Report
The Monks Investment Trust PLC
Legal Entity Identifier: 213800MRI1JTUKG5AF64
Annual Financial Report
This is the Annual Financial Report of The Monks Investment Trust PLC as required to be published under DTR 4 of the UKLA Listing Rules.
The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 30 April 2017 or 30 April 2018 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2017 and 2018; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 30 April 2017 have been filed with the Registrar of Companies and the statutory accounts for the year ended 30 April 2018 will be delivered to the Registrar in due course.
The Annual Report and Financial Statements for the year ended 30 April 2018, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection http://www.morningstar.co.uk/uk/NSM and is also available on the Monks page of the Baillie Gifford website at: www.monksinvestmenttrust.co.uk.
Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
Baillie Gifford & Co Limited
Company Secretaries
27 June 2018
Chairman's Statement
For the second year in succession Monks has produced strong returns which significantly exceeded the comparative index. Our managers comment in detail later in this report but the key contributor has been the strong revenue and profit growth of the underlying portfolio. This is the direct consequence of the change made three years ago towards an explicit growth approach and our managers have constructed a balanced and differentiated portfolio of above average growth companies, many of which face substantial open-ended opportunities.
Performance since this change has been good and, when combined with an increase in the Company's marketing budget and the Managers' effective marketing efforts to attract new buyers and long-term holders, has increased demand for Monks shares. This has had the result that the shares have recently been trading at a premium to Net Asset Value ('NAV') which has enabled Monks to issue new shares for the first time in more than 55 years. The increase in the size of the Company has encouraged the Managers to reduce further the tiered management fee, to the benefit of all shareholders and to increase their marketing efforts.
The Board is encouraged by the results of the new approach over the last three years and believes that Monks is today well placed to become a preferred long-term savings vehicle for individuals and wealth managers.
Performance
Although five years is really the minimum period over which to measure the success or failure of an investment approach, the Board is encouraged nonetheless to note that in the year to 30 April 2018 the NAV total return, with borrowings calculated at fair value, was 15.8% and the share price total return was 20.4%. Over the same period the total return for the FTSE World Index was 7.5%, in sterling terms. Since the change in approach in March 2015 the NAV total return at fair value has been 57.9% and the share price total return 84.4% against the comparative index at 40.3%.*
Borrowings and Gearing
As at the financial year end, the invested gearing was 4.6% compared to 6.6% at the start of the period. The Board and managers believe the long-term neutral position is likely to be close to invested gearing of 10% and flexible short-term bank facilities are in place (see Borrowings section further below for details) should appealing opportunities arise.
Share Issuance
Over the course of the year, Monks shares traded close to NAV. This enabled the Company to issue 3,180,000 new shares at a premium to NAV, being 1.5% of Monks share capital and raising £25m of new funds for investment. Share issuance is only undertaken at a premium to the NAV so as to benefit existing investors.
Management Fee
Ongoing charges for the year to 30 April 2018 were 0.52%, down from 0.59% in the prior year. Having agreed a new two tiered management fee in 2017, I am pleased to note that the continued growth of the Company has meant that the Managers have agreed an additional tier to the management fee, coming down to 0.30% on assets above £1.75bn, with effect from 1 May 2018. Last year's change in fee structure resulted in a saving of £873,000 compared to what would have been paid under the former arrangement. Lower fees are an important contributor to shareholder returns and we welcome this further reduction. Although there is little immediate cost saving from the new third tier, it will ensure that shareholders continue to benefit from economies of scale and any future growth of Monks.
Earnings and Dividend
Monks invests with the aim of maximising capital growth rather than income and all costs are charged to the Revenue Account. Earnings per share were 2.61p compared to 2.36p in 2017 and the Board is recommending that a single final dividend of 1.40p should be paid, compared to 1.25p last year. This is the minimum required to maintain investment trust status. No interim dividend was paid during the year.
Outlook
The chief concerns facing markets currently are elevated valuations, the uncertain impact of rising interest rates and an apparent return of volatility. On the other hand, there appears to be an abundance of growth opportunities from across a range of economies and new and fast changing technologies. It is our managers' belief that investors generally dwell too much on the macro environment and not enough on individual company prospects, which typically drive most long term value creation. They report a wide range of new investment opportunities, well diversified by geography and by industry, trading on still reasonable levels of valuation, which gives us confidence in the future returns from the portfolio over the longer term.
Annual General Meeting
I would encourage shareholders to attend the Annual General Meeting, which will be held on 4 September 2018 at 11.00 am at the Institute of Directors. Our managers will give a presentation and there will be an opportunity to ask questions and to meet them and the Directors informally.
James Ferguson
Chairman
15 June 2018
* Total returns from 31 March 2015 to 30 April 2018.
Past performance is not a guide to future performance.
Total return information is sourced from Baillie Gifford /Morningstar. See disclaimer at the end of this announcement.
For a definition of terms used see Glossary of Terms at the end of this announcement.
The Managers' Core Investment Beliefs
We believe the following features of Monks provide a sustainable basis for adding value for shareholders.
Active Management
¾ 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 diverge - 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 equity holdings fall into one of four growth categories - as set out 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 Equities are held in three broad holding sizes - as set out in the Equity Portfolio by Growth Category 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 Investors should not be penalised by high management fees.
¾ Low turnover and trading costs benefit shareholders.
* For a definition of terms used see Glossary of Terms at the end of this announcement.
Managers' Report
Performance
During the year the Company's net asset value (NAV), with borrowings at fair value, returned 15.8%, well ahead of the FTSE World Index at 7.5%. The information contained in such short term data is limited. Since the current team took on the management of the Monks portfolio in March 2015 the index has returned 40.3%, the Company's NAV with borrowings at fair value has returned 57.9% and the share price returned 84.4%.* Yet even this period is short compared to our own investment horizon of five years plus, or the interests of many of our shareholders which can run to decades. Despite a positive start these remain early days for the new approach adopted in 2015.
The key metric by which we measure the success of our holdings over the short to medium term is their operational performance: we ask ourselves whether their operating results are consistent with a sustainable increase in sales, earnings per share and cash flows over a longer horizon. For each stock, we monitor delivery against our own expectations and the company's stated strategy. While share prices are unpredictable and random over short periods, over time we expect them to follow fundamentals, though this connection is neither immediate nor guaranteed. Our process focuses on identifying and owning those companies most likely to deliver well above the market average growth over longer time periods; index weightings and classifications play no part in our process, though we do aim to produce a balanced and diversified portfolio of value-creating companies. The portfolio's strong returns since 2015 are supportive of this approach, with the dominant driver of value creation being the underlying growth of our holdings, rather than clever asset allocation or market timing.
Our most recent results are also consistent with this pattern: amongst the most significant contributors to returns in the year under review were NVIDIA, Alibaba, Naspers, GrubHub, Autohome, MasterCard, Fiat Chrysler, AIA and Abiomed, each of which grew earnings by at least a third in calendar 2017. These companies represent a broad spectrum of industry exposures from insurance through automobiles and credit cards to sophisticated semi-conductors, demonstrating the range of opportunities available to global stockpickers. The single largest contributor to returns for the year (and since March 2015) was Amazon, which grew its reported earnings 26% in 2017. This rate was depressed, as is usual with this company, by its willingness to invest heavily in order to maximise future growth.
During the year the share price of fourteen holdings rose by more than 50% in sterling terms. Of these we would categorise eleven as 'online platforms'. Often these companies are using the internet to deliver traditional services in a way that disrupts incumbents, just as Amazon has done in retail. These companies tend to have a number of common features: large market opportunities, asset-light business models, visionary leaders and the enticing possibility of entrenched leadership positions. When one sees a winning 'online platform' emerge, it seems simple but the competitive environment is intense; Warren Buffet said recently of Amazon's doughty leader 'I think what Jeff Bezos has done is something close to a miracle'. Another platform that seems to be emerging as a winner is GrubHub, the American online food ordering and delivery company. We have owned this stock since late 2015 when it was one of a number of competitors in a US$200bn market. Soon after our purchase the company announced a significant investment in delivery technology and physical infrastructure to aid its service and the market groaned as this placed its fast-paced asset-light model under pressure. We applauded because in the long term it gave GrubHub a better chance of success through a definable edge - the speed of delivery and the quality of the food when it arrived. During the year the shares more than doubled as it continued to consolidate its position through acquisitions and announced it had won a contract to provide delivery services for all KFC and Taco Bell restaurants in the US. GrubHub now has access to over 80,000 restaurants in the US; it is four times larger than the next biggest online food delivery platform.
Growth in data and the digital world, and especially in cloud and mobile applications, has clearly benefited our investments in the semi-conductor industry where we own chip designers (NVIDIA, Infineon, Rohm and Advanced Micro Devices), manufacturers (Samsung Electronics and TSMC) and the makers of testing equipment (Advantest and Teradyne). These companies are all benefiting from very strong volume demand, together with improved pricing power as a result of historic industry consolidation. However, we are wary that in this cyclical industry such boom conditions may not last forever, especially with the Chinese investing heavily to build up their own capabilities and we have begun to bank some profits. China is successfully switching its economic focus from low-cost manufacturing to consumption and services. The government is actively promoting the development of domestic technology champions. Chinese consumer internet companies Alibaba, Autohome and 58.com all find themselves at the confluence of these positive developments. All performed strongly and counted amongst the leading contributors to performance for the year.
Portfolio Changes
During the year we purchased twenty new holdings and made complete sales of thirteen. These transactions are summarised below. Portfolio turnover was just under 20% which equates to a holding period of five years and is consistent with our long-term time horizon.
We categorise our holdings into four growth categories - Stalwarts, Rapid, Cyclical and Latent. These titles reflect the different ways we expect our investments to grow over the long term. The year-end weights in each category and the individual holdings can be seen below. Although our process is based on picking individual stocks, trading activity can be understood through the lens of these growth categories.
We refreshed our Stalwart growth companies, believing that many traditional consumer staples have become expensive relative to their prospects, as their dividend characteristics have been much sought after at a time of very low bond yields. Colgate-Palmolive was the last such holding in our portfolio before we sold it: best known for its eponymous toothpaste brand, it has delivered only 4% per annum earnings growth over the past three years yet trades on a price-earnings multiple in the mid 20's, which is well in excess of the wider market. We also sold Novo Nordisk (a leader in insulin used to treat diabetes) which is suffering pricing pressures for its products. New Stalwart purchases were Arthur J. Gallagher (a US insurance broker), Pernod Ricard (the spirits company whose stable includes Absolut Vodka, Glenlivet and Malibu) and the US life sciences supply company, Thermo Fisher.
Rapid growth companies should be the most dynamic in the portfolio and, as noted above, for many of our technology holdings this has proven to be the case. We have trimmed some of our biggest and most successful investments (Alphabet, Amazon and Naspers for example) and reinvested into companies that are at a much earlier stage in their development. These include the two Chinese online companies, 58.com (classified advertising) and NetEase (gaming), two of the increasingly ubiquitous media streaming services Spotify and Netflix, and Genmab which is a Danish biotechnology company. We also sold out of both TripAdvisor and Financial Engines as we lost confidence in their long-term potential in the face of disappointing progress.
Across the four growth categories, the most noticeable change has been a reduction to the weighting in Cyclical growth holdings from 29% to 22% of the portfolio. Much of this activity has focused on the US where valuations for such companies have increased since the 2016 Presidential election. The plan to 'Make America Great Again' has caused a degree of unwarranted excitement and we have reduced holdings in Martin Marietta (construction aggregates and cement), Lincoln Electric (welding equipment and consumables) and TD Ameritrade (online broking). We sold CarMax, the US second hand auto retailer whose prospects seem less certain as online business models and the rise of electric vehicles represent material threats to this industry. New purchases included our first foray for many years into mining through the purchase of Orica, a supplier of explosives to mining companies. We think Orica should enjoy the dual drivers of a new management team with significant plans for efficiency gains together with a recovery in the mining industry after a multi-year downturn.
This reduction in Cyclical exposure has been mirrored by a rise in our Latent growth category. Latent growth companies tend to have a poor recent track record but a potential trigger to return the company to a growth profile. Our theory is that there is little, if any, growth priced in to such investments, so any improvement can have a disproportionate effect on valuation. When growth fails to materialise the downside is generally limited as was the case with Carlsberg (like Colgate, a highly rated consumer franchise) which was sold during the year. New investments included Advanced Micro Devices (power semi-conductors), Iida Group (a Japanese home builder), Sumitomo Mitsui Trust (a Japanese bank), Lindblad Expeditions (a niche holiday cruise company), MRC Global (a distributor of products to oil companies) and Signify (formerly called Philips Lighting, a spin out from the large Dutch industrial conglomerate), each of which has potential for significant improvement.
Monks has the freedom to invest in unquoted as well as quoted equities, though our approach is to only purchase private companies which offer opportunities that we cannot gain through listed instruments. As a result, the exposure of the company to such holdings will always be limited. As noted above we invested in Spotify when it was a private company but it has subsequently listed in New York.
Outlook for the Portfolio
Much of our focus over recent months has been on portfolio diversification. Following a sustained period of strong performance, with a significant contribution from a relatively narrow range of technology and internet companies, we want to ensure we have plenty of under-appreciated growth stocks within the portfolio. We have started to harvest some of the gains amongst our technology and US cyclical holdings where progress is well recognised by the market. Whilst our portfolio turnover remains low, it is encouraging to see a broad spread of new ideas coming forward, from a range of different industries and geographies. We feel that this modest rebalancing adds to the attractiveness of the portfolio for long-term investors.
We remain generally enthusiastic about global growth, notably from Asian consumer demand and across a range of technological advances driven by the use of data in areas such as health, media, transport and trade. In the West we see the impact of the greater use of mobile devices on a daily basis, yet in China and other Emerging Markets the momentum is even greater, supported by the positive tailwind of strong demographics, supportive governments and a huge wealth gap. In less than one generation many of these countries could catch up with western living standards which is a mouth watering prospect for a growth investor.
It is instructive to look back over the last three financial years. In the first the global equity market was virtually unchanged (up 0.5%), in the second with the tailwind of a major sterling deprecation it rose at its strongest rate for many years (31%) and in the most recent year we saw a more steady appreciation (8%) which is close to the long-term historic average return. This shows that markets can be volatile and often respond in the short run to politics, economics and newspaper headlines, in contrast to company fundamentals which have proven less volatile and which have been the primary driver of portfolio performance. Those fundamentals should remain supportive over the long term if we can continue to uncover the best growth stocks in the world on your behalf and give them sufficient time to reach their considerable potential.
Charles Plowden
Spencer Adair
Malcolm MacColl
Baillie Gifford & Co
* Total returns from 31 March 2015 to 30 April 2018.
Past performance is not a guide to future performance.
Total return information is sourced from Baillie Gifford /Morningstar. See disclaimer at the end of this announcement.
For a definition of terms used see Glossary of Terms at the end of this announcement.
|
Equity Portfolio by Growth Category as at 30 April 2018 |
|
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: 27.7% |
Prudential |
3.2 |
Amazon.com |
4.1 |
TSMC |
2.0 |
Apache |
1.9 |
|
Anthem |
2.2 |
Naspers |
2.8 |
CRH |
1.6 |
|
|
|
|
SAP |
1.9 |
AIA |
2.2 |
|
|
|
|
|
|
Moody's |
1.9 |
Alibaba |
2.1 |
|
|
|
|
|
|
|
|
Alphabet |
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sized holdings c.1.0% each
Total: 49.5% |
MasterCard |
1.5 |
HDFC |
1.4 |
Royal Caribbean Cruises |
1.2 |
MS&AD Insurance |
1.4 |
|
Visa |
1.4 |
Ryanair |
1.3 |
Markel |
1.1 |
Samsung Electronics |
1.3 |
|
|
Thermo Fisher Scientific |
1.1 |
ICICI Bank |
1.2 |
Richemont |
1.1 |
Fiat Chrysler Autos |
1.2 |
|
|
Schindler |
1.0 |
GrubHub |
1.1 |
Banco Bradesco |
1.1 |
Fairfax Financial |
1.0 |
|
|
Resmed |
0.9 |
Baidu |
1.0 |
EOG Resources |
1.0 |
Bank of Ireland |
0.8 |
|
|
Verisk Analytics |
0.9 |
|
1.0 |
TD Ameritrade |
0.9 |
Sberbank of Russia |
0.8 |
|
|
Bureau Veritas |
0.9 |
MarketAxess |
1.0 |
Atlas Copco |
0.9 |
Signify |
0.8 |
|
|
Pernot Ricard |
0.9 |
Zillow |
1.0 |
SMC |
0.8 |
AP Moller-Maersk |
0.7 |
|
|
Arthur J. Gallagher |
0.9 |
LendingTree |
0.9 |
Martin Marietta Materials |
0.7 |
Sumitomo Mitsui Trust Holdings |
0.7 |
|
|
Olympus |
0.8 |
Cyberagent |
0.9 |
First Republic Bank |
0.7 |
|
|
|
|
Waters |
0.8 |
58.com |
0.8 |
CH Robinson Worldwide |
0.7 |
|
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|
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|
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Abiomed |
0.8 |
Leucadia National |
0.7 |
|
|
|
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|
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Renishaw |
0.8 |
Wabtec |
0.7 |
|
|
|
|
|
|
Chegg |
0.7 |
Deutsche Boerse |
0.7 |
|
|
|
|
|
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Autohome |
0.7 |
|
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|
|
|
|
|
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Seattle Genetics |
0.7 |
|
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|
|
|
|
|
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Ctrip.com International |
0.7 |
|
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|
|
|
|
|
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Tesla |
0.7 |
|
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|
|
|
|
|
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NVIDIA |
0.7 |
|
|
|
|
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Incubator Holdings c.0.5% each
Total: 22.8% |
Kansai Paint |
0.4 |
Interactive Brokers Group |
0.6 |
Advantest |
0.6 |
Howard Hughes |
0.6 |
|
|
|
Spotify |
0.6 |
Hays |
0.6 |
Rohm |
0.6 |
|
|
|
|
Schibsted |
0.6 |
SiteOne Landscape Supply |
0.6 |
Toyota Tsusho |
0.6 |
|
|
MercadoLibre |
0.6 |
Tsingtao Brewery |
0.5 |
|||||
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|
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Netflix |
0.6 |
Svenska Handelsbanken |
0.5 |
Iida Group Holdings |
0.5 |
|
|
|
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Trupanion |
0.6 |
Persol Holdings |
0.5 |
MRC Global |
0.5 |
|
|
|
|
M3 |
0.6 |
Jardine Strategic Holdings |
0.5 |
DistributionNOW |
0.5 |
|
|
|
|
Infineon Technologies |
0.6 |
Orica |
0.5 |
Veeco Instruments |
0.5 |
|
|
|
|
B3 Group |
0.5 |
PageGroup |
0.5 |
Lindblad Expeditions Holdings |
0.5 |
|
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Myriad Genetics |
0.5 |
OC Oerlikon |
0.4 |
|||||
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|
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Genmab |
0.5 |
Sands China |
0.4 |
Kirby |
0.5 |
|
|
Mail.ru Group |
0.4 |
Teradyne |
0.4 |
Advanced Micro Devices |
0.3 |
|||
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|
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iRobot |
0.4 |
Ritchie Bros Auctioneers |
0.4 |
HTC |
0.3 |
|
|
|
|
NetEase |
0.4 |
Lincoln Electric |
0.3 |
Silk Invest Africa Food Fund |
0.3 |
|
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Alnylam Pharmaceuticals |
0.4 |
|
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|||||
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IP Group |
0.3 |
|
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Stericycle |
0.3 |
|
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|
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GRAIL |
0.3 |
|
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Dia |
0.3 |
|
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Line |
0.3 |
|
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Ferro Alloy Resources |
0.2 |
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China Biologic Products |
0.2 |
|
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MTN |
0.2 |
|
|
|
|
|
Yandex |
- |
|
|
|
|
|
|
Total |
20.7 |
Total |
39.4 |
Total |
22.1 |
Total |
17.8 |
|
Portfolio Positioning as at 30 April 2018 |
Thematic Exposure
|
|
At 30 April 2018 |
|||
|
Category |
% |
% |
||
|
Economically Agnostic |
|
48.8 |
||
|
|
Internet Winners: |
|
21.5 |
|
|
|
|
Developed World |
13.1 |
|
|
|
|
Emerging World |
8.4 |
|
|
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Innovation: |
|
17.8 |
|
|
|
|
Semi-conductor Chips |
6.3 |
|
|
|
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Health |
4.8 |
|
|
|
|
Financials |
1.6 |
|
|
|
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Other Innovation |
5.1 |
|
|
|
Stalwarts |
|
9.5 |
|
|
US Domestic Growth |
|
19.8 |
||
|
|
Industrial |
|
4.5 |
|
|
|
Consumer |
|
4.0 |
|
|
|
Normalisation |
|
3.7 |
|
|
|
Capital Cycle |
|
3.0 |
|
|
|
Energy |
|
2.4 |
|
|
|
Government Budgets |
|
2.2 |
|
|
Continued Progress of Asia/Latin America |
|
18.0 |
||
|
|
Emerging Markets Catch-up: |
|
12.9 |
|
|
|
|
Financial Development |
7.0 |
|
|
|
|
Consumer Catch-up |
5.9 |
|
|
|
Energy |
|
2.3 |
|
|
|
Capital Cycle |
|
1.7 |
|
|
|
Industrial |
|
1.1 |
|
|
European and Japanese Healing |
|
11.3 |
||
|
|
Abenomics |
|
3.8 |
|
|
|
Consumer |
|
3.1 |
|
|
|
Industrial |
|
2.2 |
|
|
|
Interest Rate Normalisation |
|
2.0 |
|
|
|
Capital Cycle |
|
0.2 |
|
|
Net Liquid Assets |
|
1.6 |
||
|
Other Equities |
|
0.5 |
||
|
Total Assets |
|
100.0 |
||
Geographical Analysis
|
|
At 30 April 2018 % |
At 30 April 2017 % |
|
North America |
44.7 |
47.1 |
|
Continental Europe |
17.0 |
16.4 |
|
Emerging Markets |
19.4 |
18.9 |
|
United Kingdom |
5.3 |
6.3 |
|
Japan |
8.5 |
6.3 |
|
Developed Asia |
3.5 |
3.7 |
|
Bonds |
- |
0.4 |
|
Net Liquid Assets |
1.6 |
0.9 |
|
Total Assets |
100.0 |
100.0 |
Sectoral Analysis
|
|
|
At 30 April 2018 % |
At 30 April 2017 % |
|
Oil and Gas |
3.8 |
2.2 |
|
|
Basic Materials |
1.1 |
0.6 |
|
|
Industrials |
15.3 |
17.3 |
|
|
Consumer Goods |
6.7 |
8.0 |
|
|
Health Care |
9.0 |
8.9 |
|
|
Consumer Services |
19.9 |
21.1 |
|
|
Financials |
28.6 |
25.5 |
|
|
Technology |
13.8 |
14.9 |
|
|
Telecommunications |
0.2 |
0.2 |
|
|
Total Equities |
98.4 |
98.7 |
|
|
Bonds |
- |
0.4 |
|
|
Net Liquid Assets |
1.6 |
0.9 |
|
|
Total Assets |
100.0 |
100.0 |
|
|
List of Investments at 30 April 2018 |
|
Name |
Businesss |
Growth category |
Fair value £'000 |
% of total assets |
Cumulative % of total assets |
|
|
Amazon.com |
Online retailer |
Rapid |
71,677 |
4.1 |
|
|
|
Prudential |
International life insurance |
Stalwart |
55,006 |
3.1 |
|
|
|
Naspers |
Media and e-commerce company |
Rapid |
47,950 |
2.7 |
|
|
|
Anthem |
Healthcare insurer |
Stalwart |
38,077 |
2.2 |
|
|
|
AIA |
Asian life insurer |
Rapid |
37,479 |
2.1 |
|
|
|
Alibaba |
Online commerce company |
Rapid |
36,041 |
2.0 |
|
|
|
TSMC |
Semiconductor manufacturer |
Cyclical |
35,289 |
2.0 |
|
|
|
SAP |
Enterprise software provider |
Stalwart |
33,692 |
1.9 |
|
|
|
Apache |
Oil exploration and production |
Latent |
32,728 |
1.9 |
|
|
|
Moody's |
Credit rating agency |
Stalwart |
32,597 |
1.9 |
23.9 |
|
|
Alphabet |
Online search engine |
Rapid |
31,450 |
1.8 |
|
|
|
CRH |
Diversified building materials company |
Cyclical |
27,576 |
1.6 |
|
|
|
MasterCard |
Electronic payments network and related services |
Stalwart |
25,700 |
1.5 |
|
|
|
Visa |
Electronic payments network and related services |
Stalwart |
24,745 |
1.4 |
|
|
|
MS&AD Insurance |
Japanese insurer |
Latent |
24,110 |
1.4 |
|
|
|
HDFC |
Indian mortgage provider |
Rapid |
23,557 |
1.3 |
|
|
|
Samsung Electronics* |
Semiconductor and consumer electronics |
Latent |
23,190 |
1.3 |
|
|
|
Ryanair |
Low cost European airline |
Rapid |
22,202 |
1.3 |
|
|
|
ICICI Bank |
Indian retail and corporate bank |
Rapid |
21,109 |
1.2 |
|
|
|
Royal Caribbean Cruises |
Global cruise company |
Cyclical |
20,928 |
1.2 |
37.9 |
|
|
Fiat Chrysler Autos |
Automobile manufacturer |
Latent |
20,466 |
1.2 |
|
|
|
Markel |
Markets and underwrites speciality insurance products |
Cyclical |
18,799 |
1.1 |
|
|
|
Richemont |
Luxury goods company |
Cyclical |
18,571 |
1.1 |
|
|
|
Thermo Fisher Scientific |
Scientific instruments, consumables and chemicals |
Stalwart |
18,391 |
1.1 |
|
|
|
GrubHub |
US online food service |
Rapid |
18,311 |
1.0 |
|
|
|
Banco Bradesco |
Brazilian commercial bank |
Cyclical |
18,237 |
1.0 |
|
|
|
Baidu |
Chines online search engine |
Rapid |
18,117 |
1.0 |
|
|
|
Fairfax Financial |
Commercial insurance |
Latent |
17,784 |
1.0 |
|
|
|
|
Social networking website |
Rapid |
17,765 |
1.0 |
|
|
|
Schindler |
Elevator and escalator company |
Stalwart |
17,684 |
1.0 |
48.4 |
|
|
EOG Resources |
Natural gas explorer and producer |
Cyclical |
17,035 |
1.0 |
|
|
|
MarketAxess |
Electronic bond trading platform |
Rapid |
16,604 |
0.9 |
|
|
|
Zillow |
US online real estate services |
Rapid |
16,475 |
0.9 |
|
|
|
Resmed |
Develops and manufactures medical equipment |
Stalwart |
16,268 |
0.9 |
|
|
|
Verisk Analytics |
Risk assessment services and decision analytics |
Stalwart |
16,018 |
0.9 |
|
|
|
Bureau Veritas |
Global testing services company |
Stalwart |
15,919 |
0.9 |
|
|
|
LendingTree |
US online loan marketplace |
Rapid |
15,578 |
0.9 |
|
|
|
Pernod Ricard |
Global spirits manufacturer |
Stalwart |
15,548 |
0.9 |
|
|
|
TD Ameritrade |
Online brokerage firm |
Cyclical |
15,226 |
0.9 |
|
|
|
Bank of Ireland |
Irish bank |
Latent |
15,197 |
0.9 |
57.5 |
|
|
Arthur J. Gallagher |
Insurance broker |
Stalwart |
15,150 |
0.9 |
|
|
|
Atlas Copco |
Industrial equipment |
Cyclical |
14,945 |
0.9 |
|
|
|
Cyberagent |
Japanese internet advertising and content |
Rapid |
14,900 |
0.8 |
|
|
|
Sberbank of Russia |
Russian commercial bank |
Latent |
14,745 |
0.8 |
|
|
|
Olympus |
Optoelectronic products |
Stalwart |
14,080 |
0.8 |
|
|
|
58.com |
Chinese online marketplace |
Rapid |
13,875 |
0.8 |
|
|
|
Abiomed |
Manufacturer of medical implant devices |
Rapid |
13,491 |
0.8 |
|
|
|
Signify |
Lighting company |
Latent |
13,382 |
0.8 |
|
|
|
SMC |
Producer of factory automation equipment |
Cyclical |
13,176 |
0.8 |
|
|
|
Waters |
Liquid chromatography products and services |
Stalwart |
13,026 |
0.7 |
65.6 |
|
|
Renishaw |
World leading metrology company |
Rapid |
12,989 |
0.7 |
|
|
|
Martin Marietta Materials |
Cement and aggregates manufacturer |
Cyclical |
12,789 |
0.7 |
|
|
|
First Republic Bank |
US retail bank |
Cyclical |
12,788 |
0.7 |
|
|
|
CH Robinson Worldwide |
US freight and logistics |
Cyclical |
12,675 |
0.7 |
|
|
|
AP Moller-Maersk |
Transport and logistics company |
Latent |
12,586 |
0.7 |
|
|
|
Chegg |
Online educational platform |
Rapid |
12,466 |
0.7 |
|
|
|
Autohome |
Chinese online automobile website |
Rapid |
12,349 |
0.7 |
|
|
|
Seattle Genetics |
Antibody based therapies |
Rapid |
12,333 |
0.7 |
|
|
|
Ctrip.com International |
Online travel agency |
Rapid |
12,162 |
0.7 |
|
|
|
Leucadia National |
Diversified holding company |
Cyclical |
12,152 |
0.7 |
72.6 |
|
|
Sumitomo Mitsui Trust Holdings |
Japanese trust bank and investment manager |
Latent |
11,766 |
0.7 |
|
|
|
Tesla |
Electric cars and renewable energy solutions |
Rapid |
11,596 |
0.7 |
|
|
|
Wabtec |
Rail and transit products and services |
Cyclical |
11,471 |
0.7 |
|
|
|
Deutsche Boerse |
Stock exchange operator |
Cyclical |
11,422 |
0.6 |
|
|
|
NVIDIA |
Visual computing technology |
Rapid |
11,400 |
0.6 |
|
|
|
Interactive Brokers Group |
Global electronic trading platform |
Rapid |
11,189 |
0.6 |
|
|
|
Spotify |
Online music streaming service |
Rapid |
11,042 |
0.6 |
|
|
|
Schibsted |
Media and classified advertising platforms |
Rapid |
10,913 |
0.6 |
|
|
|
Advantest |
Semiconductor testing services |
Cyclical |
10,865 |
0.6 |
|
|
|
MercadoLibre |
Latin American e-commerce platform |
Rapid |
10,863 |
0.6 |
78.9 |
|
|
Hays |
Recruitment consultancy |
Cyclical |
10,665 |
0.6 |
|
|
|
Netflix |
Subscription service for TV shows and movies |
Rapid |
10,571 |
0.6 |
|
|
|
Trupanion |
Pet health insurance provider |
Rapid |
10,486 |
0.6 |
|
|
|
M3 |
Online medical services |
Rapid |
9,950 |
0.6 |
|
|
|
SiteOne Landscape Supply |
US distributor of landscaping supplies |
Cyclical |
9,850 |
0.6 |
|
|
|
Howard Hughes |
US real estate developer |
Latent |
9,680 |
0.6 |
|
|
|
Rohm |
Electrical components |
Latent |
9,636 |
0.5 |
|
|
|
Toyota Tsusho |
African auto distributor |
Latent |
9,524 |
0.5 |
|
|
|
Infineon Technologies |
German semiconductor manufacturer |
Rapid |
9,345 |
0.5 |
|
|
|
Tsingtao Brewery |
Chinese brewer |
Latent |
9,058 |
0.5 |
84.5 |
|
|
B3 Group |
Brazilian stock exchange operator |
Rapid |
8,986 |
0.5 |
|
|
|
Svenska Handelsbanken |
Swedish retail bank |
Cyclical |
8,954 |
0.5 |
|
|
|
Persol Holdings |
Employment and outsourcing services |
Cyclical |
8,915 |
0.5 |
|
|
|
Iida Group Holdings |
Japanese house builder |
Latent |
8,911 |
0.5 |
|
|
|
MRC Global |
Oilfield drilling equipment distributor |
Latent |
8,839 |
0.5 |
|
|
|
DistributionNOW |
Oilfield drilling equipment distributor |
Latent |
8,675 |
0.5 |
|
|
|
Veeco Instruments |
Semiconductor equipment company |
Latent |
8,623 |
0.5 |
|
|
|
Lindblad Expeditions Holdings |
Specialist vacation operator |
Latent |
8,528 |
0.5 |
|
|
|
Jardine Strategic Holdings |
Asian retail/auto dealerships and property |
Cyclical |
8,472 |
0.5 |
|
|
|
Myriad Genetics |
Genetic testing company |
Rapid |
8,266 |
0.5 |
89.5 |
|
|
Orica |
Australian industrial explosives company |
Cyclical |
8,261 |
0.5 |
|
|
|
Genmab |
Biotechnology company |
Rapid |
8,048 |
0.5 |
|
|
|
Kirby |
US barge operator |
Latent |
7,976 |
0.5 |
|
|
|
PageGroup |
Recruitment consultancy |
Cyclical |
7,869 |
0.5 |
|
|
|
OC Oerlikon |
Industrial equipment manufacturer |
Cyclical |
7,726 |
0.4 |
|
|
|
Sands China |
Macau casino operator |
Cyclical |
7,667 |
0.4 |
|
|
|
Teradyne |
Semiconductor testing equipment manufacturer |
Cyclical |
7,562 |
0.4 |
|
|
|
Mail.ru Group |
Russian internet and communication services |
Rapid |
7,303 |
0.4 |
|
|
|
Richie Bros Auctioneers |
Industrial equipment auctioneer |
Cyclical |
7,246 |
0.4 |
|
|
|
Kansai Paint |
Paint manufacturer |
Stalwart |
7,159 |
0.4 |
93.9 |
|
|
iRobot |
Domestic and military robot manufacturer |
Rapid |
7,026 |
0.4 |
|
|
|
NetEase |
Chinese online gaming company |
Rapid |
7,001 |
0.4 |
|
|
|
Alnylam Pharmaceuticals |
RNA interference based biotechnology |
Rapid |
6,751 |
0.4 |
|
|
|
IP Group |
Intellectual property commercialisation |
Rapid |
5,857 |
0.3 |
|
|
|
GRAIL† |
Blood testing for early cancer detection |
Rapid |
5,810 |
0.3 |
|
|
|
Advanced Micro Devices |
Global semiconductor company |
Latent |
5,800 |
0.3 |
|
|
|
Lincoln Electric |
Welding equipment manufacturer and services |
Cyclical |
5,704 |
0.3 |
|
|
|
Line |
Online messaging service |
Rapid |
5,484 |
0.3 |
|
|
|
HTC |
Taiwanese electronic device manufacturer |
Latent |
5,345 |
0.3 |
|
|
|
Silk Invest Africa Food Fund† |
Africa focused private equity fund |
Latent |
5,009 |
0.3 |
97.2 |
|
|
Stericycle |
Regulated medical waste management services |
Latent |
4,603 |
0.3 |
|
|
|
Dia |
Discount food retailer |
Latent |
4,555 |
0.3 |
|
|
|
China Biologic Products |
Biopharmaceuticals |
Rapid |
4,145 |
0.2 |
|
|
|
Ferro Alloy Resources† |
Vanadium mining |
Latent |
3,432 |
0.2 |
|
|
|
MTN |
African wireless telecom company |
Latent |
3,153 |
0.2 |
|
|
|
Yandex |
Russian internet search and online services |
Rapid |
405 |
- |
|
|
|
Total Investments |
|
|
1,730,513 |
98.4 |
98.4 |
|
|
Net Liquid Assets |
|
|
29,028 |
1.6 |
1.6 |
|
|
Total Assets at Fair Value |
|
|
1,759,541 |
100.0 |
100.0 |
|
* Trading of this stock was temporarily suspended at 30 April 2018 due to an impending corporate action.
† 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 premium/discount; and
- ongoing charges.
An explanation of these measures can be found the Glossary of Terms at the end of this announcement. The one, five and ten year records of the KPIs are shown on pages 13 to 15 of the Annual Report and Financial Statements.
In addition to the above, the Board also has regard to the total return of the Company's principal comparative index (FTSE World Index in sterling terms) and considers the performance of comparable companies.
Borrowings
The Company's borrowings comprise a £40 million 6 3/8% debenture stock repayable in 2023 and a short-term bank loan of US$87 million with National Australia Bank Limited, drawn under a £100 million floating rate facility. During the year the Company opened an additional short-term facility with Scotiabank (Ireland), initially for £5 million but with the ability to increase it to £50 million, which was undrawn at the year end. Further details of the Company's borrowings are set out in notes 11 and 12 on page 45 of the Annual Report and Financial Statements and details of the Company's gearing levels are included in the Chairman's Statement above and the Ten Year Summary
on page 15 of the Annual Report and Financial Statements.
Future Developments of the Company
The outlook for the Company is dependent to a significant degree on economic events and the financial markets. Further comments on the outlook for the Company and its investment portfolio are set out in the Chairman's Statement and the Managers' Report above.
Market Purchases of Own Shares
At the last Annual General Meeting the Company was granted authority to purchase up to 32,073,182 ordinary shares (equivalent to approximately 14.99% of its issued share capital), such authority to expire at the Annual General Meeting in respect of the year ended 30 April 2018. 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 per share 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 Companies Act 2006); or
(ii) cancel the shares (or any of them).
Shares will only be sold from treasury at a premium to net asset value.
Transactions with Related Parties and the Managers and Secretaries
The Directors' fees and shareholdings are detailed in the Directors' Remuneration Report on pages 28 and 29 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.
Baillie Gifford & Co Limited has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Details of the terms of the Investment Management Agreement are set on page 20 of the Annual Report and Financial Statements and details of the fees during the year and the balances outstanding at the year end are shown below.
Management fee arrangements
The annual management fee payable for the year ended 30 April 2018 was 0.45% on the first £750 million of total assets and 0.33% on the remaining total assets, where total assets is defined as the total value of all assets held less all liabilities (other than any liability in the form of debt intended for investment purposes). For the year to 30 April 2017 the annual management fee was 0.45% of total assets less current liabilities. With effect from 1 May 2018 the annual management fee is 0.45% on the first £750 million of total assets, 0.33% on the next £1 billion of total assets and 0.30% on the remaining total assets. All debt drawn down at 30 April 2018 is intended for investment purposes. 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.
|
|
2018 £'000 |
|
2017 £'000 |
|
|
|
|
|
|
Investment management fee |
6,568 |
|
6,011 |
Investment management fees outstanding at 30 April 2018 amounted to £1,677,000 (2017 - £1,636,000)
Principal Risks
As explained on pages 24 and 25 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. There have been no significant changes to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below.
Financial Risk - the Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained 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 investment managers together with their general views on the various investment markets and sectors. A strategy meeting is held annually.
Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their Net Asset Value. To mitigate this risk, the Board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to Net Asset Value at which the shares trade; and movements in the share register.
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 and the Market Abuse Directive with reference to inside information.
Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.
Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other third party providers are reviewed by Baillie Gifford on behalf of the Board.
Discount Risk - the discount at which the Company's shares trade relative to its Net Asset Value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. To manage this risk, the Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed by the Board to be in the best interests of the Company and its shareholders.
Political Risk - political change in areas in which the Company invests or may invest may increasingly have practical consequences for the Company. To mitigate this risk, developments are closely monitored and considered by the Board. The Board has noted the UK Government's intention that the UK should leave the European Union on 29 March 2019 but does not consider this would have a material impact on the Company as only around 5% of the Company's total assets are currently invested in UK securities.
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 investment managers at every meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found below and on page 56 of the Annual Report and Financial Statements.
The Company's maximum and actual leverage levels, in accordance with the Alternative Investment Fund Managers Directive, at 30 April 2018 are shown below:
Leverage
|
|
|
|
Gross method |
Commitment method |
|
Maximum limit |
|
|
2.5:1 |
2.0:1 |
|
Actual |
|
|
1.1:1 |
1.1:1 |
Viability Statement
Having regard to provision C.2.2 of the 2016 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a three year period. The Directors believe, having taken into account a number of factors including the investment managers' investment horizon, 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 investment 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 managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis.
Details of the Company's investment portfolio are shown in 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 managers monitor the Company's exposure to foreign currencies and report 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 can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.
Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.
|
At 30 April 2018 |
Investments £'000 |
Cash and cash equivalents £'000 |
Loans and debentures £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
US dollar |
943,362 |
18,665 |
(63,165) |
3,154 |
902,016 |
|
Euro |
166,737 |
- |
- |
834 |
167,571 |
|
Japanese yen |
148,476 |
508 |
- |
591 |
149,575 |
|
Other overseas currencies |
351,976 |
1,823 |
- |
956 |
354,755 |
|
Total exposure to currency risk |
1,610,551 |
20,996 |
(63,165) |
5,535 |
1,573,917 |
|
Sterling |
119,962 |
1,978 |
(39,842) |
519 |
82,617 |
|
|
1,730,513 |
22,974 |
(103,007) |
6,054 |
1,656,534 |
* Includes non-monetary assets of £17,000.
|
At 30 April 2017 |
Investments £'000 |
Cash and cash equivalents £'000 |
Loans and debentures £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
US dollar |
843,453 |
11,271 |
(67,246) |
259 |
787,737 |
|
Euro |
112,138 |
- |
- |
491 |
112,629 |
|
Japanese yen |
95,254 |
- |
- |
686 |
95,940 |
|
Other overseas currencies |
323,717 |
1,790 |
- |
(1,228) |
324,279 |
|
Total exposure to currency risk |
1,374,562 |
13,061 |
(67,246) |
208 |
1,320,585 |
|
Sterling |
132,515 |
2,147 |
(39,810) |
(1,363) |
93,489 |
|
|
1,507,077 |
15,208 |
(107,056) |
(1,155) |
1,414,074 |
* Includes non-monetary assets of £16,000.
Currency Risk Sensitivity
At 30 April 2018, 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 2017.
|
|
2018 £'000 |
|
2017 £'000 |
|
US dollar |
45,101 |
|
39,387 |
|
Euro |
8,378 |
|
5,631 |
|
Japanese yen |
7,479 |
|
4,797 |
|
Other overseas currencies |
17,738 |
|
16,214 |
|
|
78,696 |
|
66,029 |
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 (with borrowings at fair 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
|
|
2018 |
2017 |
||||
|
|
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: |
|
|
|
|
|
|
|
UK swap rate linked note (fixed element) |
- |
- |
- |
6,185 |
7.2% |
5 months |
|
Floating rate: |
|
|
|
|
|
|
|
UK swap rate linked note (floating element) |
- |
- |
- |
- |
n/a |
5 months |
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
|
|
2018 £'000 |
2017 £'000 |
|
Floating rate - US dollar |
63,165 |
67,246 |
|
Fixed rate - sterling |
39,842 |
39,810 |
|
|
103,007 |
107,056 |
Maturity Profile
|
|
2018 Within 1 year £'000 |
2018 Between 1 And 5 years £'000 |
2018 More than 5 years £'000 |
2017 Within 1 Year £'000 |
2017 Between 1 And 5 years £'000 |
2017 More than 5 years £'000 |
|
Repayment of loans and debentures |
63,165 |
40,000 |
- |
67,246 |
- |
40,000 |
|
Interest on loans and debentures |
3,124 |
10,200 |
- |
2,955 |
10,200 |
2,550 |
|
|
66,289 |
50,200 |
- |
70,201 |
10,200 |
42,550 |
Interest Rate Risk Sensitivity
An increase of 100 basis points in bond yields applied to the Company's fixed rate financial assets and financial liabilities as at 30 April 2018 would have had no effect on total net assets and total return on ordinary activities (2017 - increased by £45,000) and would have increased the net asset value per share (with borrowings at fair value) by 0.9p (2017 - 1.1p). A decrease of 100 basis points would have had no effect on total net assets and total return on ordinary activities (2017 - increased by £90,000) and would have decreased net asset value per share (with borrowings at fair value) by 0.9p (2017 - 1.1p).
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 above. In addition, various analyses of the portfolio by growth category, thematic risk category, geography and broad industrial or commercial sector are shown above. 103.6% of the Company's net assets are invested in quoted equities (2017 - 105.2%). A 5% increase in quoted equity valuations at 30 April 2018 would have increased total assets and total return on ordinary activities by £85,813,000 (2017 - £74,363,000). 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 in notes 11 and 12 of the Annual Report and Financial Statements and the maturity profile of its borrowings is set out above.
Borrowings falling due within one year:
|
|
2018 £'000 |
2017 £'000 |
|
National Australia Bank Limited loan |
63,165 |
67,246 |
Borrowing facilities
At 30 April 2018 the Company had a 5 year £100m unsecured floating rate loan facility with National Australia Bank Limited, which expires on 30 November 2020, and a 4 year £5m unsecured floating rate facility with Scotiabank (Ireland), with the ability to increase it to £50m, which expires on 13 March 2022.
At 30 April 2018 drawings were as follows:
¾ National Australia Bank Limited: US$87m at an interest rate of 3.55539% (2017 - US$87m at an interest rate of 2.35622%), maturing in July 2018.
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 £650m.
There were no breaches of loan covenants during the year.
Borrowings falling due after more than one year:
|
|
Repayment date |
Nominal rate |
Effective rate |
2018 £'000 |
2017 £'000 |
|
£40 million 6 3/8% debenture stock 2023 |
1/3/2023 |
6.375% |
6.5% |
39,842 |
39,810 |
Debenture stock
The debenture stock is stated at amortised cost (see note 1(h) on page 40 of the Annual Report and Financial Statements); the cumulative effect is to decrease the carrying amount of borrowings by £158,000 (2017 - £190,000). 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 managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;
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 Managers monitor the Company's risk by reviewing the Depositary'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 Managers. 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; 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:
|
|
2018 £'000 |
2017 £'000 |
|
Fixed interest investments |
- |
6,185 |
|
Cash and cash equivalents |
22,974 |
15,208 |
|
Debtors and prepayments* |
9,009 |
7,816 |
|
|
31,983 |
29,209 |
* Includes non-monetary assets of £17,000 (2017 - £16,000).
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 long term borrowings. The fair values of the Company's borrowings are shown below. The fair value of the 6 3/8% debenture stock 2023 is based on the closing market offer price on the London Stock Exchange.
|
|
2018 |
2017 |
||||
|
|
Nominal value £'000 |
Book value £'000 |
Fair value £'000 |
Nominal value £'000 |
Book value £'000 |
Fair value £'000 |
|
Bank loans due within one year |
63,165 |
63,165 |
63,165 |
67,246 |
67,246 |
67,246 |
|
6 3/8% debenture stock 2023 |
40,000 |
39,842 |
48,200 |
40,000 |
39,810 |
48,600 |
|
|
103,165 |
103,007 |
111,365 |
107,246 |
107,056 |
115,846 |
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 notes 11 and 12 of the Annual Report and Financial Statements).
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 16 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out above.
Investments
The Company has the ability to issue and buy back its shares (see pages 21 and 22 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 in notes 11 and 12 of the Annual Report and Financial Statements.
Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables below 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.
|
As at 30 April 2018 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
1,693,072 |
23,190 * |
- |
1,716,262 |
|
Unlisted equities |
- |
- |
14,251 |
14,251 |
|
Total financial asset investments |
1,693,072 |
23,190 |
14,251 |
1,730,513 |
* This relates to a holding in Samsung Electronics which was transferred from Level 1 to Level 2 as a result of the stock being temporarily suspended from trading at the year end due to an impending corporate action. Trading in the stock resumed shortly after the year end.
|
As at 30 April 2017 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
1,487,258 |
- |
- |
1,487,258 |
|
Unlisted equities |
- |
- |
13,634 |
13,634 |
|
Unlisted debt securities |
- |
- |
6,185 |
6,185 |
|
Total financial asset investments |
1,487,258 |
- |
19,819 |
1,507,077 |
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).
The Company's unlisted investments at 30 April 2018 were valued using techniques based either upon latest dealing prices or net asset values and comparable company multiples, taking into account other relevant information in all cases. The determinations of fair value included assumptions that the latest dealing prices used remain a reasonable proxy for fair value and that the tradisng multiples and comparable companies chosen for the multiples approach provide a reasonable basis for the determination of fair value.
Statement of Directors' Responsibilities in Respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with applicable law and UK Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'.
Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:
¾ select suitable accounting policies and then apply them consistently;
¾ make judgements and accounting estimates that are reasonable and prudent;
¾ state whether applicable UK 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 laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that complies with that law and those regulations.
The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
The work carried out by the Auditor does not involve any consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.
Each of the Directors, whose names and functions are listed within the Directors and Management section, confirm that, to the best of their knowledge:
¾ the Financial Statements, which have been prepared in accordance with applicable law and UK Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;
¾ the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
On behalf of the Board
JGD Ferguson
Chairman
Income statement
|
|
For the year ended 30 April 2018 |
For the year ended 30 April 2017 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Gains on investments (note 2) |
- |
211,299 |
211,299 |
- |
403,486 |
403,486 |
|
Currency gains/(losses) |
- |
3,216 |
3,216 |
- |
(3,264) |
(3,264) |
|
Income |
19,759 |
- |
19,759 |
17,593 |
- |
17,593 |
|
Investment management fee |
(6,568) |
- |
(6,568) |
(6,011) |
- |
(6,011) |
|
Other administrative expenses |
(1,598) |
- |
(1,598) |
(1,261) |
- |
(1,261) |
|
Net return before finance costs and taxation |
11,593 |
214,515 |
226,108 |
10,321 |
400,222 |
410,543 |
|
Finance costs of borrowings |
(4,410) |
- |
(4,410) |
(3,910) |
- |
(3,910) |
|
Net return on ordinary activities before taxation |
7,183 |
214,515 |
221,698 |
6,411 |
400,222 |
406,633 |
|
Tax on ordinary activities |
(1,595) |
- |
(1,595) |
(1,368) |
- |
(1,368) |
|
Net return on ordinary activities after taxation |
5,588 |
214,515 |
220,103 |
5,043 |
400,222 |
405,265 |
|
Net return per ordinary share (note 4) |
2.61p |
100.08p |
102.69p |
2.36p |
187.05p |
189.41p |
|
Note: Dividends per share paid and payable in respect of the year (note 5) |
1.40p |
|
|
1.25p |
|
|
The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.
|
Balance sheet |
|
|
At 30 April 2018 £'000 |
At 30 April 2017 £'000 |
|
Fixed assets |
|
|
|
Investments held at fair value through profit or loss |
1,730,513 |
1,507,077 |
|
Current assets |
|
|
|
Debtors |
9,009 |
7,816 |
|
Cash and cash equivalents |
22,974 |
15,208 |
|
|
31,983 |
23,024 |
|
Creditors |
|
|
|
Amounts falling due within one year (note 6) |
(66,120) |
(76,217) |
|
Net current liabilities |
(34,137) |
(53,193) |
|
Total assets less current liabilities |
1,696,376 |
1,453,884 |
|
Creditors |
|
|
|
Amounts falling due after more than one year (note 6) |
(39,842) |
(39,810) |
|
|
1,656,534 |
1,414,074 |
|
Capital and reserves |
|
|
|
Share capital |
10,857 |
10,698 |
|
Share premium account |
35,973 |
11,100 |
|
Capital redemption reserve |
8,700 |
8,700 |
|
Capital reserve |
1,549,551 |
1,335,036 |
|
Revenue reserve |
51,453 |
48,540 |
|
Shareholders' funds |
1,656,534 |
1,414,074 |
|
Shareholders' funds per ordinary share (note 7) (after deducting borrowings at book value) |
762.9p |
660.9p |
|
Net asset value per ordinary share (note7) (after deducting borrowings at fair value) |
759.0p |
656.8p |
|
Net asset value per ordinary share (note 7) (after deducting borrowings at par) |
762.8p |
660.8p |
|
Ordinary shares in issue (note 8) |
217,143,859 |
213,963,859 |
|
Statement of changes in equity |
For the year ended 30 April 2018
|
|
Share £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 May 2017 |
10,698 |
11,100 |
8,700 |
1,335,036 |
48,540 |
1,414,074 |
|
Net return on ordinary activities after taxation |
- |
- |
- |
214,515 |
5,588 |
220,103 |
|
Ordinary shares issued (note 8) |
159 |
24,873 |
- |
- |
- |
25,032 |
|
Dividends paid during the year (note 5) |
- |
- |
- |
- |
(2,675) |
(2,675) |
|
Shareholders' funds at 30 April 2018 |
10,857 |
35,973 |
8,700 |
1,549,551 |
51,453 |
1,656,534 |
For the year ended 30 April 2017
|
|
Share £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve £'000 |
Revenue reserve* £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 May 2016 |
10,698 |
11,100 |
8,700 |
934,814 |
45,637 |
1,010,949 |
|
Net return on ordinary activities after taxation |
- |
- |
- |
400,222 |
5,043 |
405,265 |
|
Dividends paid during the year (note 3) |
- |
- |
- |
- |
(2,140) |
(2,140) |
|
Shareholders' funds at 30 April 2017 |
10,698 |
11,100 |
8,700 |
1,335,036 |
48,540 |
1,414,074 |
* The Capital Reserve balance at 30 April 2018 includes holding gains on investments of £567,547,000 (2017 - gains of £453,149,000).
|
Cash flow statement |
|
|
Year ended 30 April 2018 |
Year ended 30 April 2017 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Net return on ordinary activities before taxation |
|
221,698 |
|
406,633 |
|
Net (gains) on investments |
|
(211,299) |
|
(403,486) |
|
Currency (gains)/losses |
|
(3,216) |
|
3,264 |
|
Amortisation of fixed income book cost |
|
(170) |
|
(409) |
|
Finance costs of borrowings |
|
4,410 |
|
3,910 |
|
Overseas tax incurred |
|
(1,536) |
|
(1,348) |
|
Changes in debtors and creditors |
|
(1,069) |
|
627 |
|
Cash from operations† |
|
8,818 |
|
9,191 |
|
Interest paid |
|
(4,347) |
|
(3,858) |
|
Net cash inflow from operating activities |
|
4,471 |
|
5,333 |
|
Cash flows from investing activities |
|
|
|
|
|
Acquisitions of investments |
(331,951) |
|
(183,649) |
|
|
Disposals of investments |
315,713 |
|
161,830 |
|
|
Net cash outflow from investing activities |
|
(16,238) |
|
(21,819) |
|
Cash flows from financing activities |
|
|
|
|
|
Equity dividends paid |
(2,675) |
|
(2,140) |
|
|
Ordinary shares issued |
23,074 |
|
- |
|
|
Borrowings drawn down |
- |
|
15,608 |
|
|
Net cash inflow from financing activities |
|
20,399 |
|
13,468 |
|
Increase/(decrease) in cash and cash equivalents |
|
8,632 |
|
(3,018) |
|
Exchange movements |
|
(866) |
|
2,296 |
|
Cash and cash equivalents at 1 May |
|
15,208 |
|
15,930 |
|
Cash and cash equivalents at 30 April |
|
22,974 |
|
15,208 |
† Cash from operations includes dividends received of £18,613,000 (2017 - £17,303,000) and interest received of £78,000 (2017 - nil).
|
Notes to the financial statements |
|
1. |
The Financial Statements for the year to 30 April 2018 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The accounting policies adopted are consistent with those of the previous financial year.
|
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|
|
|
|
|
|
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|
2.
3. |
Gains on investments |
2018 £'000 |
|
2017 £'000 |
||||||||||
|
Realised gains on sales |
96,901 |
|
13,812 |
|||||||||||
|
Changes in investment holding gains and (losses) |
114,398 |
|
389,674 |
|||||||||||
|
Total gains on investments |
211,299 |
|
403,486 |
|||||||||||
|
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. The annual management fee payable for the year ended 30 April 2018 was 0.45% on the first £750 million of total assets and 0.33% on the remaining total assets, where total assets is defined as the total value of all assets held less all liabilities (other than any liability in the form of debt intended for investment purposes). For the year to 30 April 2017 the annual management fee was 0.45% of total assets less current liabilities. With effect from 1 May 2018 the annual management fee is 0.45% on the first £750 million of total assets 0.33% on the next £1 billion of total assets and 0.30% on the remaining total assets. All debt drawn down at 30 April 2018 is intended for investment purposes. |
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|
4. |
Net Return per Ordinary Share |
2018 |
|
2017 |
||||||||||
|
Revenue return |
2.61p |
|
2.36p |
|||||||||||
|
Capital return |
100.08p |
|
187.05p |
|||||||||||
|
Total return |
102.69p |
|
189.41p |
|||||||||||
|
Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £5,588,000 (2017 - £5,043,000) and on 214,344,215 (2017 - 213,963,859) 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 gain for the financial year of £214,515,000 (2017 - gain of £400,222,000) and on 214,344,215 (2017 - 213,963,859) 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. |
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|
5. |
Ordinary Dividends
|
2018 |
2017 |
2018 £'000 |
2017 £'000 |
|||||||||
|
Amounts recognised as distributions in the year: |
|
|
|
|
||||||||||
|
Previous year's final (paid 4 August 2017) |
1.25p |
1.00p |
2,675 |
2,140 |
||||||||||
|
|
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 £5,588,000 (2017 - £5,043,000). |
|||||||||||||
|
|
|
2018 |
2017 |
2018 £'000 |
2017 £'000 |
|
||||||||
|
Amounts paid and payable in respect of the financial year: |
|
|
|
|
|
|||||||||
|
Proposed final (payable 7 September 2018) |
1.40p |
1.25p |
3,040 |
2,675 |
|
|||||||||
|
|
If approved, the recommended final dividend on ordinary shares will be paid on 7 September 2018 to shareholders on the register at the close of business on 3 August 2018. The ex-dividend date is 2 August 2018. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 16 August 2018. |
|
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|
6. |
At 30 April 2018 the book value of the Company's borrowings amounted to £103m (2017 - £107m), comprising a £40m 6 3/8% debenture stock repayable in 2023 (2017 - £40m) and a short-term bank loan of US$87m (2017 - US$87m). The fair value of borrowings at 30 April 2018 was £111m (2017 - £116m). |
|
||||||||||||
|
7. |
Shareholders' Funds and Net Asset Value |
|
||||||||||||
|
|
Shareholders' funds have been calculated in accordance with the provisions of FRS 102. However the net asset value figures in the table below have been calculated on the basis of shareholders' rights to reserves as specified in the Articles of Association of the Company. A reconciliation of the two figures is as follows: |
|
||||||||||||
|
|
|
2018 £'000 |
2018 Per share |
2017 £'000 |
2017 Per share |
|
||||||||
|
|
Shareholders' funds |
1,656,534 |
762.9p |
1,414,074 |
660.9p |
|
||||||||
|
|
Balance of debenture issue expenses not yet amortised |
(158) |
(0.1p) |
(190) |
(0.1p) |
|
||||||||
|
|
Net asset value (after deducting borrowings at par) |
1,656,376 |
762.8p |
1,413,884 |
660.8p |
|
||||||||
|
|
The per share figures above are based on 217,143,859 (2017 - 213,963,859) ordinary shares of 5p, being the number of ordinary shares in issue at the year end. Deducting borrowings at fair value would have the effect of reducing net asset value per ordinary share from 762.8p to 759.0p. At 30 April 2017 the effect would have been to reduce net asset value per ordinary share from 660.8p to 656.8p. |
|
||||||||||||
|
8. |
At 30 April 2018 the Company had authority to buy back 32,073,182 ordinary shares and to allot or sell from treasury 18,216,380 ordinary shares without application of pre-emption rights. In the year to 30 April 2018, the Company issued 3,180,000 ordinary shares (nominal value of £159,000) at a premium to net asset value, raising net proceeds of £25,032,000 (2017 - nil). No shares were bought back during the year and no shares are held in treasury. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve. |
|
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None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
Glossary of Terms
Total Assets
The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).
Shareholders' Funds and Net Asset Value
Shareholders' Funds is the value of all assets held less all liabilities, with borrowings deducted at book cost. Net Asset Value (NAV) is the value of all assets held less all liabilities, with borrowings deducted at either fair value or par value as described below. Per share amounts are calculated by dividing the relevant figure by the number of ordinary shares in issue.
Borrowings at Fair Value
Borrowings are valued at an estimate of market worth. The fair value of the Company's 6 3/8% debenture stock 2023 is based on the closing market offer price on the London Stock Exchange. The fair value of the Company's short term bank borrowings is equivalent to its book value.
Borrowings at Par Value
Borrowings are valued at nominal par value.
Discount/Premium
As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV 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 NAV per share and is usually expressed as a percentage of the NAV per share.
If the share price is higher than the NAV per share, this situation is called a premium.
Net Liquid Assets
Net liquid assets comprise current assets less current liabilities (excluding borrowings).
Total Return
The total return is the return to shareholders after reinvesting the dividend on the date that the share price goes ex-dividend.
Ongoing Charges
The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value).
Active Share
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.
Gearing
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. The level of gearing can be adjusted through the use of derivatives which affect the sensitivity of the value of the portfolio to changes in the level of markets.
Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.
Invested gearing is the Company's borrowings at par less cash and broker balances expressed as a percentage of shareholders' funds.
Effective gearing, as defined by the Board and Managers of Monks, is the Company's borrowings at par less cash, brokers' balances and investment grade bonds maturing within one year, expressed as a percentage of shareholders' funds.
Equity gearing is the Company's borrowings at par less cash, brokers' balances and all bonds, expressed as a percentage of shareholders' funds*.
* As adjusted to take into account the gearing impact of any derivative holdings.
Leverage
For the purposes of the Alternative Investment Fund Managers (AIFM) 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.
Compound Annual Return
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 compounded value at the start of each year.
Third Party Data Provider Disclaimers
No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data.
No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, 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.
FTSE Index data
FTSE International Limited ('FTSE') © FTSE 2017. 'FTSE®' is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication.
Regulated Information Classification: Annual financial and audit reports.
- ends -
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